Diodes Incorporated Price & Performance (DIOD)

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 Form 10 ks and 10 Q. In addition, any projections as to the company's future performance, represent management's estimates as of today, 02/11/2025. 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 the 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 to time, a recording will be available via webcast for ninety days in the Investor Relations section of Diodes' website at www.diodes.com. And now, I'll turn the call over to Diodes' President, Gary Yu. Gary, please go ahead.

Welcome, everyone, and thank you for joining us on today's conference call. Our above seasonal revenue results in the fourth quarter reflect the improving momentum we have seen over the past few quarters. As the market in Asia gradually improved, especially in China and the Southeast Asia region, We achieved 5% growth over the fourth quarter twenty twenty three, which makes a return to year over year growth following the multiyear [indiscernible] Even though the overall global demand environment remains challenging, especially in Europe and North America. We're able to maintain our automotive and industrial mix percentage at 42% of total product revenue. Which is a testament to the progress we have made on our new product and content expansion initiatives. Diodes entered a new year having strong POS in Asia for 2024. Improved level of channel inventory and a solid balance sheet combined with a committed focus on expanding growth in our target market especially the automotive and industrial markets. And are capitalizing on new opportunities in AI related applications. Based on current data available, expect 2025 to be a stronger year for diodes than 2024. In addition to our past efforts, to lower manufacturing costs, and further develop our process technology and capabilities.

We are qualifying and are running more product in our internal facilities. To minimize near term underloading costs until demand improves. Our focus remains on prioritizing investments in the automotive and industrial markets. With our analog and power discrete products to further improve the quality and the mix of our portfolio. With our revenue contribution from Odonto and the industrial remaining consistently above our target model.

We are well positioned for growth and margin expansion as market recovery broaden across our end markets in 2025 and beyond. With that, let me now turn the call over to Brett to discuss our fourth quarter and fiscal twenty twenty four financial results as well as our first quarter twenty twenty five guidance in more detail. [indiscernible] Revenue for the fourth quarter twenty twenty four was $339,300,000 compared to $350,100,000 in the third quarter twenty twenty four. And $322,700,000 in the fourth quarter twenty twenty three. Full year 2024 revenue was $1,300,000,000 compared to $1,700,000,000 in 2023. Gross profit for the fourth quarter was $110,900,000 or 32.7% of revenue. Compared to $118,000,000 or 33.7% of revenue the prior quarter and $112,500,000 or 34.9% of revenue in the prior year quarter. For the full year GAAP gross profit was $435,900,000 or 33.2% of revenue GAAP operating expenses for the fourth quarter or 29.2% of revenue And on a non GAAP basis, or 28.1% of revenue. Which excludes $5,000,000 amortization of acquisition related intangible asset expenses $600,000 restructuring charge, 300,000.0 acquisition related costs and $2,300,000 for insurance recovery for a manufacturing facility. This compares to GAAP operating expenses in the prior quarter of $96,100,000 or 27.5% of revenue And in the fourth quarter twenty twenty three, of $91,800,000 or 28.4% of revenue.

Non GAAP operating expenses in the prior quarter were $91,700,000 or 26.2% of revenue. Total other income amounted to approximately $400,000 for the consisting of $4,900,000 of interest income dollars 1,200,000.0 of other income dollars 3,700,000.0 of foreign currency loss, dollars 1,600,000.0 in unrealized losses from investments, and $500,000 in interest expense. Income before taxes and non controlling interest in the fourth quarter of twenty twenty four was $12,300,000 compared to $18,800,000 in the previous quarter and $27,900,000 in the prior year quarter Turning to income taxes, our effective income tax rate for the fourth quarter was approximately 16.6% For the full year 2024, the tax rate was approximately 18.9%, GAAP net income for the fourth quarter was $8,200,000 or $0.18 per diluted share. Compared to $13,700,000 or $0.3 per diluted share last quarter and $25,300,000 or $0.55 per diluted share in the prior year quarter. Full year GAAP net income was $44,000,000 or $0.95 per diluted share, compared to $227,200,000 or $4.91 per diluted share in 2023. The share count used to compute GAAP diluted EPS was 46,400,000.0 shares for both fourth quarter twenty twenty four and the full year, Non GAAP adjusted net income in the Tax $4,100,000 for amortization of acquisition related intangible assets and 1,300,000.0 non cash mark to market investment value adjustment dollars $500,000 restructuring charges $200,000 of acquisition related costs and $1,900,000 of insurance recovery. [indiscernible] This compares to $20,100,000 or $0.43 per diluted share in the prior quarter and $23,400,000 or $0.51 per diluted share in the fourth quarter twenty twenty three, For the full year non GAAP adjusted net income was $61,000,000 $1.31 per diluted share.

