PART I – FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Unaudited condensed consolidated financial statements for the periods ended September 30, 2021, detail the company's financial position, operational results, and cash flows [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets grew to $2.04 billion while total liabilities decreased to $824.8 million, resulting in a significant increase in total equity to $1.22 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | **Total Assets** | **$2,041,909** | **$1,979,457** | | Total current assets | $1,063,883 | $1,023,987 | | **Total Liabilities** | **$824,796** | **$963,334** | | Total current liabilities | $444,625 | $509,762 | | Long-term debt, net | $218,000 | $288,179 | | **Total Equity** | **$1,217,113** | **$1,016,123** | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company achieved substantial year-over-year growth in net sales and net income for both the third quarter and the first nine months of 2021 Q3 Statement of Operations Highlights (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Net sales | $471,422 | $309,459 | | Gross profit | $181,231 | $111,090 | | Income from operations | $77,247 | $37,855 | | Net income attributable to common stockholders | $68,424 | $27,152 | | Diluted EPS | $1.50 | $0.51 | Nine Months Statement of Operations Highlights (in thousands, except per share data) | Metric | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | | Net sales | $1,324,991 | $878,845 | | Gross profit | $479,669 | $308,424 | | Income from operations | $189,994 | $94,576 | | Net income attributable to common stockholders | $163,250 | $68,353 | | Diluted EPS | $3.59 | $1.30 | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the first nine months of 2021, operating cash flow more than doubled, while significant cash was used for debt repayment and increased capital expenditures Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash from Operating Activities | $260,989 | $126,435 | | Net cash used in Investing Activities | ($89,299) | ($51,776) | | Net cash (used in) from Financing Activities | ($210,259) | $294,680 | | **Change in cash and cash equivalents** | **($35,691)** | **$380,327** | [Notes to Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes explain accounting policies, sales breakdowns by geography, debt structure, and the significant acquisition of Lite-On Semiconductor (LSC) - For the nine months ended September 30, 2021, net sales to Asia were **$1.06 billion**, representing approximately **80%** of total net sales, while distributor sales accounted for **$867.0 million**, or about **65%** of total net sales[53](index=53&type=chunk) - The company closed its acquisition of Lite-On Semiconductor Corporation (LSC) on November 30, 2020, for a total consideration of **$154.0 million** after adjustments to expand its portfolio of 'green' power-related semiconductor devices[86](index=86&type=chunk)[87](index=87&type=chunk)[88](index=88&type=chunk) - In March 2021, the company entered an agreement to sell one of its manufacturing subsidiaries in China for approximately **$18.0 million**, with the related assets and liabilities classified as held-for-sale[83](index=83&type=chunk)[84](index=84&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses significant financial growth in 2021, driven by organic expansion and the LSC acquisition, with strong performance in automotive and computing markets [Results of Operations](index=35&type=section&id=Results%20of%20Operations) Q3 2021 net sales grew 52.3% year-over-year, fueled by both organic growth and the LSC acquisition, with gross margin improving to 38.4% Q3 2021 vs Q3 2020 Performance (in millions) | Metric | Q3 2021 | Q3 2020 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $471.4 | $309.5 | 52.3% | | Gross profit | $181.2 | $111.1 | 63.1% | | Gross Margin | 38.4% | 35.9% | +250 bps | - The **52.3%** increase in Q3 2021 net sales was driven by **27.8%** organic growth from the legacy business and **24.6%** related to the LSC acquisition[110](index=110&type=chunk) Revenue by End-User Market (Q3) | End-User Market | Q3 2021 % of Revenue | Q3 2020 % of Revenue | | :--- | :--- | :--- | | Industrial | 24% | 22% | | Communications | 16% | 21% | | Consumer | 18% | 27% | | Computing | 30% | 19% | | Automotive | 12% | 11% | [Financial Condition, Liquidity and Capital Resources](index=41&type=section&id=Financial%20Condition%2C%20Liquidity%20and%20Capital%20Resources) Working capital increased to $619.3 million, with liquidity from operations and credit facilities deemed sufficient to cover needs for at least the next 12 months - Working capital increased to **$619.3 million** at September 30, 2021, from **$514.2 million** at December 31, 2020[133](index=133&type=chunk) - Capital expenditures for the nine months ended September 30, 2021, were **$100.3 million**, compared to **$47.5 million** for the same period in 2020[134](index=134&type=chunk) - As of September 30, 2021, foreign subsidiaries held approximately **$257.7 million** of cash, cash equivalents, and investments[135](index=135&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes to market risks were reported from those disclosed in the 2020 Annual Report on Form 10-K - There have been **no material changes** to the company's market risks from those disclosed in the 2020 Form 10-K[195](index=195&type=chunk) [Item 4. Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were deemed effective as of September 30, 2021, with no material changes to internal controls during Q3 - The CEO and CFO concluded that as of September 30, 2021, the company's disclosure controls and procedures were **effective**[196](index=196&type=chunk) - There were **no changes** in internal control over financial reporting during the third quarter of 2021 that materially affected, or are reasonably likely to materially affect, these controls[198](index=198&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) The company is not party to any material pending litigation and expects no material adverse effect from ordinary-course legal proceedings - The Company is **not currently a party to any pending litigation** that it considers material[200](index=200&type=chunk) [Item 1A. Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported, except for a new risk related to potential impacts from electricity rationing in China - A **new risk factor** has been added related to electricity rationing in China, which could lead to higher electricity prices and potential curtailments affecting the company's manufacturing facilities[202](index=202&type=chunk)[203](index=203&type=chunk)[204](index=204&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the period - None[206](index=206&type=chunk) [Item 6. Exhibits](index=49&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with the Form 10-Q, including Sarbanes-Oxley certifications and Inline XBRL documents - Exhibits filed include certifications from the CEO and CFO (Exhibits 31.1, 31.2, 32.1, 32.2) and various Inline XBRL data files (Exhibits 101 and 104)[214](index=214&type=chunk)[215](index=215&type=chunk)[216](index=216&type=chunk)

Diodes Incorporated (NASDAQ:DIOD) Q2 2021 Earnings Conference Call August 5, 2021 5:00 PM ET Company Participants Leanne Sievers – President of Shelton Group Keh-Shew Lu – Chairman, President and Chief Executive Officer Brett Whitmire – Chief Financial Officer Emily Yang – Senior Vice President of Worldwide Sales and Marketing Gary Yu – Senior Vice President of Business Groups Conference Call Participants Gary Mobley – Wells Fargo Securities. Matt Ramsay – Cowen and Company Tristan Gerra – Robert W. Baird W ...

