1 Q3 2024 Earnings Presentation OCTOBER 30, 2024 SAFE HARBOR The company's guidance and other statements herein or made on the earnings conference call contain, 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. Statements in this presentation that are not historical information are forward-looking statements. Forward-looking statements are subject t ...

Core Insights - Advanced Energy Industries (AEIS) reported quarterly earnings of $0.98 per share, exceeding the Zacks Consensus Estimate of $0.92 per share, but down from $1.28 per share a year ago, indicating an earnings surprise of 6.52% [1] - The company posted revenues of $374.22 million for the quarter ended September 2024, slightly missing the Zacks Consensus Estimate by 0.09%, and down from $409.99 million year-over-year [2] - Advanced Energy has surpassed consensus EPS estimates three times over the last four quarters, while it has only topped revenue estimates once in the same period [2] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $1.03 on revenues of $384.32 million, and for the current fiscal year, it is $3.36 on revenues of $1.45 billion [7] - The stock currently holds a Zacks Rank 3 (Hold), indicating it is expected to perform in line with the market in the near future [6] Industry Context - Advanced Energy operates within the Zacks Semiconductor Equipment - Wafer Fabrication industry, which is currently ranked in the top 41% of over 250 Zacks industries, suggesting a favorable industry outlook [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

Acquisition and Restructuring - The company acquired Airity Technologies, Inc. on June 20, 2024, enhancing its high voltage power conversion technologies and expanding its applications in the Semiconductor Equipment and Industrial and Medical markets[98]. - A restructuring plan was approved in July 2024, including the closure of the Zhongshan, China facility, resulting in a $28.5 million charge primarily for employment-related costs and facility exit expenses[98]. - The company continues to evaluate its operations and cost structure, which may lead to additional restructuring charges in future periods[98]. - The company recorded a $28.5 million charge related to the closure of its Zhongshan, China facility as part of its 2024 Plan[126]. Market Performance - The Semiconductor Equipment market is slowly recovering from a downturn that began in Q4 2022, with modest demand recovery observed in the first nine months of 2024[104]. - The Industrial and Medical market is facing challenges due to weaker macroeconomic conditions and high inventory levels, which are expected to limit revenue in the near term[105]. - The Data Center Computing market saw weak demand until Q1 2024, but rebounded in Q2 2024 due to increased investments in artificial intelligence and improved demand in the traditional server market[106]. - The Telecom and Networking market experienced declining demand in 2024, although improved supply of critical components led to higher customer orders[107]. - The long-term growth drivers in the Semiconductor Equipment market are expected to support cyclical growth as manufacturing capacity increases to meet rising demand for semiconductor devices[105]. Financial Performance - Revenue for the three months ended September 30, 2024, was $374,217 thousand, a decrease of 8.7% compared to $409,991 thousand for the same period in 2023[111]. - Gross profit for the three months ended September 30, 2024, was $134,068 thousand, with a gross margin of 35.8%, down from $147,341 thousand and 35.9% in the prior year[119]. - Operating expenses increased to $145,116 thousand, representing 38.8% of revenue, compared to $117,280 thousand and 28.6% in the same period last year[119]. - The company reported a loss from continuing operations of $14,147 thousand for the three months ended September 30, 2024, compared to a profit of $33,651 thousand in the same period of 2023[120]. - Semiconductor Equipment revenue increased by 6.7% to $197,497 thousand for the three months ended September 30, 2024, compared to $185,033 thousand in the prior year[114]. - Industrial and Medical revenue decreased by 33.3% to $76,837 thousand for the three months ended September 30, 2024, down from $115,226 thousand in the same period last year[115]. - Data Center Computing revenue increased by 18.1% to $80,653 thousand for the three months ended September 30, 2024, compared to $68,286 thousand in the prior year[116]. - Telecom and Networking revenue decreased significantly by 53.6% to $19,230 thousand for the three months ended September 30, 2024, down from $41,446 thousand in the same period last year[117]. - For the nine months ended September 30, 2024, total revenue was $1,066,639 thousand, a decrease of 14.7% from $1,250,539 thousand in the same period of 2023[112]. - The decline in revenue was attributed to customer inventory rebalancing, particularly affecting the Industrial and Medical and Telecom and Networking markets[112]. Expenses and Cash Flow - Research and development expenses for Q3 2024 were $53,561 thousand, representing a 6.3% increase from $50,391 thousand in Q3 2023[121]. - Total operating expenses for the nine months ended September 30, 2024, were $372,041 thousand, up 6.4% from $349,608 thousand in the same period of 2023[121]. - Selling, general, and administrative expenses for Q3 2024 were $56,237 thousand, a 2.0% increase from $55,131 thousand in Q3 2023[123]. - Restructuring, asset impairments, and other charges for Q3 2024 totaled $28,546 thousand, a significant increase of 506.2% from $4,709 thousand in Q3 2023[125]. - Net cash from operating activities for the nine months ended September 30, 2024, was $50.3 million, a significant decrease of 61% compared to $128.2 million for the same period in 2023[152]. - Net cash used in investing activities for the nine months ended September 30, 2024, was $60.5 million, primarily due to $44.0 million in property and equipment purchases and $13.8 million for the Airity acquisition[153]. - The company repaid $355.0 million in long-term debt during the nine months ended September 30, 2024[155]. Earnings and Dividends - Non-GAAP earnings per share for the three months ended September 30, 2024, was $0.98, compared to $1.28 for the same period in 2023[143]. - The company anticipates continuing to pay a quarterly cash dividend of $0.10 per share, totaling $11.5 million for the nine months ended September 30, 2024[149]. Cash and Debt Management - As of September 30, 2024, the company prepaid the full $345.0 million outstanding principal balance under its Term Loan Facility, leaving only Convertible Notes due in 2028 as outstanding debt[99]. - Cash and cash equivalents as of September 30, 2024, totaled $657.3 million, down from $985.9 million at the end of September 2023[145]. - As of September 30, 2024, the company had $600.0 million available under its Revolving Facility, with no amounts outstanding[148]. - The company has exposure to interest rate risk from its investments and Credit Agreement, but currently, a change in interest rates does not impact future earnings due to outstanding Convertible Notes with a fixed interest rate of 2.5%[165]. Risk Management - The company is subject to foreign currency exchange rate risk, which affects revenue and purchasing transactions when dealing with currencies different from the currency in which costs were incurred[162]. - The functional currencies of the company's worldwide facilities include the U.S. Dollar, Euro, South Korean Won, and others, with historical impacts of exchange rate changes not being material to operating results[163]. - The company may enter into foreign currency exchange rate contracts to hedge against changes in foreign currency exchange rates, primarily for risk management purposes[164]. - There were no material changes in the company's exposure to market risk from December 31, 2023[161]. Internal Controls and Legal Proceedings - As of September 30, 2024, the company's disclosure controls and procedures were deemed effective by the Chief Executive Officer and Chief Financial Officer[168]. - The assessment of internal control over financial reporting excludes Airity, acquired on June 20, 2024, which represents less than 1% of total assets and revenue[169]. - The company is involved in legal proceedings but believes these will not have a material adverse effect on its financial condition or results of operations[171]. - The company has established controls to ensure timely and accurate disclosures as required under the Exchange Act[167]. - Management intends to continue reviewing and enhancing disclosure controls and procedures to adapt to evolving business needs[168].

