Diodes Inc 10-Q for FY2024 Q3
Diodes Inc (DIOD)
About this 10-Q
Diodes Inc filed this 10-Q on November 7, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $350.08M
- down 13.5% from $404.65M a year earlier
- Net income
- $13.75M
- down 71.8% from net income of $48.72M a year earlier
- Diluted EPS
- $0.30
- down 71.4% from $1.05 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
Or
For the transition period from to .
Commission file number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification Number) |
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(Address of principal executive offices) |
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(Zip code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares of the registrant’s Common Stock outstanding as of November 5, 2024 was
DIODES INCORPORATED AND SUBSIDIARIES
Table of Contents
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
DIODES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)
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September 30, |
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December 31, |
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2024 |
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2023 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ |
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$ |
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Restricted cash |
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Short-term investments |
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Accounts receivable, net of allowances of $ |
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Inventories |
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Prepaid expenses and other |
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Total current assets |
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Property, plant, and equipment, net |
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Deferred tax assets |
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Goodwill |
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Intangible assets, net |
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Other long-term assets |
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Total assets |
$ |
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$ |
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Liabilities |
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Current liabilities: |
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Lines of credit |
$ |
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$ |
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Accounts payable |
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Accrued liabilities and other |
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Income tax payable |
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Current portion of long-term debt |
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Total current liabilities |
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Long-term debt, net of current portion |
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Deferred tax liabilities |
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Unrecognized tax benefits |
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Other long-term liabilities |
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Total liabilities |
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Stockholders' equity |
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Preferred stock - par value $ |
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Common stock - par value $ |
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Additional paid-in capital |
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Retained earnings |
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Treasury stock, at cost, |
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( |
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( |
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Accumulated other comprehensive loss |
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Stockholders' equity |
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Noncontrolling interest |
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Total equity |
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Total liabilities and stockholders' equity |
$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements. |
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-3-
DIODES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net sales |
$ |
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$ |
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$ |
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$ |
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Cost of goods sold |
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Gross profit |
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Operating expenses |
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Selling, general, and administrative |
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Research and development |
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Amortization of acquisition related intangible assets |
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Gain on disposal of fixed assets |
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( |
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( |
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Restructuring charge |
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Other operating income |
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( |
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Total operating expense |
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Income from operations |
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Other (expense) income |
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Interest income |
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Interest expense |
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( |
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( |
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( |
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Foreign currency (loss) gain, net |
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( |
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( |
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Unrealized (loss) gain on investments |
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Other income |
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Total other (expense) income |
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Income before income taxes and noncontrolling interest |
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Income tax provision |
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Net income |
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Less net income attributable to noncontrolling interest |
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( |
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( |
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( |
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Net income attributable to common stockholders |
$ |
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$ |
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$ |
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$ |
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Earnings per share attributable to common stockholders: |
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Basic |
$ |
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$ |
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$ |
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$ |
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Diluted |
$ |
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$ |
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$ |
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$ |
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Number of shares used in earnings per share computation: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
-4-
DIODES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net income |
$ |
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$ |
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$ |
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$ |
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Unrealized gain (loss) on defined benefit plan, net of tax |
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( |
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( |
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Unrealized (loss) gain on derivative instruments, net of tax |
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( |
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( |
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( |
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Unrealized foreign currency gain (loss), net of tax |
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( |
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( |
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Comprehensive income |
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Less: Comprehensive income attributable to noncontrolling interest |
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( |
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( |
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( |
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( |
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Total comprehensive income attributable to common stockholders |
$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
-5-
DIODES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands)
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Common stock |
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Treasury stock |
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Additional |
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Retained |
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Accumulated |
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Total Diodes |
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Noncontrolling |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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capital |
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earnings |
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loss |
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equity |
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interest |
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equity |
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Balance, June 30, 2024 |
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$ |
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( |
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$ |
( |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Total comprehensive income |
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- |
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- |
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- |
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- |
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- |
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Net changes in noncontrolling interest |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
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( |
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Common stock issued for share-based plans |
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- |
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- |
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( |
) |
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- |
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- |
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- |
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- |
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- |
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Share-based compensation |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Deferred compensation plan |
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- |
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- |
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- |
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( |
) |
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- |
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- |
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- |
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- |
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- |
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Tax related to net share settlement |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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- |
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( |
) |
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- |
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( |
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Balance, September 30, 2024 |
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$ |
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( |
) |
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$ |
( |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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Common stock |
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Treasury stock |
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Additional |
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Retained |
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Accumulated |
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Total Diodes |
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Noncontrolling |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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capital |
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earnings |
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loss |
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equity |
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interest |
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equity |
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Balance, December 31, 2023 |
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$ |
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( |
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$ |
( |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Total comprehensive income |
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- |
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- |
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- |
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- |
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- |
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Net changes in noncontrolling interest |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
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( |
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Common stock issued for share-based plans |
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- |
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- |
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( |
) |
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- |
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- |
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- |
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- |
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- |
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Share-based compensation |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Deferred compensation plan |
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- |
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- |
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( |
) |
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( |
) |
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- |
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- |
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- |
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- |
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- |
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Tax related to net share settlement |
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- |
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- |
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- |
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- |
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( |
) |
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- |
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- |
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( |
) |
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- |
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( |
) |
Balance, September 30, 2024 |
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$ |
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( |
) |
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$ |
( |
) |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
-6-
DIODES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (CONT.)
(Unaudited)
(In thousands)
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Common stock |
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Treasury stock |
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Additional |
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Retained |
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Accumulated |
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Total Diodes |
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Noncontrolling |
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Total |
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Shares |
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Amount |
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Shares |
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Amount |
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capital |
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earnings |
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loss |
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equity |
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interest |
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equity |
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Balance, June 30, 2023 |
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$ |
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( |
) |
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$ |
( |
) |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Total comprehensive income |
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- |
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- |
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- |
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- |
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- |
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( |
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Net changes in noncontrolling interest |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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Common stock issued for share-based plans |
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- |
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- |
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( |
) |
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- |
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- |
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- |
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- |
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- |
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Share-based compensation |
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- |
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- |
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- |
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- |
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- |
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- |
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|
|
|
|
|
- |
|
|
|
|
|||
Deferred compensation plan |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Tax related to net share settlement |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Balance, September 30, 2023 |
|
|
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
Common stock |
|
|
Treasury stock |
|
|
Additional |
|
|
Retained |
|
|
Accumulated |
|
|
Total Diodes |
|
|
Noncontrolling |
|
|
Total |
|
||||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
capital |
|
|
earnings |
|
|
loss |
|
|
equity |
|
|
interest |
|
|
equity |
|
||||||||||
Balance, December 31, 2022 |
|
|
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Total comprehensive income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Net changes in noncontrolling interest |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
Common stock issued for share-based plans |
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
||
Share-based compensation |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|||
Deferred compensation plan |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Tax related to net share settlement |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Balance, September 30, 2023 |
|
|
|
|
$ |
|
|
|
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
-7-
DIODES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
|
Nine Months Ended |
|
|||||
|
September 30, |
|
|||||
|
2024 |
|
|
2023 |
|
||
Cash flows from operating activities |
|
|
|
|
|
||
Net income |
$ |
|
|
$ |
|
||
Adjustments to reconcile net income to net cash flows from operating activities, net of effects of acquisitions |
|
|
|
|
|
||
Depreciation |
|
|
|
|
|
||
Amortization of intangible assets |
|
|
|
|
|
||
Share-based compensation expense |
|
|
|
|
|
||
Deferred income taxes |
|
( |
) |
|
|
( |
) |
Investment gain |
|
( |
) |
|
|
( |
) |
Gain on disposal of property, plant, and equipment |
|
( |
) |
|
|
( |
) |
Interest income forwards and collars |
|
( |
) |
|
|
( |
) |
Other |
|
( |
) |
|
|
( |
) |
Changes in operating assets: |
|
|
|
|
|
||
Change in accounts receivable |
|
|
|
|
( |
) |
|
Change in inventory |
|
( |
) |
|
|
|
|
Change in other operating assets |
|
|
|
|
( |
) |
|
Changes in operating liabilities: |
|
|
|
|
|
||
Change in accounts payable |
|
( |
) |
|
|
|
|
Change in accrued liabilities |
|
( |
) |
|
|
( |
) |
Change in income tax payable |
|
( |
) |
|
|
|
|
Change in other operating liabilities |
|
|
|
|
|
||
Net cash flows from operating activities |
|
|
|
|
|
||
|
|
|
|
|
|
||
Cash flows from investing activities |
|
|
|
|
|
||
Purchases of property, plant, and equipment |
|
( |
) |
|
|
( |
) |
Proceeds from sale of property, plant, and equipment |
|
|
|
|
|
||
Proceeds from short-term investments |
|
|
|
|
|
||
Purchases of short-term investments |
|
( |
) |
|
|
( |
) |
Purchases of securities |
|
|
|
|
( |
) |
|
Proceeds from sales of securities |
|
|
|
|
|
||
Insurance recovery |
|
|
|
|
|
||
Other |
|
( |
) |
|
|
|
|
Net cash flows from investing activities |
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||
Cash flows from financing activities |
|
|
|
|
|
||
Advances on lines of credit and short-term debt |
|
|
|
|
|
||
Repayments of lines of credit and short-term debt |
|
( |
) |
|
|
( |
) |
Proceeds from long-term debt |
|
|
|
|
|
||
Repayments of long-term debt |
|
( |
) |
|
|
( |
) |
Repayment of and proceeds from finance lease obligation |
|
( |
) |
|
|
( |
) |
Taxes paid related to net share settlement |
|
( |
) |
|
|
( |
) |
Net changes in noncontrolling interest |
|
|
|
|
|
||
Other |
|
( |
) |
|
|
( |
) |
Net cash flows from financing activities |
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
||
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
( |
) |
|
Change in cash and cash equivalents, including restricted cash |
|
( |
) |
|
|
( |
) |
Cash and cash equivalents, beginning of period, including restricted cash |
|
|
|
|
|
||
Cash and cash equivalents, end of period, including restricted cash |
$ |
|
|
$ |
|
||
-8-
Supplemental Cash Flow Information |
|
|
|
|
|
||
Interest paid during the period |
$ |
|
|
$ |
|
||
Taxes paid during the period |
$ |
|
|
$ |
|
||
Non-cash investing and financing activities: |
|
|
|
|
|
||
Accounts payable balance related to the purchase of |
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these condensed consolidated financial statements.
