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 March 31, 2024 | |
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 April 26, 2024, there were 37,442,660 shares of the registrant’s common stock, par value $0.001 per share, outstanding.
ADVANCED ENERGY INDUSTRIES, INC.
FORM 10-Q
TABLE OF CONTENTS
ITEM 1. | UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS | 3 |
3 | ||
4 | ||
5 | ||
6 | ||
7 | ||
8 | ||
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 22 |
ITEM 3. | 34 | |
ITEM 4. | 35 | |
ITEM 1. | 35 | |
ITEM 1A. | 35 | |
ITEM 2. | 36 | |
ITEM 3. | 36 | |
ITEM 4. | 36 | |
ITEM 5. | 36 | |
ITEM 6. | 37 | |
38 |
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)
March 31, | December 31, | ||||||
| 2024 |
| 2023 | ||||
ASSETS |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents | $ | 1,017,780 | $ | 1,044,556 | |||
Accounts receivable, net |
| 247,510 |
| 282,430 | |||
Inventories |
| 361,337 |
| 336,137 | |||
Other current assets | 44,990 | 48,771 | |||||
Total current assets |
| 1,671,617 |
| 1,711,894 | |||
Property and equipment, net |
| 175,453 |
| 167,665 | |||
Operating lease right-of-use assets | 106,167 | 95,432 | |||||
Other assets |
| 135,627 |
| 136,448 | |||
Intangible assets, net |
| 154,390 |
| 161,478 | |||
Goodwill |
| 280,834 |
| 283,840 | |||
TOTAL ASSETS | $ | 2,524,088 | $ | 2,556,757 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
| |||||
Current liabilities: |
|
| |||||
Accounts payable | $ | 137,934 | $ | 141,850 | |||
Accrued payroll and employee benefits |
| 49,384 |
| 73,595 | |||
Other accrued expenses |
| 60,094 |
| 66,662 | |||
Customer deposits and other |
| 13,531 |
| 15,997 | |||
Current portion of long-term debt | 20,000 | 20,000 | |||||
Current portion of operating lease liabilities | 17,049 | 17,744 | |||||
Total current liabilities |
| 297,992 |
| 335,848 | |||
Long-term debt, net | 891,495 | 895,679 | |||||
Operating lease liabilities | 99,853 | 89,330 | |||||
Pension benefits | 48,567 | 49,135 | |||||
Other long-term liabilities | 43,298 | 42,583 | |||||
Total liabilities |
| 1,381,205 |
| 1,412,575 | |||
Commitments and contingencies (Note 15) |
|
| |||||
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; 37,434 and 37,318 and at March 31, 2024 and December 31, 2023, respectively |
| 37 |
| 37 | |||
Additional paid-in capital |
| 153,643 |
| 148,300 | |||
Accumulated other comprehensive income |
| (1,855) |
| 6,114 | |||
Retained earnings |
| 991,058 |
| 989,731 | |||
Total stockholders' equity |
| 1,142,883 |
| 1,144,182 | |||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 2,524,088 | $ | 2,556,757 | |||
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 March 31, | |||||||
| 2024 | 2023 |
| ||||
Revenue, net | $ | 327,475 | $ | 425,040 | |||
Cost of revenue |
| 214,646 |
| 269,929 | |||
Gross profit |
| 112,829 |
| 155,111 | |||
Operating expenses: |
|
| |||||
Research and development |
| 49,836 |
| 51,610 | |||
Selling, general, and administrative |
| 55,124 |
| 55,358 | |||
Amortization of intangible assets |
| 6,947 |
| 7,062 | |||
Restructuring, asset impairments, and other charges |
| 245 |
| 1,043 | |||
Total operating expenses |
| 112,152 |
| 115,073 | |||
Operating income |
| 677 |
| 40,038 | |||
Interest income | 12,645 | 3,585 | |||||
Interest expense | (7,127) | (2,730) | |||||
Other income (expense), net |
| 1,379 |
| (1,405) | |||
Income from continuing operations, before income tax |
| 7,574 |
| 39,488 | |||
Income tax provision |
| 1,787 |
| 7,736 | |||
Income from continuing operations |
| 5,787 |
| 31,752 | |||
Loss from discontinued operations, net of income tax |
| (571) |
| (831) | |||
Net income | $ | 5,216 | $ | 30,921 | |||
Basic weighted-average common shares outstanding |
| 37,359 |
| 37,475 | |||
Diluted weighted-average common shares outstanding |
| 37,687 |
| 37,757 | |||
Earnings per share: |
|
|
|
| |||
Continuing operations: |
|
|
|
| |||
Basic earnings per share | $ | 0.15 | $ | 0.85 | |||
Diluted earnings per share | $ | 0.15 | $ | 0.84 | |||
Discontinued operations: |
|
| |||||
Basic loss per share | $ | (0.02) | $ | (0.02) | |||
Diluted loss per share | $ | (0.02) | $ | (0.02) | |||
Net income: |
|
| |||||
Basic earnings per share | $ | 0.14 | $ | 0.83 | |||
Diluted earnings per share | $ | 0.14 | $ | 0.82 | |||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
ADVANCED ENERGY INDUSTRIES, INC.
