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Advanced Energy Announces Third Quarter 2020 Results

Advanced Energy Industries, Inc. (Nasdaq: AEIS) today announced financial results for the third quarter ended September 30, 2020.

“This was an exceptional quarter for Advanced Energy with record revenue, earnings, and cash flow generation, driven by solid demand across our market verticals and strong execution throughout our global organization,” said CEO Yuval Wasserman. “Our Q3 results validate our long term business model and strategy. With multiple growth drivers, combined with our market and technology leadership and our proven operational excellence, we are well positioned to grow faster than the markets we serve and to achieve or exceed our strategic aspirational goals.”

Third Quarter Results

Sales were $389.5 million in the third quarter of 2020 compared with $339.9 million in the second quarter of 2020 and $175.1 million in the third quarter of 2019.

GAAP net income from continuing operations was $45.6 million or $1.18 per diluted share, compared with $29.3 million or $0.76 per diluted share in the prior quarter, and $7.3 million or $0.19 per diluted share in the third quarter of 2019.

Non-GAAP net income was $63.8 million or $1.66 per diluted share in the third quarter of 2020. This compares with $45.4 million or $1.18 per diluted share in the second quarter of 2020, and $20.9 million or $0.54 per diluted share in the third quarter of 2019.

A reconciliation of non-GAAP measures is provided in the tables below.

The company generated $67.5 million of operating cash from continuing operations in the quarter and made debt principal payments of $4.4 million.

Discontinued Operations

The company’s financial statements for all periods presented reflect results for the continuing precision power business, with the discontinued inverter business included in discontinued operations for all purposes. Further financial detail regarding the amounts related to the discontinued inverter business are available in the company’s 2019 Annual Report on Form 10‑K.

Fourth Quarter 2020 Guidance

Based on the company’s current view, beliefs and assumptions, guidance for the fourth quarter of 2020 is within the following ranges.

Q4 2020

Revenues

$360M +/- $20M

GAAP EPS from continuing operations

$1.03 +/- $0.21

Non-GAAP EPS

$1.30 +/- $0.20

 

Conference Call

Management will host a conference call today, November 5, 2020 at 8:30 a.m. Eastern Time to discuss Advanced Energy’s financial results. To register for the call please use this link. A webcast will also be available on the company’s investors web page at ir.advancedenergy.com.

About Advanced Energy

Advanced Energy (Nasdaq: AEIS) is a global leader in the design and manufacturing of highly engineered, precision power conversion, measurement and control solutions for mission-critical applications and processes. AE’s power solutions enable customer innovation in complex applications for a wide range of industries including semiconductor equipment, industrial, manufacturing, telecommunications, data center computing and healthcare. With engineering know-how and responsive service and support around the globe, the company builds collaborative partnerships to meet technology advances, propel growth for its customers and innovate the future of power. Advanced Energy has devoted more than three decades to perfecting power for its global customers and is headquartered in Denver, Colorado, USA. For more information, visit www.advancedenergy.com.

Advanced Energy | Precision. Power. Performance.

Non-GAAP Measures

This release includes GAAP and non-GAAP income and per-share earnings data and other GAAP and non-GAAP financial information. Advanced Energy’s non-GAAP measures exclude the impact of non-cash related charges such as stock-based compensation and amortization of intangible assets, as well as discontinued operations, and non-recurring items such as acquisition-related costs and restructuring expenses. Beginning in Q2 2020, Advanced Energy’s non-GAAP measures exclude non-cash unrealized foreign currency gains or losses that result from remeasurement to functional currency long-term obligations related to pension and operating lease liabilities as the remeasurement does not represent current economic exposure and is unrelated to our overall operating performance. These long-term obligations were acquired in connection with the Artesyn acquisition and the Company previously used derivatives to hedge the exposure; however, the Company has determined it will no longer hedge these non-economic exposures. The tax effect of our non-GAAP adjustments represents the anticipated annual tax rate applied to each non-GAAP adjustment after consideration of their respective book and tax treatments.

The non-GAAP measures included in this release are not in accordance with, or an alternative for, similar measures calculated under generally accepted accounting principles and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Advanced Energy believes that these non-GAAP measures provide useful information to management and investors to evaluate business performance without the impacts of certain non-cash charges, non-economic foreign currency remeasurements, and other cash charges which are not part of the company’s usual operations. The company uses these non-GAAP measures to assess performance against business objectives, make business decisions, develop budgets, forecast future periods, assess trends and evaluate financial impacts of various scenarios. In addition, management’s incentive plans include these non-GAAP measures as criteria for achievements. Additionally, the company believes that these non-GAAP measures, in combination with its financial results calculated in accordance with GAAP, provide investors with additional perspective. While some of the excluded items may be incurred and reflected in the company’s GAAP financial results in the foreseeable future, the company believes that the items excluded from certain non-GAAP measures do not accurately reflect the underlying performance of its continuing operations for the period in which they are incurred. The use of non-GAAP measures has limitations in that such measures do not reflect all of the amounts associated with the company’s results of operations as determined in accordance with GAAP, and these measures should only be used to evaluate the company’s results of operations in conjunction with the corresponding GAAP measures. Please refer to the Form 8‑K regarding this release furnished today to the Securities and Exchange Commission.

