Diodes Incorporated Aktie

Good afternoon, and welcome to the Diodes Incorporated Third Quarter 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, Thursday, November 5, 2026.

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

Good afternoon, and welcome to Diodes' Third Quarter 2026 Financial Results Conference Call. I'm Leanne Severs, 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 Corporate 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, 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 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 5, 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 statement 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 third quarter revenue reached record levels, coupled with an over 500 basis point year-over-year increase in gross margin to 36.1%, driving significant expansion in non-GAAP earnings. Global POS was also at a record level in the quarter, increasing more than 30% year-over-year.

Our sequential revenue growth of more than 19% was primarily driven by record automotive revenue from continued market share gains, stronger demand for broad industrial applications, and the sustained momentum in AI ecosystem applications that contributed to record revenue in the computing market.

Underpinning this growth is the benefit of the targeted investments we made in capacity expansion over the past year coming online. The resulting increase in loading at our manufacturing facilities also benefits gross margin, along with product mix and pricing improvements. Based on our current projection for continued growth in the fourth quarter, we expect full-year revenue to increase approximately 30% over 2025 at the midpoint.

In addition to being well above our historical CAGR of 10%, we continue to see strong demand momentum resulting from our new product initiatives, market share gains, as well as increasing content at customers. This anticipated sequential growth is once again coupled with further non-GAAP gross margin expansion of 80 basis points sequentially to 37% at the midpoint, and increasing earnings leverage as well as strong cash flow generation.

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

Thanks, Gary, and good afternoon, everyone.

Revenue for the third quarter of 2026 was $532.6 million, an increase of approximately 36% over $392.2 million in the third quarter of 2025, and up approximately 20% compared to $445.5 million in the second quarter of 2026.

Gross profit for the third quarter was $192.5 million or 36.1% of revenue, compared to $120.5 million or 30.7% of revenue in the prior-year quarter, and $147.6 million or 33.1% of revenue in the prior quarter. Non-GAAP gross profit was $192.9 million and non-GAAP gross profit margin was 36.2%, which excluded 0.1% or $0.4 million of inventory accounting associated with the acquisition of Elevate Semiconductor.

GAAP operating expenses for the third quarter were $129.1 million, or 24.2% of revenue, and on a non-GAAP basis were $122.1 million, or 22.9% of revenue, which excludes $5.2 million of acquisition-related intangible asset costs and $1.8 million of acquisition-related costs. This compares to GAAP operating expenses in the third quarter of 2025 of $108.9 million or 27.8% of revenue, and $114.3 million or 25.6% of revenue in the prior quarter. Non-GAAP operating expenses in the prior quarter were $108.6 million, or 24.4% of revenue.

Total other income and expense amounted to approximately $0.4 million expense for the quarter, consisting of $6 million in unrealized loss on investments, $3 million in foreign currency losses, $0.8 million in interest expense offset by $4.8 million in interest income, $3.8 million on gain on disposal of subsidiary, and $0.8 million in other income.

Income before taxes, equity in net earnings of equity investments, and non-controlling interest in the third quarter of 2026 was $63 million, compared to $19.5 million in the prior-year period and $58 million in the previous quarter. Turning to income taxes, our effective income tax rate for the third quarter was approximately 23.2%. In 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 third quarter was $43.7 million, or $0.95 per diluted share, compared to a net income of $14.3 million, or $0.31 per diluted share in the prior-year quarter, and net income of $46.6 million, or $1.00 per diluted share last quarter. The share count used to compute GAAP diluted income per share for the third quarter of 2026 was 46.2 million shares.

Non-GAAP adjusted net income in the third quarter was $54.5 million, or $1.18 per diluted share, which excluded, net of tax, $7.9 million unrealized loss on investments, $4.2 million of acquisition-related intangible asset amortization costs, $3 million gain on disposal of subsidiary, $1.4 million of acquisition-related costs, and $0.3 million of acquisition-related inventory amortization costs. This compares to non-GAAP adjusted net income of $17.2 million, or $0.37 per diluted share, in the third quarter of 2025, and $32.5 million, or $0.70 per diluted share, in the prior quarter. Excluding non-cash share-based compensation expense of $7.4 million for the third quarter, net of tax, both GAAP net income and non-GAAP adjusted net income would have increased by $0.16 per share.

EBITDA for the third quarter was $89.7 million, or 16.8% of revenue, compared to $46.6 million, or 11.9% of revenue in the prior-year period, and $83.5 million, or 18.7% 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 $97.2 million for the third quarter. Free cash flow was $43.9 million, including $53.2 million of capital expenditures. Net cash flow was a positive $134.1 million, which includes $35 million for the stock buyback program.

Turning to the balance sheet, at the end of the third quarter, cash, cash equivalents, restricted cash, plus short-term investments totaled approximately $578 million. Working capital was approximately $1.1 billion, and total debt was approximately $405 million.

During the quarter, we completed a private placement of 0% convertible senior notes due 2031 in the aggregate principal amount of $375 million, including the initial purchasers' exercise of their option to purchase additional notes in full, generating net proceeds of $342.9 million after deducting $10.2 million in debt issuance costs and $21.9 million of capped call transaction premiums. The company also used $35 million of the net proceeds to repurchase 360,119 shares of our common stock in a privately negotiated transaction.

