Greetings, and welcome to the Advanced Energy's Third Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the presentation. As a reminder, this conference is being recorded. It's now my pleasure to introduce Edwin Mok, Vice President of Strategic Marketing and Investor Relations. Thank you, Mr. Mok. You may begin.

Thank you, operator. Good afternoon, everyone. Welcome to Advanced Energy's Third Quarter 2024 Earnings Conference Call. 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.advancedenergy.com. 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 guarantees of 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, October 30, 2024, and the company assumes no obligation to update them. Any targets beyond the current quarter represented 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. Excluded from our non-GAAP results are stock compensation, amortization, acquisition-related costs, facilities for expansion and related costs, restructuring and asset impairment charges, and unrealized foreign exchange gains or losses. Please refer to a detailed reconciliation between GAAP and non-GAAP results in today's press release. Before I pass the call to Steve, as a counter announcement, on Tuesday, November 19, Advanced Energy will host our 2024 Analyst Day in New York City, where we will update our growth strategies, market views, long-term financial goals, and demonstrate our products. Institutional investors and financial analysts are welcome to attend in person. A live webcast of the event will also be available on our website. More information can be found in today's earnings press release. With that, let me pass the call to our President and CEO, Steve Kelley. Steve?

Thanks, Edwin. Good afternoon, everyone, and thanks for joining the call. Third-quarter financial results exceeded the midpoint of our guidance, driven by higher demand in the semiconductor and data center markets. We experienced strong design win activity across all of our target markets and made solid progress on our factory consolidation plan. In semiconductor, we delivered our strongest revenue performance since the fourth quarter of 2022. In data center computing, we continue to benefit from strong investment in AI infrastructure as well as successful new products. In the third quarter, we delivered a record number of EBOs and eVerest qualification units for next-generation etch and deposition systems. We are working closely with our customers to fine-tune the performance of EVOS and eVerest subsystems to meet the demanding requirements of logic and memory processes. In addition to Plasma Power products, we also developed power solutions for semiconductor test and burn-in systems. This quarter, we secured a significant tester win by leveraging the performance of a high-density power module originally developed for data center applications. This is an example of reusing best-in-class technology across our markets to improve engineering efficiency and reduce development time. It's a key competitive advantage for Advanced Energy. Our factory consolidation actions are beginning to have a financial impact, as shown by our sequential improvement in gross margin. Further improvements are anticipated in the fourth quarter and beyond. As we execute our plan to reduce fixed costs, enhance productivity, and improve product mix, we remain confident as markets recover that we can achieve our gross margin target of over 40%. Now I'll provide some color on each of our markets. Third-quarter semiconductor revenue increased 5% sequentially, exceeding our projections. We benefited from incremental demand in both leading-edge and trailing-edge logic process nodes. Looking forward, we expect further sequential revenue growth in the fourth quarter. We remain on track to deliver over 250 total units of eVoS, eVerest and NavX subsystems to our customers by the end of this year. While these shipments are contributing modestly to our revenue in the near-term, we expect revenue to become more significant in the second half