Q1 2020 Earnings Call
Good afternoon, and welcome to diodes incorporated first quarter 2020 financial results Conference call. At this time all participants are in listen only mode at the conclusion of today's conference call instructions.
We'll be given for the question and answer session. If anybody needs assistance. It anytime during the conference call. Please press star followed by zero and you touched on telephone as a reminder, this conference call. Please be recorded today Monday may 11th 2020, I would now like to turn the call over to Leann Cbres of Shelton group.
Investor Relations Leann. Please go ahead.
Good afternoon, and welcome to diodes first quarter 2020 financial results Conference call I'm Leanne Sievers President of Shelton Group does Investor relations firm joining us today are diodes, President and CEO Dr. Kitschy, Lu Chief Financial Officer, Brett Whitmire, Vice President of worldwide sales and marketing Liang and director of Investor Relations Lora Merrill.
Before I turn the call over to Dr. Lu I'd like to remind our listeners that the results announced today, our preliminary as they were subject to the company finalizing its closing procedures and customary quarterly review by the company's independent registered public accounting firms as such these results are unaudited and subject to revision until the company filed its form 10-Q, four its first quarter 2000.
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 question.
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 90 95.
Actual results may differ from those discussed today and therefore, we refer you to more detailed discussion of the risks and uncertainties in the company's filings with the FCC, including forms 10-K and 10-Q.
In addition, any production does to the company's future performance represent management's estimates as of today may 11th 2020 doubts assumes no obligation to update these projections in the feature as market conditions may or may not change except to the extent required by applicable. Additionally, the company's press release in management's statements. During this conference call will include discussion a certain measures.
In financial information and GAAP and non-GAAP terms included in the company's press release, our definitions and reconciliations of GAAP to non-GAAP items, which provide additional details.
Also throughout the company's press release and management's 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 end tire call. At this time, a recording will be available via webcast for 90 days in the Investor Relations section of adult website at Www Dot diodes Dot com and now I'll turn the.
Call over to diodes, President and CEO Dr. Shi like Dr. Lu. Please go ahead.
Thank you Dan.
Welcome everyone.
And thank you for joining us today.
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We currently expect to defer second quarter ready meals in March.
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Before turning to pull over to Brett.
I would like to provide a brief update on old post would you shouldn't off die on semiconductor.
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At the end too much we receive.
Why youd regular route to the approve.
From Taiwan Authority.
Including.
Hi, one for trade Commission.
And the foreign investment approval from the investment Commission, all the Ministry of economic I'll switch.
We also [laughter] then no homesite date.
Good morning, and the she'll shop on women.
From me so do you foresee twentytwenty till December so do you foresee twentytwenty.
Okay wait the diffuse schedule for that reason Chinese authorities and Associate Corporation process.
Well need to be completed.
The remains consistent with the previously communicated expected close date.
Hope to second half help twentytwenty.
Lisa.
Let me know couldn't no coal hooked to Brett to discuss how first quarter financial results and our second quarter Twentytwenty guidance in more detail.
Thanks, Dr. Lu and good afternoon, everyone.
As part of my financial review today, I'll focus my comments on the sequential change.
Each of the line items and will.
Turning to our press release for a more detailed review of our results as well as the year over year comparisons.
Revenues for the first quarter 2020.
$280.7 million, that's compared to 301.
Point $2 million in the fourth quarter 2019.
Gross profit for the first quarter was $95.8 million.
For 34.1% of revenue.
Compared to the fourth quarter 2019 of $109.4 billion was 36.3% of revenue.
GAAP operating expenses for the first quarter 2020 were $70 million.
Or 24.9% of revenue.
And on a non-GAAP basis were $65.4 billion or 23.3% of revenues.
Which excluded 4.2 million of amortization of acquisition related intangible asset expenses.
And $400000 of acquisition related costs.
This compares to non-GAAP operating expenses in the prior quarter.
$65.2 million or 22% of revenue.
Total other expense amounted to approximately $896000 for the quarter, including $1.2 million of interest expense partially offset.
Like 273000 of interest income and 76000 of other income.
Income before taxes and non controlling interest in the first quarter 2020 was $25 million.
Compared to $59.6 million in the previous quarter.
