Diodes Incorporated Reports Fourth Quarter and Fiscal 2022 Financial Results

Achieves Record Full Year GAAP EPS Increasing 44% to $7.20 and Non-GAAP EPS Increasing 42% to $7.36 over 2021

PLANO, Texas--(BUSINESS WIRE)--Diodes Incorporated (Diodes) (Nasdaq: DIOD) today reported its financial results for the fourth quarter ended December 31, 2022.

Year 2022 Highlights

Revenue grew to a record $2.0 billion, an increase of 10.8 percent over the $1.8 billion in 2021;
GAAP gross profit was a record $827.2 million, a 23.4 percent increase from $670.4 million in the prior year;
GAAP gross profit margin improved 420 basis points to a record 41.3 percent from 37.1 percent in 2021;
GAAP operating income increased 47.9 percent to a record $408.2 million, or 20.4 percent of revenue, compared to $276.0 million, or 15.3 percent of revenue, in 2021;
GAAP net income was a record $331.3 million, an increase of 44.8 percent from the $228.8 million last year;
Non-GAAP adjusted net income was a record $339.0 million, an increase of 42.9 percent from the $237.2 million in 2021;
GAAP EPS was a record $7.20 per diluted share, a 44.0 percent improvement from the $5.00 per diluted share in 2021;
Non-GAAP EPS was a record $7.36 per diluted share, a 42.1 percent improvement from the $5.18 per diluted share in 2021;
Excluding $28.7 million, net of tax, non-cash share-based compensation expense, both GAAP net income and non-GAAP adjusted net income would have increased by $0.62 per diluted share;
EBITDA improved 19.7 percent to a record $520.4 million, or 26.0 percent of revenue, compared to $434.6 million, or 24.1 percent of revenue in 2021; and
Achieved a record $392.5 million cash flow from operations and $180.8 million of free cash flow, including $211.7 million of capital expenditures, or 10.6 percent of revenue. Net cash flow was a negative $25.7 million, which includes the net pay-down of $112.3 million of total debt.

Commenting on the results, Dr. Keh-Shew Lu, Chairman, President and Chief Executive Officer, stated, “In spite of the COVID-related lockdowns and power outages throughout the year in China as well as the global economic slowdown, we delivered 10.8% annual growth over 2021 and achieved record financial performance across all metrics. In fact, the fourth quarter represented our ninth consecutive quarter of year-over-year growth. Additionally, our earnings power and cash generation in 2022 were also significant highlights with gross margin expanding 420 basis points to 41.3%, operating margin expanding 510 basis points to 20.4%, and GAAP EPS increasing 44% to $7.20 and non-GAAP EPS growing 42% to $7.36. We also achieved record cash flow from operations 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 markets representing 42% of 2022 product revenue and exceeding our target model of 40%. The growth in these 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.”

Dr. Lu concluded by stating, “Reaching the $2 billion revenue level in 2022 was a significant and meaningful achievement for the entire Diodes team. With 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 to consistently deliver both top line growth and significantly expanded earnings for our shareholders.”

Fourth Quarter 2022

Revenue for fourth quarter 2022 was $496.2 million, increasing 3.3 percent from $480.2 million in the fourth quarter 2021 and down 4.8 percent from $521.3 million in the third quarter 2022, which is slightly better than typical seasonality.

GAAP gross profit for the fourth quarter 2022 was $206.2 million, or 41.6 percent of revenue, increasing from $190.7 million, or 39.7 percent of revenue, in the fourth quarter of 2021 and down from $217.8 million, or 41.8 percent of revenue, in the third quarter 2022.

GAAP operating expenses for fourth quarter 2022 were $109.7 million, or 22.1 percent of revenue, and on a non-GAAP basis were $105.9 million, or 21.3 percent of revenue, which excludes $3.8 million of amortization of acquisition-related intangible asset expenses. GAAP operating expenses in the fourth quarter 2021 were $104.7 million, or 21.8 percent of revenue, and in the third quarter 2022 were $105.4 million, or 20.2 percent of revenue.