In terms of inventory, at the end of the third quarter, total inventory days decreased 11 days to approximately 141 as compared to 152 last quarter. Finished goods inventory days were approximately 44 compared to 51 days last quarter. Total inventory dollars increased $30.5 million from the prior quarter to $535 million, consisting of a $25.1 million increase in work in process, a $14.8 million increase in raw materials, and a $9.4 million decrease in finished goods. The increase in inventory helps to support our customers and expected growth, as well as our longer wafer manufacturing lead times. For the third quarter, there was a $29.5 million addition to inventory associated with the acquisition of Elevate Semiconductor. Without this increase, total inventory dollars would have been approximately flat compared to last quarter.

Capital expenditures on a cash basis were $53.2 million for the third quarter, or 10% of revenue, which is above our targeted annualized range of 5% to 9% of revenue, but within the range year-to-date at 8.6% of revenue.

Now turning to our outlook. For the fourth quarter, we expect revenue to be approximately $550 million, plus or minus 3%. At the midpoint, this represents a 40.4% increase year-over-year, and a 3.2% increase sequentially. Non-GAAP gross margin is expected to expand to 37%, plus or minus 1%. Non-GAAP adjusted EPS is expected to be $1.35, plus or minus $0.10.

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

Thank you, Brad, and good afternoon.

As Gary and Brad mentioned, revenue in the third quarter was up 19.5% sequentially and up 35.8% over the prior-year period, exceeding the midpoint of our guidance. This was mainly driven by very strong demand across all regions, led by North America, followed by Asia and Europe. Pericom product revenue reached a record high, which is greater than 3x since the acquisition. Global POS also reached record revenue, driven by the Americas, followed by Europe and Asia. Channel inventory decreased in terms of weeks again this quarter, with weeks lower than our normal range of 11 to 14 weeks. While supply continues to be tight, we remain strategically focused on long-term sustainable business and demand creation.

Our third quarter results and the expectation for continued growth into the fourth quarter reflect our commitment to the supply chain, our focus on key customer partnerships, as well as market share gains combined with our strong operational performance, capacity expansion activities, and the success of our hybrid manufacturing strategy. Looking at the fourth quarter, we see continuous strength in automotive, industrial, and AI-related applications. With a strong backlog and demand pipeline, we're guiding more than 3% quarter-over-quarter growth compared to our usual 5% to 6% down.

During the quarter, our margin also improved 300 basis points from 33.1% to 36.1%. This was mainly driven by product mix improvement, price adjustments, and capacity underloading improvement. Our fourth quarter guidance of 37% underscores our continuous momentum in margin improvement.

Looking at global sales in the third quarter, Asia represented 79% of the revenue, Europe 11%, and North America 10%. In terms of our end markets, computing was 27% of Diodes' product revenue, industrial 24%, automotive 22%, consumer 17%, and communication 10% of product revenue. Automotive and industrial revenue combined totaled 46% of product revenue, which was up 2 percentage points from last quarter.

Now, let me review the end markets in greater detail. Starting with the automotive market, revenue grew 26% sequentially and almost 60% year-over-year to reach a quarterly record, driven by content expansion and market share gains. This momentum is extending into the fourth quarter as demand remains strong. We continue to benefit from the application trend of connected driving, advanced vehicle electronics, and electrification, which are driving higher semiconductor content per vehicle.

During the quarter, we saw continuous design win momentum across ADAS, telematics, infotainment, and digital cockpit applications. As vehicles incorporate more displays, sensors, processors, and communication interfaces, demand for our timing, connectivity, and power management solutions continues to increase. We also saw strong traction across lighting, body electronics, and safety applications supported by new production ramps and design wins for LED drivers, smart power devices, current monitors, and protection products. In electrification, we secured additional wins in EV power systems, onboard charging, and battery-related applications. Overall, our expanding content position across connected driving, vehicle electronics, lighting, safety, and electrification continues to create growth opportunities across both ICE and EV platforms and support our long-term automotive growth strategy.

Turning to the industrial market, revenue increased 26% sequentially and 50% year-over-year. Market demand continues to strengthen, especially for expanded content opportunities across AI infrastructure, automation, energy, smart metering, and emerging robotic applications. In humanoid robotics, we secured design-ins for our level shifter portfolio on robot control boards. Demand for power management solutions also remains strong across smart meters, energy systems, embedded systems, industrial automation, cooling applications, smart buildings, outdoor lighting, and power adapters. We also continue to strengthen our position in AI data center power structures, seeing increasing demand for our silicon carbide solutions in high-power 800-volt and 400-volt server and AI platform power supplies.

Through our acquisition of Elevate, we are benefiting from favorable conditions in the semiconductor automated test equipment market, which is experiencing one of the strongest growth cycles in its history. Industrial growth is being driven by increasing demand for higher voltage and more capable test platforms. We believe Elevate is well positioned to capitalize on this trend with its differentiated high-voltage product portfolio and new product introductions.

In the computing market, revenue increased 16% sequentially and 33% year-over-year to reach a quarterly record and remain the largest end market for Diodes. During the quarter, we continued to see strong momentum in AI server, data center, and enterprise, whereas notebook demand was a little bit soft. We expect AI server, data center, and enterprise storage will continue to drive momentum in the fourth quarter to offset the slowdown in the notebook and PC market. AI infrastructure investment is also driving growth across our broader server portfolio.

