Advanced Energy Industries Inc Q3 2024 Earnings Call Transcript

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

Question: Brian Chin - Stifel - Analyst : Maybe first question, can you just give maybe a rough idea of what drove the upside on the semi equipment revenue in Q3 and then maybe a little bit in the Q4 outlook? And also, just broadly, some rough idea of how much of your semi equipment revenue is typically leading versus trailing edge?

Question: Brian Chin - Stifel - Analyst : Okay. Fair enough. And I'm not going to hold you to a prediction on WFE spending in 2025, but there have been some other customers of yours and other OEMs have commented on that. And so, let's say, it's mid-single-digit growth next year, kind of similar maybe to this year. And when you think also about the moving pieces where there's some concerns about trailing edge, particularly China, spending -- growing next year. I think people think it declines, maybe leading edge is up. When you think about -- put all that together, what's your sense in terms of like quarterly trend on the semi equipment business? Do you think it can kind of move sideways here in the first half next year? Or how would you sort of calibrate that for us?

Question: Brian Chin - Stifel - Analyst : Okay. So does that suggest that, just to be clear, first half of next year could be similar to second half of this year?

Question: Brian Chin - Stifel - Analyst : Okay. Got it. And then maybe one last question. Based on your understanding of how much of your data center pickup is being driven by high-end AI infrastructure where, again, obviously, there would be a more pressing need for higher power density and efficiency. Do you think that could be a catalyst maybe to extend the runway for data center growth over a longer period than maybe you previously described?

Question: Joe Quatrochi - Wells Fargo - Analyst : Maybe one on the industrial and medical side. Curious if you could talk a little bit more about what you're seeing from a just inventory destocking and your confidence level and that starts to play out and returns to better growth algorithm as we look into next year?

Question: Joe Quatrochi - Wells Fargo - Analyst : And maybe as a follow-up, just as I think about like the puts and takes of gross margin guide for the fourth quarter, can you talk about just the mix dynamic there? I mean, I think semi is maybe a little bit better than what we're thinking in industrial, flat to up, and then data center sounds like maybe flat. So can you just kind of parse out, like help us understand why 37% is still kind of the right way to think about gross margin, not -- maybe a little bit higher than that?

Question: Steve Barger - KeyBanc Capital Markets - Analyst : Steve, great to hear about this continued momentum and design wins. I think you said there was a record funnel of new opportunities. Can you quantify that at all in terms of how that funnel looks compared to a year ago in terms of number of projects or dollars or however you're kind of tracking that?

Question: Steve Barger - KeyBanc Capital Markets - Analyst : Yeah. That's really great to hear. And presumably, you're still relatively low share in those newer markets that you're serving? So lots of (multiple speakers)?

Question: Steve Barger - KeyBanc Capital Markets - Analyst : And if I look at the guidance, if a couple of things swing your way in 4Q, you'll be back to that $400 million in quarterly revenue. If that happens, would you think that's a baseline you'll build on as you go through next year? Or are there any seasonal things that would cause 1Q to be lower?

Question: Robert Mertens - TD Cowen - Analyst : This is Robert Mertens on the line on behalf of Krish. Congrats on the strong quarter. It seems like the growth in Data Center market was above your prior expectations coming in for the quarter and remained strong through the end of the year. What sort of visibility do you typically have for the products going into this business and through the sustainability of demand heading into next year?

Question: Robert Mertens - TD Cowen - Analyst : Got it. And then another question on the gross margin side. Obviously, you guys have been doing a lot of work on the manufacturing efficiencies, and it will grow with volumes as well. Did I hear correctly, you mentioned you're on track to grow 400 basis points, is that in regard to next year?

Question: Rob Mason - Baird - Analyst : There was a -- Steve, you made the comments around design wins on the Semiconductor side, new products as you get into the second half of next year and into maybe further more so into 2026. I'm just curious, as you think about what your ramp looks like today, how much of that is from design wins that you've, I guess, banked today versus maybe what is in the pipeline from a risk-adjusted likelihood to win standpoint, just kind of the visibility around that?

Question: Rob Mason - Baird - Analyst : That's helpful. And just as a follow-up, how are you thinking about -- this is maybe for Paul, but how are you thinking about free cash flow in the fourth quarter and how you'll finish up the year?

Question: Jim Ricchiuti - Needham & Company - Analyst : Paul, just a follow-up on the gross margin commentary. So how do we think about the -- can you quantify the headwind from the transition from China manufacturing? And does that remain at the similar headwinds Q4 and gradually abates as we get into the first half of the year '25?

Question: Jim Ricchiuti - Needham & Company - Analyst : Got it. And then, Steve, maybe this question for you. Just on the design win activity. It sounds like you're seeing -- enjoying some nice wins. You alluded to one, eVoS design win, a high-volume application. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2024 / 8:30PM, AEIS.OQ - Q3 2024 Advanced Energy Industries Inc Earnings Call I wonder if you could elaborate on that. And then just a follow-up on the I&M design wins in the robotics and the process automation. Are these existing customers for the most part? Or are you winning some business with new customers?

Question: Scott Graham - Seaport Research - Analyst : I was wondering if there's a way to parse out what is the destocking impact versus just sort of -- I know you're saying that resales which I assume you mean POS is better. 33% down is a big number in I&M, and I was just wondering, is that essentially all destocking if you're saying that resales are improving?

Question: Scott Graham - Seaport Research - Analyst : That's very helpful. I have another question on DC, Data Center sales. I know you have commentary here that says that strong sales in the coming quarters. Is that sort of like fourth quarter and first half of next year comment? Or do you actually have visibility based on conversations with your customers that maybe it's more like a year's worth of visibility?