Note: Included in GAAP and non-GAAP adjusted net income was approximately $21.1 million, net of tax, non-cash share-based compensation expense. Excluding share-based compensation expense, both GAAP and non-GAAP adjusted diluted earnings per share would have improved by $0.46 per share.

ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE

The Company’s financial statements present net income and earnings per share that are calculated using accounting principles generally accepted in the United States (“GAAP”). The Company’s management makes adjustments to the GAAP measures that it feels are necessary to allow investors and other readers of the Company’s financial releases to view the Company’s operating results as viewed by the Company’s management, board of directors and research analysts in the semiconductor industry. These non-GAAP measures are not prepared in accordance with, and should not be considered alternatives or necessarily superior to, GAAP financial data and may be different from non-GAAP measures used by other companies. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures, even if they have similar names. The explanation of the adjustments made in the table above, are set forth below:

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 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.

Acquisition related costs – The Company excluded expenses associated with previous acquisitions of that typically consist of advisory, legal and other professional and consulting fees. These costs were expensed as they were incurred and as services were received, and in which the corresponding tax adjustments were made for the non-deductible portions of these expenses. The Company believes the exclusion of the acquisition related costs provides investors with a more accurate reflection of costs likely to be incurred in the absence of an unusual event such as an acquisition and facilitates comparisons with the results of other periods that may not reflect such costs.

Officer retirement – The Company excluded costs related to the retirement of two executives. These costs represent cash payments and the accelerated vesting of previously issued stock awards. The Company feels it is appropriate to exclude these costs since they don’t represent ongoing operating expenses and will present investors with a more accurate indication of our continuing operations.

Non-cash mark-to-market investment value adjustments – The Company excluded market to market adjustments on various equity related investments. The Company believes this is not reflective of the ongoing operations and exclusion of this provides investors an enhanced view of the Company’s operating results.

Insurance Recovery for Manufacturing Facility – The Company has recorded gains related to insurance recovery for a manufacturing facility in Asia. The Company believes the exclusion of the insurance recovery 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 gains.

Investment gain – The Company excluded the gain realized on the sale of an equity investment. The Company believes this is not reflective of the ongoing operations and exclusion of this item provides investors an enhanced view of the Company’s operating results.

CASH FLOW ITEMS

Free cash flow (FCF) (Non-GAAP)

FCF for the third quarter of 2023 is a non-GAAP financial measure, which is calculated by subtracting capital expenditures from cash flow from operations. For the third quarter of 2023, FCF was $11.6 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							Nine Months Ended
		September 30, 2023							September 30, 2023
			2023				2022			2023				2022
Net income (per-GAAP)		$	48,720			$	86,386		$	201,890			$	239,232
Plus:
Interest expense (income), net			(3,609	)			1,862			(3,284	)			2,879
Income tax provision			10,674				20,172			44,514				55,279
Depreciation and amortization			34,827				33,518			102,723				93,413
EBITDA (non-GAAP)		$	90,612			$	141,938		$	345,843			$	390,803

DIODES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
		September 30,				December 31,
			2023				2022
		(unaudited)				(audited)
Assets
Current assets:
Cash and cash equivalents		$	295,045			$	336,732
Restricted Cash			2,592				4,367
Short-term investments			9,872				7,059
Accounts receivable, net of allowances of $4,686 and $5,852 at September 30, 2023 and December 31, 2022, respectively			414,188				369,233
Inventories			343,694				360,281
Prepaid expenses and other			117,191				83,999
Total current assets			1,182,582				1,161,671
Property, plant and equipment, net			736,126				736,730
Deferred income tax			35,788				35,308
Goodwill			143,745				144,757
Intangible assets, net			67,445				79,137
Other long-term assets			174,536				130,709
Total assets		$	2,340,222			$	2,288,312
Liabilities
Current liabilities:
Line of credit		$	29,429			$	36,280
Accounts payable			161,079				160,442
Accrued liabilities			193,383				214,433
Income tax payable			29,892				19,682
Current portion of long-term debt			1,124				1,693
Total current liabilities			414,907				432,530
Long-term debt, net of current portion			22,645				147,470
Deferred tax liabilities			12,982				12,903
Unrecognized tax benefits			31,595				31,594
Other long-term liabilities			99,210				80,896
Total liabilities			581,339				705,393
Commitments and contingencies
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; 45,936,090 and 45,469,722, issued and outstanding at September 30, 2023 and December 31, 2022, respectively			36,817				36,503
Additional paid-in capital			502,482				494,773
Retained earnings			1,649,982				1,448,092
Treasury stock, at cost, 9,286,862 shares held at September 30, 2023 and 9,281,581 shares held at December 31, 2022			(337,986	)			(337,490	)
Accumulated other comprehensive loss			(161,633	)			(128,233	)
Total stockholders' equity			1,689,662				1,513,645
Noncontrolling interest			69,221				69,274
Total equity			1,758,883				1,582,919
Total liabilities and stockholders' equity		$	2,340,222			$	2,288,312

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