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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

| | |
| ☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the quarterly period ended March 31, 2024 |
| or |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the transition period from to |

Commission File Number: 000-26966

ADVANCED ENERGY INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

| Delaware | 84-0846841 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | |
| 1595 Wynkoop Street, Suite 800, Denver, Colorado | 80202 |
| (Address of principal executive offices) | (Zip Code) |

(970) 407-6626

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, $0.001 par value | AEIS | Nasdaq Global Select Market |

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

| Large accelerated filer þ | Accelerated filer ◻ | Non-accelerated filer ◻ | Smaller reporting company ☐ | Emerging growth company ☐ |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

As of October 27, 2023, there were 37,280,657 As of April 26, 2024, there were 37,442,660 shares of the registrant's common stock, par value $0.001 per share, outstanding.

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

FORM 10-Q

TABLE OF CONTENTS

| | | |
| | | |
| | PART I FINANCIAL INFORMATION | |
| | | |
| ITEM 1. | UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS | 3 |
| | | |
| | Consolidated Balance Sheets | 3 |
| | | |
| | Consolidated Statements of Operations | 4 |
| | | |
| | Consolidated Statements of Comprehensive Income (Loss) | 5 |
| | | |
| | Consolidated Statements of Stockholders' Equity | 6 |
| | | |
| | Consolidated Statements of Cash Flows | 7 |
| | | |
| | Notes to Consolidated Financial Statements | 8 |
| | | |
| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 22 |
| | | |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 34 |
| | | |
| ITEM 4. | CONTROLS AND PROCEDURES | 35 |
| | | |
| | PART II OTHER INFORMATION | |
| | | |
| ITEM 1. | LEGAL PROCEEDINGS | 35 |
| | | |
| ITEM 1A. | RISK FACTORS | 35 |
| | | |
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 36 |
| | | |
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | 36 |
| | | |
| ITEM 4. | MINE SAFETY DISCLOSURES | 36 |
| | | |
| ITEM 5. | OTHER INFORMATION | 36 |
| | | |
| ITEM 6. | EXHIBITS | 37 |
| | | |
| | SIGNATURES | 38 |

2

Table of Contents

PART I FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Balance Sheets

(In thousands, except per share amounts)

