|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
June 30, |
|
|
June 30, |
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
Earnings (numerator) |
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common stockholders |
$ |
46,649 |
|
|
$ |
46,098 |
|
|
$ |
61,610 |
|
|
$ |
41,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares (denominator) |
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic) |
|
45,921 |
|
|
|
46,398 |
|
|
|
45,920 |
|
|
|
46,385 |
|
Dilutive effect of stock options and stock awards outstanding |
|
525 |
|
|
|
64 |
|
|
|
424 |
|
|
|
67 |
|
Adjusted weighted average common shares outstanding (diluted) |
|
46,446 |
|
|
|
46,462 |
|
|
|
46,344 |
|
|
|
46,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to common stockholders |
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
1.02 |
|
|
$ |
0.99 |
|
|
$ |
1.34 |
|
|
$ |
0.90 |
|
Diluted |
$ |
1.00 |
|
|
$ |
0.99 |
|
|
$ |
1.33 |
|
|
$ |
0.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and stock awards excluded from EPS
calculation because the effect would be anti-dilutive |
|
15 |
|
|
|
704 |
|
|
|
12 |
|
|
|
612 |
|
NOTE 3 - Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
We use valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement costs). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. These two types of inputs create a three-tier fair value hierarchy that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1 Inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3 Inputs - Significant unobservable inputs that reflect an entity’s own assumptions that market participants would use in pricing the assets or liabilities.
As of June 30, 2026, we had short-term and long-term investments. Long-term investments are included within Equity investments on the consolidated balance sheet. Trading securities held at June 30, 2026, were purchased on the open market and unrealized gains and losses are included in Other income (expense). The trading securities are valued under the fair value hierarchy using Level 1 Inputs. Short-term investments consist of investments such as time deposits, which are highly liquid with maturity dates greater than three months at the date of purchase. Generally, we can access these short-term investments in a relatively short amount of time but in doing so we generally forfeit a portion of earned and future interest income. Long-term investments consist of certain equity securities acquired as part of the LSC acquisition. Deferred compensation investments consist primarily of life insurance policies, but may also include investments in the Company’s stock, mutual funds and cash. See Note 12 for additional information related to our deferred compensation program and Note 11 for additional information related to our derivative financial instruments. The short-term investments, long-term investments and deferred compensation investments are valued under the fair value hierarchy using Level 1 and Level 2 Inputs.
Financial assets and liabilities carried at fair value as of June 30, 2026, are classified in the following table:
Share Grants. Share grants consist of restricted stock awards, restricted stock units (“RSUs”) and performance stock units (“PSUs”). Restricted stock awards and RSUs generally vest in equal annual installments over a four-year period and are measured based on the fair market value of the underlying stock on the date of grant. Compensation expense is recognized on a straight-line basis over the requisite four-year service period. All new grants are awarded under the Company’s 2022 Equity Incentive Plan.
PSUs are measured based on the fair market value of the underlying stock on the date of grant, and compensation expense is recognized over the three-year performance period, with adjustments made to the expense to recognize the probable payout percentage.
As of June 30, 2026, total unrecognized share-based compensation expense related to share grants was approximately $59.6 million, before income taxes, and is expected to be recognized over a weighted average period of approximately 2.3 years.
Stock Modification. During the three months ended June 30, 2026, we modified previously granted restricted stock awards for board members and employees who retired. The result of the modifications resulted in the acceleration of the vesting of 17,780 stock awards for the board members and employees. The incremental expense recorded for this modification was approximately $1.5 million, which was expensed in SG&A expense in the three months ended June 30, 2026.
NOTE 8 – Enterprise-Wide Segment Information and Net Sales
Segment Reporting. For financial reporting purposes, we operate in a single segment, standard semiconductor products, through our various manufacturing and distribution facilities. One segment reflects how our chief operating decision maker (“CODM”), which is our chief executive officer, allocates resources and measures results. Although our CODM regularly uses gross profit for key operating decisions about allocating resources and assessing performance, we have concluded that consolidated net income (loss) is also used and is the measure of profit or loss required to be disclosed under the provisions of ASC 280 for our single operating segment. Accordingly, we considered whether there were any significant expense categories to disclose and concluded that the consolidated financial statements and accompanying notes thereto include the relevant categories regularly provided to our CODM. The CODM's assessment of performance is predominantly performed during the Company’s annual budgeting and quarterly forecasting process where segment resourcing decisions, such as employee and capital, are made. The measure of segment assets is reported in our consolidated balance sheets as “Total assets.” Our primary operations include operations in Asia, the Americas, and Europe.
The table below sets forth the number of customers and the amount of sales to that customer, where that customer accounted for 10% or greater of our net sales during the applicable periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, |
|
|
For the six months ended June 30, |
|
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
Customer 1 |
|
$ |
45,583 |
|
|
$ |
45,937 |
|
|
$ |
90,058 |
|
|
$ |
79,538 |
|
Customer 2 |
|
$ |
54,681 |
|
|
$ |
43,829 |
|
|
$ |
105,520 |
|
|
$ |
82,864 |
|
Each of the customers that accounted for 10% or more of our net sales are broad-based distributors serving thousands of customers. At June 30, 2026 and December 31, 2025, one customer that accounted for 10% or more of the Company’s net sales accounted for approximately 15.1% and 16.3%, respectively, of the Company’s outstanding accounts receivable.
