Q1 2022 Diodes Inc Earnings Call
Good afternoon, and welcome to diodes incorporated first quarter 2022 financial results Conference call. At this time all participants are in a listen only mode. At the conclusion of today's conference call instructions will be given for the.
A question and answer session if anyone needs assistance at any time during the conference call. Please press the star key followed by the zero on your touch tone telephone as a reminder, this conference call is being recorded today Wednesday may four 2022.
I'd now like to turn the call over to Leah Sievers of the Shelton Group Investor Relations Leanne. Please go ahead.
Good afternoon, and welcome to diodes first quarter 2022 financial results Conference call I'm Leanne Sievers, President of Shelton Group diodes Investor Relations firm.
Joining us today are diodes, chairman, President and CEO , Dr. Ku, Li Chief Financial Officer, Brett Whitmire, Senior Vice President of worldwide sales and marketing and Liang Senior Vice President of business groups, Gary Yu, and director of Investor Relations or meat Deli Paul.
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.
As such these results are unaudited and subject to revision until the company filed its Form 10-Q.
For 2022 fiscal quarter ending March 31, 2022. 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 1095 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 Companys filings with the Securities and Exchange Commission, including forms 10-K, and 10-Q. In addition, any projections as to the Companys future performance represent managements estimates as of today may.
For 2022 diodes assumes no obligation to update these projections in feature 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 and financial information in GAAP and non-GAAP terms, including the Companys press.
Our 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.
Our relations section of <unk> website at Www Dot diodes Dot com and now I'll turn the call over to <unk>, Chairman President and CEO . Dr. <unk>. Dr. Lu. Please go ahead.
Thank you Tien welcome everyone.
Thank you for joining us today.
The first quarter.
Indeed, a continuation of outstanding execution by the <unk>.
<unk> team is.
Especially considering the quarter you said typically Sydney.
And the reason hope everyday deduct down in China.
Notably in the Shanghai.
We once again set new records across key financial metrics.
Including the six consecutive quarter of record revenue.
And the gross profit.
<unk> gross margin that.
Exceeded 40% for the first time in company's history.
And the fifth consecutive quarter of record non-GAAP , earning per shares.
Before continuing.
First take this moment to extend whisht two rows affected by the drop downs in China impact.
And particularly our employees and.
<unk>.
We have been providing relief assistance.
Employees, including <unk> and show a regimen in our local facilities.
In addition to providing full meal.
We consider all employees family members and it is important to the company to be part.
Philippine them get through those difficult times.
Yes.
Turning back to our stock.
Our strong revenue and margin performance in the quarter.
<unk> to be soybean by Rick.
In the automotive market.
For each reached 13% of revenue.
The industrial market as well.
For our appeal come Florida.
Gross margin expanded 720 basis point year over year.
Due to a greater mix of higher margin products.
With expanded.
Utilization ended loading.
Another key factor to our ongoing success has been our.
Content expansion.
Steve.
And our total solution sales approach.
Expanded customer relationships and the including design in momentum.
And when we combined it with our diligent expense management.
We did you put almost 90% increase in adjusted earnings per share over the previous year period.
During the quarter.
We will also pleased to announce the proposed a petition of the own semi south Portland, Maine wafer fabrication facility.
And the operation.
Fitch provided additional 200 millimeter wafer fab capacity for Illinois quarter to accelerate our growth in these deals in automotive and industrial end markets.
We expect this transaction to close date in the second quarter.
That U S based facility.
<unk> with our existing facilities in Asia and Europe .
We further enhanced our global manufacturing footprint and the greatly increased our internal capacity to support our future.
Q2 growth.
Looking for the grille and the demand for our products remain high doable across all target market and the geography.
And we are guiding for our ninth consecutive quarter of growth.
And our seventh consecutive quarter of record revenue in the second quarter.
And also anticipate.
Year of strong growth and profitability for titles.
With that let me now turn the call over to Brett to discuss our first quarter financial results.
Our second quarter 2022 guidance in more detail.
Yes.
Thanks, Dr Lu and good afternoon, everyone.
