Good afternoon and welcome to Diodes Incorporated Second Quarter 2017 Financial Results Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of today's conference call, instruction will be given for the question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded today, Tuesday, August 08, 2017. I would now like to turn the call over to Leanne Sievers of Shelton Group, Investor Relations. Leanne, please go ahead.

Good afternoon, and welcome to Diodes' Second Quarter 2017 Financial Results Conference Call. I'm Leanne Sievers, President of Shelton Group, Diodes' Investor Relations firm. Joining us today are Diodes President and CEO, Dr. Keh-Shew Lu; Chief Financial Officer, Rick White; Senior Vice President of Sales and Marketing, Mark King; and Director of Investor Relations, Laura Mehrl. Before I turn the call over to Dr. Lu, 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 subject to revision until the company files its Form 10-Q for its second quarter 2017. In addition, management's prepared remarks contain forward-looking statements, which are subject to risk 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. In addition, any projections as to the company's future performance represent management's estimates as of today, August 08, 2017. Diodes assumes no obligation to update these projections in the future as market conditions may or may not change. 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. Included in the company's press release are definitions and reconciliations of GAAP to non-GAAP items, which provide additional details. Also, throughout the company's press release and management'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 entire call at this time, a recording will be available via webcast for 60 days in the Investor Relations section of Diodes' website at www.diodes.com. And now, I'll turn the call over to Diodes' President and CEO, Dr. Keh-Shew Lu. Dr. Lu, please go ahead.

Thank you, Leanne. Welcome everyone and thank you for joining us today. I’m very pleased with our second quarter results, which were highlighted by achievement of record revenue and gross profit, as we continue to capitalize on the strength in global market and gain market share. All of our target end markets and geographies grew sequentially, resulting in record revenue in both Asia and Europe. Additionally, Pericom attained its highest quarterly revenue and gross profit since the acquisition, further contributing to Diodes’ strong growth and gross margin improvement in the quarter. In fact, gross margin exceeded 34% in the second quarter, which is the highest level since the first quarter of 2011. Next quarter, we expect to approach our target model of 35% on continued improvements in product mix and utilization across our manufacturing facilities. Additionally, our KFAB facility is on schedule to be closed November 15th with all production transfers efficiently in process. As a result of this quarter’s solid performance, we have surpassed the $500 million revenue mark for the first half of the year, positioning Diodes to achieve our billion dollar revenue goal in 2017. This quarter also brings us one step closer to our target operating model of 20% for SG&A plus R&D and the gross margin of 35%. As we look to the second half of the year, we remain focused on expanding revenue and improving gross margin during this growth cycle as we benefit from our increased operating leverage in order to further expand earnings. With that, I will now turn the call over to Rick to discuss our second quarter financial result as well as third quarter guidance in more detail.

Thanks, Dr. Lu and good afternoon, everyone. Revenue for second quarter 2017 was $264.2 million, an increase of 11.8% from the $236.3 million in the first quarter 2017 and an increase of 11.7% from the $236.6 million in the second quarter 2016. Revenue in the quarter increased sequentially, reflecting continued strength across the company’s target end markets and geographies, combined with higher growth of Pericom products, collectively resulting in market share gains in the quarter. Gross profit for the second quarter was $90.1 million, or 34.1% of revenue, compared to $73.9 million or 31.3% of revenue in the first quarter 2017 and $74.8 million or 31.6% of revenue in the prior year quarter. The sequential increase in gross profit margin was due primarily to regional strength in North America and Europe, and improved utilization and product mix, including a higher contribution from Pericom products. GAAP operating expenses for the second quarter 2017 were $66.3 million or 25.1% percent of revenue, and $59.8 million or 22.6% of revenue, on a non-GAAP basis, which excludes $4.6 million of amortization of acquisition-related intangible asset expenses, $1.7 million of KFAB restructuring charges and $200,000 of retention costs. This compares to GAAP operating expenses of $64.6 million or 27.3% of revenue last quarter, and $63.5 million or 26.9% of revenue in the second quarter of 2016. Looking specifically at selling, general and administrative expense for the second quarter, SG&A expenses were approximately $39.7 million or 15% of revenue, which is our operating model. This compares to $39.7 million or 16.8% of revenue last quarter and $41.4 million or 17.5% of revenue for the second quarter 2016. Investment in research and development for the second quarter was approximately $19.8 million or 7.5% of revenue compared to $18 million or 7.6% of revenue the last quarter and…

