Good afternoon and welcome to the DIODES Incorporated Third Quarter 2026 Financial Results Conference Call. All participants will be 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 touchtone phone. As a reminder, this conference call is being recorded today, Thursday, November 5th, 2026. I would now like to turn the call over to Leanne Seavers of Shelton Group Investor Relations. Leanne, please go ahead.

Good afternoon and welcome to Diode's third quarter 2026 financial results conference call. I'm Leanne Seavers, president of Shelton Group, Dowd's investor relations firm. Joining us today on Diode's 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 September 30, 2026. In addition, management's prepared remarks contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today, and therefore we refer you to a more detailed discussion of the risks and uncertainties in the company's filings with the Securities and Exchange Commission, 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, November 5, 2026. DAS 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 DIODE's website at www.diodes.com. And now I'll turn the call over to DIODE's President and CEO, Gerry Yu. Gerry, 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 third quarter revenue reached record level, coupled with an over 500 basis point year-over-year. increasing in gross margin to 36.1%, driving significant expansion in non-GAAP earnings. Global POS was also a record in the quarter, increasing more than 30% year-over-year. All sequential revenue growth of more than 19% was primarily driven by a record automotive revenue from continued market share gains, stronger demand for broader industrial applications, and the sustained momentum in AI ecosystem applications that contribute to a record revenue in computing market. Underpaying this growth is the benefit of the target investment we made in capacity expansion over the past year coming online. The resulting increase in loading at our manufacturing facility also benefit growth margin along with the product mix and pricing improvements. Based on our current projection for continued growth in the fourth quarter, we expect full-year revenue to increase approximately 30% over 2025 at the midpoint. In addition to being well above our historical CAGR of 10%, we continue to see strong demand momentum resulting from our new product initiatives, market share gains, as well as increasing content at customers. This anticipated sequential growth is once again coupled with a further non-GAAP gross margin expansion of 80 basis points sequentially to 37% at the midpoint, and increasing earning leverage as well as a strong cash flow generation. 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, 2026, was $532.6 million, an increase of approximately 36% over $392.2 million in the third quarter, 2025, and up approximately 20% compared to the $445.5 million in the second quarter, 2026. Gross profit for the third quarter was $192.5 million or 36.1% of revenue compared to $120.5 million or 30.7% of revenue in the prior year quarter and $147.6 million or 33.1% of revenue in the prior quarter. Non-GAAP gross profit was $192.9 million and non-GAAP gross profit margin was 36.2%, which excluded $0.4 million of inventory accounting associated with the acquisition of Elevate Semiconductor. GAAP operating expenses for the third quarter were $129.1 million, or 24.2% of revenue, and on a non-GAAP basis, were $122.1 million or 22.9% of revenue, which excludes $5.2 million of acquisition-related intangible asset costs and $1.8 million of acquisition-related costs. This compares to GAAP operating expenses in the third quarter of 2025 of $108.9 million or 27.8% of revenue and $114.3 million or 25.6% of revenue in the prior quarter. Non-GAAP operating expenses in the prior quarter were $108.6 million or 24.4% of revenue. Total other income and expense amounted to approximately $0.4 million expense for the quarter consisting of $6 million in unrealized loss on investments, $3 million in foreign currency losses, 0.8 million in interest expense offset by 4.8 million in interest income, 