Q1 2025 Advanced Energy Industries Inc Earnings Call
Greetings and welcome to the advanced Energy first quarter 2025 earnings call at.
Operator: Greetings, and welcome to the Advanced Energy First Quarter 2025 Earnings Call. At this time ...
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Operator: The question and answer session will follow.
Operator: For anyone to require operator assistance, please press star zero. As a reminder, Now my pleasure.
Speaker Change: If anyone should require operator assistance. Please press star zero on your telephone keypad and as a reminder, this conference is being recorded it is now my pleasure to introduce to you Edwin Mok Vice President of strategic marketing and Investor Relations. Thank you Sir you may begin.
Edwin Mock: Edwin Mock, Vice President of Strategic Marketing and Investor Relations Thank you, operator. Good afternoon, everyone. Welcome to Advanced Energy first quarter 2025 earnings. With me today are Steve Kelley, our President and CEO, and Paul Oldham, our Executive Vice President and CFO. You can find today's press release and presentation on our website at ir.advanceenergy.com.
Okay.
Speaker Change: Thank you operator, good afternoon, everyone welcome to advanced Energy's first quarter 2025 earnings conference call.
With me today are Steve Kelley, our president and CEO and Paul Oldham, Our executive Vice President and CFO you.
Speaker Change: You can find today's press release and presentation on our website at IR advanced energy Dot com.
Speaker Change: Before we begin let remind you that today's call contains forward looking statements that are subject to risks and uncertainties that could cause actual results to differ materially.
Edwin Mock: Before we begin, let me remind you that today's call contains four looking statements that are subject to risks and uncertainties, that could cause actual results to differ materially, and are not guarantees of future performance. Information concerning these risks can be found in our SCD file. All four looking statements are based on management estimates, as of today, April 30th, 2025, and the company assumes no obligation to update. Any targets beyond the current quarter presented today should not be interpreted.
Speaker Change: Not guarantees of future performance.
Speaker Change: Information concerning these risks can be found in our SEC filings.
Speaker Change: All forward looking statements are based on managements estimates as of today April 30th 2025, and the company assumes no obligation to update them.
Speaker Change: Any targets beyond the current quarter presented today should not be interpreted as guidance.
Speaker Change: On today's call all financial results are presented on a non-GAAP financial basis, unless otherwise specified.
Steve Kelley: On today's call, our financial results are presented on a non-GAAP financial basis unless otherwise. Excluded from our non-GAAP results are stock compensation, amortization, acquisition-related costs, facility infrastructure, and audit transition costs. Restructuring Asset Empowerment Charges and Unrealized Foreign Exchange Gain or LOSS Please refer to a detailed recommendation between our GAAP and non-GAAP results in today's With that, let me pass the call to our President and CEO, Steve. Thanks, everyone. Good afternoon, everyone, and thanks for joining the call. In the first quarter. We delivered solid financial results. with both revenue and earnings approaching the high end of our guidance.
Speaker Change: Excluded from our non-GAAP results are stock compensation amortization acquisition related costs facility infrastructure and other transition costs.
Speaker Change: Restructuring and asset impairment charges, and unrealized foreign exchange gain or loss.
Speaker Change: Please refer to our detailed reconciliation between our GAAP and non-GAAP results in today's press release.
Speaker Change: With that let me pass the courtyard, President and CEO, Steve Kelley.
Steve Kelley: Thanks, everyone. Good afternoon, everyone and thanks for joining the call.
Speaker Change: In the first quarter.
Speaker Change: We delivered solid financial results.
Speaker Change: With both revenue and earnings for <unk>.
Speaker Change: The high end of our guidance.
Speaker Change: Revenue increased 24% year over year.
Steve Kelley: Revenue increased 24% year over year. led by Strength and Data Center Computing. and Semiconductor.
Speaker Change: Led by strength in data Center computing.
Speaker Change: In semiconductor.
Speaker Change: Industrial medical revenue declined in the first quarter.
Steve Kelley: Industrial medical revenue declined in the first quarter. But we do expect to deliver sequential revenue growth in the second across our markets. We continue to see solid traction with our new products. Multiple design wins are going into production this year. driving revenue growth and share. We are focused on delivering value to our customers. through Superior Technology. In-House Manufacturing. and Best-in-Class Services. to support these objectives. We continue to invest heavily in R&D. New Product Capabilities Factory Consolidation, and our digital platform. In addition. Investments in modular design have reduced our development cycle time. enabling the rapid delivery of customized solutions to our customers.
Speaker Change: But we do expect to deliver sequential revenue growth in the second quarter.
Speaker Change: Across our markets.
Speaker Change: We continue to see solid traction with our new products.
Speaker Change: Multiple design wins are going into production this year.
Speaker Change: Driving revenue growth and share gain.
Speaker Change: Yes.
Speaker Change: We are focused on delivering value to our customers.
Speaker Change: Through superior technology.
Speaker Change: In house manufacturing.
Speaker Change: And best in Class service.
Speaker Change: To support these objectives.
Speaker Change: We continue to invest heavily in R&D.
Speaker Change: New product capabilities.
Speaker Change: Factory consolidation and our digital platform.
Speaker Change: In addition.
Speaker Change: Investments in modular design.
Speaker Change: We've reduced our development cycle times and.
Speaker Change: Enabling the rapid delivery of customized solutions to our customers.
Speaker Change: Our improvements in operational efficiency.
Steve Kelley: Our Improvements in Operational Efficiency. drew a better-than-expected gross margin in the first quarter. and the closure of our last china factory later this quarter. The culmination of a multi-year effort.
Speaker Change: Drove better than expected gross margin in the first quarter.
Speaker Change: And.
Speaker Change: The closure of our last China factory later this quarter the culmination of a multiyear effort.
Speaker Change: As expected to drive further gross margin improvement in the second half.
Steve Kelley: is expected to drive further gross margin improvement in the second half.
Speaker Change: Now I would like to say a few words about the current environment and how we are dealing with a new tariff regime.
Steve Kelley: Now I would like to say a few words about the current environment and how we are dealing with the new tariff regime. So far, we have seen no downward revisions in the demand forecast of our major customers in response to the new tariff. As a result... Our revenue outlook remains solid for the second quarter. Although macro visibility in the second half is limited. Current customer forecasts support growth for the year. particularly in data center and semiconductor. Although, we will not be able to fully mitigate the direct impact of tariffs. We believe that we are relatively well positioned.
Speaker Change: So far.
Speaker Change: We have seen no downward revisions and the demand forecast of our major customers in response to the new tariffs.
Speaker Change: As a result.
Speaker Change: Our revenue outlook remains solid for the second quarter.
Speaker Change: Although macro visibility in the second half is limited.
Speaker Change: Current customer forecasts support growth for the year.
Speaker Change: Particularly and data center and semiconductor.
Speaker Change: Although we will not be able to fully mitigate the direct impact of tariffs.
Speaker Change: We believe that we are relatively well positioned.
Speaker Change: As I mentioned previously our last China factory will close in June.
Steve Kelley: As I mentioned previously, our last China factory will close in June. In addition, our shipments from the U.S. into China are low. Therefore, our direct exposure to the highest tariff rates is limited. Further, with major facilities in Malaysia. The Philippines, and Mexico. Our broad manufacturing footprint allows us to optimize production to meet customer needs.
Speaker Change: In addition, our shipments from the U S into China are low.
Speaker Change: Therefore.
Speaker Change: Our direct exposure to the highest tariff rates is limited.
Speaker Change: Further with major facilities in Malaysia.
Speaker Change: Philippines and Mexico.
Speaker Change: Our broad manufacturing footprint allows us to optimize production to.
Speaker Change: To meet customer needs.
Speaker Change: Finally.
Steve Kelley: Finally! Most of the products we import from Mexico into the U.S. are USMCA compliant. which under current rules means that they are exempt from reciprocal tariffs.
Speaker Change: Most of the products, we import from Mexico into the U S.
Speaker Change: Our U S M T a compliant.
Speaker Change: Which under current rules means that they are exempt from reciprocal tariffs.
Steve Kelley: Now let me provide updates on each of our markets. in the first quarter. Semiconductor revenue decreased slightly from Q4, but was well ahead of plan. The better than expected results were due largely to strength at the leading edge. for both logic and memory processing. We expect semiconductor demand to remain solid in the current quarter. Supported by continuing investment at the leading edge. We continue to see strong customer pull for our next generation EVOS, Everest, and NAVX products. and have cumulatively shipped over 350 qualification units through the first quarter. This represents a five-fold increase from a year ago.
Speaker Change: Now, let me provide updates on each of our markets.
Speaker Change: In the first quarter.
Speaker Change: Semiconductor revenue decreased slightly from Q4, but was well ahead of plan.
Speaker Change: The better than expected results were due largely to strength at the leading edge.
Speaker Change: For both logic and memory processes.
Speaker Change: We expect semiconductor demand to remain solid in the current quarter.
Speaker Change: Supported by continuing investment at the leading edge.
Speaker Change: We continue to see strong customer pool for our next generation <unk> <unk>.
Speaker Change: Everest and <unk> products.
Speaker Change: And have cumulatively shipped over 350 qualification units through the first quarter.
Speaker Change: This represents a five fold increase from a year ago.
Steve Kelley: and a meaningful jump for more than 250 units shipped just a quarter ago. Our customers are incorporating these products into their next generation platforms for both logic and memory processing. We expect initial production ramps to start in the second half of this year.
Speaker Change: And a meaningful jump for more than 250 units shipped just a quarter ago.
Speaker Change: Our customers are incorporating these products into their next generation platforms for both logic and memory processes.
Speaker Change: We expect initial production ramp to start in the second half of this year.
Steve Kelley: followed by more significant growth in 2026.
Speaker Change: Followed by more significant growth in 2026.
Speaker Change: In data center computing.
