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Diodes Incorporated Reports Second Quarter 2018 Financial Results

August 7, 2018

PLANO, Texas--(BUSINESS WIRE)--Aug 7, 2018--Diodes Incorporated (Nasdaq: DIOD), a leading global manufacturer and supplier of high-quality application specific standard products within the broad discrete, logic, analog and mixed-signal semiconductor markets, today reported its financial results for the second quarter ended June 30, 2018.

Second Quarter Highlights

Revenue was a record $304.1 million, an increase of 15.1 percent from the $264.2 million in the second quarter 2017 and an increase of 10.8 percent from the $274.5 million in the first quarter 2018; GAAP gross profit was a record $107.3 million, compared to $90.1 million in the second quarter 2017 and $98.6 million in the first quarter 2018; GAAP gross profit margin was 35.3 percent, compared to 34.1 percent in the second quarter 2017 and 35.9 percent in the first quarter 2018; GAAP net income was a record $25.1 million, or $0.49 per diluted share, compared to GAAP net income of $13.2 million, or $0.26 per diluted share, in the second quarter 2017 and GAAP net income of $18.5 million, or $0.37 per share, in the first quarter 2018; Non-GAAP adjusted net income was a record $29.3 million, or $0.58 per diluted share, compared to $17.8 million, or $0.36 per diluted share, in the second quarter 2017 and $24.2 million, or $0.48 per diluted share, in the first quarter 2018; Excluding $3.8 million, net of tax, of non-cash share-based compensation expense, both GAAP and non-GAAP earnings per share would have increased by $0.07 per diluted share; EBITDA was a record $64.5 million, or 21.2 percent of revenue, compared to $45.8 million, or 17.3 percent of revenue, in the second quarter 2017 and $54.2 million, or 19.7 percent of revenue, in the first quarter 2018; and Achieved cash flow from operations of $34.4 million and $13.1 million free cash flow, including $21.4 million of capital expenditures. Net cash flow was a negative $30.1 million, which includes the pay down of $36.1 million of long-term debt.

Commenting on the results, Dr. Keh-Shew Lu, president and chief executive officer, stated, “Diodes achieved a number of key milestones in the second quarter, reaching record levels across multiple financial metrics driven by continued revenue growth, market share gains and further traction on our Pericom products. Our exceptionally strong performance reflects record sales in both our automotive and industrial end markets, which contributed to new record revenue levels being achieved across all regions. Our automotive revenue was up 50 percent year-over-year, and our industrial revenue at 27 percent of total revenue was the first time industrial was our largest representative end market.

“Additionally, through revenue growth, we continue to decrease operating expenses as a percentage of revenue, also contributing to our achievement of record EBITDA and record non-GAAP earnings per share in the quarter. In fact, EBITDA increased over 40 percent and non-GAAP net income increased over 60 percent as compared to the prior year period on revenue growth of 15 percent, further demonstrating the significant leverage in our operating model. As a result, we generated strong cash flow that enabled us to further pay-down our long-term debt.

“Also highlighting these solid results is our expectation for continued growth in the third quarter, once again setting new records across our business. Our strong results and growth this year has positioned us to potentially achieve our most profitable year in the Company’s history.”

Second Quarter 2018

Revenue for second quarter 2018 was $304.1 million, an increase of 15.1 percent from $264.2 million in second quarter 2017 and an increase of 10.8 percent from the $274.5 million in the first quarter 2018.

GAAP gross profit for the second quarter 2018 was a record $107.3 million, or 35.3 percent of revenue, compared to the second quarter 2017 of $90.1 million, or 34.1 percent of revenue, and first quarter 2018 of $98.6 million, or 35.9 percent of revenue. The 120 basis point year-over-year increase in gross margin was due primarily to favorable product mix, increased contribution from the Pericom products as well as improved capacity utilization.

GAAP operating expenses for second quarter 2018 were $69.4 million, or 22.8 percent of revenue, and $64.2 million, or 21.1 percent of revenue, on a non-GAAP basis, which excluded $4.7 million of amortization of acquisition-related intangible asset expenses and $0.5 million of restructuring charges associated with the shutdown and relocation of the Company’s wafer fabrication facility located in Lee’s Summit, MO (“KFAB”). GAAP operating expenses in the second quarter 2017 were $66.3 million, or 25.1 percent of revenue, and in the first quarter 2018 were $71.7 million, or 26.1 percent of revenue.