Forward-Looking Statements

The company’s guidance with respect to anticipated financial results, potential future growth and profitability, future business mix, expectations regarding future market trends, future performance within specific markets and other statements herein or made on the above-announced conference call that are not historical information are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to: (a) the effects of global macroeconomic conditions upon demand for our products and services; (b) the volatility and cyclicality of the industries the company serves, particularly the semiconductor industry; (c) delays in capital spending by end-users in our served markets; (d) the risks and uncertainties related to the integration of Artesyn Embedded Power including the optimization and reduction of our global manufacturing sites; (e) the continuing spread of COVID-19 and its potential adverse impact on our product manufacturing, research & development, supply chain, services and administrative operations; (f) the accuracy of the company’s estimates related to fulfilling solar inverter product warranty and post-warranty obligations; (g) the company’s ability to realize its plan to avoid additional costs after the solar inverter wind-down; (h) the accuracy of the company’s assumptions on which its financial statement projections are based; (i) the impact of product price changes, which may result from a variety of factors; (j) the timing of orders received from customers; (k) the company’s ability to realize benefits from cost improvement efforts including avoided costs, restructuring plans and inorganic growth; (l) the company’s ability to obtain in a timely manner the materials necessary to manufacture its products; (m) unanticipated changes to management’s estimates, reserves or allowances; (n) changes and adjustments to the tax expense and benefits related to the U.S. tax reform that was enacted in late 2017; and (o) the impact of political, economic and policy tensions and conflicts between China and the United States including, but not limited to, trade wars and export restrictions between the two countries, China’s national security law for Hong Kong, and China’s expansion of control over the South China Sea, any of which could negatively impact our customers’ and our presence, operations, and financial results. These and other risks are described in Advanced Energy’s Form 10‑K, Forms 10‑Q and other reports and statements filed with the Securities and Exchange Commission (the “SEC”). These reports and statements are available on the SEC’s website at www.sec.gov. Copies may also be obtained from Advanced Energy’s investor relations page at ir.advanced-energy.com or by contacting Advanced Energy’s investor relations at 970‑407‑6555. Forward-looking statements are made and based on information available to the company on the date of this press release. Aspirational goals and targets discussed on the conference call or in the presentation materials should not be interpreted in any respect as guidance. The company assumes no obligation to update the information in this press release.

 

ADVANCED ENERGY INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

2020

2019

2020

2020

2019

Unaudited

Unaudited

Unaudited

Unaudited

Unaudited

Sales:

Product

$

358,257

$

148,138

$

311,770

$

959,388

$

366,443

Service

31,264

26,989

28,110

85,469

84,237

Total sales

389,521

175,127

339,880

1,044,857

450,680

Cost of sales:

Product

220,149

87,536

195,535

606,750

204,450

Service

15,587

14,100

14,041

41,787

42,873

Total cost of sales

235,736

101,636

209,576

648,537

247,323

Gross profit

153,785

73,491

130,304

396,320

203,357

39.5

%

42.0

%

38.3

%

37.9

%

45.1

%

Operating expenses:

Research and development

36,807

24,546

35,855

107,432

67,675

Selling, general and administrative

51,481

36,401

48,174

145,646

93,027

Amortization of intangible assets

5,049

3,002

5,009

15,064

6,849

Restructuring expense

1,494

152

5,790

7,940

3,620

Total operating expenses

94,831

64,101

94,828

276,082

171,171

Operating income

58,954

9,390

35,476

120,238

32,186

Other income (expense), net

(6,558)

1,361

(1,587)

(11,655)

17,649

Income from continuing operations before income taxes

52,396

10,751

33,889

108,583

49,835

Provision (benefit) for income taxes

6,783

3,495

4,610

15,293

3,819

Income from continuing operations, net of income taxes

45,613

7,256

29,279

93,290

46,016

Income (loss) from discontinued operations, net of income taxes

50

375

(151)

(421)

8,690

Net income

45,663

7,631

29,128

92,869

54,706

Income from continuing operations attributable to non-controlling interest

36

10

(16)

35

29

Net income attributable to Advanced Energy Industries, Inc.

