Company Overview

Advanced Energy is a global provider of highly engineered, critical power conversion, measurement, and control solutions. The company designs, manufactures, and supports precision power products that transform, refine, and modify electrical power for a wide range of complex applications. Many of Advanced Energy’s products enable customers to reduce or optimize their energy consumption through increased power conversion efficiency, power density, power coupling, and process control.

Advanced Energy operates as a single segment focused on power electronics conversion products, which are sold into the Semiconductor Equipment, Industrial and Medical, Data Center Computing, and Telecom and Networking markets. In 2024, the company acquired Airity Technologies, which added high voltage power conversion technologies and products to broaden Advanced Energy’s range of targeted applications.

Business Environment and Trends

In 2024, Advanced Energy’s revenue declined 10.5% to $1,482.0 million compared to 2023. This was primarily due to lower demand and customer inventory rebalancing in the Industrial and Medical and Telecom and Networking markets. However, the Semiconductor Equipment market saw a modest recovery from the 2023 trough, and the Data Center Computing market grew due to increased investments in AI by hyperscale customers.

Operating expenses increased 2.9% to $492.7 million, driven by higher stock-based compensation, R&D costs, and restructuring charges. The company initiated further manufacturing consolidation initiatives, including the closure of its Zhongshan, China facility, which resulted in a $29.6 million restructuring charge.

End Markets Summary and Trends

• Semiconductor Equipment: Demand improved in 2024 but remains limited by macroeconomic conditions, weak consumer electronics demand, and U.S. export restrictions to China. Long-term growth drivers are expected to support cyclical recovery.

• Industrial and Medical: Demand declined due to weaker macroeconomic conditions and customers working down elevated inventories. Growth is expected to return after inventories normalize and end markets recover.

• Data Center Computing: Revenue grew in 2024 due to accelerated investments in AI and adoption of new high power solutions. Demand is expected to remain strong in the near term.

• Telecom and Networking: Demand further weakened in 2024 as customers rebalanced elevated inventory levels. Current market conditions are expected to continue for several quarters.

Results of Continuing Operations

Revenue decreased 10.5% to $1,482.0 million, with declines in the Industrial and Medical and Telecom and Networking markets partially offset by growth in Semiconductor Equipment and Data Center Computing.

Gross profit declined 10.6% to $529.3 million, with gross margin remaining relatively flat at 35.7%. The decrease was primarily due to lower volume, partially offset by reduced manufacturing and material costs.

Operating expenses increased 2.9% to $492.7 million, driven by higher stock-based compensation, R&D costs, and restructuring charges related to manufacturing consolidation initiatives.

Operating income from continuing operations declined 67.8% to $36.6 million. Interest income increased 58.2% to $42.9 million due to higher cash balances and interest rates, while interest expense increased 51.5% to $25.1 million.

Income tax benefit was $3.9 million, with an effective tax rate of -7.5%. The lower rate was primarily due to the intercompany transfer of intellectual property and a valuation allowance release in the prior year.

Non-GAAP Results

Management uses non-GAAP measures, such as non-GAAP operating income and non-GAAP earnings per share, to evaluate the business performance excluding the impacts of certain non-cash and non-recurring charges. On a non-GAAP basis, operating income was $150.5 million, or 10.2% of revenue, compared to $206.7 million, or 12.5% of revenue, in the prior year.

Non-GAAP income from continuing operations, net of tax, was $140.3 million, or $3.71 per diluted share, compared to $184.0 million, or $4.88 per diluted share, in 2023.

Liquidity and Capital Resources

As of December 31, 2024, Advanced Energy had $722.1 million in cash and cash equivalents and $600.0 million in available borrowing capacity under its Revolving Facility. The company generated $132.9 million in cash flow from continuing operations in 2024.

In September 2024, Advanced Energy prepaid the full $345.0 million outstanding balance on its Term Loan Facility using existing cash. The company’s only remaining debt is the $575.0 million Convertible Notes due 2028.

During 2024, the company paid $15.4 million in quarterly cash dividends of $0.10 per share and repurchased $1.8 million of its common stock.

Outlook

While Advanced Energy is currently experiencing a lower demand environment in certain markets, the company believes the long-term market growth drivers support its strategy, R&D efforts, and capital investments. However, the timing of inventory digestion and the impact of higher interest rates on customer capital investment remain uncertain and may affect near-term demand and revenue.

The company continues to focus on optimizing its manufacturing and support operations through restructuring initiatives, which are expected to enable a more efficient and cost-effective operating structure by the end of 2026.