Fourth quarter 2022 GAAP net income was $92.1 million, or $2.00 per diluted share, compared to GAAP net income in the fourth quarter 2021 of $65.5 million, or $1.43 per diluted share, and GAAP net income of $86.4 million, or $1.88 per diluted share, in the third quarter 2022.

Fourth quarter 2022 non-GAAP adjusted net income was $79.6 million, or $1.73 per diluted share, which excluded, net of tax, $3.1 million of acquisition-related intangible asset costs. This compares to non-GAAP adjusted net income of $73.3 million, or $1.60 per diluted share, in the fourth quarter 2021 and $92.2 million, or $2.00 per diluted share, in the third quarter 2022.

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
	December 31, 2022
GAAP net income	$	92,051

GAAP diluted earnings per share	$	2.00

Adjustments to reconcile net income to non-GAAP net income:

Amortization of acquisition-related intangible assets		3,130

Loss on sale of manufacturing facilities		224

LSC investment related		(15,832	)

Non-GAAP net income	$	79,573

Non-GAAP diluted earnings per share	$	1.73

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 fourth quarter 2022 GAAP net income and non-GAAP adjusted net income was approximately $7.6 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 $0.16 per diluted share for the fourth quarter 2022, $0.14 for fourth quarter 2021 and $0.18 for the third quarter 2022.

EBITDA (a non-GAAP measure), which represents earnings before net interest expense, income tax, depreciation and amortization, in fourth quarter 2022 was $129.6 million, or 26.1 percent of revenue, increasing from $139.0 million, or 28.9 percent of revenue, in fourth quarter 2021 and a decrease from the $141.9 million, or 27.2 percent of revenue, in third quarter 2022. For a reconciliation of GAAP net income to EBITDA, see the table near the end of this release for further details.

For fourth quarter 2022, net cash provided by operating activities was $102.9 million. Net cash flow was a negative $44.7 million, which includes the pay down of $114.1 million of total debt. Free cash flow (a non-GAAP measure) was $39.1 million, which includes $63.8 million of capital expenditures.

Balance Sheet

As of December 31, 2022, the Company had approximately $348 million in cash and cash equivalents, restricted cash, and short-term investments. Total debt (including long-term and short-term) amounted to approximately $186 million and working capital was approximately $729 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-K for the year ending December 31, 2022.

Business Outlook

Dr. Lu concluded, “For the first quarter of 2023, we expect revenue to be approximately $467 million, plus or minus 3 percent. GAAP gross margin is expected to be 41.0 percent, plus or minus 1 percent. Even with the revenue and loading decrease in the first quarter, we expect to maintain our gross margin effectively comparable to last quarter and above our target model of 40 percent. Non-GAAP operating expenses, which are GAAP operating expenses adjusted for amortization of acquisition-related intangible assets, are expected to be approximately 22.2 percent of revenue, plus or minus 1 percent. We expect net interest expense to be approximately $2.5 million. Our income tax rate is expected to be 19.0 percent, plus or minus 3 percent, and shares used to calculate diluted EPS for the first quarter are anticipated to be approximately 46.5 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 Monday, February 6, 2023 at 4:00 p.m. Central Time (5:00 p.m. Eastern Time) to discuss its fourth quarter and full year 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 February 13, 2023 at midnight Central Time. The replay number is 1-877-344-7529 with a pass code of 1311288. 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 consumer electronics, computing, communications, industrial, and automotive 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 first quarter of 2023, we expect revenue to be approximately $467 million plus or minus 3 percent; we expect GAAP gross margin to be 41.0 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 22.2 percent of revenue, plus or minus 1 percent; we expect non-GAAP net interest expense to be approximately $2.5 million; we expect our income tax rate to be 19.0 percent, plus or minus 3 percent; shares used to calculate diluted EPS for the first quarter are anticipated to be approximately 46.5 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.

