ADVANCED ENERGY INDUSTRIES INC [AEIS] Filings

10-Q 1 aeis-20230930x10q.htm 10-Q

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, 2023
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

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)

(970) 407-6626

(Registrant’s telephone number, including area code)

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, 2023, there were 37,280,657 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

Table of Contents

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	42

ITEM 4.	CONTROLS AND PROCEDURES	43

	PART II OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	44

ITEM 1A.	RISK FACTORS	44

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	45

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	46

ITEM 4.	MINE SAFETY DISCLOSURES	46

ITEM 5.	OTHER INFORMATION	46

ITEM 6.	EXHIBITS	47

	SIGNATURES	48

Table of Contents

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,
	2023		2022
ASSETS
Current assets:
Cash and cash equivalents	$	985,931	$	458,818
Accounts and other receivables, net		270,348		300,683
Inventories		364,003		376,012
Other current assets		53,191		53,001
Total current assets		1,673,473		1,188,514
Property and equipment, net		161,671		148,462
Operating lease right-of-use assets		98,591		100,177
Other assets		110,027		84,056
Intangible assets, net		168,211		189,526
Goodwill		281,713		281,433
TOTAL ASSETS	$	2,493,686	$	1,992,168

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	140,320	$	170,467
Accrued payroll and employee benefits		68,937		82,733
Other accrued expenses		50,937		76,750
Customer deposits and other		17,141		26,322
Current portion of long-term debt		20,000		20,000
Current portion of operating lease liabilities		17,477		16,771
Total current liabilities		314,812		393,043
Long-term debt, net		899,848		353,262
Operating lease liabilities		89,789		94,460
Pension benefits		44,289		44,031
Other long-term liabilities		44,077		41,105
Total liabilities		1,392,815		925,901

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; 37,280 and 37,429 issued and outstanding at September 30, 2023 and December 31, 2022, respectively		37		37
Additional paid-in capital		139,283		134,640
Accumulated other comprehensive income		5,390		16,320
Retained earnings		956,161		915,270
Total stockholders' equity		1,100,871		1,066,267
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	2,493,686	$	1,992,168

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

Table of Contents

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,
	2023		2022		2023		2022
Sales, net	$	409,991	$	516,274	$	1,250,539	$	1,354,682
Cost of sales		262,650		325,056		801,007		856,990
Gross profit		147,341		191,218		449,532		497,692

Operating expenses:
Research and development		50,391		49,760		153,414		141,383
Selling, general, and administrative		55,131		56,716		166,102		161,056
Amortization of intangible assets		7,049		7,049		21,186		19,081
Restructuring		4,709		121		8,906		1,178
Total operating expenses		117,280		113,646		349,608		322,698
Operating income		30,061		77,572		99,924		174,994

Other income (expense), net		4,464		8,940		6,339		11,347
Income from continuing operations, before income tax		34,525		86,512		106,263		186,341
Provision for income tax		874		11,639		13,405		29,795
Income from continuing operations		33,651		74,873		92,858		156,546
Loss from discontinued operations, net of income tax		(930)		(697)		(2,076)		(615)
Net income	$	32,721	$	74,176	$	90,782	$	155,931
Income from continuing operations attributable to noncontrolling interest		—		9		—		16
Net income attributable to Advanced Energy Industries, Inc.	$	32,721	$	74,167	$	90,782	$	155,915

Basic weighted-average common shares outstanding		37,575		37,379		37,541		37,482
Diluted weighted-average common shares outstanding		37,854		37,630		37,842		37,725

Earnings per share:
Continuing operations:
Basic earnings per share	$	0.90	$	2.00	$	2.47	$	4.18
Diluted earnings per share	$	0.89	$	1.99	$	2.45	$	4.15
Discontinued operations:
Basic loss per share	$	(0.02)	$	(0.02)	$	(0.06)	$	(0.02)
Diluted loss per share	$	(0.02)	$	(0.02)	$	(0.05)	$	(0.02)
Net income:
Basic earnings per share	$	0.87	$	1.98	$	2.42	$	4.16
Diluted earnings per share	$	0.86	$	1.97	$	2.40	$	4.13

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

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Comprehensive Income

(In thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income	$	32,721	$	74,176	$	90,782	$	155,931
Other comprehensive income (loss), net of income tax
Foreign currency translation		(5,069)		(11,671)		(6,798)		(24,442)
Change in fair value of cash flow hedges		(1,822)		2,508		(3,840)		10,447
Minimum pension benefit retirement liability		—		—		(292)		414
Comprehensive income	$	25,830	$	65,013	$	79,852	$	142,350
Comprehensive income attributable to noncontrolling interest		—		9		—		16
Comprehensive income attributable to Advanced Energy Industries, Inc.	$	25,830	$	65,004	$	79,852	$	142,334

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

Table of Contents

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, 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 repurchases	(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 repurchases	(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 repurchases	(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

