Diodes Incorporated Aktie

Good afternoon, and welcome to Diodes Incorporated's First Quarter 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, Thursday, May 7, 2026.

I would now like to turn the call over to Leanne Sievers of Shelton Group Investor Relations. Leanne, please go ahead.

Good afternoon, and welcome to Diodes First Quarter 2026 Financial Results Conference Call. I'm Leanne Sievers, President of Shelton Group, Diodes' Investor Relations firm.

Joining us today are Diodes' President and CEO, Gary Yu; CFO, Brett Whitmire; Senior Vice President of Worldwide Sales and Marketing, Emily Yang; and Vice President of Marketing and Investor Relations, Gurmeet Dhaliwal.

I'd like to remind our listeners that the results announced today are preliminary as they are subject to the company finalizing its closing procedures and customary quarterly review by the company's independent registered public accounting firm. As such, these results are unaudited and subject to revision until the company files its Form 10-Q for its quarter ended March 31, 2026.

In addition, management's prepared remarks contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today, and therefore, we refer to a more detailed discussion of the risks and uncertainties in the company's filings with the Securities and Exchange Commission, including Forms 10-K and 10-Q.

In addition, any projections as to the company's future performance represent management's estimates as of today, May 7, 2026. Diodes assumes no obligation to update these projections in the future as market conditions may or may not change, except to the extent required by applicable law.

Additionally, the company's press release and management statements during this conference call will include discussions of certain measures and financial information in GAAP and non-GAAP terms. Included in the company's press release are definitions and reconciliations of GAAP to non-GAAP items, which provide additional details. Also throughout the company's press release and management statements during this conference call, we refer to net income attributable to common stockholders as GAAP net income. For those of you unable to listen to the entire call at this time, a recording will be available via webcast for 90 days in the Investor Relations section of Diodes' website at www.diodes.com.

And now I'll turn the call over to Diodes' President and CEO, Gary Yu. Gary, please go ahead.

Welcome, everyone, and thank you for joining us on today's conference call. As announced in our press release earlier today, first quarter revenue grew 22% year-over-year and above seasonal 3.5% sequentially. This growth highlights the solid demand recovery and the momentum we are seeing across our key focus areas of automotive, industrial and AI server-related applications.

In fact, this quarter is the sixth consecutive quarter of double-digit year-over-year growth and the highest percentage increase since fourth quarter of 2021. Revenue in Europe led growth as we continue to benefit from increased opportunities and orders from automotive customers as well as improved demand for our industrial applications. Additionally, gross margin improved 70 basis points sequentially due mainly to the higher revenue contribution from automotive and industrial markets, which totaled 44% of product revenue, combined with improving utilization.

Notably, we delivered an over 100% year-over-year increase in quarterly earnings, clearly demonstrating the operating leverage in our model. After formally releasing our 3-year interim financial target earlier this year, which includes reaching $2 billion in annual revenue, $700 million in gross profit and over $4 in non-GAAP EPS. This quarter was a great first step toward executing on these goals. Content expansion, design win momentum and new product introductions will continue to be the cornerstone of our growth initiatives, combined with increased manufacturing and cost efficiency to further drive margin expansion.

With that, let me now turn the call over to Brett to discuss our first quarter financial results as well as our second quarter guidance in more detail.

Thanks, Gary, and good afternoon, everyone. Revenue for the first quarter 2026 was $405.5 million, an increase of 22.1% over the $332.1 million in the first quarter of 2025 and up to 3.5% compared to $391.6 million in the fourth quarter 2025.

Gross profit for the first quarter was $128.8 million or 31.8% of revenue compared to $104.7 million or 31.5% of revenue in the prior year quarter and $121.9 million or 31.1% of revenue in the prior quarter. GAAP operating expenses for the first quarter were $109 million or 26.9% of revenue and on a non-GAAP basis were $103.9 million or 25.6% of revenue, which excludes $3.9 million amortization of acquisition-related intangible asset costs and $1.1 million of Board and officer retirement expense.

This compares to GAAP operating expenses in the first quarter 2025 of $103.4 million or 31.1% of revenue and $108.7 million or 27.8% of revenue in the prior quarter. Non-GAAP operating expenses in the prior quarter were $104 million or 26.6% of revenue. Total other income amounted to approximately $2.7 million for the quarter, consisting of $5.4 million in interest income, $2.5 million in unrealized gain on investments, $0.1 million in other income, offset by $3.4 million in foreign currency losses, $1.2 million of impairment loss of equity investment and $0.7 million in interest expense.

Income before taxes, equity and net earnings of equity investments and noncontrolling interest in the first quarter of 2026 was $22.4 million compared to a loss of $2.8 million in the prior year period and $16.8 million in the previous quarter. Turning to income taxes. Our effective income tax rate for the first quarter was approximately 19.9%. For 2026, we continue to expect the tax rate for the full year to remain at approximately 18%, plus or minus 3%. GAAP net income for the first quarter was $15 million or $0.32 per diluted share compared to a net loss of $4.4 million or a loss of $0.10 per diluted share in the prior year quarter and net income of $10.2 million or $0.22 per diluted share last quarter.

The share count used to compute GAAP income per share for the first quarter of 2026 was 46.1 million shares. Non-GAAP adjusted net income in the first quarter was $19.8 million or $0.43 per diluted share, which excluded net of tax, $3.2 million of acquisition-related intangible asset costs, $0.9 million in Board officer retirement expense and $0.7 million of loss on investment. This compares to non-GAAP adjusted net income of $8.8 million or $0.19 per diluted share in the first quarter 2025 and $15.7 million or $0.34 per diluted share in the prior quarter. Excluding noncash share-based compensation expense of $6 million for the first quarter, net of tax, both GAAP net income and non-GAAP adjusted net income would have increased by $0.13 per share.

EBITDA for the first quarter was $49.4 million or 12.2% of revenue compared to $26.2 million or 7.9% of revenue in the prior year period and $41.9 million or 10.7% of revenue in the prior quarter. We have included in our earnings release a reconciliation of GAAP net income to non-GAAP adjusted net income and GAAP net income to EBITDA, which provides additional details. Cash flow provided by operations was $64.3 million for the first quarter, a $26.2 million increase from the $38.1 million in the prior quarter.

Free cash flow was $32.4 million, a $20 million increase over the fourth quarter and included $31.9 million of capital expenditures. Net cash flow was a positive $26.9 million despite the higher CapEx spending compared to last quarter. Turning to the balance sheet. At the end of first quarter, cash, cash equivalents, restricted cash plus short-term investments totaled approximately $409 million. Working capital was approximately $891 million and total debt, including long term and short term, was approximately $55 million.

In terms of inventory, at the end of the first quarter, total inventory days were approximately 157 as compared to 161 last quarter and down approximately 30 days from 187 days in the year ago quarter. Finished goods inventory days were 55 compared to 59 days last quarter. Total inventory dollars increased $21.2 million from the prior quarter to $492.8 million, consisting of a $24 million increase in raw materials, a $0.5 million increase in work in process and a $3.3 million decrease in finished goods.

Capital expenditures on a cash basis were $31.9 million for the first quarter or 7.9% of revenue, which is within our targeted annualized range of 5% to 9% of revenue. Now turning to our outlook. As you may have noticed in our press release, we have refined the presentation of our guidance to help simplify the information provided, while also aligning to the 3-year financial targets we've introduced last quarter. That said, for the second quarter, we expect revenue to be approximately $435 million, plus or minus 3%.

At the midpoint, this represents an 18.8% increase year-over-year and a 7.3% increase sequentially, which will be the sixth consecutive quarter of double-digit year-over-year growth and another quarter of above seasonal sequential growth. GAAP gross margin is expected to be 32.8%, plus or minus 1%. Non-GAAP adjusted EPS is expected to be $0.60, plus or minus $0.10.

With that said, I will now turn the call over to Emily Yang.

Thank you, Brett, and good afternoon. As Gary and Brett mentioned, revenue in the first quarter was at the high end of our guidance range, up 3.5% sequentially and above our typical seasonality of down 5%. This growth was mainly driven by strong demand in Europe, followed by Asia. Year-over-year, first quarter revenue increased 22%.

Our global POS increased sequentially, and our channel inventory decreased again this quarter, both in dollars and in weeks, which was at the lower end of our normal range of 11 to 14 weeks. We also continue to benefit from the market supply disruption. We remain strategically selective and focused on long-term sustainable business and demand creation. Looking at global sales in the first quarter, Asia represented 77% of revenue, Europe, 14%; and North America, 9%. In terms of our end markets, industrial was 24% of Diodes product revenue; automotive, 20%; computing, 26%; consumer, 17%; and communications, 13% of product revenue.

Our automotive industrial revenue combined was 44% of product revenue, which was a 2 percentage point increase compared to last quarter, largely due to stronger demand in Europe. Now let me review the end market in greater detail. Starting with the automotive market, revenue grew 3.8% sequentially and over 32% year-over-year. Overall demand was strong in the quarter and visibility continues to improve. We are encouraged by the breadth and the depth of our automotive design wins across all focus areas, including connected driving, comfort, style, safety and electrification.

With an expanding automotive grade portfolio and strong engagements with OEMs and Tier 1 customers, we are well positioned to benefit from the increase in dollar content per vehicle. In terms of design wins, we are seeing strong momentum for interface and voltage level shifter ICs across ADAS, telematics and infotainment platforms with multiple customer wins. ECS and bidirectional protection devices, including protection for automotive Ethernet and in-vehicle networks are being designed into next-generation communication platforms and body control modules.

Our portfolio of automotive-grade discrete products, including switching diodes, rectifiers and protection devices continue to enable reliable data and power paths. We are also securing increased adoption of power protection, power management and control solutions across safety and critical systems and advanced lighting. Our ideal diode controllers are also seeing strong demand in reverse battery protection power trees and our precision current limited power switching are gaining traction for protected ECU power rails. We are also receiving solid demand for our low IQ LDOs in MCU power supplies and our brush DC motor drive products are experiencing significant growth, particularly in automotive lighting, cooling and motor applications.

And our 48-volt matrix LED drivers are gaining traction in dynamic rear lighting applications, enabling adaptive signaling and distinctive vehicle designs. Additionally, our silicon carbide MOSFETs in innovative topside cooling package are gaining momentum in traction inverters, on-board chargers and high-voltage DC-DC converters, while our ultra-low VCE bipolar devices continue to win designs in battery management system and vehicle radar.

Turning to industrial market. Revenue grew to 24% of product revenue from 22% last quarter, representing a 13.2% quarter-over-quarter growth and over 31% year-over-year. We have begun to see solid demand recovery in Europe, followed by North America and Asia. Much of this strength in demand is being driven by AI infrastructures, and we expect this momentum will continue throughout the year. Specifically in AI server power supply units, our bipolar junction transistors portfolio has been winning designs and our hall sensors are being used in brushless DC fan applications for thermal management.

Additionally, our rectifying battery backup units are enabling hotspot functionality and supporting the scalable resiliency power architecture required by AI servers. We're also seeing broad market recovery across multiple applications like factory automation and medical equipment. From a design point of view, we are achieving increasing momentum across power, sensing and imaging applications driven by the automation and inspection systems. Our 60-amp 650-volt silicon carbide diodes continue to gain traction in industrial power applications, supporting higher efficiency and power density requirements. Also during the quarter, our low IQ LDO regulators received solid demand for power tools and industrial fan applications, supporting energy efficiency and battery power designs and our LED drivers continue to gain traction in intelligent LED lighting applications for smart infrastructure and enterprise environments.

