Advanced Energy closed 2025 with a record fourth quarter, posting revenue of $489 million (up 18% year-over-year) and EPS of $1.94 at the high end of guidance, driven by a record data center quarter (up 101%), a stronger-than-feared semiconductor recovery, and the return of industrial medical to year-over-year growth. Gross margin of 39.7% was its best in five years, and for the full year revenue rose over 20% to $1.8 billion with EPS up over 70%. Management raised its FY2026 data center growth outlook to more than 30% and guided to high-teens total revenue growth, though it flagged processor and now memory supply constraints as the main limiter on data center upside.
Thank you, operator. Good afternoon, everyone. Welcome to the Advanced Energy fourth quarter 2025 earnings conference call. With me today are Steve Kelley, our President and CEO, and Paul Oldham, our Executive Vice President and CFO. You can find today's press release and earnings 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 a guarantee 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, February 10th, 2026, and the company assumes no obligation to update them. Any targets beyond the current quarter presented today should not be interpreted as guidance. On today's call, our financial results are presented on a Non-GAAP financial basis unless otherwise specified.
Detailed reconciliation between our GAAP and Non-GAAP results can be found in today's press release. With that, let me pass the call to our President and CEO, Steve Kelley.
Thanks, Edwin. Good afternoon, everyone, and thanks for joining the call. We finished a very successful 2025 with a strong fourth quarter. Revenue of nearly $490 million was at the high end of our guidance. Strengthening demand in the semiconductor, industrial, and medical markets drove the outperformance. As expected, we also had another record quarter in data center. Gross margin came in just shy of 40%, our best performance in five years. Earnings per share of nearly $2 also beat guidance. For 2025, we grew total revenue over 20%, increased earnings per share by over 70%, and significantly improved our gross and operating margins. We also delivered record operating cash flow. Our strong financial performance underscores the benefits of our diversification strategy, our focus on execution, and the leverage in our model.
We deploy our best-in-class technologies across multiple high-value markets, allowing us to deliver healthy revenue, profitability, and cash flow through market cycles. In 2025, we grew revenue in two of our three target markets. Data center computing revenue more than doubled year-on-year and increased sequentially in every quarter of 2025. Hyperscalers have adopted our customized power solutions in a variety of AI rack applications. Semiconductor revenue grew 6% year-on-year to the second-highest level in company history. New products began contributing incremental revenue in 2025 as some of our design wins moved into early production. Although industrial medical revenue declined year-on-year, we were encouraged by three-quarters of sequential revenue growth after reaching a bottom in the first quarter. We expect growth to continue in 2026 as many customers and distributors have worked through excess inventories.
We also think that our design win pipeline will drive share gain moving forward. In 2025, we maintained a solid cadence of new product introductions with 26 new product launches across our markets. In addition, we spun off many custom products. In semiconductor, we continue to receive very positive feedback on the best-in-class performance of our Everest, eVoS, and NavX technologies. At the leading edge, these technologies are delivering meaningful improvements in yield and throughput. In addition to our many confirmed design wins, there are a number of development projects currently underway which should convert to wins in 2026. In addition to our success in plasma power, we have also made progress winning key system power slots for semiconductor equipment, with multiple wins ramping to volume this year. In data center, our 2025 wins are going into volume production this year.
Working closely with key customers, we are developing new technologies and products for next-generation AI data centers. We are also engaging with a second wave of cloud and enterprise customers, largely with modified versions of our standard technology platforms. Through the prolonged inventory correction in the industrial medical market, we continue to invest in new products, customization capabilities, digital marketing, and distributor partnerships. Now that the market is recovering, we can leverage those investments to gain share. In operations, we expanded capacity in the Philippines and in Mexico, enabling us to support the continued growth in data center demand. We also completed the fit-up of our new Thailand factory, which is expected to deliver more than $1 billion in annual revenue-generating capacity once it's fully built out. Through solid execution, including the closure of our last China factory, we expanded gross margin by 240 basis points.
