Diodes Inc /Del/ Q1 FY2026 Earnings Call

Good afternoon, and welcome to Diodes Incorporated's First Quarter 2026 Financial Results Conference Call. Operator provides instructions. As a reminder, this conference call is being recorded today, Thursday, May 7, 2026. I would now like to turn the call over to Leanne Sievers of Shelton Group Investor Relations. Leanne, please go ahead.

Good afternoon, and welcome to Diodes First Quarter 2026 Financial Results Conference Call. I'm Leanne Sievers, President of Shelton Group, Diodes' Investor Relations firm. Joining us today are Diodes' President and CEO, Gary Yu; CFO, Brett Whitmire; Senior Vice President of Worldwide Sales and Marketing, Emily Yang; and Vice President of Marketing and Investor Relations, Gurmeet Dhaliwal. I'd like to remind our listeners that the results announced today are preliminary as they are subject to the company finalizing its closing procedures and customary quarterly review by the company's independent registered public accounting firm. As such, these results are unaudited and subject to revision until the company files its Form 10-Q for its quarter ended March 31, 2026. In addition, management's prepared remarks contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today, and therefore, we refer to a more detailed discussion of the risks and uncertainties in the company's filings with the Securities and Exchange Commission, including Forms 10-K and 10-Q. In addition, any projections as to the company's future performance represent management's estimates as of today, May 7, 2026. Diodes assumes no obligation to update these projections in the future as market conditions may or may not change, except to the extent required by applicable law. Additionally, the company's press release and management statements during this conference call will include discussions of certain measures and financial information in GAAP and non-GAAP terms. Included in the company's press release are definitions and reconciliations of GAAP to non-GAAP items, which provide additional details. Also throughout the company's press release and management statements during this conference call, we refer to net income attributable to common stockholders as GAAP net income. For those of you unable to listen to the entire call at this time, a recording will be available via webcast for 90 days in the Investor Relations section of Diodes' website at www.diodes.com. And now I'll turn the call over to Diodes' President and CEO, Gary Yu. Gary, please go ahead.

Welcome, everyone, and thank you for joining us on today's conference call. As announced in our press release earlier today, first quarter revenue grew 22% year-over-year and above seasonal 3.5% sequentially. This growth highlights the solid demand recovery and the momentum we are seeing across our key focus areas of automotive, industrial and AI server-related applications. In fact, this quarter is the sixth consecutive quarter of double-digit year-over-year growth and the highest percentage increase since fourth quarter of 2021. Revenue in Europe led growth as we continue to benefit from increased opportunities and orders from automotive customers as well as improved demand for our industrial applications. Additionally, gross margin improved 70 basis points sequentially due mainly to the higher revenue contribution from automotive and industrial markets, which totaled 44% of product revenue, combined with improving utilization. Notably, we delivered an over 100% year-over-year increase in quarterly earnings, clearly demonstrating the operating leverage in our model. After formally releasing our 3-year interim financial target earlier this year, which includes reaching $2 billion in annual revenue, $700 million in gross profit and over $4 in non-GAAP EPS, this quarter was a great first step toward executing on these goals. Content expansion, design win momentum and new product introductions will continue to be the cornerstone of our growth initiatives, combined with increased manufacturing and cost efficiency to further drive margin expansion. With that, let me now turn the call over to Brett to discuss our first quarter financial results as well as our second quarter guidance in more detail.

