Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2019 Advanced Energy Industries earnings Conference call.
At this time all participants are no listen only mode. After the speaker presentation, there will be a question answer session.
The question during the session do you want me to press Star one on your telephone.
If your part any further systems. Please press star Zero I would now like they have the conference over to your speaker today, Edwin Mok, Vice President strategic marketing and Investor Relations. Please go ahead Sir.
Thank you operator, good morning, everyone welcome to advance Energys third quarter 2019 earnings conference call with me today, our Yuval Wasserman, <unk>, President and CEO , Oldham, our executive Vice President and CFO and Brian Smith Director of Investor Relations.
If you have not seen no earnings press release, you can find it on now website at <unk> thought at the end and dash and the G. Dotcom, Yeah, you ought to find a slide presentation to fall along all discussion today.
Let me remind you that today's call contains forward looking statement, which are subject to risks and uncertainties that could cause actual results to differ materially and are not guarantees for future performance.
Information concerning these risks and uncertainties in the <unk> filings with the FCC.
All forward looking statements all its based on managements estimates projections and assumption that's up today November 12, 2019, and the company assumes no obligation to update them.
Long term targets and that ratio goes presented today should not be interpreted in any respect EPS guidance.
Today's call also include bands and that he is non-GAAP financial measures and explanation of these measures. That's was reconciliations between GAAP and non-GAAP measures are contained in our press release and all presentation.
Before I pass the call to evolve I like the goal for two housekeeping items.
Yes, he will be hosting an analyst day on Monday December 16th in New York City, well welcome all of you to join US at this event, where you will learn more about all market opportunities.
Brad used to outgrow our markets and does diary earnings growth.
An additional details on artisan.
Additionally, with the acquisition of artisan embedded power, we have reclassified all revenue breakdown into full market verticals, which better with likes to broaden exposure overall business all comments today will reflect the strange.
Detail on these market verticals can be found in today's.
Third quarter 2019, 10-Q filing.
In today's earnings press release, you can also find the reconciliations above historical data between the old and new market verticals.
With that let me pass the call to all President and CEO , you've all Watson.
Paul.
Thank you Edwin good morning, everyone and thank you for joining us on this call.
Adventure and that you deliver strong financial results in its own in the third quarter with organic revenue and earnings exceeding the high end of our guidance ranges.
Despite the challenging macroeconomic environment, we saw improved market conditions for semiconductor equipment. The successful ramp of several new designs. We previously secured introduction of new innovative technologies and strong operational execution by our team.
Lastly.
We closed the acquisition of artisan embedded power ahead of schedule, which contributed additional revenue and earnings and accelerate our growth as a premier provider power electronic solutions.
Let me start with partisan.
The acquisition closed on September 10, and contributed $41 million in revenue and seven cents per share in non-GAAP earnings accretion to Q3 results.
We are pleased to welcome the artisan employees into the eight eat family.
We had begun executing our integration plans shutting on day, one and it is progressing well.
We are being we are building integrated functional organization to enable efficiencies and increased focus on the application spaces with Sir.
The advantages of our combined company both on the top and bottom lines are significant.
We're extremely excited.
How about the opportunities for the combined company to create a platform for accelerated growth in both revenues and earnings.
Execute our integration strategy.
Turning now to our markets and performance in that sort of core.
In semiconductor equipment investments in both foundry logic and equipment spending out of China increased in Q3.
Demand for our products strengthened over the course of the core and coupled with a new designs contributing incremental revenues or semi product sales surpassed our original out.
As expected semi service revenues was down modestly from Q2.
Due to low fives utilization in some regions, partially offset by good execution by our service team to grow higher value programs.
As we look forward to the fourth quarter, we see continued strength in foundry logic in a pickup in memory spending as well as an end to the OEM inventory drawdown.
As a result, we expect organic semi revenue in the second half of 2019 to grow versus the first half with semi product revenue growing at high teens and service revenue remaining flat half over half.
As a company dedicated to customer success through technical excellence. We're very pleased to have received a supplier Excellence award this quarter from Lam research.
