E Ink Holdings Inc. (8069) Earnings Call Transcript

Good afternoon, everyone, and welcome to E Ink Second Quarter 2026 Earnings Conference Call. Before we begin, I would like to remind you that due to the government air defense exercise taking place this afternoon, mobile network speeds may be temporarily reduced in certain areas, which could affect the audio or video quality of today's webcast. To ensure a stable connection, we recommend using Wi-Fi or wired Internet connection and avoiding mobile data such as 4G or 5G. We appreciate your understanding should there be any temporary connection delays during the call. [Operator Instructions] Today's conference is being recorded. The Webex replay will be available on E Ink's website after the conference. Joining us today are CFO, Lloyd Chen; and Finance Center Senior Director, Patrick Chang. With that, I'll turn the call over to Lloyd for presentation.

Good afternoon, everyone. Before diving into the quarterly results, considering that some of you may not have had a chance to visit our Computex booth in person. So let me take this opportunity to give you a quick walk-through of our key exhibition highlights and latest innovations. As you can see from the screen on the upper left, it's the BMW iX3 Flow I'm sure you see a vehicle basically, that's a car featuring E Ink Prism black and white flexible ePaper. It has passed BMW rigorous automotive qualification tests and it's the world's first vehicle to adopt E Ink Prism and move toward mass production. On the center left, the color concept car demonstrates the potential of Prism color ePaper for 3D surfaces and dynamic color changes. In the center background is the E Ink Marquee, a large format outdoor color ePaper display scalable up to 136 inches, featuring ultra-low power consumption, wide viewing angles and wide temperature operation. On the very left, it's E Ink Spectra, offering vivid full color performance for indoor retail and commercial advertising with adoption by LG, Samsung Sharp and other global brands. And let's take a few seconds on the safe harbor statement. All right. Next page. Let me begin with an overview of our operating performance in the first half of 2026. Revenue for the first half reached TWD 18.8 billion, representing year-over-year growth of approximately 1%. Operating profit was TWD 6.36 billion with an operating margin of 34%. Net profit totaled TWD 6.52 billion and EPS were TWD 5.65. The increase in nonoperating income was mainly attributable to foreign exchange gains. The U.S. dollar depreciated significantly last year first half due to the tariff impact. So resulting a massive favorable year-over-year impact. So first half of this year, we reached a record high revenue, operating profit and net profit. And moving on to the next slide, we can see the trends in operating profit. So operating profit for the first half, as mentioned earlier, was TWD 6.36 billion, and the operating margin remained at approximately 34% relatively flat compared with '25 level. So basically, year-over-year performance was relatively flat, as mentioned earlier, mainly due to the tariff-driven fully last year and higher memory costs this year. And we definitely continue to invest in R&D and talent development, research and development and innovation remain the key drivers of our growth and long-term success. So on the asset side, our total assets surpassed TWD 100 billion in the fourth quarter last year and continued to grow steadily, reaching TWD 120.9 billion in the second quarter of 2026, an increase of TWD 22.7 billion or 23% year-over-year. And for the cash flow, cash and financial assets continue to increase in the second quarter, reaching approximately TWD 80.3 billion. So this page presents the growth trend in terms of the sales revenue and operating profit for the first half, in the past few years. Revenue first half of '26 reached TWD 18.8 billion, more than doubling from the same period in 2021, basically representing a 6-year CAGR of 17%. This growth was primarily driven by the ongoing expansion of applications such as color eReaders, eNotes, ESL and digital signage. And operating profit grew from TWD 1.3 billion in first half 2021 to TWD 6.4 billion in first half 2026, basically delivering a 6-year CAGR of 38%. The reason behind, we continue to shift our strategy from module towards core ePaper materials, supplying this material to ecosystem partner to jointly expand the end application and market opportunities. And next, let's look at our assets and financial position over the same 6-year period. So cash and financial assets grew at CAGR approximately 21%, mainly supported by the steady cash flow generated from our core operation. This has allowed us to build a strong financial position to support future capacity expansion and capital expenditures. And for total assets, basically grew at CAGR of approximately 19%, reflecting our continued investment in new capacity and long-term growth initiatives. Basically, in closing, I would like to share with everyone that while the industry environment may experience short-term fluctuation, headwinds, unfavorable situation, but the long-term growth trend of ePaper remain unchanged, still quite intact. And we believe we will maintain solid expanding growth momentum moving forward. So this page, let's look at some of the latest applications of life science color ePaper across commercial and public spaces. Firstly, at InfoComm 2026, North America largest professional audiovisual exhibition. We showcased our E Ink Marquee on large format title ePaper display. We are seeing ePaper gradually expand beyond niche applications and become an increasing important option for next-generation digital signage. And you see the screen in the lower left image, that photo basically was taken in Taiwan. We can also see ePaper moving into a real world public spaces, Taoyuan International Airport basically in Taiwan. Terminal 2 has deployed 75-inch Kaleido color ePaper advertising display. So while waiting for their luggage, passengers can comfortably view advertisement and other information on the displays since ePaper only consume power when the image is updated. So it is especially well suited for the places like airports, where information needs to remain visible for a long period of time. This also demonstrates the potential of large-sized color ePaper in digital advertising and public information displays. Finally, in the retail and food service environment, ePaper can be used for menus, promotions and brand advertising in many different locations. because ePaper is thin, lightweight and extremely power efficient. As you can see in the image from very right-hand side. It does not require complex power writing typically needed for conventional digital display. This makes much more easier to hand or install throughout the store opens up a new opportunity in spaces when traditional digital display may not have been practical before. Several new ePaper applications developed with our ecosystem partner during the recent quarter. At the upper left, this is very Asian thing, locally Taiwanese thing. It's the world's first ePaper blasting lights, bringing low power and heat-free technology into the traditional cultural application. Basically, those blasting lights are installed in the temple in Taiwan. So that's quite unique and new application that we have been exploring. And also at the top center, one of our partners, iPolish their SmartNail can switch amount up to 400 colors within 5 seconds, expanding ePaper into digital beauty and wearables. At the lower left, once again, E Ink Prism, color changing ePaper is expanding from transportation and consumer products into architecture and smart services. Also, you can see at the lower right, color ePaper digital frames combine a natural paper-like appearance with ultra-low power consumption for home and art display. So from culture, beauty to transportation, lifestyle and art, these applications demonstrate the expanding possibilities of ePaper and our strategy of going new markets together with our ecosystem partners. We also would like to take this opportunity to share a video featuring LG's latest ePaper signage product. So let's take a look. [Presentation]