of 2025 as our customers move from qualification builds into production. During the quarter, we confirmed another eVoS design win for a high-volume application. We also recorded multiple wins with customers who have chosen to use both the eVerest RF generator and NavX matching network in next-generation systems. In Industrial and Medical, revenue decreased slightly quarter-over-quarter. Some of our direct customers, particularly in medical, are continuing to work through excess inventories. In the distribution channel, which accounts for 50% of our industrial medical revenue, third-quarter resales were solid and nearly 20% higher than our trough resales in the first quarter. Distribution inventory levels continue to decline. Assuming current resale levels continue, inventory turns in the channel should approach normalized levels either this quarter or next. This normalization will likely signal that our sales into the distribution channel will begin to grow again. In this dynamic market environment, we are focused on remaining nimble, reacting quickly to capture upside opportunities with readily available products. On the design win front, activity is robust. Our latest new products, which feature leading-edge efficiency, flexibility, and reliability, continue to be well received, resulting in a record funnel of new opportunities. Within Industrial, we secured many design wins, including key slots in process automation, robotics, and industrial lighting. In medical, we won designs in diagnostic and therapeutic applications. Since launching our new website a year ago, we have seen an expansion of our customer base as well as a higher design win conversion rate. We believe that our optimized sales and channel strategy is positioning Advanced Energy for a stronger rebound as the market recovers. In data center computing, revenue grew 11% sequentially, driven by increased demand from hyperscale customers, mainly for AI applications, with continued strong investment in AI and an improving supply of GPUs, we expect strong revenue performance in the coming quarters. At the OCP Global Summit earlier this month, we announced multiple new products, which addressed the substantially higher power requirements of AI applications. Several of these new products will begin ramping into production in the next two quarters. The accelerating power consumption and cost of AI data centers mean that Advanced Energy's industry-leading power efficiency, power density, and system reliability are highly valued by our customers. We believe that our engineering expertise and manufacturing capabilities will continue to give us a competitive edge in this market. In the telecom and networking market, revenue decreased quarter-over-quarter due to lower demand. While we expect the third quarter to be a trough for the year, market conditions will likely remain soft over the next few quarters. Now let me share some closing thoughts. We are executing well in a dynamic market environment and are delivering upside to our expectations for the year. Semiconductor revenue is trending ahead of our prior outlook of a flat year. We now project 2024 revenue to grow at a single-digit percentage over 2023. In data center, we expect strong revenue again in the fourth quarter and double-digit growth for the year. In Industrial and Medical, we expect revenue to bounce around current levels for the next quarter or two as distributors and end customers continue to work down inventories. There is potential for upside coming from recent design wins. Looking beyond 2024, we are excited about our prospects for profitable revenue growth. With strong customer pull for our new products and technologies, and recent design wins beginning to ramp up production, we are well-positioned to gain meaningful share as markets recover. Our efforts to structurally lower fixed costs are beginning to yield results and are a key part of our plan to move gross margins above the 40% threshold. 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.

Thank you, Steve, and good afternoon, everyone. Third-quarter revenue was $374 million, slightly ahead of the midpoint of our guidance. With higher gross margin performance, we achieved earnings per share of $0.98, beating our guidance of $0.90. Semiconductor revenue was above our expectations as we captured incremental demand in a dynamic environment. Data center computing grew again on strong AI-related demand while inventory destocking continued to limit industrial and medical revenue. We are executing our plan to reduce costs and operations by consolidating manufacturing into larger sites and are beginning to see the results of this effort. Third-quarter gross margin increased 100 basis points quarter-over-quarter, and we expect a sequential increase again in the fourth quarter. In addition, as we previously announced, we recorded a restructuring charge primarily related to the planned closure of our last production site in China by the middle of next year. Now let me go over our financial results in more detail. Total revenue of $374 million increased 3% sequentially but decreased 9% year-over-year. Semiconductor revenue was $197 million, up 5% sequentially and 7% year-over-year. Our team acted swiftly to capture higher demand and deliver upside to our expectations. Service revenue also increased from the prior quarter. Industrial and Medical revenue was $77 million, down 3% sequentially and 33% year-over-year. We believe this market is close to bottoming after several quarters of customer inventory destocking. We're encouraged that inventory in the channel continues to decline and that our distributor resale data suggests that end demand remains solid. Data center computing revenue was $81 million, up 11% sequentially and 18% year-over-year, driven by continued strength in hyperscale demand for AI applications. Telecom and networking revenue was $19 million, down 22% sequentially due to lower demand and the timing of a meaningful networking customer program that moved into Q4. Q3 gross margin was 36.3%, up 100 basis points sequentially and slightly ahead of our guidance. The improved gross margin was largely the result of initial manufacturing cost improvements as we transition products between factories. Operating expenses of $97 million increased $1.8 million sequentially due to higher spending related to customer qualification of our new platforms and the timing of some employee benefit expenses. Operating income for the quarter was $39 million. Depreciation was $11 million, and our adjusted EBITDA was $50 million. Other income of $4 million was flat from Q2. Our non-GAAP tax rate was 14.5%, below our expectations of 16% to 17% due to a mix of earnings and favorable discrete items. As a result, the third-quarter non-GAAP EPS was $0.98 per share compared to $0.85 per share in the prior quarter and $1.28 per share a year ago. During Q3, we also recognized $28.5 million in restructuring expenses, primarily for employment-related charges tied to the closure of our last China production site. We expect to incur an additional $3 million to $5 million in restructuring costs in Q4 as we finalize manufacturing and other consolidation actions. We expect these actions will help us improve margin leverage and profitability as revenue recovers. As a result, GAAP loss per share, including restructuring and other non-cash nonrecurring expenses, was $0.38. Turning now to the balance sheet. Total cash and cash equivalents at the end of the third quarter was $657 million. Net cash of $93 million was up $14 million from Q2. Gross cash decreased sequentially as we prepaid $345 million of our term loan. Concurrently, we amended our credit facility to increase our revolver capacity from $200 million to $600 million. These actions reduced net interest expense while preserving the terms of the existing credit agreement and increasing our overall financing capacity and flexibility to fund growth, repurchase shares, and meet other corporate needs. Cash flow from operations was $35 million. Inventory decreased $5 million sequentially, while turns remained flat at 2.5 times. DSO decreased 3 days to 62 days, and receivables decreased by $3 million on higher revenue. DPO decreased from 60 days to 50 days, primarily due to the timing of payments for inventory. During the third quarter, we invested $12.6 million in CapEx or approximately 3% of sales. We paid $3.9 million in dividends and repurchased $1.8 million of stock at an average price of $93.58. Turning now to our guidance. For the fourth quarter, we expect revenue to increase from Q3 on pockets of strength, particularly in semiconductor. We expect semiconductor revenue to increase sequentially from Q3 and to grow low to mid-single digits for 2024, up from our previous expectations of flat year-over-year. In Industrial Medical, we expect quarterly revenue to be flat to up on new design wins. Data center computing revenue should remain at a high level in the fourth quarter, driven by strength at both hyperscaler and enterprise customers. We expect telecom and networking revenue to recover from the Q3 trough to the low $20 million range. As a result, we expect fourth-quarter revenues to be approximately $392 million, plus or minus $20 million. We expect gross margins in the fourth quarter to improve to about 37% as we continue to execute our manufacturing cost improvement plans. We expect operating expenses to increase to $98 million to $100 million due to accelerated investment in new product qualifications and modestly higher variable costs. We believe these investments will accelerate the adoption of our next-generation technologies and enable us to grow share as the markets recover. Other income should be in the range of $1.5 million to $2.5 million due to lower cash on the balance sheet, partially offset by lower interest expense. We expect the Q4 tax rate to be around 15%. As a reminder, we expect the full adoption of the global minimum tax regime in 2025 to increase our tax rate to approximately 18% to 19%. As a result, we expect Q4 non-GAAP earnings per share to be $1.08, plus or minus $0.25. Now for some concluding comments. Looking forward to 2025, we expect revenue to grow as markets recover over the course of the year and design wins begin to ramp. In semiconductor, we expect our next-generation platforms to start initial production in the second half of 2025, with a more meaningful ramp in 2026. In Industrial and Medical, we believe that our new product and design win pipeline, expanded digital platform, and sales outreach will drive share gains as inventories normalize and the market recovers. Data center demand for our proprietary solutions remains strong on continued investments in AI infrastructure. We're making progress in improving gross margins and believe we are on track to deliver over 400 basis points of improvement, driven by structurally lower manufacturing and materials costs, the completion of transition actions, higher volumes as markets recover, and improved product mix. Finally, our optimized balance sheet will continue to provide capacity and flexibility to pursue strategic acquisitions. With that, we'll take your questions.

Thank you. We will now be conducting a question-and-answer session. Our first question is coming from the line of Brian Chin with Stifel. Please proceed with your question.

Hi, there. Good afternoon. Thanks for letting us ask a few questions, and congratulations on the results. Maybe first question, can you just give maybe a rough idea of what drove the upside on the semi equipment revenue in Q3 and then maybe a little bit in the Q4 outlook? And also, just broadly, some rough idea of how much of your semi equipment revenue is typically leading versus trailing edge?

Sure, Brian. As a reminder, in Q2, we saw growth in the growth in Q1, Q3 showed over Q2, and we're anticipating further growth in semi revenues in Q4. So the trend has been good. And what we've seen this year is that most of the growth has been driven by logic nodes. And we've seen it from both leading edge logic as well as trailing edge. We don't have an exact breakdown between leading edge and trailing edge because our equipment can be used in both applications. So I can't really help you there.

Okay. Fair enough. And I'm not going to hold you to a prediction on WFE spending in 2025, but there have been some other customers of yours and other OEMs have commented on that. And so let's say it's mid-single-digit growth next year, kind of similar maybe to this year. And when you think also about the moving pieces where there's some concerns about trailing edge, particularly China, spending growing next year. I think people think it declines, maybe leading edges up. When you think about put all that together, what's your sense in terms of like quarterly trends on the semi equipment business? Do you think you can kind of move sideways here in the first half next year? Or how would you sort of calibrate that for us?

Yes. I think, first of all, we see growth in 2025 over 2024, but we think it's more weighted towards the second half. And that's based both on customer inputs and also on the anticipated ramp of our eVerest and eVoS design wins. So we think 2025 will continue to improve, but the first half will be less than the second half. And if you look at this year in 2024, our second half is roughly 10% better than our first half performance on revenue. So it's consistent.

Okay. So does that suggest that to be clear, first half of next year could be similar to second half of this year?

It's hard to say, but I think the first half will be definitely weaker than the second half next year for sure.

Okay. Got it. And then maybe one last question. Based on your understanding of how much of your data center pickup is being driven by high-end AI infrastructure here again, obviously, there would be a more pressing need for higher power density and efficiency. Do you think that could be a catalyst maybe to extend the runway for data center growth over a longer period than maybe you previously described?

Yes. I think it's an interesting phenomenon. Obviously, what we see is that the refresh cycles are accelerating essentially. So we're working with our customers very closely on generation N+1 and N+2 right now. I think in not too distant past, there'll be 2 years between refresh cycles. It's moving closer to a year now. That's tracking closely with the introduction of new GPU technology. With each new generation of GPUs, the power requirements tend to go up. Part of our value proposition for our customers is our ability to be nimble and to develop these solutions relatively quickly. What we've always sold on is power density, efficiency, and reliability. These become even more important factors for these AI data centers because they're expensive and they're power-hungry. If we could squeeze out more efficiency, it saves everybody money. And the power density comes into play because we're trying to deliver more power in the same size box. Our engineering team is very capable when it comes to power density, efficiency, and reliability.

Okay. Great. Thank you. Appreciate it.

Our next questions are from the line of Joe Quatrochi with Wells Fargo. Please proceed with your question.

Yes. Thanks for taking the question. Maybe one on the industrial medical side. Curious just kind of if you could kind of talk a little bit more about what you're seeing from just inventory destocking and your confidence level and that, that kind of starts to play out in return to better growth algorithm as we look into next year?

Yes, I'd be happy to, Joe. So just looking back, we started this inventory correction back in Q4 of 2023. Believe it or not, it's been a year. We're still not quite through it. Roughly half our business in Industrial & Medical goes through distribution. The distribution metrics are an important barometer of market health. What we've seen this year is that after resales dipped in Q1, we saw a return to relatively strong resales in Q2 and Q3. We're expecting relatively strong resales in Q4. At the same time, we've seen distribution inventory continue to decline. Looking at the trend lines, we believe that at some point late Q4 or sometime in Q1, we should be in a position where inventory in distribution is normalized. Our thesis is that once we see normalized inventory levels, we should see a return to growth from distributors as far as what they order from us. If we look more broadly, it's a little more difficult sometimes to gauge how much inventory the end customers are holding. It's a mixed market. Some working through excess inventory from the supply chain crisis, and some have already worked their way through it. The beauty of the industrial medical market is it's very broad. There are thousands of customers. Our objective is to continue to broaden our customer base, and that's going to lead to a steadier business over time.

Thanks. And maybe as a follow-up, just as I think about the puts and takes of gross margin guide for the fourth quarter. Can you talk about just mix dynamic there? I mean, I think semis are maybe a little bit better than we're thinking in industrial, flat to up, and then data center, it sounds like maybe flat. So can you just kind of parse out and help us understand why 37% is still kind of the right way to think about gross margin and not maybe a little bit higher than that?

Yes. This is Paul. I'll make a couple of comments. First, we think that 37% is right on track to our model considering we still have a lot of transition activity going on in manufacturing. We continue to expect things to improve a little bit. We did see a little headwind to mix this quarter, interestingly enough at the product level. So we could get a little bit of benefit there. But I think we feel comfortable with the 37% where it's at. And again, remember, we do have some of these transition costs as we are now getting into full swing of the China factory closure and transition.

Thank you.

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

Thanks. Steve, great to hear about this continued momentum and design wins. I think you said there was a record funnel of new opportunities. Can you quantify that at all in terms of how that funnel looks compared to a year ago in terms of number of projects or dollars or however you're tracking that?

Yes, Steve. We haven't given exact numbers on the funnel. One thing we do track closely is conversion rates. We have an opportunity funnel and then track what percentage actually turn into design wins. I can tell you we're tracking above one in three. That means one out of every three opportunities converts to a design win, which we verify with either a purchase order or some other written commitment from the customer. I think that's pretty good. The key for us is basically expanding the funnel, both through our website, where we've seen a lot of good uptake from new customers, and also through our distributor network and our direct sales force. We're basically the top offboard power supply vendor for each of our three biggest distributors and have gained share over the last two years at each of those big distributors. The momentum is building in distribution as well as with our website and our direct sales force.

Yes. That's really great to hear. And presumably, you're still relatively low share in those newer markets that you're serving? So lots of...

Yes, we're still single-digit market share in these new markets. So there's plenty of upside for us.

And if I look at the guidance, if a couple of things swing your way in 4Q, you'll be back to that $400 million in quarterly revenue. If that happens, would you think that's a baseline you'll build on as you go through next year? Or are there any seasonal things that would cause 1Q to be lower?

Yes, it's a good question. We're not guiding out 2025 at this point. But we do see some seasonality in some parts of our business. The industrial and medical piece does have some seasonality as people cross fiscal year ends. So we'll see how people gauge their inventory coming into Q1. Last year, we saw some seasonality in our semi business, which declined from Q4 to Q1, and we largely attributed that to customers finishing their stocking activities in Q4, taking a little bit of a breather in Q1. We could see some seasonal effects. We're not projecting a big market turnaround or bigger factors that tend to overcome the seasonal effects, at least not in the near term in our markets.

Understood. Thanks.

Our next question is from the line of Krish Sankar with TD Cowen. Please proceed with your question.

Hi, this is Robert Mertens on the line on behalf of Krish. Thanks for taking my questions, and congrats on the strong quarter. It seems like the growth in the data center market was above your prior expectations for the quarter and remained strong through the end of the year. What sort of visibility do you typically have for the products going into this business and sort of the sustainability of demand heading into next year?

Yes, it's interesting. We're getting more visibility because of the compression of the design cycles. We've won some major new designs just this past quarter that will start ramping as soon as December. Things are happening more quickly, which is good news. This cycle could last longer than normal. I think we've noted in past calls that typically, the data center market goes through inflection points. Five or six quarters of strong consumption followed by a few quarters of digestion and we've seen that better in the past. It could be different this time. The influence of AI and these new generations of GPUs could very well extend the cycle.

Got it. Thank you. And then another question on the gross margin side. Obviously, you guys have been doing a lot of work on manufacturing efficiencies, and it will grow with volumes as well. Did I hear correctly, you mentioned you're on track to grow 400 basis points. Is that in regard to next year?

Yes, it's a good question. I think if you step back and look at our overall long-term gross margin targets, they remain unchanged. Back in Q1, we were around 35%, and we said we thought we could get to a 40% or better at about $450 million in revenue. If you look at the pieces of that, a little bit of that is material premiums needing to finish abating. We thought mix could play a little factor. The biggest things came from improving our manufacturing cost. We said that was 200-plus basis points, and of course, getting the volume up. At this point, we think the material premiums have largely abated. There's always a little bit of noise, but I think that's not a factor at this point. We're a little ahead from a manufacturing cost perspective. We're encouraged that we've reached that tipping point where we're seeing more benefits, lower cost, kind of tipping over and outweighing the transition costs. We think we're on track to get to that 40% or better. As our new products get into the market and start to ramp, we think there's another 200 basis points to 250 basis points from what I'll call structural mix, better margins from new products, higher percent of sole-sourced revenue. That should come in over the course of a product cycle, so call it 12 to 24 months. That should put us firmly above the 40% and give us room to stay above that even in a down market. We're encouraged that we're now finally starting to see some of the fruits of our efforts. We think we're on that track. This is our third quarter sequential improvement, with Q1 being the bottom of gross margins. Looking forward, we think we'll continue on that path to get back to 40% as our markets recover.

Great. Thanks. I appreciate it.

Our next question is from the line of Rob Mason with Baird. Please proceed with your question.

Yes. Good afternoon. Steve, you mentioned the design wins in the semiconductor sector and the new products as we move into the second half of next year and possibly further into 2026. I'm interested in understanding your current ramp. How much of that progress is due to design wins you have secured so far, and how much is dependent on what may be in the pipeline from a risk-adjusted likelihood of winning perspective? I’d like to hear about the visibility around that.

Yes. So let me just back up a little bit. We introduced eVoS and eVerest a little more than a year ago, and we came out with this NavX matching network this summer. Between those three new platforms, we'll ship over 250 units by the end of this year, which is unprecedented from a volume standpoint. Those are going to every customer we have. Every plasma power customer we've ever sold to is sampling at least one of these technologies, if not two or three. What we've seen is a sense of urgency from our customer base. They need this technology to get to the next level in both logic processes and memory processes. They're tackling some really thorny technical issues, and our technology is helping them get over the hump. That’s what drives the sense of urgency. Some of this is reflected in our increased R&D spending; you've seen in Q3, and you'll see it again in Q4. We're basically accelerating the builds of these systems. That R&D spending is going towards more units and not necessarily more people, and that's pretty good news for the company.

That's helpful. As a follow-up, how are you considering free cash flow in the fourth quarter and how you'll finish the year?

Yes. The free cash flow, I think, will be up from Q3 and Q4. We usually don't guide to that, but if you look at the factors, obviously, income is going to be higher. I think we'll have a better balance of working capital when we look at our inventory and accounts payable trends. Those are looking positive relative to the first part of the year. If you remember, we had a couple of items that impacted free cash flow in terms of timing of tax payments or annual incentives that we don't have in the fourth quarter. I think the fourth quarter will prove to be a better quarter than Q3 for both operating cash flow and free cash flow. If you look at CapEx, CapEx in total was down a little bit in the third quarter and as a percentage of sales was coming back a little. That's going to bounce around the higher end of our range, 3% to 4% because we're making these investments in our factories. We're making a fair amount of CapEx investments in R&D, which supports NPI for tooling, test fixtures, and that type of activity. We've been working on some things that help us scale the company around IT infrastructure and capability. Those investments will continue for the next year or so. We continue to see a little bit of elevated CapEx. But again, that's not a large number in the grand scheme of things. It's sort of that 3% to 4% of sales. It should be better in Q4. In general, we should track our historic levels of free cash flow conversion that we've seen in the past.

Thank you.

Our next question is from the line of Jim Ricchiuti with Needham & Company. Please proceed with your question.

Thank you. Paul, I would like to follow up on the gross margin discussion. Can you quantify the impact from the shift away from manufacturing in China? Will this continue to pose similar challenges in the fourth quarter and gradually lessen as we move into the first half of 2025?

Yeah, we haven't broken that down precisely, Jim. If you recall, back in the earlier part of the year, we thought that getting around $400 million would get us up 250 to 300 basis points. As we saw the Street modulate around getting to around 37% by the end of the year, we felt that generally reflected these additional headwinds that we expected. You could infer from that, that's anywhere from 50 to 100 basis points. They do gradually get better; they don't get better all at once. But I think over the next three quarters, you'll see those abate, and that will contribute to getting the whole amount of our manufacturing cost improvements to follow through.