DIODES INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except per share data)

	Three Months Ended						Twelve Months Ended
	December 31						December 31
	2022			2021			2022			2021
Net sales	$	496,212		$	480,171		$	2,000,580		$	1,805,162
Cost of goods sold		290,016			289,480			1,173,343			1,134,802
Gross profit		206,196			190,691			827,237			670,360

Operating expenses
Selling, general and administrative		71,822			70,951			280,877			257,710
Research and development		34,090			30,096			126,316			119,200
Amortization of acquisition-related intangible assets		3,830			4,077			15,610			16,216
Loss (gain) on disposal of fixed assets		4			177			(3,651	)		246
Other operating expense(income)		(1	)		(601	)		(108	)		1,003
Total operating expense		109,745			104,700			419,044			394,375

Income from operations		96,451			85,991			408,193			275,985

Other (expense) income
Interest income		1,123			788			3,672			3,139
Interest expense		(2,892	)		(1,193	)		(8,320	)		(7,491	)
Foreign currency (loss) gain, net		(410	)		(1,123	)		2,122			(2,107	)
Unrealized (loss) gain on investments		(554	)		13,180			(16,514	)		28,018
Other income		1,046			11,153			6,787			17,551
Total other (expense) income		(1,687	)		22,805			(12,253	)		39,110

Income before income taxes and noncontrolling interest		94,764			108,796			395,940			315,095
Income tax provision		1,406			42,487			56,685			78,807
Net income		93,358			66,309			339,255			236,288
Less net (income) attributable to noncontrolling interest		(1,307	)		(796	)		(7,972	)		(7,525	)
Net income attributable to common stockholders	$	92,051		$	65,513		$	331,283		$	228,763

Earnings per share attributable to common stockholders:
Basic	$	2.02		$	1.46		$	7.31		$	5.11
Diluted		2.00		$	1.43		$	7.20		$	5.00
Number of shares used in earnings per share computation:
Basic		45,470			45,018			45,330			44,772
Diluted		46,111			45,942			46,036			45,781

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

DIODES INCORPORATED AND SUBSIDIARIES RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME (in thousands, except per share data) (unaudited)

For the three months ended December 31, 2022:

	Operating Expenses	Other Income (Expense)	Income Tax Provision		Net Income
Per-GAAP					$	92,051

Diluted earnings per share (Per-GAAP)					$	2.00

Adjustments to reconcile net income to non-GAAP net income:

Amortization of acquisition-related intangible assets	3,830		(700	)		3,130

Loss on sale of manufacturing facilities		264	(40	)		224

LSC investment related		554	(16,386	)		(15,832	)

Non-GAAP					$	79,573

Diluted shares used in computing earnings per share						46,111

Non-GAAP diluted earnings per share					$	1.73

Note: Included in GAAP and non-GAAP net income was approximately $7.6 million, net of tax, non-cash share-based compensation expense. Excluding share-based compensation expense, both GAAP and non-GAAP diluted earnings per share would have improved by $0.16 per share.

DIODES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME – Cont.

(in thousands, except per share data)

(unaudited)

For the three months ended December 31, 2021:

Operating
Expenses

Other Income
(Expense)

Income Tax
Provision

Net Income

Per-GAAP

65,513

Diluted earnings per share (Per-GAAP)

1.43

Adjustments to reconcile net income to non-GAAP net income:

Amortization of acquisition-related intangible assets

4,077

(748

)

3,329

Acquisition-related costs

551

(116

)

435

LSC investments related

(13,181

)

26,642

13,461

Gain on sale of manufacturing subsidiary

(9,446

)

(9,446

)

Non-GAAP

73,292

Diluted shares used in computing earnings per share

45,942

Non-GAAP diluted earnings per share

1.60

Note: Included in GAAP and non-GAAP adjusted net income was approximately $6.5 million, net of tax, non-cash share-based compensation expense. Excluding share-based compensation expense, both GAAP and non-GAAP adjusted diluted earnings per share would have improved by $0.14 per share.

DIODES INCORPORATED AND SUBSIDIARIES RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME (in thousands, except per share data) (unaudited)

For the twelve months ended December 31, 2022:

	Operating Expenses		Other Income (Expense)	Income Tax Provision		Net Income
Per-GAAP						$	331,283

Diluted earnings per share (Per-GAAP)						$	7.20

Adjustments to reconcile net income to non-GAAP net income:

Amortization of acquisition-related intangible assets	15,610			(2,857	)		12,753

Acquisition-related costs	607			(127	)		480

Insurance recovery for manufacturing facility	(3,594	)		719			(2,875	)

Loss on sale of manufacturing facilities			677	(102	)		575

LSC investment related			16,514	(19,771	)		(3,257	)

Non-GAAP						$	338,959

Diluted shares used in computing earnings per share							46,036

Non-GAAP diluted earnings per share						$	7.36

Note: Included in GAAP and non-GAAP adjusted net income was approximately $28.7 million, net of tax, non-cash share-based compensation expense. Excluding share-based compensation expense, both GAAP and non-GAAP adjusted diluted earnings per share would have improved by $0.62 per share.

DIODES INCORPORATED AND SUBSIDIARIES RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME (in thousands, except per share data) (unaudited)

For the twelve months ended December 31, 2021:

	Operating Expenses	Other Income (Expense)		Income Tax Provision		Net Income
Per-GAAP						$	228,763

Diluted earnings per share (Per-GAAP)						$	5.00

Adjustments to reconcile net income to non-GAAP net income:

Amortization of acquisition-related intangible assets	16,216			(2,974	)		13,242

Acquisition-related costs	2,816			(591	)		2,225

LSC investments related		(28,018	)	29,609			1,591

Gain on sale of manufacturing subsidiary		(9,446	)	-			(9,446	)

Restructuring costs	961			(144	)		817

Non-GAAP						$	237,192

Diluted shares used in computing earnings per share							45,781

Non-GAAP diluted earnings per share						$	5.18

Note: Included in GAAP and non-GAAP adjusted net income was approximately $26.2 million, net of tax, non-cash share-based compensation expense. Excluding share-based compensation expense, both GAAP and non-GAAP adjusted diluted earnings per share would have improved by $0.57 per share.

ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE

The Company’s financial statements present net income and earnings per share that are calculated using accounting principles generally accepted in the United States (“GAAP”). The Company’s management makes adjustments to the GAAP measures that it feels are necessary to allow investors and other readers of the Company’s financial releases to view the Company’s operating results as viewed by the Company’s management, board of directors and research analysts in the semiconductor industry. These non-GAAP measures are not prepared in accordance with, and should not be considered alternatives or necessarily superior to, GAAP financial data and may be different from non-GAAP measures used by other companies. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures, even if they have similar names. The explanation of the adjustments made in the table above, are set forth below:

Detail of non-GAAP adjustments

Amortization of acquisition-related intangible assets – The Company excluded this item, including amortization of developed technologies and customer relationships. The fair value of the acquisition-related intangible assets is amortized using straight-line methods which approximate the proportion of future cash flows estimated to be generated each period over the estimated useful life of the applicable assets. The Company believes that exclusion of this item is appropriate because a significant portion of the purchase price for its acquisitions was allocated to the intangible assets that have short lives and exclusion of the amortization expense allows comparisons of operating results that are consistent over time for both the Company’s newly acquired and long-held businesses. In addition, the Company excluded this item because there is significant variability and unpredictability among companies with respect to this expense.

Acquisition related costs – The Company excluded expenses associated with previous acquisitions of that typically consist of advisory, legal and other professional and consulting fees. These costs were expensed as they were incurred and as services were received, and in which the corresponding tax adjustments were made for the non-deductible portions of these expenses. The Company believes the exclusion of the acquisition related costs provides investors with a more accurate reflection of costs likely to be incurred in the absence of an unusual event such as an acquisition and facilitates comparisons with the results of other periods that may not reflect such costs.

Insurance recovery for manufacturing facility – The Company recorded gains related to insurance recovery for a manufacturing facility in Asia. The Company believes the exclusion of the insurance recovery provides investors with a more accurate reflection of the continuing operations of the Company and facilitates comparisons with the results of other periods which may not reflect such gains.

Contacts

Company Contact:
Diodes Incorporated
Gurmeet Dhaliwal
Director, IR & Corporate Marketing
P: 408-232-9003
E: Gurmeet_Dhaliwal@diodes.com

Investor Relations Contact:
Shelton Group
Leanne Sievers
President, Investor Relations
P: 949-224-3874
E: lsievers@sheltongroup.com

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First published on Tue, Feb 7, 2023

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