Steve Kelley: and Data Center Computing. We achieved record revenue, which more than doubled year on year. Multiple hyperscale design wins are ramping to volume in 2025. We expect data center revenue to grow in the second quarter and into the second half of the year. are new products which feature high reliability. High Efficiency and High Power Density. are a good fit for power-hungry A.I. data Our focus on high-end opportunities has yielded deeper partnerships. and Closer Relationships with our key customers. In addition to the products we are currently ramping to production. We have already won key slots in Next Generation RAC.
Speaker Change: We achieved record revenue, which more than doubled year on year.
Speaker Change: Multiple hyperscale design wins are ramping to volume in 2025.
Speaker Change: We expect data center revenue to grow in the second quarter.
Speaker Change: And into the second half of the year.
Speaker Change: Our new products, which feature high reliability.
Speaker Change: High efficiency and high power density.
Speaker Change: Are a good fit for power hungry AI data centers.
Speaker Change: Our focus on high end opportunities has yielded deeper partnerships.
Speaker Change: And closer relationships with our key customers.
Speaker Change: In addition to the products we are currently ramping to production.
We have already won Keyslot and next generation racks.
Steve Kelley: with expected ramps in late 2025 and early 2026.
Speaker Change: As expected ramps in late 'twenty 'twenty five in early 2026.
Speaker Change: Industrial medical revenue decreased sequentially.
Steve Kelley: Industrial medical revenue decreased sequentially, more than we expected. Continuing Inventory Digestion. Coupled with weaker turns orders were the primary headwinds we faced in Q1. However, late in the quarter, we saw a meaningful increase in distribution. which should drive sequential growth in the second quarter. We believe that industrial and medical revenue likely reached a bottom in Q1. However, the pace of recovery in this market could be impacted by the new tariff regime. On the new product front, we continue to grow our design and pipeline. in the first quarter. We recorded major wins in industrial coding. Robotics.
Speaker Change: Than we expected.
Speaker Change: Continuing inventory digestion.
Speaker Change: Coupled with weaker turns orders were the primary headwinds we faced in Q1.
Speaker Change: However.
Speaker Change: Late in the quarter, we saw a meaningful increase in distribution orders.
Speaker Change: Which should drive sequential growth in the second quarter.
Speaker Change: We believe that.
Speaker Change: In industrial and medical revenue likely reached a bottom in Q1.
Speaker Change: However, the pace of recovery in this market could be impacted by the new tariff regime.
Speaker Change: On the new product front, we continue to grow our design win pipeline.
Speaker Change: In the first quarter.
Speaker Change: We recorded a major wins in industrial coating.
Speaker Change: Robotics.
Steve Kelley: Therapeutic. and Life Science Applications.
Speaker Change: Therapeutic and.
Speaker Change: And life science applications.
Speaker Change: On past earnings calls.
Steve Kelley: on past earnings calls. I've talked about the success of our new customer-friendly website. In addition... We've been working closely with our key distributors to expand our presence on their website. Mouser Electronics. The first distributor to launch their enhanced AE microsite. reported a 60% increase in page views in the first quarter. We expect similar results.
Speaker Change: I've talked about the success of our new customer friendly website.
Speaker Change: In addition.
Speaker Change: We've been working closely with our key distributors to expand our presence on their websites.
Speaker Change: Mouser electronics.
Speaker Change: First distributor to watch their enhanced AE microsite.
Speaker Change: Reported a 60% increase in page views in the first quarter.
Speaker Change: We expect similar results.
Steve Kelley: when our other distributors launch their AE microsites later this year. These enhancements make it easier for engineers to quickly identify the right advanced energy product and find available M&E.
Speaker Change: When our other distributors launched their AE micro sites later this year.
Speaker Change: These enhancements.
Speaker Change: Make it easier for engineers to quickly identify the right advanced energy product.
Speaker Change: And find available inventory.
Speaker Change: In the telecom and networking market.
Steve Kelley: in the telecom and networking market.
Steve Kelley: We experienced a modest sequential revenue decline in the first quarter, as anticipated. Going forward, we expect revenue in this market to remain within our target range.
Speaker Change: We experienced a modest sequential revenue decline in the first quarter as anticipated.
Speaker Change: Going forward, we expect revenue in this market to remain within our target range.
Speaker Change: Now for some closing thoughts.
Steve Kelley: Now for some closing thoughts. We're off to a good start in 2025, thanks to strength in the data center and semiconductor market. Success of our new products. Continued Improvements in Operational for the remainder of the year. We will focus on maintaining our new product momentum. Staying close to our customers. and completing our factory consolidation plan. Based on our understanding of the current tariff environment. We believe that we are relatively well-positioned. and are taking the right actions to minimize our exposure. Demand for our new products is very strong. Our R&D investments are paying off. as customers incorporate our new technology into their leading edge products.
Speaker Change: First we are off to a good start in 2025, thanks to strength in the data center and semiconductor markets.
Speaker Change: Success of our new products.
Speaker Change: And continued improvements in operational efficiency.
Speaker Change: For the remainder of the year.
Speaker Change: We will focus on maintaining our new product momentum.
Speaker Change: Staying close to our customers.
Speaker Change: And completing our factory consolidation plan.
Speaker Change: Second.
Speaker Change: Based on our understanding of the current tariff environment.
Speaker Change: We believe that we are relatively well positioned.
Speaker Change: And are taking the right actions to minimize our exposure.
Speaker Change: Third.
Speaker Change: Demand for our new products is very strong.
Speaker Change: Our R&D investments are paying off.
Speaker Change: As customers incorporate our new technology into their leading edge products.
Finally, with a strong balance sheet.
Steve Kelley: Finally, with a strong balance sheet. We continue to look for inorganic growth opportunities, which make strategic and financial sense.
Speaker Change: We continue to look for inorganic growth opportunities, which make strategic and financial sense.
Yeah.
Steve Kelley: To summarize, our results and guidance show that Advanced Energy is executing well in a dynamic market environment. We are confident. that we can grow revenue. Game Market Share, and improve our margins in 2025.
Speaker Change: To summarize.
Speaker Change: Our results and guidance show that advanced energy is executing well in.
Speaker Change: In a dynamic market environment.
Speaker Change: We are confident.
Speaker Change: That we can grow revenue.
Speaker Change: Gain market share.
Speaker Change: And improve our margins in 2025.
Speaker Change: Paul will now provide more detailed financial information.
Paul Oldham: Paul will now provide more detailed financial information.
Paul: Thank you, Steve and good afternoon, everyone, let me start with the headlines.
Paul Oldham: Thank you, Steve, and good afternoon, everyone. Let me start with the headlines. First, we executed well in a dynamic environment. First quarter revenue of $405 million was ahead of our guidance, with strength in data center computing and semiconductor more than offsetting weakness in industrial and medical Gross margin of 37.9% was better than expected, and we managed spending to the low end of our projection. As a result, earnings per share was $1.23, well above our guidance. Second, looking into Q2, with near-term demand visibility in data center and semiconductor and the ramp of new products, we expect revenue and earnings to grow sequentially and to be above our previous expectations.
Paul: First we executed well in a dynamic environment first quarter revenue of $405 million was ahead of our guidance with strength in data center computing and semiconductor more than offsetting weakness in industrial and medical.
Paul: Gross margin of 37.9% was better than expected and we managed spending to the low end of our projection.
Paul: As a result earnings per share was $1 23, well above our guidance.
Paul: Second looking into Q2 with near term demand visibility and data center and semiconductor and the ramp of new products, we expect revenue and earnings to grow sequentially and to be above our previous expectations.
Paul Oldham: Finally, in April, we took advantage of market volatility and repurchased $22.7 million worth of common stock at an average price of $83.78 per share.
Paul: Finally in April we took advantage of market volatility and repurchased $22 $7 million worth of common stock at an average price of $83.78 per share.
Paul: Now, let's review, our first quarter financial results in more detail.
Paul Oldham: Now let's review our first quarter financial results in more detail. Total revenue of $405 million decreased 3% sequentially, but increased 24% year-over-year. Semiconductor revenue was $222 million, down 2% from Q4, but up 23% from last year. Strong demand in AI-related leading-edge foundry logic and memory drove the better-than-expected results. Data center computing revenue was a record $96 million, up 9% sequentially and 130% year-over-year. Multiple new hyperscale programs started to ramp this quarter and are expected to drive further growth in Q2. Revenue in the industrial and medical market was $64 million, down 16% from Q4 and 23% from last year due to ongoing channel inventory destocking and lower turns revenue.
Paul: Total revenue of $405 million decreased 3% sequentially, but increased 24% year over year.
Paul: Semiconductor revenue was $222 million down 2% from Q4, but up 23% from last year.
Paul: Strong demand in AI related leading edge foundry logic and memory drove the better than expected results.
Paul: Data Center computing revenue was a record $96 million up.
Paul: 9% sequentially and 130% year over year.
Paul: Multiple new Hyperscale program started to ramp this quarter and are expected to drive further growth in Q2.
Paul: Revenue in the industrial and medical market was $64 million down 16% from Q4, and 23% from last year due to ongoing channel inventory Destocking and lower turns revenue.
Paul Oldham: However, orders rebounded during the quarter. Telecom and networking revenue declined 5% sequentially and 2% year-over-year to $22 million dollars, in line with our expectations. First quarter gross margin was 37.9%, down just 10 basis points from last quarter, but up 280 basis points from last year. Gross margin was above our previous guidance, even with the initial impact of tariffs that started in March, driven by favorable product mix and improved manufacturing costs. Operating expenses of $98.6 million were down more than $3 million from last quarter and at the low end of our target range. OPEX increased only modestly year over year, while revenue increased 24%, well ahead of our target of growing OPEX at half of revenue growth.
Paul: However orders rebounded during the quarter.
Paul: Telecom and networking revenue declined 5% sequentially and 2% year over year to $22 million in line with our expectations.
Paul: First quarter gross margin was 37, 9% down just 10 basis points from last quarter, but up 280 basis points from last year.
Paul: Gross margin was above our previous guidance, even with the initial impact of tariffs that started in March driven by favorable product mix and improved manufacturing costs.
Paul: Operating expenses of $98.6 million were down more than $3 million from last quarter and at the low end of our target range.
