Good afternoon, and welcome to Diodes Incorporated Fourth Quarter and Fiscal 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 question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded today, Monday, February 6, 2023. 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 fourth quarter 2022 financial results conference call. I am Leanne Sievers, President of Shelton Group, Diodes’ Investor Relations firm. Joining us today from Taiwan are Diodes’ Chairman, President and CEO, Dr. Keh-Shew Lu; Chief Financial Officer, Brett Whitmire; Senior Vice President of Worldwide Sales and Marketing, Emily Yang; Senior Vice President of Business Group, Gary Yu; and Director of Investor Relations, Gurmeet Dhaliwal. 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 unaudited and subject to revision until the company files its Form 10-K for its full fiscal year ended December 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 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 of the company’s future performance represent management’s estimates as of today, February 6, 2023. Diodes 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. Included in the company’s press release and reconciliation 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 Diodes website at www.diodes.com. And now, I will turn the call over to Diodes Chairman, 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 am pleased to report record performance in 2022, with revenue growth 10.8% over 2021. Even when considering the COVID-related dug down and the power outage throughout the year in China, as well as the global economic slowdown. In fact, the fourth quarter represented our ninth consecutive quarter of year-over-year growth. Additionally, our earning power and cash generation in 2022 were also significantly highlighted with gross margin expansion to 422 basis points to 41.3%, operating margin expanding 510 basis points to 20.4% and GAAP EPS increased 44% to $7.20 and non-GAAP EPS growing 42% to $7.36. We also achieved record cash flow for operating of $393 million. Underpinning the company’s noteworthy performance was continued strong growth in our automotive end market, which increased 40% over 2021 and reached 15% of product revenue for the year. We also continued to drive growth in our industrial end market through our ongoing content expansion efforts, which contributed to our industrial and automotive end market represent 42% of product revenue and exceeding our target model of 40%. The growth in those end markets combined with the ongoing increase of our Pericom products also contributed to our strong gross margin expansion throughout the year as part of our product mix improvement efforts. Reaching the $2 billion revenue level in 2022 was a significant and the meaningful achievement of the entire Diodes team. With the gross profit growing 23% to $827 million for the year, we have taken another giant step towards the next goal in our 2025 financial targets to achieve $1 billion in annual gross profit. I am very proud of our accomplishments and our ability consistently deliver both top line growth and significantly expand the earnings for our shareholders. With that, let me now turn the call over to Brett to discuss our fourth quarter and full year financial results and our first quarter 2023 guidance in more detail.

Thanks, Dr. Lu, and good afternoon, everyone. Revenue for the fourth quarter 2022 was $496.2 million, increasing 3.3% from $480.2 million in the fourth quarter 2021 and down 4.8% from the $521.3 million in the third quarter 2022. Full year 2022 revenue grew to a record $2 billion, an increase of 10.8% over the $1.8 billion in 2021. Gross profit for the fourth quarter was $206.2 million or 41.6% of revenue, increasing from $190.7 million or 39.7% of revenue in the prior year quarter and down from $217.8 million or 41.8% of revenue in the prior quarter. For the full year, GAAP gross profit was a record $827.2 million, a 23.4% increase over 2021 and GAAP gross margin improved 420 basis points to a record 41.3%. GAAP operating expenses for the fourth quarter were $109.7 million or 22.1% of revenue and on a non-GAAP basis were $105.9 million or 21.3% of revenue, which excludes $3.8 million of amortization of acquisition-related intangible asset expenses. This compares to GAAP operating expenses in the fourth quarter 2021 of $104.7 million, or 21.8% of revenue and in the third quarter 2022 of $105.4 million or 20.2% of revenue. Non-GAAP operating expenses in the prior quarter were $101.3 million or 19.4% of revenue. Total other expense amounted to approximately $1.7 million for the quarter, consisting of $490,000 of other income, $2.9 million in interest expense, a $400,000 foreign currency loss and $1.1 million of interest income. Income before taxes and non-controlling interest in the fourth quarter 2022 was $94.8 million, compared to $108.8 million in the prior year quarter and $109.1 million in the previous quarter. Turning to income taxes. Our effective income tax rate for the fourth quarter was approximately 1.5%, which includes taxes related to non-GAAP items. On a non-GAAP basis, the tax…

