Advanced Energy Industries Inc Q2 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Joe Quatrochi - Wells Fargo - Analyst : Yes, thanks for taking the question, guys. Maybe one on the industrial side or industrial/medical. Can you just talk about your forward visibility and just the visibility and the channel inventory? Based on your guide, it seems like maybe revenue is going to stabilize kind of in this current level, and how do we think about the trajectory beyond that and looking into 2025?

Question: Joe Quatrochi - Wells Fargo - Analyst : Got it. That's helpful. And as a follow-up, as we're thinking about the recovery in gross margin as we exit this year, I think in the past you guys talked about kind of a revenue target of $400 million exiting or in 4Q of trying to get back to, I think, 37.5% to 38% gross margin. When we think about the mix of that revenue and the strength, maybe in AI relative to maybe a little bit weaker outlook in an I&M, how do we balance that from a gross margin perspective? Is that revenue level to reach that kind of range of gross margin still the right way to think about it?

Question: Joe Quatrochi - Wells Fargo - Analyst : Helpful. Thank you.

Question: Krish Sankar - TD Cowen - Analyst : Yes. Thanks for taking my question. I had to two quick questions. The first one was for you, Paul. In case you cover the $400 million run rate, I'm kind of curious, so are you willing to underwrite the $400 million run rate in the 4Q and the 37.5% to 38% gross margin you said before. The reason I'm asking is because it seems like a huge step up from the midpoint of September quarter guidance, and it's so hard to think about the run rate and how it's far made into calendar 2025 for revenue and gross margin, and then I had two other questions. Thank you.

Question: Krish Sankar - TD Cowen - Analyst : Got it. Thanks for that, Paul. And then, Steve, I'm kind of curious on kind of like the cycle, how do you see the shape of the recovery? Clearly it's not a D-shaped recovery, yet there's a lot of optimism on the next year. I'm kind of curious, what do you think of the drivers? And also, is that a way to figure out at what quarter would that infection happen to see the cyclical recovery, or is that really tough to prognosticate?

Question: Krish Sankar - TD Cowen - Analyst : Oh, the semiconductor side of thing.

Question: Krish Sankar - TD Cowen - Analyst : Got it. Very helpful, Steve. And then if I just squeeze one last, in the past you've spoken about like from a technology standpoint, the opportunity for Advanced Energy in gate all around for conductive edge. Is there a way to sites of opportunity? For example, like your customers have spoken about how much dollar it is for 100,000 data starts a month. Is there a way to kind of figure out what Advanced Energy opportunity is with this gate all around conductive edge for every 100,000 data starts or what other metric you want to use? Thank you.

Question: Krish Sankar - TD Cowen - Analyst : Thanks, Steve.

Question: Steve Barger - KeyBanc Capital Markets - Analyst : Thanks. For the semi equipment guidance, you said flat sequentially in 3Q and a flat year versus 2023. I think that implies 4Q could be down a bit on a year-over-year basis and can you just square that up with the accelerated delivery request in 2Q and the idea that inventory is pretty much out of the channel by year-end?

Question: Steve Barger - KeyBanc Capital Markets - Analyst : It's on a higher base, but it kind of ¡ even if you're up a little bit in 4Q, it's kind of a flattish trend in the last 3 quarters of the year, right? So I'm just trying to ¡ but you expect a more linear acceleration in 2025 if I'm hearing you right?

Question: Steve Barger - KeyBanc Capital Markets - Analyst : Got it. And my follow-up is also for the semiconductor business, but related to industrial. It seems like the message from a lot of the auto and industrial semiconductor companies is that the trough is here in 2Q. Do you think the industrial chip cycle is a good leading or concurrent indicator for the industrial equipment cycle that you're diversifying into? Or are those two things not really related?

Question: Steve Barger - KeyBanc Capital Markets - Analyst : Understood. Thanks.

Question: Mehdi Hosseini - Susquehanna International Group - Analyst : Yes, thanks for taking my question. This is for the team. Trying to understand your readiness and to what extent can you support customers before building backlog again? So if I were to take your guide for semi, which is about $190 million-ish, would you be able to get it back to the prior peak of $270 million without having to accrue backlog? In other words, your ability to maintain a term business for the semi business unit? And I have a follow-up.

Question: Mehdi Hosseini - Susquehanna International Group - Analyst : Sure. Thank you. And as you can imagine, we can never predict the shape of the recovery or downturn it was only 2 years ago that your OEM customers couldn't get enough and then after 2 quarters they couldn't cut back fast enough and I'm just trying to better understand how you and your OEM partners have been able to capitalize on their learning over the past couple of years to be able to adjust and given the fact that back in REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 30, 2024 / 8:30PM, AEIS.OQ - Q2 2024 Advanced Energy Industries Inc Earnings Call SEMICON everybody is positive about the prospect of growth in 2025, but nobody is planning for it and I'm just was trying to determine your readiness. I wonder if you have any follow-up before I move on to my second question.

Question: Mehdi Hosseini - Susquehanna International Group - Analyst : Got it. Thank you for trying. And then, Paul, you talked about some increase in OpEx with 2 to 4 quarter of increase per quarter especially looking to 2025 be reasonable. And then, as a second follow-up to that given this increase in your CapEx this year, I think your CapEx is on target to increase by a couple of million. Should we assume that you're done with investment, especially the resizing, and next year, your CapEx would actually be down on a year-over-year basis?

Question: Mehdi Hosseini - Susquehanna International Group - Analyst : Thank you, guys.

Question: Scott Graham - Seaport Research Partners - Analyst : Yes. Hi, good afternoon. Thanks for taking the question. Well done quarter. I have several questions and I hope they're easy and quick, so I can get to all three or four of them. The T&N business, the telecom business, we all know telecom is a weak market, but is that a business where we're at a level of revenue now where maybe we're thinking more strategically, it doesn't make sense? Or are we thinking that there's going to be a big pop in this thing at some point and we're going to kind of get back? I mean, the sales of the businesses are more than 40% down. And I'm just kind of wondering what your longer-term thinking on this thing is. Can this pop back up?

Question: Scott Graham - Seaport Research Partners - Analyst : Thank you for answering that so succinctly. The data center's business, Steve, you indicated that it should be up strongly the next couple of quarters. I guess I'm just wondering why not longer, maybe not at the pace of this past quarter, but is it your customer saying something that is giving you a little bit of a tendency do not grow beyond the next couple of quarters? I'm just wondering, because I believe that [every side is staying] that this market is going to be growing fairly strongly for the next several years, as in 3 to 5 type things. So I'm just wondering why you limited your time to the next couple of quarters.

Question: Scott Graham - Seaport Research Partners - Analyst : Okay. Thank you. That was great. I just maybe want to go back and revisit the answer to a previous question, when I think Jim was trying to unbundle the growth in the semiconductor market or somebody else. I'm just curious as to aside from sort of the pull forward that you're talking about logic versus memory. I mean, any more color you can give in your business, maybe, again, away from that pull forward, why it feels like you're a little bit more optimistic there?

Question: Scott Graham - Seaport Research Partners - Analyst : That's great. Thanks, Steve.

Question: Mark Miller - Benchmark - Analyst : Just wondering if you can quantify the effect of lower factory loading on your margins.

Question: Mark Miller - Benchmark - Analyst : That's correct. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 30, 2024 / 8:30PM, AEIS.OQ - Q2 2024 Advanced Energy Industries Inc Earnings Call

Question: Mark Miller - Benchmark - Analyst : And the impression I've gotten from the call and the questions is that in terms of semiconductor bookings and backlog, it's kind of flattish, or is it better than that?

Question: Mark Miller - Benchmark - Analyst : Thank you.