Disaggregation of Net Sales. We disaggregate net sales with customers into direct sales to end customers and distribution sales to distributors (“Distributors”) and by geographic area. Direct sales customers consist of those customers using our product in their manufacturing process, and Distributors are those customers who resell our products to third parties. We deliver our products to customers around the world for use in the industrial, automotive, computing, consumer, and communications markets. Further, most of our contracts are fixed-price arrangements, and are short term in nature, ranging from days to several months. The tables below set forth net sales based on the location of the subsidiary producing the net sale:
NOTE 10 – Commitments and Contingencies
Purchase Commitments. We have entered into non-cancelable purchase contracts for capital expenditures, primarily for manufacturing equipment, for approximately $94.4 million at June 30, 2026. As of June 30, 2026, we also had a commitment to purchase approximately $44.2 million of wafers to be used in our manufacturing process. These wafer purchases are scheduled to occur through 2031.
Contingencies. From time to time, we are involved in various legal proceedings that arise in the normal course of business. While we intend to defend any lawsuit vigorously, we presently believe that the ultimate outcome of any pending legal proceeding will not have any material adverse effect on our consolidated financial position, cash flows, or operating results. However, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages, which could impact our business and operating results for the period in which the ruling occurs and future periods. Based on information available, we evaluate the likelihood of potential outcomes of all pending disputes. We record an appropriate liability when the amount of any liability associated with a pending dispute is deemed probable and reasonably estimable. In addition, we do not accrue estimated legal fees and other directly related costs as they are expensed as incurred. The Company is not currently a party to any pending litigation that we consider material.
NOTE 11 – Derivative Financial Instruments
We use derivative instruments to manage risks related to foreign currencies, interest rates, commodity price management, and the net investment risk in our foreign subsidiaries. Our objectives for holding derivatives include reducing, eliminating, and efficiently managing the economic impact of these exposures as effectively as possible. Our derivative programs include strategies that both qualify and do not qualify for hedge accounting treatment. The Company does not enter into derivative contracts for speculative purposes.
Commodity Price Risk Management. The Company purchases gold that is used in the manufacturing of connectors, electronic components, and other products. Gold prices are subject to significant market volatility, which can affect the Company's production costs and operating margins.
To manage a portion of its exposure to fluctuations in gold prices, the Company enters into commodity swap agreements. Our gold derivative contracts are designated as cash flow hedges of forecasted purchases of gold and qualify for hedge accounting treatment under ASC 815. As of June 30, 2026 and December 31, 2025, we had $13.6 million and zero, respectively, of outstanding commodity swaps. At June 30, 2026, the Company had outstanding gold forward contracts covering approximately 2,097 troy ounces of forecasted gold purchases through March 31, 2027.
Hedges of Foreign Currency Risk. We are exposed to fluctuations in various foreign currencies against our different functional currencies. We use foreign currency forward agreements to manage this exposure. As of June 30, 2026 and December 31, 2025, we had $383.6 million and $345.2 million, respectively, of outstanding foreign currency forward agreements that are intended to preserve the economic value of foreign currency denominated monetary assets and liabilities; these instruments are not designated for hedge accounting treatment in accordance with Accounting Standards Codification (“ASC”) No. 815. As of June 30, 2026 and December 31, 2025 we owe approximately $4.3 million and approximately $1.3 million related to our foreign currency forward agreements.
Hedges of Interest Rate and Net Investment Risk. The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps, including interest rate collars, as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company makes use of cross-currency swaps and foreign-currency forward contracts to decrease the foreign exchange risk inherent in the Company’s investment in some of its foreign subsidiaries.
The table below sets forth the fair value of the Company’s derivative financial instruments, which are Level 2 instruments in the fair-value hierarchy, as well as their classification on our condensed consolidated balance sheets as of June 30, 2026 and December 31, 2025:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
|
|
|
Other Current or
Non-Current Assets |
|
|
Other Current or
Non-Current Liabilities |
|
|
|
2026 |
|
|
2025 |
|
|
2026 |
|
|
2025 |
|
|
Derivatives with hedge designations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collared forwards |
|
|
$ |
13,727 |
|
|
$ |
11,454 |
|
|
$ |
- |
|
|
$ |
2,558 |
|
|
Commodity swaps |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,555 |
|
|
$ |
- |
|
|
Derivatives without hedge designations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forwards |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
The table below sets forth the effect of the Company’s derivative financial instruments on the Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2026 and 2025:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Instruments |
|
Amount of Gain or (Loss) Recognized in OCI on Derivative |
|
|
Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion Excluded from |
|
Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
|
Designated as |
|
June 30, |
|
|
Effectiveness |
|
June 30, |
|
Hedging Instruments |
|
2026 |
|
|
2025 |
|
|
Testing) |
|
2026 |
|
|
2025 |
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collared forwards |
|
$ |
(652 |
) |
|
$ |
(20,923 |
) |
|
Interest income |
|
$ |
3,200 |
|
|
$ |
5,045 |
|
Commodity swaps |
|
$ |
(1,788 |
) |
|
$ |
- |
|
|
|
|
N/A |
|
|
N/A |
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collared forwards |
|
$ |
(1,495 |
) |
|
$ |
(13,791 |
) |
|
Interest income |
|
$ |
6,618 |
|
|
$ |
9,302 |
|
Commodity swaps |
|
$ |
(1,788 |
) |
|
$ |
- |
|
|
|
|
N/A |
|
|
N/A |
|
NOTE 12 – Employee Benefit Plans
We maintain a Non-Qualified Deferred Compensation Plan (the “Deferred Compensation Plan”) for executive officers, key employees, and members of the Board of Directors. The Deferred Compensation Plan allows eligible participants to defer the receipt of eligible compensation, including equity awards, until designated future dates. We offset our obligations under the Deferred Compensation Plan primarily by investing in the actual underlying investments. At June 30, 2026 and December 31, 2025, these investments totaled approximately $21.4 million and $20.0 million, respectively.
