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Advanced Energy Announces First Quarter 2020 Results

Advanced Energy Industries, Inc. (Nasdaq: AEIS), today announced financial results for the first quarter ended March 31, 2020.

Yuval Wasserman, president and CEO, stated, “In the midst of a global pandemic and constrained economic activity, our team executed well to deliver strong results across all our financial metrics while preserving the health and safety of our employees and meeting our customers’ needs.”

First Quarter Results

Sales were $315.5 million in the first quarter of 2020 compared with $338.3 million in the fourth quarter of 2019 and $140.7 million in the first quarter of 2019.

GAAP net income from continuing operations was $18.4 million or $0.48 per diluted share, compared with $10.5 million or $0.27 per diluted share in the prior quarter, and $15.4 million or $0.40 per diluted share in the first quarter of 2019.

Non-GAAP net income was $34.9 million or $0.91 per diluted share in the first quarter of 2020. This compares with $33.4 million or $0.87 per diluted share in the fourth quarter of 2019, and $22.4 million or $0.58 per diluted share in the first quarter of 2019.

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

The company generated $28.9 million of operating cash from continuing operations in the quarter, repurchased approximately 170,000 shares at $42.59 per share for a total of $7.2 million and made debt principal payments of $4.4 million. In addition, the company entered into a SWAP agreement following the end of the quarter to convert 85% of its variable interest rate debt into fixed interest rate debt with a total effective rate of 1.271%(1).

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.

Second Quarter 2020 Guidance

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

Q2 2020

Revenues

$315M +/- $30M

GAAP EPS from continuing operations

$0.53 +/- $0.30

Non-GAAP EPS

$0.80 +/- $0.30

Conference Call

Management will host a conference call today, May 6, 2020 at 6:30 a.m. Mountain Time/ 8:30 a.m. Eastern Time to discuss Advanced Energy’s financial results. Domestic callers may access this conference call by dialing 855-232-8958. International callers may access the call by dialing +1 315-625-6980. Participants will need to provide the operator with Conference ID Number 5728869, which has been reserved for this call. A webcast will also be available on the company’s Investor Relations web page at ir.advanced-energy.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.

(1) The effective cost of the swap consists of a fixed base rate of 0.521% plus 75 basis points. The 75 basis points could be higher pending the company maintaining certain covenant ratios.

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. 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 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 for the second quarter ending June 30, 2020, 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 acquisition and integration of Artesyn Embedded Power including the optimization and reduction of our global manufacturing sites; (e) the recent outbreak 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 effects of U.S. government trade and export restrictions, Chinese retaliatory trade actions, and other governmental action related to tariffs upon the demand for our, and our customers’, products and services and the U.S. economy. 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

March 31,

December 31,

2020

2019

2019

Unaudited

Unaudited

Unaudited

Sales:

Product

$

289,361

$

112,112

$

311,618

Service

26,095

28,631

26,650

Total sales

315,456

140,743

338,268

Cost of sales:

Product

191,066

60,801

212,526

Service

12,159

14,202

13,447

Total cost of sales

203,225

75,003

225,973

Gross profit

112,231

65,740

112,295

35.6

%

46.7

%

33.2

%

Operating expenses:

Research and development

34,770

21,289

33,828

Selling, general and administrative

45,991

29,014

49,528

Amortization of intangible assets

5,006

1,973

5,319

Restructuring expense

656

1,673

1,418

Total operating expenses

86,423

53,949

90,093

Operating income

25,808

11,791

22,202

Other income (expense), net

(3,510)

743

(4,843)

Income from continuing operations before income taxes

22,298

12,534

17,359

Provision (benefit) for income taxes

3,900

(2,853)

6,880

Income from continuing operations, net of income taxes

18,398

15,387

10,479

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

(320)

(9)

(210)

Net income

18,078

15,378

10,269

Income from continuing operations attributable to non-controlling interest

15

8

5

Net income attributable to Advanced Energy Industries, Inc.

$

18,063

$

15,370

$

10,264

Basic weighted-average common shares outstanding

38,358

38,198

38,341

Diluted weighted-average common shares outstanding

38,570

38,426

38,554

Earnings per share attributable to Advanced Energy Industries, Inc:

Continuing operations:

Basic earnings per share

$

0.48

$

0.40

$

0.27

Diluted earnings per share

$

0.48

$

0.40

$

0.27

Discontinued operations:

Basic earnings per share

$

(0.01)

$

$

(0.01)

Diluted earnings per share

$

(0.01)

$

$

(0.01)

Net income:

Basic earnings per share

$

0.47

$

0.40

$

0.27

Diluted earnings per share

$

0.47

$

0.40

$

0.27

ADVANCED ENERGY INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

March 31,

December 31,

2020

2019

ASSETS

Current assets:

Cash and cash equivalents

$

352,540

$

346,441

Marketable securities

2,490

2,614

Accounts and other receivable, net

214,360

246,564

Inventories, net

235,299

230,019

Income taxes receivable

1,245

4,245

Other current assets

55,268

36,825

Current assets of discontinued operations

23

30

Total current assets

861,225

866,738

Property and equipment, net

105,592

108,109

Operating lease right-of-use assets

110,034

105,404

Deposits and other assets

21,544

22,287

Goodwill and intangibles, net

380,628

386,943

Deferred income tax assets

43,258

42,656

Non-current assets of discontinued operations

269

269

Total assets

$

1,522,550

$

1,532,406

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

167,442

$

170,671

Other accrued expenses

99,459

112,935

Current portion of debt

17,500

17,500

Current portion of operating lease liability

18,284

18,312

Current liabilities of discontinued operations

1,089

914

Total current liabilities

303,774

320,332

Long-term debt

317,285

321,527

Non-current liabilities of continuing operations

214,880

212,400

Non-current liabilities of discontinued operations

653

887

Long-term liabilities

532,818

534,814

Total liabilities

836,592

855,146

Advanced Energy stockholders’ equity

685,397

676,714

Noncontrolling interest

561

546

Stockholders’ equity

685,958

677,260

Total liabilities and stockholders’ equity

$

1,522,550

$

1,532,406

ADVANCED ENERGY INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

Three Months Ended March 31,

2020

2019

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

18,078

$

15,378

Loss from discontinued operations, net of income taxes

(320)

