Diodes Incorporated (Nasdaq: DIOD) today reported its financial results for the third quarter ended September 30, 2020.
Third Quarter Highlights
Revenue was $309.5 million, an increase of 7.2 percent compared to $288.7 million in the second quarter 2020; Gross profit was $111.1 million, an increase of 9.5 percent compared to $101.5 million in the second quarter 2020; Gross profit margin increased 70 basis points to 35.9 percent from 35.2 percent in the second quarter 2020; GAAP net income was $27.2 million, or $0.51 per diluted share, as compared to $21.0 million, or $0.40 per diluted share, in the second quarter 2020; Non-GAAP adjusted net income was $32.8 million, or $0.62 per diluted share, as compared to $28.6 million, or $0.54 per diluted share, in the second quarter 2020; Excluding $5.0 million, net of tax, of non-cash share-based compensation expense, both GAAP and non-GAAP earnings per share would have increased by $0.09 per diluted share; EBITDA was $63.3 million, or 20.5 percent of revenue, compared to $55.3 million, or 19.2 percent of revenue, in the second quarter 2020 and Achieved cash flow from operations of $39.7 million and $21.9 million free cash flow, including $17.8 million of capital expenditures. Net cash flow was a positive $85.2 million, which includes an additional draw-down of debt as a partial currency hedge associated with the anticipated close of the Lite-On acquisition at the end of November as well as a pay-down of long-term debt.
Commenting on the results, Dr. Keh-Shew Lu, Chairman, President and Chief Executive Officer, stated, 'Third quarter results were better than expected due to a strong recovery in Asia followed by North America, contributing to record revenue in our automotive, consumer and computing end markets. Total worldwide point of sale (POS) revenue increased 19% sequentially and reached a record in the quarter, driven by record POS revenue in Asia at 20% and 16% growth in both Europe and North America. Our record sales in the automotive market grew 18% sequentially and over 5% year-over-year to 11% of total revenue, reflecting Diodes continued success in expanding application opportunities across new and existing customers while further increasing Diodes semiconductor content per vehicle. Additionally, we continued to gain strong momentum with our Pericom IC products in both the automotive and computing markets, and we also saw a resurgence in the consumer market, which has increased approximately 30% from the first quarter of this year.
'In fact, our total revenue has increased 10% from the first quarter of 2020 at the onset of the pandemic with net income increasing approximately 35%, demonstrating both the resiliency of our business as well as the solid leverage in our operating model. We expect to further extend our growth momentum as we continue to see broad-based improvements across our target end markets and geographies, which at the mid-point of our fourth quarter guidance represents the highest quarterly revenue in the Company's history. These expectations exclude any contribution from our proposed acquisition of Lite-On Semiconductor that is expected to close at the end of November.'
Third Quarter 2020
Revenue for third quarter 2020 was $309.5 million, compared to $288.7 million in the second quarter 2020 and $323.7 million in the third quarter 2019.
GAAP gross profit for the third quarter 2020 was $111.1 million, or 35.9 percent of revenue, compared to the second quarter 2020 of $101.5 million, or 35.2 percent of revenue, and the third quarter 2019 of $122.0 million, or 37.7 percent of revenue.
GAAP operating expenses for third quarter 2020 were $73.2 million, or 23.7 percent of revenue, and on a non-GAAP basis were $68.9 million, or 22.3 percent of revenue, which excludes $4.0 million of amortization of acquisition-related intangible asset expenses and $0.3 million of acquisition-related costs. GAAP operating expenses in the second quarter 2020 were $70.6 million, or 24.5 percent of revenue and in the third quarter 2019 were $73.3 million, or 22.7 percent of revenue.
Third quarter 2020 GAAP net income was $27.2 million, or $0.51 per diluted share, compared to GAAP net income of $21.0 million, or $0.40 per diluted share, in second quarter 2020 and GAAP net income of $38.1 million, or $0.73 per diluted share, in third quarter 2019.