The answer would recognize are highly collaborative engagement with our customers as we deliver innovative solutions and industry, leading performance in quality and service.
Through this sammy downturn, our OEM customers have accelerated the roadmaps for developing next generation processing equipment that comes with higher content in a more complex power requirements.
Advanced energy is meeting these challenges with winning power solutions.
During the third quarter, we shipped multiple I read DC, Rps and high voltage products into development programs across various next generation devices processes and technologies.
We secured new design wins for processing advance carbon based films gain position for new types of memory devices it to leading Oems.
And one in multiple advanced packaging applications.
In addition, we have seen increased market adoption of our remote plasma sources, which we believe the LIBOR substantially better performance quality and total cost of ownership that incumbent solutions.
We believe Rps offers new growth opportunities for E. In advanced applications for surface, but if occasion radical chemistry based processes and soft patch.
Beyond these wins, we continue to see growing demand for our already delivery systems.
Oh differentiating RF matching technologies are getting adoption by key customers for next generation plasma processes, replacing competitors simple RF matches and enabling E to gain share in this market.
It's one of our leading customers sales are far most advanced RF matching network the navigator to our own track to grow in 2019 faster than the old girl market for plasma processing equipment.
With a robust technology road map that we'll continue to set the standard for RF matches.
We are confident or share will continue to grow as the industry moves forward on the technology curve.
On October 20, the second we launch power inside and industry first big data analytics solution for power delivery systems.
Power insight transformed data capture from our products into actionable intelligence driving advanced diagnostics in predictive analytics for process power applications and equipment.
This new product offering is already installed across several customers.
It is and has demonstrated material improvement to our customers costs yield and process performance.
We believe this could be another game changing technology from a company that had led the industry in power conversion innovation for nearly four decades.
Turning to our industrial and medical markets.
Overall revenue grew in the combined basis, both sequentially and year over year would a few weeks. So far this in revenue offsetting expected weakness in organic AG applications.
Including artisan.
Industrial and medical revenue met on target in the third quarter with continuing macro weakness out of China and the lengthy period of manufacturing contraction in Europe .
In addition, we so weak demand through the quarter in automotive and industrial applications and increased price pressure in the solar market, resulting in pushout of cell manufacturing investments.
Despite this macro backdrop.
Our team executed well in targeting new design wins any preparing for the ramp of several new wins in the fourth quarter.
In the flat panel display market, we secured a large multiyear design win for all it applications and continue to see growing opportunities for AG as the industry transition into next generation display technologies.
In the area automotive emission measurement and testing equipment, we won several designs expanding our global present than these regulatory driven market.
In medical imaging and diagnostic market, our portfolio of high and low voltage boss supplies continues to gain momentum.
We project organic investment revenue to improve sequentially in the fourth quarter driven mainly by early ramp these design wins, but at a lower level than the first half due to macro weakness and we show the pause several projects into 2020 .
[noise] artisan contributed incremental revenue for industrial and medical markets in the short time, we owned the business in Q3.
Revenues in this market were particularly strong doing this initial period benefiting from a major motor drive design win and solid performance in the medical technology market.
Looking forward, we anticipate our total sales into the industrial and medical market to represent our second largest revenue stream.
With the artisan acquisition advance energy entered two very large new markets data center computing and telecom and networking.
The day of the data center computing market. It started to recover after a period of inventory digestion in.
In addition, several new design wins at major Hyperscale and enterprise customers are expected to contribute solid revenue growth in the fourth quarter.
As a result, we anticipate fourth quarter revenue in data central computing to surpass last year as run rate.
With artisans telecommunication products Fiveg has also become an important secular growth driver for advance energy.
Our price supplies are designed into many types of the CWIP in supporting Fiveg, including next generation base stations.
That's all networks in the cloud and edge computing infrastructure.
Well. Thank GE has remained the small contributor to our revenue into telecom and networking market so far.
We are well positioned with design wins across multiple five you platforms and infrastructure equipment suppliers. However would near term reduction of telecom investments, partially due to trade dispute we expect revenues in telecom in networking and networking the fall below the historical run rate in the fourth quarter.