As a part of my financial review today, I will focus my comments on the sequential change for each of the line items and would 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 2022 was a record $482 1 million, an increase of 0.4% from $482 million in the fourth quarter 2021.
Gross profit for the first quarter was also a record at $196 $7 million, representing a record 48% of revenue, increasing three 1% or 110 basis points from $197 million or <unk> 39.
7% of revenue in the fourth quarter 2021.
GAAP operating expenses for the first quarter 2022 were $103 6 million or 21, 5% of revenue and on a non-GAAP basis were $99 5 million.
Our 26% of revenue, which excludes $3 9 million of amortization of acquisition related intangible asset expenses, and <unk> 3 million of acquisition related costs.
This compares to non-GAAP operating expenses in the prior quarter of $100 1 million or 28% of revenue.
Total other income amounted to approximately a negative $2 2 million for the quarter.
Assisting a $5 5 million of unrealized loss on investments $1 1 million and interest expense $1 9 million of other income $1 7 million in foreign currency gains and 800000 of interest income.
Income before taxes and Noncontrolling interest in the first quarter of 2022 was $98 million.
<unk> to $108 8 million in the previous quarter due primarily to a couple of non-GAAP items that included the gain on the sale of our manufacturing subsidiary last quarter and unrealized loss on investments in the first 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 2022 was $72 7 million or.
Our $1 59 per diluted share compared to GAAP net income of $65 5 million or $1 43 per diluted share in the fourth quarter of 2021.
Net income per diluted share in the first quarter increased 82, 8% year over year from the 87 per diluted share in the first quarter of 2021.
Share count used to compute GAAP diluted EPS in the first quarter 2022 was $45 9 million shares.
non-GAAP adjusted net income in the first quarter was a record $83 million or $1 75 per diluted share, which excluded net of tax $4 $2 million noncash.
Noncash mark to market adjustment of investments $3 2 million of acquisition related intangible asset costs, and <unk> 2 million of acquisition related costs. This represents a nine 4% improvement from last quarter of $1 60 per diluted share or <unk> 73.
$3 million and an 88, 2% improvement from <unk> 93 per diluted share or <unk> $42 million in the first quarter of 2021.
Excluding share based compensation expense of $6 4 million for the first quarter, both GAAP earnings per share and non-GAAP . Adjusted EPS would have increased by <unk> 14 per diluted share for the first quarter.
EBITDA for the first quarter was $118 2 million or 24, 5% of revenue compared to $139 million or 28, 9% of revenue in the prior quarter.
On a year over year basis, EBITDA increased 44, 8% from $81 $7 million in the first quarter of 2021, highlighting our continued improvements over the past year.
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 $72 3 million for the first quarter 2022.
Free cash flow was $33 8 million for the first quarter, which included $38 5 million for capital expenditures.
Net cash flow was a negative $68 million, which included the paydown of approximately $67 6 million of long term debt Capex and a deposit on the proposed acquisition of the on semi wafer facility.
Turning to the balance sheet at the end of the first quarter cash cash equivalents restricted cash plus short term investments totaled approximately $315 million.
Working capital was $689 million in total debt, including long term and short term was $232 million.
In terms of inventory at the end of first quarter total inventory days were approximately 113 as compared to 107 last quarter.
Finished goods inventory days were <unk> 34, compared to 32 last quarter.
Total inventory dollars increased 21 4 million to approximately $370 million total.
Tori in the quarter consisted of a $24 $3 million increase in raw materials.
$1 $9 million decrease in work in process and a $1 million decrease in finished goods.
Capital expenditures on a cash basis for the first quarter 2022 were $38 5 million or 8% of revenue, which is within our target model of 5% to 9%.
Now turning to our outlook.
Backlog and demand remained very strong going into the second quarter, but due to the COVID-19 related lockdowns in China, especially in the Shanghai area capacity was impacted at our local facilities during the first months of the quarter until now.
With our excellent execution and recent improvements we are guiding for sequential growth and expect revenue to be approximately $500 million plus or.