Thanks, Gary, and good afternoon, everyone. Revenue for the first quarter 2026 was $405.5 million, an increase of 22.1% over the $332.1 million in the first quarter of 2025 and up 3.5% compared to $391.6 million in the fourth quarter 2025. Gross profit for the first quarter was $128.8 million or 31.8% of revenue compared to $104.7 million or 31.5% of revenue in the prior year quarter and $121.9 million or 31.1% of revenue in the prior quarter. GAAP operating expenses for the first quarter were $109 million or 26.9% of revenue and on a non-GAAP basis were $103.9 million or 25.6% of revenue, which excludes $3.9 million amortization of acquisition-related intangible asset costs and $1.1 million of board and officer retirement expense. This compares to GAAP operating expenses in the first quarter 2025 of $103.4 million or 31.1% of revenue and $108.7 million or 27.8% of revenue in the prior quarter. Non-GAAP operating expenses in the prior quarter were $104 million or 26.6% of revenue. Total other income amounted to approximately $2.7 million for the quarter, consisting of $5.4 million in interest income, $2.5 million in unrealized gain on investments, $0.1 million in other income, offset by $3.4 million in foreign currency losses, $1.2 million of impairment loss of equity investment and $0.7 million in interest expense. Income before taxes, equity and net earnings of equity investments and noncontrolling interest in the first quarter of 2026 was $22.4 million compared to a loss of $2.8 million in the prior year period and $16.8 million in the previous quarter. Turning to income taxes: our effective income tax rate for the first quarter was approximately 19.9%. For 2026, we continue to expect the tax rate for the full year to remain at approximately 18%, plus or minus 3%. GAAP net income for the first quarter was $15 million or $0.32 per diluted share compared to a net loss of $4.4 million or a loss of $0.10 per diluted share in the prior year quarter and net income of $10.2 million or $0.22 per diluted share last quarter. The share count used to compute GAAP income per share for the first quarter of 2026 was 46.1 million shares. Non-GAAP adjusted net income in the first quarter was $19.8 million or $0.43 per diluted share, which excluded net of tax, $3.2 million of acquisition-related intangible asset costs, $0.9 million in board officer retirement expense and $0.7 million of loss on investment. This compares to non-GAAP adjusted net income of $8.8 million or $0.19 per diluted share in the first quarter 2025 and $15.7 million or $0.34 per diluted share in the prior quarter. Excluding noncash share-based compensation expense of $6 million for the first quarter, net of tax, both GAAP net income and non-GAAP adjusted net income would have increased by $0.13 per share. EBITDA for the first quarter was $49.4 million or 12.2% of revenue compared to $26.2 million or 7.9% of revenue in the prior year period and $41.9 million or 10.7% of revenue in the prior quarter. We have included in our earnings release a reconciliation of GAAP net income to non-GAAP adjusted net income and GAAP net income to EBITDA, which provides additional details. Cash flow provided by operations was $64.3 million for the first quarter, a $26.2 million increase from the $38.1 million in the prior quarter. Free cash flow was $32.4 million, a $20 million increase over the fourth quarter and included $31.9 million of capital expenditures. Net cash flow was a positive $26.9 million despite the higher CapEx spending compared to last quarter. Turning to the balance sheet: at the end of first quarter, cash, cash equivalents, restricted cash plus short-term investments totaled approximately $409 million. Working capital was approximately $891 million and total debt, including long term and short term, was approximately $55 million. In terms of inventory, at the end of the first quarter, total inventory days were approximately 157 as compared to 161 last quarter and down approximately 30 days from 187 days in the year ago quarter. Finished goods inventory days were 55 compared to 59 days last quarter. Total inventory dollars increased $21.2 million from the prior quarter to $492.8 million, consisting of a $24 million increase in raw materials, a $0.5 million increase in work in process and a $3.3 million decrease in finished goods. Capital expenditures on a cash basis were $31.9 million for the first quarter or 7.9% of revenue, which is within our targeted annualized range of 5% to 9% of revenue. Now turning to our outlook. As you may have noticed in our press release, we have refined the presentation of our guidance to help simplify the information provided, while also aligning to the 3-year financial targets we've introduced last quarter. That said, for the second quarter, we expect revenue to be approximately $435 million, plus or minus 3%. At the midpoint, this represents an 18.8% increase year-over-year and a 7.3% increase sequentially, which will be the sixth consecutive quarter of double-digit year-over-year growth and another quarter of above seasonal sequential growth. GAAP gross margin is expected to be 32.8%, plus or minus 1%. Non-GAAP adjusted EPS is expected to be $0.60, plus or minus $0.10. With that said, I will now turn the call over to Emily Yang.

