DIODES INC DEL

Previous wording

The discussion of our financial condition and results of operations for the year ended December 31, 2021 included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022 is incorporated by reference into this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Current wording

A discussion of our results of operations for the year ended December 31, 2024 compared to December 31, 2023 is included below. For a discussion and comparison of the results of our operations for the year ended December 31, 2023 with the year ended December 31, 2022, refer to “Management's Discussion and Analysis of Financial Conditions and Results of Operations” in our Form 10-K for the year ended December 31, 2023 filed with the SEC on February 9, 2024.

Previous wording

We believe these quality awards reflect the superior quality-control techniques established at the Company and further enhance our credibility as a vendor-of-choice to original equipment manufacturers ("OEMs") increasingly concerned with quality and consistency.

Current wording

The Company’s manufacturing facilities have achieved certifications in the internationally recognized standards of ISO 9001:2015, ISO 14001:2015, and, for automotive products, IATF 16949:2016 and the Company is also C-TPAT certified. We believe these quality awards reflect the superior quality-control techniques established at the Company and further enhance our credibility as a vendor-of-choice to original equipment manufacturers (“OEMs”) increasingly concerned with quality and consistency.

Previous wording

Industrial: embedded systems, precision controls, and Industrial IoT;

Current wording

Industrial: embedded systems, precision controls, medical, clean energy, machine to machine, robotics, motor control, and AIoT;

Previous wording

Net sales were $2.0 billion, an increase of 10.8% over the $1.81 billion in 2021;

Current wording

Net sales were $1.3 billion, a decrease of 21.1% over the $1.7 billion in 2023;

Previous wording

Operating income increased 47.9% to a record $408.2 million, or 20.4% of revenue, compared to $276.0 million, or 15.3% of revenue, in 2021;

Current wording

Operating income decreased 79.9% to $50.4 million, or 3.8% of revenue, compared to $250.6 million, or 15.1% of revenue, in 2023;

Previous wording

Earnings per share was $7.20 per diluted share, a 44.0% improvement from the $5.00 per diluted share in 2021;

Current wording

Earnings per share was $0.95 per diluted share, an 80.7% decrease from the $4.91 per diluted share in 2023;

Previous wording

We achieved $392.5 million cash flow from operations. We had cash capital expenditures of $211.7 million, or 10.6% of net sales. Net cash flow was a negative $25.7 million, which includes the net pay-down of $112.2 million of total debt.

Current wording

We achieved $119.4 million of cash flow from operations. We had cash capital expenditures of $73.0 million, or 5.6% of net sales. Net cash flow was a negative $3.8 million, which includes the net pay-down of $7.6 million of total debt.

Previous wording

We achieved $280.9 million cash flow from operations. We had cash capital expenditures of $150.8 million, or 9.1% of net sales. Net cash flow was a negative $22.6 million, which includes the net pay-down of $124.3 million of total debt.

Current wording

We achieved $280.9 million of cash flow from operations. We had cash capital expenditures of $150.8 million, or 9.1% of net sales. Net cash flow was a negative $22.6 million, which includes the net pay-down of $124.3 million of total debt.

Previous wording

Acquisitions will continue to be part of our growth strategy to reach our 2025 revenue and gross profit goal. We have a solid pipeline of designs and expanded customer relationships across all regions and product lines. The success of our business depends on, among other factors, the strength of the global economy and the stability of the financial markets, our customers’ demand for our products, the ability of our customers to meet their payment obligations, customers not canceling or deferring existing orders, and the strength of consumers’ demand for items containing our products in the end-markets we serve. We believe the long-term outlook for our business remains generally favorable despite the uncertainties in the global economy as we continue to execute on the strategy that has proven successful for us over the years. See “Risk Factors – The success of our business depends on the strength of the global economy and the stability of the financial markets, and any weaknesses in these areas may have a material adverse effect on our net sales, operating results and financial condition.” in Part I, Item 1A of this Annual Report for additional information.

