Greetings, and welcome to the Advanced Energy Second Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Edwin Mok, VP of Strategic Marketing and IR. Thank you. You may begin. Thank you, operator. Good afternoon, everyone. Welcome to Advanced Energy's Second Quarter 2022 Earnings Conference Call. With me today are Steve Kelley, our President and CEO, and Paul Oldham, our Executive Vice President and CFO. Before I begin, I'd like to mention that we will be participating at several investor conferences in the coming months. If you have not seen our earnings press release and presentation, you can find them on our website at ir.advancedenergy.com. Let me remind you that today's call contains forward-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, August 3, 2022, and the company assumes no obligation to update them. Medium-term targets and long-term aspirational goals 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 non-GAAP results are stock compensation, amortization, acquisition-related costs, restructuring expenses, and unrealized foreign exchange gains or losses. A detailed reconciliation between GAAP and non-GAAP measures can be found in today's press release. With that, let me pass the call to our President and CEO, Steve Kelley. Thanks, Edwin. Hello, everyone, and thanks for joining the call. Second quarter revenue and earnings per share surpassed our expectations, largely due to improved supply of key components and good execution by our operations team. While delivering record-breaking revenue, we also significantly grew our backlog. This is evidence of the strong demand across our target markets. In the near term, the primary constraint on our financial performance will continue to be the availability of scarce components, particularly integrated circuits. While the procurement of scarce ICs is key to our short-term performance, new products and technologies are key to our long-term growth. To that end, our development teams are highly focused on launching innovative products into our target markets. Within those markets, we are focusing on applications which need highly engineered solutions, allowing us to deliver more value to our customers. In addition, we are accelerating the cadence of new product introductions across a wide range of applications. In the second quarter, we expanded our reach in the medical power market by acquiring SL Power. We are now a top player in medical and aspire to become the number one player within the next five years. Customer reaction to the acquisition has been positive. They recognize that Advanced Energy's engineering capabilities, manufacturing footprint, and strong balance sheet complement the innovative strengths of SL Power. Now let me provide some further color regarding the current operating environment. As I mentioned earlier, the supply environment remains dynamic. The availability of key ICs, all of which are built on older process nodes, is the primary issue. To partially mitigate the shortages, we buy certain components through dealer and broker channels. Our customers support this effort by absorbing some of the price premiums associated with these broker buys. While there are pockets of delivery improvement, we expect that the overall procurement environment will remain challenging in the near term. We are also mitigating supply issues by working closely with customers to qualify alternative ICs. Where necessary, we have redesigned entire circuit boards to eliminate hard-to-find components. These alternative ICs and redesigned circuit boards contributed to our results in the second quarter and should have an even larger impact on our second half performance. We continue to maintain surge capacity throughout our factory network. This allows us to quickly take advantage of lumpy deliveries of scarce components. Now I'll provide more details for each of our target markets. In the second quarter, revenue from the semiconductor equipment market grew 30% year-on-year and 13% sequentially to nearly $230 million. This is a new quarterly record for Advanced Energy. We continue to expect that Advanced Energy's semiconductor revenue will grow faster than WFE in 2022. Our strategic development programs for dielectric etch and remote plasma source applications are progressing well. Enabling us to deliver evaluation units to our key customers. In addition, we secured multiple design wins for our high voltage power conversion products. We believe that these strategic programs and products will drive long-term revenue growth and market share gains for Advanced Energy. In the industrial medical market, revenue grew 26% year-on-year and 27% sequentially due to improved parts availability as well as the addition of SL Power. Our industrial and medical order book increased in the second quarter. We secured major wins at multiple tier one medical OEMs and won key design slots in indoor farming, factory automation, and industrial printing applications. In the second quarter, we expanded our thin-film industrial portfolio by introducing a new digitally controlled RF generator together with an enhanced matching network. Year to