Balances, December 31, 2022	37,429	$	37	$	134,640	$	16,320	$	915,270	$	—	$	1,066,267
Stock issued from equity plans	100		—		(1,991)		—		—		—		(1,991)
Stock-based compensation	—		—		6,543		—		—		—		6,543
Dividends declared ($0.10 per share)	—		—		—		—		(3,814)		—		(3,814)
Other comprehensive loss	—		—		—		(2,013)		—		—		(2,013)
Net income	—		—		—		—		30,921		—		30,921
Balances, March 31, 2023	37,529		37		139,192		14,307		942,377		—		1,095,913
Stock issued from equity plans	121		1		606		—		—		—		607
Stock-based compensation	—		—		7,423		—		—		—		7,423
Dividends declared ($0.10 per share)	—		—		—		—		(3,778)		—		(3,778)
Other comprehensive loss	—		—		—		(2,026)		—		—		(2,026)
Net income	—		—		—		—		27,140		—		27,140
Balances, June 30, 2023	37,650		38		147,221		12,281		965,739		—		1,125,279
Stock issued from equity plans	8		—		130		—		—		—		130
Stock-based compensation	—		—		7,506		—		—		—		7,506
Share repurchases	(378)		(1)		(1,530)		—		(38,469)		—		(40,000)
Dividends declared ($0.10 per share)	—		—		—		—		(3,830)		—		(3,830)
Other comprehensive loss	—		—		—		(6,891)		—		—		(6,891)
Warrants and note hedges, net	—		—		(40,135)		—		—		—		(40,135)
Tax impact of convertible notes and note hedges	—		—		26,091		—		—		—		26,091
Net income	—		—		—		—		32,721		—		32,721
Balances, September 30, 2023	37,280	$	37	$	139,283	$	5,390	$	956,161	$	—	$	1,100,871

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

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Cash Flows

(In thousands)


	Nine Months Ended September 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	90,782	$	155,931
Less: loss from discontinued operations, net of income tax		(2,076)		(615)
Income from continuing operations, net of income tax		92,858		156,546
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		49,764		44,433
Stock-based compensation		22,813		15,008
Benefit for deferred income tax		(996)		(2,496)
Loss (gain) on disposal and sale of assets		394		(4,058)
Changes in operating assets and liabilities, net of assets acquired
Accounts and other receivable, net		35,135		(68,591)
Inventories		9,025		(70,407)
Other assets		4,121		(11,858)
Accounts payable		(26,203)		21,630
Other liabilities and accrued expenses		(58,671)		32,775
Net cash from operating activities from continuing operations		128,240		112,982
Net cash from operating activities from discontinued operations		(3,307)		(81)
Net cash from operating activities		124,933		112,901

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments		(3,447)		—
Purchases of property and equipment		(46,782)		(39,507)
Acquisitions, net of cash acquired		—		(145,779)
Net cash from investing activities		(50,229)		(185,286)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings		575,000		—
Payment of fees for long-term borrowings		(12,985)		—
Payments on long-term borrowings		(15,000)		(15,000)
Dividend payments		(11,422)		(11,407)
Payment for purchase of note hedges		(115,000)		—
Proceeds from sale of warrants		74,865		—
Purchase and retirement of common stock		(40,000)		(25,955)
Net payments related to stock-based awards		(1,254)		(1,411)
Net cash from financing activities		454,204		(53,773)

EFFECT OF CURRENCY TRANSLATION ON CASH AND CASH EQUIVALENTS		(1,795)		(9,161)

NET CHANGE IN CASH AND CASH EQUIVALENTS		527,113		(135,319)
CASH AND CASH EQUIVALENTS, beginning of period		458,818		544,372
CASH AND CASH EQUIVALENTS, end of period	$	985,931	$	409,053

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	8,060	$	4,303
Cash paid for income taxes	$	45,040	$	5,393

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

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 this raw power 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. Many of our products enable our original equipment manufacturer (“OEM”) customers to optimize their energy consumption through increased power conversion efficiency, power density, power coupling, and process control across a wide range of applications.

Our plasma power solutions enable innovation in complex semiconductor and thin film plasma-based manufacturing processes such as dry etch and deposition. Our broad portfolio of high and low voltage power products is used in a wide range of applications, such as semiconductor equipment, industrial production, medical and life science equipment, data centers computing, networking, and telecommunications. We also supply related sensing, controls, and instrumentation products primarily for advanced measurement and calibration of power and temperature for multiple industrial markets. Our network of global service support centers provides repair services, calibration, 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, 2023, and the results of our operations and cash flows for the three and nine months ended September 30, 2023 and 2022.

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, 2022 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 ● income tax 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, 2022.

Table of Contents

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

The FASB issued the following ASUs that we adopted in the current year:

Issuance Date	ASU	Title
March 2020	2020-04	Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
January 2021	2021-01	Reference Rate Reform (Topic 848): Scope
December 2022	2022-06	Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848

This collective guidance provides optional expedients and exceptions for applying U.S. 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.

Our Credit Agreement (see Note 18. Long-Term Debt) and interest rate swap agreements (see Note 7. Derivative Financial Instruments) referenced the one-month USD LIBOR rate. On March 31, 2023, we executed agreements with our debt holders and the counterparties to our interest rate swap agreements to transition the benchmark interest rate from LIBOR to the one-month-USD Term Secured Overnight Financing Rate (“SOFR”). The impact of this transition and the adoption of the above guidance was not material to our consolidated financial statements.

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

NOTE 2. ACQUISITIONS

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 extended 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	$	145,693
Less cash acquired		(3,484)
Total fair value of purchase consideration	$	142,209

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


	Fair Value
Current assets and liabilities, net	$	12,329
Property and equipment		3,567
Operating lease right-of-use assets		4,640
Deferred tax and other liabilities		(2,326)
Intangible assets		57,600
Goodwill		71,039
Operating lease liability		(4,640)
Total fair value of net assets acquired	$	142,209

The following table summarizes the intangible assets acquired:


			Amortization	Useful Life
	Fair Value		Method	(in years)
Customer relationships	$	50,500	Straight-line	10
Technology		7,100	Straight-line	5
Total	$	57,600

To estimate the fair value of intangible assets, we used a multi-period excess earnings approach for the customer relationships and a relief from royalty approach for developed technology. Goodwill represents SL Power’s assembled workforce and the expected operating synergies from combining operations. We expect virtually all of the goodwill to be deductible for tax purposes.

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)