Good afternoon, and welcome to Diodes Incorporated Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Thursday, November 6, 2025. I'd now like to turn the call over to Leanne Sievers of the Shelton Group Investor Relations. Leanne, please go ahead.

Good afternoon, and welcome to Diodes Third Quarter 2025 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 September 30, 2025. In addition, management's prepared remarks contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the safe harbor for forward-looking statements 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 6, 2025. 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, revenue in the quarter increased 7% sequentially and 12% year-over-year, driven by strong demand across the general computing market, including for AI-related server applications as well as data center and agent computing. Our global point of sales increased the strongest in Asia, followed by North America. Additionally, our channel inventory is at a healthy level, decreasing again this quarter in terms of dollars and weeks with overall inventory dollar decreasing over 25% from peak levels. Even though the rate of recovery in the automotive and industrial market continues to be slower than expected, revenue increased both sequentially and year-over-year in both of these end markets. When coupled with the computing market growing the strongest along with the consumer also increasing sequentially, product mix unfavorably weighted on the gross margin during the quarter. Future margin expansion will be driven by ongoing improvement in the product mix as the pace of recovery accelerate in our higher-margin automotive and industrial end markets, combined with increased new product introductions in our target markets as well as improved loading across our manufacturing facilities. At the midpoint of our fourth quarter guidance, we expect to achieve approximately 12% growth for the full year. Looking forward, we are gaining increasing confidence in broader demand improvement in the automotive and industrial market. Diodes is gaining increasing market share in the automotive market with new programs scheduled to launch early next year. Combined with increasing content in industrial applications like AI robotic, power management, medical and factory automation. With that, let me now turn the call over to Brett to discuss our third quarter 2025 financial results as well as our fourth quarter guidance in more detail.

Thanks, Gary, and good afternoon, everyone. Revenue for the third quarter 2025 was $392.2 million, an increase of 12% over $350.1 million in the third quarter 2024 and a 7.1% increase over $366.2 million in the second quarter 2025. Gross profit for the third quarter was $120.5 million or 30.7% of revenue compared to $118 million or 33.7% of revenue in the prior year quarter and $115.3 million or 31.5% of revenue in the prior quarter. GAAP operating expenses for the third quarter were $108.9 million or 27.8% of revenue and on a non-GAAP basis were $103.1 million or 26.3% of revenue, which excludes $5.9 million amortization of acquisition-related intangible asset costs. This compares to GAAP operating expenses in the third quarter 2024 of $96.1 million or 27.5% of revenue and $105.9 million or 28.9% of revenue in the prior quarter. Non-GAAP operating expenses in the prior quarter were $99.8 million or 27.3% of revenue. Total other income amounted to approximately $7.5 million for the quarter, consisting of $8.5 million of interest income, $2.4 million in unrealized gains from investments, $0.4 million in other income, $3.3 million in foreign currency losses and $0.5 million in interest expense. Income before taxes and noncontrolling interest in the third quarter 2025 was $19 million compared to income of $18.8 million in the prior year period and $53.2 million in the previous quarter. Turning to income taxes. Our effective income tax rate for the third quarter was approximately 18.7%. We continue to expect the tax rate for the full year to be approximately 18%, plus or minus 3%. GAAP net income for the third quarter was $14.3 million or $0.31 per diluted share compared to net income of $13.7 million or $0.30 per diluted share in the prior year quarter and net income of…

Thank you, Brad, and good afternoon. Revenue in the third quarter was up 7.1% sequentially and at the midpoint of our guidance, mainly driven by strong demand in Asia, especially in Taiwan for the AI computing applications. Our global point of sales increased in Asia, followed by North America and our channel inventory decreased both in dollars and in weeks. During the quarter, we continued to drive our new product initiative with approximately 180 new part numbers, of which 60 were for automotive applications. Looking at the global sales in the third quarter, Asia represented 78% of the revenue; Europe, 12%; and North America, 10%. In terms of our end markets, industrial was 22% of Diodes product revenue; automotive, 19%; computing, 28%; consumer, 18%; and communications, 13% of the product revenue. Our automotive industrial revenue combined was 41%, which was 1 percentage point lower compared to the last quarter. Even though automotive industrial revenue increased quarter-over-quarter, the computing end market experienced stronger growth than the 7% of the company average for the quarter and the industrial market grew at a lower rate than the average. Now let me review the end markets in greater details. Starting with automotive. Revenue in the quarter grew 8.5% sequentially and 18.5% in the first 3 quarters over last year, even though as a percentage of the total product revenue was flat to the last quarter due to the growth in the other markets. The revenue increase during the quarter serves as a further evidence that the inventory situation continued to improve even though the overall demand remained dynamic and the pace of recovery is slower than expected. The other positive news is that we are starting to see more new programs scheduled to ramp early next year. Our controllers and MOSFET combination from the…