Our configurable low-power PCI Express packet switch business saw significant growth. Demand for our PCI Express 6.0 and 7.0 timing products remains strong, with new clock generators, multiplexers, and buffers gaining adoption across next-generation AI server platforms. Our PCI Express timing portfolio has gained huge traction with several recent design wins with major AI cloud and server customers. We're also seeing solid momentum in enterprise SSDs and AI data center storage supported by growing NVMe SSD demand. Increasing AI server power density is creating additional opportunities across power management, monitoring, protection, and thermal management. Overall, increasing AI infrastructure complexity and power requirements are expanding our content opportunities across timing, connectivity, storage, power management, protection, and thermal management, positioning computing as an important growth driver for Diodes.

In the consumer market, revenue increased over 20% sequentially and 30% year-over-year. We continue to see positive momentum in our consumer business supported by growth across premium home audio, consumer controls, energy-efficient lighting, USB-C power, and protection products. USB-C adoption continues to expand across connected consumer devices, including TV set-top boxes, routers, and handheld gaming systems, driving growth for our USB-C power solutions as the interface becomes more widely used for both charging and data connectivity. This opportunity demonstrates the increased breadth of our product portfolio across audio, power, protection, connectivity, and timing for consumer applications.

Lastly, in the communication market, revenue increased 10% sequentially and approximately 6% year-over-year, representing 10% of our total product revenue. Networking driven by AI applications continues with strong momentum, while the smartphone market in China remains soft. AI-driven networking is creating new growth opportunities, with continued demand for 800G optical modules and the beginning of the 1.6T ramp expanding opportunities for our connectivity and timing products. Our timing solutions are also gaining traction with optical module manufacturers. As data centers move to higher network speeds, optical transceivers require increasingly precise, ultra-low jitter timing to support high-speed connectivity between servers and cloud infrastructure. This plays to core Diodes strengths in quartz-based timing solutions, including differential oscillators used as reference clocks for optical modules and other communication applications.

In summary, we are very pleased with the achievement of our record quarterly revenue and strong gross margin expansion as we benefit from an improved product mix through record revenue in automotive and computing markets combined with pricing and loading improvements. With our broad portfolio and diversified end markets, we are less dependent on any one market segment. Our key focus areas of automotive, industrial, and AI applications are well balanced and will continue to drive Diodes' future growth momentum. In the fourth quarter, we are guiding for further expansion across revenue, gross margin, and non-GAAP earnings, which puts us well ahead of our timeline towards achievement of our three-year financial goals.

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

We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from David Williams with Needham. Please go ahead.

I guess maybe first thing that comes to mind, and Emily mentioned this, but your three-year targets you set earlier this year are looking a bit out of date, given your success here. Just curious if that is something you would revisit here in the near term or if there's anything we should be thinking about in terms of those targets and how you're thinking about the growth over the next year?

Yes. Hi, David, this is Emily. We will definitely revisit again during probably the next earnings call to reset some of the goals. But now for this quarter, I think our IR material will actually reflect the results as of today or as of the end of Q3, so you should be able to get some of the information out from the IR presentation. But thank you.

All right. Very good. And then just kind of thinking about the lead times and the inventories, can you talk a little bit about the pricing environment that you did mention, but also how are your lead times trending and is that creating any issues in terms of are you able to meet demand and maybe how long your forecast customers are providing you?

Thanks. Yeah, so in general, lead time is still extended, right? The supply is still a little bit constrained. What we are doing is actually working with the customers, understanding their true demand, and providing the best support we can. If you look at overall unit shipment that we provided, I think calendar year 2025, we shipped about 45 billion units, and using the Q3 run rate, we are actually at a run rate of about 60 billion units. So as you can see, we actually increased the shipment volume significantly. This is actually driven by some of the aggressive initiatives that we put together, including capacity expansion, product mix improvement, and stuff like that. I would say, all in all, it's a good representation of the increased focus on expanding our capacity and better supporting the customer.

Okay, great. And if I could sneak just 1 last one in, and that is on the AI infrastructure or AI opportunity for you all. That's been a very big area of growth. Is there a way for us to think about the magnitude of what that contribution is today in terms of your total revenue base?

Yes, we haven't really broken out the AI revenue and reported it that way, but I did mention before the whole AI ecosystem, data center servers are definitely a major portion of it. We also mentioned the total content per box is about $109. But on top of that, we have industrial applications, including all the power supplies. We see that as a big potential upside for us, especially next year, with some of the new designs, transition to 800-volt, 400-volt, and stuff like that. We also see networking as an example, whether it's switches or routers. Also, the transceivers, the optical modules will continue to drive a lot of momentum.

But I would say all in, this is really positive for us and we are excited for the growth. But 1 thing I do want to point out, right? I know AI is a really hot topic today or for the last few months, but 1 thing about Diodes is we have very well diversified into a lot of different end markets. Using the example of automotive, we actually grew more than 60% or close to 60% year-over-year. Even industrial, we actually grew 50% year-over-year, right? So I think that's 1 thing I want to point out. AI will continue to drive the momentum as well as automotive, industrial, and some other applications.