-9-
DIODES INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – Summary of Operations and Significant Accounting Policies
Summary of Operations
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 analog and discrete power solutions combined with leading-edge packaging technology to meet customers’ needs. Our broad range of application-specific products and solutions-focused sales, coupled with global operations including engineering, testing, manufacturing, and customer service, enable us to be a premier provider for high-volume, high-growth markets. For more information, visit www.diodes.com.”
The Company’s products include diodes; rectifiers; transistors; MOSFETs; Silicon Carbide (“SiC”) diodes and MOSFETs; protection devices; logic; photocoupler; voltage translators; amplifiers and comparators; sensors; and power management devices such as AC-DC converters, DC-DC switching, linear voltage regulators, voltage references, LED drivers, power switches, photocoupler, and voltage supervisors. We also have timing and connectivity solutions including clock ICs, crystal oscillators, PCIe packet switches, multi-protocol switches, interface products, and signal integrity solutions for high-speed signals.
Diodes’ corporate headquarters and Americas’ sales offices are located in Plano, Texas and Milpitas, California. Design, marketing, and engineering centers are located in Plano and Milpitas, U.S.; Taipei and Taoyuan City, Taiwan; Shanghai and Yangzhou, China; Oldham, England; and Neuhaus, Germany. Diodes’ wafer fabrication facilities are located in South Portland, Maine, U.S., Oldham, England, and Greenock, Scotland; Shanghai and Wuxi, China; and Keelung and Hsinchu, Taiwan. Diodes has assembly and test facilities located in Shanghai, Chengdu, and Wuxi, China; Neuhaus, Germany; and Jhongli, Taiwan. Additional engineering, sales, warehouse, and logistics offices are located in Frankfurt and Munich, Germany; Hong Kong, Shanghai, Beijing, Shenzhen, Wuhan, Yangzhou, and Qingdao, China; Milan, Italy; Oldham, England; Seongnam-si, South Korea; Singapore City, Singapore; Taipei and Kaohsiung, Taiwan; and Tokyo, Japan; with support offices throughout the world.
The Company’s manufacturing facilities have achieved certifications in the internationally recognized standards of ISO 9001:2015, ISO 14001:2015, and, for automotive products, IATF 16949:2016 and the Company is also C-TPAT certified. We believe these quality awards reflect the superior quality-control techniques established at the Company and further enhance our credibility as a vendor-of-choice to original equipment manufacturers ("OEMs") increasingly concerned with quality and consistency.
Our market focus is on high-growth, end-user applications in the following areas:
Basis of Presentation
The condensed consolidated financial data at December 31, 2023 are derived from audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (“SEC”) on February 9, 2024 (“Form 10-K”). The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q. They do not include all information and footnotes necessary for a fair presentation of financial position, operating results, and cash flows in conformity with GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in our Form 10-K. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments (consisting of normal recurring adjustments and accruals) considered necessary for a fair presentation of the operating results for the period presented have been included in the interim period. Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for other interim periods or the year ending December 31, 2024.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. As permitted under GAAP, interim accounting for certain expenses, including income taxes, are based on full year forecasts. For interim
-10-
financial reporting purposes, income taxes are recorded based upon estimated annual effective income tax rates taking into consideration discrete items occurring in a quarter.
Recently Issued Accounting Pronouncements
In November 2024, the Financial Accounting Standards Board issued Accounting Standards Update 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40). The amendments in this update require that at each interim and annual reporting period an entity disclose:
The amendments in this update are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted.
NOTE 2 – Earnings per Share
The table below sets forth the reconciliation between net income and the weighted average shares outstanding used for calculating basic and diluted EPS:
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
September 30, |
|
|
September 30, |
|
||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Earnings (numerator) |
|
|
|
|
|
|
|
|
|
|
|
||||
Net income attributable to common stockholders |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Shares (denominator) |
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding (basic) |
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive effect of stock options and stock awards outstanding |
|
|
|
|
|
|
|
|
|
|
|
||||
Adjusted weighted average common shares outstanding (diluted) |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per share attributable to common stockholders |
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Diluted |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock options and stock awards excluded from EPS |
|
|
|
|
|
|
|
|
|
|
|
||||
NOTE 3 – Inventories
-11-
The table below sets forth inventories which are stated at the lower of cost or net realizable value:
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Finished goods |
$ |
|
|
$ |
|
||
Work-in-progress |
|
|
|
|
|
||
Raw materials |
|
|
|
|
|
||
Total |
$ |
|
|
$ |
|
||
NOTE 4 – Goodwill and Intangible Assets
The table below sets forth the changes in goodwill:
Balance at December 31, 2023 |
$ |
|
|
Acquisition |
|
|
|
Foreign currency translation adjustment |
|
|
|
Balance at September 30, 2024 |
$ |
|
The table below sets forth the value of intangible assets, other than goodwill:
|
September 30, |
|
|
December 31, |
|
||
|
2024 |
|
|
2023 |
|
||
Intangible assets subject to amortization: |
|
|
|
|
|
||
Gross carrying amount |
$ |
|
|
$ |
|
||
Accumulated amortization |
|
( |
) |
|
|
( |
) |
Foreign currency translation adjustment |
|
( |
) |
|
|
( |
) |
Total intangible assets subject amortization |
|
|
|
|
|
||
Intangible assets with indefinite lives: |
|
|
|
|
|
||
Gross carrying amount |
|
|
|
|
|
||
Foreign currency translation adjustment |
|
( |
) |
|
|
( |
) |
Total intangible assets with indefinite lives |
|
|
|
|
|
||
Total intangible assets, net |
$ |
|
|
$ |
|
||
The table below sets forth amortization expense related to intangible assets subject to amortization:
Amortization expense |
|
2024 |
|
|
2023 |
|
||
Three Months Ended September 30, |
|
$ |
|
|
$ |
|
||
Nine Months Ended September 30, |
|
$ |
|
|
$ |
|
||
NOTE 5 – Income Tax Provision
The table below sets forth information related to our income tax expense:
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
September 30, |
|
|
September 30, |
|
||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Domestic pre-tax income |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Foreign pre-tax income |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Income tax provision |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Effective tax rate |
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Impact of tax holidays on tax expense |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Earnings per share impact of tax holidays: |
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Diluted |
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
The increase in the effective tax rate for the three and nine months ended September 30, 2024, when compared to the three and nine months ended September 30, 2023, is primarily due to the impact of the geographical mix of pre-tax income and loss across tax jurisdictions relative to the Company’s consolidated pre-tax income on the estimated annual effective tax rate.
-12-
Our undistributed foreign earnings continue to be indefinitely reinvested in foreign operations, with limited exceptions related to certain earnings of European and Asian subsidiaries. Any future distributions of foreign earnings will not be subject to additional U.S. income tax but may be subject to non-U.S. withholding taxes.
Several jurisdictions in which we operate have either enacted, or announced plans to enact, legislation consistent with the Organization for Economic Co-operation and Development Global Anti-Base Erosion Model Rules ("Pillar Two") which introduced a global minimum effective tax rate of 15% applied on a jurisdiction-by-jurisdiction basis. We have analyzed enacted legislation and do not anticipate that it will have a material impact on our effective tax rate for 2024; however, we continue to monitor future tax legislative changes in the jurisdictions in which we operate in order to evaluate the impacts to the consolidated financial statements.
