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spk08: Good afternoon and welcome to Diodes Incorporated First Quarter 2022 Financial Results Conference Call. At this time, all participants are in listen-only mode. At the conclusion of today's conference call, instructions will be given for the 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 touchtone telephone. As a reminder, this conference call is being recorded today, Wednesday, May 4, 2022. I would now like to turn the call over to Leanne Seavers of the Shelton Group Investor Relations. Leanne, please go ahead.
spk05: Good afternoon and welcome to DIODE's first quarter 2022 financial results conference call. I'm Leanne Seavers, president of Shelton Group, DIODE's investor relations firm. Joining us today are DIODE's chairman, president, and CEO, Dr. Kei-Shu Liu, Chief Financial Officer, Brett Whitmire, Senior Vice President of Worldwide Sales and Marketing, Emily Yang, Senior Vice President of Business Groups, Gary Yu, and Director of Investor Relations, Urmeet Dhaliwal. Before I turn the call over to Dr. Liu, I'd 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 2022 fiscal quarter ending today. March 31st, 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 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 Securities and Exchange Commission, 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 4, 2022. Douds 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 and financial information in GAAP and non-GAAP terms. including the company's press release or 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 DIODE's website at www.diodes.com. And now I'll turn the call over to DIOS Chairman, President, and CEO, Dr. Kei-Shu Liu. Dr. Liu, please go ahead.
spk03: Thank you, Leanne. Welcome, everyone, and thank you for joining us today. The first quarter represented a continuation of outstanding execution by the DIOS team, especially considering the quarter is typically done seasonally and the recent COVID-related lockdown in China, most notably in the Shanghai area. We once again set new records across key financial metrics, including the sixth consecutive quarter of record revenue and the gross profit, record gross margin that exceeded 40% for the first time in the company's history, and the fifth consecutive quarter of record non-GAAP earnings per share. Before continuing, let me first take this moment to extend our well-wish to those affected by the lockdowns in China, in particular our employees and their families. We have been providing relief assistance for impacted employees, including sleeping and shower arrangements at our local facilities. In addition to providing formulae, we consider all our employees' family members and It is important to the company to be part in helping them get through those difficult times. Turning back to our result, our strong revenue and margin performance in the quarter continued to be driven by record achievement in the automotive end market, which reached 13% of revenue. the industrial market as well as for our Pelcom product. Gross margin expanded 720 basis point year over year due to a greater mix of higher margin product along with expanded factory utilization and the loading. Another key factor, to our ongoing success has been our content expansion initiatives and our total solution sale approach, resolving expanded customer relationships and including design in momentum. And when we combined it with our diligent expense management, we delivered an almost 90% increase in adjusted earning per share over the previous year period. During the quarter, we were also pleased to announce the proposed acquisition of the Onsemi South Portland Man Waver Fabrication Facility and operations. which provided additional 200-millimeter wafer-fab capacity for aero products to accelerate our growth initiatives in automotive and industrial air markets. We expect this transaction to close today in the second quarter. The U.S.-based facility, together with our existing facilities in Asia, and Europe will further enhance our global manufacturing footprint and greatly increase our internal capacity to support our future growth. Looking forward, the backlog and the demand for our products remain at a high level across all target end markets and geographies. 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 anticipating another 30 year of strong growth and profitability for DIOS. With that, Let me now turn the call over to Brad to discuss our first quarter financial results and our second quarter 2022 guidance in more detail.