Thank you, Rick and good afternoon. Our record second quarter revenue was driven by strong sales across all end markets and regions, including record revenue in both Asia and Europe. Industrial revenue was up 33% sequentially, due to solid revenue increases in North America and Europe. In fact, each of our industrial, automotive and communication end markets reached quarterly revenue records on a dollar basis in the second quarter. Distributor POS also set records both globally and in each region and was up 12.7%, while distributor inventory rose 6%. Inventory in the channel expanded in preparation for continued growth in the third quarter. Lead time increased on several product lines, in line with industry patterns. Design and customer activity also remain strong across all regions as we continue to penetrate our key customer base with expanded sales footprint and broader product lines. We continue to see significant customer synergy and cross-selling opportunities with the Pericom products. And as Dr. Lu mentioned, Pericom reached the highest quarterly revenue since the acquisition. From a product perspective, we set revenue records on timing, signal integrity, protection, MOSFETs and CMOS LDOs with strong momentum on switch products due to recent design wins on new products. As we look to the second half of the year, we expect to continue making progress with expanded revenue growth, new product introductions and design wins. Turning to global sales, Asia represented 79% of revenue; Europe, 12% and North America, 9% during the second quarter 2017. In terms of our end markets, consumer represented 26% of revenue; communications, 24%; industrial, 25%; computing, 18% and automotive was 7% of revenue. Let me now provide more detail within each of our end markets. In the consumer market, we expanded our audio product line with a family of Peizo Sounders designed to…

[Operator Instructions] And our first question is from the line of Gary Mobley with Benchmark. Your line is now open.

Well, I wanted to start out with a question about gross margin and I understand the dynamics that drive typically deals with when industry conditions are good as is the case now. Essentially you have one foot on the gas pedal, one in the brake and trying to figure out the right mix and maximization of the gross margin. So I'm just wondering looking at the healthy gross margin in the quarter and well perhaps your outlook for Q3. Maybe if you can parse out the contribution between the mix, pricing on a like product basis and then as well leverage on the fixed expenses?

Well, you know Gary, our gross margin affected several items one is utilization and I think in the second quarter now we probably most of our capacity is fully utilized, especially the advantage of the advanced packaging capacity is all fully utilized and therefore the pent-up from capacity utilization probably to the end. Our future is really going to come in from the KFAB consolidated with SFAB because then, you know, I think I announced that before the synergy coming from the consolidation of KFAB into the SFAB will significantly improve our gross margin due to that capacity and output in SFAB. So those will be the future improvement. And then another one is product mix. And I think would continue adjust the price mix, the product mix and this will continue given the advantage in the gross margin and we’ll continue to focus on that area.

Mark, judging from your comments relating to distributor point of sale in the delta in the distributor inventory, it sounds like the days of diodes products held in the distribution channel has gone down in light of the ramping revenue? Can you verify that and do you share at all with Wall Street, similarly the consensus, healthy degree of skepticism about sort of inventory restocking and what sort of impact that might have once we answer seasonally weak part of the year.

Actually, I think our inventories if you balance the last two quarters is relatively flat, I mean as I said it was up 6% in the channel, but it's still just under three months. So we - that's on a global picture. So I think our inventory is actually in pretty good shape right now. There's a tendency in the second quarter to bring inventory up in preparation for the third quarter. And as we're guiding continued growth we expect our POS to grow again in this quarter. So the inventory should balance out by the fourth quarter comp. So it's a pretty natural pattern for us. So I don't think that that the inventories, this is just a restocking event.

Last, can you speak to the competitive environment after what seems to be a pretty massive wave of consolidation and talk about perhaps specifically which of your historical competitors might be pulling back the reins on some of the products that you specialize in?

It's a pretty complex mix of competitors and product line, so it's hard to be really consistently. Obviously the pricing environment is firm. I wouldn't say there's a significant amount of price increase, but the typical erosion doesn't exist there. Some of the commodity product areas are stabilizing, but there are still products, key focused products that are under contention, the ones that everyone wants to sell. Even the consolidation, everybody out there is strong, so you might want to look at it and say Xperia has gotten stronger, not being related to NXP then it was, [indiscernible] is still very aggressive competitor in the space and so forth. And then you still have the emerging Asian suppliers. So I think our space will always remain very, very competitive.

Thank you. And our next question comes from the line of Tristan Gerra with Baird. Your line is now open.

I think you've mentioned that you were pretty much at full capacity. Is that the case for backend as well and also if you can give us maybe the utilization rates blended on your [indiscernible] capacity? And also if you could give us an update on your 8-inch post qualification at fab 2 - BCD fab 2.

So let me talk about first, the big gain, we are about 95%, but Rick can give you more detail, we are above 95.

So SAT is over 95%, 96% and CAT is 92%.

You know we said it up 95, assume it’s fully diluted. So, for the back hand, in my mind, we are almost there. Okay. And from the wafer fab obviously KFAB, we are on the process to finish it up, so I’m really talking about capacity, full capacity because we try to get as much wafer build as possible before we shut it out. So it’s not capacity limitation, we just should be. It’s fair. I would say we almost fully loaded because we are increasing the capacity of the SFAB, but not now, after KFAB shutdown, the KFAB equipment will move to SFAB in that SFAB capacity. So I would say next year, at the beginning of next year SFAB capacity will increase. And I think we shut down in September and moved equipment the install qualify. So that addition of capacity won’t start until beginning of next year. Today, current capacity because we start to qualify KFAB material at the same time we start to view some material to support the customer who currently use KFAB, when we shut down KFAB, they can start buying from SFAB. So today, SFAB 1 is at full speed, fully loaded at the current capacity. Now, at the beginning of next year we’ll have enough additional capacity muted by the equipment shipping from KFAB. SFAB 2, we are above 91%. So SFAB 2 today is a fully loaded to the capacity base. That’s talking about 6-inch capacity at SFAB 2. Now 8-inch we already finished the development. We are now quantify the product, the process is already quantified. Now we are starting to quantify the product. And then after quantify the product, we will give the sample to the customer and we will start to rent. So my expectation will be probably end of, close to end of second quarter will start to ramp, it depend on customers’ acceptance and keeping the customer acceptance if we didn’t accept. So I would say probably the last month of the year might be the one we start to ramp up the production. That’s current schedule. But basically process development is done, it’s quantified. Now we quantify the product.

