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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2021

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from           to          

Commission file number: 000-26966

A picture containing drawing

Description automatically generated

ADVANCED ENERGY INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Delaware

84-0846841

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

1595 Wynkoop Street, Suite 800, Denver, Colorado

80202

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (970407-6626

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

AEIS

NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No þ

As of May 3, 2021, there were 38,415,537 shares of the registrant’s Common Stock, par value $0.001 per share, outstanding.

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

ITEM 1.

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

3

Consolidated Balance Sheets

3

Consolidated Statements of Operations

4

Consolidated Statements of Comprehensive Income

5

Consolidated Statements of Stockholders’ Equity

6

Consolidated Statements of Cash Flows

7

Notes to Consolidated Financial Statements

8

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

24

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

34

ITEM 4.

CONTROLS AND PROCEDURES

36

PART II OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

37

ITEM 1A.

RISK FACTORS

37

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

50

ITEM 6.

EXHIBITS

51

SIGNATURES

52

2

Table of Contents

PART I FINANCIAL INFORMATION

ITEM 1.         UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Balance Sheets

(In thousands, except per share amounts)

March 31, 

December 31, 

    

2021

    

2020

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

509,910

$

480,368

Marketable securities

 

2,854

 

2,654

Accounts and other receivable, net

 

236,916

 

235,178

Inventories

 

247,567

 

221,346

Income taxes receivable

 

5,321

 

4,804

Other current assets

37,514

35,899

Total current assets

 

1,040,082

 

980,249

Property and equipment, net

 

112,842

 

114,731

Operating lease right-of-use assets

100,924

103,858

Deposits and other assets

 

17,740

 

19,101

Goodwill

 

207,994

 

209,983

Intangible assets, net

 

169,389

 

168,939

Deferred income tax assets

50,280

50,801

TOTAL ASSETS

$

1,699,251

$

1,647,662

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

Current liabilities:

 

 

Accounts payable

$

162,616

$

125,224

Income taxes payable

 

15,586

 

11,850

Accrued payroll and employee benefits

 

44,611

 

63,487

Other accrued expenses

 

57,943

 

49,565

Customer deposits and other

 

13,271

 

12,179

Current portion of long-term debt

17,500

17,500

Current portion of operating lease liabilities

15,346

16,592

Total current liabilities

 

326,873

 

296,397

Long-term debt

300,297

304,546

Operating lease liabilities

94,184

95,993

Pension benefits

78,982

80,447

Deferred income tax liabilities

 

9,672

 

10,088

Uncertain tax positions

 

12,993

 

12,839

Long-term deferred revenue

 

7,123

 

7,352

Other long-term liabilities

22,852

24,660

Total liabilities

 

852,976

 

832,322

Commitments and contingencies (Note 17)

 

 

Stockholders' equity:

 

 

Preferred stock, $0.001 par value, 1,000 shares authorized, none issued and outstanding

 

 

Common stock, $0.001 par value, 70,000 shares authorized; 38,386 and 38,293 issued and outstanding at March 31, 2021 and December 31, 2020, respectively

 

38

 

38

Additional paid-in capital

 

106,065

 

105,009

Accumulated other comprehensive loss

 

(7,573)

 

(2,605)

Retained earnings

 

747,111

 

712,297

Advanced Energy stockholders' equity

 

845,641

 

814,739

Noncontrolling interest

 

634

 

601

Total stockholders’ equity

 

846,275

 

815,340

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

1,699,251

$

1,647,662

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

3

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Operations

(In thousands, except per share amounts)

Three Months Ended March 31, 

    

2021

    

2020

Sales, net

$

351,620

$

315,456

Cost of sales

 

214,117

 

203,225

Gross profit

 

137,503

 

112,231

Operating expenses:

 

 

Research and development

 

40,168

 

34,770

Selling, general, and administrative

 

46,731

 

45,991

Amortization of intangible assets

 

5,384

 

5,006

Restructuring expense

 

1,038

 

656

Total operating expenses

 

93,321

 

86,423

Operating income

 

44,182

 

25,808

Other income (expense), net

 

(507)

 

(3,510)

Income from continuing operations, before income taxes

 

43,675

 

22,298

Provision for income taxes

 

5,284

 

3,900

Income from continuing operations

 

38,391

 

18,398

Income (loss) from discontinued operations, net of income taxes

 

310

 

(320)

Net income

$

38,701

$

18,078

Income from continuing operations attributable to noncontrolling interest

 

33

 

15

Net income attributable to Advanced Energy Industries, Inc.