spk01: Thanks, Dr. Liu, 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 percent from $480.2 million in the fourth quarter 2021. Gross profit for the first quarter was also a record at $196.7 million, representing a record 40.8 percent of revenue. increasing 3.1% or 110 basis points from $190.7 million or 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 dollars. or 20.6% of revenue, which excludes $3.9 million of amortization of acquisition-related intangible asset expenses and $0.3 million of acquisition-related costs. This compares to non-GAAP operating expenses in the prior quarter of $100.1 million, or 20.8% of revenue. Total other income amounted to approximately a negative $2.2 million for the quarter, consisting of 5.5 million of unrealized loss on investments, 1.1 million in interest expense, 1.9 million of other income, 1.7 million in foreign currency gains, and 800,000 of interest income. Income before taxes and non-controlling interest in the first quarter of 2022 was $90.8 million, compared 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 a 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 of 2022 was $72.7 million, or $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 cents per diluted share in the first quarter of 2021. Share count used to compute GAAP diluted EPS in the first quarter of 2022 was 45.9 million shares. Non-GAAP adjusted net income in the first quarter was a record $80.3 million, or $1.75 per diluted share, which excluded net of tax, $4.2 million non-cash mark-to-market adjustment of investments, $3.2 million of acquisition-related intangible asset costs, and $0.2 million of acquisition-related costs. This represents a 9.4% improvement from last quarter of $1.60 per diluted share, or $73.3 million, and an 88.2% improvement from $0.93 per diluted share, or $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 14 cents 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 it provides additional details. Cash flow generated from operations was $72.3 million for the first quarter of 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 $60.8 million, which included the paydown of approximately $67.6 million of long-term debt, CapEx, and a deposit on the proposed acquisition of the OnSemi 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, and 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 34 compared to 32 last quarter. Total inventory dollars increased $21.4 million to approximately $370 million. Total inventory in the quarter consisted of a $24.3 million increase in raw materials, a $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 of 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-related lockdowns in China, especially in the Shanghai area, capacity was impacted at our local facilities during the first month 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%, and GAAP gross margin to be 41.0%, plus or minus 1%. 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. With that said, I now turn the call over to Emily Yang.
spk06: Thank you, Brett, and good afternoon. First quarter revenue increased slightly quarter over quarter, which is better than typical seasonality and above the midpoint of our guidance, primarily driven by strong demand across all regions. We could have achieved even a higher level of performance 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 POS revenue due to the strength in Europe and in America, both of which have record revenue. Asia also continues to have very strong demand but POS was impacted slightly due to the China lockdown and the associate product delivery challenge late 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 remain very strong across all regions and markets. Looking at the global sales in the first quarter, Asia represented 76% of revenue, Europe 13%, and 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 the record revenues in automotive, industrial, and communication markets. Our Paracon product also set a new revenue record, which is seven consecutive quarters. I would also like to point out that our automotive, industrial, and markets combined total 39% of revenue, which is one step closer to our 2025 target of auto and 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% sequential 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 attributed to our contact expansion initiative over the past several years. Additionally, our design wind momentum has also been a key contributor to our growth. In particular, with our three focus application areas that includes connected driving, comfort, safety, and style, powertrain, I will share some highlights in each of these application areas. In the connected driving, which consists of ADAS, telematics, and infotainment system, we continue to expand our contact demand with new design wings for oscillators, crystals, clock ICs, video switches, USB Type-C redrivers, LDOs, power switches, TVS, and DC-DC converters. Additionally, USB charging controllers, TVS, MOSFET, and bipolar products continue to see higher demand for in-vehicle USB Type-C charging ports and wireless charging applications. For the comfort, style, and safety, we continue to gain traction for LED drivers, SBR, and DC-DC converters for applications including headlights, daylight running lights, rear lights, exterior lighting, and side-view mirror detection at major automotive manufacturers. Also during the quarter, our newly introduced HiSight IntelliFact continued to gain strong interest for LED lighting, sea heating, window power lift, and infotainment subsystems. DIOS also continued to offer competitive SGT MOSFET to support automotive brushless DC electric motor applications like power steering, fuel, oil, ABS pump, power seats, and mirrors. In powertrain, which covers conventional hybrid and electric vehicles, the increasing prevalence of 48-volt battery system is driving additional demand for our 80-volt and 100-volt MOSFETs. We're seeing design wings for USB 2.0 switches and SBR products inside the central control unit and the EV inverters, along with rectifier and TVS, in electric motors, lithium battery management system, and EV chargers. 