Diodes Incorporated — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions where appropriate.
Business context
Diodes manufactures application-specific standard semiconductor products for automotive, industrial, consumer, communications and computing markets. It reported one operating segment. On June 3, 2022, it completed the acquisition of onsemi’s South Portland, Maine wafer fabrication facility for $80.4 million, adding 200mm wafer capacity intended to support growth in automotive and industrial products.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Change |
|---|---|---|---|
| Net sales | $501.0 million | $440.4 million | +13.7% |
| Gross profit / margin | $206.5 million / 41.2% | $159.8 million / 36.3% | Margin +490 bps |
| Operating income | $106.2 million | $65.4 million | +62.5% |
| Net income attributable to common stockholders | $80.2 million | $55.4 million | +44.7% |
| Diluted EPS | $1.75 | $1.22 | +43.4% |
| Cash flow from operations | $85.0 million | Not stated for Q2 comparison in the filing text |
For the six months, sales were $983.1 million, up 15.2%; gross profit was $403.2 million and gross margin was 41.0%, versus 35.0% a year earlier. Net income attributable to common stockholders was $152.8 million, or diluted EPS of $3.33, compared with $94.8 million, or $2.09.
Six-month operating cash flow was $157.3 million, compared with $162.1 million. Investing activities used $164.6 million, principally for the acquisition and $78.1 million of capital expenditures; financing activities used $38.8 million. Cash, cash equivalents and restricted cash were $307.5 million at June 30, down from $366.8 million at year-end; short-term investments were $8.8 million. Working capital was $714.6 million.
Total debt was approximately $265.2 million, including current and long-term debt, versus approximately $301.0 million at year-end. The U.S. revolving facility had $30.0 million drawn against its $200.0 million capacity; management reported approximately $170.0 million of additional availability. Asia credit facilities had $25.9 million outstanding. The U.S. Credit Agreement matures in May 2024.
Material changes and management commentary
- Management attributed sales growth to automotive and industrial demand, Pericom-branded products, product mix and customer-content expansion. Automotive represented 14% of Q2 sales versus 12% a year earlier; industrial rose to 27% from 22%.
- Higher average selling prices and improved factory utilization and loading supported margin expansion. Average unit costs also rose, which management attributed to subcontractor and foundry cost increases.
- SG&A increased with wages and benefits, freight and duties, selling expenses, taxes and insurance. Operating expenses grew more slowly than sales as a percentage of revenue.
- Investment results were a notable headwind: Q2 included a $7.8 million unrealized investment loss versus a $5.3 million gain in Q2 2021; the six-month comparison was a $13.3 million loss versus an $8.9 million gain. The filing also reports a $3.9 million upward fair-value adjustment on an equity investment in the first half.
- Foreign-currency translation contributed to a $54.0 million six-month unrealized loss in other comprehensive income.
Outlook, risks and contingencies
The filing provides no numerical revenue, margin or earnings guidance. Management said available cash, investments, operating cash flow and credit facilities should cover working capital, capital expenditures and acquisitions for at least the next 12 months.
- Government-imposed COVID-19 lockdowns in Shanghai could shut down or reduce production at local facilities and materially affect operations, liquidity and outlook.
- The Russia-Ukraine conflict and possible sanctions could affect global markets and the company’s business. Other cited risks include semiconductor cyclicality, demand changes, customer order cancellations, pricing pressure, supply availability, manufacturing interruptions, foreign exchange and interest-rate exposure.
- At June 30, the company had approximately $124.1 million of non-cancelable capital expenditure commitments and commitments to purchase approximately $195.8 million of wafers through 2025.
- Gross unrecognized tax benefits were approximately $45.9 million; the company said the possible range of changes over the next 12 months could not be estimated. The U.K. defined-benefit plan was underfunded by approximately $4.4 million.
- The company reported no pending litigation it considered material and no material changes to previously disclosed risk factors other than the added Shanghai lockdown and Ukraine-related risks.
Most important facts for investors to verify
- Whether Shanghai manufacturing operations and supplier availability remained stable after the quarter-end lockdowns.
- Whether sales growth and the 41.2% Q2 gross margin were sustainable amid higher input costs and semiconductor-cycle risks.
- How the South Portland facility affects capacity, capital spending and future margins, and whether preliminary acquisition valuations changed.
- Debt repayment, floating-rate exposure and liquidity availability, including the May 2024 U.S. facility maturity.
- Subsequent investment valuations, foreign-currency effects and developments in the $45.9 million unrecognized tax-benefit position.