Greetings! Welcome to Advanced Energy's second quarter 2024 earnings call. This time, all participants will be in listen-only mode. Question and answer session will follow the formal presentation. If anyone should require operator assistance during today's conference, please press star zero from your telephone keypad. Please note, this conference is being recorded. I'll now turn the conference over to Edwin Mok, Vice President of Strategic Marketing and investor relations. Mr. Mok, you may now begin. Thank you, operator. Good afternoon, everyone. Welcome to Advanced Energy's second quarter 2024 earnings conference call. With me today are Steve Kelley, our President and CEO, and Paul Oldham, our Executive Vice President and CFO. You can find our earnings press release and presentation 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, July 30, 2024, and the company assume no obligation to update them. Any targets beyond the current quarter 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 and asset impairment charges, 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. Good afternoon, everyone, and thanks for joining the call. Second quarter revenue and earnings per share exceeded our guidance. Strong demand in the data center market, as well as a pull-in of demand in the semiconductor market, drove sequential revenue growth of 11%. Data center revenue grew 74% sequentially, as we benefited from strong investments in AI. Our high efficiency, high power density products are well suited for AI servers, which require significantly more power than conventional servers. In industrial and medical, revenue was down slightly as customers continued to work through pockets of inventory. However, distribution sell-through of our industrial medical products increased in the second quarter. Since roughly half of our I&M business goes through the channel, this is an encouraging data point and could indicate that we are close to reaching a bottom in the I&M market. Design activity is extremely robust across our product portfolio. We are working intensively with a wide variety of customers to integrate our precision power products into their leading-edge systems. Our healthy design win pipeline is expected to drive profitable revenue growth and share gain as markets recover. To accelerate innovation across multiple markets, we acquired Airity Technologies. Airity is an innovator in high-voltage power with a focus on efficient, high-density, gallium nitride-based solutions. Prior to the acquisition, we worked closely with Airity on several joint development projects and feel very good about the technology and talent that Airity brings to Advanced Energy. In operations, we are taking advantage of reduced factory loading to accelerate our consolidation efforts. At the macro level, we are reducing our factory footprint in China, the U.S., and Europe, while upgrading our factories in Malaysia, the Philippines, and Mexico. Overall, we believe our factory actions will enhance operational productivity, lower fixed costs, and improve product quality. The consolidation effort is a key part of our plan to cross the 40% gross margin threshold in 2025. In the short term, we are operating in a dynamic market environment where forecasting can be a challenge. Because it's important for us to respond quickly to sudden changes in customer demand, we are maintaining staffing levels and strategic inventory, which give us added flexibility. Now, let me provide some color on each of our markets. Second quarter semiconductor revenue increased 5% sequentially and exceeded our projections. Based on customer requests, we accelerated some deliveries into the second quarter. We believe that these expedites were largely due to increased AI demand. On the new product front, we are working closely with our key customers to qualify the eVoS and eVerest platforms for next-generation etch and deposition processes. This qualification activity will migrate from development labs to wafer fabs over the next few quarters. We are expediting delivery schedules to meet this strong demand, and now expect to ship more than 200 systems before year-end. We believe that acceptance of these new platforms will drive share gains in both logic and memory applications. At SEMICON West, we launched the NavX RF Matching Network, which pairs directly with our eVerest RF generator. The combination features differentiated pulsing capabilities, which enable our customers to deliver best-in-class etch and deposition performance at advanced process nodes. Initial customer feedback has been quite positive, and we expect to have up to 50 NavX units in the field by year-end. Industrial and medical designing activity is very strong, with multiple wins recorded in the second quarter across a wide range of industrial applications, including glass coating, test and measurement, and battery production. In medical, we secured important slots in diagnostic and therapeutic applications, including wins in surgical robot systems at four different customers. Many of these wins are enabled by the modularity of our latest technology platforms, which enables quick customization to meet specific application needs. Finally, our new website is popular with industrial and medical customers. Web