date, we have launched a variety of other new products into the industrial and medical markets, including several board-mounted power modules, a number of certified medical products, a new pyrometer for industrial temperature measurement, and a software solution for indoor farm lighting called Grownsight. Since the acquisition of SL Power in April, we have combined the medical power development teams of SL Power and Advanced Energy under a single leader. This combined team is now in a position to deliver a broader range of power delivery solutions to our medical customers. Since the acquisition, we are seeing an increase in medical power design activity, particularly in regions outside the U.S. In the data center computing, telecom, and networking markets, demand is solid, but revenue continues to be paced by the supply of critical ICs. During the quarter, we won several high-value designs in these markets. To summarize, demand for our products remains strong. Although the availability of scarce components continues to be the primary constraint, our mitigation efforts are having a positive impact. We believe that we are on track to deliver double-digit% revenue and earnings growth in 2022. Looking beyond this year, we are encouraged by customer acceptance of our new products and technologies, which we expect will drive improved revenue, market share, and earnings. In short, we believe that Advanced Energy is well positioned to deliver sustained, profitable growth in the coming years. Paul will now review our financial results and provide detailed guidance. Thank you, Steve, and good afternoon, everyone. In the second quarter, we delivered record revenue of $441 million and earnings per share of $1.44, surpassing our guidance ranges. Demand for our products remains strong and our backlog grew 15% sequentially to $1.17 billion. We believe this backlog, which is comprised of predominantly proprietary products, provides a runway to solid financial performance as we look over the next several quarters. Our operations focus remains on securing critical parts and getting products to customers as quickly as possible. Our redesign efforts, ability to move quickly to secure parts even at a premium, and other mitigating actions are having a positive impact. At the same time, the overall supply environment remains very challenging and we continue to see higher material costs and premium recoveries. As a result, we will remain prudent in our planning, but believe our second quarter results are indicative of our ability to achieve our target earnings of over $1.50 per share by the end of the year. Now let me go over our financial results. Revenue of $441 million grew 22% from last year and 11% from last quarter. Excluding the contribution of the SL Power acquisition, organic revenue growth was 18% year-over-year and 8% sequentially. Revenue from the semiconductor market was $229 million, up 30% from last year and up 13% from last quarter. Demand was strong and our backlog grew despite the record revenues. We are working closely with our customers to prioritize critical parts and deliveries and expect our semiconductor revenue to grow sequentially again in both the third quarter and the second half. Revenue in the industrial medical market was $105 million, growing 26% from last year and 27% from last quarter. Excluding SL Power, organic growth was 12% both year-over-year and sequentially, driven by strong market demand and improved supply of critical ICs. Revenue in both data center computing and telecom and networking continued to be meaningfully impacted by supply of critical components. As a result, data center computing revenue was flat to last year at $69 million, but declined 9% sequentially. Telecom and networking revenue was $38 million, up 19% from last year and 8% from the first quarter. Gross margin in the second quarter was 37.1%, up 50 basis points sequentially on better mix and increased factory output. Compared to last year, gross margins declined 90 basis points due to higher material costs. Premium recoveries, which reflect costs that we have been able to pass on to our customers but at zero margin, were similar to Q1 on a dollar basis and impacted gross margins by approximately 160 basis points. Given the dynamic supply environment, we expect that higher material costs and related premium recoveries will continue to negatively impact our gross margins in the third quarter and could extend further. Although we believe our mitigating actions should help offset some of the impact, given these challenges, we will take a more conservative approach to our cost assumptions over the next couple of quarters. Operating expenses were $94 million, up 14% from last year and 8% from last quarter. The sequential increase was largely due to the addition of SL Power and annual salary increases, which occurred in the second quarter. Second quarter operating margin was 15.8%. Depreciation for the quarter was $8.5 million, and our adjusted EBITDA was $78 million, up from $62 million last year and $66 million last quarter. Non-GAAP other expense was $2.2 million, including $1.5 million of interest