NOTE 6 – Share-Based Compensation
The table below sets forth information related to our share-based compensation expense:
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
September 30, |
|
|
September 30, |
|
||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Cost of goods sold |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Selling, general, and administrative |
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
||||
Total share-based compensation expense |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Share Grants. Share grants consist of restricted stock awards, restricted stock units (“RSUs”) and performance stock units (“PSUs”). Restricted stock awards and RSUs generally vest in equal annual installments over a four-year period and are measured based on the fair market value of the underlying stock on the date of grant. Compensation expense is recognized on a straight-line basis over the requisite four-year service period. All new grants are awarded under the Company’s 2022 Equity Incentive Plan.
PSUs are measured based on the fair market value of the underlying stock on the date of grant, and compensation expense is recognized over the three-year performance period, with adjustments made to the expense to recognize the probable payout percentage.
As of September 30, 2024, total unrecognized share-based compensation expense related to share grants was approximately $
Stock Modification. During the nine months ended September 30, 2023 we modified previously granted stock awards for two corporate officers who retired. The result of the modifications resulted in the acceleration of the vesting of
NOTE 7 – Enterprise-Wide Segment Information and Net Sales
Segment Reporting. For financial reporting purposes, we operate in a single segment, standard semiconductor products, through our various manufacturing and distribution facilities. We aggregate our products because the products are similar and have similar economic characteristics, use similar production processes and share similar customer type. Our primary operations include operations in Asia, the Americas, and Europe. During the three months ended September 30, 2024,
-13-
Disaggregation of Net Sales. We disaggregate net sales with customers into direct sales to end customers and distribution sales to distributors (“Distributors”) and by geographic area. Direct sales customers consist of those customers using our product in their manufacturing process, and Distributors are those customers who resell our products to third parties. We deliver our products to customers around the world for use in the industrial, automotive, computing, consumer, and communications markets. Further, most of our contracts are fixed-price arrangements, and are short term in nature, ranging from days to several months.
For the Three Months Ended September 30, 2024 |
|
Asia |
|
|
Americas |
|
|
Europe |
|
|
Consolidated |
|
||||
Total sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Intercompany elimination |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
For the Three Months Ended September 30, 2023 |
|
Asia |
|
|
Americas |
|
|
Europe |
|
|
Consolidated |
|
||||
Total sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Intercompany elimination |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
As of and for the |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Nine Months Ended September 30, 2024 |
|
Asia |
|
|
Americas |
|
|
Europe |
|
|
Consolidated |
|
||||
Total sales |
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
||||
Intercompany elimination |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property, plant, and equipment, net |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
As of and for the |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Nine Months Ended September 30, 2023 |
|
Asia |
|
|
Americas |
|
|
Europe |
|
|
Consolidated |
|
||||
Total sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Intercompany elimination |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Property, plant, and equipment, net |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
-14-
The tables below set forth net sales for the Company disaggregated into geographic locations based on shipment destination and by type (direct sales or Distributor):
|
|
For the Three Months Ended September 30, |
|||||||
Net Sales by Region |
|
2024 |
|
|
2023 |
|
|
||
Asia |
|
$ |
|
|
$ |
|
|
||
Europe |
|
|
|
|
|
|
|
||
Americas |
|
|
|
|
|
|
|
||
Total net sales |
|
$ |
|
|
$ |
|
|
||
|
|
|
|
|
|
|
|
||
Net Sales by Type |
|
|
|
|
|
|
|
||
Direct sales |
|
$ |
|
|
$ |
|
|
||
Distributor sales |
|
|
|
|
|
|
|
||
Total net sales |
|
$ |
|
|
$ |
|
|
||
|
|
|
|
|
|
|
|
||
|
|
For the Nine Months Ended September 30, |
|
|
|||||
Net Sales by Region |
|
2024 |
|
|
2023 |
|
|
||
Asia |
|
$ |
|
|
$ |
|
|
||
Europe |
|
|
|
|
|
|
|
||
Americas |
|
|
|
|
|
|
|
||
Total net sales |
|
$ |
|
|
$ |
|
|
||
|
|
|
|
|
|
|
|
||
Net Sales by Type |
|
|
|
|
|
|
|
||
Direct sales |
|
$ |
|
|
$ |
|
|
||
Distributor sales |
|
|
|
|
|
|
|
||
Total net sales |
|
$ |
|
|
$ |
|
|
||
NOTE 8 – Debt
Borrowings outstanding as of September 30, 2024 and December 31, 2023 are set forth in the table below:
|
|
September 30, |
|
|
December 31, |
|
|
|
|
Current Amount |
||
Description |
|
2024 |
|
|
2023 |
Interest Rate |
|
Maturity |
||||
Short-term debt |
|
$ |
|
|
$ |
|
|
|
Various during 2024 |
|||
|
|
|
|
|
|
|
|
|
|
|
||
Long-term debt |
|
|
|
|
|
|
|
|
|
|
||
Notes payable to Bank of Taiwan |
|
|
|
|
|
|
|
|
June 2033 |
|||
Notes payable to Bank of Taiwan |
|
|
|
|
|
|
|
|
September 2026 |
|||
Notes payable to CTBC Bank |
|
|
|
|
|
|
|
|
March 2026 |
|||
Notes payable to CTBC Bank |
|
|
|
|
|
|
|
|
May 2028 |
|||
Notes payable to E Sun Bank |
|
|
|
|
|
|
|
|
July 2027 |
|||
Notes payable to E Sun Bank |
|
|
|
|
|
|
|
|
July 2030 |
|||
Notes payable to E Sun Bank |
|
|
|
|
|
|
|
|
September 2026 |
|||
Total long-term debt |
|
|
|
|
|
|
|
|
|
|
||
Less: Current portion of long-term debt |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Total long-term debt, net of current portion |
|
$ |
|
|
$ |
|
|
|
|
|
||
Our Asia subsidiaries maintain short-term credit facilities with several financial institutions through our foreign entities worldwide totaling $
The Company maintains a long-term credit facility (“Credit Agreement”). The Credit Agreement consists of a Revolving Credit Facility in the amount of $
-15-
interest at Term SOFR or similar other indices plus a specified margin and matures in . There was
NOTE 9 – Commitments and Contingencies
Purchase Commitments. We have entered into non-cancelable purchase contracts for capital expenditures, primarily for manufacturing equipment, for approximately $
Defined Benefit Plan.
Contingencies. From time to time, we are involved in various legal proceedings that arise in the normal course of business. While we intend to defend any lawsuit vigorously, we presently believe that the ultimate outcome of any pending legal proceeding will not have any material adverse effect on our consolidated financial position, cash flows, or operating results. However, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages, which could impact our business and operating results for the period in which the ruling occurs and future periods. Based on available information available, we evaluate the likelihood of potential outcomes of all pending disputes. We record an appropriate liability when the amount of any liability associated with a pending dispute is deemed probable and reasonably estimable. In addition, we do not accrue estimated legal fees and other directly related costs as they are expensed as incurred. The Company is not currently a party to any pending litigation that we consider material.
Note 10 – Derivative Financial Instruments
We use derivative instruments to manage risks related to foreign currencies, interest rates, and the net investment risk in our foreign subsidiaries. Our objectives for holding derivatives include reducing, eliminating, and efficiently managing the economic impact of these exposures as effectively as possible. Our derivative programs include strategies that both qualify and do not qualify for hedge accounting treatment.
Hedges of Foreign Currency Risk. We are exposed to fluctuations in various foreign currencies against our different functional currencies. We use foreign currency forward agreements to manage this exposure. As of September 30, 2024 and December 31, 2023, we had $
Hedges of Interest Rate and Net Investment Risk.
The table below sets forth the fair value of the Company’s derivative financial instruments as well as their classification on our condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023:
|
|
|
Fair Value |
||||||||
|
|
|
|
Other Liabilities |
|
|
|||||
|
|
|
|
2024 |
|
|
2023 |
|
|
||
Cross-currency swaps |
|
|
|
$ |
|
|
$ |
|
|
||
Foreign-currency forward contracts |
|
|
|
|
|
|
|
|
|
||
-16-
NOTE 11 – Leases
The Company leases certain assets used in its business, including land, buildings, and equipment. These leased assets are used for operational and administrative purposes.