traffic has tripled over the past year, and an increasing number of website inquiries are turning into design wins. In data center computing, our revenue upside was driven by strong demand from both hyperscale and enterprise customers, mainly for AI applications. We continue to believe that increased AI demand will drive robust revenue levels for several quarters. During the quarter, we won a major AI-related design at a leading hyperscale customer and expect to begin ramping that win to production later this year. Telecom and networking revenue increased slightly quarter-over-quarter. We expect market conditions to remain soft over the next few quarters, given high customer inventory levels and a slow recovery in demand. Now for some closing thoughts. This year is playing out roughly as planned. We still expect revenue levels to be higher in the second half than the first half, even after some revenue pull-ins into the second quarter. In Semiconductor, we expect 2024 revenue to be similar to 2023, and second half revenue to be better than first half. In Data Center, we expect third and fourth quarter revenue to be higher than second quarter revenue, driving year-on-year growth. In Industrial and Medical, we expect that revenue will remain under pressure through the third quarter and into the fourth, as channel and OEM inventories gradually return to normal levels. Looking beyond 2024, we are confident in our ability to drive profitable revenue growth. As new design wins ramp to volume, we expect to benefit from a richer product mix. In addition, the cost benefits of our factory consolidation effort will begin to flow through our PL later this year and continue into 2025. Finally, we expect improved market conditions will drive higher revenue and utilization moving forward. Long term, however, the most important factor driving our growth will be how our customers view Advanced Energy. At SEMICON West, earlier this month, I had the opportunity to meet with nearly all of our major semiconductor customers. As a group, they are enthusiastic about how we are bringing new products to market. Development time for eVerest and eVoS's derivative products is now measured in weeks, enabled by our modular architecture. A few weeks ago, we received a top three supplier award from one of our largest data center customers. This was very meaningful for us, since we were top three out of more than 1,000 suppliers. The award called out our operational execution, high quality, innovative design, and management commitment. Finally, we are receiving positive feedback from our major distributors, who are key partners in our drive to gain industrial and medical share. They feel that AE has become an easier company to do business with and are steering more business our way. With that, I'd like to turn it over to Paul, who will provide more detailed financial information. Thank you, Steve, and good afternoon, everyone. Second quarter revenue increased 11% sequentially to $365 million, ahead of our guidance of $350 million, driven by strengthening demand in the data center computing market and pull forward of demand in semiconductor.... Gross margin was up slightly quarter-over-quarter, and operating margins improved 270 basis points as we continued to manage our cost structure closely. As a result, we delivered earnings of $0.85 per share, above our guidance of $0.73. Overall, 2024 is playing out as we anticipated, with full year revenues and earnings expected to be in line with or better than what we communicated last quarter. As Steve mentioned, we are leveraging the current environment to accelerate our plans to consolidate our manufacturing sites. We now plan to fully close our last production site in China, with final production completing in the first half of 2025. Although this action will result in higher transition costs in 2024, it will enable us to further lower our fixed cost structure and increases our confidence to achieve and sustain gross margins of over 40%. Now let's review our financial results in more detail. Total revenue was $365 million, up 11% sequentially, but down 12% year- over- year. Revenue in the semiconductor market was $188 million, up 5% sequentially and 9% over last year. Solid execution to meet customer needs enabled us to deliver results above our guidance. Service revenue was roughly flat from last quarter. Industrial and medical revenue of $79 million decreased 5% sequentially and 38% from last year's record levels, due to continued inventory destocking at both OEMs and distributors. Data center computing revenue was $73 million, up 74% quarter-over-quarter and 24% year-over-year, well ahead of our guidance. The upside was mainly driven by a strong demand for AI server power solutions from both our hyperscale and enterprise customers. Telecom and networking revenue was $25 million and increased slightly quarter-over-quarter. Gross margin was 35.3%, up 20 basis points sequentially and slightly better than our guidance. Gross margins benefited from higher volume, which more than offset the anticipated impact of less favorable mix. Operating expenses were $95 million, up $1.6 million from last quarter on higher R&D to support our customer qualifications of our new platforms. Operating income for