Thank you for your patience. My name is Jenny, and I will be your conference operator today. I would like to welcome everyone to the Diodes Incorporated Third Quarter and Fiscal 2024 Financial Results Conference Call and Webcast. I will now hand the call over to Leanne Sievers. Please proceed.

Good afternoon, and welcome to Diodes' Third Quarter Fiscal 2024 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, 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 fiscal quarter ending September 30, 2024. 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 estimate as of today, November 7, 2024. 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, Gary Yu. Gary, please go ahead.

Welcome, everyone, and thank you for joining us on today's conference call. Third quarter revenue exceeded our expectations, increasing 9.5% sequentially, while also achieving double-digit POS growth in Asia. As further evidence of market recovery in Asia, our channel inventory continues to improve as both inventory dollars and inventory days decreased sequentially. Additionally, our automotive market revenue increased 18% sequentially to 19% of product revenue, reflecting our ongoing content expansion and the design win initiatives. Even though both the automotive and the industrial market continue to undergo inventory and demand adjustments. For the fourth quarter, we are guiding revenue to be better than typical seasonality. Our gross margin expectation continues to reflect factory underloading related to our wafer service agreement and internal demand. With sufficient capacity available to support future demand improvements, we took the initiative in the third quarter to moderate our CapEx investment to below our target model. This action, combined with our past cost reduction, will help preserve near-term earnings and cash flow until the recovery accelerates, especially in the higher-margin automotive and industrial end markets. 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 2024 was $350.1 million, compared to $319.8 million in the second quarter of 2024 and $404.6 million in the third quarter of 2023. Gross profit for the third quarter was $118 million or 33.7% of revenue compared to $107.4 million or 33.6% of revenue in the prior quarter and $155.9 million or 38.5% of revenue in the prior year quarter. GAAP operating expenses for the third quarter were $96.1 million or 27.5% of revenue. And on a non-GAAP basis, were $91.7 million or 26.2% of revenue, which excludes $3.8 million of amortization of acquisition-related intangible asset expenses, $0.8 million in acquisition-related costs, and $0.2 million adjustment on restructuring charges. This compares to GAAP operating expenses in the prior quarter of $103.7 million or 32.4% of revenue and in the third quarter of 2023 of $102 million or 25.2% of revenue. Non-GAAP operating expenses in the prior quarter were $90.9 million or 28.4% of revenue. Total other expenses amounted to approximately $3.1 million for the quarter, consisting of $4.5 million of interest income, $3.4 million of unrealized losses from investments, $4.4 million of foreign currency loss, and $0.7 million of other income and $0.5 million in interest expense. Income before taxes and noncontrolling interest in the third quarter of 2024 was $18.8 million compared to $12.8 million in the previous quarter and $60.5 million in the prior year quarter. Turning to income taxes, our effective income tax rate for the third quarter was approximately 19.2%. GAAP net income for the third quarter was $13.7 million or $0.30 per diluted share compared to $8 million or $0.17 per diluted share last quarter and $48.7 million or $1.05 per diluted share in the prior year quarter. The share count used to compute GAAP diluted EPS in the third quarter was 46.4 million shares. Non-GAAP adjusted net income in the third quarter was $20.1 million or $0.43 per diluted share, which excluded net of tax, $3.1 million of acquisition-related asset costs, $2.7 million of noncash mark-to-market investment value adjustment, $0.6 million of acquisition costs, and $0.2 million in a restructuring adjustment. This compares to $15.4 million or $0.33 per diluted share in the prior quarter and $52.5 million or $1.13 per diluted share in the third quarter of 2023. Excluding noncash share-based compensation of $5.9 million net of tax for the third quarter, GAAP and non-GAAP earnings per share would have increased by $0.13 per share. EBITDA for the third quarter was $46.9 million or 13.4% of revenue compared to $41.1 million or 12.8% of revenue in the prior quarter and $90.6 million or 22.4% of revenue in the third quarter of 2023. 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 $54.4 million for the third quarter. Free cash flow was $39.4 million, which included $15 million for capital expenditures. Net cash flow was $49.4 million, including the borrowing of $9.7 million of total debt. Turning to the balance sheet, at the end of the third quarter, cash, cash equivalents, restricted cash plus short-term investments totaled approximately $325 million. Working capital was approximately $910 million in 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 187 as compared to 191 last quarter. Finished goods inventory days were 79 compared to 79 last quarter. Total inventory dollars increased $20.5 million from the prior quarter to $482 million. Total inventory in the quarter consisted of a $21.2 million increase in raw materials, a $5.1 million increase in finished goods, and a $5.8 million decrease in work in process. Capital expenditures on a cash basis were $15 million for the third quarter or 4.3% of revenue and below our targeted range of 5% to 9%. As Gary mentioned, we took the initiative to moderate our CapEx investments to below our target model since we have the available capacity to meet future increases in demand. This action helped to maintain our strong cash flow generation during the quarter. Now turning to our outlook. For the fourth quarter of 2024, we expect revenue to be approximately $337 million plus or minus 3%, representing a 3.7% sequential decrease at the midpoint. GAAP gross margin is expected to be 33%, 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 28% of revenue, plus or minus 1%. We expect net interest income to be approximately $2.5 million. Our income tax rate is expected to be 18%, plus or minus 3%. And the shares used to calculate EPS for the fourth quarter are anticipated to be 46.7 million. Not included in these non-GAAP estimates is amortization of $3.1 million after tax for previous acquisitions. With that said, I now turn the call over to Emily Yang.