NOTE 13 – Related Parties
We conduct business with the following related parties: Keylink International (B.V.I.) Inc. and its subsidiaries and affiliates (“Keylink”), Nuvoton Technology Corporation (“Nuvoton”), Jiyuan Crystal Photoelectric Frequency Technology Ltd. (“JCP”), Atlas Magnetics, Co. (“Atlas”), and ATX Semiconductor SDN (“ATX”).
Keylink is a 5% joint venture partner in our Shanghai assembly and test facilities. We sell products to, and purchase inventory from, companies owned by Keylink. In addition, our subsidiaries in China lease their manufacturing facilities in Shanghai from, and subcontract a portion of our manufacturing process (metal plating and environmental services) to Keylink. We also pay a consulting fee to Keylink.
Warren Chen, a member of the Company’s board of directors, serves as a member of the Nuvoton board of directors. In the six months ended June 30, 2026, we purchased approximately $1.4 million of wafers from Nuvoton under an agreement that ended in the second quarter of 2026. We consider our relationship with Nuvoton to be mutually beneficial, and plan to continue our strategic alliance with Nuvoton.
JCP is a frequency control product manufacturing company from which we purchase material and in which we have made an equity investment that we account for using the equity method of accounting.
Atlas is an early stage privately held fabless wafer design company in which the Company holds a majority interest. The Company determined that Atlas is a variable interest entity (“VIE”), and the Company does not have the power to direct the activities that most significantly impact Atlas. The Company has therefore determined that the Company is not the primary beneficiary. Consequently, we do not consolidate the assets and liabilities of Atlas in the Company’s financial statements. For additional information related to Atlas see Note 14 - Equity Investments - Unconsolidated VIE, below.
In June 2025, the Company entered into a Joint Venture Agreement to acquire a 43% interest and joint control of ATX, a Malaysian private limited liability company, with the purpose of building synergies related to testing and packaging. ATX is a related party for the Company.
The table below sets forth the revenues and expenses with our related parties:
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Except for the historical information contained herein, the matters addressed in this Item 2 constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as identified under the heading “Cautionary Statement for Purposes of the “Safe Harbor” Provision of the Private Securities Litigation Reform Act of 1995” herein. Such forward-looking statements are subject to a variety of risks and uncertainties, including those discussed in the subsection “Risk Factors” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A of our most recent Annual Report on Form 10-K, and similar discussions elsewhere in this Quarterly Report on Form 10-Q and in other reports we file with the SEC from time to time, that could cause actual results to differ materially from those anticipated by our management. The Private Securities Litigation Reform Act of 1995 (the “PSLRA”) provides certain “safe harbor” provisions for forward-looking statements. All forward-looking statements made in this Quarterly Report on Form 10-Q are made pursuant to the PSLRA. We undertake no obligation to publicly release the results of any revisions to our forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unexpected events. Unless the context otherwise requires, the words “Diodes,” the “Company,” “we,” “us,” and “our” refer to Diodes Incorporated and its subsidiaries. Dollar amounts and share amounts are presented in thousands, except per share amounts, unless otherwise noted.
This management’s discussion should be read in conjunction with the management’s discussion included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (“Form 10-K”), previously filed with Securities and Exchange Commission (“SEC”) on February 10, 2026.
Overview
Diodes Incorporated (Nasdaq: DIOD), delivers high-quality semiconductor products to the world’s leading companies in the automotive, industrial, computing, consumer electronics, and communications markets. We leverage our expanded product portfolio of analog and power solutions combined with a flexible hybrid manufacturing model that meet customers’ needs. Our broad range of application-specific products, delivered through a total solutions sales approach and supported by global operations including engineering, testing, manufacturing, and customer service, enable us to be a premier provider for high-growth markets.
The Company’s diverse product portfolio covers diodes; rectifiers; transistors; MOSFETs; SiC diodes and MOSFETs; protection devices; logic; voltage translators; amplifiers and comparators; sensors; and power management devices such as AC-DC converters, digital isolators and isolated gate drivers, DC-DC switching, photocoupler, linear voltage regulators, voltage references, LED drivers, power switches, and voltage supervisors. We also have timing and connectivity solutions including clock ICs, crystal oscillators, PCIe packet switches, multi-protocol switches, interface products, and signal integrity solutions for high-speed signals.