Before recovering in 2020 .
In summary, I'm excited leading the new advanced energy on the path of becoming a top tier industrial technology company with accelerated earnings growth.
Our technologies are getting momentum in all markets and we continue to introduce game changing innovation in our car delivery our matching.
We look plasma sources and now data applications with the power insight.
Looking forward, we are encouraged at some of our key markets such as semiconductor in data center computing have started to recover although visibility about level and duration of the recovery remains limited.
Finally, as we welcome artisan to the family and integrate our organizations I'm confident we will unlock new revenue and profit growth opportunities.
I would like to thank our customers shareholders partners and our value employees for your support I look forward to see many of you any upcoming quarter, especially at our upcoming analyst events scheduled for December 16th in New York City with that let me turn the call over to Paul.
Thank you you ball and good morning, everyone before I begin let me remind you of what Edwin stated at the outset, starting from this quarter, we've reclassified our revenue breakdown into four market verticals as part of this change we have included service revenues within their respective markets consistent with the much.
We already have our peers and customers.
In addition, we have updated artisans pro forma 2018 revenue based on these market classification you.
You will find supplementary tables of historical and third quarter data in the earnings slide deck.
Also as you all mentioned going forward, we expect to run the company in an integrated functional structure in order to drive efficiencies and synergies, but we will provide organic and inorganic results for comparative purposes in the interim period.
Turning now to the results for the quarter.
Total revenue for the quarter was 175.1 million up 30% from last quarter and up 1% from a year ago.
On an organic basis revenue of 134.2 million was above the high end of our guidance range.
The addition of artisan added 40.9 million in the 20 days, we owned the business.
Looking at sales by market semiconductor equipment revenue was 96.4 billion up 7% from last quarter and down 20% year over year.
Semi product sales grew 9% sequentially in the third quarter and we're ahead of our target driven by strengthening foundry logic investments and incremental contributions from our prior design wins.
Looking into Q4, we expect our total semi revenue to grow into low to mid teens sequentially supported by strong foundry logic early signs of NAND spending OEM, Evan toys, bottoming and incremental revenues from our design win.
Revenues from industrial and medical markets were 55.2 million, an increase of 23% from the second quarter and up 4% from last year.
On an organic basis revenues came in at $38.7 million down, 13% sequentially and inline with our expectations.
Macro headwinds and delayed timing of projects were the primary drivers of the sequential decline with major solar projects being pushed out over the next several quarters.
Despite the push outs, we continue to anticipate our organic industrial revenues to improve sequentially in the fourth quarter as we deliver products to several new design wins.
Artisan products added 16.4 million of sales in the industrial and medical markets in Q3.
Data Center computing revenue was 13.5 million.
Telecom and networking revenue was 10 million.
Our team did a great job closing the quarter with strong shipments.
However, with just 20 days of reported artists and revenues I caution you not to over extrapolate revenues in these markets for your forward looking models.
Going into Q4, we anticipate demand from the data center computing market to strengthen driven by several new programs at Hyperscale and enterprise computing customers.
The other had sales into telecom and networking Q4 are expected to be lower than historical levels due to near term delays in telco investments.
As additional information our total service revenue in Q3 was down 5.7% sequentially and 4.4% year over year as expected.
Can find this information on the face of the piano.
Excluding the divestiture of our US based central inverter business and May service was down 3.6% sequentially and flat year over year.
Lower fab utilization impacted demand for used equipment and retrofits in the quarter, but longer term, we remain confident our organic service business will continue to grow at greater than 10% cumulative growth rate.
Gross margin for the quarter was 42% cost of sales included approximately 1.5 million of acquisition related costs and 1.3 million of startup facility costs related to our new Malaysia factory.
We're making good progress on the build out and it started builds of initial products.
On a non-GAAP basis gross margin was 43.6%.
Organic margins improved sequentially due to lower fixed costs improved efficiency and mix.
As expected the artisan products lower total gross margins this quarter by approximately 500 basis points, but added over 10 million.
non-GAAP gross profit.