Financial Performance - Revenue for Q3 2024 was $374.2 million, exceeding the mid-point of guidance and up from $364.9 million in Q2 2024, but down from $410.0 million in Q3 2023[1][3] - GAAP loss per share was $0.38, primarily due to a $28.5 million restructuring charge related to manufacturing consolidation[1][4] - Non-GAAP EPS was $0.98, above the mid-point of guidance, compared to $0.85 in Q2 2024 and $1.28 in Q3 2023[1][5] - Operating income for Q3 2024 was a loss of $11.0 million, compared to an operating income of $30.1 million in Q3 2023[1][21] - Basic earnings per share from continuing operations for the latest quarter was $(0.38), compared to $0.90 in the same quarter last year, representing a decline of 142.2%[22] - Net income for the nine months ended September 30, 2024, was $5,340 thousand, significantly lower than $90,782 thousand for the same period last year, a decline of 94.1%[25] - Net revenue for the nine months ended September 30, 2024, was $1,066,639 thousand, compared to $1,250,539 thousand for the same period last year, a decrease of 14.7%[27] - Gross profit from continuing operations for Q3 2024 was $134.1 million, down from $147.3 million in Q3 2023, representing a decrease of 9.2%[30] - Non-GAAP gross profit for Q3 2024 was $136.0 million, compared to $148.2 million in Q3 2023, reflecting a decline of 8.2%[30] - Non-GAAP income for Q3 2024 was $37.0 million, compared to $48.5 million in Q3 2023, indicating a decline of 23.2%[31] - Non-GAAP earnings per share for Q3 2024 was $0.98, down from $1.28 in Q3 2023, a decrease of 23.4%[33] - The company reported total revenue of $372 million for Q3 2024, compared to $412 million in Q3 2023, a decrease of 9.7%[34] Cash Flow and Assets - Cash flow from continuing operations was $35.4 million, with $3.9 million paid in dividends and $1.8 million used for stock repurchases[1][5] - Cash and cash equivalents at the end of the period were $657,288 thousand, down from $985,931 thousand at the end of the same period last year, a decline of 33.2%[25] - The company reported net cash from operating activities of $48,059 thousand for the nine months ended September 30, 2024, compared to $124,933 thousand for the same period last year, a decline of 61.6%[25] - Total current assets decreased to $1,345,708 thousand as of September 30, 2024, down from $1,711,894 thousand at December 31, 2023, a reduction of 21.4%[23] - Total liabilities decreased to $1,028,468 thousand as of September 30, 2024, down from $1,412,575 thousand at December 31, 2023, a reduction of 27.1%[23] - Long-term debt decreased to $564,000 thousand as of September 30, 2024, down from $895,679 thousand at December 31, 2023, a reduction of 37.0%[23] Guidance and Future Outlook - Q4 2024 revenue guidance is set at $392 million +/- $20 million, with GAAP EPS guidance of $0.47 +/- $0.29 and Non-GAAP EPS of $1.08 +/- $0.25[1][8] - The guidance for Q4 2024 non-GAAP earnings per share is projected to be between $0.83 and $1.33[34] - The company will host its 2024 Analyst Day on November 19, 2024, to discuss strategic growth initiatives and long-term financial goals[1][10] Market and Operational Insights - Advanced Energy is focused on developing new products and technologies to drive market share gains and improve gross margins[2] - Gross profit margin for Q3 2024 was 35.8%, slightly down from 35.9% in Q3 2023[1][21] - Non-GAAP operating income for Q3 2024 was $39.1 million, a decrease of 23.2% from $50.9 million in Q3 2023[30] - Non-GAAP operating margin for Q3 2024 was 10.5%, down from 12.4% in Q3 2023[30] - Operating expenses from continuing operations for Q3 2024 were $145.1 million, an increase from $117.3 million in Q3 2023, representing a rise of 23.7%[30] - The semiconductor equipment market generated $197,497 thousand in revenue for the three months ended September 30, 2024, up from $185,033 thousand in the same quarter last year, an increase of 7.9%[27]