All right. Thanks so much.

The next question comes from Will Stein with Truist. Please go ahead.

Hi, this is Elliot on for Will. First, if we could start with margins. As we move into calendar year '27, can you help us think about potential margin expansion and incrementals for both gross and operating, and maybe just generally the puts and takes as we get outside of the next couple of quarters?

Sure. Yes, Elliot, this is Brett. I'll make a couple of comments here. I think as we've kind of said before, I think we'll continue to have improvement of our margin and leverage based on improved utilization in our wafer fabs that we have positioned for expansion. We're also going to see improved margin as our revenue grows, which we would expect that to continue. I think we're growing at a really great rate in the back half. We would expect to continue to grow to gain share as we go into next year. And so I think those are the main—from an additional leverage, we have the manufacturing, but you've also got the improved product mix and the improvement that we're going to be making that will benefit us on the margin side.

Yes, this is Gary. At this moment, we are hitting on 37% as we keep building guidance in the fourth quarter. I think our target model is like $2.5 billion with a 40% margin, and we're marching forward on the right track toward that direction.

Okay, great. Thank you. And then for my follow-up, could you talk a little bit about just demand linearity you saw through such a strong quarter? Did it build as the quarter went? You've guided for more accelerating growth as we move forward. So how did the linearity trend throughout the quarter and maybe anything you've seen in October relative to your prior such strong quarter? Thanks.

Yes, so this is Emily. I think Q4 usually is a down quarter, about 5% to 6%. For us, we guided more than 3% quarter-over-quarter. This is actually based on the strong backlog and the design pipeline that we actually have visibility on. I think if you really look at the end market, automotive, industrial, and AI-related applications will continue to drive some of the momentum into Q4. October, compared to the previous quarter, we definitely have good visibility from the backlog, as well as a very strong beginning backlog. So with all these factors put together, we actually provided much stronger guidance than our usual seasonality.

Thank you. The next question comes from Tristan Gerra with Baird. Please go ahead.

Given the decline that's been well advertised in PCs and notebooks into 4Q, is it fair to assume that there is fungibility and you can reallocate quickly via distribution to other end markets, which presumably will be higher margin and that helps mix, but also to reduce maybe lead times in some areas that are very constrained?

Hi, Tristan, this is Emily. So of course it's product by product. It's not across the board, but in general, the capacity should be able to be shared among different products, as well as sometimes the front-end capacity as well as the wafers. So not 100%, but there's a lot of flexibility that we can work things around. Just also keep in mind that I think I mentioned the AI portion of the servers and the data center will continue to be strong and that also will help us to offset some of the softness in a specific market segment.

Okay. And then as my follow-up, the higher loadings that you described, is it solely driven by higher demand or is there also some migration from products that were previously outsourced that you're migrating in-house?

Okay, hey Tristan, this is Gary. So like Emily mentioned, market demand for us is very strong, right? Even though we continue to expand our capacity and most of internal facilities are fully loaded, right? So, so far, our fab in Scotland and the fab in South Portland are still not fully loaded yet, but we're continuing to see utilization improve from the second source program, sourcing from outside fab, and also the new demand from newly design-in design-win products into those 2 fabs to support customer needs. So I would say both.

Great. Thank you very much.

Thank you, Tristan.

The next question comes from Michael Mani with Bank of America. Please go ahead.

To start, I wanted to get your sense of where you think we are in this cycle. Revenue right now is past its prior peak. You've essentially outgrown seasonality for the last 2 years. So, I mean, are you seeing restocking behavior consistently across all your end markets, and how do you ensure the quality of demand, especially in the distributor channel, which grew a lot this past quarter? How do you ensure there's no double or excess ordering given that there are some supply constraints cropping up elsewhere in the industry?

Yes, so I think Michael, it is a little bit hard to predict the overall market, but all in all, I would just talk specifically on the Diodes situation. I did mention our POS quarter-over-quarter growth. If we look at year-over-year, that's actually more than 30% year-over-year growth. So you can actually see the demand is actually very, very strong, right? So all in all, I also mentioned that our channel inventory decreased in terms of weeks again. This quarter definitely is below our normal range, which also means that we don't really have the privilege to restock anything. Our key focus is actually to continue focusing on POS growth. Right? I think the number of weeks of channel inventory a lot of time is based on the POS result.

What we want to focus on is actually putting the right product, putting the right mix on the shelf of distribution to continue to enable our POS future growth down the road. So that will continue to be our focus, and I would say that will be our strategy moving forward. We definitely don't want to repeat the challenges that we faced a few years back, so we actually monitor this very, very closely.

Great, thank you. And as a follow-up, this touches on some of the other questions that were asked prior for gross margins. I know there were a number of initiatives done over the last 2 to 3 years to essentially help them structurally improve when demand returns. I think 1 of those initiatives was moving more wafers internally, right, from your third-party foundry network. Another 1 was moving to larger wafers. You were also doing cost reductions on a broad swath of parts. So for all of those kind of internal initiatives, have you largely completed those? Is there still a lot more to go as you look throughout the rest of the portfolio before we really start to see the margin tailwinds from this? It seems like it's already happening, but how much more left is there from those internal self-help initiatives? Thank you.