Unaudited Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
Three Months Ended March 31, | ||||||
| 2024 |
| 2023 | |||
Net income | $ | 5,216 | $ | 30,921 | ||
Other comprehensive loss, net of income tax |
|
|
|
| ||
Foreign currency translation |
| (6,589) |
| (196) | ||
Change in fair value of cash flow hedges |
| (1,380) |
| (1,817) | ||
Comprehensive income (loss) | $ | (2,753) | $ | 28,908 | ||
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)
Common Stock | |||||||||||||||||
Accumulated | |||||||||||||||||
Additional | Other | Total | |||||||||||||||
Paid-in | Comprehensive | Retained | Stockholders' | ||||||||||||||
Shares | Amount | Capital | Income (Loss) | Earnings | Equity | ||||||||||||
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 | ||||||
Balances, December 31, 2023 | 37,318 | $ | 37 | $ | 148,300 | $ | 6,114 | $ | 989,731 | $ | 1,144,182 | ||||||
Stock issued from equity plans | 116 | — | (5,327) | — | — | (5,327) | |||||||||||
Stock-based compensation | — | — | 10,591 | — | — | 10,591 | |||||||||||
Dividends declared ($0.10 per share) | — | — | — | — | (3,810) | (3,810) | |||||||||||
Other comprehensive loss | — | — | — | (7,969) | — | (7,969) | |||||||||||
Deferred compensation | — | — | 79 | — | (79) | — | |||||||||||
Net income | — | — | — | — | 5,216 | 5,216 | |||||||||||
Balances, March 31, 2024 | 37,434 | $ | 37 | $ | 153,643 | $ | (1,855) | $ | 991,058 | $ | 1,142,883 | ||||||
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)
Three Months Ended March 31, | ||||||
| 2024 |
| 2023 | |||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
| ||
Net income | $ | 5,216 | $ | 30,921 | ||
Less: loss from discontinued operations, net of income tax |
| (571) |
| (831) | ||
Income from continuing operations, net of income tax |
| 5,787 |
| 31,752 | ||
Adjustments to reconcile net income to net cash from operating activities: |
|
|
|
| ||
Depreciation and amortization |
| 16,952 |
| 16,523 | ||
Stock-based compensation |
| 11,005 |
| 6,801 | ||
Amortization of debt issuance costs and debt discount | 816 | 128 | ||||
Deferred income tax benefit |
| (9) |
| (617) | ||
Loss (gain) on disposal and sale of assets |
| (7) |
| 115 | ||
Unrealized gain on investment | (441) | — | ||||
Changes in operating assets and liabilities, net of assets acquired |
|
| ||||
Accounts receivable, net |
| 33,444 |
| 13,590 | ||
Inventories |
| (26,786) |
| (25,699) | ||
Other assets |
| 2,617 |
| (8,971) | ||
Accounts payable |
| (3,001) |
| 16,770 | ||
Other liabilities and accrued expenses |
| (32,384) |
| (18,512) | ||
Net cash from operating activities from continuing operations |
| 7,993 |
| 31,880 | ||
Net cash from operating activities from discontinued operations |
| (710) |
| (2,069) | ||
Net cash from operating activities |
| 7,283 |
| 29,811 | ||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
| ||
Purchases of long-term investments | (2,092) | — | ||||
Purchases of property and equipment |
| (16,629) |
| (16,210) | ||
Net cash from investing activities |
| (18,721) |
| (16,210) | ||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
| ||
Payments on long-term borrowings | (5,000) | (5,000) | ||||
Dividend payments | (3,810) | (3,814) | ||||
Net payments related to stock-based awards |
| (5,327) |
| (1,991) | ||
Net cash from financing activities |
| (14,137) |
| (10,805) | ||
EFFECT OF CURRENCY TRANSLATION ON CASH AND CASH EQUIVALENTS |
| (1,201) |
| 51 | ||
NET CHANGE IN CASH AND CASH EQUIVALENTS |
| (26,776) |
| 2,847 | ||
CASH AND CASH EQUIVALENTS, beginning of period |
| 1,044,556 |
| 458,818 | ||
CASH AND CASH EQUIVALENTS, end of period | $ | 1,017,780 | $ | 461,665 | ||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
| ||
Cash paid for interest | $ | 6,302 | $ | 2,590 | ||
Cash paid for income taxes | $ | 2,471 | $ | 2,838 | ||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
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”) provides highly engineered, critical, precision power conversion, measurement, and control solutions to our global customers. We 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. Many of our products enable customers to reduce or optimize their energy consumption through increased power conversion efficiency, power density, power coupling, and process control across a wide range of applications.