Group 1: Product Launch and Market Position - Advanced Energy (AEIS) is launching the NCF150 series of high-isolation, low-leakage current AC-DC power supplies, designed to meet the IEC 60601-1 medical safety standard for cardiac floating requirements [1] - The new power supplies have outputs up to 150 W, high efficiency, and enhanced safety features, reinforcing AEIS's leadership in precision power solutions for complex medical systems [1] Group 2: Portfolio Expansion and Design Wins - AEIS is diversifying its offerings across semiconductor, industrial, and medical end-markets, with notable design wins in applications such as glass coating, test and measurement, battery production, and surgical robot systems [2] - The introduction of the NavX impedance matching network in June showcases AEIS's commitment to innovation in advanced semiconductor etch processes [2] Group 3: Financial Performance and Market Challenges - In Q2 2024, AEIS reported revenues of $365 million, a decrease of 12.1% year over year, attributed to sluggish demand in non-semi markets and macroeconomic uncertainties [3] - For Q3 2024, AEIS anticipates revenues of $370 million (+/- $20 million), with a Zacks Consensus Estimate of $374.54 million, indicating a year-over-year decline of 8.65% [4] Group 4: Stock Valuation and Recommendations - AEIS stock is currently viewed as having a stretched valuation, indicated by a Value Score of C, and carries a Zacks Rank 3 (Hold), suggesting a cautious approach for investors [5]

It has been about a month since the last earnings report for Advanced Energy Industries (AEIS) . Shares have lost about 8.4% in that time frame, underperforming the S&P 500.Will the recent negative trend continue leading up to its next earnings release, or is Advanced Energy due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers. Advanced Energy Q2 Earnings ...