Minus 3%.
GAAP gross margin to be 41.0% plus or minus 1% non.
non-GAAP operating expenses, which are GAAP operating expenses adjusted for amortization of acquisition related intangible assets are expected to be approximately 21.0% of revenue plus or minus 1%.
We expect net interest expense to be approximately $1 2 million. Our income tax rate is expected to be 18, 3% plus or minus 3% and shares used to calculate diluted EPS for the second quarter are anticipated to be approximately $46 3 million shares.
Please note amortization of $3 $2 million after tax for previous acquisitions is not included in these non-GAAP estimates.
That said I will now turn the call over to Emily Yang.
Brett and good afternoon first quarter revenue increased slightly quarter over quarter, which is better again to take hostess analogy and above the midpoint of our guidance, primarily driven by strong demand across all regions. We could have achieved even a higher level of supply if.
If we had not been impacted by the China, Lockdown and Covid related transportation challenges that limited the product delivered to the customers.
Looking more closely at first quarter revenue, we achieved record worldwide <unk> revenue due to the strength in Europe and in America, both of which had record revenue Asia also continue to have very strong demand, but <unk> was impacted slightly due to the China lockdown and associated product delivery challenge.
In the quarter as a result distributor inventory in terms of weeks increased slightly quarter over quarter due to our distributors not being able to ship product to our end customers, but yet remain at the low end of our defined range of 11 to 14 weeks overall demand and backlog remains very strong across all regions.
And end markets.
Looking at our global sales in the first quarter Asia represented 76% of revenue.
10% in North America, 11% in terms of our end markets computing represented 27% of revenue industrial 26% consumer, 18% communication, 16% and automotive 13% of revenue we achieved a record revenues in automotive industrial and communications.
Our kit.
<unk> product also set a new revenue record, which is seven consecutive quarters.
I would also like to point out that our automotive industrial end markets combined total of 39% of revenue, which is one step closer to our 2025 target of auto industrial representing 40% of the total revenue.
Now, let me review end markets in greater detail.
Beginning with automotive market revenue increased 26% year over year, and 9% sequentially to set a new record for the seventh consecutive quarter. This is particularly noteworthy considering the extremely supply constrained environment. Our ongoing success in this market can be at shipyards.
Two our content expansion initiative over the past several years.
Additionally, our design win momentum has also been a key contributor to our growth in particular with our three focused application areas that includes connected driving comfort safety and style powertrain I will share some highlights in each of this application area.
In the connected driving which consists of Adas telematics and infotainment system, we continue to expand our compact demand with new design wins for our oscillators Crystal clock IC video switches USB type C re drivers ldls power switches pvs and DC DC converters. Additionally.
USB charging controllers TBS MOSFET bipolar product continued to see higher demand for in vehicle USB type C. Charging course in wireless charging applications.
For the conference Guy is safety, we continue to gain traction for LCD drivers SBR and DC DC converters for applications, including headlights daylight running light realized exterior lighting and sideview mirrors detection and major automotive manufacturers.
Also during the quarter, our newly introduced high side <unk> continued to gain strong interest for led lighting cc thing window powered lift and infotainment subsystem Diose also continue to offer competitive FCT MOSFET.
Automotive brushless DC electric motor applications like power steering feel oil ABS pump power seats and mirrors.
In powertrain, which covers conventional hybrid and electric vehicles, the increasing prevailing a 48 volt battery system is driving additional demand for our <unk> and Hendrik MOSFET, we're seeing design wins for USB, two <unk> switches and SBR products inside a central control unit and the EV Inverters.
Along with better fire and TBS in electrical Motors, lithium battery management system and EV charges.
Now turning to industrial market revenue grew 38% year over year, and 9% sequentially to set a new record for the fourth consecutive quarter. We saw a large number of designing for motor controls.
<unk> industrial Iot applications in particular for our high voltage now isolated AC DC converter family. We also continue to see broad design in traction for industrial and commercial building lighting power supply applications as well as power to DC DC fan brushless DC motor window electron.
Onyx and industrial HVAC.
