10-Q 1 aeis-20220930x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from           to          

Commission file number: 000-26966

Graphic

ADVANCED ENERGY INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Delaware

84-0846841

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

1595 Wynkoop Street, Suite 800, Denver, Colorado

80202

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (970407-6626

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

AEIS

NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No þ

As of October 27, 2022, there were 37,383,115 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

ADVANCED ENERGY INDUSTRIES, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

ITEM 1.

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

3

Consolidated Balance Sheets

3

Consolidated Statements of Operations

4

Consolidated Statements of Comprehensive Income

5

Consolidated Statements of Stockholders’ Equity

6

Consolidated Statements of Cash Flows

7

Notes to Consolidated Financial Statements

8

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

25

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

39

ITEM 4.

CONTROLS AND PROCEDURES

41

PART II OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

41

ITEM 1A.

RISK FACTORS

41

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

42

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

42

ITEM 4.

MINE SAFETY DISCLOSURES

43

ITEM 5.

OTHER INFORMATION

43

ITEM 6.

EXHIBITS

43

SIGNATURES

44

2

PART I FINANCIAL INFORMATION

ITEM 1.         UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Balance Sheets

(In thousands, except per share amounts)

September 30, 

December 31, 

    

2022

    

2021

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

409,053

$

544,372

Accounts and other receivable, net

 

307,018

 

237,227

Inventories

 

409,422

 

338,410

Other current assets

56,289

42,225

Total current assets

 

1,181,782

 

1,162,234

Property and equipment, net

 

136,502

 

114,830

Operating lease right-of-use assets

102,226

101,769

Deposits and other assets

 

33,364

 

19,669

Goodwill

 

279,226

 

212,190

Intangible assets, net

 

195,807

 

159,406

Deferred income tax assets

45,148

47,242

TOTAL ASSETS

$

1,974,055

$

1,817,340

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

Current liabilities:

 

 

Accounts payable

$

219,770

$

193,708

Income taxes payable

 

33,040

 

9,226

Accrued payroll and employee benefits

 

74,035

 

55,833

Other accrued expenses

 

44,898

 

53,445

Customer deposits and other

 

24,913

 

22,141

Current portion of long-term debt

20,000

20,000

Current portion of operating lease liabilities

16,299

15,843

Total current liabilities

 

432,955

 

370,196

Long-term debt, net

358,132

372,733

Operating lease liabilities

94,575

95,180

Pension benefits

58,208

67,255

Deferred income tax liabilities

 

9,194

 

9,921

Other long-term liabilities

31,043

30,559

Total liabilities

 

984,107

 

945,844

Commitments and contingencies (Note 17)

 

 

Stockholders' equity:

 

 

Preferred stock, $0.001 par value, 1,000 shares authorized, none issued and outstanding

 

 

Common stock, $0.001 par value, 70,000 shares authorized; 37,393 and 37,589 issued and outstanding at September 30, 2022 and December 31, 2021, respectively

 

37

 

38

Additional paid-in capital

 

128,079

 

115,706

Accumulated other comprehensive loss

 

(14,797)

 

(1,216)

Retained earnings

 

875,968

 

756,323

Advanced Energy stockholders' equity

 

989,287

 

870,851

Noncontrolling interest

 

661

 

645

Total stockholders' equity

 

989,948

 

871,496

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

1,974,055

$

1,817,340

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Operations

(In thousands, except per share amounts)

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2022

2021

    

2022

    

2021

Sales, net

$

516,274

$

346,093

$

1,354,682

$

1,059,024

Cost of sales

 

325,056

 

226,054

 

856,990

 

666,449

Gross profit

 

191,218

 

120,039

 

497,692

 

392,575

Operating expenses:

 

 

 

 

Research and development

 

49,760

 

40,578

 

141,383

 

120,865

Selling, general, and administrative

 

56,716

 

48,373

 

161,056

 

143,214

Amortization of intangible assets

 

7,049

 

5,607

 

19,081

 

16,504

Restructuring expense

 

121

 

1,272

 

1,178

 

2,521

Total operating expenses

 

113,646

 

95,830

 

322,698

 

283,104

Operating income

 

77,572

 

24,209

 

174,994

 

109,471

Other income (expense), net

 

8,940

 

495

 

11,347

 

(3,674)

Income from continuing operations, before income taxes

 

86,512

 

24,704

 

186,341

 

105,797

Provision for income taxes

 

11,639

 

3,657

 

29,795

 

10,817

Income from continuing operations

 

74,873

 

21,047

 

156,546

 

94,980

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

 

(697)

 

(37)

 

(615)

 

171

Net income

$

74,176

$

21,010

$

155,931

$

95,151

Income from continuing operations attributable to noncontrolling interest

 

9

 

6

 

16

 

70

Net income attributable to Advanced Energy Industries, Inc.

