Diodes Incorporated (Diodes) (Nasdaq: DIOD) today reported its financial results for the second quarter ended June 30, 2023.
Second Quarter Highlights
- Revenue was $467.2 million, decreasing 6.8 percent from $501.0 million in the second quarter 2022 and flat with $467.2 million in the first quarter 2023;
- Automotive and Industrial revenue was a record 48 percent of total product revenue;
- GAAP gross profit was $195.4 million, decreasing 5.4 percent from $206.5 million in the second quarter 2022 and up 0.5 percent from $194.5 million in the first quarter 2023;
- GAAP gross profit margin was a record 41.8 percent, an increase of 60 basis points from 41.2 percent in the second quarter 2022 and up 20 basis points compared to 41.6 percent in the first quarter 2023;
- GAAP net income was $82.0 million, compared to $80.2 million in the second quarter 2022 and $71.2 million in the first quarter 2023;
- Non-GAAP adjusted net income was $73.3 million, compared to $86.9 million in the second quarter 2022 and $73.4 million in the first quarter 2023;
- GAAP EPS was $1.77 per diluted share, compared to $1.75 per diluted share in the second quarter 2022 and $1.54 per diluted share in the first quarter 2023;
- Non-GAAP EPS was $1.59 per diluted share, compared to $1.90 per diluted share in the prior year quarter and $1.59 per diluted share last quarter;
- Excluding $6.0 million, net of tax, of non-cash share-based compensation expense, both GAAP and non-GAAP earnings per share would have increased by $0.13 per diluted share;
- EBITDA increased to $133.5 million, or 28.6 percent of revenue, from $130.6 million, or 26.1 percent of revenue, in the second quarter 2022 and $121.8 million, or 26.1 percent of revenue, in the first quarter 2023; and
- Achieved cash flow from operations of $92.6 million and $55.6 million of free cash flow, including $37.0 of capital expenditures. Net cash flow was a negative $1.2 million, including the pay-down of $34.4 million of total debt.
Commenting on the results, Dr. Keh-Shew Lu, Chairman, President and Chief Executive Officer, stated, “Even though the recovery in the consumer, computing and communications markets was much slower than expected during the quarter, our achievement of record automotive and industrial product revenue enabled us to maintain revenue flat sequentially and in-line with our guidance, while also delivering record gross margin. This quarter was the sixth consecutive quarter gross margin was above our target model of 40%, and the sixth consecutive quarter automotive and industrial increased as a percentage of revenue.
“Looking forward, we have begun to see early indications of market improvement with inventory days decreasing in the second quarter coupled with an increase in worldwide POS revenue. Although we expect a further reduction in channel inventory into the third quarter, Diodes’ ongoing strategy to improve sales and product mix, including growing revenue contribution from the automotive and industrial markets, positions us to continue achieving our long-term growth and margin targets.”
Second Quarter 2023
Revenue for second quarter 2023 was $467.2 million, decreasing 6.8 percent from $501.0 million in the second quarter 2022 and flat with $467.2 million in the first quarter 2023.
GAAP gross profit for the second quarter 2023 was $195.4 million, or 41.8 percent of revenue, compared to $206.5 million, or 41.2 percent of revenue, in the second quarter of 2022 and $194.5 million, or 41.6 percent of revenue, in the first quarter 2023.
GAAP operating expenses for second quarter 2023 were $105.8 million, or 22.7 percent of revenue, and on a non-GAAP basis were $102.0 million, or 21.8 percent of revenue, which excludes $3.8 million of amortization of acquisition-related intangible asset expenses. GAAP operating expenses in the second quarter 2022 were $100.3 million, or 20.0 percent of revenue, and in the first quarter 2023 were $108.0 million, or 23.1 percent of revenue.
Second quarter 2023 GAAP net income was $82.0 million, or $1.77 per diluted share, compared to GAAP net income in the second quarter 2022 of $80.2 million, or $1.75 per diluted share, and GAAP net income of $71.2 million, or $1.54 per diluted share, in the first quarter 2023.