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 March 31, 2024, and the results of our operations and cash flows for the three months ended March 31, 2024 and 2023.
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, 2023 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, income taxes and other provisions, and acquisitions and asset valuations.
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, 2023.
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 Issued But Not Yet Adopted
In November 2023, the FASB issued ASU 2023-07 “Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures.” ASU 2023-07 expands disclosure requirements to require additional information about significant segment expenses. In addition, the ASU enhances interim disclosures, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, and provides new disclosures requirements for entities with a single reportable segment. This guidance will be effective for us in our Annual Report on Form 10-K for the year
8
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share data)
ending December 31, 2024. We do not expect the above guidance to materially impact our consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09 “Improvements to Income Tax Disclosures.” ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional disclosure on income taxes paid. This guidance will be effective for us on January 1, 2025. We do not expect the above guidance to materially impact our consolidated financial statements.
In March 2024, the U.S. Securities and Exchange Commission (the “SEC”) issued climate-related disclosure rules. These rules do not change accounting treatment, but they significantly expand the climate-related information companies are required to disclose. Several petitions were filed challenging these climate-related disclosure rules and, in April 2024, the SEC voluntarily stayed the rules, pending completion of judicial review. We do not expect the above disclosure requirement to materially impact our consolidated financial statements. We are evaluating the disclosure requirements and changes to our business processes, systems, and controls to support the additional disclosures.
NOTE 2. REVENUE
Disaggregation of revenue
The following tables present additional information regarding our revenue:
Revenue by Market
Three Months Ended March 31, | ||||||
| 2024 | 2023 | ||||
Semiconductor Equipment | $ | 179,903 | $ | 194,209 | ||
Industrial and Medical |
| 83,418 |
| 123,020 | ||
Data Center Computing | 41,902 | 59,659 | ||||
Telecom and Networking | 22,252 | 48,152 | ||||
Total | $ | 327,475 | $ | 425,040 | ||
Revenue by Region
Three Months Ended March 31, | |||||||||||||
| 2024 | 2023 |
| ||||||||||
North America | $ | 134,079 | 40.9 | % | $ | 180,942 | 42.5 | % | |||||
Asia | 151,943 | 46.4 | 179,183 | 42.2 | |||||||||
Europe | 40,553 | 12.4 | 62,566 | 14.7 | |||||||||
Other |
| 900 | 0.3 | 2,349 | 0.6 | ||||||||
Total | $ | 327,475 | 100.0 | % | $ | 425,040 | 100.0 | % | |||||
Revenue by Significant Countries
Three Months Ended March 31, | |||||||||||||
| 2024 | 2023 |
| ||||||||||
United States | $ | 107,816 | 32.9 | % | $ | 153,506 | 36.1 | % | |||||
Taiwan | 39,473 | 12.1 | 36,361 | 8.6 | |||||||||
China | 18,891 | 5.8 | 37,456 | 8.8 | |||||||||
All others | 161,295 | 49.2 | 197,717 | 46.5 | |||||||||
Total | $ | 327,475 | 100.0 | % | $ | 425,040 | 100.0 | % | |||||
9
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share data)
We attribute revenue to individual countries and regions based on the customer’s ship to location. Apart from the United States and Taiwan, no revenue attributable to any individual country exceeded 10% of our total consolidated revenues during the periods presented.