$

74,167

$

21,004

$

155,915

$

95,081

Basic weighted-average common shares outstanding

 

37,379

 

38,183

 

37,482

 

38,296

Diluted weighted-average common shares outstanding

 

37,630

 

38,363

 

37,725

 

38,517

Earnings per share:

 

  

 

  

 

 

Continuing operations:

 

  

 

  

 

 

Basic earnings per share

$

2.00

$

0.55

$

4.18

$

2.48

Diluted earnings per share

$

1.99

$

0.55

$

4.15

$

2.46

Discontinued operations:

 

 

 

 

Basic earnings (loss) per share

$

(0.02)

$

$

(0.02)

$

Diluted earnings (loss) per share

$

(0.02)

$

$

(0.02)

$

Net income:

 

 

 

 

Basic earnings per share

$

1.98

$

0.55

$

4.16

$

2.48

Diluted earnings per share

$

1.97

$

0.55

$

4.13

$

2.47

The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Comprehensive Income

(In thousands)

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2022

    

2021

    

2022

    

2021

Net income

$

74,176

$

21,010

$

155,931

$

95,151

Other comprehensive income (loss), net of income taxes

 

  

 

  

 

  

 

  

Foreign currency translation

 

(11,671)

 

(3,661)

 

(24,442)

 

(9,534)

Change in fair value of cash flow hedges

 

2,508

 

172

 

10,447

 

2,179

Minimum pension benefit retirement liability

 

 

313

 

414

 

246

Comprehensive income

$

65,013

$

17,834

$

142,350

$

88,042

Comprehensive income attributable to noncontrolling interest

 

9

 

6

 

16

 

70

Comprehensive income attributable to Advanced Energy Industries, Inc.

$

65,004

$

17,828

$

142,334

$

87,972

The accompanying notes are an integral part of these unaudited consolidated financial statements.

5

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Stockholders' Equity

(In thousands, except per share amounts)

Advanced Energy Industries, Inc. Stockholders' Equity

Common Stock

Accumulated

Additional

Other

Non-

Total

Paid-in

Comprehensive

Retained

controlling

Stockholders'

Shares

Amount

Capital

Income (Loss)

Earnings

Interest

Equity

Balances, December 31, 2020

    

38,293

$

38

$

105,009

$

(2,605)

$

712,297

$

601

$

815,340

Stock issued from equity plans

93

(4,645)

(4,645)

Stock-based compensation

5,701

5,701

Dividends declared ($0.10 per share)

(3,854)

(3,854)

Other comprehensive loss

(4,968)

(4,968)

Net income

38,668

33

38,701

Balances, March 31, 2021

38,386

38

106,065

(7,573)

747,111

634

846,275

Stock issued from equity plans

67

956

 

956

Stock-based compensation

3,277

 

3,277

Share repurchase

(72)

(199)

(6,304)

(6,503)

Dividends declared ($0.10 per share)

(3,874)

(3,874)

Other comprehensive income

1,035

 

1,035

Net income

35,409

31

 

35,440

Balances, June 30, 2021

38,381

38

110,099

(6,538)

772,342

665

876,606

Stock issued from equity plans

14

 

 

223

 

 

 

223

Stock-based compensation

 

 

3,540

 

 

 

3,540

Share repurchase

(605)

(1,635)

(50,920)

(52,555)

Dividends declared ($0.10 per share)

 

 

 

 

(3,857)

 

(3,857)

Other comprehensive loss

 

 

 

(3,176)

 

 

(3,176)

Net income

 

 

 

 

21,004

 

6

21,010

Balances, September 30, 2021

37,790

$

38

$

112,227

$

(9,714)