The components of lease expense are set forth in the table below:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||||||
|
|
September 30, |
|
|
September 30, |
|
||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating lease expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
||||
Finance lease expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest on lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Short-term lease expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Variable lease expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total lease expense |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
||||
The table below sets forth supplemental balance sheet information related to leases. In our condensed consolidated balance sheets, right of use (“ROU”) assets are included in other long-term assets while lease liabilities are located in accrued liabilities and other for the current portion and other long-term liabilities for the non-current portion:
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Operating leases: |
|
|
|
|
|
|
||
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
Total operating lease liabilities |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Finance leases: |
|
|
|
|
|
|
||
|
$ |
|
|
$ |
|
|||
Accumulated amortization |
|
|
( |
) |
|
|
( |
) |
Finance lease ROU assets, net |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|||
Total finance lease liabilities |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Weighted average remaining lease term (in years): |
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
|
|
||
Finance leases |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Weighted average discount rate: |
|
|
|
|
|
|
||
Operating leases |
|
|
% |
|
|
% |
||
Finance leases |
|
|
% |
|
|
% |
||
The table below sets forth supplemental cash flow and other information related to leases:
|
|
Nine Months Ended |
|
|||||
|
|
September 30, 2024 |
|
|
September 30, 2023 |
|
||
Cash paid for the amounts included in the measurements of lease liabilities: |
|
|
|
|
|
|
||
Operating cash outflows from operating leases |
|
$ |
|
|
$ |
|
||
Operating cash outflows from finance leases |
|
|
|
|
|
|
||
Financing cash outflow from finance leases |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
ROU assets obtained in exchange for lease liabilities incurred: |
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
|
|
||
-17-
The table below sets forth information about lease liability maturities:
|
|
September 30, 2024 |
|
|||||||
|
|
Operating Leases |
|
|
Finance Leases |
|
||||
2024 |
|
$ |
|
|
|
$ |
|
|
||
2025 |
|
|
|
|
|
|
|
|
||
2026 |
|
|
|
|
|
|
|
|
||
2027 |
|
|
|
|
|
|
|
|
||
2028 |
|
|
|
|
|
|
|
|
||
2029 |
|
|
|
|
|
|
|
|
||
2030 and thereafter |
|
|
|
|
|
|
|
|
||
Total lease payments |
|
|
|
|
|
|
|
|
||
Less: imputed interest |
|
|
|
( |
) |
|
|
|
( |
) |
Total lease obligations |
|
|
|
|
|
|
|
|
||
Less: current obligations |
|
|
|
( |
) |
|
|
|
( |
) |
Long-term lease obligations |
|
$ |
|
|
|
$ |
|
|
||
NOTE 12 – Employee Benefit Plans
NOTE 13 – Related Parties
We conduct business with the following related parties: Keylink International (B.V.I.) Inc. and its subsidiaries and affiliates (“Keylink”), Nuvoton Technology Corporation (“Nuvoton”), Jiyuan Crystal Photoelectric Frequency Technology Ltd. (“JCP”), and Atlas Magnetics, Co. (“Atlas”).
Warren Chen, a member of the Company’s board of directors, serves as a member of the Nuvoton board of directors. We purchase wafers from Nuvoton for use in our production process. We have an agreement to purchase approximately $
JCP is a frequency control product manufacturing company from which we purchase material and in which we have made an equity investment that we account for using the equity method of accounting.
Atlas is an early stage privately held fabless wafer design company in which the Company holds a majority interest. The Company determined that Atlas is a variable interest entity (“VIE”), and the Company does not have the power to direct the activities that most significantly impact Atlas. The Company has therefore determined that the Company is not the primary beneficiary. Consequently, we do not consolidate the assets and liabilities of Atlas in the Company’s financial statements. For additional information related to Atlas see Note 14 - Equity Investments - Unconsolidated VIE, below.
The tables below set forth the revenues, expenses, accounts receivable and accounts payable with our related parties:
-18-
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
September 30, |
|
|
September 30, |
|
||||||||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Keylink: |
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Purchases |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Plating, rental and consulting expense |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Nuvoton: |
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Purchases |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
JCP: |
|
|
|
|
|
|
|
|
|
|
|
||||
Purchases |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Atlas: |
|
|
|
|
|
|
|
|
|
|
|
||||
Purchases |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The table below sets forth accounts receivable from, and accounts payable to, related parties:
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Keylink: |
|
|
|
|
|
||
Accounts receivable |
$ |
|
|
$ |
|
||
Accounts payable |
$ |
|
|
$ |
|
||
Nuvoton: |
|
|
|
|
|
||
Accounts receivable |
$ |
|
|
$ |
|
||
Accounts payable |
$ |
|
|
$ |
|
||
JCP: |
|
|
|
|
|
||
Accounts payable |
$ |
|
|
$ |
|
||
Atlas: |
|
|
|
|
|
||
Accounts payable |
$ |
|
|
$ |
|
||
Note 14 - Equity Investments
The Company maintains equity investments in companies which are accounted for under the measurement alternative described in ASC 321-10-35-2 for equity securities that lack readily determinable fair values. As of September 30, 2024, the Company had $
Unconsolidated VIE
During July 2021, the Company acquired an interest in Atlas, an early stage privately held fabless wafer design company located in the western United States. The Company’s initial investment in July 2021 was $
• The hiring and firing of officers (i.e., CEO, CFO, etc.) – The hiring and firing of personnel responsible for making the key daily decisions and implementing the strategic operating direction will determine the success the Company has in their initiatives, thereby affecting the economic performance;
• Determining the business plan and budget, including incurring additional indebtedness or issuing additional equity interests – As Atlas is thinly capitalized, the decisions around when and how to obtain cash will influence whether AM can continue operating; and
• Determining the strategic operating direction of Atlas – The decisions made around the significant operating direction of Atlas will significantly impact the overall performance of the Company by determining where and how Atlas limited capital is spent without having significant revenues to keep the Company operating.
As the Company is not the primary beneficiary of Atlas, the Company did not consolidate the assets and liabilities of Atlas in our financial statements and instead accounts for the investment under the measurement alternative described in ASC 321-10-35-2 using the available measurement alternative for equity securities that lack readily determinable fair value. As such, the Company’s investment
-19-
is measured at cost less impairment, and adjusted to fair value if there are any observable price changes for identical or similar investment of the same issuer.
Atlas is funded through debt and equity. The Company's maximum exposure to loss is limited to its investment in Atlas and notes receivable and accrued interest owed to the Company from Atlas. The following is a summary of the Company’s holdings in Atlas, a VIE, in which we are not the primary beneficiary:
The following is a summary of the Company’s holdings in the Atlas, a VIE, in which we are not the primary beneficiary:
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
VIE total assets |
|
$ |
|
|
$ |
|
||
VIE total liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Diodes' equity in VIE |
|
$ |
|
|
$ |
|
||
Diodes' note receivable from VIE |
|
|
|
|
|
|
||
Diodes' interest receivable from VIE |
|
|
|
|
|
|
||
Diodes' maximum exposure to loss |
|
$ |
|
|
$ |
|
||
Note 15 – Restructuring costs
During the three months ended September 30, 2024, the Company consolidated certain activities at a number of its locations.
The table below sets forth the restructuring costs, recorded in restructuring expense in the condensed consolidated statements of operations, incurred during the three and nine months ended September 30, 2024 and 2023:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Asset impairment |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Employee severance |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The table below sets forth the costs accrued related to restructuring activities:
|
Asset Impairment |
|
|
|
Employee Severance |
|
|
Contract Termination |
|
|
|
Other |
|
|
Total |
|
|||||
Beginning balance, December 31, 2023 |
$ |
|
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|||||
Costs accrued |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
||||
Costs paid |
|
( |
) |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
( |
) |
|
|
( |
) |
Ending balance, September 30, 2024 |
$ |
|
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|||||
Note 16 – Subsequent event
In September 2024, the Company entered into an agreement to acquire Fortemedia, Inc. (“Fortemedia”). Fortemedia is a global company that focuses on developing high quality solutions and semiconductor products that provide advanced voice processing technologies to enhance human-to-human and human-to-machine voice communication quality and efficiencies. The cash purchase price was approximately $
-20-
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Except for the historical information contained herein, the matters addressed in this Item 2 constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as identified under the heading “Cautionary Statement for Purposes of the “Safe Harbor” Provision of the Private Securities Litigation Reform Act of 1995” herein. Such forward-looking statements are subject to a variety of risks and uncertainties, including those discussed in the subsection “Risk Factors” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A of our most recent Annual Report on Form 10-K, and similar discussions elsewhere in this Quarterly Report on Form 10-Q and in other reports we file with the SEC from time to time, that could cause actual results to differ materially from those anticipated by our management. The Private Securities Litigation Reform Act of 1995 (the “PSLRA”) provides certain “safe harbor” provisions for forward-looking statements. All forward-looking statements made in this Quarterly Report on Form 10-Q are made pursuant to the PSLRA. We undertake no obligation to publicly release the results of any revisions to our forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unexpected events. Unless the context otherwise requires, the words “Diodes,” the “Company,” “we,” “us,” and “our” refer to Diodes Incorporated and its subsidiaries. Dollar amounts and share amounts are presented in thousands, except per share amounts, unless otherwise noted.
