Greetings, welcome to the Advanced Energy Q4 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, Vice President of Strategic Marketing and Investor Relations. Thank you, Edwin. You may begin. Thank you, operator. Good afternoon, everyone. Welcome to Advanced Energy Q4 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. They 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, February 8, 2023, 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 our non-GAAP results are stock compensation, amortization, acquisition-related costs, facility expansion and related costs, restructuring charges, and unrealized foreign exchange gain or loss. 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. Good afternoon, everyone, and thanks for joining the call. We delivered strong results in the Q4, taking advantage of healthy demand, improved component availability, and solid manufacturing execution. For the full year, we achieved record revenue of $1.85 billion and record earnings per share of $6.49, thanks to robust demand across all of our markets and improved execution across the company. Sales into each of our markets grew 20% or more in 2022. Overall, our operational performance improved throughout the year due to better component availability, successful qualifications of alternative parts and redesigns, and good manufacturing execution. We doubled the number of new product launches in 2022. By and large, these new products employ leading-edge technology and are proprietary in nature. These products led to additional design wins in 2022, particularly in the industrial, medical, and semiconductor markets. Moving forward, we expect design win activity to accelerate in 2023 as customers shift their focus from supply chain issues to product differentiation. We believe our leading-edge power delivery solutions enable our customers' new products and will fuel our profitable growth for years to come. In 2022, we successfully integrated SL Power into Advanced Energy. SL expanded our position in the medical power market, where we are now one of the top players. In addition, we are adding capacity and capability at the former SL Power factory in Mexico to accommodate customers who prefer a North American manufacturing site. I'd like to provide some color on the current supply chain environment. Scarce components are still gating revenue in the industrial, computing, telecom, and networking markets. Power ICs and FETs are the two most significant constraints. These trailing-edge products are widely used across the electronics industry, particularly in automotive and industrial applications. In semiconductor equipment, we are seeing fewer parts shortages. This has allowed us to reduce lead times for some of our products, which in turn has enabled our customers to normalize their order backlog. Now I'll provide more color for each of our end markets. In semiconductor, Q4 revenue increased 30% year-on-year to $232 million, in line with our expectations. For the full year, Advanced Energy revenue in this market grew over 31%, much faster than overall WFE. In the Q4, we secured new design wins in wafer inspection and remote plasma source applications. We also introduced new technology platforms for advanced etch. In the industrial and medical markets, Q4 revenue grew more than 20% year-on-year to $119 million. Despite those record shipments, our industrial and medical order book still increased in Q4. In the medical market, we secured several new wins in surgical, medical laser, diagnostic, and life science equipment. In the Q4, we launched FlexiCharge, the industry's first high voltage capacitor charger and low voltage power supply in a single integrated product. We designed this product to meet the power needs of medical laser applications by combining our industry-leading high voltage and configurable power supply technologies. Initial customer feedback has been enthusiastic. In the industrial space, we secured design wins in 3D printing, industrial laser, and test and measurement applications. Moving to our computing, networking, and telecom markets. Q4 revenue from data center computing customers totaled $95 million, a new record for the company. Telecom and networking revenue grew 15% year-on-year to $44 million. Our upside in both markets was driven by improved component deliveries late in the quarter, coupled with our ability to quickly turn those scarce parts into revenue. I'll move to the 2023 demand picture, as well as our priorities for the new year. We expect that 2023 will be a down year in the semiconductor market and are taking actions to lower our cost structure to adapt to this new demand environment. Overall semiconductor revenue will be down year-over-year, there are pockets of strength, including our service business, our high voltage ion implant products, and recent design wins which are still ramping to volume. Because of these pockets of strength, we believe that we will perform better than the market in 2023. Outside of semiconductor, we believe that 2023 revenue should be relatively stable year-on-year. We carried a large order book