System. Additionally, Green factory automation and power distribution system drove specifier in Pvs sales higher in applications, including sensor control panels power distribution and charging system. Our content image sensor product line continued to see momentum from separate applications such as checks.
Scanner IV car scanner documents scanner and steel automated optical inspection or <unk>.
In the computing market revenue increased 5% year over year, but declined 6% sequentially, primarily due to typical seasonality in the quarter and slower demand on the low end PC market. We continued to gain strong traction in this market, especially for our <unk> product, we secured numerous design wins.
Listen no switching analog Max in surfers datacenter workstations, AI OTC and monitor along with display formats in the graphic cards. We also saw strong demand for SSD, Max driven by enterprise high capacity SSD modules and SSD controllers. We have also gained momentum in the data center.
In high performance computing applications with our PCI Express five <unk> clock generators and buffers switches and re drivers also we expanded our wins in mobile station's gaming and laptop notebook desktop applications with our USB type C downstream facing poor power switches hall sensors.
But calm waters as well as HDMI re drivers.
Also during the quarter, we continue to see increasing interest for a combo switches and great drivers in the docking station dongles active tables, and TVN applications ratify our television ads and switching guidance product also posted higher revenue salad in D C and compact power supply applications.
For both notebook and desktop Pcs.
In the communication market revenue grew 10% year over year and was up slightly from the prior quarter to set a new revenue record PCI Express buffers are getting traction in <unk> CPE applications. We also saw new design wins for our high PSS are ldls in smartphones apps.
Patients with solid revenue growth. We also saw strong design win momentum in optical modules, which has been the leading driver for our crystal oscillator business.
Polar products also achieved new design wins in a variety of applications, including headsets routers, and IP phones, and IP cameras powered pvs product sales, increasing educational support product and safety critical communications system for hospitals schools and universities.
In our consumer market revenue increased 11% year over year was down 6% sequentially, primarily due to typical seasonality combined with slower consumer demand in China region. During the quarter, our linear LTE E driver with numerous designs at one of the largest consumer vendor for phones.
Smart home and Iot devices.
We're also seeing adoption of HDMI six gateway per second and 12 gigabit per second re drivers in major PC chipset reference design for Iot applications.
Our DC DC converter family continued to see strong demand from the consumer and home appliance market, while our stereo headphone drivers and pistol found drivers receive increasing demand for smart speakers and Bluetooth tracker system application. We also saw revenue growth from applications like smoke.
Factors sensors electronic home applications for our retrofire and TBS products.
In summary, with other quarter of record results and high level of demand and backlog value was starting out a new year very well positioned for continued strong growth throughout the year and with the future addition of our semi wafer fabrication facility and operation.
We have the increase available capacity to meet this growing demand, which is proving to be a strong competitive differentiation for diodes in this supply constrained environment with that we now open the floor to questions operator.
Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchstone telephone. If your question has been answered and you'd like to remove yourself from the queue. Please press the pound key.
First question comes from the line of Matt Ramsay from Cowen Your question. Please.
Thank you very much good afternoon, everyone.
Congratulations to the team on the results, especially given the operational challenges in China right now.
I guess, that's my first question for the team Dr. <unk> can.
Can you guys try to give.
Give us some sort of quantification of the impact that you've seen to your results both in the first quarter and second quarter guidance just given.
All of the Covid Lockdowns in China, and the operational situation over there if theres any way to quantify that I mean, it's pretty remarkable that you're able to.
So how about a beat and raise quarter given all that's going on over there and I'd just like to understand that impact a bit better. Thank you.
Okay.
Sure.
I, probably cannot keep you pick a number okay, but.
Shanghai.
One of our major operation, but it should not only operation.
And.
We.
Above.
Somewhat due to through the <unk>.
Some tremendous traction.
<unk>.
Thank you Jim for Us.
And we have to do.
Who are the major site and then we have other full payout hum product.
Crystal and host today top victories for for Assembly and then we have at OFC.
So.
Shanghai.
That is not a measure.
Major 80 operation for Us.