Paul: Opex increased only modestly year over year, while revenue increased 24% well ahead of our target of growing opex at half of revenue growth.
Paul: As a result first quarter operating income was $55 million and operating margin was 13, 5% up almost 700 basis points year over year.
Paul Oldham: As a result, first quarter operating income was $55 million, and operating margin was 13.5%, up almost 700 basis points year over year. Appreciation was $11 million, and our adjusted EBITDA was $65 million, which more than doubled year over year. Other income of $1 million was lower sequentially, mainly due to the impact of investment returns on deferred compensation. For Q1, our non-GAAP tax rate was 15.8%. Below our target, mainly due to delayed implementation of the Pillar 2 Global Minimum Tax Regime in certain jurisdictions. We continue to expect the tax rate to increase to approximately 19% for the balance of 2025 based on full adoption of the GMT.
Paul: Depreciation was $11 million and our adjusted EBITDA was $65 million, which more than doubled year over year.
Paul: Other income of $1 million was lower sequentially, mainly due to the impact of investment returns on deferred compensation.
Paul: For Q1, our non-GAAP tax rate was 15.8%.
Paul: Below our target mainly due to delayed implementation of the pillar two global minimum tax regime in certain jurisdictions.
Paul: We continue to expect the tax rate to increase to approximately 19% for the balance of 2025 based on full adoption of the G. M T.
Paul: As a result first quarter earnings were $1 23 per share compared to a $1 30 per share in the previous quarter and 58 cents per share a year ago.
Paul Oldham: As a result, first quarter earnings were $1.23 per share compared to $1.30 per share in the previous quarter and $0.58 per share a year ago.
Paul: Turning now to the balance sheet.
Paul Oldham: Turning now to The Balance Sheet. Total cash and cash flow equivalents at the end of the first quarter was $723 million, with net cash of $158 million. Cash flow from continuing operations was $29 million. Inventory increased $8 million as we added critical piece part inventories to support near-term growth. Inventory days increased from 126 in Q4 to 132 in Q1, and inventory turns were 2.7 times. DPO increased from 50 days in Q4 to 56 in Q1, and DSO increased from 57 days in Q4 to 62 in Q1. During the first quarter, we invested $13.9 million or 3.4% of revenue in CapEx.
Paul: Total cash and cash equivalents at the end of the first quarter with $723 million with net cash of $158 million.
Paul: Cash flow from continuing operations was $29 million.
Paul: Inventory increased $8 million as we added critical piece part inventories to support near term growth.
Paul: Inventory days increased from 126 in Q4 to a 132 in Q1 and inventory turns were two seven times.
Paul: D. P O increased from 50 days in Q4 to 56 in Q1 and DSO increased from 57 days in Q4 to 62 in Q1.
Paul: During the first quarter, we invested $13 $9 million or 3.4% of revenue in Capex.
Paul: Finally, we paid $3 $8 million in dividends and repurchased $908000 of common stock at an average price of $94.26 per share.
Paul Oldham: Finally, we paid $3.8 million in dividends and repurchased $908,000 of common stock at an average price of $94.26 per share.
Paul: Before I talk about guidance, let me give you a little more color on the impact of tariffs and trade on AE.
Paul Oldham: Before I talk about guidance, let me give you a little more color on the impact of tariffs and trade on AE. As you know, the situation is very dynamic. Potentially increasing macroeconomic risk and making longer term financial projections difficult and subject to change. However, we believe that AE is relatively well positioned. From a revenue perspective, our customers are still projecting continued investments in artificial intelligence and new technology. In addition, incremental revenue from new products and data center and semiconductor should position us to outgrow our markets and gain share. From a cost perspective, while tariff expense will increase near term, we are taking actions to mitigate the financial impact.
Paul: As you know the situation is very dynamic potentially increasing macroeconomic risk and making longer term financial projections difficult and subject to change.
Paul: However, we believe that AE is relatively well positioned.
Paul: From a revenue perspective, our customers are still projecting continued investments in artificial intelligence and new technologies.
Paul: In addition, incremental revenue from new products in data center, and semiconductor should position us to outgrow our markets and gain share.
Paul: From a cost perspective, while tariff expense will increase near term, we are taking actions to mitigate the financial impact.
Paul: As Steve noted, we are starting with a favorable geographic manufacturing footprint.
Paul Oldham: As Steve noted, we are starting with a favorable geographic manufacturing footprint, giving us the flexibility to optimize production in lower tariff countries and utilize exemptions like USMCA wherever possible. We are working with our supply chain to limit imports from high tariff locations, qualify alternate vendors or parts, and redirect goods flow where it makes sense. Finally, we expect to make price adjustments to cover costs which cannot otherwise be mitigated. As a result, assuming no major change in the current environment, we expect to continue to be able to meet our gross and operating margin targets over time.
Paul: Giving us the flexibility to optimize production and lower tariff countries and utilized exemptions like U S. M C a wherever possible.
Paul: We are working with our supply chain to limit imports from high tariff locations qualify alternate vendors or parts and redirect goods flow where it makes sense.
Paul: Finally, we expect to make price adjustments to cover costs, which cannot otherwise be mitigated.
Paul: As a result, assuming no major change in the current environment, we expect to continue to be able to meet our gross and operating margin targets over time.
Paul: Turning now to our guidance.
Paul Oldham: Turning now to our gui . First, our outlook contemplates our assessment of the direct impact of Terra. Based on solid customer demand, we expect revenue in the second quarter to grow sequentially and the second half to grow low single digits over the first half. In the data center computing market, we expect continued ramp of new programs for customer AI investments to drive strong sequential growth in the current quarter and potentially beyond. We expect Q2 Semiconductor Revenue to moderate slightly from Q1. Based on the stronger-than-expected first half, we now project semiconductor to grow around 10% for the year, partially due to initial production ramp of our new product.
Paul: First our outlook contemplates our assessment of the direct impact of tariffs.
Paul: Based on solid customer demand, we expect revenue in the second quarter to grow sequentially in the second half to grow low single digits over the first half.
Paul: In the data center computing market, we expect continued ramp of new programs for customer AI investments to drive strong sequential growth in the current quarter and potentially beyond.
Paul: We expect Q2 semiconductor revenue to moderate slightly from Q1.
Paul: Based on the stronger than expected first half, we now project semiconductor to grow around 10% for the year, partially due to initial production ramp of our new products.
Paul: Within industrial and medical we believe Q1 was the bottom and expect revenues to start recovering in Q2 on increased orders.
Paul Oldham: Within industrial and medical, we believe Q1 was the bottom and expect revenues to start recovering in Q2 on increased orders. However, we expect the rate of recovery to be tempered by economic uncertainty and at the cost of tariffs. As a result, we are forecasting our second quarter revenue to be approximately $420 million, plus or minus $20 million. We expect Q2 gross margin to be around 38% on continued improvement in manufacturing and higher volumes, offset by less favorable mix, and the impact of the new tariff. We expect Q2 operating expenses to increase to $99 to $101 million due primarily to investments in new products and annual merit increase.
Paul: However, we expect the rate of recovery to be tempered by economic uncertainty and the cost of tariffs.
Paul: As a result, we are forecasting our second quarter revenue to be approximately $420 million plus or minus $20 million.
Paul: We expect Q2 gross margin to be around 38% on continued improvement in manufacturing and higher volumes offset by less favorable mix and the impact of the new tariffs.
Paul: We expect Q2 operating expenses to increase to $99 million to $101 million due primarily to investments in new products and annual merit increases.
Paul Oldham: We expect other income to be approximately $1 million per quarter and the tax rate to be in the 19%. As a result, we expect Q2 non-GAAP earnings per share to be $1.30, plus or minus $0.25.
Paul: We expect other income to be approximately $1 million per quarter.
Paul: And the tax rate to be in the 19% range.
Paul: As a result, we expect Q2 non-GAAP earnings per share to be $1, 30, plus or minus 25 cents.
Paul: Finally, given our expected market share gains in datacenter and next generation semiconductor products.
Paul Oldham: Finally, given our expected market share gains in data center and next generation semiconductor products We have decided to increase our full year 2025 CapEx guidance to 5 to 6% of revenue. While this is above our prior target of over 4%, our strong balance sheet enables us to make this investment in high-volume capacity, to capture revenue upside, and support new product introduction capabilities.
Paul: We have decided to increase our full year 'twenty twenty-five capex guidance to 5% to 6% of revenue.
Paul: While this is above our prior target of over 4% our strong balance sheet enables us to make this investment in high volume capacity to capture revenue upside and support new product introduction capability.
Paul: Before opening it up for questions I want to highlight a few points.
Paul Oldham: Before opening it up for questions, I want to highlight a few Although the new tariff and trade policies are creating macro uncertainty, particularly in the second half, we believe we are relatively well positioned. We believe we are gaining share across our markets, supported by multiple generations of high-end data center solutions, leading-edge plasma-powered platforms, and a broad set of customized industrial and medical design For more information visit www.fema.gov We're on track to complete our China factory closure this quarter, providing margin uplift in the second half. As we demonstrated in Q1, we continue to improve our cost structure and are committed to find ways to offset the increased cost of tariffs and achieve our gross margin expansion goals over time.
Although the new tariff and trade policies are creating macro uncertainty, particularly in the second half. We believe we are relatively well positioned.
Paul: We believe we're gaining share across our markets supported by multiple generations of high end data center solutions, leading edge plasma power platforms, and a broad set of customized industrial and medical design wins.
Paul: We're on track to complete our China factory closure this quarter, providing margin uplift in the second half.
Paul: As we demonstrated in Q1, we continued to improve our cost structure and are committed to find ways to offset the increased cost of tariffs and achieve our gross margin expansion goals over time.
Paul: Finally, our strong balance sheet, our net cash position enabled us to fund investments in capability and capacity for growth Opportunistically.
Paul Oldham: Finally, our strong balance sheet and net cash position enable us to fund investments in capability and capacity for growth, opportunistically repurchase our stock to offset dilution, and maintain ample liquidity to pursue strategic acquisitions that create shareholder value.
Paul: Opportunistically repurchase our stock to offset dilution and maintain ample liquidity to pursue strategic acquisitions that create shareholder value.
Paul: With that we'll now take your questions.
Operator: With that, we'll now take your questions. Operator. Thank you.
Paul: Operator.
Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May press star two to remove yourself from the queue.
Operator: We will now be conducting a question. To ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 to remove yourself from the queue.
Brian Chin: For participants using speaker equipment, it may be This first question comes from the line of Brian... Hi there, good afternoon, good work, and thanks for letting us ask a few questions. Maybe firstly, and I apologize if I missed this, but is your underlying view for Semi-Equipment Market for kind of flattish WSE? And if that's the case, or even if you provide that, do you, how would you contextualize your 10% growth outlook, you know, level of outperformance? I guess this would also imply second half semi-cap revenue is roughly similar-ish to the first half.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please as always pull for questions.
Operator: And the first question comes from the line of Brian Chin with Stifel. Please proceed with your question.
Brian Chin: Hi, there good afternoon.
Speaker Change: Good work and thanks for letting us ask a few questions maybe firstly I apologize if I missed this but are you is your underlying view for.
Speaker Change: The semi equipment market for kind of flattish WMC and if that's the case are you have you provided that the do you how would you contextualize your 10% growth outlook our level of outperformance I guess this is also imply second half semi cap revenues roughly similar ish to the first half.
Steve Kelley: I guess I'll stop there with that first question. Thanks for the question Brian. So as far as WFE goes we don't we don't try to pick that or predict it but we think it's somewhere in the you know zero to five percent up this year. It's our growth of ten percent which is what we're projecting year-on-year is is above market. And we think that's due to a few factors. You know, one is the increasing etch and depth intensity of these leading-edge processes, where we're very strong. Secondly, our new products are catching on, so that's contributing to our outperformance.
Speaker Change: I guess I'll stop there with that first question.
Speaker Change: Yeah. Thanks.
Brian Chin: Thanks for the question, Brian So as far as W. If he goes we don't we don't try to pick that or predict it but we think it's somewhere in the.
Speaker Change: Zero, 5% up this year.
Speaker Change: So our growth of 10%, which is what we're projecting year on year is is above market.
Speaker Change: And and we think that's a <unk>.
Due to a few factors one is the.
Speaker Change: The increasing etch and dep intensity of these leading edge processes, where we're very strong secondly, our new products are catching on so that's contributing to our performance.
Steve Kelley: And third, you know, most of the action is in leading edge logic and in DRAM. And those are two areas where we have good content.
Speaker Change: And third you know most of the action is and leaving as logic and in DRAM and those are two areas, where we have good content.
Speaker Change: Got it got it thanks, Steve and then.
Brian Chin: Thanks, Steve.
Steve Kelley: And then my follow up. One, can you give us a sense, I don't know if it's Advanced Logic, maybe NAND, where you're starting to see that initial production ramp of the new plasma process power products in the second half of the year? And then, you know, is it possible in any way to kind of bracket the potential tariff when you could see in the back half of the year? I know it's sort of difficult at this stage, but just if you have any additional thoughts on that.
Speaker Change: My follow up.
Speaker Change: One.
Speaker Change: Can you give us a sense as I don't if it's advanced logic, maybe NAND, where you're starting to see that initial production ramp of the <unk>.
Speaker Change: Plasma process power products in the second half of the year and then yeah.
Speaker Change: Is it possible in any way that the kind of bracket the potential tariffs when you could see in the back half of the year.
Speaker Change: I know, it's sort of difficult at this stage, but just if you have any additional thoughts on that.
Speaker Change: Yeah. So maybe I think you said your second question was about tariffs and potential impact on our business.
Steve Kelley: Yeah, so maybe, I think your second question was about tariffs and such an impact on our business. So why don't I start there? I'll start there. So when you look at our business, You know, most of what we're selling this year goes to either semi-equipment companies or to data center companies. And they're all big companies, and they're sophisticated, and they handle the tariff issues themselves, essentially. That's almost 80% of our business in 2025. So for us, in our view, most of the tariff impact will probably fall on the industrial medical customers. And so most of those products are built in either Mexico or in the Philippines.
Speaker Change: Why don't I start there I'll start there so.
Speaker Change: When you look at our business.
Speaker Change: You know most of what we're selling this year goes to either semi equipment companies or to datacenter companies.
Speaker Change: And they're all they're all big companies and.
Speaker Change: They're sophisticated and they handle the tariff issues themselves essentially that's almost 80% of our business in 2025, so for us in our view most of the <unk>.
Speaker Change: Tariff impact will probably fall along the industrial medical customers.
Speaker Change: And so.
Speaker Change: Are those products are built in either Mexico or in the Philippines. So on Mexico.
Steve Kelley: So in Mexico. Little less than half our output goes into the United States, and of that output, the vast majority of products are compliant to USMCA, which means there are no reciprocal tariffs. So actually, our position in Mexico is an advantage for us relative to most of our competitors. As far as the Philippines go... You know, if the reciprocal tariffs are reimposed, the Philippines 17% tariff is less than almost any other company or any other country in Asia. So I think we're pretty well positioned, you know, to limit the impact of tariffs on our business.
Speaker Change:
Speaker Change: Little less than half are up or it goes into the United States.
Speaker Change: And of that output. The vast majority of products are compliant to U S. M. C E, which means there are no reciprocal tariffs so actually our our you know our position in Mexico as an advantage for us relative to most of our competitors.
Speaker Change: As far as the Philippines go.
Speaker Change: You know if the reciprocal tariffs were reimposed.
Speaker Change: The Philippine 17% tariff is less than almost any other company or in any other country in Asia.
Speaker Change: So I think we're pretty well positioned.
Speaker Change: To limit the impact of tariffs on our business.
Speaker Change: Okay.
Speaker Change: Okay.
Brian Chin: Thanks, that's really good color.
Speaker Change: That's really good color and then maybe the other part of the front end of that was just the.
Steve Kelley: And then maybe the other part, the front end of that was just the, what, what device that markets where you're seeing, you know, probably contributing to that, that big step up in Q1, 350, 350 shipments up to 250 in the prior quarter? Is it advanced logic? Is it advanced flash? Or any color you can provide there? It's across the board. But clearly, the greatest sense of urgency is in advanced logic, and also in DRAM. Okay, great.
Speaker Change: What what device that markets, where youre seeing.
Speaker Change: Probably contributing to that that big step up in Q1, 300 to 350 shipments up from the prior quarter.
Speaker Change: <unk> is a NAND flash or any color you can provide there it's it's across the board, but clearly.
Speaker Change: The greatest sense of urgency is in advanced logic and also in DRAM.
Speaker Change: Okay, great. Thank you.
Scott Graham: Thank you.
Speaker Change: Okay.
Speaker Change: And the next question comes from the line of Scott Graham with Seaport Research. Please proceed with your question.
Scott Graham: The next question comes from the line of Scott Graham. Hey, good afternoon and well done. Very nice quarter. I have a couple of questions. The certainly the one is a piggyback onto the prior question is. You know, you're gaining share against WFE in total, but do you think you're also gaining share within the power sleeve of WFE? You know, I've always hesitated to talk about market share because it goes up and down based on a variety of factors. But I think at this point, what I could say is, given the traction of our new products, of Everest, of EVOS, of NAVX, and the derivatives.
Scott Graham: Hey, good afternoon, and well done very nice quarter.
Scott Graham: I have a couple of questions. The certainly the one is a piggyback onto the prior question is.
Scott Graham: You're gaining share against <unk> in total, but do you think you were also gaining share within the power sleeve of WMC.
Scott Graham: You know I've always hesitate to talk about market share because it.
Scott Graham: Goes up and down based on a variety of factors, but I think at this point what I can say is given the traction.
Scott Graham: Our new products of Everest of Evo and <unk>.
Scott Graham: Of diabetics in the derivatives.
Steve Kelley: I think we're poised to gain share in the coming years. and I'm confident saying that these products allow us to basically expand our share in conductor etch, which is where we're strongest today, but they're also allowing us to participate in dielectric etch, which is a white space for us today. So I think we'll see significant market share gains in semiconductor over the coming three to five years.
Scott Graham: I think where we're poised to gain share in the coming years.
Scott Graham: And.
Scott Graham: You know I'm competent, saying that these products allow us to to basically expand our share in conductor etch, which is where we're strongest today, but they're also allowing us to participate in dielectric etch, which is a white space for us today, So I think.
Scott Graham: I think we'll see significant market share gains in semiconductor over the coming three to five years.
Scott Graham: Okay. Thank you for that and just a quick on the.
Scott Graham: Okay, thank you for that.
Scott Graham: Then just a quick on the INM, although maybe not so quick. But, you know, that business has been really problematic for you guys now for a number of successive quarters. And, you know, the industrial economy is probably going to get a little weaker, as I think you've pointed out, with some caution there. I'm just wondering, what are the steps you need to take here? It seems like, I think we've talked about this before. You really need an acquisition there to gain some critical mass because it seems like you've got a lot of business, but in a lot of very small niche type of markets.
Speaker Change: I am although maybe not so quick but yeah that business has been really problematic for you guys now for a number of successive quarters and.
Scott Graham: The industrial economy is probably going to be.
Scott Graham: We get a little weaker.
Speaker Change: You've pointed out.
Scott Graham: With some caution there.
Scott Graham: I'm just wondering what are the steps you need to take carry it seems like I think we've talked about this before.
Speaker Change: U E really need an acquisition there to gain some critical mass because it seems like you've got a lot of business, but in a lot of very small niche type of markets I'm just.
Steve Kelley: Very, those are types of markets that, you know, can easily de-stock at any time, and they have been. So, what's, what is the plan there to start to improve that business? I know your orders were better, but is an acquisition really the, the key to getting that business, you know, more plate appearances with customers? Is there something internal you need to do in I&M to kind of reverse the fortune there? Yeah, so Scott, there's a couple ways I think about I&M. First is the long term, and the second is short term. And I think on the short term, you know, it's been an extended correction period, because the I&M customers were really the last customers to recover from the supply chain crisis associated with COVID.