Also in industrial, our voltage reference devices received strong demand from a variety of industrial power supply applications where accuracy and stability are essential. Our AOI contact image sensor products also achieved multiple design-ins across inspection-related applications, including IC inspection, battery film inspection, glass inspection as well as digital check and car scanners. In the computing market, although revenue decreased 3.7% to 26% of the product revenue this quarter, revenue grew year-over-year over 21%. During the quarter, we continue to see strong demand across AI server and data center applications. For the other applications like notebook and motherboard, we saw demand moderate downward due to the overall softer market for these applications combined with the memory shortage.

In high-performance computing and data infrastructures, key focus areas remain power management, protection, connectivity, timing and signal integrity. High-power transcend protection products are being designed into server hot swap power rail architectures, delivering ultra-high surge protection for mission-critical power reels. Our supervisory reset IC and 5-volt low RDS ON switches are seeing strong demand across data center and SSD applications. Additionally, our ISL portfolio, including voltage level shifters for FTI, UR and GPIOs are increasingly being utilized in servers, AI servers and workstations with designs at leading hyperscale and AI customers.

And our PCIe 6.0 7.0 Mux buffers are also seeing adoption across multiple AI server platforms. As process migration drivens SoC I/O voltage lower, eUSB adoption continue to accelerate as design-in and design wins for eUSB repeaters have become widespread across major PC OEMs and ODMs. Diodes P-channel MOSFET are being designed into desktop platform for load switch applications, while our OCP power switches continue to see solid demand in 15-volt source path for USB power delivery ports in both desktop and docking stations. Our 20-volt high-performance, low-noise LDOs also continue to gain traction in PC platforms, reflecting record design win conversion.

Additionally, in computing, our TVS protection devices have been widely adopted in USB power delivery [ 3.0 ] and AI docking platforms, providing robust transcend and ESD protection. And our USB power delivery sink switch are seeing strong demand in multiport USB power delivery systems used in laptops, supporting high power density and fast charging requirements. In the consumer market, revenue increased 3.8% sequentially and over 26% year-over-year. We continue to see steady demand across personal gaming devices, charging and home applications. Rectifiers, zener diodes and super barrier rectifiers are gaining adoption in SSDs, tablets and mini consumer computers, supporting efficiency, power conversion and protection in space-constrained designs. Diodes USB power delivery controllers and PWM controllers also continue to see growth in the consumer charging market, driven by fast charging adoption and high power requirements.

Additionally, our LED drivers are winning designs in household appliances, enabling long lifetime and low-power consumption, while our high-performance boost LED controllers are gaining traction in smart home lighting applications. Lastly, in the communication market, revenue increased 3.8% sequentially and over 17% year-over-year. Growth in data traffic and bandwidth demand is driving enhancement in data center networking applications, increasing adoption of high-efficiency rectification solutions. Diodes super barrier rectifier products are gaining momentum, supporting reliable device connectivity in high-speed network equipment.

In parallel, our crystal oscillators and ultra-low jitter timing solutions are seeing strong traction in smart NIC cards and networking modules where systems are becoming smaller and power dense. Our recently introduced ultra-low RDS ON CSP MOSFETs are targeting battery protection and power management applications. These devices have been designed in by smartphone customers globally. Our battery FETs continue to gain traction in battery management system as demand increases for more power efficiency and feature-rich mobile devices. Complementing to this design, high PSRR LDOs, level shifters and data line protection devices are also seeing strong momentum across smartphone applications.

In the wireless infrastructure, our 60-volt bus converters are being designed into RF power applications, including base stations, radar systems and other high-power wireless platforms. In summary, we have started out 2026 with strong growth momentum across our key focus areas of automotive, industrial and AI server-related applications. Additionally, we are benefiting from ongoing demand improvement in both the automotive and industrial markets, which should continue to serve as a tailwind to our near-term growth. And when combined with our ongoing margin improvement, we are well aligned to deliver increasing earnings and cash flows towards the achievement of our 3-year financial goals.

With that, we now open the floor to questions. Operator?

[Operator Instructions]

Our first question today is from Tristan Gerra with Baird.

I wanted to understand better the implications of tightening lead times on customer requalifications, is that helping as people are getting more concerned about securing capacity for '27? And what's your timing assumption as to when those requalification in analog product happen?

Tristan, this is Emily. During the constrained supply market situation, customers are always more willing for qualifications, especially with the guarantee of a long-term supply, right? So definitely, it's beneficial.

Overall, we're still going through a lot of process qualification, improving the technology with our internal factories. I would say the progress is progressing well, but it's still going to take some time for us to ramp up more because the qualification of process does take time. But I would say, all in all, we are on the right track and right direction.

Okay. Great. And then just 2 quick follow-ups, if I may. Based on your commentary, when do you think that you could get to the point where utilization rates are roughly the same or at least all of your fabs are at normalized utilization rates? Is that kind of a late '27 dynamic? Or do we need to wait later?

And then the second one, you touched a bit on the call about traction in data center with your products. I wanted to know how you're approaching the 800-volt opportunity in data center. There's a lot of very high-voltage regulators in each trade. Just wanted to understand better how you see that opportunity going forward.

Yes. I think, Tristan, I think I'm going to answer the question. First question first. And I know we are -- as you know, we have started to ship the product produced from those 2 wafer fabs in Scotland and South Portland to our key customers since last year. And we'll continue to improve the loading in the next couple of years, right? And as Emily mentioned about the qualification takes some time, especially on the customer side, even though during the shortage period, customers shorten their qualification cycle, try to adopt more of our product and it's good but it takes some time.

I would say probably 2027, 2028, be much more improvement on the utilization on those 2 wafer fabs. But the rest of wafer fab that we have kind of in a pretty good loading at this moment and at back end, we are almost fully loaded at this moment, okay? For the second question regarding for the 800-volt platform, right? And I think Diodes is well positioned on this kind of technology in the place. We have our silicon carbide MOSFET ready for that, along with analog and the 3 device, so we can provide a very good solution to customer need at this moment.

Yes. So Tristan, let me add a little bit. With the 800-volt, especially on the AI power system or power supply side, we actually see the power supply unit as one opportunity. We also see the battery backup unit with some of the others, right? So we definitely see across the board, really, really good opportunity. Other than silicon carbide and the diodes as well as the MOSFET, we also see a lot of isolation opportunities. We see sensors. We see some of the power real protection as well as some of the other analog, right, and discrete. So I would say, all in all, it's actually very positive. So there's still a lot of potential for us to continue to expand. We also focus on some of the new product introduction that we share in the future. So we are very, very excited for this opportunity, and we definitely will continue to pursue the new sockets that in front of us.

The next question is from William Stein with Truist Securities.

First, I hope you can help us understand your exposure to AI data centers across end markets. I think you've got some in compute and some in comms. Can you first just make sure I'm correct on that, that's split across end markets and then maybe give us an approximate sizing or percentage of total revenue in that end market?

Yes. Yes, sure, Will. This is Emily. So overall, we see the AI is a whole ecosystem. It's not just related to AI server, right? So earlier, I talked about power supply. This is actually under industrial. We're definitely seeing huge potential overall in this area. We talk about networking, whether it's the networking switching or routers. This is another area that we're seeing a lot of expansion overall.

Within the networking, I think I mentioned maybe earlier about optical modules, right? So this is also driven by the AI. So I would say, all in all, there's multiple areas, not just in the compute that we've seen AI-related applications.

But we don't have a sort of sizing of that.

Sizing. So I would say other than the AI server that we've seen a lot of ramp-up already, which will continue the momentum. We're also seeing very strong on the power supply side with a lot of new opportunities that working to really help to drive to the 800-volt that Tristan questioned earlier, right? So even on the data center as well as the networking area because that's really the backbone of everything. We've also seen really good momentum driven by some of the big networking companies.

Okay. Fair enough. Let me get to a couple of others, if I can. There's a couple of other areas aside from data center AI that's capturing investors' attention. One is low earth orbit satellites. Another one is humanoid robotics. Can you talk to your exposure to these markets? Do you have anything in either of those 2?

Yes. I think humanoid robotics definitely is a key interest. The reason we haven't really talked a lot because the volume is still pending to ramp. But all in all, we're actually seeing a lot of similarities. I mean, on top of that, right, if you really think about the automotive, the other key area driving the voltage to higher and higher, right? So I think all in all, right, on the robotics side, right, other than the power related, we're also seeing a lot of, for example, the joint movements, right, with a lot of requirement on the MOSFET on the discrete area, a lot of power management as well. So I would say, all in all, that's actually combined everything. It is a very, very big ecosystem that's extending beyond what we're actually seeing at this moment.

And satellite -- low-earth orbit satellites, anything there?

For the satellite, yes, I think we are definitely engaging with a lot of customers working in this area. We probably can share a little bit more in the future.

[Operator Instructions] The next question is from David Williams with Needham & Company.

Congrats on the continued progress here. Maybe first on the pricing trend. It looks like there was a little bit of pricing pressure in the first quarter and maybe that's more mix than market dynamics. But can you talk about maybe what you're seeing in terms of pricing? Are you seeing the typical type of erosion trends? Or are we in a tight enough environment here that you can -- we'll start to see that maybe flip around and get some pricing power?

David, this is Emily. You are absolutely right. In Q1, what we've seen pricing really, really stabilized, and it's mainly driven by the product mix change. And typically, during the constrained supply situation, you actually see the price more stabilized or maybe upward trend, right? So definitely, we are seeing that in the overall market across all different end market segments.

Great. And then maybe just secondly, you mentioned Europe, I think, multiple times in the script, probably more than we've heard you talk about in the past. I feel like it's coming off the bottom here. But as you look out across your markets and where things are improving, do you sense that any of the strength is coming from replenishment? Or do you feel like it's real end demand is coming through and this is the inflection that we've kind of been hoping for here?

This is the real demand. If you really refer back to our POS point of sales, in distribution. We actually decreased the channel inventory, both in terms of dollars as well as weeks. Usually, Q1 is a slower quarter for us seasonality-wise, usually about 5%, 6% down. We actually achieved 3.5% up, and this is also reflecting from the POS result as well as increased quarter-over-quarter, right?

So what we're seeing is definitely demand is real. We haven't really had the opportunity or seeing a restocking behavior going on, both in distribution or our customer base at this moment.

This concludes our question-and-answer session. I would like to turn the conference back over to Gary Yu for any closing remarks.

Thank you, everyone, for participating in today's call. We look forward to reporting our continued progress on next quarter's conference call. Operator, you may now disconnect.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good afternoon, everyone, and welcome to Diodes Inc. Fourth Quarter and Full Year 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, Tuesday, February 10, 2026. I would now like to turn the conference call over to Leanne Sievers of Shelton Group Investor Relations. Leanne, please go ahead.

Good afternoon, and welcome to Diodes' Fourth Quarter 2025 Financial Results Conference Call. I'm Leanne Sievers, President of Shelton Group, Diodes' Investor Relations firm. Joining us today are Diodes' President and CEO, Gary Yu; CFO, Brett Whitmire; Senior Vice President of Worldwide Sales and Marketing, Emily Yang; and Vice President of Marketing and Investor Relations, Gurmeet Dhaliwal.

I'd like to remind our listeners that the results announced today are preliminary as they are subject to the company finalizing its closing procedures and customary quarterly review by the company's independent registered public accounting firm. As such, these results are unaudited and subject to revision until the company files its Form 10-K for its year ended December 31, 2025.

