Diodes Incorporated Reports First Quarter Financial Results

Diodes Incorporated (Nasdaq: DIOD) today reported its financial results
for the first quarter ended March 31, 2019.

First Quarter Highlights

• Revenue was $302.3 million, an increase of 10.1 percent from the
  $274.5 million in the first quarter 2018 due to continued market share
  gains and a decrease of 3.9 percent from the $314.4 million in the
  fourth quarter 2018;
• GAAP gross profit was $112.4 million, compared to $98.6 million in the
  first quarter 2018 and $114.2 million in the fourth quarter 2018;
• GAAP gross profit margin was 37.2 percent, compared to 35.9 percent in
  the first quarter 2018 and 36.3 percent in the fourth quarter 2018;
• GAAP net income was a record $31.7 million, or $0.62 per diluted
  share, compared to GAAP net income of $18.5 million, or $0.37 per
  diluted share, in the first quarter 2018 and GAAP net income of $29.5
  million, or $0.58 per diluted share, in the fourth quarter 2018;
• Non-GAAP adjusted net income was a record $35.4 million, or $0.69 per
  diluted share, compared to $24.2 million, or $0.48 per diluted share,
  in the first quarter 2018 and $33.2 million, or $0.65 per diluted
  share, in the fourth quarter 2018;
• Excluding $3.5 million, net of tax, of non-cash share-based
  compensation expense, both GAAP and non-GAAP earnings per share would
  have increased by $0.07 per diluted share;
• EBITDA was $69.9 million, or 23.1 percent of revenue, compared to
  $54.2 million, or 19.7 percent of revenue, in the first quarter 2018
  and $70.5 million, or 22.4 percent of revenue, in the fourth quarter
  2018; and
• Achieved cash flow from operations of $69.9 million and $51.2 million
  free cash flow, including $18.6 million of capital expenditures. Net
  cash flow was a positive $60.5 million.

Commenting on the results, Dr. Keh-Shew Lu, President and Chief
Executive Officer, stated, “Diodes once again had an exceptional quarter
of solid financial results with increasing profitability. Revenue for
the quarter grew 10% over the prior year period on continued market
share gains and was down 3.9% sequentially, which was better than
typical seasonality. Notably, gross margin increased 90 basis points
from the fourth quarter 2018, exceeding the upper end of our guidance
range and reaching the highest level since the fourth quarter of 2010,
and we expect a further increase in the second quarter. Contributing to
this margin expansion was the achievement of record revenue in Europe
combined with record revenue in the automotive and industrial end
markets. Specifically in the automotive market, revenue grew 7%
sequentially and 23% year-over-year as we continued to benefit from past
design win activity. Together, these two end markets represented 39% of
total revenue, which places us well on track to achieve our long-term
target of 40%. Additionally, our Pericom business, excluding frequency
control products, reached record revenue levels in the first quarter and
contributed to our strong margin performance.

“More recently, on April 1^st we announced the closing of the
transaction to acquire Texas Instruments’ (TI) wafer fabrication
facility and operation located in Greenock, Scotland (GFAB). The
ownership transfer has gone very smooth with no interruption to
production. We are in the process of aggressively installing Diodes’
processes to fully utilize the additional 8” capacity and capability of
the fab, which will support our growth expansion initiatives and future
cost reductions. As part of a five-year wafer supply agreement, Diodes
is providing foundry services to TI, which is not material to Diodes
overall revenue.”

Dr. Lu concluded, “As we look to the second quarter, we expect to extend
our growth momentum and market share gains, while further increasing
gross margin and lowering operating expenses as a percentage of revenue.
Together, these factors will contribute to driving higher profitability
and cash flow for Diodes and our shareholders.”

First Quarter 2019

Revenue for first quarter 2019 was $302.3 million, an increase of 10.1
percent from $274.5 million in first quarter 2018 and a decrease of 3.9
percent from $314.4 million in the fourth quarter 2018, which was better
than typical seasonality.

GAAP gross profit for the first quarter 2019 was $112.4 million, or 37.2
percent of revenue, compared to the first quarter 2018 of $98.6 million,
or 35.9 percent of revenue, and the fourth quarter 2018 of $114.2
million, or 36.3 percent of revenue. The 90-basis point sequential
increase was primarily due to higher revenue contribution from the
automotive and industrial markets as well as Pericom products.

GAAP operating expenses for first quarter 2019 were $70.3 million, or
23.3 percent of revenue, and $65.8 million, or 21.8 percent of revenue,
on a non-GAAP basis, which excluded $4.5 million of amortization of
acquisition-related intangible asset expenses. GAAP operating expenses
in the first quarter 2018 were $71.7 million, or 26.1 percent of
revenue, and in the fourth quarter 2018 were $70.3 million, or 22.4
percent of revenue.

