Q1 2020 Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly we continue to standby. Thank you for your patience, ladies and gentlemen, good. They also scheduled to begin shortly we continue to standby. Thank you for your patience.
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Ladies and gentlemen, todays call results go to begin shortly please continue to standby. Thank you for your patience, ladies and gentlemen, today's conference is scheduled to begin shortly these continued standby thanks for your patience.
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Ladies and gentlemen, thank you for standing by welcome to the Q1 2020 Advanced Energy Industries earnings Conference call. At this time all participant lines are in a listen only mode. After the speakers presentation. There will be a question answer session.
So the question during the session you want me to press Star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero.
I would now like to hand, the call was or what your speaker today, Edwin Mok, Vice President of strategic marketing and Investor Relations. Thank you. Please go ahead Sir.
Thank you operator.
With me today, our Yuval Wasserman, all president and CEO, Paul Oldham, Our executive Vice President and CFO and Brian Smith.
Director of Investor Relations.
If you have not seen all earnings press release, you can find it on our website I always thought about and stuff and the G Dot com.
You'll also find a slide presentation to full on long haul discussion today.
Before I begin I'll like to mentioned that he will be participating at multiple investor conferences in the call me month, most people actually I spent a broker will make the announcements.
I remind you that today's call contains forward looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially not guarantees of future performance.
Information concerning these risks and uncertainties, it's bomb <unk> filings with the FCC.
All forward looking statements are based on management's estimates projections and assumptions Alsop today may six 2020, and the company assumes no obligation to update them.
Long term targets for Tennessee, wishing clue, our aspirational goals and the integration targets should not be interbred in any respect this guidance.
Today's call also contains non-GAAP financial measures.
Our next nature of these measures that's why reconciliations between GAAP and non-GAAP measures all contained in our press release and a slide presentation.
With that let me plaster coal to all President and CEO you all Watson Yuval.
Thank you Edwin.
Good morning, everyone and thank you for joining us on this call.
Let me begin today by saying that our main airports and focus over the last three months have been to safety and health before employees their families.
Global partners.
This is an extraordinary time and I'm proud of the bench energy has managed to both with direct always Louise and deliver on our customers commitments, which resulted in a quarter exceeding all of our expected financial metrics.
In summary revenue at $315.5 million was above the midpoint guidance and non-GAAP earnings per share of 91 cents.
Hi, <unk> and why Didnt gardens.
Let me first give you an update on our response and activities doing piece I'm pushes into July.
As early as January.
No they spend Debbie good have mobile applications, we put together an executive lid rapid response team to take decisive actions to ensure everybody's health and safety long before government speaking injury Monday.
There was only preparations allows us to safely we opened our China factories in ramp up production shortly after the viewership.
We also instituted working from home guidelines and implemented sophisticated I see solution, which allowed us to walk virtual.
In order to continue our innovation.
Out of developing projects, we provided on key innovate to engage with home minilap.
And with safe and secure access to our main labs to utilize knowledge, if we've been when required.
It prison.
All over factories are operational.
With our China effect, which back to school capacity, while those in the Philippines, Malaysia, a running a floor rate.
Due to local governments restrictions.
We didn't know facilities all employees are provided with the proper protective equipment and we have implemented our own safety protocols in physical separation structures and methods that are above and beyond local government people.
We are proud that many of our products contribute to be up would fight this spending.
He has a long history of designing and developing power supplies for use in many critical therapeutic medical products like ventilators.
In diagnostic equipment like C.D. scanners in blood analyzer.
Our supplies also power analytical instruments used in life science applications like gene sequencing and vaccine development.
In addition approach supplies are critical to the production of semiconductor devices and in the operational data centers, which has seen increased demand they've been by the need to stay connected into resulting increase in data usage.
The key roles at all products fleet, you need to be lives has never been so clear is doing to past several months.
Entering this crisis in a position of strength.
Allowed us to address both health and safety concerns as well as business continuity challenges with confidence in our ability to weather the storm.
Our balance sheet at the end of the portal well capitalized.
With an increased cash position and reduce debt.
Which is further improve by lower effective fixed interest rate. After we completed an interest rate swap agreement.
At the beginning of a few too.
Oh strong backlog demonstrates solid demand momentum from our customers industries.
While the impact of this bearish on the global economy in our markets is unclear.
Longer term, we believe the gross libraries in all markets are those remain intact and in some cases may even be accelerated.
We remain confident in our ability to serve our customers industries that provide the essential technologies replications. That's enabled the data economy in the fourth industrial Revolution.
That said, we recognize that these places will put pressure on our business.