In addition, management's prepared remarks contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today, and therefore, we refer you to a more detailed discussion of the risks and uncertainties in the company's filings with the Securities and Exchange Commission, including Form 10-K and 10-Q.

In addition, any projections as to the company's future performance represent management's estimates as of today, February 10, 2026. Diodes assumes no obligation to update these projections in the future as market conditions may or may not change, except to the extent required by applicable law.

Additionally, the company's press release and management statements during this conference call will include discussions of certain measures and financial information in GAAP and non-GAAP terms. Included in the company's press release are definitions and reconciliations of GAAP to non-GAAP items, which provide additional details. Also throughout the company's press release and management statements during the conference call, we refer to net income attributable to common stockholders as GAAP net income. For those of you unable to listen to the entire call at this time, a recording will be available via webcast for 90 days in the Investor Relations section of Diodes' website at www.diodes.com.

And now I'll turn the call over to Diodes' President and CEO, Gary Yu. Gary, please go ahead.

Welcome, everyone, and thank you for joining us on today's conference call. As announced in our press release earlier today, we ended 2025 with fourth quarter revenue growing 15% year-over-year and 13% for the full year, which is the highest level of annual growth since 2021. Additionally, this quarter represents the fourth consecutive quarter of double-digit growth year-over-year, further highlighting the success of Diodes' design win initiative and content expansion over the past year. We have continued to see demand improvement across our target markets and geographies, with the most significant growth for the full year driven by a 25% increase in the computing market, primarily for AI server-related applications as well as double-digit increase in our automotive and industrial end markets.

Also during the quarter, we began to realize initial improvement in gross margin as product mix benefited from growth in the automotive market, which increased 6% sequentially and 24% year-over-year. We also remain focused on increasing manufacturing efficiency and minimizing underloading costs over the next few quarters to further drive future margin expansion. As we look to the coming quarter, we anticipate extending our success by delivering above-seasonal revenue results and our fifth consecutive quarter of double-digit year-over-year growth.

As we look back over this past year and the progress that has made, I want to take this opportunity to discuss my specific near-term financial target after having been in the role of President and CEO for the past 2 quarters. After reaching $1 billion in revenue in 2017, our next billion-dollar goal is to reach $2.5 billion in revenue and $1 billion in gross profit or 40% in gross margin. I want to emphasize that we remain committed to achieving these long-term goals.

In order to help our investors track our progress towards these goals, today, I'm introducing 3-year interim financial targets, which include achieving $2 billion in annual revenue with approximately $700 million in gross profit or 35% plus in gross margin. This equates to a revenue CAGR of 10.5% and a 15% CAGR on gross profit dollars. Most notable, when taking into account our improved cost structure, we are expecting to deliver over $4 in non-GAAP EPS, which equals to a 50% CAGR over that 3-year period. This interim goal highlights the strong operating leverage in Diodes' financial model and the ability to generate significant earnings power and cash flow on each incremental dollar of revenue growth.

As mentioned earlier in my remarks, we continue to prioritize product mix improvement by focusing our sales effort and R&D dollars on our 3 key focus areas of automotive, industrial and computing for AI-related server applications. Content expansion, design win momentum and new product introduction will continue to be the cornerstones of our growth initiative, combined with increased manufacturing and cost efficiency to drive margin expansion.

With that, let me now turn the call over to Brett to discuss our fourth quarter and full year financial results as well as our first quarter guidance in more detail.

Thanks, Gary, and good afternoon, everyone. Revenue for the fourth quarter of 2025 was $391.6 million, an increase of 15.4% over $339.3 million in the fourth quarter 2024 and essentially flat compared to $392.2 million in the third quarter 2025. Full year 2025 revenue increased 13% to $1.5 billion compared to $1.3 billion in 2024. Gross profit for the fourth quarter was $121.9 million or 31.1% of revenue compared to $110.9 million or 32.7% of revenue in the prior year quarter and $120.5 million or 30.7% of revenue in the prior quarter. For the full year, GAAP gross profit was $462.4 million or 31.3% of revenue compared to $435.9 million or 33.2% of revenue in 2024.

GAAP operating expenses for the fourth quarter were $108.7 million or 27.8% of revenue and on a non-GAAP basis were $104 million or 26.6% of revenue, which excludes $4.7 million amortization of acquisition-related intangible asset costs. This compares to GAAP operating expenses in the fourth quarter 2024 of $99 million or 29.2% of revenue and $108.9 million or 27.8% of revenue in the prior quarter.

Non-GAAP operating expenses in the prior quarter were $103.1 million or 26.3% of revenue. Total other income amounted to approximately $1.3 million for the quarter, consisting of $7 million in interest income, $2.9 million in foreign currency losses, $1.3 million in interest expense, $1.6 million loss on investment and $0.1 million in other income. Income before taxes and noncontrolling interest in the fourth quarter 2025 was $14.5 million compared to income of $12.3 million in the prior year period and $19 million in the previous quarter.

Turning to income taxes. Our effective income tax rate for the fourth quarter was approximately 14.9%. For the full year 2025, the tax rate was approximately 17.6%. For 2026, we continue to expect the tax rate for the full year to remain at approximately 18%, plus or minus 3%. GAAP net income for the fourth quarter was $10.2 million or $0.22 per diluted share compared to net income of $8.2 million or $0.18 per diluted share in the prior year quarter and net income of $14.3 million or $0.31 per diluted share last quarter. Full year GAAP net income was $66.1 million or $1.43 per diluted share compared to $44 million or $0.95 per diluted share in 2024.

The share count used to compute GAAP income per share for the fourth quarter 2025 was 46.3 million shares and 46.4 million for the full year. Non-GAAP adjusted net income in the fourth quarter was $15.7 million or $0.34 per diluted share, which excluded, net of tax, $3.9 million of acquisition-related intangible asset costs and $1.6 million of loss on investment. This compares to non-GAAP adjusted net income of $12.5 million or $0.27 per diluted share in the fourth quarter 2024 and $17.2 million or $0.37 per diluted share in the prior quarter.

For the full year, non-GAAP adjusted net income was $56.7 million or $1.22 per diluted share as compared to $61 million or $1.31 per diluted share in 2024. Excluding noncash share-based compensation expense of $5.3 million for the fourth quarter, net of tax, both GAAP net income and non-GAAP adjusted net income would have increased by $0.12 per share. For the full year, excluding GAAP and non-GAAP noncash share-based compensation expense of $20.3 million, net of tax, GAAP and non-GAAP diluted earnings per share would have improved by $0.44 per share.

EBITDA for the fourth quarter was $41.9 million or 10.7% of revenue compared to $40.7 million or 12% of revenue in the prior year period and $46.6 million or 11.9% of revenue in the prior quarter. For the full year, EBITDA was $199.2 million or 13.4% of revenue compared to $177.1 million or 13.5% of revenue in 2024. We have included in our earnings release a reconciliation of GAAP net income to non-GAAP adjusted net income and GAAP net income to EBITDA, which provides additional details.

Cash flow provided by operations was $38.1 million for the fourth quarter. Free cash flow was $12.4 million, which included $25.7 million of capital expenditures. Net cash flow was a negative $9.7 million, which includes $23.8 million that was returned to our shareholders by executing on our previously announced $100 million stock buyback program. The objective of our share repurchase program is to return excess capital to shareholders while partially offsetting the dilutive impact of shares issued under our equity incentive plans.

For the full year, cash flow provided by operations was $215.5 million, an increase of $96.1 million compared to $119 million last year. Free cash flow in 2025 was $137.2 million, which included $78.4 million of capital expenditures. This represents a $90.8 million increase over the $46.4 million in 2024. And the net cash flow for the full year was a positive $57.6 million, which includes $33.8 million for the stock buyback program compared to a negative $3.8 million in net cash flow last year. I'd also like to point out that our free cash flow per share increased threefold to $2.95 per share in 2025 from $1 per share in 2024.

Turning to the balance sheet. At the end of fourth quarter, cash, cash equivalents, restricted cash plus short-term investments totaled approximately $382 million. Working capital was approximately $879 million and total debt, including long term and short term, was approximately $56 million. In terms of inventory, at the end of fourth quarter, total inventory days were approximately 161 as compared to 162 last quarter. Finished goods inventory days were 59 compared to 62 last quarter. Total inventory dollars increased $600,000 from the prior quarter to $471.5 million, consisting of a $2.1 million increase in work in process, a $1.2 million increase in raw materials and a $2.7 million decrease in finished goods.

Capital expenditures on a cash basis were $25.7 million for the fourth quarter or 6.6% of revenue and $78.4 million or 5.3% of revenue for the full year, both of which were within our targeted annualized range of 5% to 9% of revenue.

Now turning to our outlook. For the first quarter 2026, we expect revenue to be approximately $395 million, plus or minus 3%. At the midpoint, this represents a 19% increase year-over-year and a slight increase sequentially, which is significantly better than typical seasonality. GAAP gross margin is expected to be 31.5%, plus or minus 1%. Non-GAAP operating expenses, which are GAAP operating expenses adjusted for amortization of acquisition-related intangible assets, are expected to be approximately 26.5%, plus or minus 1%.

We expect net interest income to be approximately $1 million. Our income tax rate is expected to be 18.5%, plus or minus 3% and shares used to calculate EPS for the first quarter are anticipated to be approximately 46.4 million shares. Not included in these non-GAAP estimates is amortization of $3.9 million after tax for previous acquisitions.

With that said, I now turn the call over to Emily Yang.

Thank you, Brett, and good afternoon. As Gary and Brett mentioned, fourth quarter revenue was up over 15% year-over-year, flat sequentially and at the high end of our guidance, mainly driven by strong demand in Asia, especially in Taiwan for the AI server-related computing. Our global POS increased sequentially, led by North America and Europe, followed by Asia. This is a good indication of the overall market recovery in the automotive and industrial market. And our channel inventory decreased again, both in terms of dollars and weeks, which are now within our normal range of 11 to 14 weeks.

I will also highlight with the recent supply interruption in the market, we have been strategically supporting key customers on new opportunities and orders, specifically in the automotive and communication markets, while also further extending our design-in momentum across all end markets. Our key focus remains on building a strong win-win partnership with our customers for the long term.

Looking at global sales in the fourth quarter, Asia represented 78% of the revenue; Europe, 12%; and North America, 10%. In terms of our end markets, industrial was 22% of Diodes product revenue; automotive, 20%; computing, 28%; consumer 17%; and communication, 13% of the product revenue. Our automotive industrial revenue combined was 42%, which is a 1 percentage point increase compared to last quarter due to stronger demand in Europe.

In 2025, we introduced over 650 new part numbers, which approximately 40% of this specifically for the automotive market, where we have increased our addressable content to 239 per vehicle from 213 at the end of 2024 and from 160 at the end of 2023. And our content in the AI server applications this year increased to 103 from 90 last year.

Now let me review the end markets in greater detail. Starting with automotive market. Revenue in the quarter grew 6% sequentially and 20% for the full year as the inventory situation and overall demand continue to improve. The good news is we have started to see solid bookings with longer visibility on the orders. Additionally, the supply disruption I mentioned previously is expanding content opportunities for Diodes at key automotive customers.

During the quarter, we broadened our content and deepened our design-in momentum across all focus areas, including connected driving, comfort style safety and electrification. Diodes' level shifter gained broadened adoption in in-vehicle infotainment, ADAS and zonal control unit platforms, while our timing solutions saw additional design wins on PCI Express clock generators, buffers and low-voltage crystal oscillators supporting high-speed ADAS modules.