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 design-ins for motor controls, home automation, industrial IoT applications, in particular for our high-voltage, non-isolated AC-DC converter family. We also continue to see broad design interactions for industrial and commercial building lighting, power supply applications, as well as power tool, DC-DC fan, brushless DC motor, window electronics, and industrial HVAV systems. Additionally, green factory automation and power distribution system drove rectifier and TVS cells higher in applications including sensor control panels, power distribution, and charging system. Our contact image sensor product line continued to see momentum from several applications, such as check scanner, ID card scanner, document scanner, and field automated optical inspection, or AOI. 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 continue to gain strong traction in this market, especially for our Paracom products. We secure numerous design wins for signal switching and analog MUX in server, data center, workstation, AIO PC, and monitor, along with DisplayPort MUX in the graphic cards. We also saw strong demand for SSD MUX driven by enterprise high-capacity SSD modules and SSD controllers. We are also gaining momentum in the data center and high-performance computing applications with our PCI Express 5.0 clock generators and buffers, switches, and redrivers. Also, we expanded our wings in mobile stations, gaming, and laptop, mobile desktop applications with our USB Type-C downstream facing power switches, hall sensors, buck converters, as well as HDMI redrivers. Also during the quarter, we continue to see increasing interest for combo switches and re-drivers in the docking station, dongles, active cables, and TVM applications. Rectifier TVS and switching diodes product also posted higher revenue sales in DC fans 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 5G CPE applications. We also saw new design wins for our high PSS RR LDOs in smartphones applications 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. Bipolar products also achieved new design wins in a variety of applications, including headsets, routers, IP phones, and IP cameras. Power TVS product sales increased in educational support products and safety-critical communication systems for hospitals, schools, and universities. Lastly, in the 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 driver with numerous designs at one of the largest consumer vendor for phone, smart home, and IoT devices. We are also seeing adoption of HDMI 6 gigabit per second and 12 gigabit per second redrivers in major PC chips that reference design for IoT applications. Our DC-DC buck converter family continue to see strong demand from the consumer and home appliance market, while our stereo headphone drivers and pistol sound drivers receive increasing demand for smart speakers and Bluetooth tracker system applications. We also saw revenue growth from applications like smoke detectors, sensors, and electronic home applications for our rectifier and TVS products. In summary, with other quarter of record results and high level of demand and backlog, DIOS is starting out a new year very well positioned for continuous strong growth throughout the year. And with the future addition of on-semi wafer fabrication facility and operations, we have the increased available capacity to meet this growing demand, which is proving to be a strong competitive differentiation for DIOS in this supply-constrained environment. With that, we now open the floor to questions. Operator.
spk08: Certainly. Ladies and gentlemen, if you have a question at this time, please press star then 1 on your touch zone telephone. If your question has been answered and you'd like to remove yourself from the queue, please press the pound key. Our first question comes from the line of Matt Ramsey from Cowan. Your question, please.
spk10: 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. Liu, can you guys try to give us some sort of quantification of the impact that you've seen to your results, both in the first quarter and the second quarter guidance, just given all of the COVID lockdowns in China and the operational situation over there. Is there any way to quantify that? I mean, it's pretty remarkable that you're able to have a beaten race quarter given all that's going on over there. And I'd just like to understand that impact a bit better. Thank you.
spk03: Okay. I probably cannot give you an exact number, okay? But, you know, Shanghai is one of our major operations but it's not only operation. And, you know, we have about some of you through the counter-manufacturing to do packaging for us, and we have turned to another major site, and then we have other for pale harm product, crystal and oscillator factories. for assembly. And then we have LSC AT. So, you know, Shanghai duck down is not a major AT operation for us. Number two, for 4Q, for 1Q, actually it virtually is only start to duck down about last week of the end of court. Therefore, the impact to us is not amazing. That's why we are able to exceed our guidance and perform a record revenue, record profits. And so the impact is not there. The second quarter, we already go through the first month of the quarter. So we know how much impact for us. That's why we are able to, well, we are guiding instead of, you know, seasonality, typically at this time, 5%. we're guiding 3.7%. But the key thing is for the future, we still not have clear picture yet. Even today, the Shanghai area still, even at the release zone, is still about 50 million people out of the 26 million people in Shanghai area. So you can see it's not 100%. It's probably slightly better than 50% or 60, 65% are reduced. But we have a very accident execution team over there. We, when this duck-down announcement come out, we immediately taking we so-called closed-loop operation. And we are able to continue using the people we was duck-down in the factory and aggressively go to production, produce the stuff. And then, you know, we watch out the Peace Park ability and try to, you know, get the government, give us a special permission to be able to get some of the the wafer, some of the piece part to come to the factory for continued operation. So, you know, I don't think we're going to have a major problem from our operation point of view. I think we are very good, outstanding execution team over there. Now, we are more concerned with our customer. You know, we don't know what's going to happen in their operations. Okay, so this is more concern from us. But from our own operation, our demand is still very strong. Our backlog is still very strong. Okay, and therefore, We believe we can make our guidance.
