Diodes Incorporated

Good afternoon and welcome to DIODES, Incorporated's first quarter 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of today's conference call, instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference call, please press the star key followed by zero on your touchstone phone. As a reminder, this conference call is being recorded today, Thursday, May 8, 2025. I would now like to turn the call over to Leanne Sievers of Shelton Group Investor Relations. Leanne, please go ahead.

Good afternoon and welcome to DIODES, First Quarter 2025 Financial Results Conference Call. I'm Leanne Sievers, President of Shelton Group, DIODES Investor Relations firm. Joining us today are DIODES President Gary Yu, Chief Financial Officer Brett Whitmire, Senior Vice President of Worldwide Sales and Marketing Emily Yang, and Director of Investor Relations Gurmit 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 10Q for its quarter ended March 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 Forms 10K and 10Q. In addition, any projections as to the company's future performance represent management's estimates as of today, May 8, 2025. It 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 in financial information and 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 .diodes.com. And now I'll turn the call over to DIODES President, 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 deliver another quarter of -over-year growth, achieving a 10% increase as the recovery in our target end markets continue to improve. First quarter revenue exceeds our expectation due to better than seasonal performance in computing marketing in Asia, primarily driven by increasing opportunity for DIODES products in AI-related applications. Additionally, we are seeing improving market conditions in Europe and North America, as those regions have begun to show signs of rebounding from recent lows. Our automotive and industrial markets totaled 42% of first quarter product revenue as we see in 2019 opportunities. Another notable indication of improving conditions is channel inventory dollars and the days have continued to decrease and appear to be more aligned with real demand and historical POS levels. Although the inventory depletion is a positive sign for DIODES and the broader market, the reduction in channel and internal inventory combined with the absorbing the Chinese New Year holiday temporarily limited increased loading at our manufacturing facility and therefore gross margins. As channel inventory continues to normalize and the global demand improves, we should see a more material expansion to gross margin in future quarters. Additionally, qualifying more product in our internal facility to increase loading combined with recovery in our higher margin automotive and industrial markets will also contribute to driving future margin improvement. As further evidence of increasing momentum, we are guiding for the third consecutive quarter of -over-year growth and with second quarter also expect to be the first quarter of both -over-year and the sequential growth in this recovery cycle. Even though the global market remains dynamic, especially with the recent tariffs, BIOS is strategically positioned to meet global customers' needs with our hybrid manufacturing model and internal facilities located across the US, China, Taiwan, and the UK. One final comment before turning the call over to Brad. As you may have seen, we also announced today a $100 million dollar star repurchase program which further re-elaborate our confidence in the business and the future growth prospects. BIOS is in a unique position with our strong cash flow generation and a healthy balance sheet to continue investing both organically and in MMA while also returning capital to shareholders through this share buyback. With that, let me now turn the call over to Brad to discuss our first quarter 2025 financial results as well as second quarter. Guide us in more detail.

