Diodes Inc. Reports Nearly 25% Increase in Automotive

May 15, 2017 by Jeff Shepard

Diodes Incorporated reported its financial results for the first quarter ended March 31, 2017. Revenue was $236.3 million, an increase of 1.8 percent from the $232.1 million in the fourth quarter 2016 and an increase of 6.1 percent from $222.7 million in first quarter 2016; GAAP gross profit was $73.9 million, including $0.5 million related to KFAB closure accruals. This compares to GAAP gross profit of $67.3 million in the fourth quarter 2016 and $64.2 million in first quarter 2016; GAAP gross profit margin was 31.3 percent. This compares to GAAP gross profit margin of 29.0 percent in fourth quarter 2016 and 28.8 percent in first quarter 2016;

GAAP net income was $1.2 million, or $0.02 per diluted share, which included approximately $3.9 million of non-cash acquisition-related intangible asset amortization costs and $1.8 million of restructuring cost related to KFAB closure accruals, compared to GAAP net income of $1.3 million, or $0.03 per diluted share in fourth quarter 2016 and GAAP net loss of $1.7 million, or ($0.04) per share, in first quarter 2016;

Excluding $2.7 million, net of tax, non-cash share-based compensation expense, both GAAP net income and non-GAAP adjusted net income would have increased by $0.05 per diluted share; and Achieved $45.6 million of cash flow from operations, and $26.5 million free cash flow, including $19.1 million of capital expenditures. Net cash flow was $17.3 million, which includes the pay down of $11.0 million of long-term debt.

Commenting on the results, Dr. Keh-Shew Lu, President and Chief Executive Officer, stated, “Revenue in the quarter was at the high end of guidance, increasing almost 2 percent sequentially as compared to typical seasonality of down about 5 percent. Sales in Europe were particularly strong with a resurgence in revenue from the industrial market, combined with strengthening demand in North America. Additionally, our automotive revenue continued to grow from the record level achieved last year, resulting in growth of almost 25 percent over the prior year quarter.

“Also notable in the quarter, gross margin exceeded our guidance and surpassed 31 percent. The improvement was due to increased loading at our manufacturing facilities as a result of the stronger business environment as well as better pricing, in particular for analog products acquired from Pericom. Our KFAB facility is up and running with stabilized monthly output attained in March. When combined with lower SG&A and R&D expenses as a percentage of revenue, we delivered GAAP profitability of $0.02, despite the KFAB closure accruals. Excluding the accruals, non-GAAP earnings per share was $0.14. Further, our strong cash generation enabled us to pay down an additional $11 million in long-term debt.

“As we look to the second quarter, our business as well as the overall market are showing signs of continued strength, resulting in our expectation of 10 percent sequential growth and 33 percent non-GAAP gross margin at the mid-point. With a broadened product portfolio and an expanded sales channel following our integration of Pericom, we are well positioned to fully capitalize on these improving market conditions.”

Revenue for first quarter 2017 was $236.3 million, an increase of 1.8 percent from the $232.1 million in fourth quarter 2016 and an increase of 6.1 percent from the $222.7 million in first quarter 2016. Revenue in the quarter increased sequentially reflecting better than expected seasonality due primarily to strength in Europe and North America.

GAAP gross profit for first quarter 2017 was $73.9 million, or 31.3 percent of revenue, including approximately $0.5 million related to KFAB closure accruals. GAAP gross profit in the fourth quarter 2016 was $67.3 million, or 29.0 percent of revenue, and in the first quarter 2016 was $64.2 million, or 28.8 percent of revenue. The increase in gross profit margin was due primarily to improved utilization and pricing.

Dr. Lu concluded, “For the second quarter of 2017, we expect continued growth in revenue with further improvement in gross margin and profitability. More specifically, revenue is expected to grow to a range between $250 million and $270 million, or up 5.8 to 14.3 percent sequentially. We expect GAAP gross margin to be 32.5 percent, plus or minus 1 percent, including approximately $1 million KFAB closure-related accruals. Excluding these accruals, we expect non-GAAP gross margin to be approximately 33 percent. Non-GAAP operating expenses, which are GAAP operating expenses adjusted for KFAB closure costs, retention costs and amortization of acquisition-related intangible assets, are expected to be approximately 22.3 percent of revenue, plus or minus 1 percent. We expect net interest expense to be approximately $3.3 million, and our income tax rate to be 26.5 percent, plus or minus 3 percent. Shares used to calculate diluted EPS for the second quarter are anticipated to be approximately 50 million. Please note that purchase accounting adjustments for Pericom and previous acquisitions of $3.8 million after tax and KFAB closure accruals of $0.8 million after tax are not included in these non-GAAP estimates.”