Look into Q4 with a full quarter of artists and revenue, we expect adjusted gross margins to be in the 34% to 36% range.
GAAP operating expenses in Q3 came in at 64.1 million, including 6.4 million of acquisition related costs.
3 million of intangibles amortization 840000 of stock compensation, and 375000 of transition and restructuring costs.
Excluding those items non-GAAP operating expenses came in at 53.5 billion, which included 7.5 million of non-GAAP expense from artisan.
Our team executed well controlling costs during this downturn and allowing us to achieve organic spending at the low end of our target.
While allocating more investment into R&D to find new critical product and technology development for next generation semiconductor technologies.
Looking forward, we expect adjusted operating expenses in the fourth quarter to be between 75 and $78 million.
GAAP operating margin for the quarter was 5.4%.
non-GAAP operating margin was 13.1%.
During the quarter, we paid $700000 of debt financing for the artists and acquisition adds made our first principle payment of 4.4 million.
Going forward, we would expect quarterly net interest expense of between 1.32 $1.5 million, reflecting both the debt and interest income on our cash balances.
In Q3, we recorded GAAP tax expense of 3.5 million or 32.5% higher than normal due to the non deductibility of certain transaction costs and a decision to change our election to permanently reinvest earnings in certain international locations.
Our non-GAAP tax expense was $3.4 million or 14%.
Looking forward, we expect our GAAP and non-GAAP tax rate to be in the range of 17% to 18% with the addition of artisan.
On a GAAP basis earnings per diluted share from continuing operations were 19 cents compared to earnings of 61 cents last quarter and 90 cents last year.
Last quarter's results were boosted by the onetime gain from the sale of the inverter service business and favorable discrete tax items.
non-GAAP EPS for the quarter was 54 cents above the high end of our guidance due to the revenue upside good execution on our cost improvements and the addition of artisan.
This compares to 45 cents in the prior quarter and the dollar five a year ago.
Including the interest expense of financing artists and added seven cents.
To our per share earnings.
Again due to the short period, we owned artists and in Q3, I caution investors and analysts not to over extrapolate this profit contribution.
Turning now to the balance sheet operating cash flow from continuing operations was 10.5 million.
We ended the quarter with cash and marketable securities of 341 million and total debt of 343 million, leaving us with essentially zero net debt.
At the end of Q3 artisan added approximately 121 million, including acquired cash to our net working capital.
I didn't organic basis net working capital was down slightly from Q2.
Receivables increased slightly and DSL rose by one day to 63.
Inventory increased by $6 million to support early Q4 shipments and turns were 2.8 times.
Payables increased by nearly $8 million due to timing of receipts and payments.
Capital expenditures for the quarter were $8.9 million and depreciation was 3.9 million a higher capital spending was primarily related to the new manufacturing facility in Malaysia, and some added capacity to support Hyperscale design wins.
During the quarter, we did not repurchase any shares.
Now, let me turn to guidance.
For the fourth quarter, we expect revenues to be $310 million, plus or minus 15 million with low to mid teens growth in semiconductor organic growth in industrial medical and the addition of ours and products.
We estimate Q4 non-GAAP earnings at 68 cents, plus or minus 12 cents per share.
We expect artisan products represent just over half of our guided Q4 revenue and to be accretive to non-GAAP earnings.
In conclusion, our semiconductor market is coming out of the downturn and demand for our products across our markets is strengthening has multiple new programs ramp in the near term.
We're pleased with our initial progress and planning and executing the integration of the combined company.
With a more diversified revenue stream positive contribution from artisan products and anticipated synergies. We continue to believe that this acquisition strengthens our position as a pure play powerhouse and sets the foundation for accelerated earnings growth overtime.
With that we'll open the call to your questions operator.
Thank you to ask a question you will need to press star one on your telephone to withdraw your question has to punky. Please stand by we compile the kinda avastin.
Our first question comes from Tom definitely with D.A. Davidson. Your line is now open.
Yes. This morning, it's nice to be on the other side of the of the cycle now sounds like.