$

45,627

$

7,621

$

29,144

$

92,834

$

54,677

Basic weighted-average common shares outstanding

38,325

38,313

38,294

38,322

38,258

Diluted weighted-average common shares outstanding

38,528

38,489

38,458

38,531

38,457

Earnings per share attributable to Advanced Energy Industries, Inc:

Continuing operations:

Basic earnings per share

$

1.19

$

0.19

$

0.77

$

2.43

$

1.20

Diluted earnings per share

$

1.18

$

0.19

$

0.76

$

2.42

$

1.20

Discontinued operations:

Basic earnings per share

$

$

0.01

$

$

(0.01)

$

0.23

Diluted earnings per share

$

$

0.01

$

$

(0.01)

$

0.23

Net income:

Basic earnings per share

$

1.19

$

0.20

$

0.76

$

2.42

$

1.43

Diluted earnings per share

$

1.19

$

0.20

$

0.76

$

2.41

$

1.42

 

ADVANCED ENERGY INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

September 30,

December 31,

2020

2019

ASSETS

Current assets:

Cash and cash equivalents

$

428,977

$

346,441

Marketable securities

2,601

2,614

Accounts and other receivable, net

240,147

246,564

Inventories

257,374

230,019

Income taxes receivable

13,042

4,245

Other current assets

36,335

36,855

Total current assets

978,476

866,738

Property and equipment, net

109,975

108,109

Operating lease right-of-use assets

108,810

105,404

Deposits and other assets

19,313

22,556

Goodwill and intangibles, net

375,809

386,943

Deferred income tax assets

50,136

42,656

Total assets

$

1,642,519

$

1,532,406

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

159,332

$

170,671

Other accrued expenses

142,445

113,849

Current portion of debt

17,500

17,500

Current portion of operating lease liability

17,243

18,312

Total current liabilities

336,520

320,332

Long-term debt

308,794

321,527

Non-current liabilities of continuing operations

228,472

213,287

Long-term liabilities

537,266

534,814

Total liabilities

873,786

855,146

Advanced Energy stockholders’ equity

768,152

676,714

Noncontrolling interest

581

546

Stockholders’ equity

768,733

677,260

Total liabilities and stockholders’ equity

$

1,642,519

$

1,532,406

 

ADVANCED ENERGY INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

Nine Months Ended September 30,

2020

2019

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

92,869

$

54,706

Loss from discontinued operations, net of income taxes

(421

)

8,690

Income from continuing operations, net of income taxes

93,290

46,016

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

35,433

15,301

Stock-based compensation expense

9,666

5,053

Provision (benefit) for deferred income taxes

(7,849

)

2,825

Gain on sale of central inverter service business

(14,804

)

Discount on notes receivable

721

Net loss on disposal of assets

678

104

Changes in operating assets and liabilities, net of assets acquired

3,093

(25,637

)

Net cash from operating activities from continuing operations

135,032

28,858

Net cash from operating activities from discontinued operations

(659

)

317

Net cash from operating activities

134,373

29,175

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from sale of marketable securities

3

Proceeds from sale of property and equipment

103

1,742

Acquisitions, net of cash acquired

(1,127

)

(365,798

)

Issuance of notes receivable

(1,000

)

(2,800

)

Purchases of property and equipment

(25,232

)

(15,681

)

Net cash from investing activities from continuing operations

(27,253

)

(382,537

)

Net cash used in investing activities from discontinued operations

Net cash from investing activities

(27,253

)

(382,537

)

CASH FLOWS FROM FINANCING ACTIVITIES:

Net proceeds from long-term borrowings

347,486

Payments on long-term borrowings

(13,125

)

(4,375

)

Purchase and retirement of common stock

(11,579

)

Net payments related to stock-based award activities

(1,451

)

(714

)

Net cash from financing activities from continuing operations

(26,155

)

342,397

Net cash used in financing activities from discontinued operations

Net cash from in financing activities

(26,155

)

342,397

EFFECT OF CURRENCY TRANSLATION ON CASH

1,571

(3,185

)

INCREASE IN CASH AND CASH EQUIVALENTS

82,536

(14,150

)

CASH AND CASH EQUIVALENTS, beginning of period

346,441

354,552

CASH AND CASH EQUIVALENTS, end of period

428,977

340,402

Less cash and cash equivalents from discontinued operations

CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS, end of period

$

428,977

$

340,402

 

ADVANCED ENERGY INDUSTRIES, INC.

