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Advanced Energy Industries, Inc. Q1 2010 Earnings Call Transcript

Advanced Energy Industries, Inc. Q1 2010 Earnings Call Transcript

Advanced Energy Industries, Inc. (AEIS)

Q1 2010 Earnings Call Transcript

April 22, 2009 5:00 pm ET


Annie Leschin – IR

Hans-Georg Betz – President and CEO

Lawrence Firestone – CFO and EVP


Srini Kopparapu – Barclays Capital

Edwin Mok – Needham & Company

Kate Kotlarsky – Goldman Sachs

Paul Thomas – Banc of America

Colin Rusch – ThinkEquity

Weston Twigg – Pacific Crest Securities

Neil Wagner – Stephens


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Good afternoon, ladies and gentlemen, and welcome to Advanced Energy's first quarter 2010 conference call. (Operator instructions) I will now turn the call over to Annie Leschin, Investor Relations. Miss Leschin, you may begin.

Annie Leschin

Thank you, operator, and good afternoon. Thank you for joining us this afternoon for our first quarter 2010 earnings conference call. With me on today's call are Hanz Betz, Chief Executive Officer; and Larry Firestone, Executive Vice President and CFO, both of whom will present prepared remarks. By now you should've received a copy of the press release that we issued a short time ago. If you'd like a copy, please visit our website at or contact us at 970-407-4670.

I'd like to quickly remind everyone that except for historical financial information contained herein, the matters discussed in this conference call contain certain forward looking statements subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Statements that include the terms believes, expects, plans, objectives, estimates, anticipates, intends, targets, or the like, should be viewed as forward looking and uncertain. Such risks and uncertainties include, but are not limited to, the volatility and cyclicality of the industries we serve, the timing of orders received from our customers, and unanticipated changes in estimates, reserves, or allowances. These and other risks are described in Form 10-K and 10-Q and other reports filed with the SEC.

In addition, we assume no obligation to update the information that we provide you during this conference call, including the second quarter guidance provided in our call and on our press release dated today. Guidance will not be updated after today's call until our next scheduled quarterly financial release. I'll now turn the call over to Hanz Betz, CEO of Advanced Energy.

Hans-Georg Betz

Good afternoon, everyone, and thank you for joining us. As we transitioned out of 2009, we began not only a new year, but the third consecutive quarter of robust growth in our business at over 20% a quarter, driven in large part by a surge in demand from record-setting pace [ph] in the semiconductor industry.

Additionally, the growing optimism in the worldwide economy is improving the overall outlook for the financial and capital equipment markets, and leading to new investment for equipment in our end markets.

In the first quarter, our revenues climbed 23% sequentially to reach $81.6 million, which are levels not seen since the third quarter of 2008. Strong cost controls and operating leverage from the increasing revenues drove gross margin above 40% this quarter, and nearly 4% higher than the previous quarter.

Profitability quadrupled at $6.2 million or $0.15 per diluted share, and even as we consumed working capital to secure inventory to support the ramp, we maintained our strong cash position as we closed the quarter with $163.4 million in cash. Moving to our end markets, having begun in the third quarter of 2009, the shift we have seen in the semiconductor business climate from just three quarters ago is tremendous. The industry has transitioned from a market posture where inventory reduction was the overarching theme to what is now a full speed ahead environment.

The manufacturers are securing all the component material they can acquire and testing the boundaries of the entire supply chain. Advanced Energy’s performance in this environment has been outstanding as our company was in a very strong position with our suppliers to secure inventory to support our customers’ request. We have maintained our strong commitment to the delivery of high quality products, added to our market share and continued to build our reputation as one of the stronger supplier in the industry.

As we mentioned on our last earnings call, the third and fourth quarter orders came so quickly that the response time was not fast enough, and therefore some orders were left unfilled at the quarter’s end, shifting a portion of the demand into the first quarter. In the first quarter Advanced Energy on its commitment to our customers, ensuring that the carryover to the second quarter is at an absolute minimum. Looking forward, we see several factors driving growth in the semiconductor equipment market.

Capacity expansion of existing technologies like DRAM or NAND, new technology advancements and inventory replenishment will be the keys. We anticipate the industry’s quarterly growth may begin to slow, but we expect the semi business to remain healthy throughout 2010 and into 2011, driven by a combination of announced new fabs and by OEM customers beginning to replenish their depleted inventories as business achieves a more normal run rate.

Inventory in the supply chain also will help to shorten lead times and improve the efficiency of deliveries as well. Execution excellence and investment are essential factors in the multi-decade leadership of Advanced Energy in the semiconductor market. As we implemented significant cost reductions heading into 2009, we were well ahead of some of our peers in addressing the downturn. However, we did not waiver from our commitment to invest in R&D and new product development. By continuing to spend in periods of downturn, Advanced Energy became a stronger partner of our customers, increasing our leading market position by capturing market share with the next generation of products.

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