Advanced Energy Industries, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Advanced Energy Industry's fourth quarter 2020 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 keypad. If you require any further assistance, please press star 0. I would now like to hand today's conference over to your speaker, Edwin Mock, Vice President of Strategic Marketing and Investor Relations. Thank you. Please go ahead.

Thank you, operator. Good morning, everyone. Welcome to Advanced Energy's fourth quarter 2020 earnings call. With me today are Yuval Wasserman, our President and CEO, Paul Odom, our Executive Vice President, 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 participating at several 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. They are subject to risks and uncertainties that could cause actual results different materially and are not guarantees of future performance. Information concerning these risks and uncertainties is found in our findings of the SEC. All four looking statements are based on management estimates, projections, and assumptions as of today, February 10, 2021, and the company assumes no obligation to update them. Long-term targets present today, including our aspirational goals and our long-term vision goals, should not be interpreted in any respect as guidance. On today's call, our financial results will be presented on a non-GAAP financial basis unless otherwise specified. Excluded from non-GAAP results are amortization, stock compensation, integration and transition costs, unrealized foreign exchange gains or losses, and restructuring items. Detailed explanation on non-GAAP financial measures, as well as reconciliations between GAAP and non-GAAP measures, can be found in our press release today. With that, let me pass the call to our President and CEO, Yuval Wasserman. Yuval.

Yuval Wasserman Thank you, Edwin. Good morning, everyone, and thank you for joining us on this call. Advanced Energy finished last year on a strong note. with Q4 2020 revenue of $371 million, up 10% year-over-year, and solidly above our guidance midpoint. Non-GAAP EPS of $1.49 was at the top of our guidance range. The fourth quarter results were driven by strong demand for our products across most of our markets and good execution in an increasingly dynamic operating environment. Service revenue, again, set a record. Our Q4 results built on a great year of financial performance despite the global coronavirus pandemic that presented all of us with extraordinary challenges. I'm extremely proud of our organization's response to the constant changes throughout the year, demonstrating AE's agility and operational excellence. Our diversified global operation footprint, nimble supply chain, hub inventory management system, and maintaining a healthy and safe workforce enable AE to effectively meet shifting customer requirements and to deliver strong 2020 results that outperform the market. 2020 revenue grew 79% as reported and 18% on a pro forma basis, to a record $1.4 billion, with our semiconductor business growing 50% and data center computing growing 46%. Our non-GAAP earnings more than doubled to $5.23 per diluted chair, and we generated over $200 million in cash flow from continuing operations. Paul will go into more financial details in his remarks. Advanced Energy is a clear leader in precision electric power conversion and control. Our power solutions are used in many of the enabling technologies behind the Fourth Industrial Revolution and the data economy. Last year, AE not only capitalized on the accelerating megatrends of these markets, but we also introduced 12 new products to help speed up our customers' innovation and expand our addressable market. Examples of major innovations we brought to the market include EVOS, our Beyond RF power solution that we believe will enable advanced plasma processes for multiple next generation technology nodes. Additionally, our system level 48 volt power shelf will allow data centers to become more power efficient and cost effective. Our intelligent lighting and power control system will help indoor farms to substantially lower power consumption and cost while increasing crop yield. We now enter 2021 with a richer portfolio of differentiated products that we expect will continue to enable breakthrough innovation by our customers and fuel our continuing growth. In line with our strategy to accelerate our growth and diversification through strategic acquisitions, at the end of 2020, we completed the acquisition of Versatile Power, expanding our reach in the medical market with its field-proven RF power supplies. Versatile Power brings to AE well-established experience working in a highly regulated medical market and an 18-year customer relationship with one of the leading medical technology companies. In addition, we expect to integrate versatile technology into our enterprise technology roadmap and to cross-sell current versatile solutions across our market verticals. This is another example of AE using smart acquisitions to grow our scope and leverage our scale. Our 2020 results affirm the success of the acquisition of Artisan Embedded Power as we integrated the business into AE's scalable platform. Despite the COVID-related challenges, we exceeded our integration milestones and delivered on our synergy goals, and we believe that we are on track to meet or exceed our long-term cost synergy target in roughly half the time of our original plan. With a fully integrated functional organization structure, we have the scale and the scope to drive sustainable competitive advantages as a top-tier industrial technology growth company as we continue to pursue our long-term strategic and aspirational goals. In Q4, we continued our investment in ESG initiatives, launching a new scholarship program to support increased diversity in STEM education. We have tremendous interest with applicants from multiple universities across various technical disciplines. We will continue to enhance our ESG initiatives as part of our commitment to deliver long-term value to all of our global stakeholders. Now let me comment on our fourth quarter performance across our markets. Our Q4 semiconductor revenue was at the high end of our previously stated second-half growth rate or 15% to 20% after an exceptional Q3, driven by robust demand in foundry logic and strengthening NAND. We expect this healthy market condition to further improve in Q1. We are extending our leadership in semiconductors as we launch new products, including a new high-power RF generator, the Paramount HP, and a new remote plasma source, the MaxStream. In addition, we ship evaluation units of EVOS to a