expense and $700,000 of foreign exchange losses. Our non-GAAP tax rate was 19.4%, slightly above our target of 19% and ahead of our historical rate of 15%. The higher rate is due primarily to the change in U.S. tax rules impacting the expensing of R&D that took effect at the beginning of the year. Second quarter earnings were $1.44 per share, up from $1.25 last year and $1.24 last quarter. Excluding the negative impact of the change in U.S. tax rules, earnings in the quarter would have been greater than $1.50 per share. Now let me comment briefly on the SL Power acquisition. In our first partial quarter, SL Power contributed $12.9 million in inorganic revenue and approximately $0.05 of non-GAAP earnings per share. This acquisition makes us a top player in the medical market, and we are well on our way to capture cross-selling revenue opportunities and to integrate the business. Turning now to the balance sheet and cash flow. We ended the fourth quarter with total cash, including marketable securities, of $375 million and net debt of $8 million. During the quarter, we paid approximately $145 million for SL Power, and we repurchased $17 million of common stock at $74.12 per share. Cash flow from operations was $38 million. Working capital improved slightly to 119 days. DSO improved modestly to 55 days, and DPO declined slightly to 64 days. Inventory turns remained about flat at 2.8 times as we begin to see the impact of our actions to scale back inventories of less critical components. In the near term, we expect inventory to remain elevated, but turns should improve as we consume inventories of less critical parts, contributing to higher cash flow over the next several quarters. During Q2, we invested $12.4 million in capital expenditures, made debt principal payments of about $5 million, and paid $3.8 million in dividends. In addition, today we announced that our board of directors increased our stock repurchase authorization to $200 million in support of our long-term opportunistic share repurchase strategy. Since our last authorization a year ago, we repurchased approximately $95 million of stock at an average price of $83.50 per share through the end of the second quarter. Now let me turn to guidance. Although we continue to see strong demand for our products, we remain in a dynamic supply environment with low visibility to the delivery of critical parts and ongoing material premiums for some components. As a result, we expect Q3 revenue to be approximately $435 million ± $25 million. Our Q3 guidance assumes semiconductor revenue will continue to grow sequentially and includes a full quarter of revenue contribution from SL Power. Q3 gross margin is expected to be about flat to Q2 levels as higher material costs persist into the third quarter. We expect operating expenses to be in the $97 million-$99 million range, primarily on a full quarter of SL Power operating expenses. We expect other expenses to be approximately $2.5 million on higher interest expense and our tax rate to continue to be approximately 19%. As a result, we expect our Q3 non-GAAP earnings per share to be $1.30 ± $0.30. Let me finish with some closing thoughts. In our second quarter, we executed well in a challenging environment. Although supply chain constraints will continue to pace our performance, our Q3 revenue guidance reflects four consecutive quarters of year-over-year revenue growth, increasing our confidence to achieve our year-end annualized earnings targets of $6 per share despite persistently higher material costs. Looking forward, we believe that solid demand drivers in our markets, the profile of our order book, actions we are taking to mitigate supply chain challenges Investments in new products position us well to deliver on the pent-up earnings potential for the company for many quarters to come. With that, let's take your questions. Operator? Thank you. We will now conduct a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star one at this time. One moment, please, while we poll for our first question. Our first question comes from Scott Graham with Loop Capital Markets. Please proceed. Yes, hi. Good afternoon. Congratulations on a nice quarter, guys. Thanks a lot. Are you there? Okay. Just making sure. I was hoping you could unpack the semiconductor growth up 30% year-over-year. Just give us a little bit more color on, you know, maybe some product lines that were, you know, maybe outsized strengths, and the like. Yeah, Scott, let me make a few comments there. Like the rest of our markets, our semiconductor market was really constrained by parts. It has been for the better part of the last year. What happened in the second quarter was we were able to procure more parts and turn those parts quickly into revenue. There's really no meaningful change in the demand pattern. You know, we're seeing demand exceed supply, you know, throughout our semiconductor business. I should mention, though, that you know, some of the work we started last year on qualifying alternative ICs and re-qualifying circuit boards is starting to pay off in a big way for us, you know, starting Q2 and going into