Diodes Incorporated Reports Fourth Quarter and Fiscal 2018 Financial Results

Achieves Record Financial Performance in 2018 with 15% Annual Revenue
Growth and 22% Increase in Gross Profit Driven By Continued Market Share
Gains and Improved Product Mix

PLANO, Texas–(BUSINESS WIRE)–Please replace the release with the following corrected version due to
multiple revisions in the Business Outlook section and Safe Harbor
Statement.

The corrected release reads:

DIODES INCORPORATED REPORTS FOURTH QUARTER AND FISCAL 2018 FINANCIAL
RESULTS

Achieves Record Financial Performance in 2018 with 15% Annual Revenue
Growth and 22% Increase in Gross Profit Driven By Continued Market Share
Gains and Improved Product Mix

Diodes Incorporated (Nasdaq: DIOD), a leading global manufacturer and
supplier of high-quality application specific standard products within
the broad discrete, logic, analog and mixed-signal semiconductor
markets, today reported its financial results for the fourth quarter and
fiscal year ended December 31, 2018.

Year 2018 Highlights

  • Revenue grew to a record $1.2 billion, an increase of 15.2 percent
    over the $1.05 billion in 2017;
  • GAAP gross profit was a record $435.3 million, a 22.0 percent increase
    from $356.8 million in 2017;
  • GAAP gross margin improved 210 basis points to 35.9 percent from 33.8
    percent in 2017;
  • GAAP operating income increased 94.5 percent to a record $154.5
    million, or 12.7 percent of revenue and 14.5 percent on a non-GAAP
    basis, which compared to 7.5 percent and 10.7 percent, respectively,
    in 2017;
  • GAAP net income was a record $104.0 million, or $2.04 per diluted
    share, compared to a net loss of ($1.8) million, or ($0.04) per share,
    in 2017;
  • Non-GAAP adjusted net income increased 75.4 percent to a record $121.3
    million, or $2.38 per diluted share, compared to $69.1 million, or
    $1.37 per diluted share, in 2017;
  • Excluding $15.0 million, net of tax, non-cash share-based compensation
    expense, both GAAP net income and non-GAAP adjusted net income would
    have increased by $0.29 per diluted share;
  • EBITDA improved 55.3 percent to a record $261.1 million, or 21.5
    percent of revenue, compared to $168.2 million, or 16.0 percent of
    revenue last year; and
  • Achieved $185.6 million cash flow from operations and $98.1 million
    free cash flow, including $87.5 million of capital expenditures, or
    7.2 percent of revenue. Net cash flow was a positive $36.6 million,
    which includes the pay down of $56.8 million of long-term debt.

Fourth Quarter Highlights

  • Revenue was $314.4 million, an increase of 17.1 percent from the
    $268.4 million in the fourth quarter 2017 and a decrease of 2.0
    percent from the $320.9 million in the third quarter 2018;
  • GAAP gross profit was $114.2 million, compared to $96.4 million in the
    fourth quarter 2017 and $115.2 million in the third quarter 2018;
  • GAAP gross profit margin was 36.3 percent, compared to 35.9 percent in
    the fourth quarter 2017 and 35.9 percent in the third quarter 2018;
  • GAAP net income was $29.5 million, or $0.58 per diluted share,
    compared to a GAAP net loss of ($30.7) million, or ($0.62) per share,
    in the fourth quarter 2017 and GAAP net income of $30.9 million, or
    $0.61 per diluted share, in the third quarter 2018;
  • Non-GAAP adjusted net income was $33.2 million, or $0.65 per diluted
    share, compared to $21.6 million, or $0.42 per diluted share, in the
    fourth quarter 2017 and $34.5 million, or $0.68 per diluted share, in
    the third quarter 2018;
  • Excluding $3.8 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 $70.5 million, or 22.4 percent of revenue, compared to
    $47.0 million, or 17.5 percent of revenue, in the fourth quarter 2017
    and $72.0 million, or 22.4 percent of revenue, in the third quarter
    2018; and
  • Achieved cash flow from operations of $61.6 million and $46.3 million
    free cash flow, including $15.3 million of capital expenditures. Net
    cash flow was a positive $90.7 million, which includes $47.4 million
    of additional long-term debt to fund a previously committed
    shareholder equity increase in the Company’s Chengdu corporate entity.