Complementing this momentum, our USB power delivery controllers and DC-DC converters continued to see strong traction across infotainment, charging interfaces and body electronics, while our hall effect sensors expanded into new applications, including e-latches, steering locks and cooling fans. In lighting and motor control applications, we achieved significant wins for multichannel LED drivers across several next-generation lighting programs. Demand for our current monitor remains strong in comfort focus motor system, such as power seats and power windows, while our LDO solutions continue to ramp in wireless charging and ADAS-related subsystems. Our bipolar junction transistors portfolio also gained momentum with new program wins supporting actuators and millimeter wave radar systems.

Turning to the industrial market. Revenue in the quarter was flat sequentially but increased 13% for the full year. Similar to the automotive market, the inventory situation continues to improve. We are beginning to see overall demand visibility and backlog improvement and are seeing more rush orders than ever before, which is further indication of the market recovery in 2026.

During the quarter, we saw solid momentum across power, sensing and automation applications. Our LED driver family continued to win designs in traffic signage projects, while current monitor experienced strong demand as power supply unit volumes increased. Diodes hall sensor and DC-DC buck converters also maintained steady growth, driven by expanding use in the fan motors and energy meter platforms. Our SBR product family also remained a key enabler in the industrial power with design-ins across power rack and server power manufacturers supporting AI applications.

In energy-related applications, our 1,200-volt silicon carbide Schottky barrier diodes were designed into next-generation energy storage platforms. Similarly, our gate driver ICs secured new design wins in battery storage inverters, reinforcing our position across industrial electrification and power control infrastructures.

In the computing market, although revenue was flat sequentially, we saw the strongest growth in this market for the full year, growing 25% over 2024. The highlight in this market continued to be strong demand across multiple product categories, driven by AI server adoption and data center expansion. Diodes I2C repeaters, multipliers and USB switches remain in high demand for server and AI-related server platforms from major global customers.

Our DDR MUX product line also experienced robust growth as AI server and data center consumers expanded memory bandwidth to support the accelerated AI workloads. We also achieved strong momentum for our PCI Express 5.0, 6.0 clock solutions, especially as server and notebook OEMs migrate to high-performance architectures optimized for AI systems.

In connectivity and power, our USB-C source switches with integrated CC controllers, along with our 20-volt low-noise LDOs, continue to gain traction, especially in 15-volt USB-C power ports for desktop and docking station applications. Additionally, our low-on-power switches saw increased adoption in data center SSD configurations, while our smart load switches captured multiple design wins for notebook power delivery systems. We also secured several design wins for our SBR product in power delivery adapters for the notebook.

In the consumer market, revenue was down 5% sequentially and up 8% for the full year. During the quarter, our WLED driver gained momentum in the virtual reality headsets, supporting next-generation high brightness display architectures, while our 5.0 OCT switches expanded in USB and HDMI port protection designs as connectivity requirement increased across personal electronics. Also, our bipolar junction transistor portfolio secured new design-ins across home security devices, whereas our discrete switching components remain essential for reliable sensing and control functions.

Lastly, in the communication market, revenue was flat sequentially and up 7% for the full year. We're seeing strong momentum across high-speed connectivity and networking applications driven by AI infrastructures. Our bidirectional level shifters continue to win designs in smartphones and our SBR rectifiers are also gaining traction in both smartphones and SSDs. We are also seeing growing demand for our differential crystal oscillators in smart NIC car and optical modules targeting next-generation 800-gig 1.6T transceivers supporting the industrial transition to higher bandwidth network infrastructure. And finally, our USB redrivers secured major design wins in the next-generation WiFi routers.

In summary, our focus in 2026 is executing towards our 3-year financial target to drive continued year-over-year growth momentum and margin expansion. With channel inventory at more normalized level and further signs of recovery in the automotive industrial market, we expect to see improvements in overall business outlook throughout the year. Additionally, our continued investment in content expansion initiatives targeting our key focus markets of automotive, industrial and computing for AI server-related applications should contribute to our future top and bottom line growth.

With that, we now open the floor to questions. Operator?

[Operator Instructions] Our first question today comes from David Williams from Benchmark.

Congrats on the really solid results here and the better outlook. Yes. I guess maybe first, Gary, you gave some pretty aggressive targets there that you've outlined. Can you kind of maybe walk us through the puts and takes and maybe how you see getting there? Maybe just stepping through the trajectory would be helpful.

Yes. And David, I think that's a really, really very good question. First, I really want to emphasize again, we're still committed to achieving the $1 billion GP long-term goal, right? And I do believe since the market is still kind of dynamic and the interim target of a $2 billion revenue is an important milestone for investors to understand and modeling how and when we are going to achieve our long-term $1 billion GP target.

So as in my speech, continue to drive and gaining share in the 3 key end market segments like automotive, industrial and AI server-related applications and also continue to improve cost structure and the product mix enhancement. And the $2 billion represent a 10.5% CAGR with about like $700 million gross profit is about like 15% CAGR and the 35% plus GP percent will deliver $4 EPS, which equivalent probably 50% CAGR for the 3-year period. And also to make this happen, we are talking about more than 45% GP fall-through for any incremental dollar contribute to our revenue, and that's very important.

That's very helpful. So I guess from the gross margin standpoint, very nice fall-through. What are the -- is that simply just the leverage? Or are you seeing some of the operational efficiencies that you've kind of worked on the last several quarters through the downturn? Is that really beginning to flow through? And then how should we think about the cadence of that gross margin improvement?

Well, actually, that's a very good question, too, because we have been working a lot to improve our cost structure, including improving the manufacturing efficiency and the product mix improvement. And the most important is we bring the revenue up, and that's going to try to help our underloading issue in our manufacturing currently.

Great. And just one more, if I may. Just -- as you kind of think about the growth trajectory through the year, how should we kind of think about that for the full year?

Well, we usually don't talk about the full year, but I do get a good feeling of the market demand getting much better this year, right, especially on the key segment that we're focusing on. And as we continue to drive this kind of initiative, including product mix improvement and push more cost reduction and manufacturing efficiency as well as continue to qualify and PC or process product to our plant and this will help minimize an underloading cost impact. So overall, the margin improvement for 2026 to me is very promising.

Yes. I think, David, let me just add a little bit, right? So if you look at the Q1 guidance, we actually guided a 19% year-over-year growth, right? So even we don't really guide the whole year guidance, we usually say, hey, usual seasonality. If you just plug in the usual seasonality, it kind of will give you a good estimate for the year, right? So I think you can use that as a reference.

And our next question comes from William Stein from Truist Securities.

Congrats on the good results. Regarding the new targets, I think you said that's a 3-year target. So should we contemplate this interim goal as something you plan to achieve in calendar '28?

Yes, definitely, yes. This is what I committed to the Board and also commit to the Street.

Great. And a couple of others, if I can. The delta between your current gross margins and the target that you laid out today, should we think about the majority of that as getting through underutilization charges? Like is that the major driver of this -- I think you highlighted a 45% drop-through. That doesn't sound like it's sort of normal operating leverage. It sounds like it's an underutilization charge going away. Is that the way we should think about that dynamic from here through '28?

Yes, definitely, underload charge is going to be the key factor for our GP percent. But that's not the only thing we want to improve, right? Not only the underloading charge, but also we want to improve the product mix enhancement and also want to concentrate focus on high-margin segments like automotive, industrial and AI-related server. Altogether will contribute more GP dollars and GP percent.

One final one, if I can. You have these manufacturing services agreements that I think are coming to an end this year or maybe they're just diminishing. If you can clarify that for us and help us prepare for any changes that might cause either positive or negative to profitability.

Yes. And your assumption is correct, and we cannot disclose too much detail about that, then they are about actually about this year. And that's the reason we try to continue reporting our product and process to the manufacturing in our GFAB and SPFAB. And so far, the progress is quite promising, and we do see quite a few key customers already adopted the product produced from those 2 wafer fabs. And I will say probably starting from next year, you're going to see the benefit contributing to our GP percent from those 2 wafer fabs.

And we do have a follow-up question from David Williams from Benchmark.

You were so efficient answering my first question. I figured I should throw in a couple of more. But maybe just on the opportunity with Nexperia or the customer that you discussed earlier. Can you maybe size the magnitude of that? And then I know that, that has historically been lower-margin business. Can you talk maybe about what you're doing to help stabilize the margin and not see the pressure here that you would typically see with that business.

Yes. So David, this is Emily, right? So I mentioned this before, any time there's a supply interruption, market strategic change direction or anything is always favorable for Diodes, right? So definitely, we're not interested to pick up a lot of the commodity business and stuff like that, but we actually use the opportunity to work with the customer to really deepen the relationship and make it really, I would say, beneficial long term for both of the companies, right? So that's pretty much the approach we are taking. So we are using the opportunity to expand our overall portfolio as well as our brand position.

And just one last one. Just kind of thinking about the Lunar holiday coming up in Asia. I know that, that is -- typically drives some seasonality. Are you sidestepping that? Are you just not seeing the impact? Or maybe talk about anything you're doing there to offset that typical weakness?

Yes. Chinese New Year is pretty standard, right? Definitely, there's going to be some shutdowns and some of the customers as well as taking the break, right? So we actually included all these estimates into our number. But like I mentioned, right, we're definitely seeing a really strong backlog, really strong bookings, strong book-to-bill ratio and everything. So that's the reason we actually guided a very strong Q1 estimate guidance to the Street. So like I said, the recovery in the market is a very good indication of the recovery.

And ladies and gentlemen, at this time, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to the management team for any closing remarks.

Thank you, everyone, for participating on today's call. We look forward to reporting our progress on next quarter's conference call. Operator, you may now disconnect.

And ladies and gentlemen, we will conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.

Good afternoon, and welcome to Diodes Incorporated Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Thursday, November 6, 2025. I'd now like to turn the call over to Leanne Sievers of the Shelton Group Investor Relations. Leanne, please go ahead.

Good afternoon, and welcome to Diodes Third Quarter 2025 Financial Results Conference Call. I'm Leanne Sievers, President of Shelton Group, Diodes Investor Relations firm. Joining us today are Diodes' President and CEO, Gary Yu; CFO, Brett Whitmire; Senior Vice President of Worldwide Sales and Marketing, Emily Yang; and Vice President of Marketing and Investor Relations, Gurmeet Dhaliwal. I'd like to remind our listeners that the results announced today are preliminary as they are subject to the company finalizing its closing procedures and customary quarterly review by the company's independent registered public accounting firm.

As such, these results are unaudited and subject to revision until the company files its Form 10-Q for its quarter ended September 30, 2025. In addition, management's prepared remarks contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995.

Actual results may differ from those discussed today, and therefore, we refer you to a more detailed discussion of the risks and uncertainties in the company's filings with the Securities and Exchange Commission, including Forms 10-K and 10-Q. In addition, any projections as to the company's future performance represent management's estimates as of today, November 6, 2025. Diodes assumes no obligation to update these projections in the future as market conditions may or may not change, except to the extent required by applicable law.

Additionally, the company's press release and management statements during this conference call will include discussions of certain measures and financial information in GAAP and non-GAAP terms. Included in the company's press release are definitions and reconciliations of GAAP to non-GAAP items, which provide additional details. Also throughout the company's press release and management statements during this conference call, we refer to net income attributable to common stockholders as GAAP net income.

For those of you unable to listen to the entire call at this time, a recording will be available via webcast for 90 days in the Investor Relations section of Diodes' website at www.diodes.com. And now I'll turn the call over to Diodes' President and CEO, Gary Yu. Gary, please go ahead.