into the Q1 due to a combination of healthy overall demand and lingering parts shortages. We believe the variety of markets we sell into will have a smoothing effect on the aggregate revenue in our non-semiconductor markets. Moving to the priorities for 2023. Our first priority is to maintain our new product and design win momentum. We want to be the technology leader in every market we serve. To do that, we intend to maintain our investments in R&D and push our development teams to move even faster. The second priority is to improve the efficiency of our manufacturing and supply chain operations. We made a lot of progress in 2022. We can make even more in 2023. We will optimize our factory footprint and streamline our network of subcontractors and component suppliers. We learned a lot about the strengths and weaknesses of our supply base over the last two years. We intend to concentrate our business with the best performing suppliers. The third priority is to increase our engagement with customers across our markets. We have a large, talented sales and applications team and a strong network of distributors and value-added resellers. We intend to use this worldwide team to focus on the needs of fast-growing small and medium-sized customers while maintaining high service levels at our larger customers. Finally, we will take special care to control discretionary expenses in 2023. I would like to close with a few parting thoughts. First, we just wrapped up one of the best years in Advanced Energy's history, delivering record financial performance and a record number of new products. Second, we are carrying that momentum into 2023. We will go full speed ahead with our R&D efforts and improve our efficiency across the company. Finally, we believe that our increased participation in a variety of high-value markets, coupled with our pockets of strength within the semiconductor market, will allow Advanced Energy to perform substantially better than in past semiconductor market slowdowns. Paul will now provide more detailed financial information. Thank you, Steve, good afternoon, everyone. We delivered strong financial results in the Q4 and a record 2022 as we secured additional supply of scarce components and began to leverage our backlog and low channel inventory to perform better than the market. Q4 revenue of $491 million and EPS of $1.70 both reached the second highest levels ever for the company. Overall, revenue grew 24% year-over-year and 18% organically. In the Q4, backlog declined to $875 million, down from $1.1 billion at the end of the Q3. Approximately 40% of the sequential decline came from the China-based semiconductor customer orders, which we moved out of our reported backlog but were not canceled. The rest of the reduction in backlog reflected lower demand and changes in ordering patterns from our semiconductor customers as we improved our lead times. Backlog for non-semi markets remained unchanged quarter-on-quarter despite robust shipments. As we further resolve critical part issues, we expect to work down our total backlog over the next several quarters to a more normalized level of $400 million-$500 million. Let me go over our financial results in more detail. Revenue in the semiconductor market was $232 million, up 30% year-over-year, but down 13% from a record Q3. Roughly half of the decline was a direct result of the China-based export control regulations announced in the quarter. In addition, our customers lowered their build plans in response to the current environment, which was partially offset by our ability to largely restock customer inventories back towards normalized levels. Revenue in the industrial and medical market was $119 million, up 21% year-over-year and flat with last quarter's record level. We continue to be parts constrained in this market and believe we have upside as component availability improves. Data center computing revenue was up 18% year-over-year and 8% sequentially to $95 million, a new quarterly record. Telecom and networking revenue was $44 million, up 15% year-over-year and 4% sequentially. Q4 gross margin was 36.6%, down 90 basis points from last quarter, due primarily to less favorable revenue mix, lower volume, and continued higher material costs. Although we began to see some moderation in premiums and recoveries toward the end of the quarter, we expect higher material costs to continue to impact our gross margin through the first half of 2023, with gross margins gradually improving in the second half of the year as premiums abate and historical costs flow through our inventory. Operating expenses were $101 million, up slightly from last quarter, mainly due to timing of programs and infrastructure investments. Operating margin for the quarter was 16%. Depreciation for the quarter was $9 million, and our adjusted EBITDA was $87 million. Non-GAAP other expense was $1.1 million on better interest earnings, partially offset by foreign exchange losses. Given higher interest earnings on our cash and the benefits to interest expense on our swap, we expect our non-GAAP other expense to be in the $1 