Although demand in several markets further strengthens do if you want.
And he's continuing into Q2.
I mean mandated factory shutdowns and supply chain issues drove a revenue to decline sequentially into for each pool.
Further constraint in our factories, who maybe our ability to 40 service demand doing too.
Taking a prudent approach that Clinton bombing, we've implemented some temporary actions took a tail discretionary spending.
We also stop our fourth any stick share repurchase activity, which we initiated early in the crises its share prices decline.
It's the same time, we'd be knobbly any critical activities all programs that will drive new product introductions design wins and future growth.
Using a remote innovation capabilities allows us to continue to innovate engage our core talent during this time.
As we navigate through this crises, the benefits or plus strategy and especially the acquisition of Orthos and had been it's Paul had become evident.
Our distributed World class Global manufacturing and supply chain operations were able to optimize both product and material management during a time significant disruption, allowing us to de lever on or customer commitments.
As we continued to integrate these two organizations and realize accelerated synergies, we find increasing benefits combined operation.
Now, let me turn into our business.
Demand enough semiconductor markets with strong in the quarter driven mostly by phone we logic some contribution from memory applications.
We show growth across most regions with particular strength in Korea, China and Taiwan.
Demand growth was recommended by key design wins for different applications, most notably outrage in remote plasma source products continued to gain movement.
All right or Rps won a significant new design for chamber clean up occasion to talk to you equipment, though again.
In addition, we shipped our first embedded Paul products into a wafer fab equipment customers.
Displacing an incumbent.
We see additional opportunity for cross selling this product into the city markets in the future.
Looking forward in spite of the copied 19 impact on supply chain, we expect demand to remain strong in Q2.
During the quarter adventure energy was recognized with a 2019 supplier Excellence award by our largest customer applied materials.
It is gratifying to see that our efforts and investment industry, leading service and promote get bought a.
I recognize by our customers.
Turning to our industrial and medical markets revenue was down significantly from lots for.
Cobbett 19 related limitations on multiple production sites impacted our field ship. However, the majority of the sequential decline we've been by a push out by a large industrial Ashton.
Police transitioning to a new product architecture to support future rent.
Pending supply chain in factory capacity in the cooling development, we expect to recover a portion of the flu shots revenue into quarter four.
During Q1 demand for all parties supplies, serving medical applications started to increase meaningfully in March.
We are integral to the mid effectual diagnostic and respiratory weapon.
Currently in high demand.
Looking into Q2, we expect the man in industrial and medical applications to me, we've begun bikes and to me rose in the markets.
A revenue from datacenter computing applications grew sequentially on strong demand from Hyperscale customers, which was up over 50% or before.
While we were already in piece, you're getting this hyper scale ramp going into the quarter, we shouldn't acceleration during Q1 to support we both for education initiative.
This more than offset seasonal softness in enterprise for beauty, which was further impacted like probably my team.
Our team did a great job done there would be on the strength in demand.
At the same time, we secured multiple next generation design wins, several hyperscale enterprise customers validating our technology leadership.
Looking into Crewing quarter, we expect demand that this market to continue with elevated level on accelerate the hyperscale investment in the contribution of our design.
As was indicated you know last earnings call Telecom and networking demand remains low with further delays in networking spending in fiveg investment due to the uncertain environment.
While we see selected spot the strength driven by El Pilar design wins overall OEM markets conditions are likely to remain challenging in the coming quarter as well.
Longer term, though.
She this market space is another key enabler of what they call to me and we expect to see resumption of growth spending in the future.
In conclusion.
Operational excellence and agility enable us to overcome significant market challenges in the core into the LIBOR shuttling results.
The crisis brought out the best in organization.
As we focused our efforts on protecting rent fleets and communities serving their customers you innovating and doing our part in managing the spend Dan.
We became financially stronger during the quarter with solid profitability and higher net cash balance.
The results are a strong validation of our strategic direction and initiatives.
Well the near term impact that this crisis this deal I know.
We are confident and committed to our long term aspirational goal over a one and a half a billion dollars in Britain.
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I'd like to thank our customers shareholders partners and our valued employees for your support, especially during these challenging times I.
I look forward to speaking with many of you any upcoming core.
With that but between the call over to Paul.
Thank you you have all and good morning.
Let me start by wishing everyone in their family good health and safety.
I would also like to echo evolves congratulations on our teams extraordinary efforts and ensuring safe operations, while delivering results during these challenging times.
This was a good quarter for us financially as we exceeded our revenue guidance in a difficult environment improved gross margins delivered earnings at the high end up our range and up from last quarter.
