Business Wire | Aug 5, 2020 07:30AM EDT

Advanced Energy Announces Second Quarter 2020 Results

Aug. 05, 2020

DENVER--(BUSINESS WIRE)--Aug. 05, 2020--Advanced Energy Industries, Inc. (Nasdaq: AEIS), today announced financial results for the second quarter ended June 30, 2020.

"In Q2 we delivered record revenue with margins, earnings, and cash flow generation above expectations. As a pure play power leader, we are leveraging our operational excellence and market share gains, delivering on accelerating demand in many of our markets, and realizing the benefits of the Artesyn integration," said CEO Yuval Wasserman. "While visibility and operating conditions remain difficult due to COVID-19, we are executing our growth strategy ahead of plan."

Second Quarter Results

Sales were $339.9 million in the second quarter of 2020 compared with $315.5 million in the first quarter of 2020 and $134.8 million in the second quarter of 2019.

GAAP net income from continuing operations was $29.3 million or $0.76 per diluted share, compared with $18.4 million or $0.48 per diluted share in the prior quarter, and $23.4 million or $0.61 per diluted share in the second quarter of 2019.

Non-GAAP net income was $45.4 million or $1.18 per diluted share in the second quarter of 2020. This compares with $34.9 million or $0.91 per diluted share in the first quarter of 2020, and $17.2 million or $0.45 per diluted share in the second quarter of 2019.

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

The company generated $38.6 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.

Third Quarter 2020 Guidance

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

Q3 2020

Revenues $350M +/- $25M

GAAP EPS from continuing operations $0.88 +/- $0.25

Non-GAAP EPS $1.15 +/- $0.25

Conference Call

Management will host a conference call today, August 5, 2020 at 6:00 a.m. Mountain Time / 8:00 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 1753437, which has been reserved for this call. A webcast will also be available on the company's investors 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.

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 will 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 for the third quarter ending September 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 impact of escalating 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 Six Months Ended

June 30, March 31, June 30,

2020 2019 2020 2020 2019

Unaudited Unaudited Unaudited Unaudited Unaudited

Sales:

Product $ 311,770 $ 106,193 $ 289,361 $ 601,131 $ 218,305

Service 28,110 28,617 26,095 54,205 57,248

Total sales 339,880 134,810 315,456 655,336 275,553

Cost of sales:

Product 195,535 56,113 191,066 386,601 116,914

Service 14,041 14,571 12,159 26,200 28,773

Total cost of 209,576 70,684 203,225 412,801 145,687 sales

Gross profit 130,304 64,126 112,231 242,535 129,866

38.3 % 47.6 % 35.6 % 37.0 % 47.1 %

Operating expenses:

Research and 35,855 21,840 34,770 70,625 43,129 development

Selling, generaland 48,174 27,612 45,991 94,165 56,626 administrative

Amortization of 5,009 1,874 5,006 10,015 3,847 intangible assets

Restructuring 5,790 1,795 656 6,446 3,468 expense

Total operating 94,828 53,121 86,423 181,251 107,070 expenses

Operating income 35,476 11,005 25,808 61,284 22,796

Other income (1,587) 15,545 (3,510) (5,097) 16,288 (expense), net

Income fromcontinuing 33,889 26,550 22,298 56,187 39,084 operations beforeincome taxes

Provision(benefit) for 4,610 3,177 3,900 8,510 324 income taxes

Income fromcontinuing 29,279 23,373 18,398 47,677 38,760 operations, netof income taxes

Income (loss)from discontinued (151) 8,324 (320) (471) 8,315 operations, netof income taxes

Net income 29,128 31,697 18,078 47,206 47,075

Income fromcontinuingoperations (16) 11 15 (1) 19 attributable tonon-controllinginterest

Net incomeattributable to $ 29,144 $ 31,686 $ 18,063 $ 47,207 $ 47,056 Advanced EnergyIndustries, Inc.



