Advanced Energy Industries, Inc. (NASDAQ:AEIS) Q3 2018 Earnings Conference Call Transcript

Oct 30, 2018 • 08:30 am ET

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Advanced Energy Industries, Inc. (NASDAQ:AEIS) Q3 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good day, ladies and gentlemen, and welcome to the Advanced Energy Industries Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. (Operator Instructions) Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, today's conference is being recorded.

I'd now like to introduce your host for today's conference, Mr. Edwin Mok, VP of Strategic Marketing and IR. Sir, please go ahead.

Executive
Edwin Mok

Thank you, operator. Good morning, everyone. Welcome to Advanced Energy's third quarter 2018 earnings conference call. With me on today's call are Yuval Wasserman, our President and CEO; Paul Oldham, our EVP and CFO; and Brian Smith, our Director of IR. Before we begin, I would like to mention that AE will be participating at the Wells Fargo Tax Summit and the New York City CEO Summit, both in December and the Needham Growth Conference in January. As all these events occur, we'll make additional announcements.

(Forward-Looking Cautionary Statements)

Today's call also includes non-GAAP adjusted financial measures, which exclude the effects of discontinued operations, stock compensation expenses, amortization of intangibles, restructuring charges, acquisition-related costs, and other one-time items. Reconciliation between GAAP and non-GAAP measures are contained in yesterday's earnings release, which is available on our Investor Relations page of our website. We'll be referring to earnings slides posted on the investor section of our website as well.

With that, let me pass the call to Advanced Energy's President and CEO, Yuval Wasserman. Yuval?

Executive
Yuval Wasserman

Thank you, Edwin. Good morning, everyone, and thank you for joining us for our third quarter earnings conference call. Our third quarter results reflected the dynamic demand environment in the semiconductor market. Both our industrial and service revenues again achieved record high, partially offsetting lower semi revenues and resulting in a total revenue decline of 2% year-over-year. In addition, we advanced our diversification growth strategy by completing the acquisition of LumaSense Technologies, expanding our footprint in several industrial technology markets.

Despite the near term challenges in the quarter, we delivered solid financial results, exceeding the midpoint of our revenue and EPS targets with adjusted operating margins of 26%. In semiconductors, the impact of delays in memory expansion by large chip makers drove our semi revenues to decline sequentially and year-over-year. Further, we expect our semi revenues to decline again in the current quarter, as equipment OEMs reduce their finished goods inventories.

Despite the near term weakness, we continue to believe this does represent a normal and modest digestion period within the semiconductor industry with equipment investment impacted largely by yield, technology transition and IC device ASPs. The long-term growth drivers for our semi business, including both the broad underlying demand for semiconductors and the continued increase in the dependence on power supply technology, resulting in growing power content in etch, deposition, and other production processes, remain intact. The base of innovation in semiconductor manufacturing continues at high velocity.

Our customers come to AE for solutions to the toughest technical challenges in scaling both