Diodes Incorporated

Good afternoon and welcome to DIOS, Incorporated's second 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 the zero on your touchtone phone. As a reminder, this conference call is being recorded today, Thursday, August 7, 2025. I would now like to turn the call over to Leanne Sievers of Shelton Group Investor Relations. Leanne, please go ahead.

Good afternoon and welcome to DIOS, Second Quarter 2025 Financial Results conference call. I'm Leanne Sievers, President of Shelton Group, DIOS Investor Relations firm. Joining us today are DIOS President and CEO Gary Yu, CFO Brett Whitmire, Senior Vice President of Worldwide Sales and Marketing Emily Yang, and Director of Investor Relations for Meet DOLOL. 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 June 30, 2025. In addition, management's prepared remarks contain forward-looking statements which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the safe harbor for forward-looking statements 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, August 7, 2025. DIADS 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 DIADS website at .diodes.com. And now I'll turn the call over to DIADS President and CEO, Gary Yu. Gary, please go ahead.

Welcome everyone and thank you for joining us on today's conference call. As announced in our press release earlier today, our above EXPECT revenue results represent our third consecutive quarter of -over-year growth, indicating the ongoing improvement in market conditions and demand. Product sales increased sequentially across all regions with double-digit growth in Asia. The increasing demand in the quarter also contributed to channel inventory being reduced further, with both channel and internal inventory days decreasing. While we continue to see positive signs of a broader market recovery, our consumer end market experienced the strongest growth during the quarter, contributing to less favorable product mix combined with our higher-margin automotive and industrial markets remain flat as a percentage of total revenue. Additionally, the channel inventory depletion continued to limit increased loading at our manufacturing facilities, resulting in underloading costs also being a headwind to growth margin expansion. Even when considering those dynamics, we continue to increase gross profit dollar and deliver gross of almost 70% sequentially as we continue to closely manage expenses. As we look to the third quarter, we expect to extend our strong growth momentum with revenue anticipated to increase 7% sequentially and at 12% -over-year at a midpoint, mainly driven by strong demand in Asia for AI-related computing applications and the increasing demand in the EV automotive market in China. With that, let me now turn the call over to Brad to discuss our second quarter 2025 financial results as well as our third quarter guidance in more detail.

Thanks, Gary, and good afternoon, everyone. Revenue for the second quarter 2025 was $366.2 million, an increase of 14% over $319.8 million the second quarter 2024 and a 10% increase over $332.1 million in the first quarter 2025. Gross profit for the second quarter was $115.3 million or .5% of revenue compared to $107.4 or .6% of revenue in the prior year quarter and $104.7 million or .5% of revenue in the prior quarter. Gap operating expenses for the second quarter were $105.9 million or .9% of revenue and on a non-gap basis were $99.8 million or .3% of revenue, which excludes .8% of revenue and $98.8 million amortization of acquisition related intangible asset expenses. This compares to gap operating expenses in the second quarter 2024 of $103.7 million or .4% of revenue and $103.4 million or .1% of revenue in the prior quarter. Non-gap operating expenses in the prior quarter were $97.1 million or .3% of revenue. Total other income amounted to approximately $43.8 million for