For more information, contact:

Mike El-Hillow
Advanced Energy Industries, Inc.
970.407.6570
mike.el-hillow@aei.com
Cathy Kawakami,
Advanced Energy Industries, Inc.
970.407.6732
cathy.kawakami@aei.com
 

Advanced Energy Reports Third Quarter 2005 Results

Sales Down 12 Percent Year-Over-Year, Gross Margin Higher By 5 Percent as Operational Improvement Continues

FORT COLLINS, Colo., Oct. 19—Advanced Energy Industries, Inc. (Nasdaq: AEIS) today reported financial results for the third quarter ended September 30, 2005.

(Logo: http://www.newscom.com/cgi-bin/prnh/20030825/AEISLOGO )

For the 2005 third quarter, sales were $82.0 million, down 6.2 percent compared to second quarter 2005 sales of $87.4 million, and down 12.4 percent from third quarter 2004 sales of $93.6 million. Third quarter 2005 gross margin improved to 37.0 percent of sales compared to 36.7 percent of sales in the second quarter of 2005, and 31.8 percent of sales in the third quarter of 2004.

Operating income was $2.5 million for the third quarter of 2005, compared to $5.5 million in the second quarter of 2005, and $1.9 million in the third quarter of 2004. Third quarter 2005 operating income includes a $3.0 million litigation settlement charge.

The net loss for the 2005 third quarter was $3.9 million, or $0.10 per share. Third quarter net loss includes the previously mentioned $3.0 million litigation settlement, $2.1 million related to the early retirement of the convertible debt, and a non-cash charge of $1.1 million related to the write-off of deferred debt issuance costs. The third quarter of 2005 net loss includes a tax provision of $1.6 million on pretax income earned outside of the United States. The company is unable to provide a tax benefit from its U.S. tax-loss carryforwards until it has demonstrated sustained profitability in the United States. Pretax losses were incurred in the third quarter of 2005 in the United States primarily due to the litigation settlement and debt costs detailed above.

Second quarter 2005 net income was $5.9 million, or $0.18 per diluted share. Second quarter 2005 income from continuing operations was $3.3 million, or $0.10 per diluted share. Included in the second quarter 2005 income from continuing operations was an after-tax gain from the sale of certain marketable securities of $1.1 million. The third quarter 2004 net loss was $1.1 million, or $0.03 per share.

Revenue for the nine months ended September 30, 2005 was $255.5 million compared to $306.9 million for the first nine months of 2004. Net income from continuing operations for the 2005 nine-month period was $147,000, or $0.00 per diluted share, compared to net income for the 2004 nine-month period of $10.3 million, or $0.31 per diluted share.

During the third quarter of 2005, the Company completed a public offering of 11.5 million shares. The net proceeds to the Company totaled $105.7 million, which were used toward the redemption of the Company's convertible subordinated notes. The redemption was completed during third quarter of 2005.

Dr. Hans Betz, president and chief executive officer, said, "We were pleased that our operating performance improved despite the lower revenue caused principally by soft demand from the semiconductor equipment customer base. These operational improvements, combined with the recently completed financing and redemption of the convertible debt, have improved our balance sheet as we generated $5.4 million of cash from operations. Our factory in Shenzhen, China is fully operational and we are well positioned for further improvements in capability and capacity.

"Our innovative product portfolio continues to be validated across existing and emerging end markets through additional design wins on an array of technology platforms. We continue to focus on profitable growth opportunities that best leverage our differentiated technology and global infrastructure in the markets we currently serve, and beyond," said Dr. Betz.

"We expect the soft demand environment for semiconductor equipment to continue in the near term. We anticipate fourth quarter 2005 revenue in the $75 million to $80 million range, and earnings per share in the range of $0.05 to $0.07," said Dr. Betz.

Third Quarter Conference Call

Management will host a conference call today, Wednesday, October 19, 2005 at 5:00 pm Eastern time to discuss Advanced Energy's financial results. You may access this conference call by dialing 888-713-4717. International callers may access the call by dialing 706-679-7720. For a replay of this teleconference, please call 706-645-9291, and enter the pass code 9139998. The replay will be available through Wednesday, October 26, 2005. There will also be a webcast available at www.advanced-energy.com.

About Advanced Energy

Advanced Energy is a global leader in the development and support of technologies critical to high-technology manufacturing processes used in the production of semiconductors, flat panel displays, data storage products, solar cells, architectural glass, and other advanced product applications.

Leveraging a diverse product portfolio and technology leadership, Advanced Energy creates solutions that maximize process impact, improve productivity and lower the cost of ownership for its customers. This portfolio includes a comprehensive line of technology solutions in power, flow, thermal management, and plasma and ion beam sources for original equipment manufacturers (OEMs) and end-users around the world.

Advanced Energy operates in regional centers in North America, Asia and Europe and offers global sales and support through direct offices, representatives and distributors. Founded in 1981, Advanced Energy is a publicly held company traded on the Nasdaq National Market under the symbol AEIS. For more information, please visit our corporate website: www.advanced-energy.com.

Safe Harbor Statement

This press release contains certain forward-looking statements, including the company's expectations with respect to Advanced Energy's financial results for the fourth quarter of 2005. Forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to: the volatility and cyclicality of the semiconductor, semiconductor capital equipment and flat panel display industries, Advanced Energy's ongoing ability to develop new products in a highly competitive industry characterized by increasingly rapid technological changes, and other risks described in Advanced Energy's Form 10- K, Forms 10-Q and other reports and statements, as filed with the Securities and Exchange Commission. These reports and statements are available on the SEC's website at www.sec.gov . Copies may also be obtained from Advanced Energy's website at www.advanced-energy.com or by contacting Advanced Energy's investor relations at 970-221-4670. The company assumes no obligation to update the information in this press release.

 

    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
    (in thousands, except per share data)

                                   Three Months Ended       Nine Months Ended
                                 September 30,    June 30,    September 30,
                                 2005     2004      2005     2005      2004

    Sales                       $81,975  $93,550  $87,386  $255,501  $306,906
    Cost of sales                51,635   63,810   55,338   164,038   201,790
    Gross profit                 30,340   29,740   32,048    91,463   105,116

    Operating expenses:
         Research and
          development            10,537   12,576   11,016    32,568    38,795
         Selling, general and
          administrative         13,600   14,382   13,993    40,494    42,273
         Amortization of
          intangible assets         504    1,092      518     1,569     3,387
         Restructuring charges      210     (165)   1,068     2,540       242
         Litigation settlement    3,000       --       --       3,000      --
              Total operating
               expenses          27,851   27,885   26,595    80,171    84,697

    Income from operations        2,489    1,855    5,453    11,292    20,419

    Other expense, net           (4,796)  (1,994)    (719)   (7,602)   (5,566)
    (Loss) income from
     continuing operations
     before income taxes         (2,307)    (139)   4,734     3,690    14,853
    Provision for income taxes   (1,584)    (997)  (1,430)   (3,543)   (4,595)
    (Loss) income from
     continuing operations       (3,891)  (1,136)   3,304       147    10,258

    Gain on sale of
     discontinued assets             --       --    2,645     2,645        --
    Provision for income taxes       --       --       --        --        --

    Income from discontinued
     operations                      --       --    2,645     2,645        --

    Net (loss) income           $(3,891) $(1,136)  $5,949    $2,792   $10,258

    Net (loss) income per
     basic share
     (Loss) income from
      continuing operations      $(0.10)  $(0.03)   $0.10     $0.00     $0.31
     Income from discontinued
      operations                     --       --     0.08      0.08        --
     Basic (loss) earnings per
      share                      $(0.10)  $(0.03)   $0.18     $0.08     $0.31

    Net (loss) income per
     diluted share
     (Loss) income from
      continuing operations      $(0.10)  $(0.03)   $0.10     $0.00     $0.31
     Income from discontinued
      operations                     --       --     0.08      0.08        --
     Diluted (loss) earnings per
      share                      $(0.10)  $(0.03)   $0.18     $0.08     $0.31

    Basic weighted-average
     common shares outstanding   38,366   32,674   32,797    34,639    32,633

    Diluted weighted-average
     common shares outstanding   38,366   32,674   33,094    34,932    33,233



    CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
    (in thousands)

                                                September 30,     December 31,
                                                    2005              2004
    ASSETS

    Current assets:
         Cash and cash equivalents                 $51,824           $38,404
         Marketable securities                       4,032            69,578
         Accounts receivable, net                   72,094            72,053
         Inventories, net                           55,849            73,224
         Other current assets                        2,221             6,140
    Total current assets                           186,020           259,399

    Property and equipment, net                     41,347            44,746

    Deposits and other                               4,559             6,468
    Goodwill and intangibles, net                   71,832            80,308
    Customer service equipment, net                  2,754             2,968
    Deferred debt issuance costs, net                   --             2,086
    Deferred income tax assets, net                  1,748                --

    Total assets                                  $308,260          $395,975


    LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities:
         Trade accounts payable                    $25,470           $17,683
         Other accrued expenses                     27,889            28,615
         Current portion of capital
          leases and senior borrowings               2,440             3,726
         Accrued interest payable on
          convertible subordinated notes                --             2,460
    Total current liabilities                       55,799            52,484

    Long-term liabilities:
        Capital leases and senior
         borrowings                                  2,788             4,679
        Deferred income tax liabilities,
         net                                            --             3,709
        Convertible subordinated notes
         payable                                        --           187,718
        Other long-term liabilities                  2,173             2,407
    Total long-term liabilities                      4,961           198,513

    Total liabilities                               60,760           250,997

    Stockholders' equity                           247,500           144,978
    Total liabilities and stockholders'
     equity                                       $308,260          $395,975



    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
    (in thousands)

                                               Nine Months Ended September 30,
                                                    2005              2004
    NET CASH PROVIDED BY (USED IN)
     OPERATING ACTIVITIES                          $37,865           $(7,053)

    NET CASH PROVIDED BY INVESTING
     ACTIVITIES                                     63,558             8,712

    NET CASH USED IN FINANCING ACTIVITIES          (86,028)           (4,515)

    EFFECT OF CURRENCY TRANSLATION ON
     CASH                                           (1,975)              (82)
    INCREASE (DECREASE) IN CASH AND CASH
     EQUIVALENTS                                    13,420            (2,938)
    CASH AND EQUIVALENTS, beginning of
     period                                         38,404            41,522
    CASH AND EQUIVALENTS, end of period            $51,824           $38,584