Thanks Gary. Good afternoon everyone. Revenue for the first quarter 2025 was $332.1 million dollars compared to $302 million dollars in the first quarter 2024 and $339.3 million dollars in the fourth quarter 2024. Gross profit for the first quarter was $104.7 million dollars or .5% of revenue compared to $99.6 million dollars or .0% of revenue in the prior year quarter and $110.9 million dollars or .7% of revenue in the prior quarter. Gap operating expenses for the first quarter were $103.4 million dollars or .1% of revenue and on a non-GAP basis were $97.1 million dollars or .3% of revenue which excludes $5.8 million dollars amortization of acquisition related intangible asset expenses, $0.3 million dollars in restructuring charges, and $0.2 million in acquisition related costs. This compares to GAP operating expenses in the first quarter 2024 of $86.6 million dollars or .7% of revenue and $99.0 million dollars or .2% of revenue in the prior quarter. Non-GAP operating expenses in the prior quarter were $95.5 million dollars or .1% of revenue. Total other expense amounted to approximately $4.1 million dollars for the quarter consisting of a $5.8 million dollar impairment of an equity investment, $4 million dollars in unrealized losses from investments, $0.5 million in interest expense, $0.2 million of foreign currency losses and $5.8 million dollars of interest income and $0.6 million in other income. Losses before taxes and non-controlling interest in the first quarter 2025 was $2.8 million dollars compared to income of $18.8 million dollars in the prior year period and income of $12.3 million dollars in the previous quarter. Income taxes in the quarter were $20,000 primarily as a result of the geographical mix of pre-tax income and loss across tax jurisdictions. We expect the tax rate for the full year to be approximately 18% plus or minus 3%. Gap net loss for the first quarter was $4.4 million dollars or a loss per share of 10 cents compared to net income of $14 million or 30 cents per diluted share in the prior year quarter and net income of $8.2 million dollars or 18 cents per diluted share last quarter. The share count used to compute gap loss per share for the first quarter 2025 was 46.4 million shares. Non-gap adjusted net income in the first quarter was $8.8 million dollars or 19 cents per diluted share, which excluded net of tax, $4.8 million dollars for amortization of acquisition related intangible assets, $4.8 million for impairment of an equity investment, $3.2 million non-cash mark to market investment value adjustment, $0.2 million restructuring charges and $0.1 million dollars of acquisition related costs. This compares to non-gap adjusted net income of $13 million dollars or 28 cents per diluted share in the first quarter 2024 and $12.5 million dollars or 27 cents per diluted share in the prior quarter. Excluding non-cash share-based compensation expense of $5 million dollars for the first quarter, net of tax, both gap net loss and non-gap adjusted net income would have increased by 11 cents per share. EBITDA for the first quarter was $26.2 million dollars or .9% of revenue compared to $48.3 million dollars or 16% of revenue in the prior year period and $40.7 million dollars or 12% of revenue in the prior quarter. We have included in our earnings release a reconciliation of gap net income to non-gap adjusted net income and gap net income to EBITDA which provides additional details. Cash flow provided by operations was $56.7 million dollars for the first quarter. Free cash flow was $40.8 million dollars which included $15.9 million dollars of capital expenditures. Net cash flow was a positive $26.2 million dollars. Turning to the balance sheet, at the end of first quarter cash, cash equivalents, restricted cash plus short-term investments totaled approximately $349 million dollars. Working capital was approximately $868 million dollars and total debt including long-term and short-term was approximately $52 million dollars. In terms of inventory at the end of the first quarter, total inventory days were approximately 187 as compared to 193 last quarter. Finished goods inventory days were 80 compared to 82 last quarter. Total inventory dollars decreased $3.9 million dollars from the prior quarter to $471 million dollars. Total inventory in the quarter consisted of a $5.2 million decrease in finished goods, a $1.2 million increase in raw materials and a $49,000 increase in work and process. Capital expenditures on a cash basis were $15.9 million dollars for the first quarter or .8% of revenue which was at the low end of our targeted range of 5 to 9% of revenue. Now turning to our outlook, for the second quarter, 2025, we expect revenue to increase to approximately $355 million dollars plus or minus 3% representing 11% growth over the prior year period at the midpoint which will be the third consecutive quarter of -over-year growth. Gap gross margin is expected to be .8% plus or minus 1%. Non-GAP operating expenses which are GAP operating expenses adjusted for amortization of acquisition related and tangible assets are expected to be approximately 28% of revenue plus or minus 1%. We expect net interest income to be approximately $1.5 million dollars. Our income tax rate is expected to be 18% plus or minus 3% and shares used to calculate EPS for the second quarter are anticipated to be approximately $46.4 million. Not included in these non-GAP estimates is amortization of $4.8 million dollars after tax for previous acquisitions. With that said, I will now turn the call over to Emily Yang.