Third quarter 2020 non-GAAP adjusted net income was $32.8 million, or $0.62 per diluted share, which excluded, net of tax, $3.3 million of non-cash acquisition-related intangible asset amortization costs of acquisition-related costs and $2.4 million of acquisition-related financing and other costs. This compares to non-GAAP adjusted net income of $28.6 million, or $0.54 per diluted share, in the second quarter 2020 and $41.9 million, or $0.81 per diluted share, in the third quarter 2019
Note: Throughout this release, we refer to 'net income attributable to common stockholders' as 'net income.'
Included in third quarter 2020 GAAP net income and non-GAAP adjusted net income was approximately $5.0 million, net of tax, of non-cash share-based compensation expense. Excluding share-based compensation expense, both GAAP earnings per share ('EPS') and non-GAAP adjusted EPS would have increased by $0.09 per diluted share for third quarter 2020, $0.09 for second quarter 2020 and $0.09 for third quarter 2019.
EBITDA (a non-GAAP measure), which represents earnings before net interest expense, income tax, depreciation and amortization, in the third quarter 2020 was $63.3 million, or 20.5 percent of revenue, compared to $55.3 million, or 19.2 percent of revenue, in the second quarter 2020 and $78.3 million, or 24.2 percent of revenue, in the third quarter 2019. For a reconciliation of GAAP net income to EBITDA, see the table near the end of this release for further details.
For third quarter 2020, net cash provided by operating activities was $39.7 million. Net cash flow was a positive $85.2 million, including $105 million of an additional draw-down of debt as a partial currency hedge associated with the anticipated close of the Lite-On acquisition and a pay-down of long-term debt in the amount of $49.7 million. Free cash flow (a non-GAAP measure) was $21.9 million, which includes $17.8 million of capital expenditures.
Balance Sheet
As of September 30, 2020, the Company had approximately $591 million in cash, cash equivalents and short-term investments. Long-term debt (including the current portion) totaled approximately $346 million and working capital was approximately $893 million.
The results announced today are preliminary and unaudited, as they are subject to the Company finalizing its closing procedures and customary quarterly review by the Company's independent registered public accounting firm. As such, these results are subject to revision until the Company files its Form 10-Q for the quarter ending September 30, 2020.
Business Outlook
Dr. Lu concluded, 'Building on our growth momentum in the third quarter and record POS results, we expect fourth quarter revenue to increase to a record of approximately $324 million, plus or minus 3 percent, which at the mid-point represents growth of 4.7 percent sequentially and 7.6 percent year-over-year, which is significantly above typical seasonal results over the past 5 years of down 4 percent. These revenue expectations exclude any contribution from the Lite-On Semiconductor acquisition, which is expected to close at the end of November. We expect GAAP gross margin to be 36 percent, plus or minus 1 percent. Non-GAAP operating expenses, which are GAAP operating expenses adjusted for amortization of acquisition-related intangible assets, are expected to be approximately 22.0 percent of revenue, plus or minus 1 percent. We expect non-GAAP net interest expense to be approximately $1.5 million. Our income tax rate is expected to be 18 percent, plus or minus 3 percent, and shares used to calculate diluted EPS for the fourth quarter are anticipated to be approximately 53.0 million.'
Purchase accounting adjustments related to amortization of acquisition-related intangible assets of $3.3 million, after tax, for Pericom and previous acquisitions is not included in these non-GAAP estimates. Also not included is $3.3 million of Lite-On acquisition-related financing costs.