As compared to $222,800,000 or $4.81 per diluted share 2023. Excluding non cash share based compensation expense, of $5,300,000 for the fourth quarter net of tax, both GAAP earnings per share and non GAAP adjusted EPS increased by $0.11 per diluted share For the full year, excluding GAAP and non GAAP, non cash share based compensation expense, of $18,000,000 and $17,400,000 respectively net of tax GAAP and non GAAP diluted earnings per share would have improved by $0.4 and $0.39 respectively EBITDA for the fourth quarter was $40,700,000 or 12% of revenue. Compared to $46,900,000 or 13.4% of revenue in the prior quarter. And $58,400,000 or 18.1% of revenue in the fourth quarter twenty twenty three. For the full year, EBITDA was $177,100,000 or 13.5% of revenue, compared to $404,200,000 or 24.3% of revenue in 2023. 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 our for fourth quarter and $119,400,000 for the full year. Cash flow was $62,100,000 which included $19,700,000 for capital expenditures and for the full year free cash flow was $46,400,000 including $73,000,000 for CapEx.

Net cash flow was a negative $2,400,000 which includes the net pay down of $3,800,000 of total debt and for the full year, net cash flow was a negative $3,800,000 which includes the net pay down of $7,600,000 of total debt as well as total net consideration of $52,600,000 for the acquisition of Fort Media a global company which operates in Asia that develops high quality solutions and semiconductor products to enhance human to human and human to machine voice communications Dye was acquired Fort Media to expand our product portfolio and enhance the company's footprint in advanced voice processing technologies. Primarily targeted at automotive and compute markets. Turning to our balance sheet. At the end of fourth quarter, cash, cash equivalents, restricted cash plus short term investments totaled approximately $322,000,000 Working capital was approximately $849,000,000 and total debt including long term and short term, was approximately $52,000,000 In terms of inventory, at the end of fourth quarter, total inventory days were approximately 193, as compared to 187 last quarter, Finished goods inventory days were 82 compared to 79 last quarter. Total inventory dollars decreased $7,100,000 from the prior quarter to $475,000,000 Total inventory in the quarter consisted of $18,300,000 decrease in raw materials, a $9,700,000 increase in work in process and a $1,500,000 increase in finished goods.

Capital expenditures on a cash basis were $19,700,000 for the fourth quarter or 5.8% of revenue and $73,000,000 or 5.6% of revenue for the full year which were both at the low end of our targeted range of 5% to 9% of revenue. Now turning to our outlook. For the first quarter of twenty twenty five, we expect revenue to be approximately $323,000,000 plus or minus 3% representing a 4.8% sequential decrease at the midpoint due to Chinese New Year holiday but slightly better than typical seasonality. Importantly, the midpoint of guidance represents 7% year over year growth and extends our momentum support of our expectation of growth in 2025. GAAP gross margin is expected to be 32.5% plus or minus 1% Non GAAP operating expenses, which are GAAP operating expenses adjusted for amortization. Of acquisition related intangible assets are expected to be approximately 30% of revenue plus or minus 1%. We expect net interest income to be approximately $1,500,000 Our income tax rate is expected to be 18.5% plus or minus 3% and shares used to calculate EPS for the first quarter are anticipated to be approximately 46,700,000.0 Not included in these non estimates is amortization of $5,800,000 after tax for previous acquisitions.

