Diodes(DIOD) - 2021 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION 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 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 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] - Key product categories include diodes, rectifiers, transistors, MOSFETs, power management devices, and solutions for high-speed signals[29] Note 7: Segment Information and Net Sales 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] Note 8: Debt 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] - 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] 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 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][81] - 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][83] - 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][89] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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][112] 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 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] 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 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] - 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] - Foreign subsidiaries held approximately $213.6 million of cash, cash equivalents, and investments as of June 30, 2021[132] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] Item 4. Controls and Procedures 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] - 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] PART II – OTHER INFORMATION This section covers legal proceedings and risk factors, providing updates on the company's litigation status and potential risks Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] - 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][157][160]