Good afternoon and welcome to Diodes Incorporated's financial results conference call for the first quarter of 2020. All participants are in a listen-only mode at this time. At the end of the conference call, we will provide instructions for the question-and-answer session. This conference call is being recorded today, Monday, May 11, 2020. I will now hand the call over to Leanne Sievers of Shelton Group, Investor Relations. Leanne, please proceed.

Good afternoon and welcome to Diodes' first quarter 2020 financial results conference call. I am Leanne Sievers, President of Shelton Group, Diodes' Investor Relations firm. Joining us today are Diodes' President and CEO, Dr. Keh-Shew Lu, Chief Financial Officer, Brett Whitmire, Vice President of Worldwide Sales and Marketing, Emily Yang, and Director of Investor Relations, Laura Mehrl. Before I turn the call over to Dr. Lu, I would like to remind our listeners that the results announced today are preliminary, as they are subject to the company finalizing its closing procedures and customary quarterly review by the company's independent registered public accounting firm. As such, these results are unaudited and subject to revision until the company files its Form 10-Q for its first quarter 2020. In addition, management's prepared remarks contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today, and therefore we refer you to a more detailed discussion of the risks and uncertainties in the company's filings with the SEC, including Forms 10-K and 10-Q. In addition, any projections as to the company's future performance represent management's estimates as of today, May 11, 2020. Diodes assumes no obligation to update these projections in the future as market conditions may or may not change, except to the extent required by applicable law. Additionally, the company's press release and management statements during this conference call will include discussions of certain measures in financial information in GAAP and non-GAAP terms. Included in the company's press release are definitions and reconciliations of GAAP to non-GAAP items, which provide additional details. Also, throughout the company's press release and management statements during this conference call, we refer to net income attributable to common stockholders as GAAP net income. For those of you unable to listen to the entire call at this time, a recording will be available via webcast for 90 days in the Investor Relations section of Diodes' website at www.diodes.com. And now, I will turn the call over to Diodes' President and CEO, Dr. Keh-Shew Lu. Dr. Lu, please go ahead.

Thank you Leanne. Welcome everyone and thank you for joining us today. I want to start by saying that I hope everyone and their family are staying safe during this unprecedented time for our economy and Diodes. Our top priority remains our people. Diodes has taken proactive measures to protect the safety, health, and well-being of our global associates. Our employees are successfully working remotely and remain in close contact with our suppliers, customers, and partners. Our first quarter results were in line with our original expectations and included the delayed start of our manufacturing production following the extended Chinese New Year holiday. Our results further reflected the temporary closure of our U.K. wafer fabs in the later part of March in response to the global COVID-19 pandemic. Our operations in China have since gradually returned to full production, with our U.K. facility also resuming full production as of today. Combined North America and Europe revenue grew more than 12% from 4Q to 1Q, while Asia revenue declined 12% sequentially because of slower than expected customer manufacturing manpower recovery due to COVID-19. With revenue being only slightly below typical seasonality and limited only by customer demand, our first quarter results serve as further testament to our long track record of successfully managing through challenging environments. Highlighting the quarter was our continued growth in the automotive end market, in which revenue grew sequentially and year-over-year to 11% of revenue as a result of our increased content gains across an expanding customer base, including a significant new design win in Asia. Additionally, our Pericom IC products had the second highest revenue quarter since the 2015 acquisition due to strong demand in the computing end market for our products used in high-end servers, storage, data centers, and notebooks. Our close engagement with customers has enabled us to benefit from the increasing demand for these end equipment applications. The diversification and strength of our business and long-standing relationships with customers continue to serve us well as we focus on carefully managing those factors that are within our control. We currently expect to deliver second quarter revenue and margin slightly better than the first quarter at the midpoint, which is notable given the increasing market uncertainty resulting from COVID-19 and the significant softness in the automotive market. Before turning the call over to Brett, I would like to provide a brief update on our proposed acquisition of Lite-On Semiconductor. Since our last earnings call at the end of March, we received all required regulatory approvals from Taiwanese authorities, including the Taiwan Fair Trade Commission and the Foreign Investment Approval from the Investment Commission of the Ministry of Economic Affairs. We also extended the Outside Date included in the Share Swap Agreement from May 31, 2020, to December 31, 2020, to accommodate the review schedule for the relevant Chinese authorities and associated operational processes that will need to be completed and remains consistent with the previously communicated expected close date of the second half of 2020. With that, let me now turn the call over to Brett to discuss our first quarter financial results and our second quarter 2020 guidance in more detail.

Thanks Dr. Lu and good afternoon everyone. As part of my financial review today, I will focus my comments on the sequential change for each of the line items and will refer you to our press release for a more detailed review of our results as well as the year-over-year comparisons. Revenue for the first quarter of 2020 was $280.7 million, compared to $301.2 million in the fourth quarter of 2019. Gross profit for the first quarter was $95.8 million or 34.1% of revenue compared to the fourth quarter of 2019 of $109.4 million or 36.3% of revenue. GAAP operating expenses for the first quarter of 2020 were $70 million or 24.9% of revenue, and on a non-GAAP basis were $65.4 million or 23.3% of revenue, which excluded $4.2 million of amortization of acquisition-related intangible asset expenses and $400,000 of acquisition-related costs. This compares to non-GAAP operating expenses in the prior quarter of $65.2 million or 22% of revenue. Total other expenses amounted to approximately $896,000 for the quarter, including $1.2 million of interest expense, partially offset by $273,000 of interest income and $76,000 of other income. Income before taxes and non-controlling interest in the first quarter of 2020 was $25 million compared to $59.6 million in the previous quarter. Our effective income tax rate for the first quarter was approximately 18.3%. GAAP net income for the first quarter of 2020 was $20.2 million or $0.38 per diluted share, compared to GAAP net income of $47.2 million or $0.90 per diluted share in the fourth quarter of 2019. The share count used to compute GAAP diluted EPS for the first quarter of 2020 was 52.4 million shares. Non-GAAP adjusted net income in the first quarter was $23.9 million or $0.46 per diluted share which excluded, net of tax, $3.5 million of non-cash acquisition-related intangible asset amortization costs and approximately $300,000 of acquisition-related costs. This compares to non-GAAP adjusted net income of $33.8 million or $0.65 per diluted share in the fourth quarter of 2019. EBITDA for the first quarter was $52.9 million or 18.9% of revenue compared to $88.3 million or 29.3% of revenue in the prior quarter. We have included in our earnings release a reconciliation of GAAP net income to non-GAAP adjusted net income and GAAP net income to EBITDA which provides additional details. Cash flow generated from operations was $53.7 million for the first quarter of 2020. Free cash flow was $39.5 million for the first quarter, which included $14.2 million for capital expenditures. Net cash flow in the first quarter was a positive $11.4 million, which includes the paydown of $16.6 million of long-term debt in the first quarter. Turning to the balance sheet. At the end of the first quarter, cash and cash equivalents plus short-term investments totaled approximately $272 million. Working capital was $525 million and long-term debt including the current portion was $80.7 million. In terms of inventory, at the end of the first quarter, total inventory dollars decreased $4.3 million to approximately $232.2 million. This reflects a $9.2 million decrease in finished goods and a $6.4 million decrease in work-in-process and an $11.3 million increase in raw materials. Finished goods inventory days were flat at 29 compared to the fourth quarter of 2019. Total inventory days increased slightly to 115 in the quarter compared to 112 last quarter. Capital expenditures, on a cash basis, for the first quarter of 2020 were $14.2 million or 5.1% of revenue, which is at the low end of our target model of 5% to 9%. For the full year 2020, we expect to remain at the low end of our target model. Now turning to our outlook. For the second quarter of 2020, we expect revenue to be approximately $283 million, plus or minus 3%. We expect GAAP gross margin to be 35%, plus or minus 1%. Non-GAAP operating expenses, which are operating expenses adjusted for amortization of acquisition-related intangible assets, are expected to be approximately 23% of revenue, plus or minus 1%. We expect net interest expense to be approximately $1.5 million. Our income tax rate is expected to be 18%, plus or minus 3%. And shares used to calculate diluted EPS for the second quarter are anticipated to be approximately 52.8 million. Please note that purchasing accounting adjustments of $3.2 million after-tax for Pericom and previous acquisitions are not included in these non-GAAP estimates. With that said, I now turn the call over to Emily Yang.

Thank you Brett and good afternoon. In the first quarter, revenue decreased 6.8% sequentially. POS revenue in Asia was down due to the impact of the Coronavirus in January and February, followed by a strong recovery in March. POS in both North America and Europe was up in the quarter. Distributor inventory in terms of weeks was slightly above our targeted range of 11 to 14 weeks. Both Europe and North America inventory days decreased in the first quarter and Asia inventory days increased due to the slower than expected end customer manufacturing capacity recovery. Looking at the global sales in the first quarter, Asia declined 12% sequentially to 75% of the total revenue, and Europe and North America combined increased 12% over the prior quarter to represent 17% to 8% of the revenue, respectively. In terms of our end market, the industrial end market represented 26% of revenue, communications 23%, consumer also 23%, computing 17%, and automotive 11% of revenue. Now let me review the end markets in greater detail. Starting with automotive. Diodes continue to gain market share in this end market, growing both sequentially and year-over-year to 11% of the total revenue. This accomplishment is even more noteworthy in the current backdrop of the market and decrease related to the COVID-19 pandemic. Our consistent growth in this market is the direct result of our content expansion focus and new design win effort over the last few years, which most recently resulted in a significant new design win in Asia during the quarter. We also secured design wins across a number of new products, including various MOSFET, SASP, automotive grade TVS, in-motor control, lighting, powertrain, and connected driving including ADAS, infotainment, and telematics application. With a rapid increase of electronics in today's highly connected cars, robust ESD protection is becoming increasingly more important. Our growing family of protection products offers high reliability and high performance in ESD protection for connected driving applications. Our portfolio includes CANbus, line bus, Ethernet, and high-speed Data Line protectors that cover the full spectrum of connected driving. Similar to last quarter, Diodes once again saw continued success with our proprietary SBR technology supported by a wide range of applications including e-bikes. We also continued to build momentum over the last two quarters in our sensor business for broad applications including backlight open control, side door control, proximity, and position detection. We also had success with sensors and switches for hands-free calling interface and powertrain control system. Additionally, a new design win was secured for a viable LDO in ADAS camera CMOS image sensing applications and for our newly released linear LED drivers used for automotive tail lighting applications. In the industrial end market, we continue to gain traction for MOS products with key applications like brushless DC motors and LED lighting using Diodes' SGT MOSFET technology for low power loss and normal density trench MOS technology for better safe operating areas. Sales of our switching diodes also grew in the quarter supporting numerous applications including light dimmer systems, industrial printers, and security systems. Similarly, our rectifiers are being used in a broad range of application systems, SMTs, to ensure our strong luminous intensity of halogen lighting systems to drive demanding mechanical automation systems and heat pumps. With the rapid adoption of high-speed interfaces across multiple industrial IoT applications, ESD protection is also becoming more important for this type of Data Line. Diodes' Data Line platform features ultralow capacitance with industry-leading surge handling and ESD protection characteristics. This platform offers best-in-class ESD clamping voltage performance while minimizing capacitance loading on the data lines. Also, in the industrial market, design win activity for our newly released linear LED driver aimed at the street lighting market was strong. Additionally, we saw increasing demand for our newly introduced AC offline dimmable product and LED box for industrial and commercial applications. In the consumer market, we are seeing growth for our DC-DC product high current 1n LDO family protection products and LED drivers in display, OLED TV, LED monitors, and TV backlight applications. Our protection products continue to expand our footprint with small-sized innovative super high surge performance protection platforms in applications like earphones, wearables, portable devices, TV, and smart meters. Also during the quarter, we continued to maintain our leadership position for USB Type C solutions that are widely deployed in consumer applications including tablets and gaming consoles. Our low switches are also gaining traction in mobile devices, notebooks, and tablet applications. In addition, we have seen design wins for hall sensors in medical applications like cost optimizers as well as demand for Zener diodes and rectifiers in home devices like consumer smoke and fire alarms, home irrigation, and garage door openers. In communications, we are seeing new design wins for voltage reference products in power modules for telecommunications applications including top-tier brands for 5G mobile communications. 5G continues to drive demand for PMOS and NMOS products to protect 5G RF amplifiers, enlarge booth power in 5G base power stations in order to save power consumption. We also continue to launch new MOS products leveraging our high density process combined with miniature DFN and CSP packaging to meet the challenging space and power density requirements for this market. Similarly, our SBR and Schottky products continue to increase penetration in the mobile and smartphone market by offering a Zener profile and compact dimension to enable significant space-saving. Mobile phone functions, such as conference call, audio, VBUS, VBAT, and wireless charging continue to be key growth areas for protection products. For SASP, within the mobile handset market, we supported strong customer demand for a variety of products, including our tiny DFN1006 packet switching diodes and our ultra-low leakage diodes. We also supported numerous applications for fast and ultrafast recovery rectifiers, including those in the SOT123F package as well as our PowerDI123 rectifiers. Lastly, in the computing market, we continue to gain increasing traction across our product portfolio including for our Pericom IC products which, as Dr. Lu mentioned, achieved its second-highest revenue quarter as a result of strong demand for our products in high-end servers, storage, data centers, and notebooks. Specifically, we are seeing increasing demand for our USB Type C general switching protection product and signal integrity solutions for high-end tablets, laptops, and commercial docking stations. Our newly released family of clock generators and clock buffers that meet PCI Express 5.0 specifications are designed in major server and data center OEMs worldwide. Additionally, our SBR rectifier Schottky product continues to be in high demand for DC fans in servers and server power where Diodes offers cost performance in high-temperature operating environments. Our Schottky rectifier technology also continues to win new design wins in applications such as adaptors, USB power delivery, and ATX power. Design wins are being secured for higher breakdown voltage products for applications such as Power over Ethernet, server power, data center, and power applications. In summary, our first quarter results and second quarter guidance serve as further testament to Diodes' ability to manage through a challenging environment. This quarter also further highlighted the success of our past design win momentum and new product initiative over the past several years in the automotive market. Specifically, as well as our total solutions sales approach with the addition of our Pericom IC products. With that, we would now open the floor to questions. Operator?

Our first question comes from Gary Mobley from Wells Fargo. Please go ahead with your question.

Good afternoon everybody. Thanks for taking my question. Hope everybody is staying safe. I want to start off by asking about the linearity of bookings during the quarter and as well through the first here of the second quarter. I appreciate the fact there has been a lot of moving parts and a lot of things you have had to navigate over the last four months. But have you seen any sort of recovery in your end markets here in the early part of the second quarter? Or are we waiting for some North American or European manufacturing facilities to open more fully? Any color you can give there would be helpful.

Okay. Hi Gary. This is Emily. So let me address your question. So in the beginning of April, we definitely see strong backlog across all regions, including Europe and North America and Asia. I would say the second week of April, we definitely started seeing a change from the backlog situation and the bookings situation for Europe and North America. We are still seeing Asia pretty strong carry through the momentum. But definitely there is a slowdown for North America and Europe, I would say, second half of April and also May. And this is exactly like what you mentioned. This is really due to some of the factory shutdowns in North America and Europe that we see. There are some scheduled for the factory to resume, whether it's a percentage and by when, that's still we have to wait and see. But overall, Asia, we are seeing the strength but Europe and North America definitely are weaker than we expected.

Okay. And Brett, I am curious to know, how much of an impact to gross margin underutilization and COVID-19 related efficiencies? How much that influenced gross margin in the first quarter and as well how much of that is influencing your guidance for the second quarter?

Well, the biggest thing that impacted us in the first quarter was, you had basically the time-off for Chinese New Year, which is usually a week. It ended up being more like two weeks. And so that was the biggest impact we had in the first quarter. And I think we will see that recover consistent with our demand as we move into the second quarter.

Okay.

Well, the first quarter, not just the Chinese New Year delay, but actually another problem is the people returning to work was slower than in previous several years. In previous several years when the Chinese New Year ended, about a week, we probably get 50% of people who come back, then probably 60%, 70%. In about one month, you almost get back to normal production. But this year, due to the quarantine protocols, when they started reporting back in February, other than people from Shanghai, they could not report to work mainly due to the 14-day quarantine before they could resume. So when people took longer than expected to return to work, we started in February, only 30% instead of 50% were able to come back. It took almost until the end of March to get everyone who was supposed to return fully back to work. So this was much worse than in previous years in the first quarter. Therefore, our capacity utilization, or I should say, our negative impact due to underutilization was worse than before. That's why our gross profit is lower than before.

Okay. And Dr. Lu, I did not quite catch everything you said about the pending Lite-On acquisition. Correct me if I am wrong, but we are just waiting for final approval from China. And so did you comment that you expect the acquisition to close at the very end of calendar year 2020? Or within your previously disclosed window of the second half of this calendar year?

No. What we expect is, during the second half of 2020 to close in on the Lite-On acquisition, Gary.

Yes. There are two deadlines. One is called the outside date. And typically, outside means if you bypass that, no deal. So we set an outside date originally for May, but we now set it to the end of December. But that's not how we expect the closing date. The closing date, we believe, will be somewhere in the 4th quarter or as we disclosed, now it's the 4th quarter.

Okay. All right. Thank you guys. I will concede the floor. Thank you.

Thank you. Our next question comes from the line of Tristan Gerra from Baird. Your question, please.

Hi. Good afternoon.

Hi Tristan.

Hi. Can you hear me?

Yes.

Okay. Great. What are your expectations for point of sale in Q2? And how do you see inventory levels changing at distis? Do you expect distributors to reduce inventory levels? And as such the POS will be actually above the POP which you just guided? And what also will be the implication for Q3 if there is some inventory deleveraging in Q2?

Well, I will let Emily answer your POS questions.

Right. So Tristan, I think overall we feel that Asia would have a good momentum for Q2 because we actually see the strength both from the backlog and booking as well as the POS point of view. The big question is really North America and Europe. We are definitely seeing some slowdown. It really depends on how soon the end customer factory recovery will happen. I think you know we definitely included everything that we know already into our guidance. So our guidance is actually better than I think most of our peers, as you can see. So that’s really based on the knowledge we have. But inventory days we definitely continue to monitor closely and our ideal range is 11 to 14 weeks and that has still continued to be our goal. A lot of time, the last few days of the quarter kind of dynamically change the situation but that still remains the goal. I think it really depends on the recovery of the market, and a little bit higher inventory definitely can help us with faster lead time and short delivery quick turn as well. So we are seeing the benefit of that. I think, for Q3 it's kind of difficult to estimate at this moment and we are not in a position to provide guidance. But in general, we definitely hope the market will start seeing some recovery in Q3.

Okay. Great. And then given the continued market share gains that you have experienced in automotive, will you say that the automotive end market in China, which I think may be around 40% of your total automotive exposure, has that stabilized quarter-on-quarter? Or is it still declining sequentially? From a unit standpoint, so not your dollar content but actual automotive units in China?

Right. I think overall automotive units definitely declined, not only in China, right. That's the overall market. So we definitely are seeing that as well. So our automotive gained market share, like I mentioned, is really focusing on the content expansion. And also past few years on the demand in design win effort and we started seeing some results. So market is one thing, our content is another thing. That has been the philosophy and focus for Diodes: to really continue to expand on the demand creation, continue to expand the sockets. Yes, you are right, we are overall seeing the demand decrease from the unit point of view, not related to Diodes, and that's really how we have been focusing on, is really like I said content expansion and also releasing quite a number of new products targeting in this area to continue to drive technology improvement as well.

So even though the automotive market slowed down or weakened quite a lot, we still, year-over-year and quarter-over-quarter, our revenue still grows. That's really very good compared with our peers because we are able to accomplish that due to the past design wins and past customer engagement.

Great. Thank you.

Our next question comes from Tianyan Goellner from Sidoti. Please go ahead with your question.

Yes. Thank you for taking my questions. So first one, just on the clarification, well, a little bit of color on OpEx. It looks like R&D and SG&A also came in a little bit higher as a percentage of revenue compared to the most recent quarters. So I am wondering how much of those increases were driven by just the Coronavirus? What else drove the increase? And how should we think in the near future?

I think our R&D and SG&A actually in the fourth quarter last year compared with third quarter last year actually dropped 5% or 6%, right, so 5% or 6%. And that's because Q4 is the holiday in the U.S. and Europe, the Christmas holidays. Then you go to Q1, we are almost flat between Q4 and Q1. And that Q1 is during Chinese New Year. So Asia expenditure for R&D and SG&A is slower, but U.S. and Europe are up. So they are above. Total from Q4 to Q1 is above that. Therefore, we don't really expect that to go down to Q4, we think it's slightly going down, because all the traveling restrictions are no more, and people working from home, well in U.S. and Europe, most of the people working from home. But Asia can travel; we don’t encourage them to travel. So with this, the travelling expenses go down some but we don't expect a major reduction in operational expenses, R&D, and SG&A.

Okay. Thank you. And probably the next one would be just some color on the industrial. Emily, if you can help me understand, it looks like industrial really, I know the general market is weak, but can we just talk about how we should think about for 2020? And just some color would be very appreciated.

Okay. So I think overall, just like you said, right, the industrial overall segment is actually a down segment. So it's similar to our automotive segment. Overall market is down, but we have been continuing to focus on demand creation, driving content expansion and design wins. Design win efforts in the past few years are helping us to continue to increase the revenue in this market. I think there are definitely different segments within industrial. The key is really continuing to focus on the expansion of the content. If we have more cars selling to the same customers on the same application, and that's really where we actually gain the revenue improvement.

Okay. Thank you. That's it for me.

Thank you. This does conclude the question-and-answer session of today's program. I would like to hand the program back to Dr. Keh-Shew Lu for any further remarks.

Thank you for your participation on today's call. Operator, you may now disconnect.

Thank you. And thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. Everyone have a great day.