This management’s discussion should be read in conjunction with the management’s discussion included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (“Form 10-K”), previously filed with Securities and Exchange Commission (“SEC”) on February 9, 2024.
Overview
We are a leading global manufacturer and supplier of high-quality application-specific standard products within the broad discrete, logic, analog, and mixed-signal semiconductor markets. The Company serves the industrial, automotive, computing, communications, and consumer markets. For more information about our product and markets we serve, see Note 1 – Summary of Operations and Significant Accounting Policies, included in the condensed consolidated financial statements in Item 1 above. Our products are sold primarily throughout Asia, the Americas, and Europe. We believe that our focus on application-specific standard products utilizing innovative, highly efficient packaging and cost-effective process technologies, coupled with our collaborative, customer-focused product development, provides us with a meaningful competitive advantage relative to other semiconductor companies.
Summary for the Three Months Ended September 30, 2024
As of September 30, 2024, our cash, cash equivalents, and short-term investments were $319.3 million, and we had access to unused borrowing capacity of $225.0 million under the revolving portion of our U.S. Credit Agreement. We believe our liquidity and our borrowing capacity will allow us to cover our cash needs for working capital, capital expenditures, and acquisitions for at least the next 12 months.
During the three months ended September 30, 2024, net sales exceeded expectations, increasing 9.5% with double-digit point of sales growth in Asia. Additionally, our automotive market revenue increased to 19% of product revenue reflecting the Company’s ongoing content expansion and design win initiatives, even though both the automotive and industrial markets continue to undergo inventory and demand adjustments. As further evidence of the market recovery, the Company’s channel inventory continues to improve, coupled with inventory dollars and inventory days decreasing sequentially.
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Results of Operations for the Three Months Ended September 30, 2024 and 2023
The table below sets forth the condensed consolidated statement of operations line items as a percentage of net sales:
|
Percent of Net Sales |
|
|||||
|
Three Months Ended September 30, |
|
|||||
|
2024 |
|
|
2023 |
|
||
Net sales |
|
100 |
% |
|
|
100 |
% |
Cost of goods sold |
|
(66 |
) |
|
|
(61 |
) |
Gross profit |
|
34 |
|
|
|
39 |
|
Total operating expense |
|
(27 |
) |
|
|
(25 |
) |
Income from operations |
|
6 |
|
|
|
13 |
|
Total other (expense) income |
|
(1 |
) |
|
|
2 |
|
Income before income taxes and noncontrolling interest |
|
5 |
|
|
|
15 |
|
Income tax provision |
|
(1 |
) |
|
|
(3 |
) |
Net income |
|
4 |
|
|
|
12 |
|
Net income attributable to common stockholders |
|
4 |
|
|
|
12 |
|
The following table and discussion explains in greater detail our consolidated operating results and financial condition for the three months ended September 30, 2024, compared to the three months ended September 30, 2023. This discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.
|
Three Months Ended |
|
|||||||||||||
|
September 30, |
|
|
|
|
|
|
|
|||||||
|
2024 |
|
|
2023 |
|
|
Increase/(Decrease) |
|
|
% Change |
|
||||
Net sales |
$ |
350,079 |
|
|
$ |
404,647 |
|
|
$ |
(54,568 |
) |
|
|
(13.5 |
%) |
Cost of goods sold |
|
232,071 |
|
|
|
248,771 |
|
|
|
(16,700 |
) |
|
|
(6.7 |
%) |
Gross profit |
|
118,008 |
|
|
|
155,876 |
|
|
|
(37,868 |
) |
|
|
(24.3 |
%) |
Total operating expense |
|
96,131 |
|
|
|
102,002 |
|
|
|
(5,871 |
) |
|
|
(5.8 |
%) |
Interest income |
|
4,532 |
|
|
|
4,507 |
|
|
|
25 |
|
|
|
0.6 |
% |
Interest expense |
|
(456 |
) |
|
|
(898 |
) |
|
|
(442 |
) |
|
|
(49.2 |
%) |
Foreign currency (loss) gain, net |
|
(4,423 |
) |
|
|
1,314 |
|
|
|
(5,737 |
) |
|
|
436.6 |
% |
Unrealized (loss) gain on investments |
|
(3,410 |
) |
|
|
401 |
|
|
|
(3,811 |
) |
|
|
(950.4 |
%) |
Other income |
|
682 |
|
|
|
1,309 |
|
|
|
(627 |
) |
|
|
(47.9 |
%) |
Income tax provision |
|
3,619 |
|
|
|
10,674 |
|
|
|
(7,055 |
) |
|
|
(66.1 |
%) |
Net sales decreased approximately $54.6 million, or 13.5%, for the three months ended September 30, 2024, compared to the same period last year, due to lower demand across all regions and all end markets, primarily in the automotive and industrial markets. During the three months ended September 30, 2024, weighted-average sales price decreased 10.1% and volume decreased 3.8%, when compared to the same period in 2023. The decline in weighted-average sales price was primarily due to weaker end-user demand in the automotive and industrial markets which collectively comprised 42% and 45% of product revenue for the three months ended September 30, 2024 and 2023, respectively.
The table below sets forth our product revenue as a percentage of total product revenue by end-user market for the three months ended September 30, 2024 and 2023:
|
Three Months Ended |
||
|
September 30, |
||
|
2024 |
|
2023 |
Industrial |
23% |
|
26% |
Automotive |
19% |
|
19% |
Computing |
25% |
|
25% |
Consumer |
18% |
|
18% |
Communications |
15% |
|
12% |
Cost of goods sold decreased approximately $16.7 million for the three months ended September 30, 2024, compared to the same period last year, due to the decreased net sales during the three months ended September 30, 2024. Average unit cost decreased approximately 3.1% for the three months ended September 30, 2024, compared to the same period last year.
For the three months ended September 30, 2024, gross profit decreased approximately 24.3% when compared to the same period last year primarily due to lower net sales, caused by lower demand in all regions and all end-markets. Gross profit margin for the three-month periods ended September 30, 2024 and 2023 was 33.7% and 38.5%, respectively. The decrease in gross profit margin was
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primarily due to the lower average sales price related to end-market mix and secondarily from lower loadings from the overall lower demand, particularly in our wafer fabrication plants associated with foundry service agreements.
Operating expenses for the three months ended September 30, 2024, decreased $5.9 when compared to the three months ended September 30, 2023. Operating expenses as a percentage of net sales were 27.4% and 25.2% for the three months ended September 30, 2024 and 2023, respectively. SG&A decreased approximately $3.6 million as compared to the same period last year as the company reduced discretionary expenses across payroll, stock performance awards, freight, and sales commission to align with the softer demand environment. SG&A, as a percentage of net sales, was 17.0% and 15.6% for the three months ended September 30, 2024 and 2023, respectively. Research and development expenses (“R&D”) were flat. The lower levels of discretionary benefits in SG&A reflect lower accruals based on the Company’s 2024 performance being lower than in 2023. R&D, as a percentage of net sales, was 9.6% and 8.4% for the three months ended September 30, 2024 and 2023, respectively.
Interest income was flat for the three months ended September 30, 2024, compared to the same period last year. Interest expense decreased $0.4 million, or 49.2% for the three months ended September 30, 2024, compared to the same period last year due to lower debt levels. The change in unrealized (loss) gain on investments in 2024 compared to 2023 was to mark to market adjustments to adjust the value of the investment.
We recognized an income tax expense of approximately $3.6 million and $10.7 million for the three months ended September 2024 and 2023, respectively. The decrease in income taxes for 2024 compared to 2023 was primarily attributable to a decrease in pretax book income.