Despite ongoing tariff headwinds, we are well-positioned to move gross margin above 40% in 2026. Now let me provide some fourth-quarter commentary. In semiconductor, fourth-quarter revenue grew sequentially, well ahead of plan. In data center computing, fourth-quarter revenue increased sequentially to a new record driven by AI data center investment. In industrial medical, revenue grew 10% sequentially and returned to year-over-year growth after multiple quarters of decline. Bookings, backlog, and resales were up. Channel inventory was down. We believe that the market environment for Advanced Energy has largely normalized. In Q4, we secured important design wins in factory automation, medical imaging, and electrosurgery applications. Now I'd like to provide our view on 2026. Entering the year, we see positive demand trends across all of our target markets. In addition, we expect that multiple new wins will ramp to production in 2026, driving growth across the portfolio.
In semiconductor, stronger customer forecasts are increasing our confidence in a strong second half. In addition, we expect new product revenue to grow over the course of 2026. These forecasts are underpinned by downstream investments in advanced logic and memory capacity. In data center, we now project full-year revenue to grow more than 30%. Our modular technology blocks, strong design team, and development speed are key enablers of growth in this market. In the industrial and medical market, we expect demand to continue to improve over the next few quarters. Production revenue from several wins in factory automation and defense should enable us to outgrow the market. In total, we project that our 2026 revenue will grow in the high teens after 21% growth in 2025. Let me finish with some closing thoughts. Advanced Energy designs and manufactures precision power solutions for demanding, high-value applications across multiple markets.
Our market diversification strategy, coupled with aggressive investment, is enabling us to capture upsides across our markets and deliver more consistent financial results. We've steadily increased our R&D and marketing spending over the last few years, building a strong portfolio of new products, gaining new customers, and growing our design win pipeline. We have more than doubled the output of our Philippines and Mexico factories. In addition, we've built a new flagship factory in Thailand. Finally, with a strong balance sheet, we will continue to pursue inorganic growth to improve scale and to broaden our technology portfolio. With market tailwinds in 2026, strong demand for our new products, expanding margins, and a solid balance sheet, we are confident that we can meet or exceed the long-term financial goals presented at our 2024 analyst day. Paul will now provide detailed financial information.
Thank you, Steve, and good afternoon, everyone. 2025 was very successful for Advanced Energy. We delivered double-digit year-over-year growth for both revenue and earnings throughout the year, led by record data center revenue in every quarter. We executed on our gross margin improvement plan, exiting the year approaching our initial target of 40% despite the impact of tariffs. Disciplined spending helped drive operating margin to its highest level since 2022. Cash flow from operations was a record $235 million. The year finished on a high note, with fourth-quarter results beating our guidance. Fourth-quarter revenue of $489 million increased 6% sequentially and 18% year-over-year. Semiconductor revenue is $212 million, up 8% from Q3 and ahead of our guidance as customer demand strengthened. Through solid execution, we were able to respond and capture upside.
Data center computing revenue was a record $178 million, up 4% sequentially and 101% year-over-year. Overall, demand remained very strong, and we were able to quickly adjust to meet changes in product mix within the quarter. Industrial medical revenue increased 10% sequentially to $78 million and grew 2% year-over-year, the first increase in two years. I&M demand continues to trend positively, with total backlog and distribution metrics improving over the last several quarters. Telecom and networking revenue was $22 million, down slightly for the quarter and the year, mainly due to program timing. Fourth-quarter gross margin was 39.7%, up 60 basis points sequentially, primarily due to higher volume and favorable product mix. We continued to deliver improved gross margin despite the impact of tariffs and factory ramp costs. Operating expenses were $107 million, up 4% from last quarter, driven by higher sales and incentive-related expenses.
Operating margin for the quarter was 17.8%, up 100 basis points from last quarter and 430 basis points from last year, highlighting the leverage in our financial model. Depreciation for the quarter was $10 million, and we achieved our second-highest Adjusted EBITDA of $97 million. Other income was $1.3 million, down slightly quarter-over-quarter. Our Non-GAAP tax rate for Q4 was 14.7%, below our guidance of around 17% due to favorable mix of earnings and discrete items. Fourth-quarter earnings were $1.94 per share, up from $1.74 in the previous quarter and $1.30 a year ago. Turning now to the balance sheet. Total cash increased by $33 million to $791 million, with net cash of $224 million. In the fourth quarter, we delivered cash flow from continuing operations of $80 million. Inventory days came down by three days to 125 on higher sales, and inventory turns improved to 2.9 times.