Thank you, Brett, and good afternoon. Revenue in the third quarter increased 9.5% sequentially and above the midpoint of our guidance. Our global POS increased in the quarter with a more than 10% increase in Asia. Looking at global sales in the third quarter, Asia represented 78% of the revenue; Europe, 15%; and North America, 7%. In terms of our end markets, industrial was 23% of Diodes product revenue; automotive, 19%; computing 25%; consumer 18%; and communication, 15% of the product revenue. Our automotive industrial revenue combined totaled 42% of product revenue, which is the tenth consecutive quarter above our target model of 40% and 1 percentage point higher than last quarter, primarily driven by our ongoing content expansion and design win initiatives in the automotive market. Even though both markets continue to undergo inventory and demand adjustments. As further evidence of broader market recovery in Asia, our channel inventory continues to improve as both inventory dollars and inventory days decreased sequentially. Visibility into the backlog continues to be limited, and we are still receiving short lead time orders. So it's important for us to maintain a sufficient level of finished goods inventory as well as channel inventory to meet the potential increase in demand. Now let me review the end markets in greater detail. Starting with the automotive market, revenue was 19% of our total product revenue, which was up from 18% last quarter due to our content expansion, demand creation momentum, and market share gains across multiple applications, especially in Asia and China. As I mentioned, inventory rebalancing continued in the third quarter as some customers, and we expect this would extend into the fourth quarter. However, I will point out that even though the overall market in North America and Europe is still slow, a number of key customers were up in the quarter, especially in the China market. On the product portfolio expansion continues into the quarter with the introduction of 115 new automotive compliance parts focused on connected driving, comfort, style, safety, and electrification for applications like protection, high-speed and high-bandwidth Ethernet network protection, battery management system, infotainment, ADAS, and hybrid electric vehicles, automotive subsystems, including battery chargers, onboard chargers, and high-efficiency DC-DC converters. Additionally, our TVS hall sensor, high-end differential crystal oscillators, and PCI Express clock ICs, along with PCI Express Gen 6 clock buffers and real-time clock modules are seeing traction in ADAS, cockpit, infotainment, telematics control units, dashboard, and battery management systems. We are also seeing fast adoption of our smart link PCI Express packet switch, USB Type-C re-drivers, and active Crossbar MUXs for rear-seat entertainment and smart cockpit applications. In the industrial market, third quarter revenue represented 23% of total product revenue, which was flat to the last quarter but up in terms of revenue. As I mentioned earlier, the end market continues to undergo inventory rebalancing, coupled with slower demand, and this may last into early next year. Despite the ongoing inventory adjustments, we continue to gain traction with our design wins in the industrial market. During the quarter, our TVS product will be used in battery management systems for energy storage products while our linear LED drivers are being designed in for digital signage and traffic signals. Additionally, our wide range LDOs continue to see growth from fans, power tools, and e-meter applications. We also continue to gain increasing momentum for our silicon carbide commercial-grade products for applications like power factor correction for power supply in servers, charging stations, solar inverters, energy storage systems, converters, medical power supplies, and heat pumps. And our content image sensor product has multiple design-ins and design wins in various applications like battery film inspection, check scanners, and ATM money scanners. In the computing market, overall channel inventory is healthy. Our design pipeline continued to expand into the AI data center and AI server as the market continues to grow. AI server designs require a low link count PCI Express switch to expand the CPU input/output requirements. Diodes is well positioned to address this market requirement. We also saw very strong design momentum into the AI-related subsystems like DC fans, power supply units, DC-DC bricks, and backup battery units. We're also seeing good growth and demand in enterprise SSDs and consumer-grade storage with our high C MUXs and bus switch solutions. Also in the computing market, our ultra-low jitter crystal oscillators are being used in 800-gig and 1.6T switches and optical module applications. NIC cards and GPU cards' demand remains strong, which is where our standard high-speed current steering logic LP-HCSL crystal oscillator and PCI Express clocks are being adopted by major platforms. During the quarter, we experienced strong momentum for different protocol re-drivers and MUX switches, including HDMI, USB-C Display port, embedded display port, and MIPI in many applications like workstations, gaming, laptops, desktops, docking stations, and monitors. Diodes LDOs, USB-C power switches, and high surge TVS product also received solid demand from power delivery 5-volt source applications in notebooks, desktops, docking stations, and server DC fans. Additionally, our 10-gigabit per second single-chip USB Type-C controllers with integrated MUXs are gaining strong traction in IP cameras as well as LTE routers, tablets, and notebooks. Also in computing, our 4-channel linear LED drivers saw increasing demand from TV monitor backlight applications, and our MOSFETs and high-surge protection devices are winning new designs in server power ORing applications with server and inter-process communication customers. Turning to consumer markets, similar to the PC market, inventory is clean. Even though overall demand is not as strong as we expected, customer demand is generally stronger than last year. In terms of design wins, our TVS diode array products are being adopted in display units, and our high-surge TVS products are seeing strong growth in power delivery systems. We are also seeing design win traction for our bipolar junction transistor products in home appliances and for our gate drivers in large screen display power supplies, as well as our 5-volt charge-pump products in TV remote controls. We also secured new design wins for our charger USB power delivery solutions in mobile applications and our audio stereo amplifier in the headphone jacks, as well as DC products in monitors and TV applications. Lastly, in the communication market, our enterprise side due to the slower-than-expected demand, the inventory depletion rate has been slow, and we expect this may last into the first quarter before returning to the healthy level. We have many new designs in the AI data center and are seeing strong design momentum for PCI Express packet switches, MOSFETs, and crystal oscillators in data center optical modules. On the smartphone side, we saw increased demand in the third quarter. Our battery fab with design into many smartphone modules and revenue is ramping up. In summary, we are pleased with the strong growth we achieved in the third quarter, especially in the automotive market, where we have been expanding our content and gaining increasing design win momentum. We are also encouraged by the strong POS performance during the quarter, especially in Asia. Although the overall demand recovery remains slow, we are well positioned with available capacity to meet future demand increases as well as continued margin expansion as the global market recovers, especially within automotive and industrial markets. With that, we now open the floor to questions.

