Advanced Energy Industries, Inc. Q3 FY2025 earnings call

• Third quarter revenue and earnings exceeded guidance, driven by record data center revenue which more than doubled year-on-year. Total company revenue increased 24% year-over-year, fourth consecutive quarter of growth.
• Gross margin higher due to faster-than-expected benefits from China factory closure and lower tariff costs. Operating margin improved 220 basis points sequentially, EPS at $1.74, highest since 2022.
• Market diversification strategy is working; selling industry-leading power technologies into various high-end markets generates consistent profits and cash flow.
• New Thailand factory (500,000 square feet) ready to start production, expected to deliver over $1 billion in incremental yearly revenue.
• Strong balance sheet allows pursuit of acquisitions meeting strategic and financial goals.

Third quarter total revenue was $463 million. Semiconductor revenue was $197 million, about flat year-over-year, down 6% sequentially, contributing ~42.55% of total revenue. Data center computing revenue was $172 million, up 113% year-over-year and 21% quarter-over-quarter, contributing ~37.15% of total revenue. Industrial and Medical revenue was $71 million, down 7% from last year but up 4% sequentially, contributing ~15.33% of total revenue. Telecom and Networking revenue was $24 million, up 24% from last year's low, contributing ~5.18% of total revenue.

• Q4 total revenue expected to increase sequentially to approximately $470 million, plus or minus $20 million. Semiconductor revenue expected slightly down, data center computing modestly up, I&M sequential growth, Telecom and Networking slightly up.
• Q4 gross margin between 39% to 40%, non-GAAP earnings per share expected to be $1.75, plus or minus $0.25.
• 2025 total revenue growth outlook raised from 17% to 20%, data center computing revenue growth to more than double 2024 levels, I&M design win pipeline to drive market share gains.

• Dynamic tariff environment, with tariffs expected to increase in Q4 and remain in the 100 basis point range.
• Macro environment uncertainty impacting revenue growth in Industrial and Medical segment.
• Market dynamics and timing of customer shipments affecting revenue projections for various segments.

Q: What constraints were alleviated allowing data center revenue to more than double, when to begin shipping from Thailand facility, and bandwidth for new customers?

A: Constraints were capacity oriented; upped CapEx spending to meet upside forecast. Thailand factory ready to go within months of a go signal; intent to put new customers in, with engineering bandwidth due to reuse of technology blocks.

Q: On data center side, how to think about 3Q and 4Q contribution to '26?

A: Good execution and flexibility in factories allowed capturing higher demand, with goal to continue growing from new baseline, impacted by customer mix shifts.

Q: Semiconductor 3Q lower than anticipated, thoughts on '26?

A: Short-term choppiness normal; more positive signals seen, expecting Q2 onwards upside due to new products and leading-edge/memory market movements.

Q: Evolution of eVoS and eVerest, impact on revenue and share?

A: Multiple early adopters; conductor etch and deposition wins to go to volume next year, dielectric etch wins in '27; these products to drive market share gains.

Q: Data center growth in '26, margin impact?

A: Expect 25%-30% growth; mix plays factor, but goal to continue mitigating impacts and reach 40%+ margins near term.

Q: High-voltage DC solutions, opportunity for AEI?

A: Closely engaged with customers on reliable, efficient, compact 800-volt solutions, starting to go to volume in '27 and '28.

Q: M&A pipeline, priorities?

A: Priorities unchanged; focus on I&M as highly fragmented area, with investments in data center CapEx and development.

Q: Thailand factory ramp, cost and margin impact?

A: Ready to go, with volume materialization and factory utilization managed; some ramp-up costs, but goal to manage within model.

Q: OpEx trends entering '26?

A: OpEx expected to continue increasing ~$2.5 million per quarter, growing no more than 50% of revenue growth, kept in control in '25.