Generated strong operating cash flow and realized annualized adjusted ROI see of over 16%.
The company's balance sheet and liquidity, our solid with $355 million in cash positive net cash even after our debt issuance last year.
The ability to access our $150 million unused to line of credit.
In addition, early in Q2, we converted the majority of our variable rate debt to historically low effective fixed rate of 1.27% locking in a lower interest payments for the balance of the term.
Finally, we continue to make great progress on the artist and integration, which was solidly accretive this quarter, putting us on track to achieve our phase one goals ahead of our 18 to 24 month target.
Now, let me turn to our Q1 financial results and then I'll make some comments on Q2.
Total revenue for the first quarter of 2020 was 315.5 million.
Down from 338.3 million last quarter due to covert 19 related supply and production constraints.
On a pro forma basis, including a full quarter artisan revenue in prior periods Q1 revenue grew 6.6% year over year.
With strong growth in semi in data centers, partially offset by declines in industrial medical and telecom and networking.
Excluding artisan organic revenue grew about 2% sequentially and 15% year over year to 161.5 million.
Covert 19 related government restrictions in our production facilities and the impact on our supply chain reduced our Q1 total revenue by approximately 10% as we implied during our last quarterly call.
Turning to revenue by market.
Revenue in our semiconductor vertical for Q1 was 134 million.
Up 7% from a very strong fourth quarter and up 46% year over year.
On an organic basis semi revenue grew 44% year over year with strong demand from foundry logic and increased memory investment.
On a product basis semi revenue was up 10.4% sequentially at 66% year over year, well semi service revenue was down approximately 10% from last quarter and 11% from last year on lower fab utilization in the U.S. in Europe combined with capacity constraints in some of our service center.
Due to covert 19.
Revenue from our industrial and medical markets were $62 million down substantially from 97 million last quarter.
On a pro forma basis revenue declined 32% you every year.
The results were a combination of a product transition by a large industrial customer, resulting in a push out of orders into future quarters.
Continued macro weakness in several of our industrial sectors.
Covert related government imposed to production constraints, particularly out of our Philippines facility.
Data Center computing revenue was 86 million up 11% from the strong results in the prior quarter.
On a pro forma basis revenues were up 63% year over year, driven by increased Hyperscale investments and our recent design wins.
Telecom and networking revenue was 34 million down 12.5% from the prior quarter.
On a pro forma basis revenues declined about 43% year over year has challenging market conditions and telecom OEM demand persistent.
Gross margin for the quarter was 35.6%.
Cost of sales included approximately 5.1 million of acquisition related charges, and 1.5 million a facility expansion and relocation costs, primarily related to our strategic investment into Malaysia factory.
Most of the 5.1 million in the acquisition related costs will not continue in future quarters.
On a non-GAAP basis gross margin was 37.8%.
Gross margins benefited from favorable product mix lower material costs, and generally lower other cost of sale items.
In addition, we did not experience significant copel <unk> related costs as government and local benefits largely offset our incremental expenses and production disruptions in the quarter.
However, we do not expect these benefits to continue into Q2.
GAAP operating expenses in Q1 were 86.4 million.
Expenses included $5 million of intangibles amortization 2.8 million of acquisition related charges 2.8 million of stock compensation and $1 million of restructuring and transition expenses.
Non-GAAP operating expenses were 74.7 million down nearly $4 million from last quarter.
We continue to execute our strategy of investing in critical R&D programs, primarily in RF technology and products with strategic customers, while controlling discretionary spending and driving synergies of the combined company.
GAAP operating margin for the quarter was 8.2%.
Non-GAAP operating margin was 14.1% up from 12.8% last quarter, despite the lower revenue.
Other non operating expense was $3.5 million down from 3.8 million last quarter included in other expense was $2.3 million a total interest expense.
Given our swap transaction, we expect interest expense savings of about $1 million per quarter compared to what we paid in Q1.
And total other expense to be in the $1.5 million to $2 million range going forward.
We recorded GAAP tax expense of $3.9 million were 17.5%.
Our non-GAAP tax expense was $6 million or 14.6% and was benefited by the mix of international income.
In addition, during Q1, we made significant progress and incorporating and optimizing the impact of artisan honor international tax provision, resulting in lower guilty taxes across the combined company.
These actions allows to lower our expected gap and non-GAAP tax rate by approximately 100 basis points to be between 15% to 17% going forward.
On a GAAP basis earnings per diluted share from continuing operations were 48 cents compared to earnings of 27 cents last quarter and 40 cents last year.