Your first question comes from the line of David Williams with Benchmark.

Good afternoon, and thank you for taking my questions. Emily, it seems there's been a notable improvement in demand coming from Asia. Could you elaborate on where you are seeing this improvement and also mention what might not be performing as well? There appears to be some inconsistent messages coming from the region. I would appreciate your insights on your demand levels and how you anticipate this will trend through the fourth quarter and into next year.

Yes, so, hi, David. We're definitely seeing good demand coming through Asia. As you can see, right, we actually achieved 9.5% growth quarter-over-quarter. And within Asia, we're actually seeing across the board from all the regions, not a specific one. The one I want to point out specifically is China because among all this is actually the highest growth area, right, especially in the automotive market. I think in general, what we're seeing is even in the automotive market, there is still inventory rebalancing going on, but we're also seeing some customers start depleting inventory faster than others. So definitely, this is good to see some movements over there, right? So as a result, we actually grew our overall percentage from 18% to 19%, right? This also contributed to some of the content expansion driven by some of the past design-ins, design wins of course, also gain some of the market share. So this again, right, it's across all regions. At the same time, what we see in industrial is still challenging, but not everybody is the same; not everything is equal, so we're also seeing some movements, but still kind of slow at this moment. I think for the computing segment, it's definitely a segment that we're seeing good momentum in the third quarter, especially driven more on the AI server type of areas and stuff like that. So that's really exciting to see. On the communication area, I would say the majority of the activity upside is driven by some of the smartphones, especially the U.S.-based customers that Q3 always been a strong quarter. And this year, we've definitely seen good results also from some of the content expansion that we did. And then on the consumer side, Q3 is always a peak for the consumer market, right? So we definitely see some customers doing better than the others. But overall, it's exciting to see some movement. And I would say, all in all, it's an improvement from last year. So that's really what we see. And then going to the Q4, right? I think auto will continue going through some inventory adjustments. We do expect Q4 to probably be a slightly down quarter. From the industrial point of view, I think the inventory adjustment definitely will be ongoing. So we expect that's probably going to be a down quarter as well. Computing, we are expecting somewhere between flat, maybe slightly up. And then with consumer, Q4 is always a down quarter because most of the holiday bills are done and we don't really expect that's going to be a significant up. We also have some of the holiday stuff like that. Definitely have fewer shipping days in North America and also in Europe. On the communications side, I think enterprise inventory adjustment or rebalancing with ongoing smartphone, again, similar to the consumer, usually, the fourth quarter is not going to be a super strong quarter. So that's really what we see.