With that said, I now turn the call over to Emily Yang. Thank you, Brad, and good afternoon. Revenue in the fourth quarter was about the midpoint of our guidance. And slightly better than typical seasonality Our global POS decreased in the quarter but the good news is our channel inventory was lower both in terms of dollars and weeks. I will also note POS in Asia for 2024 was [indiscernible] Especially the second half of the year where we saw double digit growth over the same in 2023. Looking at the global sales in the fourth quarter, Asia represented 80% of revenue, Europe 12% and North America 8%. In terms of our end markets, industrial was 23% of Styro's product revenue, automotive 19%, Compute 25% consumer, 18% and communications, 15% of Our automotive industrial revenue combined totaled 42% of the product revenue, which is the same as last quarter. Maintaining our product mix above our target model reflects our ongoing contact expansion and design win initiatives Even though both of these markets continue to undergo inventory and demand adjustments, A key component of Diodes' successful increase of compact at new and existing customers has been our focus on technology and product development over the past several years.

In 2024 alone, we introduced seven fifty five new part numbers with three thirty of this specifically for automotive market. Where we have increased our addressable content per car over 30% this past year from approximately $106 to $2.13 Now let me review the end market in greater details. Starting with automotive market, we maintained the product revenue at 19% even though the inventory rebalancing continues throughout the quarter. We expect inventory adjustments and slower demand to persist into the first quarter. Our focus continued to be on content expansion and market share gain to position Diodes for the growth as the auto market recovers. As I mentioned earlier, Diodes introduced a high number of new automotive compliance products during the year. These products are targeted at our key focus areas of connected driving comfort, style, safety and electrification applications. In terms of product adoption and demand creation, we're seeing strong momentum for our small income PCI Express Packet switches USB Type C redrivers, and active cross moxes for the rear C entertainment and smart car applications. Our LDO product family received solid demand for ADAS, infotainment and wireless charging applications and our SBR products in design wins in auto display applications.

We also experienced strong growth in the quarter from our switching power DC DC products for connected driving applications Additionally, our power discrete product including MOS power TVS, SBR and bipolar junction transistors, are seeing demand growth across multiple auto applications. We have also been ramping up new design wins for our high voltage haul switches being used in the tailgate lift, door harness, electric steering control across multiple Also in automotive, our LED driver business continued to see strong demand in various lighting applications. While our bus LED drivers and multimode LED driver controllers gained traction in applications such as front, high, low beam as well as rear and exterior lightings. In the industrial market, the inventory correction continues similar to automotive end market we expect this may last into the second quarter. Despite the demand softness, we continue to make progress in our design wins initiatives Our high voltage hot switches are seeing design wins for window openers, DC fans and motor applications, while our photocouplers and Diodes are seeing traction in e meter industrial equipment. Motor control fans and power tools.

Additionally, our protection devices are being designed into battery backup units as well as programmable larger control units Our bridge rectifier had multiple design wins in the switch mode power supply for Surfer Power, we also saw several new silicon carbide S SSD design in activities in real power supply and electric motor as well as Tier one inch energy storage applications. In the computing market, we continue to see strong growth momentum for the PCI Express package switches, USB signal conditioners, and ultra low jitter crystal oscillators in AI Surfer and data center applications, including 800 gs and 1.6 T switches and optical modules. Our high speed serial interface logic crystal oscillators and [indiscernible] are being adopted in the NIC CAR and GPU card for the system reference clock. Our addressable content in the AI Surfer today is approximately $90 per box which compared to $53 per box last year for traditional surfers. Also in the computing market, we received solid demand for our LDOs across various applications as well as our ideal diode controllers MOSFETs and compact power switches for input power O ring and power path sequencing control applications. Additionally, our BusWitch solutions for enterprise SSD and next generation portable gaming consoles are being well received as they have helped SSD customers double the supported capacity without redesign of their storage controllers and also protect against software piracy for gaming console customers.

Lastly, [indiscernible] bandwidth cameras in the notebook are driving demand for our MiPII DeFi redrivers. And we continue to achieve momentum for our shock and protection products in notebook and docking station applications. In the communication market, our e USB repeaters has become the standard interface for CPUs and SoC processors in the mobile communication where our one and two channels of EE USB repeaters are gaining traction. Diodes LDO is also seeing solid demand and our production devices are winning new designs in the smartphones.