Core Insights - Advanced Energy Industries (AEIS) reported a total revenue of $364.95 million for the quarter ending June 2024, reflecting a decrease of 12.2% compared to previous periods [2][5] International Revenue Breakdown - Europe generated $39.81 million, accounting for 10.9% of total revenue, which was below the consensus estimate of $43.57 million, marking a surprise of -8.62% [3] - Asia contributed $151.96 million, representing 41.6% of total revenue, exceeding expectations by +1.01% against the forecast of $150.43 million [3] - Other countries brought in $0.39 million, only 0.1% of total revenue, significantly missing the projected $2.45 million by -84.29% [4] Future Revenue Projections - Analysts predict total revenue of $379.9 million for the current fiscal quarter, indicating a decline of 7.3% year-over-year, with expected contributions from Europe at $46.59 million, Asia at $171.46 million, and Other countries at $0.96 million [5] - For the full year, total revenue is anticipated to be $1.47 billion, down 11% from the previous year, with Europe, Asia, and Other countries projected to contribute $180.34 million, $642.32 million, and $5.47 million respectively [5] Market Context - The company's international operations provide opportunities for growth but also expose it to risks such as currency fluctuations and geopolitical uncertainties [2][6] - The stock has declined by 10% over the past month, underperforming the Zacks S&P 500 composite, which fell by 6.7% during the same period [8]

Core Viewpoint - Advanced Energy Industries (AEIS) is expected to experience a low point in Q1'24, with a gradual recovery anticipated in the semiconductor market by 2025, while facing challenges in the near term due to destocking in key segments like Industrial [2][3] Financial Performance - AEIS reported a 12% year-over-year decline in revenue but achieved a sequential growth of 11% in the latest quarter, slightly beating expectations [3] - The Semiconductor segment saw a 9% year-over-year increase and a 5% quarter-over-quarter increase, outperforming expectations by approximately 3% [3] - The Industrial segment faced significant challenges, with revenue down 38% year-over-year and 5% quarter-over-quarter, missing expectations by around 5% [3] - Data Center revenue rebounded strongly, up 24% year-over-year and 74% quarter-over-quarter, exceeding expectations by more than 10% [3] - Gross margin improved to 35.3% (non-GAAP), beating expectations by about 30 basis points [4] - Operating income declined 31% year-over-year but rebounded 57% quarter-over-quarter, beating expectations by 23% [4] Management Guidance - Management's guidance for Q3'24 indicates only a modest sequential revenue improvement of about 1%, which is below market expectations [5] - EPS guidance for Q3'24 is set at a midpoint of $0.90, slightly above prior estimates, but with a wide range of uncertainty reflecting concerns about volumes and product mix [5] Market Outlook - The Semiconductor business is expected to recover as capacity growth picks up next year, with potential for double-digit growth starting in 2025 [6] - The Industrial segment presents long-term opportunities, but management's execution remains a concern, particularly in developing competitive products [6] - Data Center demand is robust, but AEIS needs to demonstrate its ability to compete effectively against established suppliers [6] Long-term Projections - Revenue growth expectations for FY'24 and FY'25 have been adjusted downward, with a projected 17% revenue increase in FY'25 [7] - Long-term annualized revenue growth is anticipated to be between 5% and 6%, with improvements in gross and operating margins expected over the next two years [7] - A fair value estimate for AEIS shares is projected in the range of $110-$120, with potential for higher valuations if recovery trends materialize [7] Conclusion - Confidence in AEIS's future performance hinges on the recovery of the semiconductor equipment market, sustained data center capex, and a rebound in industrial demand, alongside management's ability to execute effectively [8]

