Summary of Advanced Energy Industries (AEIS) Conference Call Company Overview - **Company**: Advanced Energy Industries (AEIS) - **Event**: Citi Global TMT Conference - **Date**: September 04, 2025 Key Points Industry and Market Performance - **Data Center Market**: - Experienced a significant growth of nearly 50% sequentially in Q2, driven by AI data center demand [6][7] - Expected to grow 80% year-on-year, primarily due to AI data center buildouts [7] - **Semiconductor Market**: - Mid-single-digit growth anticipated, with some reductions in customer forecasts for the second half of the year [9][17] - New product revenue from EVOS and Everest platforms expected to double, reaching over $10 million [10] - **Industrial Medical Market**: - After seven quarters of decline, growth is expected to continue into Q3 and Q4, indicating a recovery trend [6][28] - **Telecom and Networking**: - Market remains relatively flat, with no significant growth expected [7] Financial Performance - **Revenue Growth**: - Total company revenue projected to grow 17% year-on-year [7] - **CapEx**: - Increased to approximately 6% of revenue to support data center product demand [24] - **Gross Margins**: - Expected to improve to mid-38% in Q3 and between 39% and 40% in Q4, despite tariff impacts [40][41] Product Development and Competitive Position - **New Products**: - EVOS, Everest, and NAVEX products are positioned to gain market share in both conductor and dielectric etch applications [10][12] - Focus on customized solutions for hyperscale applications, particularly in AI data centers [18][21] - **Competitive Landscape**: - Advanced Energy has a strong position in conductor etch but aims to expand its presence in dielectric etch, where competitors include Daihen Corporation and MKS Instruments [12][14] Strategic Outlook - **Market Trends**: - Anticipated continued demand from AI applications will drive growth in the semiconductor market [32] - **Engineering Capacity**: - The company is expanding its engineering workforce and capabilities to meet increasing demand [38][39] - **M&A Strategy**: - Focus on acquiring companies in the industrial medical sector to build critical mass and enhance market share [46][48] Risks and Challenges - **Tariff Impacts**: - Increased tariffs from approximately 10% to around 19% in Southeast Asia are expected to affect gross margins, though mitigative actions are in place [40][41] - **Supply Chain and Inventory**: - The company has been monitoring inventory levels closely, particularly in the industrial medical sector, to ensure a return to equilibrium [27][28] Additional Insights - **Customer Engagement**: - Strong collaboration with hyperscalers and a focus on engineering bandwidth to prioritize high-potential projects [18][19] - **Long-term Vision**: - The company aims to leverage its technology across different applications to enhance efficiency and speed to market [21][23] This summary encapsulates the key insights and strategic directions discussed during the conference call, highlighting Advanced Energy Industries' performance, market outlook, and future growth strategies.

Financial Data and Key Metrics Changes - Second quarter revenue reached $442 million, exceeding guidance and reflecting a 21% year-over-year growth, marking the third consecutive quarter of growth [5][18][19] - Earnings per share (EPS) was $1.50, up 76% from the previous year, the highest level since 2022 [18][19] - Gross margin improved slightly to 38.1%, with operating margin increasing by 110 basis points sequentially [18][21] Business Line Data and Key Metrics Changes - Semiconductor revenue was $210 million, up 11% year-over-year but down 6% sequentially due to customer delivery schedule shifts [19][20] - Data center computing revenue surged to $142 million, up 47% quarter-over-quarter and nearly doubled year-over-year [20][11] - Industrial and medical revenue was $69 million, a 7% sequential increase but down 13% year-over-year [20][12] Market Data and Key Metrics Changes - The semiconductor market showed solid year-over-year growth despite a sequential decline, influenced by tariff impacts and customer inventory management [19][51] - Data center demand is expected to remain strong, with projections for over 80% growth in 2025 [15][28] - Industrial and medical markets are showing signs of recovery, with increased backlog and improved customer inventory levels [12][20] Company Strategy and Development Direction - The company is focused on a diversification strategy across three distinct markets to mitigate cycle risks and enhance profitability [6][15] - Investments in technology and capacity are being made to support long-term growth, particularly in data center and semiconductor markets [7][16] - The closure of the last China factory is expected to contribute to gross margin improvements, targeting 40% by the end of 2025 [9][28] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in sustaining data center revenue growth into 2026, driven by high investment from hyperscalers [36] - The company anticipates modest sequential growth in industrial and medical markets, with a stronger order book driving higher revenue in the second half of the year [15][72] - Tariff impacts are being actively managed through various mitigation strategies, with expectations for continued operational improvements [25][26] Other Important Information - Total cash and cash equivalents at the end of Q2 were $714 million, with net cash of $147 million [22][24] - The company repurchased $23 million of common stock during the quarter [22][24] - Free cash flow grew 21% sequentially, indicating strong cash generation capabilities [24] Q&A Session Summary Question: Sustainability of data center demand - Management believes data center revenues are sustainable into 2026 due to continued high investment from hyperscalers [36] Question: Content per server for AI data centers - AI data centers have significantly higher power consumption, leading to increased revenue potential, though not on a linear basis [42][45] Question: Changes in semiconductor growth projections - The semiconductor growth projection was adjusted to mid-single digits for 2025 due to tariff impacts and market conditions [49][51] Question: Impact of tariffs on gross margin - Tariff costs are expected to remain at current levels, with mitigation strategies in place to offset impacts [53][55] Question: Design wins in industrial and medical - Recent design wins are expected to contribute to revenue growth in the second half, alongside market recovery [71][72]

Summary of Conference Call Company Overview - The conference call involved Advanced Energy, with key speakers including CEO Steve Kelly and CFO Paul Olham, discussing the company's performance and outlook in the semiconductor and industrial medical markets [1][2]. Key Industry Insights Semiconductor Market - Q1 performance was strong, driven by better-than-expected semiconductor equipment business and robust demand in AI data centers, despite a correction in the industrial medical market [3][4]. - The company anticipates a growth rate close to 10% year-on-year in the semiconductor segment, outperforming the wafer fab equipment (WFE) market, primarily due to involvement in etch and deposition processes and new product introductions [15][16]. - New product launches have seen significant uptake, with over 350 units shipped, indicating faster adoption compared to previous launches [18][19]. - The semiconductor segment is expected to benefit from a gradual recovery in the industrial medical market, which has been in correction for six quarters [5][40]. Data Center Market - Advanced Energy expects approximately 50% growth in data center revenue this year, with strong demand driven by AI data centers requiring high efficiency and power density [27][28]. - The company has secured designs necessary for growth in the upcoming years, indicating a sustainable demand curve [27][28]. - The shift towards hyperscale customers has increased, with the current mix being 75% hyperscale and 25% enterprise, reflecting a strategic focus on larger, more profitable opportunities [33]. Industrial and Medical Market - The industrial medical market is characterized by fragmentation, with some segments recovering while others remain challenged [40][41]. - Advanced Energy aims to grow at least twice the rate of GDP in this sector, supported by increased product introductions and enhanced customer engagement [43][45]. - The company is focusing on both organic growth and potential acquisitions to strengthen its position in the industrial medical market [45][46]. Financial Performance and Guidance - Gross margins have improved to around 38%, with a target of approaching 40% by year-end, driven by cost reductions and new product mix [50][53]. - The company expects to manage the impact of tariffs on gross margins, with a small impact anticipated in Q1 and a slightly larger impact in Q2, but overall manageable [12][13]. - Capital expenditures are projected to be in the range of 5-6% of sales over the next one to two years, with a focus on high-power infrastructure and new product development [60]. Competitive Landscape - Advanced Energy is positioned to gain market share in the semiconductor sector, particularly in conductor etch and dielectric etch markets, due to new technologies and strong customer demand [62][63]. - The company emphasizes maintaining close relationships with customers to ensure early involvement in the design process, which enhances competitive advantages [31]. Strategic Priorities - Mergers and acquisitions (M&A) are a top priority for capital allocation, focusing on industrial medical companies that can integrate easily into existing operations [65]. - The company is also looking for technology tuck-ins to enhance its product offerings [65][66]. Conclusion - Advanced Energy is optimistic about its growth prospects across semiconductor, data center, and industrial medical markets, with a strong focus on innovation, customer relationships, and strategic acquisitions to drive future performance [43][45][65].

Financial Data and Key Metrics Changes - Revenue for Q1 2025 was $405 million, a 24% increase year over year but a 3% decrease sequentially [15][16] - Gross margin improved to 37.9%, up 280 basis points year over year, despite a slight decrease from the previous quarter [19][21] - Earnings per share for Q1 was $1.23, compared to $1.30 in the previous quarter and $0.58 a year ago [21] Business Line Data and Key Metrics Changes - Semiconductor revenue was $222 million, down 2% sequentially but up 23% year over year, driven by strong demand in AI-related leading-edge foundry logic and memory [17] - Data center computing revenue reached a record $96 million, up 9% sequentially and 30% year over year, with multiple new hyperscale programs ramping [17][9] - Industrial and medical revenue was $64 million, down 16% sequentially and 23% year over year, primarily due to ongoing channel inventory destocking [18] - Telecom and networking revenue declined 5% sequentially and 2% year over year to $22 million, in line with expectations [19] Market Data and Key Metrics Changes - The semiconductor market is expected to grow around 10% for the year, supported by the initial production ramp of new products [26] - The industrial and medical market is anticipated to recover in Q2, although the pace may be tempered by economic uncertainty and tariffs [26][10] Company Strategy and Development Direction - The company is focused on delivering value through superior technology, in-house manufacturing, and best-in-class service, with significant investments in R&D and new product capabilities [3][14] - The closure of the last factory in China is expected to drive further gross margin improvement in the second half of the year [4][28] - The company aims to capture market share through new product introductions and strategic acquisitions, particularly in the fragmented industrial and medical market [14][48] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the revenue outlook for Q2, supported by solid customer demand in data center and semiconductor markets [4][25] - The company is relatively well-positioned to mitigate the impact of tariffs, with a favorable manufacturing footprint in lower tariff countries [5][24] - There is cautious optimism regarding the recovery in the industrial and medical market, with recent increases in distribution orders [10][56] Other Important Information - The company repurchased $22.7 million worth of common stock at an average price of $83.78 per share in April [16] - Capital expenditures for Q1 were $13.9 million, or 3.4% of revenue, with an increase in full-year CapEx guidance to 5% to 6% of revenue [22][27] Q&A Session Summary Question: What is the underlying view for the semiconductor equipment market? - Management believes the market is expected to be flat, with a projected growth of 10% for the company, driven by strong demand in leading-edge processes and new product traction [31][32] Question: Are there any risks of delays in the rollout of new systems? - Management acknowledged potential delays but emphasized the urgency from customers to incorporate new solutions due to challenges with older technology [57] Question: What steps are being taken to improve the industrial and medical business? - Management highlighted the importance of acquisitions in a fragmented market and noted that the design win pipeline is at an all-time high, indicating potential for future growth [44][48] Question: What is the impact of tariffs on costs? - Management indicated that while there are some costs associated with tariffs, they are manageable within the current models and have been contemplated in the guidance [109] Question: How much of the decline in industrial and medical revenue was due to destocking? - Management reported a 14% decline in distributor inventories from Q4 to Q1, indicating that destocking has played a significant role in the revenue decline [111]

Financial Data and Key Metrics Changes - Revenue for Q1 2025 was $405 million, a 24% increase year over year but a 3% decrease sequentially [15][16] - Gross margin improved to 37.9%, up 280 basis points year over year, despite a slight decrease from the previous quarter [19][21] - Earnings per share for Q1 was $1.23, compared to $1.30 in the previous quarter and $0.58 a year ago [21] Business Line Data and Key Metrics Changes - Semiconductor revenue was $222 million, down 2% sequentially but up 23% year over year, driven by strong demand in AI-related leading-edge foundry logic and memory [17] - Data center computing revenue reached a record $96 million, up 9% sequentially and 30% year over year, with multiple new hyperscale programs ramping [17][9] - Industrial and medical revenue was $64 million, down 16% sequentially and 23% year over year, primarily due to ongoing inventory destocking [18][10] - Telecom and networking revenue declined 5% sequentially and 2% year over year to $22 million, in line with expectations [19] Market Data and Key Metrics Changes - The semiconductor market is expected to grow around 10% for the year, supported by new product ramps [26] - Data center computing is projected to continue strong growth, particularly driven by AI investments [25] - Industrial and medical markets are anticipated to recover in Q2, although the pace may be affected by economic uncertainty and tariffs [26][10] Company Strategy and Development Direction - The company is focused on delivering value through superior technology, in-house manufacturing, and best-in-class service, with significant investments in R&D and new product capabilities [3][14] - The closure of the last factory in China is expected to enhance gross margins in the second half of the year [4][28] - The company aims to capture market share through new product introductions and strategic acquisitions, particularly in the fragmented industrial and medical markets [14][48] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the revenue outlook for Q2, supported by solid customer demand in data center and semiconductor markets [4][25] - Despite macroeconomic uncertainties, the company believes it is well-positioned to mitigate tariff impacts and maintain growth [5][28] - The management highlighted strong customer pull for next-generation products and a robust design win pipeline [7][11] Other Important Information - The company repurchased $22.7 million worth of common stock in April at an average price of $83.78 per share [16] - The company expects Q2 revenue to be approximately $420 million, with a gross margin around 38% [26] Q&A Session Summary Question: What is the underlying view for the semiconductor equipment market? - Management believes the market is expected to be flat, with their growth projection of 10% indicating outperformance due to strong demand in leading-edge processes and new products [32][33] Question: Are there any risks of delays in the rollout of new systems? - Management acknowledged potential delays but emphasized the urgency from customers to incorporate new solutions due to challenges with older technology [57] Question: What steps are being taken to improve the industrial and medical business? - Management indicated that while the current state is challenging, they are optimistic about long-term growth due to a strong design win pipeline and potential acquisitions in the fragmented market [46][48] Question: How significant is the impact of tariffs on costs? - Management stated that while there are some costs associated with tariffs, they are manageable and have been factored into their guidance [109] Question: What is the outlook for gross margins moving into 2026? - Management expects continued improvement in gross margins driven by new product traction and operational efficiencies, with a goal to approach 40% by the end of the year [90][78]

Financial Data and Key Metrics Changes - In Q1 2025, total revenue was $405 million, a 24% increase year over year but a 3% decrease sequentially [14][15] - Gross margin was 37.9%, slightly down 10 basis points from the previous quarter but up 280 basis points year over year [16] - Earnings per share were $1.23, compared to $1.30 in the previous quarter and $0.58 a year ago [18] Business Line Data and Key Metrics Changes - Semiconductor revenue was $222 million, down 2% sequentially but up 23% year over year, driven by strong demand in AI-related leading-edge foundry logic and memory [15][16] - Data center computing revenue reached a record $96 million, up 9% sequentially and 30% year over year, with multiple new hyperscale programs ramping [15][16] - Industrial and medical revenue was $64 million, down 16% sequentially and 23% year over year, primarily due to ongoing inventory destocking [15][16] - Telecom and networking revenue declined 5% sequentially and 2% year over year to $22 million, in line with expectations [15] Market Data and Key Metrics Changes - The semiconductor market is expected to grow around 10% for the year, supported by initial production ramps of new products [22][23] - Industrial and medical revenue is anticipated to recover in Q2, although the pace may be tempered by economic uncertainty and tariffs [23] - Data center revenue is expected to grow in Q2 and into the second half of the year, driven by high demand for AI data centers [7][22] Company Strategy and Development Direction - The company is focused on delivering value through superior technology, in-house manufacturing, and best-in-class service, with heavy investments in R&D and new product capabilities [2][11] - The closure of the last China factory is expected to drive further gross margin improvement in the second half of the year [3][25] - The company aims to maintain new product momentum and complete its factory consolidation plan while exploring inorganic growth opportunities [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the revenue outlook for Q2, supported by solid customer demand in data center and semiconductor markets [3][20] - Despite macroeconomic uncertainties, the company believes it is well-positioned to mitigate tariff impacts and maintain gross and operating margin targets [21][25] - The company anticipates continued strong demand for new products, particularly in data center and semiconductor sectors [11][20] Other Important Information - The company repurchased $22.7 million worth of common stock in April at an average price of $83.78 per share [14] - Inventory increased by $8 million, with inventory days rising from 126 to 132 [19] - The company expects Q2 gross margin to be around 38%, with operating expenses projected to increase to $99 million to $101 million [23][24] Q&A Session Summary Question: What is the underlying view for the semiconductor equipment market? - Management believes the market is expected to be flat, with a projected growth of 10% for the company, driven by strong demand in leading-edge processes and new products [28][30] Question: Are there any risks of delays in the rollout of new systems? - Management indicated that while there are challenges, there is a high degree of urgency from customers to incorporate new solutions due to issues with older technology [54][56] Question: What steps are being taken to improve the industrial and medical business? - Management noted that the industrial medical segment has been challenging, but they are optimistic about long-term growth due to a strong design win pipeline and potential acquisitions [41][45] Question: How is the company positioned regarding tariffs? - Management stated that the company is relatively well-positioned to mitigate tariff impacts, with most products compliant with USMCA and a favorable manufacturing footprint [4][34] Question: What is the margin profile of the backlog? - Management indicated that while the backlog is not particularly meaningful, they expect higher margins from new products and improved product mix [70][71]