| | | | | | | | |
| | | March 31, | | December 31, | |
| | | 2024 | | 2023 | |
| ASSETS | | | | | | | |
| Current assets: | | | | | | | |
| Cash and cash equivalents | | $ | 1,017,780 | | $ | 1,044,556 | |
| Accounts and other receivables, net | | | 270,348 | | | 300,683 |
| Accounts receivable, net | | | 247,510 | | | 282,430 | |
| Inventories | | | 364,003 | | | 376,012 |
| Inventories | | | 361,337 | | | 336,137 | |
| Other current assets | | | 44,990 | | | 48,771 | |
| Total current assets | | | 1,673,473 | | | 1,188,514 |
| Total current assets | | | 1,671,617 | | | 1,711,894 | |
| Property and equipment, net | | | 175,453 | | | 167,665 | |
| Operating lease right-of-use assets | | | 106,167 | | | 95,432 | |
| Other assets | | | 110,027 | | | 84,056 |
| Other assets | | | 135,627 | | | 136,448 | |
| Intangible assets, net | | | 154,390 | | | 161,478 | |
| Goodwill | | | 281,713 | | | 281,433 |
| Goodwill | | | 280,834 | | | 283,840 | |
| TOTAL ASSETS | | $ | 2,493,686 | | $ | 1,992,168 |
| TOTAL ASSETS | | $ | 2,524,088 | | $ | 2,556,757 | |
| | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | |
| Current liabilities: | | | | | | | |
| Accounts payable | | $ | 140,320 | | $ | 170,467 |
| Accounts payable | | $ | 137,934 | | $ | 141,850 | |
| Accrued payroll and employee benefits | | | 49,384 | | | 73,595 | |
| Other accrued expenses | | | 60,094 | | | 66,662 | |
| Customer deposits and other | | | 13,531 | | | 15,997 | |
| Current portion of long-term debt | | | 20,000 | | | 20,000 | |
| Current portion of operating lease liabilities | | | 17,049 | | | 17,744 | |
| Total current liabilities | | | 297,992 | | | 335,848 | |
| Long-term debt, net | | | 891,495 | | | 895,679 | |
| Operating lease liabilities | | | 99,853 | | | 89,330 | |
| Pension benefits | | | 48,567 | | | 49,135 | |
| Other long-term liabilities | | | 43,298 | | | 42,583 | |
| Total liabilities | | | 1,392,815 | | | 925,901 |
| Total liabilities | | | 1,381,205 | | | 1,412,575 | |
| | | | | | | | |
| Commitments and contingencies (Note 15) | | | | | | | |
| | | | | | | | |
| Stockholders' equity: | | | | | | | |
| Preferred stock, $0.001 par value, 1,000 shares authorized, none issued and outstanding | | | - | | | - | |
| Common stock, $0.001 par value, 70,000 shares authorized; 37,280 and 37,429 issued and outstanding at September 30, 2023 37,434 and 37,318 issued and outstanding at March 31, 2024 and December 31, 2023, respectively | | | 37 | | | 37 | |
| Additional paid-in capital | | | 153,643 | | | 148,300 | |
| Accumulated other comprehensive income | | | (1,855) | | | 6,114 | |
| Retained earnings | | | 956,161 | | | 915,270 |
| Retained earnings | | | 991,058 | | | 989,731 | |
| Total stockholders' equity | | | 1,142,883 | | | 1,144,182 | |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | | $ | 2,524,088 | | $ | 2,556,757 | |
| | | | | | | | |

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Operations

(In thousands, except per share amounts)

| | | | | | | | || | | | |
| | | | | | | | |
| | | Three Months Ended September 30, | |Nine Months Ended September 30, |
| | | Three Months Ended March 31, | |
| | | 2023 | | 2022 | | 2023 | | 2022 |
| | | 2024 | | 2023 | |
| Sales, net | | $ | 409,991 | | $ | 516,274 | | $ | 1,250,539 | |$ | 1,354,682 |
| Revenue, net | | $ | 327,475 | | $ | 425,040 | |
| Cost of sales | | | 262,650 | | | 325,056 | | | 801,007 | | | 856,990 |
| Cost of revenue | | | 214,646 | | | 269,929 | |
| Gross profit | | | 147,341 | | | 191,218 | | | 449,532 | | | 497,692 |
| Gross profit | | | 112,829 | | | 155,111 | |
| | | | | | | | |
| Operating expenses: | | | | | | | |
| Research and development | | | 50,391 | | | 49,760 | | | 153,414 | || 141,383 |49,836 | | | 51,610 | |
| Selling, general, and administrative | | | 55,131 | | | 56,716 | | | 166,102 | | | 161,056 |55,124 | | | 55,358 | |
| Amortization of intangible assets | | | 7,049 | | | 7,049 | || 21,186 | | | 19,081 |
| Restructuring | | |4,709 | | | 121 | | | 8,906 | | | 1,178 |
6,947 | | | 7,062 | |
| Restructuring, asset impairments, and other charges | | | 245 | | | 1,043 | |
| Total operating expenses | | | 112,152 | | | 115,073 | |

| Total Operating expenses | | | 117,280 | | | 113,646 | | | 349,608 | | | 322,698 |
| Operating income | | | 677 | | | 40,038 | |
| Operating income | | | 30,061 | | | 77,572 | | |99,924 | | | 174,994 |
| | | | || | | | | | | | |

| | | | | | | | |
| Interest income | | | 12,645 | | | 3,585 | |
| Interest expense | | | (7,127) | | | (2,730) | |

