Diodes Incorporated Reports Fourth Quarter and Fiscal 2018 Financial Results

The Company adjusts United States generally accepted accounting principles (“GAAP”) net income and earnings per share attributable to common stockholders to provide investors a better depiction of the Company’s operating results, allow for a more accurate comparison between the Company’s current and historical operating results and provide a baseline for more informed modeling of future earnings. The Company makes adjustments for inventory acquired, transaction costs, retention costs, amortization of acquisition-related intangible assets and restructuring costs. The Company also excludes these items to evaluate the Company’s operating performance, develop budgets, determine incentive compensation awards and manage cash expenditure. The presentation of the above non-GAAP measures allows investors to review the Company’s results of operations from the same viewpoint as the Company’s management and Board of Directors. The Company has historically provided similar non-GAAP financial measures to provide investors an enhanced understanding of its operations, facilitate investors’ analyses and comparisons of its current and past results of operations and provide insight into the prospects of its future performance. The Company also believes the non-GAAP measures are useful to investors because they provide additional information that research analysts use to evaluate semiconductor companies. These non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results and may differ from measures used by other companies. For example, we do not adjust for any amounts attributable to noncontrolling interest except for one-time non-cash items outside the course of ordinary business, such as impairment of goodwill . The Company recommends a review of net income on both a GAAP basis and non-GAAP basis be performed to get a comprehensive view of the Company’s results and provides a reconciliation of GAAP net income to non-GAAP adjusted net income.

Detail of non-GAAP adjustments

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

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

Impairment of fixed assets - The Company has recorded impairment charges related to the shutdown and relocation of KFAB. These impairment charges are excluded from management’s assessment of the Company’s operating performance. The Company believes the exclusion of the impairment charges provides investors with a more accurate reflection of the continuing operations of the Company and facilitates comparisons with the results of other periods which may not reflect such costs.

Tax Cuts and Job Act – The Company has recorded increased tax expense related to the Tax Cuts and Job Act (“TCJA”) law that was enacted during December 2017. The TCJA expense has been excluded from management’s assessment of the Company’s current period operating performance in order to facilitate comparisons with previously presented periods that do not reflect such expense.

CASH FLOW ITEMS

Free cash flow (FCF) (Non-GAAP)

FCF for the fourth quarter of 2018 is a non-GAAP financial measure, which is calculated by subtracting capital expenditures from cash flow from operations. For the fourth quarter of 2018, FCF was $46.3 million, which represents the cash and cash equivalents that we are able to generate after taking into account cash outlays required to maintain or expand property, plant and equipment. FCF is important because it allows us to pursue opportunities to develop new products, make acquisitions and reduce debt.

CONSOLIDATED RECONCILIATION OF NET INCOME TO EBITDA

EBITDA represents earnings before net interest expense, income tax provision, depreciation and amortization. Management believes EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties, such as financial institutions in extending credit, in evaluating companies in our industry and provides further clarity on our profitability. In addition, management uses EBITDA, along with other GAAP and non-GAAP measures, in evaluating our operating performance compared to that of other companies in our industry. The calculation of EBITDA generally eliminates the effects of financing, operating in different income tax jurisdictions, and accounting effects of capital spending, including the impact of our asset base, which can differ depending on the book value of assets and the accounting methods used to compute depreciation and amortization expense. EBITDA is not a recognized measurement under GAAP, and when analyzing our operating performance, investors should use EBITDA in addition to, and not as an alternative for, income from operations and net income, each as determined in accordance with GAAP. Because not all companies use identical calculations, our presentation of EBITDA may not be comparable to similarly titled measures used by other companies. For example, our EBITDA takes into account all net interest expense, income tax provision, depreciation and amortization without taking into account any amounts attributable to noncontrolling interest . Furthermore, EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as tax and debt service payments.

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

    Three Months Ended   Twelve Months Ended
    December 31,   December 31,
      2018     2017       2018     2017  
Net income (per-GAAP)   $ 29,519   $ (30,651 )   $ 104,021   $ (1,805 )
Plus:                
Interest expense, net     1,735     2,472       7,923     11,973  
Income tax provision     12,830     50,674       44,556     62,325  
Depreciation and amortization     26,424     24,485       104,642     95,680  
EBITDA (non-GAAP)   $ 70,508   $ 46,980     $ 261,142   $ 168,173  
         
DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS

(in thousands)

         
    December 31,   December 31,
      2018       2017  
    (unaudited)   (audited)
CURRENT ASSETS        
Cash and cash equivalents   $ 241,053     $ 203,820  
Short-term investments     7,499       4,558  
Accounts receivable, net     228,405       200,112  
Inventories     215,435       216,506  
Prepaid expenses and other     42,446       37,328  
Total current assets     734,838       662,324  
         
PROPERTY, PLANT AND EQUIPMENT, net     446,835       459,169  
         
DEFERRED INCOME TAXES     31,652       40,580  
         
OTHER ASSETS        
Goodwill     132,437       134,187  
Intangible assets, net     137,935       156,445  
Other     42,674       35,968  
Total assets   $ 1,526,371     $ 1,488,673  
         
         
CURRENT LIABILITIES        
Line of Credit   $ 10,254     $ 1,008  
Accounts payable     117,808       108,001  
Accrued liabilities and other     82,605       99,301  
Income tax payable     15,744       18,216  
Current portion of long-term debt     27,613       20,636  
Total current liabilities     254,024       247,162  
         
LONG-TERM DEBT, net of current portion     186,143       247,492  
DEFERRED TAX LIABILITIES - non current     17,993       25,176  
OTHER LONG-TERM LIABILITIES     90,779       94,925  
Total liabilities     548,939       614,755  
         
COMMITMENTS AND CONTINGENCIES        
         
EQUITY        
Diodes Incorporated stockholders' equity        
Preferred stock - par value $1.00 per share; 1,000,000 shares authorized; no shares issued or outstanding          
Common stock - par value $0.66 2/3 per share; 70,000,000 shares authorized; 50,221,035 and 49,130,090, issued and outstanding at December 31, 2018 and December 31, 2017, respectively   34,454       33,727  
Additional paid-in capital     399,915       386,338  
Retained earnings     636,708       532,687  
Treasury stock, at cost, 1,457,206 shares held at December 31, 2018 and December 31,2017   (37,768 )     (37,768 )
Accumulated other comprehensive loss     (101,846 )     (83,480 )
Total Diodes Incorporated stockholders' equity     931,463       831,504  
Noncontrolling interest     45,969       42,414  
Total equity     977,432       873,918  
Total liabilities and equity   $ 1,526,371     $ 1,488,673  

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