spk06: Yeah, so, you know, as you can imagine, right, the situation is extremely dynamic. So the team has been very creatively as well as aggressively to minimize the impact.
spk07: Right, and I would like also put a more color on that is the, you know, the lockdown is going to be ended someday in the future, right? Okay, the key question is how can we come back really quickly, and so the employee over there is our priority. Okay, so we're taking care of our employee not only for MTU itself, but also for their family. So they appreciate the company's effort, and they work very hard to make our goal. So this is the one thing I want to put a note on that.
spk10: Thank all three of you for the call there. I understand it's a very fluid situation all the way around. My follow-up question, Emily, I think you 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 GFAB in Scotland over time, and now you've gotten the deal to acquire the fab from Onsemi, I guess that may support some of the products that they're walking away from in some parts of their business. So if there's any way we can get a quantification on magnitude and timing of the additional capacity you're going to be able to bring online sort of outside of Asia, that would be really, really helpful. Thank you.
spk03: Okay. This, we, from, well, that is separate from two. One is Wave of Fed. One is AT, because we both is very tight on the capacities, okay? And if you look at from, I think either we can say we are lucky or we have a good planning, you know? If you look at the GFAP we purchased in year 2019, that That facility, we supporting the Texas instrument and that support is come down 10% a year. That loading come down 10% a year. Therefore, we already start to qualify by our product to ramp it up in that area. I mean, in that way. So you can see when Texas Instruments demand or our commitment to the Texas Instruments go down 10% each year, we can go up 10% to support our own demand. And the number there, 10%, compared with our number there, then the wafer is much more than 10%. you know, when we're talking about 10%. Okay, so that is GFAP. Then, obviously, you know, you already know our acquisition for the wafer from Onsen Mice. Okay, and that we expect to close next month or end of this month. That's what we expected. Okay, and then we would start to move in our technology. And we may not be immediately available, but we think after one year, we should be able to, again, increase significantly of our wafer capacity, wafer fab capacities. So this is, and another one, actually, is expect two and we ramp it up and we almost ramp up now. So if you look at the continued output, you know, then you'll be much better than last year because last year just start from very low to ramp it up. So that's another one. Then the one in In JK Fair, which we purchased from LLC, we continue increase their capacity because originally at the beginning of last year, we are only 50% off. Then end of 4Q last year, we are go to the 90. But at the same time, we continue adding the capacity. So overall, when I give you this one, you can see we still have a potential, continue grow for our own need. Then from AT point of view, again, LHC-AT, you know, they are not fully loaded and we're going to, you know, using that to load in it and we start to offload some of the need, okay, go to these unloaded AOC capacities. And at the same time, SAT, our Shanghai FAB, and our Chengdu FAB will continue adding capacity. And actually, we're looking at the need and continue increase the capacity. Capacity is very tight, but I think we are able to continue increase and then supporting our strategic customers. At the same time, But by this kind of support, we are able to develop a very strong relationship with our strategic customers. And so I think that's how we can continue to grow for our own business.
spk08: Did that answer your question? Our next question comes from the line of from Baird. Your question, please.
spk04: Hi. Good afternoon. A quick follow-up question regarding your Fairchild, South Portland, Maine FAB. Could you remind us, is that 4-inch, 6-inch? Are you planning on making 8-inch upgrades? And also, are you into a foundry service commitment, or is the production going to go straight to your product, and how long does it take to qualify your own product, if you could talk a little bit about the transition that you expect there?
spk07: Okay, hi, this is Gary. And first, let me ask you a question. And the South Portland Wafer Fab actually is an 8-inch equipment. Okay, so in the short term, we do have a plan to continue to support on-summit business. And just like the case we did for the TI, go through our GFAB. Okay, and at the same time, we are qualifying our, you know, we'll transfer our technology and the process from our internal wafer fab to the new wafer fab. And also, we are qualifying our product, especially like analog, you know, those kind of advanced technology device into this wafer bed. So, to me, and it probably take one and a half hour to get our product qualified and production in that wafer bed. At the same time, okay, I'm sending probably the service, you know, the administration going down and down. So, that's probably our plan.