Revenue by Category
Three Months Ended March 31, | |||||||
| 2024 | 2023 |
| ||||
Product | $ | 286,264 | $ | 379,274 | |||
Services and other | 41,211 |
| 45,766 | ||||
Total | $ | 327,475 |
| $ | 425,040 | ||
Other revenue includes certain spare parts and products sold by our service group.
Significant Customers
During the three months ended March 31, 2024, Applied Materials, Inc. and Lam Research Corporation accounted for 30% and 10%, respectively, of our total revenue. During the three months ended March 31, 2023, Applied Materials Inc. accounted for 21% of our total revenue.
As of March 31, 2024, the account receivable balance from Applied Materials, Inc. and Lam Research Corporation accounted for 37% and 10%, respectively, of our total accounts receivable. As of December 31, 2023, the account receivable balance from Applied Materials, Inc. accounted for 26% of our total accounts receivable. No other customer’s account receivable exceeded 10% of our total accounts receivable in the periods presented.
NOTE 3. INCOME TAX
The following table summarizes tax expense and the effective tax rate for our income from continuing operations:
Three Months Ended March 31, | |||||||
| 2024 |
| 2023 |
| |||
Income from continuing operations, before income tax | $ | 7,574 | $ | 39,488 | |||
Income tax provision | $ | 1,787 | $ | 7,736 | |||
Effective tax rate | 23.6 | % | 19.6 | % | |||
Our effective tax rates differ from the U.S. federal statutory rate of 21% for the three months ended March 31, 2024 and 2023, primarily due to the benefit of earnings in foreign jurisdictions which are subject to lower tax rates, as well as tax credits, partially offset by net U.S. tax on foreign operations. The effective tax rate for 2024 was higher than the same periods in 2023 primarily due to unfavorable mix of earnings.
As of January 1, 2024, the Pillar II minimum global effective tax rate of 15% enacted by the Organization for Economic Cooperation and Development (“OECD”) was effectuated. More than 140 countries agreed to enact the Pillar II global minimum tax. However, the timing of the implementation for each country varies. To date, we have determined that there was an immaterial global minimum tax liability as a result of Pillar II, as certain tax jurisdictions either will not have Pillar II enacted until after December 31, 2024 or satisfied the safe harbor test to prevent any minimum tax under Pillar II. We continue to monitor the jurisdictions for any changes and include any appropriate minimum tax throughout the year.
10
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share data)
NOTE 4. STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE
Accumulated Other Comprehensive Income
The following table summarizes the components of, and changes in, accumulated other comprehensive income
(loss), net of income taxes.
| Foreign Currency Translation |
| Change in Fair Value of Cash Flow Hedges |
| Minimum Pension Benefit Retirement Liability |
| Total | |||||
Balance at December 31, 2023 | $ | (10,796) | $ | 5,474 | $ | 11,436 | $ | 6,114 | ||||
Other comprehensive income prior to reclassifications | (6,589) | 1,405 | - | (5,184) | ||||||||
Amounts reclassified from accumulated other comprehensive income | - | (2,785) | - | (2,785) | ||||||||
Balance at March 31, 2024 | $ | (17,385) | $ | 4,094 | $ | 11,436 | $ | (1,855) |
Amounts reclassified from accumulated other comprehensive income (loss) to the specific caption within the
Consolidated Statements of Operations were as follows:
| Three Months Ended March 31, | To Caption on | |||
2024 | Consolidated Statements of Operations | ||||
Cash flow hedges | $ | (2,785) | Interest expense | ||
Earnings Per Share
The following table summarizes our earnings per share (“EPS”):
Three Months Ended March 31, | |||||||
| 2024 |
| 2023 |
| |||
Income from continuing operations | $ | 5,787 | $ | 31,752 | |||
Basic weighted-average common shares outstanding |
| 37,359 |
| 37,475 | |||
Dilutive effect of stock awards |
| 328 |
| 282 | |||
Diluted weighted-average common shares outstanding |
| 37,687 |
| 37,757 | |||
EPS from continuing operations |
|
|
|
| |||
Basic EPS | $ | 0.15 | $ | 0.85 | |||
Diluted EPS | $ | 0.15 | $ | 0.84 | |||
Anti-dilutive shares not included above | |||||||
Stock awards | 28 | 102 | |||||
Warrants | 3,194 | — | |||||
Total anti-dilutive shares | 3,222 | 102 | |||||
11
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share data)
We compute basic earnings per share of common stock (“Basic EPS”) by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period.
