SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF | ||
| For the quarterly period ended | |
or | ||
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF | |
| For the transition period from to |
Commission file number: 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.) | |
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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: (970) 221-4670
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 NoIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated filer"” “accelerated filer,” “smaller reporting company,” and "smaller reporting company"“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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
As of OctoberApril 26, 20172024, there were 39,657,31537,442,660 shares of the registrant's Common Stock,registrant’s common stock, par value $0.001 per share, outstanding.outstanding.
FORM 10-Q
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UNAUDITED | ||
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 22 | |
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ITEM 4. | 36 | |
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ITEM 5. | 36 | |
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ITEM 6. | 37 | |
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ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
ADVANCED ENERGY INDUSTRIES, INC.
(In thousands, except per share amounts)
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 366,572 | $ | 281,953 | ||||
Marketable securities | 3,046 | 4,737 | ||||||
Accounts receivable, net of allowances of $2,232 and $1,943, respectively | 74,993 | 75,667 | ||||||
Inventories | 73,520 | 55,770 | ||||||
Income taxes receivable | 6,380 | 1,482 | ||||||
Other current assets | 8,678 | 9,324 | ||||||
Current assets of discontinued operations | 7,770 | 9,401 | ||||||
Total current assets | 540,959 | 438,334 | ||||||
Deposits and other assets | 2,432 | 1,835 | ||||||
Property and equipment, net | 15,736 | 13,337 | ||||||
Goodwill | 53,509 | 42,125 | ||||||
Intangible assets, net | 34,435 | 28,071 | ||||||
Deferred income tax assets | 58,590 | 32,197 | ||||||
Non-current assets of discontinued operations | 15,630 | 15,630 | ||||||
TOTAL ASSETS | $ | 721,291 | $ | 571,529 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 41,275 | $ | 46,255 | ||||
Income taxes payable | 9 | 1,778 | ||||||
Accrued payroll and employee benefits | 16,241 | 13,230 | ||||||
Customer deposits | 5,410 | 5,774 | ||||||
Other accrued expenses | 18,394 | 14,590 | ||||||
Current liabilities of discontinued operations | 9,667 | 13,419 | ||||||
Total current liabilities | 90,996 | 95,046 | ||||||
Deferred income tax liabilities | 2,049 | 1,008 | ||||||
Uncertain tax positions | 4,383 | 2,538 | ||||||
Long term deferred revenue | 36,528 | 39,170 | ||||||
Other long-term liabilities | 22,662 | 20,536 | ||||||
Non-current liabilities of discontinued operations | 16,287 | 21,157 | ||||||
Total liabilities | 172,905 | 179,455 | ||||||
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; 39,624 and 39,712 issued and outstanding, respectively | 40 | 40 | ||||||
Additional paid-in capital | 187,407 | 203,603 | ||||||
Retained earnings | 362,815 | 195,364 | ||||||
Accumulated other comprehensive loss | (1,876 | ) | (6,933 | ) | ||||
Total stockholders’ equity | 548,386 | 392,074 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 721,291 | $ | 571,529 |
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| | March 31, | | December 31, | | ||
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| 2024 |
| 2023 | | ||
ASSETS |
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Current assets: |
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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 | |
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LIABILITIES AND STOCKHOLDERS’ EQUITY | |
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Current liabilities: | |
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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 | |
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Commitments and contingencies (Note 15) | |
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Stockholders' equity: | |
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Preferred stock, $0.001 par value, 1,000 shares authorized, none issued and outstanding | |
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Common stock, $0.001 par value, 70,000 shares authorized; 37,434 and 37,318 issued and outstanding at March 31, 2024 and December 31, 2023, respectively | |
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| 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 | |
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The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.unaudited consolidated financial statements.
(In thousands, except per share amounts)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Sales: | |||||||||||||||
Product | $ | 152,363 | $ | 107,650 | $ | 424,478 | $ | 294,695 | |||||||
Services | 24,212 | 18,902 | 67,320 | 53,666 | |||||||||||
Total sales | 176,575 | 126,552 | 491,798 | 348,361 | |||||||||||
Cost of sales: | |||||||||||||||
Product | 72,146 | 49,835 | 198,754 | 137,984 | |||||||||||
Services | 12,195 | 10,594 | 34,838 | 28,748 | |||||||||||
Total cost of sales | 84,341 | 60,429 | 233,592 | 166,732 | |||||||||||
Gross profit | 92,234 | 66,123 | 258,206 | 181,629 | |||||||||||
Operating expenses: | |||||||||||||||
Research and development | 14,629 | 11,293 | 41,742 | 33,324 | |||||||||||
Selling, general and administrative | 24,692 | 19,421 | 70,580 | 56,814 | |||||||||||
Amortization of intangible assets | 1,240 | 1,048 | 3,176 | 3,180 | |||||||||||
Total operating expenses | 40,561 | 31,762 | 115,498 | 93,318 | |||||||||||
Operating income | 51,673 | 34,361 | 142,708 | 88,311 | |||||||||||
Other (expense) income, net | 153 | (55 | ) | (3,138 | ) | 1,138 | |||||||||
Income from continuing operations, before income taxes | 51,826 | 34,306 | 139,570 | 89,449 | |||||||||||
Provision for income taxes | (31,968 | ) | 5,268 | (25,538 | ) | 12,937 | |||||||||
Income from continuing operations, net of income taxes | 83,794 | 29,038 | 165,108 | 76,512 | |||||||||||
Income from discontinued operations, net of income taxes | 70 | 1,323 | 2,343 | 6,661 | |||||||||||
Net income | $ | 83,864 | $ | 30,361 | $ | 167,451 | $ | 83,173 | |||||||
Basic weighted-average common shares outstanding | 39,786 | 39,681 | 39,787 | 39,723 | |||||||||||
Diluted weighted-average common shares outstanding | 40,172 | 39,967 | 40,207 | 40,015 | |||||||||||
Earnings per share: | |||||||||||||||
Continuing operations: | |||||||||||||||
Basic earnings per share | $ | 2.11 | $ | 0.73 | $ | 4.15 | $ | 1.93 | |||||||
Diluted earnings per share | $ | 2.09 | $ | 0.73 | $ | 4.11 | $ | 1.91 | |||||||
Discontinued operations: | |||||||||||||||
Basic earnings per share | $ | — | $ | 0.03 | $ | 0.06 | $ | 0.17 | |||||||
Diluted earnings per share | $ | — | $ | 0.03 | $ | 0.06 | $ | 0.17 | |||||||
Net income: | |||||||||||||||
Basic earnings per share | $ | 2.11 | $ | 0.77 | $ | 4.21 | $ | 2.09 | |||||||
Diluted earnings per share | $ | 2.09 | $ | 0.76 | $ | 4.16 | $ | 2.08 |
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| | Three Months Ended March 31, | | ||||
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| 2024 | | 2023 |
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Revenue, net | | $ | 327,475 | | $ | 425,040 | |
Cost of revenue | |
| 214,646 | |
| 269,929 | |
Gross profit | |
| 112,829 | |
| 155,111 | |
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Operating expenses: | |
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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 | |
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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 | |
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Basic weighted-average common shares outstanding | |
| 37,359 | |
| 37,475 | |
Diluted weighted-average common shares outstanding | |
| 37,687 | |
| 37,757 | |
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Earnings per share: | |
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Continuing operations: | |
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Basic earnings per share | | $ | 0.15 | | $ | 0.85 | |
Diluted earnings per share | | $ | 0.15 | | $ | 0.84 | |
Discontinued operations: | |
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Basic loss per share | | $ | (0.02) | | $ | (0.02) | |
Diluted loss per share | | $ | (0.02) | | $ | (0.02) | |
Net income: | |
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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 Condensed Consolidated Financial Statements.unaudited consolidated financial statements.
(In thousands)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income | $ | 83,864 | $ | 30,361 | $ | 167,451 | $ | 83,173 | ||||||||
Other comprehensive income, net of tax: | ||||||||||||||||
Foreign currency translation adjustment | 807 | 1,125 | 5,333 | 1,389 | ||||||||||||
Unrealized (loss) gain on marketable securities | (1 | ) | (1 | ) | (22 | ) | 9 | |||||||||
Minimum benefit retirement liability | (100 | ) | (16 | ) | (254 | ) | (40 | ) | ||||||||
Comprehensive income | $ | 84,570 | $ | 31,469 | $ | 172,508 | $ | 84,531 |
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| 2024 |
| 2023 | ||
Net income | | $ | 5,216 | | $ | 30,921 |
Other comprehensive loss, net of income tax | |
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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 Condensed Consolidated Financial Statements.unaudited consolidated financial statements.
(In thousands)
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 167,451 | $ | 83,173 | ||||
Income from discontinued operations, net of income taxes | 2,343 | 6,661 | ||||||
Income from continuing operations, net of income taxes | 165,108 | 76,512 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 6,792 | 5,938 | ||||||
Stock-based compensation expense | 10,707 | 4,299 | ||||||
Provision for deferred income taxes | (26,185 | ) | — | |||||
Loss on foreign exchange hedge | 3,489 | — | ||||||
Net loss on disposal of assets | 106 | 259 | ||||||
Changes in operating assets and liabilities, net of assets acquired: | ||||||||
Accounts receivable | 4,119 | (13,679 | ) | |||||
Inventories | (15,062 | ) | (5,261 | ) | ||||
Other current assets | (430 | ) | (73 | ) | ||||
Accounts payable | (5,725 | ) | 10,619 | |||||
Other current liabilities and accrued expenses | 3,763 | 1,489 | ||||||
Income taxes | (6,375 | ) | 2,562 | |||||
Net cash provided by operating activities from continuing operations | 140,307 | 82,665 | ||||||
Net cash used in operating activities from discontinued operations | (7,293 | ) | (4,538 | ) | ||||
Net cash provided by operating activities | 133,014 | 78,127 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchases of marketable securities | (86 | ) | (745 | ) | ||||
Proceeds from sale of marketable securities | 1,883 | 7,161 | ||||||
Acquisition, net of cash acquired | (17,347 | ) | — | |||||
Purchase of foreign exchange hedge | (3,489 | ) | — | |||||
Purchases of property and equipment | (5,646 | ) | (4,524 | ) | ||||
Net cash (used in) provided by investing activities from continuing operations | (24,685 | ) | 1,892 | |||||
Net cash used in investing activities from discontinued operations | — | — | ||||||
Net cash (used in) provided by investing activities | (24,685 | ) | 1,892 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Purchase and retirement of common stock | (24,998 | ) | — | |||||
Net (payments) proceeds related to stock-based award activities | (1,904 | ) | 1,753 | |||||
Other financing activities | 2 | (3 | ) | |||||
Net cash (used in) provided by financing activities from continuing operations | (26,900 | ) | 1,750 | |||||
Net cash used in financing activities from discontinued operations | — | (24 | ) | |||||
Net cash (used in) provided by financing activities | (26,900 | ) | 1,726 | |||||
EFFECT OF CURRENCY TRANSLATION ON CASH | 1,138 | (550 | ) | |||||
INCREASE IN CASH AND CASH EQUIVALENTS | 82,567 | 81,195 | ||||||
CASH AND CASH EQUIVALENTS, beginning of period | 289,517 | 169,720 | ||||||
CASH AND CASH EQUIVALENTS, end of period | 372,084 | 250,915 | ||||||
Less cash and cash equivalents from discontinued operations | 5,512 | 6,623 | ||||||
CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS, end of period | $ | 366,572 | $ | 244,292 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid for interest | $ | 27 | $ | 173 | ||||
Cash paid for income taxes | 4,599 | 4,930 | ||||||
Cash received for refunds of income taxes | 1,153 | 444 | ||||||
Cash held in banks outside the United States | 271,777 | 176,815 |
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| | Common Stock | | | | | | | | | | | | | |||
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| | | | | | | 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 |
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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 Condensed Consolidated Financial Statements.unaudited consolidated financial statements.
