Diodes, Inc. — Q3 2026 Earnings Summary

Financial Performance:

• Third quarter 2026 revenue reached $532.6 million, a 36% increase year-over-year from $392.2 million and a 20% increase sequentially from $445.5 million.
• Gross profit was $192.5 million (36.1% margin), up from $120.5 million (30.7% margin) in the prior year quarter and $147.6 million (33.1% margin) in the prior quarter.
• Non-GAAP gross profit was $192.9 million with a 36.2% margin, excluding $0.4 million in inventory accounting related to the ElevATE Semiconductor acquisition.
• GAAP operating expenses were $129.1 million (24.2% of revenue), compared to $108.9 million (27.8%) in the prior year quarter; non-GAAP operating expenses were $122.1 million (22.9%), excluding $5.2 million in intangible asset costs and $1.8 million in acquisition costs.
• GAAP net income was $43.7 million ($0.95 per diluted share), compared to $14.3 million ($0.31 per share) in the prior year quarter and $46.6 million ($1.00 per share) in the prior quarter.
• Non-GAAP adjusted net income was $54.5 million ($1.18 per diluted share), compared to $17.2 million ($0.37 per share) in the prior year quarter and $32.5 million ($0.70 per share) in the prior quarter.
• EBITDA was $89.7 million (16.8% of revenue), up from $46.6 million (11.9%) in the prior year quarter and $83.5 million (18.7%) in the prior quarter.
• Cash flow from operations was $97.2 million; free cash flow was $43.9 million after $53.2 million in capital expenditures.
• Net cash flow was positive $134.1 million, including $35 million used for stock buybacks.
• Total debt was approximately $405 million; working capital was approximately $1.1 billion.
• Cash, cash equivalents, restricted cash, and short-term investments totaled approximately $578 million.
• Inventory days decreased 11 days to 141 (from 152 last quarter); total inventory increased $30.5 million to $535 million, with a $29.5 million addition attributed to the ElevATE acquisition.

Guidance and Future Outlook:

• Full-year 2026 revenue is expected to increase approximately 30% over 2025 at the midpoint, well above the historical CAGR of 10%.
• Fourth quarter 2026 revenue is expected to be approximately $550 million (±3%), representing a 40.4% year-over-year increase and a 3.2% sequential increase.
• Fourth quarter non-GAAP gross margin is expected to expand to 37% (±1%).
• Fourth quarter non-GAAP adjusted EPS is expected to be $1.35 (±$0.10).
• Full-year 2026 effective income tax rate is expected to remain at approximately 18% (±3%).
• Management targets a long-term model of $2.5 billion revenue with a 40% gross margin.
• Capital expenditures for the quarter were $53.2 million (10% of revenue), above the targeted annualized range of 5% to 9%, though year-to-date spending is 8.6% of revenue.

Business Segments and Product Lines:

• Automotive revenue grew 26% sequentially and nearly 60% year-over-year to a record, driven by content expansion and market share gains in ADAS, telematics, infotainment, electrification, and safety applications.
• Industrial revenue increased 26% sequentially and 50% year-over-year, driven by AI infrastructure, automation, energy, smart metering, and robotics; ElevATE benefits from growth in semiconductor automated test equipment.
• Computing revenue increased 16% sequentially and 33% year-over-year to a record, driven by AI servers, data centers, and enterprise storage; mobile demand was soft.
• Consumer revenue increased over 20% sequentially and 30% year-over-year, supported by premium home audio, USB-C power, and protection products.
• Communication revenue increased 10% sequentially and 6% year-over-year, driven by AI networking, 800G/1.6G optical modules, and timing solutions.
• Pericom product revenue reached a record high, exceeding 3x the level since the acquisition.
• Global Point of Sale (POS) reached a record, increasing more than 30% year-over-year.
• End market mix: Computing (27%), Industrial (24%), Automotive (22%), Consumer (17%), and Communication (10%).

Market and Competitive Landscape:

• Geographic revenue split: Asia (79%), Europe (11%), and North America (10%).
• Channel inventory weeks decreased below the normal range of 11 to 14 weeks, indicating strong demand and limited restocking privilege.
• Unit shipments increased significantly, with a Q3 run rate of approximately 60 billion units compared to 45 billion units for calendar year 2025.
• Supply remains tight with extended lead times; management is working closely with customers to understand true demand.
• AI infrastructure investment is driving growth in server power, timing, connectivity, and storage solutions.
• Management noted that the company is less dependent on any single market segment due to its broad portfolio.

Risks and Challenges:

• Results are preliminary and unaudited until the filing of the Form 10-Q for the quarter ended September 30, 2026.
• Forward-looking statements are subject to risks and uncertainties, including market conditions and potential revisions.
• Supply constraints and extended lead times persist, requiring careful capacity management.
• Softness in the smartphone market in China and the notebook/PC market is noted, though AI data center demand is expected to offset these slowdowns.
• Management aims to avoid repeating past challenges regarding channel inventory restocking.

Management Commentary and Tone:

• CEO Gary Yu described the quarter as having record revenue, over 500 basis points of year-over-year gross margin growth, and record global POS.
• CFO Brett Whitmire highlighted significant expansion in non-GAAP earnings and strong cash flow generation.
• SVP Emily Yang emphasized strong demand across all regions, record Pericom revenue, and a strategic focus on long-term sustainable business.
• Management expressed confidence in achieving three-year financial goals ahead of schedule, citing improved product mix, pricing, and capacity utilization.
• Management indicated they will revisit and reset three-year financial goals during the next earnings call.

Analyst Questions and Answers:

• Analysts asked about the magnitude of AI revenue contribution; management stated they do not break out AI revenue specifically but noted AI ecosystem and data center servers are a major portion.
• Regarding margins, management confirmed a target of 40% gross margin on $2.5 billion revenue and expects continued expansion due to manufacturing leverage and product mix.
• On demand linearity, management noted a strong backlog and design pipeline supporting Q4 guidance despite typical seasonality.
• On capacity, management confirmed internal fabs are largely fully loaded, with some utilization improvement expected at the Scotland and South Portland facilities.
• On inventory, management stated OEMs remain in a "hand-to-mouth" situation with no significant privilege to build inventory.

Other Key Points:

• Completed a private placement of $375 million in 0% convertible senior notes due 2031, generating net proceeds of $342.9 million after costs and premiums.
• Used $35 million of net proceeds to repurchase 360,119 shares of common stock in a privately negotiated transaction.
• Acquired ElevATE Semiconductor, contributing $29.5 million to inventory additions and benefiting from the semiconductor automated test equipment market growth.
• Share count for Q3 2026 GAAP diluted EPS was 46.2 million shares.
• Non-GAAP adjusted net income excluded $7.9 million in unrealized investment losses, $4.2 million in intangible asset amortization, $3 million gain on subsidiary disposal, and other acquisition-related costs.