Results of Operations for the Nine months Ended September 30, 2024 and 2023
The table below sets forth the condensed consolidated statement of operations line items as a percentage of net sales:
|
Percent of Net Sales |
|
|||||
|
Nine Months Ended September 30, |
|
|||||
|
2024 |
|
|
2023 |
|
||
Net sales |
|
100 |
% |
|
|
100 |
% |
Cost of goods sold |
|
(67 |
) |
|
|
(59 |
) |
Gross profit |
|
33 |
|
|
|
41 |
|
Total operating expense |
|
(29 |
) |
|
|
(24 |
) |
Income from operations |
|
4 |
|
|
|
17 |
|
Total other (expense) income |
|
1 |
|
|
|
2 |
|
Income before income taxes and noncontrolling interest |
|
5 |
|
|
|
19 |
|
Income tax provision |
|
(1 |
) |
|
|
(3 |
) |
Net income |
|
4 |
|
|
|
15 |
|
Net income attributable to common stockholders |
|
4 |
|
|
|
15 |
|
The following table and discussion explains in greater detail our consolidated operating results and financial condition for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. This discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.
|
Nine Months Ended |
|
|||||||||||||
|
September 30, |
|
|
|
|
|
|
|
|||||||
|
2024 |
|
|
2023 |
|
|
Increase/(Decrease) |
|
|
% Change |
|
||||
Net sales |
$ |
971,822 |
|
|
$ |
1,339,040 |
|
|
$ |
(367,218 |
) |
|
|
(27.4 |
%) |
Cost of goods sold |
|
646,844 |
|
|
|
793,334 |
|
|
|
(146,490 |
) |
|
|
(18.5 |
%) |
Gross profit |
|
324,978 |
|
|
|
545,706 |
|
|
|
(220,728 |
) |
|
|
(40.4 |
%) |
Total operating expense |
|
286,445 |
|
|
|
315,838 |
|
|
|
(29,393 |
) |
|
|
(9.3 |
%) |
Interest income |
|
13,383 |
|
|
|
8,503 |
|
|
|
4,880 |
|
|
|
57.4 |
% |
Interest expense |
|
(1,840 |
) |
|
|
(5,219 |
) |
|
|
(3,379 |
) |
|
|
(64.7 |
%) |
Foreign currency (loss) gain |
|
(2,652 |
) |
|
|
(2,796 |
) |
|
|
(144 |
) |
|
|
5.2 |
% |
Unrealized (loss) gain on investments |
|
1,310 |
|
|
|
16,462 |
|
|
|
(15,152 |
) |
|
|
92.0 |
% |
Other income |
|
1,678 |
|
|
|
3,237 |
|
|
|
(1,559 |
) |
|
|
(48.2 |
%) |
Income tax provision |
|
9,799 |
|
|
|
44,514 |
|
|
|
(34,715 |
) |
|
|
(78.0 |
%) |
Net sales decreased approximately $367.2 million, or 27.4%, for the nine months ended September 30, 2024, compared to the same period last year, driven by lower product shipments caused by lower demand across all regions and all end markets. During the nine months ended September 30, 2024, weighted-average sales price decreased 19.5% and volumes decreased 9.9%, when compared to the same period in 2023. The decline in weighted-average sales price was primarily due to weaker end-user demand in the automotive
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and industrial markets which collectively comprised 41% and 47% of product revenue for the nine months ended September 30, 2024 and 2023, respectively.
The table below sets forth our product revenue as a percentage of total product revenue by end-user market for the nine months ended September 30, 2024 and 2023:
|
Nine Months Ended |
||
|
September 30, |
||
|
2024 |
|
2023 |
Industrial |
23% |
|
28% |
Automotive |
18% |
|
19% |
Computing |
25% |
|
23% |
Consumer |
19% |
|
18% |
Communications |
14% |
|
12% |
Cost of goods sold decreased approximately $146.5 million for the nine months ended September 30, 2024, compared to the same period last year, due to the decreased net sales during the nine months ended September 30, 2024. Average unit cost decreased approximately 9.5% for the nine months ended September 30, 2024, compared to the same period last year.
For the nine months ended September 30, 2024, gross profit decreased approximately 40.4% when compared to the same period last year primarily due to lower net sales, caused by lower demand in all regions and all end-markets. Gross profit margin for the nine-month periods ended September 30, 2024 and 2023 was 33.4% and 40.8%, respectively. The decrease in gross profit margin was primarily due to the lower average sales price related to end-market mix and secondarily from lower loadings from the overall lower demand, particularly in our wafer fabrication plants associated with foundry service agreements.
Operating expenses for the nine months ended September 30, 2024, decreased $29.4 million when compared to the nine months ended September 30, 2023. Operating expenses as a percentage of net sales were 29.5% and 23.6% for the nine months ended September 30, 2024 and 2023, respectively. SG&A decreased approximately $29.9 million as compared to the same period last year as the company reduced discretionary expenses across payroll, stock performance awards, freight, and sales commission to align with the softer demand environment. SG&A, as a percentage of net sales, was 17.7% and 15.0% for the nine months ended September 30, 2024 and 2023, respectively. R&D decreased approximately $1.1 million as compared to the same period last year. R&D, as a percentage of net sales, was 10.4% and 7.6% for the nine months ended September 30, 2024 and 2023, respectively. Gain on disposal of fixed assets increased $5.5 million for the nine months ended September 30, 2024 when compared to the nine months ended September 30, 2023. Also included in operating expenses for the nine months ended September 30, 2024 was $8.0 million related to restructuring activities undertaken by us during the period to consolidate operations.
Interest income increased $4.9 million for the nine months ended September 30, 2024, compared to the same period last year due to income earned on financial instruments to hedge our net investment risk as well as higher interest rates earned on short-term investments. Interest expense decreased $3.4 million, or 64.7% for the nine months ended September 30, 2024, compared to the same period last year due to lower debt levels. Unrealized gain on investments decreased from 2023 due to mark-to-market adjustments on investments recorded in 2023 and not repeated in 2024.
We recognized an income tax expense of approximately $9.8 million and $44.5 million for the nine months ended September 30, 2024, and 2023, respectively. The decrease in income taxes for 2024 compared to 2023 was primarily attributable to a decrease in pretax book income.
Financial Condition
Liquidity and Capital Resources
Our primary source of liquidity is cash flow from operations. Additional sources of liquidity are cash and cash equivalents, short-term investments, and our credit facilities. Our cash and cash equivalents and restricted cash decreased from $318.5 million at December 31, 2023 to $317.1 million at September 30, 2024. This decrease in cash, cash equivalents, and restricted cash reflects normal operations of the Company. As of September 30, 2024, we had short-term investments totaling $7.5 million. These investments are highly liquid with maturity dates greater than three months at the date of purchase. We generally can access these investments in a relatively short time frame but in doing so we generally forfeit all earned and future interest income.
At September 30, 2024 and December 31, 2023, our working capital was $909.7 million and $793.9 million, respectively. We expect cash generated by our operations together with existing cash, cash equivalents, short-term investments and available borrowing under credit facilities to be sufficient to cover our cash needs for working capital, capital expenditures and acquisitions for at least the next 12 months.
Our undistributed foreign earnings continue to be indefinitely reinvested in foreign operations, with limited exceptions related to earnings of certain European and Asian subsidiaries. As of September 30, 2024, our foreign subsidiaries held approximately $215.4 million of cash, cash equivalents and investments of which approximately $93.1 million would be subject to a potential non-U.S.
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withholding tax if distributed outside the country in which the cash is currently held. The $93.1 million is held in Germany, China, Korea, and Taiwan.
Short-term debt
Our Asia subsidiaries maintain short-term credit facilities with several financial institutions through our foreign entities worldwide totaling $148.7 million. Other than two Taiwanese credit facilities that are collateralized by assets, our foreign credit lines are unsecured, uncommitted, and contain no restrictive covenants. These credit facilities bear interest at SOFR or similar indices plus a specified margin. Interest payments are due monthly on outstanding amounts under the credit lines. The unused and available credit under the various facilities as of September 30, 2024, was approximately $112.6 million, net of $35.7 million advanced under our foreign credit lines and $0.4 million of credit used for import and export guarantee.
Long-term debt
The Company maintains a long-term credit facility (“Credit Agreement”). The Credit Agreement consists of a Revolving Credit Facility in the amount of $225.0 million, including a swing line sublimit equal to the lesser of $50.0 million and the Revolving Credit Facility, a letter of credit sublimit equal to the lesser of $100.0 million and the Revolving Credit Facility, and an alternative currency sublimit equal to the lesser of $40.0 million and the Revolving Credit Facility. The Company has the option to increase the Revolving Credit Facility and/or incur Incremental Term Loans in an aggregate principal amount of up to $350.0 million. The Credit Agreement bears interest at Term SOFR or similar other indices plus a specified margin and matures in May 2028. There was no outstanding balance under the Credit Agreement at September 30, 2024.
Because some of our outstanding debt is subject to variable interest rates, the recent rise in interest rates will potentially increase our overall debt service cost. If interest rates continue to rise globally, our cost of capital may increase in the future.
Discussion of Cash Flows
The table below sets forth a summary of the condensed consolidated statements of cash flows:
|
Nine Months Ended September 30, |
|
|||||
|
2024 |
|
|
2023 |
|
||
Net cash flows from operating activities |
$ |
37,613 |
|
|
$ |
242,522 |
|
Net cash flows from investing activities |
|
(48,875 |
) |
|
|
(129,371 |
) |
Net cash flows from financing activities |
|
(15,536 |
) |
|
|
(150,678 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
25,399 |
|
|
|
(5,935 |
) |
Change in cash and cash equivalents, including restricted cash |
$ |
(1,399 |
) |
|
$ |
(43,462 |
) |
Operating Activities
Net cash flows from operating activities for the nine months ended September 30, 2024 was $37.6 million. Our net use of cash from operating activities for the nine months ended September 30, 2024 resulted from net income of $40.6 million, depreciation and amortization of intangible assets of $90.8 million and share-based compensation of $16.1 million. The increases were offset by a net decrease of $104.9 million due to changes in operating asset and liability accounts, and non-cash gains and other income of $15.8 million.
