Advanced Energy Industries, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Advanced Energy Industries Third Quarter 2020 Earnings Conference Call. At this time, our participants are in a listen-only mode. After the speaker 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, Mr. 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 third quarter 2020 earnings conference call. With me today are Yuval Wasserman, our President and CEO, Paul Odom, 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.advanceenergy.com. There you'll also find a slide presentation to follow along our discussion today. Before I begin, I'd like to mention that AE will be hosting a virtual investor event on Monday, December 14th. We welcome all of you to join us at this event. In addition, we will be participating at multiple investor conferences in the coming months. As events occur, we will make the announcements. Let me remind you that today's call contains four looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially and are not guaranteed for future performance. Information concerning these risks and uncertainties is found in our filing for the SEC. All forward-looking statements are based on management's estimates, projections, and assumptions as of today, November 5, 2020, and the company assumes no obligation to update them. Long-term targets presented today, which include our aspirational goals and integration targets, should not be interpreted as guidance. On today's call, our financial results will be present on a non-GAAP financial basis unless otherwise specified. An explanation of our non-GAAP financial measures, as well as reconciliations between GAAP and non-GAAP measures, can be found in today's press release. With that, let me pass the call to our CEO, Yuval Wasserman. Yuval?

Thank you, Edwin. Good morning, everyone, and thank you for joining us on this call. Overall, this was an outstanding quarter for Advanced Energy with record revenues, earnings, and operating cash flow. We delivered sequential revenue growth across all of our market's verticals and recorded new quarterly highs in semiconductor, data center computing, and service. Good operating leverage and continued execution on our synergy goals resulted in gross margins approaching 40%. and non-GAAP earnings per share, up over 3x from last year, validating our financial model and demonstrating our ability to accelerate earnings growth. Overall, demand for our products continue to be strong, driven by ongoing investment in technologies associated with the data economy. Great execution by our operations and supply chain teams enabled us to catch up on COVID-related delays and respond to the burst of demand. During the quarter, we continue to ramp our Malaysia factory, which is next to one of our leading customers. As we integrate and optimize our global operational footprint, it provides us with business continuity and resiliency in meeting our customers' demand in a dynamic operating environment. In addition, we continue to execute on our integration plans, delivering synergies and record accretion from our artisan acquisition. We expect additional synergies to be realized through 2021 as we execute structural changes in our manufacturing and supply chain. Beyond cost synergies, we have started to secure new cross-selling design wins across both semiconductor and industrial end markets, and we expect those wins to drive incremental revenues in 2021. We continue to invest aggressively in R&D, which enable us to win multiple design wins across all markets, and to launch six new products across different portfolios during the quarter. These new wins and new offerings are expected to generate continued growth for AE going forward. Turning now to our products and performance by market. As I mentioned, semi-revenue was a quarterly record, growing nearly 15% sequentially and over 70% from last year. as we continue to meaningfully outperform the market and our SEMI peers. Service revenue also reached record high, driven by improved fab utilization across multiple reasons and strong demand for upgrades and retrofits. We believe process power has become one of the fastest growing subsystem segments within the SEMI equipment supply chain. As the market leader, With the broadest product portfolio and market and customer exposure, we are gaining market share with design wins for many critical processes. The combination of strong market growth and our share gains are driving our semi-revenue to grow faster than all of our semi-peers in 2020. For example, our advanced RF matching technologies are getting adopted in multiple advanced edge and deposition process tools. resulting in revenues growing over 120% year-over-year in Q3, after doubling in Q2. Our remote plasma sources revenue grew again this quarter and is on track to double in 2020, resulting in double-digit millions of dollars of incremental revenue. In Q3, we have secured a dielectric edge design win at one of the leading OEM suppliers, and in Korea, we want several designs for memory and advanced packaging deposition applications. We believe our continuing investment in product development will enable us to capture an expanded pipeline of opportunities in new and excited areas, including additional wings in dielectric etch. Looking forward, we expect semi-regulatory