Quick question on the comments you made about the the Oems ending up your inventory ramped down.
How big an impact was the inventory.
During the quarter.
[noise] versus your expectations.
Yes, Tom I think its little hard to articulate because it's kind of a blend dried I mean, it's not at its not a cliff, but as we as in general as we've tried to observe what's happening with our customers inventory. It seems like we're seeing a pretty.
Tight.
Connection between what we're seeing in the market trends and in our results. So when we look through by customer our sense is that draw downs largely completed.
And it wasn't in the done at the same time, Tom I'm had so different customers have different timing of the drawdown that's right.
Okay, Great and then Paul question on the guidance you've missed the.
This Lynn you had seven cents impact absent an acquisition in the quarter I think we're expecting something in the lines of seven to 10 cents a quarter for the next few quarters is that where we are as follows.
Once in a position or there are some near term items like the earnings.
Contribution different than that.
Well you know as it relates to the results as I mentioned on the prepared remarks.
Be careful about extrapolating that results you've got a few weeks of revenues which are.
Typically at the end of a quarter disproportionate to the expenses. So it's very very good results in that regard.
You have a little bit of.
Better mix and you have some purchase accounting things that flow through there. So for the short period. You know those are very good earnings, but if you look at you know at our guidance and you look at total, but we basically believe is that artist since going to start right about what we where we thought.
When we announced the acquisition, where they would sort of run in the mid single digit of.
Of operating income and gross margins in the low to mid Twentys. So I'd say, it's right on track to what we expected if you looked at a full quarter and and there's going to be a little noise at the beginning as you can imagine so it could be plus or minus that but I think you can you can kind of get a sense for the contribution if he is in general.
The basic guidance, we said when we did the acquisition.
No change from from that from what we've seen.
Okay and just in time, the starting point as we announced when we talked about this acquisition.
It's basically in line with a presentation, we will be gave everybody about this business. As you look you can look at it as a starting point of our integration process that's right.
Okay that sounds good and then well from a bigger picture point of view in a lot of companies are starting to see that you can now that.
Recovery, it's any way to no just not quantify but you know determine whether or not this is in the.
Beginning the something much or if it's just a slug of business interim or how do you view the pickup and now this is that we're seeing.
The way we looked at that Tom is.
His investment cycle.
We don't have visibility beyond this quarter and maybe the next one.
The other thing that we know from the industry.
A lot of this investment is added capacity to existing lines or existing Fabs does a nod greenfield fabs investment that we saw in December 9th in 2017.
And for that reason, we look at that as investment cycle and yes. It started with.
With a foundry logic and now we see the.
The investment cycle setting in the memory and NAND.
Okay, Oh finally, Oh, when you look at sea horses businesses are in particular seasonality that you see there.
I'm typically the fourth quarter is a stronger quarter on on balance than the other quarters.
Otherwise you know, it's it's a broader business and they can be there are big projects for sure. So it can bounce around a little bit quarter to quarter based on the prop major projects that are happening, but in general the fourth quarter is a little is as little bit stronger quarter.
Great. Thank you.
Thank you. Our next question comes from Krish Sankar with Cowen and company. Your line is now open.
Yes, hi, Thanks for taking my question article.
First when you well on the non recovery that you're seeing kind of curious do you from your vantage point, our most of the power supplies being booked your by your customers is that full 96 little one for me is laid at this point.
I can come into that range.
Got it was growing I think is a combination but I cannot the linear I cannot give you specific delineation how much as rich.
Got it nobody is that.
From your vantage point can you know the difference between goods inventory replenishment or is this a more cyclical recovery, but do you have any insight into that especially on the amounts right.
No we don't.
Got it does no worries.
The question football Bugs and for the calling on the Q4 guidance you said.
We look at half the revenues going to come from office and in Q4.
That's fair to assume if you dig debt as the baseline the December quarter office in revenue.
The out quarterly revenues and 2020 be due to mine basically by data center in telecom well should we think this run rate revenue is a good assumption to use quota to 2020.
