Good day and thank you for standing by. Welcome to the Advanced Energy Industries Second Quarter 2021Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Edwin Mok, Vice President of Strategic Marketing and Investor Relations. Please go ahead sir.

Thank you, operator. Good morning, everyone. Welcome to Advanced Energy's second quarter 2021 earnings conference call. With me today are Steve Kelley, our President and CEO; and Paul Oldham, our Executive Vice President and CFO. If you have not seen our earnings press release, you can find it on our website at ir.advanced-energy.com. There you also find the Q2 slide presentation. Before I begin, I would like to mention that AE will be participating at several investor conferences in the coming months. 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, August 4, 2021, and the company assumes no obligation to update them. Medium and long-term targets presented today should not be interpreted as guidance. On today's call, our financial results will be presented on a non-GAAP financial basis, unless otherwise specified. Excluded from non-GAAP results, are amortization, stock compensation, integration and transition costs, unrealized foreign exchange gains or losses, and restructuring items. A detailed reconciliation between GAAP and non-GAAP measures can be found in today's press release. With that, let me pass the call to our President and CEO, Steve Kelley.

Thank you, Edwin. Good morning, everyone, and thanks for joining the call today. Second quarter revenue and earnings per share met the midpoint of our guidance. Demand remains very strong and we’ve record significant new design wins in all of our target markets. As forecasted, our second quarter revenue was limited by shortages of integrated circuits and other key components. Additionally, late in the quarter, output from Malaysia factory was constrained due to COVID restrictions. Component shortages will continue to limit our revenue into the third quarter, but we expect the healthy recovery beginning in Q4 as supply improves. Near-term, our number one priority is resolving these supply constraints. COVID restrictions also remain a concern, but the vaccination of our employees in Malaysia this quarter this quarter should mitigate much of that risk moving forward. As we deal with these supply issues, it’s important to note that our order book is very strong, which sets us very well for revenue growth well into 2022 as constraints ease and we are able to bring supply more in line with demand. During the quarter, customer demand across all of our markets continued to grow. In the semiconductor market, the demand for our plasma power products strengthened as the industry continues to invest heavily in new capacity. After setting the record for sales into this market in the first half of 2021, we expect second half sales to be even stronger. And as supply constraints ease, we expect robust revenue growth in 2022. In the industrial medical markets, we saw increased demand across a wide variety of applications as macro conditions improved. In medical, we benefited from an uptick in elective care procedures. In the industrial market, we saw strength in flat panel displays, industrial automation, 3D printing, and industrial coatings. We also…

Thank you, Steve, and good morning, everyone. In the second quarter, we delivered revenue slightly above the midpoint of our guidance, despite a challenging operating environment. Total revenue of $361 million was up 6% year-over-year and 3% sequentially. We also generated record revenues in our Plasma Power products and in our service business. Customer demand remained very healthy again during the quarter, resulting in an order book which provides solid demand visibility into 2022. On the other hand, new COVID-related restrictions in Malaysia resulted in our factory idling for several days and further limited our capacity output for semiconductor products in June. In addition, shortages of critical parts continued to be a challenge across all our markets, limiting revenue upside, cost pressures associated with the supply chain were worse than expected, resulting in Q2 gross margins below our target. Favorable discrete items in our tax rate largely offset these shortfalls this quarter, resulting in earnings of $1.25 per share. We expect the operating environment to remain challenging, particularly in the near-term. Supply chain and pandemic-related restrictions continue to be very dynamic with a few key suppliers and ongoing COVID risk in Malaysia being the most significant issues. While we have made some improvements, recent decommits and extended lead times are expected to have a meaningful impact on our Q3 outlook before improving in the fourth quarter. With respect to Malaysia, we are actively to get our employees vaccinated and plan to leave additional production capacity in Shenzhen through the end of the year to mitigate the impact and enable a quick recovery. More broadly, we are working closely with both our suppliers and customers to optimize deliveries, while maintaining capacity across our factory network to be able to respond quickly as supply improves. While these challenges will have a significant…

[Operator Instructions] Your first question comes from the line of Krish Sankar of Cowen & Company.

Yes. Hi. Thanks for taking my question. I have a couple of them. First one just to clarify, I think, Paul you mentioned, Q4 should be up on a year-over-year basis. So that basically implies Q4 revenue should be well north of $371 million. A, is that right? And if so, what kind of gross margin should we think about for Q4 given you are still in this constrained environment? And then I have a follow-up.