During the nine months ended September 30, 2024, we generated cash through the collection in accounts receivable and used cash to fund increases in inventories, particularly in finished goods, to improve our product availability in a dynamic market environment. We also used cash to decrease accounts payable and accrued liabilities as part of normal business operations.
Net cash flows provided by operating activities for the nine months ended September 30, 2023 was $242.5 million. Net cash flows provided by operating activities for the nine months ended September 30, 2023 resulted from net income of $205.5 million, depreciation and amortization of intangible assets of $102.7 million and share-based compensation of $23.4 million. The increases were partially offset by a decrease in operating asset and liability accounts of $65.3 million and a non-cash investment gain of $17.6 million.
Investing Activities
Net cash and cash equivalents from investing activities was ($48.9) million for the nine months ended September 30, 2024. Net cash and cash equivalents used in investing activities for the nine months ended September 30, 2024 was primarily due to purchases of property, plant, and equipment of $53.3 million, or 5.5% of net sales. This outflow of cash to purchase property, plant and equipment was partially offset by the receipt of an insurance recovery of $4.7 million and net proceeds from the sale of short-term investments of $2.5 million. We expect capital expenditures for the twelve months ended December 31, 2024 to be within our target model of 5% to 9% of net sales. Net cash and cash equivalents used in investing activities was $129.4 million for the nine months ended September 30, 2023. Net cash and cash equivalents used in investing activities for the nine months ended September 30, 2023 was primarily due to purchases of property, plant and equipment of $123.5 million, or 9.2% of net sales, due to the expansion of a wafer fabrication facility located in Hsinchu Science Park in Taiwan and the additional investment of $13.9 million in a privately held wafer design company.
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Financing Activities
Net cash and cash equivalents from financing activities was ($15.5) million for the nine months ended September 30, 2024. Net cash provided by financing activities in the nine months ended September 30, 2024 consisted primarily of $3.8 million of net decreases in our debt and taxes paid on net share settlements of $9.5 million. Net cash and cash equivalents used in financing activities was $150.7 million for the nine months ended September 30, 2023. Net cash used in financing activities in the nine months ended September 30, 2023 consisted primarily of $130.4 million of net reductions in our debt and taxes paid on net share settlements of $15.6 million.
Use of Derivative Instruments and Hedging
We use interest rate swaps, foreign exchange forward contracts, and cross currency swaps to provide a level of protection against interest rate risks and foreign exchange exposure.
Hedges of Interest Rate Risk
Our objectives in using interest rate derivatives are to add stability to interest expense and to manage exposure to interest rate movements. To accomplish these objectives, we primarily use interest rate swaps, including interest rate collars, as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
Hedges of Foreign Currency Risk
We are exposed to fluctuations in various foreign currencies against our different functional currencies. We use foreign currency forward agreements to manage this exposure and to preserve the economic value of foreign currency denominated monetary assets and liabilities. These instruments are not designated for hedge accounting treatment in accordance with ASC No. 815. The fair value of our foreign exchange hedges approximates zero.
Hedges of Net Investment Risk
We make use of cross-currency swaps and foreign-currency forward contracts to decrease the foreign exchange risk inherent in our investment in some of our foreign subsidiaries.
Off-Balance Sheet Arrangements
We do not have any transactions, arrangements, or other relationships with unconsolidated entities that will affect our liquidity or capital resources. We have no special purpose entities that provide off-balance sheet financing, liquidity, or market or credit risk support, nor do we engage in leasing, swap agreements, or outsourcing of research and development services that could expose us to liability that is not reflected on the face of our financial statements.
Contractual Obligations
There have been no material changes in our Contractual Obligations as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 9, 2024.
Critical Accounting Estimates
Our critical accounting estimates are described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in the notes to our consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 9, 2024. Any new accounting estimates or updates to existing accounting estimates as a result of new accounting pronouncements have been discussed in the notes to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q in Note 1 – Summary of Operations and Significant Accounting Policies. The application of our critical accounting estimates may require management to make judgments and estimates about the amounts reflected in the condensed consolidated financial statements. Management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.
Recently Issued Accounting Pronouncements
See Note 1 - Summary of Operations and Significant Accounting Policies, of the Notes to Condensed Consolidated Financial Statements, for detailed information regarding the status of recently issued accounting pronouncements, if any.
Cautionary Statement for Purposes of the “Safe Harbor” Provision of the Private Securities Litigation Reform Act of 1995
Except for the historical information contained herein, the matters addressed in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934. We generally identify forward-looking statements by the use of terminology such as “may,” “will,” “could,” “should,” “potential,” “continue,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” or similar phrases or the negatives of such terms. Such forward-looking statements are subject to a variety of risks and uncertainties, including those discussed in the subsection “Risk Factors” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A of our most recent
-26-
Annual Report on Form 10-K, and similar discussions elsewhere in this Quarterly Report on Form 10-Q, and in other reports we file with the SEC from time to time, that could cause actual results to differ materially from those anticipated by our management. The PSLRA provides certain “safe harbor” provisions for forward-looking statements. All forward-looking statements made in this Quarterly Report on Form 10-Q are made pursuant to the PSLRA.
All forward-looking statements contained in this Quarterly Report on Form 10-Q are subject to, in addition to the other matters described in this Quarterly Report on Form 10-Q, a variety of significant risks and uncertainties. The following discussion highlights some of these risks and uncertainties. Further, from time to time, information provided by us or statements made by our employees may contain forward-looking information. There can be no assurance that actual results or business conditions will not differ materially from those set forth or suggested in such forward-looking statements as a result of various factors, including those discussed below.
For more detailed discussion of these factors, see the “Risk Factors” discussion in Part I. Item 1A of our most recent Annual Report on Form 10-K as filed with the SEC and in Part II, Item 1A of this Quarterly Report The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this Quarterly Report, and we undertake no obligation to update the forward-looking statements to reflect subsequent events or circumstances.
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Significant Risks and Uncertainties That may affect Forward-Looking Statements
Risks Related to Our Business
The impact of the continuing COVID-19 pandemic may have a material adverse effect on our business, financial condition, and results of operations.
Shanghai, China experienced government-imposed lockdowns due to a resurgence of the COVID-19 virus.
During times of difficult market conditions, our fixed costs combined with lower net sales and lower profit margins may have a negative impact on our business, operating results, and financial condition.
Downturns in the highly cyclical semiconductor industry or changes in end-market demand could adversely affect our operating results and financial condition.
The semiconductor business is highly competitive, and increased competition may harm our business, operating results, and financial condition.
Delays in initiation of production at facilities due to implementing new production techniques or resolving problems associated with technical equipment malfunctions could adversely affect our manufacturing efficiencies, operating results, and financial condition.
We are and will continue to be under continuous pressure from our customers and competitors to reduce the price of our products, which could adversely affect our growth and profit margins.
Our customers require our products to undergo a lengthy and expensive qualification process without any assurance of product sales and may demand to audit our operations from time to time. A failure to qualify a product or a negative audit finding could adversely affect our net sales, operating results, and financial condition.
Our customer orders are subject to cancellation or modification, usually with no penalty. High volumes of order cancellation or reduction in quantities ordered could adversely affect our net sales, operating results, and financial condition.
Production at our manufacturing facilities could be disrupted for a variety of reasons, including natural disasters and other extraordinary events, which could prevent us from producing enough of our products to maintain our sales and satisfy our customers’ demands and could adversely affect our operating results and financial condition.
New technologies could result in the development of new products by our competitors and a decrease in demand for our products, and we may not be able to develop new products to satisfy changes in demand, which would adversely affect our net sales, market share, operating results, and financial condition.
We may be subject to claims of infringement of third-party intellectual property rights or demands that we license third-party technology, which could result in significant expense, reduction in our intellectual property rights, and a negative impact on our business, operating results, and financial condition.
We depend on third-party suppliers for timely deliveries of raw materials, manufacturing services, product and process development, parts and equipment, as well as finished products from other manufacturers, and our reputation with customers, operating results and financial condition could be adversely affected if we are unable to obtain adequate supplies in a timely manner.
A significant part of our growth strategy involves acquiring companies and businesses. We may be unable to identify suitable acquisition candidates or consummate desired acquisitions and, if we do make any acquisitions, we may be unable to successfully integrate any acquired companies with our operations, which could adversely affect our business, operating results, and financial condition.
We are subject to many environmental laws and regulations that could result in significant expenses and could adversely affect our business, operating results, and financial condition.