Q4 to remain strong. Long term, with our design wings, growing power content, and favorable market trends, we believe we are well positioned to continue to outgrow the market. Revenue from our industrial and medical markets increased by nearly 23% sequentially, driven by increased factory output to deliver on strong backlog and general improvement in the industrial markets. For example, in industrial, demand for consumer electronics coating and motion control applications improved. Revenues from medical applications remained strong, driven by continuing demand for critical care applications. Non-critical care applications also began to improve, but remained well below pre-COVID levels. this quarter we secured multiple design rings across a wide range of medical diagnostic imaging and therapeutic applications of note we want a sole source position for a next generation diagnostic lab analyzer at one of our leading medical customers and our power solution was designed into new air filtration system for preventing the spread of covet as we look forward We expect the industrial and medical markets to continue their modest recovery with revenue around current levels in Q4. Our data center computing revenue hit another quarterly record in Q3, up 5% sequentially and 91% year-over-year. Despite industry headwinds of data center digestion and a generally weak IT spending environment, New design wins and growing share have enabled us to meaningfully outgrow the market. In hyperscale, revenue was down slightly from a record quarter in Q2, but jumped 380% from last year. Revenue from a third hyperscale customer helped to offset initial digestion from our earlier wins, and we made good progress in winning new businesses from additional hyperscalers that should contribute to revenue next year. Although revenues in this market could be lumpy quarter to quarter, we remain confident in long-term market growth and our ability to outgrow the market. Demand from enterprise OEM customers recovered in Q3, partially due to our ability to deliver to customer needs and capture market share. In addition, One of our power design lanes into high performance computing platform started to ramp. We expect HPC to be a secular driver for our business going forward, given that our industry leading product power density is the ideal solution for meeting the high power, high density requirements for those server racks. Looking forward, Our data center computing revenue is expected to remain at elevated levels and well above last year's run rate. However, we anticipate digestion in the data center market to impact our revenue in Q4. We expect growth to return later in 2021, driven by additional investment in data center with the releases of new CPUs and accelerated by our share gains. Telecom and networking revenue grew over 18% sequentially, as the market improved modestly from the trough levels in the first half of 2020. Q3 revenues also benefited from some catch-up shipment from our backlog and incremental share gains. Data center networking remains a bright spot in this market as data traffic shifts from enterprises to the cloud due to remote working trends. In addition, During the quarter, we secured a critical design win in a next-generation cloud networking platform that will support revenue growth as the industry migrates to 400-gig networks. In the telecom market, overall investment remained limited. Although our mix of products sold into 5G applications has risen considerably in 2020, large-scale infrastructure investment in 5G outside of China continued to be delayed. Looking forward, Q4 revenues are expected to come in around these levels as market signals remain mixed. Long term, our efforts in winning 5G and next generation networking designs prepare us to capture the market's recovery as global 5G infrastructure investment accelerates. In summary, our Q3 results serves as a clear validation of our strategy and our business model. These strategies enable us to deliver industry leadership, revenue growth, innovation, synergies, and earnings. I'm extremely proud of our global team who have responded to the myriad challenges this year to deliver outstanding financial and operational results while ensuring a safe environment for employees. I would also like to welcome our two new board members, Anne Del Santo and Lanisha Minix, who add complementary industrial market knowledge, experience, and capability to our board. As we continue to deliver on our strategic goals, we are realizing our vision of being a leading industrial growth company with a diversified revenue base, strong growth drivers, and top-tier financial results. As we look forward, near-term we see increased risks due to the new waves of coronavirus, but longer-term, we see 2021 setting up to be a growth year for AE. Although we see some variations quarter to quarter, we expect to continue to grow our earnings driven by our momentum in semi, share gains in hyperscale, and macro recovery in industrial markets and global 5G investments, combined with our continuing efficiency gain, portfolio optimization, and synergies. We are planning an investor briefing in December to discuss our progress to date, a deeper dive into our newer markets and an update to our aspirational goals. 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.