Well I think first I'm not sure if I heard you correctly, but we said in our prepared remarks, the artist and it was a little more than 50% of the total.
And I also mentioned that the fourth quarter tends to be.
Little stronger quarter than the others, So I wouldn't quite take the fourth quarter and just to multiply it by four it will bounce around a little bit by quarter, but.
But within that the trends that we talked about on the call. I think are the important ones and that is that we could see a little strengthening and data center over the course as a year based on the market in some wins that we've had that telecom and networking will be a little weaker.
Because of the tariffs in the external markets that we're seeing.
And the and I, the industrial and medical is kind of a steady steady grower, although there's some project timing that will be in there.
And I think if you look at our other markets than the important thing is when we look at semi.
Going into next quarter, we continue to see solid growth there in the low to mid teens.
Overall.
John That's very helpful. And then the final question either for you all fall on the reclassification you know the semi equipment revenues was 96.4 million in September .
Basically at least one and just kind of curious if you look at Scotland to 24 for you guys on the grew on the on that segment, how is the compared to calendar Ocala 19 compared to calendar 18, how much don't is it on a year over year basis on the new reclassification.
Yes, if you look at if you look at the quarter.
You can see that were down about.
20% year on year for the fourth quarter and then we provided some breakout.
Krish in our.
In the.
In our presentation that actually gives you by quarter.
The numbers going back through 2018 so.
You can take them doing that and it would so it's all right there.
Alright, thank God and congrats on the great results. Thanks folks. Thank you Chris you.
Thank you. Our next question comes from Amanda Scarnati with Citi. Your line is now open.
Hi, Good morning. Thanks Kinda question can you just go back to talk a little bit about the run rate and data center in telecom, you've all you mentioned that.
For two data center should surpass last year's Runrate, whereas Fourq, you telecom should be below the historical run rates.
Hi, Brian can you just talk about what that was run rate look like in the fourth quarter earnings it's sort of seasonally strong.
Anyway, you can sort of help us understand and quantify.
I'm not sure I can't quantify if I can give you a little of background on the dentists. It data centers Hyperscale, what we saw it there was a wave of investment in 2018.
And and and since then we were through a period of digestion.
And this is right now coming to an end and we see a recovery in data Center Hyperscale.
With new waves isn't in investment and that is accelerated by some really important design wins, we had in hyperscale.
And that basically will influence the the results of Q4 this year.
I'm not sure if we broke it down.
In terms of historical run rate, but.
We may have been if you do you have that Paul Yeah. If you look.
Amanda in the again the supplemental information on page eight we did break down for the full year.
The split between the different markets I think you can use that as kind of up.
Stake in the ground Yeah. If you look at that there is out there is a pie chart last year about 40% of the of the business on the new classification business our basis was data center.
33% was a telecom and networking and industrial and medical was about 25%.
Yes.
And then there's a semi is like no nominal a couple of percent. That's for that's for 24 artisan for Arda Arthur since 2018, Thats right, but if you use that and combine it with the color you get a rough size of right happening in the most important thing a mandate is data center hyperscale is recovering.
When through digestion after the investment in 2018.
And in comp in conjunction with some really important design ways in Hyperscale, we had.
We see a fairly strong recovery in Q4.
And then on.
Fiveg side can you just talk about your growth opportunity in fiveg relative to what artist and had fourg.
And what the expectations are for that revenue I think you said that's not yet at this point yeah. That's a great question and we know if you look at what's happening right. Now we are at the beginning of the investment in Fiveg infrastructure and this is basically the backs the base stations investment.
There is still investment in Fourg, LTE and slow emerging investment in Fiveg, it's very different from the high if we see around a handheld devices.
There is a lot of of.
You know investment right now.
Related to smartphones that are fiveg capable that drives demand in the semiconductor chip industry.
The investment in the infrastructure of Fiveg is different we are just at the beginning it just slow ramp.
And and because of some of the.
Trade wars in macro economical.
Issuers are headwinds.
We saw some push outs in this area as well. So that's why we made a comment that the fiveg is not going to recover as strong as people believe.
Initially as a whole fiveg industry. So we need to look differently, yet handheld devices evil fiveg versus the infrastructure.
Great.
And then the last question I have is it's on TSMC, obviously, TSMC you know increase.
You know quite substantially and.
That seems to be reflected in your results in your guidance on the semiconductor side.
How much of this do you think is more of a pull forward in terms of what their patients aren't.
Technology nodes.
Or is this sort of a new normal you say.
I think it's I think it's a combination of both.
And and if you look at TSMC, they guided 2020 Capex flat.
Right.
So we'll look at that that it's basically combination of both.
Okay. Thank you.
Yes. Thanks next question comes from Tavel, knocking off with Raymond James Your line is now open.
Thanks for taking my question first just one quick one on the balance sheet.
Almost precisely matched your your debt balance versus your cash balance and obviously that is pretty cheap these days, but I imagine there were still some cost the carry on that so I'm curious why not.
Hi use some of the cash to repay half two thirds of the acquisition loan.
That's a good question Phil I think we've stated from a capital allocation perspective that as we go forward.
Our first priority would be to would be for debt reduction.
The pace of that will manage as we go go forward.
And you know recall that is pretty low cost to debt at LIBOR, plus 75 basis points.
So you know that's what we'll focus on we'd like to get a couple of quarters under our belt here and be prudent, but but that.
Directionally, you're right, we'll be bringing the debt levels down we'd like to see.
The gross debt sort of more in the one and a half times.
EBITDA, which were a little higher than that now so we'll we'll work towards that as we as we run the business for a few quarters and get through some of the integration and other activities that were working on.
Okay in thinking about the macro headwinds yeah. It seems like everybody in the industrial landscape is talking about that so you are China is pretty clear, but I know you guys also have.
Historically sizable footprint in Europe , and so I thought I would ask if.
Not that Brexit and the uncertainty over over the you maybe the elections that are et cetera high is that all so one of the issues you guys are dealing with.
I don't think so Pavel I think some of the headwind we see on on our side has to do with the automotive industry for example.
That right now I see some headwinds and general industrial applications some of them related to.
No just manufacturing investment than if you look at the.
Global manufacturing equipment them or infrastructure investments, it's in decline and Thats not only Europe that we see that across the board.
Okay. Appreciate it guys.
Thank you.
Thank you.
Hi, there to ask a question you will need tapas style one on your telephone.
Next question comes from Mehdi Hosseini with ESI G.
And is now open.
Yes. Thanks for taking my question just on short follow up for the team I'm, just trying to better understand how you're going to manage inventory for a new set of customers about good data centers.
And.
And how you're going to be able to forecast.
I find the semi cap.
And mark is quite different than.
And some of the new markets.
[laughter], there's no part of your business I want to understand the working capital management, and how you're able to Oh My God given a lack of experience when it comes to look at data centers.
So let me talk about the they go to market strategy or what do you perceive is like his experience.
We acquired artisan.
That came with a very strong in the capable management team people that had been in industry for more than 20 years each of the executives more than 2025 years people that have been in the industry for these long time engage with customers engage with partners engage with distribution channel.
There is serious depth of knowledge and experience in the in inter company relative to the did a center hyperscale.
Regarding the inventory Im not sure what the question was but I'll ask maybe Paul to answer.
Yes, so it's a good it's a good question many and one of the things that were doing as you'd see is that we are a breaking out the revenues by market because you're right. The market trends are different depending on the various markets that we sell our power supplies in into and in conjunction.
And with that will give give color directionally and obviously give results within those markets. So that you can you can see that but.
Within within each of those markets, we have products and we have the manufacturing strategies to sell those products.
And we'll manage it just like just like our other all the other products that we have there's a theres a process for that that looks at customer demand that assess as what.
The impact of new products will be and projects, what will build and what inventory therefore that will need to be very common process.
Common practices across that one thing I will note is that.
Artisan does.
Tend to have run a higher backlog and they'll products in those markets than we typically do and semi where it's more of just in time or a pull basis. So that does get a little more visibility in those markets.