the second half of this year. you know, a big thank you to our customers for working closely with us to make those calls happen. Okay, there are no particular areas of semi, you know, where you were maybe a little bit stronger by product line. It was pretty broad-based in semi? Yeah, it's very broad-based. Again, it's supply limited, and customers are taking just about everything we can ship. Great. On the data center side, you know, you have a really good business there. That's a market, however, that, you know, half a dozen companies are saying that it's fine, and, you know, maybe the other half, you know, say it's, you know, weakening or will potentially weaken, tying things back, sometimes even to the smartphone market. What are your customers saying in data centers? I mean, are your customers in particular, you know, still have plans to, you know, you know, continue to build, you know, in the second half of the year and on into next year? Give us an idea of what's going on in that market. Yeah, Scott. We see a lot of strength in that market. Again, it's still a supply-constrained market, so they're taking everything we can build. I think the only thing we see from that market is that some customers are waiting for other components to complete their rack. Where we run into cycles of perturbations in the market, we're able to quickly ship those products to a different customer. So far, you know, we have had no constraints in the hyperscale market, and, you know, we're just being expedited on a daily basis from these customers. If I could just sneak one last question in here, if you don't mind. You know, your chart on page six is pretty telling, you know, the growth of the backlog has been, you know, like a weed. I guess the concern that I would have there is, you know, is there a percentage of that you think might be, you know, double ordering, first available, you know, getting into slots and what have you? How much of that backlog is, you know, do you think is real, you know, OEM order versus, you know, maybe some double ordering in there? What is the potential that, you know, at, you know, closing in on $1.2 billion that, you know, if demand weakens in the semiconductor markets, as I think most people believe it is in some, in a lot of pockets, that there's some cancellations there? Yeah, that's a good question, Scott, and we take a look at that backlog very closely because it is at an all-time high. So let me just give you some more data to support the integrity of that backlog. First of all, two-thirds of that backlog that we have currently is shippable in the next six months. So it's got customer request dates within the next six months, which is, you know, important to know because that means it's demand that's right in front of us. If I take a look at our backlog and, you know, addressing specifically your question about perishability, eighty percent of our backlog is for the semiconductor, industrial, and medical markets. So nearly all that's sole source. We believe that all that is earmarked for specific slots. We don't think there's much that's perishable there. The part that is, you know, perishable is the hyperscale backlog, right? Because that's a business where there's more than one supplier for every one of those boxes. We track that very closely, 'cause the riskiest part of our backlog. It only represents 10% of the dollar value of our backlog. That's where we take a very conscious approach on buying piece parts and integrated circuits, you know, for the hyperscalers. We make sure that we're covered so that we don't get, you know, left with unsold inventory. Thank you, Steve. You're welcome. Our next question comes from Krish Sankar with Cowen. Please proceed. Yeah. Hi, thanks for taking my question. I have two of them. First one, Steve, I'm just kinda curious, you know, people do worry about next year and the macro and everything, but your numbers are obviously very impressive and good. At the same time, your customers, like Lam Research, who reported last week, are growing their inventory. I'm just kinda curious, if and when a slowdown happens, is it fair to assume you might see it before your semi cap customers because they would rather draw down from their own inventory versus buying from you? You know, I recently spent a lot of time with our major customers in semiconductor, almost all of them, in the past month, and the message was very clear: Ship us more in the second half. They see demand that's solid through 2023 and into 2024. Their biggest issues are basically parts issues. Typically, it's not Advanced Energy anymore, it's other suppliers. The nice part about that market is with our biggest customers, we work off of hub inventory. Even if there's no specific need for a product, you know, today, we can still ship the product into the customer, they'll put into inventory, and then they could turn that, you know, when they need it. We're in addition to filling real demand today, we're also replenishing the hubs at our major semiconductor equipment customers. We feel very good about our ability to keep shipping at a high rate into those customers well into 2023. Got it. Very helpful, Steve. Another quick follow-up for Paul. Just a hypothetical question, just on operating leverage. If for some reason revenues are down next year, let's say 5% or 10% or whatever it might be, I'm just kinda curious how to think about the leverage in the model now that you also have SL Power added on to your portfolio. It's a good question, Krish. I mean, I think our operating leverage is in the 40%-50% range. On the downside, it would probably run a little bit higher than that. But remember, in our gross margins, the majority of our costs are variable costs. You know, it may not have as big an impact on us as you know, companies who have a large fixed cost base. Clearly, there are some things that we could do to manage our expenses if in fact we saw revenues lower, including one of those is that almost every person in the company is on a variable pay type program. There's certainly variable expenses that we can manage down. At the same time, as we mentioned before, you know, we do think that the nature of this cycle is a little different in that it's a supply constraint cycle. You know, if you looked at our inventories, our inventories are up too, but they're up because we're waiting on critical parts. We found that we see a lot of that at our customers, who have higher inventories, but they have the higher inventories of things while they wait for critical parts to be able to ship through product. We do think our backlog provides us some runway as we look forward, even in a softening demand environment where we believe customers will take the equipment to either replenish their own JIT or hub inventories or areas where they've had to borrow from places to just meet their own demand today. Got it. Very helpful. Thanks a lot, Paul. Appreciate it. Yep. Our next question comes from Amanda Scarnati with Citi. Please proceed. Hi. Just a quick clarification question. In terms of the impact of the new designs and sort of the restructuring of some of the components versus sort of general supply easing, where did you see sort of the biggest benefit in the quarter in terms of outperformance? Yeah. Amanda Scarnati, I would say that there's probably the biggest benefit in the semiconductor area. That's where we saw the biggest hit, you know, as far as the ability to turn more revenue due to these alternative IC quals and the board redesigns was in semiconductor. Okay. Just in terms of your CapEx plans going forward, you know, I know there's plans to sort of shrink some of the capacity in Asia, but with the CHIPS Act passing and including equipment suppliers, does that change how you look at capacity in the U.S. or sort of your general capacity footprint? Or are you still more concerned about just sort of right-sizing the business at this point? Yeah. We're gonna expand capacity, Amanda. There's gonna be puts and takes where we close some factories and open new ones because we're modernizing our operations. I think you'll see us significantly expand capacity in the coming years, particularly in Asia. Regardless of the CHIPS Act, we don't see any direct benefit. You know, we don't expect to get any grant money or investment tax credits as a result of that bill. However, we believe that our customers will benefit significantly from that. Anything that's good for our customers is good for Advanced Energy. Thank you. You're welcome. Our next question comes from Quinn Bolton with Needham. Please proceed. Hey, guys. Congratulations on the results and the outlook. I guess I've got a question about the broker channel. As I've heard more about it sounds like in order to You often have to commit to not only the higher prices they're asking, but also minimum commitments, which, you know, might fulfill your needs for multiple quarters. As you guys look at the supply constraints, can you just sort of talk to us about, you know, when you go into the broker channel, are you sort of committed to buy at these higher prices for several quarters, you know, which will keep that premium cost or that drag on gross margin, you know, high through early next year? If that's the case, do you also see sort of just a, you know, kind of game of Whac-A-Mole where, you know, the component shortages, you know, one quarter it's MOSFETs, next quarter it's PLDs, next quarter it's something else. Even though you might have these supplies from the broker channel one quarter, you know, a critical need comes up the next quarter, and you've got to go back for a different type of component. That's a good question, Quinn. I'd say first the nature of our buys from the broker channel tend to be, you know, driven by, you know, immediate needs, not trying to fill, you know, material slots for out, you know, multiple quarters. Frankly, you can't get that many parts from these channels. It's much more of an opportunistic buy than that. They usually might tie us over from anywhere from a month to a handful of months. I don't think there's a long risk that we've bought parts that we're going to be consuming for a long period of time. They tend to be consumed pretty quickly, like they kind of come in the door and right out because they're the critical parts that we're looking for. Your second comment is right. It is a little bit of a game of Whack-A-Mole, and there's certainly some components where supply has gotten better or we've been able to get a longer visibility of supply, and other parts that show up, you know, that hadn't been a problem, but now are a problem because there was a yield issue or there was some other issue in the supply chain, and now we're not able to get parts. I do think that the nature of these broker buys being sort of both necessary and opportunistic is that this activity will abate as the general supply chain improves. We haven't seen that yet, and I think in our comments, we talked about we expect that to persist into the third quarter. We don't see this being a long-term pattern over time. It will improve as the supply chain normalizes. This sort of relates to my second question. Do you expect the broader or the premium buys to have that same relative 160 basis point impact in the third quarter as it did in sort of Q1 and Q2? Then a second question. I think you've mentioned you're keeping the Shenzhen facility open for longer to maintain that surge capacity. Can you give us any update on your thoughts about when you may be shutting down that line as things get back to more normal conditions? Thanks. Yeah. In general, as we said, we're seeing the higher material costs persist into Q3. While we didn't say specifically on the broker buys, which can vary a little bit, but broadly speaking, I'd say in the same range, probably makes sense. It's obviously something that's dynamic and could increase, or we could see it improve depending on how the broader economy and environment goes. With respect to Shenzhen, we do expect to close that by the end of the year, and we'll keep that capacity. As Steve said, we are adding capacity, and part of that rebalance is to ensure that we've got adequate capacity across our sites as Shenzhen closes to ensure that visibility to not only maintain but grow our semiconductor revenue. Paul, is that about a 50 basis point drag for Shenzhen? Is that the right ballpark? Yeah, I think that's in the right range. Great. Thank you. Yep. Our next question comes from Steve Barger with KeyBanc Capital Markets. Please proceed. Hey, good morning. Or good afternoon, sorry. Sounds like you're expecting continued strong growth. When you think about what you're seeing in end markets and just the mix that you have in backlog, do you expect semi equipment continues to show higher organic growth rates than industrial and medical as you go into next year? Or do tougher semi comps make that flip? Yes, Steve. You know, we do expect to see semi continue to be strong through 2023, but we think I&M has actually got more potential because I&M has been really restrained by lack of parts, and it tends to be more of a higher mix, low volume business for us. I think as we are able to get more parts for the industrial medical business, you're gonna see quite an uptick in the industrial medical space. That's great. You know, really good to see your confidence in more than $6 in run rate earnings in 4Q. Given that strong demand environment and your comments on backlog, is that $1.50 per quarter plus kind of a minimum base case going into next year as you think about the first half? You know, assuming you can get all the parts you need to ship. Yeah. I think assuming we can get the parts to ship, there's upside to that number. It all comes down to these constraints in the supply environment. As we commented, we've seen demand remain strong. Given the proprietary or sole source nature of the backlog, you know, we still continue to operate in a supply constrained environment, even if we saw demand soften a little bit. Ironically, some softening in macro demand might actually help the part situation, which would benefit us, as we go into next year. You know, we're keeping a close eye on it, but we do believe that, you know, the combination of strong markets and our backlog profile give us continued upside, all based on, you know, where we're at from a parts perspective. If I could just ask one kind of related question to your comment about, you know, if things were to slow. You mentioned that you're pushing to accelerate the cadence of new product introduction. Is that a function of increasing R&D spend, or is there some internal processes you're streamlining to get things to market faster? It's a combination. You know, we are certainly spending more money in R&D to accelerate our technology development. From a product standpoint, it's really how we're going to market. We've organized into business units which are highly focused on our target markets, on semiconductor, industrial, and medical. I think between the two, that's what's causing us to get our new product output up. It's very important for us to continue that improved cadence as we go into 2023. Thanks. Thank you, Steve. Our next question comes from Han Sheng with D.A. Davidson. Please proceed. Hi. Thank you for taking my question. Congratulations on the strong result. First, can you kind of give me some color around the industrial and medical segment during the second quarter? I know that there are contribution from the SL Power, but we also see very strong organic growth. Just kind of curious about what was the driver and any color around that. Yeah. A couple of comments. I noted in my remarks sort of the organic and inorganic growth. We did have a strong quarter in industrial and medical, and that's driven by strength across a number of verticals. Steve mentioned several of those in his commentary around lighting, indoor farming, and more broadly. In general, industrial and medical, the demand has been strong, and it's all about the parts. You know, we grew backlog again in industrial and medical products, and it's across multiple areas. You know, we did add SL Power this quarter. As I mentioned, it added just under $13 million of revenue, and was clearly accretive for us for the quarter. We do think the combination of, you know, the SL Power products and, the people that joined us as part of that acquisition, as well as, you know, the breadth, the expansion of channel combined with our existing footprint in medical, does give us a significant opportunity to grow in the medical market. Got it. Then, regarding the target for $6 EPS run rate by end of this year. That maybe contribute from, let's say, for Q4, assume we may see the sequential growth in top line, and also probably we see some gross margin benefit from maybe more moderate the cost premium from the scarcity, the IC. My question is that what would be a major driver for you to achieve the $6 plus run rate EPS in the fourth quarter? Would that be more driven by top line or gross margin or kind of equally on both sides? Yeah. I think earlier in the year, we felt that the supply chain would be improving, and we would see some of these cost premiums abate, and we would get some uplift from gross margin by the end of the year, which would contribute to our getting to the $6 annualized earnings per share. I think a couple of points as we come current in that is, first of all, I think we've done a pretty good job of getting parts because our focus has been on getting product to customers. That's come at a higher cost, but we've been able to get revenue out. If you look where we are today in Q2, you know, we're actually nearing into that $1.50 per share, and gross margins are sort of in the 37% range. I guess our comments today try to indicate that, you know, as we get parts and are able to ship more, we'll see the volume that will support that. We'll see some improvements in gross margin, but I think we're tempering our view a little bit on gross margin improvement by the end of the year, based on how persistent the higher parts cost is gonna be. We believe we can get to the $1.50 without a significant uptick in gross margin. That, as the increase in gross margin comes, as the supply environment improves, that will just be additional tailwind to our financial performance. Got it. Maybe last one quick. Can you elaborate on the new design wins in the data center segment? I think you comment on that. Just curious, what's any color around the geography or the product line and any color and then how long it could take to convert to kind of volume order? I know, is that potentially something next year, its first half or second half? Any color would be helpful. Yeah. Thank you for the question. You know, we've been going through a transition in the data center market for the past year and a half. What we've been doing is focusing on more higher value-added designs. Where we could either be sole source or the lead source in a two-source situation. That's actually progressing quite nicely. I can't give you a lot of color as to, you know, exactly where we're playing and who we're playing with, but I can tell you that I'm pleased with the progress. At the same time, given the dynamics in the hyperscale market, which is supply constrained, you know, we're also doing a bit better there because we're able to pass on some of the increased parts cost to the hyperscale customers. I'm seeing improvement in the hyperscale business, both with our current business, the gross margin performance, as well as, you know, the future business we're winning today. I'm happy with it. Thank you. You're welcome. Our next question comes from Patrick Ho with Stifel. Please proceed. Thank you very much, and congrats on a nice quarter. Steve, maybe first off, you've obviously shown that the production levels have increased with the last few quarters. You talked about your Malaysian facility ramp in the past. Can you give us an update on, you know, some of the efficiencies and the optimizations that are occurring there that are allowing more output to come from it, which is obviously helping your financial results? Yeah. Great question. What we've been doing there for the past nine months is basically growing our output. We're also expanding our floor space. That's a three-floor factory, and we're gonna finish building out the third floor here in the next couple of months. What we've seen is a steady increase in output out of the Malaysian factory. We brought a new chief operating officer in September, who's made a you know a big impact on our operations there. We also brought a new plant manager in. I think one thing that I've noted is our attrition rate, you know, has come down to below the average in Malaysia. You know, a year ago, it was much higher than average. When you have that situation, a constant pool of employees, your quality goes up and your output goes up. We've seen that in the Malaysian factory. Right. Maybe as my follow-up question, I know, you know, Steve, you've been in this industry a long time. Whenever costs go up, they don't tend to go down, you know, over time, but this is obviously a very different environment. How are you passing along some of the cost increases that could be permanent on your end towards your customers? Because obviously everyone is trying to figure that aspect out across the ecosystem? Yeah. We actually had a major price increase that happened last fall. You know, those actions are never easy, right? Because nobody wants to pay more. The way we approached that is, we basically cataloged all of the increases that we were seeing across the board. You know, not just ICs, but almost everything we buy has gone up in price. We basically laid it out to our customers, said, "This is, you know, what we're experiencing. We need some help absorbing these increased costs." That's how we sold it, and that's basically how we'll continue to play it, you know, very transparently with our customers. We are not adding margin to the increased cost. We're just saying, "Hey, you know, we need to be compensated for the increased prices we're paying, particularly to brokers and dealers, as well as to the manufacturers." So it's a heavy lift, you know. It was a heavy lift last fall, but I think the team has gotten better at it. If we need to raise prices again this year, you know, we know how to do it. Hey, Patrick, this is Paul Oldham. Great. Thank you. Yeah. Go ahead. This is Paul Oldham. When we think about costs and passing them now on to the customer, there's really two categories of those. One are these broker-dealer costs that are we think are transitory, they're very transactional. In those cases, oftentimes we'll talk to our customers before we buy the parts about whether they're willing to help support that. Again, on those, we're just passing the cost along, they're reimbursing us, and we've had a pretty good track record. We don't recover everything, but we've recovered a lot of it. That's the premium buys. That will go away over time in our view. It's transitory. The more structural increases in price where we're seeing actually our OEMs and our other suppliers raise prices, our goal is to largely, you know, either recover those through price increases of our own or through efficiencies and other things that we can do over time. As we think about inflation as something that's more structural, we believe that we will be able to to cover that over time because it's, you know, it's a, it's in the entire ecosystem, and we'll either be able to pass those costs along or make improvements to offset them. Great. Thank you very much, guys. You're welcome. Our next question comes from Paretosh Misra with Berenberg. Please proceed. Thank you. In your semiconductor business, is there a way to think about your exposure to memory versus logic, as to which of these you have a higher exposure? Yeah, Paretosh. In general, I would say we have higher exposure to logic. You know, the memory ups and downs affect us a little bit less than some others. If you take a look, you know, at the total WFE just a few years ago, that memory was what? Roughly two-thirds of the market. Today, it's more like 40%. While you know, it's significant, I think the logic market is bigger, both leading edge and even trailing edge. We're participating in all the spaces, but we have more of our revenue weighted towards the foundry space than we do to the memory space. Got it. That's useful. With regard to your operations in China, are they now running normally, still impacted by any COVID-related lockdowns? I guess quantify the impact of COVID in Q2 that normalized in Q3. Yeah. We were very fortunate that we had no lockdowns in Q2 at our Chinese factories. You know, the only shutdown we've had this year was in March. We shut down for a week in Shenzhen, but we recovered very quickly. Q2, remarkably, no shutdowns. Great to hear, guys. Thank you. Thank you. There are no further questions in queue at this time. I would like to turn the call back over to Steve Kelley for closing comments. Thank you much for joining the call today. Really appreciate your interest. Just some takeaways. You know, I think Q2 was a good quarter. We were able to find more parts than we expected and turn those parts into revenue quickly. You know, we're working hard behind the scenes, designing new products and bringing new technologies to market. Finally, we have great confidence in our ability to deliver superior profitable growth over long term. Again, thank you for joining the call today. Bye-bye. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.