Diodes Incorporated — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Diodes manufactures application-specific standard semiconductor products for automotive, industrial, consumer, computing, and communications markets. Financial amounts below are in U.S. dollars; millions unless stated otherwise.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $482.1 million | $413.1 million | +16.7% |
| Gross profit / margin | $196.7 million / 40.8% | $138.6 million / 33.6% | Profit +41.9%; margin +7.2 points |
| Operating income / margin | $93.1 million / 19.3% | $47.4 million / 11.5% | +96.4% |
| Net income attributable to common stockholders | $72.7 million | $39.5 million | |
| Diluted EPS | $1.59 | $0.87 | |
| Cash from operations | $72.3 million | $68.2 million |
Gross margin improvement reflected higher-margin product mix, a 30.4% increase in weighted-average selling price, and improved factory utilization and loading. Management cited automotive and industrial growth and continued momentum in Pericom-branded products. Sales rose across all end markets; automotive represented 13% of revenue versus 12% a year earlier.
Operating expenses increased 13.6% to $103.6 million, but declined as a share of sales to 21.5% from 22.1%. SG&A rose with wages, selling costs, freight, and duties; R&D increased modestly. The effective tax rate was 18.3%, compared with 18.9%.
Cash, debt, and liquidity
- Cash, cash equivalents, and restricted cash totaled $306.0 million at quarter-end; short-term investments were $9.2 million. Cash and restricted cash declined $60.8 million from year-end.
- Working capital was $688.6 million, down from $716.6 million at December 31, 2021. Inventory increased to $370.0 million from $348.6 million.
- Investing activities used $54.9 million, including $38.5 million of capital expenditures and acquisition-related spending. Financing activities used $75.9 million; the company reported a $67.6 million net debt reduction.
- Quarter-end long-term debt was $205.5 million before current-portion and debt-cost deductions; short-term credit-line borrowings were $28.0 million. The $250 million revolving facility was undrawn. Asia credit facilities had approximately $169.5 million available, net of borrowings and guarantee usage.
- Management said operating cash flow, existing liquidity, and available credit were expected to cover working capital, capital expenditures, and acquisitions for at least the next 12 months.
Outlook, developments, and risks
- The filing provides no specific revenue, earnings, or margin guidance. Management cautioned that quarterly results are not necessarily indicative of full-year results.
- In February 2022, Diodes agreed to acquire onsemi’s South Portland, Maine wafer fabrication facility and operations to add 200mm capacity; closing was expected late in Q2 2022, subject to customary conditions. The filing does not state the purchase price.
- Shanghai government COVID-19 lockdowns could disrupt manufacturing or force reduced production. Management described employee support measures and said the effects remained uncertain.
- The Russia–Ukraine conflict and potential additional sanctions may adversely affect global markets and the company. Other disclosed business risks include semiconductor cyclicality, pricing pressure, supplier and production disruptions, foreign-exchange and interest-rate exposure, and acquisition integration.
- Non-cancelable commitments included approximately $118.8 million for capital expenditures and $217.5 million for wafer purchases through 2025. The U.K. defined-benefit plan was underfunded by about $12.1 million. Unrecognized tax benefits were approximately $44.6 million; the company could not estimate the range of possible changes over the next 12 months.
- Management reported no material pending litigation, effective disclosure controls, and no material changes to internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether Shanghai lockdowns affect production, shipments, customer demand, or supply availability.
- Whether the South Portland fab acquisition closes as expected, and its final price, integration costs, and capacity ramp.
- Whether stronger pricing and product mix sustain the 40.8% gross margin amid rising unit costs and supplier expenses.
- How inventory growth, capital spending, and wafer commitments affect future cash generation and liquidity.
- Debt repayment, floating-rate exposure, and the timing and terms of debt maturities, including the May 2024 credit agreement maturity.
- Potential changes in tax positions and defined-benefit plan funding obligations.