$

38,668

$

18,063

Basic weighted-average common shares outstanding

 

38,328

 

38,358

Diluted weighted-average common shares outstanding

 

38,583

 

38,570

Earnings per share:

 

 

Continuing operations:

 

 

Basic earnings per share

$

1.00

$

0.48

Diluted earnings per share

$

0.99

$

0.48

Discontinued operations:

 

 

Basic earnings (loss) per share

$

0.01

$

(0.01)

Diluted earnings (loss) per share

$

0.01

$

(0.01)

Net income:

 

 

Basic earnings per share

$

1.01

$

0.47

Diluted earnings per share

$

1.00

$

0.47

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

4

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Comprehensive Income

(In thousands)

Three Months Ended March 31, 

    

2021

    

2020

Net income

$

38,701

$

18,078

Other comprehensive income (loss), net of income taxes

 

  

 

  

Foreign currency translation

 

(6,941)

 

(3,061)

Change in fair value of cash flow hedges

 

2,009

 

Minimum benefit retirement liability

 

(36)

 

154

Comprehensive income

$

33,733

$

15,171

Comprehensive income attributable to noncontrolling interest

 

33

 

15

Comprehensive income attributable to Advanced Energy Industries, Inc.

$

33,700

$

15,156

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

5

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Stockholders’ Equity

(In thousands)

Advanced Energy Industries, Inc. Stockholders' Equity

Common Stock

Accumulated

Additional

Other

Non-

Total

Paid-in

Comprehensive

Retained

controlling

Stockholders’ 

Shares

Amount

Capital

Income

Earnings

Interest

Equity

Balances, December 31, 2019

    

38,358

$

38

$

104,849

$

(5,897)

$

577,724

$

546

$

677,260

Adoption of new accounting standards

(102)

(102)

Stock issued from equity plans

64

(2,171)

(2,171)

Stock-based compensation

3,048

3,048

Stock buyback

(170)

(7,248)

(7,248)

Other comprehensive income (loss)

(2,907)

(2,907)

Net income

18,063

15

18,078

Balances, March 31, 2020

38,252

$

38

$

98,478

$

(8,804)

$

595,685

$

561

$

685,958

Balances, December 31, 2020

38,293

$

38

$

105,009

$

(2,605)

$

712,297

$

601

$

815,340

Stock issued from equity plans

93

(4,645)

(4,645)

Stock-based compensation

5,701

5,701

Dividend payments

(3,854)

(3,854)

Other comprehensive income (loss)

(4,968)

(4,968)

Net income

38,668

33

38,701

Balances, March 31, 2021

38,386

$

38

$

106,065

$

(7,573)

$

747,111

$

634

$

846,275

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

6

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Cash Flows

(In thousands)

Three Months Ended March 31, 

    

2021

    

2020

CASH FLOWS FROM OPERATING ACTIVITIES:

 

  

 

  

Net income

$

38,701

$

18,078

Income (loss) from discontinued operations, net of income taxes

 

310

 

(320)

Income from continuing operations, net of income taxes

 

38,391

 

18,398

Adjustments to reconcile net income to net cash from operating activities:

 

  

 

  

Depreciation and amortization

 

12,721

 

11,616

Stock-based compensation expense

 

5,701

 

3,048

Provision (benefit) for deferred income taxes

 

(5)

 

(1,265)

Discount on notes receivable

721

Net loss on disposal of assets

 

275

 

173

Changes in operating assets and liabilities, net of assets acquired:

 

 

Accounts and other receivable, net

 

(4,984)

 

32,084

Inventories

 

(27,503)

 

(6,726)

Other assets

 

(1,406)

 

(14,688)

Accounts payable

 

40,483

 

(5,351)

Other liabilities and accrued expenses

 

(12,534)

 

(9,989)

Income taxes

 

3,125

 

919

Net cash from operating activities from continuing operations

 

54,264

 

28,940

Net cash from operating activities from discontinued operations

 

(185)

 

(418)

Net cash from operating activities

 

54,079

 

28,522

CASH FLOWS FROM INVESTING ACTIVITIES:

 

  

 

  

Proceeds from sale of marketable securities

 

 

10

Issuance of notes receivable

(1,000)

Proceeds from sale of property and equipment

6

Purchases of property and equipment

 

(8,817)

 

(6,134)