Thank you, Brett, and good afternoon. As Gary and Brett mentioned, revenue in the first quarter was at the high end of our guidance range, up 3.5% sequentially and above our typical seasonality of down 5%. This growth was mainly driven by strong demand in Europe, followed by Asia. Year-over-year, first quarter revenue increased 22%. Our global POS increased sequentially, and our channel inventory decreased again this quarter, both in dollars and in weeks, which was at the lower end of our normal range of 11 to 14 weeks. We also continue to benefit from the market supply disruption. We remain strategically selective and focused on long-term sustainable business and demand creation. Looking at global sales in the first quarter, Asia represented 77% of revenue, Europe, 14%; and North America, 9%. In terms of our end markets, industrial was 24% of Diodes product revenue; automotive, 20%; computing, 26%; consumer, 17%; and communications, 13% of product revenue. Our automotive and industrial revenue combined was 44% of product revenue, which was a 2 percentage point increase compared to last quarter, largely due to stronger demand in Europe. Now let me review the end markets in greater detail. Starting with the automotive market, revenue grew 3.8% sequentially and over 32% year-over-year. Overall demand was strong in the quarter and visibility continues to improve. We are encouraged by the breadth and the depth of our automotive design wins across all focus areas, including connected driving, comfort, style, safety and electrification. With an expanding automotive-grade portfolio and strong engagements with OEMs and Tier 1 customers, we are well positioned to benefit from the increase in dollar content per vehicle. In terms of design wins, we are seeing strong momentum for interface and voltage level shifter ICs across ADAS, telematics and infotainment platforms with multiple customer wins. ECS and bidirectional protection devices, including protection for automotive Ethernet and in-vehicle networks are being designed into next-generation communication platforms and body control modules. Our portfolio of automotive-grade discrete products, including switching diodes, rectifiers and protection devices continue to enable reliable data and power paths. We are also securing increased adoption of power protection, power management and control solutions across safety and critical systems and advanced lighting. Our ideal diode controllers are also seeing strong demand in reverse battery protection power trees and our precision current limited power switching are gaining traction for protected ECU power rails. We are also receiving solid demand for our low IQ LDOs in MCU power supplies and our brush DC motor drive products are experiencing significant growth, particularly in automotive lighting, cooling and motor applications. Our 48-volt matrix LED drivers are gaining traction in dynamic rear lighting applications, enabling adaptive signaling and distinctive vehicle designs. Additionally, our silicon carbide MOSFETs in an innovative topside cooling package are gaining momentum in traction inverters, on-board chargers and high-voltage DC-DC converters, while our ultra-low VCE bipolar devices continue to win designs in battery management systems and vehicle radar. Turning to the industrial market: revenue grew to 24% of product revenue from 22% last quarter, representing a 13.2% quarter-over-quarter growth and over 31% year-over-year. We have begun to see solid demand recovery in Europe, followed by North America and Asia. Much of this strength in demand is being driven by AI infrastructures, and we expect this momentum will continue throughout the year. Specifically in AI server power supply units, our bipolar junction transistors portfolio has been winning designs and our hall sensors are being used in brushless DC fan applications for thermal management. Additionally, our rectifying battery backup units are enabling hotspot functionality and supporting the scalable resiliency power architecture required by AI servers. We're also seeing broad market recovery across multiple applications like factory automation and medical equipment. From a design point of view, we are achieving increasing momentum across power, sensing and imaging applications driven by the automation and inspection systems. Our 60-amp 650-volt silicon carbide diodes continue to gain traction in industrial power applications, supporting higher efficiency and power density requirements. Also during the quarter, our low IQ LDO regulators received solid demand for power tools and industrial fan applications, supporting energy efficiency and battery-powered designs and our LED drivers continue to gain traction in intelligent LED lighting applications for smart infrastructure and enterprise environments. Also in industrial, our voltage reference devices received strong demand from a variety of industrial power supply applications where accuracy and stability are essential. Our AOI contact image sensor products also achieved multiple design-ins across inspection-related applications, including IC inspection, battery film inspection, glass inspection as well as digital check and car scanners. In the computing market, although revenue decreased 3.7% to 26% of the product revenue this quarter, revenue grew year-over-year over 21%. During the quarter, we continue to see strong demand across AI server and data center applications. For the other applications like notebook and motherboard, we saw demand moderate downward due to the overall softer market for these applications combined with the memory shortage. In high-performance computing and data infrastructures, key focus areas remain power management, protection, connectivity, timing and signal integrity. High-power surge protection products are being designed into server hot-swap power rail architectures, delivering ultra-high surge protection for mission-critical power rails. Our supervisory reset ICs and 5-volt low RDS(on) switches are seeing strong demand across data center and SSD applications. Additionally, our ISL portfolio, including voltage level shifters for I/O, UART and GPIOs are increasingly being utilized in servers, AI servers and workstations with designs at leading hyperscale and AI customers. And our PCIe 6.0/7.0 Mux buffers are also seeing adoption across multiple AI server platforms. As process migration drives SoC I/O voltage lower, eUSB adoption continues to accelerate as design-in and design wins for eUSB repeaters have become widespread across major PC OEMs and ODMs. Diodes' P-channel MOSFETs are being designed into desktop platforms for load switch applications, while our OCP power switches continue to see solid demand in 15-volt source paths for USB power delivery ports in both desktop and docking stations. Our 20-volt high-performance, low-noise LDOs also continue to gain traction in PC platforms, reflecting record design win conversion. Additionally, in computing, our TVS protection devices have been widely adopted in USB Power Delivery 3.0 and AI docking platforms, providing robust transient and ESD protection. And our USB power delivery sink switches are seeing strong demand in multiport USB power delivery systems used in laptops, supporting high power density and fast charging requirements. In the consumer market, revenue increased 3.8% sequentially and over 26% year-over-year. We continue to see steady demand across personal gaming devices, charging and home applications. Rectifiers, zener diodes and super barrier rectifiers are gaining adoption in SSDs, tablets and mini consumer computers, supporting efficiency, power conversion and protection in space-constrained designs. Diodes' USB power delivery controllers and PWM controllers also continue to see growth in the consumer charging market, driven by fast charging adoption and high power requirements. Additionally, our LED drivers are winning designs in household appliances, enabling long lifetime and low-power consumption, while our high-performance boost LED controllers are gaining traction in smart home lighting applications. Lastly, in the communication market, revenue increased 3.8% sequentially and over 17% year-over-year. Growth in data traffic and bandwidth demand is driving enhancement in data center networking applications, increasing adoption of high-efficiency rectification solutions. Diodes' super barrier rectifier products are gaining momentum, supporting reliable device connectivity in high-speed network equipment. In parallel, our crystal oscillators and ultra-low jitter timing solutions are seeing strong traction in smart NIC cards and networking modules where systems are becoming smaller and power dense. Our recently introduced ultra-low RDS(on) CSP MOSFETs are targeting battery protection and power management applications. These devices have been designed in by smartphone customers globally. Our battery FETs continue to gain traction in battery management systems as demand increases for more power efficiency and feature-rich mobile devices. Complementary to this design, high PSRR LDOs, level shifters and data line protection devices are also seeing strong momentum across smartphone applications. In wireless infrastructure, our 60-volt bus converters are being designed into RF power applications, including base stations, radar systems and other high-power wireless platforms. In summary, we have started out 2026 with strong growth momentum across our key focus areas of automotive, industrial and AI server-related applications. Additionally, we are benefiting from ongoing demand improvement in both the automotive and industrial markets, which should continue to serve as a tailwind to our near-term growth. And when combined with our ongoing margin improvement, we are well aligned to deliver increasing earnings and cash flows towards the achievement of our 3-year financial goals. With that, we now open the floor to questions. Operator?