the quarter was $34 million. Depreciation was $10 million, and our adjusted EBITDA was $44 million. Other income of $4 million decreased sequentially, primarily due to lower interest income. With our interest rate swap expiring in early September, we expect other income to be around $3 million for Q3 and $1 million for Q4. For Q2, our non-GAAP tax rate was 15.9%, below our target of 17%-18% due to geographic mix of earnings and favorable discrete items. We expect the tax rate to be 16%-17% for the balance of the year. For 2025, we expect the full adoption of the global minimum tax regime to increase our tax rate to 18%-19%. Second quarter EPS was $0.85 per share, compared to $0.58 per share in the previous quarter and $1.11 per share a year ago. Turning now to the balance sheet. Total cash and cash equivalents at the end of the second quarter were $986 million, with net cash of $79 million. The sequentially lower cash balance was partially due to the Airity acquisition, which closed on June twentieth. Cash flow from continuing operations was $7 million, primarily on higher inventory and annual tax payments made in the quarter. Inventory increased $22 million or 6% sequentially, driven by strategic inventory investments and higher revenue. Turns improved slightly to 2.5x. DSO decreased slightly to 65 days, but receivables increased by $15 million on higher revenue. DPO increased 2 days to 60 days. During the second quarter, we invested $14.8 million in CapEx, and we continue to expect 2024 CapEx to be approximately 4% of sales. We also made debt principal payments of $5 million and paid $3.8 million in dividends. As noted earlier, this quarter, we acquired Airity Technologies, providing us with new capability for high density, high voltage power applications. We paid net cash of approximately $13.8 million, excluding customary indemnity holdbacks, and issued approximately 144,000 shares over a 3-year period to retain the critical talent in the organization. Turning now to our guidance. We expect third quarter revenue to be up slightly from Q2 on continued strengthening in data center computing. We expect semiconductor to be roughly flat despite a higher Q2, and industrial and medical and telecom and networking to remain at similar levels quarter over quarter. As a result, we're forecasting our third quarter revenue to be approximately $370 million ±$20 million. We expect gross margins in the third quarter to improve to around 36%, mainly driven by the initial benefits of our manufacturing consolidation activities and lower material premiums. As noted last quarter, we expect operating expenses to increase by $1 million-$2 million sequentially to support new product activities and higher variable costs. As a result, we expect Q3 non-GAAP earnings per share to be $0.90 ±$0.25. In addition, we expect to recognize $25 million-$30 million, mainly in the third quarter, in one-time severance and other exit costs related to the closing of our last factory in China. Before opening it up for questions, I want to highlight a few important points. We expect 2024 results to be in line with or slightly better than what we communicated last quarter. We continue to expect semiconductor to be up in the second half and flattish for the year. AI investment is driving strength in data center computing, which should continue for several quarters. We expect that customer inventory destocking will continue to impact industrial and medical through Q3 and into Q4. Telecom and networking appears to have stabilized in the low $20 million range for the next few quarters. Finally, we expect gross margins to increase as we execute our manufacturing cost optimization plans and volumes improve. With the closure of our last China production plant, we expect slightly higher transition costs over the next couple of quarters, but we will be in a stronger position to meet our long-term gross margin goals as markets recover in 2025. Beyond the near term, we have multiple drivers supporting revenue growth. We believe our new products and design wins are creating opportunities for share gain as volume production begins to ramp in 2025. These new products, combined with an improving market environment and normalization of customer inventory levels, should translate to solid growth next year. By investing prudently to enable long-term growth and scale, we expect to deliver leverage in our operating model and accelerated earnings growth. Finally, we have an active pipeline of potential acquisitions. We are targeting acquisitions that align with our strategy and are committed to financial discipline to create shareholder value over time. With that, we'll take your questions. Operator? Thank you. We'll now be conducting a question-and-answer session. If you'd like to ask a question at this time, please press star one from your telephone keypad. A confirmation tone will indicate 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 that are 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. Thank you. And our first question is from the line of Joe Quatrochi with Wells Fargo. Please proceed with your questions. Yeah, 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 in the channel inventory? Based on your guide, it seems like maybe revenue is gonna