See Note 16. Long-Term Debt for information regarding our Convertible Notes, Note Hedges, and Warrants. For diluted earnings per share of common stock (“Diluted EPS”), we increase the weighted-average number of common shares outstanding during the period, as needed, to include the following:
| ● | Dilutive impact associated with the Convertible Notes using the if-converted method. The Convertible Notes are repayable in cash up to par value and in cash or shares of common stock for the excess over par value. When the stock price is lower than the strike price, there is no dilutive or anti-dilutive impact. Prior to conversion, we do not consider the Note Hedges for purposes of Diluted EPS as their effect would be anti-dilutive. Upon conversion, we expect the Note Hedges to offset the dilutive effect of the Convertible Notes when the stock price is above $137.46 but below $179.76; |
| ● | Additional common shares that would have been outstanding if our outstanding stock awards had been converted to common shares using the treasury stock method. We exclude any stock awards that have an anti-dilutive effect; and |
| ● | Dilutive effect of the Warrants issued concurrently with the Convertible Notes using the treasury stock method. For all periods presented, the Warrants did not increase the weighted-average number of common shares outstanding because the $179.76 exercise price of the Warrants exceeded the average market price of our common stock. |
Share Repurchase
At March 31, 2024, the remaining amount authorized by the Board of Directors (“the Board”) for future share repurchases was $199.2 million with no time limitation. There were no share repurchases during any periods presented.
NOTE 5. FAIR VALUE MEASUREMENTS
The following tables present information about our assets and liabilities measured at fair value on a recurring basis:
March 31, 2024 | ||||||||||||||
Description | Balance Sheet Classification | Level 1 | Level 2 | Level 3 | Total | |||||||||
Certificates of deposit | Other current assets | $ | — | $ | 177 | $ | — | $ | 177 | |||||
Foreign currency forward contracts | Other accrued expenses | — | 195 | — | 195 | |||||||||
Interest rate swaps | Other current assets | — | 5,211 | — | 5,211 | |||||||||
Investments | Other assets | — | 8,519 | — | 8,519 | |||||||||
December 31, 2023 | ||||||||||||||
Description | Balance Sheet Classification | Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||
Certificates of deposit | Other current assets | $ | — | $ | 163 | $ | — | $ | 163 | |||||
Interest rate swaps | Other assets | — | 6,995 | — | 6,995 | |||||||||
Investments | Other assets | — | 5,952 | — | 5,952 | |||||||||
12
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share data)
NOTE 6. DERIVATIVE FINANCIAL INSTRUMENTS
Changes in foreign currency exchange rates impact our results of operations and cash flows. We may manage these risks through the use of derivative financial instruments, primarily forward contracts with banks. These forward contracts manage the exchange rate risk associated with assets and liabilities denominated in nonfunctional currencies. Typically, we execute these derivative instruments for one-month periods and do not designate them as hedges; however, they do partially offset the economic fluctuations of certain of our assets and liabilities due to foreign exchange rate changes.
The following table summarizes the notional amount of outstanding foreign currency forward contracts:
March 31, | December 31, | |||||
| 2024 |
| 2023 | |||
Foreign currency forward contracts | $ | 86,825 | $ | — | ||
Gains and losses related to foreign currency exchange contracts were offset by corresponding gains and losses on the revaluation of the underlying assets and liabilities. Both are included as a component of other income (expense), net in our Consolidated Statements of Operations.
We have executed interest rate swap contracts that fix a portion of the interest payments related to the outstanding principal balance on our Term Loan Facility to a total interest rate of 1.172%. The interest rate swap contracts expire on September 10, 2024 and are accounted for as cash flow hedging instruments. See Note 16. Long-Term Debt for information regarding the Term Loan Facility.
The following table summarizes the notional amount of our qualified hedging instruments:
March 31, | December 31, | |||||
| 2024 |
| 2023 | |||
Interest rate swap contracts | $ | 216,344 | $ | 220,719 | ||
The following table summarizes the amounts, net of tax, recorded in accumulated other comprehensive income on the Consolidated Balance Sheets for qualifying hedges.
March 31, | December 31, | |||||
| 2024 |
| 2023 | |||
Interest rate swap contract gains | $ | 4,094 | $ | 5,350 | ||
See Note 6. Fair Value Measurements for information regarding fair value of derivative instruments.
