Greetings and welcome to the ChipMOS Technologies Inc. Second Quarter 2020 Results Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. I would now like to turn the conference over to your host Mr. David Pasquale with Global IR Partners. Please go ahead sir.

Thank you, operator. Welcome everyone to ChipMOS' Second Quarter 2020 Results Conference Call. Joining us today from the company are Mr. S.J. Cheng, Chairman and President; Ms. Silvia Su, Vice President of Finance and Accounting Management Center. S.J. will review business highlights and provide color on the operating environment. Silvia will then review the company's key financial results. We are also joined on the call today by Mr. Jesse Huang, Spokesperson and Vice President of Strategy and Investor Relations. All company executives will participate in the Q&A session after management's formal remarks. If you have not yet received a copy of today's results release please e-mail Global IR partners at imos@globalirpartners.com or you can get a copy of the release off of ChipMOS' website www.chipmos.com. Before we begin the formal comments, we must make a disclaimer regarding forward-looking statements. During this call management may make forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933 as amended and Section 21E of the U.S. Securities Exchange Act of 1934 as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors including but not limited to the potential impact of COVID-19, which may cause the actual performance, financial condition or results of operations of the company to be materially different from any future performance, financial condition or results of operations implied by such forward-looking statements. Further information regarding these risks, uncertainties and other factors is included in the company's most recent annual report on Form 20-F, which was filed with the U.S. Securities and Exchange Commission and in the company's other filings with the SEC. At this time I'd like to now turn the call over to the company's Chairman and President, Mr. S.J. Cheng. Please go ahead, sir.

Yes. Thank you, David. We appreciate everyone joining our call today. We are pleased with our results for the second quarter 2020 and continued progress. I'm proud of our team for staying focused in serving our customers, during the uncertainty coronavirus environment. Q2 revenue grew 10.7% compared to Q2 2019. This represents a six-year record high for Q2 revenue. For the first half of 2020, we grew revenue by 17.6% compared to the first half of 2019. We also keep gross margin above 20% in Q2, as we benefit from mix and utilization levels. If you look on a year basis over year basis, gross margin increased 360 basis points to 20.7% compared to Q2 2019. On the cost side, we continue to control our expense, as we work to gain us much leverage as possible in growing earnings and our operating cash flows. Even with adding costs of higher factory environment safety and employee healthy related to coronavirus, we keep OpEx at 7.3% of the revenue. Let me give some color on the mix. Our Q2 testing utilization level significantly increased to 81%, as we benefit from higher TV SoC and memory testing demand. On the other side, our assembly utilization level declined to 76% from 81% due to the Chinese NAND wafer supply, which impact our loading number. The Chinese NAND wafer supply was across the industry. Smartphone demand remains soft, which impact our LCD and bumping utilization levels. However, this was more than offset by strong demand from increased work-from-home, which led to an increase in our 8-inch COF utilization for TV and IC panel, notebook and tablet. Our overall utilization level was 76% in Q2 2020, up from 75% in a year ago Q2 2019 but slightly lower than 79% in Q1 2020. Regarding our manufacturing…

Thank you S.J. All dollar amounts cited in our presentation are in NT dollars. We have provided both U.S. dollars and NT dollars in our press release. The following numbers are based on the exchange rate of NT $29.44 against US$1 as of June 30, 2020. All the figures were prepared in accordance with Taiwan International Financial reporting Standards. To help make the presentation easier to follow my comments will go along with the investor presentation on our Investor Relations website published today. Page 12, consolidated operating results summary. For the second quarter of 2020 total revenue was US$184.4 million. Net profit attributable to the company was US$18.5 million in Q2. Net earnings for the second quarter of 2020 were $0.025 per basic common share or $0.51 per basic ADS. Depreciation and amortization expenses were US$35.6 million. We invested US$27.6 million in CapEx in Q2, as we continued to conservatively add capacity in support our customer demand levels. EBITDA for Q2 was US$52.4 million. EBITDA was calculated by adding depreciation and amortization together with operating profit. Return on equity of Q2 was 10.9%. Page 13, consolidated statement of comprehensive income. Compared to last quarter total Q2 revenue was US$184.4 million, decreased 2.8% compared to Q1. Gross profit was US$38.2 million in Q2 with Q2 gross margin at 20.7% decreased two percent points compared to 22.7% in Q1. Our operating expenses in Q2 were US$13.5 million, or 7.3% of our Q2 revenue, which is about 0.6% higher than Q1. Operating profit for Q2 was US$26.8 million and operating profit margin for Q2 was 14.5%, decreased 1.6 percent points compared to 16.1% in Q1. Net non-operating expenses in Q2 were US$4.5 million, compared to net non-operating expenses in Q1 of US$0.1 million. The difference between Q2 and Q1 is mainly due to…

Thank you. [Operator Instructions] Your first question comes from the line of Scott Bishins with Caffeine Holdings LLC. Please proceed with your question.

