Advanced Energy Industries, Inc.

Greetings and welcome to the Advanced Energy Fourth Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Edwin Mock, Vice President of Strategic Marketing and Investor Relations. Thank you, Edwin. You may begin.

Thank you, operator. Good afternoon, everyone. Welcome to Advanced Energy fourth quarter 2022 earnings conference call. With me today are Steve Kelly, our president and CEO, and Paul Odom, our executive vice president and CFO. Before I begin, I'd like to mention that we will be participating at several impressive conferences in the coming months. If you have not seen our earnings press release and presentation, you can find them on our website at ir.advancedenergy.com. Let me remind you that today's call contains forward-looking statements. They are subject to risks and uncertainties that could cause actual results to differ materially and are not guarantees of future performance. Information concerning these risks can be found in our STC filings. All forward-looking statements are based on management estimates as of today, February 8, 2023, and the company assumes no obligation to update them. Medium-term targets and long-term aspirational goals presented today should not be interpreted as guidance. On today's call, our financial results are presented on a non-GAAP financial basis unless otherwise specified. Excluded from our non-GAAP results are stock compensation, amortization, acquisition-related costs, facility expansion and related costs, restructuring charges, and unrealized foreign exchange gain or loss. A detailed recommendation between GAAP and non-GAAP measures can be found in today's press release. With that, let me pass the call to our President and CEO, Steve Kelly.

Thanks, Edwin. Good afternoon, everyone, and thanks for joining the call. We delivered strong results in the fourth quarter, taking advantage of healthy demand, improved component availability, and solid manufacturing execution. For the full year, we achieved record revenue of $1.85 billion and record earnings per share of $6.49. Thanks to robust demand across all of our markets, and improved execution across the company. Sales into each of our markets grew 20% or more in 2022. Overall, our operational performance improved throughout the year due to better component availability, successful qualifications of alternative parts and redesigns, and good manufacturing execution. we doubled the number of new product launches in 2022. By and large, these new products employ leading-edge technology and are proprietary in nature. These products led to additional design wins in 2022, particularly in the industrial, medical, and semiconductor markets. Moving forward, we expect design win activity to accelerate in 2023 as customers shift their focus from supply chain issues to product differentiation. We believe our leading-edge power delivery solutions enable our customers' new products and will fuel our profitable growth for years to come. In 2022, we successfully integrated SL Power into Advanced Energy. SL expanded our position in the medical power market, where we are now one of the top players. In addition, we are adding capacity and capability at the former SL Power Factory in Mexico to accommodate customers who prefer a North American manufacturing site. Now I'd like to provide some color on the current supply chain environment. Scarce components are still gaining revenue in the industrial, computing, telecom, and networking markets. Power ICs and FETs are the two most significant constraints. These trailing edge products are widely used across the electronics industry, particularly in automotive and industrial applications. In semiconductor equipment, we are seeing fewer parts shortages. This has allowed us to reduce lead times for some of our products, which in turn has enabled our customers to normalize their order backlog. now provide more color for each of our end markets. In semiconductor, the fourth quarter revenue increased 30% year on year to $232 million, in line with our expectations. For the full year, advanced energy revenue in this market grew over 31%, much faster than overall WFE. In the fourth quarter, we secured new design wins in wafer inspection and remote plasma source applications. We also introduced new technology platforms for advanced etch. In the industrial and medical markets, fourth quarter revenue grew more than 20% year on year to $119 million. Despite those record shipments, our industrial and medical order book still increased in Q4. In the medical market, we secured several new wins in surgical, medical laser, diagnostic, and life science equipment. In the fourth quarter, we launched FlexiCharge, the industry's first high-voltage capacitor charger and low-voltage power supply in a single integrated product. We designed this product to meet the power needs of medical laser applications by combining are industry-leading high voltage and configurable power supply technologies. Initial customer feedback has been enthusiastic. In the industrial space, we secure design wins in 3D printing, industrial laser, and test and measurement applications. And moving to our computing, networking, and telecom markets. Fourth quarter revenue from data center computing customers totaled $95 million, a new record for the company. Telecom and networking revenue grew 15% year on year to $44 million. Our upside in both markets was driven by improved component deliveries late in the quarter, coupled with our ability to quickly turn those scarce parts into revenue. Now I'll move to the 2023 demand picture as well as our priorities for the new year. We expect that 2023 will be a down year in the semiconductor market and are taking actions to lower our cost structure to adapt to this new demand environment. Even though overall semiconductor revenue will be down year on year, there are pockets of strength, including our service business, our high-voltage ion implant products, and recent design wins, which are still ramping to volume. Because of these pockets of strength, we believe that we will perform better than the market in 2023. Outside of semiconductor, we believe the 2023 revenue should be relatively stable year on year. We carried a large order book into the first quarter due to a combination of healthy overall demand and lingering parts shortages. Also, we believe the variety of markets we sell into will have a smoothing effect on the aggregate revenue in our non-semiconductor markets. Now, moving to the priorities for 2023. Our first priority is to maintain our new product and design wind momentum. We want to be the technology leader in every market we serve. To do that, we intend to maintain our investments in R&D and push our development teams to move even faster. The second priority is to improve the efficiency of our manufacturing and supply chain operations. We made a lot of progress in 2022 and can make even more in 2023. We will optimize our factory footprint and streamline our network of subcontractors and component suppliers. We learned a lot about the strengths and weaknesses of our supply base over the last two years and intend to concentrate our business with the best performing suppliers. The third priority is to increase our engagement with customers across our markets. We have a large, talented sales and applications team and a strong network of distributors and evaluated resellers. We intend to use this worldwide team to focus on the needs of fast-growing small medium-sized customers while maintaining high service levels at our larger customers. Finally, we will take special care to control discretionary expenses in 2023. I would like to close with a few parting thoughts. First, we just wrapped up one of the best years in Advanced Energy's history, delivering record financial performance and a record number of new products. Second, we are carrying that momentum into 2023. We will go full speed ahead with our R&D efforts and improve our efficiency across the company. Finally, we believe that our increased participation in a variety of high-value markets, coupled with our pockets of strength within the semiconductor market, will allow advanced energy to perform substantially better than in past semiconductor market slowdowns. Paul will now provide more detailed financial information.