[PART I – FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This section provides Diodes Incorporated's unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures for the interim period [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Diodes Incorporated's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, and cash flows, with detailed notes for the interim period Condensed Consolidated Balance Sheet Data (in thousands) | Account | June 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | | :--- | :--- | :--- | | **Total Current Assets** | $1,042,478 | $1,023,987 | | **Total Assets** | $1,992,969 | $1,979,457 | | **Total Current Liabilities** | $460,205 | $509,762 | | **Total Liabilities** | $849,972 | $963,334 | | **Total Stockholders' Equity** | $1,142,997 | $1,016,123 | Condensed Consolidated Statement of Operations Data (in thousands) | Metric | Three Months Ended June 30, 2021 (in thousands) | Three Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | **Net Sales** | $440,448 | $288,669 | $853,569 | $569,386 | | **Gross Profit** | $159,802 | $101,492 | $298,438 | $197,334 | | **Income from Operations** | $65,357 | $30,869 | $112,747 | $56,721 | | **Net Income Attributable to Common Stockholders** | $55,374 | $21,033 | $94,826 | $41,201 | | **Diluted EPS** | $1.22 | $0.40 | $2.09 | $0.78 | Condensed Consolidated Statement of Cash Flows Data (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2021 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $162,064 | $86,734 | | **Net cash used in investing activities** | ($36,674) | ($34,048) | | **Net cash (used in) provided by financing activities** | ($156,292) | $241,784 | | **Change in cash and cash equivalents** | ($25,611) | $295,114 | [Note 1: Summary of Operations and Significant Accounting Policies](index=10&type=section&id=NOTE%201%20%E2%80%93%20Summary%20of%20Operations%20and%20Significant%20Accounting%20Policies) Diodes Inc. manufactures discrete, logic, analog, and mixed-signal semiconductor products for diverse markets, with financial statements prepared under U.S. GAAP for interim reporting - The company serves high-growth end-user markets including consumer electronics, computing, communications, industrial, and automotive[29](index=29&type=chunk) - Key product categories include diodes, rectifiers, transistors, MOSFETs, power management devices, and solutions for high-speed signals[29](index=29&type=chunk) [Note 7: Segment Information and Net Sales](index=13&type=section&id=NOTE%207%20%E2%80%93%20Segment%20Information%20and%20Net%20Sales) The company operates as a single semiconductor segment, disaggregating net sales by geographic location and sales type, with Asia and distributor sales dominating Net Sales by Region (Three Months Ended June 30, in thousands) | Region | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Asia | $353,312 | $223,056 | | Europe | $54,056 | $43,145 | | Americas | $33,080 | $22,468 | | **Total** | **$440,448** | **$288,669** | Net Sales by Type (Three Months Ended June 30, in thousands) | Sales Type | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Direct sales | $151,048 | $92,671 | | Distributor sales | $289,400 | $195,998 | | **Total** | **$440,448** | **$288,669** | - Net sales from products shipped to China were **$229.3 million** for the three months ended June 30, 2021, a significant increase from **$152.4 million** in the same period of 2020[50](index=50&type=chunk) [Note 8: Debt](index=15&type=section&id=NOTE%208%20%E2%80%93%20Debt) The company utilizes short-term credit facilities in Asia and a long-term credit agreement, with total long-term debt, net of current portion, at **$222.7 million** as of June 30, 2021 - Asia subsidiaries have credit facilities totaling **$173.1 million**, with **$111.8 million** unused and available as of June 30, 2021[51](index=51&type=chunk) - The long-term credit facility includes a term loan with a balance of **$114.7 million** and an undrawn **$150.0 million** revolving facility as of June 30, 2021[52](index=52&type=chunk) Total Debt Summary (in thousands) | Debt Category | June 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | | :--- | :--- | :--- | | Short-term debt | $60,239 | $140,567 | | Total long-term debt | $243,311 | $312,247 | | **Total long-term debt, net of current portion** | **$222,712** | **$288,179** | [Note 14: Acquisitions and Divestitures](index=21&type=section&id=NOTE%2014%20%E2%80%93Acquisitions%20and%20Divestitures) Diodes agreed to sell a China manufacturing subsidiary for **$18.0 million** in March 2021, following the **$154.0 million** LSC acquisition in November 2020 and Savitech Corporation acquisition in February 2020 - An agreement was made in March 2021 to sell a manufacturing subsidiary in China for approximately **$18.0 million**, with net assets valued at **$16.5 million** classified as held-for-sale[78](index=78&type=chunk)[81](index=81&type=chunk) - The acquisition of LSC closed on November 30, 2020, for a total consideration of **$154.0 million** after adjustments, intended to add LSC's 'green' power-related semiconductor devices[82](index=82&type=chunk)[83](index=83&type=chunk) - The company acquired a controlling interest in Savitech Corporation in 2020 to increase its integrated circuit business, with a total purchase consideration of **$13.9 million**[88](index=88&type=chunk)[89](index=89&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 and H1 2021 financial results, attributing significant revenue and profitability growth to strong organic performance and the LSC acquisition, covering end-market performance, expenses, liquidity, and capital resources [Results of Operations for the Three Months Ended June 30, 2021 and 2020](index=25&type=section&id=Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20June%2030%2C%202021%20and%202020) Q2 2021 net sales increased **52.6%** to **$440.4 million**, driven by organic growth and the LSC acquisition, with gross profit margin improving to **36.3%** and net income more than doubling to **$55.4 million** Q2 2021 vs Q2 2020 Performance (in thousands) | Metric | Q2 2021 (in thousands) | Q2 2020 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $440,448 | $288,669 | 52.6% | | Gross Profit | $159,802 | $101,492 | 57.5% | | Operating Expense | $94,445 | $70,623 | 33.7% | | Net Income | $55,374 | $21,033 | 163.3% | - The **52.6%** increase in net sales was driven by **27.5%** organic growth from the legacy business and **25.1%** from the LSC acquisition[106](index=106&type=chunk) - Gross profit margin increased to **36.3%** in Q2 2021 from **35.2%** in Q2 2020, despite a **5.0%** increase in average unit cost due to price hikes from subcontractors and foundries[96](index=96&type=chunk)[112](index=112&type=chunk) Revenue by End-User Market (Q2) | End-User Market | % of Total Revenue 2021 | % of Total Revenue 2020 | | :--- | :--- | :--- | | Industrial | 22% | 22% | | Communications | 17% | 22% | | Consumer | 19% | 27% | | Computing | 30% | 19% | | Automotive | 12% | 10% | [Results of Operations for the Six Months Ended June 30, 2021 and 2020](index=27&type=section&id=Results%20of%20Operations%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202021%20and%202020) H1 2021 net sales grew **49.9%** to **$853.6 million**, driven by organic growth and LSC, with gross profit increasing **51.2%** to **$298.4 million** and operating income nearly doubling H1 2021 vs H1 2020 Performance (in thousands) | Metric | H1 2021 (in thousands) | H1 2020 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $853,569 | $569,386 | 49.9% | | Gross Profit | $298,438 | $197,334 | 51.2% | | Operating Expense | $185,691 | $140,613 | 32.1% | | Income Tax Provision | $21,554 | $9,226 | 133.6% | - The **49.9%** increase in net sales for H1 2021 was driven by **25.7%** organic growth and **24.2%** related to the LSC acquisition[118](index=118&type=chunk) Revenue by End-User Market (H1) | End-User Market | % of Total Revenue 2021 | % of Total Revenue 2020 | | :--- | :--- | :--- | | Industrial | 22% | 24% | | Communications | 17% | 23% | | Consumer | 19% | 25% | | Computing | 30% | 18% | | Automotive | 12% | 11% | [Financial Condition, Liquidity and Capital Resources](index=29&type=section&id=Financial%20Condition%2C%20Liquidity%20and%20Capital%20Resources) Primary liquidity sources are cash from operations and credit facilities, with working capital at **$582.3 million** as of June 30, 2021, and capital expenditures of **$53.7 million** for H1 2021 - Working capital increased to **$582.3 million** at June 30, 2021, from **$514.2 million** at December 31, 2020[130](index=130&type=chunk) - Capital expenditures were **$53.7 million** for the first six months of 2021, in line with the target range of **5% to 9%** of net sales[131](index=131&type=chunk) - Foreign subsidiaries held approximately **$213.6 million** of cash, cash equivalents, and investments as of June 30, 2021[132](index=132&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes to market risks were reported since the Annual Report on Form 10-K for the fiscal year ended December 31, 2020 - No material changes to market risks were reported since the last Annual Report on Form 10-K[163](index=163&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO affirmed the effectiveness of disclosure controls and procedures as of June 30, 2021, with no material changes in internal control over financial reporting during the quarter - Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures and found them to be effective as of June 30, 2021[164](index=164&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[166](index=166&type=chunk) [PART II – OTHER INFORMATION](index=37&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This section covers legal proceedings and risk factors, providing updates on the company's litigation status and potential risks [Item 1. Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) The company is not a party to any material pending litigation and does not anticipate adverse effects from routine legal proceedings on its financial position - The Company is not currently a party to any pending litigation that it considers material[169](index=169&type=chunk) [Item 1A. Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported since the Annual Report on Form 10-K, with key categories including business, international operations, and common stock risks - There have been no material changes to risk factors from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020[171](index=171&type=chunk) - Key risk categories include business risks (COVID-19 impact, industry cyclicality, competition), international operations risks (China operations, tariffs, foreign currency), and common stock risks (price volatility, anti-takeover provisions)[154](index=154&type=chunk)[157](index=157&type=chunk)[160](index=160&type=chunk)