Okay.
Number two.
For full Q1, Q actually is <unk>.
Virtually is only.
Don.
All week.
Al.
And the court.
And do forward.
Yes.
Yes.
It's not a major issue that's what we are able to.
Our guidance.
And.
And you don't perform.
A breaker.
A new record profits.
So the impact should not do.
No.
The second quarter.
We already.
<unk>.
April 1st months of the quarter, So we know how much.
For us that's why we.
On April two.
<unk> instead of <unk>.
<unk> TP.
Typically.
This time.
We are guiding.
Three points.
Thanks.
And.
But the key thing is for.
For the future.
Still no.
Yes.
Yet.
Even today.
The Shanghai.
Leo.
Do you even at the end.
Reduced zone.
Still a ball.
No.
Neon in people.
Out of the 26 million people in Shanghai area. So you can see it's not 100% Paul growing slightly.
Yeah.
Santos 60 segment, 60%, 65%.
Okay.
But we have a pretty exited.
Execution team.
Virginia.
Quinn.
Don.
And Tom Smith.
Mo.
We immediately taking we saw coal growth.
For each.
And we are able to.
Continue using the people we were down in the factory.
Okay great.
Go to production produce.
And then we watch all the piece parts.
Our pvt and tried to.
Get.
Maybe it did hit the government gave us a special permission.
To be able to us.
After the wafer somewhat.
<unk> PA.
<unk>.
To come to the factory for <unk>.
<unk> operation.
<unk>.
Alright.
Don't think.
We are going to be have a major.
Paul.
Our operation point of view I think we are pretty good.
Outstanding.
Execution team.
Right now we are more confident will be.
Paul.
No.
We don't know.
One to be.
Shipment.
The operations, Okay. So do you.
More concerned us by phone.
Our own operation.
Our demand still very strong.
Our backlog is still very strong.
Hey, Ed.
Therefore.
We believe we can make our guidance.
Yes.
As you can imagine the situation extremely dynamic so the team has been very creatively as well as aggressively to minimize the impact.
Right and I would like also for more color on that as well.
The lockdown is going to be end of someday in the future. Okay, but the key question is how can we come back really quickly. So the employee over days that our priority. Okay. So we've taken care of our employees not only for <unk> itself, but also for their family. So they appreciate our company's effort and they work very hard to make Arco.
This is the one thing I want to put a note on that.
Okay. Thank all three of you for the color there.
I understand it's a very fluid situation all the way around.
Follow up question, Emily I think you've touched on it at the very end of your prepared script, which is the ability to continue to add capacity.
I know you guys are going to be adding.
Capacity at G fab, it in Scotland, and overtime and value.
Gotten the deal to acquire the fab from on semi.
I guess that may support some of the products that they're walking away from in some parts of their business. So if there is any way we could get a quantification on magnitude and timing of the additional capacity youre going to be able to bring online sort of outside of Asia that would be really really helpful. Thank you.
Okay.
We are.
<unk> been step two one is wafer fab.
<unk> is <unk>.
Because we bolt.
Very tight on the capacities.
And if you took it from wafer fab.
I think we can say we are not key or.
Have a good planning.
If you look at the.
Keith we purchase.
<unk> 2019.
Todd.
That facility.
We support team.
This instrument.
And that support is coming down 10%.
Slowly come down 10% yield therefore.
We already start to qualify.
Product to ramp it up.
Area.
So you can see when.
Texas instrument demand.
Our commitment to the Texas instrument.
10% each year.
We could go up 10% to support our own demand.
Okay.
And number the dealer the 10%.
Compared with our our number of deals then.
Wafer is much more more than.
When we talk about 10%, okay. So that is G fab.
Then obviously.
You already know.
<unk> for the wafer from older semis, Okay in that.
We expect to close.
Next month, <unk> and Endo decent months Thats, what we expect okay.
Then.
We will start to move in our technology and we may not be immediately available, but we think.
Up to.
One year.
We should be able to again.
Kris significantly.
Our wafer capacity will fab capacities.
This is al.