Second quarter 2018 GAAP net income was a record $25.1 million, or $0.49 per diluted share, compared to net income of $13.2 million, or $0.26 per diluted share, in second quarter 2017 and net income of $18.5 million, or $0.37 per share, in first quarter 2018.

Second quarter 2018 non-GAAP adjusted net income was a record $29.3 million, or $0.58 per diluted share, which excluded, net of tax, $3.8 million of non-cash acquisition-related intangible asset amortization costs and $0.4 million of restructuring expenses. This compares to non-GAAP adjusted net income of $17.8 million, or $0.36 per diluted share, in the second quarter 2017 and $24.2 million, or $0.48 per diluted share, in the first quarter 2018.

The following is an unaudited summary reconciliation of GAAP net income to non-GAAP adjusted net income and per share data, net of tax ( in thousands, except per share data):

Note: Throughout this release, we refer to “net income attributable to common stockholders” as “net income.”

(See the reconciliation tables of GAAP net income to non-GAAP adjusted net income near the end of this release for further details.)

Included in second quarter 2018 GAAP net income and non-GAAP adjusted net income was approximately $3.8 million, net of tax, of non-cash share-based compensation expense. Excluding share-based compensation expense, both GAAP earnings per share (“EPS”) and non-GAAP adjusted EPS would have increased by $0.07 per diluted share for second quarter 2018, $0.07 for second quarter 2017 and $0.10 for first quarter 2018.

EBITDA (a non-GAAP measure), which represents earnings before net interest expense, income tax, depreciation and amortization, in the second quarter 2018 was a record $64.5 million, or 21.1 percent of revenue, compared to $45.8 million, or 17.3 percent of revenue, in the second quarter 2017 and $54.2 million, or 19.7 percent of revenue in the first quarter 2018. Year-to-date EBITDA was $118.6 million, which is an increase of over 59 percent from the same period in 2017. For a reconciliation of GAAP net income to EBITDA, see the table near the end of this release for further details.

For second quarter 2018, net cash provided by operating activities was $34.4 million. Net cash flow was a negative $30.1 million, including the $36.1 million long-term debt pay down. Free cash flow (a non-GAAP measure) was $13.1 million, which includes $21.4 million of capital expenditures.

Balance Sheet

As of June 30, 2018, the Company had approximately $159.6 million in cash, cash equivalents and short-term investments, long-term debt (including the current portion) totaled approximately $185.8 million, and working capital was approximately $380.8 million.

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 the quarter ending June 30, 2018.

Business Outlook

Dr. Lu concluded, “After growing 10.8% in the second quarter of 2018, for the third quarter of 2018, we expect continued strong growth with revenue increasing to a range between $313 million and $329 million, or up 2.9 to 8.2 percent sequentially. At the midpoint, this represents a 12.5 percent growth versus third quarter 2017. We expect GAAP gross margin to be 35.8 percent, plus or minus 1 percent. Non-GAAP operating expenses, which are GAAP operating expenses adjusted for amortization of acquisition-related intangible assets, are expected to be approximately 21.0 percent of revenue, plus or minus 1 percent. We expect interest expense to be approximately $2.5 million. Our income tax rate is expected to be 29 percent, plus or minus 3 percent, and shares used to calculate diluted EPS for the third quarter are anticipated to be approximately 51.4 million.” Please note that purchase accounting adjustments of $4.0 million, after tax, for Pericom and previous acquisitions are not included in these non-GAAP estimates.

Conference Call

Diodes will host a conference call on Tuesday, August 7, 2018, at 4:00 p.m. Central Time (5:00 p.m. Eastern Time) to discuss its second quarter 2018 financial results. Investors and analysts may join the conference call by dialing 1-855-232-8957 and providing the confirmation code 7785459. International callers may join the teleconference by dialing 1-315-625-6979 and entering the same confirmation code at the prompt. A telephone replay of the call will be made available approximately two hours after the call and will remain available until Aug. 14, 2018 at midnight Central Time. The replay number is 1-855-859-2056 with a pass code of 7785459. International callers should dial 1-404-537-3406 and enter the same pass code at the prompt. Additionally, this conference call will be broadcast live over the Internet and can be accessed by all interested parties on the Investors’ section of Diodes’ website at http://www.diodes.com. To listen to the live call, please go to the Investors’ section of Diodes’ website and click on the conference call link at least 15 minutes prior to the start of the call to register, download and install any necessary audio software. For those unable to participate during the live broadcast, a replay will be available shortly after the call on Diodes’ website for approximately 90 days.