Thank you, Brett, and good afternoon. As Dr. Lu and Brett mentioned, 2022 was a record year for Diodes across all financial metrics. Fourth quarter revenue was down 4.8% sequentially, which is above our midpoint of our guidance and slightly better than our typical seasonality. Looking more closely at the fourth quarter revenue POS was a record in Europe. Distributor inventory in terms of weeks increased quarter-over-quarter, which is higher than our normal defined -- normal range of 11 weeks to 14 weeks. This increase is due mainly to demand softness in China related to COVID and our anticipation of COVID recovery in Q2, as well as our anticipation of labor shortage around Chinese New Year. We position more product to minimize the potential impact and quick response once the market recovers. Overall demand and backlog remains stable across all regions, especially for automotive, industrial end markets. Looking at the global sales in the fourth quarter, Asia represented 73% of revenue, Europe 15% and North America, 12%. In terms of our end market, industrial represented 28% of Diodes product revenue, computing 23%, consumer 18%, communications 14% and our automotive end market reach a record product revenue. Our automotive and industrial end market combined totaled 45% of product revenue for the quarter, which is 5 percentage points above our 2025 target and about 40% for the fourth consecutive quarter. This further demonstrate Diodes’ ability to quickly adjust our capacity allocation from low-end PC consumer and smartphone segments to high demand end markets like automotive, industrial. Now let me review the end markets in greater detail. Our automotive market continued to be a highlight for both the quarter and the full year, setting revenue records for 10 consecutive quarter and growing 40% in 2022. Our consistent strong growth in this market can…

Thank you very much. [Operator Instructions] Today’s first question comes from William Stein with Truist. Please go ahead.

Great. Thank you for taking my question. I am hoping you can review the channel inventory trends again. I think you mentioned it briefly in the prepared remarks, but I just want to -- I want to hear the clarification as to what happened in the channel in the quarter and what you expect will happen in the current quarter in distribution? Thank you.

Hi, Will, this is Emily. Let me answer this question, right? So I did mention the channel inventory was up quarter-over-quarter. It is a little bit higher than our normal range at this moment. But with -- I mean, the main reason due to this change is actually a couple of things. We definitely see China softness during the COVID in the fourth quarter and then we also have an anticipation of recovery from some of the like 3Cs that we talked before, they started some of the channel inventory or inventory rebalancing for the last few quarters. So there’s anticipation of that recovery, as well as there’s a labor shortage during the Chinese New Year timeframe. So with all this dynamic situation combined, so we actually also strategically increased some of the channel inventory. So that way we can better support the customers last minute or demand change.

Great. Thank you. And can you talk about your outlook by end market for the coming quarter?

Yeah. Sure. I think, automotive, we are still seeing a lot of strength overall. Also our pipeline continue to grow, our engagement continue to enrich. And if I just look at the whole year or quarter-over-quarter comparison, automotive is still a record quarter for us by the end of Q4, and if we look at the whole year, year-over-year growth still 40% plus, right? So that’s really, really exciting. And then for Industrial, I think, it’s a little bit mixed. There are certain end application softer than the others. We are also seeing some inventory rebalancing going on. But when we take everything together, I would say, still a really stable end market at this moment. And then computing, we talked about it, inventory rebalancing probably started beginning of Q3 last year, so we are still seeing softness going on, but we also, like I mentioned, there’s an anticipation of recovering, probably, in a quarter or two, right? Consumer, we are still seeing some softness, especially from the China market. And then on the communications side, on the smartphone, I think, still -- inventory rebalancing is still ongoing. But again, right, so once they get to a certain level, we do expect some recovery.