| Other income (expense), net | | | 4,464 | | | 8,940 | | |6,339 | | | 11,347 |1,379 | | | (1,405) | |
| Income from continuing operations, before income tax | | | 34,525 | | | 86,512 | | | 106,263 | || 186,341 |7,574 | | | 39,488 | |
| Provision for Income tax | | | 874 | | | 11,639 | | | 13,405 | | | 29,795 |
| Income tax provision | | | 1,787 | | | 7,736 | |
| Income from continuing operations | | | 33,651 | | | 74,873 | | | 92,858 | || 156,546 |5,787 | | | 31,752 | |
| Loss from discontinued operations, net of income tax | | | (930) | | | (697) | | | (2,076) | || (615) |(571) | | | (831) | |
| Net income | | $ | 32,721 | | $ | 74,176 | | $ | 90,782 | | $ | 155,931 |
| Net income | | $ | 5,216 | | $ | 30,921 | |
| Income from continuing operations attributable to noncontrolling interest | | | - | | | 9 | | | - | | | 16 |
| Net income attributable to Advanced Energy Industries, Inc. | | $ | 32,721 | | $ | 74,167 | | $ | 90,782 | | $ | 155,915 |
| | | | | | | | | | | | | |
| Basic weighted-average common shares outstanding | | | 37,575 | | | 37,379 | | | 37,541 | | | 37,482 |37,359 | | | 37,475 | |
| Diluted weighted-average common shares outstanding | | | 37,854 | | | 37,630 | | | 37,842 | | |37,725 |37,687 | | | 37,757 | |
| | | | | | | | |
| Earnings per share: | | | | | | | |
| Continuing operations: | | | | | | | |
| Basic earnings per share | | $ | 0.90 | | $ | 2.00 | | $ | 2.47 | |$ | 4.18 |0.15 | | $ | 0.85 | |
| Diluted earnings per share | | $ | 0.89 | | $ | 1.99 | | $ | 2.45 | | $ | 4.15 |0.15 | | $ | 0.84 | |
| Discontinued operations: | | | | | | | |
| Basic loss per share | | $ | (0.02) | | $ | (0.02) | |$ | (0.06) | | $ | (0.02) |
| Diluted loss per share | | $ | (0.02) | | $ | (0.02) | |$ | (0.05) | | $ | (0.02) |
| Net income: | | | | | | | |
| Basic earnings per share | | $ | 0.87 | | $ | 1.98 | |$ | 2.42 | | $ | 4.16 |0.14 | | $ | 0.83 | |
| Diluted earnings per share | | $ | 0.86 | | $ | 1.97 | | $ | 2.40 | | $ | 4.13 |0.14 | | $ | 0.82 | |

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

| | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | Three Months Ended March 31, |
| | | 2024 | | 2023 |
| Net income | | $ | 32,721 | | $ | 74,176 | | $ | 90,782 | | $ | 155,931 |
| Net income | | $ | 5,216 | | $ | 30,921 |
| Other comprehensive loss, net of income tax | | | | | | || | | | | |
| Foreign currency translation | | | (5,069) | | | (11,671) | | | (6,798) | | | (24,442) |(6,589) | | | (196) |
| Change in fair value of cash flow hedges | | | (1,822) | | | 2,508 | | | (3,840) | | | 10,447 |
| Minimum pension benefit retirement liability | | | - | | | - | | | (292) | | | 414 |
(1,380) | | | (1,817) |
| Comprehensive income | | $ | 25,830 | | $ | 65,013 | | $ | 79,852 | | $ | 142,350 |
| Comprehensive income (loss) | | $ | (2,753) | | $ | 28,908 |
| Comprehensive income attributable to noncontrolling interest | | | - | | | 9 | | | - | | | 16 |
| Comprehensive income attributable to Advanced Energy Industries, Inc. | | $ | 25,830 | | $ | 65,004 | | $ | 79,852 | | $ | 142,334 |