Yes. It's a good question, Krish. On balance, we would expect gross margins to improve from Q3 levels based on the higher volumes. But we’re also seeing the full impact of the material and cost increases that we’re seeing in the near-term as those roll through. So, I would say, the gross margins would be up modestly from Q3 sequentially with further improvement as we move into the New Year.

Got it. Got it. Really helpful. And then a question for Steve. It seems like you guys are having a little bit of a double whammy both on the revenue side and the cost side given all the constraints. You said that in Q4, at least the revenue side should improve given some of those constraints easing. When do you expect the cost constraints to ease? And more importantly, because of this constrained environment, are you losing any market share to your competitors? Thank you.

Sure. Yes. So, let me just address those two questions. You are asking about cost constraints and when those ease and then market share. So we talk about cost issues. We have been talking about two things. One is, that we're seeing increases in cost for actual parts. Some of that is just price increases, some is expedite fees we're paying to get the product quickly. The other area of increase is shipping cost. So we've seen a tremendous amount of pressure on shipping costs from Asia to other parts of the world. So, we are taking actions. We took action back in the first quarter to pass on these - some of these costs for our customers. And we'll take further actions, particularly on the shipping cost front to make sure that we're sharing the burden with our customers on that. Now from a market share standpoint, the short answer is, no. I don't think we're losing market share actually, I think we're gaining market share in semi. So, when I think about market share, I think about it over the course of years, not quarters. And as I look at our semiconductor market share in 2020, we grew at twice the rate of WFE. And that was partly due to our customers ordering products from us somewhat ahead of the demand wave. This year, largely do parts shortages, we're going to underperform relative to WFE. And our customers are coping with our underperformance by consuming more from the hub inventory. So that hub is really designed as a shock absorber. And so far has been working pretty well for our customers and for us. Next year, we expect to resume our growth at more than 1.2 x WFE, as supply catches up with demand and we move the hub inventories to more comfortable levels. The other point I want to make on market share in semiconductor in particular is, there is a significant time lag between design and production and also our products are proprietary. So, you need to look at market share gains and losses over the course of years in that quarters. So for us, the key of growing share is bringing out the new innovative products like eVoS and MAXstream and bringing those products to market in a timely fashion. So if we if we deliver those products, and they are deemed to be reliable and cost-effective by our customers, then our share is going to continue to grow moving forward.

Thanks Steve.

Your next question comes from the line of Scott Graham of Rosenblatt Securities.

Hey. Good morning, and thanks for taking some questions here. So, Steve, I mean, the plan - and simple first question I have is, when I kind of take the third quarter guidance and a roll it through the old model, it just - it's hard getting to $0.80 a share. It just seems like maybe you have maybe some fudge factors in there. I don't know, but lots of polls, details, flat OpEx and the gross margin. Are you just putting in sort of a buffer in there sort of a just in case?

Yes, Scott, maybe let me take that question. I think the biggest impact relative to where we’ve been, I'll say, most of last year is a change in gross margin. And when we look forward, there is really three factors that are impacting that that are - I'll say different than they were three or four quarters ago, number one. And two, that we think are more transitory. The first is, clearly, there is higher near-term supply chain cost both in materials and logistics. Steve described some of those are very transitory like, expedite fees, we think logistics costs will normalize over time, but also some part piece price increases. That's the biggest factor between where we've ran in gross margin to where we see things. And that result we started to see that in the second quarter. It will be more pronounced in the third quarter and we'll see the full impact as it rolls through our inventory in the fourth quarter. That's why we think that's going to progressively get a little worse before it gets better. The second thing is, we just have a lower factory utilization, because our factory is waiting for parts. We have consciously decided to maintain capacity and capability, because as we get parts in, we want to be able to turn them around quickly and we do believe the supply chain environment will improve and that will give us a chance to overperform And the third thing is, we've consciously delayed the closure of our Shenzhen to Malaysia factory in order to preserve some flexibility. So a year ago, we essentially had one highly efficient factory that was putting our semiconductor products. Today, we've nearly fully ramped semi, but we haven't ramped down Shenzhen to preserve this little bit extra capacity. That's inefficient. That will also resolve itself over the next couple of quarters. So, look, I'd like say we have some upside in margin and we'll certainly look to drive that. But those are the factors that are impacting gross margin. And again, think of them as things that are going impact us for a couple of quarters, that there is a clear path for those to improve as we move into next year - move in until 2022.