And another one actually is.
But <unk>.
And we ramp it up.
We almost.
Now so if you look at our continue output.
Then you'll be much.
Todd and thus yield because you just stockholm volatile to ramp it up so thats. Another one then.
The one in <unk>.
<unk>, which we purchased from LLC.
Continue increase their capacity because originally at the beginning of last year, we only 50% DAU than end of full Q last year, we are going to the 19.
At the same time, we continue in that capacity.
All when I give you. This one you can see we still have.
Potential continue grow.
For our own need then from <unk> point of view.
Again.
C a T.
They are not fully loaded.
We're going to.
Using that to build in it and we start to.
Some of the.
Neat.
They go to these this unknown loaded.
OFC capacities and at the same time.
Our Shanghai Fab.
Ours tend to flip we have.
Continue.
<unk>.
Pasty.
Actually we took in at the deep <unk>.
And to continue increase the capacity.
No.
Capacity is very tight.
I assume we.
Table two.
Continue.
Increase in supporting our strategic customers.
And at the same time.
This kind of support we are able to detail a very strong relationship with our strategic customers.
And so I think.
That's how we can.
We can continue grow.
For our ambitions.
Did that answer your question.
Okay.
Our next question comes from the line of Tristan <unk> from Baird. Your question. Please.
Hi, Good afternoon, a quick follow up question regarding U K.
Outside South Dakota and domain fab.
Could you remind us is that falling 16 show you're planning on making eight inch upgrades.
And also are you.
Into a.
Foundry service commitment to or is the production going to go straight to your product and how long does it take to quantify your own product. If you could talk a little bit about the transition that you expect to there.
Okay, Hi, this is Gary and first let me answer your question in the South Portland wafer for Ashley for eight inch equivalent okay. So.
In the short term, we do have a plan to continue to support honestly, Amit business and just like the case, we did for the Ti go through Archie fab, Okay and at the same time, we are qualify or what first of all our technology in the process, our internal wafer fab to the new wafer fab and also we are qualifying our product is spec.
Like analog those kind of advanced acknowledged device into this wafer fabs, so to me and public Tiger one and.
In the half hour to get our product qualified and in production that wafer if at a certain time, okay on semi probably the service the inventories are going down and they're down so thats probably our plant.
Well, we have the amendment to support AUM.
Full.
Post 40 supported for one year.
And so our loading Paul or Tom.
But we would take that year.
The.
Start to put in the process the technology to support our own product and give the customer notification.
And then start to ramp so the timing is just right because we support them.
We can start to go up hours right. So this is.
Is that what we do with Stifel.
To support Ti and then come down 10%, So we'll ramp it up.
Each year.
And so we know how to do it.
The chief acquisition come out to help us adopt in IPD.
This fab demand should be help us Sydney way.
Alright, chief, but helping us yes definitely.
Okay great.
And then how should we look at.
Pricing trends obviously.
There were a number of price increases last year industry wide do you see those price increases slowing a bit later this year and how do you view that.
Full year company wanted to the whole industry.
Yes, I think Tristan offer all right the market situation didn't change much from the last time, we talked right that demand and backlog is still extremely strong. So there is still an imbalance between supply and demand offer right. So doing this kind of market condition.
You don't get much of the price pressure, but more on the supply pressure right. So we don't really expect the price.
<unk> will come down.
What we talk about also with the price increase side as always take a more strategic view. So we want to work with our customers very closely only passed on the cost to the customer in return we can expand our customer relationship. We can continue to grow our compact with think the bar, we think the customer.
So we've seen a lot of good traction and a lot of success and that will continue to be the diodes strategy moving forward.
Great. Thank you very much.
Yeah.
Thank you. Our next question comes from the line of William Stein from two Securities. Your question. Please.
Thanks for taking my questions. Congrats also on.
Very good results and outlook considering all the.
All of the disruptions that are going on and I wanted to follow up on that topic.
With regard to the Covid Lockdowns are are you experiencing this.
Effect on your business more as a matter of supply of materials.
<unk> parts.
