Advanced Energy Industries' CEO Presents At Citi Technology Conference (Transcript)

Advanced Energy Industries, Inc. (AEIS)

Citi Technology Conference Call

September 6, 2012 11:00 am ET


Yuval Wasserman – President, AE Thin Films

Danny Herron – Executive Vice President and Chief Financial Officer


Unidentified Analyst

Our next company is going to be Advanced Energy Industries. We’ll lead off with Mr. Yuval Wasserman, President of the Thin Film business unit and from there we’ll share remarks from Mr. Danny Herron, Executive Vice President and Chief Financial.

So with that, I will turn it over to Yuval.

Yuval Wasserman

Good morning. Before we start, I’d like to look at the Safe Harbor slide for a second. Starting with background about the company, Advanced Energy is a 30 years old power conversion and control solutions company providing solutions for Thin Film processing and the Solar Energy market. In the Thin Film processing area, we provide the activation energy that is required to make some of the deposition of Thin Films and the etch processes possible.

We provide RF DC power supplies that we sell to equipment manufacturers around the world. For the market of the Solar Energy, we provide DC to AC inverters specifically targeted for the commercial and utility scale obligation. The company is build into two business units, I run the Thin Film business unit and Gordon Tredger runs the Solar Energy business unit. The company combined revenues of $500 million a year. We have a very strong balance sheet, nice position of cash and no debt.

Last year November, we presented our three year strategy and our goal for the future of the company. Our main focus is to increase shareholder value and we do that with an intense drive for revenue growth, cash generation deployment and earnings per share growth. We feel very good about our progress versus the plan.

During the first two quarters of this year, we generated $65 million of cash. Since Q4 2011, we had taken more than $30 million of cost out of the operation and we feel very comfortable meeting our long term growth trajectory as we serve the market that I mentioned before.

The company serves very diverse two market, the Thin Film processing market, a market where we sell our products to equipment makers. We develop the RF DC power supplies and we sell them to the semiconductor industry, the PV solar and glass industry, Solar Power manufacturing industries, industrial coating and a significant service business we have. This business that we serve is very diversified and we are growing not only in the semi business, but we are having nice growth outside of the semi world in those additional market segments that I talked about.

The Solar Energy market, we focus our product through the utility scale and the commercial inverters business. We have established our self really well in North America. We continue to position our growth expanding beyond North America to additional world regions.

During the last three years, a portion of our business that goes to the Solar Energy has grown to a point at right now about 50% of our combined revenue serve the solar business. That is very much in line with other diversification strategy to be much less dependent on a semi business and much less dependent on the general Thin Film business to create a much more balanced business that is more immune against the cyclicality of the markets we have traditionally served before. That growth and balance allows us to be more effective in driving common practices and common tools throughout the business unit, leverage each other and drive synergy within those two areas.

The three pillars of our three year strategy as we presented last year are margin expansion, revenue growth, and cash utilization. In the margin expansion, we have done a tremendous job so far taking cost out of the operation. We have restructured the company to be profitable comfortably during the downturns of the cycle. We have now transitioned into the next phase of cost reduction as we go from reduction in operating expenses into reduction of the cost of goods. That will be in the next phase and we have visibility to do about $15 million to $20 million cost reduction that will come from that effort of cost of goods.

We focus on revenue growth in both the years as we continue to both invest in R&D to develop the products in each of the markets we serve, but also expand geographically and increase the geographical areas we serve and I’ll talk about that in a minute. Our cash utilization, we effectively utilized the cash of the company as was demonstrated already by the share buyback we have completed, Danny will talk about that later, as well as investing in our self, invested in the company, in our growth and expansion globally.

Our factory in Shenzhen, China is one of the key enablers for us to continue to drive efficiencies, to drive cost. This is an award winning factory that has a tremendous quality capabilities, very flexible operation and very effective cycle time. We have implemented recently demand flow technology and mixed line manufacturing in Shenzhen in this factory, which effectively allows to continue to drive efficiency, reducing cost down, reducing of inventories and continuously managing the cycles of our business effectively.

This factory is also a place where we have started moving sub-components of our solar inverter business from their final assembly in test manufacturing site into these factory which will allow us to utilize the assets we have, the tools and methodologies we have developed, to reduce cost and better manage our capital.

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