And maybe just a further comment, maybe further comment, Scott. I think the common theme, a lot these actions that we’re taking that this basically keep our customers happy. That's our first priority. Sometimes that cost us a little bit more, but I think it pays off in the long run for Advanced Energy.

Just off of the guidance just to circle on my question here. I don't want to beat a dead horse, but to just see you are essentially saying Paul, that it's possible that the gross margin can be lower than the guidance that you've laid out. And you just want to handicap against that?

We think this is our best view of gross margin given the dynamics in the market and our factories right now. I wouldn't say it's conservative or that we have a lot of downside. We tried to call it the best we can. And be realistic of that. And look, we'll try to beat it, but that's our best view.

Fair enough. Okay. Could you tell us when it comes to the third quarter, kind of how you see each of the segments performing and just best you can and then also, how that impacts mix on the gross margins?

Sure. Yes, I'll make a few comments there. First circling back to our prepared comments, we see strong demand across all the markets. So, for us, demand is not the issue. It’s just purely supply at this point. And that's the case for the next three quarters at least. And so, we think, we're doing very well in the design win front. And on the demand front, it's off the charts in almost all of our markets right now.

Okay. And if I could just squeeze in one more question if you don’t mind, particularly for you, Steve, since you know, you're now steering the company. I know you indicated that semiconductor, industrial, and medical or sort of your main drivers, but Artesyn brought a wealth of really nice markets as well. And as you noted, 67% of your sales are proprietary. So, am I reading too much into the sort of the main drivers versus the secondary drivers being telecom, datacenter and networking there?

No, I think, what I am saying is we are accelerating the focus on proprietary opportunities. So Artesyn brought in some very interesting business, particularly in industrial and medical, also in telecom, also in datacenter and some other areas. And so, we're basically pushing more of our development resource on to proprietary opportunities, because we like those opportunities because they are sticking. They are typically long lifecycle and we partnered with the customers to come up with unique Solutions. And that's really in our wheelhouse at Advanced Energy.

Okay. Thanks a lot.

Your next question comes from the line of Mehdi Hosseini, SIG

A couple of follow-ups from my end. It seems to me that that most of in the revenue shortfall, at least to my expectations came from semiconductor segment and this is a sector that you have had the most experience and your OEM customers have the longest lead time. How should I reconcile that with shortages that you are experiencing? And I am just curious how you are managing required inventory of components for semi versus other sectors? And then I have a follow-up.

Okay I'll start and then, Paul will complete our answer on that one maybe. First, we're seeing surges across all of our target markets including semiconductor. But we are working very closely with our biggest customers in semiconductor to make sure that we satisfy their immediate needs. So, obviously, it's a daily struggle. But I think I could say, in Q2, we did a reasonably good job. Not being the gate to their production. And that's our objective in Q3 as well. And so, we work closely with the customer to make sure we are using the components we have in the right products that the customer needs. So, that's our number one priority.

Okay. If I could just add on to that, I think very tactically in the short-term to answer your question, you're right, semi was a little lower than our expectations. That was primarily the result of the late movement control orders in Malaysia in June, which we just ran out of time to fully recover. If you remove that, we would have had - semi would have grown sequentially. And look that's getting better both in Malaysia and actions we are able to take. Now that we're able to get vaccines into our people there. And we would expect in the second half, we would see semi grow in total. Now the timing exactly between quarters will depend on parts and timing a little bit, but we'd expect to grow off the record first half levels in semi in the second half.

Okay, got it. Thank you. And regarding telecom and datacenter, are you finally beginning to see a stronger recovery, like, I look at your datacenter, it seems to me that the rate of decline on a year-over-year is coming down, which is very encouraging. But the telecom you have - you had like a 20 some percent of decline on a year over year basis. And I am trying to better understand how you see the recovery trending for each one of these sectors.

Yes, it's a good question. I would say demand in both those markets is strengthening, like we said in our earlier comments. The gating factors, is materials. And so, certainly, we're seeing the revenue levels uptick in our datacenter in computing markets. We talked about initial shipments to a fourth hyperscaler. But in the end, as we look over the balance of the year, how much that growth will be a function of how quickly we can get parts. I'll say, similarly in telecom, we expect that that as we said last quarter to kind of bounce around the current levels as we begin to see more investment in 5G over time. Where we're beginning to see that investment and we commented on a couple of design wins this quarter, but the parts conditions in the telecom products were actually worse resulting in a decline sequentially. And remember, in telecom and networking is where we had the most pronounced impact of our portfolio optimization efforts, which is a big part of the year-over-year decline.