Financial Data and Key Metrics Changes - Revenue for Q1 2021 was a record $413.1 million, an increase of 17.9% from $350.4 million in Q4 2020 [15] - Gross profit reached $138.6 million, representing 33.6% of revenue, compared to $122.7 million or 35% in Q4 2020 [16] - GAAP net income for Q1 2021 was $39.5 million or $0.87 per diluted share, up from $29.7 million or $0.59 per diluted share in Q4 2020 [19] - Non-GAAP adjusted net income was $42 million or $0.93 per diluted share, compared to $37.3 million or $0.74 per diluted share in Q4 2020 [20] - EBITDA for Q1 was $81.7 million or 19.8% of revenue, compared to $67.1 million or 19.1% in the prior quarter [22] - Cash flow from operations was $68.2 million, with free cash flow of $51 million [23] Business Line Data and Key Metrics Changes - Computing represented 30% of revenue, industrial 22%, consumer 19%, communication 17%, and automotive 12% [30] - Automotive revenue increased 18% sequentially and 61% year-over-year, driven by strong organic growth [31] - Industrial market revenue grew 13% sequentially and 25% year-over-year [36] - Computing market revenue increased 54% quarter-over-quarter and 160% year-over-year [41] Market Data and Key Metrics Changes - Asia accounted for 81% of revenue, Europe 12%, and North America 7% [30] - Distributor inventory decreased below the normal range of 11 to 14 weeks, indicating strong future demand [74] Company Strategy and Development Direction - The integration of LSC is progressing well, with facility loading reaching 70%, ahead of the original target of 50% [13][54] - The company aims to achieve $2.5 billion in revenue by 2025, focusing on content expansion and product mix improvement [68] - The strategy includes moving away from low-end commodity markets to higher-end technology products [62] Management's Comments on Operating Environment and Future Outlook - Management noted strong demand across all regions and segments, with a very strong book-to-bill ratio and backlog [71] - The company is not experiencing severe capacity constraints due to its internal manufacturing capabilities [56] - Management expects continued sequential growth in Q2 2021, with revenue guidance of approximately $434 million [26] Other Important Information - Total debt at the end of Q1 was $415 million, with cash and equivalents totaling approximately $339 million [24] - The company has begun to realize manufacturing synergies from the LSC acquisition, enhancing operational efficiency [12] Q&A Session Summary Question: Update on LSC integration and utilization rates - Management confirmed that LSC facility utilization has improved significantly and is expected to continue increasing in the coming quarters [49] Question: Impact of industry capacity constraints - Management indicated that while there are market constraints, the company has sufficient internal capacity to support growth [52][56] Question: Lead times and order dynamics - Management acknowledged that lead times are stretching but emphasized the importance of understanding true customer demand [60] Question: Competitive threats from local manufacturers - Management stated that new competitors from China primarily target low-end markets, which aligns with the company's strategy to focus on higher-end products [62] Question: Changes in manufacturing sourcing strategy - Management expressed a commitment to increasing internal manufacturing capacity while reducing reliance on external sources [66] Question: Backlog and order velocity - Management reported a strong backlog and healthy order velocity, indicating robust demand across all segments [72]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 Or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to . Commission file number: 002-25577 DIODES INCORPORATED (Exact name of registrant as specified in its charter) Delaware 95-2039518 (State or other jurisdiction of inc ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to | --- | --- | --- | |-----------------------------------------------------------------------------|------------------------------------------------------------------------ ...

Financial Data and Key Metrics Changes - The company achieved record revenue of $350.4 million in Q4 2020, a 13.2% increase on a consolidated basis and a 7.8% increase organically from $309.5 million in Q3 2020 [18] - Gross profit for Q4 was also a record at $122.7 million, with a gross margin of 35.0% on a consolidated basis [18] - GAAP net income for Q4 2020 was $29.7 million or $0.59 per diluted share, compared to $27.2 million or $0.51 per diluted share in Q3 2020 [21] - Non-GAAP adjusted net income for Q4 was $37.3 million or $0.74 per diluted share, compared to $32.8 million or $0.62 per diluted share in Q3 2020 [22] Business Line Data and Key Metrics Changes - Revenue from the automotive market grew 24% sequentially and 40% year-over-year, contributing to solid market share gains [11] - The computing segment represented 23% of revenue, with record quarterly revenue driven by Pericom products [33][45] - The industrial market saw an 18% sequential revenue increase, driven by applications in solar power inverters and smart metering systems [38] Market Data and Key Metrics Changes - In Q4, Asia accounted for 81% of revenue, Europe 11%, and North America 8% [31] - The automotive market represented 12% of total revenue, reflecting strong growth in connected driving and powertrain applications [34] - Distributor inventory weeks decreased, indicating a tightening supply chain, which is expected to normalize soon [32] Company Strategy and Development Direction - The company is focused on integrating Lite-On Semiconductor (LSC) to capitalize on synergies across end markets and product offerings [12][47] - There is an emphasis on expanding R&D to enhance product differentiation and market penetration, particularly in industrial and automotive segments [62][64] - The company aims to leverage its internal capacity and the acquisition of LSC to gain market share from competitors facing capacity constraints [51][54] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about continued growth, projecting Q1 2021 revenue to reach approximately $400 million, a 14% sequential increase [28] - The ongoing semiconductor supply shortage is seen as an opportunity for the company to strengthen its market position [52] - Management highlighted the importance of maintaining strong customer relationships and adapting to market dynamics to ensure long-term growth [70] Other Important Information - The company reported cash flow from operations of $60.8 million and free cash flow of $33.5 million for Q4 2020 [25] - Total inventory days decreased to approximately 114 days, indicating improved inventory management [26] - The company plans to ramp up production capacity in its Shanghai FAB and other facilities to meet growing demand [76] Q&A Session Summary Question: Timeline for sales synergies from Lite-On acquisition - Management indicated that product qualification at Lite-On's facilities is nearly complete, with expectations to ramp up production by the end of the year [49][50] Question: Benefits from Lite-On's underutilized manufacturing capacity - Management noted that the current semiconductor supply shortage benefits Diodes, allowing them to capture market share from competitors [52] Question: Visibility into second quarter and rest of the year - Management refrained from providing specific guidance beyond Q1 but indicated a positive outlook for 2021 [59] Question: Incremental R&D investment for Lite-On products - Management plans to increase R&D at Lite-On to match Diodes' levels and focus on introducing differentiated products [62][64] Question: Stickiness of new customer gains - Management believes that new opportunities created by market changes will lead to long-term customer relationships [70] Question: Gross margin expectations with increased utilization - Management expects gradual improvements in gross margins as LSC products are qualified and integrated [71][72]

Diodes Incorporated (NASDAQ:DIOD) Q3 2020 Earnings Conference Call November 9, 2020 5:00 PM ET Company Participants Leanne Sievers - President of Shelton Group, Investor Relations Keh-Shew Lu - Chairman, President & Chief Executive Officer Brett Whitmire - Chief Financial Officer Emily Yang - Vice President of Worldwide Sales & Marketing Conference Call Participants Gary Mobley - Wells Fargo Securities Shawn Harrison - Loop Capital Matt Ramsay - Cowen Tristan Gerra - Baird Operator Good afternoon, and welco ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 Or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to . Commission file number: 002-25577 DIODES INCORPORATED (Exact name of registrant as specified in its charter) Delaware 95-2039518 (State or other jurisdiction of ...