Non-GAAP earnings per share for the quarter was 91 cents up 5% from 87 cents last quarter on lower revenue and up 57% from 58 cents a year ago.
As I mentioned the artist an acquisition continued to contribute to our consolidated results.
As of the end of Q1, we have taken actions that we believe will result in annualized synergies of over $15 million.
In addition, despite sequentially lower revenues in some of artisans verticals. The acquisition remains solidly accretive in Q1, adding about 18 cents per share to non-GAAP earnings, including the interest expense financing.
Well the level of accretion will fluctuate from quarter to quarter due to different revenue and product mix. We believe we are on track to achieve our earnings accretion of over 80 cents per share ahead of our 18 to 24 month target.
Turning now to the balance sheet.
We ended the quarter with cash and marketable securities a $355 million up 6 million from Q4.
Receivables decreased significantly idea so improved five days to 61 days.
Inventory increased by $5 million and turns were 3.5 times.
Payables were 167 million, representing 74 days DPL.
Total days of net working capital were 91 up two days from last quarter.
Operating cash flow from continuing operations was $28.9 million.
Capital expenditures for the quarter were 6.1 million and depreciation was 6.6 million.
We ended the quarter with bank debt of 335 million after a 4.4 million principal amortization payment on alone.
Note that aren't that still has four and a half years remaining term and is very low cost within effect to fixed interest rate of 1.27% on 85% of the debt as I discussed earlier.
In addition, our debt covenants are based on net debt leverage not gross debt, which gives us an extremely wide operating on blow up.
During Q1, we also spent $7.2 million to repurchase 170000 shares of our stock at an average price of $42.59 per share.
Overall, we exited the quarter in a very strong financial position, which should allow us to whether the current crisis and continue to make the critical investments needed to execute our strategy.
As we have demonstrated a robust financial model and playbook should allow us to continue to generate solid non-GAAP operating margins and cash flow.
Now, let me turn to guidance in the near term, we continue to see strengthening demand in our semiconductor and data center markets, partially offset by weakness in industrial and telecom markets broadly.
However, we expect revenue to continue to be impacted by cobot related government imposed capacity constraints, particularly in our Philippine and Malaysia factories and by ongoing supply chain challenges.
As a result, we estimate revenues in Q2 to be about flat at $315 million, plus or minus 30 million, depending primarily on the level of government restrictions and the impact of supply chain constraints.
We expect gross margins to be in the 35% to 37% range based on mix and increased cope and related costs production disruptions and higher freight and expediting expenses.
Operating expenses are expected to be up slightly on increased R&D spending to accelerate strategic programs together with key customers.
As a result, we expect to non-GAAP earnings at 80 cents per share plus or minus 30 cents.
In summary, despite a challenging environment, we delivered strong operating and financial results in Q1.
We have excellent liquid liquidity and a robust operating model.
The integration of artisan is on track to achieve or exceed our synergy goals ahead of schedule.
We are executing on our strategy of accelerating earnings growth.
Since closing the artist an acquisition our non-GAAP B P. S. In each of the last two quarters was up double digits year over year and this trend is projected to continue in the current quarter.
Looking forward the current environment with covert 19 continues to create operating challenges.
And the visibility over the next few quarters is very limited.
However, near term demand continues to be strong.
We believe we are targeted markets in industries that support the data economy and will benefit from these opportunities in the long run.
Despite the near term challenges, we are confident that we had the resources competencies and capability to achieve our aspiration uncles accelerate earnings growth over time and deliver top tier return on invested capital.
Now we will take your questions operator.
Thank you as a reminder, task of question you already the press Star one on your telephone to withdraw your question press the pound team. Please stand by what we compile the cumin a roster.
Our first question comes on the line of Quinn Bolton from Needham and company. Your line is now open.
Hey, guys. Congratulations on the nice results, especially on the gross margin side I wanted to start with the government.
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Capacity constraints, you mentioned in the Philippines, Malaysia.
Factories now back operational and if so what sort of.
Nation.
Are you getting out of those facilities and then I've got a couple of follow up questions. Thanks.
Hi, Quinn the factories in the Philippines, Malaysia.
Of ramping the not yet it seems capacity we are following government imposed restrictions related to the number of employees are factory.
But we're ramping we're not a full capacity unlike our China factories that are at full capacity and doing great.
We in terms of headcount and direct labor as we don't have another indication, it's mainly following directives by local governments.
If you all do you think you can get back towards <unk> capacity by the end of the corner or the government you wait when we don't know you know as as you know it is dynamic.
We're working very closely with the government's both local and.
