Advanced Energy Industries, Inc.

Greetings and welcome to the Advanced Energy's third quarter 2024 earnings call. This time, all participants are in listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. As a reminder, this conference is being recorded. Now, my pleasure to introduce Edwin Mott, Vice President of Strategic Marketing and Investor Relations. Thank you, Mr. Mott. You may begin.

Thank you, operator. Good afternoon, everyone. Welcome to Advanced Energy Third Quarter 2024 Earnings Conference Call. With me today are Steve Kelly, our President and CEO, and Paul Odom, our Executive Vice President and CFO. You can find today's press release and presentation on our website at ir.advancedenergy.com. Before we begin, 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 forward-looking statements are based on management's estimates as of today, October 30th, 2024, and the companies assumed no obligation to update them. Any targets beyond the current quarter represented 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. Exclude from our non-GAAP results are stock compensation, amortization, acquisition-related costs, facilities for expansion and related costs, restructuring and asset impairment charges, and unrealized foreign exchange gains or losses. Please refer to our detailed recommendation between GAAP and non-GAAP results in today's press release. Before I pass the call to Steve, I have a calendar announcement. On Tuesday, November 19th, Advanced Energy will host our 2024 Analyst Day in New York City. where we will update our growth strategies, market views, long-term financial goals, and demo our products. We welcome institutional investors and financial analysts to attend in person. A live webcast of the event will also be available on our website. More information can be found in today's earnings press release. With that, let me pass the call to our President and CEO, Steve Kelly. Steve?

Thanks, Edwin. Good afternoon, everyone, and thanks for joining the call. Third quarter financial results exceeded the midpoint of our guidance, driven by higher demand in the semiconductor and data center markets. We experienced strong design wind activity across all of our target markets and made solid progress on our factory consolidation plan. In semiconductor, we delivered our strongest revenue performance since the fourth quarter of 2022. In data center computing, we continue to benefit from strong investment in AI infrastructure, as well as successful new products. In the third quarter, we delivered a record number of EVOS and Everest qualification units for next generation etch and deposition systems. We are working closely with our customers to fine tune the performance of EVOS and Everest subsystems to meet the demanding requirements of leaning edge logic and memory processes. In addition to plasma power products, we also develop power solutions for semiconductor test and burn-in systems. This quarter, we secured a significant tester win by leveraging the performance of a high density power module originally developed for data center applications. This is an example of reusing best-in-class technology across our markets to improve engineering efficiency and reduce development time. It's a key competitive advantage for advanced energy. Our factory consolidation actions are beginning to have a financial impact, as shown by our sequential improvement in gross margin. Further improvements are anticipated in the fourth quarter and beyond. As we execute our plan to reduce fixed costs, enhance productivity, and improve product mix, we remain confident, as markets recover, that we can achieve our gross margin target of over 40%. Now I'll provide some color on each of our markets. Third quarter semiconductor revenue increased 5% sequentially, exceeding our projections. We benefited from incremental demand in both leading and trailing edge logic process nodes. Looking forward, we expect further sequential revenue growth in the fourth quarter. We remain on track to deliver over 250 total units of EVOS, Everest, and NavX subsystems to our customers by the end of this year. While these shipments are contributing modestly to our revenue in the near term, we expect revenue to become more significant in the second half of 2025 as our customers move from qualification builds into production. During the quarter, we confirmed another EVOS design win for a high-volume application. We also recorded multiple wins with customers who have chosen to use both the Everest RF generator and the NAVX matching network in next-generation systems. In industrial medical, revenue decreased slightly quarter over quarter. Some of our direct customers, particularly in medical, are continuing to work through excess inventories. In the distribution channel, which accounts for 50% of our industrial medical revenue, Third quarter resales were solid and nearly 20% higher than our trough resales in the first quarter. Distribution inventory levels continue to decline. Assuming current resale levels continue, inventory turns in the channel should approach normalized levels either this quarter or next. This normalization will likely signal that our sales into the distribution channel will begin to grow again. In this dynamic market environment, we are focused on remaining nimble, reacting quickly to capture upside opportunities with readily available products. On the design wind front, activity is robust. Our latest new products, which feature leading edge efficiency, flexibility, and reliability continue to be well received, resulting in a record funnel of new opportunities. Within industrial, we secured many design wins, including key slots in process automation, robotics, and industrial lighting. In medical, we won designs in diagnostic and therapeutic applications. Since launching our new website a year ago, we have seen an expansion of our customer base as well as a higher design win conversion rate. We believe that our optimized sales and channel strategy is positioning AE for a stronger rebound as the market recovers. In data center computing, revenue grew 11% sequentially, driven by increased demand from hyperscale customers mainly for AI applications. With continued strong investment in AI and an improving supply of GPUs, we expect strong revenue performance in the coming quarters. At the OCP Global Summit earlier this month, we announced multiple new products which addressed the substantially higher power requirements of AI applications. Several of these new products will begin ramping to production in the next two quarters. The accelerating power consumption and cost of AI data centers mean that AES industry leading power efficiency, power density, and system reliability are highly valued by our customers. We believe that our engineering expertise and manufacturing capabilities will continue to give us a competitive edge in this market. In the telecom and networking market, revenue decreased quarter over quarter due to lower demand. While we expect the third quarter to be a trough for the year, market conditions will likely remain soft over the next few quarters. Now let me share a few closing thoughts. We are executing well in a dynamic market environment and are delivering upside to our expectations for the year. Semiconductor revenue is trending ahead of our prior outlook of a flat year. We now project 2024 revenue to grow at a single digit percentage over 2023. In data center, we expect strong revenue again in the fourth quarter and double digit growth for the year. In industrial medical, we expect revenue to bounce around current levels for the next quarter or two, as distributors and end customers continue to work down inventories. There is potential for upside coming from recent design wins. Looking beyond 2024, we are excited about our prospects for profitable revenue growth. With strong customer pull for our new products and technologies and recent design wins beginning to ran through production, we are well positioned to gain meaningful share as markets recover. Our efforts to structurally lower fixed costs are beginning to yield results and are a key part of our plan to move gross margins above the 40% threshold. Finally, we continue to actively pursue our acquisition strategy and have a solid pipeline of potential opportunities. Paul will now provide more detailed financial information.