Second quarter 2023 non-GAAP adjusted net income was $73.3 million, or $1.59 per diluted share, which excluded, net of tax, $3.1 million of acquisition-related intangible asset costs, an $11.7 million gain on an equity investment. This compares to non-GAAP adjusted net income of $86.9 million, or $1.90 per diluted share, in the second quarter 2022 and $73.4 million, or $1.59 per diluted share, in the first quarter 2023.
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):
| Three Months Ended | ||||||
| June 30, 2023 | ||||||
| GAAP net income | $ | 82,020 | ||||
| GAAP diluted earnings per share | $ | 1.77 | ||||
| Adjustments to reconcile net income to non-GAAP net income: | ||||||
| Amortization of acquisition-related intangible assets | 3,091 | |||||
| Officer retirement | (46 | ) | ||||
| Non-cash market-to-market investment value adjustments | (11,732 | ) | ||||
| Non-GAAP net income | $ | 73,333 | ||||
| Non-GAAP diluted earnings per share | $ | 1.59 | ||||
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 2023 GAAP net income and non-GAAP adjusted net income was approximately $6.0 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 $0.13 per diluted share for the second quarter 2023, $0.14 for second quarter 2022 and $0.17 for the first quarter 2023.
EBITDA (a non-GAAP measure), which represents earnings before net interest expense, income tax, depreciation and amortization, in second quarter 2023 was $133.5 million, or 28.6 percent of revenue, increasing from $130.6 million, or 26.1 percent of revenue, in second quarter 2022 and $121.8 million, or 26.1 percent of revenue, in first quarter 2023. For a reconciliation of GAAP net income to EBITDA, see the table near the end of this release for further details.
For second quarter 2023, net cash provided by operating activities was $96.2 million. Net cash flow was a negative $1.2 million, which includes the pay-down of $34.4 million of total debt. Free cash flow (a non-GAAP measure) was $55.6 million, which includes $37.0 million of capital expenditures.
Balance Sheet
As of June 30, 2023, the Company had approximately $334 million in cash and cash equivalents, restricted cash, and short-term investments. Total debt (including long-term and short-term) amounted to approximately $89 million and working capital was approximately $747 million.
The results announced today are preliminary and unaudited, as they are subject to the Company finalizing its closing procedures and completion of the quarterly review by its 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, 2023.
Business Outlook
Dr. Lu concluded, “For the third quarter of 2023, we expect revenue to be approximately $425 million, plus or minus 3 percent, as we expect to continue reducing channel inventory due to the slower recovery in the consumer, computing and communications markets. GAAP gross margin is expected to decrease sequentially to 40.0 percent, plus or minus 1 percent., primarily due to the impact of our manufacturing service agreements but remains at our target model. Non-GAAP operating expenses, which are GAAP operating expenses adjusted for amortization of acquisition-related intangible assets, are expected to be approximately 23.0 percent of revenue, plus or minus 1 percent. We expect net interest expense to be approximately $1.0 million. Our income tax rate is expected to be 20.0 percent, plus or minus 3 percent, and shares used to calculate diluted EPS for the third quarter are anticipated to be approximately 46.7 million.”
Amortization of acquisition-related intangible assets of $3.1 million, after tax, for previous acquisitions is not included in these non-GAAP estimates.
Conference Call
Diodes will host a conference call on Tuesday, August 8, 2023 at 4:00 p.m. Central Time (5:00 p.m. Eastern Time) to discuss its second quarter financial results. Investors and analysts may join the conference call by dialing 1-833-634-2590, and international callers may join the teleconference by dialing +1-412-317-6038. A telephone replay of the call will be made available approximately two hours after the call and will remain available until August 15, 2023 at midnight Central Time. The replay number is 1-877-344-7529 with a pass code of 9628513. International callers should dial +1-412-317-0088 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 https://investor.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 Incorporated
Diodes Incorporated (Nasdaq: DIOD), a Standard and Poor’s SmallCap 600 and Russell 3000 Index company, delivers high-quality semiconductor products to the world’s leading companies in the automotive, industrial, computing, consumer electronics, and communications markets. We leverage our expanded product portfolio of discrete, analog, and mixed-signal products and leading-edge packaging technology to meet customers’ needs. Our broad range of application-specific solutions and solutions-focused sales, coupled with worldwide operations of 32 sites, including engineering, testing, manufacturing, and customer service, enables us to be a premier provider for high-volume, high-growth markets. For more information visit www.diodes.com.