Welcome, everyone, and thank you for joining us on today's conference call. As announced in our press release earlier today, revenue in the quarter increased 7% sequentially and 12% year-over-year, driven by strong demand across the general computing market, including for AI-related server applications as well as data center and agent computing. Our global point of sales increased the strongest in Asia, followed by North America. Additionally, our channel inventory is at a healthy level, decreasing again this quarter in terms of dollars and weeks with overall inventory dollar decreasing over 25% from peak levels.

Even though the rate of recovery in the automotive and industrial market continues to be slower than expected, revenue increased both sequentially and year-over-year in both of these end markets. When coupled with the computing market growing the strongest along with the consumer also increasing sequentially, product mix unfavorably weighted on the gross margin during the quarter. Future margin expansion will be driven by ongoing improvement in the product mix as the pace of recovery accelerate in our higher-margin automotive and industrial end markets, combined with increased new product introductions in our target markets as well as improved loading across our manufacturing facilities.

At the midpoint of our fourth quarter guidance, we expect to achieve approximately 12% growth for the full year. Looking forward, we are gaining increasing confidence in broader demand improvement in the automotive and industrial market. Diodes is gaining increasing market share in the automotive market with new programs scheduled to launch early next year. Combined with increasing content in industrial applications like AI robotic, power management, medical and factory automation.

With that, let me now turn the call over to Brett to discuss our third quarter 2025 financial results as well as our fourth quarter guidance in more detail.

Thanks, Gary, and good afternoon, everyone. Revenue for the third quarter 2025 was $392.2 million, an increase of 12% over $350.1 million in the third quarter 2024 and a 7.1% increase over $366.2 million in the second quarter 2025. Gross profit for the third quarter was $120.5 million or 30.7% of revenue compared to $118 million or 33.7% of revenue in the prior year quarter and $115.3 million or 31.5% of revenue in the prior quarter.

GAAP operating expenses for the third quarter were $108.9 million or 27.8% of revenue and on a non-GAAP basis were $103.1 million or 26.3% of revenue, which excludes $5.9 million amortization of acquisition-related intangible asset costs. This compares to GAAP operating expenses in the third quarter 2024 of $96.1 million or 27.5% of revenue and $105.9 million or 28.9% of revenue in the prior quarter. Non-GAAP operating expenses in the prior quarter were $99.8 million or 27.3% of revenue.

Total other income amounted to approximately $7.5 million for the quarter, consisting of $8.5 million of interest income, $2.4 million in unrealized gains from investments, $0.4 million in other income, $3.3 million in foreign currency losses and $0.5 million in interest expense.

Income before taxes and noncontrolling interest in the third quarter 2025 was $19 million compared to income of $18.8 million in the prior year period and $53.2 million in the previous quarter. Turning to income taxes. Our effective income tax rate for the third quarter was approximately 18.7%. We continue to expect the tax rate for the full year to be approximately 18%, plus or minus 3%. GAAP net income for the third quarter was $14.3 million or $0.31 per diluted share compared to net income of $13.7 million or $0.30 per diluted share in the prior year quarter and net income of $46.1 million or $0.99 per diluted share last quarter.

The share count used to compute GAAP income per share for the third quarter of 2025 was 46.4 million shares. Non-GAAP adjusted net income in the third quarter was $17.2 million or $0.37 per diluted share, which excluded net of tax $4.8 million of acquisition-related intangible asset costs and $1.9 million of unrealized gain on investments. This compares to non-GAAP adjusted net income of $20.1 million or $0.43 per diluted share in the third quarter of 2024 and $15 million or $0.32 per diluted share in the prior quarter.

Excluding noncash share-based compensation expense of $5.4 million for the third quarter, net of tax, both GAAP net income and non-GAAP adjusted net income would have increased by $0.12 per share. EBITDA for the third quarter was $46.6 million or 11.9% of revenue compared to $46.9 million or 13.4% of revenue in the prior year period and $84.5 million or 23.1% of revenue in the prior quarter.

We have included in our earnings release a reconciliation of GAAP net income to non-GAAP adjusted net income and GAAP net income to EBITDA, which provides additional details. Cash flow provided by operations was $79.1 million for the third quarter. Free cash flow was $62.8 million, which included $16.3 million of capital expenditures. Net cash flow was a positive $59.3 million. Free cash flow per share was $1.35 for the quarter and $4.02 per share for the trailing 12 months, approaching the historical high of $4.34 per share in 2021.

Turning to the balance sheet. At the end of third quarter, cash, cash equivalents, restricted cash plus short-term investments totaled approximately $392 million. Working capital was approximately $890 million and total debt, including long term and short term, was approximately $58 million. In terms of inventory, at the end of the third quarter, total inventory days were approximately 162 as compared to 173 last quarter, down approximately 11 days sequentially. Finished goods inventory days were 62, a decrease of 9 days from the 71 days last quarter.

Total inventory dollars decreased $11.8 million from the prior quarter to $470.9 million, consisting of a $17.3 million decrease in finished goods and a $1 million decrease in work in process and a $6.5 million increase in raw materials. Capital expenditures on a cash basis were $16.3 million for the third quarter or 4.2% of revenue, which was below our targeted annualized range of 5% to 9% of revenue.

Now turning to our outlook. For the fourth quarter of 2025, we expect revenue to be approximately $380 million, plus or minus 3%. At the midpoint, this is better than typical seasonality from third quarter and represents a 12% increase over the prior year period and will be the fifth consecutive quarter of year-over-year growth. GAAP gross margin is expected to be 31%, plus or minus 1%. Non-GAAP operating expenses, which are GAAP operating expenses adjusted for amortization of acquisition-related intangible assets, are expected to be approximately 27% of revenue, plus or minus 1%.

We expect net interest income to be approximately $1 million. Our income tax rate is expected to be 18.5%, plus or minus 3%, and shares used to calculate EPS for the fourth quarter are anticipated to be approximately 46.4 million shares. Not included in these non-GAAP estimates is amortization of $4.8 million after tax for previous acquisitions. With that said, I now turn the call over to Emily Yang.

Thank you, Brad, and good afternoon. Revenue in the third quarter was up 7.1% sequentially and at the midpoint of our guidance, mainly driven by strong demand in Asia, especially in Taiwan for the AI computing applications. Our global point of sales increased in Asia, followed by North America and our channel inventory decreased both in dollars and in weeks. During the quarter, we continued to drive our new product initiative with approximately 180 new part numbers, of which 60 were for automotive applications.

Looking at the global sales in the third quarter, Asia represented 78% of the revenue; Europe, 12%; and North America, 10%. In terms of our end markets, industrial was 22% of Diodes product revenue; automotive, 19%; computing, 28%; consumer, 18%; and communications, 13% of the product revenue. Our automotive industrial revenue combined was 41%, which was 1 percentage point lower compared to the last quarter. Even though automotive industrial revenue increased quarter-over-quarter, the computing end market experienced stronger growth than the 7% of the company average for the quarter and the industrial market grew at a lower rate than the average.

Now let me review the end markets in greater details. Starting with automotive. Revenue in the quarter grew 8.5% sequentially and 18.5% in the first 3 quarters over last year, even though as a percentage of the total product revenue was flat to the last quarter due to the growth in the other markets. The revenue increase during the quarter serves as a further evidence that the inventory situation continued to improve even though the overall demand remained dynamic and the pace of recovery is slower than expected.

The other positive news is that we are starting to see more new programs scheduled to ramp early next year. Our controllers and MOSFET combination from the low-voltage MOSFET product line has established a strong presence in the automotive DC source applications. Our newly released 50A and 650-volt automotive-grade Silicon Carbide Schottky Barrier Diodes are specifically seeing traction in energy storage systems. And our small signal bipolar junction transistors devices packaged in DFM are proving to be valuable for general-purpose signal switching, offering flexibility and compactness for various electronic designs.

Additionally, our latest NPN and PNP bipolar junction transistor products feature industrial-leading low saturated voltage, making them ideal for a range of automotive applications. These products are ideally suited for voltage regulation, DC-DC converters, motors as well as LED lighting, engine control units, power management and linear controllers. Diodes TVS products are being designed into battery management system applications, providing robust search and overvoltage protection for reliable automotive battery performance.

In addition to our TVS products, our switching diodes, Zener diodes and SBR products have design wins in autonomous driving, telematics and infotainment applications. And our USB 2, signal booster devices are being adopted for in-car charging solutions and other cockpit electronics, enabling stable signal transmission in long cable environments. We have also seen strong demand for our low quiescent current LDO operating at 40 to 60 volt, driven by increased production of MCU power supply systems.

Our automotive Hall effect sensors, including latch and Omnipolar switch variant have experienced double-digit growth, driven by new design wins in DC motors, window and tailgate lifters, cooling fans and glass ball sensors. This momentum is expected to continue as automotive design become increasingly more sophisticated. And lastly, our LED driver are seeing solid demand supporting a diverse range of applications such as gear shift control indicators, interior cabin lighting and mood lighting.

Turning to industrial market. Similar to the automotive market, the inventory situation continues to improve gradually with revenue in this market grew almost 4% sequentially and 13% for the first 9 months. We continue to expect the overall inventory situation will begin to normalize next year. We are seeing applications such as AI robotics, medical and factory automation gaining strong demand momentum. With the increasing power consumption by new systems, the importance of power supply and backup power solutions for AI servers is becoming increasingly critical.

Next-generation server power supply systems are transitioning from the current 48-volt system to 400-volt and 800-volt systems and adopting a stand-alone power rack design. Diodes SBR products, Silicon Carbide MOSFET, ideal diode controllers are gaining traction in this innovative applications are increasingly being adopted by a range of power supply customers. Additionally, our portfolio of 50M 1,200-volt Silicon Carbide Schottky Barrier Diodes products are achieving success in energy storage applications, delivering efficient and reliable performance.

And our silicon carbide MOSFETs are also seeing increasing adoption, especially for applications such as EV chargers and power supply for AI surfers and data center applications. Also in the industrial, Diodes TVS products are being integrated into power adapters to provide robust ESD and search protection, enhancing device reliability and our high-voltage sensors, low dropout regulators and voltage reference solutions are demonstrating strong momentum in a variety of industrial applications, including fan motors, household appliances, power tools and e-meters.

In the computing market, we saw the strongest growth this quarter, increasing almost 17% sequentially and 22% in the first 9 months compared to last year. The highlight continues to be the strong demand momentum for AI-related applications. With the chipset refresh cycle underway, we are gaining strong traction and market share across our connectivity and timing product line with particular strength in PCI Express 5.0 and 6.0 clock solutions.

This growth is fueled by increasing demand within AI, data center and edge computing applications. Our level shifter products are also seeing notable expansion, especially in server applications with major customers. Additionally, our signal integrity and high-speed switch portfolio, including USB4 and PCIe 5 and 6 has gained significant traction. These products are being widely adopted in key applications such as AI cars for server and solid-state drivers. Our ESD protection devices are also increasingly being integrated into SSD applications, showing a positive ramp-up.

We also continue to secure design wins for our PCI Express 4.0 and 5.0 redriver solutions and are now entering solid production phase in both notebook and SSD applications. And our power switches are in high demand for the data center SSDs, while USB-C source switch are being utilized in power ports for the desktop and docking stations. Our linear LED drivers are also seeing increased deployment in servers.