Yeah. Hi, SJ and Silvia. It looks like you had a very good quarter. I have a couple of questions I'd like to ask. First of all the -- I see that this is sort of like a new format for the release for the earnings pretty much using a presentation instead of writing it down and also putting it into the press release. Are you going to continue to do it like this, or you're going to do -- go back to the other way?

Yes, we will continue to use this format.

Okay. Actually after looking at it for a while, it looks pretty good to see it this way easy to move along as you're speaking to see what's going on. So I seem to like that. Let me ask you a question. I know gold has gone up quite a bit in the last three months or actually probably for the whole year. Has the gold -- the cost of gold has that been hurting any of our gross margin?

Scott, this is Shih. To answer your question, we had a gold formula with our customer in LCD driver areas. Means we use past three months average gold price charge for this month. But for assembly wise, we don't have this formula. So we need to observe the cost by our sales or renegotiate the material cost with our customers. So gold price increase is a pretty high pressure for us to maintain the margin.

Would you have any idea what the cost is as far as a gross margin percentage in the second quarter on the assembly side?

You mean the increase of gold price?

Yes. Well how much did that affect the gross margin in assembly in the second quarter?

Okay. Maybe let me put it in this way. If the gold price increased around 10% then I think it will impact our gross margin for the total company will be around 0.8% to 1% of gross margin.

Okay. So about 1% based upon the current price of gold for that you're saying?

Yes.

But you're saying also though in the bumping that you're able to get reimbursed for the difference in the price of gold?

The answer is yes, but the gold price increased a lot. So we use Q2 average still cannot catch up the gold price increase. So still the offset some margin with us. But once the gold price drops then we will return it back.

Okay. Do you believe in the third quarter that we'll be able to increase gross margins and revenue?

For revenue-wise actually we already announced our July revenue. Our July revenue compared with June is a 5.7% increase. So in August we also see a good sign. Since right now the LCD driver TDDI are fully occupied in testing area. So revenue-wise for Q3 we are very optimistic we'll be better than Q2. But Q3 margin with the mandatory effect gold price, foreign exchange and summertime electric costs will be increased.

The foreign exchange is pretty much -- at the end of June, it's pretty much the same today as it was then. Maybe down -- maybe a little stronger but not much on the NT dollar, so hopefully, if we stay around this price probably should not have much of a FX impact, would you agree with that?

Yes we hope so. So our revenue will grow and the margin will be dependent on these three key factors.

Okay. Let's see. Any impact at all on revenue from the COVID virus?

Up to now some -- seems like we get some benefit from that yes. Because our product segment commodity DRAM continue to be stable and strong due to the working from home. And PC and the notebook middle size increase. So driver wise also increased.

So you see that going on for the rest of the second half of the year possibly?

Actually, yes.

Okay. Is China fully back online, or are they -- are companies still looking to move materials out of China and looking for other places like Taiwan or other countries to pick up the slack from China?

Yes. I think the China situation is more complicated compared with Taiwan. First one is the relationship between China and U.S. getting much worse. So a lot of issue; it's not a business issue it's a politician issue. And second one is corona virus. They are not pretty stable yet and also the heavy raining also in Taiwan. And so far at least we are lucky our Shanghai operation finally get profitable for the first half.