Okay. Thank you to higher backlog.
Just wanted to.
Go back to you won't comment.
They did a center and market.
Certainly new.
And I think over the past five six years has become.
More impactful under supply and demand for components and other.
Try that.
During presumably.
Pushing down.
Inventory to their suppliers.
Thank you now to hold inventory for them as they adopt the consumption model.
Just to.
Perhaps a question for you is.
You are you also given to stepped up the experience within our two cents are you seeing these kind of trend we did a sector customers wanting to to hold more inventory as to change their business model to wonder is more consumption driven.
No we don't see that look it again artisan has been active in the in this business for many years have deep intimate relationship with customers.
The distributed Engineering center is very close to where the customer is operate.
And the reason we got all the recent very important design wins with Hyperscale customers has to do would have following.
Very high efficiency rate of conversion as you know Mehdi.
Higher efficiency means lower thermal and lower cost of cooling water cooling.
Processes in a datacenters.
Form factor with high power density that allows them to fit right in the size of the customers rack right.
And extremely responsive and capable engineering team.
That is able to turn on a dime and ward with work with the customers on next generation devices.
The the footprint of the company right now with factories in multiple places around Asia.
Allows the company to choose.
Where to manufacture or the capacity that is required by the customers and that gives that flexibility gives some of the customers to comfort level, they can choose which country to buy the product from so this this agility flexibility continuity of business and varied.
Competitive products when it comes to power density power conversion and the responsiveness are the main reason we continue to win those important design wins.
Thanks, Thanks for calling.
Thanks.
Thank you. Our next question comes from Quinn Bolton with Needham and company. Your line is now open.
Hi, Good morning, this was a Charles.
Hi, going.
So first off congratulations on a strong lease buyouts.
Two part question Youre on new profitable lines, including Rps, I mean, maybe a little bit on our match well give me. This question, it's being asset in the past. So first of the long term, how how should I think office Sam expansion.
You guys entering Rps and our match and if I remember correctly that Tam of RF and DC January .
$1 billion per unit base.
2018.
Numbers.
Second part right.
So just a comment we're not entering into the RF match business, we have been the RF match business for decades, and we are the market leader in RF matching.
The important comment about RF matching is that it's become more and more critical technology and enabling technology, especially as you go into more complex etch and deposition applications.
A ease match technology is extremely sophisticated and very advanced to the point that we enable.
A lot of a customer is to perform the processes that they need to perform for these advanced application. That's the reason, we so a surge in a revenue above the market growth driven by significant increase in our man hour if match business.
Last quarter and going forward on the Rps side, you're right. The Rps is it's a business that eventually that you did not served.
For years due to IP limitations and contractual limitations, we had with competitors. However, the market right now is is hungry for enabling capable.
Quality supplier for remote plasma source products, we believe that we have not only the product performance and the capability, but also the quality and reliability and the service capabilities to support the customers globally, we have seen tremendous increase in the number.
<unk> of units that go into new customer programs and tools.
For remote plasma source applications from advanced energy, so our remote plasma source product is is.
It's very capable very competitive and coming from a very low market share Oh, we view that opportunity as a growth opportunity for a bunch energy, we will expand more on that strategy during the analyst day.
Great. Thanks, So maybe a follow up is really relatively shorter term.
Rps, how should I think about the revenue.
On the stem from design going to really meaningful revenue contribution may take a little bit long time, how should I think about that and specifically on Q4 do you see meaningful contribution.
Yes, new products.
We see growth in Q4 coming from an art peers product, we're not at the stage right now that we're willing to disclose it.
But we we we expect to see growth coming from Rps.
Okay, great. Thanks, Thank you.
Thank you.
I'm not showing any further questions at this time I would now like to turn the call back over to you have all loss of men for any further remarks.
Thanks for joining us today, we appreciate your time here with US. This is exciting time it to advance energy as we embark on a new company with tremendous opportunity for growth both in revenue and earnings.
We're excited about the integration process. We have started the process is going well and we look forward to see many of you at our analyst day in New York. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.