In the consumer market, revenue also increased 8.5% sequentially and 7% for the first 9 months, even though flat as a percentage of the total product revenue. Diodes bridge rectifiers are being designed into multiple power adapters that are ramping up, fueled by increased demand in the gaming systems. The adoption of DP 2.0 redrivers is on the rise in high-resolution gaming monitors, supporting enhanced image quality and faster refresh rates. Additionally, adoption of our MIPI switches and redrivers is also ramping up as they are being incorporated into augmented reality glasses, signaling rapid growth opportunities in wearable display technologies.

Lastly, in the communication market, overall growth was relatively flat sequentially and a slight decrease for the first 9 months. We are, however, seeing pockets of growth driven by the AI and high-speed interconnect applications. This demand is being driven diodes introduction of new crystal oscillators that offer significant lower jitter less than 60 femtoseconds and also support higher frequency, now reaching 312.5 megahertz in addition to the previous 156.25 megahertz.

These advanced oscillators are gaining adoption in the optical transceiver modules, which are integral to the high-speed 800G and 1.6T optical communications within data center and the auto directional level shifter and the low dropout regulators experienced strong demand driven by the growth of AI-enabled smartphone applications.

In summary, our continued year-over-year growth momentum is a result of our past design wins and content expansion initiatives across our target end markets. Additionally, our continuous investment in new product introduction in our high-margin end markets of automotive industrial position us well for a return to strong growth in those markets as the recovery accelerates.

And with a return to more healthy inventory level and shipments more closely reflecting true end demand, we expect to see increased loading at our manufacturing facilities and improving margin over the coming quarters.

With that, we now open the floor to questions. Operator?

[Operator Instructions] We'll take our first question today from the line of David Williams at Benchmark.

Congrats on the solid results here. I guess maybe first question, Emily, you kind of touched on this at the end on the increased loadings. But as you kind of think about the gross margin for the year and what those loadings could look like, can you kind of give us a sense of what your expectations are for growth and maybe how those loadings should look as we move through next year?

Yes. So I think if you look at the gross margin, right, there's a couple of areas that we believe is going to improve over time, right? So number one, we do expect the product mix will continue to improve throughout the quarters, right? With a lot of pipeline, we have a lot of success in the automotive with the key focus introducing a lot of new products, we are actually confident that the combination of the product mix will continue, right?

And then if we look at the Pericom product family, we continue to focus on the AI areas. We believe that will continue to help us from the product mix. On top of that, we have new product introduced throughout the quarters, especially focus in automotive area and some other areas. So again, right, that's part of the product mix. For the longer term, 2026, we do expect the revenue to be a growth year, right?

So naturally, when we grow the revenue, that will increase the loading of our factories, right? -- we're also aggressively porting our product into our factories from outside to inside and balance overall the loading as well. So gradually, that will show some improvement, right? I think going down to manufacturing efficiency, I think overall, Gary and the company is driving very aggressively for cost down and continue improving on that area.

So I would say if you add all these things together, that's actually the reason that we believe. And then on top of that, right, I also talked about it, if we look at the channel inventory, we believe the ship in, the ship out is going to be more balanced moving forward. We have been depleting quite a lot for the last few quarters, and that's actually going to get more stabilized. So I would say that's another angle to think about it.

Okay. Great. And then maybe on the tariff side, it seems like some of your peers have had a challenging time kind of sidestepping some of the earlier in the year pull-ins, but that doesn't seem to have impacted you, and we're not seeing it here in the fourth quarter. Maybe talk about that, how you're able to navigate that. But are you seeing that impact? Or could you potentially see that as we move into next year? Is there anything, I guess, from that perspective that we should be thinking about?

So David, I want to make sure you are talking about the tariff importing into U.S?

Yes. Just the general demand trends as we saw with the tariffs that were driving some earlier loadings for production to come to the U.S., just that -- just the demand dynamics around that and that channel inventory associated with it.

I would say, overall, we didn't really see the big spike or change overall for the demand point of view. I think tariff is not new just for last quarter. It has been in place for quite some time. I think we are working aggressively leverage our flexible manufacturing site and moving things around to minimize the tariff overall impact for U.S. revenue. I think on top of it, right, majority or there's quite a lot of revenue within North America is actually importing into Mexico or Canada.

So that's actually also a different story. I would say, all in all, if you look at the overall percentage of the business for North America is still a very small percentage. So that's the reason that we are working different angles, but the overall impact is relatively small for Diodes.

But -- and I would like to add a comment on that. The market is very dynamic, especially like country to country, this kind of geopolitical issue. So at Diodesn we always want to keep our flexibility to support customer anywhere they want it.

Okay. All right. Very good. Certainly appreciate that. And maybe just lastly for me is on the automotive side. You've talked about things getting better there, inventory is better. How do you see maybe your position given your content growth and these programs that are ramping next year? How do you think we should look at the revenue growth trajectory for automotive specifically as we get into next year?

Yes. So current percentage for automotive for us based on the Q3 result is 19%, right? We definitely expect our automotive percentage will continue to improve in 2026, especially with the market share gain and the content expansion that you just mentioned.

Next, we will hear from the line of Tristan Gerra at Baird.

You mentioned in-sourcing as a gross margin catalyst for '26. How should we look at the gross margin benefit for an analog product currently outsourced in Korea or in Japan versus once it moved internally? And is it fair to say that the qualification process for your South Portland, Maine fab is ongoing, and it sounds that perhaps it's more of a second half of next year dynamic given that industrial and automotive are still somewhat in recovery mode?

Okay. Tristan, this is Gary. Let me help to answer this question for you, right? And by moving external to external, definitely going to benefit Diodes a lot, right? For example, if I subcon to my wafer to our subcon partner, they're definitely going to earn some premium from Diodes and then we can save the premium and by loading internally with our like kind of very, very effective cost this kind of model on that.

So definitely, we can enjoy the benefit of moving external to internal. As for the analog part, we continue loading or qualify the process new product into our SP fab. And we do see a very, very good progress so far, and we do have our new product or requalified product from this wafer fab being qualified in our key customer side.

And we do see the PO coming in just recently from the previous couple of quarters. So to offset our OEM customer under load issue or continue to drive the demand, we do significantly improve our loading in those particular SP fab to offset this kind of under loading issue in the cost. So for year 2026, I do believe loading will be improved and the GP coming from this wafer fab will improve, too.

Great. That's very useful. And then you mentioned AI as a key driver of computing, but you also mentioned computing being a negative on mix. What percentage of your computing revenue right now is data center? And then any way to quantify how much of the growth is coming from AI-related products?

Yes, Tristan, this is Emily. We're sorry, right now, we actually don't have the breakdown information. But if you look at our Q3 result, right, computing is the strongest growth market segment for us -- we actually achieved 70% -- 17% sequentially and 22% just compare the first 3 quarters, right?

A majority of this growth is driven by AI. So I think the other thing I want to point it out, right, AI is not just in the computer segments, right? We're also, for example, seeing AI related in the industrial power supply or some other edge AI applications that's driving some of the refresh cycle.

That's actually the reason we haven't been able to break it out. I think on top of that, if you really think about our product, it's really fitted for a lot of applications, not just limited to AI, right? But I would say, all in all, it's really positive. We're actually excited to see the performance and the growth, especially in the computing market segment.

Yes. And just like Emily said, no matter AI in compute or industrial, we do see this kind of market segment will continue to grow next year and even the year after next year. And at the same time, we continue to introduce a new product into this segment. And this new product, usually, we can enjoy much better GP on that. So that's really we're going to put our R&D focus on that but continue to grow our GP percent in the future.

Okay. Great. And just one quick last one. Do you see yourself as a benefit from the disruptions around Nexperia? Because my understanding is that it's a lot of discrete product. And are you second sourcing some of that? Is that a tailwind for next year?

Yes. Tristan, we're definitely aware of the situation. Discrete, Diodes, rectifiers, MOSFETs, logic, definitely part of our broad portfolio, and it does cross over to some of our peers like Nexperia, right? Like I mentioned before, any time there's a change of supply situation, strategic decision, whether change price or supply or low-margin focus, it always creates opportunity for Diodes, and we always utilize this type of opportunities to really expand and build a stronger relationship with our strategic customers and also the focus in automotive market segment, right?

We do review all this business very carefully and engage in the areas that fit into our overall long-term strategy and focus. So our goal at the end is really better serve the customers overall.

[Operator Instructions] We'll hear next from William Stein at Truist.

This is Elliott on for Will. You mentioned 2026 being a growth year, and it looks like recent top line growth is holding in around plus 10% year-over-year. Is that a reasonable level for us to expect through 2026? And I'm wondering if you could give us some examples of end markets or products or applications that could maybe trigger a more robust recovery than, say, plus 10%?

All right. This is Gary. Let me try to help answer this question. Yes, the answer to you is yes, for sure. We do believe the year 2026 will be another good year for Diodes. Not only the revenue growth like a double digit, I want to drive on that way, but also I want to make sure our profitability also grows aligned with our revenue growth.

That's our commitment to the shareholders. And as for which segment we are looking for the most aggressive growth, one is AI, as Emily mentioned that about in the previous answer. Another one will be automotive plus industrial because we do see the automotive and industrial in the near future, not only the segment increase, but also we do have a newer product and introduced into this segment and been designing since the past couple of quarters. So we do see the revenue is going to be significant growth in these two segments.

Yes. I think on top of that, right, we went through a period of inventory adjustment. We believe that by 2026, even with few customers' inventory situation will continue to improve, and that naturally is going to drive some of the demand as well.

Exactly.

Okay. And one more, if I can, on -- we've talked previously about a 20% operating margin target. I'm wondering if you could give us some color and maybe be a little more prescriptive in terms of the different variables you gave earlier about margins improving of how you can get to potentially that 20% range again from the -- call it, mid-single digits today. What's the lion's share? Anything like that you can provide?

Okay. Let me try to give you a very high-level direction I want to drive on that. The first, we want to drive top line means like revenue is going to be growth, right? And along with the GP and GP percent improvement on that direction on the growth mode. At the same time, and I really want to keep our SG&A flat or less percentage while the revenue growth, but I really want to put more focus on R&D expenditure along with the revenue growth.

With that, I do believe we can improve more on our bottom line. So let me emphasize again, revenue growth and along with the GP percent GPM growth, we keep SG&A percentage flat or reduced. And at the same time, I want to focus on -- invest more on R&D.

Yes. A couple of things I would add to that. This is Brett. Is that when you think about that 20% margin, the building blocks to that are principally two things. Our gross margin continuing to improve and working its way back to 40-plus percent.

And you basically got the OpEx that we have -- that we've shown that at the higher revenue levels will be around 20%. And as Gary mentioned, the goal is to -- and what you can see in our investment is leaning heavier into the R&D piece than we are on the SG&A. And so I think that's -- those are the two main components. And the big one we spend the time on is on the gross margin and the real drivers to that and building on the differentiated, more quality products across our portfolio while then in addition, not adding to our manufacturing footprint while we do that, but getting the entitlement of it as -- that's in place.

So those things together, it will accelerate the margin improvement and will basically transition back to margin that we saw a few years ago.

And now we'll take a follow-up from Mr. David Williams at Benchmark.

On the AI side, is there a way to kind of parse out the demand or new demand that you're seeing relative to maybe the content expansion? And the reason I'm just trying to understand, are you driving -- and I get that you're probably driving both, but what is the bigger one? Is it just increased demand all around? Or are you just able to sell more products into each one of these solutions?

I think it's really a combination of both, right? I think it's important that we continue to drive new product introductions. Like I mentioned, there's a lot of change even with the AI data center with some shifting of transitioning from 48-volt to 400-volt and 800-volt, which also means that there's a new set of requirements that need to be fitted into the application.

