Advanced Energy Industries Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 5, 2025

Key Takeaways

  • Positive Sentiment: Second quarter revenue of $442 million topped guidance and rose 21% year-over-year, marking the third consecutive quarter of growth driven by diversified demand.
  • Positive Sentiment: Data center revenue surged 94% year-over-year (47% sequentially), and next-generation AI power design wins are set to ramp in 2026, underpinning a raised 2025 data center growth forecast of over 80%.
  • Positive Sentiment: Semiconductor revenue grew double-digits year-over-year despite a sequential dip, with EVOS, Everest and NAVEX platforms expected to more than double in 2025 as initial low-volume production ramps.
  • Positive Sentiment: Industrial & medical posted its first sequential revenue growth since 2023, supported by a record number of design wins and backlog growth, while closing its last China factory to help push gross margin toward 40% by year-end.
  • Positive Sentiment: Full-year revenue growth is projected at ~17% with Q3 revenue around $440 million ± $20 million and non-GAAP EPS of $1.45 ± $0.25, as Advanced Energy implements supply-chain and geographic strategies to mitigate dynamic tariff headwinds.
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Earnings Conference Call
Advanced Energy Industries Q2 2025
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Operator

Greetings. Welcome to Advanced Energy's Second Quarter twenty twenty five Earnings Conference Call. Please note that this conference is being recorded. At this time, I'll turn the conference over to Edwin Mach, Vice President of Strategic Marketing and Investor Relations. Thank you, Mr. Mach. You may now begin.

Edwin Mok
Edwin Mok
Vice President of Strategic Marketing and Investor Relations at Advanced Energy Industries

Thank you, operator. Good afternoon, everyone. Welcome to Advanced Energy's second quarter twenty twenty five earnings conference call. With me today are Steve Kelly, our President and CEO and Paul Oldham, our Executive Vice President and CFO. You can find today's earnings press release and presentation on our website at ir.advancedenergy.com.

Edwin Mok
Edwin Mok
Vice President of Strategic Marketing and Investor Relations at Advanced Energy Industries

Before we begin, let me 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 and are not guaranteed for future performance. Information concerning these risks can be found in our SEC filings. All forward looking statements are based on management's estimates as of today, 08/05/2025, and the company assumes no obligation to update them. Any targets beyond the current quarter presented today should not be interpreted as guidance. On today's call, our financial results are presented on a non GAAP financial basis unless otherwise specified.

Edwin Mok
Edwin Mok
Vice President of Strategic Marketing and Investor Relations at Advanced Energy Industries

Exclude from our non GAAP results are stock compensation, amortization, acquisition related costs, facility infrastructure and other transaction costs, restructuring and asset impairment charges, and unrealized foreign exchange gain or loss. Detailed reconciliation between our GAAP and non GAAP results can be found in today's press release. With that, let me pass the call to our President and CEO, Steve Kelly.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

Thanks, Edwin. Good afternoon, everyone, and thanks for joining the call. Second quarter revenue exceeded the high end of our guidance range, driven by strong demand for Advanced Energy's data center power solutions. We also benefited from increased demand in industrial and medical, posting our first sequential growth in that market since 2023. On a year over year basis, second quarter revenue grew 21%, our third consecutive quarter of year over year growth.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

Earnings per share also came in at the higher end of guidance. Our business diversification strategy, which is focused on three distinct target markets, is driving more consistent profitability and cash flow. We have been mitigating cycle risk by participating in multiple growth markets, each with its own characteristics. The strategy is playing out nicely this year with our success in data center compensating for softness in industrial and medical. Semiconductor has performed well for AE with mid single digit growth expected this year after a growth year in 2024.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

Our improved profitability and cash flow are allowing us to make the technology and capacity investments necessary to fuel long term profitable growth. These investments give confidence to our customers that Advanced Energy has the technology road map and manufacturing expertise necessary to support their long term success. In data center, our high efficiency, high power density products have proven ideal for AI applications. This year, we have won a number of next generation programs, which are expected to support further growth in 2026. In semiconductor, customer interest in our EVOS, Everest and NAVEX platforms is very strong.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

We expect to more than double revenue from these platforms in 2025 as initial wins go into early stages of production. We believe that these wins will drive revenue growth in 2026 and beyond as leading edge fab processes ramp to volume. In industrial and medical, we've invested heavily in new products, a new website, and a robust sales and channel effort. The result is that we have secured a record number of design wins, some of which are turning into revenue this year. Looking forward, we expect that these wins will accelerate our growth in I and M, allowing us to gain market share.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

In addition, with the closure of our last China factory in June, we are making good progress on our gross margin improvement program. We continue to expect gross margin to approach 40% exiting 2025. Now let me provide some comments on tariffs. The tariff environment continues to be very dynamic. Actions we are taking to mitigate the impact of tariffs include qualifying products in our Mexicali facility under USMCA, leveraging our geographic footprint, and finally, optimizing our supply chain and logistics. We will continue to work with our customers to mitigate costs as the environment evolves. Now let me provide some color on each of our markets. Second quarter semiconductor revenue was solid. Although revenue was down sequentially, it grew double digits year on year.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

On the new product front, we had another quarter of robust EVOS and EVER shipments as some early design wins began the transition to low volume production. These transitions are important milestones, validating the progress our customers are making with their end customers.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

During the second quarter, we also secured two new significant etch and deposition wins for leading etch processes. Customers value the capabilities of our new technologies as well as our ability to quickly tailor solutions to meet their process requirements. In data center computing, revenue jumped nearly 50% sequentially and almost doubled year on year as we ramped hyperscale design wins and captured increased demand. We believe this new level of demand will continue for several quarters to come. In addition, we have already won a number of next generation designs, which are scheduled to ramp in 2026. Our primary focus in this market continues to be serving our key hyperscale customers with leading edge solutions.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

We also see an expanding set of AI related opportunities at enterprise and other customers where we could leverage existing technology blocks to quickly deliver solutions. We expect these new opportunities to drive incremental growth in 2026 and beyond. In industrial and medical, second quarter revenue grew sequentially, but was down year on year. INM total backlog grew this quarter for the first time since the beginning of twenty twenty three. In distribution, which accounts for roughly half of our I and M revenue, sell in and resales increased quarter over quarter.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

Channel inventories decreased for the fifth quarter in a row. These encouraging data points support our view that AE's I and M revenue will continue to improve from this point forward. On the design win front, we secured wins in medical imaging, robotics, process control, and Milero. Our digital marketing investments are also yielding results. Since launching our new website in late twenty twenty three, we have secured over 300 I and m design wins, which originated as website inquiries.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

Our partnership with key distributors is also expanding our ability to reach a broad set of small and medium sized I and M customers. Telecom and networking revenue was flat sequentially. During the quarter, we won a next generation telecom design that leveraged our leading position in this market. In addition, we see AI driving new opportunities for us in networking. Now for some closing thoughts.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

We are capturing opportunities in a dynamic market environment and are delivering upside to our expectations for the year. Following the strong second quarter, we expect to operate around this new higher level of revenue in the second half, resulting in overall 2025 revenue growth of approximately 17%. In data center, based on higher demand levels and the success of our new products, we now expect to grow revenue over 80 percent in 2025. Semiconductor revenue is now projected to grow mid single digits in 2025, with revenue from our next generation plasma power products expected to double. In an I and M, after an extended correction period, demand is recovering with a stronger order book driving higher sequential revenue in the second half.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

Looking beyond the near term, we are very excited about our growth prospects. With strong customer pull for our new products, we are well positioned to gain share. Our efforts to structurally improve manufacturing costs are yielding tangible results. We remain confident in our ability to achieve our gross margin goals despite added tariff costs. Finally, we continue to actively pursue our acquisition strategy and have a solid pipeline of potential opportunities. Paul will now provide more detailed financial information.

Paul Oldham
Executive VP & CFO at Advanced Energy Industries

Thank you, Steve, and good afternoon, everyone. Second quarter revenue of $442,000,000 was just above the high end of our guidance, driven by upside in the data center computing market. Gross margin improved slightly quarter over quarter and was in line with our target despite several headwinds. Operating margin increased a 110 basis points sequentially as we grew revenue faster than operating expenses. As a result, we delivered earnings per share of a dollar 50, up 76% from last year and at the highest level since 2022.

Paul Oldham
Executive VP & CFO at Advanced Energy Industries

During the quarter, we continued to execute our new product strategies, added capacity to meet growing data center demand, completed final production in our China factory, and strengthened our capital structure. Now let's review our financial results in more detail. Second quarter total revenue was $442,000,000 up 9% sequentially and 21% year over year. Revenue in the semiconductor market of $210,000,000 was up 11% over last year, but down 6% sequentially. Q2 semiconductor sales declined slightly more than anticipated as we saw customers shift delivery schedules to mitigate the near term impact of tariffs, partially offset by higher service revenue.

Paul Oldham
Executive VP & CFO at Advanced Energy Industries

Data center computing revenue was a $142,000,000, up 47% quarter over quarter and 94% year over year. During the quarter, we captured upside demand for our new data center power solutions. Industrial and medical revenue of $69,000,000 increased 7% sequentially, but was still 13% below last year. We believe this market has passed the bottom given increased backlog, improved customer inventory and encouraging data points from our distributors. Telecom and networking revenue was $22,000,000 flat quarter over quarter as anticipated.

Paul Oldham
Executive VP & CFO at Advanced Energy Industries

Gross margin was 38.1, up 20 basis points sequentially despite increased tariff expenses and production ramp costs. We were able to partially offset these headwinds by taking actions to manage our manufacturing costs on higher volumes. We're encouraged by the progress we're making on gross margin improvement as excluding the impact of tariffs, gross margin would have been over 39%. Operating expenses were $104,000,000 up 5,000,000 from last quarter on higher spending on new product activities and annual salary increases. However, OpEx as a percent of revenue declined almost a 100 basis points sequentially and 260 basis points year over year, demonstrating the leverage in our model.

Paul Oldham
Executive VP & CFO at Advanced Energy Industries

Operating income for the quarter was $65,000,000 Depreciation was $10,000,000 and our adjusted EBITDA was $74,000,000 Other income increased sequentially to $2,000,000 primarily due to higher investment income in our deferred compensation plan. For Q2, our non GAAP tax rate was 15.3%, below our estimate of 19% on favorable mix of earnings, better visibility for optimizing the impact of the global minimum tax, and favorable discrete items. As a result, second quarter EPS was $1.5 per share compared to $1.23 in the previous quarter and $0.85 a year ago. Turning now to the balance sheet. Total cash and cash equivalents at the end of the second quarter was $714,000,000 with net cash of $147,000,000 Cash decreased $10,000,000 sequentially as we took advantage of market volatility and repurchased $23,000,000 of our common stock at an average price of $83.83 per share.

Paul Oldham
Executive VP & CFO at Advanced Energy Industries

Cash flow from continuing operations was $47,000,000 Inventory turns were flat sequentially at 2.7 times, but total inventory of $398,000,000 was up 8% sequentially driven by the strong increase in demand. This increase was more than offset by higher payables with DPO at sixty three days. Receivables increased about 10% or $27,000,000 on higher revenue. DSO was flat at sixty two days. During the second quarter, we paid $4,000,000 in dividends and invested $28,000,000 in CapEx.

Paul Oldham
Executive VP & CFO at Advanced Energy Industries

The higher capital spending is consistent with our expectation of increased investments over the next several quarters to support growth in the data center market, infrastructure capability and our factory consolidation strategies. Despite increased working capital and CapEx, free cash flow in Q2 grew 21% sequentially. In addition, during the quarter, we extended the maturity date of our undrawn credit facility of $600,000,000 from September 2026 to May 2030, while maintaining substantially the same favorable terms as our 2019 agreement. Before moving on to guidance, let me provide more color on the impact of tariffs on AE. The tariff environment continues to be very dynamic, making the overall impact difficult to predict.

Paul Oldham
Executive VP & CFO at Advanced Energy Industries

For q two, tariff costs were higher than we initially expected. However, we are implementing multiple mitigation strategies with our customers that should help reduce the tariff impact. Combined with other operational actions, we continue to believe that we are on track to achieve our long term margin and operating goals. Looking forward, the expected impact of tariffs as we understand them today is incorporated in our guidance. Turning now to our guidance.

Paul Oldham
Executive VP & CFO at Advanced Energy Industries

Following our very strong Q2 results, we expect Q3 revenue to be similar to Q2 and for Q4 to grow sequentially. This outlook would translate to approximately 17% growth for the year. We expect Q3 semiconductor revenue to be down slightly versus Q2 based on customer forecasts. Given first half results and our updated outlook, we now project semiconductor revenue to grow mid single digits in 2025. For data center computing, we expect demand to remain at or above q two levels in the second half.

Paul Oldham
Executive VP & CFO at Advanced Energy Industries

As a result, we've increased our 2025 annual growth projection for data center from 50% to more than 80%. We believe the industrial and medical market has passed the bottom and expect modest sequential growth in both q three and q four, paced by the impact of tariffs on the broader economy. Telecom and network revenue should remain in the low $20,000,000 level. As a result, we're forecasting our third quarter revenue to be approximately $440,000,000 plus or minus $20,000,000 We expect gross margins in the third quarter to improve to around 38.5%, mainly driven by the initial benefits of the closure of our final China factory. As we realize the full benefit of the factory closure and improved factory efficiency, we expect gross margins to be between 3940% exiting the year, including the impact of tariffs.

Paul Oldham
Executive VP & CFO at Advanced Energy Industries

We expect operating expenses to be up slightly on higher variable costs giving the stronger full year performance. And other income should return to the $1,000,000 range. The tax rate is expected to be 17% to 18% on optimization of our model going forward. As a result, we expect Q3 non GAAP earnings per share to be 1.45 plus or minus $0.25 Before opening up for questions, I want to highlight a few important points. We participate in solid growth markets that can operate on different cycles, which should enable us to deliver more robust and consistent financial results over time.

Paul Oldham
Executive VP & CFO at Advanced Energy Industries

We believe increasing demand in data center, technology investments in semiconductor, and the market recovery in industrial and medical will drive overall revenue growth for AE in 2025 and 2026. In addition, we continue to have strong design win momentum driven by our leading edge products, which we expect to enable us to outgrow our markets. From a profitability perspective, we grew revenue second quarter 21% year over year, but we grew EPS 76% driven by gross margin expansion of two eighty basis points and the overall leverage in our model. This performance demonstrates the opportunity for AE to accelerate earnings growth as we improve margins and increase revenue going forward. Beyond the benefits of exiting China for manufacturing that will fully kick in by Q4, we believe further production efficiency and new product mix will enable us to continue to achieve our long term margin and financial goals despite the higher cost of tariffs.

Paul Oldham
Executive VP & CFO at Advanced Energy Industries

Lastly, with a solid balance sheet and strong cash flow generation, we will continue to look for strategic acquisitions to add scope and leverage our scale. With that, we'll take your questions. Operator?

Operator

Thank you. Operator. At at this time, we'll be conducting a question and answer session. If you like to ask a question at this time, you may press star one from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. Session.

Operator

The first question is from the line of Krish Sankar with TD Cowen. Please proceed with your questions.

Krish Sankar
Managing Director at TD Cowen

Yeah. Hi. Thanks for taking my question, and congrats on the great results. Steve, I just had one question. You kinda mentioned about sustainability of the data center demand.

Krish Sankar
Managing Director at TD Cowen

And if I flatline your $142,000,000 in q two, for the rest of the year, obviously, you're gonna grow over 80%. I'm just kinda curious, how sustainable is this run rate? Because historically, data center used to be very lumpy. So I understand AI has changed things. Is this more a structural change?

Krish Sankar
Managing Director at TD Cowen

Is there any market share gain? How to think about the sustainability of data center revenues going forward? Thank you.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

Yeah. Thanks for the question, Krish. Yeah. Looking forward, we think these revenues are sustainable, into 2026. And the reason is, the hyperscalers are continuing to invest at a very high rate.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

So we've seen what they spent this year and what they intend to spend next year, and that's supported by the forecast that we're receiving from our customers. You know, particularly the AE, you see a high frequency of change in this market. Because each of the GPUs that comes out typically on a yearly basis usually requires more power. And so that means each power solution is probably a little bit more expensive. And you have to work very closely with the customer, which is what we're doing.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

So our our win rate is is quite high. We're also seeing some ancillary opportunities appear that complement what we're doing with with our large hyperscale customers. So we think some of those opportunities may kick in, in 2026. And I think probably, one of the more important aspects of this business is the willingness to invest, not just in in development, but also in, factory capacity. So we continue to to spend, to expand our capacity, to to serve the market.

Krish Sankar
Managing Director at TD Cowen

Thanks a lot, Steve. Appreciate it.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

Thanks, Krish.

Operator

Our next question is from the line of Steve Barger with KeyBanc Capital Markets. Please proceed with your question.

Steve Barger
Steve Barger
MD - Equity Research at KeyBanc Capital Markets

Hey. Thanks. Good afternoon. Steve, could you talk could you talk about content per server or content per rack for an AI data center versus a traditional DC? And are you modeling the business based on where you see that hyperscaler CapEx going, or how do you put together a forecast with demand like this?

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

Yes, Steve. The the content of an AI data center for us is much higher because the power consumption is much higher. So so typically, you're looking at, you know, five to 10 x the power consumption of a of a non AI data center. So that's all good news for us. Now now the way we model our future revenue is based on customer forecast.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

And so we have we have a slight group of customers that we work closely with, and they give us forecasts which are updated every quarter, if not more frequently, quite frankly. So, we take that as our base level, and then we add in a few other opportunities, where we can reuse our technology blocks, which we developed for our large hyperscale customers. And and that's how we come up with the forecast.

Steve Barger
Steve Barger
MD - Equity Research at KeyBanc Capital Markets

Does that five to 10 x power consumption translate into five to 10 x revenue for you? Is that a linear relationship? Or how does that scale as the power demand goes up?

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

Yeah. Unfortunately, it doesn't scale, on a linear basis. It's definitely higher. You know, I don't have a figure of merit for you, but we noticed that each successive generation, ends up, costing a bit more and leads to better ASPs for advanced energy.

Steve Barger
Steve Barger
MD - Equity Research at KeyBanc Capital Markets

Got it. And then just a quick follow-up. You talked about low volume production for some of the new products on slide five, which is great to see. Do you expect that to turn into a stronger program next year? And are these design wins for your normal customers, or are you finding new customers who are also embracing the the technology?

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

Yeah. I think what you're referring to are are wins in the semiconductor, processing area. Yeah. Yeah. So so I I think that the significance of the fact that we're going into low rate initial production on some of those wins is it, confirms that our customers had been successful at their customers, who are the fab operators.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

And so, what we see this year is, you know, more than doubling of the new product revenue in semiconductor, And that's in, you know, that's into the tens of millions, range. And then we see that really, catalyzing significant growth starting next year as these new, leading edge processes go to volume, both on the logic part of the equation as well as the memory side.

Operator

The next question is from the line of Joe Vitraci with Wells Fargo. Please proceed with your questions.

Joe Quatrochi
Joe Quatrochi
Director & Equity Research Analyst at Wells Fargo

Yeah. Thanks for taking the question. On the semiconductor business, I think you talked about mid single digit growth now for 2025. And last quarter, you're talking about 10%. So wondering if you could help us understand, like, what's changed there or or expand upon what's changed there.

Joe Quatrochi
Joe Quatrochi
Director & Equity Research Analyst at Wells Fargo

And then, you know, relative to, I think, one of your customers talking about second half or first half being flattish, it looks like you're gonna be down 7%.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

Yeah. Yeah. I I think I think we're we're a little bit optimistic coming out of q one. We just come off a very strong quarter. What we've seen is yeah.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

I think the tariffs are starting to influence some of the ordering behavior from our customers as they eat into their own inventory and they they move things around, right, to optimize, versus the the tariff regimes. The second is, you know, based on what we've heard from our customers and also reading other earnings call transcripts, you know, China seems to be slowing down. And I think, trailing edge logic in general, you know, across, China as well as non China geographies is slowing. And finally, there's been a little bit of, concern on the DRAM side. The growth seems to have slowed a bit.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

But, you know, look looking at our revenue levels, that we're generating, in 2025 for semiconductor, we're actually quite pleased with the revenue level. And if you take out, 2022, which was the COVID recovery year, these are the highest levels we've ever had in semiconductor. So we're operating about $200,000,000 a quarter, which is, quite healthy for us.

Joe Quatrochi
Joe Quatrochi
Director & Equity Research Analyst at Wells Fargo

Got it. And as follow-up, on the tariff front, I think you quantified over 100 basis points of gross margin headwind this quarter. I guess, what's the expectation? And I can understand appreciate that the tariffs are moving around quite frequently, but what's the expectation embedded within the guidance for that impact this quarter? And what's the right, I guess, revenue level to think about being at 40% now?

Paul Oldham
Executive VP & CFO at Advanced Energy Industries

Yes. Thanks for the question, Joe. So we're projecting the tariffs level will stay at this level or a little higher as we look into Q3 and probably through Q4. That means that we have some mitigation actions that were kicking in over the course of Q2 that largely offset the increased rates that we've seen announced in last week. As we look forward, we think there's further opportunity to to mitigate mitigate that going forward as we work with our customer on optimizing supply supply channels and chains and those types of things.

Paul Oldham
Executive VP & CFO at Advanced Energy Industries

And in terms of how does this Yeah. Yeah. I think I I'll start with, you know, we're close to we're close to that $450,000,000 mark as it is today. And certainly, at that level, if you excluded tariffs, we were very comfortable that we'd be over 40%. So it's probably trending up another $20,000,000 or so on top of that that offsets that roughly 100 basis points of tariff impact.

Operator

Our next question is from the line of Brian Chin with Stifel. Mr. Chin, you're live for question. Perhaps your line is on mute.

Brian Chin
Brian Chin
Director - Applied Technologies at Stifel Financial Corp

Hi. Hi. Can you hear me okay? Sorry about that.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

Yep. We can hear you.

Brian Chin
Brian Chin
Director - Applied Technologies at Stifel Financial Corp

Great. Thanks for letting me ask a few questions. What what is the accurate belief that what you've shipped to date in data center is more in support of, you know, quote, unquote, legacy h 200, h 100 computing racks where, you know, looking forward, you know, g B 200, G B 300, there's there's obviously a multiplier effect in terms of power per rack. So even off of a a very strong 2025 revenue in data center, wouldn't that give you a lot of confidence, just in terms of directional growth, maybe even magnitude next year?

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

Yeah. So, Brian, I don't have a specifics as far as, you know, where all of our power supplies are going and, you know, to what GP GPUs are tied to. But what I can say is that we have won a number of new designs, this year. We'll ramp to volume next year. And we're actually working now on on designs that will ramp to volume in '27.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

So I think we're keeping up. You know, it's basically a very, rapid design cycle now, where we have to work closely with the customer, so that they can, they can hit their design windows, based on these new GPUs. So it's a it's a very dynamic environment, but we're winning at a very high rate.

Brian Chin
Brian Chin
Director - Applied Technologies at Stifel Financial Corp

Got it. And I'm curious to characterize it that I mean, you may not be adding many new customers, but you you currently have not just Yeah.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

I think I think I wouldn't say we're adding many new customers, Brian. But I would say within the customer base that we address, we're adding more and more projects. So so our risk is somewhat mitigated by the number of projects we're engaged in. And we're also able to reuse a lot of technology from generation to generation, which which allows us, you know, to to turn these new designs quickly. I think moving forward, we will be able to engage in some ancillary opportunities, where we could reuse technology blocks we've developed for other other customers.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

But at the end of the day, the limiting factor for many of these, customers is gonna be engineering bandwidth. So we have to make sure we don't overextend ourselves and that we service our main customers, to the best of our abilities.

Operator

Thank you. The next question is from the line of Jim Ricchiuti with Needham and Company. Please proceed with your questions.

James Ricchiuti
Senior Analyst at Needham & Company

Hi. Thanks. Excuse me. Good afternoon. Is there any way to characterize the margin profile of the new design wins in in data center relative to some of the legacy data center products you've sold into this market?

Paul Oldham
Executive VP & CFO at Advanced Energy Industries

Yeah. I think the best way to think about that, Jim, if you go back two or three years ago, you know, we talked about this market being, you know, highly dilutive. And if you go back a year or two before that, you could see the numbers from what we acquired Artisan at, which had margins overall in the low twenties, And it had that included I and M, was above our corporate model. So, it's it's been historically quite dilutive. As we've talked about over time, we've been able to rationalize the portfolio, and our new our new products are much closer to the corporate average.

Paul Oldham
Executive VP & CFO at Advanced Energy Industries

So on balance, we're not at the corporate average, at this point, but the dilutive impact is is much less. In fact, we've said that, you know, as the mix shifts around, we we kind of expect that to live within a band of, you know, plus or minus 50 basis points. And of course, this quarter, our percentage of data center revenue was up, I think, eight points or something, quite a lot. And we were able to basically to stay on our margin targets. So we absorbed, if you will, you know, kind of the the the dilutive effect within our model really without without any problems.

Paul Oldham
Executive VP & CFO at Advanced Energy Industries

And so I think that that demonstrates that, you know, we're we're approaching, you know, the corporate average there.

James Ricchiuti
Senior Analyst at Needham & Company

That's helpful, Paul. And, Steve, you you talked about, these ancillary opportunities looking out to 2026. Is there any way of of sizing that? I mean, these I I would think these have been enterprise customers you've been selling to, but this is now being driven by by the AI demand. Is that a fair way to characterize it?

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

Yeah. That's a good way to characterize it, Jim. There's enterprise customers and some other new customers that have appeared. And, generally, we'll entertain those opportunities where we could do so without stretching our engineers too far. So we try to reuse as much as possible and and execute.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

We're also installing a lot of new capacity in our factories in The Philippines and Mexico to support these opportunities, not just for our biggest customers, but also some of the smaller ones.

James Ricchiuti
Senior Analyst at Needham & Company

Got it. Thanks. And just one other quick question, just maybe switch over to I and M. Has there been or is there any impact from the recent design wins in I and M on the growth that you're expecting in the second half? Or is that what you're seeing, is that mainly the market recovery and these design wins are more of a 26 story?

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

I think it's a bit of both. Obviously, the market's gone through an extended correction period, and we're starting to see stocking orders. We're starting to see orders from customers we haven't seen orders from in in quite some time. So that's more due to the market. But in addition, you know, we're seeing some of these wins that we've recorded over the past, say, two years, you know, start to contribute to our revenue growth in the second half of this year.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

I think you'll see that accelerate next year, because we have quite a backlog of design wins. And the dynamic is that most customers, you know, they're working through their inventory, and, and they're waiting for that inventory to clear before they ramp their their new products. So we we think, you know, '26 is gonna be a, you know, a good year for industrial medical, and we think we're gonna gain share next year and and into '27.

James Ricchiuti
Senior Analyst at Needham & Company

Great. Thank you.

Operator

Our next question is from the line of Mark Miller with Benchmark.

Mark Miller
Equity Research Analyst at The Benchmark Company LLC

I'm just wondering if you can give us some feeling if you're seeing any pull ins from data center customers or any double ordering or if if inventory levels if if they're overstocking inventory in anticipation of demand.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

Yeah, Mark. You know, we don't see that, quite frankly. And in data center. We're certainly being expedited, but, you know, that's because the demand continues to increase. In industrial medical, what we see right now is that most customers are still recovering from the the supply chain shock, you know, associated with the COVID supply chain issues.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

And so that there's a reluctance to to to put in place inventory as as insurance. I also think there's a lot of uncertainty about the tariffs themselves. And so I think people are taking a wait and see attitude, and and they're trying to match their orders to real demand.

Mark Miller
Equity Research Analyst at The Benchmark Company LLC

We're starting to see, Edgar, some time of depressed pricing. NAND pricing starting to improve. Any feeling about you know, in terms of NAND improvements next year, if that would be an opportunity for you?

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

You know, for us, we're less exposed to NAND than to the other parts of semiconductor. So where where we're most excited is for leading edge logic as well as DRAM because, you know, that that's where our products are being evaluated, and that's where they're going to go into into production next year. I think we're also participating in NAND, but there's really less activity there as far as capacity additions. There there's some upgrade activity going on, but that's not not a big area for us at this point in time.

Mark Miller
Equity Research Analyst at The Benchmark Company LLC

Thank you.

Operator

Thank you. The next question is from the line of Scott Graham with Seaport Research Partners. Please proceed with your question.

Scott Graham
Senior Equity Research Analyst at Seaport Research Partners

Hey, good evening, and congratulations on a good quarter.

Krish Sankar
Managing Director at TD Cowen

Thanks, Scott.

Scott Graham
Senior Equity Research Analyst at Seaport Research Partners

I was hoping that that you would, at at this point, be able to, you know, your EVUS, Everest, and, Nasdaq, maybe be able to quantify a little bit what that's meaning to send you. Was that maybe half of the growth year over year in that segment? Is that something you can tell us?

Paul Oldham
Executive VP & CFO at Advanced Energy Industries

Yeah. It's a good question, Scott. You know, it's difficult for us to quantify that for a number of reasons competitively. What we said is we expect that number to double, you know, from last year, what we call revenue from those three products. And Steve just commented that it's in the double digit millions of revenue this this year.

Paul Oldham
Executive VP & CFO at Advanced Energy Industries

So we always expected it to be, you know, a slow start because of the way these products ramp, and that it would contribute a little bit to growth in the second half. I think separately, you said, think in the 1% range or 1% to 2%. But we expect that to pick up next year as these products move out of this early production phase and into more of a ramp phase. So we're encouraged by the progress we're seeing. In that regard, I think it's following that normal process.

Paul Oldham
Executive VP & CFO at Advanced Energy Industries

And the good news, we continue to have a lot of irons in the fire on a number of of of applications and a number of customers who are, you know, still working through that qualification process.

Scott Graham
Senior Equity Research Analyst at Seaport Research Partners

Got it. Thank you. Industrial and medical, I was hoping that, you know, certainly with 50% of sales through distributors, I assume that they're showing you POS data, and I was hoping you'd be able to share that with us.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

Yeah. What what we've shared is that, you know, for five quarters now, our sales into the channel have been less than the sales, out of the resale data. Right? So that led to a decrease in inventory and I think an increased willingness from distribution to to stock, products, particularly new products. So I think that the trend is favorable.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

It's just, it's obviously taken some time for the distributors to work down their inventories and also for the end customers to work through their inventories. But what we see now is that some end customers have have have worked through them, others have not. And so that's why we think the recovery in I and m is going to be gradual. The other issue there in I and m is the tariff impact. And so a lot of the industrial medical customers tend to be small or medium sized, and they're not in a great position to mitigate some of the tariffs.

Scott Graham
Senior Equity Research Analyst at Seaport Research Partners

Got it. Thank you.

Steve Kelley
Steve Kelley
President and CEO & Director at Advanced Energy Industries

Thanks, Scott.

Operator

Thank you. At this time, this will conclude our question and answer session and will also conclude today's conference. Ladies and gentlemen, we do thank you for your participation. This concludes today's conference. You may now disconnect your lines, and have a wonderful day.

Executives
    • Edwin Mok
      Edwin Mok
      Vice President of Strategic Marketing and Investor Relations
    • Steve Kelley
      Steve Kelley
      President and CEO & Director
Analysts
    • Paul Oldham
      Executive VP & CFO at Advanced Energy Industries
    • Krish Sankar
      Managing Director at TD Cowen
    • Steve Barger
      MD - Equity Research at KeyBanc Capital Markets
    • Joe Quatrochi
      Director & Equity Research Analyst at Wells Fargo
    • Brian Chin
      Director - Applied Technologies at Stifel Financial Corp
    • James Ricchiuti
      Senior Analyst at Needham & Company
    • Mark Miller
      Equity Research Analyst at The Benchmark Company LLC
    • Scott Graham
      Senior Equity Research Analyst at Seaport Research Partners
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