Basicweighted-average 38,294 38,274 38,358 38,326 38,236 common sharesoutstanding

Dilutedweighted-average 38,458 38,462 38,570 38,525 38,443 common sharesoutstanding



Earnings pershareattributable to Advanced EnergyIndustries, Inc:



Continuing operations:

Basic earnings $ 0.77 $ 0.61 $ 0.48 $ 1.24 $ 1.01 per share

Diluted earnings $ 0.76 $ 0.61 $ 0.48 $ 1.24 $ 1.01 per share



Discontinued operations:

Basic earnings $ - $ 0.22 $ (0.01) $ (0.01) $ 0.22 per share

Diluted earnings $ - $ 0.22 $ (0.01) $ (0.01) $ 0.22 per share



Net income:

Basic earnings $ 0.76 $ 0.83 $ 0.47 $ 1.23 $ 1.23 per share

Diluted earnings $ 0.76 $ 0.82 $ 0.47 $ 1.23 $ 1.22 per share

ADVANCED ENERGY INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

June 30, December 31,

2020 2019

ASSETS

Current assets:

Cash and cash equivalents $ 380,637 $ 346,441

Marketable securities 2,729 2,614

Accounts and other receivable, net 235,613 246,564

Inventories 260,049 230,019

Income taxes receivable 4,862 4,245

Other current assets 45,792 36,855

Total current assets 929,682 866,738



Property and equipment, net 107,554 108,109

Operating lease right-of-use assets 107,774 105,404



Deposits and other assets 21,776 22,556

Goodwill and intangibles, net 381,570 386,943

Deferred income tax assets 45,894 42,656

Total assets $ 1,594,250 $ 1,532,406



LIABILITIES AND STOCKHOLDERS' EQUITY



Current liabilities:

Accounts payable $ 180,415 $ 170,671

Other accrued expenses 125,843 113,849

Current portion of debt 17,500 17,500

Current portion of operating lease liability 19,112 18,312

Total current liabilities 342,870 320,332



Long-term debt 313,040 321,527

Non-current liabilities of continuing operations 219,982 213,287

Long-term liabilities 533,022 534,814



Total liabilities 875,892 855,146



Advanced Energy stockholders' equity 717,813 676,714

Noncontrolling interest 545 546

Stockholders' equity 718,358 677,260

Total liabilities and stockholders' equity $ 1,594,250 $ 1,532,406

ADVANCED ENERGY INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)



Six Months Ended June 30,

2020 2019

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 47,206 $ 47,075

Loss from discontinued operations, net of income (471) 8,315taxes

Income from continuing operations, net of income 47,677 38,760taxes



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

Depreciation and amortization 23,196 8,396

Stock-based compensation expense 5,885 4,136

Provision (benefit) for deferred income taxes (1,439) 4,509

Gain on sale of central inverter service business - (14,804)

Discount on notes receivable 721 -

Net loss on disposal of assets 231 90

Changes in operating assets and liabilities, net of (8,711) (22,757)assets acquired

Net cash provided by operating activities from 67,560 18,330continuing operations

Net cash used in operating activities from (586) (1,914)discontinued operations

Net cash provided by operating activities 66,974 16,416

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of marketable securities (167) -

Proceeds from sale of property and equipment 69 1,742

Issuance of notes receivable (1,000) (2,800)

Purchases of property and equipment (13,391) (8,866)

Net cash used in investing activities from continuing (14,489) (9,924)operations

Net cash used in investing activities from - -discontinued operations

Net cash used in investing activities (14,489) (9,924)

CASH FLOWS FROM FINANCING ACTIVITIES:

Payments on long-term borrowings (8,750) -

Purchase and retirement of common stock (7,248) -

Net payments related to stock-based award activities (1,392) (1,042)

Net cash used in financing activities from continuing (17,390) (1,042)operations

Net cash used in financing activities from - -discontinued operations

Net cash used in financing activities (17,390) (1,042)

EFFECT OF CURRENCY TRANSLATION ON CASH (899) (932)

INCREASE IN CASH AND CASH EQUIVALENTS 34,196 4,518

CASH AND CASH EQUIVALENTS, beginning of period 346,441 354,552

CASH AND CASH EQUIVALENTS, end of period 380,637 359,070

Less cash and cash equivalents from discontinued - -operations

CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS, $ 380,637 $ 359,070end of period

ADVANCED ENERGY INDUSTRIES, INC.

SUPPLEMENTAL INFORMATION (UNAUDITED)

(in thousands)



Net Sales by Product Three Months Ended Six Months EndedLine

June 30, March 31, June 30,

2020 2019 2020 2020 2019

Semiconductor $ 145,424 $ 90,058 $ 133,625 $ 279,049 $ 181,495Equipment

Industrial & Medical 70,886 44,752 61,979 132,865 94,058

Data Center Computing 83,316 - 86,183 169,499 -

Telecom & Networking 40,254 - 33,669 73,923 -

Total $ 339,880 $ 134,810 $ 315,456 $ 655,336 $ 275,553

Net Sales by Geographic Three Months Ended Six Months EndedRegion

June 30, March 31, June 30,

2020 2019 2020 2020 2019

North America $ 149,760 $ 61,393 $ 164,331 $ 314,091 $ 119,899

Asia 170,753 50,962 110,975 281,728 109,397

Europe 19,048 22,092 39,136 58,184 45,518

Other Countries 319 363 1,014 1,333 739

Total $ 339,880 $ 134,810 $ 315,456 $ 655,336 $ 275,553

ADVANCED ENERGY INDUSTRIES, INC.