Got it. Steve, maybe you can address the design win activity. It seems like you're experiencing some positive outcomes. You mentioned one EVOS design win, which is a high-volume application. Could you provide more details on that? Also, regarding the I&M design wins in robotics and process automation, are most of these existing customers, or are you acquiring new customers as well? Thanks.

Yeah. So Jim, I can't go into much more detail on the EVOS win because of confidentiality provisions with our customers. I can confirm it's high volume, and it will go to production next year. A lot more of those wins are in the pipeline, and we'll be able to announce more in the coming quarters. We are very encouraged with the degree of interest and the fact that we have units not just in our customer labs, but also in their end customer fabs. This process is well underway right now, getting these design wins confirmed. On the Industrial Medical side, we have design wins in several new areas. Every quarter seems like a new adventure for us, partly due to our website. The website has brought in a lot of new customers. Just in Q3, we saw new customers in metal aerospace, factory automation, test and measurement. We had new wins in automation, thin films, stage lighting, and test and measurement. We are seeing customers that have high-end requirements. If they have a factory production line that needs high reliability and high power efficiency, they'll come to us because that's the type of product we manufacture and design. There is a lot of momentum in the industrial medical space, and we're funding it through our website, through our sales force, and through our distribution network. A lot of activity is going on, and we're very optimistic about growing faster than the market in the coming years in Industrial & Medical.

Thank you.

Our next question is from the line of Scott Graham with Seaport Research. Please proceed with your question.

Good afternoon, well done. Thanks for taking my question. I was wondering if there's a way to parse out what is the destocking impact versus just sort of I know you're saying that resales, which I assume you mean POS is better. 33% down is a big number in I&M, and I was just wondering if that's essentially all destocking if you're saying that resales are improving?

Yes, I think there are a couple of key factors to consider. First, a 33% decline, which was a similar figure last quarter and possibly even larger, is quite unusual in the industrial and medical sectors. If we take a step back, we believe that the volatility is primarily driven by the recovery from the parts and supply crisis that we experienced. For a long period, getting parts was extremely difficult, and the industrial medical sector was the last to recover. This situation led to record revenue numbers in 2023. Conversely, as we enter 2024, companies are now analyzing their inventory. We are facing strong year-over-year comparisons. However, when examining the actual demand from end markets and what our customers require, we see that it has remained relatively stable, with only minor fluctuations. We have received similar feedback from our distributors and customers. Our overall impression is that there hasn’t been a significant decline in end-market demand; it’s more about the current mix. Regarding sell-through at the point of sale, we noted in our call that it remains quite solid. If we look back over the last eight quarters, that number hasn’t changed nearly as much as the figures we’ve observed. Analyzing the industry and feedback from our distributors and peers indicates that the situation is largely an inventory issue. Many companies stocked up on parts over the previous year when access was limited, and they have been working through that inventory since then. We believe we are nearing the end of that process.

That's very helpful. Paul, thank you.

You bet.

I have another question on DC, data center sales. I know you have commentary here that says that strong sales in the coming quarters. Is sort of like fourth quarter and first half of next year comment? Or do you have visibility based on conversations with your customers that maybe it's more like a year's worth of visibility?

Yeah. I think that's a tough question to answer. We have more visibility than we usually do because there's a bit of a herd mentality in this market, and you have these periods of digestion. I would say, based on our commentary and the products we see designed in, I think we feel good about the next few quarters. Could I go out a year and say it's still going to be strong? In the tech world, a year is forever; it could be different in this cycle. There's a lot of investment going into it. But I think it's hard to predict out a year at this point. Certainly, in the near-to-mid-term, it seems like there's a lot of demand for what we're doing. We see it in terms of orders and design wins, product interest on new technology.

Scott, thank you.

Thank you. At this time, we've come to the end of our question-and-answer session. I'll hand the floor back to Edwin Mok for closing remarks.

Thank you, Rob, and thanks, everyone, for joining today's call. We look forward to seeing many of you at our 2024 Analyst Day on November 19th. Goodbye.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines at this time.