As a result of using derivative financial instruments, we are exposed to the risk that counterparties to contracts could fail to meet their contractual obligations. We manage this credit risk by reviewing counterparty creditworthiness on a regular basis and limiting exposure to any single counterparty.
13
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share data)
NOTE 7. ACCOUNTS RECEIVABLE, NET
We record accounts receivable at net realizable value. Our accounts receivable, net balance on the Consolidated Balance Sheets was $247.5 million at March 31, 2024. The following table summarizes the changes in expected credit losses related to receivables:
December 31, 2023 |
| $ | 1,762 |
Additions |
| 33 | |
March 31, 2024 | $ | 1,795 |
NOTE 8. INVENTORIES
We value inventories at the lower of cost or net realizable value, computed on a first-in, first-out basis. Components of inventories were as follows:
March 31, | December 31, | |||||
| 2024 |
| 2023 | |||
Parts and raw materials | $ | 264,042 | $ | 249,698 | ||
Work in process |
| 15,730 |
| 14,595 | ||
Finished goods |
| 81,565 |
| 71,844 | ||
Total | $ | 361,337 | $ | 336,137 | ||
NOTE 9. PROPERTY AND EQUIPMENT, NET
Property and equipment, net is comprised of the following:
Estimated Useful | March 31, | December 31, | ||||||
| Life (in years) |
| 2024 |
| 2023 | |||
Buildings, machinery, and equipment | 5 to 25 | $ | 196,042 | $ | 191,744 | |||
Software | 3 to 10 | 29,905 | 24,526 | |||||
Computer equipment, furniture, fixtures, and vehicles | 3 to 5 |
| 19,430 |
| 19,281 | |||
Leasehold improvements | 2 to 10 |
| 81,365 |
| 79,764 | |||
Capital projects in process |
| 25,159 |
| 21,721 | ||||
| 351,901 |
| 337,036 | |||||
Less: Accumulated depreciation |
| (176,448) |
| (169,371) | ||||
Property and equipment, net | $ | 175,453 | $ | 167,665 | ||||
The following table summarizes depreciation expense. All depreciation expense is recorded in income from continuing operations:
Three Months Ended March 31, | |||||||
| 2024 |
| 2023 |
| |||
Depreciation expense | $ | 10,005 | $ | 9,461 | |||
14
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share data)
NOTE 10. INTANGIBLE ASSETS AND GOODWILL
Intangible assets consisted of the following:
March 31, 2024 | |||||||||||
| Gross Carrying |
| Accumulated |
| Net Carrying |
| Weighted Average Remaining | ||||
Amount | Amortization | Amount |
| Useful Life (in years) | |||||||
Technology | $ | 97,514 | $ | (63,086) | $ | 34,428 | 6.9 | ||||
Customer relationships |
| 167,981 | (61,451) |
| 106,530 | 9.3 | |||||
Trademarks and other |
| 27,104 | (13,672) |
| 13,432 | 5.3 | |||||
Total | $ | 292,599 | $ | (138,209) | $ | 154,390 | 8.4 | ||||
December 31, 2023 | |||||||||||
| Gross Carrying |
| Accumulated |
| Net Carrying | Weighted Average Remaining | |||||
Amount | Amortization | Amount | Useful Life (in years) | ||||||||
Technology | $ | 97,961 | $ | (60,412) | $ | 37,549 | 6.8 | ||||
Customer relationships |
| 168,685 | (58,835) |
| 109,850 | 9.5 | |||||
Trademarks and other |
| 27,141 | (13,062) |
| 14,079 | 5.6 | |||||
Total | $ | 293,787 | $ | (132,309) | $ | 161,478 | 8.5 | ||||
Amortization expense related to intangible assets is as follows:
Three Months Ended March 31, | ||||||
| 2024 |
| 2023 | |||
Amortization expense | $ | 6,947 | $ | 7,062 | ||
Estimated amortization expense related to intangibles is as follows:
Year Ending December 31, |
| ||
2024 (remaining) | $ | 18,259 | |
2025 |
| 20,988 | |
2026 |
| 19,272 | |
2027 |
| 17,366 | |
2028 | 16,131 | ||
Thereafter |
| 62,374 | |
Total | $ | 154,390 |
The following table summarizes the changes in goodwill:
December 31, 2023 | $ | 283,840 | |
Foreign currency translation and other | (3,006) | ||
March 31, 2024 |
| $ | 280,834 |
15
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share data)
NOTE 11. RESTRUCTURING, ASSET IMPAIRMENTS, AND OTHER CHARGES
Details of restructuring, asset impairments, and other charges are as follows:
Three Months Ended March 31, | |||||||
2024 | 2023 | ||||||
Restructuring |
| $ | (31) | 1,043 | |||
Other charges | 276 | — | |||||
Total restructuring, asset impairments, and other charges | $ | 245 |
| $ | 1,043 |
| |
Restructuring
We have two restructuring plans in process:
2023 Plan
In 2023, we approved a plan intended to optimize and further consolidate our manufacturing operations and functional support groups as well as a general reduction-in-force to align our expenses to revenue levels (the “2023 Plan”). We expect additional charges of $1.0 million to $2.0 million to be incurred in future periods through the second quarter of 2025. We anticipate the 2023 Plan will be substantially completed by the end of 2024, with the final activities concluding in the second quarter 2025.