3.8 million on gain on disposal of subsidiary, and 0.8 million in other income. Income before taxes, equity and net earnings of equity investments, and non-controlling interest in the third quarter of 2026 was $63 million, compared to $19.5 million in the prior year period and $58 million in the previous quarter. Turning to income taxes, our effective income tax rate for the third quarter was approximately 23.2%. For 2026, we continue to expect the tax rate for the full year to remain at approximately 18% plus or minus 3%. Gap net income for the third quarter was $43.7 million or $0.95 per diluted share. compared to a net income of $14.3 million or 31 cents per diluted share in the prior year quarter and net income of $46.6 million or $1 per diluted share last quarter. The share count used to compute GAAP diluted income per share for the third quarter of 2026 was 46.2 million shares. Non-GAAP adjusted net income in the third quarter was $54.5 million, or $1.18 per diluted share, which excluded net of tax $7.9 million unrealized loss on investments, $4.2 million of acquisition-related intangible asset amortization costs, $3 million gain on disposal of subsidiary, $1.4 million of acquisition-related costs, and $0.3 million of acquisition-related inventory amortization costs. This compares to non-GAAP adjusted net income of $17.2 million or 37 cents per diluted share in the third quarter of 2025 and $32.5 million or 70 cents per diluted share in the prior quarter. Excluding non-cash share-based compensation expense of $7.4 million for the third quarter, net of tax, both GAAP net income and non-GAAP adjusted net income would have increased by 16 cents per share. EBITDA for the third quarter was $89.7 million, or 16.8% of revenue, compared to $46.6 million, or 11.9% of revenue in the prior year period, and $83.5 million, or 18.7% 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 Gapnet Income to EBITDA, which provides additional details. Cash flow provided by operations was $97.2 million for the third quarter. Free cash flow was $43.9 million, including $53.2 million of capital expenditures. Net cash flow was a positive $134.1 million, which includes $35 million for the stock buyback program. Turning to the balance sheet, at the end of the third quarter, cash, cash equivalents, restricted cash, plus short-term investments totaled approximately $578 million. Working capital was approximately $1.1 billion, and total debt was approximately $405 million. During the quarter, we completed a private placement of 0% convertible senior notes due 2031 in the aggregate principal amount of $375 million, including the initial purchaser's exercise of their option to purchase additional notes in full, generating net proceeds of $342.9 million after deducting $10.2 million in debt issuance costs and $21.9 million of capped call transaction premiums. The company also used $35 million of the net proceeds to repurchase 360,119 shares of our common stock in a privately negotiated transaction. In terms of inventory, at the end of the third quarter, total inventory days decreased 11 days to approximately 141 as compared to 152 last quarter. Finished goods inventory days were approximately 44 compared to 51 Thank you for joining us today. For the third quarter, there was a $29.5 million addition to inventory associated with the acquisition of Elevate Semiconductor. Without this increase, total inventory dollars would have been approximately flat compared to last quarter. Capital expenditures on a cash basis were $53.2 million for the third quarter, or 10% of revenue, which is above our targeted annualized range of 5% to 9% of revenue. but within the range year-to-date at 8.6% of revenue. Now turning to our outlook. For the fourth quarter, we expect revenue to increase to approximately $550 million, plus or minus 3%. At the midpoint, this represents a 40.4% increase year-over-year and a 3.2% increase sequentially. Non-GAAP gross margin is expected to expand to 37% plus or minus 1%. Non-GAAP adjusted EPS is expected to be $1.35, plus or minus 10 cents. With that, I now turn the call over to Emily Yang.