Speaker Change: Very good those are types of markets that can easily destock at any time and they have been so what's what is the plan there to start to prove that business I know your orders were better but is an acquisition really the key to getting that business. You know more played appearances with <unk>.
Speaker Change: Customers is there something internally you need to do.
Speaker Change: And I am too kind of reversed a fortune there.
Speaker Change: Yeah.
Speaker Change: So Scott there's a couple ways to think about I N. M. First is the long term and the second is short term and I think on the short term it's been extended correction period.
Speaker Change: Because the iron M customers were.
Speaker Change: Really the last customers to recover from the.
Speaker Change: The supply chain crisis associated with Covid.
Steve Kelley: And so I think there's still many customers still working their way through excess inventories. And that's been complicated by lackluster demand, right? So the current state of the market is not great. But we think that we'll be able to show some improvement moving forward this year, but it's not going to be dramatic. But as I think about I&M long-term, you know, the same factors. I think are going to work in our favor, because this is largely a sole source business. We're aiming at the high end of the industrial medical market. We're having great success winning new designs.
Speaker Change: So I think there is still many customers still working their way through excess inventories and thats been complicated by lackluster demand right. So so the current state of the market is not great.
Speaker Change: But we think that we'll be able to.
Speaker Change: Show some improvement.
Speaker Change: Moving forward this year, but it's not going to be dramatic.
Speaker Change: But.
Speaker Change: As I think about I am long term.
Speaker Change: The same factors.
Speaker Change: I think are going to work in our favor because this is largely a sole source business. We're aiming at the high end of the industrial medical market, we're having great success, winning new designs and you know, we just set a record as far as our number of.
Steve Kelley: And we just set a record as far as our number of products and opportunities in our pipeline. So I think we're poised to gain meaningful share as the market recovers. And so it's going to be a process. But I think we have to kind of separate the long term and the short term when we think about industrial medical. Now as it comes to acquisitions, we think INM is a great place to make acquisitions because it's a highly fragmented market and we have a number of interesting competitors which also have a lot of sole source position.
Speaker Change: Our products and opportunities in our pipeline. So I think we're poised to gain meaningful share as the market recovers.
Speaker Change: And so that's a you know it's gonna be a process, but I think we have to kind of separate the long term in the short term when we think about industrial medical.
Speaker Change: Now as it comes to acquisitions.
Speaker Change: We think a I N M is a great place to make acquisitions, because it's a highly fragmented market.
Speaker Change: And you know we have a number of intra.
Speaker Change: Interesting competitors, which also have a lot of sole source position.
Steve Kelley: And so we continue to work hard on our pipeline. And, you know, if we make an acquisition, it's likely to be an I&M.
Speaker Change: And so we continue to work hard on our pipeline.
Speaker Change: And if we make an acquisition is likely to be an A&M.
Speaker Change: Yeah.
Speaker Change: Right. Okay. Thanks, a lot I appreciate it.
Scott Graham: Right.
Scott Graham: Okay.
Robert Mertens: Thanks a lot. Appreciate it. Thanks, Scott.
Speaker Change: Thanks Scott.
Speaker Change: And the next question comes from the line of Krish Shankar with TD Cowen. Please proceed with your question.
Speaker Change: Yeah.
Robert Mertens: Hi, this is Robert Mertens on the line on behalf of Krish. Thank you for taking my questions. Maybe just a quick follow-up, in the industrial and medical markets, March seemed like a little bit weaker than maybe expected, exiting last year, and I know that business can be a bit lumpy on a quarterly basis, but looking into the second half of this year, are you seeing any sort of changing in customer purchasing patterns within the market that give you confidence in the second half recovery, or is it really primarily based on seeing some of the inventory drawn down through your distributor network?
Speaker Change: Hi, This is Robert Mertens on the line on behalf of Chris. Thank you for taking my questions.
Speaker Change: Maybe just a.
Speaker Change: A quick follow up in the industrial and medical markets.
Speaker Change: March seemed like a little bit weaker than may be expected.
Speaker Change: Exiting last year, and I know that business can be a bit lumpy on a quarterly basis, but looking into the second half of this year are you seeing any sort of changing in customer purchasing patterns within the market that gives you confidence in the second half recovery or is it really primarily based on seeing some of that inventory drawn down.
Speaker Change: Through your distributor network.
Speaker Change: Any color there would be helpful.
Steve Kelley: Any color that would be helpful. Yeah, you know, I think it's it's primarily our view through distribution, because in INM, roughly half our sales go through the distributor channel. And so we've seen, you know, four straight quarters of reduction inventory and distribution. And so we're encouraged by that. We're also encouraged by by some increased order activity in the latter part of Q1. And, you know, we analyzed that and we figured out it wasn't due to tariffs, it was really due to demand that the distributors are seeing from end customers. So we think the orders are matching demand right now.
Speaker Change: Yeah, you know I think its its primarily our view through distribution because in A&M.
Speaker Change: Roughly half of our sales go through the distributor channel.
Speaker Change: And so we've seen them.
Speaker Change: In our four straight quarters of reduction inventory and distribution.
Speaker Change: And so we're encouraged by that we're also encouraged by but some are.
Speaker Change: Increased order activity in the latter part of Q1.
Speaker Change: And are you know, we analyze that and we figured out it wasn't due to tariffs. It was really due to demand that the distributors are seeing from end customers. So we think we think their orders are matching demand right now.
Steve Kelley: And our overall view of the industrial medical customer base is they're taking a wait and see approach, you know, particularly as these tariffs get rolled out or not, and they're proceeding cautiously.
Speaker Change: And our overall view of the industrial medical customer base is they're taking a wait and see approach, particularly as these tariffs get rolled out or or not.
Speaker Change: And in there proceeding cautiously.
Robert Mertens: � Okay, that's helpful.
Speaker Change: Okay. That's helpful. And then maybe just a quick follow up.
Steve Kelley: And then maybe just a quick follow-up on questions around the Simicat business. Is there any sort of risk given the current macro environment that customers would be able to delay the rollout of some of these new systems that you're predicting to ramp pretty significantly in the second half or are those more strategic and sort of set in stone? Yeah, you know, I think the challenges our customers are facing are pretty significant, the technical challenges as we move to two nanometers and below. And so there's always going to be, you know, pushes and pulls of schedules, and we can't control that.
Speaker Change: One question is around the semi cap business.
Speaker Change: Is there any sort of risk given the current macro environment that customers would be able to delay the rollout of some of these new systems.
They are predicting to ramp pretty significantly in the second half or are those more strategic and sort of set in stone.
Speaker Change: Yeah, you know I think the challenges our customers are facing a pretty significant technical challenges as we move to two nanometers and below and so there's always going to be.
Speaker Change: Pushes and pulls of schedules.
Speaker Change: Can't control that.
Steve Kelley: But what I do know is there's a high degree of at www.advanceenergy.com Throughput and yield performance which is as good as or better than the last generation technology.
Speaker Change: But what I do know is there's a high degree of.
Speaker Change: Urgency.
Speaker Change: On the part of our customers two to incorporate these new solutions for advanced energy.
Speaker Change: Because they run into issues.
Speaker Change: With the older technology, just doesn't get the job done fast enough.
Speaker Change: And so that's that's the big advantage that we have is our new technology provides our customers.
Speaker Change: Throughput and yield performance, which is there is as good as or better than the last generation technology.
Speaker Change: Got it thank you.
Robert Mertens: Found it.
Steve Barger: Thank you.
Steve Barger: And the next question comes from the line of Steve Barger with Keybanc capital markets. Please proceed with your question.
Steve Barger: Steve Barger, KeyBank Hi, thanks. Really great to see the EVOS and Everest performance. And I'm just trying to think about the what high volume production could look like. You know, you said you've shipped 350 units cumulatively. through 1Q. Maybe that ends up at 500 or 600 or whatever for this year. But does that double as you go into high volume production or is it more than a double? How have programs like that worked? Yeah, when it goes into high volume production, it will be much more than double. So what we've done is we've seeded the market, so all of the customers we have, practically, have received and purchased these qualification units.
Steve Barger: Hi, Thanks.
Steve Barger: Really great to see the Evo and <unk> performance and I'm, just trying to think about what high volume production could look like you said you shipped 350 units cumulatively.
Steve Barger: Through <unk>, maybe that ends up that 500 or 600 or whatever for this year, but does that double as you go into high volume production or is it more than a double.
Steve Barger: How have programs like that worked in the past.
Yeah. It when it goes into high volume production will be much more than double so so what we've done is we've seeded the market. So all of the all the customers we have practically have.
Steve Barger: Received and purchased these qualification units and so they're using these units both in their development labs as well as at and.
Steve Kelley: And so they're using these units both in their development labs as well as at end customer wafer fabs. and so. These are in various stages of qualification. In some cases, the products are already qualified and will start to ramp in the second half of this year. But in most cases, the qualification will continue through this year and the ramps will start next year. Right. Yeah, I think, you know, think of these units as selling in the tens of thousands of dollars. Our content is way up, you know, from last generation to this generation. because we're delivering more value and we're also operating at higher power levels.
Steve Barger: <unk> wafer fabs.
Steve Barger: And so.
Steve Barger: These are in various stages of qualification.
Steve Barger: Some cases, the Bronx already qualified and will start to ramp in second half of this year.
Steve Barger: But in most cases the qualification will continue through this year and the ramps will start next year.
Steve Barger: But yeah I think.
Steve Barger: Think of these units is selling in the tens of thousands of dollars. Our content is way up from last generation to this generation.
Steve Barger: Because we're delivering more value.
Steve Barger: And we're also operating at higher power levels.
Steve Kelley: And so as we win these advanced node positions, you know, it's going to help increase not just our unit market share but also our dollar market share.
Steve Barger: So as we win these these advanced node.
Steve Barger: Positions.
Steve Barger: It's going to help increase not just our unit market share barrels for one dollar market share.
Steve Kelley: Yeah, that's excellent color. Thanks. Are those strictly for newly built tools? Or are there upgrade potential? Yeah, the work we're doing today is strictly for newly built tools. However, you know, there were some customers who are looking at ways they could use some of the technology to upgrade older tools. But that's, that's really a second priority today. Most of our customers are really focused on winning those. those new slots in the advanced processes.
Speaker Change: Yes, that's excellent color. Thanks are those strictly for newly built tools or are their upgrade potential applications.
Speaker Change: Yet the work we're doing today is strictly for newly built tools. However.
Speaker Change: You know there were some customers who are looking at ways. They could use some of the technology upgrade older tools, but that's that's really a second priority today most.
Speaker Change: Most of our customers are really focused on winning those.
Speaker Change: Those new slots in the advanced processes.
Steve Kelley: And then a quick one on data center. You talked about growth in 2Q and then again in the two half. I'm just curious about visibility of demand. Does that extend into 2026 with this kind of momentum? And is there an upside limit to capacity as you stand today? Or could you deliver $125 million a quarter or $150 million a quarter if demand was there? Yeah, so I would say in hyperscale, the inputs we're getting today are up and to the right. And our visibility for 2025 is pretty good. We have orders, we have solid forecasts that give us a lot of confidence, not just in Q2, but also in the second half growth in hyperscale.
Speaker Change: Understood and then a quick one on data center, you talked about growth in <unk> and then again in the two half I'm just curious about visibility of demand does that extend into 2026 with this kind of momentum and is there an upside limit to capacity as you stand today or or could you deliver $125 million a quarter or a 100.
Speaker Change: $50 million a quarter if demand was there.
Speaker Change: Yeah, So I would say in Hyperscale. The inputs, we're getting today are up into the right and our visibility for 2025 is pretty good we have orders we have we.
Speaker Change: We have solid forecasts that gives us a lot of confidence not just in Q2, but also in the second half growth in Hyperscale.
Steve Kelley: As far as going to 26, you know, we don't have any forecasts, but what we do have are a lot of new wins. And so right now, the cadence of new products and data center is about, you know, one new one per year. So we're upgrading and trying to keep up with the introduction of GPUs. And each new generation of GPUs requires basically higher power. And so this is a very rapid upgrade cycle. And so we're ramping to volume on many programs right now, but we also have one designs that will help us ramp in 26.
Speaker Change: As far as going into 'twenty six we don't have any forecast, but what we do have a lot of new wins.
Speaker Change: And so right now the cadence of new products in data Center is about you know.
Speaker Change: One new one per year, so we're upgrading and trying to keep up with the introduction of Gpus and each new generation of Gpus requires basically higher power.
Speaker Change: And so this is a very rapid upgrade cycle and so we're ramping.
Ramping to volume on many programs right now, but we also have won designs that will help us ramp in 'twenty six.
Steve Kelley: You know, the absolute number is hard to say at this point, but, you know, I think we've done a pretty good job. Diversifying. across multiple hyperscalers, multiple programs, and in multiple generations of products. So I'm pretty happy with the direction of that business.
Speaker Change: You know the absolute.
Speaker Change: Number is hard to say at this point, but you know I think we've done a pretty good job there.
Speaker Change: Diversification.
Speaker Change: Across multiple hyperscale or multiple.
Speaker Change: Multiple programs and in multiple generations of products, So I'm pretty happy with the with.
Speaker Change: With the direction of that business.
Steve Kelley: And what was your second question? Yeah, Steve, maybe I'll just follow up on the capacity. Yeah, you heard in our comments that we're actually increasing our CapEx in the near term. This is to support really the capacity around these high power supplies and the infrastructure that goes behind it. So we certainly have capacity to grow from where we are, but based on our visibility of the design wins we have and, you know, kind of the power requirements, we have increased our CapEx in the near term to ensure we're in a position to capitalize and to take advantage of what we think is the higher volumes that are coming.
Speaker Change: And what was your second question, Yes, Steve maybe I'll just follow up on that on the capacity. Yeah. You heard you heard in our comments that we're actually increasing our capex in the near term this is to support really.
Speaker Change: Really the capacity around these high power.
Speaker Change: Power supplies and the infrastructure that goes behind it. So we certainly have capacity to grow from where we are but based on our visibility of the design wins we have.
Speaker Change: And you know kind of the power requirements, we have increased our capex in the near term to ensure we're in a bit and are positioned to capitalize and take advantage of of what we think is is the higher volumes that are coming now I characterize a little bit of this capex as a pull in from maybe a couple of years out.
Steve Barger: Now, I characterize a little bit of this CapEx as a pull-in from maybe a couple of years out, and I think it just demonstrates that the market's moving much more quickly to these higher power requirements and, frankly, our win rate in terms of capturing, you know, this, you know, the upside faster. So there is some investment we'll be making around power infrastructure and capacity around the high power requirements for data center. That's great. Thanks very much.
Speaker Change: And I think it just demonstrates that the market's moving much more quickly to these higher power requirements and frankly are our win rate in terms of capturing.
Speaker Change: This.
You know the the upside upside faster. So there there is some investment we'll be making around power infrastructure and capacity around that the high power requirements for data center.
Speaker Change: That's great thanks very much.
Speaker Change: And the next question comes from the line of Mark Miller with Benchmark. Please proceed with your question.
Mark Miller: The next question comes from the line of Mark Miller. Bratz won a quarter. Thank you for the question.
Mark Miller: Thank you congrats on the quarter. Thank you for the question I'm just wondering.
Mark Miller: I'm just wondering, In your backlog, what does the margin profile look like? You're kind of driving the flat margins, but improvements in the second half, is that based on the backlog? And the second question, or part of the question is, in terms of the design ones, do these products have above corporate average margins? Yeah, good question, Mark. So, as you know, our backlog, you know, in a normalized environment isn't that meaningful because so much of it is in semi-equipment or even equipment that's going to hubs for data center. So our outlook is more based on our projections of what that product mix is going to be as we look forward.
Mark Miller: And your your your backlog what does the margin profile look like youre kind of guiding to flat margins, but improvements in the second half is that based on the backlog and the second question or a part of the question is in terms of the design wins to these products are above corporate average margins.
Mark Miller: Yeah. Good question Mark So as you know our backlog you know in a normalized environment isn't that meaningful because so much of it is in is in semi equipment or even equipment, that's going to hubs for data center.
Mark Miller: So our outlook is more based on our projections of what that product mix is going to be as we look forward.
Steve Kelley: And in general, we do expect higher margins from our new products and from this new mix. I'll say in data center, which is ramping, what we've talked about is that the product margins in those areas have improved. They're not at corporate average yet, but they're closer than they have been historically. And, you know, we focused on more sole source opportunities or limited source opportunities. And we think that's really playing to our strengths and paying off for us right now.
And in General, we do expect higher margins from our new products and from this new mix I'll say in data center.
Mark Miller: Which is which is ramping what we've talked about is that the product margins in those areas have improved they are not at corporate average yet.
Mark Miller: They're closer than they had been historically.
Mark Miller: And we focused on more sole sourced opportunities are limited source opportunities and we think that's that's really.
Mark Miller: Playing to our strengths and paying off for us right now.
Mark Miller: At one point you were talking about maybe by the end of the year that we'd be in a trajectory towards 40% margins or is that still possible. We're still the visibility is still out there.
Paul Oldham: At one point, you were talking about maybe by the end of the year that we'd be in a trajectory towards 40% margins. Is that still possible or is the visibility still not there? Yeah, we said on our call that despite the tariffs, you know, we're not we're not changing our gross margin goals. So if you remember kind of the elements of that, we talked about three things. One is the factory consolidation improvement related to better cost. That's on track and we feel good of achieving that. We talked about new product mix that starts to impact the second half.
Mark Miller: Yes, we said on our call that despite the tariffs we're not we're not changing our gross margin goals. So if you remember it was kind of the elements of that we talked about three things. One is the factory consolidation improvement related to better cost that's on track and we feel good at achieving that we talked about new product mix.
Mark Miller: That starts to impact the second half and we think we're on track with that with that as well have a bigger impact in 'twenty six and the third one is volume certainly we're seeing you know volumes a little higher than we had projected and I think that's a positive. So if we kind of stay on this rate and generally what we said before we would expect.
Paul Oldham: And we think we're on track with that as well, have a bigger impact in 26. And the third one is volume. Certainly, we're seeing, you know, volumes a little higher than we had projected. And I think that's a positive. So if we kind of stay on this rate in generally what we said before, we would expect to approach 40 percent as we exited the year. And although we're not guiding to the year, I think if you look at the pieces behind that, then, you know, we said we're committed to achieve those achieve those same goals.
Mark Miller: Our approach, 40% as we exited the year and although we're not guiding to the year I think if you look at the pieces behind that.
Mark Miller: Then we said we're committed to to achieve those cheap those same goals.
Paul Oldham: But one comment I'd make maybe to your earlier question is, you know, we do see some impact to mix, you know, particular data centers more heavy. But we've also characterized that as kind of in the 50 basis points, you know, plus or minus 50 basis points in a quarter. So there could be a little bit of challenge there, but we'll also have higher volume. And overall, it's it's not changing our model or our goal to achieve gross margins. Thank you.
Mark Miller: The one comment I'd make maybe to your earlier question is.
Mark Miller: We do see some impact to mix.
Mark Miller: You know particular data centers more heavy but we've also characterize that as kind of in the 50 basis points plus.
Mark Miller: Plus or minus 50 basis points in a quarter so.
Mark Miller: There could be a little bit of challenge there, but we'll also have higher volume.
Mark Miller: And overall it it's not changing our model or our goal to achieve gross margins.
Speaker Change: Thank you.
Mark Miller: Yeah.
Unknown Executive: And the next question comes from the line...
Speaker Change: And the next question comes from the line of Jim Ricchiuti with Needham <unk> Company. Please proceed with your question.
Speaker Change: Hi, Good afternoon. This is Chris Gringa on for Jim.