number of strategic customers during the quarter, and we won an RF design for a next-generation PE-CVD tool at one of the top equipment OEMs. In Korea, we secured new RF design wins for a leading CVD and ALD platform and for a next-generation edge for NAND applications. In the $300 million semiconductor embedded power market, we secured a new design win in back-end equipment by replacing multiple competitors' DC modules with our integrated solution. Overall, our success across multiple fronts will allow our semiconductor business to continue to outgrow the market. Driven by increase in the semiconductor industry, we expect our demand to increase in Q1 and to further accelerate in Q2. Turning to our data center computing market, demand declined in Q4, as expected, reflecting data center digestion among our hyperscale customers and a generally weak IT spending environment. We expect this market condition to extend into Q1, but we continue to anticipate growth to return later this year. In hyperscale, we are transforming from being a fast follower to becoming a market leader, as we grew our 2020 revenue by over 250%. Although this market could be lumpy, we believe we are still in the early innings of this journey and expect meaningful growth over time. We continue to make solid progress at new hyperscale customers and reiterate our target to deliver production shipments to additional tier one hyperscale customers this year. We've also started to capture new opportunities created by the transition to 48-volt service. In Q4, an additional hyperscale customer selected our 48-volt PowerShell, and we secured the design win for our board-mounted 48-volt DC-to-DC converter at the Tier 1 customer. In enterprise computing, we secured another high-performance computing design win for a super computing platform at the leading customer. as we continue to capitalize on our industry-leading efficiency and power density. While the high volume production of these wins may take time, they support our roadmap of adding over $100 million of annual incremental revenue by 2023. Industrial and medical revenues grew 8% sequentially, surpassing our expectations. Macro conditions improved in Q4 across several markets as we saw good demand for solar cell manufacturing, flat panel display, and hot coatings for consumer devices. We also benefited from growing demand for air filtration systems used in preventing the spread of COVID, which is a win we reported last quarter. Revenue from medical applications declined sequentially on lower demand for some critical care equipment, and elective care applications. During the quarter, we secured several design wins for medical diagnostic applications with our fanless power supplies. Our strategy for industrial and medical is to enable smart applications through our portfolio of products with advanced digital capabilities. During the quarter, we introduced a multitude of new products across our application set, from pyrometry and industrial heating to indoor farming and medical. While we expect industrial to be sizzling down in Q1 and medical to see further pressure, based on our solid design wind pipeline, we are well positioned to grow this vertical for the year as macro conditions improve. Revenues from telecom and networking applications remained about flat from Q3 and were up 20% year over year, reflecting a slightly improved market condition and success of some of our programs. Overall, telecom investment remains constrained and networking is facing the general slowdown in IT infrastructure investment. With significant 5G investment still ahead, we are focused on winning the key 5G designs. In Q4, we secured an important 5G design win for a small cell radio, primarily designed for the U.S. market. In networking, we want to design for a white box switch for a Tier 1 Asian hyperscale customer. We continue to optimize our portfolio for higher earnings growth. While in aggregate, these actions will impact revenue over the short term, We believe the steps taken will focus our resources on higher value added opportunities and continue to improve overall margins. To summarize, Q4 and 2020 results demonstrate our unique position in benefiting from the fourth industrial revolution, our successful growth strategies across our markets, and the strength of our team and our culture. Our focus on being a pure play power leader is enabling us to outperform the markets we serve, gain market share, and expand into new and exciting opportunities. We have built a track record of growing earnings faster than our revenue and delivering top-tier return on invested capital. At the end of 2020, we announced a regular quarterly dividend demonstrating our ability to generate consistent cash flow and our commitment to regularly return capital to our shareholders while continuing to pursue inorganic growth. Looking forward, we will continue to invest aggressively in bringing new enabling products and solutions to our markets. Our growing pipeline of design wins reflects our success in converting those investments into tangible results. Despite near-term macro challenges due to the coronavirus, we expect our top and bottom line to continue to grow in 2021. Going forward, AE is well positioned to deliver long-term sustainable growth for our innovation, technologies, products, and services. Before I conclude my comments, this morning, we announced that I will be retiring as President and CEO of Advanced Energy effective March 1st. Steve Kelly, who some of you know as the previous CEO of Emcor, will become the President and CEO of Advanced Energy. To ensure a seamless transition, I will remain as an Executive Advisor to Steve and the Board through March 2022. I'd like to thank the board, our shareholders, our customers, and most importantly, our employees for their support over the last few years. It has been an amazing journey as we have grown the company, introduced new products and technologies, delivered record financial results, created shareholder value, and transformed AE into an industrial technology growth company. I am proud of our accomplishments and I'm grateful for the relationships I have developed over this time. My retirement is a result of our standard succession planning process. I have worked closely with the board of directors to identify the right person as the next CEO for Advanced Energy. We look for a proven leader who builds teams, fosters innovation, drives strategic vision, and creates shareholder value. And we found these attributes in Steve. Together with our leadership team, I'm confident that he will lead AE to the next level of success. With that, let me turn the call over to Paul.