So I think it's important for Diodes continue to focus on the technology, continue to focus on new product introduction that will be well fitted into the new application, right? At the same time, the volume will continue to grow. When you combine those two together, it's going to get the best result overall.

Yes. Another important information I'd like to share is like Diodes and Vantage has a very good relationship with those like Tier 1 customers, no matter any company or other company, right? And that's why we understand from their architecture, from our system point of view, we know what they want 3 years or 5 years from now. That's why we cooperate with them to develop the product they wanted.

Okay. Okay. That's great color there. And then maybe just on the inventory side, do you get a sense that some of your customers have started to replenish if you look across your inventory levels? And is that something that's helped here? Or do you think that is still in front of us, just kind of given where inventory levels are today?

I believe a lot of customers' inventory situation changed a lot. There are still some pockets of customers, especially, I would say, in the industrial market segment that's still going through some corrections, but we also expect situation should be improved or completed by the beginning of next year.

Yes. So David, one way to think about that, too, is that you've seen the last 2 quarters, the internal inventory as well as, as we've described, our channel inventory continue to come down. And as long as that is happening in that way, you're not getting the full entitlement of the market on our margins.

And so I think going forward, we feel a more balanced basically ship in and ship out and then the ability to have the entitlement of the full demand coming through our margin. And as Emily said, we think we'll -- you'll start to see that as we transition into probably second quarter next year, especially as we start to see the strength.

And we have no further questions from our audience today. I'm happy to turn the floor back to Mr. Gary Yu for any additional or closing remarks.

Thank you, everyone, for participating on today's call. We look forward to reporting our progress on next quarter's conference call.

Operator, you may now disconnect.

Ladies and gentlemen, thank you for joining today. You may now disconnect your lines.

Good afternoon, and welcome to Diodes Incorporated Second Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, Thursday, August 7, 2025. I would now like to turn the call over to Leanne Sievers of Shelton Group Investor Relations. Leanne, please go ahead.

Good afternoon, and welcome to Diodes Second Quarter 2025 Financial Results Conference Call. I'm Leanne Sievers, President of Shelton Group, Diodes' Investor Relations firm.

Joining us today are Diodes' President and CEO, Gary Yu; CFO, Brett Whitmire; Senior Vice President of Worldwide Sales and Marketing, Emily Yang; and Director of Investor Relations, Gurmeet Dhaliwal.

I'd like to remind our listeners that the results announced today are preliminary as they are subject to the company finalizing its closing procedures and customary quarterly review by the company's independent registered public accounting firm. As such, these results are unaudited and subject to revision until the company files its Form 10-Q for its quarter ended June 30, 2025.

In addition, management's prepared remarks contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995.

Actual results may differ from those discussed today, and therefore, we refer you to a more detailed discussion of the risks and uncertainties in the company's filings with the Securities and Exchange Commission, including Forms 10-K and 10-Q. In addition, any projections as to the company's future performance represent management's estimates as of today, August 7, 2025. Diodes assumes no obligation to update these projections in the future as market conditions may or may not change, except to the extent required by applicable law.

Additionally, the company's press release and management statements during this conference call will include discussions of certain measures and financial information in GAAP and non-GAAP terms. Included in the company's press release are definitions and reconciliations of GAAP to non-GAAP items, which provide additional details. Also throughout the company's press release and management statements during this conference call, we refer to net income attributable to common stockholders as GAAP net income.

For those of you unable to listen to the entire call at this time, a recording will be available via webcast for 90 days in the Investor Relations section of Diodes website at www.diodes.com.

And now I'll turn the call over to Diodes' President and CEO, Gary Yu. Gary, please go ahead.

Welcome, everyone, and thank you for joining us on today's conference call. As announced in our press release earlier today, our above expect revenue results represent our third consecutive quarter of year-over-year growth, indicating the ongoing improvement in market conditions and the demand.

Product sales increased sequentially across all regions with double-digit growth in Asia. The increasing demand in the quarter also contributed to channel inventory being reduced further with both channel and internal inventory days decreasing.

While we continue to see positive signs of a broader market recovery, our consumer end market experienced the strongest growth during the quarter, contributing to less favorable product mix, combined with our higher-margin automotive and industrial markets remain effective flat as a percentage of total revenue. Additionally, the channel inventory depletion continued to limit increased loading at our manufacturing facilities, resulting in underloading costs also being a headwind to gross margin expansion.

Even when considering those dynamics, we continue to increase gross profit dollar and delivered non-GAAP earnings growth of almost 70% sequentially as we continue to closely manage expenses. As we look to the third quarter, we expect to extend our strong growth momentum with revenue anticipated to increase 7% sequentially and 12% year-over-year at the midpoint, mainly driven by strong demand in Asia for AI-related computing applications and increasing demand in the EV automotive market in China.

With that, let me now turn the call over to Brett to discuss our second quarter 2025 financial results as well as our third quarter guidance in more detail.

Thanks, Gary, and good afternoon, everyone. Revenue for the second quarter 2025 was $366.2 million, an increase of 14% over $319.8 million in the second quarter 2024 and a 10% increase over $332.1 million in the first quarter 2025. Gross profit for the second quarter was $115.3 million or 31.5% of revenue compared to $107.4 million, or 33.6% of revenue in the prior year quarter and $104.7 million or 31.5% of revenue in the prior quarter.

GAAP operating expenses for the second quarter were $105.9 million, or 28.9% of revenue and on a non-GAAP basis were $99.8 million, or 27.3% of revenue, which excludes $5.8 million amortization of acquisition-related intangible asset expenses. This compares to GAAP operating expenses in the second quarter 2024 of $103.7 million or 32.4% of revenue and $103.4 million or 31.1% of revenue in the prior quarter.

Non-GAAP operating expenses in the prior quarter were $97.1 million or 29.3% of revenue. Total other income amounted to approximately $43.8 million for the quarter, consisting of $29.6 million in unrealized gains from investments, $13.7 million in gains from disposal of a subsidiary, $7 million in interest income, $0.4 million in other income, $6.4 million in foreign currency losses and $0.5 million in interest expense.

Income before taxes and noncontrolling interest in the second quarter 2025 was $53.2 million, compared to income of $12.8 million in the prior year period and a loss of $2.8 million in the previous quarter.

Turning to income taxes. Our effective income tax rate for the second quarter was approximately 17%. We continue to expect the tax rate for the full year to be approximately 18%, plus or minus 3%. GAAP net income for the second quarter was $46.1 million, or $0.99 per diluted share compared to net income of $8 million, or $0.17 per diluted share in the prior year quarter and a net loss of $4.4 million or $0.10 per diluted share last quarter. Share count used to compute GAAP income per share for the second quarter of 2025 was 46.5 million shares. Non-GAAP adjusted net income in the second quarter was $15 million or $0.32 per diluted share, which excluded net of tax, $23.4 million noncash unrealized mark-to-market gain on investment value adjustment, $12.7 million gain on disposal of a subsidiary, $4.8 million of acquisition-related intangible asset costs.

This compares to non-GAAP adjusted net income of $15.4 million or $0.33 per diluted share in the second quarter of 2024 and $8.8 million or $0.19 per diluted share in the prior quarter. Excluding noncash share-based compensation expense of $4.6 million for the second quarter, net of tax, both GAAP net income and non-GAAP adjusted net income would have increased by $0.10 per share. EBITDA for the second quarter was $84.5 million or 23.1% of revenue compared to $41.1 million or 12.8% of revenue in the prior year period and $26.2 million or 7.9% of revenue in the prior quarter. We have included in our earnings release a reconciliation of GAAP net income to non-GAAP adjusted net income and GAAP net income to EBITDA, which provides additional details.

Cash flow provided by operations was $41.5 million for the second quarter. Free cash flow was $21.1 million, which included $20.4 million of capital expenditures. Net cash flow was a negative $18.2 million, including approximately $49.2 million from an increase in equity investment and $10 million for stock buyback program.

Turning to the balance sheet. At the end of second quarter, cash, cash equivalents, restricted cash plus short-term investments totaled approximately $333 million. Working capital was approximately $871 million and total debt, including long term and short term, was approximately $54 million. In terms of inventory, at the end of second quarter, total inventory days were approximately 173 as compared to 187 last quarter, down approximately 14 days sequentially.

Finished goods inventory days were 71, a decrease of 9 days from the 80 last quarter. Total inventory dollars increased $11.7 million from the prior quarter to $482.7 million, consisting of $9.7 million increase in work in process, a $9.1 million increase in raw materials and a $7.1 million decrease in finished goods.

Capital expenditures on a cash basis were $20.4 million for the second quarter or 5.6% of revenue, which was at the low end of our targeted range of 5% to 9% of revenue. Now turning to our outlook. For the third quarter 2025, we expect revenue to increase to approximately $392 million, plus or minus 3%, which represents 12% growth over the prior year period at the midpoint, which will be the fourth consecutive quarter of year-over-year growth. GAAP gross margin is expected to be 31.6%, plus or minus 1%. Non-GAAP operating expenses, which are GAAP operating expenses adjusted for amortization of acquisition-related intangible assets, are expected to be approximately 26% of revenue, plus or minus 1%.

We expect net interest income to be approximately $1 million. Our income tax rate is expected to be 18%, plus or minus 3%, and shares used to calculate EPS for the third quarter are anticipated to be approximately 46.5 million. Not included in these non-GAAP estimates is amortization of $4.8 million after tax for previous acquisitions.

With that said, I now turn the call over to Emily Yang.

Thank you, Brett, and good afternoon. Revenue in the quarter was up 10.3% sequentially and above the high end of our guidance, mainly driven by strong demand in Asia, especially AI-related computing and consumer ramp-up for new programs. Our global POS increased across all regions with double-digit growth in Asia. And our channel inventory decreased again this quarter, both in terms of dollars and weeks. We are also seeing this momentum extend into the third quarter with strong beginning backlog. During the second quarter, we further expanded our new product initiatives with over 100 new part numbers introduced, of which over 50% were automotive parts.

Looking at global sales in the second quarter, Asia represented 78% of revenue; Europe, 12%; and North America, 10%. In terms of our end markets, industrial was 23% of Diodes product revenue; automotive, 19%; computing, 26%; consumer, 18%; and communications, 14% of product revenue. Our automotive industrial markets combined totaled 42% at the end of this quarter. We are beginning to see signs of gradual demand improvement in this market, but there is still pockets of channel inventory to work through.

Now let me review the end markets in greater detail. Starting with the automotive market. During the quarter, we continued to see improvement even though there's continuing to be inventory digestion at some customers, as I mentioned. We're also beginning to see increasing demand and strength in the EV auto market in China as we move into the third quarter. The China automakers are increasingly focused on the in-cabin experience with more features like ADAS, Infotainment, smart cockpit, telematics and lighting, which is driving demand for Diodes products and our content per car.

Specific to the second quarter, we saw increasing adoption of our growth of USB Type-C redrivers, retimers, switches and active Crossbar Mux along with new design wins for TVS and ESC protection devices in rear-seat entertainment and smart cockpit applications.

We also received solid demand for overcurrent protection switches in electronic control unit systems and are also gaining design-win momentum for protection devices in vehicle display and power distribution unit applications.

We're also seeing strong demand in design wins for our automotive compliance, DC-to-DC devices, LDOs, ideal diodes controllers as well as our FBR products for ADAS, telematics and infotainment systems. Additionally, Diodes LED controllers are winning designs in ADAS front lighting applications and our linear LED drivers are winning designs in the rear exterior lighting and EV car charging indicator applications.