SELECTED OTHER DATA (UNAUDITED)

(in thousands)



Reconciliation ofNon-GAAP measure -operating expenses Three Months Ended Six Months Endedand operatingincome, excludingcertain items

June 30, March 31, June 30,

2020 2019 2020 2020 2019

Gross profit fromcontinuing $ 130,304 $ 64,126 $ 112,231 $ 242,535 $ 129,866operations, asreported

Adjustments to gross profit:

Stock-based 156 55 222 378 288compensation

Facility expansion,relocation costs 970 150 1,543 2,513 320and other

Acquisition-related 215 - 5,141 5,356 -costs

Non-GAAP gross 131,645 64,331 119,137 250,782 130,474profit

Non-GAAP gross 38.7% 47.7% 37.8% 38.3% 47.3%margin



Operating expensesfrom continuing 94,828 53,121 86,423 181,251 107,070operations, asreported

Adjustments:

Amortization of (5,009) (1,874) (5,006) (10,015) (3,847)intangible assets

Stock-based (2,681) (883) (2,826) (5,507) (3,848)compensation

Acquisition-related (2,978) (1,531) (2,405) (5,383) (3,042)costs

Facility expansion,relocation costs (539) - (816) (1,355) (74)and other

Restructuring (5,790) (1,795) (656) (6,446) (3,468)charges

Non-GAAP operating 77,831 47,038 74,714 152,545 92,791expenses

Non-GAAP operating $ 53,814 $ 17,293 $ 44,423 $ 98,237 $ 37,683income

Non-GAAP operating 15.8% 12.8% 14.1% 15.0% 13.7%margin



Reconciliation ofNon-GAAP measure - Three Months Ended Six Months Endedincome excludingcertain items

June 30, March 31, June 30,

2020 2019 2020 2020 2019

Income fromcontinuingoperations, less $ 29,295 $ 23,362 $ 18,383 $ 47,678 $ 38,741noncontrollinginterest, net ofincome taxes

Adjustments:

Amortization of 5,009 1,874 5,006 10,015 3,847intangible assets

Acquisition-related 3,193 1,531 7,546 10,739 3,042costs

Facility expansion,relocation costs 1,509 150 2,359 3,868 394and other

Restructuring 5,790 1,795 656 6,446 3,468charges

Unrealized foreigncurrency (gain) 1,058 - - 1,058 -loss

Central inverterservices business - (14,804) - - (14,804)sale

Tax effect ofNon-GAAP (2,595) 2,536 (1,370) (3,965) 1,685adjustments

Non-GAAP income,net of incometaxes, excluding 43,259 16,444 32,580 75,839 36,373stock-basedcompensation

Stock-basedcompensation, net 2,170 722 2,363 4,533 3,185of taxes

Non-GAAP income, $ 45,429 $ 17,166 $ 34,943 $ 80,372 $ 39,558net of income taxes



Reconciliation of Non-GAAP Six Monthsmeasure - per share earnings Three Months Ended Endedexcluding certain items

June 30, March June 30, 31,

2020 2019 2020 2020 2019

Diluted earnings per share fromcontinuing operations, as $ 0.76 $ 0.61 $ 0.48 $ 1.24 $ 1.01reported

Add back (subtract):

Per share impact of Non-GAAP 0.42 (0.16) 0.43 0.85 0.02adjustments, net of tax

Non-GAAP per share earnings $ 1.18 $ 0.45 $ 0.91 $ 2.09 $ 1.03



Reconciliation of Q3 2020 Guidance

Low End High End



Revenue $325 million $375 million



Reconciliation of Non-GAAP earnings per share

GAAP earnings per share $ 0.63 $ 1.13

Stock-based compensation 0.09 0.09

Amortization of intangible assets 0.13 0.13

Restructuring and other 0.09 0.09

Tax effects of excluded items (0.04) (0.04)

Non-GAAP earnings per share $ 0.90 $ 1.40

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CONTACT: Brian Smith Advanced Energy (970) 407?6555 brian.smith@aei.com