Advanced Energy Industries (AEIS)

Q4 2012 Earnings Call

February 05, 2013 8:30 am ET

Executives

Annie Leschin

Garry W. Rogerson - Chief Executive Officer and Director

Yuval Wasserman - President of The Thin Films Business Unit

Gordon B. Tredger - President of Solar Energy Business Unit

Danny C. Herron - Chief Financial Officer and Executive Vice President

Analysts

Krish Sankar - BofA Merrill Lynch, Research Division

James Covello - Goldman Sachs Group Inc., Research Division

Joseph A. Maxa - Dougherty & Company LLC, Research Division

Edwin Mok - Needham & Company, LLC, Research Division

Mehdi Hosseini - Susquehanna Financial Group, LLLP, Research Division

Olga Levinzon - Barclays Capital, Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2012 Advanced Energy Earnings Conference Call. [Operator Instructions]

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to your host for today, Ms. Annie Leschin of Investor Relations. Please proceed.

Annie Leschin

Thank you, operator, and good morning, everyone. Thank you for joining us today for our Fourth Quarter 2012 Earnings Conference Call. With me on today's call are Garry Rogerson, Chief Executive Officer; Danny Herron, Executive Vice President and CFO; Yuval Wasserman, President of the Thin Films Business Unit; and Gordon Tredger, President of the Solar Energy Business Unit.

By now, you should've received your copy of the earnings release that was issued yesterday evening. For a copy of the release, please visit our website at advanced-energy.com or call us directly at (970) 407-4670. This quarter, Advanced Energy will be hosting one-on-one at the Goldman Sachs Technology and Internet Conference on February 13, in San Francisco and at the UBS Small and Mid Cap One-on-One Symposium on February 26 in Boston. The company will also be presenting at the Susquehanna Semiconductor Summit in New York on March 5.

Finally, I'd like to remind everyone that except for the historical financial information contained herein, the matters discussed on this 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, goals 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 our estimates, reserves or allowances, as well as other factors listed in our press release.

These and other risks are described on Forms 10-Q, 10-K and other forms, reports filed with the SEC. In addition, we assume no obligation to update the information that we did provide you during this call, including our guidance provided today and in our press release. Guidance will not be updated after today's call until our next scheduled quarterly financial release.

And now, I'd like to turn the call over to Garry Rogerson, CEO of Advanced Energy. Garry?

Garry W. Rogerson

Good morning and thank you for joining us. As expected, it was a tough quarter but our results met our expectations with total revenues of $113 million, $0.16 of non-GAAP EPS and $19 million in cash generated during the quarter. Our Thin Films business continue to suffer from a lull in capital investment across applications. Though as Yuval will discuss, we are beginning to see initial signs pointing of to a recovery later in the year and into 2014.

Our Solar Energy business is flat in the quarter, reflecting a more normalized fourth quarter pattern in the U.S. market without tax incentives. So the margins were impacted by one contract that included some low margin, balance of system components, that should continue into the first quarter.

I'd like to take a few minutes now to recap our 2012 accomplishments. It was a year of significant change at the company from how we look at costs, to how we grow our existing business and manage our cash. AE has undergone a major transformation and set the stage for our next phase of accelerating profitable growth.

To highlight just a few areas: we consolidated several facilities around the world; we streamlined our workforce to enable a more sustainable level through cyclical peaks and troughs; we transitioned the manufacturing of our solar sub-assemblies to our world-class facility in Shenzhen; and we revamped our equity compensation programs to align management's goals with key financial metrics and to reduce dilution from 4% to 1.5% long-term. In total, we took out more than $30 million from our existing cost structure and have a line of sight to as much as $55 million by the end of 2014 as we discussed as our investors throw an analysts day. This has led to a breakeven of about $90 million per quarter depending on mix, which we believe is sustainable throughout peaks and troughs. We have seen the benefits of instilling a more cost-conscious culture including improved efficiencies at all levels and the further cost reductions primarily in cost of goods and manufacturing costs yet to come.

From a cash standpoint, we have shown an ability to generate and re-allocate cash in a fruitful way. We generated $111 million of cash and executed on a number of strategies to better utilize that cash. We completed a $75 million share repurchase program in less than a year, put another $25 million repurchase program in place and acquired Solvix for our Thin Films business unit.

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