Current wording

The success of our business depends on, among other factors, the strength of the global economy and the stability of the financial markets, our customers’ demand for our products, the ability of our customers to meet their payment obligations, customers not canceling or deferring existing orders, and the strength of consumers’ demand for items containing our products in the end-markets we serve. We believe the long-term outlook for our business remains generally favorable despite the uncertainties in the global economy as we continue to execute on the strategy that has proven successful for us over the years. See “Risk Factors –The success of our business depends on the strength of the global economy and the stability of the financial markets, and any weaknesses in these areas may have a material adverse effect on our net sales, operating results, and financial condition.” in Part I, Item 1A of this Annual Report for additional information.

Previous wording

The February 2022 invasion of Ukraine by Russia, the conflict in the Middle East, and the resulting and continuing global impact;

Current wording

The continued hostilities between Ukraine and Russia, the conflict in the Middle East, and the resulting and continuing global impact;

Previous wording

Unforeseen catastrophic events, such as armed conflict, terrorism, fires, typhoons and earthquakes;

Current wording

Unforeseen catastrophic events, such as pandemics, armed conflict, terrorism, fires, typhoons, and earthquakes;

Previous wording

Our net sales decreased approximately $338.8 million, or 16.9%, for the twelve months ended December 31, 2023, compared to the prior year, due to widespread decreased demand for our semiconductor products. The Company has experienced growth in higher-margin end markets which have enabled the Company to increase its net sales and margins, even in the midst of the current supply-constrained environment. For the twelve months ended December 31, 2023, weighted-average sales price of the Company's products decreased 2.7% when compared to the prior year.

Current wording

Our net sales decreased approximately $350.6 million, or 21.1%, for the twelve months ended December 31, 2024, compared to the prior year, due to widespread decreased demand for our semiconductor products and the continued inventory adjustments by the customers that we serve. For the twelve months ended December 31, 2024, weighted-average sales price of the Company’s products decreased 14.9% and volumes decreased 7.3% when compared to the prior year. The decline in weighted-average sales price was primarily due to weaker end-user demand in the automotive and industrial markets which collectively comprised 42% and 46% of product revenue for the twelve months ended December 31, 2024 and 2023, respectively.

Previous wording

Operating expenses for the twelve months ended December 31, 2023 decreased approximately $11.4 million, or 2.7%, compared to the same period last year due to product mix changes and lower prices. Selling, general and administrative expenses (“SG&A”) decreased approximately $22.9 million. The decrease in SG&A was due to lower wages and benefits and freight and duty costs. These decreases were partially offset by increases in professional services and other selling expenses. SG&A, as a percentage of net sales, was 15.5% and 14.0% for the twelve-month periods ended December 31, 2023 and 2022, respectively. Research and development expenses (“R&D”) increased approximately $8.6 million primarily due to increases in materials, supplies and depreciation, partially offset by decreases in professional services fees as compared to the same period last year. R&D, as a percentage of net sales, was 8.1% and 6.3% for the twelve-month periods ended December 31, 2023 and 2022, respectively. Amortization of acquisition-related intangibles decreased approximately 2.1% reflecting the overall reduction in the balance of intangible assets subject to amortization.

Current wording

Operating expenses for the twelve months ended December 31, 2024 decreased approximately $22.2 million, or 5.4%, compared to the same period last year. Selling, general, and administrative expenses (“SG&A”) decreased approximately $24.0 million or 9.3%, compared to the same period last year. The decrease in SG&A was due to cost-containment efforts by the Company especially related to control of wages and benefits, which were lower by $24.8 million and lower selling expense of $1.8 million, partially offset by a $2.7 million increase in repairs and maintenance and an increase of $2.2 million in bad debt expense, when compared to the same period last year. SG&A, as a percentage of net sales, was 17.8% and 15.5% for the twelve-month periods ended December 31, 2024 and 2023, respectively. Research and development expenses (“R&D”) was relatively flat compared to the previous year, declining $0.8 million. R&D, as a percentage of net sales, was 10.2% and 8.1% for the twelve-month periods ended December 31, 2024 and 2023, respectively. R&D is a priority of the company and new products and new technologies are a life blood, so these were held as consistent as possible. Amortization of acquisition-related intangibles increased approximately 8.0% reflecting the increase in the balance of intangible assets subject to amortization.

Previous wording

Interest income increased $9.7 million or 263.2% when compared to 2022 due to increase interest rates on our short-term investments and income from cross-currency swaps. The decrease in interest expense is due to lower levels of debt partially offset by increased interest rates on our floating rate debt. Unrealized gain on investments increased from 2022 due to mark to market adjustments on investments.