Commenting on the results, Dr. Keh-Shew Lu, president and chief
executive officer, stated, “2018 represented the best performing year in
Diodes’ history with the achievement of record financials, 15% organic
revenue growth driven by continued market share gains, and a 75%
increase in non-GAAP profitability over the prior year. Our ongoing
focus on the automotive and industrial sectors resulted in annual
revenue growth from these target end markets of 38% and 29%,
respectively, and a combined 35% of total revenue. Additionally, our
Pericom business, excluding frequency control products, grew 24%
year-over-year to almost 10% of revenue primarily as a result of our
increased content in high-end PC, server, storage and datacenter markets.

During 2018, we made significant progress on Diodes’ positioning at key
customers and gaining share, not only within product lines but also
across multiple applications at the same customer. In fact, some of our
largest customers use Diodes content in nearly all products they offer,
which provides greater diversification for Diodes as well as a deeper
relationship with these customers. Our Pericom products have also
provided us greater leverage, creating expanded opportunities in new end
equipment and applications as well as additional cross-selling
opportunities for our other product offerings.

More recently, I am pleased to have announced the proposed acquisition
of Texas Instruments’ wafer fabrication facility and operation located
in Greenock, Scotland (“GFAB”), which aligns well with our long-term
strategic objectives. This facility not only adds to Diodes existing
global footprint, but also provides expanded wafer capacity to support
our product growth, in particular for the automotive market.”

Dr. Lu concluded by stating, “Looking forward to 2019, we expect to
continue gaining market share and achieve growth rates that exceed our
served available markets, while prioritizing higher-margin opportunities
across automotive, industrial and our Pericom products. Underpinning our
anticipated growth and serving as a key theme for Diodes in the coming
year is content gains across connected cars, high-end servers and
storage, 5G and IoT. We are well positioned both operationally and
financially to drive increasing profits and cash flow on incremental
revenue growth and expect to once again reach new records across our
business.”

Fourth Quarter 2018

Revenue for fourth quarter 2018 was $314.4 million, an increase of 17.1
percent from $268.4 million in fourth quarter 2017 and a decrease of 2.0
percent from $320.9 million in the third quarter 2018, which was better
than typical seasonality.

GAAP gross profit for the fourth quarter 2018 was $114.2 million, or
36.3 percent of revenue, compared $96.4 million in the fourth quarter
2017, or 35.9 percent of revenue, and $115.2 million in the third
quarter 2018, or 35.9 percent of revenue. The sequential increase in
gross margin was primarily due to improved product mix as well as the
continued 8-inch ramp at the Company’s Shanghai fabrication facility
(SFAB).

GAAP operating expenses for fourth quarter 2018 were $70.3 million, or
22.4 percent of revenue, and $65.8 million, or 20.9 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 fourth quarter 2017 were 73.9 million, or 27.5 percent of
revenue, and in the third quarter 2018 were $69.4 million, or 21.6
percent of revenue.

Fourth quarter 2018 GAAP net income was $29.5 million, or $0.58 per
diluted share, compared to a GAAP net loss of ($30.7) million, or
($0.62) per share, in fourth quarter 2017 and GAAP net income of $30.9
million, or $0.61 per diluted share, in third quarter 2018.

Fourth quarter 2018 non-GAAP adjusted net income was $33.2 million, or
$0.65 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 $21.6 million, or $0.42 per
diluted share, in the fourth quarter 2017 and $34.5 million, or $0.68
per diluted share, in the third 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):

Three Months Ended
December 31, 2018
GAAP net income $ 29,519
GAAP diluted earnings per share $ 0.58
Adjustments to reconcile net income to non-GAAP net income:
M&A
Pericom 2,619

Amortization of acquisition-related intangible assets

2,619
Others 1,059
Amortization of acquisition-related intangible assets 1,059
Non-GAAP net income $ 33,197
Non-GAAP diluted earnings per share $ 0.65
Note: Throughout this release, we refer to “net income attributable
to common stockholders” as “net income.”
(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 fourth quarter 2018 GAAP net income and non-GAAP adjusted
net income was approximately $3.8 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 fourth quarter 2018,
$0.06 for fourth quarter 2017 and $0.07 for third quarter 2018.