First quarter 2019 GAAP net income was a record $31.7 million, or $0.62
per diluted share, compared to GAAP net income of $18.5 million, or
$0.37 per share, in first quarter 2018 and GAAP net income of $29.5
million, or $0.58 per diluted share, in fourth quarter 2018.

First quarter 2019 non-GAAP adjusted net income was a record $35.4
million, or $0.69 per diluted share, which excluded, net of tax, $3.7
million of non-cash acquisition-related intangible asset amortization
costs. This compares to non-GAAP adjusted net income of $24.2 million,
or $0.48 per diluted share, in the first quarter 2018 and $33.2 million,
or $0.65 per diluted share, in the fourth quarter 2018.

The following is an unaudited summary reconciliation of GAAP net income
to non-GAAP adjusted net income and per share data, net of tax (in
thousands, except per share data):

(See the reconciliation tables of GAAP net income to non-GAAP adjusted
net income near the end of this release for further details.)

Included in first quarter 2019 GAAP net income and non-GAAP adjusted net
income was approximately $3.5 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 $0.07 per diluted share for first quarter 2019,
$0.10 for first quarter 2018 and $0.07 for fourth quarter 2018.

EBITDA (a non-GAAP measure), which represents earnings before net
interest expense, income tax, depreciation and amortization, in the
first quarter 2019 was $69.9 million, or 23.1 percent of revenue,
compared to $54.2 million, or 19.7 percent of revenue, in the first
quarter 2018 and $70.5 million, or 22.4 percent of revenue, in the
fourth quarter 2018. For a reconciliation of GAAP net income to EBITDA,
see the table near the end of this release for further details.

For first quarter 2019, net cash provided by operating activities was
$69.9 million. Net cash flow was a positive $60.5 million, and free cash
flow (a non-GAAP measure) was $51.2 million, which includes $18.6
million of capital expenditures.

Balance Sheet

As of March 31, 2019, the Company had approximately $308 million in
cash, cash equivalents and short-term investments, long-term debt
(including the current portion) totaled approximately $216 million, and
working capital was approximately $525 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 March 31, 2019.

Business Outlook

Dr. Lu concluded, “We expect revenue in second quarter of 2019 to
increase to approximately $322 million, plus or minus 2.0 percent. At
the mid-point, this represents growth of 6.5 percent sequentially and up
5.9 percent over the prior year period, and reflects continued growth
from Diodes organic business as well as revenue contribution from GFAB.
We expect GAAP gross margin to be 38.0 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 21 percent of revenue, plus or minus 1 percent. We
expect net interest expense to be approximately $2.0 million. Our income
tax rate is expected to be 24.5 percent, plus or minus 3 percent, and
shares used to calculate diluted EPS for the second quarter are
anticipated to be approximately 52 million.”

Purchase accounting adjustments related to amortization of
acquisition-related intangible assets of $3.7 million, after tax, for
Pericom and previous acquisitions are not included in these non-GAAP
estimates.

Conference Call

Diodes will host a conference call on Tuesday, May 7, 2019, at 4:00 p.m.
Central Time (5:00 p.m. Eastern Time) to discuss its first quarter 2019
financial results. Investors and analysts may join the conference call
by dialing 1-855-232-8957 and providing the confirmation
code 8919166. International callers may join the teleconference
by dialing +1-315-625-6979 and entering the same confirmation code at
the prompt. A telephone replay of the call will be made available
approximately two hours after the call and will remain available until
May 14, 2019 at midnight Central Time. The replay number is
1-855-859-2056 with a pass code of 8919166. International callers should
dial +1-404-537-3406 and enter the same pass code at the prompt.
Additionally, this conference call will be broadcast live over the
Internet and can be accessed by all interested parties on the Investors’
section of Diodes’ website at http://www.diodes.com.
To listen to the live call, please go to the investors’ section of
Diodes’ website and click on the conference call link at least 15
minutes prior to the start of the call to register, download and install
any necessary audio software. For those unable to participate during the
live broadcast, a replay will be available shortly after the call on
Diodes’ website for approximately 90 days.