Thank you, Brett, and good afternoon. As Gary and Brett mentioned, revenue in the third quarter was up 19.5% sequentially and up 35.8% over the prior year period, exceeding the midpoint of our guidance. This is mainly driven by very strong demand across all regions, and led by North America, followed by Asia and Europe. Paracon product revenue reached a record high, which is greater than 3x since the acquisition. Global POS also reached record revenue, driven by the Americas, followed by Europe and Asia. And channel inventory decreased in terms of weeks again this quarter, with weeks lower than our normal range of 11 to 14 weeks. While supply continues to be tight, we remain strategically focused on long-term sustainable business and demand creation. Our third quarter result and the expectation for the continuous growth into the fourth quarter reflects our focus on key customer partnerships as well as market share gains combined with our strong operational performance, capacity expansion activities, and the success of our hybrid manufacturing strategy. Looking at the fourth quarter, we see continued strength in automotive, industrial, and AI-related applications. With a strong backlog and the demand pipeline, we are guiding more than 3% quarter-over-quarter growth compared to our usual 5% to 6% down. During the quarter, our margin also improved 300 basic points from 33.1% to 36.1%. This was mainly driven by product mix improvement, price adjustments, and capacity underloading improvement, and our fourth quarter guidance of 37% underscores our continuous momentum in margin improvement. Looking at global sales in the third quarter, Asia represented 79% of the revenue, Europe 11%, and North America 10%. In terms of our end markets, computing was 27% of DIOS product revenue, industrial 24%, automotive 22%, consumer 17%, and communication 10% of product revenues. Our automotive industrial revenue combined totaled 46% of product revenue, which was up two percentage points from last quarter. Now let me review the end markets in greater detail. Starting with the automotive market, revenue grew 26% sequentially and almost 60% year over year to reach a quarterly record driven by content expansion and market share gains. This momentum is extending into fourth quarter as demand remains strong. We continue to benefit from the application trend of connected driving, advanced vehicle electronics and electrification, which are driving higher semiconductor content per vehicle. During the quarter, we saw continuous design with momentum across ADAPT, telematics, infotainment, and digital copy applications. As vehicle incorporates more displays, sensors, processors, and communication interfaces, demand for our timing, connectivity, and power management solutions continue to increase. We also saw strong traction across lighting, body electronics, and safety applications, supported by new production RAM and design wings for LED drivers, smart power devices, current monitors, protection products. In electrification, we secure additional wings in the EV power systems, onboard charging, and battery-related applications. Overall, our expanding content position across connected driving, vehicle electronics, lighting, safety, and electrification continues to create growth opportunities across both ICE and EV platforms and support our long-term automotive growth strategy. Turning to industrial market, revenue increased 26% sequentially and 50% year-over-year, Market demand continues to strengthen especially for expanded contact opportunities across AI infrastructures, automations, energy, smart metering, and emerging robotic applications. In Human Rights Robotics, we secure design-ins for our level shifter portfolio on robot control boards. Demand for power management solutions also remains strong across smart meters, energy systems, embedded systems, industrial automation, cooling applications, smart buildings, outdoor lighting, and power adapters. We also continue to strengthen our position in AI data center power infrastructures. are seeing increasing demand for our silicon carbide solutions in high power 800 volt and 400 volt surfer and AI platform power supplies. Through our acquisition of Elevate, we are benefiting from favorable conditions in the semiconductor automated test equipment market, which is experiencing one of the strongest growth cycles in its history. Industrial growth is being driven by increasing demand for higher voltage and more capable test platforms. We believe Elevate is well positioned to capitalize on this trend with its differentiated high voltage product portfolio and new product introductions. In the computing market, revenue increased 16% sequentially and 33% year over year to reach a quarterly record and remain the largest end market for DIOS. During the quarter, we continue to see strong momentum in AI server, data center, and enterprise storage, whereas notebook demand was a little bit soft. We expect AI server, data center, and the enterprise storage will continue to drive momentum in the fourth quarter to offset the slowdown in the notebook and the PC market. AI infrastructure investment is also driving growth across our broader server portfolio. Our configurable, low-power PCI Express packet switch business saw significant growth. Demand for our PCI Express 6.0, 7.0 timing product remains strong, with new clock generators, multiplexers, and buffers gaining adoption across next-generation AI server platforms. Our PCI Express timing portfolio is a huge traction with several recent design wins with major AI clock and server customers. We're also seeing solid momentum in the enterprise SSDs and AI data center storage supported by growing NVMe SSD demand. Increasing AI server power density is creating additional opportunities across power management, monitoring, protection, and thermal management over increasing AI infrastructure complexity and power requirement are expanding our content opportunities across timing, connectivity, storage, power management, protection, and thermal management, positioning computing as an important growth driver for DIOS. In the consumer market, revenue increased over 20% sequentially and 30% year-over-year. We continue to see positive momentum in our consumer business supported by growth across premium home audio, consumer controls, energy efficiency lighting, USB-C power, and protection products. USB-C adoption continues to expand across connected consumer devices, including TV set-top boxes, routers, and handheld gaming systems, driving growth for our USB-C power solutions as the interface becomes more widely used for both charging and data connectivity. This opportunity demonstrates the increased breadth of our product portfolio across audio, power, protection, connectivity, and timing for consumer applications. Lastly, in the communication market, revenue increased 10% sequentially and approximately 6% year-over-year, representing 10% of our total product revenue. Networking driven by AI applications continue with strong momentum while smartphone market in China remains soft. AI-driven networking is creating new growth opportunities with continued demand for 800G optical modules and the beginning of the 1.6T RAM are expanding opportunities for our connectivity and timing products. Our level shifting solutions are also gaining traction with optical module manufacturers. As data center move to a higher network speed, optical transceivers require increasing precise ultra-low jitter timing to support high-speed connectivities between surface and clock infrastructures. This plays to the core diode strength in cost-based timing solutions, including differential oscillators used as a reference clock for optical modules and other communication applications. In summary, we are very pleased with the achievement of our record quarterly revenue and strong gross margin expansion as we benefit from the improved product mix through the record revenue in automotive and computing markets combined with pricing and loading improvements. With our broad portfolio and diversified end market, we are less dependent on any one market segment. Our key focus areas of automotive, industrial, and AI applications are well balanced and will continue to drive DIOS future growth momentum. In fourth quarter, we are guiding for further expansion across revenue, gross margin, and non-GAAP earnings, which put us well ahead of our timeline towards achievement of our three-year financial goals. 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 1 on your touchtone phone. If you are using a speakerphone, 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, then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from David Williams with Needham. Please go ahead.