About Diodes Inc.

Diodes Incorporated (Nasdaq: DIOD), a Standard and Poor’s SmallCap 600 and Russell 3000 Index company, is a leading global manufacturer and supplier of high-quality application specific standard products within the broad discrete, logic, analog, and mixed-signal semiconductor markets. Diodes serves the consumer electronics, computing, communications, industrial, and automotive markets. Diodes’ products include diodes, rectifiers, transistors, MOSFETs, protection devices, function-specific arrays, single gate logic devices, amplifiers and comparators, Hall-effect and temperature sensors, power management devices, including LED drivers, AC-DC converters and controllers, DC-DC switching, and linear voltage regulators, and voltage references, along with special function devices, such as USB power switches, load switches, voltage supervisors, and motor controllers. Diodes’ corporate headquarters and Americas’ sales office are located in Plano, Texas and Milpitas, California. Design, marketing, and engineering centers are located in Plano; Milpitas; Taipei, Taiwan; Taoyuan City, Taiwan; Zhubei City, Taiwan; Manchester, England; and Neuhaus, Germany. Diodes’ wafer fabrication facilities are located in Manchester and Shanghai, China. Diodes has assembly and test facilities located in Neuhaus, Shanghai, Jinan, Chengdu, and Yangzhou, China. Additional engineering, sales, warehouse, and logistics offices are located in Taipei; Hong Kong; Manchester; Shanghai; Shenzhen, China; Seongnam-si, South Korea; and Munich, Germany, with support offices throughout the world.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Any statements set forth above that are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such statements include statements containing forward-looking words such as “expect,” “anticipate,” “sets the stage,” “continuing,” “working diligently to,” “position the company for,” “aim,” “estimate,” and variations thereof, including without limitation statements, whether direct or implied, regarding expectations of revenue growth, market share gains, increase in gross margin and increase in gross profits in 2018 and beyond; that for the third quarter of 2018, we expect strong growth and revenue to range between $313 million and $329 million, or up 2.9 to 8.2 percent sequentially; expect GAAP gross margin to be 35.5 percent, plus or minus 1 percent; non-GAAP operating expenses, which are GAAP operating expenses adjusted for amortization of acquisition-related intangible assets, are expected to be approximately 21 percent of revenue, plus or minus 1 percent; expect net interest expense to be approximately $2.5 million; expect tax rate to be 29 percent, plus or minus 3 percent; shares used to calculate diluted EPS for the third quarter are anticipated to be approximately 51.4 million; purchase accounting adjustments for Pericom and previous acquisitions of $4.0 million after tax are not included in these non-GAAP estimates; our expectation that we may be positioned to have our most profitable year in the Company’s history in 2018; and other statements identified by words such as “estimates,” “expects,” “projects,” “plans,” “will,” and similar expressions. Potential risks and uncertainties include, but are not limited to, such factors as: the risk that such expectations may not be met: the risk that the expected benefits of acquisitions may not be realized or that integration of acquired businesses may not continue as rapidly as we anticipate; the risk that we may not be able to maintain our current growth strategy or continue to maintain our current performance, costs, and loadings in our manufacturing facilities; the risk that we may not be able to increase our automotive industrial, or other revenue and market share; risks of domestic and foreign operations, including excessive operating costs, labor shortages, higher tax rates, and our joint venture prospects; the risk that we may not continue our share repurchase program; the risks of cyclical downturns in the semiconductor industry and of changes in end-market demand or product mix that may affect gross margin or render inventory obsolete; the risk of unfavorable currency exchange rates; the risk that our future outlook or guidance may be incorrect; the risks of global economic weakness or instability in global financial markets; the risks of trade restrictions, tariffs, or embargoes; the risk of breaches of our information technology systems; and other information, including the “Risk Factors” detailed from time to time in Diodes’ filings with the United States Securities and Exchange Commission.

Recent news releases, annual reports and SEC filings are available at the company’s website: http://www.diodes.com. Written requests may be sent directly to the company, or they may be e-mailed to: diodes-fin@diodes.com.

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