Diodes Incorporated — Q3 2022 Form 10-Q
Business context and reporting period. Diodes manufactures standard semiconductor products for automotive, industrial, consumer, computing, and communications markets. This unaudited quarterly report covers the three and nine months ended September 30, 2022; comparisons are with the corresponding 2021 periods unless noted. Amounts below are in millions of dollars, except per-share data.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Change |
|---|---|---|---|
| Net sales | $521.3 | $471.4 | +10.6% |
| Gross profit / margin | $217.8 / 41.8% | $181.2 / 38.4% | Margin +340 bps |
| Operating income | $112.4 | $77.2 | +45.6% |
| Net income attributable to common stockholders | $86.4 | $68.4 | +26.3% |
| Diluted EPS | $1.88 | $1.50 | +25.3% |
| Cash from operations | $132.2 | Not stated here | Company-reported Q3 figure |
For the first nine months, sales were $1,504.4 million (+13.5%), gross profit $621.0 million (+29.5%; 41.3% margin versus 36.2%), operating income $311.7 million, and net income attributable to common stockholders $239.2 million ($5.21 diluted EPS). Nine-month operating cash flow was $289.6 million, versus $261.0 million. Capital expenditures were $147.9 million, compared with $86.2 million, and free cash flow was not reported as a measure in the filing.
Balance sheet, liquidity and debt
- At September 30, cash and cash equivalents were $379.0 million, restricted cash $6.8 million, and short-term investments $6.9 million. Working capital was $765.0 million.
- Current assets were $1,276.6 million and current liabilities $511.5 million. Inventory was $374.8 million, up from $348.6 million at year-end 2021.
- Debt comprised $35.3 million of short-term credit-line borrowings, $9.3 million current long-term debt, and $251.2 million long-term debt net of current portion. The U.S. revolving facility had $55.0 million drawn from $200.0 million; the company also reported $119.5 million available under foreign credit facilities.
- Management said cash, investments, operating cash flow, and available facilities should cover working capital, capital expenditures, and acquisitions for at least 12 months. Variable-rate debt exposes the company to higher interest expense if rates rise.
Material changes and management commentary
- Q3 sales growth was attributed to product mix and growth in automotive and industrial markets. Management cited higher average selling prices, increased factory utilization, and loading as drivers of margin expansion, while noting higher subcontractor and foundry costs.
- Automotive and industrial represented 16% and 28% of Q3 product revenue, respectively, versus 12% and 24% a year earlier. Computing declined to 23% from 30%. Distributor sales rose to $367.5 million from $312.2 million, while direct sales declined to $153.7 million from $159.2 million.
- Q3 interest expense increased 92.2% year over year, primarily due to higher rates, partly offset by lower debt. Nine-month results included a $16.0 million unrealized investment loss versus a $14.8 million gain in 2021.
- Nine-month investing cash use included the $80.4 million acquisition of an onsemi wafer fabrication facility in South Portland, Maine, and $147.9 million of capital expenditures. Management said capital spending was above its 5%–9% of sales target due to capacity expansion, and expected spending for the 12 months ending December 31, 2022 to be within the target model.
- Foreign-currency translation contributed to a $109.0 million nine-month unrealized loss in comprehensive income. The company also reported $33.6 million of negative exchange-rate effects on cash in the period.
Outlook, risks and contingencies
- No specific sales or earnings guidance is provided in the filing. Management’s stated liquidity outlook covers at least the next 12 months.
- Management warned that Shanghai government COVID-19 lockdowns could interrupt manufacturing. The filing also identifies supply-chain shortages and delays, inflation and possible recession, semiconductor cyclicality, customer order cancellations, supplier dependence, and production disruption as risks.
- The Russia-Ukraine conflict and potential sanctions could adversely affect global markets and the company. Rising rates could increase debt-service costs; foreign-exchange and investment-value fluctuations also affect results.
- Non-cancelable commitments included approximately $115.9 million for capital expenditures and $174.1 million of wafer purchases through 2025. The U.K. defined-benefit plan was underfunded by approximately $3.9 million.
- Gross unrecognized tax benefits were approximately $47.1 million; the company could not estimate the range of possible changes over the next 12 months. The company was evaluating the effects of the CHIPS Act and Inflation Reduction Act.
- The company reported no pending litigation it considered material and believed ordinary-course legal matters were not expected to have a material adverse effect. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Whether automotive and industrial growth, pricing, and improved factory utilization persist, and whether higher input costs pressure margins.
- Inventory levels, customer orders, and distributor demand amid supply-chain and end-market changes.
- Capital spending, acquisition integration and returns from the South Portland facility; compare spending with the stated 5%–9% target model.
- Debt maturities, variable-rate exposure, and availability of committed credit facilities.
- Potential operational effects of Shanghai restrictions, foreign-exchange movements, investment marks, and tax matters.