Disrupting your ability to manufacture or is it just simply disruption capacity in the plant or is it more of a disruption in the ability to ship to customers or customers' ability to take the product and I'm trying to get.
Figure out whether it's.
I guess.
Sort of more skewed by issuer demand issue.
I think the most.
<unk> is the people.
None.
Able to.
Good.
The prior or building material because we took ahead.
And we are able to.
Negotiate a special permission with the government to give us.
To get us.
Wafer shipment from from our fab or building material defer more compounds from our surprise so.
Today, two today I don't think we really.
Second by the building material and I think that should give the credit for our management team overdue because they are watching very closely that take a proactive action to kit.
The building material.
Ahead of time too.
Phil to prevent any shortage.
And then infections Paul.
But.
The key thing is really the vim Paula.
Full wheat, when you deduct them the people cannot come in.
Okay.
So the people the waukegan deal.
<unk> 40 days, so Fortunately, we had to ship with the people. So one shift working 12 hours.
And then when they're off they go to sleep in.
<unk>.
The area.
Okay then.
<unk>.
We build in the show room for them to take in the shower.
We provide them.
Each shift we provide them two meals.
So they can they are working on 12 updated come back come down they will receive 12 hours and then I'll turn the ship the other ship over the call back.
We don't have enough people, okay <unk> genuity.
We only have about 50% 60% of the people too.
The debt to be there, but then when they.
Start to goes up.
No all the area was reduced but.
Weak.
We started okay, who is the.
In the recent wrong.
Thanks, Dan and then us and come back to work.
Judy when that song also reduced.
From the COVID-19.
Clean then.
Austin and to come back and they will quickly come to work.
And now.
We can start continue.
Increase our NIM.
So even today, we are not 100%.
The people yet, but we are able to produce.
Yes.
Majority of our need.
Yes, So let me let me add additional staff from the I would say both supply and demand definitely theres some impact right. So from the supply side, just like Dr. Lu mentioned, the manpower to labor definitely have impact as definitely there is a retailer.
Output over all.
On the other side and you look at the demand I think I talk about the logistic challenges some of our customer also have reduced output capacity as well.
Actually the reason I talk about in Asia at the end of Q1, it was not a record but still very very good because overall as a company we have a globally record Pos.
That's also kind of impacted because the logistics on the inventory side, a little bit impact over there. So I would say combination of both and what we've been doing is actually very aggressively and creatively to finding different ways to overcome the challenges.
I appreciate that but I have one follow up I would imagine factory utilization is extremely high right now, but I wonder if you can.
Quantify that maybe across the network of factories that you have it.
That's a sensible thing.
Thank you.
Well I think one of the things that.
We're continuing to see is that.
Across the as we've mentioned across the Fabs were running mid to high 80%, which we call full some are higher than others at the same time in the <unk>, our highest running a teaser in the mid nineties and as we address that were taken multiple prong efforts to increase capacity as Dr. Lu went through a little bit earlier.
And one thing.
We are all we were talking about this one thing I do need to mention to you.
East.
More concern is our customer.
Okay.
I just get the report.
First come.
In total we just grosses.
Quantum.
<unk> in Toronto did just announce they're going to shut them down seven days from.
Today.
So.
That is more concerning yes, well our customer.
May not be able to.
Right.
Certainly there for us to manage our customer because the even the government our customers announced a shutdown and they have to shut down so in other words, they probably cannot use our product to build anything, but I think about sky's products ability to ship.
Backlog to a different kopra, who come enabled who is able to bill that's why we could reduce reduce our risk to this type of docs yet.
If I can squeeze one response question linked to that.
Guidance contemplate.
The potential for these additional sort of ongoing shutdowns or if we see more news such as what you just described should we.
Be more concerned about your guidance.
So I would say we actually built in.
As of today, what we know already into our guidance right. So if the lockdown situation in China get worse or the situation dramatically changed over all.
But overall, we can see there is a strong backlog we can see the strong book to bill ratio and strongly sell from Q1, that's actually the reason, we still provide a really strong guidance for Q2 overall rate.