stabilize kind of in this current level. And how do we think about the trajectory, you know, beyond that and looking into 2025? Yeah, Joe, this is Steve. I'd be happy to answer that question. Maybe just go back to Q4 of 2023. That's when we started to see the correction in industrial medical. So we're about 10 months into the correction, and so what we do is we track the inventory and distribution very closely. We track the sell in to distribution, we track the sell through, and then we track inventory. So the good news is, inventory is steadily declining in the distributor channel. Resales were up in Q2 after a sharp decline in Q1. And as we look at the trend lines, these metrics, we think that we reach a supply-demand balance somewhere in the Q4 2024 or Q1 2025 time frame. So we're getting close. And I think it's a good, it's a good indicator for us because roughly half of our INM business goes through distribution. So that's, that's what I think. I think 2025 is gonna be a decent year, based on the fact that we have a very strong design win pipeline in both industrial and medical. And so I think a lot of those designs are gonna ramp into production next year. Got it. That's helpful. And as a follow-up, you know, as we're thinking about, you know, the recovery and 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 Q4 of trying to get back to, I think, 37.5%-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 INM, how do we balance that from a gross margin perspective? Do you? Is that revenue level to reach that kind of range of gross margin, still the right way to think about it? Yeah, we commented on this last time, and I think generally that's right. Around $400 million, we're gonna be in that range we discussed last time. I think there's a few variables. Obviously, mix can affect it a little bit. You know, higher data center or our high-volume product revenue would be a little bit negative mix for that. We saw that a little bit both this quarter and the reverse of that in Q1. But in general, though, the gross margin on those products has come up over time as we've, you know, implemented our strategy and focused more on the differentiated part of this market. The impact of mix on our products might be in the 50-75 basis points if you saw something that was, you know, heavily balanced one way or the other. So there could be a little headwinds from mix, you know, around that level, but I think, you know, we'll show good progress. The other thing is that we announced, of course, that we're gonna fully close our remaining production site in China, which it will be a good thing. It actually allows us to get more fixed cost out of the equation. It gives us, you know, better leverage as markets recover because of that. It will cause a little bit of headwinds, but those aren't significant. It'll cause a little bit of headwinds because we'll carry a little extra cost as we ramp up, basically, other sites to carry that last bit of production that will be coming out of China. So on balance, we expect margins to improve through Q3 and Q4. I think in general, the model that we gave last time is in the right neighborhood, and there could be, you know, some benefits if, you know, if semi's a little stronger, we may have a little bit of headwinds, and then depending on where revenue ultimately comes in in Q4, I think that could help us or it could be a little lower. In general, we're on track, we believe, to get to our over 40% gross margins, roughly by middle of next year, assuming markets recover, as we've discussed. All of our sort of factory actions should largely be completed by that time. I think we'll have a cleaner, fixed cost structure, which will give us, you know, again, more leverage as revenues grow from that point. And we feel good about the progress that we're making. Helpful. Thank you. Yep. Our next question is from the line of Jim Ricchiuti with Needham & Company. Please proceed with your question. Hi, thanks. Good afternoon. Question on the data center business. In terms of visibility, how far does it extend? Does it go extend beyond Q4? You gave some directional guidance on that. Yeah, Jim, this is Steve. Yeah, the hyperscale business, it's interesting. It's a, it's a cyclical business, so we've gone through a few of these cycles. And what we've seen every time is after a period of inventory digestion, the market is strong for typically 4-5 quarters. So, right now, we believe that the momentum in hyperscale will take us through at least Q1, if not Q2 of next year. At the same time, we're gaining market share in some of these AI applications. So, we think hyperscale is gonna stay strong, perhaps for most of 2025. Okay, thanks, Steve. That win that you highlighted, does that hyperscale customer for that AI design contribute meaningfully in Q4, or is that more, you know, initial revenues and then it scales in early 2025? I think the best way to view that, that win is probably as a replacement for, for older, technologies that are phasing out. So this is a pretty fast life cycle market. Typically these technologies, ramp and then decline within the space of a couple of years. But this is an important one because it's, it's associated with artificial intelligence. And so typically, we, we have roughly 