Could you give us where your blended lead times are currently and whether you see any signs of ordering from some customers?

Some - any signs of what some -.

Orders that exceed the all-in demand.

I can you answer you on this one. Since we are very careful, we actually make sure the customer tell us or our distributor tell us who is their customer and we go to check their run rate. And so, we view the capacity constraint, we are supporting issues of supporting to our customer, we’re going to make sure we only ship the one that really needed. We are not going to ship to our distributor for their inventory. And therefore if they cannot tell us who is their customer and what is their run rate, and we cannot notify, we are not going to accept the order. And so from the top order point of view, I think it’s not there, maybe here or there a little bit, but I don’t think you’re going to see a attach double order because we kick them out. Okay. And lead time.

From the lead time perspective, we definitely had some extension in lead times in certain product areas. As Dr. Lu mentioned earlier, some of our newer packages are much tighter. Some of our product launches are better than we expected and we haven’t been able to bring capacity as fast as we like. So we’ve even seen some of our products reach 20 weeks. But in general we're probably ranging anywhere in the six to 20 week range, so balanced out. I would say a very few of it would go out that far, some places where we just have foundry and package constraint together where some of those products are going out so far. So I think we have it under control. Certain products we can deliver just based on the decision and so forth. So I don't think it's too bad except for a narrow range of parts.

We have got materials and reaching some shortage, we can resolve it with our purchasing power, our relationship and like a [indiscernible] material they see some shortage but with our purchasing power, our relationship with our vendor, typically we can solve it. I don’t think that’s a major issue. But some of the very advanced packaging which we are ramping up more than what we expected, quicker than what we expected than we could have, some to support that majority like a mux sale, meantime, stretch a little bit but it’s not that terrible. And we make sure no double ordering, not the order [indiscernible] we don’t accept the order if they don’t meet it.

Thank you. [Operator Instructions] And our next question is from the line of Shawn Harrison with Longbow Research. Your line is open.

First question if I may, if memory serves me right, at the point in time of the Pericom acquisition, gross margins were maybe in the mid 40% range, is that accurate to kind of think about where they are now and how you benefited from that mix this quarter?

Well, [indiscernible] if you remember you know one is the general IC, one is a frequency product called FCP that crystals those kinds of products. So FCP is somewhere around 40% and IC is running above 50%. So you are correct, if you average out, is above 45% but that is when we bought it…

That’s what it was.

But it dependents on the growth and if the IC growth is faster than FCP product growth, then the GP will be higher because that is higher GP. So what we see right now is the IC growing faster than FCP portal.

The second question I had was just you know end markets into the September quarter, the growth of 6% sequentially at the midpoint is much better than seasonality we've seen for the past couple of years. Are there any markets where you would be a consumer or computing your communications or even a continuation of industrial where the growth is going to be substantially better than the seasonality you've seen over the past couple of years?

I have to say that the marketplace is pretty solid in a lot of areas. I think North America and Europe are going to continue to have a strong quarter. And so the industrial will stay strong, but it will probably get minimized by, it seems like the consumer people are rolling pretty strong going into third quarter. And then you have the communications group that's going to start ramping or continue ramping in that period. So I would say in those areas, a lot of molded number is still growing and probably a record again next quarter. But it just won't look as good because the other things are growing faster. So I think I think it's in pretty good shape. And then actually our computers are doing relatively well. We have the new stuff coming out on Pearly, on Pearly stuff and some of our Pericom products that are focused and that are doing quite well. So actually we're seeing kind of all boats rising right now going into third quarter.

And if you want to compare this one they’re thinking about third quarter typically for Europe is you know we call the casing quarter, right. So if you look at more of the years, European in the third quarter slowdown more and the other region is going up and so that caused the seasonality. But last year and this year, European continue strong through the third quarter and therefore in our overall quarters, third quarter is better than expectation or better than sequential seasonality is because Asia normally grows faster in third quarter and Europe supposed to go down, they’re not really slowed down, then it bring us, the growth better than seasonality or better than he past.

And just a I guess a reminder, does most of the industrial business go through distribution or does any of that go on a direct basis to the customers?

I think some of it goes to the - but our industrial marketplace is North America and European based and North America is about 80% channel and Europe is about 69% channel . So I would say that lends itself to be distributor based business. We do have industrials in Asia but that's not our strongest numbers in Asia.

Thank you. And I’m not showing any further questions in the queue. I will like to turn the call back to Dr. Lu for his final remarks.

Thank you for your participation today. Operator you may now disconnect.