Turning to income taxes, our effective income tax rate for the first quarter was approximately 18.3%.
GAAP net income for the first quarter 2020 was $20.2 million.
Or 38 cents per diluted share.
Compared to GAAP net income.
$47.2 million or 90 cents per diluted share in the fourth quarter 2019.
The share count used to compute GAAP diluted EPS for the first quarter 2020 was 52.4 million shares.
Non-GAAP adjusted net income and the first quarter was $23.9 billion.
Were 46 cents per diluted share, which excluded net of tax 3.5 million of non cash acquisition related.
Intangible asset amortization costs and approximately $300000.
With acquisition related costs.
This compares to non-GAAP adjusted net income of $33.8 million were 65 cents per diluted share in the fourth quarter 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 gap.
Adjusted net income.
GAAP net income to EBITDA, which provides additional details.
Cash flow generated from operations was $53.7 million.
For the first quarter 2020.
Free cash flow was $39.5 million for the first quarter, which included 14.2 million.
Capital expenditures.
Net cash flow in the first quarter was a positive $11.4 million, which includes a pay down.
$16.6 million of long term debt in the first quarter.
Turning to the balance sheet at the end of the first quarter cash cash equivalents, well 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, which reflects a $9.2 billion decrease in finished goods and a $6.4 million decrease in working.
Process, and an $11.3 million increase in raw materials.
Finished goods inventory days was flat at 29 compared to fourth quarter 2019.
Total inventory days increased slightly.
115 in the quarter compared to 112 last quarter.
Capital expenditures on a cash basis for the first quarter 2020.
$14.2 million were 5.1% of revenue.
This is at the low end of our target model of 5% to 9%.
For the full year 2020, we spoke 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, what your GAAP 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 billion.
Income tax rate is expected to be 18% plus or minus 3%.
Shares used to calculate diluted EPS for the second quarter for anticipated to be approximately 52.8 million.
Please note that purchasing accounting adjustment of $3.2 million after tax preparer, calling in previous acquisitions are not included in these non-GAAP estimates.
With that said I now turn the call over to Emilie Yang.
Thank you Brad and good afternoon into first quarter revenue decreased 6.8% sequentially. Pos revenue in Asia was due to the impact of krona virus in January February followed by a strong recovery March Pos in both North American Euro with up in the quarter.
She where their inventory in terms of weeks with slightly above our targeted range interpace we.
Both Europe, and North America inventory day decrease Inc. first quarter and Asia inventory days increased due to this really expected and customer manufacturing capacity recovery.
Looking at other global South into first quarter Asia declined 12% sequentially to 75% off the total revenue and Europe, and North America combined increased 12% over the prior quarter two represented 17% of 8% off their best respectively.
In terms of our end markets industrial end market represented 26% revenue Communications 23, consumer also 23 computing 17, and automotive, 11% Oh revenue.
Now, let me review the end market in greater detail.
Starting with automotive I have continued to gain market share in this end market growing both sequentially and year over year to 11% also told reference. This accomplishment is even more no more fee in the current backdrop. The market 10 decrease related to the cobot 19 pad that make a consistent.
This market isn't directly so all the content expansion focus and new D., saying you signed with effort over the last few years, which most recently we saw that you have significant newsy sanguine Asia during the quarter.
Also secured beside across a number of new products, including various mosque that I see S.P. automotive rate Tvs in momentum controlled lighting powertrain and connected driving including a death infotainment and telematics applications.
With a record increase of electronic into days Heidi connected cars.
Box, yes, protections, becoming increasingly more imports.
Aren't growing family of protection products offers high reliability and high performance, yes, the correction for connected driving application.
Our portfolio Inc.
Sandbox nine bus Ethernet and high speed data like protectors that Congress next to a spectrum of connected rising.
Similar to last quarter I is once again, so continued success with our proprietary SCR technology, supportable, where a wide range of applications, including E. Bike. We also continue to build momentum over the last two quarters in our sensor business for broad applications, including back like Opex control side.
Our control processes Mckee and position detection. We also have success with sensors and switches, hence we call the interface and power train control system. Additionally, new d., signing with secure for five or LTL.