Also during the quarter, we added multiple new products through the introduction of LD MOSFET for DC/DC, battery management system, brushless DC motors, 80-volt and 100-volt tall products and 1,700-volt and 1,200-volt silicon carbide MOSFETs.

Turning to industrial market. Even though the inventory situation is improving, some customers are still going through adjustments. We expect this will last another quarter or 2. From a demand perspective, we are seeing good recovery and strong momentum for applications such as AI robotics, medical and automation.

During the quarter, we continue to gain strong design traction for our silicon carbide Schottky barrier diodes and photocouplers in energy storage systems and our silicon carbide MOSFETs in EV charging platforms for fast charging infrastructures. We have also secured new designs for our Schottky barrier diodes, SBR and Zener diodes in DC fans, power over Ethernet and adapter applications across industrial power segments.

Also during the quarter, our wide wing LDOs received solid demand from fans, power tools and e-meter applications, while our multichannel LED drivers ramp up in signage applications. We are also seeing traction for SBR products in power supply applications for telecom, desktop PC and server switch mode power supply and our protection devices are winning designs in battery management systems.

In the computing market, the highlight continues to be strong demand momentum for AI-related applications. And with the current chipset refresh cycle, we are seeing increasing opportunities and strong share gains.

Our PCI Express 3.0 packet switches are leading the momentum in the AI applications, but are also expanding beyond AI servers into other applications like industrial and security. In fact, we have multiple designings for our packet switches from various applications across all regions that should drive further growth for our products. Also during the quarter, we are seeing increased adoption of HDMI, display core, USB-C redrivers, Crossbar Mux's switches as well as clock buffers with LSFO shifters in various computing applications like workstations, gaming, notebook, desktop, docking stations, monitors and mini PCs.

In terms of product introduction, we introduced several new products, including PCI Express clock buffers, and clock MOSFETs and Crossbar Muxs, that are seeing strong momentum in server and data center applications. The demand for high-speed data processing has significantly increased in recent years, and Diodes is well positioned to gain increasing shares with our broadened product portfolio.

As an example, our SBR products provide excellent server protection for high-speed data applications, along with our 40-volt boost controllers and DC-DC Buck converters in server and data center applications.

In the consumer market, the revenue increase was the strongest of our end market and was mainly driven by customers ramp up new designs for applications such as wearables, audio, charging, camera, game consoles and personal care combined with overall market share gains.

During the second quarter, we saw rapid adoption of our MIPI D-PHY redrivers in robot, drones, mixed reality and embedded MMC switches in gaming console applications, while current limited power switch saw solid demand from physical interface power cord such as USB and HDMI.

Also in the consumer market, our LED drivers and power factor correction LED controllers had multiple design wins for IoT devices and personal care devices. We also achieved solid growth from audio products in the consumer applications like health monitors and tractors. And with our small signal diodes as well as Zener diodes saw strong increases while our protection products and LDOs are being designed into tablets and smart watches.

Lastly, in the communications market, our timing products are seeing growth driven by AI and IoT applications in the networking segment for switches and routers, while our ultra-low jitter family of crystal oscillators dominate in the smart network interface cards in data center, AI servers and networking applications. And our 5-volt high PSRR LDO saw solid demand from camera networking applications.

In summary, we are very pleased with the solid momentum in our business as we continue to see improving market conditions and demand across our end markets. As the demand continued to drive utilization improvement, and inventory digestion expands across the automotive industrial market, in particular, we are very well positioned with broadened portfolio of products and increasing design wins to drive the continuous growth and future margin expansion.

With that, we now open the floor to questions. Operator?

[Operator Instructions] The first question today comes from David Williams with Benchmark.

Congratulations on the really strong results here. It's great to see. So maybe first, just kind of thinking about the geographic drivers and Asia is clearly doing better for you all. And it sounds like this is more designing and more demand coming in. But I guess how do you parse out how much of this could potentially be related to tariff-driven pull-ins, which we've heard from nearly all companies reporting this earnings season. Is it fair to assume that some of this demand is related to that? Or do you feel like you're able to isolate that out and maybe that's not what's driving some of this demand?

David, this is Emily. I think what we've seen in the tariff pooling is really small immaterial overall, right? What we've seen is really driven by the strong demand and also the market share gains together with some of the new designs and new programs ramping up.

So you feel pretty comfortable that it really is kind of self-directed and not really related to the tariff pull in. Is that fair?

Fair, yes.

Okay. All right. Very good. And then as you kind of think about how much digestion still remains and you talked about pockets remaining in automotive. But how do you think about what is left there remaining? I know it kind of depends on your OEM. But like I say, geographically, is there a way to kind of think about the inventory levels where there's still excess that need to be digested?

Yes. I think overall, you are absolutely right. A lot is driven by the OEMs. What we see in the market is still dynamic. It varies a lot from customer to customer, program to program and part to part, right? So it's kind of hard to draw a line, say, everything equal. But all in all, we're actually seeing a lot of improvement. So if we look at automotive, even we maintained 19% quarter-over-quarter as a percentage to the product revenue. If I compare the actual year-to-year, we actually increased about 23.5%. I believe that can give you a strong indication that even we still have some inventory digestion that we're going through, but the market overall is improving.

Very well. And just one last one, if I may here. Just kind of thinking about your new products, how should we consider the -- maybe the differential on the margin opportunity maybe over some products that you're replacing? And I know you've got a lot of new products that are coming in and really a big driver of the margin. But is there a way to think about what that differential could be?

Yes. So let me address this question. So product mix improvement initiative has been a key focus for Diodes for a period of time. In general, when the product, they usually have a production cycle. The newer product, the new release product usually provide some additional features and functions and the customer is actually willing to pay more of the premium for the functions and features. And a lot of time, it can be also cost improvement, smaller dice and better packaging and stuff like that, right? So that's usually the behavior for new products.

So for a product, if we sell this for more than like 15, 20 years, every year, there's a price degradation. So a lot of time at the end of the production cycle, the cost is more expensive at the end, right? So that's the reason why we're pushing a lot of new product introduction, not only to gain additional market, but also to improve the overall cost structure by providing more functions and features and basically a value add to the customers.

[Operator Instructions] The next question comes from Tristan Gerra with Baird.

You talked about AI being a driver. Is it fair to assume that a lot of that is your PCIE packet switch? Any way to quantify as a percent, what it's now representing a few data center revenue? And also what type of growth should we expect? And I think you've described in the past that it's not just AI data center, but it will be also general purpose data center. So how meaningful is that opportunity as a percentage?

Tristan, this is Emily. Yes. So AI related on the hyperscaler with some of the design. Packet switch is definitely one of the product and -- but there's also a lot of other AI-related products that we are selling into the market. When we look at the AI, it's actually a whole ecosystem, not only just on the server, but there's also CPU. There's different units that's attached with the system together, right? So we don't really have a percentage that we can share. But I think just like I mentioned earlier, we're actually expanding this beyond just the AI servers. There's actually a lot of industrial and security-related stuff. And we start seeing multiple designs across all regions. So that's the reason I mentioned this is going to continue to drive a lot of momentum for us for the quarters to come.

Right. And Tristan, I would like to put more color on that. When we're talking about the PCIE, PCIE is only one of the hero product we're promoting to AI-related application. However, as we continue to mention about the system solution or total solution is really [indiscernible] drive for. So if we have 1 or 2 hero product in one segment, I really want to bring our advanced analog, mixed signal and also other discrete components to serve together. So that's going to create more value on this only one device only.

Okay. That's very useful. And then we've seen at least one large company peer and peers starting to raise pricing. We know -- so how should I look at that? Because I mean, we're clearly in an environment where there is overcapacity. I think, obviously, your positioning will be to gain share. But I wanted to kind of get your sense of the higher cost of raw materials, impact on pricing and what you expect for the rest of this year because it does have implications in terms of how companies are managing inventories?

Yes, Tristan, we definitely read the news as well. So what we're doing is we're monitoring the situation very closely. Like I mentioned before, any time, any of my peers making strategic decision, price increase exit certain markets always create opportunity for Diodes overall to work with the customer.

During the last price increase -- during the COVID time, I also openly talked about it. Our view for the business is actually a relationship with the customer long term, it's a lot more important than the short-term benefit, right? So we want to continue to work with the customers and be a strong supplier to them for a long term. So the partnership is a key focus for us overall, and we are not changing our strategy. So we want to leverage this type of opportunity to continue to expand our print positions and continue to grow the relationship into the deeper level and continue to expand our overall designing, design win, demand creation with the customer together. So that will be our focus and will be our strategy moving forward.

And then just last quick question, if I may. In terms of qualifications for customers in analog migrating back to in-house capacity, are we still looking at the first half of next year? What's the timing on this shift from outsourcing?

Yes. As I mentioned about so many times, Tristan, we are proactively qualifying our product and process into our internal wafer fab, right? And as I mentioned that the progress went very well so far, and we see quite a few key customers already working on our PCN requirement and working on that to see if we can continue to support them with our internal wafer fab wafer facility. So again, this is a very important message from Diodes. I really want to emphasize to everybody here is like we really want to qualify our internal wafer fab to offset the headwind from our wafer service agreement to kind of slow down demand in the future. So we do see the good progress on that, too.

[Operator Instructions] The next question comes from David Williams with Benchmark.

Let me ask a followup. Really, I just wanted to say, Gary, congratulations on the CEO official naming there. It's like...

Appreciate it...

It was after earnings last quarter. I want to make sure I squeeze that in there. But while I have you one other quick question and maybe Brett or Emily or whomever. But on the utilization, is there -- can you tell us about where your utilization is running today and maybe what the mix impact was on the margin side?

Well, actually, utilization is very -- really vary from different fab and APA even from different product line, right? So some product line, the high-end product line that demand is really strong, the utilization is really good. But especially for those like big commodity and then we kind of intentionally try to give away from the utilization for this kind of capacity is kind of low, okay? I won't be able to give you the detail of exact utilization yet. But what we do for the past couple of quarters, we continue to consolidate or migrate those like low-cost commodity capacity into supporting the high-end market in high-end market and high customer demand kind of requirement.

So again, with our hybrid manufacturing strategy, as answered the question before, and we continue to load our external product and process into internal. And we are doing the qualification process and even we issued a PCM for the key customer in different segments. And so far, the progress is really good. So I can guarantee you in the future, our loading will continue to grow, okay, with this kind of strategy, we really want to go for that.

Yes. So I think on top of that, we did actually have a very good result in the second quarter. We also guided above seasonality growth for the third quarter. When the revenue continued to increase, of course, supported by POS growth, we actually will continue to minimize the underloading cost, right? I think on top of that, one of the things we're also kind of driving for margin improvement is continue to drive the product mix initiative improvement from that point of view. Auto industrial will remain our key focus, and we want to continue to drive the growth.

New product introduction, we talked a little bit earlier, will be other key focus for us overall. Some good products like the Pericom division of the product family will continue to be the focus, right? So I think combined with what Gary just mentioned and combined with continued cost down driven manufacturing efficiency, we are actually confident that you're actually going to start seeing some margin improvement as well. So even you didn't ask it, but I want to make sure I put it there because I think that's really the real question behind that you want to ask.

Yes. Thanks so much for the color there. And congrats again on execution. Keep up the good work.

Thank you.

Thank you, David.

This concludes our question-and-answer session. I would like to turn the conference back over to Gary Yu for any closing remarks.

Thank you, everyone, for participating on today's call. We look forward to reporting our progress on next quarter's conference call. Operator, you may now disconnect.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.