Hey, good afternoon, everyone, and congratulations on the really solid results here. Thanks, David. I guess maybe first thing that comes to mind, and Emily mentioned this, but your targets you set earlier this year are looking a bit out of date, given your success here. Just curious if that is something you would revisit here in the near term, or if there's anything we should be thinking about in terms of those targets and how you're thinking about the growth of the next year.

Hi, David. This is Emily. We will definitely revisit again during probably the next earnings call to reset some of the goals. But now for this quarter, I think our IR material will actually reflect the result as of today or as of end of Q3. So you should be able to get some of the information out from the IR presentation. But thank you.

All right, very good. And then just kind of thinking about the lead times and the inventories, can you talk a little bit about the pricing environment that you just mentioned, but also how are your lead times trending and is that creating any issues in terms of are you able to meet demand and maybe how long your forecast your customers are providing you? Thanks.

Yeah, so in general, lead time is still extended, right? The supply is still growing. A little bit constrained. What we are doing is actually working with the customers, understanding their true demand, and provide the best support we can. If you look at overall unit shipment that we provided, I think physical calendar year 25, we shipped about 45 billion units. And using Q3 run rate, we are actually at the run rate about 60 billion units. So as you can see, we actually increased the shipment volume significantly. This is actually driven by some of the aggressive initiatives that we put together, including capacity expansion, product mix improvement, and stuff like that. So I would say all in all, it's a good representation of the increased focus of expansion, our capacity, and better support the customer.

Okay, great. And if I could sneak just one last one in, and that is on the AI infrastructure or AI opportunity for you all. That's been a very big area of growth. Is there a way for us to think about the magnitude of what that contribution is today in terms of your total revenue base?

Yeah, we haven't really break out the AI revenue and report it that way, but I did mention before the whole AI ecosystem. Data Center, Surfers, definitely a major portion of it. We also mentioned the total content per box is about $109. But on top of that, we have the industrial applications, including all the power supplies. We see that as a big potential upside for us, especially next year, you know, with some of the new designs, you know, Transition to the 800-volt, 400-volt, and stuff like that. We also see networking as an example, whether it's switches or routers. Also, the transceivers, the optical modules will continue to drive a lot of momentum. But I would say all in all, this is really positive for us, and we are excited for the growth. But one thing I do want to point it out, right? I know AI is really hot topic today or for the last few months. But one thing about dialysis, we have very well diversified into a lot of different end markets. Using example of automotive, we actually grow more than 60% or close to 60%. year over year. Even industrial, we actually grow 50% year over year, right? So I think that's one thing I want to point it out. AI will continue to drive the momentum as well as automotive, industrial, and some other applications.

All right.

Thanks so much.

The next question comes from Will Stein with Truist. Please go ahead.

Hi, this is Elliot on for Will. Thanks for letting me ask a question. First, if we could start with margins. As we move into calendar year 27, can you help us think about potential margin expansion and incrementals for both gross and operating, and maybe just generally the puts and takes as we get outside of the next couple of quarters?

Yeah, Elliot, this is Brett. I'll make a couple of comments here. that I think what we, as we've kind of said before, I think we'll continue to have improvement of our margin and leverage based on improved utilization in our wafer fabs that we have positioned for expansion. We're also going to see improved margin as our revenue grows, which we would expect that to continue. I think we're growing at a really great rate in the back half. We would expect to continue to grow to Gainshare as we go into next year. And so I think those are the main, from an additional leverage, we have the manufacturing, but you've also got the improved product mix and the improvement that we're going to be making that will benefit us on the margin side.

Yes, you know, this is Gary. At this moment, we are hitting on 37% as we, you know, give you the guidance in fourth quarter. I think our target model is like $2.5 billion New Year's dollar with a 40% margin, and we're marching forward on the right track toward that direction.

Okay, great. Thank you. And then for my follow-up, could you talk a little bit about just demand linearity you saw through such a strong quarter? Did it build as the quarter went? You've guided for more accelerating growth as we move forward. So how did the linearity trend throughout the quarter and maybe anything you've seen in October relative to your prior such strong quarter things.

Yeah, so this is Emily. I think Q4 usually is a down quarter, about 5% to 6%. For us, we guided more than 3% quarter over quarter. This is actually based on the strong backlog and the design pipeline that we actually have a visibility I think if you really look at the end market, automotive, industrial, AI-related applications will continue to drive some of the momentum Thank you.

The next question comes from Tristan Guerra with Baird. Please go ahead.

Hi, good afternoon. Given the decline that's been well advertised in BC's Notebooks into Q4, is it fair to assume that there is fungibility and you can reallocate quickly via distribution to other end markets which presumably will be a higher margin and that helps mix but also to reduce maybe lead times in some areas that are very constrained.

Hi, Tristan. This is Emily, right? So, of course, it's product by product. It's not across the board, but in general, the capacity should be able to share among different products as well as, you know, sometimes the front-end capacity as well as the wafers. So not 100%, but there's a lot of flexibility that we can work things around. Just also keep in mind that I think I mentioned, you know, the AI portion of the servers and the data center will continue to be strong, and that also will help us to offset some of the softness in a specific market segment.

