Advanced Energy Industries, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Q1 2020 Advanced Energy Industries Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Edwin Mock, Vice President of Strategic Marketing and Investor Relations. Thank you. Please go ahead, sir.

Thank you, operator. Good morning, everyone. Welcome to Advanced Energy's first quarter 2020 earnings conference call. With me today are Yuval Wasserman, our President and CEO, Paul Oldham, our Executive Vice President and CFO, and Brian Smith, our Director of Investor Relations. If you have not seen our earnings press release, you can find it on our website at ir.advance-energy.com. Here, you'll also find a slide presentation to follow along our discussion today. Before I begin, I would like to mention that AE will be participating at multiple investor conferences in the coming months, mostly virtually. As events occur, we will make the announcements. Let me remind you that today's call contains forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially and are not guarantees for future performance. Information concerning these risks and uncertainties is found on our filings with SEC. All forward-looking statements are based on management's estimates, projections, and assumptions as of today, May 6, 2020. and the company assumes no obligation to update them. Long-term targets presented today, which include our aspirational goals and the integration targets, should not be interpreted in any respect as guidance. Today's call also contains non-GAAP financial measures. An explanation of these measures, as well as reconciliations between GAAP and non-GAAP measures, are contained in our press release and the slide presentation. With that, let me pass the call to our President and CEO, Yuval Wasserman. Yuval?

Thank you, Edwin. Good morning, everyone, and thank you for joining us on this call. Let me begin today by saying that our main efforts and focus over the last three months have been the safety and health of our employees, their families, and our global partners. This is an extraordinary time, and I'm proud that Advanced Energy has managed to both protect our employees and Deliver on our customers' commitments, which resulted in a quarter exceeding all of our expected financial metrics. In summary, revenue of $315.5 million was above the midpoint of our guidance, and non-GAAP earnings per share of $0.91 was at the higher end of our widened guidance range. Let me first give you an update on our response and activities during these unprecedented times. As early as January, recognizing this pandemic could have global implications, we put together an executive-led rapid response team to take decisive actions to ensure everybody's health and safety long before governments began insuring mandates. Those early preparations allowed us to safely reopen our China factories and ramp our production shortly after the Lunar New Year shutdown. We also instituted working from home guidelines and implemented sophisticated IT solutions which allowed us to work virtually. In order to continue our innovation and product development projects, we provided our key innovators with home mini labs and we saved and secured access to our main labs to utilize larger equipment when required. At present, all of our factories are operational With our China factories back to full capacity, while those in the Philippines and Malaysia are running at lower rates due to local government restrictions. Within our facilities, all employees are provided with the proper protective equipment, and we have implemented our own safety protocols and physical separation structures and methods that are above and beyond local government requirements. We are proud that many of our products contribute to the effort to fight this pandemic. AE has a long history of designing and developing power supplies for use in many critical therapeutic medical products like ventilators and diagnostic equipment like CT scanners and blood analyzers. Our power supplies also power analytical instruments used in life science applications like gene sequencing and vaccine development. Our product supplies are critical to the production of semiconductor devices and in the operation of data centers which are seeing increased demand driven by the need to stay connected and the resulting increase in data usage. The key role that our products play in improving lives has never been so clear as during the past several months. Entering this crisis in a position of strength, allowed us to address both health and safety concerns as well as business continuity challenges with confidence in our ability to weather the storm. Our balance sheet at the end of the quarter is well capitalized with an increased cash position and reduced debt, which is further improved by a lowered effective fixed interest rate after we completed an interest rate swap agreement at the beginning of Q2. Our strong backlog demonstrates the solid demand momentum from our customers and industries. While the impact of this virus on a global economy and our market is unclear, longer term, we believe the growth fibers in our market articles remain intact, and in some cases, may even be accelerated. We remain confident in our ability to serve our customers and industries that provide the essential technologies and applications that enabled the data economy in the fourth industrial