Lots of really great color there. And then maybe, Brett, if I could, just on the gross margin. It seemed like there was a little bit more pressure on the guidance side, just relative to the typical drop that we would see there. And just wondering if there's anything additional that's maybe playing into that? Is it utilization mix? Or how should we think about that gross margin? And then is that something that will recover into the new year?

I think the right way to approach this, David, is to recognize that several factors are contributing to the pressure we're seeing. As Emily mentioned, we experienced strength in the third quarter, although it wasn't strong in the full automotive and industrial sectors; there was some automotive strength. As we move into the fourth quarter, we are seeing a downturn, which impacts our margins. The mix of our products heading into the fourth quarter is also affecting this. Additionally, we are continuing to invest strategically in our increased capacity. However, we are facing challenges with service contract arrangements where there is weakness, and this reflects a softer overall market from our customers. I believe these factors combined will impact the fourth quarter. That said, as we head into 2025, I don’t foresee anything that would indicate a new trend or anything that won’t rebound as we progress, particularly since we are making significant strides in qualifying our products in both GFAB and SPFAB. We are also successfully diversifying our product portfolio to focus more on automotive, industrial, analog, and high-end discrete products, which gives us confidence moving forward.

I'm curious about your thoughts on the new administration, especially considering your exposure to China. Are there any concerns or factors that are influencing your perspective on this situation?

Yes. This is Emily. I’ll go first. When we examine our revenue from China, it constitutes 43% of our total, but the actual portion derived locally in China is much smaller. However, when considering growth opportunities, I believe we still have significant potential in China because many customers are searching for good cost-performance value. If Diodes continues to innovate with new products featuring unique functions and we maintain our total solution sales strategy, there are still many opportunities ahead. Regarding political factors, I can't make specific predictions. Overall, our company is well-positioned to adapt to any upcoming government policies. While this situation remains somewhat uncertain, we are monitoring it closely. Additionally, the flexibility we have built into our hybrid manufacturing model and our ongoing efforts to increase sales in the U.S. and Europe provide us with the adaptability needed to respond to new government policies.

And David, this is Gary. I would like to put more color on that. As you mentioned, we try to keep our business flexibility in both China and non-China customers by leveraging our mix-function footprint in Greater China as well as in Europe and North America. So as been said here, we don't give up any business anywhere, and we cannot control any political policy between China and the U.S. But what we can continue doing here is to continue to penetrate, doing more design in, and drive more POs in both two regions.

Your next question comes from the line of William Stein with Truist.

Great, thanks for taking my question. I'm hoping you can disclose to us what you have in the past in terms of the split of revenue by distribution channel versus direct customers and also the split of growth between units and pricing? And then I do have a follow-up.

Let me start by addressing the first question. In Q3, our revenue split is 64% from distribution and 36% from direct sales. In Q2, it was 63% distribution and 37% direct. Looking at the trends, I generally think of it as two-thirds distribution and one-third direct. Back in 2022, the distribution percentage was a bit higher, but now it's stabilized around the 64% to 63% range for distribution compared to direct sales. Please continue with your next question.

Yes, the growth is something you typically disclose, and I can't remember if it's sequential or year-over-year, but you provided growth in units. We can use that information to calculate a combination of mix and pricing.

So well, what we do disclose is the year-over-year pricing, and that was about a 10% impact but essentially doesn't appreciate, it's more of a just a pure unit perspective.

So basically, the product mix is not in this picture.