Yes, I think like Gary mentioned, right, we have a goal of $1 billion gross profit dollars, and with the model of that 40% margin, as you can see with our fourth quarter 37%, we still have room to go. I think the key focus for margin improvement separates into a few areas. One of the key initiatives is product mix improvement. And as you can see in the third quarter, our auto and industrial increased to 46%, which is a 2 percentage point improvement compared to last quarter. We also mentioned Pericom products reaching record revenue. All this is actually a good demonstration of the product mix improvement initiative that we will continue driving, right?

The second thing is, as you kind of alluded to, we call manufacturing efficiency improvement, whether it's actually moving to a larger wafer or loading more into the factory. This will directly help with the revenue improvement overall; revenue usually increases loading. At the same time, we're doing a lot of initiatives to maximize the capacity return overall and reduce the underloading cost, right? So we believe that with the combination of new product introductions alongside the initiatives we put in place, there's still a lot of room for us to continue to improve the margin for the quarters to come.

The next question comes from Tristan Gerra with Baird. Please go ahead. All right, Tristan, you may ask your question.

Can you hear me now?

We can hear you now. Yes.

Okay. Sorry about that. Sorry, I couldn't help coming back. A quick follow-up. At the OEM level, outside of AI, obviously, is there any attempt to rebuild inventories? There's been some advertised China automotive softness into European exports, or maybe even in industrial. Or do you see OEM, not disti, but OEM inventory levels still very low, depending on whether you actually have visibility on that?

Yes, Tristan, this is Emily. Based on our visibility, based on our communication with all our Tier 1 customers, at this moment we feel more of a hand-to-mouth situation. I don't really think there's a lot of privilege for us to build up the inventory at this moment. So we are working with them very closely to try to understand their shelf policy, how many weeks, and we actually monitor very closely.

Great. Thank you very much again.

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 is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

This live transcript is auto-generated without human intervention or review.

Good afternoon, and welcome to Diodes Incorporated Second Quarter 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded today, Wednesday, August 5, 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 Second 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 June 30, 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 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 5, 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, we extend our momentum in the second quarter with revenue again increasing more than 20% year-over-year, driven by growth across all regions. Revenue also increased 10% sequentially, coupled with a record global POS. As the fifth consecutive quarter of double-digit year-over-year growth, this quarter serves as a further confirmation of strengthening demand in overall market. combined with expanding content across our analog and power solutions in our key focus areas of automotive, industrial and AI server-related applications.

Automotive revenue reached a record level of 21% of our product revenue. We continue to drive increased content with an expanding pipeline of new products that's resulting in consistent market share gains across our regions auto manufacturers and suppliers. Also, during the quarter, the cost and operating initiatives we previously implemented during the market slowdown are producing measurable benefit to gross margin and our bottom line, with margin increasing 160 basis points year-over-year and non-GAAP earnings increasing by more than 100% again this quarter. These actions have also contributed to increased cash flow that has enabled us to reinvest in our growth and innovation while also looking for inorganic opportunity to expand our technology portfolio, such as recent proposed acquisition of ElevATE Semiconductor. ElevATE is a fabless semiconductor company that specialized in development of integrated circuit of automated test equipment or ATE.

The explosive growth, increasing complexity and higher performance requirements of IC used in automotive, industrial data center and AI applications are driving greater semiconductor production volume and in turn, increasing demand for automated test equipment. This acquisition enhanced our ability to provide a broader solution to customers and launch a new advanced product line that will drive increased dollar content in ATE applications. I also want to add that this acquisition is immediately accretive and expect to add approximately $50 million of revenue in the first 12 months post close, with revenue expected to grow at a CAGR of greater than 20% over the next 4 years and with gross margin significantly higher than Diodes' corporate average.

As we look to the third quarter, we expect to extend our accelerating traction with revenue anticipated to increase 30% year-over-year and 14% sequentially at the midpoint. We also expect to deliver another 190 basis point sequential improvement in gross margin. As our utilization continues to improve, combined with a 2.8x year-over-year improvement in non-GAAP earnings. These expected results drive us closer toward our 3-year financial goals of $2 billion in annual revenue and over $4 in non-GAAP EPS. With that, let me now turn the call over to Brett to discuss our second quarter financial results as well as third quarter guidance in more detail.

Thanks, Gary, and good afternoon, everyone. Revenue for the second quarter 2026 was $445.5 million, an increase of 22% over $366.2 million in the second quarter of 2025 and up 10% compared to $405.5 million in the first quarter 2026.

Gross profit for the second quarter was $147.6 million or 33.1% of revenue compared to $115.3 million or 31.5% of revenue in the prior year quarter and $128.8 million or 31.8% of revenue in the prior quarter. GAAP operating expenses for the second quarter were $114.3 million or 25.6% of revenue and on a non-GAAP basis were $108.6 million or 24.4% of revenue, which excludes $3.9 million amortization of acquisition-related intangible asset costs, $1.5 million of Board and officer retirement expense and $0.3 million of acquisition-related costs. This compares to GAAP operating expenses in the second quarter 2025 of $105.9 million or 28.9% of revenue and $109 million or 26.9% of revenue in the prior quarter.