Current wording

Interest income increased $5.0 million or 37.2% when compared to 2023 due to increased interest rates on our short-term investments and income from cross-currency swaps. The decrease in interest expense is due to lower debt levels. Unrealized gain on investments decreased from 2023 due to mark-to-market adjustments on investments recorded in 2023 and not repeated in 2024.

Previous wording

We recognized income tax expense of approximately $47.3 million for the twelve months ended December 31, 2023, and income tax expense of approximately $56.7 million for the twelve months ended December 31, 2022, resulting in effective income tax rates of 17.0% and 14.3%, respectively. The increase in the effective tax rate for 2023 compared to 2022 is primarily attributable to a decrease in overall pre-tax book income and the impact of changes to the outside basis difference in foreign subsidiaries where the Company does not assert permanent reinvestment. Our undistributed foreign earnings continue to be indefinitely reinvested in foreign operations, with limited exceptions related to earnings of European and Asian subsidiaries. Any future distributions of foreign earnings will not be subject to additional U.S. income tax but may be subject to foreign withholding taxes. The Company has recorded outside basis differences in the limited instances where they do not assert permanent reinvestment. As of December 31, 2023, our foreign subsidiaries held approximately $190.3 million of cash, cash equivalents and investments of which approximately $52.2 million would be subject to foreign withholding tax if distributed outside the country in which the related earnings were generated.

Current wording

We recognized income tax expense of approximately $11.8 million for the twelve months ended December 31, 2024, and income tax expense of approximately $47.3 million for the twelve months ended December 31, 2023, resulting in effective income tax rates of 18.9% and 17.0%, respectively. The increase in the effective tax rate for 2024 compared to 2023 is primarily attributable to a decrease in overall pre-tax book income, the impact of the geographical mix of pre-tax income and the impact of changes to the outside basis difference in foreign subsidiaries where the Company does not assert permanent reinvestment. Our undistributed foreign earnings continue to be indefinitely reinvested in foreign operations, with limited exceptions related to earnings of European and Asian subsidiaries. Any future distributions of foreign earnings will not be subject to additional U.S. income tax but may be subject to foreign withholding taxes. The Company has recorded outside basis differences in the limited instances where they do not assert permanent reinvestment. As of December 31, 2024, our foreign subsidiaries held approximately $236.3 million of cash, cash equivalents and investments, of which approximately $76.7 million would be subject to foreign withholding tax if distributed outside the country in which the related earnings were generated.

Previous wording

Our primary liquidity requirements have been to meet our capital expenditure needs and to fund ongoing operations. For 2023 and 2022 our working capital was $793.9 million and $729.1 million, respectively. In 2023, our working capital increased primarily due to increases in accounts receivable and inventories, and a decrease in our income taxes payable and accounts payable. We expect cash generated by our operations together with existing cash, cash equivalents, short-term investments and available credit facilities to be sufficient to satisfy our working capital needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with our existing operations for at least the next 12 months.

Current wording

Our primary liquidity requirements have been to meet our capital expenditure needs and to fund ongoing operations. For 2024 and 2023 our working capital was $848.6 million and $793.9 million, respectively. In 2024, our working capital increased primarily due to increases in accounts receivable and inventories, and a decrease in our short-term debt and accounts payable. We expect cash generated by our operations together with existing cash, cash equivalents, short-term investments and available credit facilities to be sufficient to satisfy our working capital needs, capital asset purchases, outstanding commitments, and other liquidity requirements associated with our existing operations for at least the next 12 months.

Previous wording

The Company’s restricted cash primarily consisted of the cash required to be on deposit under contractual agreements with banks to support outstanding loan and import/export guarantees. As of December 31, 2023, restricted cash of $3.0 million was pledged as collateral for issuance of bank loans, bank acceptance notes and letters of credit.

Current wording

The Company‘s restricted cash primarily consisted of the cash required to be on deposit under contractual agreements with banks to support outstanding loan and import/export guarantees. As of December 31, 2024, restricted cash of $6.1 million was pledged as collateral for issuance of bank loans, bank acceptance notes, letters of credit, and funds held in escrow related to the Fortemedia acquisition.

