Advanced Energy Industries, Inc.

Greetings. Welcome to Advanced Energy's second quarter 2024 earnings call. This time all participants will be in listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during today's conference, please press star zero from your telephone keypad. Please note this conference is being recorded. I'll now turn the conference over to Edwin Mock, Vice President of Strategic Marketing and Investor Relations. Mr. Mock, you may now begin.

Thank you, operator. Good afternoon, everyone. Welcome to Advanced Energy's second quarter 2024 earnings conference call. With me today are Steve Kelly, our president and CEO, and Paul Oldham, our executive vice president and CFO. You can find our earnings press release and presentation on our website at ir.advancedenergy.com. Let me remind you that today's call contains four looking statements that 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 SEC filings. All four looking statements are based on management estimates as of today, July 30th, 2024, and the company assumed no obligation to update them. Any targets beyond the current quarter 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, accuracy-related costs, facility expansion and related costs, restructuring and asset impairment charges, and unrealized foreign exchange gains or losses. A detailed recommendation between GAAP and non-GAAP measures can be found in today's press release. Let me pass the call to our President and CEO, Steve Kelly.

Thanks, Edwin. Good afternoon, everyone, and thanks for joining the call. Second quarter revenue and earnings per share exceeded our guidance. Strong demand in the data center market, as well as a pull-in of demand in the semiconductor market, drove sequential revenue growth of 11 percent. Data center revenue grew 74% sequentially as we benefited from strong investments in AI. Our high efficiency, high power density products are well suited for AI servers, which require significantly more power than conventional servers. In industrial and medical, revenue was down slightly as customers continued to work through pockets of inventory. However, Distribution sell-through of our industrial medical products increased in the second quarter. Since roughly half of our I&M business goes through the channel, this is an encouraging data point and could indicate that we are close to reaching a bottom in the I&M market. Design activity is extremely robust across our product portfolio. We are working intensively with a wide variety of customers to integrate our precision power products into their leading edge systems. Our healthy design wind pipeline is expected to drive profitable revenue growth and share gain as markets recover. To accelerate innovation across multiple markets, we acquired Arity Technologies. Arity is an innovator in high voltage power with a focus on efficient high-density, gallium nitride-based solutions. Prior to the acquisition, we worked closely with Arity on several joint development projects and feel very good about the technology and talent that Arity brings to advanced energy. In operations, we are taking advantage of reduced factory loading to accelerate our consolidation efforts. At the macro level, We are reducing our factory footprint in China, the US, and Europe, while upgrading our factories in Malaysia, the Philippines, and Mexico. Overall, we believe our factory actions will enhance operational productivity, lower fixed costs, and improve product quality. The consolidation effort is a key part of our plan to cross the 40% gross margin threshold in 2025. In the short term, we are operating in a dynamic market environment where forecasting can be a challenge. Because it's important for us to respond quickly to sudden changes in customer demand, we are maintaining staffing levels and strategic inventory, which give us added flexibility. Now, let me provide some color on each of our markets. Second quarter semiconductor revenue increased 5% sequentially and exceeded our projections. Based on customer requests, we accelerated some deliveries into the second quarter. We believe that these expedites were largely due to increased AI demand. On the new product front, we are working closely with our key customers to qualify the EVOS and Everest platforms for next generation etch and deposition processes. This qualification activity will migrate from development labs to wafer fabs over the next few quarters. We are expediting delivery schedules to meet this strong demand and now expect to ship more than 200 systems before year end. We believe that acceptance of these new platforms will drive share gains in both logic and memory applications. At Semicon West, we launched the NAVX RF matching network, which pairs directly with our Everest RF generator. The combination features differentiated pulsing capabilities, which enable our customers to deliver best-in-class etch and deposition performance at advanced process nodes. Initial customer feedback has been quite positive, and we expect to have up to 50 NAVX units in the field by year end. Industrial and medical designing activity is very strong, with multiple wins recorded in the second quarter across a wide range of industrial applications, including glass coating, test and measurement, and battery production. In medical, we secured important slots in diagnostic and therapeutic applications. including wins in surgical robot systems at four different customers. Many of these wins are enabled by the modularity of our latest technology platforms, which enables quick customization to meet specific application needs. Finally, our new website is popular with industrial and medical customers. Web traffic has tripled over the past year, and an increasing number of website inquiries are turning into design wins. In data center computing, our revenue upside was driven by strong demand from both hyperscale and enterprise customers, mainly for AI applications. We continue to believe that increased AI demand will drive robust revenue levels for several quarters. During the quarter, we want a major AI-related design at a leading hyperscale customer and expect to begin ramping that win to production later this year. Telecom and networking revenue increased slightly quarter over quarter. We expect market conditions to remain soft over the next few quarters, given high customer inventory levels and a slow recovery in demand. Now for some closing thoughts. This year is playing out roughly as planned. We still expect revenue levels to be higher in the second half than the first half, even after some revenue pull-ins into the second quarter. In semiconductor, we expect 2024 revenue to be similar to 2023 and second half revenue to be better than first half. In data center, We expect third and fourth quarter revenue to be higher than second quarter revenue, driving year-on-year growth. In industrial and medical, we expect that revenue will remain under pressure through the third quarter and into the fourth as channel and OEM inventories gradually return to normal levels. Looking beyond 2024, we are confident in our ability to drive profitable revenue growth As new design wins ramp to volume, we expect to benefit from a richer product mix. In addition, the cost benefits of our factory consolidation effort will begin to flow through our P&L later this year and continue into 2025. Finally, we expect improved market conditions will drive higher revenue and utilization moving forward. Long term, however, The most important factor driving our growth will be how our customers view advanced energy. At Semicon West earlier this month, I had the opportunity to meet with nearly all of our major semiconductor customers. As a group, they are enthusiastic about how we are bringing new products to market. Development time for Everest and Evo's derivative products is now measured in weeks. enabled by our modular architecture. A few weeks ago, we received a top three supplier award from one of our largest data center customers. This was very meaningful for us since we were top three out of more than a thousand suppliers. The award called out our operational execution, high quality, innovative design, and management commitment. Finally, we are receiving positive feedback from our major distributors, who are key partners in our drive to gain industrial and medical share. They feel that AE has become an easier company to do business with and are steering more business our way. With that, I'd like to turn it over to Paul, who will provide more detailed financial information.