Thank you, Brad, and good afternoon. As Brad and Gary mentioned, revenue in the first quarter was above our original expectations and represented 10% growth over the prior year period and down .1% sequentially which is better than the typical seasonality. Our global POS increased in the quarter and our channel inventory was lower in terms of both dollars and weeks. Looking at global sales in the first quarter, Asia represented 78% of the revenue, Europe 13%, and North America 9%. We are seeing improvements across all regions with a higher book to bill ratio and a stronger beginning backlog going into the second quarter. In terms of our end markets, industrial was 23% of DIOS product revenue, automotive 19%, computing 27%, consumer 17%, and communication 14% of the product revenue. Our automotive industrial revenue combined totalled 42% which is comparable to the last quarter. Our ability to maintain this level of revenue as this end market undergo inventory and demand adjustments reflects the success of our past and ongoing content expansion and design win initiatives. Let me now review the end markets in greater detail. Starting with automotive market, we maintain product revenue at 19% and are seeing the overstock situation continue to improve. We see some demand recovery but visibility is still limited. Our focus remains on the content expansion and market share gain to position DIOS for the growth as the auto market recovers. In terms of our demand creation, momentum remains strong throughout the quarter with expanding design ins and design wins across all focus areas including connected driving, comfort style safety, and electrification. Several examples include our SBR product with several designs in ADAS and automotive panel applications while our buck converters, newly released MOSFET, silicon carbide MOSFET, and 400 volt TVS product were designed into DC-DC on board charging and EV charging applications. Additionally, our low IQ LDO family and high current LDOs receive solid demand for always on MCU power supply and wireless charging applications. We also see rapid adoption of our small Lincoln PCI express packet switches, USB Type C re-drivers, and active crossbar muxes for real-seat entertainment and smart copic applications. Our bi-directional TVS DIOS are also being designed into copic T-box applications while our high power rated TVS product are being designed into separate automotive applications. Additionally, our dual line CAN bus protector have been selected for the protection in the battery managed system applications and our 5 volt overcurrent protection switches saw solid demand for electronic control unit systems. Also in the auto market we extended the strong design in momentum for our linear LED drivers and multi-mode controllers being used in rear and back up lighting and headlight applications. Our CMOS crystal oscillator and spread spectrum crystal oscillators are seeing traction in image sensor reference clock driven by higher data rate for sensor resolution. Turning to industrial market, the inventory correction continues similar to the automotive market although we are seeing some signs of improvement at certain end customers. Overall demand is still slow to recover, visibility is also limited in the industrial market and we are seeing more short lead time orders. Despite the slow demand recovery, we continue to make progress and gain design momentum across a number of products and applications. Our silicon copic DIOS and MOSFETs have been winning designs in 850 low PC power supplies and elevator power applications while our bridge rectifiers are being designed into switching power supplies for telecom, desktop and surfer applications and power delivery adapters. Also in the industrial market, our buck converters are winning designs for industrial gate drivers and open control applications and our wide wing LDOs saw solid demand for fans, power tools and emitter applications. We are also securing strong design wings for our linear LED drivers in traffic and transportation signs. Our bi-directional TVS product has several design wings for interface, IO and battery management system cell protection in multiple industrial applications. Additionally, our content image sensor product for AOI are being utilized in battery film inspection, glass and printing measurements, panel inspections, barcode printers as well as check scanner applications. In the computing end market, our ongoing design momentum in the AI surfer and data center applications continue to be a key highlight for DIOS in the quarter. We secure wings for our newly released PCI Express 6.0 clock generators and clock boxes buffers as well as PCI Express packet switches to expand the CPUs IO requirements as well as BMC controllers, USB host controllers, security encryption processors and MCIO cables. Also for the AI surfers and high speed data applications, our SBR products have win increasing design wings while our crystal oscillators are gaining traction in optical modules for faster data rate and our ultra low jitter crystal oscillators are seeing traction in smart network interface cars. Within the broader computing market, demand remains solid for DIOS bus switches in enterprise SSC applications and our eUSB2 repeater solutions has become the standard interface for CPUs and SoC processors. Additionally, our MIPI D5 re-drivers are being used in laptop PC camera applications to enable a higher bandwidth camera interface and our newly introduced MOSFET are seeing traction for DC to DC power converter applications in surfer and laptops while our PCI Express 5.0 clock generators and protection devices are being designed into docking station applications. In the consumer market, we are gaining design wings traction with our SBR and TVS products for AC DC power supplies for TVs, printers, gaming adapters and chargers applications and our protection devices are being adopted in brushless DC fans and air conditioning applications for smart home appliances. Also in the consumer, our bus switches solution enjoys steady revenue for SSDs and next generation portable gaming console applications and our 5 volt overcurrent protection switches receive strong demand for physical interface power ports such as USB and HDMI. Additionally, DIOS newly released left-foot shifter product family also achieve design wings in applications such as PC memory, smart watches and other computer applications. Lastly, in the communication market, DIOS ESC protection products are winning designs in smartphone camera applications with AI features while our MOSFETs are being designed into mobile phones for battery management applications. We are also seeing traction in 5G applications for our protection devices. Additionally, our ultra-low jitter crystal oscillators are being utilized in gigabit switches and optical modules for AI networking and data center applications. One final comment, the recent US-China tariff increases and related impact remain a very dynamic situation, especially the potential effect on our customers. We are working closely with our customers to monitor the situation while also reviewing the potential exposure across our products. C-Styles has multiple manufacturing facilities located around the globe and many parts are alternative manufacturer flow qualified. We anticipate a material impact. Additionally, our hybrid manufacturing model provides us with the flexibility to adjust our capacity planning between internal and external as well as supply chain arrangements, thereby mitigating the cost impact related to the trade tariffs. In summary, as evident by our comments today, our business is gaining increasing momentum with the achievements of consecutive quarters of -over-year growth. Additionally, our overall inventory has continued to improve and our position us to benefit from a broadening recovery of demand across our end markets. And although the current tariff create economic uncertainty, C-Styles hybrid model and global manufacturing footprint enable us to strategically meet the needs of our customers. We remain highly optimistic about our growth perspective in 2025 and beyond. With that, we now open the floor to questions. Operator.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then 2. At this time, we will pause momentarily to assemble

our roster. And your

first question today will come from David Williams with Benchmark. Please go ahead.