50%-60% more dollar content in those racks than we do with conventional server racks. So as we move forward, we're gonna see more and more of these, AI-type applications in hyperscale. And, it's important for us because, you know, many of our, our differentiators, really come into play, as the power levels go up. The AI servers consume a lot of power, typically 3-5 times the power consumption of conventional server racks. Our efficiency becomes very important to customers. Our power density, you know, the ability to put a lot more power into roughly the same size box, become extremely important to our customers. Uh- And typically, Jim, just quickly, typically, as I said before, as we're winning these applications, they're typically better margin than our historical margins in this market. So I think it contributes positively. I appreciate that color, both of you on that. Just the final question for me is just on the, the pull-ins that you, you alluded to. Don't know if you can quantify that or, and say whether that, you know, which area did that come from, memory, or, yeah, any color on some of those pull-ins? I think we commented that I think there's kind of a pull across the board from an AI perspective, so I think it's for some of the, some of the applications that would support that. You know, it's hard for us to assess exactly, you know, the timing of these things, Jim, but we definitely saw some customers accelerate activity into the second quarter, and we'll see, we'll see the carry-through on that. Obviously, we still feel that our semi, you know, our product selling into semi, overall will be up in the second half still, despite that pull-in and, you know, flattish, you know, for the full year. So we'll see how that carries through, but definitely we saw some acceleration from a couple customers. Okay. Thanks a lot. Our next question is from the line of Krishna Sankar with TD Cowen. Krish, proceed with your questions. Yeah, thanks for taking my question. I had three quick questions. First one is for you, Paul. You gave some color on the $400 million loan rate. I'm kind of curious, so are you willing to underwrite that $400 million loan rate in the full queue?... and the 37.5%-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 if so, how to think about the run rate and how it correlates into calendar 2025 for revenue and gross margin. And then I have two other questions. Thank you. Yeah, it's a good, it's a good question. You know, last quarter, we talked about, you know, some estimates for the fourth quarter, largely trying to get to an annual number. We also said at the time, it's hard to handicap each of the quarters other than that, we expected each quarter to grow from the previous quarter. So at this point, you know, I, you know, one, we don't typically guide more than a quarter out. Secondly, we still feel good about the full year to be the same or better, and we expect Q4 to be higher. You know, how exactly that will play out between Q3 and Q4, you know, I think is a little bit yet to be seen, you know, particularly given, you know, the dynamics that Steve discussed in industrial and medical. So, I think, again, we feel good about kind of the implications of being around $400 million from a margin perspective. I think the structural elements are there. Things that could affect that a little bit, plus or minus, are gonna be mix, a little bit of headwinds related to higher transition costs related to closing our Zhongshan plant, but that'll be a net positive in the long run. Got it. Got it. Thanks for that, Paul. And then, Steve, you know, I'm kind of curious on kind of like the cycle. How do you see the shape of the recovery? You know, clearly, it's not a V-shaped recovery, yet there's a lot of optimism on next year. I'm kind of curious, what do you think are the drivers? And also, is there a way to figure out at what quarter would that inflection happen, to see the cyclical recovery, or is that really tough to prognosticate? Yeah, Krish, let me just ask a clarifying question because you're kind of coming in and out. Were you talking about AE as a whole or semiconductor only? On the semiconductor side of AE. Okay. Yeah, semiconductor. Okay, so what we're seeing is a gradual recovery in 2025. You know, I think we've been dealing with two issues in semiconductor over the past year and a half. The first is obviously demand inflection, but the other issue has been inventory. So I think the good news is, we think we've just about worked through the inventory issues downstream, and we think we'll be completely out of the inventory issues by the end of this year. So 2025 will be, you know, fully connected with end customer demand without any inventory influences. What we see in 2025 is an acceleration in the second half, in particular, because we believe a lot of these units, these eVoS and eVerest units we're shipping into our customer development labs and ultimately into wafer fabs this year, we're gonna see a ramp on those products as early as the second half of next year. And so basically two things together. The first is the market gradually recovering, but we see an acceleration based on our market share gains in plasma power. 