Great. Thank you And then, one last item for me is, if I were to look at - like a year from now and assuming that end-market demand for different sectors remain as strong, should I assume that the margin profile for all the different sectors are similar?

Yes. I think the margin profiles across the various markets aren't going to be similar, because there is different dynamics. But, I would say you would expect to see margins improving across all of our markets. Part of that will just be recovery in volumes. Part of that is our portfolio optimization programs that we have in place. And part of it will be optimizing our factory and supply chain as we are able to get into a more normalized environment.

Got it. Thank you.

Your next question comes from the line of Amanda Scarnati of Citi.

Good morning. The first question I have is on the Tegam acquisition. Can you just sort remind us of what the impact is there in semis? And what it’s adding to the portfolio outside of your traditional power businesses?

Yes, Amanda. I’d be happy to comment. Just to remind, so Tegam is the industry leader in RF calibration instrumentation. And what we saw was their technology is very complementary to AE’s, because we're the leader in RF power generation and impendence matching networks. So when you combine Tegam and AE together, we think that enables an AE-qualified lock ecosystem, which is trace to international standards. So, we think it enhances is the overall RF business and our value proposition, particularly, with the semiconductor customers.

Yes. I'll just comment on the impact. We said, when we acquired Tegam that there was annualized revenues of greater than $10 million That's in support of a range of customers, but I would say, more than 50% would be semiconductor in that market.

Great. And then, just kind of switching over back to your confidence levels on this Q4 recovery, maybe – we were sitting here last quarter, you're talking about growth in the second half around 5% to 10% half-over-half and now we're talking about, sort of approximately flattish. What gives that sense of confidence in that recovery happening in fourth quarter? I know you've been commenting that demand is still strong at the supply side. But what changes over the next 2.5, 3 months?

Yes Amanda, I think there has been two constraints to growth. One is parts and one is Malaysia. So, in Malaysia, practically all of our employees will be vaccinated by the end of this quarter. So, I think we are taking the Malaysia COVID restrictions out of the equation, at least as it pertains to our factory. So that's a big plus. So we can go at full speed ahead in Malaysia. And again, that's for semiconductor customers primarily. The others parts, and I could tell you that we've solved most of our issues. There is only a few suppliers now that are gating us and we are having daily conversations with those suppliers and what I see right now as far as their commitments gives me a lot of hope that things will start to get better in September and we're going to steam into to Q4 with a better parts supply. That said, we've been surprised. We were surprised in Q2 because, we thought our Q3 was going to set up a lot better. But I think - I sense that things are going to get better over the next couple of months and it's going to help us a lot in Q4.

One more question, just to kind of follow-up here and clarify. You mentioned that Shenzen is still open and its operating and taking up some of that demand that Malaysia can’t fulfill, but that the gating factor here is - in part Malaysia. Can you just talk about how that's offsetting each other? And so what's going into it? And how much Shenzen is actually replacing Malaysia?

Yes. So the reason we are keeping Shenzhen open is to allow to expand the aperture a bit on some our high volume RF generators and matches. And this way it could supplement what we're doing in Malaysia. It also allows us to have burst capacity, because sometimes these scarce components come in, in a lumpy fashion. And so, we can basically expand the amount of product we can build in a given amount of time if we have two locations as opposed to one.

Thank you.

Your next question comes from the line of Tom Diffely of D.A. Davidson.

Yes. Good morning. Thank you for the questions. So, first of all, you talked to a lot of about mitigation actions. I was just curious, is that just to revolve around, again looking for new suppliers in expedited parts? Is there more truth in that?

I'd say as Steve mentioned, this is our number one management priority is resolving these and we've made a lot of progress. As Steve said, if you look across the broad set of parts, a lot of those are resolved. But we have a few key suppliers where we've not been able to close the gaps at good likes. So, it is looking at all options. Sometimes those are similar of that alternative parts, sometimes those are on parts we can get from other places in the channel, sometimes it's working with those suppliers to find ways to expedite or lend hot lot we can get a few parts faster. And in some cases, we may, in the longer to run actually redesign some parts to give ourselves more flexibility. So it's a full core press of actions throughout the management chain to help resolve these last few key component shortages. And there is no silver bullet here. It it's just down to hard work and a day-to-day effort to improve this situation.

Okay. And along that front, have your customers and customers’ customers got involved and help you kind of pressure on some of these supplies, as well?