the quarter, consisting of $29.6 million in unrealized gains from investments, $13.7 million in gains from disposal of a subsidiary, $7 million in interest income, $0.4 million in other income, $6.4 million in foreign currency losses and $0.5 million in interest expense. Income before taxes and non-controlling interest in the second quarter 2025 was $53.2 million compared to income of $12.8 million in the prior year period and a loss of $2.8 million in the previous quarter. Turning to income taxes, our effective income tax rate for the second quarter was approximately 17%. We continue to expect the tax rate for the full year to be approximately 18% plus or minus 3%. Gap net income for the second quarter was $46.1 million or 99 cents per diluted share compared to net income of $8 million or 17 cents per diluted share in the prior year quarter and a net loss of $4.4 million or 10 cents per diluted share last quarter. Share count used to compute gap income per share for the second quarter 2025 was 46.5 million shares. Non-gap adjusted net income in the second quarter was $15 million or 32 cents per diluted share which excluded net of tax, $23.4 million non-cash unrealized mark to market gain on investment value adjustment, $12.7 million gain on disposal of a subsidiary, $4.8 million of acquisition related intangible asset cost. This compares to non-gap adjusted net income of $15.4 million or 33 cents per diluted share in the second quarter 2024 and $8.8 million or 19 cents per diluted share in the prior quarter. Excluding non-cash share-based compensation expense of $4.6 million for the second quarter, net of tax both gap net income and non-gap adjusted net income would have increased by 10 cents per share. EBITDA for the second quarter was $84.5 million or .1% of revenue compared to $41.1 million or .8% of revenue in the prior year period and $26.2 million or .9% 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 $41.5 million for the second quarter. Free cash flow was $21.1 million which included $20.4 million of capital expenditures. Net cash flow was a negative $18.2 million including approximately $49.2 million from an increase in equity investment and $10 million for stock buyback program. Turning to the balance sheet, at the end of second quarter cash, cash equivalents, restricted cash plus short-term investments totaled approximately $333 million. Working capital was approximately $871 million and total debt including long-term and short-term was approximately $54 million. In terms of inventory at the end of second quarter, total inventory days were approximately 173 as compared to 187 last quarter down approximately 14 days sequentially. Finished good inventory days were 71, a decrease of 9 days from the 80 last quarter. Total inventory dollars increased $11.7 million from the prior quarter to $45.7 million, consisting of $9.7 million increase in work and process and $9.1 million increase in raw materials and a $7.1 million decrease in finished goods. Capital expenditures on a cash basis were $20.4 million for the second quarter or .6% of revenue which was at the outlook. For the third quarter, 2025, we expect revenue to increase to approximately $392 million plus or minus 3% which represents 12% growth over the prior year period at the midpoint which will be the fourth consecutive quarter of -over-year growth. Gap gross margin is expected to be .6% 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 26% of revenue plus or minus 1%. We expect net interest income to be approximately $1 million. Our income tax rate is expected to be 18% plus or minus 3% and shares used to calculate EPS for the third quarter are anticipated to be approximately $46.5 million. Not included in these non-GAP estimates is amortization of $4.8 million after tax for previous acquisitions. With that said, I now turn the call over to Emily Ye.