[Operator Instructions] We'll take our first question today from the line of David Williams at Benchmark.

Congrats on the solid results here. I guess maybe first question, Emily, you kind of touched on this at the end on the increased loadings. But as you kind of think about the gross margin for the year and what those loadings could look like, can you kind of give us a sense of what your expectations are for growth and maybe how those loadings should look as we move through next year?

Yes. So I think if you look at the gross margin, right, there's a couple of areas that we believe is going to improve over time, right? So number one, we do expect the product mix will continue to improve throughout the quarters, right? With a lot of pipeline, we have a lot of success in the automotive with the key focus introducing a lot of new products, we are actually confident that the combination of the product mix will continue, right? And then if we look at the Pericom product family, we continue to focus on the AI areas. We believe that will continue to help us from the product mix. On top of that, we have new product introduced throughout the quarters, especially focus in automotive area and some other areas. So again, right, that's part of the product mix. For the longer term, 2026, we do expect the revenue to be a growth year, right? So naturally, when we grow the revenue, that will increase the loading of our factories, right? -- we're also aggressively porting our product into our factories from outside to inside and balance overall the loading as well. So gradually, that will show some improvement, right? I think going down to manufacturing efficiency, I think overall, Gary and the company is driving very aggressively for cost down and continue improving on that area. So I would say if you add all these things together, that's actually the reason that we believe. And then on top of that, right, I also talked about it, if we look at the channel inventory, we believe the ship in, the ship out is going to be more balanced moving forward. We have been depleting quite a lot for the last few quarters, and that's actually going to get more stabilized. So I would say that's another angle to think about it.

Okay. Great. And then maybe on the tariff side, it seems like some of your peers have had a challenging time kind of sidestepping some of the earlier in the year pull-ins, but that doesn't seem to have impacted you, and we're not seeing it here in the fourth quarter. Maybe talk about that, how you're able to navigate that. But are you seeing that impact? Or could you potentially see that as we move into next year? Is there anything, I guess, from that perspective that we should be thinking about?

So David, I want to make sure you are talking about the tariff importing into U.S?

Yes. Just the general demand trends as we saw with the tariffs that were driving some earlier loadings for production to come to the U.S., just that -- just the demand dynamics around that and that channel inventory associated with it.

I would say, overall, we didn't really see the big spike or change overall for the demand point of view. I think tariff is not new just for last quarter. It has been in place for quite some time. I think we are working aggressively leverage our flexible manufacturing site and moving things around to minimize the tariff overall impact for U.S. revenue. I think on top of it, right, majority or there's quite a lot of revenue within North America is actually importing into Mexico or Canada. So that's actually also a different story. I would say, all in all, if you look at the overall percentage of the business for North America is still a very small percentage. So that's the reason that we are working different angles, but the overall impact is relatively small for Diodes.

But -- and I would like to add a comment on that. The market is very dynamic, especially like country to country, this kind of geopolitical issue. So at Diodesn we always want to keep our flexibility to support customer anywhere they want it.

Okay. All right. Very good. Certainly appreciate that. And maybe just lastly for me is on the automotive side. You've talked about things getting better there, inventory is better. How do you see maybe your position given your content growth and these programs that are ramping next year? How do you think we should look at the revenue growth trajectory for automotive specifically as we get into next year?

Yes. So current percentage for automotive for us based on the Q3 result is 19%, right? We definitely expect our automotive percentage will continue to improve in 2026, especially with the market share gain and the content expansion that you just mentioned.

Next, we will hear from the line of Tristan Gerra at Baird.