Operator provides instructions. Our first question today is from Tristan Gerra with Baird.

I wanted to understand better the implications of tightening lead times on customer requalifications; is that helping as people are getting more concerned about securing capacity for '27? And what's your timing assumption as to when those requalifications in analog products happen?

Tristan, this is Emily. During the constrained supply market situation, customers are always more willing to do qualifications, especially with the guarantee of a long-term supply, right? So definitely, it's beneficial. Overall, we're still going through a lot of process qualification, improving the technology with our internal factories. I would say the progress is progressing well, but it's still going to take some time for us to ramp up more because the qualification of process does take time. But I would say, all in all, we are on the right track and the right direction.

Okay. Great. And then just two quick follow-ups, if I may. Based on your commentary, when do you think that you could get to the point where utilization rates are roughly the same or at least all of your fabs are at normalized utilization rates? Is that kind of a late '27 dynamic? Or do we need to wait longer? And then the second one, you touched a bit on the call about traction in data center with your products. I wanted to know how you're approaching the 800-volt opportunity in data center. There's a lot of very high-voltage regulators in that trade. Just wanted to understand better how you see that opportunity going forward.

Yes. I think, Tristan, I'm going to answer the question. First question first. As you know, we have started to ship the product produced from those two wafer fabs in Scotland and South Portland to our key customers since last year. We'll continue to improve the loading in the next couple of years, and as Emily mentioned the qualification takes some time, especially on the customer side. Even though during the shortage period, customers shortened their qualification cycle and tried to adopt more of our product, it still takes time. I would say probably 2027 and 2028 will see much more improvement on the utilization at those two wafer fabs. The rest of the wafer fabs that we have are in pretty good loading at this moment, and at the back end, we are almost fully loaded at this moment. For the second question regarding the 800-volt platform: I think Diodes is well positioned for this technology. We have our silicon carbide MOSFETs ready for that, along with analog and other devices, so we can provide a very good solution to customer needs at this moment.