Yes I’d like a few comments here. We're certainly involving our customers where it makes sense concerning pressure on our suppliers. And certainly they made a difference, more than one occasion. So, we are involving everybody that can help us extract more parts from our suppliers or from the channel.

Okay. It’s good to hear. Thanks, Steve. And then, on the on the Malaysia front, it sounds like you've had pretty good success getting access to vaccine. I am wondering how that it’s worked and is there going to be an issue or an opportunity to Shenzen to get the vaccine as well?

We work with the government in Malaysia and they had a special program to vaccinate key employees in and Penang and other parts of Malaysia. So we signed up early. And that's why our employees are getting vaccinated in Q3. So, I think the team did a good job getting in front of them. In Shenzen, I also believe our vaccination rate is pretty high, so that has not been a concern for us.

Okay. Great. And then finally, Paul, you had mentioned, de commence, is that when your supplier, that the contract implies?

That's essentially when we have committed deliveries from a supplier and then as you approach that date, the supplier moves the date out of when they expected to ship the parts. And look that could be for a number of reasons. When the supply chain is this tight, if you had any hiccup, it ripples through the system, right? And so, I think that's where we mentioned it's a dynamic environment. You have commitments around when you expect to get parts and we've seen a few of those move around, and even recently. I think that's may be the biggest change from our view. And if you go back a quarter, is, some parts that we thought we had in hand moved out. And look, this is a function of lead times. I think if you look across the - particularly the integrated circuit, the broad range of parts, you've seen the lead times extend over the last quarter or so and that ripples through the industry a little bit as people adjust to those changes.

Okay. Thanks for the color.

Yes.

Your next question comes from the line of Paretosh Misra of Berenberg.

Thanks. Good morning. So, when I compare your three year goal of sales of %1.65 billion with the Q3 guidance, it's about $300 million delta. So, I was hoping if you could provide some thoughts on which end-markets might provide a bigger improvement to get to your long-term target?

Yes. It's going to come from a little bit of all of the markets Paretosh, but certainly, semi has been strong and can be stronger. We've been limited in our ability to deliver the full demand in that market and we think that market is going to continue to strengthen through 2022. And that's I think there is conventional there is a lot of information in the market that suggests that even these supply challenges seen in the near term, essentially could have the effect of extending the upside run. So, certainly, we'd expect further growth from semi. Industrial and medical is a focus area for us, We'd expect that one to actually grow faster than the other markets, as we are able to expand our product portfolio, configurable products, move into some targeted areas where we are making investments and expand our channel. Datacenter and computing has been in a digestion period that it's coming out of. So, we would expect more growth there even as we focus our efforts on kind of the more differentiated or proprietary parts of that market. Telecom and networking, we said a lot all along, we don't expect to grow a lot. So it will probably be the slowest grower of three. 5G demand, as that actually starts to get traction and rollout out will help there. But on balance, the capital equipment market, the infrastructure market is not faster - as fast to grow as the other areas. So, hopefully that gives a little bit of color.

Yes. Now it’s very, very useful. And would you say, semi – this end-market or segment that's most affected by these supply chain issues?

No, I would say that all markets are affected by it. So, we're working hard to close the gaps in all areas. But obviously, semiconductor is a high priority for us, given the importance of our customers in that segment.

Got it. And the last one for me. If you could give some more context on your order book, did it improve in all three segments or least the three major segments? And is it’s – it’s an on all time high for all three of them or any more color you could provide on that would be great.

Yes, if you just look at the absolute growth in the order book in our earlier comments, clearly, there is a lot more demand that we could ship if we had parts. And that's across all areas. Semi, you hear it in the comments of our customers. Clearly, we don't take orders necessarily there. We ship into wins, but as Steve said, we've that's kind of in the buffer in the meantime. And so, getting those back to more comfortable level on your higher growth there will certainly help that we think we have good and continuing growth to come in semi. Our strongest order book is actually in industrial and medical. If you look at the orders that have come in relative to our ability to deliver parts, we think that's really encouraging, because that's the market, again that we are applying additional resources and effort to, because we think it's very attractive. But we also have – we had good demand well over our shipment levels in both datacenter and telecom and networking. So, generally, it's strong overall. But a little stronger certainly our best order book is in I&M and we have a lot of confidence in the order growth in semi number from a demand perspective.

Interesting. Thanks guys.

Your next question comes from the line of Pavel Molchanov of Raymond James.