[PART I – FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This section details the company's financial statements, management's analysis, market risks, and internal controls [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section provides unaudited condensed consolidated financial statements and notes on accounting policies, key financial items [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The company's condensed consolidated balance sheets detail assets, liabilities, and equity at specific reporting dates Balance Sheet Summary | Metric | June 30, 2020 (Unaudited) ($ thousands) | December 31, 2019 ($ thousands) | | :--------------------------------------- | :-------------------------------------- | :------------------------------ | | **Assets** | | | | Cash and cash equivalents | $503,206 | $258,390 | | Total current assets | $1,126,485 | $809,959 | | Total assets | $1,937,163 | $1,639,384 | | **Liabilities** | | | | Total current liabilities | $325,335 | $285,322 | | Total liabilities | $741,536 | $486,601 | | **Equity** | | | | Total stockholders' equity | $1,143,385 | $1,106,424 | | Total equity | $1,195,627 | $1,152,783 | | Total liabilities and stockholders' equity | $1,937,163 | $1,639,384 | - Total assets increased by **$297.8 million (18.2%)** from December 31, 2019, to June 30, 2020, primarily driven by a significant increase in cash and cash equivalents[8](index=8&type=chunk) - Total liabilities increased by **$254.9 million (52.4%)** from December 31, 2019, to June 30, 2020, largely due to an increase in long-term debt[6](index=6&type=chunk) [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company's condensed consolidated statements of operations detail net sales, gross profit, and net income for the reporting periods Statements of Operations Summary | Metric | Three Months Ended June 30, 2020 ($ thousands) | Three Months Ended June 30, 2019 ($ thousands) | Six Months Ended June 30, 2020 ($ thousands) | Six Months Ended June 30, 2019 ($ thousands) | | :----------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net sales | $288,669 | $322,006 | $569,386 | $624,299 | | Gross profit | $101,492 | $121,988 | $197,334 | $234,399 | | Income from operations | $30,869 | $48,516 | $56,721 | $90,639 | | Net income attributable to common stockholders | $21,033 | $36,284 | $41,201 | $68,000 | | Basic EPS | $0.41 | $0.72 | $0.80 | $1.35 | | Diluted EPS | $0.40 | $0.70 | $0.78 | $1.32 | - Net sales decreased by **10.4%** for the three months ended June 30, 2020, and by **8.8%** for the six months ended June 30, 2020, compared to the respective prior year periods[13](index=13&type=chunk) - Diluted EPS decreased by **42.9%** for the three months ended June 30, 2020, and by **40.9%** for the six months ended June 30, 2020, compared to the respective prior year periods[13](index=13&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) The company's condensed consolidated statements of comprehensive income include net income and other comprehensive income components Statements of Comprehensive Income Summary | Metric | Three Months Ended June 30, 2020 ($ thousands) | Three Months Ended June 30, 2019 ($ thousands) | Six Months Ended June 30, 2020 ($ thousands) | Six Months Ended June 30, 2019 ($ thousands) | | :------------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net income | $21,388 | $36,703 | $41,788 | $68,439 | | Unrealized (loss) gain on defined benefit plan, net of tax | $(16,570) | $1,020 | $(6,851) | $(5,009) | | Unrealized gain (loss) on swaps and collars, net of tax | $817 | $503 | $(621) | $(3,406) | | Unrealized foreign currency gain (loss), net of tax | $6,733 | $(6,900) | $(2,881) | $(1,964) | | Total comprehensive income attributable to common stockholders | $12,013 | $30,907 | $30,848 | $57,621 | - Total comprehensive income attributable to common stockholders decreased significantly by **61.1%** for the three months ended June 30, 2020, and by **46.5%** for the six months ended June 30, 2020, primarily due to unrealized losses on defined benefit plans and foreign currency fluctuations[15](index=15&type=chunk) [Condensed Consolidated Statements of Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) The company's condensed consolidated statements of equity detail changes in common stock, retained earnings, and other equity components Statements of Equity Summary | Metric | June 30, 2020 ($ thousands) | December 31, 2019 ($ thousands) | | :------------------------------------------------------------------------------------------------- | :-------------------------- | :------------------------------ | | Common stock amount | $35,389 | $35,111 | | Additional paid-in capital | $433,989 | $427,262 | | Retained earnings | $831,159 | $789,958 | | Treasury stock at cost | $(38,660) | $(37,768) | | Accumulated other comprehensive loss | $(118,492) | $(108,139) | | Total Diodes Incorporated Stockholders' equity | $1,143,385 | $1,106,424 | | Noncontrolling interest | $52,242 | $46,359 | | Total equity | $1,195,627 | $1,152,783 | - Total stockholders' equity increased by **$36.96 million (3.3%)** from December 31, 2019, to June 30, 2020, driven by an increase in retained earnings and additional paid-in capital, partially offset by an increase in accumulated other comprehensive loss[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The company's condensed consolidated statements of cash flows categorize cash movements from operating, investing, and financing activities Statements of Cash Flows Summary | Metric | Six Months Ended June 30, 2020 ($ thousands) | Six Months Ended June 30, 2019 ($ thousands) | | :---------------------------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net cash flows provided by operating activities | $86,734 | $110,488 | | Net cash and cash equivalents used in investing activities | $(34,048) | $(82,517) | | Net cash and cash equivalents provided by (used in) financing activities | $241,784 | $(32,955) | | Net increase in cash and cash equivalents, including restricted cash | $295,114 | $(5,019) | | Cash and cash equivalents, end of period, including restricted cash | $554,621 | $236,814 | - Net cash provided by operating activities decreased by **$23.75 million (21.5%)** for the six months ended June 30, 2020, compared to the same period in 2019[21](index=21&type=chunk) - Net cash provided by financing activities significantly increased to **$241.8 million** in the first six months of 2020, compared to a net cash outflow of $33.0 million in the prior year, primarily due to increased debt facilities for the LSC acquisition[21](index=21&type=chunk)[136](index=136&type=chunk) [NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS](index=10&type=section&id=NOTES%20TO%20CONDENSED%20CONSOLIDATED%20FINANCIAL%20STATEMENTS) This section provides detailed notes explaining the significant accounting policies and specific financial statement line items [NOTE 1 – Summary of Operations and Significant Accounting Policies](index=10&type=section&id=NOTE%201%20%E2%80%93%20Summary%20of%20Operations%20and%20Significant%20Accounting%20Policies) This note outlines the company's business, significant accounting policies, and recent accounting pronouncement adoptions - **Diodes Incorporated (Nasdaq: DIOD)** is a global manufacturer and supplier of high-quality, application-specific standard products in the discrete, logic, analog, and mixed-signal semiconductor markets[28](index=28&type=chunk) - The company serves consumer electronics, computing, communications, industrial, and automotive markets with products including diodes, rectifiers, transistors, MOSFETs, and power management devices[28](index=28&type=chunk) - The company adopted ASU No. 2016-13 on January 1, 2020, regarding expected credit losses, which did not materially impact financial statements[33](index=33&type=chunk) - In Q2 2020, the company elected to apply hedge accounting expedients under ASU No. 2020-04 for reference rate reform, specifically for probability and effectiveness assessments of LIBOR-indexed cash flows[31](index=31&type=chunk) [NOTE 2 – Earnings per Share](index=11&type=section&id=NOTE%202%20%E2%80%93%20Earnings%20per%20Share) This note details the calculation of basic and diluted earnings per share, showing a decrease in EPS for the reporting periods Earnings per Share Data | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----------------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income attributable to common stockholders ($ thousands) | $21,033 | $36,284 | $41,201 | $68,000 | | Weighted average common shares outstanding (basic) (thousands) | 51,527 | 50,658 | 51,431 | 50,529 | | Adjusted weighted average common shares outstanding (diluted) (thousands) | 52,569 | 51,620 | 52,517 | 51,566 | | Basic EPS | $0.41 | $0.72 | $0.80 | $1.35 | | Diluted EPS | $0.40 | $0.70 | $0.78 | $1.32 | - Diluted EPS decreased by **42.9%** for the three months ended June 30, 2020 ($0.40 vs $0.70 in 2019)[35](index=35&type=chunk) - Diluted EPS decreased by **40.9%** for the six months ended June 30, 2020 ($0.78 vs $1.32 in 2019)[35](index=35&type=chunk) [NOTE 3 – Inventories](index=11&type=section&id=NOTE%203%20%E2%80%93%20Inventories) This note describes inventory valuation and presents the breakdown of finished goods, work-in-progress, and raw materials Inventory Breakdown | Inventory Category | June 30, 2020 ($ thousands) | December 31, 2019 ($ thousands) | | :----------------- | :-------------------------- | :------------------------------ | | Finished goods | $69,174 | $62,900 | | Work-in-progress | $53,457 | $55,082 | | Raw materials | $133,197 | $118,490 | | Total | $255,828 | $236,472 | - Total inventories increased by **$19.36 million (8.2%)** from December 31, 2019, to June 30, 2020[36](index=36&type=chunk) [NOTE 4 – Goodwill and Intangible Assets](index=11&type=section&id=NOTE%204%20%E2%80%93%20Goodwill%20and%20Intangible%20Assets) This note details changes in goodwill and intangible assets, including amortization expense, influenced by the Savitech acquisition Goodwill and Intangible Assets Data | Metric | June 30, 2020 ($ thousands) | December 31, 2019 ($ thousands) | | :-------------------------------- | :-------------------------- | :------------------------------ | | Goodwill | $152,140 | $141,318 | | Total intangible assets, net | $118,076 | $119,523 | | Amortization expense (3 months) | $4,021 | $4,536 | | Amortization expense (6 months) | $8,242 | $9,020 | - Goodwill increased by **$10.82 million (7.7%)** from December 31, 2019, to June 30, 2020, mainly due to the Savitech acquisition ($12.7 million)[37](index=37&type=chunk) - Amortization expense for intangible assets decreased by **11.4%** for the three months ended June 30, 2020, and by **8.6%** for the six months ended June 30, 2020, compared to the prior year periods[39](index=39&type=chunk) [NOTE 5 – Income Tax Provision](index=12&type=section&id=NOTE%205%20%E2%80%93%20Income%20Tax%20Provision) This note details the income tax provision and effective tax rates, which decreased due to lower non-U.S. withholding taxes Income Tax Provision and Effective Tax Rates | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax provision ($ thousands) | $4,670 | $11,174 | $9,226 | $21,472 | | Effective tax rate | 17.9% | 23.3% | 18.1% | 23.9% | | Impact of tax holidays on tax expense ($ thousands) | $(241) | $572 | $(1,315) | $849 | | Basic EPS impact of tax holidays | $0.01 | $(0.01) | $0.03 | $(0.02) | | Diluted EPS impact of tax holidays | $0.01 | $(0.01) | $0.03 | $(0.02) | - The effective tax rate decreased from **23.3% to 17.9%** for the three months ended June 30, 2020, and from **23.9% to 18.1%** for the six months ended June 30, 2020, primarily due to lower non-U.S. withholding taxes and favorable U.S. permanent differences[40](index=40&type=chunk) - The company does not expect the CARES Act to have a material impact on its financial statements[44](index=44&type=chunk) [NOTE 6 – Share-Based Compensation](index=13&type=section&id=NOTE%206%20%E2%80%93%20Share-Based%20Compensation) This note details share-based compensation expense, including restricted stock awards and the impact of a director's RSU modification Share-Based Compensation Expense | Expense Category | Three Months Ended June 30, 2020 ($ thousands) | Three Months Ended June 30, 2019 ($ thousands) | Six Months Ended June 30, 2020 ($ thousands) | Six Months Ended June 30, 2019 ($ thousands) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Cost of goods sold | $259 | $259 | $530 | $384 | | Selling, general and administrative | $4,309 | $4,309 | $10,426 | $7,946 | | Research and development | $730 | $730 | $1,438 | $1,445 | | Total share-based compensation expense | $5,298 | $5,298 | $12,394 | $9,775 | - Total share-based compensation expense increased by **26.8%** for the six months ended June 30, 2020, compared to the same period in 2019[45](index=45&type=chunk) - A modification to a director's unvested RSU grants in Q2 2020 resulted in an additional expense of approximately **$1.7 million**[45](index=45&type=chunk) - As of June 30, 2020, total unrecognized share-based compensation expense was approximately **$43.5 million**, to be recognized over a weighted average period of approximately 2.1 years[47](index=47&type=chunk) [NOTE 7 – Segment Information and Net Sales](index=13&type=section&id=NOTE%207%20%E2%80%93%20Segment%20Information%20and%20Net%20Sales) This note confirms the company's single operating segment and disaggregates net sales by region and customer type - The company operates in a single segment: standard semiconductor products[48](index=48&type=chunk) Net Sales by Region | Net Sales by Region | Three Months Ended June 30, 2020 ($ thousands) | Three Months Ended June 30, 2019 ($ thousands) | | :------------------ | :--------------------------------------------- | :--------------------------------------------- | | Asia | $223,056 | $239,082 | | Europe | $43,145 | $46,050 | | Americas | $22,468 | $36,874 | | Total net sales | $288,669 | $322,006 | Net Sales by Type | Net Sales by Type | Six Months Ended June 30, 2020 ($ thousands) | Six Months Ended June 30, 2019 ($ thousands) | | :---------------- | :------------------------------------------- | :------------------------------------------- | | Direct sales | $280,581 | $195,289 | | Distributor sales | $288,805 | $429,010 | | Total net sales | $569,386 | $624,299 | - Net sales from products shipped to China were **$152.4 million** for the three months ended June 30, 2020, a decrease from $160.3 million in the prior year[53](index=53&type=chunk) [NOTE 8 – Debt](index=15&type=section&id=NOTE%208%20%E2%80%93%20Debt) This note details the company's debt, including credit facilities and a significant increase in borrowing capacity for the LSC acquisition - Asia subsidiaries maintain **$165.5 million** in credit facilities, with $63.7 million outstanding and $101.4 million unused as of June 30, 2020[54](index=54&type=chunk) - A Second Amended and Restated Credit Agreement was entered into on May 29, 2020, increasing aggregate credit facilities to **$670 million** (from $500 million), including a **$340 million** acquisition draw term, **$180 million** initial term, and a **$150 million** revolver, all maturing May 29, 2023[55](index=55&type=chunk)[57](index=57&type=chunk) - The amendment resulted in a **$52.2 million** debt extinguishment and a **$0.7 million** loss on extinguishment and third-party fees[55](index=55&type=chunk) Debt Summary | Debt Type | June 30, 2020 ($ thousands) | December 31, 2019 ($ thousands) | | :--------------------------------------- | :-------------------------- | :------------------------------ | | Short-term debt | $63,668 | $13,342 | | Total long-term debt | $297,958 | $98,641 | | Less: Current portion of long-term debt | $(13,052) | $(33,105) | | Less: Unamortized debt costs | $(2,635) | $(1,135) | | Total long-term debt, net of current portion | $282,271 | $64,401 | [NOTE 9 – Commitments and Contingencies](index=16&type=section&id=NOTE%209%20%E2%80%93%20Commitments%20and%20Contingencies) This note outlines commitments for capital expenditures, wafer purchases, UK defined benefit plan liability, and legal proceedings - As of June 30, 2020, the company had **$26.8 million** in non-cancelable capital expenditure purchase contracts and a **$29.8 million** commitment for wafer purchases[61](index=61&type=chunk) - The unfunded liability for the UK defined benefit plan was approximately **$28.7 million** as of June 30, 2020[62](index=62&type=chunk) - Annual contributions of **GBP 2.0 million (approximately $2.4 million)** are scheduled from April 1, 2020, to eliminate the defined benefit plan deficit by December 31, 2028[64](index=64&type=chunk) - The company is not currently a party to any pending litigation considered material[65](index=65&type=chunk) [NOTE 10 – Derivative Financial Instruments](index=17&type=section&id=NOTE%2010%20%E2%80%93%20Derivative%20Financial%20Instruments) This note details the company's use of derivative instruments, including foreign currency forwards and interest rate swaps, to manage market risks - The company uses foreign currency forward agreements, interest rate swaps, and interest rate collars to manage foreign currency and interest rate risks[66](index=66&type=chunk)[67](index=67&type=chunk)[68](index=68&type=chunk) - As of June 30, 2020, **$93.0 million** in foreign currency forward contracts were outstanding, not designated for hedge accounting[67](index=67&type=chunk) Derivative Financial Instruments Impact | Derivative Type | Three Months Ended June 30, 2020 (Gain/Loss in OCI) ($ thousands) | Three Months Ended June 30, 2020 (Reclassified to Income) ($ thousands) | Six Months Ended June 30, 2020 (Gain/Loss in OCI) ($ thousands) | Six Months Ended June 30, 2020 (Reclassified to Income) ($ thousands) | | :-------------------------- | :---------------------------------------------------------------- | :---------------------------------------------------------------------- | :-------------------------------------------------------------- | :---------------------------------------------------------------------- | | Interest rate swaps and collars | $(180) | $(2) (Interest expense) | $(1,571) | $(73) (Interest expense) | | Cross currency swaps | $0 | $0 | $0 | $0 | | Foreign currency forward contracts (not designated) | N/A | $(391) (Foreign currency loss, net) | N/A | $(2,538) (Foreign currency loss, net) | - An estimated **$0.6 million** of net derivative gains in AOCI as of June 30, 2020, are expected to be reclassified into expense within the next 12 months[70](index=70&type=chunk) [NOTE 11 – Leases](index=19&type=section&id=NOTE%2011%20%E2%80%93%20Leases) This note details the company's lease arrangements for land, buildings, and equipment, including expenses, ROU assets, and liabilities Lease Expense Summary | Lease Expense Category | Three Months Ended June 30, 2020 ($ thousands) | Three Months Ended June 30, 2019 ($ thousands) | Six Months Ended June 30, 2020 ($ thousands) | Six Months Ended June 30, 2019 ($ thousands) | | :--------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Operating lease expense | $3,669 | $3,773 | $7,399 | $7,477 | | Finance lease expense (amortization) | $209 | $245 | $418 | $489 | | Finance lease expense (interest) | $6 | $13 | $13 | $28 | | Short-term lease expense | $122 | $98 | $216 | $134 | | Variable lease expense | $738 | $802 | $1,449 | $1,420 | | Total lease expense | $4,744 | $4,931 | $9,495 | $9,548 | Lease Balance Sheet Items | Balance Sheet Item | June 30, 2020 ($ thousands) | December 31, 2019 ($ thousands) | | :----------------------------------- | :-------------------------- | :------------------------------ | | Operating lease ROU assets | $51,739 | $57,427 | | Total operating lease liabilities | $34,350 | $40,099 | | Finance lease ROU assets, net | $627 | $1,472 | | Total finance lease liabilities | $593 | $1,041 | - Weighted average remaining lease term for operating leases is 4.2 years (4.4 years at Dec 31, 2019), and for finance leases is 0.8 years (1.3 years at Dec 31, 2019)[74](index=74&type=chunk) [NOTE 12 – Employee Benefit Plans](index=20&type=section&id=NOTE%2012%20%E2%80%93%20Employee%20Benefit%20Plans) This note describes the company's Non-Qualified Deferred Compensation Plan for executives and board members, with obligations offset by investments - The company maintains a Non-Qualified Deferred Compensation Plan for executive officers, key employees, and Board of Directors members[77](index=77&type=chunk) - Investments offsetting plan obligations totaled approximately **$11.2 million** as of June 30, 2020, down from $12.9 million at December 31, 2019[77](index=77&type=chunk) [NOTE 13 – Related Parties](index=20&type=section&id=NOTE%2013%20%E2%80%93%20Related%20Parties) This note details transactions with related parties, including LSC, Nuvoton, and Keylink, and the ongoing acquisition of LSC - LSC is the company's largest stockholder, owning approximately **15%** of outstanding Common Stock as of June 30, 2020[78](index=78&type=chunk) - The acquisition of LSC for approximately **$444.4 million** is anticipated to close in the second half of 2020, pending regulatory approval in China[78](index=78&type=chunk) Related Party Transactions (Sales and Purchases) | Related Party | Transaction Type | Three Months Ended June 30, 2020 ($ thousands) | Six Months Ended June 30, 2020 ($ thousands) | | :------------ | :--------------- | :--------------------------------------------- | :------------------------------------------- | | LSC | Net sales | $171 | $299 | | LSC | Purchases | $3,806 | $6,554 | | Nuvoton | Purchases | $2,011 | $3,655 | | Keylink | Net sales | $4,975 | $8,960 | | Keylink | Purchases | $426 | $831 | | JCP | Purchases | $291 | $447 | Related Party Balances (Accounts Receivable and Payable) | Related Party | Balance Sheet Item | June 30, 2020 ($ thousands) | December 31, 2019 ($ thousands) | | :------------ | :----------------- | :-------------------------- | :------------------------------ | | LSC | Accounts receivable | $171 | $184 | | LSC | Accounts payable | $2,799 | $2,154 | | Nuvoton | Accounts payable | $1,071 | $1,055 | | Keylink | Accounts receivable | $36,960 | $31,598 | | Keylink | Accounts payable | $32,029 | $28,244 | | JCP | Accounts payable | $326 | $173 | [NOTE 14 – Acquisitions](index=21&type=section&id=NOTE%2014%20%E2%80%93%20Acquisitions) This note details recent acquisitions, including Savitech Corporation and the GFAB wafer fabrication facility, and their impact on goodwill - On February 5, 2020, the company agreed to acquire at least **51%** of Savitech Corporation for up to approximately **$14.2 million**[83](index=83&type=chunk) - The first tranche of **$5.6 million** for Savitech, providing **33.6%** ownership, was completed on March 4, 2020[83](index=83&type=chunk) - Total purchase consideration recorded for Savitech was **$13.9 million**, including **$12.7 million** in goodwill[85](index=85&type=chunk)[86](index=86&type=chunk) - On April 1, 2019, the company acquired a wafer fabrication facility (GFAB) in Greenock, Scotland, for **$33.2 million**, recording **$0.9 million** in goodwill[87](index=87&type=chunk)[88](index=88&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes financial condition and results of operations, highlighting impacts from global slowdown, COVID-19, and the LSC acquisition [Overview](index=23&type=section&id=Overview) This overview introduces Diodes Incorporated as a global semiconductor manufacturer and highlights its competitive advantages - Diodes Incorporated is a leading global manufacturer and supplier of high-quality, application-specific standard products in the discrete, logic, analog, and mixed-signal semiconductor markets[92](index=92&type=chunk) - The company's focus on innovative packaging, cost-effective process technologies, and customer-focused product development provides a competitive advantage[92](index=92&type=chunk) [Factors Relevant to Our Results of Operations for the Three Months Ended June 30, 2020](index=23&type=section&id=Factors%20Relevant%20to%20Our%20Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20June%2030%2C%202020) This section discusses key factors influencing operating results for Q2 2020, including sales, profit, and EPS trends Key Operating Metrics | Metric | Q2 2020 ($ millions) | Q2 2019 ($ millions) | Q1 2020 ($ millions) | | :------------------- | :------------------- | :------------------- | :------------------- | | Net sales | $288.7 | $322.0 | $280.7 | | Gross profit | $101.5 | $122.0 | $95.8 | | Gross profit margin | 35.2% | 37.9% | 34.1% | | Net income | $21.0 | $36.3 | $20.2 | | Diluted EPS | $0.40 | $0.70 | $0.38 | | Cash flow from operations | $33.1 | N/A | N/A | | Net cash flow | $283.7 | N/A | N/A | - Net sales decreased by **10.3% YoY** but increased by **2.8% QoQ**[93](index=93&type=chunk) - Net income decreased by **42.1% YoY** but increased by **4.0% QoQ**[93](index=93&type=chunk) - The company benefited from growth in the computing market and serial-connectivity products despite overall net sales decrease[104](index=104&type=chunk) [Recent Developments](index=24&type=section&id=Recent%20Developments) This section highlights recent significant developments, including the LSC acquisition and the company's response to the COVID-19 pandemic [LSC Acquisition](index=24&type=section&id=LSC%20Acquisition) This section details the ongoing acquisition of Lite-On Semiconductor Corporation (LSC), including its status, consideration, and related financing - The acquisition of Lite-On Semiconductor Corporation (LSC) is expected to be completed in the second half of 2020, pending regulatory approval in China[95](index=95&type=chunk) - The aggregate consideration for LSC is approximately **$444.4 million**, subject to Taiwan dollar to US dollar exchange rate fluctuations at closing[95](index=95&type=chunk) - A **$200.0 million** draw-down under the new credit agreement was made as a partial currency hedge for the LSC acquisition[95](index=95&type=chunk) [COVID-19](index=24&type=section&id=COVID-19) This section discusses the impact of the COVID-19 pandemic on operations, including temporary facility closures and the company's liquidity - The duration and severity of COVID-19's effects on the business, financial condition, and results of operations are currently unknown[97](index=97&type=chunk) - Manufacturing facilities in China and the United Kingdom experienced temporary closures but have since resumed