spk03: Well, we have the commitment to support on for... Fully supported for one year. And so our loading probably won't go down. But we will take that year and start to put in the process, the technology to support our own product and give the customer notification.
spk00: Mm-hmm.
spk03: and then start to ramp it. So the timing is just right because we support them when they go down, we can start to go up ours. So this is, we, it's like what we did with GFAP. You know, we committed to support TI and then come down 10%, so we ramp it up each year. And so we know how to do it and I think, the GFAP acquisition come out to help us adapt, and I believe this FAP in man should be help us similar way like GFAP to helping us. Yeah, definitely.
spk04: Okay, great. And then how should we look at the analog 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, you know, for your company relative to the whole industry?
spk06: Yeah, I think, Tristan, overall, right, the market situation didn't change much from the last time we talked, right? The demand and backlog feel extremely strong. So there's still an imbalance between supply and demand overall, right? So during this kind of market condition, right, usually you don't get much of the price pressure, but more on the supply pressure, right? So we don't really expect the price pressure would come down. You know, what we talk about also, you know, with the price increase, dyers always take a more strategic view. So we want to work with the customers very closely, only pass down the cost to the customer. In return, we can expand our customer relationship. We can continue to grow our content. within the bond, within the customer. So we're seeing a lot of good tractions and a lot of success, and that will continue to be the dial strategy moving forward.
spk04: Great. Thank you very much.
spk08: Thank you. Our next question comes in the line of William Stein from Chua Securities. Your question, please.
spk09: Thanks for taking my questions. Congrats also on very good results and outlook considering all the all the disruptions that are going on. And I want to follow up on that topic, um, with regard to the COVID lockdowns are, are you experiencing this effect on your business more as a matter of supply of materials and, and piece parts that's disrupting your ability to manufacture, or is it, uh, just simply a 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 figure out whether it's, you know, I guess sort of more viewed as a buy issue or a demand issue.
spk03: Well, I think the most effect is the people. None. We are able to get customers. the supply of building material because we look ahead and we are able to negotiate a special permission with the government to get us the from our FAB or building material different more compound from our supply. And we today, till today, I don't think we really get affected by the building material. And I think that should give the credit for our management team over there because they watch it very closely. They take a proactive action to get the building material way ahead of time to prevent any shortage of all manufacturing problem. But the key thing is really the manpower. When you duck down, the people cannot come in, okay? And so the people, they walk in there 40 days. So fortunately, we have two shift for the people. So one shift walk in 12 hours, and then when they're off, They go to sleep in our cafeteria or office area. Okay? Then we build in the shower room for them to take in the shower. We provide them, each shift, we provide them two meals. So they can, they walk in on 12 hours. After they come back, come down, they will rest 12 hours and then After the other shift over, they go back. But we don't have enough people. Originally, you know, we only have about 50, 60% of the people to be there. But then when they start to loose up, no, all the area was released. But, you know, we... we start to look at who is in the release room, contact them, and then ask them to come back to work. And immediately, when the zone was released from the COVID-19 clinic, then we'll ask them to come back, and they will quickly come to work. And that way, we can start continue increase our manpower. So even today, we are not 100% have the people yet, but we are able to produce, you know, maturity of our need.
spk06: And that's... Yeah, so let me add additional. So from the... I would say both supply and demand, definitely there's some impact, right? So from the supply side, just like Dr. Liu mentioned, The manpower, the labor definitely have impact on us. Definitely there's a reduced, I would say, output overall. But on the other side, you look at the demand. I think I talked about it, the logistic challenges. Some of our customers also have reduced output capacity as well. That's actually the reason I talk about in Asia, POS 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 very creatively to finding different ways to overcome the challenges.
spk09: I appreciate that. If 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, if that's a sensible thing. Thank you.
spk01: Well, I think, Will, one of the things that we're continuing to see is that across the, as we've mentioned, across the fabs, we're running mid to high 80%, which we call full. Some are higher than others. At the same time, in the ATs, our highest running ATs are in the mid-90s, and As we address that, we're taking multiple prong efforts to increase capacity, as Dr. Liu went through a little bit earlier.
