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Advanced Energy (AEIS) Q4 Earnings & Revenues Beat, Rise Y/Y

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Advanced Energy Industries, Inc. AEIS reported fourth-quarter 2020 non-GAAP earnings of $1.49 per share, beating the Zacks Consensus Estimate by 9.6%. Further, the bottom line was within the management’s guidance of $1.10 to $1.50 per share.

The bottom line also improved 71.3% from the year-ago quarter but declined 10.2% sequentially.

Revenues of $370.97 million surpassed the Zacks Consensus Estimate of $365.03 million and were within management’s guidance of $340-$380 million. Moreover, the top line rose9.7% from the year-ago quarter but decreased 4.8% from the prior quarter.

The year-over-year improvement in the top line can be attributed to favorable demand conditions. Further, a strong momentum across semiconductor equipment, and telecom and networking contributed well.

Further, a solid performance delivered by the company across North America, Asia and other countries was a major upside.

However, the coronavirus-induced supply-chain constraints remained concerns. Further, weakening momentum across data centers, and industrial and medical was an overhang. Also, softness in the European region was a negative.

Shares of Advanced Energy have returned 40.7% over a year, underperforming the industry’s rally of 72%.

Nevertheless, the company is optimistic about its growing traction across enterprise computing customers. Further, prospects related to 5G remain key levers.

Additionally, positive contribution from Artesyn Embedded Power buyout remains a major positive.

All these factors are likely to help the stock rebound in the near term.

Top Line in Detail

Product revenues rose 8.3% year over year to $337.5 million (91% of total revenues) in the fourth quarter.

Services revenues improved 25.7% from the prior-year quarter to $33.5 million (9% of revenues).

Product Line in Detail

Semiconductor Equipment revenues grew 32.5% year over year to $165.8 million (44.7% of total revenues). The company witnessed heavy investments in foundry/logic, which acted as a boon. Also, hefty NAND memory investments contributed significantlyto the results. Apart from this, strong shipment of eVoS evaluation units was a positive. Further, rising RF design wins remained a tailwind.

Industrial & Medical revenues fell 3.1% year over year to $93.8 million (25.3% of revenues).Sluggishness in the demand for some critical care equipment and elective care applications remained an overhang.

Telecom & Networking revenues were $46.1 million (12.4% of revenues), up 19.9% from the prior-year quarter. Strong 5G investments remained a major positive.

Data Center Computing revenues were $65.3 million (17.6% of revenues), down 16.2% from the year-ago quarter. This was primarily attributed to a weak demand environment, owing to data center digestion among hyperscale customers. Further, a slowdown in IT spending remained worrisome.

Operating Results

In the fourth quarter, non-GAAP gross profit was 39.5%, which expanded 360 basis points (bps) from the year-ago quarter.

Non-GAAP operating expenses were $76.9 million, down 1.4% year over year. As a percentage of revenues, the figure contracted 240 bps from the year-ago quarter to 20.7% in the reported quarter.

Further, non-GAAP operating margin was 18.7%, expanding 590 bps from the prior-year quarter.

Balance Sheet & Cash Flow

As of Dec 31, 2020, cash, cash equivalents and marketable securities were $483.02 million compared with $431.6million as of Sep 30, 2020.

Long-term debt stood at $304.5 million at the end of the fourth quarter, down from $308.8million at the end of the third quarter.

During the fourth quarter, cash flow from operations was $67.1 million compared with $67.5 million in the third quarter.

Further, the company generated free cash flow of $56 million in the reported quarter.

1Q21 Guidance

For first-quarter 2021, Advanced Energy expects non-GAAP earnings between $1.10 and $1.40 per share. The Zacks Consensus Estimate is pegged at $1.28 per share.

Further, the company anticipates revenues of $335-$365 million. The Zacks Consensus Estimate for the same is projected at $367.3 million.

Zacks Rank & Stocks to Consider

Advanced Energy currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are GoDaddy GDDY, CrowdStrike CRWD and Garmin GRMN. All companies carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rates for GoDaddy, CrowdStrike and Garmin are currently pegged at 25%, 25% and 6.8%, respectively.

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