$

738,569

$

671

$

841,791

Balances, December 31, 2021

37,589

$

38

$

115,706

$

(1,216)

$

756,323

$

645

$

871,496

Stock issued from equity plans

52

(2,430)

(2,430)

Stock-based compensation

3,906

3,906

Share repurchase

(82)

(254)

(6,340)

(6,594)

Dividends declared ($0.10 per share)

(3,789)

(3,789)

Other comprehensive income

1,966

1,966

Net income (loss)

36,778

(14)

36,764

Balances, March 31, 2022

37,559

38

116,928

750

782,972

631

901,319

Stock issued from equity plans

63

763

763

Stock-based compensation

5,016

5,016

Share repurchase

(230)

(1)

(725)

(16,293)

(17,019)

Dividends declared ($0.10 per share)

(3,806)

(3,806)

Other comprehensive loss

(6,384)

(6,384)

Net income

44,970

21

44,991

Balances, June 30, 2022

37,392

37

121,982

(5,634)

807,843

652

924,880

Stock issued from equity plans

35

256

 

256

Stock-based compensation

5,953

 

5,953

Share repurchase

(34)

(112)

(2,230)

(2,342)

Dividends declared ($0.10 per share)

(3,812)

 

(3,812)

Other comprehensive loss

(9,163)

 

(9,163)

Net income

74,167

9

 

74,176

Balances, September 30, 2022

37,393

$

37

$

128,079

$

(14,797)

$

875,968

$

661

$

989,948

The accompanying notes are an integral part of these unaudited consolidated financial statements.

6

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Cash Flows

(In thousands)

Nine Months Ended September 30, 

    

2022

    

2021

    

CASH FLOWS FROM OPERATING ACTIVITIES:

 

  

 

  

 

Net income

$

155,931

$

95,151

Less: income (loss) from discontinued operations, net of income taxes

 

(615)

 

171

Income from continuing operations, net of income taxes

 

156,546

 

94,980

Adjustments to reconcile net income to net cash from operating activities:

 

  

 

  

Depreciation and amortization

 

44,433

 

39,225

Stock-based compensation expense

 

15,008

 

12,819

Provision for deferred income taxes

 

(2,496)

 

(1,404)

Gain from discount on notes receivable

(638)

(Gain) loss on disposal and sale of assets

 

(4,058)

 

923

Changes in operating assets and liabilities, net of assets acquired

 

 

Accounts and other receivable, net

 

(68,591)

 

14,957

Inventories

 

(70,407)

 

(118,562)

Other assets

 

(11,858)

 

1,958

Accounts payable

 

21,630

 

63,404

Other liabilities and accrued expenses

 

7,281

 

8,963

Income taxes payable

 

25,494

 

(10,215)

Net cash from operating activities from continuing operations

 

112,982

 

106,410

Net cash from operating activities from discontinued operations

 

(81)

 

(523)

Net cash from operating activities

 

112,901

 

105,887

CASH FLOWS FROM INVESTING ACTIVITIES:

 

  

 

  

Receipt of notes receivable

802

Purchases of property and equipment

 

(39,507)

 

(21,184)

Acquisitions, net of cash acquired

(145,779)

(18,739)

Net cash from investing activities

 

(185,286)

 

(39,121)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

 

  

Proceeds from long-term borrowings

85,000

Payment of debt-issuance costs

(1,350)

Payments on long-term borrowings

(15,000)

(8,750)

Dividend payments

(11,407)

(11,585)

Purchase and retirement of common stock

(25,955)

(56,625)

Net payments related to stock-based awards

 

(1,411)

 

(3,136)

Net cash from financing activities

 

(53,773)

 

3,554

EFFECT OF CURRENCY TRANSLATION ON CASH AND CASH EQUIVALENTS

 

(9,161)

 

(2,765)

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

(135,319)

 

67,555

CASH AND CASH EQUIVALENTS, beginning of period

 

544,372

 

480,368

CASH AND CASH EQUIVALENTS, end of period

$

409,053

$

547,923

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

  

 

  

Cash paid for interest

$

2,965

$

2,896

Cash paid for income taxes

$

5,393

$

25,271

The accompanying notes are an integral part of these unaudited consolidated financial statements.