Also in the communication market, our bipolar junction transistors, shock and SVR product, has seen new design aims for five gs CPE, and five gs modules. We also saw strong momentum for USB power delivery and AC DCPWM controllers product in smartphone charging applications. Lastly, in the consumer market, our SBR and SBD products in chip scale package are securing new designs in power delivery charger and battery pad applications, Additionally, our bridge rectifiers are being designed into gaming applications, while our high voltage buck converters are being adopted in the smart home IoT applications. We also have new design wins for bipolar junction transistors product in personal care devices. In summary, we're pleased to achieve the first quarter of year over year growth in the fourth quarter following the multiyear market slowdown. Although we have not yet seen a broad market recovery, especially across the automotive industrial markets, We continue to focus on demand creation and executing on our new product initiatives to drive increasing content opportunities as the global market recover. With that, we now open the floor to questions. Operator?

Thank you. We will now begin And your first question today will come from David Williams with Benchmark. Please go ahead.

Good afternoon. Thanks for taking the question and congratulations on the return on growth here. Emily, maybe you could speak a little bit to the seasonality that you're talking to to and how that's impacting in China expected with the Chinese New Year and maybe as it relates to automotive and industrial, kind of what you're seeing there? You expecting that to be down maybe further than some of the other segments or just any color around the demand trends in China would be helpful, I think.

Yes. So first of all, I think Chinese New Year, I pretty much within our expectation. We didn't see anything abnormal. I think there are some customers with extended shutdown, but not all the customers. I think overall, it's actually within our expectation I think we actually included a New Year, Chinese New Year return of employees and overall market everything together, we actually guided 4.8% down for the Q1. Which is actually slightly better than our usual seasonality and Q1 never was a strong quarter for for us because Chinese New Year impact, I would say all in all, actually within our expectation.

Great. Certainly appreciate that. And then maybe Brett on the gross margin, the sequential improvement there feels a little stronger than I would have anticipated. What are you kind of seeing on the gross margin, I guess, just given nice bump sequentially there?

Yes. So I think from the gross margin point of view, and you know usually rev revenue goes hand in hand with the gross margin. So I think what we really try to to do is really more on the product mix improvement overall. Continue to focus introducing new products As an example, I think I just talked about it. We released more than 700 new part numbers in 2024 And out of that, more than three thirty is actually up automotive parts. So you can actually see the commitment and driving of the new product and new technology continue to expand our available content market expansion overall. So that will continue to be the focus, right? So a couple of things has really drive the margin improvement. So one is on the product product improvement product mix improvement initiative. The other side is actually on the the underloading situation. So like Gary mentioned, right, we continue [indiscernible] continue to pour additional products into our own internal fab as an alternative, right? Unfortunately, that takes time. But slowly, we're going to see some of the results. So I would say that's the reason you're actually seeing probably better than your expected margins gross profit margin overall based on the guidance.

Okay. Very well. Is there a way to think about how far you are through that porting over process? Is there a threshold or maybe just a way to think about magnitude that's happening to the gross margin At this point, I think that would be ongoing quarter by quarter effort, right? I think not only we need to qualify the process, the technology, the devices, we also need to work with the customers to qualify that device onto their board. So I would say it's an ongoing process and it's probably going to take other number of quarters continue to improve over time. But I we strongly believe that with the belief 2025 is actually going to be a better year, So that also going to drive some of the revenue at the same time driving some of the loading. So we're actually pretty confident that overall you're going to see improvement throughout the quarters within 2025.

Great. Thanks so much.

And your next question today will come from William Stein with Truist Securities. Please go ahead. Great. Thanks for taking my question. First, I'm hoping you might give us some clues as to how you expect revenue to perform in each of the end markets in Q1?

Okay. All right. So automotive, still going through inventory rebalancing and coupled with weaker demand overall, right, especially from the Europe territory. So we think Q1 is still going to be a challenging quarter overall.