No general of federal governments to make sure that we have the compliance that is required by the health authorities, but at the same time, we get all the support than we need from the local governments to a lot of allow us to to maximize our <unk> ability to operate we can't predict what's gonna.
Happens you know things aren't dynamic you know, we see some places around the world that that contagion is coming back like Singapore, even though we don't hit a factory there.
We have limited visibility, but we are ramping.
In both sites, we're not at full capacity.
Under understood and then from the gross margin.
Midpoint looks like margins will be down about 180 basis points in the June quarter sounds like some of that's mix some of that type of higher cobiz related costs wondering if you might be able to to give us some sense.
You know how that 180 basis points splits between the various.
Factors in the second quarter.
Yes, good question Quinn.
Certainly as you mentioned covert related cost is part of it and we did see some benefit in the first quarter from local support basically that offset most of our cobot caused those costs are those increasing a little bit in Q2, plus we don't anticipate the benefit so.
That's that's a fair portion of that of that decrease but there's a couple other items. One is we had generally favorable other cost the sale items in the first quarter. You know you just don't expect the trees to always follow the same direction every quarter. So expect to see some pullback there a mix will have a small small.
Factor and those are the those are the primary items.
Understood and then lastly for evolve.
Centers and I think you know much stronger than expected or at least very strong in the past couple of quarters looks like it'll be strong again in June or maintain its fairly high level of output.
Are you worried at all about capacity digestion in the data center business. If you look into the second half versus is it just sort of tough to tell at this point, what that data center business looks like into the into the second.
So good question when I think we're benefiting from two driving forces.
The first one which I'll start contributing in a a in a previous quarter. We are realizing recent design wins.
In hyper scale that we worked on for the last 12 to 18 months and these design wins translated to two revenue.
Hyperscale right now is the fastest growing at heart the business and I'm not only we realized the design wins and continued to have new design wins, we so a surge in demand, especially in hyperscale.
As the working from home relying on the Internet the.
Decreasing usage of data right now drives acceleration of investments being data centers and and we expect to see that they're continuing.
Thank you.
Thank you. Our next question comes down the line of Amanda Scarnati from Citi. Your line is now open.
Hi, good morning.
[laughter] picking up off of that data center and hyper scale question I just want to clarify what you mean by acceleration.
Do you think that that's a portion of demand or do you think that this is sort of additional demand. That's just happening on sort of an accelerated pace.
We don't believe its planes, we believe it's added capacity some of the a very large hyperscalers.
Our seen tremendous increase in traffic and usage of Internet applications.
And and we see Enbridge and demand that I as I said earlier, we'll continue Amanda.
It's a significant add on demand.
That up and from our perspective, we're adding more capacity to fulfill demand.
Right.
Then on the industrial and medical side effect that you highlighted that add med Tech designs you have that are supporting the Corbett crisis.
But the segment overall was down 36% like you mentioned for a large industrial contract and how much of a benefit did you guys in the quarter from that Med Tech Division.
And do you see that demand kind of continuing on and helping to bolster growth in that second quarter. So it's a great question Amanda our medical in life Science business is still small, but growing it's above $50 million and growing a.
We saw what I call this surge in demand.
Specifically in power supplies that go into ventilators, and if you know there's a there's a huge demand.
Oh for building ventilators. Other question. We have we don't believe this is going to be multiyear demand. We believed that the market right now bill or a large inventory offensively through is that created a surge of demand from us another area that is.
Is.
<unk>, increasing is the area of analytical and life science tools more specifically gene sequencing and the related technologies that are right now in high demand as more testing more gene sequencing.
And ER.
And what we assume could be vaccine development activities that are that require additional analytical tools.
Area in medical that we think is going to be affected in the short term.
It's everything that has to do with elective procedures and even a dramatic procedures and we believe did did the growth there is gonna be pushed out a little bit.
In general medical in life Science is an area of focus for us.
It has some of the business attributes we like to operate in.
Its still small, but growing and we expected to continue to grow.
Great and then last election, they had in Ah you mentioned something that you were seeing some benefits from government and local authorities you just clarify what those benefits were and why you don't expect them to continue in the current environment.
Yeah, a lot of them I'm, all say were from China, which was hit sort of early with the.
But the impact of the virus and they took a variety of forms in some cases, we saw some rent abatement.
We saw a sub holding of some of the social costs.
Contributions and things like that.
Their time based and so those programs are basically work through so that's why we don't anticipate seeing or the other benefits. If you look at some of the things that have been passed in the U.S.
Which should be coming on stream now they largely don't benefit either large companies or large companies that aren't having massive layoffs or furloughs, so that doesn't fit us and so we don't we don't see any real but other than the timing of some tax payments.
Which are being deferred as you know so that's that's why we see it is temporary obviously, we feel fortunate that we've been able to get some.
Some relief, but the impact this you know across a worldwide operations continues to roll through.
Great. Thank you.
Thank you. Our next question comes on the line of Krish Sankar from Cowen and company. Your line is now open.
Hi, Thanks for taking my question I have two of them you well you know because that's what the same commentary from many folks regarding supply chain constrained.
It's a function of just the geographic exposure to eat Malaysian Philippines of being at the moment control all doing so it is the one or two key components that into whole food chain that is actually the weakest link that was actually impacting everyone's output.
Sure appreciate it's very dynamic at the beginning of off the you know right after Chinese new year, when everybody started slowly good to go back to a to work you could see that suppliers that are close to the epicenter like <unk> Bay area.
They are projected to be shut down and it took them you know long time to recover and go back to the business our supply chain is broad and and and global So there's no specific.
There's no specific world region that that with the exception enough wanted who bay that that we needed to address our our combined teams Oh.
The artisan supply chain a team and the eight you supply chain team that are now being combining together I did a phenomenal job managing a very complex and broad you know.
The supply chain network and the addition of these two supply chain also help us to eat use each other's products, because we had some redundancies, which allow us to be very flexible and nimble.
The reason, we managed to a very quickly go back to business and deliver the lever and exceed our commitment in terms of shipment to customers was the strength of to combine operation and a combined supply chain management teams. So there's no specific area or specific parts each its I phone.
You know managing day by day, you know and network of supplier is that a that we needed to help and deliver.
All right that's good inside your well thanks for that and then a follow up for a ball I missed it I didn't know if you did give any color on how to think about semi equipment revenues.
In the June quarter, either sequentially or in terms of dollar numbers.
Yeah, we didnt say on the revenue side, it's difficult to predict across you know the business because of the supply chain issues that you all said, but what we did say as we expect demand continued to strengthen.
I would see and would see.
See healthy environment, it's just all paced on our ability to deliver.
Across you know across the four markets that that we're in today Krish as I said in my remarks.
The demand in semi is very strong it's not a question of demand just a question of our capacity to deliver.
On that demand and the demand is very strong and the supply chains and the supply chain.
Oh, you always pick a just asked one last question just a follow up on that point.
Oh I understand that visibility is limited and no one knows how the sick enough is going to shake out.
But is there any this that given its supply constrained and the demand is still pretty strong.
And he was that your customers the semi equipment Oems end up having excess inventory if the don't seem demand slows down in second half because right now, it's a supply constrained environment, but that could.
Be an opposite thing when if demand falls off a cliff right.
You know, we we don't forecast the second half of all I can tell you is that the demand is strong in continues I think you too.
Oh, we have an extremely nimble and agile operation for our perspective.
We can respond very quickly to changes in volume and mix. We've done that for years, we know how to do it when we know how to do it effectively so from our perspective.
You know, we continue to Lukas strong demand going through Q2.
And our plan is to deliver and if you look at our guidance.
I guess in general is very strong.
In comparison to.
To to peer and others.
Terrific thank fuel.
[noise]. Thank you. Our next question comes on the line a Weston Twigg from Keybanc capital. Your line is now open.
Hi, Thanks actually I wanted to follow up on that last question because I got I got a little confused on that segment outlook between Semien Industrial data Center telecom because I certainly her demand strength was good for semi and and datacenter, but but I didn't catch which segments. You think it from a revenue built up perspective in terms of how you get.
Guidance might be up or down and so I'm. Just wondering if you could walks through like for example in industrial medical I thought I heard demand would increase but maybe offset by some supply challenges I don't know if that means you think it's going to be up or down or maybe you don't know, but yes, no just a directional color would help so hot high west. So so if you look at so first of all we don't have segments right yeah.
We have markets verticals that we serve without power supplies.
We see growth.
HM in semi as I mentioned in the last.
Answer.
We see strength.
Coming from datacenter Hyperscale and with that mainly Hyperscale is growing faster than just the general data centers.
We see right now growth.
In medical and life Science, if he is related to.
Coffee 19.
And the other aspects of industrial if you look in general industrial we see weakness due to.
Largely macroeconomic forces to if you look at US Solaren flat panel display we see those I'm not showing any strength the area that that we mentioned specifically within our.
Industrial market was a unique case office single large customer.
That's decided to adopt new architecture as they prepare for continuing ramp.
And they pushed out revenue from Q1.
To future floors. So we don't see that as the revenue that disappeared, we shoe that we see that as a push out the.
