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

Thank you, operator. Good afternoon, everyone. Welcome to Advanced Energy fourth quarter and full year 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 earnings 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 estimates as of today, February 12, 2025, and the company assumes no obligation to update them. Any targets beyond the current quarter presented today should not be interpreted as content. 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, facility expansion and relocation costs, restructuring and asset impairment charges and unrealized foreign exchange gains or loss. Please refer to a detailed reconciliation between GAAP and non-GAAP results in our press release today. With that, let me pass the call to our President and CEO, Steve Kelley.

Thanks, Edwin. Good afternoon, everyone, and thanks for joining the call. Today, Paul and I will discuss our fourth quarter performance highlights from 2024, our first quarter outlook and our 2025 priorities. We delivered strong financial results in the fourth quarter. Revenue of $415 million exceeded the high end of our guidance range and return the company to year-over-year growth. Pockets of higher demand in semiconductor as well as strength in data center computing, drove the outperformance. Fourth quarter gross margin was 38%, our best performance in three years. We benefited from higher volume as well as improved factory efficiency. Fourth quarter earnings of $1.30 per share were above our guidance and grew year-on-year. Before providing more details on the fourth quarter, I'd like to review our 2024 performance. From a financial standpoint, we hit a low point in the first quarter of 2024 due largely to soft market conditions. From that point forward, our revenue improved every quarter. Data center computing rebounded strongly in the second quarter as our design wins ramp to volume spurred by demand for AI compute capability. Data center demand continued to increase in the second half and remains very strong. Semiconductor revenue also grew over the course of the year as we capitalized on a variety of upside opportunities. The industrial medical, telecom and networking markets were headwinds to revenue in 2024. The I&M market underperformed due to lackluster demand as well as elevated inventory levels at both distributors and end customers. As expected, telecom and networking revenue reverted to more normal levels after a very strong 2023. In 2024, we made major strides on the new product and design win fronts. We launched 35 new platform products in 2024. In addition, we developed many custom and modified standard products in close cooperation with…

Thank you, Steve, and good afternoon, everyone. In the fourth quarter, we executed well to deliver both revenue and earnings above our guidance. Upside in the semiconductor and data center computing markets more than offset ongoing sluggishness in industrial and medical. We continue to execute our manufacturing cost improvement initiatives and delivered gross margin at 38%. The third consecutive quarter of sequential increase. Lastly, cash flow from operations was $83 million, just below last year's record Q4. Overall, despite a challenging start to 2024, and an ongoing inventory correction in the industrial and medical market, we finished the year on a strong note, delivering Q4 year-over-year growth in revenue, gross margin and earnings. Now let's review our financial results in more detail. Fourth quarter total revenue of $450 million increased 11% sequentially and 3% year-over-year. Semiconductor revenue was $227 million, up 15% from Q3 and 19% from last year with growth across products and service. We were pleased with our ability to respond quickly and capture additional year-end upside. Industrial & Medical revenue of $77 million was about flat quarter-over-quarter and down year-over-year. Channel inventories continue to be above target levels as market conditions remain soft. Data center computing revenue was $89 million, up 10% sequentially and 41% year-over-year. Demand strengthened again as we started production ramps of new high-power products. Excluding the revenue from premium recoveries during the supply chain crisis, data center product revenue reached a new record. Telecom and networking revenue was $23 million, down year-over-year but up 20% sequentially as we ramped production of a new program that was pushed out from Q3. Fourth quarter gross margin was 38%, up 170 basis points sequentially due to higher volume, favorable product mix and improved manufacturing efficiency. Gross margins in Q4, 2024 were roughly 200 basis points higher…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] And the first question comes from the line of Brian Chin with Stifel. Please proceed with your question.

Hi, there. Good afternoon and thanks. Congratulations and thanks for letting us ask a few questions. Maybe first question, just thinking about sort of the first half versus second half last year commentary. I think that might put semi-equipment maybe in the vicinity of sort of 10% year-over-year growth. And I know you talked about the potential to outgrow WFE, I recall, from earlier in the prepared remarks. And so is that 10% year-over-year, even with an acceleration in the back half, as you suggested? Is that maybe the right frame of reference in terms of the outperformance?