full production[98](index=98&type=chunk) - As of June 30, 2020, the company had **$506.9 million** in cash, cash equivalents, and short-term investments, plus **$150 million** in available revolving credit, providing adequate liquidity for at least 12 months[99](index=99&type=chunk) [Results of Operations for the Three Months Ended June 30, 2020 and 2019](index=25&type=section&id=Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20June%2030%2C%202020%20and%202019) This section analyzes operating results for Q2 2020, highlighting decreases in net sales, gross profit, and changes in expenses Q2 Operating Results as Percentage of Net Sales | Metric | Q2 2020 (% of Net Sales) | Q2 2019 (% of Net Sales) | | :----------------------------------------- | :----------------------- | :----------------------- | | Net sales | 100% | 100% | | Cost of goods sold | (65)% | (62)% | | Gross profit | 35% | 38% | | Total operating expense | 24% | 23% | | Income from operations | 11% | 15% | | Net income attributable to common stockholders | 7% | 12% | Q2 Operating Results Comparison | Metric | Q2 2020 ($ thousands) | Q2 2019 ($ thousands) | Change ($ thousands) | % Change | | :------------------------- | :-------------------- | :-------------------- | :------------------- | :------- | | Net sales | $288,669 | $322,006 | $(33,337) | (10.4%) | | Gross profit | $101,492 | $121,988 | $(20,496) | (16.8%) | | Total operating expense | $70,623 | $73,472 | $(2,849) | (3.9%) | | Interest income | $168 | $633 | $(465) | (73.5%) | | Interest expense | $(2,653) | $(2,011) | $642 | 31.9% | | Foreign currency loss, net | $(3,600) | $(496) | $3,104 | 625.8% | | Income tax provision | $4,670 | $11,174 | $(6,504) | (58.2%) | Q2 End-User Market Revenue Distribution | End-User Market | Q2 2020 (% of Total Revenue) | Q2 2019 (% of Total Revenue) | | :---------------- | :--------------------------- | :--------------------------- | | Industrial | 22.0% | 29.0% | | Communications | 22.0% | 23.0% | | Consumer | 27.0% | 22.0% | | Computing | 19.0% | 16.0% | | Automotive | 10.0% | 10.0% | - Gross profit margin decreased from **37.9% to 35.2%** due to decreased net sales and increased unit costs from lower manufacturing capacity utilization[107](index=107&type=chunk) [Results of Operations for the Six Months Ended June 30, 2020 and 2019](index=26&type=section&id=Results%20of%20Operations%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202020%20and%202019) This section analyzes operating results for H1 2020, detailing decreases in net sales, gross profit, and shifts in expenses H1 Operating Results as Percentage of Net Sales | Metric | H1 2020 (% of Net Sales) | H1 2019 (% of Net Sales) | | :----------------------------------------- | :----------------------- | :----------------------- | | Net sales | 100% | 100% | | Cost of goods sold | (65)% | (62)% | | Gross profit | 35% | 38% | | Total operating expense | 25% | 23% | | Income from operations | 10% | 15% | | Net income attributable to common stockholders | 7% | 12% | H1 Operating Results Comparison | Metric | H1 2020 ($ thousands) | H1 2019 ($ thousands) | Change ($ thousands) | % Change | | :------------------------- | :-------------------- | :-------------------- | :------------------- | :------- | | Net sales | $569,386 | $624,299 | $(54,913) | (8.8%) | | Gross profit | $197,334 | $234,399 | $(37,065) | (15.8%) | | Total operating expense | $140,613 | $143,760 | $(3,147) | (2.2%) | | Interest income | $441 | $1,508 | $(1,067) | (70.8%) | | Interest expense | $(3,898) | $(4,156) | $(258) | (6.2%) | | Foreign currency loss, net | $(3,525) | $(560) | $2,965 | 529.5% | | Income tax provision | $9,226 | $21,472 | $(12,246) | (57.0%) | H1 End-User Market Revenue Distribution | End-User Market | H1 2020 (% of Total Revenue) | H1 2019 (% of Total Revenue) | | :---------------- | :--------------------------- | :--------------------------- | | Industrial | 24.0% | 29.0% | | Communications | 22.5% | 23.0% | | Consumer | 25.0% | 22.5% | | Computing | 18.0% | 15.5% | | Automotive | 10.5% | 10.0% | - Average unit cost increased approximately **7.1%** for the six months ended June 30, 2020, partly due to manufacturing facility shutdowns during the extended Chinese New Year period[115](index=115&type=chunk) [Financial Condition](index=27&type=section&id=Financial%20Condition) This section assesses the company's financial condition, focusing on liquidity, capital resources, cash flow, and derivative instrument usage [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) This section details liquidity sources, working capital, capital expenditures, and foreign cash holdings - Primary liquidity sources are cash and cash equivalents, funds from operations, and credit facilities[119](index=119&type=chunk) - Working capital increased to **$801.2 million** at June 30, 2020, from $524.6 million at December 31, 2019[127](index=127&type=chunk) - A **$200.0 million** draw-down under the new credit agreement was made as a partial currency hedge for the anticipated LSC acquisition[127](index=127&type=chunk) - Capital expenditures for the first six months of 2020 were **$28.3 million**, approximately **5.0%** of net sales, aligning with the target range of 5% to 9%[128](index=128&type=chunk) - Foreign subsidiaries held approximately **$469.5 million** in cash, cash equivalents, and investments as of June 30, 2020, with **$9.7 million** potentially subject to non-U.S. withholding tax if distributed[129](index=129&type=chunk) [Discussion of Cash Flow](index=29&type=section&id=Discussion%20of%20Cash%20Flow) This section analyzes cash flow movements from operating, investing, and financing activities, highlighting the impact of LSC acquisition financing - Cash and cash equivalents increased from **$258.4 million to $503.2 million** at June 30, 2020, reflecting funds for the LSC acquisition[131](index=131&type=chunk) Cash Flow Summary | Cash Flow Activity | Six Months Ended June 30, 2020 ($ thousands) | Six Months Ended June 30, 2019 ($ thousands) | Change ($ thousands) | | :---------------------------------------------------------------- | :------------------------------------------- | :------------------------------------------- | :------------------- | | Net cash flows provided by operating activities | $86,734 | $110,488 | $(23,754) | | Net cash and cash equivalents used in investing activities | $(34,048) | $(82,517) | $48,469 | | Net cash and cash equivalents provided by (used in) financing activities | $241,784 | $(32,955) | $274,739 | | Net increase in cash and cash equivalents, including restricted cash | $295,114 | $(5,019) | $300,133 | - Net cash used in investing activities decreased by **$48.47 million**, primarily due to lower purchases of property, plant, and equipment and the absence of a large acquisition like GFAB in 2019[135](index=135&type=chunk) [Use of Derivative Instruments and Hedging](index=30&type=section&id=Use%20of%20Derivative%20Instruments%20and%20Hedging) This section describes the company's use of derivative instruments to manage interest rate and foreign exchange risks - The company uses interest rate swaps, foreign exchange forward contracts, and cross-currency swaps to manage interest rate and foreign exchange exposure[137](index=137&type=chunk) - Interest rate derivatives, primarily swaps and collars, are used to stabilize interest expense and manage interest rate movements[138](index=138&type=chunk) - Foreign currency forward agreements are used to preserve the economic value of foreign currency denominated monetary assets and liabilities but are not designated for hedge accounting[139](index=139&type=chunk) [Off-Balance Sheet Arrangements](index=30&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of any material off-balance sheet arrangements that would significantly impact liquidity or capital resources - The company does not have any transactions, arrangements, or relationships with unconsolidated entities that affect liquidity or capital resources[140](index=140&type=chunk) - No special purpose entities are used for off-balance sheet financing, liquidity, or market/credit risk support[140](index=140&type=chunk) [Contractual Obligations](index=31&type=section&id=Contractual%20Obligations) No material changes to contractual obligations have occurred since the Annual Report on Form 10-K for FY2019 - No material changes to contractual obligations have occurred since the Annual Report on Form 10-K for FY2019[142](index=142&type=chunk) [Critical Accounting Policies](index=31&type=section&id=Critical%20Accounting%20Policies) This section confirms consistency of critical accounting policies with prior reports and refers to Note 1 for new pronouncements - Critical accounting policies are consistent with those disclosed in the FY2019 Annual Report on Form 10-K[143](index=143&type=chunk) - New or updated