The other area that Asia declined, but not a surprise was telecom and networking and especially as we as we said in the last earnings call. We expected the telecom down turn to last about two quarters.
To answer your question Wes.
Yeah, that's just kind of putting it altogether.
Yes.
Well right. It is we have a pretty good visibility of demand we didn't give specific revenue guidance by each of those markets because a lot of it comes down to customer issues at the end.
Who's ready to take probably two isn't what specific supply.
Issues were chasing that towards the end of I think.
Broadly speaking you know the areas where demand is weaker.
As we talked about we'll probably get a little less shipments in areas, where demand is strong you'll probably get a little more but there's not going to be big swings you know compared to the current quarter in sort of our flat I'm glad guides and and you know all this stuff to move around.
$2 million right into the and that's why it's difficult to kind of project. There's no one area that up a lot and others are down a lot. It's good and also the environment off the you know.
In general the environment due to cover 19 create another uncertainty related to our ability to be Olin chip.
Okay.
That's very helpful color. So I appreciate it one other question that I'm struggling with a little bit still that I I heard some reasons why he had good margin profile and good earnings, but but what I didn't hear was why it was so far above your guidance midpoint I'm wondering if you could help us understand what well what really surprise to the outside.
Strongly in Q1 to drive bps so high.
Yeah, you know, it's a really good question and I would say there. There's a couple of big things. One is we expect it I think if you recall, we talked about recall, we thought we have 50 to 100 basis point of cold and cough, Indiana those were pretty much neutral that's a straight upside to our forecast. We also had a number of items like I said other cost of sale.
Our lives, none of which was material, but all of which were a little bit favorable.
Contributed and then finally, we had we had good mix.
In General you know semi was pretty good for us and so that on balance was a contributor and with in the product areas.
There is.
There's other there's other you know the next positives as well, but there's one other thing that we saw and that's why if you look at the midpoint of our guidance, it's actually higher in Q2 than the guidance in Q1, and that's because we are starting to see the benefit of some of the integration synergies I talked about lower material costs.
And you know actually running the factories, despite all the disruption.
You know a little better than maybe than maybe we thought we could and that's because of some of the integration activities and the ability to leverage.
More global organization than we had we had previously so west integration apart this and drives additional.
Margins drunk.
As we realize synergies faster than plan.
And that will continue as you recall the pieces behind this acquisition was to pursue an accelerated earnings growth.
And we're pursuing it and you know you saw that our earnings EPS growth was double digit.
So that's the plan.
Actually if you executing in the plants.
All right that makes sense. Thank you.
Thank you. Our next question comes from a line of prevail molchan.
Raymond James Your line is now open.
Thanks for taking the question you you referenced the locked down and lose on the Philippines as a kind of your your main manufacturing headwind, having any of your customers had locked down related.
Ah curtailments in labor poor or other operations that have prevented them from excepting deliveries up your product.
Yeah, you know, we don't talk about our customers you know prevails that I I would say in general our customers as we talked about in the call have been pulling you know demand they've been kind of finding a way to get product in this in the in the markets that we talked about obviously telecom network.
King is slower, but but across the others outside of specific issues people generally been pulling product. So.
No no specific comments, but in general you know customers have been pulling or pushing to get products that have been very you know we're working with us.
As we try to resolve supply chain channels, and where to ship things and.
And how to be flexible on this time look it's a it's is a concern from a China that this quarter to a global event.
And you know I think broadly.
These areas supported by the data economy people been working together to try to get product, where it needs to be as quickly as possible.
Okay understood.
And then you mentioned a little bit a buyback cannot the 7 million in the quarter, obviously not not a huge amount.
But you are one or they're very very few companies I might say on the planet that did not have buyback you know six months ago, but but it's repurchasing some shares now.
So I'm curious why what kind of stimulated that decision.
Yeah, you know as as we went into this thing obviously you know we.
Through the artist an acquisition, we felt like we had a little better beat on where things were going and the share price was very attractive so it triggered.
Though an opportunistic program however, as you.
The environment evolves and it revolve pretty quickly I mean, it seems like it's been a long time the last two months, but.
You know the events happening every day or easily felt like you know weeks or months in the making and so.
As we saw events start to unfold more rapidly we thought it was prudent to hold back.
On the repurchase and stop that you know we have a solid balance sheet as you know the though but you know the world changing or at least at the time is changing rapidly and our view is let's let's pull back on now Mystic program.
And see where things go.
Okay. Thank you guys stay safe.
Uh huh.
Thank you. Our next question comes on the line of Mehdi Hosseini from ESI. James Your line is now open.
Yes. Thanks for taking my question I apologize I joined late so sort of my questions maybe repeat.
Oh the.
80 cents accretion that is being pool, Dan it seems like five to eight cents is due to lower taxes. So of the remaining 70 75 cents.
Accretion that these poor then how should I think about the cost synergies associated with artisan.
And also did it revenue synergies I remember, what it was announced I.
Accretion was gonna come from both topline and also.
Big chunk of the cost synergies and I want to better understand hotdogs dynamic sounds like it doesn't have the problem.
Yeah, Let me see if I can answer your question, Matt. So we said that we expected 80 cents of accretion in the first 18 to 24 month, you're right. We have gotten some tax benefit and out of the 80 cents, you're probably right maybe it maybe a nickel is from taxes. So that that's obviously positive and contribute.
You know obviously artisan itself. You know is is just on its own basis is.
Profitable is it it's positive contribution.
Last quarter, we said it was over 20 cents accretion this quarter. We said it was 18 cents accretion that includes the financing cost by the way. So it's a it's a net accretion if you will.
And if you look at that we also talked about that we have.
Identified an implemented annualized synergies of about $15 million. So again, we had a 20 million dollar goal.
18 to 24 month timeframe and we're well on their way to that now those are annualized synergies. So thats not 15 million a quarter right now that we're in that we're ramping up to that run rate of 15 million here, but the actions are taken that identified.
Those are going to happen. So I think you can.
You know you can kind of derived the math from from those data points that says certainly artisans contributing at a base level.
There's clear improvements that we've made as a result of the synergies we've implemented.
And and were on we're on track to Chico's goes faster than expected now we did get some cross selling I would say that sort of.
The beginning you know, it's it's not a lot large amount, but you know hundreds of units.
And Ah you know, it's sort of scratching the surface of what we think it's possible we said that that.
Market for us the Hillary power supplies is.
$70 million to $70 million market.
And this is the very first order kind of almost a pilot order with.
So maybe we are so more to come there, but it's very small at this point. So so many during the analyst day, we talk about a strategy.
Two.
Start working on cross selling and we've done it before every acquisition we made in the history.
We succeeded in taking.
Products from one vertical in cross sell to another vertical.
In this case.
Specifically in Brazil, we pass supplies for semiconductor wafer fab equipment applications, we managed to move much faster than our plan due to a unique specific customer need to we managed to fulfill almost immediately and that's the first building block or having dish Ross.
Selling contribution moving forward.
Okay. Thanks, so much for all the details just.
Two quick follow up one on the margin.
Did you provide any color would be too for the June quarter gross and operating margin.
You youre, focusing armed or semi cap, how do you see different end markets playing out.
It seems like maybe first half is driven by foundry logic and then.
Memory coming back in the later into your and want to see if you agree or disagree with you. After these different thoughts. Thank you.
Yeah I'll take the guidance question that you've all talk about the market. So we said that we expect gross margins to be 35% to 37%.
And we also noted that you know that's a little lower than this quarter, because we do expect increased.
Net holding cost last quarter, we did see benefits that largely offset those costs as cost of both increasing or we don't see the benefits this quarter.
As well as you know you know higher freight and expediting and other cost it just come come with this environment, where we're constantly trying to move things around that get product to customers.
On the operating margins, we said, we expect to see you know 80 cents per share plus or minus 30 cents. So we didn't break it down exactly thoughtfully margins, but you can.
You can probably derive that pretty close.
And maybe a your assumption related to end user market drivers is is correct.
That's basically the consensus.
You know we saw front end loaded a lot of foundry logic with a little bit of investment in in a in memory.
As I mentioned in my prepared remarks, we saw really a lot of strength coming from Korea.
China and Taiwan.
And we and in general on the demand right now from the semi vertical he's very strong very strong and we see that demand goes through Q2.
So I think I agree with your assumptions.
Great. Thank so much and.
We should Uh huh.
Excellent. Thank you. Thank you very much committed.
Thank you at this time I'm showing no further questions I would like to turn the call back over to you ball for closing remarks.
Well, thanks, everyone for joining us today, we are living through a interesting in challenging times in spite of that we delivered a really strong quarter in Q1 and expect to see a continuing with the strength through Q2, we're excited because we're making great progress to meet or exceed.
Our aspirational strategic goals of greater than $1.5 billion in revenue raiser, then 6.5 dollars S non-GAAP bps.
And more than 23% are all IC. Thanks for joining us have a healthy and saved week.
Ladies and gentlemen, this concludes today's conference call. Thanks for participating you may now disconnect.
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