Non-GAAP operating expenses in the prior quarter were $103.9 million or 25.6% of revenue. Total other income amounted to approximately $24.7 million for the quarter, consisting of $20 million in unrealized gain on investments, $5.5 million in interest income, $0.5 million in other income, offset by $1 million in foreign currency losses and $0.3 million in interest expense. Income before taxes, equity and net earnings of equity investments and noncontrolling interest in the second quarter 2026 was $58 million compared to $53.2 million in the prior year period and $22.4 million in the previous quarter.

Turning to income taxes. Our effective income tax rate for the second quarter was approximately 12.3%. For 2026, we expect the tax rate for the full year to remain at approximately 18%, plus or minus 3%. GAAP net income for the second quarter was $46.6 million or $1 per diluted share compared to a net income of $46.1 million or $0.99 per diluted share in the prior year quarter and net income of $15 million or $0.32 per diluted share last quarter.

The share count used to compute GAAP income per share for the second quarter of 2026 was 46.4 million shares. Non-GAAP adjusted net income in the second quarter was $32.5 million or $0.70 per diluted share, which excluded net of tax, an $18.7 million gain on investments, $3.2 million of acquisition-related intangible asset costs, $1.2 million in Board officer retirement expense and $0.2 million in acquisition-related costs. This compares to non-GAAP adjusted net income of $15 million or $0.32 per diluted share in the second quarter 2025 and $19.8 million or $0.43 per diluted share in the prior quarter. Excluding noncash share-based compensation expense of $8.9 million for the second quarter, net of tax, both GAAP net income and non-GAAP adjusted net income would have increased by $0.19 per share. EBITDA for the second quarter was $83.5 million or 18.7% of revenue compared to $84.5 million or 23.1% of revenue in the prior year period and $49.4 million or 12.2% 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 $68.5 million for the second quarter, Free cash flow was $34.8 million, including $33.6 million of capital expenditures. Net cash flow was a positive $32.9 million, which includes $10 million for the 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 $442 million. Working capital was approximately $931 million and total debt, including long term and short term, was approximately $40 million.

In terms of inventory, at the end of second quarter, total inventory days decreased to approximately 152 days as compared to 157 days last quarter. Finished goods inventory days were approximately 51 days compared to 55 days last quarter. Total inventory dollars increased $11.8 million from the prior quarter to $504.6 million, consisting of an $8.7 million increase in raw materials, a $4.2 million increase in work in process and a $1.1 million decrease in finished goods. The increase in inventory helps to support customers and expected growth as well as longer wafer manufacturing lead times.

Capital expenditures on a cash basis were $33.6 million for the second quarter or 7.5% of revenue, which was within our targeted annualized range of 5% to 9% of revenue. Now turning to our outlook. For the third quarter, we expect revenue to increase to approximately $510 million, plus or minus 3%. At the midpoint, this represents a 30% increase year-over-year and a 14% increase sequentially. GAAP gross margin is expected to expand to 35%, plus or minus 1%.

Non-GAAP adjusted EPS is expected to be $1.05, plus or minus $0.10. With that, I will now turn the call over to Emily Yang.

Thank you, Brett, and good afternoon. As Gary and Brett mentioned, revenue in the second quarter was up 10% sequentially and exceeded the midpoint of our guidance. This growth was mainly driven by strong demand in Asia, followed by North America. Global POS increased quarter-over-quarter and reached record levels, driven by Americas, followed by Asia and Europe. Our channel inventory decreased both in terms of dollars and weeks again this quarter with the weeks lower than our normal range of 11 weeks to 14 weeks. The supply disruption I've mentioned on previous call continues, and we remain strategically focused on building long-term sustainable business and content opportunities at key automotive, industrial and AI-related applications and customers.

Our achievement of record automotive revenue in the quarter validates the success of our strategy and market share gain with customers. With our strong second quarter results and third quarter guidance, this further underscore our solid operational performance and the initial benefit from aggressive capacity expansion activities and our hybrid manufacturing strategy.

Looking at global sales in the second quarter, Asia represented 79% of revenue; Europe, 12%; and North America, 9%. In terms of our end markets, industrial was 23% of Diodes product revenue; automotive, a record 21%; computing, 28%; consumer 17%; and communication, 11% of product revenue.

Overall, AI infrastructure is becoming an increasingly important growth driver for Diodes that spans multiple end markets. AI should be viewed not as a single application, but as a broad system-level ecosystem. In a typical AI infrastructure platform, Diodes content can attach across several applications, including the server motherboard, a power network that supports a full power life cycle, networking switches, storage and high-speed optical interconnect.

Across this combined AI application areas, our estimated total content opportunity is approximately $267, representing a meaningful incremental increase compared to AI server platforms of $109. With several new products scheduled for release over the next few quarters, Diodes is well positioned to expand its BOM content, strengthen socket penetration and gain share as AI platform continues to scale in power density, connectivity bandwidth and system complexity. Now let me review the end market in greater detail.

Starting with automotive market, revenue grew 15% sequentially and over 37% year-over-year. The increase was driven by continuous business expansion and market share gains. Our design win momentum extended across all focus areas. In connected driving, adoption of ADAS telematics infotainment systems continue to accelerate as automakers increase the number of sensors, cameras, radar modules and processors within each vehicle. These architectures require robust interface and protection solutions, and we are seeing strong momentum for our voltage translation ICs, power management and networking products as vehicle communication and processing requirements continue to increase.