Hey, good afternoon everyone and congratulations on the solid execution here.

Thank you. Thank you, David.

So I guess my first question is really through earning season it's been pretty clear that demand has been better than anticipated. And as you kind of think through that, I'm curious if you're seeing any demand pull forward. Just kind of given where inventory levels were, we had largely tried to digest those and then lead times have gotten pretty short and then now we have the tariff situation. So it feels like there could be some pull in here and you kind of think, at least we have to think, there's some demand destruction that is ongoing. So I guess how do you square that with just the momentum that you have in the business and is there anything you would point to that kind of gives you more confidence in the stability of the demand that you're seeing today?

Yeah, David, this is Emily, right? So definitely terrorists created uncertainty, especially on the end demand with our customers. So the only thing we can do is actually work very closely with the customers and watching the situation to really kind of understand the longer term impact from the business side. I think regarding pull in, to be honest with you, we don't really see a lot of pull in activities, but I think of the other angle, if you look at the channel inventory, it definitely depleted more, right? I talk about POS increase as well as channel inventories in terms of weeks, also in terms of dollars, both decreases. So this is all positive signs, right? So on the other hand, if I look at the backlog, if I look at a book to bill ratio, they all improved. I think from the actual business point of view, I also talk about automotive industry. We definitely see inventory improvement. Overall, we definitely see more of the activity going through as well as POS increase, right? So I think all of these are positive signs that we're definitely going through a recovering period. So I think that's pretty much what we've seen so far.

Great. Appreciate the color there. And I know you all are really close to your customers, so I think your insight is helpful. Secondly, I guess just as you think about your manufacturing footprint and you've had an ongoing strategy to really report internal versus external, does any of this tariff situation, does that change that strategy or maybe the pace at which you try to bring some of that stuff internal so you have greater flexibility, or how do you think about that maybe?

Yeah. Actually, David, this is Gary. Let me help answer this question here, right? As you know, we managed our hybrid manufacturing model very well through the past few years, and then we will continue to drive to porting our product from external to our internal wafer fat disabled, no change at all. And actually, we are doing very well. We do see quite a few good milestones to qualify our processing product in our internal wafer fat facility. And also, we do see our external customers do qualify our product and start to receive those PO from those key customers in several key segments. So this will be the direction from DILES continuing to do that, regardless of the tariff issue. But a good advantage for DILES, we don't have so much tariffing impacts because of the hybrid manufacturing model, as well as our foodpink across the three different regions. It's really kind of not focused only on one region, and it would be very easy to tell my customer we can easily have second source in the different regions and to supply customer needs. So that's why we so-called the flexibility to support the customer needs. So as Emily mentioned about it, we don't really see a lot of pulling because our DILES product is kind of flexible, but we do see the customer requests us to replace maybe somebody else, and we are very easy to catch that up and support their demand.

Yeah, so I think if you look at the overall supply change, we see that change a lot, right? From globalization to regionalization to maybe country-lication, wherever you want to call it. We believe we actually have a good structure in place, both front and back end, to really support wherever the need or the future change requirement will be.

Okay, perfect. And then just one last one for me if you don't mind. Just kind of on the AI CapEx trends, those are clearly moving in the right direction. You have some nice exposure there, I believe. Can you talk maybe about where you're seeing that demand regionally, and then if there's maybe any shifts in terms of that AI CapEx or just any color around those trends I think would also be helpful. Thank you.

Yeah, so I think we have to probably look at the AIs in different portions, right? The one we actually seen with the actual ramping up demands ongoing with a lot of new designs is really more on the hyper-skillers doing the more data center areas, right? What we've seen that's still ongoing. You know, here and there, there's a little bit up and down, but all in all, it's really positive, especially with the pipeline expanding more customers with the newer designs and we'll be ramping up more. I think on the other areas, really on the edge computing side, we also seen a lot of new opportunities that really working down from hyper-skiller to the next level. I think that's actually going to be an even bigger opportunity for DAO's overall because that's going to consume a lot of different board sizes and different applications and different customer base. So I would say all in all, we still seen the beginning of the ramp. We didn't really see significant adjust from the CapEx expansion point of view. What we've seen really more on the positive side. The other thing we've been focused talking about really on the content expansion, right? So if you look at, we compare AI server versus the regular server, you can actually see the increase from $68 to $90 some dollars, right? So that will continue to be the focus overall for DAO's in the future.

