Advanced Energy(US:AEIS)2023-02-16 16:00Market Trends - The Semiconductor Equipment market is experiencing long-term growth driven by increased demand for semiconductor production capacity and new process technologies [32]. - The transition to 5G technology is expected to drive substantial growth opportunities in the Telecom and Networking market, with a focus on optimizing product portfolios for differentiated applications [37]. - The Industrial and Medical market growth is driven by investments in complex manufacturing processes and increased adoption of smart power solutions, with a focus on expanding product offerings [33]. - Advanced Energy's strategy in the Data Center Computing market focuses on providing high-efficiency 48 Volt server power solutions, capitalizing on the shift towards cloud computing and edge computing [36]. Financial Performance - Total net sales for 2022 reached $1,845,422, an increase of 26.7% compared to $1,455,954 in 2021 [258]. - Gross profit for 2022 was $675,506, representing a gross margin of approximately 36.6%, up from $532,322 in 2021 [258]. - Operating income increased to $233,095 in 2022, a 53.7% rise from $151,681 in 2021 [258]. - Net income for 2022 was $199,676, a significant increase of 48.2% compared to $134,780 in 2021 [260]. - Basic earnings per share for continuing operations rose to $5.39 in 2022, up from $3.53 in 2021 [258]. - The company reported comprehensive income of $217,212 for 2022, compared to $136,169 in 2021, marking a 59.6% increase [260]. Research and Development - In 2022, the company's research and development expenses were $191,020,000, representing 10.4% of total sales, compared to $161,831,000 (11.1%) in 2021 [52]. - Research and development expenses increased to $191,020 in 2022, up from $161,831 in 2021, reflecting a focus on innovation [258]. - Research and development expenses are incurred for advancing proprietary technology and are expensed as incurred [309]. Customer Concentration - The company's ten largest customers accounted for over 50% of total revenue in 2022, with Applied Materials, Inc. and Lam Research Corporation contributing 20% and 14% respectively [38]. Acquisitions - The company acquired SL Power Electronics Corporation on April 25, 2022, for a total fair value of purchase consideration of $142.132 million [334]. - The total fair value of net assets acquired from SL Power was $142,132 thousand, with $57,600 thousand attributed to intangible assets [335]. - The company acquired TEGAM, Inc. for a total purchase consideration of $17,053 thousand, which included $15,430 thousand paid at closing [339]. - SL Power contributed $50,321 thousand in net sales for the year ended December 31, 2022 [337]. Debt and Interest Rates - The company reported a total borrowing of $375 million under its Credit Facility, with a fixed interest rate of 1.271% on $238.2 million and a variable interest rate of 5.134% on $136.8 million [230]. - A hypothetical increase of 100 basis points (1%) in interest rates would result in an additional $1.4 million in annual interest expense for the company [231]. - The notional amount of interest rate swap contracts was $238.2 million as of December 31, 2022, with gains recorded in accumulated other comprehensive income of $11.8 million [372]. Inventory and Assets - The company has inventories with a carrying value of $376 million as of December 31, 2022, which are adjusted for estimated excess or obsolescence based on projected end-user demand [241]. - Total inventories increased to $376,012 thousand in 2022 from $338,410 thousand in 2021, representing an increase of 11.5% [377]. - Property and equipment, net rose to $148,462 thousand in 2022, up from $114,830 thousand in 2021, reflecting a growth of 29.3% [378]. - Goodwill balance increased to $281,433 thousand in 2022 from $212,190 thousand in 2021, marking a rise of 32.6% [382]. - Intangible assets net carrying amount increased to $189,526 thousand in 2022 from $159,406 thousand in 2021, a growth of 18.9% [384]. Employee Engagement and Diversity - The company has a diverse workforce of approximately 12,000 employees, with a commitment to increasing gender diversity and inclusion [54][55]. - Over 85% of employees participated in the 2022 engagement survey, with high engagement reported by over 85% of respondents [58]. Taxation - The effective tax rate for 2022 was impacted by changes in tax law, resulting in a total provision for income taxes of $39,850 thousand [349]. - The tax holidays in Singapore and China resulted in a decrease of foreign taxes by $19.4 million for 2022, benefiting earnings per diluted share by $0.52 [354]. - The company had U.S., foreign, and state tax loss carryforwards of $45.2 million, $120.1 million, and $106.5 million, respectively, as of December 31, 2022 [353]. Internal Controls and Reporting - The company maintains effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria [244]. - The company’s internal controls did not include SL Power Electronics, which constituted 2% of total assets and 3% of revenues for the year ended December 31, 2022 [245].