ADVANCED ENERGY INDUSTRIES, INC.
Unaudited Consolidated Statements of Cash Flows
(In thousands)
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| | Three Months Ended March 31, | ||||
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| 2024 |
| 2023 | ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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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: | |
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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 | |
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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 |
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CASH FLOWS FROM INVESTING ACTIVITIES: | |
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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) |
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CASH FLOWS FROM FINANCING ACTIVITIES: | |
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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) |
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EFFECT OF CURRENCY TRANSLATION ON CASH AND CASH EQUIVALENTS | |
| (1,201) | |
| 51 |
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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 |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |
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| |
|
|
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
(In thousands, except per share data)
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Advanced Energy Industries, Inc., a Delaware corporation, and its wholly-ownedconsolidated subsidiaries ("(“we," "us," "our," "Advanced” “us,” “our,” “Advanced Energy,"” or the "Company"“Company”) provides highly engineered, critical, precision power conversion, measurement, and control solutions to our global customers. We design, manufacture, sell and support precision power conversion 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 forms. Ourpower that is predictable, repeatable, and customizable to meet the necessary requirements for powering a wide range of complex equipment. Many of our products enable manufacturing processes that use thin films for various products, such as semiconductor devices, flat panel displays, solar cells, architectural glass, optical coatingcustomers to reduce or optimize their energy consumption through increased power conversion efficiency, power density, power coupling, and decorative and functional coating for consumer products. We also supply thermal instrumentation products for advanced temperatureprocess control in the thin film process for these same markets. Our power control modules provide power control solutions for industrialacross a wide range of applications where heat treatment and processing are used such as glass manufacturing, metal fabrication and treatment, and material and chemical processing. Our high voltage power supplies and modules are used in applications such as semiconductor ion implantation, scanning electron microscopy, chemical analysis such as mass spectrometry and various applications using X-ray technology and electron guns for both analytical and processing applications. Our network of global service support centers provides a recurring revenue opportunity as we offer repair services, conversions, upgrades, and refurbishments and sales of used equipment to companies using our products. As of December 31, 2015, we discontinued the production, engineering, and sales of our solar inverter product line. As such, all solar inverter revenues, costs, assets and liabilities are reported in Discontinued Operations for all periods presented herein. See
In themanagement's opinion, of management, the accompanying Unaudited Condensed Consolidated Financial Statementsunaudited consolidated financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly theAdvanced Energy’s financial position of the Company as of September 30, 2017,March 31, 2024, and the results of our operations for the three and nine months ended September 30, 2017 and 2016, and cash flows for the ninethree months ended September 30, 2017March 31, 2024 and 2016.
The Unaudited Condensed Consolidated Financial Statementsunaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"(“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"GAAP”) have been condensed or omitted pursuant to such rules and regulations. These Unaudited Condensed Consolidated Financial Statementsunaudited consolidated financial statements should be read in conjunction with the audited Consolidated Financial Statementsconsolidated financial statements and Notesnotes thereto contained in our Annual Report on Form 10-K for the fiscal year ended
Use of Estimates in the Preparation of the Consolidated Financial Statements
The preparation of our Unaudited Condensed Consolidated Financial Statementsconsolidated 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, andthe disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. We believe that theThe significant estimates, assumptions, and judgments when accounting for items and matters such as allowances for doubtful accounts,include, but are not limited to, excess and obsolete inventory, warranty reserves, acquisitions, asset valuations, goodwill, asset life, depreciation, amortization, recoverability of assets, impairments, deferred revenue, stock option and restricted stock grants,income taxes and other provisions, are reasonable, based upon information available at the time they are made. Actual results may differ from these estimates.
Significant Accounting Policies
Our accounting policies are described in Note 1 to our audited Consolidated Financial Statements and Notes containedconsolidated financial statements in our Annual Report on Form 10-K for the year ended
New Accounting Standards
From time to time, the Financial Accounting Standards Board ("FASB"(“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, iswill not expected to have a material impact on the Consolidated Financial Statementsconsolidated financial statements upon adoption.
New Accounting Standards Issued But Not Yet Adopted
In May 2014,November 2023, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers" and has subsequently issued several supplemental and/or clarifying ASUs (collectively known as "ASC 606"). ASC 606 implements a five step model for how2023-07 “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 should recognize revenue in order to depict the transfercan disclose multiple segment measures of promised goodsprofit or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchangeloss, and provides new disclosures requirements for those goods or services.entities with a single reportable segment. This guidance will be effective for fiscal periods beginning after December 15, 2017 andus in our Annual Report on Form 10-K for the interim periods within that year.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 analyze its current portfolio of customer contracts. We have completed the disaggregation of the related sales order data and have begun testing contract elements and considering supporting software applications. The implementation team is also responsible for identifying and implementing changes to existing business processes, controls, and systems in order to support revenue recognition and disclosure under the new standard. Based onmaterially impact our preliminary review of our customer contracts, we expect that revenue with the majority of our customers will continue to be recognized at a point in time, generally upon shipment of products, consistent with our current revenue recognition model. Upon adoption of ASC 606, however, we also believe some of our revenue from sales of products to customers will be recognized in advance of actual customer billing, (for example: just in time inventory programs) due to the terms of certain customer contracts. As such, various balance sheet line items will be impacted. Advanced Energy believes the adoption of ASC606 will have an impact on both the timing of revenue recognition and various line items within the Consolidated Balance Sheet.
In February 2016,December 2023, the FASB issued ASU 2016-02, "Leases (Topic 842),"2023-09 “Improvements to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing keyIncome Tax Disclosures.” ASU 2023-09 requires disaggregated information about leasing arrangements. ASU 2016-02 isa reporting entity’s effective tax rate reconciliation as well as additional disclosure on income taxes paid. This guidance will be effective for fiscal years beginning after December 15, 2018, including interim periods withinus on January 1, 2025. We do not expect the yearabove 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 adoption. Early adoption is permitted. Advanced Energy is currently assessingjudicial review. We do not expect the above disclosure requirement to materially impact our consolidated financial statements. We are evaluating the disclosure requirements and has not yet determinedchanges to our business processes, systems, and controls to support the impact ASU 2016-02 may have on its Consolidated Financial Statements.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
Cash paid to owners | $ | 18,512 | |
Cash acquired | (1,165 | ) | |
Total fair value of consideration transferred | $ | 17,347 |
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(inIn 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 estimated fair values of the assets acquired and liabilities assumed as of July 3, 2017:
Accounts receivable | $ | 1,930 | |
Inventories | 1,048 | ||
Income taxes receivable | 558 | ||
Other current assets | 47 | ||
Property and equipment | 256 | ||
Deferred income tax asset | 35 | ||
Accounts payable | (1,342 | ) | |
Income taxes payable | (34 | ) | |
Other accrued expenses | (719 | ) | |
Deferred income tax liabilities | (946 | ) | |
833 | |||
Amortizable intangible assets: | |||
Tradename | 182 | ||
Customer relationships | 1,595 | ||
Technology | 5,808 | ||
Total amortizable intangible assets | 7,585 | ||
Total identifiable net assets | 8,418 | ||
Goodwill | 8,929 | ||
Total fair value of consideration transferred | $ | 17,347 |
Amount | Amortization Method | Useful Life | ||||||
Tradename | $ | 182 | Straight-line | 5 | ||||
Customer relationships | 1,595 | Straight-line | 10 | |||||
Technology | 5,808 | Straight-line | 10 | |||||
$ | 7,585 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Sales | $ | — | $ | — | $ | — | $ | — | |||||||
Cost of sales | 944 | 3,095 | 47 | 672 | |||||||||||
Total operating income (including restructuring) | (441 | ) | (1,473 | ) | (1,587 | ) | (3,759 | ) | |||||||
Operating income (loss) from discontinued operations | (503 | ) | (1,622 | ) | 1,540 | 3,087 | |||||||||
Other income (loss) | (86 | ) | (14 | ) | 291 | 325 | |||||||||
Income (loss) from discontinued operations before income taxes | (589 | ) | (1,636 | ) | 1,831 | 3,412 | |||||||||
Provision (benefit) for income taxes | (659 | ) | (2,959 | ) | (512 | ) | (3,249 | ) | |||||||
Income from discontinued operations, net of income taxes | $ | 70 | $ | 1,323 | $ | 2,343 | $ | 6,661 |
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
Cash and cash equivalents | $ | 5,512 | $ | 7,564 | ||||
Accounts and other receivables, net | 1,372 | 1,670 | ||||||
Inventories | 886 | 167 | ||||||
Current assets of discontinued operations | $ | 7,770 | $ | 9,401 | ||||
Other assets | $ | 70 | $ | 70 | ||||
Deferred income tax assets | 15,560 | 15,560 | ||||||
Non-current assets of discontinued operations | $ | 15,630 | $ | 15,630 | ||||
Accounts payable and other accrued expenses | $ | 988 | $ | 3,684 | ||||
Accrued warranty | 8,675 | 9,254 | ||||||
Accrued restructuring | 4 | 481 | ||||||
Current liabilities of discontinued operations | $ | 9,667 | $ | 13,419 | ||||
Accrued warranty | $ | 16,054 | $ | 20,976 | ||||
Other liabilities | 233 | 181 | ||||||
Non-current liabilities of discontinued operations | $ | 16,287 | $ | 21,157 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Income from continuing operations before income taxes | $ | 51,826 | $ | 34,306 | $ | 139,570 | $ | 89,449 | |||||||
Provision (benefit) for income taxes | (31,968 | ) | 5,268 | (25,538 | ) | 12,937 | |||||||||
Effective tax rate | (61.7 | )% | 15.4 | % | (18.3 | )% | 14.5 | % |
| | | | | | | |
| | 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 for the three and nine months ended September 30, 2017 differ from the U.S. federal statutory rate of 35%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 the recognition of excess tax benefits attributable to stock based compensation as a component ofcredits, partially offset by net U.S. tax expense in accordance with ASU 2016-09 “Improvements to Employee Share-Based Payment Accounting” which was implemented in December 2016. In addition, after several attempts by the company to sell its remaining solar businesses, management elected to liquidate its U.S. solar business during the three months ended September 30, 2017 and has accordingly recognized a tax benefit of $40.2 million for a worthless stock tax deduction.