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,” “aim,” “estimate,” and variations thereof, including without limitation statements, whether direct or implied, regarding expectations of that for the third quarter of 2023, we expect revenue to be approximately $425 million plus or minus 3 percent; we expect GAAP gross margin to be 40.0 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 23.0 percent of revenue, plus or minus 1 percent; we expect non-GAAP net interest expense to be approximately $1.0 million; we expect our income tax rate to be 20.0 percent, plus or minus 3 percent; shares used to calculate diluted EPS for the third quarter are anticipated to be approximately 46.7 million. Potential risks and uncertainties include, but are not limited to, such factors as: the risk that the COVID-19 pandemic may continue and have a material adverse effect on customer demand and staffing of our production, sales and administration facilities; 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 the cost, expense, and diversion of management attention associated with the LSC acquisition may be greater than we currently expect; 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 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 that the coronavirus outbreak or other similar epidemics may harm our domestic or international business operations to a greater extent than we currently anticipate; 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.
The Diodes logo is a registered trademark of Diodes Incorporated in the United States and other countries.
© 2023 Diodes Incorporated. All Rights Reserved
DIODES INCORPORATED AND SUBSIDIARIES | ||||||||||||||||
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS | ||||||||||||||||
(unaudited) | ||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2023 | June 30, 2023 | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net sales | $ | 467,152 | $ | 500,972 | $ | 934,393 | $ | 983,095 | ||||||||
| Cost of goods sold | 271,776 | 294,446 | 544,563 | 579,872 | ||||||||||||
| Gross profit | 195,376 | 206,526 | 389,830 | 403,223 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general and administrative | 67,500 | 69,067 | 138,491 | 140,510 | ||||||||||||
| Research and development | 34,611 | 30,762 | 67,843 | 59,439 | ||||||||||||
| Amortization of acquisition-related intangible assets | 3,816 | 3,980 | 7,668 | 7,842 | ||||||||||||
| Other operating expense (income) | (118 | ) | (3,521 | ) | (166 | ) | (3,864 | ) | ||||||||
| Total operating expense | 105,809 | 100,288 | 213,836 | 203,927 | ||||||||||||
| Income from operations | 89,567 | 106,238 | 175,994 | 199,296 | ||||||||||||
| Other (expense) income | ||||||||||||||||
| Interest income | 2,224 | 861 | 3,996 | 1,687 | ||||||||||||
| Interest expense | (2,189 | ) | (1,590 | ) | (4,321 | ) | (2,704 | ) | ||||||||
| Foreign currency (loss)gain, net | (2,217 | ) | 1,819 | (4,110 | ) | 3,540 | ||||||||||
| Unrealized gain(loss) on investments | 12,172 | (7,764 | ) | 16,061 | (13,312 | ) | ||||||||||
| Other income | 1,398 | 1,647 | 1,928 | 3,523 | ||||||||||||
| Total other income (expense) | 11,388 | (5,027 | ) | 13,554 | (7,266 | ) | ||||||||||
| Income before income taxes and noncontrolling interest | 100,955 | 101,211 | 189,548 | 192,030 | ||||||||||||
| Income tax provision | 17,224 | 18,461 | 33,840 | 35,107 | ||||||||||||
| Net income | 83,731 | 82,750 | 155,708 | 156,923 | ||||||||||||
| Less net (income) attributable to noncontrolling interest | (1,711 | ) | (2,595 | ) | (2,538 | ) | (4,077 | ) | ||||||||
| Net income attributable to common stockholders | $ | 82,020 | $ | 80,155 | $ | 153,170 | $ | 152,846 | ||||||||
| Earnings per share attributable to common stockholders: | ||||||||||||||||