Your next question

today will come from Tristan Tera with Barrett. Please go ahead. Hi,

good afternoon. Could you talk about the gross margin catalyst that you see in the second half or any potential headwinds? You've talked in your prepared remark about some acceleration potentially in gross margin. And I know that contractually you have opportunities in the second half to increase insourcing versus what you're currently doing with outside fab. So how should we look at all of this in terms of gross margin direction and perhaps quantifying the key factors including utilization rates in terms of their contribution to gross margin expansion?

Yeah, so Tristan, this is Emily. Let me walk you through the margin impact currently what we're seeing, right? So the manufacturing surface agreement, the loading definitely lower than our expectation. And then if you look at the overall inventory bill, if we compare the Q1 with the Chinese New Year versus last year, as evidence that our internal inventory decreased as well as the channel inventory decreased. So this is all the signs that we are actually adjusting some of the inventory bill and also because of Chinese New Year. On the other hand, I think it's normal. We've been talking about price pressure, 1 to 2%. We definitely see some from there, but still within our normal range. So I would say that's pretty stable. So I think all in all, you're getting pressures in different areas. So what we're actually doing is actually, like you said, we will continue to push the internal loading, portings, loadings, as well as qualification of the product. But I want to be really honest with you because the economy situation, the customer approving the change, product change notice is definitely a little bit longer than what we expected. But overall progress is really good. So that's going to continue to drive some of the margin improvement the second half. We also expect second half revenue growth, and that will also increase some of the loadings to minimize some of the underloading costs. At the same time, we will continue to drive the manufacturing cost down together with the product mix improvement initiative with a new product introduction, replacing some of the old product with newer product, focus on auto industrial, the Paracom product, as well as analog power discrete. So this will continue to be the focus. With everything combined together, we are confident that we will see margin improvement throughout the next few quarters. Go

ahead. For my second question, and I don't know Gary if you wanted to add on to my question here. So we're going to see probably some of your peers on loading capacity, 150 millimeter capacity in the U.S., possibly worldwide as some of your peers have clearly excess capacity. Does that present opportunities for you to get assets at a good price toward your medium-term revenue goal? Or would you say adding capacity near term is not on the table given the current macro?

I would say that, Tristan, I do believe our capacity currently is kind of unstable, right? And especially on the utilization as Emily mentioned about. But I do believe that this year is going to be the great year for dials and all the utilization is going to get improved. However, even though you see the first quarter, second quarter, early utilization compared to like a second quarter, it could be lower. But our product mix could be some utilization where 100% loaded. And that way I will not stop investing any capex to expand our capacity to support our customer needs. At the same time, I will try to do all that to make sure our internal capacity more efficient way to be used. And I will consolidate capacity into the capacity which we still have a very high demand or shortly time request coming in to support customer needs. So I would say that, yes, I will continue to put a capex into the capacity which is very, very hot at this moment. But also at the same time, I'm going to reduce capacity especially for those like commodity stock, consolidate into the capacity where we need it. So we just need to make sure we use our capacity utilization very, very carefully at this moment. Okay, made the right investment is what we want to do.

Yes, Tristan, I think one thing to think about would be that some of the excess capacity that others may make available, we see that disruption as maybe opportunities in our top line versus necessarily thinking we need to increase our manufacturing footprint right now.

Especially we're doing very well on our hybrid model, right? If there's really some capacity, we don't really want to invest probably those low-end commodities. We can always go to the subcomp.

Okay, that's very useful. And just a very quick one. Have these inventories normalized within your target range? I know it's improving, but is it now at levels you're comfortable with or is there a bit more progress to get to those targeted levels?

So we defined a normal range 11 to 14 weeks. Right now the inventory is still slightly higher than that. But if we look at the market outlook without the tariff consideration, right, remove that. We definitely expect the second half will be a growth compared to the first half. So with that situation in place, we're actually pretty comfortable with the inventory level that we have in the channel really supporting the targeted growth coming.

Yeah, because in the weeks, calculation is backward looking. And as we look at it, we really feel like what we've done to get the right mix in the channel is quite good. And so we're pretty comfortable with that. We feel like we're in a good place to drive growth and have good availability.

Right. And the most recently, I think, Ori, you know, shortly time PO is going up a lot, which means like a customer tries to change their bill location dynamically, right, just due to the tariff issue. So we want to make sure we have the inventory available, even the width available to cover the customer as well as the urgent need and no matter where it is.

Great. Thank you very much.

Thank you, Tristan.

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

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

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