As of January 1, 2024, the benefitPillar 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 earnings in foreignimplementation 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 which are subjecteither will not have Pillar II enacted until after December 31, 2024 or satisfied the safe harbor test to lowerprevent any minimum tax rates.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"(“EPS”) is computed:
| | | | | | | |
| | 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. The computation of
See Note 16. Long-Term Debt for information regarding our diluted EPS is similar to the computation of our basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding (using the if-convertedConvertible Notes, Note Hedges, and treasury stock methods), if our outstanding stock options and restricted stock units had been converted to common shares, and if such assumed conversion is dilutive.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Income from continuing operations, net of income taxes | $ | 83,794 | $ | 29,038 | $ | 165,108 | $ | 76,512 | |||||||
Basic weighted-average common shares outstanding | 39,786 | 39,681 | 39,787 | 39,723 | |||||||||||
Assumed exercise of dilutive stock options and restricted stock units | 386 | 286 | 420 | 292 | |||||||||||
Diluted weighted-average common shares outstanding | 40,172 | 39,967 | 40,207 | 40,015 | |||||||||||
Continuing operations: | |||||||||||||||
Basic earnings per share | $ | 2.11 | $ | 0.73 | $ | 4.15 | $ | 1.93 | |||||||
Diluted earnings per share | $ | 2.09 | $ | 0.73 | $ | 4.11 | $ | 1.91 |
● | 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. |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||
Restricted stock units | — | 1 | 1 | 1 |
Share Repurchase
At March 31, 2024, the remaining amount authorized by the Board of Directors authorized a program to repurchase up to $150.0 million of our stock over a thirty-month period. In August 2017, we entered into a Fixed Dollar Share Repurchase Agreement to repurchase $25.0 million of shares of our common stock in (“the open market. A total of 351,292 shares of our common stock was repurchased under the Share Repurchase Agreement at an average price of $71.16 per share. AllBoard”) for future share repurchases was $199.2 million with no time limitation. There were executed in the open market, and no shares were repurchased from related parties. The $25.0 million share repurchase was recognized as a reduction to
September 30, 2017 | December 31, 2016 | ||||||||||||||
Cost | Fair Value | Cost | Fair Value | ||||||||||||
Total marketable securities | $ | 3,044 | $ | 3,046 | $ | 4,735 | $ | 4,737 |
NOTE 5. FAIR VALUE MEASUREMENTS
The following tables present information about the fair value hierarchy used to measure our marketable securities at fair value, on a recurring basis, as of September 30, 2017assets and December 31, 2016. We did not have any financial liabilities measured at fair value on a recurring basis, asbasis:
| | | | | | | | | | | | | | |
| | | | 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
September 30, 2017 | Level 1 | Level 2 | Level 3 | Total | |||||||||||
Total marketable securities | $ | — | $ | 3,046 | $ | — | $ | 3,046 | |||||||
December 31, 2016 | Level 1 | Level 2 | Level 3 | Total | |||||||||||
Total marketable securities | $ | — | $ | 4,737 | $ | — | $ | 4,737 |
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.rates impact our results of operations and cash flows. We attempt to mitigatemay manage these risks through the use of derivative financial instruments, primarily forward currency exchange rate contracts. During the three and nine months ended September 30, 2017 and 2016, we entered into currency exchange ratecontracts with banks. These forward contracts to attempt to mitigatemanage the exchange rate risk associated with intercompany debtassets and liabilities denominated in nonfunctional currencies. TheseTypically, we execute these derivative instruments arefor one-month periods and do not designateddesignate them as hedges for accounting purposes;hedges; however, they tend todo partially offset the economic fluctuations of certain of our intercompany debtassets 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 rate changes. These forward contracts are typically for one month periods. At September 30, 2017, we had one outstanding Euro forward contract.We did not have any currency exchange rate contracts outstanding as of December 31, 2016.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Loss from foreign currency exchange contracts | $ | (469 | ) | $ | — | $ | (1,096 | ) | $ | (569 | ) |
We have executed interest rate swap contracts that fix a foreign currency exchange rate forward contract at a cost of $3.5 million, to mitigate the exchange rate risk associated with a planned offshore acquisition which was not consummated. This derivative instrument was designated as a hedge for accounting purposes. The hedge expired upon maturity in the first quarter of 2017. The costportion of the forward contract isinterest 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 asin 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 componentresult of Other (expense) income, net in our Condensed Consolidated Statementusing 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 are valued at the lower of cost or market andnet realizable value, computed on a first-in, first-out (FIFO) basis. Components of Inventories areinventories were as follows:
September 30, | December 31, | ||||||
2017 | 2016 | ||||||
Parts and raw materials | $ | 52,991 | $ | 43,278 | |||
Work in process | 8,901 | 5,292 | |||||
Finished goods | 11,628 | 7,200 | |||||
Inventories | $ | 73,520 | $ | 55,770 |
| | | | | | |
| | 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, are as follows:
| | | | | | | | |
| | 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
September 30, | December 31, | ||||||
2017 | 2016 | ||||||
Buildings and land | $ | 1,656 | $ | 1,581 | |||
Machinery and equipment | 35,270 | 32,743 | |||||
Computer and communication equipment | 26,452 | 24,637 | |||||
Furniture and fixtures | 1,379 | 1,267 | |||||
Vehicles | 340 | 357 | |||||
Leasehold improvements | 16,538 | 15,546 | |||||
Construction in process | 1,072 | 644 | |||||
82,707 | 76,775 | ||||||
Less: Accumulated depreciation | (66,971 | ) | (63,438 | ) | |||
Property and equipment, net | $ | 15,736 | $ | 13,337 |
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(inIn thousands, except per share data)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Depreciation expense | $ | 1,333 | $ | 845 | $ | 3,616 | $ | 2,758 |
September 30, 2017 | Additions | Effect of Changes in Exchange Rates | December 31, 2016 | ||||||||||||
Goodwill | $ | 53,509 | $ | 8,929 | $ | 2,455 | $ | 42,125 |
Intangible assets subject to amortization consisted of the following as of September 30, 2017 and December 31, 2016:
September 30, 2017 | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||
Technology-based | $ | 18,537 | $ | (5,082 | ) | $ | 13,455 | ||||
Customer relationships | 29,865 | (10,012 | ) | 19,853 | |||||||
Trademarks and other | 2,601 | (1,474 | ) | 1,127 | |||||||
Total amortizable intangibles | $ | 51,003 | $ | (16,568 | ) | $ | 34,435 |
December 31, 2016 | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||
Technology-based | $ | 11,643 | $ | (3,673 | ) | $ | 7,970 | ||||
Customer relationships | 26,608 | (7,451 | ) | 19,157 | |||||||
Trademarks and other | 2,223 | (1,279 | ) | 944 | |||||||
Total amortizable intangibles | $ | 40,474 | $ | (12,403 | ) | $ | 28,071 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Amortization expense | $ | 1,240 | $ | 1,048 | $ | 3,176 | $ | 3,180 |
| | | | | | | | | | | |
| | 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 for each of the five years 2017 (remaining) through 2021 and thereafter 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
Year Ending December 31, | |||
2017 (remaining) | $ | 1,180 | |
2018 | 4,842 | ||
2019 | 4,825 | ||
2020 | 4,146 | ||
2021 | 4,043 | ||
Thereafter | 15,399 | ||
$ | 34,435 |
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:
| | | | | | | | | | | | |
|
| 2023 Plan |
| 2022 Plan |
| Other |
| Total | ||||
December 31, 2023 | | $ | 14,224 | | $ | 2,930 | | $ | 188 | | $ | 17,342 |
Costs incurred and charged to expense | | | (88) | | | 57 | | | — | | | (31) |
Costs paid or otherwise settled | | | (4,099) | | | (2,220) | | | (188) | | | (6,507) |
March 31, 2024 | | $ | 10,037 | | $ | 767 | | $ | — | | $ | 10,804 |
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 warranties, rangingwarranty provisions, which generally range from 12 to 36 months to 24 months followingafter shipment. TheWe record the estimated warranty obligations cost of warranties is recorded when revenue is recognized andwe recognize revenue. This estimate is based uponon historical experience by product configuration and geographic region.
Our estimated warranty obligations that are probable to result in future costs. The warranty accrualobligation is included in our Otherother accrued expenses in our balance sheet.Consolidated Balance Sheets. Changes in our product warranty accrualobligation were as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Balances at beginning of period | $ | 3,933 | $ | 1,933 | $ | 2,329 | $ | 1,633 | |||||||
Increases to accruals | 333 | 789 | 2,722 | 1,726 | |||||||||||
Warranty expenditures | (439 | ) | (197 | ) | (1,236 | ) | (811 | ) | |||||||
Effect of changes in exchange rates | 6 | (8 | ) | 18 | (31 | ) | |||||||||
Balances at end of period | $ | 3,833 | $ | 2,517 | $ | 3,833 | $ | 2,517 |
| | | |
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:
| | | |
Year Ending December 31, |
| | |
2024 (remaining) | | $ | 17,405 |
2025 | |
| 20,576 |
2026 | |
| 17,968 |
2027 | | | 15,529 |
2028 | | | 15,168 |
Thereafter | | | 60,360 |
Total lease payments | | | 147,006 |
Less: Interest | | | (30,104) |
Present value of lease liabilities | | $ | 116,902 |
In connectionaddition to the above, we have lease agreements with the HiTek acquisition on April 12, 2014, we acquired the HiTek Power Limited Pension Scheme ("HPLPS"). The HPLPS has been closed to new participants and additional accruals since 2006. In order to measure the expense and related benefit obligation, various assumptions are made including discount rates used to value the obligation, expected return on plan assets used to fund these expenses and estimated future inflation rates. These assumptions are based on historical experience as well as current facts and circumstances. An actuarial analysis is used to measure the expense and liability associated with pension benefits. We are committed to make annual fixedtotal payments of $0.9$36.3 million into the HPLPS through April 30,that commence on various dates in 2024 and then $1.8 million from May 1, 20242025 and extend through November 30, 2033.2040.
17
September 30, | December 31, | ||||||
2017 | 2016 | ||||||
Pension liability | $ | 20,353 | $ | 18,836 |
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(inIn thousands, except per share data)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net periodic (benefit) expense: | |||||||||||||||
Expected return on plan assets | $ | (128 | ) | $ | (121 | ) | $ | (394 | ) | $ | (385 | ) | |||
Interest cost | 242 | 235 | 742 | 747 | |||||||||||
Amortization of actuarial gains and losses | 64 | 80 | 197 | 255 | |||||||||||
Net periodic expense | $ | 178 | $ | 194 | $ | 545 | $ | 617 |
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 shareholders approved the Company's 20172023 Omnibus Incentive Plan ("(“the 2017 Plan"2023 Incentive Plan”) and all shares that were then available for issuance under the 2008 OmnibusEmployee Stock Purchase Plan (“ESPP”). The 2023 Incentive Plan are now available for issuancewas 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 2017 Plan. We have reserved a totalterms of 4,936,598 shares of Advanced Energy’s common stock for issuance under the 2017 Plan. respective plans.
The 20172023 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, (including deferred stock units), unrestricted stock, and dividend equivalent rights. Any of thecash incentive awards issued under the 2017 Plan may be issued as performance based awards.