Yes. Thanks for taking the question. Back to Malaysia, are you operating under a legally mandatory curtailment restriction in terms of operating hours or factory utilization? Or is it purely a matter of, kind of precautionary actions that you are taking at the plant?

Yes. So in Malaysia, we are definitely operating under constraints, but the constraints are much less than they were back in June. So we think the current operating model of 80% capacity is definitely something we could work with and maintain our production output.

And that 80% is…

Yes. That’s mandated. Yes. That's a regulated and highly monitored or enforced limitation. But that's not our choice.

Understood. In the context of the supply shortages that have been amply discussed in the last half hour, presumably, some smaller players in your space are feeling even more pain than you are. And I am curious that from a kind of opportunistic M&A standpoint, if this creates some interesting potential for you that perhaps did not exist six months ago?

I think your thesis is correct that the some of the smaller players are feeling even worse than we are. And we have seen opportunities open up their customers because of that. But we have not seen any M&A opportunities appear quite yet because of that reason.

At least tomorrow. Thank you guys.

Thanks, Pavel.

Your next question comes from the line of Quinn Bolton of Needham & Company.

Hey, guys. Maybe I missed it. But maybe just starting off for the third quarter guidance, it looks like you're about 10% below where the Street consensus was. And so, wondering if you might be able to sort of ballpark, give us a sense how much of that are the movement restrictions in Malaysia limiting output from that factory in the quarter? How much of it is supply constraints where you can't get components? Is it split 50:50? Is one or bigger factor just looking for any thoughts you might have on the impact of the relative contributors?

Yes. Quinn for the third quarter, it's predominantly materials availability in parts. We do think the COVID restrictions impacted us in Malaysia in June. We talked about that being sort of a late quarter, additional restrictions there. But we expect that to get much better over the course of the third quarter as we get our workforce vaccinated and hopefully, things just continue to improve. So it's predominantly supply chain-related. That's impacting our lower revenues in Q3.

Got it. A second question, just wanted to follow-up on the confidence in the fourth quarter. I mean, obviously, you guys kind of had a more bullish outlook for the second half 90 days ago and you've experienced some decommits from suppliers. So, what makes you think that doesn't happen again? I mean, you read the press. You talk to other companies and the supply chain things. Things are still pretty bad. Hopefully, they start to trend upward on the margin. But for you guys we’d be kind of talking up 10%, maybe 10% plus quarter-on-quarter is a pretty hefty sequential guide for the fourth quarter.

Yes. As Paul mentioned earlier, we've closed most of our gaps with our suppliers and we're down to the last few. And so, we're give you those last few suppliers a lot of focus and a lot of pressure. And from what I could see, most of those commitments from the problem suppliers are getting better in the last four months of this year. So, I actually see upside in Q3, but I am not ready to commit to it, because of some of the issues we faced recently. But certainly, Q4, I am relatively confident that we can meet that number and hopefully exceed it.

Great. Even then maybe the last question, you guys have said you are sole sourced on a good percentage of the solutions you deliver to your customers. You are likely sole in almost everything semi cap equipment-related. I guess, I am just struggling with your ability not to pass along some of these supply chain costs, I mean things like expedite fees, obviously, I think are something that that your customers would understand given the supply constraints in the environment. I realize you are trying to protect customer relationships. But, on the other hand you not running a charity either. So, where are you in those negotiations in terms of trying to pass along some of these supply chain costs? I know you're probably not ready to raise pricing across the board. But it feels like there should be a medium here that you can pass along some of these increased costs that you're facing?

I think it's a good point and I think we have continuing dialogue with our customers on how we could share the burden of these increased costs, both the parts cost and the shipping cost. So, I think moving forward, I think you'll see, hopefully, more sharing with our customers, because it's a difficult environment and we can't bear the cost alone.

Yes. I think, Quinn, part of that too is just timing. I mean, I think in the last quarter, we've seen things become more difficult on that front and we did take actions early in the year. But we've learned more and so, so part of that’s just timing.

Got a lag effect. Understood. Okay. Thank you.

This concludes our Q&A session. I will now turn the call back over to Steve Kelley.

Okay, thanks for joining us today. We are excited about the opportunities in front of us and are executing on our growth strategy. While we are constrained by supply in the near-term, we believe that strong demand for our products, coupled with a record order book but this sets us well to deliver solid revenue and earnings growth in 2022 and beyond. We look forward to talking to many of you in the coming weeks. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.