Yes. So Tristan, let me add a little bit. With the 800-volt, especially on the AI power system or power supply side, we actually see the power supply unit as one opportunity. We also see the battery backup unit as another area. So we definitely see across the board very good opportunity. Other than silicon carbide diodes and MOSFETs, we also see a lot of isolation opportunities. We see sensors. We see power rail protection as well as some of the other analog and discrete solutions. So I would say, all in all, it's very positive. There's still a lot of potential for us to continue to expand. We also focus on some of the new product introductions that we will share in the future. We are very excited for this opportunity, and we definitely will continue to pursue the new sockets in front of us.

The next question is from William Stein with Truist Securities.

First, I hope you can help us understand your exposure to AI data centers across end markets. I think you've got some in compute and some in communications. Can you first just make sure I'm correct on that — that it's split across end markets — and then maybe give us an approximate sizing or percentage of total revenue in that end market?

Yes. Yes, sure, Will. This is Emily. Overall, we see AI as a whole ecosystem. It's not just related to AI servers. So earlier, I talked about power supply. This is actually under industrial. We're definitely seeing huge potential overall in this area. We talked about networking, whether it's switching or routers. This is another area that we're seeing a lot of expansion overall. Within networking, I mentioned earlier optical modules, which are also driven by AI. So I would say, all in all, there are multiple areas, not just compute, where we've seen AI-related applications.

But we don't have a sort of sizing of that?

Sizing: other than the AI server that we've seen a lot of ramp-up already, and which will continue the momentum, we're also seeing very strong opportunities on the power supply side with a lot of new opportunities working to really drive to the 800-volt platforms that Tristan questioned earlier. So even on the data center as well as the networking area — because that's really the backbone of everything — we've also seen very good momentum driven by some of the large networking companies.

Okay. Fair enough. Let me get to a couple of others, if I can. There's a couple of areas aside from data center AI that are capturing investors' attention. One is low earth orbit satellites. Another one is humanoid robotics. Can you talk to your exposure to these markets? Do you have anything in either of those two?

I think humanoid robotics is definitely of key interest. The reason we haven't talked a lot about it is because the volume is still pending to ramp. But overall, we're actually seeing a lot of similarities with other markets. On top of that, if you think about automotive, it's another key area driving the voltage to higher and higher levels. On the robotics side, other than power-related needs, we're also seeing a lot of requirements for joint movements with many needs in MOSFETs and discrete areas, as well as power management. So overall, it's a very large ecosystem that's extending beyond what we're seeing at this moment. For satellites, yes, we are definitely engaging with a lot of customers working in the low-earth orbit satellite area. We probably can share a little bit more in the future.

The next question is from David Williams with Needham & Company.

Congrats on the continued progress here. Maybe first on the pricing trend. It looks like there was a little bit of pricing pressure in the first quarter and maybe that's more mix than market dynamics. But can you talk about what you're seeing in terms of pricing? Are you seeing the typical type of erosion trends? Or are we in a tight enough environment here that you can — we'll start to see that maybe flip around and get some pricing power?

David, you are absolutely right. In Q1, what we've seen is pricing really stabilized, and it's mainly driven by product mix change. Typically, during a constrained supply situation, you actually see prices stabilize or even trend upward. So definitely, we are seeing that in the overall market across all different end market segments.

Great. And then maybe just secondly, you mentioned Europe multiple times in the script, probably more than we've heard you talk about in the past. I feel like it's coming off the bottom here. As you look out across your markets and where things are improving, do you sense that any of the strength is coming from replenishment? Or do you feel like it's real end demand coming through and this is the inflection we've been hoping for?

This is real demand. If you refer back to our POS and point-of-sales in distribution, we actually decreased channel inventory, both in dollars and in weeks. Usually, Q1 is a slower quarter for us seasonality-wise, usually about 5% to 6% down. We actually achieved 3.5% up, and this is also reflected in the POS results as well as increased quarter-over-quarter. So what we're seeing is definitely real demand. We haven't had the opportunity or seen restocking behavior going on, either in distribution or our customer base at this moment.

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

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

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