Across comfort, style and safety, we are seeing strong adoption of power protection, smart power switching, motor control and automotive lighting solutions. The advanced lighting solutions, vehicle body electronics and intelligent control modules continue to require higher level of functionality and reliability, creating additional opportunities for our products. In the electrification, the transition towards higher voltage EV platforms faster charging infrastructures and more sophisticated battery management system is driving demand for our power semiconductors, wide band gap solutions and signal management devices. We continue to expand our portfolio to address applications ranging from battery management and onboard charging to DC/DC conversion and zone control architecture.

Overall, our automotive portfolio continues to gain traction across both ICE and EV applications. Our emphasis on our 3 focus areas, combined with higher vehicle semiconductor content continue to support our long-term automotive growth strategy.

Turning to industrial market. Revenue increased 5% sequentially and over 24% year-over-year. As a percentage of total product revenue, industrial was down 1% from last quarter, while actual demand remains strong. The industrial market continues to benefit from strong demand across AI infrastructures, industrial automation, robotics, energy management, health care and smart infrastructure applications.

Growth is being driven by increasing requirements for power efficiency, sensing, connectivity and embedded intelligence in next-generation systems. With the shift towards 400-volt and 800-volt power architectures becoming an important trend in AI-related applications, our power management product and discrete products remain key growth drivers. This transition supports higher power density, lower distribution losses and more efficient immediate bus conversion, creating additional content opportunity for us.

We are also seeing new growth opportunity emerge through humorized (sic) [ humanoid ] robotic, where increasing system complexity is creating demand for discrete products, voltage translation and connectivity solutions as commercial deployment move towards scale.

Overall, Diodes is well positioned to benefit from the increasing intelligence, embedded computing, connectivity and power demand for next-generation industrial systems. In the computing market, revenue increased 18% sequentially and 33% year-over-year. This market continues to be our strongest growth driver due to accelerating adoption across data center, AI server, cloud infrastructure and storage platforms.

Our timing portfolio continued to gain traction as customers transition to next-generation PCI Express architectures. We secured multiple strategic server platform design wins for our clock generators and timing solutions with design activity, customer engagement and backlog trending remains strong. New timing products are now ramping into the latest AI server platforms, further expanding our presence in this high-growth market. Beyond timing, the AI infrastructure build-out is increasing semiconductor content per server, creating opportunities across connectivity, signal integrity, interface, power management, sensing and protection devices.

We are also benefiting from increasing power density requirement in AI servers and data center, which are driving strong demand for our power distribution, protection, sensing and voltage reference portfolios. In the consumer market, revenue increased almost 10% sequentially and 17% year-over-year, but remained flat to the last quarter as a percentage of total product revenue. Overall, the market remained challenged by memory shortage and slower demand. That said, we did see some areas of strength that helped offset the supply challenges.

We saw strength in charging, USB power delivery solutions, ESD protection devices for storage applications and level shifters, an interface product benefiting from increasing adoption of AI-enabled IoT devices, smart home systems and multi-voltage architectures. Together, these product families reflect our focus on higher-value consumer applications where increasing functionality, connectivity and power efficiencies are driving greater semiconductor content.

Lastly, in the communication market, revenue decreased 7% sequentially and approximately 3% year-over-year. Demand in this market remains soft, especially in the smartphone market in China. On a positive side, networking remains strong with demand creation momentum supported by growing investments in AI infrastructures, enterprise networking and next-generation mobile devices. With mobile and edge devices, we continue to benefit from demand for power management products in AI-enabled smartphones, wearables and emerging smart glasses.

AI is driving new opportunities across both networking infrastructures and intelligent edge devices, expanding our design win pipeline and supporting future growth in communication market for diodes.

In summary, we are pleased with our strong growth momentum and gross margin expansion as we continue to emphasize content expansion initiatives across our key focus area of automotive, industrial and AI server-related applications. We are guiding for continued growth in revenue, margins and non-GAAP earnings, which puts us on a solid track towards the achievement of our 3-year financial goals. With that, we now open the floor to questions. Operator?

[Operator Instructions] Your first question comes from the line of William Stein from Truist Securities.

This is [ Elliot ] on for Will. First, can you provide some color on your SPFAB, status of revenue and profitability, maybe where things stand on utilization and getting products qualified and moved in-house?

Well, this is Gary. Let me give you some insight about that wafer fab. Usually, we don't provide this kind of P&L for that particular wafer fab. But as I say so from a couple of quarters, and I do believe in the progress on loading that wafer fabs continue growing on that. And also, we do see the key customers starting using the wafer fab -- the wafer produced from wafer fab as their product. And I do believe in the near future, and we can continue to grow the utilization on this wafer fab.

Okay. And then if I get one more. Can you talk us through end market expectations as we move into Q3 and then potentially into Q4 as well, given such strong growth you're expecting? And then if I can try, if you can look a little further out, maybe ranking your growth opportunities as you move into 2027?

This is Emily. Let me answer this question, right? So overall, Q3 with a very strong guidance, 14.5% quarter-over-quarter growth, we do expect growth from almost all the end market segments. I would say majority would continue driven by the AI-related applications, especially on the surfer motherboard side. I think automotive definitely show a lot of strength, very strong growth momentum, and we expect that will continue by market share gain and the expansion of some of the products.