You mentioned in-sourcing as a gross margin catalyst for '26. How should we look at the gross margin benefit for an analog product currently outsourced in Korea or in Japan versus once it moved internally? And is it fair to say that the qualification process for your South Portland, Maine fab is ongoing, and it sounds that perhaps it's more of a second half of next year dynamic given that industrial and automotive are still somewhat in recovery mode?

Okay. Tristan, this is Gary. Let me help to answer this question for you, right? And by moving external to external, definitely going to benefit Diodes a lot, right? For example, if I subcon to my wafer to our subcon partner, they're definitely going to earn some premium from Diodes and then we can save the premium and by loading internally with our like kind of very, very effective cost this kind of model on that. So definitely, we can enjoy the benefit of moving external to internal. As for the analog part, we continue loading or qualify the process new product into our SP fab. And we do see a very, very good progress so far, and we do have our new product or requalified product from this wafer fab being qualified in our key customer side. And we do see the PO coming in just recently from the previous couple of quarters. So to offset our OEM customer under load issue or continue to drive the demand, we do significantly improve our loading in those particular SP fab to offset this kind of under loading issue in the cost. So for year 2026, I do believe loading will be improved and the GP coming from this wafer fab will improve, too.

Great. That's very useful. And then you mentioned AI as a key driver of computing, but you also mentioned computing being a negative on mix. What percentage of your computing revenue right now is data center? And then any way to quantify how much of the growth is coming from AI-related products?

Yes, Tristan, this is Emily. We're sorry, right now, we actually don't have the breakdown information. But if you look at our Q3 result, right, computing is the strongest growth market segment for us -- we actually achieved 70% -- 17% sequentially and 22% just compare the first 3 quarters, right? A majority of this growth is driven by AI. So I think the other thing I want to point it out, right, AI is not just in the computer segments, right? We're also, for example, seeing AI related in the industrial power supply or some other edge AI applications that's driving some of the refresh cycle. That's actually the reason we haven't been able to break it out. I think on top of that, if you really think about our product, it's really fitted for a lot of applications, not just limited to AI, right? But I would say, all in all, it's really positive. We're actually excited to see the performance and the growth, especially in the computing market segment.

Yes. And just like Emily said, no matter AI in compute or industrial, we do see this kind of market segment will continue to grow next year and even the year after next year. And at the same time, we continue to introduce a new product into this segment. And this new product, usually, we can enjoy much better GP on that. So that's really we're going to put our R&D focus on that but continue to grow our GP percent in the future.

Okay. Great. And just one quick last one. Do you see yourself as a benefit from the disruptions around Nexperia? Because my understanding is that it's a lot of discrete product. And are you second sourcing some of that? Is that a tailwind for next year?

Yes. Tristan, we're definitely aware of the situation. Discrete, Diodes, rectifiers, MOSFETs, logic, definitely part of our broad portfolio, and it does cross over to some of our peers like Nexperia, right? Like I mentioned before, any time there's a change of supply situation, strategic decision, whether change price or supply or low-margin focus, it always creates opportunity for Diodes, and we always utilize this type of opportunities to really expand and build a stronger relationship with our strategic customers and also the focus in automotive market segment, right? We do review all this business very carefully and engage in the areas that fit into our overall long-term strategy and focus. So our goal at the end is really better serve the customers overall.

[Operator Instructions] We'll hear next from William Stein at Truist.

This is Elliott on for Will. You mentioned 2026 being a growth year, and it looks like recent top line growth is holding in around plus 10% year-over-year. Is that a reasonable level for us to expect through 2026? And I'm wondering if you could give us some examples of end markets or products or applications that could maybe trigger a more robust recovery than, say, plus 10%?

All right. This is Gary. Let me try to help answer this question. Yes, the answer to you is yes, for sure. We do believe the year 2026 will be another good year for Diodes. Not only the revenue growth like a double digit, I want to drive on that way, but also I want to make sure our profitability also grows aligned with our revenue growth. That's our commitment to the shareholders. And as for which segment we are looking for the most aggressive growth, one is AI, as Emily mentioned that about in the previous answer. Another one will be automotive plus industrial because we do see the automotive and industrial in the near future, not only the segment increase, but also we do have a newer product and introduced into this segment and been designing since the past couple of quarters. So we do see the revenue is going to be significant growth in these two segments.