Jim Reske Cmos image sensing applications and hard newly released BGR LCD driver is useful automotive tell 19 application.
In the industrial end markets, we continue to gain traction for most proud of the key applications like brushless DC motor.
And now you see lighting using buys SGT maass technology for low power law and normal density tranche boss technology, better safe operating area.
Sounds off our switching die is also growing a quarter supporting numerous applications, including it might seem much system.
Yeah, sure printers, and security system, similar our rent to fire use in broad range of application system ascend to ensure strom luminous intensity, a halo gene lighting system to drive demanding mechanical automation system and heat pumps.
With a rapid adoption of high see interface across multiple industrial <unk> I OTN applications, yes, the protections also becoming more important but this title doubling.
Hi season line pipe bomb teachers, ultra low capacitance with industry, leading search handling and yes, the protection characteristics.
Platform offers best in class, Yes, you can be voltage oklahomas, while minimizing capacity and building on the data lines.
Also in the industrial market design, we actually city for newly released linear driver aimed at the street lighting market with strong.
Additionally, we saw increasing demands were newly introduced AC oxide de Novo product, Oh easy box for industrial and commercial application.
In the consumer market, we've seen growth for our de CPC product hike her own one and our family protection products Oh, he he dry.
Oh, how easy TV, LCD monitors and TV back like application our protection products continue to expand our footprint with small size innovative supers, hi search football match protection platform applications like your phone wearable portable devices TB and smart speakers.
Also during the quarter, we continue to maintain our leadership position well, yes, B type C solutions that are widely deployed in consumer applications, including tablets and gaming console.
Most which is also gaining traction on mobile devices notebooks and tablets applications. In addition, we have seen deciding for posterity medical applications like cost oximeter as well as email, but then.
Dialing and ratify in home devices like consumer smoke and fire alarms, Hum irrigation and got Ratched <unk>.
In communications, we are seeing new design wins for both teach reference products in power modules with telecommunication applications, including top tier brands for Fiveg Mobile communications size GE continue to drive demand for P. Matson en masse products to protect by GE RF amplifier large lose power it inside.
GP power station in order to sneak power consumption.
We also continue to launch new Mas product leveraging our high density process combined with miniature DFN CSP packaging to meet the challenging space and power density requirements that this market.
Similarly, our SBR shockey products continue to increase penetration of mobile and smartphone market by offering a thing there profile compact I mentioned to enable significance basically.
Mobile phone function such as conference call audio the boss me bat and wireless charging continue to see growth area for protection.
What I say S.P. within the mobile hands that market, we supported strong customer demand bharti products, including our tiny DFM once euroseas packet switching iOS and our ultra low the cage died.
Also supported numerous application for fast and ultra fast recovery gratified, including those in the S or do you want to react package as well as I apologize, but trust me Magic fighters.
Lastly, in the computing market, we continue to gain increasing traction across a broad product portfolio, including far Pericom I see progress, which as Dr. Lou mentioned, a chief second highest revenue quarter aspect, we saw strong female bar products in high in soccer storage datacenter and notebooks.
Specifically, we see increasing demand for users type C General switching protection.
No integrity solutions for high end tablets laptops, and commercial docking station, our news release family of Cogenerators and called buffers that meet piece I Express fight outflows this medication or decide in nature surfer datacenter Oems worldwide.
Additionally, our SBR rectify shockey products continue to be in high demand for PC fancy surfers and so for power where bias offer cost performance in high temperature operating environment. Our shockey retrofit technology also continued to mean UTI site.
Applications, such as adopters, yes, the power Gen, that's great and H X problem.
But also be secure explore hi, <unk> rig count voltage products for applications, such as power over Ethernet surfer power datacenter and power applications.
Summary, I first quarter results second quarter guidance served as a further testament to the ice ability to manage through challenging environments.
This quarter also Ford are highlighted its effect off our past you started we momentum and new product initiative over the past several years in automotive market, specifically as well as our total solution sales approach with addition off our Pericom IC products.
With that we have now open the floor two questions operator.
Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered and you'd like to move yourself from the Q. Please press the pound key our first question comes on line of Gary Mobley from Wells Fargo. Your question. Please.
Good afternoon, everybody. Thanks for taking my question hope everybody staying safe.