million range, ±, going forward. During the quarter, we initiated a restructuring plan and recognized $5.6 million in restructuring costs, primarily associated with the integration of SL, consolidation of certain production into our higher volume factories, and other targeted reductions consistent with lower volumes in 2023. We ceased production at our Shenzhen factory at the end of Q4 and will fully close the facility within the current quarter. Looking forward, we expect another $1 million-$2 million of restructuring in Q1. As a combination of these actions and attrition, we expect total headcount to be down approximately 10% by the end of 2023, mostly in our factory operations. Our non-GAAP tax rate was 17%, driven by the level of annual earnings, geographic mix, and true-ups to year-end tax positions. For 2023, we are modeling our GAAP and non-GAAP tax rate in the 18%-19% range. Q4 EPS was $1.70, up from last year's EPS of $1.36, and down from the record Q3 EPS of $2.12. Let me quickly touch on our full year results. In 2022, we delivered record revenue of $1.85 billion, which was up 27% year-over-year. Excluding the SL Power acquisition, organic revenue grew 23%. We achieved record revenues in the semiconductor, industrial and medical, and data center computing markets. We paid over $100 million of material premiums to secure critical parts. Although we were able to recover a portion of these premiums from our customers, our gross margins were negatively impacted. Despite this sizable cost, our 2022 non-GAAP earnings reached a record $6.49 per share, and our annualized second half earnings surpassed our EPS aspirational goal of $7.50. Turning now to the balance sheet. Total cash and marketable securities at the end of the Q4 was $461 million, with net cash of $88 million. Cash flow from continuing operations was $71 million. Inventory days were 109, and turns improved to 3.3x, up slightly from 3.2x in Q3 as we began to consume inventories of non-critical parts. DSO ticked up slightly to 55 days, and DPO declined to 49 days, down from 61 days last quarter, largely due to timing of purchases and lower inventory levels. As a result, networking capital increased to 115 days from 106 days last quarter. During the Q4, we invested $19 million in CapEx as we began to incur the cash expenditures for many of the infrastructure and capacity investments initiated earlier in the year. Looking forward, we expect CapEx to run approximately 4% of sales on timing of project completions and investments to optimize our footprint and scale our structure. During the quarter, we also made debt principal payments of $5 million, paid $3.8 million in dividends, repurchased approximately $700,000 of common stock at $69.16 per share. Turning now to our guidance. Based on the decline in the wafer fab equipment market, we expect our semiconductor revenue to be down in the high teens sequentially, with the impact of the market decline partially mitigated by our pockets of strength and our ability to complete the restocking of customer inventories to normalized levels. While demand is stronger in our other markets, revenues continue to be gated by supply of critical components. As a result, we expect Q1 revenue to be approximately $415 million ±$20 million. We expect Q1 gross margins to be in the low 36% range on lower volumes and modest improvement in material cost premiums. We expect Q1 operating expenses to be down slightly from Q4, but to increase modestly for the balance of the year on inflationary factors and continued investment in critical R&D and growth initiatives. As a result, we expect Q1 non-GAAP earnings per share to be $1.10 ±$0.25. Before I open it up for questions, I want to highlight a few important points. 2022 was a record year for Advanced Energy. Our semiconductor revenue growth substantially outperformed the wafer fab equipment market, and each of our end markets grew 20% or more year-over-year. While this will inevitably result in tougher comparisons in 2023, we continue to expect to perform better than the market over the course of the year. More importantly, we believe our diversification into multiple markets, larger and more stable service business, and healthier backlog and customer inventory positions will enable us to perform substantially better than in previous market cycles, demonstrating the benefits of our long-term strategy. While the supply chain remains dynamic, we expect improvement in deliveries of critical components over the course of the year, which, coupled with lower material premiums and improved operational efficiency, will allow us to gradually improve our gross margins in the second half of the year. During this time, we will continue to accelerate new products and scale the company while controlling our discretionary spending and optimizing our footprint. As a result, we expect Advanced Energy is well positioned to outperform during this cycle, emerge stronger as markets recover, and continue to grow revenue and earnings over time. With that, we'll take your questions. Operator. Thank you. We will now be conducting 