All right. Let's move to the next page. So as highlighted in our opening slides, we participated in Computex for the first time this year, joining heads with over 40 ecosystem partners. So extremely honored that our Spectra 6 ePaper display system won the Computex Best Choice Award this year in the Smart City category and also we made our debut at InfoComm, as mentioned earlier, North America's largest and most influential professional audiovisual and integrated experience exhibition. So our latest and greatest technology, Marquee, Spectra 6 and Kaleido 3 and Prism and being recognized by the global brands such as BOE, New Face and Sharp. And among them, Marquee basically also won at InfoComm Best of Show Award in the digital signage categories recognized for its vivid colors, wide operating temperature range, light texture and ultra-low power consumption of course, carbon reduction advantages. And last but not least, I would like to highlight our continued ESG performance over the past quarter. So as you can see from the screen, we were included in the S&P Global Sustainability Yearbook '26 for the fifth consecutive year and also ranked as the world's top sustainability performer in the electronic equipment, instruments, components industry for second consecutive year. Also, we achieved a significant improved FTSE Russell ESG score, received 100% green revenue recognition, also remained a constituent of the FTSE4Good ESG Index series. For CDP, AA rating for climate change and water security, basically both in A list, we maintain our supplier engagement leader rating. Its carbon reduction pathway also continued to be recognized by the TRIPS initiated, the local rating institution, basically aligned with the Paris Agreement Net Zero pathway and 1.5 Celsius degree targets. So last but not least, for the local recognition, we ranked in the top 5% of Taipei Exchange listed company in Taiwan corporate governance evaluation. This is the fourth consecutive year. And if combined Taiwan Exchange and Taipei Exchange, we remain in the top 10 companies, especially in the category of capital exceeding TWD 10 billion. This is the second consecutive year, representing the highest evaluation tiers, okay? So basically, that is my update for the second quarter. So we can move to the Q&A session. Feel free to ask questions.

[Operator Instructions] We take our first question from Rob from Schroders.

I just wanted to ask on your revenue run rate. I understand there's a lot of exciting products that your ePaper is going into, but your run rate of revenues this year is negative year-to-date. I know there is a low base in the fourth quarter, but it seems like your growth targets of 15% to 20% seem very difficult to achieve now. So I just wanted to check in and understand what that sort of top line revenue outlook is for 2026 and 2027 and if it's changed.

Right. Rob, thanks for the questions. So we just finished our earnings conference in the Chinese session 30 minutes ago. So we basically gave a new guidance in terms of the sales revenue. I think last quarter, we gave the guidance for the whole year sales revenue. The year-over-year growth is around 20% to 25%, stay around about 20%. But due to the increased memory cost, so that basically affect the year-over-year growth on our CE business segment. So originally, we thought we could have grown higher single digit for the whole year. But currently, the way we see it, we will not expect a growth. So basically, we expect a decrease, so single-digit decrease. So with these changes, we believe the whole year sales revenue guidance will be adjusted. Still, we will be growing, so from 10% to 15% year-over-year growth. So that's the first thing I would like to answer your first question. And your second question, given the uncertainty in the CE market, it's a bit hard to anticipate what will be happening, probably will still be relatively slow, but we are still quite confident on the IoT segment. That includes ESL plus signage. So overall, it may still be too early to say what will be happening next year. But I personally believe we can still be expecting year-over-year growth next year. But to what extent, it's hard to say at this moment.

We will take our next question from David from New Life.

Just sort of a question on the sort of the memory cost for the Kindle. So as I understand it, the sort of standard Kindle uses the 16 gigs of NAND and maybe 0.5 gig of DRAM. So just on that basis, the sort of the memory cost of Kindle is maybe sort of $10 to $15 on the increased memory price. So that seems to be sort of quite manageable in comparison to the sort of the sales price of $140. So why are you sort of seeing a sort of such a big impact on the on the sales of Kindle this year? And in terms of passing on the extra memory cost, are you managing to pass on the extra memory cost? Or are you taking a gross margin hit?

Right, David, I kind of agree with you in the sense the first-tier player such as Amazon, they would be less affected in terms of the memory cost since they are relatively big player, the way they prepare the inventory should be very robust. But let me put it in this way. For those players, it comes with the entry-level products and non-entry-level products. So if the memory cost, the incremental portion against their total bond cost is relatively higher. I think for that part, definitely will be affected. And then apart from the first tier CE players customers, we also have the second-tier customers since the way they prepare the inventory or the resilience of the memory cost, the level of the resilience of memory costs may be relatively lower. So for that part, it also -- our sales revenue will be affected. So for entry level, I think regardless of the first tier or second-tier players, it will be affected. So that's kind of the situation I would like to explain.

Okay. And just maybe if I could ask another question. Could you sort of give guidance on the sort of gross margin for this year and then maybe your guess for next year as well?

Right. I think historically, this year, the gross profit margin stayed around, I think, 59%. And for second half, since CE business will be affected. So the portion of the module business will be relatively lower. However, our signage business will be also growing. So net-net, it's a bit hard to say the module and material product mix in the second half. But I would say the whole year would be staying around 55% to 59%. That's how I see it this year. And next year, I think if CE business will be picking up picking back up, if we will be selling more module business, that basically will -- our gross profit margin will be relatively lower. However, our gross profit dollar will be increasing. So once again, it's hard to say the gross profit margin for next year. But we believe the gross profit dollar will still be healthily growing next year. I mean don't get tied up too much in terms of the gross profit margin. I think we always aim to open up the ePaper market share. So if the demand from CE is stronger, basically, we will go for it. We will not just CE, the gross profit margin is relatively lower. So we don't spend average on that. So as long as the demand is there, we can open up our market share. We will basically go for it.