Previous wording

As of December 31, 2023, we had short-term investments of approximately $10.2 million. These investments are highly liquid with maturity dates greater than three months at the date of purchase. We generally can access these investments in a relatively short amount of time but in doing so we generally forfeit a portion of interest income.

Current wording

As of December 31, 2024, we had short-term investments of approximately $7.5 million. These investments are highly liquid with maturity dates greater than three months at the date of purchase. We generally can access these investments in a relatively short amount of time but in doing so we generally forfeit a portion of interest income.

Previous wording

Our Asia subsidiaries maintain credit facilities with several financial institutions through our foreign entities worldwide totaling $147.9 million. Other than two Taiwanese credit facilities that are collateralized by assets, our foreign credit lines are unsecured, uncommitted and contain no restrictive covenants. These credit facilities bear interest at the Taipei Interbank Offered Rate (or similar indices) plus a specified margin. Interest payments are due monthly on outstanding amounts under the credit lines. The unused and available credit under the various facilities as of December 31, 2023, was approximately $106.8 million, net of $40.7 million advanced under our foreign credit lines and $0.4 million credit used for import and export guarantee.

Current wording

Our Asia subsidiaries maintain credit facilities with several financial institutions through our foreign entities worldwide totaling $146.0 million. Other than two Taiwanese credit facilities that are collateralized by assets, our foreign credit lines are unsecured, uncommitted and contain no restrictive covenants. These credit facilities bear interest at the Taipei Interbank Offered Rate (or similar indices) plus a specified margin. Interest payments are due monthly on outstanding amounts under the credit lines. The unused and available credit under the various facilities as of December 31, 2024, was approximately $114.0 million, net of $31.4 million advanced under our foreign credit lines and $0.6 million credit used for import and export guarantee.

Previous wording

The Credit Agreement, which represents a complete amendment and restatement of the Existing Credit Agreement, consists of a Revolving Credit Facility in the amount of $225.0 million, including a swing line sublimit equal to the lesser of $50.0 million and the Revolving Credit Facility, a letter of credit sublimit equal to the lesser of $100.0 million and the Revolving Credit Facility, and an alternative currency sublimit equal to the lesser of $40.0 million and the Revolving Credit Facility. The Borrowers have the option to increase the Revolving Facility and/or incur Incremental Term Loans in an aggregate principal amount of up to $350.0 million. The Revolving Credit Facility bears interest at Term SOFR or similar other indices plus a specified margin. The Credit Agreement contains certain financial and non-financial covenants, including, but not limited to, a maximum Consolidated Leverage Ratio, a minimum Consolidated Interest Coverage Ratio, and restrictions on liens, indebtedness, investments, fundamental changes, dispositions, and restricted payments (including dividends and share repurchases). Furthermore, under the Credit Agreement, restricted payments, including dividends and share repurchases, are permitted in certain circumstances, including while the pro forma Consolidated Leverage Ratio is, both before and after giving effect to any such restricted payment, at least 0.25 to 1.00 less than the maximum permitted under the Credit Agreement. The Revolving Credit Facility matures on May 26, 2028.

Current wording

The Company maintains a long-term credit facility (“Credit Agreement”). The Credit Agreement consists of a Revolving Credit Facility in the amount of $225.0 million, including a swing line sublimit equal to the lesser of $50.0 million and the Revolving Credit Facility, a letter of credit sublimit equal to the lesser of $100.0 million and the Revolving Credit Facility, and an alternative currency sublimit equal to the lesser of $40.0 million and the Revolving Credit Facility. The Company has the option to increase the Revolving Credit Facility and/or incur Incremental Term Loans in an aggregate principal amount of up to $350.0 million. The Credit Agreement bears interest at Term Secured Overnight Financing Rate (“SOFR”) or similar other indices plus a specified margin and matures in May 2028. There was no outstanding balance under the Credit Agreement at December 31, 2024.

Previous wording

In 2023 and 2022, our total cash capital expenditures were approximately $150.8 million and $211.7 million, respectively. Our capital expenditures for these periods were primarily related to manufacturing expansion in both our assembly/test and wafer fabrication facilities. Cash capital expenditures in 2023 were approximately 9.1% of our net sales. The Company's 2023 capital expenditures were higher than our target model of 5% to 9% of net sales, due to expansion of our wafer fabrication facility in Hsinchu Science Park in Taiwan. Going forward, over the long term, the Company expects capital expenditures to be within the 5% to 9% of net sales target model range. The Company also made an additional purchase of $13.9 million of equity in a privately held wafer design company.