Okay. And then as my follow-up, the higher loadings that you described, is it... Are you solely driven by higher demand, or is there also some migration from products that were previously outsourced that you're migrating in-house?

Okay, hey Tristan, this is Gerry. So like Emily mentioned, the market demand for diodes is very strong, even though we continue to expand our capacity, and most of our internal facilities are fully loaded. So far, our FAB in Scotland and FAB in South Portland are still not fully loaded yet, but we'll continue to see the decision to improve on a second source program, a program from outside FAB, and also the new demand for a newly designed product into those two FABs to support customers needed. So I would say both.

Great. Thank you very much.

Thank you, Tristan.

The next question comes from Michael Manning with Bank of America. Please go ahead.

Hi, thanks so much for taking my questions. To start, I wanted to get your sense of where you think we are in this cycle. You know, revenue right now is past the prior peak. You've essentially outgrown seasonality for the last two years. So, I mean, are you seeing restocking behavior consistently across all your end markets? And how do you ensure the quality of demand, especially in the distributor channel, which grew a lot this past quarter? How do you ensure There's no double or excess forgery given that there's some supply constraints cropping up elsewhere in the industry. Thank you.

Yeah, so I think, Michael, it is a little bit hard to predict the overall market, but all in all, I would just talk specific on the diet situation. I did mention our POS quarter-over-quarter growth. If we look at year-over-year, that's actually more than 30% year-over-year growth, so you can actually see The demand is actually very, very strong, right? So all in all, I also mentioned that our channel inventory decreased in terms of weeks. This quarter definitely is below our normal range, which also means that we don't really have the privilege to restock anything. Our key focus is actually continue focus on the POS growth. I think the number of weeks of channel inventory a lot of time is based on the POS result. What we want to focus is actually putting the right product, putting the right mix, on the shelf of the distribution continue to enable our POS future growth down the road. So that will continue to be our focus, and I would say that will be our strategy moving forward. We definitely don't want to repeat the challenge that we faced a few years back, so we actually monitored this very, very closely.

Great, thank you. And as a follow-up, this touches on some of the other questions asked prior. For gross margins, I know there were a number of initiatives done over the last two to three years to essentially help them structurally improve when demand returns. I think one of those initiatives was moving more wafers internally right from your third founding network. Another one was moving to larger wafers. You were also doing cost reductions on broad slot parts. So for all of those kind of internal initiatives, Have you largely completed those? Is there still a lot more to go as you look throughout the rest of the portfolio? And when do we really start to see the margin gelwinds from this? It seems like it's already happening, but how much more left is there from those internal self-help initiatives? Thank you.

Yeah, I think like Gary mentioned, right, we have a goal of $1 billion gross profit dollars. And with the model, that 40% margin, as you can see with our fourth quarter 37, we still have room to go. I think the key focus for margin improvement, separate into few areas, one of the key initiatives is product mix improvement. And as you can see in the third quarter, our auto industrial increased to 46%, which is two percentage point improvement compared to last quarter. We also mentioned Paracon products, the record revenue, right? All this is actually a good demonstration of the product mix improvement initiative that will continue driving. The second thing is, you kind of alluded, we call it manufacturing efficiency improvement, whether it's actually moving to a larger wafer or loading more loading into the factory. This will directly help with the revenue improvement overall. Revenue usually increase the loading. At the same time, we're doing a lot of to maximize the capacity return overall and reducing the underloading cost. So we believe that with the combination, with the new product introduction, with the initiative we put in place, there's still a lot of room for us to continue to improve the margin for the quarters to come.

Thank you.

The next question comes from Tristan Guerra with Baird. Please go ahead.

Hi, Tristan.

Tristan, your line is open. You may ask your question.

Can you hear me now?

We can hear you now.

Okay. Sorry about that. Sorry I couldn't help coming back. A quick follow-up. At the OEM level, and outside of AI, obviously, is there any attempt to rebuild inventories? There's been some advertised China automotive softness into European exports or maybe even in industrial or do you see OEM, not DESTI, but OEM inventory levels still very low depending on whether you actually have visibility on that?

Yeah, Tristan, this is Emily. Based on our visibility, based on our communication with all our Tier 1 customers, at this moment, we feel more on the hand-to-mouth situation. I don't really think there's a lot of privilege for us to build up the inventory at this moment. So we are working with them very closely, try to understand their shelf policy, how many weeks, and we actually monitor very closely.

Great. Thank you very much again.

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

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

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