(9)

Income from continuing operations, net of income taxes

18,398

15,387

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

Depreciation and amortization

11,616

4,181

Stock-based compensation expense

3,048

3,199

Provision for deferred income taxes

(1,265)

(649)

Discount on notes receivable

721

Net loss on disposal of assets

173

6

Changes in operating assets and liabilities, net of assets acquired

(3,751)

(15,269)

Net cash provided by operating activities from continuing operations

28,940

6,855

Net cash used in operating activities from discontinued operations

(418)

(1,409)

Net cash provided by operating activities

28,522

5,446

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from sale of property and equipment

10

Issuance of notes receivable

(1,000)

Purchases of property and equipment

(6,134)

(2,436)

Net cash used in investing activities from continuing operations

(7,124)

(2,436)

Net cash used in investing activities from discontinued operations

Net cash used in investing activities

(7,124)

(2,436)

CASH FLOWS FROM FINANCING ACTIVITIES:

Payments on long-term borrowings

(4,375)

Purchase and retirement of common stock

(7,248)

Net payments related to stock-based award activities

(2,171)

(1,707)

Net cash used in financing activities from continuing operations

(13,794)

(1,707)

Net cash used in financing activities from discontinued operations

Net cash used in financing activities

(13,794)

(1,707)

EFFECT OF CURRENCY TRANSLATION ON CASH

(1,505)

(566)

INCREASE IN CASH AND CASH EQUIVALENTS

6,099

737

CASH AND CASH EQUIVALENTS, beginning of period

346,441

354,552

CASH AND CASH EQUIVALENTS, end of period

352,540

355,289

Less cash and cash equivalents from discontinued operations

4,140

CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS, end of period

$

352,540

$

351,149

ADVANCED ENERGY INDUSTRIES, INC.

SUPPLEMENTAL INFORMATION (UNAUDITED)

(in thousands)

Net Sales by Product Line

Three Months Ended

March 31,

December 31,

2020

2019

2019

Semiconductor Equipment

$

133,625

$

91,437

$

125,108

Industrial & Medical

61,979

49,306

96,736

Data Center Computing

86,183

77,940

Telecom & Networking

33,669

38,484

Total

$

315,456

$

140,743

$

338,268

Net Sales by Geographic Region

Three Months Ended

March 31,

December 31,

2020

2019

2019

North America

$

164,331

$

58,506

$

172,697

Asia

110,975

58,435

117,559

Europe

39,136

23,426

47,264

Other Countries

1,014

376

748

Total

$

315,456

$

140,743

$

338,268

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

March 31,

December 31,

2020

2019

2019

Gross profit from continuing operations, as reported

$

112,231

$

65,740

$

112,295

Adjustments to gross profit:

Stock-based compensation

222

233

160

Facility expansion and relocation costs

1,543

170

2,229

Acquisition-related costs

5,141

6,784

Non-GAAP gross profit

119,137

66,143

121,468

Non-GAAP gross margin

37.8%

47.0%

35.9%

Operating expenses from continuing operations, as reported

86,423

53,949

90,093

Adjustments:

Amortization of intangible assets

(5,006)

(1,973)

(5,319)

Stock-based compensation

(2,826)

(2,966)

(2,115)

Acquisition-related costs

(2,836)

(1,511)

(2,562)

Facility expansion and relocation costs

(385)

(74)

(651)

Restructuring charges

(656)

(1,673)

(1,418)

Non-GAAP operating expenses

74,714

45,752

78,028

Non-GAAP operating income

$

44,423

$

20,391

$

43,440

Non-GAAP operating margin

14.1%

14.5%

12.8%

Reconciliation of Non-GAAP measure - income excluding certain items

Three Months Ended

March 31,

December 31,

2020

2019

2019

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

$

18,383

$

15,379

$

10,474

Adjustments:

Amortization of intangible assets

5,006

1,973

5,319

Acquisition-related costs

7,977

1,511

9,346

Facility expansion and relocation costs

1,928

244

2,879

Restructuring charges

656

1,673

1,418

Central inverter services business sale

1,067

Tax effect of Non-GAAP adjustments

(1,370)

(851)

1,195

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

32,580

19,929

31,698

Stock-based compensation, net of taxes

2,363

2,463

1,740

Non-GAAP income, net of income taxes

$

34,943

$

22,392

$

33,438

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

Three Months Ended

March 31,

December 31,

2020

2019

2019

Diluted earnings per share from continuing operations, as reported

$

0.48

$

0.40

$

0.27

Add back (subtract):

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

0.43

0.18

0.60

Non-GAAP per share earnings

$

0.91

$

0.58

$

0.87

Reconciliation of Q2 2020 Guidance

Low End

High End

Revenue

$285 million

$345 million

Reconciliation of Non-GAAP earnings per share

GAAP earnings per share

$

0.23

$

0.83

Stock-based compensation

0.07

0.07

Amortization of intangible assets

0.14

0.14

Restructuring and other

0.10

0.10

Tax effects of excluded items

(0.04)

(0.04)

Non-GAAP earnings per share

$

0.50

$

1.10

Contacts:

For more information, contact:

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