Yeah, Brian, this is, Steve. Hey, Brian. This is Steve. What we said basically is we were able to take advantage of opportunities in Q4 to really maximize the revenue in semiconductor. So there were two real highlights in Q4. One was their semiconductor revenue, and the second was the data center revenue. As we move into Q1, we're seeing the semiconductor demand moderate a bit. And again, that's after record Q4. As we move forward in the year of 2025, we haven't given a specific guidance. But we think the second half is better than the first half, largely because many of our new products are beginning to ramp the volume in the second half. And that's what's driving our confidence in our ability to outperform the market in 2025.

Okay. Maybe just to drill down at one level, clearly, some of your new design wins for EVOS and our next-gen supplies and matches should layer in over time side to future technology transitions and equipment platforms. But can you just clarify or confirm whether some of your early designs are closely aligned with the NAND market? Were there clearly some pickup in upgrade activity that's very etch and deposition focused? How do you see that contributing maybe to your equipment outlook this year?

Yeah, it's interesting because what we're finding is we shipped over 250 of these evaluation units between eVerest, EVOS and NavX. And that was through December of last year. Obviously, the demand continues into this year. But they're finding homes across all leading-edge processes. And the issue is customers using the older technology just can't get the job done, right? They're losing throughput and they're losing yield based on old technologies. So that's forcing them to move to our new technologies. And that's the same challenge whether you're talking about NAND, DRAM or leading as logic. So we're seeing equal interest from all segments and those technologies.

Got it. That's helpful. Maybe I could just ask one more question. It's actually kind of financial related. There's clearly been a lot of talk and reporting about broader weakness in industrial. This isn't so much on your revenue side, but actually in terms of gross margins. I think semi-cap companies tend to be classified as industrial markets for chip companies. And so do you actually feel pretty good about the cost point and availability of chips you buy and integrate into your power subsystems. Are there opportunities to actually lock in favorable pricing and supply that supports your gross margin expansion targets?

That's a great question. It's an issue we deal with every day practically. And I would say it's hard to give a general answer. I think looking back over the last three or four years, we've divided our suppliers into two camps. One are the suppliers that supported us well during the shortages and the other campus suppliers that didn't support us very well at all. And I think we've basically focused more business with suppliers who have shown the degree of support we're going to need over time. Now when it comes to pricing, I think there are market forces at work. And certainly, speaking generally, we see prices coming down, but the willingness to engage in price discussions varies from supplier to supplier. But obviously, it's a positive for us if the supplier is willing to move on price to keep us more competitive.

Yeah. Brian, I'd just add on to that. I think at this point, it's a little too early as we think about our gross margins plans to count on, I'll say, material improvements. As Steve said, there's a lot of discussions and as you know, material costs are up, excluding premiums, they're up from where they've been historically. So this is an area we're working on and could potentially be a tailwind to gross margins over the year, but I think it's a little early to bake that in.

Okay, thanks, Paul.

And the next question comes from the line of Krish Sankar with TD Cowen. Please proceed with your question.

Yeah, hi. Thanks for taking my question. Steve, first on the traction you're seeing on EVOS and eVerest. I'm curious, like you said is across all markets, specifically on the edge side, where are you seeing more traction? Is it on the conductor edge or is it more on the dielectric edge, you're seeing more traction? And then I have a follow-up.

Yeah. We're seeing traction in both areas because you have similar challenges where -- I mean, the basic challenge we're seeing, whether it's conductor or dielectric is the ability to drill deep holes with minimum damage to wafer. So it gets to throughput and yield. And so what these technologies allow our customers to do is to increase their etch rate and to lower the defect rate as they implement these new leading-edge processes. And so I would say, in general, we've seen strong interest from both conductor etch and dielectric etch applications.

I mean, is one better than the other? Or are they kind of similar between conductor and dielectric?

No, I think the difference really is power levels. So when the conduct branch, it doesn't require the same power level we see in dielectric. But at the same basic technique that we bring to our customers.

Got you. And then a quick follow-up. You kind of mentioned about strength in the second half in semi. I'm kind of cure in what gives you the confidence? Is it more I mean I'm assuming you don't have the visibility, but is it more just a design win traction pipeline or something else that's going on?

Yeah, Krish, it's really design wins. We've had so much activity across our customer base over the last year and half that we think some of this is going to start bubbling up into revenue in the second half this year. So that's what gives us the confidence. I think the only statement we've made is we think we can grow faster than market. We don't know exactly what the market is going to be in the second half. But what gives us that confidence is our new products plus fact that the etch and depth intensity for these leading-edge processes continues to increase.

