Diodes Inc 2026 Q2 Earnings Call

Leanne, please go ahead. Good afternoon, and welcome to Diodes second 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 June 30th, 2026. 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.

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. Any projections as to the company's future performance represent management's estimates as of today, August 5th, 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. 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. 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. 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, we've seen our momentum in the second quarter with revenue again increasing more than 20% year-over-year, driven by growth across all regions. Revenue also increased 10% sequentially, coupled with a record global POS. As the sixth consecutive quarter of double-digit year-over-year growth, this quarter serves as a further confirmation of strengthening demand in overall market, combined with Diodes expanding content across our analog and our power solutions in our key focus areas of automotive, industrial, and AI server related applications. Automotive revenue reached a record level of 21% of our product revenue. We continue to drive increased content with an expanding pipeline of new products that's resulting in consistent market share gains across our regions, auto manufacturers, and suppliers.

During the quarter, the cost and operating initiative we previously implemented during the market slowdown are producing measurable benefit to gross margin and our bottom line, with margin increasing 160 basis points year-over-year and our non-GAAP earnings increasing by more than 100% again this quarter. These actions have also contributed to increased cash flow that has enabled us to reinvest in our growth and innovation, while also looking for inorganic opportunity to expand our technology portfolio, such as recent proposed acquisition of Elevate Semiconductor. Elevate is a fabless semiconductor company that specializes in development of integrated circuits for automated test equipment, or ATE. The explosive growth, increasing complexity, and higher performance requirements of IC used in automotive, industrial, data center, and AI applications are driving greater semiconductor production volume and, in turn, increasing demand for automated test equipment.

This acquisition enhances our ability to provide a broader solution to customers and launch a new advanced product line that will drive increased dollar content in ATE applications. I also want to add that this acquisition is immediately accretive and expect to add approximately $15 million of revenue in the first 12 months post-close, with revenue expected to grow at a CAGR of greater than 20% over the next 4 years and with gross margin significantly higher than Diodes corporate average. We look to the third quarter, we expect to extend our accelerating traction with revenue anticipated to increase 30% year-over-year and 14% sequentially at the midpoint. We also expect to deliver another 190 basis points sequential improvement in gross margin. Our utilization continues to improve, combined with a 2.8 times year-over-year improvement in non-GAAP earnings.

These expected results drive us closer toward our three-year financial goals of $2 billion in annual revenue and over $4 in non-GAAP EPS. With that, let me now turn the call over to Brad to discuss our second quarter financial results as well as third quarter guidance in more detail.

Thanks, Gary. Good afternoon, everyone. Revenue for the second quarter 2026 was $445.5 million, an increase of 22% over $366.2 million in the second quarter of 2025, and up 10% compared to $405.5 million in the first quarter of 2026. Gross profit for the second quarter was $147.6 million, or 33.1% of revenue, compared to $115.3 million, or 31.5% of revenue in the prior year quarter, and $128.8 million or 31.8% of revenue in the prior quarter. GAAP operating expenses for the second quarter were $114.3 million or 25.6% of revenue. On a non-GAAP basis were $108.6 million or 24.4% of revenue, which excludes $3.9 million amortization of acquisition-related intangible asset costs, $1.5 million of board and officer retirement expense, and $0.3 million of acquisition-related costs.

This compares to GAAP operating expenses in the second quarter 2025 of $105.9 million, or 28.9% of revenue, and $109 million, or 26.9% of revenue in the prior quarter. Non-GAAP operating expenses in the prior quarter were $103.9 million or 25.6% of revenue. Total other income amounted to approximately $24.7 million for the quarter, consisting of $20 million in unrealized gain on investments, $5.5 million in interest income, $0.5 million in other income, offset by $1 million in foreign currency losses and $0.3 million in interest expense. Income before taxes, equity, and net earnings of equity investments and non-controlling interest in the second quarter 2026 was $58 million, compared to $53.2 million in the prior year period and $22.4 million in the previous quarter. Turning to income taxes, our effective income tax rate for the second quarter was approximately 12.3%.

For 2026, we expect the tax rate for the full year to remain at approximately 18% ±3%. GAAP net income for the second quarter was $46.6 million, or $1 per diluted share, compared to a net income of $46.1 million or $0.99 per diluted share in the prior year quarter, and net income of $15 million or $0.32 per diluted share last quarter. The share count used to compute GAAP income per share for the second quarter 2026 was 46.4 million shares. Non-GAAP adjusted net income in the second quarter was $32.5 million, or $0.70 per diluted share, which excluded net of tax, an $18.7 million gain on investments, $3.2 million of acquisition-related intangible asset costs, $1.2 million in board officer retirement expense, and $0.2 million in acquisition-related costs.

This compares to non-GAAP adjusted net income of $15 million, or $0.32 per diluted share in the second quarter 2025, and $19.8 million or $0.43 per diluted share in the prior quarter. Excluding non-cash share-based compensation expense of $8.9 million for the second quarter, net of tax, both GAAP net income and non-GAAP adjusted net income would have increased by $0.19 per share. EBITDA for the second quarter was $83.5 million, or 18.7% of revenue, compared to $84.5 million, or 23.1% of revenue in the prior year period, and $49.4 million or 12.2% 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 $68.5 million for the second quarter.