2022 Plan
This plan was approved to further improve our operating efficiencies and drive the realization of synergies from our business combinations by consolidating our operations, optimizing our factory footprint, including moving certain production into our higher volume factories, reducing redundancies, and lowering our cost structure. We anticipate the 2022 Plan will be substantially completed by the end of 2024.
Our restructuring liabilities are included in other accrued expenses in our Consolidated Balance Sheets. Changes in restructuring liabilities were as follows:
Charges related to our restructuring plans are as follows:
Three Months Ended March 31, | ||||||
2024 | 2023 | |||||
Severance and related charges |
| $ | (31) |
| $ | 1,043 |
Cumulative Cost Through | |||||||||
March 31, 2024 | |||||||||
| 2023 Plan |
| 2022 Plan |
| Total | ||||
Severance and related charges |
| $ | 17,015 | $ | 14,044 | $ | 31,059 | ||
Other Charges
In connection with vacating and relocating facilities, we incurred other charges of $0.3 million.
16
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share data)
NOTE 12. WARRANTIES
Our sales agreements include customary product warranty provisions, which generally range from 12 to 36 months after shipment. We record the estimated warranty obligations cost when we recognize revenue. This estimate is based on historical experience by product and configuration.
Our estimated warranty obligation is included in other accrued expenses in our Consolidated Balance Sheets. Changes in our product warranty obligation were as follows:
December 31, 2023 | $ | 4,007 | |
Net increases to accruals |
| 436 | |
Warranty expenditures |
| (595) | |
Effect of changes in exchange rates |
| 139 | |
March 31, 2024 | $ | 3,987 |
NOTE 13. LEASES
Components of total operating lease cost were as follows:
Three Months Ended March 31, | |||||||
| 2024 |
| 2023 |
| |||
Operating lease cost | $ | 5,860 | $ | 5,680 | |||
Short-term and variable lease cost | 667 | 1,083 | |||||
Total operating lease cost | $ | 6,527 | $ | 6,763 | |||
Payments on our operating lease liabilities are as follows:
In addition to the above, we have lease agreements with total payments of $36.3 million that commence on various dates in 2024 and 2025 and extend through 2040.
17
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share data)
The following tables present additional information about our lease agreements:
March 31, | December 31, | |||||||
| 2024 |
|
| 2023 | ||||
Weighted average remaining lease term (in years) | 8.5 | 8.3 | ||||||
Weighted average discount rate |
| 5.2 | % | 5.0 | % | |||
Three Months Ended March 31, | |||||
2024 |
| 2023 | |||
Cash paid for operating leases | $ | 5,721 | $ | 5,820 | |
Right-of-use assets obtained in exchange for operating lease liabilities | $ | 16,837 | $ | 208 | |
NOTE 14. STOCK-BASED COMPENSATION
The Compensation Committee of our Board administers our stock plans. As of March 31, 2024, we had two active stock-based incentive compensation plans: the 2023 Omnibus Incentive Plan (“the 2023 Incentive Plan”) and the Employee Stock Purchase Plan (“ESPP”). The 2023 Incentive Plan was approved by stockholders on April 27, 2023 and amended and restated on November 2, 2023. We issue all new equity compensation grants under these two plans; however, outstanding awards previously issued under inactive plans will continue to vest and remain exercisable in accordance with the terms of the respective plans.
The 2023 Incentive Plan provides for the grant of awards including stock options, stock appreciation rights, performance stock units, performance units, stock, restricted stock, restricted stock units, and cash incentive awards.
The following table summarizes information related to our stock-based incentive compensation plans: