Himax Technologies, Inc. Reports Third Quarter 2014 Financial Results and Provides Fourth Quarter 2014 Guidance

Company meets Q3 revenues, gross margin and EPS guidance

Provides Q4 2014 guidance revenues to be flat to slightly up sequentially and GAAP EPS to be 7.5 to 9.2 cents

• Total sales for the quarter increased 13.2% sequentially and 15.3% year-over-year to $222.3 million, the highest quarterly revenue since Q4 2008
• Small and medium-sized panel driver sales increased 12.8% year over year, representing 51.0% of total revenues in Q3 2014
• Non-driver sales increased by 37.9% year over year
• Q3 2014 gross margin reached 24.5% and met guidance for the quarter
• Q3 2014 non-GAAP operating income increased to $22.8 million, up 20.1% sequentially
• Q3 2014 GAAP net income was $11.1 million. GAAP earnings per diluted ADS was 6.5 cents, down 9.3% from Q3 2013
• Q3 2014 Non-GAAP net income was $19.1 million. Non-GAAP earnings per diluted ADS was 11.1 cents, down 1.0% from Q3 2013
• Company maintains positive on business outlook for 2015 and expects revenue and earnings growth to continue

TAINAN, Taiwan, Nov. 13, 2014 (GLOBE NEWSWIRE) -- Himax Technologies, Inc. (Nasdaq:HIMX) ("Himax" or "Company"), a leading supplier and fabless manufacturer of display drivers and other semiconductor products, today announced financial results for the third quarter ended September 30, 2014.

"We are pleased to report that our 2014 third quarter revenues, gross margin, GAAP and non-GAAP earnings per diluted ADS all met our guidance for the quarter," stated Mr. Jordan Wu, President and Chief Executive Officer of Himax. "Third quarter revenues of $222.3 million represented a 15.3% increase from the same quarter last year and a 13.2% increase from the previous quarter. The third quarter revenues were the highest since the fourth quarter of 2008. Equally important to the sales growth is the mix of revenues, which are a lot more diversified than before. The non-driver products accounted for 21.5% of our total revenues in the third quarter of 2014 versus just 5.1% in 2008. Likewise, the drivers for small and medium size panels represented 51% of the third quarter revenues, as opposed to just 16.7% in 2008. The diversification of our customer base and development of new products provide us a level of insulation not enjoyed by many of our competitors. We remain excited about our growth opportunities in all of our product segments. We also remain positive with respect to our business outlook for 2015 when we expect both revenue and earnings growth to continue."

Revenues from large panel display drivers were $61.2 million, up 6.1% from a year ago and up 20.5% sequentially. Large panel driver IC accounted for 27.5% of total revenues for the third quarter, compared to 29.9% a year ago and 25.9% in the last quarter. This is the first quarter when sales from large panel driver IC enjoyed a year-over-year growth since Q1, 2013. Large panel driver business has resumed growth starting this quarter as a result of increasing shipment for both new and existing customers.

Sales for small and medium-sized drivers came in at $113.3 million, up 12.8% from the same period last year and up 5.9% sequentially. Driver ICs for small and medium-sized applications accounted for 51.0% of total revenues for the third quarter as compared to 52.1% a year ago and 54.5% in the previous quarter. Driver IC sales for smartphones rebounded strongly from the previous quarter mainly as a result of the demand from Korean end-customer coming back from last quarter's unusually low level. The Company also enjoyed strong growth in Chinese smartphone market, especially in the higher end segments. However, as expected, this growth was offset by the sequential decline for tablets due to slowing demand in China's white-box market and stagnant tablet market in general.

Revenues from Himax's non-driver businesses were $47.8 million, up 37.9% from the same period last year and up 23.8% sequentially. Non-driver products accounted for 21.5% of total revenues, as compared to 18.0% a year ago and 19.6% in the previous quarter. The Company's non-driver product sales reached another record high in terms of both absolute value and percentage of total revenues. CMOS image sensor, touch panel controllers, timing controllers and power management ICs were the main contributors to the growth of non-driver product segment.