The following table summarizes information related to alignour stock-based incentive compensation awards to the attainment of annual or long-term performance goals. As of September 30, 2017, there were 4,189,179 shares available for grant under the 2017 Plan.
| | |
| | March 31, 2024 |
Shares available for future issuance under the 2023 Incentive Plan | | 1,840 |
Shares available for future issuance under the ESPP | | 577 |
Stock-based Compensation Expense
We recognize stock-based compensation expense based on the fair value of the awards issued and the functional area of the employee receiving the award. During the three months ended March 31, 2024, stock-based compensation expense includes $1.8 million related to a modification for accounting purposes of prior awards. Stock-based compensation forwas as follows:
| | | | | | | |
| | Three Months Ended March 31, | | ||||
|
| 2024 |
| 2023 |
| ||
Stock-based compensation expense | | $ | 11,005 | | $ | 6,801 | |
Restricted Stock Units
Generally, we grant restricted stock units (“RSUs”) with a three year time-based vesting schedule. Certain RSUs contain performance-based or market-based vesting conditions in addition to the three and nine months ended September 30, 2017 and
18
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Stock-based compensation expense | $ | 3,453 | $ | 1,301 | $ | 10,707 | $ | 4,299 |
Three Months Ended September 30, 2017 | Nine Months Ended September 30, 2017 | ||||||||||||
Number of Options | Weighted-Average Exercise Price per Share | Number of Options | Weighted-Average Exercise Price per Share | ||||||||||
Options outstanding at beginning of period | 375 | $ | 17.95 | 474 | $ | 17.47 | |||||||
Options exercised | (20 | ) | $ | 14.58 | (114 | ) | $ | 15.35 | |||||
Options forfeited | — | $ | — | (5 | ) | $ | 18.19 | ||||||
Options outstanding at end of period | 355 | $ | 18.14 | 355 | $ | 18.14 |
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(inIn thousands, except per share data)
Changes in our RSUs were as follows:
Three Months Ended September 30, 2017 | Nine Months Ended September 30, 2017 | ||||||||||||
Number of RSUs | Weighted-Average Grant Date Fair Value | Number of RSUs | Weighted- Average Grant Date Fair Value | ||||||||||
RSUs outstanding at beginning of period | 411 | $ | 49.56 | 354 | $ | 29.60 | |||||||
RSUs granted | 2 | $ | 74.56 | 250 | $ | 63.59 | |||||||
RSUs vested | (20 | ) | $ | 28.99 | (205 | ) | $ | 30.60 | |||||
RSUs forfeited | (1 | ) | $ | 34.12 | (7 | ) | $ | 31.73 | |||||
RSUs outstanding at end of period | 392 | $ | 50.71 | 392 | $ | 50.71 |
| | | | | |
| | Three Months Ended March 31, 2024 | |||
|
| |
| Weighted- | |
| | | | Average | |
| | Number of | | Grant Date | |
| | RSUs | | Fair Value | |
RSUs outstanding at beginning of period |
| 917 | | $ | 85.96 |
RSUs granted |
| 502 | | $ | 105.06 |
RSUs vested |
| (171) | | $ | 89.48 |
RSUs forfeited |
| (73) | | $ | 74.93 |
RSUs outstanding at end of period |
| 1,175 | | $ | 94.29 |
Stock Options
Generally, we grant stock option awards with an exercise price equal to the market price of our stock at the date of grant and with either a three or four-year vesting schedule or performance-based vesting. Stock option awards generally have a term of ten years.
Changes in our stock options were as follows:
| | | | | |
| | Three Months Ended March 31, 2024 | |||
|
| |
| Weighted- | |
| | | | Average | |
| | Number of | | Exercise Price | |
| | Options | | per Share | |
Options outstanding at beginning of period |
| 89 | | $ | 76.69 |
Options exercised |
| (2) | | $ | 26.32 |
Options outstanding at end of period |
| 87 | | $ | 78.14 |
NOTE 15. COMMITMENTS AND CONTINGENCIES
We are involved in disputes and legal actions arising in the normal course of our business. ThereWhile we currently believe that the amount of any ultimate loss would not be material to our financial position, the outcome of these actions is inherently difficult to predict. In the event of an adverse outcome, the ultimate loss could have been noa material developmentsadverse effect on our financial position or reported results of operations. An unfavorable decision in intellectual property litigation also could require material changes in production processes and products or result in our inability to ship products or components found to have violated third party intellectual property rights. We accrue loss contingencies in connection with our commitments and contingencies, including litigation, when it is probable that a loss has occurred, and the amount of such loss can be reasonably estimated. We are not currently a party to any legal proceedingsaction that we believe would reasonably have a material adverse impact on our business, financial condition, results of operations or cash flows.
We maintain defined benefit pension plans for certain of our non-U.S. employees, including the United Kingdom. In light of the recent United Kingdom’s High Court ruling in the case of Virgin Media Ltd v. NTL Pension Trustees II Ltd & Ors, which is scheduled for appeal in June 2024, we are involved during the nine months ended September 30, 2017.
19
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Sales to related parties | $ | 648 | $ | 673 | $ | 1,255 | $ | 896 | |||||||
Number of related party customers | 1 | 2 | 1 | 3 |
September 30, | December 31, | ||||||
2017 | 2016 | ||||||
Accounts receivable from related parties | $ | 277 | $ | — | |||
Number of related party customers | 1 | — |
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(inIn thousands, except per share data)
NOTE 16. LONG-TERM DEBT
Long-term debt on our Consolidated Balance Sheets consists of sales, by customers that individually accounted for 10% or morethe following:
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2024 |
| 2023 | ||
Convertible Notes due 2028 | | $ | 575,000 | | $ | 575,000 |
Term Loan Facility due 2026 | | | 350,000 | | | 355,000 |
Gross long-term debt, including current maturities | | | 925,000 | | | 930,000 |
Less: debt discount | | | (13,505) | | | (14,321) |
Net long-term debt, including current maturities | | | 911,495 | | | 915,679 |
Less: current maturities | | | (20,000) | | | (20,000) |
Net long-term debt | | $ | 891,495 | | $ | 895,679 |
For all periods presented, we were in compliance with the covenants under all debt agreements. Contractual maturities of our sales for the three and nine months endedgross long-term debt, including current maturities, are as follows:
| | | |
Year Ending December 31, |
| | |
2024 (remaining) | | $ | 15,000 |
2025 | | | 20,000 |
2026 | | | 315,000 |
2027 | | | — |
2028 | | | 575,000 |
Total | | $ | 925,000 |
| | | | | |
|
| March 31, 2024 | |||
| | Balance |
| Interest | |
Convertible Notes | | $ | 575,000 | | 2.50% |
Term Loan Facility at fixed interest rate due to interest rate swap | | | 216,344 | | 1.17% |
Term Loan Facility at variable interest rate | | | 133,656 | | 6.18% |
Total borrowings | | $ | 925,000 | | |
The interest rate swap contracts expire on September 30, 2017 and 2016:
Three Months Ended September 30, | |||||||||||||
2017 | % of Total Sales | 2016 | % of Total Sales | ||||||||||
Applied Materials, Inc. | $ | 50,078 | 28.4 | % | $ | 45,806 | 36.2 | % | |||||
LAM Research | 46,315 | 26.2 | % | 24,305 | 19.2 | % | |||||||
Nine Months Ended September 30, | |||||||||||||
2017 | % of Total Sales | 2016 | % of Total Sales | ||||||||||
Applied Materials, Inc. | $ | 165,239 | 33.6 | % | $ | 118,364 | 34.0 | % | |||||
LAM Research | 114,325 | 23.2 | % | 73,319 | 21.0 | % |
September 30, | December 31, | ||||||||||||
2017 | 2016 | ||||||||||||
Applied Materials, Inc. | $ | 32,681 | 43.6 | % | $ | 31,078 | 41.1 | % | |||||
LAM Research | 3,550 | 4.7 | % | 14,317 | 18.9 | % |
The following table summarizes interest expense related to our debt:
| | | | | | | |
| | Three Months Ended March 31, | | ||||
|
| 2024 |
| 2023 |
| ||
Interest expense | | $ | 6,302 | | $ | 2,590 | |
Amortization of debt issuance costs | | | 820 | | | 133 | |
Total interest expense related to debt | | $ | 7,122 | | $ | 2,723 | |
Convertible Senior Notes due 2028
On September 12, 2023, we completed a private, unregistered offering of BA$575.0 million aggregate principal amount of 2.50% convertible senior notes (“Convertible Notes”).
20
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands, except per share data)
The $562.6 million remaining outstanding principal amount of the 2.50% Convertible Notes, net of unamortized issuance costs, continues to be classified as long-term debt as none of the conversion triggers occurred as of March 31, 2024. The redemption price is 100% of the principal amount plus accrued and unpaid interest. The Convertible Notes mature on September 15, 2028, unless earlier repurchased, redeemed, or converted. Interest is payable semi-annually in arrears in March and September.
Concurrent with the Convertible Notes issuance, we entered into hedges and sold warrants with respect to our common stock. In combination, the hedges and warrants synthetically increase the initial conversion price on the Convertible Notes from $137.46 to $179.76, reducing the potential dilutive effect.
Credit Agreement
Our credit agreement dated as of September 10, 2019, as amended (the “Credit Agreement”) consists of a senior unsecured term loan facility (“Term Loan Facility”) and a senior unsecured revolving facility (“Revolving Facility”). Both mature on September 9, 2026.
On March 31, 2023, we executed agreements pursuant to a Security Agreement.the Credit Agreement to transition the benchmark interest rate from LIBOR to SOFR. The Loan Agreement requires usimpact of this transition was not material to pay certain feesour consolidated financial statements.
On September 7, 2023, we entered into an additional amendment to the lenders. DuringCredit Agreement to amend certain definitions, covenants, and events of default.
The following table summarizes our availability to withdraw on the nine months ended September 30, 2017,Revolving Facility:
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2024 |
| 2023 | ||
Available capacity on Revolving Facility | | $ | 200,000 | | $ | 200,000 |
As part of our available capacity on the Revolving Facility, prior to the maturity date of the Credit Agreement, we had less than $0.1may request an increase to the financing commitments in either the Term Loan Facility or Revolving Facility by an aggregate amount not to exceed $115.0 million. Any requested increase is subject to lender approval.
We use level 2 measurements to estimate the fair value of our debt. As of March 31, 2024, we estimate the fair value of our Convertible Notes to be $585.9 million, and the par value of expenses related to interest and unused line of credit fees. Our credit availability under the Term Loan Agreement was $100.0 million at September 30, 2017.Facility approximates its fair value.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This management discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the Securities and Exchange Commission on February 20, 2024 (“2023 Form 10-K”).
Special Note on Forward-Looking Statements
This Quarterly Report on Form 10-Q contains, in addition to historical information, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.amended (the “Exchange Act”). Statements in this report that are not historical information are forward-looking statements. For example, statements relating to our beliefs, expectations, and plans are forward-looking statements, as are statements that certain actions, conditions, events, or circumstances will continue. The inclusion of words such as "anticipate," "expect," "estimate," "can," "may," "might," "continue," "enables," "plan," "intend," "should," "could," "would," "likely," "potential," or "believe," as well as statements that events or circumstances "will" occur or continue,“anticipate,” “expect,” “estimate,” “can,” “may,” “might,” “continue,” “enable,” “plan,” “intend,” “should,” “could,” “would,” “will,” “likely,” “potential,” “believe,” and similar expressions and the negative versions thereof indicate forward-looking statements; however, not all forward-looking statements may contain such words or expressions. These forward-looking statements are based upon information available as of the date of this report and management’s current estimates, forecasts, and assumptions. Although we believe that our expectations reflected in or suggested by these forward-looking statements are reasonable, we may not achieve the results, performance, plans, or objectives expressed or implied by such forward-looking statements. Forward-looking statements involve risks and uncertainties, which are difficult to predict and many of which are beyond our control. Therefore, actual
Risks and uncertainties to which our forward-looking statements are subject include:
● | volatility and business fluctuations in the industries in which we compete; |
● | our ability to achieve design wins with new and existing customers; |
● | our ability to accurately forecast and meet customer demand; |
● | risks related to global economic conditions, including, but not limited to, the impact of escalating global conflicts on macroeconomic conditions, economic uncertainty, market volatility, rising interest rates, inflation, or recession; |
● | risks inherent in our international operations, including the effect of trade and export controls, political and geographical risks, fluctuations in currency exchange rates; |
● | customer price sensitivity; |
● | concentration of our customer base; |
● | risks associated with breach of our information security measures; |
● | our loss of or inability to attract and retain key personnel; |
● | disruptions to our manufacturing operations or those of our customers or suppliers; |
● | risks associated with our manufacturing footprint optimization and movement of manufacturing locations for certain products; |
● | our ability to successfully identify, close, integrate and realize anticipated benefits from our acquisitions; |
● | quality issues or unanticipated costs in fulfilling our warranty obligations (including our discontinued solar inverter product line), and adequacy of our warranty reserves; |
● | our ability to enforce, protect and maintain our proprietary technology and intellectual property rights; |
● | our ability to achieve cost savings, profitability, and gross margin goals; |
22
● | changes to tax laws and regulations or our tax rates; |
● | changes in federal, state, local and foreign regulations, including with respect to privacy and data protection, and environmental regulation; |
● | effect of our debt obligations and restrictive covenants on our ability to operate our business; |
● | risks related to our unfunded pension obligations; |
● | restructuring and severance activities; |
● | legal matters, claims, and proceedings; |
● | our estimates of the fair value of intangible assets; and |
● | the potential impact of dilution related to our convertible debt, hedge, and warrant transactions. |
Actual results could differ materially and adversely from those expressed in any forward-looking statements. Neither we nor any other person assumes responsibility for the accuracy and completeness of such forward-looking statements, and readers are cautioned not to place undue reliance on forward-looking statements.