I want to was started up by asking about the.
The linear deal a bookings during the quarter and as well through.
First half here of of the second quarter I. Appreciate the fact is been a lot of moving parts and.
In a lot of things you've had to navigate over the last four months, but have you seen any sort of a recovery.
You know in your end markets here in the early part of a second quarter or are we waiting.
For some north American or European manufacturing facilities to open more fully any color you can get there would be helpful.
Okay, Hi, Gary This is family. 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 Asia I would say the second we are off April we definitely start seeing a choice.
Came from the backlog situation in a booking situation for Europe, and North America, we still see Asia pretty strong carry through the momentum, but definitely there is a slowdown in North America Europe I would think second happily Pearl and also me and this is exactly like what you mentioned.
This is really due to some of the factory shutdown you know in North American going up that we see there are some schedule for the factory to resume whether it's going to be a you know what what is a percent haijun by when that's deal we have to wait and see.
But overall, you know Asia, we see industry, but Europe, and North America definitely our Oh, we weaker than we expected.
Okay.
Brett I'm curious to know how much of an impact to gross margin under utilization and cobot 19 related inefficiencies you know.
How much that influence gross margin in the first quarter and as well how much of that isn't to ensure influencing your guidance for the second quarter.
[noise] well the biggest thing that impact us in first quarter was you had.
Basically the time off for Chinese new year, which is usually a week ended up being more like two weeks. So that was the biggest impact we had in first quarter and I think we'll see that recover consistent with our.
Our demand and as we move into second quarter.
Well, okay, the first quarter.
No just a Chinese new year 30 day.
And he surety is a lot of global ease the men the people return to walk.
The door Dan.
The previous stable use.
Previous several years.
When the Chinese new year people return to walk.
The first week, we probably get 50% or people come Doug.
Then you know probably 60 70 in about one month.
Almost get but to no.
Production.
But this year.
Due to no 110 of the people so when they started in February 10.
Oh, then people from Shanghai.
They returned to walk they can no reserve report walk may need to Clinton fall 14 days before can they can report walk.
So when people took a don't go us doing as possible uptick maybe 10.
They can know report.
And then order Walker.
We.
Well Uh huh.
Pull these.
They can know Hubert returned to walk.
The new pool, when we started in play Buda Tim.
In the first we.
Only that 30%.
Instead of 50% or the walk a comeback.
[laughter] almost until and dome much to get.
For the older people, we supposed to be happy to 40 report walk.
So these.
Yes.
Much worse.
Then the previous.
CIBIL iOS off the fourth quarter.
And do cool, Okay pasta utilization.
Well I did you say Oh mingling pp, we viewed too I know the.
If.
Much worse than before.
That's why we.
Oh GP.
Door, then you don't before.
Okay.
Dr. Lu I didn't quite catch everything you said about the Putney Leno acquisition correct me, if we're wrong, but we're just waiting for final approval from from China, and and and so did you comment that you expect the acquisition to close to <unk> at the very end of calendar year 2020 or within your previously.
Just goes window, the second half of this calendar year.
No.
What we expect is during the second half of 2020 to close in the light on acquisition Gur, Yeah, there, but to date one coal the.
Outside Outsize day, and typically Oh, so that means if you.
But that's not no deal okay. So we see the whole sudden or digitally.
Thank goodness you expect I can you can you hear me.
Yeah.
Okay great.
What is your expectation for point of sale.
You too.
You know and how do you see the entry level.
Jason This do you expect distributors to reducing inventory levels and as such the Pos would be actually above to PEO piece, which she just guided and what should we be the implications for Q3 activities some inventory deleveraging in Q2.
Well I am lead times are you the Pos.
Question.
Right. So Tristan I think overall, we do expect Asia would have a good momentum for Q2, because we actually see the strain both from the backlog and bookings as well as the Pos point of view.
The big questions really in North America, Europe, we definitely see some slowdown it really depends on how soon the end customer factory recovery will happen and so I think you know we definitely included everything that we know already into our guidance and so you know our guidance is that.
Actually.
Other than I think most of our peers as you can see I'm. So that's really based on the knowledge that we have well inventory days that we definitely I'll continue to monitor closely and the our ideal range is 11 to 14 weeks and that is still continue to be our goal I'm you know a lot of time the last few days.
