Advanced Energy Industries, Inc. Q4 FY2025 earnings call

• Finished 2025 strongly with fourth-quarter revenue near $490 million, high end of guidance. Strengthening demand in semiconductor, industrial, and medical markets drove outperformance. Data center had another record quarter. Gross margin near 40%, best in 5 years. Earnings per share nearly $2 beat guidance.
• 2025 saw over 20% revenue growth, over 70% earnings per share growth, improved gross and operating margins, record operating cash flow. Diversification strategy, focus on execution, and model leverage were key.
• Grew revenue in two of three target markets. Data center computing revenue more than doubled and increased sequentially each quarter of 2025. Semiconductor revenue grew 6% year on year to second highest level. Industrial medical declined year on year but had three quarters of sequential growth after Q1.
• Maintained solid cadence of 26 new product launches in 2025. Spun off custom products. Received positive feedback on semiconductor technologies. In data center, 2025 wins going into volume production, developing new tech for next-gen AI data centers. In industrial medical, investing in new products, customization, etc., and expect growth in 2026 as inventories are worked through.
• Expanded capacity in The Philippines and Mexico, completed fit-up of Thailand factory expected to deliver over $1 billion in annual revenue-generating capacity once fully built out. Closed last China factory, expanded gross margin by 240 basis points.

In the fourth quarter, semiconductor revenue was $212 million, up 8% from Q3 and ahead of guidance; data center computing revenue was a record $178 million, up 4% sequentially and 101% year over year; industrial medical revenue was $78 million, up 10% sequentially. For 2025, total revenue was $1.8 billion, up 21% year over year. Data center computing revenue more than doubled to $587 million (+1007% year over year). Semiconductor revenue was $840 million, up 6% year over year. Industrial medical revenue decreased 11% full year but improved sequentially after Q1.

• Expect 2026 revenue to grow in the high teens after 21% growth in 2025. Data center revenue projected to grow over 30%. Semiconductor expects strong second half. Industrial medical expects continued growth over next few quarters.
• Gross margin near 40% in Q4, expects to move above 40% in 2026 and reach 43% long term despite tariffs and data center mix.
• 2026 CapEx expected to continue at or around Q4 levels, enabling over $2.5 billion of revenue-generating capacity within existing footprint, with Thailand factory adding over $1 billion more. Longer term, CapEx to revert to historical levels of around 4% of sales once current investments are complete.

• Supply chain constraints, including potential limitations on processors and memory which could impact growth.
• Tariff headwinds which have affected gross margin in the past and could continue to do so.

Q: How is Advanced Energy thinking about semiconductor cap growth this year in relation to industry WFE growth?

A: Steve Kelley said the company is well-positioned with broad acceptance of technologies, large installed base of AE boxes, growing service business, and system power programs ramping in 2026. Expect second half to be stronger.

Q: What is visibility into data center projects with over 30% growth outlook?

A: Steve Kelley said there's upside, but supply side constraints like allocation in processors and memory may limit growth. Putting thumb on scale with inventory to address supply chain weaknesses.

Q: How should we think about revenue mix in the Thailand facility?

A: Steve Kelley said Thailand factory is for high volume, low mix products initially like data center, but will also have plasma power and industrial medical products. Built to accommodate all products.

Q: Will there be ASP uplift in data center supporting 800-volt AI data center rack?

A: Steve Kelley said based on analysis, total dollar opportunity goes up with 800-volt solutions, and their technology makes InterVolt possible in small space, good for business.

Q: Can Advanced Energy support upwards of 50% growth in data center if supply chain delivers?

A: Steve Kelley said built Thailand for business continuity in semiconductor, and inventory is being increased to address part constraints.

Q: What are the puts and takes on gross margin guide?

A: Paul Oldham said gross margins increased this quarter, overcame tariff headwind, and see opportunities to improve by continuing to improve manufacturing efficiency, with long-term goal of 43% gross margin.

Q: How much did new products like Evos and NavX contribute in 2025?

A: Paul Oldham said new products had double-digit million revenue, early in pilot or production stage, expect higher revenues in 2026 as production ramps for next-gen nodes.

Q: How active is the M&A pipeline?

A: Steve Kelley said pipeline is active, did acquisition of Arity which helped new products, and optimistic about opportunities in industrial medical as market normalizes.

Q: What are gating factors for second wave data center customers' ramps?

A: Steve Kelley said second wave customers require less engineering, but supply constraints like processors and memory may impact ramps.

Q: Will Advanced Energy outperform industrial and medical market growth?

A: Steve Kelley said due to investments in new product development, digital marketing, etc., creating healthy design win pipeline, positioned to outgrow the market in 2026 and beyond.

Q: Is operating expenses goal still doable with Thailand coming online?

A: Paul Oldham said Thailand costs are mostly in cost of sales, OpEx projected to grow through the year, but can accommodate outfit of Thailand within operating expense envelope.

Q: Will Advanced Energy grow faster than semi equipment market?

A: Steve Kelley said look at longer time frame, and compared to peers, Advanced Energy is growing significantly faster than WFE market, though there are tactical variations year to year.

Q: What sort of increase in inventory should be expected?

A: Paul Oldham said inventory turns may decrease slightly at beginning of year but recapture as revenues grow, focusing on strategic parts to support customer ramps.