We may incur additional costs and face emerging risks associated with environmental, social, and governance (“ESG”) factors impacting our operations.
Our products, or products we purchase from third parties for resale, may be found to be defective and, as a result, warranty claims and product liability claims may be asserted against us and we may not have recourse against our suppliers, which may harm our business, reputation with our customers, operating results, and financial condition.
We may fail to attract or retain the qualified technical, sales, marketing, finance, and management/executive personnel required to operate our business successfully, which could adversely affect our business, operating results, and financial condition.
We may not be able to achieve future growth, and any such growth may place a strain on our management and on our systems and resources, which could adversely affect our business, operating results, and financial condition.
Obsolete inventories as a result of changes in demand for our products and change in life cycles of our products could adversely affect our business, operating results, and financial condition.
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If our direct sales customers or our distributors’ customers do not design our products into their applications, our net sales may be adversely affected.
We are subject to interest rate risk that could have an adverse effect on our cost of working capital and interest expenses, which could adversely affect our business, operating results, and financial condition.
Our hedging strategies may not be successful in mitigating our risks associated with interest rates or foreign exchange exposure or our counterparties might not perform as agreed.
We may have a significant amount of debt with various financial institutions worldwide. Any indebtedness could adversely affect our business, operating results, financial condition, and our ability to meet payment obligations under such debt.
Restrictions in our credit facilities may limit our business and financial activities, including our ability to obtain additional capital in the future.
Our business benefits from certain Chinese government incentives. Expiration of, or changes to, these incentives could adversely affect our operating results and financial condition.
We operate a global business through numerous foreign subsidiaries, and there is a risk that tax authorities will challenge our transfer pricing methodologies or legal entity structures, which could adversely affect our operating results and financial condition.
Certain of our employees in the U.K. participate in a company-sponsored defined benefit plan which subjects the Company to risks associated with the estimates and assumptions used in calculating expense and funding requirements recorded in the Company’s consolidated financial statements. Inaccuracies or changes in these estimates could require material changes in the expense and funding required.
Compliance with government regulations and customer demands regarding the use of “conflict minerals” may result in increased costs and may have a negative impact on our business, operating results, and financial condition.
If we fail to maintain an effective system of internal controls or discover material weaknesses in our internal control over financial reporting, we may not be able to report our financial results accurately or detect fraud, which could harm our business and the trading price of our Common Stock.
Risks Related to our International Operations
Our international operations subject us to risks that could adversely affect our operations.
A slowdown in the Chinese economy could limit the growth in demand for electronic devices containing our products, which would have a material adverse effect on our business, operating results, and prospects.
Economic regulation in China could materially and adversely affect our business, operating results, and prospects.
We could be adversely affected by violations of the United States’ Foreign Corrupt Practices Act, the U.K.’s Bribery Act 2010, China’s anti-corruption campaign and similar worldwide anti-bribery laws.
We are subject to foreign currency risk as a result of our international operations.
China is experiencing rapid social, political, and economic change, which has increased labor costs and other related costs that could make doing business in China less advantageous than in prior years. Increased labor costs in China could adversely affect our business, operating results, and financial condition.
We may not continue to receive preferential tax treatment in Asia, thereby increasing our income tax expense and reducing our net income.
The distribution of any earnings of certain foreign subsidiaries may be subject to foreign income taxes, thus reducing our net income.
We could be adversely affected by the compromise or theft of our technology, know-how, data, or intellectual property or a requirement that we yield rights in technology, know-how, data stored in foreign jurisdictions, or intellectual property that we use in such foreign jurisdictions.
Risks Related to Our Common Stock
Variations in our quarterly operating results may cause our stock price to be volatile.
We may enter into future acquisitions and take certain actions in connection with such acquisitions that could adversely affect the price of our Common Stock.
Anti-takeover effects of certain provisions of Delaware law and our Certificate of Incorporation and Bylaws may hinder a take-over attempt.
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General Risks
The invasion of Ukraine by Russia could negatively impact our business.
The success of our business depends on the strength of the global economy and the stability of the financial markets, and any weaknesses in these areas may have a material adverse effect on our net sales, operating results, and financial condition.
We may be adversely affected by any disruption in our information technology systems, which could adversely affect our cash flows, operating results, and financial condition.
Terrorist attacks, or threats or occurrences of other terrorist activities, whether in the U.S. or internationally, may affect the markets in which our Common Stock trades, the markets in which we operate and our operating results, and financial condition.
System security risks, data protection breaches, cyber-attacks, and other related cybersecurity issues could disrupt our internal operations, and any such disruption could reduce our expected net sales, increase our expenses, damage our reputation, and adversely affect our stock price.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes to our market risks as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 9, 2024.
Item 4. Controls and Procedures.
Our Chief Executive Officer, Keh-Shew Lu, and Chief Financial Officer, Brett R. Whitmire, with the participation of our management, carried out an evaluation, as of September 30, 2024, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer believe that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures are effective at the reasonable assurance level to ensure that information required to be included in this Quarterly Report is:
Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity’s disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors, mistakes, or intentional circumvention of the established processes.
Changes in Internal Controls over Financial Reporting
There was no change in our internal control over financial reporting, known to our Chief Executive Officer or Chief Financial Officer, that occurred in the three months ended September 30, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not a party to any pending litigation that we consider material.
From time to time, we are involved in various legal proceedings that arise in the normal course of business. While we intend to defend any lawsuit vigorously, we presently believe that the ultimate outcome of any pending legal proceeding will not have any material adverse effect on our financial position, cash flows, or operating results. However, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages, which could impact our business and operating results for the period in which the ruling occurs or future periods.
Item 1A. Risk Factors.
There have been no material changes to our risk factors from those disclosed in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on February 9, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
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Item 6. Exhibits.
Number |
|
Description |
|
Form |
|
Date of First Filing |
|
Exhibit |
|
Filed |
3.1 |
|
|
|
10-K |
|
February 20, 2018 |
|
3.1 |
|
|
3.2 |
|
|
|
8-K |
|
January 11, 2016 |
|
3.1 |
|
|
4.1 |
|
Form of Certificate for Common Stock, par value $0.66 2/3 per share |
|
S-3 |
|
August 25, 2005 |
|
4.1 |
|
|
31.1 |
|
|
|
|
|
|
|
|
X |
|
31.2 |
|
|
|
|
|
|
|
|
X |
|
32.1* |
|
|
|
|
|
|
|
|
X |
|
32.2* |
|
|
|
|
|
|
|
|
X |
|
101.INS |
|
Inline XBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
|
|
|
|
X |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema |
|
|
|
|
|
|
|
X |
104 |
|
Cover Page Interactive Data File, formatted in Inline XBRL |
|
|
|
|
|
|
|
X |
* A certification furnished pursuant to Item 601(b)(32) of the Regulation S-K will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.
PLEASE NOTE: It is inappropriate for investors to assume the accuracy of any covenants, representations or warranties that may be contained in agreements or other documents filed as exhibits to this Quarterly Report on Form 10-Q. In certain instances the disclosure schedules to such agreements or documents contain information that modifies, qualifies and creates exceptions to the representations, warranties and covenants. Moreover, some of the representations and warranties may not be complete or accurate as of a particular date because they are subject to a contractual standard of materiality that is different from those generally applicable to stockholders and/or were used for the purpose of allocating risk among the parties rather than establishing certain matters as facts. Accordingly, you should not rely on the representations and warranties as characterizations of the actual state of facts at the time they were made or otherwise.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized.
|
DIODES INCORPORATED |
|
|
(Registrant) |
|
|
|
|
November 7, 2024 |
By: /s/ Keh-Shew Lu |
|
Date |
KEH-SHEW LU |
|
|
Chairman and Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
|
|
|
November 7, 2024 |
By: /s/ Brett R. Whitmire |
|
Date |
BRETT R. WHITMIRE |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer) |
|
|
|
|
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Exhibit 31.1
CERTIFICATION
PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Keh-Shew Lu, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Diodes Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 7, 2024 |
|
/s/ Keh-Shew Lu |
Keh-Shew Lu |
Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Brett R. Whitmire, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Diodes Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 7, 2024 |
|
/s/ Brett R. Whitmire |
Brett R. Whitmire |
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge, the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024 of Diodes Incorporated (the “Company”) fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such periodic report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 7, 2024 |
|
/s/ Keh-Shew Lu |
Keh-Shew Lu |
Chief Executive Officer |
A signed original of this written statement required by Section 906 has been provided to Diodes Incorporated and will be furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge, the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024 of Diodes Incorporated (the “Company”) fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such periodic report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 7, 2024 |
|
/s/ Brett R. Whitmire |
Brett R. Whitmire |
Chief Financial Officer |
A signed original of this written statement required by Section 906 has been provided to Diodes Incorporated and will be furnished to the Securities and Exchange Commission or its staff upon request.