Thank you, Brett, and good afternoon. Revenue in the quarter was top .3% sequentially and above the high end of our guidance, mainly driven by strong demand in Asia, especially AI-related computing and consumer ramp up for new programs. Our global POS increased across all regions with double-digit growth in Asia and our channel inventory decreased again this quarter both in terms of dollars and weeks. We are also seeing this momentum extend into the third quarter with strong beginning backlog. During the second quarter, we further extended our new product initiative with over 100 new part numbers introduced, of which over 50% were automotive parts. Looking at global sales in the second quarter, Asia represented 78% of revenue, Europe 12%, and North America 10%. In terms of our end market, industrial was 23% of DIOS product revenue, automotive 19%, computing 26%, consumer 18%, and communications 14% of product revenue. Our automotive industrial markets combined total of 42% again this quarter. We are beginning to see signs of graduate demand improvement in this market, but there is still pockets of channel inventory to work through. Now let me review the end markets in greater detail. Starting with automotive market, during the quarter we continue to see improvement, even though there continue to be inventory digestions at some customers as I mentioned. We are also beginning to see increasing demand and strength in the EV auto market in China as we move into the third quarter. The China automakers are increasingly focused on the in-cabin experience with more features like ADAS infotainment, smart carpet, telematic, and lighting, which is driving demand for DIOS products and our content per car. Specific to the second quarter, we saw increasing adoption of our growth of USB type C re-drivers, re-timers, switches, and active crossbar mops along with new design wings for TVS and ESG protection devices in real-seat entertainment and smart carpet applications. We also received solid demand for overcurrent protection switches in electronic control unit systems and are also gaining design wing momentum for protection devices in vehicle displays and power distribution unit applications. We are also seeing strong demand in design wings for our automotive compliance, DC to DC devices, LDOs, ideal DIOS controllers, as well as our SBR products for ADAS, telematic, and infotainment systems. Additionally, DIOS LED controllers are winning designs in ADAS front lighting applications and our linear LED drivers are winning designs in the rear exterior lighting and EV car charging indicator applications. Also during the quarter, we added multiple new products through the introduction of LV MOSFET for DC-DC, battery management system, brushless DC motors, 80 volt and 100 volt power products, and 1700 volt and 1200 volt silicon carpet MOSFETs. Turning to the industrial market, even though the inventory situation is improving, some customers are still going through adjustments. We expect this will last another quarter or two. From a demand perspective, we are seeing good recovery and strong momentum for applications such as AI robotics, medical, and automation. During the quarter, we continue to gain strong design traction for our silicon carbide shock barrier DIOS and photocouplers in energy storage systems and our silicon carbide MOSFETs in EV charging platforms for fast charging infrastructures. We have also secured new designs for our shock barrier DIOS, SBR and Zener DIOS in DC fans, power over ethernet, and adapter applications across industrial power segments. Also during the quarter, our wide-wing LDOs receive solid demand from fans, power tools, and e-meter applications, while our multi-channel LED drivers ramp up in signage applications. We are also seeing traction for SBR products in power supply applications for telecom, desktop PC, and self-server switch mode power supply, and our protection devices are winning designs in battery management systems. In the computing market, the highlight continues to be strong demand momentum for AI-related applications. And with the current chipset refresh cycle, we are seeing increasing opportunities and strong share gain. Our PCI Express 3.0 packet switches are leading the momentum in the AI applications, but are also expanding beyond AI surface into other applications like industrial and security. In fact, we have multiple design ins for our packet switches from various applications across all regions that should drive further growth for our products. Also during the quarter, we are seeing increased adoption of HDMI, DisplayPort, USB-C redrivers, crossbar Moxa switches, as well as clock buffers with level shifters in various computing applications like war stations, gaming, notebooks, desktops, docking stations, monitors, and mini PCs. In terms of product introduction, we introduced several new products including PCI Express 3.0 redrivers, clock buffers, and clock muses that are seeing strong momentum in surfer and data center applications. The demand for high-speed data processing has significantly increased in recent years, and DIOS is well positioned to gain increasing shares with our broadened product portfolio. As an example, our SBIR products provide excellent service protection for high-speed data applications along with our 40V boost controllers and DC-DC buck converters in surfer and data center applications. In the consumer market, the revenue increase was the strongest of our end markets and was mainly driven by customers who have developed new designs for applications such as wearables, audio, charging, camera, game consoles, and personal care combined with overall market share games. During the second quarter, we saw rapid adoption of our Mipi D5 redrivers in robot, drums, mixed reality, and embedded MMC switches in gaming console applications. While current limited power switches saw solid demand from physical interface power ports such as USB and HDMI. Also, in the consumer market, our LED drivers and power factor correction LED controllers had multiple design wings for IoT devices and personal care devices. We also achieved solid growth from audio products in the consumer applications like health, monitors, and tractors. And with our small CINNO diodes as well as Zener diodes saw strong increases while our protection products and LDOs are being designed into tablets and smart watches. Lastly, in the communications market, our timing products are seeing growth driven by AI and IoT applications in the networking segments for switches and routers while our ultra-logical family of crystal oscillators dominates in the smart network interface cards in data centers, AI servers, and networking applications. And our 5V high PSRR LDOs saw solid demand from camera networking applications. In summary, we are very pleased with the solid momentum in our business as we continue to see improving market conditions and demand across our end markets. As the demand continues to drive utilization improvement and inventory digestion expands across the automotive industrial market in particular, we are very well positioned with a broadened portfolio of products and increasing design wings to drive the continuous growth and future margin expansion. With that, we now open the floor to questions. Operator.