Steve Kelley: Hi, good afternoon. This is Kris Gringa on for Jim. With respect to the plans for the Thailand facility, have the tariffs changed on the margin or incrementally? Anything with respect to those plans? in either the timing or the capacity plan for that site. Yeah, I don't think so. You know, we're still planning to open that sometime in 2026, but it's really tied to increase in demand that justifies us opening the factory. And, you know, our first products in Thailand will be plasma power products. And I think the plasma power part of our business is less sensitive to tariffs than industrial medical.
Speaker Change: With respect to the plans for the Thailand facility have the have the tariffs change on the on the margin are incrementally any anything with respect to those plans.
Speaker Change: And either the timing or the capacity plan for that site.
Yeah, I don't think so we're still planning to open that sometime in 2026, but its really tied.
Speaker Change: To a increase in demand that justifies us opening the factory and you know our first products in in Thailand will be plasma power products and I think the plasma power.
Speaker Change: Part of our business.
Speaker Change: Is less sensitive to tariffs.
Speaker Change: Then industrial medical so.
Steve Kelley: I think things are on track today. We'll have the building and the facilities completed by September of this year, and we can turn that factory on within six months of saying go. So I think we're well positioned in Thailand, and we're ready to go when the demand justifies it.
Speaker Change: I think things are on track today, we'll have the building and the facilities completed by September of this year.
Speaker Change: And we could turn that factory on.
Speaker Change: Within six months of saying go so I think I think we're well positioned in Thailand, and we're ready to go when the demand justifies it.
Speaker Change: Great.
Steve Kelley: And you had mentioned the success you've seen, early success you've seen with the microsite with Mouser, do you see any incremental impact either on sell-in or the amount of inventory held versus an arrangement where there is no microsite as more of these microsites are added in the future? Yeah, so I think the best benchmark for us is our own website, which we basically introduced in late 23 and we had a pretty good experience in 24. In 24 we basically earned 160 design wins right off the website with very little participation from our sales force and that was quite significant for us and we expect similar performance this year.
Speaker Change: And yet you had mentioned this.
Speaker Change: Success, you've seen early success, you've seen with the micro site with mouser.
Speaker Change: Do you do you see any incremental impact.
Speaker Change: Either on sell in or the amount of inventory held versus.
Speaker Change: Yeah.
Speaker Change: Arrangement, where there is no micro site.
Speaker Change: As more of these micro sites were added in the future.
Speaker Change: Yeah. So I think the best benchmark for us is our own website, which we.
Speaker Change: Basically introduced in late 'twenty, three and we had a pretty good experience in 24 so.
Speaker Change: In 'twenty four we we basically earned 160 design wins ran off the web site with very little participation from our sales force and that was quite significant for us and we expect similar performance this year.
Steve Kelley: But at the end of the day, the reach of a company like Mouser or some of our other distributors is much larger than our reach. And so as we bring up these microsites, you know, we expect to convert many of these opportunities into wins, and we think it's going to turbocharge our industrial medical business.
Speaker Change: But.
Speaker Change: At the end of the day, the reach of a kind of a like mouser.
Speaker Change: Some of our other distributors is much larger than the than our our reach and so as we bring up these these micro sites.
Speaker Change: We expect to convert many.
Speaker Change: Many of these opportunities into wins.
Speaker Change: And we think it's going to a turbocharger industrial medical business.
Speaker Change: Thanks very much.
Speaker Change: And the next question comes from the line of Dukson Jang with Bank of America. Please proceed with your question.
Unknown Executive: The next question comes from the line...
Dukson Jang: Hi, good afternoon, thanks for taking the question.
Unknown Executive: Hi, good afternoon. Thanks for taking the question. Going back to Sammy. I know you said you don't see a lot of direct impact from tariffs, but are you seeing any indirect impact? I think a lot of your customers are or they've expressed pull-ins from customers, particularly in China, in anticipation of the tariffs. So I'm curious if you're seeing any impact of that. Thank you. No, we have not really seen any indirect impacts. The forecast that we operate off of from our from our semiconductor customers really haven't seen any downward revisions. So I think they're finding ways to deal with the tariffs just like they did with the export control regulations.
Speaker Change: Going back to sami's.
Speaker Change: I know you said you don't see a lot of direct impact from tariffs, but are you seeing any indirect impact I think a lot of your customers are.
Speaker Change: Or they've expressed pull in from customers.
Speaker Change: <unk> in China in anticipation of tariffs. So I'm curious if you're seeing any impact of that thank you.
Speaker Change: No we have not really seen any indirect impacts are the forecast that we operate off of from our from our semiconductor customers really haven't seen any downward revisions. So.
Speaker Change: So I think I think they're finding ways to deal with the tariffs just like they did with the export control regulations, right, obviously tariffs and export controls don't help our customers to sell into China, but I think they are doing their best to to work within the rules.
Steve Kelley: Obviously, tariffs and export control don't help our customers to sell into China, but I think they're doing their best to work within the rules. and so far we haven't seen any downward revisions in the forecast.
Speaker Change: And so far we haven't seen any downward revisions in the forecast.
Speaker Change: Got it.
Unknown Executive: Got it.
Paul Oldham: And then one follow up on Ghost Margin as well. So in the near term for the rest of the year, I think the story is pretty clear. We have a lot of tailwinds. But looking into 26, what would be some of the drivers that would lead us to think that there's still a lot of runway beyond the 40% mark? Yeah, I think it's a couple of things. One is, we should really be getting some traction on the new products in the mix, going into 26 and throughout 2026. As you recall, we said that was 200 to 300 basis points of opportunity, and we're just sort of scratching the surface of that, you know, as we exit 2025.
Speaker Change: And then one follow up on gross margin as well.
Speaker Change: So in the near term for the rest of the year I think the story is pretty clear you have a lot of tailwind.
Speaker Change: But looking into 'twenty six what would be some of the drivers that would lead us to think that there is still a lot of runway beyond the 40% Mark.
Speaker Change: Yes, I think it's a couple of things one is we should really be getting some traction on the new products in the mix.
Speaker Change: Going into 'twenty, six and through throughout 2026 as you recall, we said that was two to 300 basis points of opportunity and we're just sort of scratching the surface of that you know as we exit 2025, So I think thats a becomes a more significant driver as time as time goes on I think the second thing is as our markets sort of.
Paul Oldham: So I think that becomes a more significant driver as time goes on. I think the second thing is, as our markets sort of work their way through, you know, kind of the near term headwinds, certainly volume is important. And we believe that we will continue to earn 100 basis points of gross margin improvement for every $50 million of quarterly revenue. So we've seen that over the last year, and we expect to continue to see that as we go forward. Obviously, there's some near-term headwinds from tariffs. It's hard to gauge whether that accelerates or moderates, you know, over the longer term.
Speaker Change: You worked their way through kind of the near term headwinds certainly volume is important and.
Speaker Change: We believe that we will continue to earn a 100 basis points of gross margin improvement for every $50 million of quarterly revenues. So we've seen that over the last year.
Speaker Change: And we expect to continue to see that as we go forward.
Speaker Change: Obviously, there's some near term headwinds from from tariffs.
Speaker Change: It's hard to gauge whether that accelerates or moderates over the longer term, but we think we can largely overcome those headwinds.
Paul Oldham: But we think we can largely overcome those headwinds by actions we're taking internally, both to mitigate the impact as well to drive margins even better as we focus on, you know, cost, quality, you know, things that are in our control to continue to improve margins.
Speaker Change: By actions, we're taking internally both to mitigate the impact as well too to drive margins, even better as we focus on cost quality you know things that are in our control to continue to improve margins.
Speaker Change: Understood and then one last one if I may on.
Paul Oldham: Understood. And then one last one, if I may. On the OPEC side in Q2, I think you said you're progressing much better than you're going at half the rate of revenue target. But at the same time, I think you also mentioned last quarter that OPEX in general grows at half the rate of revenue. So should we expect the pace to pick up in the second half? Or how should we think about the full year OPEX? Yeah, the way to think about it is similar to our guide last time. We said that overall we would expect OPEX to increase one to two million incrementally each quarter through 2025.
Speaker Change: On the Opex side in Q2, I think you said youre progressing much better than you're growing at half the rate of revenue target.
Speaker Change: At the same time I think you also mentioned last quarter that.
Speaker Change: Opex in general grows at half the rate of revenue. So should we expect the pace to pick up in the second half were.
Speaker Change: How should we think about the full year Opex, yes.
Speaker Change: Yes, the way to think about it is similar to our guide last time, we said that overall, we would expect opex to increase $1 million to $2 million.
Speaker Change: Incrementally each quarter through 2025, that's a function of not only our SAP.
Paul Oldham: That's a function of not only salary changes and some inflation, but also continued investments in R&D and some variable costs as revenue grows. So that's the way to think about it. I think when you do the math around that, first, I think we're entering the year in good shape because expenses are up only modestly from a year ago on significantly better revenue. So we're starting from a good place. But if you just kind of run the math out, we think we will actually grow spending, you know, better than that 50% of revenue over the course of 2025.
Speaker Change: Salary changes in some inflation, but also continued investments in R&D and and some variable costs as revenue grows. So that's that's the way to think about it I think when you do the math around that first I think we're entering the year in good shape because expenses are up only modestly from a year ago on significantly better revenue.
Speaker Change: So we're starting from a good place, but if you just kind of run the math that we think we will actually grow spending.
Speaker Change: Better than that 50% of revenue over the course of 2025.
Speaker Change: Got it thank you.
Unknown Executive: Got it.
Unknown Executive: Thank you. and the next.
Speaker Change: And ladies and gentlemen, just as a reminder, if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May press star two to remove yourself from the queue for participants using speaker equipment and may be necessary to pick up your handset.
Speaker Change: Before pressing the star keys, one moment, while we poll for additional questions.
Speaker Change: And the next question comes from the line of Rob Mason with Baird. Please proceed with your question.
Rob Mason: Yes, good evening.