Fair, thanks for that. Thank you very much.

And the next question comes from the line of Rob Mason with Baird. Please proceed with your question. Rob, your line is now live. Okay. The next question comes from the line of Scott Graham with Seaport Research. Please proceed with your question.

Hey, good afternoon. Congratulations on a terrific quarter. I just wanted to understand your thinking around the share gains. You've spelled out the big products I'm just curious if you're thinking kind of like more second half oriented, which I think the entire market is on semi, would the share gains be more pronounced in the second half than the first as a result?

Yeah. I think you're referring to semiconductor, in particular, right, on the share gains?

Yeah. I thought I said that I didn't, yes.

Yeah. Okay. So I think when it comes to market share in semiconductor that takes time, right? Because there's a lot of puts and takes as you go through a year. And I think we commented on initial ramps of our new product in the second half. And that's really what gives us confidence that we can grow second half from first half in semiconductor. I think what you'll see is our market share will increase over the coming three to five years across the board in plasma processes for semiconductor based on the strength of these EVOS and eVerest technologies. But it's going to take some time to materialize. That's just the nature of market share in semiconductor.

Understood. I've got two other questions, if I may, that Industrial and Medical, that's been a very difficult business for you throughout the year, and it looked like it improved that much in the fourth quarter. I mean, I think I asked this question last time. If you were to pull out what your best guess was on the destocking aspect in both of those markets kind of what would the year-over-year revenue look like if you now?

Yeah, it's kind of a tough question to answer because we don't have perfect visibility. But I think one way to think about it is if you look at the industrial and medical market historically, you don't see the magnitude of change we've seen this year. And it might be more in the 5% to 10% range depending on the economic conditions or what's happening. We've seen much bigger gyrations than that. And if you listen to us and many of our peers and customers, you could say it's down 30% to 50%, depending on who you are. We're probably on the better side of that. I think you can attribute that delta largely to the inventory situation, which was caused by the supply chain shortage, which extended lead times and caused people to buy inventory based on those lead times. Now that those lead times have collapsed, they're working through that inventory. So it's hard to handicap, but I think you can look at some historical levels to get some perspective on it.

Yeah. And maybe just a few more comments. We think we -- we're just about through the corrections because this is our sixth quarter of correction in Industrial & Medical. And so what we've done over the past year and half years is, we double our efforts in that area to increase our design win funnel and to really set us up to gain market share as the industrial medical market recovers. And we think that's going to happen to start happening this year. And we think when we come out into '26, we're going to have a higher market share than we did last year in Industrial & Medical.

Okay. Just the last one, I hope you don't mind my sneaking in is that we've been waiting on an acquisition in I&M for some time you went to the markets almost, I guess, it was like five quarters ago. And I think you've been waiting on an opportunity as well. Is it that, that those businesses just need more critical mass. I'm thinking that the answer to that is no, because you're in so many different areas. But what is your perspective on that? Is it a critical mass thing because I know you're saying that your peers are down 30% to 50%. I'm not seeing those numbers. So I was just kind of wondering from that perspective, is it possibly also a critical mass thing?

Yeah. Maybe just comment on the Industrial and Medical market because I think I'll answer your question maybe in an indirect way. Industrial Medical market basically is very sticky. And so right now, it's a very fragmented and sticky market. And so we can win an outsized number of new designs and still not move the needle as much as we would like. So that's why we're pursuing M&A in the industrial medical space. It's to build out further critical mass, become more important to our customers essentially. Now the only hurdle to buying companies right now is valuation. So we're clearly in the hunting mode. We've got a good pipeline of candidates. And I think with the passage of time, I think some of our targets should become more realistic on valuation. And at that point, we could do a deal.

That’s great. Thanks a lot for your time.

You’re welcome.

The next question comes from the line of James Ricchiuti with Needham & Company. Please proceed with your question.

Hi, thanks. Paul, you may have mentioned this, but on the sequential improvement in gross margin, were you able -- or did you attribute -- quantify how much of that came from the facilities, consolidation actions? Or maybe you could just give us a sense as to how much of an impact that might have had. It sounds like it was mix mainly?

Yeah. I actually think it's a combination. Obviously, we saw improvement in Q3 from the facility. We saw further improvement on the facility side in Q4. We also benefited from volumes, as you've seen. And we got a little bit of help from mix. So I think if you look at how we think about the contributors to gross margin improvement. Of course, the one that's most in our control is the facility cost reduction. We believe we're on track there. And we talked about 200 to 250 basis points of improvement related to that. I think broadly speaking, we achieved at least half of that already to date, maybe a little bit more. And the next leg of improvement comes in the second half of this year as we complete our closure of our China facility. So I think we're well on the way, and we feel very good about our progress there. I think mix is helping us a little bit. Obviously, we had just some better product mix this last quarter. But one of the elements of mix that's helping us is that our mix in data center is actually better. We've talked about continuing to improve gross margins in that market as we focused on more differentiated solutions. And so while that market is performing well, it's not nearly the drag it's been historically. And on a year-over-year basis, we certainly saw -- I'll say, net improvement in margins, which we would attribute to mix in that regard. And then lastly, we're pleased that the improvement from margin is tracking right on our model of roughly 100 basis points of improvement for every $50 million of quarterly revenue. So everything seems to be coming together. Obviously, as our new products start to have a bigger impact, that will contribute to mix as we exit this year and more pronounced perhaps in 2026. But we feel very good about the gross margin progress across the key elements.

Got it. And if I can follow up just on the two areas of the non-semi business that I think has been focusing on. You guys seems to be a little bit more optimistic about the continued strength in data center. Is that a fair way to characterize it? And in terms of your line of sight when you talk about demand remaining terribly robust through the year. Is that -- how much of a change is that versus a few months ago based on what you're talking to customers?

Yeah, I think you're right, Jim. We have changed our position on data center. We've become more positive since the last earnings call, based on what's in front of us, what we're hearing from our customers. And also what they're saying in public, I think there's going to be a lot of money spent on data center of this year into next. And we're in a very good position to continue to grow that business over the course of 2025.

Yeah. And Jim, maybe I'll add. If you kind of look at our guidance, and the comments earlier, we are more optimistic on 2025. We would expect the data center market to grow and for us to grow with that. When you look at what we've said across our other markets, within semi, we will grow faster than the market. The market, we think, is -- our operating assumption is flattish if you look at WFE, so new products will help us grow faster than that. And Industrial and Medical, while we think we're bottoming right now, there will clearly be some recovery in that market this year as early as the end of Q2. When you put that all together, we think the full year is going to be up high single digits. And obviously, data center is a part of that.

That’s helpful. Thank you.

And the next question comes from the line of Rob Mason with Baird. Please proceed.

Hey, guys. Good afternoon. Can you hear me?

Hey, Rob.

Yeah. Sorry about it early. Just wanted to -- Steve, I mean, could you talk about any -- is there any distinction between what you're seeing in the industrial versus medical just in terms of the underlying demand? And maybe the willingness or rate pace at which some of these design wins that you've locked down can start to move into production?

I think most of my comments are by equal to Industrial Medical. I would say the big difference between the two is that medical -- our medical revenue tends to be concentrated in some large customers. And those large customers, many of them are working through inventory issues. But the demand in medical, the inputs we're getting from our customers, the demand is picking up, and that's encouraging. For their ability to eat through the inventories they currently have and to start placing orders again. I think in industrial, it's a wide variety of customers, some big ones, some small ones, a lot of medium-sized customers. And so it's a very broad market, thousands of customers literally. So I think the ability for that market to recover is probably a little bit better just because it's so broad.

Yeah. As a follow-up, I don't think this has come up yet. But I was just -- could you address your manufacturing footprint with respect to potential tariffs, Mexico. And obviously, you're exiting China. But in my understanding in within Mexico, a lot of those products don't necessarily shift directly to the U.S., they may go elsewhere, maybe stay within Mexico. But to the extent your customers have to deal with that, are you seeing any need to move where you ship and hence maybe where you produce? Or is that part of the conversation?

Yeah. Let me make a few general comments on that and then turn it over to Paul to make some other additional comments. But I think there are basically two areas we look at. One is our manufacturing footprint. And the second is our supply chain. So from a footprint standpoint, we started pivoting out of China several years ago, and we'll be out of China from a manufacturing standpoint by June of this year. So that's -- that should check mark. The second issue is Mexicali. So the first thing to understand on Mexicali is it represents less than 10% of our revenue, and you're right, most shipments are to non-U.S. locations. That said, we still have shipments coming into the U.S. So we're looking for ways to mitigate any potential tariffs. And ultimately, if we can't mitigate it then we can build these products in other factories in Southeast Asia. So there's nothing magical about that. From a supply chain standpoint, we've had a multiyear effort to reduce dependence on Chinese suppliers. And that's a motivated by some of our customers making that request. And so at this point, we have very limited inputs from China into the U.S. It's primarily for engineering-builds and spare parts for our service centers.

Yeah, the thing I'd add to that is it's a pretty fluid situation. So as Steve said, I think we have mitigating strategies relative to supply chain and logistics and quite probably pricing. So we'll monitor the situation. Obviously, we're learning more about it. To be clear, there's nothing embedded in our guidance related to tariffs at this point given that it's a pretty new and full issue. But again, I think on balance, it should be a large impact, and there's a variety of strategies to mitigate that impact for us.

Understood. Thank you.

And the next question comes from the line of Joe Quatrochi with Wells Fargo. Please proceed with your question.

Yeah, thanks for taking the question. On the semi side, just trying to understand the commentary for 2025. Your base case is kind of thinking that the WFE is relatively flat, and you should outgrow that just given the new product launches in the second half. I guess, are you seeing customers add any sort of kind of additional inventory after kind of working down the buffer inventory over the last several quarters? And then, I guess, can you remind us on the new products that you're launching -- is there any sort of ASP dynamics that we should think about relative to the prior generation products?

Yeah. This is Steve. I'll make a few comments, and Paul will chime in. Hard to make comments about what our customers are doing. They don't always tell exactly where the products are going. We don't know. But all we know is that demand was good. We saw growth last year and Q4 was our best quarter since Q4 of '22. So we're pretty happy with that. We think we're at a point now where the purchase of our customers are pretty close to what they need near term. So I don't think we're dealing with that many inventory issues. What was your second question, I'm sorry?

Yeah. Just trying to understand, as you think about the growth drivers ASP dynamic for EVOS, eVerest, et cetera? Just is that a higher ASP than the prior generation product you think about embedding that in your line of sight to revenue growth?

Yes. In general, the new products bring more value to the customer, then we're capable and they have a higher price tag.

Okay. On the Industrial and Medical side, I think last quarter, you did about normalizing channel late 4Q, early this quarter. It sounds like maybe that's kind of pushed out. Is that the right way to think about it? And then what gives you confidence that we are at the bottom?

Yeah. I think what we said was there's a potential for us to start recovering in Q2 of this year. So yes, our statement moved out a quarter. What gives us confidence in that is that we've seen the deceleration in the business slowdown. And so when you look at what happened in 2024, basically, every quarter, Industrial Medical was down from the previous quarter, until Q4. In Q4, it was -- is basically flat to Q3. And so that's why Paul said we think we're bottoming. And at some point, we think we're going to start recovering in that business. The other part that's important is to realize that half of our business in Industrial and Medical goes through distribution. And so we've had three quarters now where the sell into distribution has been less than the sell-through. In that brought our inventory down steadily a distribution channel. And that's -- I think that's one of the better indicators we have that we're about to turn upward again. But it's always difficult to time it precisely.

Got it. Thank you.

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

Thanks, good evening. Steve, thinking about getting to outgrowth or share gains back in October, you talked about a 30% conversion rate for funnel to design wins. Does it feel like there's been any change in either the rate of additions to the funnel or maybe your win rate post-election or post-inauguration?

Yeah. I think our win rate is going up, and that's because we've seen our pipeline increase. So over the course of '24, the pipeline increased by about 20% in dollar terms. And our conversion rate is still strong, 30% to 35%. That's the right ballpark. I think probably we're falling short is the conversion of design wins into revenue. And so I think that's probably a function of the market. Our customers working through inventory before they focus on some new products. So I think with time, those wins will turn into revenue. And that's why I think as the market turns, we're going to gain in an outsized way as the market recover in Industrial and Medical.

So when you have a design win, do you basically consider that in the bank, and it's just timing until that does convert? Or do you ever have a design win, go sale, essentially?

Yeah, we have a lot of design wins that go stale, but then we have some that outperform and some where the timing either gets pulled in or pushed out. And so what we do to qualify a design win, we need a significant order from the customer and not just a statement that they've designed us in. So I think the design wins are legitimate. But sometimes, the customer may not be successful in their market or there may be some other extra factors that constrained the win from turning into revenue.