revolution. That said, we recognize that this crisis will put pressure on our business. Although demand in several markets further strengthened during Q1 and is continuing into Q2, government mandated factory shutdowns and supply chain issues drove our revenue to decline sequentially in the first quarter. Further constraints in our factories could limit our ability to fully service demand during Q2. Taking a further approach to the current environment, we have implemented some temporary actions to curtail discretionary spending. We also stopped our opportunistic share repurchase activity, which we initiated early in the crisis as share prices declined. At the same time, we did not delay any critical activities or programs that will drive new product introductions, DesignWings, and Future Growth. Using our remote innovation capabilities allows us to continue to innovate and engage our core talent during this time. As we navigate through this crisis, the benefits of our strategy and especially the acquisition of artisan embedded power have become evident. Our distributed world-class global manufacturing and supply chain operations were able to optimize both product and material management during a time of significant disruption, allowing us to deliver on our customer commitments. As we continue to integrate these two organizations and realize accelerated synergies, we find increasing benefits from combined operations. Now let me turn to our business. Demand in our semiconductor market was strong in a quarter, driven mostly by foundry logic with some contribution from memory applications. We saw growth across most regions with particular strength in Korea, China, and Taiwan. Demand growth was augmented by key design wins across different applications. Most notably, our RF and remote plasma source products continued to gain momentum. Our RF, our RPS won a significant new design for a chamber plane application at a top tier equipment OEM. In addition, we shift our first embedded power products into a wafer fab equipment customer in Q1, displacing an incumbent. We see additional opportunity for cross-selling these products into the semi-market in the future. Looking forward, in spite of the COVID-19 impact on supply chains, we expect demand to remain strong in Q2. During the quarter, Advanced Energy was recognized with a 2019 Supplier Excellence Award by our largest customer, Applied Materials. It is gratifying to see that our efforts and investment in industry-leading service and aftermarket products are recognized by our customers. Turning to our industrial and medical markets, revenue was down significantly from last quarter. COVID-19-related limitations on multiple production sites Thank you very much. Demand for our power supplies serving medical applications started to increase meaningfully in March as we are integral to the manufacture of diagnostic and respiratory equipment that are currently in high demand. Looking into Q2, we expect demand in industrial and medical applications to increase, driven by continuing growth in market needs. Our revenue from data center computing applications grew sequentially on strong demand from hyperscale customers, which was up over 50% quarter over quarter. While we were already anticipating this hyperscale ramp going into the quarter, we saw an acceleration during Q1 to support remote work and education initiatives. This more than offset seasonal softness in enterprise computing, which was further impacted by COVID-19. Our team did a great job delivering on the strength and demand during Q1. At the same time, we secured multiple next-generation design wins across several hyperscale and enterprise customers, validating our technology leadership. Looking in the current quarter, we expect demand in this market to continue at elevated level on accelerated hyperscale investment in the contribution of our design wins. As was indicated in our last earnings call, Telecom and networking demand remains low, with further delays in networking spending and 5G investment due to the uncertain environment. While we see selected spot of strength driven by our prior design means, overall OEM market conditions are likely to remain challenging in the current quarter as well. Longer term, though, we see this market space as another key enabler of the data economy and we expect to see resumption of growth in spending in the future. In conclusion, our operational excellence and agility enable us to overcome significant market challenges in the quarter and to deliver solid results. The crisis brought out the best in our organization as we focused our efforts on protecting our employees and communities, serving our customers, innovating, and doing our part in managing through this pandemic. We became financially stronger during the quarter with solid profitability and higher net cash balance. The results are a strong validation of our strategic direction and initiatives. While the near-term impact of this crisis is still unknown, we are confident and committed to a long-term aspirational goal of over $1.5 billion in revenue Over $6.5 non-GAAP EPS and over 23% ROIC. I'd like to thank our customers, shareholders, partners, and our valued employees for your support, especially during these challenging times. I look forward to speaking with many of you in the upcoming quarter. With that, let me turn the call over to Paul.