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Advanced Energy 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, electrical power into various usable forms. Our power conversion products refine, modify and controlmodify the raw electrical power coming from aeither the utility or the building facility and convert it into various types of highly controllable, usable power that is predictable, repeatable, and customizable. Ourcustomizable 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.
We are organized on a global, functional basis and operate as a single segment of power electronics conversion products. Within this segment, our products are sold into the Semiconductor Equipment, Industrial and Medical, Data Center Computing, and Telecom and Networking markets.
Product and Services
Our precision power products and solutions are designed to enable new process technologies, improve productivity, lower the cost of ownership, and provide critical power capabilities for our customers. These products are designed to meet our customers’ demanding requirements in efficiency, flexibility, performance, and reliability. The majority of Advanced Energy’s products are capable of meeting various customer requirements. We also provide repair and maintenance services for our products.
Our plasma power products offer solutions to enable innovation in complex semiconductor and thin film manufacturingplasma processes such as plasma enhanced chemicaldry etch and physical depositiondeposition. Our broad portfolio of high and etch for variouslow voltage power products are used in a wide range of applications, such as semiconductor equipment, industrial production, medical and industrial products, industrial thermal applications for materiallife science equipment, data center computing, networking, and chemical processes, and specialty power for critical industrial applications.telecommunications. We also supply thermalrelated sensing, controls, and instrumentation products primarily for advanced measurement and calibration of power and temperature control in thesefor multiple industrial markets. Our network of global service support centers provides local repair and field service capability in key regions as well as providesservices, calibration, conversions, upgrades, refurbishments, and refurbishment services, and sales of used equipment to businessescompanies using our products.
Our service group offers warranty and after-market repair services, providing our customers with preventive maintenance opportunities to support a lower cost of ownership and higher utilization for their capital equipment. We offer comprehensive repair service and customer support through our worldwide support organization. Support services include warranty and non-warranty repair services, calibration, upgrades, and refurbishments of our products.
End Markets Summary
The demand environment in each of our markets is impacted by macroeconomic conditions, various market trends, customer buying patterns, design wins, and other factors. Although we are currently experiencing a lower demand environment, we continue to believe that usethe long-term market growth drivers support our long-term strategy, research and development efforts, and capital investments. However, in the short-term it is unclear how certain macroeconomic conditions, including higher interest rates impacting end customers’ capital investment and customer buying patterns, will affect customer demand and our revenue.
Semiconductor Equipment Market
In the first quarter of 2024, the ongoing Semiconductor Equipment market downturn continued to limit our business. The market entered a downturn beginning in the fourth quarter of 2022 due to a combination of unfavorable macroeconomic conditions, overcapacity in the market for memory devices, prolonged weakness in demand for consumer electronics, built up semiconductor inventory consumption resulting in falling manufacturing utilization, and U.S. export restrictions to China for certain semiconductor equipment.
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Although we expect these factors to continue to impact our business levels in the near term, we believe the long-term growth drivers for demand in this market will resume due to the need for more manufacturing capacity to support expected demand growth for semiconductor devices and related capital equipment.
Industrial and Medical Market
Following a year of record revenue in the Industrial and Medical market, starting in the second half of 2023, we began to experience the impact of weaker macroeconomic conditions on our demand. In addition, in the first quarter of 2024, we saw a rebalancing of customers’ inventories as a result of fulfilling outstanding backlog and shorter lead times for our products. The markets we serve include:
Data Center Computing Market
While there is increased demand for high voltageend computing applications, such as ion implant, wafer inspectionartificial intelligence, continued slow demand in the enterprise server and metrology.
Telecom and Networking Market
Starting in 2023, leading companies in this market reported weak demand, and the slower demand environment continued in 2024. In addition, we experienced the impact of productscustomers rebalancing inventories as a result of fulfilling outstanding backlog and shorter lead times for Thin Films Industrial Power and Specialty Power applications.
Results of Continuing Operations
The analysis presented below is organized to provide the information we believe will be helpful for understanding of our historical performance and relevant trends going forward. This discussionforward and should be read in conjunction with our Unaudited Condensed“Unaudited Consolidated Financial StatementsStatements” in Part I, Item 1 of this report, including the notes thereto. Also included in the following analysis are measures that are not prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP.GAAP”). A reconciliation of the non-GAAP measures to U.S. GAAP is provided below.
The following table sets forth certain data and the percentage of sales each item reflects, derived from our Unaudited Condensed Consolidated Statements of Operations for the periods indicated:
| | | | | | | | | | | | |
| | Three Months Ended March 31, |
| |||||||||
| | 2024 | | | 2023 | | ||||||
Revenue |
| $ | 327,475 | | 100.0 | % | | $ | 425,040 | | 100.0 | % |
Gross profit | |
| 112,829 | | 34.5 | | |
| 155,111 | | 36.5 | |
Operating expenses | |
| 112,152 | | 34.2 | | |
| 115,073 | | 27.1 | |
Operating income from continuing operations | |
| 677 | | 0.2 | | |
| 40,038 | | 9.4 | |
Interest income | | | 12,645 | | 3.9 | | | | 3,585 | | 0.8 | |
Interest expense | | | (7,127) | | (2.2) | | | | (2,730) | | (0.6) | |
Other income (expense), net | |
| 1,379 | | 0.4 | | |
| (1,405) | | (0.3) | |
Income from continuing operations, before income tax | |
| 7,574 | | 2.3 | | |
| 39,488 | | 9.3 | |
Income tax provision | |
| 1,787 | | 0.5 | | |
| 7,736 | | 1.8 | |
Income from continuing operations | | $ | 5,787 | | 1.8 | % | | $ | 31,752 | | 7.5 | % |
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Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||
Sales | $ | 176,575 | 100.0 | % | $ | 126,552 | 100.0 | % | $ | 491,798 | 100.0 | % | $ | 348,361 | 100.0 | % | |||||||||||
Gross profit | 92,234 | 52.2 | 66,123 | 52.2 | 258,206 | 52.5 | 181,629 | 52.1 | |||||||||||||||||||
Operating expenses | 40,561 | 23.0 | 31,762 | 25.1 | 115,498 | 23.5 | 93,318 | 26.8 | |||||||||||||||||||
Operating income from continuing operations | 51,673 | 29.2 | 34,361 | 27.1 | 142,708 | 29.0 | 88,311 | 25.3 | |||||||||||||||||||
Other income (expense), net | 153 | 0.1 | (55 | ) | — | (3,138 | ) | (0.6 | ) | 1,138 | 0.3 | ||||||||||||||||
Income from continuing operations before income taxes | 51,826 | 29.3 | 34,306 | 27.1 | 139,570 | 28.4 | 89,449 | 25.6 | |||||||||||||||||||
Provision for income taxes | (31,968 | ) | (18.2 | ) | 5,268 | 4.2 | (25,538 | ) | (5.2 | ) | 12,937 | 3.7 | |||||||||||||||
Income from continuing operations, net of income taxes | $ | 83,794 | 47.5 | % | $ | 29,038 | 22.9 | % | $ | 165,108 | 33.6 | % | $ | 76,512 | 21.9 | % |
Revenue
The following tables set forthsummarize net sales and percentagepercentages of net sales, by product group formarkets (in thousands):
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | | Change 2024 v. 2023 | | ||||||||||||
|
| 2024 | |
| 2023 |
|
| Dollar |
| Percent | | |||||||
Semiconductor Equipment | | $ | 179,903 |
| 54.9 | % | | $ | 194,209 |
| 45.7 | % | | $ | (14,306) |
| (7.4) | % |
Industrial and Medical | |
| 83,418 | | 25.5 | | |
| 123,020 | | 28.9 | | |
| (39,602) |
| (32.2) | % |
Data Center Computing | | | 41,902 | | 12.8 | | | | 59,659 | | 14.0 | | | | (17,757) | | (29.8) | % |
Telecom and Networking | |
| 22,252 | | 6.8 | | |
| 48,152 | | 11.3 | | |
| (25,900) |
| (53.8) | % |
Total | | $ | 327,475 | | 100.0 | % | | $ | 425,040 | | 100.0 | % | | $ | (97,565) |
| (23.0) | % |
| | | | | | | | | | | | | | | | | | |
Total revenue decreased from the threesame period in the prior year due to a cyclical downturn in the semiconductor and nine months ended September 30, 2017data center industries as well as lower demand within our Industrial and 2016:
Three Months Ended September 30, | ||||||||||||||||||||
2017 | % of Total Sales | 2016 | % of Total Sales | Increase/ (Decrease) | Percent Change | |||||||||||||||
Semiconductor capital equipment market | $ | 116,468 | 66.0 | % | $ | 81,157 | 64.1 | % | $ | 35,311 | 43.5 | % | ||||||||
Industrial power capital equipment market | 35,895 | 20.3 | 26,493 | 20.9 | 9,402 | 35.5 | % | |||||||||||||
Global service | 24,212 | 13.7 | 18,902 | 15.0 | 5,310 | 28.1 | % | |||||||||||||
Total sales | $ | 176,575 | 100.0 | % | $ | 126,552 | 100.0 | % | $ | 50,023 | 39.5 | % | ||||||||
Nine Months Ended September 30, | ||||||||||||||||||||
2017 | % of Total Sales | 2016 | % of Total Sales | Increase/ (Decrease) | Percent Change | |||||||||||||||
Semiconductor capital equipment market | $ | 338,136 | 68.8 | % | $ | 229,486 | 65.9 | % | $ | 108,650 | 47.3 | % | ||||||||
Industrial power capital equipment market | 86,342 | 17.6 | 65,209 | 18.7 | 21,133 | 32.4 | % | |||||||||||||
Global service | 67,320 | 13.6 | 53,666 | 15.4 | 13,654 | 25.4 | % | |||||||||||||
Total sales | $ | 491,798 | 100.0 | % | $ | 348,361 | 100.0 | % | $ | 143,437 | 41.2 | % |
Revenue by Market
| | | | | | | | | | | | |
| | Three Months Ended March 31, | | Change 2024 v. 2023 | | |||||||
|
| 2024 |
| 2023 |
| Dollar |
| Percent | | |||
| | (in thousands) | ||||||||||
Semiconductor Equipment | | $ | 179,903 | | $ | 194,209 | | $ | (14,306) |
| (7.4) | % |
| | | | | | | | | | | | |
The increasedecrease in sales for both periodsSemiconductor Equipment revenue was primarily due to demandan ongoing cyclical downturn in the semiconductor market driven by accelerated demandindustry.