Summary for the three months ended June 30, 2026
•Net sales were $445.5 million, an increase of 21.7% from the $366.2 million in the three months ended June 30, 2025 and an increase of 9.9% from the $405.5 million in three months ended March 31, 2026;
•Gross profit was $147.6 million, an increase of 28.0% from the $115.3 million in the three months ended June 30, 2025 and an increase of 14.6% from the $128.8 million in the three months ended March 31, 2026;
•Gross profit margin was 33.1%, compared to 31.5% in the three months ended June 30, 2025 and 31.8% in the three months ended March 31, 2026;
•Net income attributable to common stockholders was $46.6 million, compared to net income attributable to common stockholders of $46.1 million in the three months ended June 30, 2025 and net income attributable to common stockholders of $15.0 million in the three months ended March 31, 2026;
•Earnings per share attributable to common stockholders was $1.00 per diluted share, compared to $0.99 per diluted share in the three months ended June 30, 2025 and $0.32 per diluted share in the three months ended March 31, 2026; and
•Cash flow provided by operations was $68.5 million. We had $33.6 million of capital expenditures. Net cash flow was $32.9 million.
As of June 30, 2026, our cash, cash equivalents, and short-term investments were $440.0 million, and we had access to unused borrowing capacity of $225.0 million under the revolving portion of our U.S. Credit Agreement. We believe our liquidity and our borrowing capacity will allow us to cover our cash needs for working capital, capital expenditures, and acquisitions for at least the next 12 months.
On July 10, 2026, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) to acquire 100% of ElevATE Semiconductor, Inc. (“ElevATE”) in an all-cash transaction, which we expect to fund from available cash and our unused borrowing capacity. ElevATE is a fabless semiconductor company based in San Diego, California that specializes in the development of integrated circuits for the automated test equipment industry. Under the terms of the Merger Agreement, the aggregate merger consideration is based on a $250.0 million base purchase price, subject to customary adjustments for cash, indebtedness, transaction costs, taxes, and net working capital. In addition, the Merger Agreement provides for potential earnout payments of up to $50.0 million
in the aggregate based on the achievement of specified post-closing revenue and gross margin thresholds for calendar years 2027 through 2030.
The transaction, which is still subject to customary closing conditions, including regulatory approvals, is expected to close during the second half of 2026.
In the three months and six months ended June 30, 2026, the Company extended its momentum with revenue again increasing more than 20% when compared to the three and six months ended June 30, 2025, driven by growth across regions. Revenue also increased 10% sequentially coupled. The continued growth this quarter serves as further confirmation of strengthening demand in the overall market combined with the Company’s expanding content across our analog and power solutions in our key focus areas of automotive, industrial and artificial intelligence server-related applications.
The cost and operating initiatives previously implemented during the semiconductor market slowdown are producing measurable benefits to gross margin and net income, with margin increasing 160 basis points year-over-year. These actions have also contributed to increased cash flow that has enabled the Company to reinvest in growth and innovation, while also looking for inorganic opportunities to expand our technology portfolio, such as the recent proposed acquisition of ElevATE.
Results of operations for the three months ended June 30, 2026 and 2025
The table below sets forth the condensed consolidated statement of operations line items as a percentage of net sales:
|
|
|
|
|
|
|
|
|
For the three months ended June 30, |
|
|
|
2026 |
|
|
2025 |
|
Net sales |
|
|
100 |
% |
|
|
100 |
% |
Cost of goods sold |
|
|
(67 |
) |
|
|
(68 |
) |
Gross profit |
|
|
33 |
|
|
|
32 |
|
Total operating expense |
|
|
(26 |
) |
|
|
(29 |
) |
Interest income |
|
|
1 |
|
|
|
2 |
|
Foreign currency (loss), net |
|
|
- |
|
|
|
(2 |
) |
Unrealized gain on investments |
|
|
4 |
|
|
|
8 |
|
Gain on disposal of subsidiary |
|
|
- |
|
|
|
4 |
|
Income tax provision |
|
|
(2 |
) |
|
|
(3 |
) |
Equity in net earnings of equity investments |
|
|
(1 |
) |
|
|
- |
|
Net income attributable to common stockholders |
|
|
10 |
|
|
|
13 |
|
The following table and discussion explains in greater detail our consolidated operating results and financial condition for the three months ended June 30, 2026, compared to the three months ended June 30, 2025. This discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, |
|
|
2026 |
|
|
2025 |
|
|
Increase/(Decrease) |
|
|
% Change |
|
Net sales |
$ |
445,529 |
|
|
$ |
366,212 |
|
|
$ |
79,317 |
|
|
|
21.7 |
% |
Cost of goods sold |
|
297,963 |
|
|
|
250,888 |
|
|
|
47,075 |
|
|
|
18.8 |
% |
Gross profit |
|
147,566 |
|
|
|
115,324 |
|
|
|
32,242 |
|
|
|
28.0 |
% |
Total operating expense |
|
114,276 |
|
|
|
105,935 |
|
|
|
8,341 |
|
|
|
7.9 |
% |
Interest income |
|
5,548 |
|
|
|
7,024 |
|
|
|
(1,476 |
) |
|
|
(21.0 |
%) |
Interest expense |
|
(334 |
) |
|
|
(506 |
) |
|
|
(172 |
) |
|
|
(34.0 |
%) |
Foreign currency (loss), net |
|
(1,017 |
) |
|
|
(6,432 |
) |
|
|
(5,415 |
) |
|
|
84.2 |
% |
Unrealized gain on investments |
|
20,018 |
|
|
|
29,645 |
|
|
|
(9,627 |
) |
|
|
(32.5 |
%) |
Gain on disposal of subsidiary |
|
- |
|
|
|
13,730 |
|
|
|
(13,730 |
) |
|
N/A |
|
Other income |
|
470 |
|
|
|
362 |
|
|
|
108 |
|
|
|
29.8 |
% |
Income tax provision |
|
6,847 |
|
|
|
9,063 |
|
|
|
(2,216 |
) |
|
|
(24.5 |
%) |
Equity in net earnings of equity investments |
|
(2,362 |
) |
|
|
11 |
|
|
|
(2,373 |
) |
|
|
(21572.7 |
%) |
Net income attributable to common stockholders |
|
46,649 |
|
|
|
46,098 |
|
|
|
551 |
|
|
|
1.2 |
% |
Net sales increased approximately $79.3 million, or 21.7%, for the three months ended June 30, 2026, compared to the same period last year, primarily due to strong demand in the computing market, especially for artificial intelligence related server applications as well as data center and edge computing. During the three months ended June 30, 2026, weighted-average sales price decreased 2.5%
and volume increased 24.8%, when compared to the same period in 2025. The decrease in weighted-average sales price was primarily due to lower market pricing.
The table below sets forth our product revenue as a percentage of total product revenue by end-user market for the three months ended June 30, 2026 and 2025:
|
|
|
|
|
Three Months Ended |
|
June 30, |
|
2026 |
|
2025 |
Industrial |
23% |
|
23% |
Automotive |
21% |
|
19% |
Computing |
28% |
|
26% |
Consumer |
17% |
|
18% |
Communications |
11% |
|
14% |
For the three months ended June 30, 2026, gross profit increased approximately 28.0% when compared to the same period last year primarily due to higher net sales. Gross profit margin for the three months ended June 30, 2026 and 2025 was 33.1% and 31.5%, respectively.
Operating expenses for the three months ended June 30, 2026, increased $8.3 million when compared to the three months ended June 30, 2025. Operating expenses as a percentage of net sales were 25.6% and 28.9% for the three months ended June 30, 2026 and 2025, respectively. SG&A increased approximately $10.3 million as compared to the same period last year reflecting an increase in salaries and wages of $8.6 million and freight and duty expense of $1.7 million. SG&A, as a percentage of net sales, was 15.7% and 16.2% for the three months ended June 30, 2026 and 2025 respectively. For the three months ended June 30, 2026, research and development expenses (“R&D”) was flat when compared to the three months ended June 30, 2025. R&D, as a percentage of net sales, was 9.1% and 11.1% for the three months ended June 30, 2026 and 2025, respectively.
Interest income decreased $1.5 million, or 21.0%, for the three months ended June 30, 2026, compared to the same period last year, reflecting less interest income received in the Company’s derivative hedging instruments. Interest expense was flat for the three months ended June 30, 2026, compared to the same period last year. During the three months ended June 30, 2026, the Company recognized $20.0 million in unrealized gains on investments for mark-to-market adjustments.
We recognized an income tax expense of approximately $6.8 million and $9.1 million for the three months ended June 30, 2026 and 2025, respectively. The decrease in income taxes for 2026 compared to 2025 is primarily attributable to the geographical mix of pre-tax income and loss across tax jurisdictions.
Results of operations for the six months ended June 30, 2026 and 2025
The table below sets forth the condensed consolidated statement of operations line items as a percentage of net sales:
|
|
|
|
|
|
|
|
|
For the six months ended June 30, |
|
|
|
2026 |
|
|
2025 |
|
Net sales |
|
|
100 |
% |
|
|
100 |
% |
Cost of goods sold |
|
|
(68 |
) |
|
|
(68 |
) |
Gross profit |
|
|
32 |
|
|
|
32 |
|
Total operating expense |
|
|
(26 |
) |
|
|
(30 |
) |
Interest income |
|
|
1 |
|
|
|
2 |
|
Foreign currency (loss), net |
|
|
(1 |
) |
|
|
(1 |
) |
Unrealized gain on investments |
|
|
3 |
|
|
|
4 |
|
Impairment of equity investment |
|
|
- |
|
|
|
(1 |
) |
Gain on disposal of subsidiary |
|
|
- |
|
|
|
2 |
|
Income tax provision |
|
|
(1 |
) |
|
|
(1 |
) |
Equity in net earnings of equity investments |
|
|
(1 |
) |
|
|
- |
|
Net income attributable to common stockholders |
|
|
7 |
|
|
|
6 |
|
The following table and discussion explains in greater detail our consolidated operating results and financial condition for the six months ended June 30, 2026, compared to the six months ended June 30, 2025. This discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, |
|
|
2026 |
|
|
2025 |
|
|
Increase/(Decrease) |
|
|
% Change |
|
Net sales |
$ |
850,996 |
|
|
$ |
698,325 |
|
|
$ |
152,671 |
|
|
|
21.9 |
% |
Cost of goods sold |
|
574,638 |
|
|
|
478,307 |
|
|
|
96,331 |
|
|
|
20.1 |
% |
Gross profit |
|
276,358 |
|
|
|
220,018 |
|
|
|
56,340 |
|
|
|
25.6 |
% |
Total operating expense |
|
223,303 |
|
|
|
209,333 |
|
|
|
13,970 |
|
|
|
6.7 |
% |
Interest income |
|
10,993 |
|
|
|
12,837 |
|
|
|
(1,844 |
) |
|
|
(14.4 |
%) |
Interest expense |
|
(1,016 |
) |
|
|
(973 |
) |
|
|
43 |
|
|
|
4.4 |
% |
Foreign currency (loss), net |
|
(4,394 |
) |
|
|
(6,615 |
) |
|
|
(2,221 |
) |
|
|
(33.6 |
%) |
Unrealized gain on investments |
|
22,468 |
|
|
|
25,613 |
|
|
|
(3,145 |
) |
|
|
(12.3 |
%) |
Impairment of equity investment |
|
(1,249 |
) |
|
|
(5,817 |
) |
|
|
4,568 |
|
|
|
(78.5 |
%) |
Gain on disposal of subsidiary |
|
- |
|
|
|
13,730 |
|
|
|
(13,730 |
) |
|
|
(100.0 |
%) |
Other income |
|
561 |
|
|
|
979 |
|
|
|
(418 |
) |
|
|
(42.7 |
%) |
Income tax provision |
|
10,847 |
|
|
|
9,083 |
|
|
|
1,764 |
|
|
|
19.4 |
% |
Equity in net earnings of equity investments |
|
(4,703 |
) |
|
|
17 |
|
|
|
(4,720 |
) |
|
|
(27764.7 |
%) |
Net income attributable to common stockholders |
|
61,610 |
|
|
|
41,661 |
|
|
|
19,949 |
|
|
|
47.9 |
% |
Net sales increased approximately $152.7 million, or 21.9%, for the six months ended June 30, 2026, compared to the same period last year. During the six months ended June 30, 2026, weighted-average sales price decreased 4.6% and volume increased 27.7%, when compared to the same period in 2025.
The table below sets forth our product revenue as a percentage of total product revenue by end-user market for the six months ended June 30, 2026 and 2025:
|
|
|
|
|
Six Months Ended |
|
June 30, |
|
2026 |
|
2025 |
Industrial |
23% |
|
23% |
Automotive |
19% |
|
19% |
Computing |
27% |
|
26% |
Consumer |
18% |
|
18% |
Communications |
13% |
|
14% |
For the six months ended June 30, 2026, gross profit increased approximately 25.6% when compared to the same period last year primarily due to higher net sales. Gross profit margin for the six months ended June 30, 2026 and 2025 was 32.5% and 31.5%, respectively.
Operating expenses for the six months ended June 30, 2026, increased $14.0 million when compared to the six months ended June 30, 2025. Operating expenses as a percentage of net sales were 26.2% and 30.0% for the six months ended June 30, 2026 and 2025, respectively. SG&A increased approximately $15.9 million as compared to the same period last year reflecting an increase in salaries and wages of $11.8 million and an increase in freight and duty of $2.9 million. SG&A, as a percentage of net sales, was 15.8% and 16.9% for the six months ended June 30, 2026 and 2025, respectively. For the six months ended June 30, 2026, R&D increased approximately $2.1 million when compared to the six months ended June 30, 2025 due to increased R&D expenses related to salaries and wages of $4.1 million, and increased depreciation and amortization of $3.8 million. These increases in R&D expenses were partially offset by decreases in R&D marketing expense of $4.2 million and decreases in R&D operating expenses of $2.2 million. R&D, as a percentage of net sales, was 9.6% and 11.3% for the six months ended June 30, 2026 and 2025, respectively.
Interest income decreased $1.8 million, or 14.4%, for the six months ended June 30, 2026, compared to the same period last year, reflecting lower amounts of interest income received in the Company’s derivative hedging instruments. Interest expense was flat for the six months ended June 30, 2026, compared to the same period last year. During the six months ended June 30, 2026, the Company recognized an impairment loss on an equity investment of $1.3 million, due to a decline in the value of the investment. During the six months ended June 30, 2026, the Company recognized upward fair value adjustments of $22.5 million related to long-term investments.
We recognized an income tax expense of approximately $10.8 million and $9.1 million for the six months ended June 30, 2026 and 2025, respectively. The increase in income taxes for 2026 compared to 2025 was primarily attributable to an increase in pretax earnings.
Financial Condition
Liquidity and Capital Resources
Our primary source of liquidity is cash flow from operations. Additional sources of liquidity are cash and cash equivalents, short-term investments, and our credit facilities. Our cash and cash equivalents and restricted cash increased from $372.3 million at December 31, 2025 to $432.1 million at June 30, 2026. This increase in cash, cash equivalents, and restricted cash reflects normal operations of the Company. As of June 30, 2026, we had short-term investments totaling $9.5 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 time frame but in doing so we generally forfeit all earned and future interest income.
At June 30, 2026 and December 31, 2025, our working capital was $930.7 million and $878.6 million, respectively. We expect cash generated by our operations together with existing cash, cash equivalents, short-term investments, and available borrowing under credit facilities to be sufficient to cover our cash needs for working capital, capital expenditures, and acquisitions for at least the next 12 months.
Our undistributed foreign earnings continue to be indefinitely reinvested in foreign operations, with limited exceptions related to earnings of certain European and Asian subsidiaries. As of June 30, 2026, our foreign subsidiaries held approximately $253.2 million of cash, cash equivalents and investments of which approximately $91.2 million would be subject to a potential non-U.S. withholding tax if distributed outside the country in which the cash is currently held. The $92.1 million is held in Asia and Europe.
Short-term debt
Our Asia subsidiaries maintain short-term credit facilities with several financial institutions through our foreign entities worldwide totaling $148.9 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 Offering 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 June 30, 2026, was approximately $129.9 million, net of $18.6 million advanced under our foreign credit lines and $0.4 million of credit used for import and export guarantee.
Long-term debt
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 SOFR or similar other indices plus a specified margin and matures in May 2028. The Company’s obligations under the Credit Agreement are secured by a lien on substantially all assets of the Company and certain of its subsidiaries. There was no outstanding balance under the Credit Agreement at June 30, 2026. In addition to our U.S. Credit Agreement, our 53% owned subsidiary, ERIS, had long-term debt of $20.9 million and $25.0 million, at June 30, 2026 and December 31, 2025, respectively, from local Taiwan banks. The outstanding ERIS debt matures in various periods from 2026 through 2033.
Because some of our outstanding debt is subject to variable interest rates, higher interest rates will potentially increase our overall debt service cost. If interest rates rise globally, our cost of capital may increase in the future.
Discussion of Cash Flows
The table below sets forth a summary of the condensed consolidated statements of cash flows:
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
2026 |
|
|
2025 |
|
Net cash flows from operating activities |
$ |
132,788 |
|
|
$ |
98,264 |
|
Net cash flows from investing activities |
|
(75,199 |
) |
|
|
(78,614 |
) |
Net cash flows from financing activities |
|
(1,951 |
) |
|
|
(30,116 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
4,097 |
|
|
|
18,519 |
|
Change in cash and cash equivalents, including restricted cash |
$ |
59,735 |
|
|
$ |
8,053 |
|
Operating Activities
Net cash flows from operating activities for the six months ended June 30, 2026 was $132.8 million. The following recurring operating items gave rise to the calculation of net cash flows from operating activities for the six months ended June 30, 2026: Net income of $64.9 million, depreciation and amortization of intangible assets of $70.4 million, share-based compensation of $18.9 million, and a net increase of $0.6 million of changes in working capital accounts. These increases in cash were partially offset by the recognition of net investment gains of $17.8 million, including $22.5 million, net, of non-cash mark-to-market increases.
Net cash flows from operating activities for the six months ended June 30, 2025 was $98.3 million. The following recurring operating items gave rise to the calculation of net cash flows from operating activities for the six months ended June 30, 2025: Net income of $41.4 million, depreciation and amortization of intangible assets of $71.8 million, a net increase of $15.3 million of changes in working capital accounts, and share-based compensation of $12.2 million. During the six months ended June 30, 2025 the Company also recognized net investment gains of $39.4 million, including a $33.3 million non-cash mark-to-market increase in the value of the Company’s investment in Atlas, a non-cash mark-to-market decrease of $7.7 million of previously made equity investments, and a gain on the disposal of a subsidiary for $13.7 million.
Investing Activities
Net cash and cash equivalents from investing activities was $(75.2) million for the six months ended June 30, 2026. Net cash and cash equivalents from investing activities for the six months ended June 30, 2026 was primarily due to purchases of property, plant, and equipment of $65.5 million, or 7.7% of net sales. We expect capital expenditures for the twelve months ended December 31, 2026 to be within our target model of 5% to 9% of net sales. The Company also paid approximately $6.5 million due to the termination of a hedge instrument and made a $2.4 million payment from an escrow account related to the previously made acquisition.
Net cash and cash equivalents from investing activities was ($78.6) million for the six months ended June 30, 2025. Net cash and cash equivalents from investing activities for the six months ended June 30, 2025 was primarily due to purchases of property, plant, and equipment of $36.3 million, or 5.2% of net sales. The Company made purchases of equity securities, including making an investment in ATX of approximately $30.0 million, increasing its investment in Atlas by approximately $17.3 million, and the acquisition of the minority interest in a joint venture in Taiwan for approximately $4.1 million, bringing the Company’s ownership to 100%. The Company also paid approximately $6.9 million due to the expiration of a hedge instrument. These uses of cash for
investing were partially offset by the receipt of approximately $16.0 million related to the sale of TFS.
Financing Activities
Net cash and cash equivalents from financing activities was $(2.0) million for the six months ended June 30, 2026. Net cash from financing activities in the six months ended June 30, 2026 consisted of stock repurchases of $10.2 million, $14.8 million of net decreases in our debt, and taxes paid on net share settlements of $1.9 million. These uses of cash were partially offset by net changes in non-controlling interests of $25.1 million.