It sounds like an ongoing -- it sounds like a similar trend in the coming quarter relative to what we have seen over the last quarter or two if we can, is that correct, we shouldn’t interpret any divergent performance or any pivot in Q1 relative to what we have seen in Q4?

Yeah. So I would say, there’s no significant change from the end market point of view. But the key thing for us is continue to focus on our product mix improvement, right, continue to leverage our capacity to lower the support for the slow end market and focus supporting the strong demand end markets like automotive, as well as industrial applications, right?

Great. I will get back in queue. Thank you.

The next question comes from Matt Ramsay with Cowen. Please go ahead.

Hi. This is Joshua Buchalter on behalf of Matt. Congrats on the stellar results and thank you for taking my question. I wanted to follow up on Will’s question. So if I am understanding correctly, the channel is running above their typical 11-week to 14-week range and -- so I know you are taking factory loading down, but does that mean you are sort of comfortable running above the typical range for a little while in anticipation of the recovery, I just want to make sure I am understanding correctly? Thank you.

Yeah. I think, Josh, I did mention a little bit earlier, right? There’s still a lot of dynamic situation going on with the labor shortage during the Chinese New Year, the softness due to the COVID, especially in China, as well as anticipation of some recovery probably around the Q2 quarter. So with all this combination of the situation, we are actually okay with the inventory channel inventory higher than our defined normal range. The other angle we look at is the quality of the inventory, right? So it’s not only about the number of weeks on the shelf, it is also the quality of the product on the shelf. So we actually feel very confident stand behind the numbers.

Okay. Understood. Thank you. And I guess for my follow-up, I wanted to ask about gross margin. It’s down sort of only marginally despite two straight quarters of mid single-digit revenue declines and it sounds like it’s lower factory loadings as well. Can you walk through what’s driving so much resiliency in your gross margin line? Is it a mix shift between end markets or products, continued strength in the pricing environment, any color there would be super helpful? Thank you.

Yeah. Definitely. It’s a really good question, right? So if you look at for the last few years, we really emphasize on two things. One is actually the total solution sales. The second thing is really product mix initiative or improvement overall, right? So we openly talk about automotive industrial is a key focus for us. And if you look at the results, right, I mentioned earlier, just on automotive, we achieved 40% year-over-year growth and then within the -- from 2013 to 2022, we combined the annual growth rate more than 30%. So definitely, it’s a great success and the consistency is actually definitely worth mentioning. I think with industrial, again, it’s actually our biggest segment by the end of Q4 is actually 28% of our total end market out of the products, right? So with the auto and industrial combined, based on the Q4 results, actually 45% of our total revenue, even with the whole year that actually represented 42%. So we openly talked about by the end of 2017, we provided a guidance for the segment is actually we want to achieve about 40%. As you can see, we have fourth quarter consistently above this target. So, again, this is a really good demonstration of the product mix improvement initiative. The other good example is actually Pericom product family, right? So we have been talking about the margin overall is really, really attractive, and again, we consistently deliver the growth of this market -- product segments, right? So with the combined, you can actually see even with the revenue guidance slightly down around seasonality for Q1, but our margin guidance 41% still significantly higher than our 2013 model that we established of 40%. So I hope you can actually see this is actually a really strong demonstration of our focus of product mix improvement. Of course, it coupled with our manufacturing efficiency, which is always the strength of the company. So I think with all combined together, we are actually confident that we are on the right track and right path towards our 2025 defined goal, which is $1 billion gross profit and $2.5 billion revenue model, right, so.

Yeah. Super helpful and congratulations again on the results.

[Operator Instructions] The next question comes from David Williams with The Benchmark Company. Please go ahead. David, your line is open. Once again, David, your line is open. Seeing no further questions in the queue, this concludes our question-and-answer session. I would like to turn the conference back over to Dr. Lu for any further closing remarks.

Thank you for your participation on today’s call. Operator, you may now disconnect.

Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.