The quarter tied to that met that maybe change the situation, but that's still remained a goal I think you know it really depends on the recovery of the the the market and a little bit higher inventory. A you know definitely can help us with faster lead time as you know.
Short delivery quick turns as well so we seen benefit of bad I think for Q3 I'm you know it it's it's kind of difficult to us to estimate at this moment, we're not in the position to provide the guidance, but in general we definitely halt the market with Darcy some recovery in Q3.
Okay, Great and then given the continued market share gains that you.
Experienced in the automotive.
Did you said at the automotive end market in China, which I think maybe 40% mature total on automotive exposure has that stabilized quarter on quarter or is it still declining sequentially funny units standpoint, so not that youre not your dollar content, but actually.
Automotive units in China.
Right I think Oh for automotive unit definitely decline not only in China right. That's all for all the market I'm sorry, we that's only seen that as well so our automotive gain market share like I mentioned, it's really focusing on the contact expansion and also past few years.
On the demand besides Mt Sinai we.
As far as we start seeing some we solved so you know Mark has one thing our calm patents are there things. So that has been the philosophy and photos with iOS is really continue to expand on the demand creation continue to expand the sockets right. So yes, you're right. We overall seeing that demand decrease.
From the unit point of view I'm not related to the iOS and that's really how we've been focusing on its really like I said compact expansion and also releasing quite a number of new product targeting in this area continue to drive the technology improvement as well.
So you've been in automotive market.
No no.
But oh, but the we steel.
Over you.
Quarter over quarter, I'll remind you still grow.
That's really you know.
Very good competitive with you know peers, because we are able to accomplish that due to the Paris based on when Oh Paris.
Just think instrument.
Great. Thank you.
[music].
Thank you once again, ladies and gentlemen, as a reminder, if you'd like to ask a question that this time. Please press Star then one our next question comes the line of T.N. Gardner from Sidoti Your question. Please.
Yes. Thank you for taking my questions. So first the one just on the current clarification well I lived a collar Oh opex. So it looks like on the D. and SGN. A also came I look at a higher you know as percentage of revenue compared to the most original quarters. So I'm wondering how much of those increased.
Was driven by they know it just the corno virus, what al Pacino drove the increase on how should we think Keno hill in the near future.
I think Oh, yeah. This year name is actually in the in the fourth quarter last year compared with third quarter last year acuity.
Oh, 6%, one so fell 6%.
And that's because.
Two is the holiday in U.S., you know the Christmas holiday.
And then you go to one Q.
Oh, you know blood between full queuing one Q.
And now for Q1 Q.
In counties have you thought any shield expenditure for on do you see a night.
Slowdown, but U.S. euro.
So they are they.
The ball totally well Q1 Q is above that.
And do pool.
We don't really expect.
No that.
So two full Q we.
Light duty going down.
The gross order troubling Oh, the troops in normal and though.
Most of people working.
Well you live in Europe, most of the people working from home.
But but.
Sure.
They can travel, but today, we don't encouraging them.
Okay. So we'd be do that Trebling expenses go down some but we don't expect a major.
Reduction on operational thanks.
Yes to your name.
Okay. Thank you and probably next phone with just some color on the industry.
How many if you can help me to understand it looks like industrial I really.
I know the did the general market this week, but how can we just to talk about you know how should think about four foot 2020, and a you know just some color would it be very appreciate.
Okay. So I think overall just when you look like is that right industrial overall, our segment is actually about seven so is similar to our automotive segment.
Overall market it sounds like we have been continuing to focus on demand creation of driving the contact expansion you say easy signed we ask for is actually in the past few years, helping us to continue to increase the revenue in this market. So I think there's definitely different segments within industry.
I think that he is really continue to focus on our expansion of the content. If we have more parts selling to the same customer on the same application and that's really where we actually gain the revenue improvement.
Okay. Thank you that's for me.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Dr. kicks you do for any further remarks.
Thank you for your participation.
On today's call.
Operator, you may now disconnect.
Thank you. Thank you, ladies and gentlemen shoe participation in todays conference. This does include the program.
Everyone have a great day.
[music].