We will take our next question from Kenny from Nomura.

I just have -- I mean in the Mandarin session, you are not going to give very precise gross margin outlook. But can you give us some more color on -- there are a lot of moving parts for cost of goods sold gross margin, but I wanted to try to understand that in the second half of this year, you said CE will be having some negative pressure because of the memory, but how would you manage more on that? I mean, can you lower the percentage of module, but ship more like increase the percentage of material because material won't be having the negative impact from memory, right? The pure impact should be coming from module assembly. Is that correct?

Right. So Kenny, as I mentioned earlier, CE business will not be that good in the second half. I think we would talk about that. And ESL, we believe the growing momentum is still there. And in our Mandarin session, our CEO also gave guidance the year-over-year growth for this year still 20% to 25%. So basically continue to grow. And for signage, it will be growing. So what I'm trying to say is if the signage is growing relatively stronger, so that would slightly affect our gross profit margin in the second half. However, our gross profit dollar will be increased. So that's what I'm trying to say. So the capacity is ready there. So if we have more demand from the signage business, I think currently, we still have a little bit room for the signage module business. So if that part is going well and even higher than our expectation. So from the gross profit margin perspective, it would be affected a bit. However, the ASP for signage module will be higher. So that's still very healthy and helpful from the gross profit dollar perspective. So that's how we see it. But in general, the way I see it for the whole year, gross profit margin, I think it would be staying within the range of 55% to 59%. I think -- we didn't talk about this, but I think in this session, I kind of can give you a range, yes.

I see. I see. It's very helpful. And I just have another follow-up on the signage again. During the Mandarin session, you mentioned the midsize seem to have relatively stronger momentum compared with large size. But my understanding is that your utilization rate will be highly depending on the total area you are producing. So midsized theoretically has average a smaller size compared to large size. Will this delay the pace that you fulfill the capacity of your H5 or even H6? Or you see the total area still being growing. So that's not even an issue.

Kenny, I think for the capacity plan, capacity expansion, I think it's ongoing task. So basically, it will not be slowing down. And we do see the potential demand there. So midsized signage or large-sized signage, it's hard for us to comment which one is more favorable. But basically, as long as we can open up the market share, we would go for it. So coming back to your question, for the signage, I think eventually, we will go for the material sales business. Why? Because for the signage module capacity is limited. So eventually, we will just simply supply the mother sheet, the big mother sheet and leave our Xi and their module partner to cut into the sizes they prefer. So we see a positive growing momentum for the signage business.

We will take our next question from Rob from Schroders.

Just a follow-up. Yes, you talked about the CE business and the sort of the difference in sort of Tier 1 and Tier 2 and inventory sort of memory inventory management, which I guess makes complete sense. Amazon would proactively manage inventory and obviously, smaller players probably won't and they're probably struggling to get hold of memory, let alone dealing with the price hikes. But what's your split in CE between, say, Tier 1 and Tier 2?

For CE, let me put it in this way. We have eReader and eNotes. So eReader still relatively higher. So Amazon definitely sit in that category. For the eNotes, a few major players, remarkable and other second-tier players in China. So what I'm trying to say is I would say most of the customers in the eNotes in terms of the size, they are still relatively smaller than Amazon. So their inventory management capability. I wouldn't use the word weaker, but Amazon definitely is more superior than the rest of the player in this category. So I think I'm not able to disclose a very, very precise percentage split. But I would say first tier, second tier, I think second tier is still a bit more compared with the first tier players.

Okay. No, that's helpful. I guess just as a follow-up to that is there is concern in the market that memory will be even tighter next year than it is this year. So I guess those players that are struggling, I guess, may continue to struggle. You talked about CE recovering next year. If that's to do with memory, then that actually may not be the case, right? It could get worse.