Looking ahead, we expect inventory to increase to support growth in the coming quarters and for strategic supply. DSO increased to 60 days from 58 days, largely due to timing of revenue. DPO improved from 62 to 68 days. As a result, net working capital decreased sequentially from 124 to 117 days. During the quarter, we invested $38 million in CapEx and paid $4 million in dividends. Finally, we spent $6.7 million to repurchase 33,000 shares at $205.38 per share. Now let me review our full-year 2025 results. In 2025, we delivered $1.8 billion of revenue, up 21% year-over-year. Growth was primarily driven by revenue in the data center computing market, which increased 107% year-over-year to $587 million. Semiconductor revenue increased 6% to $840 million, which was our second-strongest year following the peak in 2022. Industrial and medical revenue decreased 11% for the full year.
However, after a trough in Q1, revenue increased sequentially each quarter on improving supply-demand dynamics and lower inventories. In 2025, we optimized our manufacturing footprint by exiting our last manufacturing facility in China while adding new capacity in the Philippines and Mexico. In a dynamic environment, we managed the tariff impact on gross margin to less than 100 basis points. Combined with leverage on higher revenue, gross margin improved 240 basis points to 38.7%, the highest level since 2020. Operating expenses increased 7%, well below our target of half the rate of revenue growth. Operating income increased 89%, and operating margin improved 560 basis points to 15.8%, the highest level in five years. 2025 Non-GAAP earnings increased by 73% to $6.41 per share, while Adjusted EBITDA increased by 68% to $324 million. Combined with improved days of net working capital, we achieved record operating cash flow.
This cash flow funded investments in production capacity and capability to meet strong customer demand and growth ahead. As a result, 2025 CapEx was $107 million, or 6% of revenue. Turning now to our first-quarter guidance. We expect Q1 revenue to be approximately $500 million, ±$20 million. The sequential growth is expected to come primarily from the semiconductor market. We expect gross margins to remain around Q4 levels in the 39.5%-40% range, on similar volume. We also expect Q1 operating expenses to be flatter quarter-over-quarter, with higher investments in R&D and lower SG&A. We expect other income to be in the $1 million range and are now modeling our tax rate to be in the 16%-17% range looking forward.
As a result, we expect Q1 Non-GAAP earnings to be about flat, at $1.94 per share ±$0.25, on higher operating income but a more normalized tax rate. Due to the strong performance of our common stock and the dilutive effect of our convertible note, our Non-GAAP EPS guidance is based on 39.7 million shares. Now let me provide some concluding comments. First, we see strengthening demand across our markets in 2026. In semiconductor, we are entering the year with increased customer demand, which we expect to further strengthen in the second half. For data center, we expect Q1 demand to be similar to Q4, based on timing of product transitions. However, we expect revenue to strengthen through the rest of the year on higher demand and production ramp of our new programs.
Overall, we are raising our data center revenue growth outlook to more than 30%, up from 25%-30%. In industrial and medical, we expect continued growth over the next several quarters on a more normalized inventories and new product adoption, paced by overall economic conditions. As a result, with improved industry conditions across our markets and growth from new products, we are currently modeling high-teens revenue growth for 2026. Second, exiting 2025, we increased gross margin by 450 basis points relative to first-half 2024 levels. Our initial target of 40% is within striking distance, and we expect to achieve this goal within 2026, with timing dependent on volume and product mix.
Looking forward, we believe that improved manufacturing efficiency, a growing mix of new products, and higher revenue will enable us to achieve our long-term gross margin goal of 43%, despite the impact of tariffs and higher data center mix. Third, increased capital investment enabled us to double the output in the Philippines and Mexico and to complete initial fit-up of the Thailand factory. We expect 2026 CapEx will continue at or around Q4 levels, which will enable over $2.5 billion of revenue-generating capacity within our existing footprint. The complete build-out of Thailand should enable an additional $1 billion of capacity. Longer term, we expect CapEx to revert to historical levels of around 4% of sales once we complete these investments. Lastly, our diversification strategy enables us to balance growth across our markets, generating more consistent cash flow that we can reinvest into our business.
We will continue to develop power technologies that can be shared across our product portfolio and drive organic growth in each of our markets. In addition, we will continue to look for acquisition opportunities to further expand our scope, especially in industrial and medical, and leverage our scale to drive further growth in revenue and earnings. With that, operator, we'll take your questions.