Current wording

In 2024 and 2023, our total cash capital expenditures were approximately $73.0 million and $150.8 million, respectively. Our capital expenditures for these periods were primarily related to manufacturing expansion in both our assembly/test and wafer fabrication facilities. Cash capital expenditures in 2024 were approximately 5.6% of our net sales, inline with the Company’s target model of 5% to 9% of net sales. Going forward, over the long term, the Company expects capital expenditures to continue to be within the 5% to 9% of net sales target model range.

Previous wording

Cash and cash equivalents, including restricted cash, decreased approximately $22.6 million to $318.5 million in 2023 from $341.1 million in 2022. The table below sets forth summary information from our statements of cash flows:

Current wording

Cash and cash equivalents, including restricted cash, decreased approximately $3.8 million to $314.7 million in 2024 from $318.5 million in 2023. The table below sets forth summary information from our statements of cash flows:

Previous wording

Net cash provided by operating activities for 2023 was approximately $280.9 million, due primarily to $230.6 million of net income, $137.3 million in depreciation expense and amortization of intangible assets expense and $30.9 million from non-cash share-based compensation expense. The increases were partially offset by a net decrease in operating capital assets and liabilities of $77.6 million, non-cash gains on investments of $19.4 million and a decrease in deferred income taxes of $13.3 million.

Current wording

Net cash flows from operating activities for 2024 was approximately $119.4 million, due primarily to $50.8 million of net income, $137.1 million in depreciation expense and amortization of intangible assets expense and $22.8 million from non-cash share-based compensation expense. The increases were partially offset by a net decrease in operating assets and liabilities of $70.6 million, interest income from forward and collars of $10.4 million, gain on disposal of property, plant and equipment of $7.6 million, non-cash gains on investments of $0.3 million, and a decrease in deferred income taxes of $1.0 million.

Previous wording

Net cash used in financing activities for 2023 was approximately $144.7 million, due primarily to the net reduction in our outstanding indebtedness of $124.3 million and taxes on net share settlements of $15.6 million.

Current wording

Net cash flows from financing activities for 2024 was approximately ($19.3) million, due primarily to the net reduction in our outstanding indebtedness of $7.6 million, taxes on net share settlements of $9.6 million, and net changes in noncontrolling interests of $2.1 million.

Previous wording

Our reserve estimates are based upon historical data as well as projections of sales, distributor inventories, price adjustments, average selling prices and market conditions. Actual returns and adjustments could be significantly different from our estimates and provisions, resulting in an adjustment to net sales. Based on the allowance/reserve balance as of December 31, 2023, a 1% change would increase or decrease the estimated allowance/reserve and net revenue by approximately $0.7 million.

Current wording

Our reserve estimates are based upon historical data as well as projections of sales, distributor inventories, price adjustments, average selling prices, and market conditions. Actual returns and adjustments could be significantly different from our estimates and provisions, resulting in an adjustment to net sales. Based on the allowance/reserve balance as of December 31, 2024, a 1% change would increase or decrease the estimated allowance/reserve and net revenue by approximately $0.8 million.

Previous wording

Inventories are stated at the lower of cost or net realizable value. Cost is determined principally by the first-in, first-out method. On an ongoing basis, we evaluate our inventory for obsolescence and slow-moving items. This evaluation includes analysis of sales levels, sales projections, and purchases by item, as well as raw material usage related to our manufacturing facilities. If our review indicates a reduction in utility below carrying value, we reduce our inventory to a new cost basis. If future demand or market conditions are different than our current estimates, an inventory adjustment may be required, and would be reflected in cost of goods sold in the period the revision is made.

Current wording

Inventories are stated at the lower of cost or net realizable value. Cost is determined principally by the first-in, first-out method. On an ongoing basis, we evaluate our inventory for salability, obsolescence and any other available applicable information. If our review indicates a reduction in utility below carrying value, we reduce our inventory to a new cost basis. If future demand or market conditions are different than our current estimates, an inventory adjustment may be required, and would be reflected in cost of goods sold in the period the revision is made.