But to be overall, we assume is what we know today and we make that assumption.
Youll see Shanghai area that I said at the beginning when the shutdown but.
Doug.
Give me of this month.
Start to reduce fab from the total 16.
Counties, Okay, and staff from one county to County.
And every two to three days one more two more in queue. Today I just mentioned to you is about 15 million people out of $25 million.
And that reduced the result, so we track very closely every day.
The colon.
<unk> our guidance is based on.
We see.
Today, right and other thing keep in mind that I also talk about it even China, maybe there's some slowdown.
We are extremely extremely strong in Europe , and North America from the seven point of view automotive industrial continue to be very strong all the capacity a lot of.
Devices can be actually used in multiple applications multiple regions and multiple customers, that's actually how we manage and our.
Diversify some of the risks that you talk about so I would say.
Our guidance is definitely at while we base.
As of today to provide it to you.
Thank you.
Thank you once again, ladies and gentlemen, if you have any questions. At this time. Please press Star then one our next question comes from the line of David Williams from Benchmark. Your question. Please.
Hey, good afternoon, thanks for taking the questions and congrats on the continued progress.
I wanted to ask maybe first back to Louis if you've seen any any changes in customer order patterns or maybe any of the behaviors. There or are you seeing anyone that's being maybe a little more cautious or conservative in terms of their inventory stocks are what they are trying to produce just kind of given the backdrop that we have.
Seems like we're heading into with inflation in store consumption.
Yes, David This is <unk>, let me answer the question. So first of all from the order behavior point of view, we didn't really see any significant change right. So overall like I mentioned the backlog is extremely strong book to bill ratio very high all in all if I look at Apio as record revenue end of Q1.
Actually has a good.
Story to tell right. So the market is still extremely strong there are some pockets of slowness at the low end Pcs I talk about that maybe China consumer demand a little bit softer but.
It seems like a nash or other capacity is shared.
We have really really strong demand from the other areas. So it's not a concern for us overall.
Okay fantastic.
And then if I just kind of thinking about your revenue guidance, it's a fairly new.
Nice step up about $18 million sequentially.
Is that driven more by capacity that you are bringing on or is this more pricing because it seems like you've been fairly capacity constrained and just kind of curious how that how that revenue. What the makeup is there right.
So I think if you think about it we talk about product mix right. That's one of the strategies that would be enforcing.
Expand our product into the new or newer application different customers I would say really that's a key point capacity. We have ongoing expansion just like Dr. Lu mentioned before whether it's <unk> or assembly cycle, we do ongoing increase in quarter over quarter right. So I would say all in all together with the business.
That's the reason that we all provide a strong guidance for Q2.
Okay Fantastic and then maybe just one last quick one for for Brett.
You think about the margin progression, particularly now that you are north of that 40% kind of a longer term target. How do we think about the margin trajectory here and should we maybe expect a more aggressive target range as we head through the year.
And David Let me answer that question as well so when the market improvement one of the key things that driving factor for that is actually the product mix improvement right. So if we continue to exit here, what we've been doing and continue to show that we sell I do believe you will continue to see.
Margin continued to improve over time right. So.
We talk about how sticky those products are I think it's more of an effort more stickier than now, especially with our building very very strong customer relationship.
David One thing I think we're talking referring to is we are very weak.
We have represented our 2025 planned very openly and that plan was modeled on essentially to get to our goal of $1 billion of gross profit. We said hey, a reasonable model is $2 5 billion of revenue and 40% margin and I think what we would say as we look at it now.
Is that that plan is still very focused on gross profit of $1 billion and we continue to expect our margin traction to exist and we continue to think that if you were to model. It today, maybe that suggests that the revenue doesn't have to be as high but we will continue to be focused on our gross profit dollar.
And our goal.
Very good thanks, so much I certainly appreciate the time.
Thank you. Thank you.
This does conclude the question and answer session of today's program I'd like to hand, the program back to Dr. <unk> 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 for your participation in today's conference. This does conclude the program you may now disconnect good day.
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