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 conductor etch. Is there a way to size the opportunity, for example, like, you know, your, your customers have spoken about how much dollar it is for 100,000 wafer start a month. Is there a way to kind of figure out what Advanced Energy opportunity is with this gate-all-around conductor etch, for every 100,000 wafer starts or whatever metric you want to use? Thank you. You know, I wish there was, but right now, we don't have that formula. So what we're doing is, you know, pushing full speed ahead on both conductor etch and dielectric etch, 'cause we think our technology now is a good fit for both applications. So we think in the current course and speed, that we can increase our share in conductor etch, where we're already the leader, and we also break into dielectric etch in a big way. So that goes from, you know, almost nothing to a significant percentage over the next few years. Thanks, Steve. Our next question is from the line of Steve Barger with KeyBanc Capital Markets. Please receive your question. 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? Yeah, I think, you know, our math shows, you know, flattish in Q3 would be an up quarter in Q4 if you just went to a completely flat year. Obviously, we said flattish. You know, with the dynamics in the market, there's pluses and minuses. If we have a slow recovery, that could be a little bit better. If we, you know, things push out, we'd still feel good about, you know, kind of seeing some growth in the second half of this year. So I think, Steve, just checking that, you know, we feel like it is up half in the second half, and Q4 would be higher than Q3 as we see it today, assuming Q3 is flattish with Q2. Remember, Q2 was higher. So all of that- Yeah, I understand. - That commentary is on a higher base, right? It's on a higher base, but it kind of implies, even if you're up a little bit in 4Q, it's kind of a flattish trend in the last three quarters of the year, right? So I'm just trying to... So but you expect a more linear acceleration in 2025, if I'm hearing you right? ... Yeah, I think that's right. That's based on a gradual market recovery as different parts of the market recover better in the second half, as Steve described, because of kind of the ramp of some of these new technologies. The only thing I'd say, Steve, is, look, the one thing we know about this market is that we don't know. And historically, when the semi market recovers, it recovers quickly, and it's hard to predict the timing of that. So at this point, we're trying to plan, you know, prudently, at the same time, make sure that we have, you know, the inventory and people available to respond quickly to customer needs. Frankly, we were able to do that this quarter because we were prepared, and we're able to accelerate some shipments in from a couple of customers. So we'll continue to be prepared and then monitor how the market goes. 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? I wouldn't call it a tight relationship. You know, as I view the market, you know, I think it's important to figure out when you went into the supply chain crisis and when you came out of it, right? And then that kind of determines when you reach equilibrium again. And so for us, in, in INM, Industrial Medical, we came out of that supply chain crisis in Q4 last year, so we're, we're 10 months into it. That's why I think we're gonna be out of it in Q4 of this year or Q1 of next year. Seems like a reasonable amount of time, and the trends support that thesis. You know, I think in semiconductor, it's been, you know, it's been a year and a half now, right? I think the industry went negative in Q1 of 2023. And so I think, you know, we're seeing a point here towards the end of this year where things will probably turn around again. So, you know, I think, like Paul said, it's a best guess, but it's based on historical data, it's based on trends that we're seeing. And, you know, we're not that great at forecasting downturns or upturns, but they do tend to be a little sharper both ways than we first estimated. Understood. Thanks. Our next question is from the line of Mehdi Hosseini with SIG. Mehdi, your question. Yes, thanks for taking my question. This is for the team. I'm trying to understand your readiness and to what extent can you support customer 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. Mehdi, I'll, I'll start, and I think Paul will finish this one. But in semi, a significant part of our business goes through inventory hubs or just-in-time operations. So we don't really have much of a backlog, but what we do is we, you know, we track the size of the bins that our customers specify, and obviously, if as their business picks up, they want more from us, they pull more from those inventory hubs. I think in the INM business, the industrial medical side, which is not your question, but I'll make a comment anyway. You know, I think the backlog is more significant, but again, it's different than the past few years because the lead times are much shorter today. They're typically anywhere between 8-12 weeks, and in past years, they've been up to a year, right? And so our visibility is pretty short term in industrial medical today, so that forces us to make some bets and put some inventory in place so we can react quickly. Yeah, I think, I think maybe to expand on that, Mehdi, I think the question is, is how fast is the recovery? You know, if it's a sharp recovery, then it's more challenging. Having said that, we've invested in strategic inventory, particularly on some of the challenging or long lead parts, so that you can respond quickly, and we've made sure we've kept adequate workforce to respond quickly. So it'll depend on the pace. Certainly, we have the capacity to be at the prior peak or higher, no question about that. And we're trying to. The goal is to manage our material strategy so that we can be pretty responsive to changes in demand. Sure. Thank you. As you can imagine, we can never predict the shape of the recovery or downturn. It was only two years ago that your OEM customers couldn't get enough, and then after two 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 your learnings over the past couple of years to be able to adjust. Given the fact that back in SEMICON, everybody is positive about the prospect of growth in 2025, but nobody is planning for it, and I'm just trying to determine your readiness. I wonder if you have any follow-up before I move on to my second question? ... Yeah, I would say that's a pretty important topic for us, and our customers, right? And we all acknowledge that, these upturns are fast and furious, essentially. And so what we've done is put in place some strategic inventory of piece parts in particular. Because, you know, one thing we do know, based on the past few years is which of the piece parts are most problematic, right? So the ones we haven't replaced with alternatives, you know, we've taken some insurance in the form of strategic inventory, so we can respond to a quick upside. The second aspect is staffing. So we could have certainly cut back more in our factories, given the current loading, but we chose not to, because, what we see is, you know, quite a bit of demand comes in late in the quarter, and so we have to flex up, typically in the last month and a half of the quarter. Got it. Thank you for trying. And then, Paul, you talked about some increase in OpEx. Would 2- to 4-quarter increase per quarter, especially looking into 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 $2 million. Should I assume that you're done with the investment, especially with resizing, and next year, your CapEx would actually be down on a year-over-year basis? Yeah, so on OpEx, I think we said last time we expected OpEx to be up $1 million-$2 million, you know, each quarter sequentially through the end of this year. I think that's consistent with the guide we gave again this quarter. You know, next year, you know, certainly we have normal merit and inflation cycles, but in general, you know, our base operating cost structure, you know, should stay pretty level. So we'll have, you know, variable costs that go with that. Very selective hiring is all, and normal inflation. So that's a little bit how you should think of it. In general, we expect to grow revenue, you know, at half the rate... I'm sorry, grow expenses at half the rate of sales growth. Now, if sales grows, you know, quite quickly, again, we don't need to scale up. We can get a lot of leverage out of our, out of our expense structure. From a capital perspective, we are running ahead because we're doing these factory transitions. We're investing in NPI tools and capability with our new products coming, and we have some infrastructure investments we're making in, in systems and tools, as we've talked about. So I think these largely conclude sort of the middle-ish to late next year. So, you know, certainly as you go out in time, you know, 12 to 18 months, we'd expect to see our CapEx revert back towards the, you know, kind of a 2%-3%, rather than a 4% of, of revenue. Thank you, guys. Mm-hmm. Thank you. As a reminder, to ask a question today, you may press star one. Our next question is from the line of Scott Graham with Seaport Research. Please proceed with your question. Yes. Hey, 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, you know, is that a business where we're at a level of revenue now where maybe, you know, we're thinking strategically, it doesn't make sense? Or are we thinking that there's gonna be a big pop in this thing at some point, and we're gonna kind of get back? I mean, you know, the sales of the business are, you know, more than 40% down. And I just, you know, kind of wondering what your longer-term thinking on this thing is. Can this pop back up? Yeah, I think you've captured the dynamics pretty well. For a while, we've said that this market isn't one that has a lot of growth. It's kind of a sustained business. We did see a pretty big ramp the last couple of years, big coming out of the supply chain crisis, so it's down a lot, but it was up a lot. Both of those I think were kind of unusual. So it is getting back towards a bottom now, you know, and a steady state might be a little higher than this. But look, in this market, like others, we have some marquee customers. We have some places where we can focus, where we think we make reasonable returns. And all of these markets, they have a lot in common. We share common architecture, common products, common manufacturing, so it's not something