accounting policies are discussed in Note 1 – Summary of Operations and Significant Accounting Policies[143](index=143&type=chunk)[144](index=144&type=chunk) [Recently Issued Accounting Pronouncements](index=31&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) Details on recently issued accounting pronouncements are available in Note 1 – Summary of Operations and Significant Accounting Policies - Details on recently issued accounting pronouncements are available in Note 1 – Summary of Operations and Significant Accounting Policies[144](index=144&type=chunk) [Available Information](index=31&type=section&id=Available%20Information) This section informs stakeholders about the availability of SEC filings and investor information on the company's website - SEC filings (10-K, 10-Q, 8-K, proxy statements) are available free of charge on the company's website (www.diodes.com)[145](index=145&type=chunk) [Cautionary Statement for Purposes of the "Safe Harbor" Provision of the Private Securities Litigation Reform Act of 1995](index=31&type=section&id=Cautionary%20Statement%20for%20Purposes%20of%20the%20%22Safe%20Harbor%22%20Provision%20of%20the%20Private%20Securities%20Litigation%20Reform%20Act%20of%201995) This section provides a cautionary statement regarding forward-looking statements, emphasizing inherent risks and non-obligation to update - The report contains forward-looking statements, identified by specific terminology, subject to risks and uncertainties that could cause actual results to differ materially[146](index=146&type=chunk) - All forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (PSLRA)[146](index=146&type=chunk) - The company undertakes no obligation to update forward-looking statements to reflect subsequent events or circumstances[148](index=148&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes to market risks have occurred since the Annual Report on Form 10-K for FY2019 - No material changes to market risks have occurred since the Annual Report on Form 10-K for FY2019[193](index=193&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of disclosure controls and procedures and reports no material changes in internal control - As of June 30, 2020, disclosure controls and procedures were deemed effective at a reasonable assurance level[194](index=194&type=chunk) - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2020[196](index=196&type=chunk) [PART II – OTHER INFORMATION](index=37&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This part covers other essential information, including legal proceedings, risk factors, equity sales, defaults, and exhibits [Item 1. Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) This section confirms the absence of material pending litigation and management's assessment of routine legal proceedings - The company is not a party to any pending litigation considered material[199](index=199&type=chunk) - Management believes the ultimate outcome of any pending legal proceeding will not have a material adverse effect on financial position, cash flows, or operating results[200](index=200&type=chunk) [Item 1A. Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) This section details various risk factors, including the uncertain impact of COVID-19, global economic conditions, and operational challenges - The ultimate impact of the COVID-19 pandemic cannot be estimated but may have a **material adverse effect** on the business, financial condition, and results of operations[202](index=202&type=chunk)[205](index=205&type=chunk) - Risks include changes in ordering patterns, demand for products, efficiency losses due to travel limitations, and potential increases in IT spending or healthcare costs[205](index=205&type=chunk)[207](index=207&type=chunk) - Disruptions to suppliers and customers due to quarantines, worker absenteeism, and social distancing measures could adversely impact the business[208](index=208&type=chunk) [RISKS RELATED TO OUR BUSINESS](index=32&type=section&id=RISKS%20RELATED%20TO%20OUR%20BUSINESS) This section outlines business-specific risks, including economic dependency, industry cyclicality, competition, production disruptions, and personnel - Success depends on global economy and financial market stability; weaknesses can adversely affect net sales, operating results, and financial condition[150](index=150&type=chunk) - Downturns in the highly cyclical semiconductor industry or changes in end-market demand could adversely affect operating results and financial condition[151](index=151&type=chunk) - The semiconductor business is highly competitive, and increased competition may harm business, operating results, and financial condition[151](index=151&type=chunk) - Production disruptions at manufacturing facilities due to natural disasters or technical malfunctions could prevent meeting customer demands[155](index=155&type=chunk) - Failure to attract or retain qualified personnel could adversely affect business, operating results, and financial condition[164](index=164&type=chunk) [RISKS RELATED TO OUR INTERNATIONAL OPERATIONS](index=34&type=section&id=RISKS%20RELATED%20TO%20OUR%20INTERNATIONAL%20OPERATIONS) This section details risks associated with international operations, including governmental policies, trade restrictions, Brexit, and foreign currency - International operations, particularly in China, the U.K., Germany, Hong Kong, and Taiwan, expose the company to inherent risks in those jurisdictions[178](index=178&type=chunk) - Uncertainties related to changes in governmental policies, international trading partnerships, or economic unions could have a material adverse effect[179](index=179&type=chunk) - Tariffs or other restrictions imposed by the United States Trade Representative may disrupt operations and impact profitability[180](index=180&type=chunk) - The U.K.'s exit from the European Union (Brexit) continues to have uncertain effects and could adversely impact business[181](index=181&type=chunk) - A slowdown in the Chinese economy could limit demand for electronic devices containing products, materially affecting business[181](index=181&type=chunk) - The company is subject to foreign currency risk as a result of its international operations[183](index=183&type=chunk) [RISKS RELATED TO OUR COMMON STOCK](index=35&type=section&id=RISKS%20RELATED%20TO%20OUR%20COMMON%20STOCK) This section addresses risks related to the company's common stock, including price volatility, acquisition impacts, and anti-takeover provisions - Variations in quarterly operating results may cause stock price volatility[187](index=187&type=chunk) - Future acquisitions and related actions could adversely affect the price of Common Stock[187](index=187&type=chunk) - Directors, executive officers, and significant stockholders hold a substantial portion of Common Stock, potentially leading to conflicts with other stockholders[187](index=187&type=chunk) - Anti-takeover provisions in Delaware law and the company's Certificate of Incorporation and Bylaws may hinder takeover attempts[189](index=189&type=chunk)[190](index=190&type=chunk)[191](index=191&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds to report[210](index=210&type=chunk) [Item 3. Defaults Upon Senior Securities](index=38&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities to report for the period - No defaults upon senior securities to report[212](index=212&type=chunk) [Item 4. Mine Safety Disclosures](index=38&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine Safety Disclosures are not applicable to the company - Mine Safety Disclosures are not applicable to the company[212](index=212&type=chunk) [Item 5. Other Information](index=38&type=section&id=Item%205.%20Other%20Information) No other information to report for the period - No other information to report[212](index=212&type=chunk) [Item 6. Exhibits](index=39&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Quarterly Report, including corporate governance documents, credit agreements, and certifications - Exhibits include corporate governance documents (Certificate of Incorporation, By-laws), credit agreements, and Sarbanes-Oxley Act certifications[214](index=214&type=chunk)[215](index=215&type=chunk) - Inline XBRL documents are provided for interactive data filing[215](index=215&type=chunk)[216](index=216&type=chunk) - A cautionary note advises against relying solely on representations and warranties in exhibits, as they may be subject to contractual materiality standards and risk allocation[217](index=217&type=chunk) [SIGNATURES](index=40&type=section&id=SIGNATURES) This section confirms the official signing of the Quarterly Report on Form 10-Q by the Principal Executive and Financial Officers - The report was signed by Keh-Shew Lu, President and CEO, and Brett R. Whitmire, CFO, on August 6, 2020[220](index=220&type=chunk)