Net cash and cash equivalents from financing activities was ($30.1) million for the six months ended June 30, 2025. Net cash from financing activities in the six months ended June 30, 2025 consisted of net decreases in non-controlling interests of $13.5 million, stock repurchases of $10.0 million, $5.0 million of net decreases in our debt, and taxes paid on net share settlements of $1.6 million.
Use of Derivative Instruments and Hedging
We use, or may use, interest rate swaps, commodity swaps, foreign exchange forward contracts, and cross currency swaps to provide a level of protection against interest rate risks and foreign exchange exposure.
Hedges of Commodity Risk
As part of our overall risk management strategy, we enter into commodity swap agreements to manage our exposure to fluctuations in commodity prices. These derivative instruments are intended to reduce the volatility of future cash flows attributable to changes in market prices and to provide greater certainty regarding the cost of commodities used in our operations.
Hedges of Interest Rate Risk
Our objectives in using interest rate derivatives are to add stability to interest expense and to manage exposure to interest rate movements. To accomplish these objectives, we primarily use interest rate swaps, including interest rate collars, as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
Hedges of Foreign Currency Risk
We are exposed to fluctuations in various foreign currencies against our different functional currencies. We use foreign currency forward agreements to manage this exposure and to preserve the economic value of foreign currency denominated monetary assets and liabilities. These instruments are not designated for hedge accounting treatment in accordance with ASC No. 815. The fair value of our foreign exchange hedges approximates zero.
Hedges of Net Investment Risk
We make use of cross-currency swaps and foreign-currency forward contracts to decrease the foreign exchange risk inherent in our investment in some of our foreign subsidiaries.
Off-Balance Sheet Arrangements
We do not have any transactions, arrangements, or other relationships with unconsolidated entities that will affect our liquidity or capital resources. We have no special purpose entities that provide off-balance sheet financing, liquidity, or market or credit risk support, nor do we engage in leasing, swap agreements, or outsourcing of research and development services that could expose us to liability that is not reflected on the face of our financial statements.
Contractual Obligations
There have been no material changes in our Contractual Obligations as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, filed with the SEC on February 10, 2026.
Critical Accounting Estimates
Our critical accounting estimates are described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in the notes to our consolidated financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, filed with the SEC on February 10, 2026. Any new accounting estimates or updates to existing accounting estimates as a result of new accounting pronouncements have been discussed in the notes to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q in Note 1 – Summary of Operations and Significant Accounting Policies. The application of our critical accounting estimates may require management to make judgments and estimates about the amounts reflected in the condensed consolidated financial statements. Management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.
Recently Issued Accounting Pronouncements
See Note 1 - Summary of Operations and Significant Accounting Policies, of the Notes to Condensed Consolidated Financial Statements, for detailed information regarding the status of recently issued accounting pronouncements, if any.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Commodity Price Risk
We are exposed to commodity price risk in the ordinary course of business, including fluctuations in the market price of gold, which is used in our operations and may affect our cost of sales, margins, cash flows and financial condition. Gold prices are influenced by a number of factors beyond our control, including global supply and demand conditions, inflation expectations, interest rates, currency movements, investor demand, central bank activity, geopolitical developments and broader macroeconomic conditions. Significant increases in the price of gold could adversely affect our operating results to the extent we are unable to offset higher costs through pricing actions, productivity improvements, material substitutions or other measures.
To help manage a portion of our exposure to changes in gold prices, we enter into commodity hedging arrangements from time to time, including derivative instruments linked to gold prices. These arrangements are intended to reduce the variability of cash flows and earnings associated with forecasted purchases or usage of gold, but they may not fully offset the effects of commodity price changes and may expose us to basis risk, counterparty risk, liquidity risk and the risk that hedge positions do not qualify for, or are not designated for, hedge accounting treatment. In addition, the timing and amount of gains or losses recognized on these instruments may not coincide with the timing and amount of the underlying commodity exposures.
A hypothetical 10.0% increase or decrease in the market price of gold, measured as of June 30, 2026 and assuming the aggregate notional amount of our gold-related hedging positions and underlying forecasted exposures remained constant, would be expected to result in a corresponding change in the fair value of our gold commodity derivatives and in the cost of our forecasted gold purchases. The actual impact on our consolidated financial statements would depend on a variety of factors, including the notional amount, tenor and structure of our hedging instruments, the volume and timing of underlying gold purchases, whether the instruments are designated as cash flow hedges, and the extent to which any change in derivative fair value offsets changes in the cost of the underlying exposure. Accordingly, while our hedging program is intended to mitigate the effect of changes in gold prices, it does not eliminate commodity price risk.
Item 4. Controls and Procedures.
Our Chief Executive Officer, Gary Yu, and Chief Financial Officer, Brett R. Whitmire, with the participation of our management, carried out an evaluation, as of June 30, 2026, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer believe that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures are effective at the reasonable assurance level to ensure that information required to be included in this Quarterly Report is:
•recorded, processed, summarized, and reported within the time period specified in the Commission’s rules and forms; and
•accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions on required disclosure.
Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity’s disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors, mistakes, or intentional circumvention of the established processes.
Changes in Internal Controls over Financial Reporting
There was no change in our internal control over financial reporting, known to our Chief Executive Officer or Chief Financial Officer, that occurred in the three months ended June 30, 2026, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.