spk03: Well, and one thing, you know, when we were talking about this, you know, one thing I do need to mention to you is I'm more concerned it's our customer, okay? You know, I just get the report, you know, first come, first serve. In Zhengzhou, which is closest, Guangdong in Shanghai area, right? In Zhengzhou, they just announced they're going to shut down, duck down, seven days from today. So, you know, that is more and more concerning while our customer may not be able to... Right, it's very uncertain for...
spk07: us to manage our customers because if the government or customer side announced a shutdown, they have to shut down. In other words, they probably cannot use our product to build anything. But I think that's got flexibility to shift our backlog to different customers who is able to build. That's why we can reduce our risk to this kind of production.
spk09: If I can squeeze one response question into that, does 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, you know, be more concerned about your guidance?
spk06: So I would say we actually built in all the as of today, what we know already into our guidance, right. So if the lockdown situation in China get worse, or the situation dramatically change, overall, But overall, we consider the strong backlog, we consider strong book-to-bill ratio, and the strong resale from Q1. That's actually the reason we still provide a really strong guidance for Q2 overall, right?
spk03: But to be overall, what we assume is what we know until today. And we make assumption, you know, great, you see, Shanghai area, like I said, at the beginning, when it shut down, but the At the beginning of this month, they start to reduce some. There are total 16 counties, okay? And start from one county, two county, and every two, three days, one more, two more. And until today, I just mentioned to you, It's about 15 million people out of 25 million is in the release zone. So we're tracking very closely every day. And the current assumption, our guidance, is based on what we see today.
spk06: Right. And the other thing, keep in mind that I also talk about it. Even China, maybe there's some slowdown. But we are extremely, extremely strong in Europe and North America. From the segment 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, you know, diversify some of the risks that you talk about. So I would say, you know, our guidance is definitely what we base on. as of today to provide it to you.
spk04: Thank you.
spk08: Thank you. Once again, ladies and gentlemen, if you have a question at this time, please press star then 1. Our next question comes from the line of David William from Benchmark. Your question, please.
spk02: Hey, good afternoon. Thanks for taking the question, and congrats on the continued progress. I wanted to ask me first, Dr. Louie, if you've seen any changes in the customer order patterns or maybe any of the behaviors there. Are you seeing anyone that's being maybe a little more cautious or conservative in terms of their inventory stocks or what they're trying to produce? Just kind of given the backdrop that it seems like we're heading into with inflation and slower consumption.
spk06: Yeah. David, this is Emily. 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 the POS record revenue end of Q1, that actually has a good, you know, story to tell, right? So the market is still extremely strong. There are some pockets of slowness, you know, the low NPCs. I talk about it. Maybe China consumer demand a little bit softer. But since, you know, like I mentioned, all the capacity is shared, So when we have really, really strong demand from the other area, so it's not a concern for us overall.
spk02: Okay, fantastic. And then if I just kind of think about your revenue guidance, it's a fairly nice step up, about, I guess, $18 million sequentially. Is that driven more by capacity that you're bringing on, or is this more pricing? Because it seems like you've been fairly capacity constrained, and just kind of curious how that revenue, what the makeup is there.
spk06: Right. So I think if you think about it, you know, we talk about product mix, right? That's one of the strategies that we've been enforcing, continue to expand our product into the newer application, different customers. I would say really that's a key point. Capacity, we have ongoing expansion, just like Dr. Liu mentioned before. whether it's FAP side or assembly side. So 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 provide a strong guidance for Q2.
spk02: Okay, fantastic. And then maybe just one last quick one for Brett. As you think about the margin progression, particularly now that you're north of that 40%, kind of the 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?
spk06: So, David, let me answer that question as well. So, you know, when the margin improvement, one of the key things that drives in factor for that is actually product mix improvement, right? So if we continue to execute what we've been doing and continue to show the results, I do believe you will continue to see margin continue to improve over time, right? So, you know, I don't, you know, we talk about how sticky these products are. I think it's more than ever more stickier than now, especially we start building very, very strong customer relationships.
spk01: You know, David, one thing I think you're referring to is we are very, we've represented our 2025 plan very openly here. And that plan was modeled on essentially to get to a 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, hey, well, you know, 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 dollars in our goal.
spk02: Very good. Thanks so much. I certainly appreciate the time.
spk08: 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. Keshulu for any further remarks.
spk03: Thank you for your participation on today's call. Operator, you may now disconnect.
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