Got it. And Paul, when you were answering a data center question earlier, I think you said you expect full year revenue for the company to be up high single digits. So first, did I hear that correctly? And then if I did, when you think about that growth in the context of your own margin initiatives, how are you thinking about operating leverage for the year?

Yeah. And first, that is what I said is if you take the sum of our comments by market, it implies high single-digit growth for the company. So you did hear that correctly. And I think what you're poking at is data center is growing faster, faster than the other markets, how does that imply our margins implications. The way we've looked at it, and I think I commented on this in the past is that we've been able to close the gap in data center relative to the company average. So, it doesn't average the company up, but the gap is lower. And as we've done our modeling, we've kind of said that mix in any given quarter can impact us up to 50 basis points. When we look at what's in the hopper relative to the manufacturing cost take down, the mix within data center, the product improvements there, volumes and these other things that we're driving, we believe we can still get to our gross margin objectives. Even if data center is stronger than the other markets in the coming year.

Got it. That's great color. Well, and I guess to that point, I mean, you've always talked about incremental operating contribution margin in the -- I think mid-40s like so you would expect the same?

Yeah, that's right. Our long-term model is operating margins is 35% to 45%. And so yes, we're saying in this window that we would expect to see that same level of operating margin leverage.

Great. And if I can just sneak in a quick modeling question. From your comments, it sounds like you expect another year-over-year decline for Industrial and Medical in 1Q, but do you think revenue could be up sequentially from kind of the $78 million you've averaged over the last three quarters?

Yeah. I don't think we were that specific. I think we said it's bottoming. So we would characterize it as bouncing along the bottom here. And we said that we could see revenue growth as early as Q2. So again, that's a little hard to handicap. But that's how we think about it. And I think that would imply a stronger second half than the first half in any regard in Industrial and Medical.

Okay, thanks.

[Operator Instructions] And the next question comes from the line of Mehdi Hosseini with Susquehanna.

Hi, this is Mehwish Mehboob of asking on behalf of Mehdi Hosseini. Thanks for taking my questions. My first question is regarding OpEx. Can you offer some color on your OpEx growth for 2025 relative to your anticipated revenue growth for the year as well as against your 2024 OpEx? And second, is the pickup in your semi business reflecting an inventory refresh by your OEM customers? Or is it more a reflection of material growth across the OEMs in anticipation of their own revenue growth? And then I have a quick follow-up.

Yeah. Thanks for asking the question. On OpEx, OpEx was up a little bit in the fourth quarter on -- basically on higher volumes and incentive-related cost. So we expect that to revert back in the first quarter down into the $98 million to $100 million range. As you look forward into the year, we do expect to see that number grow sequentially over time. We've talked about it growing kind of in the $1.5 million to $2 million range per quarter. As we implement salary changes, there's inflation, clearly, we're going to continue to invest in new product launches, and we see some timing of program expenses affect that. But if you look at the full year, we would expect to grow operating expenses less than half of the revenue growth rate. And that's the best way to look at the annual number.

Great. And then regarding the semi business. Do you see that more -- do you see that reflecting more of the inventory refresh from your OEMs? Or is that just more growth across OEMs anticipation of their own revenue growth? Just any color there would be really appreciated.

Yeah, we really don't know. I think there's a variety of reasons we outperformed in fourth quarter. Some customers, I'm sure we're refreshing inventory, but we think most of the demand was there to match the demand from our customers. So we think we've reached an equilibrium point in semiconductor after a couple of years of adjustment. So we're pretty happy where we're at from a demand standpoint. Again, this is the best quarter we've had in semi since Q4 of 2022. So yes, I think we're well positioned.

Great. That's very helpful. And lastly, just any color you can offer on trends you're seeing within your networking business? Thank you.

Yeah. We -- our networking business, we call it the Telecom and Networking business. We've really sharpened our focus there in the past few years, and we've pruned a lot of the business because it wasn't reaching our margin targets. And so what we see there today is it's a pretty flat business for us now. We don't see a lot of growth moving forward. So most of the action today is going to be in semiconductor and data center in Industrial and Medical. In Telecom Networking is fine, but it's not a growth in for us.

Got it. Thank you.

And ladies and gentlemen, that does conclude the question-and-answer session. That also concludes today's teleconference. We thank you for your participation. You may disconnect your lines at this time.