About Diodes Incorporated

Diodes Incorporated (Nasdaq: DIOD), a Standard and Poor’s SmallCap 600
and Russell 3000 Index company, is a leading global manufacturer and
supplier of high-quality application-specific standard products within
the broad discrete, logic, analog, and mixed-signal semiconductor
markets. Diodes serves the consumer electronics, computing,
communications, industrial, and automotive markets. Diodes’ products
include diodes, rectifiers, transistors, MOSFETs, protection devices,
function-specific arrays, single gate logic, amplifiers and comparators,
Hall-effect and temperature sensors, power management devices, including
LED drivers, AC-DC converters and controllers, DC-DC switching and
linear voltage regulators, and voltage references along with special
function devices, such as USB power switches, load switches, voltage
supervisors, and motor controllers. Diodes also has timing,
connectivity, switching, and signal integrity solutions for high-speed
signals. Diodes’ corporate headquarters and Americas’ sales office are
located in Plano, Texas and Milpitas, California. Design, marketing, and
engineering centers are located in Plano; Milpitas; Taipei, Taiwan;
Taoyuan City, Taiwan; Zhubei City, Taiwan; Oldham, England; and Neuhaus,
Germany. Diodes’ wafer fabrication facilities are located in Oldham and
Greenock, Scotland and Shanghai, China. Diodes has assembly and test
facilities located in Shanghai, Jinan, Chengdu, and Yangzhou, China, as
well as in Hong Kong, Neuhaus, and Taipei. Additional engineering,
sales, warehouse, and logistics offices are located in Taipei; Hong
Kong; Manchester; Shanghai; Shenzhen, China; Seongnam-si, South Korea;
Munich, Germany; and Tokyo, Japan, with support offices throughout the
world.

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 2019 and beyond; that for the
second quarter of 2019, we expect revenue to be approximately $322
million plus or minus 2.0 percent; we expect GAAP gross margin to be
38.0 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
21.0 percent of revenue, plus or minus 1 percent; we expect net interest
expense to be approximately $2 million; we expect tax rate to be 24.5
percent, plus or minus 3 percent; shares used to calculate diluted EPS
for the first quarter are anticipated to be approximately 52.0 million;
purchase accounting adjustments for Pericom and previous acquisitions of
$3.7 million after tax are not included in these non-GAAP estimates; we
expect GFAB to not only add to our existing global footprint, but also
provide expanded wafer capacity to support our product group, in
particular for the automotive market; and other statements identified by
words such as “estimates,” “expects,” “projects,” “plans,” “will,” and
similar expressions. Potential risks and uncertainties include, but are
not limited to, such factors as: 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 the pending acquisition of GFAB
will not close successfully (due to failure to obtain any required
approvals or other reasons); 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 risk that we may not
continue our share repurchase program; 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 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.

ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER
SHARE

The Company’s financial statements present net income and earnings per
share that are calculated using accounting principles generally accepted
in the United States (“GAAP”). The Company’s management makes
adjustments to the GAAP measures that it feels are necessary to allow
investors and other readers of the Company’s financial releases to view
the Company’s operating results as viewed by the Company’s management,
board of directors and research analysts in the semiconductor industry.
These non-GAAP measures are not prepared in accordance with, and should
not be considered alternatives or necessarily superior to, GAAP
financial data and may be different from non-GAAP measures used by other
companies. Because non-GAAP financial measures are not standardized, it
may not be possible to compare these financial measures with other
companies’ non-GAAP financial measures, even if they have similar names.
The explanation of the adjustments made in the table above, are set
forth below:

Detail of non-GAAP adjustments

Amortization of acquisition-related intangible
assets – The Company excluded this item, including
amortization of developed technologies and customer relationships. The
fair value of the acquisition-related intangible assets, which was
recognized through purchase accounting, is amortized using straight-line
methods which approximate the proportion of future cash flows estimated
to be generated each period over the estimated useful life of the
applicable assets. The Company believes that exclusion of this item is
appropriate because a significant portion of the purchase price for its
acquisitions was allocated to the intangible assets that have short
lives and exclusion of the amortization expense allows comparisons of
operating results that are consistent over time for both the Company’s
newly acquired and long-held businesses. In addition, the Company
excluded this item because there is significant variability and
unpredictability among companies with respect to this expense.

KFAB restructuring – The Company has
recorded restructuring charges related to the shutdown and relocation of
its wafer fabrication facility located in Lee’s Summit, MO (“KFAB”).
These restructuring charges are excluded from management’s assessment of
the Company’s operating performance. The Company believes the exclusion
of the restructuring charges provides investors an enhanced view of the
cost structure of the Company’s operations and facilitates comparisons
with the results of other periods that may not reflect such charges or
may reflect different levels of such charges.

Officer retirement – In 2018, the
Company excluded costs related to the retirement of two executives.
These costs represent cash payments and the accelerated vesting of
previously issued stock awards. The Company feels it is appropriate to
exclude these costs since they don’t represent ongoing operating
expenses and will present investors with a more accurate indication of
our continuing operations.

CASH FLOW ITEMS

Free cash flow (FCF) (Non-GAAP)

FCF for the first quarter of 2019 is a non-GAAP financial measure, which
is calculated by subtracting capital expenditures from cash flow from
operations. For the first quarter of 2019, FCF was $51.2 million, which
represents the cash and cash equivalents that we are able to generate
after taking into account cash outlays required to maintain or expand
property, plant and equipment. FCF is important because it allows us to
pursue opportunities to develop new products, make acquisitions and
reduce debt.

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.

The following table provides a reconciliation of net income to EBITDA (in
thousands, unaudited):

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