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 that your line is in the question queue. You may press star two if you'd 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. One moment please while we poll for questions. Thank you. Our first question is from Quinn Bolton with Needham & Company. Please proceed with your question. Hey, guys. Congratulations on the strong finish to 2022. I guess maybe Paul or Steve, I guess kind of a big picture question. You know, it sounds like margins are gonna stay, you know, fairly flattish in the low 36% range in the first half of the year, with only modest improvement expected in the second half of the year. I guess, what do you think it takes to get back to the 40%-41% gross margins envisioned by the aspirational model? Yeah, it's a good question. I'll take that one, Quinn. You know, clearly in the near term, we continue to be impacted by higher material costs, we expect those to begin to abate largely in the second half. We'll still see those through the first half, just given the timing of these costs rolling through our inventories. We do expect to see them to start to pick up in the, you know, later in the year, which will give us some improvement, certainly as we have an exit rate to 2023. The, the offset to that is, you know, we're not anticipating any pickup in volumes, you know, from these levels. In fact, our Q2 may even be down a little bit from this quarter, as we won't get some of the restocking shipments we expect in the Q1. Based on that, we'll see headwinds from volumes. As volumes begin to recover and as the actions that we are taking over the course of the year to optimize our footprint, take hold, we expect that we would be back on that track to get back to 40% or greater. Got it. I think you kinda hinted at the answer to my next question, but just give us a sense of where you are in terms of the JIT bins. It sounds like you had an opportunity to begin restocking those in the Q4, and you expect to restock perhaps more in the Q1, but it sounds like, am I right to assume that by the end of the March quarter, you're probably back to normal levels in terms of JIT bins or inventory levels at your semiconductor customers? Yeah, that's right. We definitely saw some benefit of that in the Q4, and as I said in my comments, we've been able to largely restock those. Now, there's a little more to go, so we'll get a little more benefit in the Q1. We anticipate, you know, customers will have the inventories they would like on their shelves by the end of the Q1. Got it. Okay. Thank you. Thank you. Our next question is from Scott Graham with Loop Capital Markets. Please proceed with your question. Hi, I'm here. I'm sorry. Little, tech delay. Hey, Scott. Hey, same thing. Congrats on a good finish. It's the year-end. Good evening. Couple questions. So you're looking, you know, you have backlog where it is, and you're looking to bring that to. I think you said you either said $400 million or $500 million, or I think you meant maybe I misunderstood, down by $400 million-$500 million. How does that play out? I'm sorry, I just missed that when you said it. Yeah, no worries. We expect that backlog, we'd like to bring it to about $400 million-$500 million. We think that's a reasonable target level. That would actually be probably a little more than historical levels, but just given the nature of the markets these days, we think that's a more normalized levels. As we said, we expect that to happen over the next several quarters. We continue to have, you know, very healthy backlog. As we mentioned, our non-semiconductor backlog actually increased for industrial and medical and was about flat for the others. It's actually continues to be an opportunity for us as we get some of the critical or scarce parts in to be able to bring in our lead times, bring that backlog into more normalized levels. We expect that will happen over the next several quarters. Thank you, Paul. Can you just remind me the, or maybe just tell us the $875, how does that split by business? Yeah, we haven't historically broken that out, but as I mentioned, the backlog reduction this time was largely concentrated or entirely concentrated in semiconductor, in part because we removed some backlog out of our reported backlog, the China orders, that was about 40%. The rest was really rebalancing in our semiconductor markets. You know, we were able to fill in some of the bins, as I mentioned in my earlier question. We've been able to bring our lead times down, and of course, our customers have reacted to the lower demand environment and brought their orders down. If you look outside of semi, our backlog was about flat from last quarter, reflecting really stronger demand across those markets and continues to represent an opportunity for us to bring that more in line and either buffer, you know, lower demands if that happens in the future or deliver some upside if we can get additional parts as we go forward. Our goal would clearly be to try to bring that backlog and therefore our lead times, you know, more in line with that $400 million-$500 million target. I got you. Last one for me, just a quickie. You know, the gross margin guide for the Q1, low 36s. I'm surprised you didn't mention mix as one of the key components of the delta. Where does mix fall in that? I think mix does have some impact, certainly as we go from the second, you know, from the Q4 to the Q1. If you, if you look at overall, sort of the combination of the actions we're taking, a little bit fewer of the PPV recoveries, we still expect to have higher material costs, but less recoveries. Those things are kind of tending and the actions, like I said, we're taking are kinda offsetting the impact of the lower volumes, overall. Net-net, we expect to be down a little bit. It's actually, we think, pretty good from a delever perspective, to hold margins, you know, I'll say down a little bit or, you know, down to flat. It's a function of the actions we're taking and some improvement in material costs offsetting the other items. You know, as we look forward, we think we can probably hold gross margins and, you know, trough margins around 36%, I'll say plus or minus, depending on volumes and where the markets go. That's kinda how we're thinking about it. Was asked as was asked earlier by Quinn, you know, particularly in the second half, as these material costs subside, the impact, full impact of the actions we're taking to, you know, optimize our factory footprints, those should help to see a little margin improvement in the back half of the year, but really position us in 2024 to see either continued margin improvements at sort of these similar or lower levels, or if we see revenues pick up a little bit, be able to kind of accelerate back towards our 40% target. That's great color. Thanks. Yep. Thank you. Our next question is from Krish Sankar with Cowen and Company. Please proceed with your question. Hi, thanks for taking my question. I had a couple of them too. Paul, just to follow up on your earlier comments. You know, you mentioned, you know, second half gross margin should improve and some of these cost reduction and other factors should offset volume declines. I'm kind of curious, what is your visibility today? If I try to triangulate your answers, it seems to me that the brunt of the revenue decline happens in the first half and it kind of starts bottoming in Q2 or Q3 on a sequential basis and improves into Q4. Is that the way to think about linearity of revenues this year? Yeah. You know, we have to, you know, obviously, you know, we're operating in this market where semi is down this coming year. As we look at overall, we expect semi to be down, and we expect our other markets to be generally, you know, about flat or relatively stable overall. From an operating perspective, you know, that way we're planning is you're right, we expect most of the brunt to be here in the Q1, perhaps a little more in the Q2, particularly as we won't have the benefit of the inventory stocking on the semiconductor side. To kind of bounce around those levels for the balance of the year. I think that's generally consistent with how people see the market right now. Obviously it's hard to look out that far and know for sure. That's, that's our operating assumption, and the gross margin color I give sort of reflects, you know, that type of a, of a revenue projection. Got it. Got it. Well, I had two other questions. One is obviously last year you guys, you did really well outperforming WFE. Typically, you know, component companies tend to underperform WFE during down years. I'm just kind of curious if you think WFE is down, pick a number, 20% or 25%, how to think about your semi revenues relative to where WFE ends up this year? Would you be in line, worse, better than that? Then I had a quick follow-up. Yeah, Krish, I'll jump in here. I think maybe the first thing we should talk about is the fact that AE now is 50% non-semi as well as 50% semiconductor revenue. As we said before, you know, we think the non-semiconductor revenue, we could hold that flattish year and year. That's quite a cushion for us compared to past semiconductor downturns. Within semiconductor, we think we do have pockets of strength. You know, our service business is much larger and stronger than it's been in past downturns. We've got a very good position in ion implant. As you know, there's still a lot of demand for ion implanters out there as people try to address the power IC shortage. We've got a number of new product ramps that are happening, you know, across the application set in semiconductors, which serve to offset to a certain extent, you know, some of the downdraft in the semiconductor. Got it. Got it. Thanks, Steve, for that. Just a final follow-up on the backlog. You know, I think, Paul, you mentioned normalized backlog of $400 million-$500 million. Is it fair to assume you probably get to those levels in a couple of quarters if revenue is going to decline? At that level, is it roughly a 50/50 mix of semi and non-semi? You know, I don't know how long it takes. It kind of depends on the demand environment. You know, we've already seen sort of a, I'll say, a pretty good reset of the semi backlog this quarter. We took out the China demand, and we've adjusted that basically to our customers outlook at this point. If the balance, if you think about where the most of the rest of the backlog is in our industrial and medical areas, which I said despite, you know, kind of, you know, again, near record shipments, that I&M backlog was up again this quarter. It depends a bit of a function on the demand, you know, how well the demand for these other markets continues. We think that looks relatively stable, all things considered. Then our ability to solve critical parts and actually eat into that backlog and bring our lead times down. That's a little bit how we think of it. My sense is it will take a few quarters to roll that down. I doubt that that's gonna get to our target range in a quarter or two. All right. Thanks a lot, Paul. Thanks, Steve. Mm-hmm. Mm-hmm. Thank you. Our next question is from Atif Malik with Citi. Please proceed with your question. Hi. Thanks for taking my questions. Nice execution. First, Steve, if you can talk about what you're seeing on the data center market, and maybe if you have color enterprise versus cloud? We have been hearing about moderation in that market. Your comments and backlog indicate that you're seeing stability in that market. What are you seeing in the data center market? Yeah, it's interesting. We obviously have strong participation in that market. I could say, you know, that we have not seen major changes in demand. In fact, you know, we're still supply constrained in that market. Our customers, you know, in the hyperscale market are constrained by power supply manufacturers like us, quite frankly. What we're seeing is continued pull from the customers, but we're also seeing a transition happening, and it's moving in our favor, basically. We see the move to 48V, it's starting to accelerate. We are the leader there. We were the first, and we still have the best technology for 48V type hyperscale applications. We see a strong move to higher efficiency, as the cost of electricity go up and the environmental concerns become more prominent, you know, we're in a good position because we have the most efficient solutions. Finally, we see a strong move to artificial intelligence, which increases GPU and memory intensity, and it really places a premium on power density, and that's also an area where we excel. I think, you know, over the medium to long term, we're well-positioned to gain share because these technology advantages we have. In the short term, we see demand still being pretty strong, but gated by component availability. Great. A follow-up for Paul. If you can touch on restructuring and are there opportunities for fixed asset optimization as you guys head into a downturn and eventually come out? Are there areas where you can prune some products or businesses to lift up those gross margins? Thank you. Sure. As we announced a plan for restructuring, this is largely around optimizing our footprint and a few targeted reductions around the company. We do think that our goal as part of this isn't just to try to match headcount to some level of production or output, but is actually to improve our footprint. We wanna move products from some of our smaller factories and leverage those around our larger factories. There's areas where we're going to make some investments. As Steve mentioned, we'll expand our newly acquired footprint in Mexico because we think that's an attractive place and gives us some strategic benefit in North America. Our larger factories will continue to optimize those around efficiency and capability. We would expect to come out of this with, you know, I'll say maybe a little bit smaller footprint, certainly from a headcount perspective, but a more efficient one and ability to scale better as we move into the next upturn. Just to address your question about exiting businesses, we have no intention of exiting any business. You know, we had some concerns about the computing and networking businesses a couple of years ago, and I could say we've done a really good job improving the bottom line performance there. So I'm much less concerned than I was two years ago. We've also done a good job refocusing our resources on proprietary opportunities within those market spaces. So between a better job managing our pricing tactically and a better job focusing on higher volume opportunities, I think that business is looking much better. Thanks, Steve. You're welcome. Thank you. Our next question is from Steve Barger with KeyBanc Capital Markets. Please proceed with your question. Thanks. For the expected acceleration of new product wins and design wins this year, do you expect more traction from modified standards or full custom solutions? Can you talk about how those compare just from a time to market and margin perspective? Yeah, Steve. You know, I think it's a combination of both, quite frankly. The important thing is that we're introducing a lot more new platforms, and that's across semiconductor, industrial, and medical, as well as in the high volume areas like data