Okay. Let's see. I just have really one other question, but actually it's more of a suggestion. Sometimes like last year in the second quarter, we had a very large gain on the -- the capital gain on the sale of the shares and I think it was JMC. When I take a look at today's presentation and then it refers back to last year's second quarter. I'd like to suggest maybe you could put some footnotes in where you have onetime large gains because if someone's taking a look at this presentation now and doesn't remember what the large gain was last year they would take a look and they would think that the profitability is way down where that's not really the case because it was a onetime capital gain. The other -- besides the one-time capital gains, the other big issue, because we're having so much fluctuation in the NT dollar versus the U.S. dollar, it would be nice if you could put a footnote there also in the earnings of how much -- where you put the non-operating expenses, gains or losses, if you could put a footnote on what the FX was in each quarter, either plus or minus, just so that we could refer to that and know that the reason why the total profitability is either down or up. I mean just to give you a for instance, if I -- by me going through this report just now, if we had no FX change and it was steady from quarter-to-quarter, we would’ve had about another $0.11 more of earnings in our ADRs and probably about another NT$0.15 on our common but -- on the common shares. But if you don't know that, basically, you're looking at this report and it doesn't really explain it properly, so that if someone doesn't remember what it was, the period or the year before, it's hard to understand if it was -- what happened. So just a suggestion that when we have large fund, gains, losses, either through FX or capital gains, if you could put footnotes and then carry those footnotes to the following year as you do comparisons from quarter-to-quarter or from year-to-year, that's just my suggestion.

Yes. Thank you for your suggestions, Scott. I think we will enhance this footnote statement and then people will have apple-to-apple comparison.

Yes, I would appreciate that. I think that would help a lot of investors understand what's going -- what's really happened during the quarter. So it also shows the potential of what this quarter could have been; where it could have been $0.90 common, basically, if we would have had a flat FX. So it just makes it a little easier to understand and just shows the steadiness of the earnings versus being lumpy and as far as the earnings because of the one-time charges.

Yes. I appreciate your suggestions. Thank you. We will take a note of it.

Okay. Otherwise, a great quarter. Really looking forward to the second half. It seems, seeing some of your notes, you feel we might get a little bit of a rebound in the smartphone especially in the TDDI?

Yes.

So, hopefully, that will also help bring up the margins too. Because, I guess, the LCD -- we get a higher margin on the LCD versus the memory, if I'm correct?

Yes.

Actually, the answer is, yes. But memory wise, testing also a very high margin but assembly wise it's very limited. But LCD driver, yes, it's higher margin in there.

Okay. Well, like I said, congratulations and looking forward to the second half of the year. Thank you very much.

Okay. Thank you.

Thank you. Thanks.

[Operator Instructions] Your next question comes from the line of Vipul Sagar with Blash Capital LLC. Please proceed with your question.

Good morning or good evening, S.J. and Silvia. Just two questions. The first one, as usual, is a free cash flow question. I see your cash flow increased in the -- free cash flow increased in the second quarter from first quarter. It was $18 million second quarter was $30 million. Cash flow for third quarter or the second half, are we still looking at positive free cash flow for the second half?

Yes. For the second half, I think, the free cash flow will be positive.

Okay. Thank you.

Yes, for the second half.

Thank you. The next question I have is more about the China business. The Unimos business, if you have any update for the first half, how they're doing, or any revenue number or are they breakeven here or profitability?

To answer your question for the first half, they've reached the breakeven point with a very limited profit.

Okay. And in the past you had put out this thought that China -- that Unimos business is going to grow and is going to be contributing to ChipMOS' business in the future. But since you -- since the company decided to sell the majority interest and now we are just minority holders like less than 45% -- around 45%...

Yes.

Is the thought over there to eventually take this public? It's not up to -- I know not up to management over here, but it's their decision. But there are only two options for shareholders of ChipMOS to benefit. Is the -- is one is either their business just takes off or they take a public – the public and we can capitalize on it or the third option would be something like just selling the remaining stake, because it's not adding any value right now or hasn't been for a while now. So, any thoughts on how to monetize this thing for ChipMOS shareholders? I mean, I know you sold JMC from almost 20% to 10% and you have cut your investment in Unimos from a majority holder to a minority holder. So if this is not being taken public in China, is there any thought about like just selling the remaining stake, because…

Yes. To answer your question since right now China-wise, they are going to build their infrastructure by their sales. So from long-term viewpoint, we will find a best benefit for company and shareholders. And like JMC, we are on the negotiation prospect to try to dispose the rest of the shares to them.

Okay. Fantastic. That's good news. Okay. I mean, is there like a time line by year-end or within a year?

Actually negotiate with China people. If you rush you cannot get a good price right?

I understand. Okay. Thank you so much for the update.

Yes. Yes.

Okay. Thank you so much. That's all the questions.

Thank you.

Thank you.

Ladies and gentlemen, we have reached the end of the question-and-answer session and I would like to turn the call back to Chairman and President Mr. S.J. Cheng for closing remarks.

Yes. Thank you everybody to join our Q2 conference call. If you have any questions, please contact us through e-mail through our website. Thank you very much. Bye-bye.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.