Good afternoon, everyone, and welcome to E Ink's Second Quarter 2025 Earnings Call. All participants are currently in a listen-only mode. After the presentation, we will open the floor for a Q&A session. Today's conference is being recorded. The Webex replay will be available on the E Ink 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.
Good day, everyone. Welcome to E Ink Second Quarter Investor Conference. First of all, I'm sorry for being late. We just overcame technical problems. Before we proceed, there's always a few little stories inside the cover page. In the second quarter of this year, Samsung announced the global launch of its 32-inch color E-Paper, which adopts E Ink Spectra 6 advanced digital ink technologies. Of course, featuring ultra-low power consumption, high visibility, and a lightweight design, it comes with a built-in battery that allows for free installation without an external power source once fully charged, offering businesses a more eco-friendly and versatile display solution. You can also see another photo on the cover page on the right-hand side. Last month, locally in Taiwan, at the National Theater, visitors and audiences were welcomed by two 75-inch E Ink Spectra 6 color ePaper displays. All right, next page.
Before we talk about those financials, let's take a few seconds on the safe harbor statements. Next page. First half, key highlights. The sales revenue reached TWD 18.7 billion, representing 41% year-over-year growth. Operating profit was around TWD 6.3 billion. For non-op, it's a loss, unfortunately, amounted to TWD 153 million. Net income at TWD 5.17 billion, with associated EPS at TWD 4.5. For the non-operating loss, basically due to the significant depreciation of U.S. dollars, which led to a higher net foreign exchange losses. Next page. For operating profit, driven by sales growth in the first half, operating profit increased to TWD 6.35 billion, with the operating margin rising to 34%. Next page. For the asset side, the total assets increased from TWD 85.6 billion to TWD 98.2 billion, year-over-year increase of TWD 12.6 billion. Next page.
For the cash flow, by the end of the second quarter, both cash and financial assets increased respectively, totaling around TWD 64.7 billion, including net cash position of TWD 16.8 billion, and an increase of TWD 5.3 billion from the previous year. All right. We've received quite a bit of feedback on color CE devices in the first half. We'd like to share some user experiences from Amazon Kindle. We are very much honored to continue supporting Kindle in its mission to make reading more engaging and enjoyable, especially through the power of color, our technology. Through their website, we found that this year, Kindle readers around the world have turned more than 129 billion pages, making a growth of several billion pages compared to last year. One standout highlight is the growing engagement with Kindle Colorsoft.
On average, users read significantly more pages on Colorsoft than the other Kindle devices, showing how the color experience truly resonates with readers. Last month, Kindle launched a new generation of Colorsoft, along with its first-ever color Kindle designed specifically for children, helping young readers fall in love with reading in a world full of vibrant colors. Basically, we are, once again, very proud to partner with Amazon Kindle in driving innovation and making reading even more captivating and immersive through color technologies. This second quarter, we continue to collaborate closely with our ecosystem partners to accelerate the adoption of innovative ePaper applications, bringing the benefits of ePaper into more aspects of everyday life.
As you can see from the screen, starting with CE devices such as Books, iReader, and Hanwang, they all launched new color ePaper products, including eNotes, monitors, and eReaders, broadening the use of color ePaper in education and creative markets. In addition, we developed an ePaper Touchpad Solution through Intel Smart Base, enabling a new interactive experience for AI PC. For the wearables and mobile accessories space, Mag Ink introduced, as you can see from the top center, Mag Ink introduced a new color ePaper power bank that offers both personalized displays such as photos and portability, showcasing the versatility of ePaper in multi-functional devices. For digital signage, we collaborated with Japanese media company Oricom to launch the Sustainable Board, a next-generation signage solution powered by E Ink Spectra 6, developed under Oricom's Mirapale brand. We partnered with another Japanese company called Kowei.
They deploy color ePaper signage in the Izu Haneda Highway buses. Passengers on the bus can interact with the onboard display and tablets to access local travel information. In the States, Duquesne University is modernizing campus signage by deploying PPDS, basically a display from Philips, also powered by our Spectra 6. These digital signs preserve historic aesthetics of the campus while enabling real-time communication. Basically, for those examples I just introduced, reflect the theme of this update: more collaboration and broader reach. We are seeing ePaper technology adopted across a growing range of industries and use cases. We remain committed to expanding our ecosystem partnership to unlock the full potential of ePaper. All right. Next, I'm going to talk about a few sustainability or ESG efforts we have done in the second quarter.
With our ongoing improvements in sustainability performance, we received a quite significant higher ESG rating from FTSE Russell, one of the leading index companies. Our consistently strong ESG performance has also allowed us to remain a constituent of the FTSE4 Good index series. Additionally, FTSE Russell's green revenue data model now fully recognizes our economic activities and green product sales. Our green revenue rating has improved to 100%. In other words, all revenue from ePaper products is classified as green under this model. Next page. For CDP, it's one of the most important international organizations evaluating companies' environmental management capabilities. We received a AA list in CDP's climate change and water security assessments. This recognition not only demonstrates our concrete actions and strong commitment to addressing climate change and protecting water resources, but also reflects our outstanding performance in sustainability. We also continue to make progress in other sustainability efforts.
For example, our E Ink new Hsinchu building has achieved LEED Gold certification, reflecting our commitment to sustainable and environmentally conscious development. Also, our three major sites under E Ink Group, Hsinchu, Linkou, and Yangzhou, now are all UL 2799 on zero waste to landfill on platinum certified. There is a leading magazine in Taiwan called Commonwealth Magazine. Under their TRIPS program, which basically assesses companies' net zero alignment with the Paris Agreement on 1.5-degree goal, our carbon reduction pathway remains uncertified as aligned with this trajectory. Last but not least, we continue to expand beyond our core ePaper business. We actively support cultural and educational initiatives. For example, we are in partnership with Kaohsiung Museum of Fine Arts. We also work with Taipei Fine Arts Museums. You know, we provide basically ePaper displays for the exhibition, engaging the community and showcasing ePaper potential in prominent culture spaces.
We also, as I mentioned earlier, installed a large format ePaper signage at the National Theater locally in Taiwan, offering greater energy efficiency, lower carbon emissions, and also easier maintenance than the traditional LCD displays, demonstrating how E Ink products contribute to society and culture. Before the Q&A, let's take a quick look at Samsung's latest color E-Paper digital signage launch video. All right. Thank you for watching. Let's move to the Q&A session.
To ask a question, please click the raise hand icon on the sidebar. When we take your question, please remember to unmute yourself. The first question will come from Katherine from Macquarie. Please go ahead.
Hi, Katherine.
Hi. Can you hear me?
Yes, very well.
Sorry, I encountered some technical issues in the Chinese session. Thank you for taking my questions.
Yeah, apologize for that.
My first question is about the ESL application. Congratulations on the good result. We noticed that your ESL revenue nearly doubled YoY in 2Q. I just want to get a sense of the sustainability of this revenue growth. How much of that comes from probably the customer pull-in effort ahead of the potential tariff impacts? How much of that will also continue in 3Q and 4Q? How should we think about the revenue growth in the second half? Thank you.
Right. Katherine, I think, first of all, we believe the growth momentum for ESL has stepped into an organic growth mode. I understand where your question is coming from. You sort of want to find out, you know, how much the growth would have been driven by the rush order and how much it would have been driven by the natural growth. I think since the ESL is already into the organic growth mode, I would say probably the majority is coming from the normal growth because it seems that for the retailer, automation and digitalization was already the trend for them. Under the macro uncertainty associated by the tariff or whatever reason, I think they need more automation. They need more digitalization. I would say from the growth of the ESL perspective, it's just happening like that.
Whether the growing momentum can be carried forward, we believe in that way. We believe in that way. I think what will be impacted is for those retailers who haven't really decided to adopt or install the ESL solution. For those who already decided, I think they just move on, move forward. Even under such macro uncertainty, they even want to speed it up because that brings more advantage in terms of their operation.
I see. Very clear. Thank you. Thank you for the clarification. Another question goes to the consumer electronics. This sector grew about 9% YoY and 18% QoQ. I'm just wondering, you mentioned in the Chinese session that some China education sector is not doing quite good. I'm wondering how much of that growth, where is this growth coming from, and how can we see that in the second half since this sector might be more impacted by tariff decisions later in the year? Thank you.
Right. Actually, we have different customers, I mean, CE customers globally. We do have some in China, but we also have quite a lot for the non-China region. Strategically, we want to use our color technology to trigger further growth of our CE business. It seems it worked, and it continues to be working. Even though some of our CE China business has been affected, the rest of the business outside of China is still going on. For those growths, basically, it is coming from the non-China customers.
I see. Thank you. Thank you for the clarification. You mentioned about the technology in the CE side. I understand that most of the brands are still using Kaleido for eReaders and only a few using Gallery. I'm just wondering if next year there will be more brands using Gallery and probably transitioning from Kaleido to Gallery. If that's the case, how would that affect our ASP and our margin? Thank you.
Yeah, Katherine. First of all, it's a bit hard for us to comment on behalf of our customer, you know, which technology they eventually are going to adopt. What I can tell you is I think Kaleido and Gallery will still be in the market, you know, because it all depends on our customer to be used for different applications. It's kind of hard to say. Coming back to your question, either technology they choose, the impact to the ASP, let me put it in a different way. We really want to increase the penetration or the market use of the ePaper CE devices. We are happy to co-create or do a little bit of profit sharing with our customers.
As Johnson mentioned earlier, since we have a little bit of room to adjust our gross profit margin, basically, we will adjust our pricing strategy according to the reality, what will be happening. Not to worry too much. For example, Kaleido will be used the majority. It's going to affect our gross profit margin significantly. Or more Gallery users that will jack up our gross profit margin significantly. Don't think in that way. We are creating this ecosystem. We are creating the ePaper industry. We need to make our customer happy, you know. We will try to keep the reasonable margin between us. The most important thing is how to open up the penetration, or I call it the market share for the ePaper-related products or applications.
I see. Thank you. My final question is regarding our capacity and utilization. The H5 is already online. Just wondering, how is the utilization right now, and how is that going to be like in the future? Also, is there any other plan to expand our capacity just like the H5? Thank you.
Right. I think a little bit on clarification on H5. H5 basically is ready, but that's a new production line from a customer's perspective. We need to ship the new product for their certification. It needs a while to go through, you know. Currently, the utilization rate is very, very low. Once it gets certified, basically, we can ramp it up. I see. That's a reality. For the rest of the production line we have, that's pretty much fully utilized. For your information, theoretically, 100% being utilized for the production line is possible. That's from the theory perspective. Practically, you know, we always need to reserve a certain level of the capacity for the R&D, you know. Combined R&D and mass production, the rest of our production line is pretty much utilized.
I see. Thank you. I'll go back to the queue. Thank you.
Okay, thank you. Thank you.
Our next question is coming from Edison from HSBC.
Hi, Edison.
Hello, can you hear me? Hello?
Yes, very well. Yes, very well. Yes, very well.
Thanks, Lloyd. Good afternoon. I think my first question is on your gross profit margin L/B in the second quarter. I know partially it's driven by product mix given ESL exposure is higher. I just want to know, is there any other reason outside of the better product mix angle? Thanks.
Right. Product mix is the main reason. Side of it, I think Johnson also explained in the previous earnings conference, the operational efficiency improvement, that also contributes a bit. There's a nuance in the product mix change. I mean, generally, we talk about, for example, more ESL sales or IoT sales, less CE sales. That basically changes the level of our gross profit margin. Do not forget one thing. Under the ESL for the new product, we also help our customer to do a little bit module. If every quarter for that part is reduced, that's also helpful in terms of our gross profit margin. Also, for CE, there are different levels of the products under CE business segments, some with a higher spec that comes with sort of like a relatively higher margin.
Product mix change plus the operational efficiency improvement, basically, they are the two main reasons. However, under product mix change, there's a nuance, as I mentioned previously, also contributes a bit in terms of the higher gross profit margin.
Got it. Thanks. I have a follow-up question for this one. How should we think about the future gross profit margin range? Will the thing you mentioned previously become a new norm? How should we estimate for the gross profit margin in the future? Thank you.
Right. I think generally speaking, I think our CEO, Johnson, also mentioned in the previous earning conference, generally speaking, we try to keep it ranging from 50%- 55%. Sometimes it goes better. Of course, we will consider the profit sharing. Under the current situation, we are very tight in capacity. It doesn't really make sense for us to contribute more in terms of the profitability, you know. What I'm trying to say, going forward, if we do notice we expect a higher gross profit margin, we basically want to keep it around 50%- 55%. Anything goes above, we are happy to, you know, share the profit with our customer. It varies with the reality. It varies with the situation. Generally speaking, we want to keep it around 50%- 55%. Yeah. We are creating this industry. We are creating this ecosystem.
We need to co-create, you know, and co-sharing the profitability with our ecosystem partners.
Right. My next question will be on the revenue growth trajectory. I think during the last earnings call, we mentioned strong second quarter, resilient third quarters, and still hasn't had the visibility back then for fourth quarter. I just want to know, does this change versus three months ago? As we noticed, the second quarter ESL rebounded strongly. How should we think about the growth rate for ESL in the second half of this year? Thank you.
I think our guidance still remains the same. Second quarter is still the peak. Third quarter basically slightly decreased compared with the second quarter, and fourth quarter decreased compared with the third quarter. Overall, the whole year 2025, basically, we are still expecting a year-over-year growth. To what extent? I think since even we receive the regular sales forecast from our customer, sometimes it's really hard to say till they actually pull in. We all see the numbers in our sales forecast, and we are sort of like confident with the numbers in third quarter. Given the macro uncertainty, we are a bit less, but we are a bit conservative for the fourth quarter. Once again, we believe 2025 this year is still good, better than last year. To what extent? It's really hard to say. It's really hard to say. Our guidance remains the same.
Okay. Got it. I think on the second part of my question, it is still coming from the ESL growth. I'm just wondering, can this sustain into the second half? I think during your partner Vusion Group, they kind of commented that the Walmart deployment is kind of faster than expected. I'm just wondering, what's your view in terms of the ESL growth and also maybe some of the color on why Vusion Group is saying the deployment is faster than expected? That would be super helpful. Thank you.
Right. I think the ESL demand we believe is still intact. Sometimes, quarter-over-quarter discrepancy happens. If you want me to comment what will be happening in the following two quarters, I think it's a bit hard. In the long run, the demand is still intact. I think that's what I can answer to your questions.
Got it. Got it. Thanks, Lloyd. I'll go back to the queue. I appreciate it.
All right. Thank you.
Next question we will take from Patrick Cadell from Ashmore. Please go ahead.
Hi, Patrick.
Hi, Lloyd. Just wanted to ask about the large signage business. Could you give an update on growth prospects there and what kind of percentage contribution to revenue you expect in the second half and into 2026?
Right. For the large format signage, the percentage is still relatively low. I think it's lower single digits so far. If you are talking about the meaningful sales revenue contribution, I think that's going to go probably the second half of next year and even, you know, the first half of 2027. I think everything is moving positively. Yeah. Especially our H5, basically, it's ready and currently is in the process of customer certification. Once it's done, I think we can take very good advantage of the H5, especially on the large format sized display production.
For H5 to ramp up, how long will that certification take, and when do you expect that line to contribute more meaningfully?
I think it's in the process of the certification. I believe conservatively one quarter to go. Definitely by the end of this year, the certification can be done.
If H5 is certified by the end of the year, why don't you get meaningful revenue contribution in the first half of next year?
I'm not saying first half of next year. I'm saying second half of next year and even first half of 2027. Yeah.
Why does it take that long between certification and then meaningful revenues?
We have a few customer commitments, but those businesses, generally, they are not, you know, consumer-oriented. Most of them, they are relevant to the industrial purpose or tender business. It takes some time to have more volume of the business. Let me put it in this way.
Got it. That's the kind of the large signage. In general, for other signage and outdoor signage, what kind of contribution do you expect from that?
I think the general guidance I would give is probably the same period of time. I think probably the second half of next year or even the first half of 2027. It takes some time to be there, Patrick. It's not that quick. For example, for ESL, it has been taking us more than a long while to reach where we are. I think it has been taking more than 10 years to reach where we are. It won't be that quick.
Got it. In terms of that revenue guidance for the second half, is the kind of weakness in Q3 and Q4 versus Q2 mostly driven by the consumer side, or is that by the ESL side?
I think the majority is from the consumer side. Patrick, I think fourth quarter basically is our peak, not our peak quarter, you know. That explains why the fourth quarter is relatively lower. On top of that, we receive a few rush orders, you know, being pulled ahead from fourth quarter. That's also part of the reasons.
Got it. Finally, on capacity, when's the current ramp-up plan for H6, and what's the kind of planning beyond that as well?
For H6, I think probably we can move in in 2026 next year. If you are talking about everything is ready and ramping up, I think probably early 2027 then. Yeah, we still got at least one year to go.
Got it. Great. Thank you very much.
All right. Thank you, Patrick.
Next question will come from Adam Hakkou from Comgest.
Hi, Adam. You're probably still on mute.
Can you hear me? Hello?
Yes, I can hear you now. Yes.
Oh, hi. Sorry about that. Thank you, Lloyd. Sorry. Just a couple of questions. Is there any tariff on Kindle? When Amazon imports Kindles from, I suppose, China, where they manufacture it, do they pay the new China tariff on it, or is that exempted, or how does it work?
Yeah. Adam, basically, we are in the upstream of the supply chain, you know. We don't really supply the end devices, you know, so we are less impacted from the tariff perspective. I would say more or less, it would be impacted. However, for those device assemblers, they have the, you know, manufacturing resilience. What I'm trying to say is, of course, they can choose to manufacture Kindle in China, but they also have the factory in Southeast Asia, for example, Vietnam or Thailand. They also have the production site in Mexico, you know. I think they have a flexibility to manufacture. Basically, we work with those device makers and the branders such as Amazon, you know, to follow their shipment plan. I would say, of course, at the beginning of the tariff, they would have been impacted.
Through the resilience of their supply chain, I think so far, so good. That's how I see it. Yeah.
Understood. No, because I was thinking from a demand perspective, because if the price of Kindle goes up 30%, 40%, then presumably people will buy less.
Right. Actually, Adam, we even received more rush orders in the second quarter because they definitely have a concern of the supply. They try to secure more ePaper in the second quarter, even the third quarter. I think that's why we sort of hit record highs in terms of the sales revenue, even the profitability in the second quarter.
Understood. The second question I had for you, Lloyd, was just on the margin, right, which was very strong in the second quarter. Was there any inventory write-back or anything like that that boosted the margin, or that's not really?
Not really. I think what you're referring to is, for example, reversal of the inventory provision creates the favorable contribution to the gross profit margin. No, we didn't have that. Basically, just the favorable product mix change plus the operational efficiency improvement.
Got it.
Yeah, since we have been suffering from yield for quite a while, you know, we have been doing better in terms of the production yield. That was reflected in the second quarter performance.
Got it. Understood. The last one I had was it's a bit bigger picture. I'm just trying to, you know, get some ballpark numbers on the whole ESL market worldwide, right? My understanding is that when I read, you know, a Vusion, what they're talking about, and some of the other reports out there, my understanding is that the current installed base is about, give or take, 1.5 billion ESLs in the world. In your experience in business, are you able to quantify basically how much of that is replacement for you? Basically, what you're shipping every year, is it all for new installations like Walmart, like people who are rolling out ESL in their stores, or is there a certain portion that goes for replacement already? Are we already in this stage or not yet?
To be honest with you, Adam, it's hard. Why? Because for ESL , the business model we are running, we supply the mother sheet to the system integrator. We leave them to cut into pieces, you know. It's very hard for us to know, you know, they eventually cut like, you know, one inch, two inch, even the bigger size of the display to be used for retail signage. It's kind of hard to know. I think I can give you a flavor of it in terms of the replacement cycle. You know, for ESL , they are using a teeny weeny silicone batteries. The shelf life for those batteries basically expired from five to seven years. The feedback we got is when those batteries are gone, you know, they don't really get bothered to have it replaced. They basically just change a new tech.
I would say every five to seven years could be the replacement cycle for the ESL , you know. That's the feedback we receive from those system integrators.
Right. Since ESLs really took off five to seven years ago, we're only starting to kind of see some benefit from the replacement cycle, right? It's not like it's 20% of your revenue, you reckon, that's going to replace it.
I think there's room for growth in terms of the potential sales revenue associated with the replacement cycle.
Right. Right. You've never seen any retailers so far that's gone to ESL and changed to something else after five to seven years?
What we have seen is they change from the conventional paper tech to our technology. They change from the LCD tech to our technology. We haven't really seen the other way around.
Right. Right. Understood. Thank you very much, Lloyd.
All right. Thank you.
Sorry. Due to the time constraint, we will take the final question from Gabriel from EmailGestion.
Hi, Gabriel.
Can you hear me?
Yes, very well.
Hi, Lloyd. Thank you. Thanks for taking my question. Just two quick questions from me. Firstly, it's regarding the FX losses. As you mentioned earlier, the company has quite a bit of FX losses for the first half. I was wondering if you have any color on the FX movements for the second half. Also, perhaps you could share a bit more about any measures the company is taking to address the FX volatility. That would be the first question. Thank you.
All right. In terms of the FX impact, let me first explain for the non-op. Basically, the total of non-op for the first half was around TWD 150 million. There were about TWD 1.3 billion FX loss in there. The majority, I think I would say 80%, even 90%, are marked to market unrealized valuation. We did have a robust hedging mechanism, but the level of the currency fluctuation in the first half was way too big. We still get hit by the FX, but the majority is unrealized. Of course, we took some actions. Hopefully, we can keep a similar level of the FX loss till the end of this year. Based on, I mean, of course, you never know what will be happening in terms of the foreign exchange fluctuation. I think the FX basically is in control. We will carefully monitor the situation and try to keep it down.
For operating profit perspective, I think I can give you a flavor. 1% change in terms of the currency basically will bring about 0.3% or 0.3%- 0.4% on the operating profit because our sales revenue basically is 100% invoiced in U.S. dollars. Our cost of goods sold, the majority, basically also invoiced in U.S. dollars. The net-net basically offsets the FX impact. Some of our SG&A expenses, because we have the E Ink United States, for the expenses that happen there, that's also offsetting the FX impact. Coming back to your question, if there's a 1% currency change, that would impact our operating profit about 0.3%- 0.4%. You can also see our financial report. We sort of have a sensitivity analysis in there. Feel free to take a look. I'm sure you can get a better feel about the FX impact.
Got it. That's very clear. Thank you. Just one last question from me. With regards to the tariffs, have we seen a significant deterioration of ROIs for retailers to install ESL? I was wondering, let's say tariffs are sustained at a 30% level, for example. Right. Does it still make financial sense for ESLs? Thank you.
Right. I think, generally speaking, for our existing customers who already decided to adopt ESL ePaper price tech, I do not think, and we do not see any clue, they will slow down the installation or even stop the installation. Why? Because we believe, as I mentioned earlier, the automation and digitalization for the retailer, basically, it is a trend. They need ESL to bring their cost efficiency because that saves the labor cost. I think for those macro uncertainties associated with tariff, for those players who are considering ESL for the time being, they might think longer and then decide when is the best timing to install the ESL solution. For ESL, it is all about the ROI and payback. The feedback we received for the European retailers, the payback is ranging from 1.5 years- 2 years.
For the American retailers, the payback is 2 years- 2.5 years. It is a relatively shorter payback period. As long as they find the timing is right, I think that is going to be a no-brainer. They would consider the ESL for their operation. Since there is a macro uncertainty, I think they try to think further and try to look for the better timing to install.
Got it. That's very clear. Thank you, Lloyd.
All right, thank you.
Okay, this concludes our Q&A session. I'll turn the meeting to Lloyd for closing remarks.
All right. Thank you for your participation. We will see you next quarter. Thank you. Bye-bye.
Thank you. Bye-bye.