SUPPLEMENTAL INFORMATION (UNAUDITED)

(in thousands)

Net Sales by Product Line

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

2020

2019

2020

2020

2019

Semiconductor Equipment

$

167,058

$

96,426

$

145,424

$

446,107

$

277,911

Industrial & Medical

87,013

55,187

70,886

219,877

149,255

Data Center Computing

87,741

13,498

83,316

257,240

13,498

Telecom & Networking

47,709

10,016

40,254

121,633

10,016

Total

$

389,521

$

175,127

$

339,880

$

1,044,857

$

450,680

Net Sales by Geographic Region

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

2020

2019

2020

2020

2019

North America

$

190,629

$

83,632

$

149,760

$

504,719

$

203,531

Asia

180,660

66,157

170,753

462,388

175,554

Europe

17,886

25,008

19,048

76,070

70,526

Other Countries

346

330

319

1,680

1,069

Total

$

389,521

$

175,127

$

339,880

$

1,044,857

$

450,680

 

ADVANCED ENERGY INDUSTRIES, INC.

SELECTED OTHER DATA (UNAUDITED)

(in thousands)

Reconciliation of Non-GAAP measure - operating expenses and operating income, excluding certain items

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

2020

2019

2020

2020

2019

Gross profit from continuing operations, as reported

$

153,785

$

73,491

$

130,304

$

396,320

$

203,357

Adjustments to gross profit:

Stock-based compensation

67

77

156

445

365

Facility expansion, relocation costs and other

1,095

1,342

970

3,608

1,662

Acquisition-related costs

1,506

215

5,356

1,506

Non-GAAP gross profit

154,947

76,416

131,645

405,729

206,890

Non-GAAP gross margin

39.8

%

43.6

%

38.7

%

38.8

%

45.9

%

Operating expenses from continuing operations, as reported

94,831

64,101

94,828

276,082

171,171

Adjustments:

Amortization of intangible assets

(5,049

)

(3,002

)

(5,009

)

(15,064

)

(6,849

)

Stock-based compensation

(3,714

)

(840

)

(2,681

)

(9,221

)

(4,688

)

Acquisition-related costs

(5,214

)

(6,398

)

(2,978

)

(10,597

)

(9,440

)

Facility expansion, relocation costs and other

(415

)

(223

)

(539

)

(1,770

)

(297

)

Restructuring charges

(1,494

)

(152

)

(5,790

)

(7,940

)

(3,620

)

Non-GAAP operating expenses

78,945

53,486

77,831

231,490

146,277

Non-GAAP operating income

$

76,002

$

22,930

$

53,814

$

174,239

$

60,613

Non-GAAP operating margin

19.5

%

13.1

%

15.8

%

16.7

%

13.4

%

Reconciliation of Non-GAAP measure - income excluding certain items

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

2020

2019

2020

2020

2019

Income from continuing operations, less noncontrolling interest, net of income taxes

$

45,577

$

7,246

$

29,295

$

93,255

$

45,987

Adjustments:

Amortization of intangible assets

5,049

3,002

5,009

15,064

6,849

Acquisition-related costs(1)

5,565

7,875

3,193

16,304

10,917

Facility expansion, relocation costs and other(2)

1,784

1,565

1,509

5,652

1,959

Restructuring charges

1,494

152

5,790

7,940

3,620

Unrealized foreign currency (gain) loss

3,540

1,058

4,598

Central inverter services business sale

(14,804

)

Tax effect of Non-GAAP adjustments

(2,115

)

326

(2,595

)

(6,080

)

2,011

Non-GAAP income, net of income taxes, excluding stock-based compensation

60,894

20,166

43,259

136,733

56,539

Stock-based compensation, net of taxes

2,892

702

2,170

7,425

3,887

Non-GAAP income, net of income taxes

$

63,786

$

20,868

$

45,429

$

144,158

$

60,426

(1) For the three and nine months ended September 30, 2020, and 2019, Acquisition-related costs include an expense of $351 and a gain of $29, respectively, which was recognized in Other income (expense), net.

(2) For the three and nine months ended September 30, 2020, Facility expansion, relocation costs and other includes a $274 noncash fixed asset write-off, which was recognized in Other income (expense), net.

Reconciliation of Non-GAAP measure - per share earnings excluding certain items

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

2020

2019

2020

2020

2019

Diluted earnings per share from continuing operations, as reported

$

1.18

$

0.19

$

0.76

$

2.42

$

1.20

Add back (subtract):

Per share impact of Non-GAAP adjustments, net of tax

0.48

0.35

0.42

1.32

0.37

Non-GAAP per share earnings

$

1.66

$

0.54

$

1.18

$

3.74

$

1.57

Reconciliation of Q4 2020 Guidance

Low End

High End

Revenue

$340 million

$380 million

Reconciliation of Non-GAAP earnings per share

GAAP earnings per share

$

0.82

$

1.24

Stock-based compensation

0.08

0.08

Amortization of intangible assets

0.13

0.13

Restructuring and other

0.11

0.09

Tax effects of excluded items

(0.04

)

(0.04

)

Non-GAAP earnings per share

$

1.10

$

1.50

Contacts:

Brian Smith
Advanced Energy
(970) 407‑6555
brian.smith@aei.com

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