On the industrial side, I think the excess inventory is definitely beyond us right now. We're definitely also see the market recover from there. So we also expect industrial growth in the third quarter. Consumer is usually a peak quarter for the third quarter. I know there's some combination of different things. But all in all, we also expect that to see some improvement.

On the communications side, right, smartphone demand is very similar to consumer, so similar to the comment I made before. On top of that, we believe the networking portion of this communication market segment should continue to grow driven especially with some AI networking switches and routers, right? So I would say, all in all, we actually have a really good guidance for Q3, and we're definitely marching towards to make sure we achieve and meet the goal.

Regarding Q4, we usually don't provide more than 1 quarter's guidance, but definitely, we're seeing good momentum so far for the Q4. I think for next year, it's a little bit longer out there. But all in all, with the market we're seeing, we feel like it should be stronger than usual.

Our next question comes from the line of Tristan Gerra from Baird.

Some of your peers have reported some constraints, notably for power product supply. Are you seeing any supply constraint? Will you be able to ship more without it, notably into data center?

Right, Tristan. I think overall, we've been talking about very strong demand across the board. I think there's definitely pockets of, I would say, areas that are a little bit more constrained than the others. But all in all, what we really want to focus is actually focus working with our strategic customers and give them the best support we can. I think during the COVID, we actually have similar discussions before.

Our focus is really working with the customer, understand their true demand and give them the best for, make sure to prevent any of the shortage or line down issue they are facing. But I would say, all in all, because the demand is so strong, definitely, there's pockets of areas of supply is a little bit constrained.

Yes. And also, Tristan, let me add more color on that, right? As Emily said, we do see the very strong demand this year, even further more in the next year. But as we leverage more on our heavy model, no matter internal or external, we want to make sure we can continue add capacity, no matter continue utilizing our internal wafer fab and also add more capacity in our back end to support our customers. So our growth not only limit on the demand, but also we do have more capacity we can support the customer for the future needs.

Okay. Great. And then just as a quick follow-up. So you mentioned capacity expansion efforts. Is that on the front end? Is that internal capacity? And if so, what geography are you building capacity?

Well, let me say that in this way, okay? For the wafer fab, we continue utilizing improving the utilization for our GFAB and SPFAB and there's some room we can also do more on that. And also, we are doing some migration from 6-inch to 8-inch, right to get more capacity on the wafer fab. Also leverage our external partner, right? And no matter the partner in Korea or in Taiwan, to get more capacity from them. So that's one thing. Second is that for our assembly testing, probably 75% assembly testing we do internally. On the particular package we are doing here, we do add more capacity on that. We are not adding every packaging capacity. We selectively pick the package, which might get more advance [indiscernible] that, for example, like or CSP. This type of package, we can provide a better value and can provide a better service to our key customers, like Emily said. And we'll continue to do the investment on that.

Okay. And then lastly, I'll just squeeze one in really quick. What's the percentage of your production that's currently fab versus what's outsourced?

It's about 50-50 at this moment.

Our next question comes from the line of David Williams from Needham & Company.

So look, you guys are doing a really great job here of finding the demand and continuing to grow in all the right areas and drive the gross margin. I guess as I kind of think about the most recent acquisition you made, ElevATE, can you talk maybe through some of that color or maybe rationale? It seems like a really great fit. But just kind of curious if there's anything about that acquisition that maybe we're not thinking of or haven't really understood yet, do you think?

Of course. And first, we are very excited about the recent proposed acquisition of this company. As I said, ElevATE is a fabless semiconductor company, very special and very strong in developing IC for APE, the kind of application like automated testing equipment. okay? I think ElevATE complement's Diodes currently analog and mixed signal product portfolio with highly differentiated IP and a higher-margin product with a low power, high density, higher performance signal chain amplified and data converter.

We do, of course, see a lot of synergy especially on product synergy. And also, we do see the market synergy, for example, by increasing our exposure on the attractive ATE market and also through this new customer and opportunity to expand our share for the wallet to the existing customer. So all in all, I would say that with this kind of synergy, we combine elevator core channel expertise with the Diodes analog and product portfolio, and we can easily expand the channel provider to AP platform solution provider. So with that kind of synergy together, we can easily for the addressable market probably like $1 billion at least above.

Okay. Very good. Certainly appreciate that. And then I think this question was asked around the edges earlier, but just kind of curious if you could give us your thoughts on maybe the demand trends and how the channel inventory, if you feel like you're shipping to consumption? And maybe any concerns about double ordering just kind of given the strength of the demand? Do you think that's beginning to happen? Or do you feel like you've got a pretty good handle on that?

David, this is Emily. If you look at our channel inventory, we actually decreased both in terms of dollars as well as weeks. It's definitely lower than our normal range of 11 weeks to 14 weeks, right? So we definitely don't see the double booking or double shipments to the customer building up the channel inventory at this moment. I think what we're looking at is we try to balance the ship through at this moment, but we're not there. So I don't really think this is a concern, right?

That concludes our question-and-answer session. I will now turn the call back over to Guy Yu, CEO and President, for closing remarks.

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

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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.