Okay. As a follow-up, I had a question regarding seasonality. You mentioned that the guidance is above seasonal. It seems to be slightly above our expectation for typical seasonality in Q4, and I appreciate your clarification. Do you think we're entering a phase where we should anticipate the next several quarters to be above seasonal due to a catch-up from prior under-shipping demand? Or is it too early to predict a solid turn in the cycle?

I think the challenge we face is the dynamics of the market. It's better than usual seasonality because there have been quarters where we dropped more than 3.7%. Historically, there have been times with declines of around 7% or 6.8%. Although some quarters performed slightly better, I typically refer to the seasonality as about a 5% decline in the fourth quarter. This is why we see it as better than usual seasonality. Looking ahead to next year, we are confident that things will improve, but the big question is when. From a logical standpoint, it took about 8 quarters for the PC market to adjust its inventory, and we're just over a year into inventory adjustments for automotive and industrial. I've noticed some customers are reaching a healthier position compared to others. While I can't pinpoint an exact timeline, we're optimistic that improvements are on the horizon. We generally do not provide guidance beyond a quarter, but we believe next year will be a growth year.

And one final one, if I can. What is the company's view as to typical seasonality in Q1?

Q1 because we have the Chinese New Year, right? So usually, we call the Q1 usual seasonality is about 5% down.

Your next question comes from the line of Tristan Gerra with Baird.

Hi, good afternoon. You touched on pricing a little bit. In automotive, which is one of the end markets that you and clearly, many companies have highlighted as being weak. Looking at pricing renegotiation for next year. First, I wanted to get a sense of how you see those discussions going, and then I know that you've mentioned in the past how new design wins in automotive are basically at a 50% gross margin threshold or higher. But at the same time, you do have underutilization. So what is the balance between where you might figure, well, maybe I take slightly less than 50% gross margin, but then I can really feel capacity increase utilization rates, and it's a net-net positive for gross margin? If you could give us color on that and whether you expect pricing decline to accelerate next year or not?

Tristan, this is Emily. Overall, the auto market involves customer negotiations on a case-by-case basis. Some customers may negotiate quarterly, some semi-annually, but most likely it’s on an annual basis. I find this situation to be fairly stable. We have accounted for a price decrease of around 1% to 2% per quarter in our model. You raised an excellent question about balancing underutilization against margins exceeding 50%. We evaluate each account’s overall margin and potential for future growth rather than assessing line by line. There are occasions where I would accept lower-margin business if there is a strong justification or strategic advantage in the long run. We don’t strictly adhere to a 50% or 55% margin threshold; instead, we consider the overall engagement and relationship. I have stressed before the importance of partnerships with customers, emphasizing face-to-face interactions and long-term relationships. During negotiations, we also factor in the overall costs associated with underutilization. Occasionally, if we can alleviate underloading pressure in some areas, we will take that approach. However, we are also cautious about not disrupting the entire market.

I'm sorry, Tristan, this is Gary. I would like to elaborate on that. The key aspect in the automotive sector is our desire to introduce new products, as Emily mentioned in her speech. It's essential for us to ensure continuous design-ins and design wins, as well as to expand our content. Currently, we are seeing a 1% increase in automotive revenue quarter-to-quarter, and we plan to maintain this direction going forward.

And then as a follow-up, if you could expand a little bit on, obviously, the success story regarding the PCIe packet switches and how material is that into next year? Is that contributing meaningfully versus typical seasonality in Q1 as you're ramping? And what type of market share are you expecting in some of the leading platforms where you're ramping?

So I think we shared more information last quarter. Basically, with some of the GPUs or the AI servers, there are requirements for additional PCI Express input or output ports. So we actually have a very unique product that would really fulfill this requirement. So we are very well positioned. So as everyone knows, there's some delayed chipset launch and stuff like that. So I would say this is still at the very early stage of the deployment. And we still have a number of customers that are currently still working at the design stage. So we expect that can definitely help us continue to drive some of the momentum. And then I also point out this quarter, it is not just AI server or the data center. There are a lot of related AI subsystems, right, whether it's a DC fan, whether it's power supply, DC-DC brick, et cetera. So we are continuing to leverage different things, expanding even to the subsystem. So that's the reason why it can be quite important for Diodes to continue to focus in this direction and continue to drive the total solution sales approach and continue to gain momentum next year. So like I said, it's just the beginning of the expansion, and the momentum definitely would continue or much stronger into 2025.

There are no further questions at this time. I will now turn the call back over to Gary Yu for closing remarks.

Thank you, everyone, for participating in today's call. We look forward to reporting our 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.