As you can see, I mean, even with the Q4 of challenging, we tried to maintain the 19% overall of the product revenue. So I think that will continue to be the focus. It's actually focused on the content, expansion and the market share gain overall. So, over industrial market, we're still seeing ongoing inventory rebalancing. Some customer situation are worse than the others. Definitely some are better, so not everything equal. But all in all, we see that will continue probably linger through the second quarter And compute market sentiment for Q1, we expect it probably be slightly down because also Chinese New Year And And the consumer was never a strong quarter in the first quarter, so we don't consumer to be a growth quarter as well as communication. I think on the communication side, on the enterprise traditional networking, we are actually seeing some of the inventory rebalancing, improving O for us, so that might give us some of the upside. But the smartphone is actually going to probably be challenging in the first quarter. So I will say all in all, still going to be a down quarter. So as a conclusion, right, so we guided 4.8% down.

For the whole quarter. But that's still the better than the seasonality first quarter?

Yes. Okay.

Let me ask about operating leverage.

Compared to the December of twenty twenty two quarters two years ago, but your revenue is down 32%. Your OpEx is only down 10%. Which is fine. I assume it means this significant fixed cost in your OpEx, but as your revenue recovers, assuming we even if we don't get back to that exact level, but as you grow, Should we think there's going to be sort of similar positive operating leverage on the way up or have you added costs that make the that might make the leverage less severe or less significant as it was on the way I would say that you Will that we have There's no real structural things that we've added across that window. We basically have picked up the Oncini and the The TICS Instruments factory across the last number of years And then what we've done is you saw that across the last couple of years, we brought down overall OpEx spend from 2022 to 2023 and then 2023 to 2024. I think what you'll see is there's good bit of leverage to that as we go forward. I think we get a lot of that will we've talked about the leverage we get in our margin, not only as we start to grow, we get the benefit of pulling those some of the sourcing of those products inside versus out.

And then that infrastructure obviously is inside the company now versus outside. In terms of some of the manufacturing footprint. But I think you're going to see the leverage is good. There's not I don't expect that to scale back up. I actually think that what you're going to see is OpEx as a percentage of revenue start coming back down kind of plateau and then start coming back down as revenue starts to grow, which we feel strongly that fourth quarter was year over year growth.

First quarter, we're guiding year over year growth. And we expect that to continue. Through the year, we don't guide out further officially, but that's our feeling, that's our expectation. And that's what you'll see on the OpEx side is that we'll continue to kind of come down across the quarters. [indiscernible] Thanks, guys.

Thank you.

And your next question today will come from David Williams of Benchmark with a follow-up.

Please go ahead.

Hey, thanks for taking the follow-up and forgive me if I missed it, my line dropped out. But I wanted to ask maybe on pricing trends, what you're seeing there? Have you seen erosion greater than you would typically see or does that seem to come down a bit just from a pricing perspective?

Yes, David. I think the pricing is pretty stable. We think our remember I talked about 1.5% to 2% bill in per quarter. It's still within that range. So I wouldn't say the overall environment We've seen more price competition from the commodity and commodity area That's also the area we have been strategically defocused in. And so I would say all in all, it's actually stable.

Another important thing is we probably going to emphasize a lot on our product portfolio in on that. We introduced a lot of new product, not only limited automotive, but also for the different kind of segment. So we can enjoy the much better ASP than GP percent on those new product we introduced in the market. So we can balance in those like the commodity loss in the in some market.

Okay, great. And then just one last, if I may, on the AI side. You're seeing some really nice growth this year per box, as you mentioned. Is that driven more by just Trader's socket available or is it your product portfolio or what's really driving that that opportunity within that server kind of market for you?

I think it's combined of all, right? So we are expanding our product portfolio. We're having some of the newer products overall We also see with the AI server application, certain chipsets there is additional PCI Express port required. And we actually have this PCI Express package switch portfolio that's very well suited to really support this kind of application with the requirement of additional PCIe ports. So I would say combination of quite a number of different things, of course, the overall market is all beneficial to our overall growth.

Great.

Thanks again. Certainly appreciate it.

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.

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