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Stockholders' Equity

(In thousands, except per share amounts)

| | | | | | | | | | | | | | | | | | |
| | | Advanced Energy Industries, Inc. Stockholders' Equity | | | | | | |
| | | | | | | | | | | | | | | | | || | | |
| | | Common Stock | | | | | | | | | | | | |
| | | | | | | | | | | Accumulated | | | | | | |
| | | | | | | | Additional | | Other | | | | | Non- | | Total |
| | | | | | | | Paid-in | | Comprehensive | | Retained | | controlling | | Stockholders' |
| | | Shares | | Amount | | Capital | | Income (Loss) | | Earnings | | Interest | | Equity |
| Balances, December 31, 2021 | | 37,589 | | $ | 38 | | $ | 115,706 | | $ | (1,216) | | $ | 756,323 | | $ | 645 | | $ | 871,496 |
| Stock issued from equity plans | | 52 | | | - | | | (2,430) | | | - | | | - | | | - | | | (2,430) |
| Stock-based compensation | | - | | | - | | | 3,906 | | | - | | | - | | | - | | | 3,906 |
| Share repurchases | | (82) | | | - | | | (254) | | | - | | | (6,340) | | | | | | (6,594) |
| Dividends declared ($0.10 per share) | | - | | | - | | | - | | | - | | | (3,789) | | | - | | | (3,789) |
| Other comprehensive income | | - | | | - | | | - | | | 1,966 | | | - | | | - | | | 1,966 |
| Net income (loss) | | - | | | - | | | - | | | - | | | 36,778 | | | (14) | | | 36,764 |
| Balances, March 31, 2022 | | 37,559 | | | 38 | | | 116,928 | | | 750 | | | 782,972 | | | 631 | | | 901,319 |
| Stock issued from equity plans | | 63 | | | - | | | 763 | | | - | | | - | | | - | | | 763 |
| Stock-based compensation | | - | | | - | | | 5,016 | | | - | | | - | | | - | | | 5,016 |
| Share repurchases | | (230) | | | (1) | | | (725) | | | - | | | (16,293) | | | - | | | (17,019) |
| Dividends declared ($0.10 per share) | | - | | | - | | | - | | | - | | | (3,806) | | | | | | (3,806) |
| Other comprehensive loss | | - | | | - | | | - | | | (6,384) | | | - | | | - | | | (6,384) |
| Net income | | - | | | - | | | - | | | - | | | 44,970 | | | 21 | | | 44,991 |
| Balances, June 30, 2022 | | 37,392 | | | 37 | | | 121,982 | | | (5,634) | | | 807,843 | | | 652 | | | 924,880 |
| Stock issued from equity plans | | 35 | | | - | | | 256 | | | - | | | - | | | - | | | 256 |
| Stock-based compensation | | - | | | - | | | 5,953 | | | - | | | - | | | - | | | 5,953 |
| Share repurchases | | (34) | | | - | | | (112) | | | - | | | (2,230) | | | - | | | (2,342) |
| Dividends declared ($0.10 per share) | | - | | | - | | | - | | | - | | | (3,812) | | | - | | | (3,812) |
| Other comprehensive loss | | - | | | - | | | - | | | (9,163) | | | - | | | - | | | (9,163) |
| Net income | | - | | | - | | | - | | | - | | | 74,167 | | | 9 | | | 74,176 |
| Balances, September 30, 2022 | | 37,393 | | $ | 37 | | $ | 128,079 | | $ | (14,797) | | $ | 875,968 | | $ | 661 | | $ | 989,948 |
| | | | | | | | | | | | | | | | | | | | | |
| Balances, December 31, 2022 | | 37,429 | | $ | 37 | | $ | 134,640 | | $ | 16,320 | | $ | 915,270 | | $ | - | | $ | 1,066,267 |
| Stock issued from equity plans | | 100 | | | - | | | (1,991) | | | - | | | - | | | - | | | (1,991) |
| Stock-based compensation | | - | | | - | | | 6,543 | | | - | | | - | | | - | | | 6,543 |