center. What happens with those new platforms, it goes one of two ways. The customer will say, "Hey, this meets our needs, but I need a few changes," and that's a modified standard. Or the customer will say, "You know, you're pretty close, but I need some significant changes, you know. And I'll leverage what you have, but I need this other feature as well." That's more of a custom product. Either way, we're happy with it because at the end of the day, it ends up being a sole source product and a source of revenue for many years to come. Is there a big difference in dollars and margin between the two? Not really. The full custom products tend to go to large customers, so they're higher volume typically, so they require more engineering investment upfront, but then, you know, the volumes and the dollars will be higher with those types of products. The modified standards tend to be more towards small and medium-sized customers. The engineering effort is much less, but the gross margin percentage for both of those products is similar. Got it. You said there's a strong network of distributors and value-added resellers. Are you fully covered in those channels, especially in the newer markets, medical and industrial, in terms of geographies? Can you talk about the mix impact of having more product go through those channels versus direct sales? Yeah. If I look at our position relative to our competitors, you know, I think we have more of a worldwide footprint than most, so we have strong organizations in Asia, Europe, and North America. That said, there's a lot of improvements we could make, and we're doing that. We've held sales conferences in the past year in all regions and really tried to align our internal sales teams with our external partners and make a much more considered effort trying to penetrate industrial medical customers. I have high hopes that we could do a lot better this year and in 2024. Understood. Thanks. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question is from Pavel Molchanov with Raymond James. Please proceed with your question. Thanks for taking the question. Given the macro headwinds on the demand side that, you know, you've outlined today, I'm curious if the M&A landscape in terms of the kind of prospective target-rich environment is, you know, perhaps offering better opportunities now than it was in happier times 12 or 18 months ago? Yeah, I'll take that one, Pavel. You know, we think, the environment today for strategic buyers is better than it was last year or in 2021, so that's a positive. You know, I think, many of the companies that operate in our space have been handicapped from the past two years due to the part shortages. I think some of those shortages are starting to go away, and I think they're probably going to realize this is about as good as it's gonna get, right? There's some demand challenges, but, you know, the financial performance they come up with in 2022, will lead to, I think more reasonable valuations as we engage with those targets. The bottom line answer to your question is, I think it's a more favorable environment and, you know, we'll take advantage of that. From a balance sheet perspective, I think the last two quarters you had, you know, kind of de minimis share buyback and not much M&A recently. You'll be, you know, pretty soon in, you know, sizable net cash position. What are your thoughts on kind of openness to, you know, lever up the balance sheet if needed for the right opportunity? Yeah, you're right, Pavel. We have a good balance sheet. We have net cash again, after a brief time when we were about cash and debt equal. We should generate cash during the downturn here. We're fortunate that we have a very good credit agreement in place that's relatively low cost that we can extend either through a line of credit or through some accordion features that are within it. I think we have capacity if we saw the right opportunity, to be able to use both our balance sheet and our credit position to, you know, to make that acquisition. At the same time, you know, we're gonna balance, make sure that it's the right return. You know, money costs more these days. Also ensure that we don't over-lever the company. We, in general, you know, have a target of not going beyond 3x, our leverage ratio. We would manage all those things to make sure that, you know, we add value through any M&A that we did. Just lastly, a quick point of clarification. With the shutdown of Shenzhen, what is the manufacturing footprint of the company right now? Yeah, it's really three main areas where we have large factories. We still have one in China. We now have a large and very good factory in Malaysia, and we have footprint in the Philippines. We also have, you know, a handful of, we call them kind of boutique factories in different places aligned with local engineering teams for some of the acquisitions we've done over time. Very clear. Thank you, guys. Mm-hmm. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Thank you. There are no further questions at this time. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.