Acquisitions, net of cash acquired

(3,604)

Net cash from investing activities from continuing operations

 

(12,415)

 

(7,124)

Net cash from investing activities from discontinued operations

 

 

Net cash from investing activities

 

(12,415)

 

(7,124)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

 

  

Payments on long-term borrowings

(4,375)

(4,375)

Dividend payments

(3,854)

Purchase and retirement of common stock

(7,248)

Net payments related to stock-based award activities

 

(4,214)

 

(2,171)

Net cash from financing activities from continuing operations

 

(12,443)

 

(13,794)

Net cash from financing activities from discontinued operations

 

 

Net cash from financing activities

 

(12,443)

 

(13,794)

EFFECT OF CURRENCY TRANSLATION ON CASH

 

321

 

(1,505)

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

29,542

 

6,099

CASH AND CASH EQUIVALENTS, beginning of period

 

480,368

 

346,441

CASH AND CASH EQUIVALENTS, end of period

 

509,910

 

352,540

Less cash and cash equivalents from discontinued operations

 

 

CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS, end of period

$

509,910

$

352,540

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

  

 

  

Cash paid for interest

$

979

$

2,240

Cash paid for income taxes

$

1,873

$

4,545

Cash received for refunds of income taxes

$

109

$

121

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

7

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

NOTE 1.     DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Advanced Energy Industries, Inc., a Delaware corporation, and its wholly-owned subsidiaries ("we," "us," "our," "Advanced Energy," or the "Company") design, manufacture, sell, and support precision power products that transform, refine, and modify the raw electrical power from the utility and convert it into various types of highly-controllable usable power that is predictable, repeatable, and customizable. Our power solutions enable innovation in complex semiconductor and thin film plasma processes such as dry etch, strip, chemical and physical deposition, high and low voltage applications such as process control, analytical instrumentation, medical equipment, and in temperature-critical thermal applications such as material and chemical processing.

We also supply related instrumentation products for advanced temperature measurement and control, electrostatic instrumentation products for test and measurement applications, and gas sensing and monitoring solutions for several industrial markets. Our network of service support centers facilitates local repair and field service in key regions, provides upgrades and refurbishment services, and sells used equipment to businesses that use our products.

In September 2019, we acquired the Artesyn Embedded Power business ("Artesyn"), which added new power products and technologies used in networking and computing, data center including hyperscale, and industrial and medical applications. As of December 31, 2015, we discontinued our engineering, production, and sales of our inverter product line. As such, all inverter product revenues, costs, assets, and liabilities are reported in Discontinued Operations for all periods presented herein, and we currently report as a single unit. Ongoing inverter repair and service operations are reported as part of our continuing operations.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the financial position of the Company as of March 31, 2021, and the results of our operations and cash flows for the three months ended March 31, 2021 and 2020.

The unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been omitted pursuant to such rules and regulations. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2020 and other financial information filed with the SEC.

Use of Estimates in the Preparation of the Consolidated Financial Statements

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The significant estimates, assumptions, and judgments include, but are not limited to:

allowances for expected credit loss;
excess and obsolete inventory;
warranty reserves;
pension obligations;
right-of-use assets and related operating lease liabilities;
acquisitions and asset valuations;
asset lives;
depreciation and amortization;
recoverability of assets and potential impairment;
deferred revenue;
stock options, performance based stock, and restricted stock grants; and
taxes and other provisions;

8

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)

We believe our significant estimates, assumptions, and judgments are reasonable based on the information available at the time they are made. Actual results may differ from these estimates, making it possible that a change in these estimates could occur in the near term.

Critical Accounting Policies

Our accounting policies are described in Note 1 to our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020.

New Accounting Standards

From time to time, the Financial Accounting Standards Board ("FASB") or other standards setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification ("ASC") are communicated through issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, will not have a material impact on the consolidated financial statements upon adoption.

New Accounting Standards Adopted

In August 2018, the FASB issued ASU 2018-14, "Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20)" ("ASU 2018-14"). ASU 2018-14 eliminates requirements for certain disclosures and requires additional disclosures under defined benefit pension plans and other post-retirement plans. ASU 2018-14 was effective for us on January 1, 2021. The impact of adoption was not material to our consolidated financial statements.

New Accounting Standards Issued But Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04"). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued. ASU 2020-04 will be in effect through December 31, 2022. We are currently assessing the potential impact of ASU 2020-04 on our consolidated financial statements.