7

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

NOTE 1.     DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Advanced Energy Industries, Inc., a Delaware corporation, and its consolidated subsidiaries ("we," "us," "our," "Advanced Energy," or the "Company") design, manufacture, sell, and support precision power products that transform, refine, and modify the raw electrical power coming from either the utility or the building facility and convert it into various types of highly controllable, usable power that is predictable, repeatable, and customizable to meet the necessary requirements for powering a wide range of complex equipment.

Our plasma power solutions enable innovation in complex semiconductor and thin film plasma processes such as dry etch, strip and deposition. Our broad portfolios of high and low voltage power products are used in a wide range of applications, such as semiconductor equipment, industrial production, medical and life science equipment, data center and telecommunication. We also supply related sensing, controls, and instrumentation products for advanced measurement and calibration of radio frequency ("RF") power and temperature, electrostatic instrumentation products for test and measurement applications, and gas sensing and monitoring solutions for multiple industrial markets. Our network of global service support centers provides a recurring revenue opportunity as we offer repair services, conversions, upgrades, refurbishments, and used equipment to companies using our products.

In management's opinion, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly Advanced Energy’s financial position as of September 30, 2022, and the results of our operations and cash flows for the three and nine months ended September 30, 2022 and 2021.

The unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been omitted pursuant to such rules and regulations. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2021 and other financial information filed with the SEC.

Use of Estimates in the Preparation of the Consolidated Financial Statements

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The significant estimates, assumptions, and judgments include, but are not limited to:

excess and obsolete inventory;
pension obligations;
acquisitions and asset valuations; and
taxes and other provisions.

Significant Accounting Policies

Our accounting policies are described in Note 1 to our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021.

We reclassified certain prior period amounts within these consolidated financial statements to conform to the current year presentation.

8

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

New Accounting Standards

From time to time, the Financial Accounting Standards Board ("FASB") or other standards setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification ("ASC") are communicated through issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, will not have a material impact on the consolidated financial statements upon adoption.

New Accounting Standards Adopted

In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 806) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." The amendments in ASU 2021-08 address diversity and inconsistency related to the recognition and measurement of contract assets and contract liabilities acquired in a business combination. ASU 2021-08 requires an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers.

We adopted ASU 2021-08 on a prospective basis effective January 1, 2022. The adoption will impact business combinations subsequent to that date and require recognition and measurement of acquired contract assets and liabilities in accordance with ASC 606. Specifically, we will account for the related revenue contracts of the acquiree as if we originated the contracts. Adoption of ASU 2021-08 did not impact acquired contract assets or liabilities from prior business combinations.

New Accounting Standards Issued But Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04"). In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848): Scope" ("ASU 2021-01"). This collective guidance provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate that is expected to be discontinued. ASU 2020-04 and ASU 2021-01 will be in effect through December 31, 2022.

Our Credit Facility (refer to Note 18. Credit Facility) and interest rate swap agreements (refer to Note 7. Derivative Financial Instruments) reference the one-month USD LIBOR rate. Both agreements contain provisions for transition to a new reference rate upon discontinuance of LIBOR. We expect the one-month USD LIBOR rate to be available through June 2023. We are currently assessing the potential timing of transitioning to a replacement interest rate benchmark for our Credit Facility and do not expect ASU 2020-04 and ASU 2020-01 to materially impact our consolidated financial statements.

9

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

NOTE 2.     ACQUISITIONS

SL Power Electronics Corporation

On April 25, 2022, we acquired 100% of the issued and outstanding shares of capital stock of SL Power Electronics Corporation ("SL Power"), which is based in Calabasas, California. We accounted for this transaction as a business combination. This acquisition added complementary products to Advanced Energy’s medical power offerings and extends our presence in several advanced industrial markets.

The components of the fair value of the total consideration transferred were as follows:

Cash paid for acquisition

    

$

146,863

Less cash acquired

(3,484)

Total fair value of purchase consideration

$

143,379

We allocated the purchase price to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, with the excess allocated to goodwill. The following table summarizes the estimated preliminary values of the assets acquired and liabilities assumed.

    

Preliminary
Fair Value September 30, 2022

Current assets and liabilities, net

$

12,013

Property and equipment