Yes. I think on top of that, right, we went through a period of inventory adjustment. We believe that by 2026, even with few customers' inventory situation will continue to improve, and that naturally is going to drive some of the demand as well.

Exactly.

Okay. And one more, if I can, on -- we've talked previously about a 20% operating margin target. I'm wondering if you could give us some color and maybe be a little more prescriptive in terms of the different variables you gave earlier about margins improving of how you can get to potentially that 20% range again from the -- call it, mid-single digits today. What's the lion's share? Anything like that you can provide?

Okay. Let me try to give you a very high-level direction I want to drive on that. The first, we want to drive top line means like revenue is going to be growth, right? And along with the GP and GP percent improvement on that direction on the growth mode. At the same time, and I really want to keep our SG&A flat or less percentage while the revenue growth, but I really want to put more focus on R&D expenditure along with the revenue growth. With that, I do believe we can improve more on our bottom line. So let me emphasize again, revenue growth and along with the GP percent GPM growth, we keep SG&A percentage flat or reduced. And at the same time, I want to focus on -- invest more on R&D.

Yes. A couple of things I would add to that. This is Brett. Is that when you think about that 20% margin, the building blocks to that are principally two things. Our gross margin continuing to improve and working its way back to 40-plus percent. And you basically got the OpEx that we have -- that we've shown that at the higher revenue levels will be around 20%. And as Gary mentioned, the goal is to -- and what you can see in our investment is leaning heavier into the R&D piece than we are on the SG&A. And so I think that's -- those are the two main components. And the big one we spend the time on is on the gross margin and the real drivers to that and building on the differentiated, more quality products across our portfolio while then in addition, not adding to our manufacturing footprint while we do that, but getting the entitlement of it as -- that's in place. So those things together, it will accelerate the margin improvement and will basically transition back to margin that we saw a few years ago.

And now we'll take a follow-up from Mr. David Williams at Benchmark.

On the AI side, is there a way to kind of parse out the demand or new demand that you're seeing relative to maybe the content expansion? And the reason I'm just trying to understand, are you driving -- and I get that you're probably driving both, but what is the bigger one? Is it just increased demand all around? Or are you just able to sell more products into each one of these solutions?

I think it's really a combination of both, right? I think it's important that we continue to drive new product introductions. Like I mentioned, there's a lot of change even with the AI data center with some shifting of transitioning from 48-volt to 400-volt and 800-volt, which also means that there's a new set of requirements that need to be fitted into the application. So I think it's important for Diodes continue to focus on the technology, continue to focus on new product introduction that will be well fitted into the new application, right? At the same time, the volume will continue to grow. When you combine those two together, it's going to get the best result overall.

Yes. Another important information I'd like to share is like Diodes and Vantage has a very good relationship with those like Tier 1 customers, no matter any company or other company, right? And that's why we understand from their architecture, from our system point of view, we know what they want 3 years or 5 years from now. That's why we cooperate with them to develop the product they wanted.

Okay. Okay. That's great color there. And then maybe just on the inventory side, do you get a sense that some of your customers have started to replenish if you look across your inventory levels? And is that something that's helped here? Or do you think that is still in front of us, just kind of given where inventory levels are today?

I believe a lot of customers' inventory situation changed a lot. There are still some pockets of customers, especially, I would say, in the industrial market segment that's still going through some corrections, but we also expect situation should be improved or completed by the beginning of next year.

Yes. So David, one way to think about that, too, is that you've seen the last 2 quarters, the internal inventory as well as, as we've described, our channel inventory continue to come down. And as long as that is happening in that way, you're not getting the full entitlement of the market on our margins. And so I think going forward, we feel a more balanced basically ship in and ship out and then the ability to have the entitlement of the full demand coming through our margin. And as Emily said, we think we'll -- you'll start to see that as we transition into probably second quarter next year, especially as we start to see the strength.

And we have no further questions from our audience today. I'm happy to turn the floor back to Mr. Gary Yu for any additional or closing remarks.

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

Ladies and gentlemen, thank you for joining today. You may now disconnect your lines.