Gross margin for the third quarter of 2014 was 24.5%, down from 25.3% a year earlier and up from 24.2% in the previous quarter. The Company guided for a slightly improved gross margin in the last earnings call, anticipating benefit from better product mix, including higher resolution CMOS image sensor, high end smartphone driver ICs, and certain NRE incomes.

GAAP operating expenses were $41.8 million in Q3 2014, up 22.0% from a year ago and up 44.1% from the previous quarter. The significant sequential increase was caused by the higher RSU expense in the third quarter. As an annual practice, the Company provides annual bonus compensation to employees at the end of September each year which always leads to a substantial increase in the third quarter GAAP operating expenses compared to the other quarters of the year. This year, the annual bonus compensation, including shares and cash payout, totaled $15.1 million which is in line with what the Company indicated in providing the guidance. However, $9.3 million of the total RSUs was vested and expensed in the third quarter of 2014, a bit higher than the $8.7 million that the Company assumed in coming up with the EPS guidance. The difference of $0.5 million represents 0.3 cents of earnings per diluted ADS. Therefore, the Q3 EPS came in at low end of the guided range.

Excluding the RSU charge, third quarter operating expenses were $32.5 million, up 22.6% from the same quarter 2013 and up 12.1% from the previous quarter. The increase was related to higher salary expenses caused by additional engineering headcount and annual salary raises and more new project tape-outs. This is in line with the repeated indications the Company made earlier that it intended to expand R&D team to capture the increasing business opportunities.

Despite significant increase in operating expenses, operations remained robust. Excluding RSU charges, non-GAAP operating income for the third quarter of 2014 was $22.8 million, or 10.2% of sales, up 20.1% from the previous quarter and down 3.4% compared to the same period last year. GAAP operating income for the third quarter of 2014 was $12.6 million, or 5.7% of sales, down 13.1%, compared to the same period last year and down 31.9% from the previous quarter. The sequential decline was mainly a result of the higher RSU expense in the third quarter.

GAAP net income for the third quarter was $11.1 million, or 6.5 cents per diluted ADS, compared to $12.3 million, or 7.2 cents per diluted ADS, for the same period last year, and $24.1 million, or 14.0 cents per diluted ADS, in the previous quarter. GAAP net income declined 9.2% year over year and was down 53.8% from the previous quarter. The year over year decline was a result of higher operating expenses. The sequential profit decline was caused mainly by a $10.7 million one-time gain booked in Q2 for disposal of an investment, on top of the higher RSU charge in the third quarter as mentioned before. GAAP EPS per diluted ADS declined 9.3% from the same period last year and declined 53.7% over the previous quarter.

Excluding share-based compensation and acquisition-related charges, non-GAAP net income was $19.1 million, or 11.1 cents per diluted ADS. This represents a decline of 0.9% year over year, and a decline of 21.8% sequentially. Again, the sequential decline was mainly due to the investment gain of $10.7 million booked in the last quarter. Excluding the aforementioned one-time investment gain, non-GAAP net income for the third quarter of 2014 grew 20.3% sequentially.

Balance Sheet and Cash Flow

The Company had $147.7 million in cash, cash equivalents and marketable securities at the end of September, up from $133.9 million at the same time last year and down from $172.9 million a quarter ago. The Company made a cash RSU payment of $9.3 million and a dividend of $46.0 million during the quarter. On top of the above cash position, restricted cash was $140.5 million at the end of the quarter. The restricted cash is mainly used to guarantee the company's short term loan for the same amount. Himax continues to maintain a strong balance sheet with no debt.

Inventories as of September 30, 2014 were $157.1 million, down from $159.6 million a year ago and down from $166.3 million as of June 30, 2014. The lower inventory was a result of increased shipments in the quarter. The Company expects inventory to be at about the same level by year end. Accounts receivable at the end of September 2014 were $218.8 million as compared to $202.2 million a year ago and $199.0 million last quarter. DSO was 97 days at the end of September, 2014, as compared to 96 days a year ago and 92 days at end of the last quarter. The sequential increase of DSO was due to higher driver IC sales for large panel customers who tend to have longer credit terms.

Net cash inflow from operating activities for the third quarter was $22.8 million as compared to $26.2 million for the third quarter of 2013 and $22.9 million for the second quarter of 2014. Cumulative cash inflow from operating activities through the third quarter was $55.0 million as compared to $52.9 million in 2013. The Company expects to generate a substantial net cash inflow from operations in 2014.

Capital expenditures were $2.1 million in the third quarter versus $3.8 million a year ago and $3.8 million last quarter, bringing the total capital expenditures to $8.5 million through the first three quarters of 2014 as compared to $14.5 million a year ago.

Share Buyback Update

As of September 30, 2014, Himax had 171.2 million ADS outstanding, little changed from the last quarter. On a fully diluted basis, the total number of ADS outstanding is 171.8 million.

Upcoming Investor Outreach and Conferences

Ms. Jackie Chang, CFO, and Scott Powell, US-Based IR, will host investor meetings in December and January. If you are interested in meeting with the Company's senior executives in a one-on-one session or group session, please contact Himax's US or Taiwan-based investor relations contact at the numbers below.

Business Updates

The fourth quarter is typically a low season for semiconductor and many semiconductor peers guided conservatively for the quarter. Nevertheless, the Company is seeing business slightly above typical seasonal level. Overall sales for the second half 2014 is still looking strong compared to the first half and definitely so relative to the same period last year. Himax expects the growth momentum of the second half to continue into 2015. The Company also sees Q4 revenue and gross margin being constrained by shortage in foundry capacity. It is now difficult to meet short lead time demands on 8" wafers. Himax has foreseen this coming since more than a few quarters ago, and has been proactively adding new supply partners to secure more capacity. It has been a long and challenging process but the Company is confident that such strategic planning will position itselves well with a more stable and diversified supply chain as it enters into 2015.

The Company anticipates its large panel driver IC business in the fourth quarter to remain stable. Fourth quarter is expected to be the second consecutive quarter when sales from large panel driver ICs achieve year-over-year growth since Q1, 2013. Himax sees driver IC sales for 4K TVs being the strongest area in this segment. 4K TV penetration has increased greatly in 2014 as The Company expected. However, seasonal adjustment in inventory from various customers in the fourth quarter will temporarily slow down the pace of growth. Despite inventory adjustment and the fact that the large panel driver IC market remains competitive and seasoned, Himax's capability to provide total solution covering sophisticated timing controller and driver IC has led to business wins with a high barrier of entry for many of its competitors as 4K TV continues to proliferate.  

For driver ICs used in small and medium-sized panels, business covers smartphones, tablets and automotive applications markets. Fourth quarter sales for smartphones are likely to remain stable from the Company's primary Korean client and the Company anticipates the same from the Chinese market. In the short term, China smartphone market is slowing down mainly as a result of change in government policy, which has led to substantially reduced subsidy from cell phone operators. Himax expects China market to regain momentum by 2015 as retail, ecommerce, and direct sales point channels gradually replace operators as sales channel for smartphones. The Company also expects more shipment to the third world countries by China's phone makers, which will also contribute to demand growth for next year.

The Company expects sales of driver ICs for tablet displays to decline in the fourth quarter, the second quarter in a row, which is attributed to lower demand both from China's branded and white-box markets. The weakening tablet demand is mainly a result of recent slowing China exports to the third world countries and the Chinese government's credit tightening policy, an action that is pushing some smaller and less resourceful companies out of the market. The declining demand might be a result of changing consumer behavior as some consumers are moving to smartphones with screen sizes similar to those of smaller sized tablets. Meanwhile, demand for driver ICs used in automotive displays appears to stay flat in Q4. 

The non-driver business segment provides the Company's most exciting long-term growth prospect. It is also the key differentiator for Himax against many of its competitors. Non-driver businesses experienced solid growth in Q3, accounting for 21.5% of total revenues, another record high. Compared to the same period last year, it grew 37.9%. Sales of many of the Company's non-driver products, especially CMOS image sensors and touch panel controllers, will deliver strong growth in the fourth quarter, while the rest of the products may be affected by seasonality and, in some areas, capacity constraint. Overall, the non-driver business category will enjoy approximately 35% growth for the whole of 2014. Himax expects this momentum to continue into 2015.

Revenues from CMOS image sensors continued to show strength in the third quarter, increasing more than 20% from the previous quarter. Sales of the 2 and 5 megapixel products were particularly strong. However, the Company saw some delays in certain customers' replacing older generation sensors with lower cost new designs which affected the Company's gross margin. As expected, 8 megapixel CMOS image sensors began small volume sales in the third quarter and sales will accelerate in Q4 2014. The Company also launched its first 13 megapixel sensor during the fourth quarter. It anticipates 8 megapixel CMOS image sensors to continue to be the mainstream in 2015, and 13 megapixel the rising star in high end smartphones. This puts Himax firmly in the map as one of a handful of companies capable of offering a comprehensive product portfolio for main cameras of smartphones.

Additionally, the Company is also developing CMOS image sensors for non-consumer applications, for example, CMOS image sensor product line for automotive and surveillance applications, which typically enjoy higher margins and have less intensive competition. Collectively, the Company expects its CMOS image sensor business to more than double in 2014, making it a fast rising player in the market.

Touch panel controller product line continued to enjoy phenomenal growth in Q3, increasing 20% sequentially and more than doubled for the nine months ended September 30. The company expects the strong growth momentum to continue in the fourth quarter as a result of several major design-wins across both international and Chinese markets. On the back of its rapidly growing market share in the traditional touch panel market, Himax believes its committed development in new in-cell and on-cell touch panel technologies have placed the Company in a leading position for the future. The Company has been working closely with multiple customers in their in-cell touch panel development, and expects the market to see major launches of this new technology very soon. Himax will be an integral partner in making this a reality.

Regarding Himax's LCOS business, the Company continues to work with existing customers, as well as some exciting new tier 1 customers. It is working with them on multiple designs simultaneously, many of which involve custom-built designs that are funded by customers' development fees.

Regarding Google's decision not to exercise its investment option in the Company's subsidiary, Himax Display Inc., in the Company's announcement for Google's decision, it stated that it was authorized by Google to make the following statement: "Google continues to work closely with Himax as a strategic partner on future technologies and products and will remain a board observer." This strong message from Google demonstrates the continued close partnership of the two companies, despite of Google's decision not to exercise its investment option. The ongoing development and collaboration between Google and HDI validates the Company's LCOS technology as the most superior and best suited microdisplay for head-mounted devices such as Google Glass.

Finally, the Company continues to partner with various industry leading companies using its cutting edge and industry-dominant wafer level optics, or WLO, for the development of three technologies of the future, namely, array camera, special purpose sensors and microdisplay light guides for head-mounted devices. This product development often requires adoption of Himax's internal CMOS image sensor, LCOS microdisplay and video processing algorithm teams. Himax sits in a leading and unique position as it is the only company in the industry which is able to offer such a one-stop total solution. To meet the anticipated demand growth for LCOS and WLO products, the Company is working on new plans to expand production capacity. The Company will report the progress in due course.

As stated in several of its previous earnings calls, Himax will continue to increase R&D spending in the fourth quarter in order to quickly capture several areas of new business opportunities. The Company expects the fourth quarter operating expenses to be the highest among all quarters of the year as certain new high-end product tape-outs are taking place within the quarter in both driver and non-driver areas. Himax remains positive with respect to business outlook for 2015 when it expects both revenue and earnings growth to continue.

Please be noted that the Company's fourth quarter EPS guidance has taken into account an adjustment of additional $1.5 million, or 0.87 cent per diluted ADS, of income tax charge. This is to reflect the impact of NT dollar depreciation against the US dollar so far this year. While it makes timely adjustments, when deemed necessary, to reflect the effect of NTD/USD exchange fluctuation on our taxation, it is the Company's usual practice to make final adjustments in the fourth quarter for the whole year. As of November 10, the NTD stood at 30.55 against the USD, significantly depreciated against the 29.805 at the beginning of the year. This would lead to approximately $2.3 million more income tax charge for the Company in 2014 than otherwise. As the Company has already made approximately $0.8 million, or 0.44 cent per diluted ADS, of adjustment previously, it is now providing another $1.5 million, or 0.87 cent per diluted ADS, of additional income tax charge during the fourth quarter, assuming the exchange rate at the end year stands at exactly the same level as that of today. Obviously, the final outcome will depend on the actual exchange rate at the end of the year.

Conference Call

Himax Technologies, Inc.  will hold a conference call with investors and analysts on Thursday, November 13, 2014 at 8:00 a.m. US Eastern Standard Time and 9:00 p.m. Taiwan Time to discuss the Company's third quarter 2014 financial results.

A replay of the call will be available beginning two hours after the call through midnight November 20, 2014 (1 p.m. November 21, Taiwan time) on www.himax.com.tw and by telephone at +1-877-870-5176 (US Domestic) or +1-858-384-5517 (International). The conference ID number is 13593468. This call is being webcast by ViaVid Broadcasting and can be accessed by clicking on this http://public.viavid.com/index.php?id=111456 or at ViaVid's website at http://www.viavid.com, where the webcast can be accessed through November 20, 2015.

About Himax Technologies, Inc.

Himax Technologies, Inc. (HIMX) is a fabless semiconductor solution provider dedicated to display imaging processing technologies. Himax is a worldwide market leader in display driver ICs and timing controllers used in TVs, laptops, monitors, mobile phones, tablets, digital cameras, car navigation, and many other consumer electronics devices. Additionally, Himax designs and provides controllers for touch sensor displays, LCOS micro-displays used in palm-size projectors and head-mounted displays, LED driver ICs, power management ICs, scaler products for monitors and projectors, tailor-made video processing IC solutions and silicon IPs. The company also offers digital camera solutions, including CMOS image sensors and wafer level optics, which are used in a wide variety of applications such as mobile phone, tablet, laptop, TV, PC camera, automobile, security and medical devices. Founded in 2001 and headquartered in Tainan, Taiwan, Himax currently employs over 1,700 people from three Taiwan-based offices in Tainan, Hsinchu and Taipei and country offices in China, Korea, Japan and the US. Himax has 2,434 patents granted and 875 patents pending approval worldwide as of September 30, 2014. Himax has retained its position as the leading display imaging processing semiconductor solution provider to consumer electronics brands worldwide.

http://www.himax.com.tw

Forward Looking Statements

Factors that could cause actual events or results to differ materially include, but not limited to, general business and economic conditions and the state of the semiconductor industry; market acceptance and competitiveness of the driver and non-driver products developed by the Company; demand for end-use applications products; reliance on a small group of principal customers; the uncertainty of continued success in technological innovations; our ability to develop and protect our intellectual property; pricing pressures including declines in average selling prices; changes in customer order patterns; changes in estimated full-year effective tax rate; shortages in supply of key components; changes in environmental laws and regulations; exchange rate fluctuations; regulatory approvals for further investments in our subsidiaries; our ability to collect accounts receivable and manage inventory and other risks described from time to time in the Company's SEC filings, including those risks identified in the section entitled "Risk Factors" in its Form 20-F for the year ended December 31, 2013 filed with the SEC, as may be amended.

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