EBITDA (a non-GAAP measure), which represents earnings before net
interest expense, income tax, depreciation and amortization, in the
fourth quarter 2018 was $70.5 million, or 22.4 percent of revenue,
compared to $47.0 million, or 17.5 percent of revenue, in the fourth
quarter 2017 and $72.0 million, or 22.4 percent of revenue in the third
quarter 2018. For a reconciliation of GAAP net income to EBITDA, see the
table near the end of this release for further details.

For fourth quarter 2018, net cash provided by operating activities was
$61.6 million. Net cash flow was a positive $90.7 million, including
$47.4 million of additional long-term debt to fund a previously
committed shareholder equity increase in the Company’s Chengdu corporate
entity. Free cash flow (a non-GAAP measure) was $46.3 million, which
includes $15.3 million of capital expenditures.

Balance Sheet

As of December 31, 2018, the Company had approximately $249 million in
cash, cash equivalents and short-term investments, long-term debt
(including the current portion) totaled approximately $214 million, and
working capital was approximately $481 million.

The results announced today are preliminary and unaudited, as they are
subject to the Company finalizing its closing procedures and customary
quarterly and year-end 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-K for the year ending December 31,
2018.

Business Outlook

Dr. Lu further commented, “We expect revenue in the first quarter of
2019 to be approximately $302 million, plus or minus 2.5 percent. At the
mid-point, this represents growth of 10 percent over the prior year
period and down approximately 4 percent sequentially, which is slightly
better than typical seasonality. We expect GAAP gross margin to be 36.0
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 21.5 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 25.0
percent, plus or minus 3 percent, and shares used to calculate diluted
EPS for the first quarter are anticipated to be approximately 51.2
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 Wednesday, February 13, 2019, at
4:00 p.m. Central Time (5:00 p.m. Eastern Time) to discuss its fourth
quarter 2018 financial results. Investors and analysts may join the
conference call by dialing 1-855-232-8957 and providing the
confirmation code 9939905. 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 February 20, 2019 at midnight Central Time. The replay
number is 1-855-859-2056 with a pass code of 9939905.
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; Manchester, England; and
Neuhaus, Germany. Diodes’ wafer fabrication facility is located in
Manchester, with an additional facility located in 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
first quarter of 2019, we expect revenue to be approximately $302
million plus or minus 2.5 percent, which at the mid-point, is slightly
better than typical seasonality; we expect GAAP gross margin to be 36.0
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 21.5 percent of
revenue, plus or minus 1 percent; we expect net interest expense to be
approximately $2 million; we expect tax rate to be 25.0 percent, plus or
minus 3 percent; shares used to calculate diluted EPS for the first
quarter are anticipated to be approximately 51.2 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.

Recent news releases, annual reports and SEC filings are available at
the company’s website: http://www.diodes.com.
Written requests may be sent directly to the company, or they may be
e-mailed to: [email protected].

DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share data)

Three Months Ended Twelve Months Ended
December 31, December 31,
2018 2017 2018 2017
NET SALES $ 314,446 $ 268,430 $ 1,213,989 $ 1,054,204
COST OF GOODS SOLD 200,247 172,051 778,713 697,428
Gross profit 114,199 96,379 435,276 356,776
OPERATING EXPENSES
Selling, general and administrative 44,419 45,678 176,197 168,590
Research and development 21,487 19,662 86,286 77,877
Amortization of acquisition-related intangible assets 4,488 4,700 18,351 18,798
Impairment of fixed assets 218 390 2,211
Restructuring 4,029 206 10,137
Other operating (income) expense (55 ) (415 ) (636 ) (246 )
Total operating expenses 70,339 73,872 280,794 277,367
Income from operations 43,860 22,507 154,482 79,409
OTHER INCOME (EXPENSE)
Interest income 547 483 1,978 1,475
Interest expense (2,282 ) (2,955 ) (9,901 ) (13,448 )
Foreign currency loss, net (317 ) (1,261 ) (3,701 ) (7,995 )
Other income 1,031 2,022 7,104 3,150
Total other expense (1,021 ) (1,711 ) (4,520 ) (16,818 )
Income before income taxes and noncontrolling interest 42,839 20,796 149,962 62,591
INCOME TAX PROVISION 12,830 50,674 44,556 62,325
NET INCOME (LOSS) 30,009 (29,878 ) 105,406 266
Less: NET INCOME attributable to noncontrolling interest (490 ) (773 ) (1,385 ) (2,071 )
NET INCOME (LOSS) attributable to common stockholders $ 29,519 $ (30,651 ) $ 104,021 $ (1,805 )
EARNINGS (LOSS) PER SHARE attributable to common stockholders
Basic $ 0.59 $ (0.62 ) $ 2.09 $ (0.04 )
Diluted $ 0.58 $ (0.62 ) $ 2.04 $ (0.04 )
Number of shares used in computation
Basic 50,221 49,391 49,841 48,824
Diluted 50,929 49,391 50,935 48,824