Core Insights - Advanced Energy Industries (AEIS) reported non-GAAP earnings of 85 cents per share for Q2 2024, exceeding the Zacks Consensus Estimate by 23.19%, although this represents a 23.4% decline year-over-year [1] - Revenues for the quarter were $365 million, surpassing the Zacks Consensus Estimate by 5.74%, but down 12.1% year-over-year due to weakness in non-semi markets [1] Revenue Breakdown - **Semiconductor Equipment**: Revenues increased by 9% year-over-year to $188 million, accounting for 51.6% of total revenues, and exceeded the Zacks Consensus Estimate by 6.08% [2] - **Industrial & Medical**: Revenues fell 38% year-over-year to $79.1 million, representing 21.7% of total revenues, and lagged the Zacks Consensus Estimate by 8.68% [3] - **Data Center Computing**: Revenues rose 24% year-over-year to $73 million, making up 20% of total revenues, and beat the consensus mark by 23.82% [3][4] - **Telecom & Networking**: Revenues decreased 56% year-over-year to $24.56 million, which is 6.7% of total revenues, but exceeded the Zacks Consensus Estimate by 11.10% [4] Operating Results - Non-GAAP gross margin was 35.3%, down 26 basis points year-over-year [5] - Non-GAAP operating expenses were $95.1 million, a decrease of 3.5% year-over-year, but as a percentage of revenues, it increased by 230 basis points to 26.1% [5] - Non-GAAP operating margin contracted to 9.3%, down 260 basis points year-over-year [6] Balance Sheet & Cash Flow - As of June 30, 2024, cash and cash equivalents stood at $9.86 billion, a significant increase from $1.01 million as of March 31, 2024 [7] - Cash flow from operations was $6.9 million, down from $8 million in the previous quarter [7] - The company made dividend payments of $3.8 million during the quarter [7] Guidance - For Q3 2024, AEIS expects non-GAAP earnings of 90 cents per share (+/- 25 cents) and anticipates revenues of $370 million (+/- $20 million) [8] Market Position - AEIS currently holds a Zacks Rank 4 (Sell) and has seen its shares decline by 11.7% year-to-date, contrasting with a 7.6% growth in the Zacks Computer & Technology sector [9]

Financial Data and Key Metrics Changes - Second quarter revenue increased 11% sequentially to $365 million, exceeding guidance of $350 million, driven by strong demand in the data center market and pull-in of demand in the semiconductor market [17][18] - Gross margin was up slightly quarter-over-quarter to 35.3%, and operating margins improved by 270 basis points [17][19] - Earnings per share for the quarter were $0.85, compared to $0.58 in the previous quarter and $1.11 a year ago [21][17] Business Line Data and Key Metrics Changes - Semiconductor revenue was $188 million, up 5% sequentially and 9% year-over-year [19] - Industrial and medical revenue decreased 5% sequentially to $79 million and was down 38% year-over-year due to continued inventory destocking [19] - Data center computing revenue surged 74% quarter-over-quarter to $73 million, driven by strong demand for AI server power solutions [19] - Telecom and networking revenue increased slightly to $25 million quarter-over-quarter [19] Market Data and Key Metrics Changes - Strong demand in the data center market, particularly for AI applications, is expected to drive robust revenue levels for several quarters [12][19] - The semiconductor market is projected to see revenue similar to 2023, with expectations for the second half to be better than the first half [14][19] - Industrial and medical revenue is expected to remain under pressure through the third quarter and into the fourth, as channel and OEM inventories gradually return to normal levels [14][19] Company Strategy and Development Direction - The company is consolidating manufacturing sites to enhance operational productivity and lower fixed costs, aiming for gross margins over 40% by 2025 [9][18] - The acquisition of Airity Technologies is expected to accelerate innovation in high-density, high-voltage power applications [8][22] - The company is focused on leveraging new design wins and improving product mix to drive profitable revenue growth [14][26] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving revenue levels higher in the second half of 2024 compared to the first half, despite some revenue pull-ins into the second quarter [13][14] - The company anticipates a gradual recovery in the semiconductor market, with expectations for an acceleration in the second half of 2025 [50][49] - Management highlighted the importance of customer perception and relationships in driving long-term growth [15][26] Other Important Information - The company expects to recognize $25 million to $30 million in one-time severance and exit costs related to the closure of its last factory in China [24] - Cash and cash equivalents at the end of the second quarter were $986 million, with net cash of $79 million [21][22] Q&A Session Summary Question: Visibility and trajectory in industrial/medical revenue - Management indicated that inventory is steadily declining in the distributor channel, and they expect to reach supply/demand balance by Q4 2024 or Q1 2025 [29][30] Question: Recovery in gross margin - Management confirmed that achieving a revenue target of $400 million in Q4 is still a reasonable expectation, with potential headwinds from product mix and transition costs [31][32][34] Question: Data center business visibility - Management believes the momentum in hyperscale will continue through at least Q1 or Q2 of next year, driven by AI applications [37][38] Question: Semiconductor bookings and backlog - Management noted that while semiconductor bookings are flattish, they expect growth in the second half of the year, with a gradual recovery anticipated [54][56] Question: Readiness to support customers - Management emphasized their strategic inventory investments and staffing levels to respond quickly to customer demand, indicating capacity to return to prior peak levels [62][65] Question: Long-term outlook for telecom and networking - Management acknowledged that the telecom market is not expected to grow significantly, but they will focus on marquee customers for reasonable returns [73][74]