Unknown Executive: Yes, good evening, and nice work on the quarter. I just wanted to circle back to the I&M segment real quick, just to make sure I have my arms around, you know, the step down we saw there as well as maybe how that can start to recover. Steve, do you draw any distinction between the industrial piece and the medical piece, just in terms of what you're seeing out of customer activity at this point? Yeah, we do see a bit of difference between the two markets in medical. We're seeing less enthusiasm from customers. I think there's some uncertainty about the tariffs.
Speaker Change: Nice work on the quarter.
Speaker Change: Just wanted to circle back to the <unk>.
Speaker Change: Segment real quick just to make sure I have my arms around the step down we saw there as well as maybe how.
Speaker Change: That can start to recover Steve does do you draw any distinction.
Speaker Change: Between the industrial piece and the medical piece just in terms of what you're seeing out of customer activity at this point.
Speaker Change: Yeah, we do see a bit of difference between the two markets.
Speaker Change: In medical.
Speaker Change: We're seeing less enthusiasm from customers I think there's some uncertainty about the tariffs there's some uncertainty about federal funding and we just see less optimism for medical customers over the past quarter.
Steve Kelley: There's some uncertainty about federal funding. And, you know, we just see less optimism from medical customers over the past quarter. I think industrial is kind of a mixed bag. You know, there's some areas that are strong, like Malero. And for us, industrial coatings, which uses plasma technology. But most of the rest of the markets are a mixed bag or down a bit. So, We do distinguish between the two. Obviously, this is an area where we spend a lot of time talking to targets. for our M&A pipeline. The issue for us right now is that there's a...
Speaker Change: I think industrial is kind of a mixed bag.
Speaker Change: Yeah. There are some areas that are strong like 1000 Aero.
Speaker Change: And for US our industrial coatings, which uses a plasma technology, but most of the rest of the markets or are a mixed bag or down a bit so we.
We do distinguish between the two.
Speaker Change:
Speaker Change: Obviously this is an area where.
Speaker Change: We spend a lot of time talking to to targets.
Speaker Change: For for our M&A pipeline.
Speaker Change: The issue for US right now is that there's a.
Speaker Change: Continuing the valuation gap between what we think is targets worth and what they think they're worth.
Steve Kelley: Continuing the valuation gap between what we think the target's worth and what they think they're worth. And over the past year, we've seen valuations come down on many of the targets in our pipeline. So we think this year we could see some of those gaps closing, especially if those businesses remain challenged. So we're continuing to stay in touch with the targets in our funnel and hopefully something breaks this year.
Speaker Change: And over the past year, we've seen valuations come down on many of the targets in our pipeline.
Speaker Change: So we think this year, we could see some of those gaps closing.
Speaker Change: Especially if those businesses remain challenged so we're.
Speaker Change: So we're continuing to stay in touch with the targets in our funnel and hopefully something breaks this year.
Speaker Change: Okay is there.
Steve Kelley: Is there any dynamic happening in that I&M where products have end of life and the design wins, the next design win that you're on just hasn't ramped yet? Or is this solely a function, the step-down, just solely a function of activity? Product Volumes, Inc. Yeah, I think that's a big part of it, actually, you know, our design when pipeline is all time high. So I think we're doing very well in the market. But those design wins have not ramped up production for the most part. So people are waiting, they're trying to exhaust their current inventory before they launch new products.
Speaker Change: Is there any dynamic happening in that high in EM, where.
Speaker Change: Products have end of life and the.
Speaker Change: The design wins, the next design win that Youre on just as it ramped yet.
Speaker Change: Or is this solely a function of the step down just solely a function of.
Speaker Change: Active.
Speaker Change: Product volumes being lower yeah.
Speaker Change: Yeah, I think that's a big part of it actually you know our design win pipeline is at all time high. So I think we're doing very well in the market.
Speaker Change: But those design wins have not ramped up production for the most part so people are waiting they are trying to exhaust their current inventory for the launch of new products is quite a bit of that going on.
Steve Kelley: It's quite a bit of that going on, you know, across our INM customer base.
Speaker Change: You know across our I N M customer base.
Speaker Change: Okay very good thank you.
Unknown Executive: Very good. Thank you.
Speaker Change: Thank you.
Speaker Change: And the next question comes from the line of Scott Graham with Seaport Research. Please proceed with your question.
Scott Graham: Yes, hi, Thank you for taking the questions just two follow ups there.
Scott Graham: Yeah, hi. Thank you for taking the question. Just two follow ups. The first is maybe on tariffs, you guys are always very transparent about what's going on, your operating expenses, what have you. Is there anything more you can give us on tariffs in terms of, you know, percent of cost of sales that, you know, are affected, and then we could apply the tariffs from there? Is it possible you could tell us the impact in the first quarter? We could extrapolate from there, but just maybe a little bit more to go on.
Scott Graham: The first is maybe on cash you guys are always very transparent about what's going on in your operating expenses. What have you is there.
Scott Graham: Anything more you can give us on tariffs in terms of percentage cost of sales that you know are affected and then we can apply the tariffs from there.
Scott Graham: Could you is it possibly could tell us the impact in the first quarter, we can extrapolate from there.
Scott Graham: Maybe a little bit more to go on.
Speaker Change: Yes, we haven't we haven't broken it out specifically Scott.
Paul Oldham: Yeah, we haven't we haven't broken it out specifically Scott, frankly, because we don't think it's that big of an impact. As we talked about, we're pretty well positioned, there are some costs for sure. And we're going to increase in the second quarter. What I can tell you is that we've contemplated that in our guidance. And so you can kind of look at our guidance that, you know, I'd say flattish, you know, up slightly from Q1 with a bigger headwind from Terrace, you know, maybe there's a little more volume there. And maybe you can kind of get a little bit of a sense from it from that.
Speaker Change: Frankly, because we don't think it's that big of an impact as we've talked about we're pretty well positioned there are some costs for sure.
Speaker Change: And we're going to increase in the second quarter, what I can tell you is that we've contemplated that in our guidance and so you can kind of look at our guidance it.
Speaker Change: I'd say flattish up slightly from Q1 with a bigger headwind from tariffs, maybe theres a little more volume there.
Speaker Change: And maybe you can kind of get a little bit of a sense from it from that but.
Paul Oldham: But, you know, generally, you know we we haven't broken it out it's it's sort of one of those things that at this point it's it's a little hard to call out exactly but we believe that it's contemplated in our outlook in that as we look over the course of the year um you know assuming you know the current tariff levels we think that's you know manageable within the models that we've talked about from a gross margin perspective.
Speaker Change: Generally.
Speaker Change: You know, we we havent broken it out it's sort of one of those things that it at this point, it's a little hard to call out exactly but we believe that it's contemplated in our outlook in that as we look over the course of the year.
Speaker Change: Assuming the current tariff levels, we think that's manageable within the models that we've talked about from a gross margin perspective.
Speaker Change: Okay.
Paul Oldham: Okay, understood. And then the only other question I had is, again, on the INM business, in the past, you've talked about, you know, the declines in sales, and you've kind of sized what you thought was the approximate destocking impact. Could you do that again this quarter? You know, of the decline that we saw this quarter, how much of that would you say was the destocking? Transcription by https://otter.ai Well, I could tell you that as far as the distributor inventories go, we saw a decline of about 14% in our overall DISD inventories from Q4 to Q1, so that might give you some idea.
Speaker Change: Understood and then.
Speaker Change: The only other question I had is again on the iam business in the past you've talked about you know the.
Speaker Change: The declines in sales and you've kind of sized where you felt was the approximate destocking impact because you do that again this quarter.
Speaker Change: The decline that we saw this quarter how much of that would you say was the destocking.
Speaker Change: Well I can tell you that as far as the distributor inventories go we we saw a decline of about 14% and our and our overall just the inventories from Q4 to Q1, so that might give you some idea.
Paul Oldham: But that's, again, the latest decline. We've seen four straight quarters of decline in distributor inventories. And so we're getting to a point where we're normalizing, I believe. And I think we've set the table for some growth in Q2 and perhaps in the second half in distro-medical. Okay, you mean sequential growth? Yes, sequential growth. Very good.
Speaker Change: But that's again the latest declined we've seen four straight quarters of decline in distributor inventories.
So we're getting to a point, where we're normalizing I believe.
Speaker Change: And I think we've set the table for some growth.
Speaker Change: In Q2, and perhaps in the second half industrial medical.
Speaker Change: Okay, you mean sequential growth sequential growth.
Steve Kelley: Thank you. Yeah, I think one comment we made on the call is that we had did see orders increase quite a rebound late in the quarter. We're encouraged by that. And I think one of the characteristics there is that many of those orders were inside our lead time. That suggests to us the customers, they like really need it now. It's not across the board, but there are pockets of that. And so it's another data point that suggests that maybe we're getting to that point where we're coming to the end of the stocking. I think the flip side of that is I think the change in tariff environment probably affects industrial medical the most.
Speaker Change: Very good.
Speaker Change: Yeah, I think one comment we made on the call is that we had did see orders increase quite a rebound late in the quarter.
Speaker Change: We're encouraged by that and I think one of the characteristics. There is that many of those orders were inside our lead time that suggests to us the customers they like really need it now.
Speaker Change: It's not across the board, but there are pockets of that and so it's another data point that suggests that maybe we're getting to that point, where you were coming to the end of the Destocking I think the flip side of that is I think the change in tariff.
Speaker Change: Environment.
Speaker Change: You know probably affects industrial medical at the most so.
Steve Kelley: So all things being equal, we would expect to see things maybe continue to grow from this point. It's a little hard to you know, the environmental impact and how quickly customers will respond. you know, as they look at their demand rates.
Speaker Change: All things being equal we would expect to see things maybe continue to grow from this point, it's a little hard to handicap, the environmental impact and how quickly customers will respond.
Speaker Change: You know as they look at their demand rates.
Speaker Change: Very helpful. Thanks, a lot.
Unknown Executive: Very helpful.
Unknown Executive: Thanks a lot.
Appreciate it.
Speaker Change: Great.
Speaker Change: Thanks Scott.
Speaker Change: And thank you, ladies and gentlemen that does conclude the question and answer session and that also concludes today's teleconference. We thank you for your participation you may disconnect your lines at this time.
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