that's easy to sort of carve out. Rather, we're able to capitalize on kind of the whole, to have a reasonable business. It's not one we want to grow a lot or think we can because of both the market and, you know, again, focusing on where we think the returns are reasonable. But it's - I wouldn't say we strategically would expect to divest of this product. Thank you for answering that so succinctly. The data centers business, you know, Steve, you indicated it'll should be up strongly the next couple quarters. I guess I'm just wondering, why not longer? Maybe not at the pace of this past quarter, but is it the... Are your customers saying something that are, that is giving you, you know, a little bit of hesitancy to not go beyond the next couple quarters? Is there... I'm just wondering, because I believe that, look, every is saying that this market is going to be growing fairly strongly for the next, you know, several years, as in 3 to 5 type thing. So I'm just wondering why you limited your comment to the next couple quarters? ... Yeah, let me just clarify. We think data center is going to be strong into 2025. And I think you're right, long-term trends are very positive. I mean, more and more data generation, storage, transmission, so it's nowhere to go but up over time. But this is a cyclical market, and so typically after a digestion period, which we just exited, Q1 of this year, you know, we're going to have at least 4-5 quarters of really strong revenue. And so, you know, that's about as much as we're willing to forecast right now. But, you know, I think given the trends towards AI and some of our market share gains in specialty areas within hyperscale, you know, there's a chance we could sustain this type of revenue level, you know, through 2025. But I'm not going to venture right now and say that we will for certain. Okay, thank you. That was great. I just maybe want to go back and revisit the answer to a previous question when I think Tim was trying to unbundle the growth in the semiconductor market or somebody else. I'm just curious as to, you know, aside from sort of the pull forward that you're talking about, logic versus memory, I mean, any more color you can give on give in your business, maybe again, away from that pull forward, you know, why it feels like you're a little bit more optimistic there? Yeah, you know, I think it's difficult for me to add too much to the market commentary that's already out there. There's a lot of prognosticators who forecast what's happening in NAND and DRAM and Logic and so forth. But what I can say is that, with our new technologies, eVoS and eVerest, and now NavX, which was just introduced, earlier this month at SEMICON West, we are working very closely with our customers to secure tool of record status on the leading-edge memory and leading-edge logic processes. So this is very, very important. And we mentioned it during the scripted part of the call. But let me just repeat. You know, today, we have orders for over 200 of these eVoS and eVerest products, this year, right? And so we're hustling to deliver these products to our customers, and in turn, they're working with their customers to get these technologies qualified, in wafer fabs and in production as soon as the second half of next year. So we see, you know, some trends that are very favorable for Advanced Energy. Some of those are connected to market growth next year, but some are independent because it enables us to gain share, particularly in leading edge. That's great. Thanks, Steve. Thank you. Our next question is from the line of Mark Miller with Benchmark. Please proceed with your question. Just wondering if you could quantify the effect of lower factory loading on your margins? I think you said lower factory loading. Is that right, Mark? Mm-hmm. Okay. That's correct. That's That's correct. Yeah. What we've said, maybe the reverse of that, is that we think that there's roughly 50 basis points of margin improvement... I'm sorry, 100 basis points of margin improvement for roughly every $50 million of incremental revenue. So you could certainly anticipate that on the, on the downside as well. That's been the biggest contributor recently, why we haven't seen a pickup in margins as material costs got better, is because revenues have been lower. So I think that's the way to think about it, Mark. 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? Again, there's not really a backlog concept in semi because so many of our customers pull from JIT bins. But generally, we think that the inventory rationalization, we're largely through that, and that we're generally shipping, you know, kind of at demand, demand levels, particularly as we go through the balance of the year. And that this market will bounce around here and should trend up over time. It's hard to call that, you know, in the very near term, but we feel really good about, you know, all these markets have been in a downturn for a while, and we have a great set of new products coming that should accelerate growth as things recover. Thank you. Yep. Thank you. This will conclude our question and answer session. This will also conclude today's conference. Thank you for your participation. You may now disconnect your lines and have a wonderful day.