NOTE 2. ACQUISITIONS

Intangible Assets Acquired

In January 2021, we acquired certain intangible assets related to the manufacturing of fiber optic sensing equipment for $3.6 million in cash and an additional $2.9 million expected to be paid within one year of the closing date. These intangible assets have an estimated useful life of five years. See Note 12. Intangible Assets for details.

Versatile Power, Inc.

On December 31, 2020, we acquired 100% of the issued and outstanding shares of Versatile Power, Inc., which is based in Campbell, California. This acquisition added radio frequency ("RF") and programmable power supplies for medical and industrial applications to our product portfolio and further expands our presence in the medical market by adding proven technologies, deep customer relationships, expertise in medical design, and a medical-certified manufacturing center.

9

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)

The components of the fair value of the total consideration transferred were as follows:

Cash paid for acquisition

    

$

4,594

Holdback

950

Contingent consideration

1,500

Total fair value of consideration transferred

7,044

Less cash acquired

(245)

Total purchase price

$

6,799

We are still evaluating the fair value for the assets acquired and liabilities assumed. Accordingly, the purchase price allocation presented below is preliminary.

    

Preliminary
Fair Value
March 31, 2021

Current assets and liabilities, net

$

1,013

Property and equipment

35

Operating lease right-of-use assets

463

Intangible assets

4,000

Goodwill

1,751

Total assets acquired

7,262

Operating lease liability

463

Total liabilities assumed

463

Total fair value of net assets acquired

$

6,799

NOTE 3.    REVENUE

Revenue Recognition

We recognize revenue when we have satisfied our performance obligations which typically occurs when control of the products or services has been transferred to our customers. The transaction price is based upon the standalone selling price. In most transactions, we have no obligations to our customers after the date products are shipped, other than pursuant to warranty obligations. Shipping and handling fees billed to customers, if any, are recognized as revenue. The related shipping and handling costs are recognized in cost of sales. Support services include warranty and non-warranty repair services, upgrades, and refurbishments on the products we sell. Repairs that are covered under our standard warranty do not generate revenue.

Nature of goods and services

Products

Advanced Energy provides highly engineered, mission-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 control the raw electrical power from a utility and convert it into power that is predictable, repeatable, and customizable. Our products enable thin film manufacturing processes such as plasma enhanced chemical and physical deposition and etch for various semiconductor and industrial products, industrial thermal applications for material and chemical processes, and specialty power for critical industrial technology applications. We also supply thermal instrumentation products for advanced temperature measurement and control in these markets. As a result of the Artesyn acquisition, we now sell precision power conversion products into the Telecom and Networking, Data Center Computing (including hyperscale), and Industrial and Medical markets.

10

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)

Our products are designed to enable new process technologies, improve productivity, and lower the cost of ownership for our customers. We also provide repair and maintenance services for all our products. We principally serve original equipment manufacturers ("OEM") and end customers in the semiconductor, flat panel display, high voltage, solar panel, Telecom and Networking, Data Center Computing, Industrial and Medical markets. Our advanced power products are used in diverse markets, applications, and processes including the manufacture of capital equipment for semiconductor device manufacturing, thin film applications for thin film renewables and architectural glass, and for other thin film applications including flat panel displays, and industrial coatings. Our embedded power products are used in a wide range of applications, such as 5G, data center (including hyperscale) and other industrial and medical applications.

Services

Our services group offers warranty and after-market repair services in the regions in which we operate, providing us with preventive maintenance opportunities. Our customers continue to pursue low cost of ownership of their capital equipment and are increasingly sensitive to the costs of system downtime. They expect that suppliers offer comprehensive local repair service and customer support. To meet these market requirements, we maintain a worldwide support organization in ten countries, including the United States ("U.S."), the People’s Republic of China ("PRC"), Japan, Korea, Taiwan, Germany, Ireland, Singapore, Israel, and Great Britain. Support services include warranty and non-warranty repair services, upgrades, and refurbishments on the products we sell.

As part of our ongoing service business, we satisfy our service obligations under preventative maintenance contracts and extended warranties which had previously been offered on our discontinued inverter products. Any up-front fees received for extended warranties or maintenance plans are deferred. Revenue under these arrangements is recognized ratably over the underlying terms as we do not have historical information which would allow us to project the estimated service usage pattern at this time.

The following table summarizes deferred revenue, which relates to extended warranties and service contracts. We expect to recognize this revenue ratably through the year 2031.