| | | | | | | | | | | | |
| | Three Months Ended March 31, | | Change 2024 v. 2023 | | |||||||
|
| 2024 |
| 2023 |
| Dollar |
| Percent | | |||
| | (in thousands) | ||||||||||
Industrial and Medical | | $ | 83,418 | | $ | 123,020 | | $ | (39,602) |
| (32.2) | % |
| | | | | | | | | | | | |
The decrease in Industrial and strength in etch applications, as well continued growth in global services. Total sales from Excelsys, which was acquired July 3, 2017, was $4.0 million for the three months ended September 30, 2017.
| | | | | | | | | | | | |
| | Three Months Ended March 31, | | Change 2024 v. 2023 | | |||||||
|
| 2024 |
| 2023 |
| Dollar |
| Percent | | |||
| | (in thousands) | ||||||||||
Data Center Computing | | $ | 41,902 | | $ | 59,659 | | $ | (17,757) |
| (29.8) | % |
| | | | | | | | | | | | |
The decrease in advanced coating applications. The industrial markets we serve include solar panel, flat panel display, power control modules, data storage, architectural glass, high voltage and other industrial manufacturing markets. Our customers in these markets are primarily global and regional original equipment manufacturers. For the three months ended September 30, 2017, sales from ExcelsysData Center Computing revenue was $4.0 million.
| | | | | | | | | | | | |
| | Three Months Ended March 31, | | Change 2024 v. 2023 | | |||||||
|
| 2024 |
| 2023 |
| Dollar |
| Percent | | |||
| | (in thousands) | ||||||||||
Telecom and Networking | | $ | 22,252 | | $ | 48,152 | | $ | (25,900) |
| (53.8) | % |
| | | | | | | | | | | | |
The decrease in Telecom and Networking revenue was due to a slowing demand environment, reduced capital spend, and inventory rebalancing from our customers following a strong 2023.
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Gross Profit and Gross Margin
| | | | | | | | | | | | |
| | Three Months Ended March 31, | | Change 2024 v. 2023 | | |||||||
|
| 2024 |
| 2023 |
| Dollar |
| Percent | | |||
| | (in thousands) | ||||||||||
Gross profit | | $ | 112,829 | | $ | 155,111 | | $ | (42,282) |
| (27.3) | % |
Gross margin | | | 34.5 | % | | 36.5 | % | | | | | |
The decrease in gross profit was largely due to the three months ended June 30, 2017. Global service sales for the nine months ending September 30, 2017 increased $13.7 million, or 25.4%, as compared to the same perioddecline in 2016. The increaserevenue and higher operating costs based on investments made in global service sales in all periods is due to share gains and growth in the installed base.
Operating expenses increased $8.8 million to $40.6 million, or 23.0% of sales, for the three months ended September 30, 2017 from $31.8 million, or 25.1% of sales, for the same period in 2016. Operating expenses increased $22.2 million to $115.5 million, or 23.5% of sales, for the nine months ended September 30, 2017, from $93.3 million, or 26.8% of sales, for the same period in 2016. For the three months ended September 30, 2017 operating expenses from Excelsys was $1.6 million which included $0.2 million in amortization for purchased intangibles.
The following table summarizes our operating expenses (in thousands) and as a percentage of sales for the periods indicated:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||
Research and development | $ | 14,629 | 8.3 | % | $ | 11,293 | 8.9 | % | $ | 41,742 | 8.5 | % | $ | 33,324 | 9.6 | % | |||||||||||
Selling, general, and administrative | 24,692 | 14.0 | 19,421 | 15.4 | 70,580 | 14.4 | 56,814 | 16.3 | |||||||||||||||||||
Amortization of intangible assets | 1,240 | 0.7 | 1,048 | 0.8 | 3,176 | 0.6 | 3,180 | 0.9 | |||||||||||||||||||
Total operating expenses | $ | 40,561 | 23.0 | % | $ | 31,762 | 25.1 | % | $ | 115,498 | 23.5 | % | $ | 93,318 | 26.8 | % |
| | | | | | | | | | | | |
| | Three Months Ended March 31, | | |||||||||
|
| 2024 | |
| 2023 | | ||||||
Research and development | | $ | 49,836 |
| 15.2 | % |
| $ | 51,610 |
| 12.1 | % |
Selling, general, and administrative | |
| 55,124 | | 16.8 | | |
| 55,358 | | 13.0 | |
Amortization of intangible assets | | | 6,947 | | 2.1 | | | | 7,062 | | 1.7 | |
Restructuring, asset impairments, and other charges | |
| 245 | | 0.1 | | |
| 1,043 | | 0.2 | |
Total operating expenses | | $ | 112,152 | | 34.2 | % |
| $ | 115,073 | | 27.0 | % |
Research and Development
| | | | | | | | | | | | |
| | Three Months Ended March 31, | | Change 2024 v. 2023 | | |||||||
|
| 2024 |
| 2023 |
| Dollar |
| Percent | | |||
| | (in thousands) | ||||||||||
Research and development | | $ | 49,836 | | $ | 51,610 | | $ | (1,774) |
| (3.4) | % |
| | | | | | | | | | | | |
The increasedecrease in research and development expense iswas primarily driven by $1.3 million in lower program and material costs. In addition, we had a $0.4 million decline in compensation costs due to our investment in new programs to maintainlower headcount and increase our technological leadership and provide solutions to our customers' evolving needs. For the three months ended September 30, 2017 research and development expense from Excelsys was $0.5 million.
Selling, General and Administrative
| | | | | | | | | | | | |
| | Three Months Ended March 31, | | Change 2024 v. 2023 | | |||||||
|
| 2024 |
| 2023 |
| Dollar |
| Percent | | |||
| | (in thousands) | ||||||||||
Selling, general, and administrative | | $ | 55,124 | | $ | 55,358 | | $ | (234) |
| (0.4) | % |
| | | | | | | | | | | | |
The increasedecrease in selling, general, and administrative was primarily related to actions taken to control costs, including headcount reduction and lower variable employee compensation, partially offset by higher stock-based compensation cost.
Amortization of Intangibles Assets
| | | | | | | | | | | | |
| | Three Months Ended March 31, | | Change 2024 v. 2023 | | |||||||
|
| 2024 |
| 2023 |
| Dollar |
| Percent | | |||
| | (in thousands) | ||||||||||
Amortization of intangible assets | | $ | 6,947 | | $ | 7,062 | | $ | (115) |
| (1.6) | % |
| | | | | | | | | | | | |
Amortization expense remained flat as we did not acquire any new intangible assets.
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Restructuring, Asset Impairments and Other Charges
| | | | | | | | | | | | |
| | Three Months Ended March 31, | | Change 2024 v. 2023 | | |||||||
|
| 2024 |
| 2023 |
| Dollar |
| Percent | | |||
| | (in thousands) | ||||||||||
Restructuring, asset impairments, and other charges | | $ | 245 | | $ | 1,043 | | $ | (798) |
| (76.5) | % |
| | | | | | | | | | | | |
The decrease in both periodsrestructuring, asset impairments, and other charges is primarily driven by timing of our restructuring plan decisions. We have two restructuring plans in process, including the following:
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 of 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 stock based compensation, performance bonus,volume factories, reducing redundancies, and lowering our cost structure. We anticipate the
2022 Plan will be substantially completed by the end of 2024.
For additional information, see Note 11. Restructuring, Asset Impairments, and Other Charges in Part I, Item 1 “Unaudited Consolidated Financial Statements.”
Interest Income, Interest Expense, and Other Income (Expenses), net
| | | | | | | | | | | | |
| | Three Months Ended March 31, | | Change 2024 v. 2023 | | |||||||
|
| 2024 |
| 2023 |
| Dollar |
| Percent | | |||
| | (in thousands) | ||||||||||
Interest income | | $ | 12,645 | | $ | 3,585 | | $ | 9,060 |
| 252.7 | % |
Interest expense | | $ | (7,127) | | $ | (2,730) | | $ | (4,397) |
| 161.1 | % |
Other income (expense), net | | $ | 1,379 | | $ | (1,405) | | $ | 2,784 |
| 198.1 | % |
| | | | | | | | | | | | |
We experienced an increase in interest income on higher cash balances, due in part to proceeds from issuance of the Convertible Notes in the third quarter of 2023, ability to concentrate cash in investment accounts, and higher short term market interest rates.
Interest expense increased headcount and payroll, and costsdue to interest associated with business development. For the three months endedConvertible Notes and a higher interest rate on the portion of our Term Loan Facility subject to a variable interest rate. The interest rate swap contracts expire on September 30, 2017 selling, general and administrative expense from Excelsys was $1.1 million.
Other income (expense), net consists primarily of interest income and expense, foreign exchange gains and losses, gains and losses on sales
of fixed assets, and other miscellaneous items. OtherThe increase in income (expense), netbetween periods was primarily a gainresult of $0.2 millionhigher
unrealized foreign exchange gains.
See Note 16. Long-Term Debt in Part I, Item 1 “Unaudited Consolidated Financial Statements” for information regarding our Convertible Notes.
28
Income Tax Provision (Benefit)
The following table summarizes tax provision (in thousands) 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 September 30, 2017, as compared to a loss of $0.1 million for the same period in 2016. Other income (expense), net was a loss of $(3.1) million for the nine months ended September 30, 2017, as compared to a gain of $1.1 million for the same period in 2016. The loss for the nine months ended September 30, 2017 was primarily the cost of a foreign currency exchange rate forward contract that we entered into for a potential offshore acquisition that we decided not to consummate. See Note 7. Derivative Financial Instruments in Part I, Item 1 "Unaudited Condensed Consolidated Financial Statements" contained herein.
As of January 1, 2024, the Pillar II minimum global effective rates for the three and nine months ended September 30, 2017 were favorably impactedtax 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 of ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payments, and the related impact from thefor each country varies. To date, we have determined that there was an immaterial global minimum tax benefit derived from the exercise of employee equity incentive instruments.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Sales | $ | — | $ | — | $ | — | $ | — | |||||||
Cost of sales | 944 | 3,095 | 47 | 672 | |||||||||||
Total operating expenses | (441 | ) | (1,473 | ) | (1,587 | ) | (3,759 | ) | |||||||
Operating income from discontinued operations | (503 | ) | (1,622 | ) | 1,540 | 3,087 | |||||||||
Other income | (86 | ) | (14 | ) | 291 | 325 | |||||||||
Income from discontinued operations before income taxes | (589 | ) | (1,636 | ) | 1,831 | 3,412 | |||||||||
Provision for income taxes | (659 | ) | (2,959 | ) | (512 | ) | (3,249 | ) | |||||||
Income from discontinued operations, net of income taxes | $ | 70 | $ | 1,323 | $ | 2,343 | $ | 6,661 |
Non-GAAP Results
Management uses non-GAAP operating income and non-GAAP EPSearnings per share (“EPS”) to evaluate business performance without the impacts of certain non-cash charges and other charges which are not part of our usual operations. We use these non-GAAP measures to assess performance against business objectives, and make business decisions, including developing budgets and forecasting future periods. In addition, management'smanagement’s incentive plans include these non-GAAP measures as criteria for achievements. These non-GAAP measures are not prepared in accordance with U.S. GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. However, we believe these non-GAAP measures provide additional information that enables readers to evaluate our business from the perspective of management. The presentation of this additional information should not be considered a substitute for results prepared in accordance with U.S. GAAP.
29
The non-GAAP results presented below exclude the impact of non-cash related charges, such as thestock-based compensation, amortization of intangible assets, stock-based compensation, and restructuring charges, as welllong-term unrealized foreign exchange gains and losses. In addition, we exclude discontinued operations and other non-recurring items such as acquisition-related costs, facility expansion and other nonrecurringrelated costs, and restructuring expenses, as they are not indicative of future performance. 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.
| | | | | | | |
Reconciliation of non-GAAP measure | | | | | | | |
Operating expenses and operating income from continuing | | Three Months Ended March 31, | | ||||
operations, excluding certain items (in thousands) |
| 2024 |
| 2023 |
| ||
Gross profit from continuing operations, as reported | | $ | 112,829 | | $ | 155,111 | |
Adjustments to gross profit: | |
|
| |
|
| |
Stock-based compensation | |
| 829 | |
| 383 | |
Facility expansion, relocation costs and other | |
| 1,308 | |
| 957 | |
Acquisition-related costs | | | 44 | | | 53 | |
Non-GAAP gross profit | |
| 115,010 | |
| 156,504 | |
Non-GAAP gross margin | | | 35.1% | |
| 36.8% | |
| | | | | | | |
Operating expenses from continuing operations, as reported | |
| 112,152 | |
| 115,073 | |
Adjustments: | |
|
| |
|
| |
Amortization of intangible assets | |
| (6,947) | |
| (7,062) | |
Stock-based compensation | |
| (10,176) | |
| (6,418) | |
Acquisition-related costs | |
| (1,266) | |
| (878) | |
Restructuring, asset impairments, and other charges | |
| (245) | |
| (1,043) | |
Non-GAAP operating expenses | |
| 93,518 | |
| 99,672 | |
Non-GAAP operating income | | $ | 21,492 | | $ | 56,832 | |
Non-GAAP operating margin | | | 6.6% | |
| 13.4% | |
| | | | | | | |
Reconciliation of non-GAAP measure | | | | | | | |
Income from continuing operations, excluding certain items | | Three Months Ended March 31, | | ||||
(in thousands, except per share amounts) |
| 2024 |
| 2023 |
| ||
Income from continuing operations, less non-controlling interest, net of income tax | | $ | 5,787 | | $ | 31,752 | |
Adjustments: | |
| | |
| | |
Amortization of intangible assets | |
| 6,947 | |
| 7,062 | |
Acquisition-related costs | |
| 1,310 | |
| 931 | |
Facility expansion, relocation costs, and other | |
| 1,308 | |
| 957 | |
Restructuring, asset impairments, and other charges | |
| 245 | |
| 1,043 | |
Unrealized foreign currency loss (gain) | | | (1,757) | | | 1,053 | |
Tax effect of non-GAAP adjustments, including certain discrete tax benefits | |
| (622) | | | (1,121) | |
Non-GAAP income, net of income tax, excluding stock-based compensation | | | 13,218 | | | 41,677 | |
Stock-based compensation, net of tax | | | 8,694 | | | 5,304 | |
Non-GAAP income, net of income tax | | $ | 21,912 | | $ | 46,981 | |
Non-GAAP diluted earnings per share | | $ | 0.58 | | $ | 1.24 | |
| | | | | | | |
Reconciliation of non-GAAP measure | | Three Months Ended March 31, |
| ||||
Per share earnings excluding certain items |
| 2024 |
| 2023 |
| ||
Diluted earnings per share from continuing operations, as reported | | $ | 0.15 | | $ | 0.84 |
|
Add back: | | | | | | | |
Per share impact of non-GAAP adjustments, net of tax |
| | 0.43 |
| | 0.40 | |
Non-GAAP earnings per share | | $ | 0.58 | | $ | 1.24 | |
30
Reconciliation of Non-GAAP measure - operating expenses and operating income from continuing operations, excluding certain items | Three Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Gross Profit from continuing operations, as reported | $ | 92,234 | $ | 66,123 | $ | 258,206 | $ | 181,629 | |||||||
Operating expenses from continuing operations, as reported | 40,561 | 31,762 | 115,498 | 93,318 | |||||||||||
Adjustments: | |||||||||||||||
Stock-based compensation | (3,453 | ) | (1,301 | ) | (10,707 | ) | (4,299 | ) | |||||||
Amortization of intangible assets | (1,240 | ) | (1,048 | ) | (3,176 | ) | (3,180 | ) | |||||||
Acquisition-related costs | — | — | (150 | ) | — | ||||||||||
Non-GAAP operating expenses from continuing operations | 35,868 | 29,413 | 101,465 | 85,839 | |||||||||||
Non-GAAP operating income from continuing operations | $ | 56,366 | $ | 36,710 | $ | 156,741 | $ | 95,790 |
Reconciliation of Non-GAAP measure - operating expenses and operating income from continuing operations, excluding certain items | Three Months Ended | Nine Months Ended | |||||||||
September 30, | September 30, | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||
Gross Profit from continuing operations, as reported | 52.2 | % | 52.2 | % | 52.5 | % | 52.1 | % | |||
Operating expenses from continuing operations, as reported | 23.0 | 25.1 | 23.5 | 26.8 | |||||||
Adjustments: | |||||||||||
Stock-based compensation | (2.0 | ) | (1.1 | ) | (2.3 | ) | (1.3 | ) | |||
Amortization of intangible assets | (0.7 | ) | (0.8 | ) | (0.6 | ) | (0.9 | ) | |||
Acquisition-related costs | — | — | — | — | |||||||
Non-GAAP operating expenses from continuing operations | 20.3 | 23.2 | 20.6 | 24.6 | |||||||
Non-GAAP operating income from continuing operations | 31.9 | % | 29.0 | % | 31.9 | % | 27.5 | % |
Reconciliation of Non-GAAP measure - income from continuing operations, excluding certain items | Three Months Ended | Nine Months Ended | |||||||||||||
September 30, | September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Income from continuing operations, net of income taxes, as reported | $ | 83,794 | $ | 29,038 | $ | 165,108 | $ | 76,512 | |||||||
Adjustments: | |||||||||||||||
Stock-based compensation | 3,453 | 1,301 | 10,707 | 4,299 | |||||||||||
Amortization of intangible assets | 1,240 | 1,048 | 3,176 | 3,180 | |||||||||||
Loss on foreign exchange hedge | — | — | 3,489 | — | |||||||||||
Acquisition-related costs | — | — | 150 | — | |||||||||||
Incremental expense associated with start-up of the Asia regional headquarters | 1,133 | — | 1,133 | — | |||||||||||
Nonrecurring tax benefit associated with inverter business | (40,194 | ) | — | (40,194 | ) | — | |||||||||
Tax effect of non-GAAP adjustments | (1,426 | ) | (608 | ) | (4,451 | ) | (1,973 | ) | |||||||
Non-GAAP income from continuing operations, net of income taxes | $ | 48,000 | $ | 30,779 | $ | 139,118 | $ | 82,018 | |||||||
Non-GAAP diluted earnings per share | $1.19 | $0.77 | $3.46 | $2.05 |
Liquidity
Adequate liquidity and cash generation areis important to the execution of our strategic initiatives. Our ability to fund our operations, acquisitions, capital expenditures, and product development efforts may depend on our ability to generate cash from operating activities, which is subject to future operating performance, as well as general economic, financial, competitive, legislative, regulatory, and other conditions, some of which may be beyond our control. Our primary sources of liquidity arecontinue to be our available cash, investments, cash generated from current operations, as well asand available borrowing capacity under the Revolving Facility (defined in Note 16. Long-Term Debt in Part I, Item 1 “Unaudited Consolidated Financial Statements”).
As of March 31, 2024, our credit facility noted below.
In addition, we may, depending upon the number or size of acquisitions and contractual obligations for the next twelve months. We may, however,we pursue, seek additional debt or equity financing from time to time.
Debt
On July 28, 2017, Advanced Energy entered intoSeptember 12, 2023, we completed a private, unregistered offering of $575.0 million Convertible Notes and received net proceeds of approximately $561.1 million after the discount for the initial purchasers’ fees. We intend to use the net proceeds to fund future growth, which may include strategic acquisitions, opportunistically repay existing outstanding indebtedness, repurchase our common stock, or general corporate purposes.
The following table summarizes our borrowings (in thousands, except for interest rates).
| | | | | |
|
| March 31, 2024 | |||
| | Balance |
| Interest | |
Convertible Notes | | $ | 575,000 | | 2.50% |
Term Loan Facility at fixed interest rate due to interest rate swap | | | 216,344 | | 1.17% |
Term Loan Facility at variable interest rate | | | 133,656 | | 6.18% |
Total borrowings | | $ | 925,000 | | |
The interest rate swap contracts expire on September 10, 2024. After that date, the entire balance of our Term Loan Agreement (the “Loan Agreement”) with a bank which provides a revolving line of credit of up to $100.0 millionFacility will be subject to certain funding conditions through July 28, 2022. The credit facility provides us with furthera variable interest rate. In addition, should we have future flexibility for executionborrowings under our Revolving Facility, those borrowings would be subject to a variable rate.
As of our strategic plans. At September 30, 2017,March 31, 2024, we had $100.0$200.0 million in available funding under the Revolving Facility. The Term Loan Agreement.Facility requires quarterly repayments of $5.0 million plus accrued interest, with the remaining balance due in September 2026.
In addition to the available capacity on the Revolving Facility, prior to the maturity date of our Credit Agreement, we may request an increase to the financing commitments in either the Term Loan Facility or Revolving Facility by an aggregate amount not to exceed $115.0 million. Any requested increase is subject to lender approval.
31
For more information see Note 16. Long-Term Debt in Part I, Item 1 “Unaudited Consolidated Financial Statements.” For more information on the interest rate swap that fixes the interest rate for a portion of our Term Loan Agreement,Facility, see "Note 18. Credit Facility" as set forth Note 6. Derivative Financial Instruments in Part I, Item 1 “Unaudited Consolidated Financial Statements.”
Dividends
During the three months ended March 31, 2024, we paid a quarterly cash dividend of this Form 10-Q.
Cash Flows
A summary of our cash provided by and (used in)from operating, investing, and financing activities is as follows:
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
Net cash provided by operating activities from continuing operations | $ | 140,307 | $ | 82,665 | |||
Net cash used in operating activities from discontinued operations | (7,293 | ) | (4,538 | ) | |||
Net cash provided by operating activities | 133,014 | 78,127 | |||||
Net cash (used in) provided by investing activities from continuing operations | (24,685 | ) | 1,892 | ||||
Net cash used in investing activities from discontinued operations | — | — | |||||
Net cash (used in) provided by investing activities | (24,685 | ) | 1,892 | ||||
Net cash (used in) provided by financing activities from continuing operations | (26,900 | ) | 1,750 | ||||
Net cash used in financing activities from discontinued operations | — | (24 | ) | ||||
Net cash (used in) provided by financing activities | (26,900 | ) | 1,726 | ||||
EFFECT OF CURRENCY TRANSLATION ON CASH | 1,138 | (550 | ) | ||||
INCREASE IN CASH AND CASH EQUIVALENTS | 82,567 | 81,195 | |||||
CASH AND CASH EQUIVALENTS, beginning of period | 289,517 | 169,720 | |||||
CASH AND CASH EQUIVALENTS, end of period | 372,084 | 250,915 | |||||
Less cash and cash equivalents from discontinued operations | 5,512 | 6,623 | |||||
CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS, end of period | $ | 366,572 | $ | 244,292 |
| | | | | | |
| | Three Months Ended March 31, | ||||
|
| 2024 |
| 2023 | ||
Net cash from operating activities from continuing operations | | $ | 7,993 | | $ | 31,880 |
Net cash used in operating activities from discontinued operations | |
| (710) | |
| (2,069) |
Net cash from operating activities | |
| 7,283 | |
| 29,811 |
Net cash used in investing activities | |
| (18,721) | |
| (16,210) |
Net cash used in 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 |
Operating Activities
Net cash provided byfrom operating activities
Investing Activities
Net cash used in investing activities for the ninethree months ended September 30, 2017March 31, 2024 was $17.3$18.7 million, primarily driven by the following:
● | $16.6 million in purchases of property and equipment largely driven by investments in our manufacturing footprint and capacity; and |
● | $2.1 million in purchases of investments. |
Net cash used in the acquisition of Excelsys and the purchase of $3.5 million in foreign currency exchange hedges. Included in the cash provided by investing activities for the ninethree months ended September 30, 2017March 31, 2023 was $7.2$16.2 million due to purchases of proceeds from the saleproperty and equipment largely driven by investments in our manufacturing footprint and capacity.
32
Financing Activities
Net cash (used in) provided by financing activities
● | $5.0 million for repayment of long-term debt; |
● | $3.8 million for dividend payments; and |
● | $5.3 million in net payments related to stock-based award activities. |
Net cash used in financing activities for the repurchase of company stock.
● | $5.0 million for repayment of long-term debt; |
● | $3.8 million for dividend payment; and |
● | $2.0 million in net payments related to stock-based award activities. |
Effect of currency translationCurrency Translation on cash
During the ninethree months ended September 30, 2017,March 31, 2024, foreign currency translation had a $1.1 million favorableminimal impact as compared to a $0.6 million unfavorable impact during the nine months ended September 30, 2016. Our foreign operations primarily sell product and incur expenseson cash. See “Foreign Currency Exchange Rate Risk” in the related local currency. Exchange rate fluctuations could require us to increase prices to foreign customers, which could result in lower net sales by us to such customers. Alternatively, if we do not adjust the pricesPart I, Item 3 of this Form 10-Q for our products in response to unfavorable currency fluctuations, our results of operations could be adversely impacted. The functional
Nine Months Ended September 30, | ||||||||
From | To | 2017 | 2016 | |||||
CAD | USD | 7.8 | % | 5.3 | % | |||
CHF | USD | 4.6 | % | 3.5 | % | |||
CNY | USD | 4.4 | % | (2.6 | )% | |||
EUR | USD | 12.3 | % | 3.3 | % | |||
GBP | USD | 8.6 | % | (12.0 | )% | |||
INR | USD | 4.0 | % | (0.7 | )% | |||
JPY | USD | 4.0 | % | 18.8 | % | |||
KRW | USD | 4.7 | % | 6.8 | % | |||
TWD | USD | 6.5 | % | 4.9 | % |
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported in the Condensed Consolidated Financial Statementsconsolidated financial statements and accompanying notes.
Such accounting policies and estimates require significant judgments and assumptions to be used in the preparation of the Condensed Consolidated Financial Statementsconsolidated financial statements and actual results could differ materially from the amounts reported based on variability in factors affecting these estimates.
33
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
In the normal course of business, we have exposure to interest rate risk from our investments and Credit Agreement. We also have exposure to foreign exchange rate risk related to our foreign operations and foreign currency transactions.
See “Risk Factors” set forth in Part I, Item 1A of the 2023 Form 10-K and Part II of this Form 10-Q, for more information about the market risks to which we are exposed. There have been no material changes in our exposure to market risk exposure relates to changes in interest rates in our investment portfolio. We generally place our investments with high-credit quality issuers and by policy are averse to principal loss and seek to protect and preserve our invested funds by limiting default risk, market risk, and reinvestment risk.
Foreign Currency Exchange Rate Risk
We are impacted by changes in foreign currency exchange rates through salesrevenue and purchasing transactions when we sell products and purchase materials in currencies different from the currency in which product and manufacturing costs were incurred. Our purchasing and sales activities are primarily denominated in the USD, EUR, JPY, and CNY. As these currencies fluctuate against each other, and other currencies, we are exposed to foreign currency exchange rate risk on sales, purchasing transactions and labor.
The functional currencies of our worldwide facilities primarily include the United States Dollar, Euro, South Korean Won, New Taiwan Dollar, Japanese Yen, Pound Sterling, and Chinese Yuan. We are subject to risks associated with revenue and purchasing activities and costs to operate that are denominated in currencies other than our functional currencies, such as the Singapore Dollar, Malaysian Ringgit, Mexican Peso and Philippine Peso. The impact of a change in one or more of these particular exchange rates would be immaterial.
From time to time, we may enter into foreign currency exchange rate contracts with banks to hedge against changes in foreign currency exchange rates on assets and liabilities expected to be settled at a future date.date, including foreign currency, which may be required for a potential foreign acquisition. Market risk arises from the potential adverse effects on the value of derivative instruments that result from a change in foreign currency exchange rates. We attemptmay enter into foreign currency forward contracts to mitigatemanage the exchange rate risk associated with intercompany debt denominated in nonfunctional currencies. We minimize our market risk applicable to foreign currency exchange rate contracts by establishing and monitoring parameters that limit the types and degree of our derivative contract instruments. We enter into derivative contract instruments for risk management purposes only. We do not enter into or issue derivatives for trading or speculative purposes.
Interest Rate Risk
Our interest rate risk exposure relates primarily to our variable rate Term Loan Facility. As of March 31, 2024 we have interest rate swap agreements in effect that fix the interest rate for $216.3 million of our Term Loan Facility at 1.17%, while $133.7 million remains at a floating rate of 6.18%.
The Term Loan Facility and often one currency strengthens againstRevolving Credit Facility bear interest, at our option, at a rate based on the USD while another currency weakens. BecauseBase Rate or SOFR, as defined in the Credit Agreement, plus an applicable margin. The interest rate swap contracts expire on September 10, 2024. After that date, the entire balance of the complex interrelationship of the worldwide supply chains and distribution channels, it is difficultour Term Loan Facility will be subject to quantify the impact of a change in one orvariable interest rate. In addition, should we have future borrowings under our Revolving Facility, those borrowings would be subject to a variable rate.
For more particular exchange rates.
34
As of March 31, 2024 with respect to the borrowed portion of our Credit Facility that is subject to a variable interest rate, a hypothetical increase of 100 basis points (1%) in interest rates would have an insignificant impact on Form 10-Kour interest expense. A change in interest rates does not have a material impact upon our future earnings and Part II, Item 1A of this Form 10-Qcash flow for more information about the market risksfixed rate debt. However, increases in interest rates could impact our ability to which we are exposed. There have been no material changes in our exposure to market risk from December 31, 2016.
We have established disclosure controls and procedures, which are designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934 ("Act") is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission’sSEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Principal Executive Officer (Yuval Wasserman,(Stephen D. Kelley, President and Chief Executive Officer) and Principal Financial Officer (Thomas Liguori,(Paul Oldham, Executive Vice President and Chief Financial Officer), as appropriate, to allow timely decisions regarding required disclosures.
As of the end of the period covered by this report, we conducted an evaluation, with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures pursuant to the Exchange Act Rule 13a-15(b). Based upon this evaluation, theour Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in disputes and legal actions arising in the normal course of our business. There have been no material developments in legal proceedings in which we are involved during the nine months ended
ITEM 1A. RISK FACTORS
Information concerning our technical and management personnel. We also accrue a warranty reserve for estimated costs to provide warranty services including the cost of technical support, product repairs, and product replacement for units that cannot be repaired. Our estimate of costs to fulfill our warranty obligationsrisk factors is based on historical experience and expectation of future conditions. To the extent we experience increased warranty claim activity or increased costs associated with servicing those claims, our warranty accrual will increase, resulting in additional expenses in the line "Income (loss) from discontinued operations, net of tax” on our Consolidated Statement of Operations in future periods. We plan to continue supporting inverter customers with service maintenance and repair operations. This includes performing service to fulfill obligations under existing service maintenance contracts. There is no certainty that these can be performed profitably and could be adversely affected by higher than anticipated product failure rates, loss of critical service technician skills, an inability to obtain service parts, customer demands and disputes and cost of repair parts, among other factors. See Note 3. Discontinued Operationscontained in Part I, Item 1 "Unaudited Condensed Consolidated Financial Statements" contained herein.
35
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
To repurchase shares of our common stock, we periodically enter into stock repurchase agreements, open market transactions, and/or other transactions in accordance applicable federal securities laws. Before repurchasing our shares, we consider the market price of our common stock, the nature of other investment opportunities, available liquidity, cash flows from operations, general business and economic conditions, and other relevant factors.
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 the quarter covered by this Form 10-Q.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
None
ITEM 5. OTHER INFORMATION
During the three months ended March 31, 2024, no director or officer adopted or terminated a “Rule 10b5-1 trading arrangement” or a “Non-Rule 10b5-1 trading arrangement” (as defined in Item 408 of Regulation S-K).
36
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program (1) | Approximate Value of Shares that May Yet Be Purchased Under the Program (2) | ||||||||||
August 1 - August 31, 2017 | 351,292 | $ | 71.16 | 351,292 | $ | 75,003,000 | ||||||||
(1) In September 2015, our Board of Directors authorized a program to repurchase up to $150.0 million of our stock over a thirty-month period. Under this program, in August 2017, we entered into a Fixed Dollar Share Repurchase Agreement to repurchase $25.0 million of shares of our common stock in the open market. | ||||||||||||||
(2) While the Company has remaining authority to repurchase up to $75.0 million of our common stock, the Company has no current commitments or obligations to repurchase any shares of our common stock. |
ITEM 6. EXHIBITS
The exhibits listed in the following index are filed as part of this Quarterly Report on Form 10-Q.
Exhibit | | | |
---|---|---|---|
Number | | Description | |
| | | |
31.1 |
| |||
| |||
| | | |
31.2 | | | |
| | | |
32.1 | | | |
| | | |
32.2 | | | |
| | | |
101.INS | | Inline XBRL Instance Document (The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
| | | |
101.SCH | | Inline XBRL Taxonomy Extension Schema | |
| | | |
101.CAL | | Inline XBRL Taxonomy Extension Calculation | |
| | | |
101.DEF | | Inline XBRL Taxonomy Extension Definition | |
| | | |
101.LAB | | Inline XBRL Taxonomy Extension Label | |
| | | |
101.PRE | | Inline XBRL Taxonomy Extension Presentation | |
| | | |
104 | | Cover Page Interactive Data File (Formatted in Inline XBRL and contained in Exhibit | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | ||
| | |||
ADVANCED ENERGY INDUSTRIES, INC. | ||||
| | | ||
Dated: | May 1, 2024 | /s/ | ||
| | Paul Oldham | ||
| |
and Executive Vice President | |||
| | | |
| | /s/ Bernard R. Colpitts, Jr. | |
| | Bernard R. Colpitts, Jr. | |
| Chief | ||
Controller |
38