We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from David Williams with Benchmark. Please go ahead.

Hey, good afternoon everyone and congratulations on the really strong results here. It's great to

see. Thank you,

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

Hi, David. This is Emily. I think what we've seen the tariff pull-in is really small in material overall, right? What we've seen is really driven by the strong demand and also the market share gain together with some of the new designs and new programs ramping up.

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

Fair, yes.

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

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

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

Yeah, so let me address this question. So, product mix improvement initiative has been a key focus for DIOS for a period of time. In general, when the product, they usually have a production cycle. The newer the product, the new release product usually provides some additional features and functions and the customer is actually willing to pay more of the premium for the functions and features. And a lot of time, it can be also cost improvement, smaller dies and better packaging and stuff like that. So that's usually the behavior for new products. So for a product, if we sell this for more than like 15, 20 years, every year there's a price degradation. So a lot of time at the end of the production cycle, the cost is more expensive at the end. So that's the reason why we're pushing a lot of new product introduction, not only to gain additional market, but also to improve the overall cost structure by providing more functions and features and basically a value add to the customers.

Thank you.

As a reminder, if you would like to ask a question, please press star and 1 to join the question queue. The next question comes from Tristan Guerra with Baird. Please go ahead.

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

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

Right, and Tristan, I would like to put more color on that. When you're talking about the PCIe, PCIe is only one of the hero products that we're promoting to the AI related application. However, as we continue to mention about the system solution or total solution, it's really going to drive forward. So if we have a one or two hero products in one segment, I really want to bring our advanced analog mixed signal and also other district components to sew together. So that's going to create more value on this only one device only.

Okay, thank you. That's very useful. And then we've seen at least one launch of the new company, you know, Peer, analog Peer starting to raise pricing. So how should I look at that? Because I mean, we're clearly in an environment where there is over capacity. I think obviously your positioning will be to gain share, but I wanted to kind of get your sense of the higher cost of raw materials, you know, impact on pricing and what you expect, you know, for the rest of this year. It does have implications in terms of how companies are managing it.

Yes, Tristan, we definitely read the news as well. So what we're doing is we're monitoring the situation very closely. Like I mentioned before, any time any of my peers making strategic decision, price increase, exit certain markets, always create opportunity for Dias Overall to work with the customer. During the last price increase during the COVID time, I also openly talked about it. Our view for the business is actually a relationship with the customer long term. It's a lot more important than the short term benefit, right? So we want to continue to work with the customers and be a strong supplier to them for a long term. So the partnership is a key focus for us overall, and we are not changing our strategy. So we want to leverage this type of opportunity to continue to expand our print positions and continue to grow the relationship into the deeper level and continue to expand our overall design in, design win, demand creations with the customer together. So that will be our focus and will be our strategy moving forward.

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

Oh yeah, as I mentioned about so many times, Tristan, we are proactively qualifying our product and process into our internal WIFR file. As I mentioned, the progress went very well so far, and we're seeing quite a few key customer already working on our PCN requirement and working on that to see if we can continue to support it with our internal WIFR file WIFR facility. So again, this is a very important message from DIAOS. I really want to emphasize to everybody here is like we really want to qualify our internal WIFR file to offset the headway in front of our WIFR service agreement, kind of slow down demand in the future. So we do see the good progress on that too.

Great, thank you.

As a reminder, if you would like to ask a question, please press star and 1 to enter the question queue. The next question comes from David Williams with Benchmark. Please go ahead.

Thanks for letting me ask a follow-up. Really, I just wanted to say, Gary, congratulations on the CEO official naming there. It's great to see you. Thank you, David.

Really appreciate it. That was after

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

Well, actually, utilization is very, really varied from different FAP and ADA, even from different product lines. Some product lines, the high-end product lines are very strong. The utilization is really good, especially for those like the commodity. We intentionally try to give away from the utilization for this kind of capacity is kind of low. I won't be able to give you the detail of the exact utilization, but what we do for the past quarter is we continue to consolidate or migrate those low-cost commodity idle capacity into supporting the high-end market and high customer demand kind of requirement. Again, with our hybrid manufacturing strategy, as I answered the question before, we continue to load our external product and process into internal. We are doing the qualification process and even we issue a PCN for the key customer in different segments. So far, the progress is really good. I can guarantee you in the future, our loading will continue to grow with this kind of strategy. We really want to go for that.

Yes, so I think on top of that, we did actually have a very good result in the second quarter. We also guided above seasonality growth for the third quarter. When the revenue continues to increase, of course, supported by POS growth, we actually will continue to minimize the loading costs. I think on top of that, one of the things we also kind of drive in for margin improvement is continue to drive the product mix initiative improvement from that point of view. Auto industrial will remain our key focus and we want to continue to drive the growth. New product introduction, we talked a little bit earlier, will be other key focus for us overall. Some good product like the Paracom division of the product family will continue to be the focus. So I think combined with what Gary just mentioned and combined with continued cost-down driven manufacturing efficiency, we are actually confident that you are actually going to start seeing some margin improvement as well. So even you didn't ask it, but I want to make sure I put it there because I think that's really the real question behind that you want to ask.

Thank you, David. Yes, no, very well. Thanks so much for the color there and congrats again on the execution. Keep up the good work.

Thank you. Thank you. Welcome, David.

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

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

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