About Diodes Incorporated
Diodes Incorporated (Nasdaq: DIOD), a Standard and Poor's SmallCap 600 and Russell 3000 Index company, delivers high-quality semiconductor products to the world's leading companies in the consumer electronics, computing, communications, industrial, and automotive markets. We leverage our expanded product portfolio of discrete, analog, and mixed-signal products and leading-edge packaging technology to meet customers' needs. Our broad range of application-specific solutions and solutions-focused sales, coupled with worldwide operations of 28 sites, including engineering, testing, manufacturing, and customer service, enables us to be a premier provider for high-volume, high-growth markets.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Any statements set forth above that are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such statements include statements containing forward-looking words such as 'expect,' 'anticipate,' 'aim,' 'estimate,' and variations thereof, including without limitation statements, whether direct or implied, regarding expectations of revenue growth, market share gains, increase in gross margin and increase in gross profits in 2020 and beyond; that for the fourth quarter of 2020, we expect revenue to be a record and increase to approximately $324 million plus or minus 3 percent; we expect GAAP gross margin to be 36 percent, plus or minus 1 percent; non-GAAP operating expenses, which are GAAP operating expenses adjusted for amortization of acquisition-related intangible assets, are expected to be approximately 22.0 percent of revenue, plus or minus 1 percent; we expect non-GAAP net interest expense to be approximately $1.5 million; we expect our income tax rate to be 18 percent, plus or minus 3 percent; shares used to calculate diluted EPS for the fourth quarter are anticipated to be approximately 53.0 million. Potential risks and uncertainties include, but are not limited to, such factors as: the risk that the COVID-19 pandemic may continue and have a material adverse effect on customer demand and staffing of our production, sales and administration facilities; the risk that such expectations may not be met; the risk that the expected benefits of acquisitions may not be realized or that integration of acquired businesses may not continue as rapidly as we anticipate; the risk that we may not be able to consummate our previously announced acquisition of Lite-On Semiconductor Corporation ('LSC') on the terms and in the time frame currently contemplated; the risk that the cost, expense, and diversion of management attention associated with the LSC acquisition may be greater than we currently expect; the risk that we may not be able to maintain our current growth strategy or continue to maintain our current performance, costs, and loadings in our manufacturing facilities; the risk that we may not be able to increase our automotive, industrial, or other revenue and market share; risks of domestic and foreign operations, including excessive operating costs, labor shortages, higher tax rates, and our joint venture prospects; the risks of cyclical downturns in the semiconductor industry and of changes in end-market demand or product mix that may affect gross margin or render inventory obsolete; the risk of unfavorable currency exchange rates; the risk that our future outlook or guidance may be incorrect; the risks of global economic weakness or instability in global financial markets; the risks of trade restrictions, tariffs, or embargoes; the risk that the coronavirus outbreak or other similar epidemics may harm our domestic or international business operations to a greater extent than we currently anticipate; the risk of breaches of our information technology systems and other information, including the 'Risk Factors' detailed from time to time in Diodes' filings with the United States Securities and Exchange Commission.
CONSOLIDATED RECONCILIATION OF NET INCOME TO EBITDA
EBITDA represents earnings before net interest expense, income tax provision, depreciation and amortization. Management believes EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties, such as financial institutions in extending credit, in evaluating companies in our industry and provides further clarity on our profitability. In addition, management uses EBITDA, along with other GAAP and non-GAAP measures, in evaluating our operating performance compared to that of other companies in our industry. The calculation of EBITDA generally eliminates the effects of financing, operating in different income tax jurisdictions, and accounting effects of capital spending, including the impact of our asset base, which can differ depending on the book value of assets and the accounting methods used to compute depreciation and amortization expense. EBITDA is not a recognized measurement under GAAP, and when analyzing our operating performance, investors should use EBITDA in addition to, and not as an alternative for, income from operations and net income, each as determined in accordance with GAAP. Because not all companies use identical calculations, our presentation of EBITDA may not be comparable to similarly titled measures used by other companies. For example, our EBITDA takes into account all net interest expense, income tax provision, depreciation and amortization without taking into account any amounts attributable to noncontrolling interest. Furthermore, EBITDA is not intended to be a measure of free cash flow for management's discretionary use, as it does not consider certain cash requirements such as tax and debt service payments.
Contact:
Tel: 949-224-3874
Email: lsievers@sheltongroup.com
DIODES INCORPORATED 