Note: Throughout this release, we refer to “net income
attributable to common stockholders” as “net income.”

DIODES INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME

(in thousands, except per share data)

(unaudited)

For the three months ended December 31, 2018:

Operating
Expenses

Income Tax
Provision

Net Income
Per-GAAP $ 29,519
Diluted earnings per share (Per-GAAP) $ 0.58
Adjustments to reconcile net income to non-GAAP net income:
M&A
Pericom 2,619

Amortization of acquisition-related intangible assets

3,193 (574 )
Others 1,059
Amortization of acquisition-related intangible assets 1,295 (236 )
Non-GAAP $ 33,197
Diluted shares used in computing earnings per share 50,929
Non-GAAP diluted earnings per share $ 0.65
Note: Included in GAAP and non-GAAP net income was approximately
$3.8 million, net of tax, non-cash share-based compensation expense.
Excluding share-based compensation expense, both GAAP and non-GAAP
diluted earnings per share would have improved by $0.07 per share.
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME
– Cont.

(in thousands, except per share data)

(unaudited)

For the three months ended December 31, 2017:

COGS

Operating
Expenses

Income Tax
Provision

Net Income
Per-GAAP $ (30,651 )
Diluted loss per share (Per-GAAP) $ (0.62 )
Adjustments to reconcile net loss to non-GAAP net income:
M&A
Pericom 2,530

Amortization of acquisition-related intangible assets

3,086 (556 )
KFAB 2,554
Restructuring 4,029 (1,410 )
Impairment of fixed assets (125 ) 44
Loss on sale of assets 25 (9 )
Others 47,177
Amortization of acquisition-related intangible assets 1,614 (345 )
Impact of Tax Cuts And Jobs Act 45,908
Non-GAAP $ 21,610
Diluted shares used in computing earnings per share 50,926
Non-GAAP diluted earnings per share $ 0.42
Note: Included in GAAP and non-GAAP adjusted net income was
approximately $3.0 million, net of tax, non-cash share-based
compensation expense. Excluding share-based compensation expense,
both GAAP and non-GAAP adjusted diluted earnings per share would
have improved by $0.06 per share.
DIODES INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME

(in thousands, except per share data)

(unaudited)

For the twelve months ended December 31,
2018:

Operating
Expenses

Income Tax
Provision

Net Income
Per-GAAP $ 104,021
Diluted earnings per share (Per-GAAP) $ 2.04
Adjustments to reconcile net income to non-GAAP net income:
M&A
Pericom 10,430
Amortization of acquisition-related intangible assets 12,719 (2,289 )
KFAB 194
Restructuring 206 (12 )
Others 6,616
Amortization of acquisition-related intangible assets 5,632 (1,030 )
Officer retirement 2,550 (536 )
Non-GAAP $ 121,261
Diluted shares used in computing earnings per share 50,935
Non-GAAP diluted earnings per share $ 2.38
Note: Included in GAAP and non-GAAP adjusted net income was
approximately $15.0 million, net of tax, non-cash share-based
compensation expense, excluding officer severance. Excluding
share-based compensation expense, both GAAP and non-GAAP adjusted
diluted earnings per share would have improved by $0.29 per share.

Contacts

Company Contact:
Diodes Inc.
Laura Mehrl
Director
of Investor Relations
P: 972-987-3959
E: [email protected]

Investor Relations Contact:
Shelton Group
Leanne Sievers
President,
Investor Relations
P: 949-224-3874
E: [email protected]

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