March 31, 

December 31, 

    

2021

    

2020

Deferred revenue

$

8,340

$

8,671

Disaggregation of Revenue

The following tables present additional information regarding our revenue:

Three Months Ended March 31, 

    

2021

    

2020

Semiconductor Equipment

$

180,716

$

133,625

Industrial and Medical

 

78,415

 

61,979

Data Center Computing

59,154

86,183

Telecom and Networking

33,335

33,669

Total

$

351,620

$

315,456

Three Months Ended March 31, 

    

2021

    

2020

Product

$

318,879

$

289,361

Services

32,741

 

26,095

Total

$

351,620

 

$

315,456

11

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)

Three Months Ended March 31, 

    

2021

    

2020

United States

$

131,598

$

116,697

North America (excluding United States)

26,247

 

47,634

Asia

149,591

 

110,975

Europe

40,422

 

39,136

Other

3,762

 

1,014

Total

$

351,620

 

$

315,456

Three Months Ended March 31, 

    

2021

    

2020

Product and service revenue recognized at point in time

$

351,393

$

315,281

Extended warranty and service contracts recognized over time

 

227

 

175

Total

$

351,620

$

315,456

NOTE 4.    INCOME TAXES

The following table summarizes tax expense and the effective tax rate for our income from continuing operations:

Three Months Ended March 31, 

    

2021

    

2020

Income from continuing operations, before income taxes

$

43,675

$

22,298

Provision for income taxes

$

5,284

$

3,900

Effective tax rate

12.1

%  

17.5

%

The Company’s effective tax rates differ from the U.S. federal statutory rate of 21% for the three months ended March 31, 2021 and 2020, respectively, primarily due to the benefit of earnings in foreign jurisdictions which are subject to lower tax rates, partially offset by net U.S. tax on foreign operations and withholding taxes. The effective tax rate for the first three months of 2021 was lower than the same period in 2020 primarily due to the mix of discrete events between the two periods.

12

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)

NOTE 5.    EARNINGS PER SHARE

Basic earnings per share ("EPS") is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. The computation of 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-converted 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.

The following is a reconciliation of the weighted-average shares outstanding used in the calculation of basic and diluted earnings per share:

Three Months Ended March 31, 

    

2021

    

2020

Income from continuing operations

$

38,391

$

18,398

Income from continuing operations attributable to noncontrolling interest

 

33

 

15

Income from continuing operations attributable to Advanced Energy Industries, Inc.

$

38,358

$

18,383

Basic weighted-average common shares outstanding

 

38,328

 

38,358

Assumed exercise of dilutive stock options and restricted stock units

 

255

 

212

Diluted weighted-average common shares outstanding

 

38,583

 

38,570

Continuing operations:

 

  

 

  

Basic earnings per share

$

1.00

$

0.48

Diluted earnings per share

$

0.99

$

0.48

The following stock options and restricted units were excluded in the computation of diluted earnings per share because they were anti-dilutive:

Three Months Ended March 31, 

    

2021

    

2020

Restricted stock units

 

31

 

Share Repurchase

To execute the repurchase of shares of our common stock, the Company periodically enters into stock repurchase agreements. The following table summarizes these repurchases:

Three Months Ended March 31, 

(in thousands, except per share amounts)

    

2021

    

2020

Amount paid to repurchase shares

$

$

7,248

Number of shares repurchased

 

 

170

Average repurchase price per share

$

$

42.59

Remaining authorized by Board of Directors for future repurchases as of period end

$

38,369

$

42,751

There were no shares repurchased from related parties. All shares repurchased were recognized as a reduction to Additional paid-in capital. Repurchased shares were retired and assumed the status of authorized and unissued shares.

13

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)

NOTE 6.     FAIR VALUE MEASUREMENTS

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis.

March 31, 2021

Description

Balance Sheet Classification

Level 1

Level 2

Level 3

Total
Fair
 Value

Assets:

   

   

   

   

   

Certificates of deposit

Marketable securities

$

$

2,854

$

$

2,854

Foreign currency forward contracts

Other current assets

21

21

Total assets measured at fair value on a recurring basis

$

$

2,875

$

$

2,875

Liabilities:

Contingent consideration

Other current liabilities

$

$

$

2,125

$

2,125

Contingent consideration

Other long-term liabilities

2,911

2,911

Interest rate swaps

Other long-term liabilities

169

169

Total liabilities measured at fair value on a recurring basis

$

$

169

$

5,036

$

5,205

December 31, 2020

Description

Balance Sheet Classification

Level 1

  

Level 2

  

Level 3

  

Total
Fair
 Value

Assets:

   

   

   

   

   

Certificates of deposit

Marketable securities

$

$

2,654

$

$

2,654

Total assets measured at fair value on a recurring basis

$

$

2,654

$

$

2,654

Liabilities:

Contingent consideration

Other current liabilities

$

$

$

2,009

$

2,009

Contingent consideration

Other long-term liabilities

2,940

2,940

Interest rate swaps

Other long-term liabilities

2,811

2,811

Total liabilities measured at fair value on a recurring basis

$

$

2,811

$

4,949

$

7,760

The fair value of foreign currency forward contracts is based on the movement in the forward rates of foreign currency cash flows in which the hedging instrument is denominated. We determine the fair value of interest rate swaps by estimating the net present value of the expected cash flows based on market rates and associated yield curves, adjusted for non-performance credit risk, as applicable. See Note 7. Derivative Financial Instruments for additional information. The fair value of contingent consideration is determined by estimating the net present value of the expected cash flows based on the probability of expected payment.

For all periods presented, there were no transfers into or out of Level 3.

14

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)

NOTE 7.    DERIVATIVE FINANCIAL INSTRUMENTS

We are impacted by changes in foreign currency exchange rates. We may manage these risks through the use of derivative financial instruments, primarily forward contracts with banks. These forward contracts manage the exchange rate risk associated with assets and liabilities denominated in nonfunctional currencies. These derivative instruments are typically executed for one-month periods and not designated as hedges; however, they do economically offset the fluctuations of our assets and liabilities due to foreign exchange rate changes.

The following table summarizes the notional amount of outstanding foreign currency forward contracts:

March 31, 

December 31, 

    

2021

    

2020

Foreign currency forward contracts

$

35,280

$

Gains and losses related to foreign currency exchange contracts were offset by corresponding gains and losses on the revaluation of the underlying assets and liabilities. Both are included as a component of Other income (expense), net in our Unaudited Consolidated Statements of Operations.

In April 2020, the Company executed interest rate swap contracts with independent financial institutions to partially reduce the variability of cash flows in LIBOR indexed debt interest payments on our Term Loan Facility (under the Company’s existing Credit Agreement dated as of September 10, 2019). These transactions are accounted for as cash flow hedging instruments.

The interest rate swap contracts fixed 85% of the outstanding principal balance on our term loan to a total interest rate of 1.271%. This is comprised of 0.521% average fixed rate per annum in exchange for a variable interest rate based on one-month USD-LIBOR-BBA plus the credit spread in the Company’s existing Credit Agreement, which is 75 basis points at current leverage ratios.

The following table summarizes the notional amount of qualified hedging instruments:

March 31, 

December 31, 

    

2021

    

2020

Interest rate swap contracts

$

268,844

$

273,219

At March 31, 2021, Accumulated other comprehensive loss on the Unaudited Consolidated Balance Sheets includes $0.1 million, net of tax, related to changes in fair value on the interest rate swap contracts.

See Note 6. Fair Value Measurements for information regarding fair value of derivative instruments.

As a result of the use of derivative financial instruments, the Company is exposed to the risk that counterparties to derivative contracts may fail to meet their contractual obligations. The Company manages counterparty credit risk in derivative contracts by reviewing counterparty creditworthiness on a regular basis and limiting exposure to any single counterparty.

15

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands except per share data)

NOTE 8.    ACCOUNTS AND OTHER RECEIVABLE, NET

Accounts and other receivable are recorded at net realizable value. Components of accounts and other receivable, net of reserves, were as follows:

March 31, 

December 31, 

    

2021

    

2020

Amounts billed, net

$

209,956

$

213,560

Unbilled receivables

26,960

 

21,618

Total receivables, net

$

236,916

$

235,178

Amounts billed, net consist of amounts that have been invoiced to our customers in accordance with terms and conditions and are shown net of an allowance for credit losses. These receivables are all short-term in nature and do not include any financing components.

Unbilled receivables consist of amounts where we have satisfied our contractual obligations related to inventory stocking contracts with customers. Such amounts typically become billable to the customer upon their consumption of the inventory managed under the stocking contracts. We anticipate that substantially all unbilled receivables will be invoiced and collected over the next twelve months. These contracts do not include any financing components.

The following table summarizes the changes in expected credit losses: