Diodes (DIOD) Q2 2026 earnings call transcript

I would now like to turn the call over to Lianne Siebers of Shelton Group Investor Relations. Lianne, 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, Grameet 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 in 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. 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 will 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 the record global POS. As the sixth consecutive quarter of double-ditch year-over-year growth, this quarter serves as a further confirmation of strengthening demand in overall market. Combined with DIODES expanding content cross our analog and apparel solutions in our key focus areas of automotive, industrial, and AI survey-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 result in consistent market share gains across all regions auto manufacturers and suppliers.

Also, during the quarter, the cost and operating initiatives we previously implemented during the market slowdown are producing measurable benefits to gross margin and our bottom line. With margin increasing 160 basis points year-over-year and non-gap 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 fabulous semiconductor company that specializes in development of integrated circuit of automated test equipment, or ATE. The explosive growth, increasing complexity, and higher performance requirements of IC using automotive, industrial data center, and AI applications are driving greater semiconductor production volume, and in turn, increasing demand for automated test equipment.

This acquisition enhances our ability to provide a broader solution to customers and launch a new advanced product line that will drive increased dollar content in AT applications. I also want to add that this acquisition is immediate acquirative and expects to add approximately $50 million of revenue in the first 12 months post-close, With revenue expect to grow at a CAGR of greater than 20% over the next four years, and with gross margin significantly higher than BIOS 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 2.8 times year-over-year improvement in non-GAAP earnings. These expect results drive us closer to our three-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 Brad 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, 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. Gap operating expenses for the second quarter were $114.3 million or 25.6% of revenue, and on a non-gap 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 intangible asset 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 non interest in the second quarter 2026 was million compared to million in the prior year period and million in the previous quarter Turning to income taxes our effective income tax rate for the second quarter was approximately 12 For 2026 we expect the tax rate for the full year to remain at approximately 18 plus or minus 3 Gap 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 70 cents per diluted share, which excluded net of tax and $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 32 cents per diluted share in the second quarter 2025 and $19.8 million or 43 cents per diluted share in the prior quarter. Excluding non-cash 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 19 cents 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, 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 for the second quarter. The 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 in 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, as compared to 157 last quarter. Finished goods inventory days were approximately 51, 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 and 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 5-9% 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.

GAP gross margin is expected to expand to 35%, plus or Thank you, Brad, and good afternoon. As Gary and Brad 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 America, 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 to 14. The supply disruption I 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 result and third quarter guidance, this further underscores our solid operational performance and the initial benefit from our 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 lifecycle, networking switches, storage, and high-speed optical interconnect. Across this combined AI application areas, our estimated total contact opportunity is approximately $267, representing a meaningful incremental increase compared to AI surfer platforms of $109. With several new products scheduled for release over the next few quarters, DIODES well positioned to expand its bomb content, straighten socket penetration, and gain share as AI platforms continue 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 growth 15% sequentially and over 37% year-over-year. The increase was driven by continuous business expansion and market share gains. Our design with momentum extended across all focus areas. In connected driving, adoption of ADAS telemetric infotainment systems continue to accelerate as automakers increase the number of sensors, cameras, radar modules, and processors within each vehicle. This architecture requires robust interface and protection solutions and we are seeing strong momentum for our voltage translation ICs power management and networking product 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 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 three 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, healthcare, 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 contact opportunity for us.

We are also seeing new growth opportunity emerge through human rights robotics, where increasing system complexity is creating demand for discrete products, voltage translation, and connectivity solutions As commercial deployment moves toward scale, overall BIOS is well positioned to benefit from the increase in intelligence, embedded computing, connectivity, and power demands 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 surfer, cloud infrastructure, and storage platforms. Our timing portfolio continues to gain traction as customers transition to next-generation PCI Express architectures. We secure multiple strategic surfer platform design wings for our clock generators and timing solutions.

With design activity, customer engagement, and backlog training remain strong. New timing products are now ramping into the latest AI surfer platforms, further expanding our presence in this high growth market. Beyond timing, the AI infrastructure build-out is increasing semiconductor content per surfer, creating opportunities across connectivity, signal We are also benefiting from increasing power density requirements 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 We saw strength in charging, USB power delivery solutions, ESC protection devices for storage applications, and level shifters for charging. We saw strength in charging, USB power delivery solutions, ESC protection devices for storage applications, and level shifters and interface products 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 wing pipeline and supporting future growth in communication market for DIODES.

In summary, we are pleased with our strong growth momentum and growth margin expansion as we continue to emphasize content expansion initiatives across our key focus area of automotive, industrial, and AI-surfer related applications. We are guiding for continuous growth in revenue, margin, and non-GAAP earnings, which puts us on a solid track towards the achievement of our three-year financial goals.

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

First, can you provide some color on your SPFAB status of revenue and profitability, GARY GOLDMANN Well, hi, 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 quarters, and I do believe that the progress of loading that wafer fab continues growing on that. Also, we do see the key customers starting using the wafer fab, the wafer produced from the 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.

And then, if I can get one more, can you talk us through in-market expectations as we move into Q3 and then potentially into Q4 as well? Hi this is Emily Let me answer this question So overall Q3 with very strong guidance 14 quarter over quarter growth we do expect growth from almost all the end market segments I would say majority will continue driven by the AI related applications, especially on the surfer motherboard side. I think automotive definitely show a lot of strain, very strong growth momentum, and we expect that will continue by market share gain and expansion of some of the products. On the industrial side, I think the excess inventory is definitely beyond us right now.

We've definitely also seen the market recover from there, so we also expect industrial growth in the third quarter. Consumers 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 communication side, right, smartphone demands very similar to consumers, 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 goals.

Regarding Q4, we usually don't provide more than one-quarters guidance, but definitely we're seeing good momentum so far for the Q4. I think for next year, you know, 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.

Right, Tristan, I think overall we've been talking about very strong demand across the board. You know, I think there's definitely pockets of, you know, 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 pour we can. You know, 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 support, make sure, you know, to prevent any of the shortage or lying 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.

Yeah, and also, Tristan, let me add more on that, right, Couser? As Emu said, we do see a very strong demand this year, even furthermore 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 at capacity, no matter by continuing utilizing our internal wafer fair and also adding more capacity in our backend to support our customer. So our growth is not only living on the demand, but also we do have more capacity we can support to customers for the future needed.

Let me say that in this way. For the WAFERFED, we continue utilizing and improving the utilization for our GFED and SPFED, and there's some room we can also do more on that. Also, we're doing some migration from 6-inch to 8-inch to get more capacity on the WAFERFED. Also, leverage our external partner, no matter if they're partners in Korea or in Taiwan, to get more capacity from them. That's one thing. Second is for 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 package in the capacity. We selectively pick up the package which might get more advantage on that, for example, like DFN or CSP.

This type of package we can provide a better value and can provide a better service to our key customers, just like Emily said. We will continue to do the investment on that.

It's probably 50-50 at this moment.

Hi, David.

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, 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. You know, and first, we are very excited about the recent proposed acquisition of this company. As I said, you know, Elevate is a fabulous semiconductor company, very special and very strong in developing IC for APE, that kind of application, like automated testing equipment.

Okay, I think an elevated complement, the 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, amplifier, and a 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 access new customer and opportunity to expand our share for the wallet, So all in all, I would say that with this kind of synergy, we combine the LFR core channel expertise with the DIODES analog and the power portfolio. And we can easily expand the test channel provider to AT platform solution provider.

So with this kind of synergy together, we can easily for the addressable market, send probably like $1 billion at least at the bottom. Okay.

Hi, 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 to 14 weeks. 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 shift through at this moment, but we're not there. So I don't really think this is a concern.

I will now turn the call back over to Gary 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.