| Dividends declared ($0.10 per share) | | - | | | - | | | - | | | - | | | (3,814) | | | - | | | (3,814) |
| Other comprehensive loss | | - | | | - | | | - | | | (2,013) | | | - | | | - | | | (2,013) |
| Net income | | - | | | - | | | - | | | - | | | 30,921 | | | - | | | 30,921 |
| Balances, March 31, 2023 | | 37,529 | | $ | 37 | | $ | 139,192 | | $ | 14,307 | | $ | 942,377 | | $ | 1,095,913 |
| Stock issued from equity plans | | 121 | | | | | | 1 | | | 606 | | | - | | | - | | | - | | | 607 |
| Stock-based compensation | | - | | | - | | | 7,423 | | | - | | | - | | | - | | | 7,423 |
| Dividends declared ($0.10 per share) | | - | | | - | | | - | | | - | | | (3,778) | | | - | | | (3,778) |
| Other comprehensive loss | | - | | | - | | | - | | | (2,026) | | | - | | | - | | | (2,026) |
| Net income | | - | | | - | | | - | | | - | | | 27,140 | | | - | | | 27,140 |
| Balances, June 30, 2023 | | 37,650 | | | 38 | | | 147,221 | | | 12,281 | | | 965,739 | | | - | | | 1,125,279 |
| Balances, December 31, 2023 | | 37,318 | | $ | 37 | | $ | 148,300 | | $ | 6,114 | | $ | 989,731 | | $ | 1,144,182 |
| Stock issued from equity plans | | 116 | | | - | | | (5,327) | | | - | | | - | | | (5,327) |
| Stock-based compensation | | - | | | - | | | 10,591 | | | - | | | - | | | - | | | 7,506 |
| Share repurchases | | (378) | | | (1) | | | (1,530) | | | - | | | (38,469) | | | - | | | (40,000) |
10,591 |
| Dividends declared ($0.10 per share) | | - | | | - | | | - | | | - | | | (3,810) | | | (3,810) |
| Other comprehensive loss | | - | | | - | | | - | | | (6,891) | | | - | | | - | | | (6,891) |(7,969) | | | - | | | (7,969) |
| Warrants and note hedges, net | | - | | | - | | | (40,135) | | | - | | | - | | | - || | (40,135) |
| Deferred compensation | | - | | | - | | | 79 | | | - | | | (79) | | | - |
| Tax impact of convertible notes and note hedges | | - | | | - | | | 26,091 | | | - | | | - | | | - | | | 26,091 |
| Net income | | - | | | - | | | - | | | - | | | 5,216 | | | 5,216 |
| Balances, September 30, 2023 | | 37,280 | | $ | 37 | | $ | 139,283 | | $ | 5,390 | | $ | 956,161 | | $ | - | | $ | 1,100,871 |
| Balances, March 31, 2024 | | 37,434 | | $ | 37 | | $ | 153,643 | | $ | (1,855) | | $ | 991,058 | | $ | 1,142,883 |

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Cash Flows

(In thousands)

| | | | | | | |
| | | Three Months Ended March 31, |
| | | 2024 | | 2023 |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
| Net income | | $ | 90,782 | | $ | 155,931 |
| Net income | | $ | 5,216 | | $ | 30,921 |
| Less: loss from discontinued operations, net of income tax | | | (571) | | | (831) |
| Income from continuing operations, net of income tax | | | 5,787 | | | 31,752 |
| Adjustments to reconcile net income to net cash from operating activities: | | | | | | |
| Depreciation and amortization | | | 16,952 | | | 16,523 |
| Stock-based compensation | | | 11,005 | | | 6,801 |
| Benefit for Deferred income tax | | | (996) | | | (2,496) |
| Amortization of debt issuance costs and debt discount | | | 816 | | | 128 |
| Deferred income tax benefit | | | (9) | | | (617) |
| Loss (gain) on disposal and sale of assets | | | (7) | | | 115 |
| Unrealized gain on investment | | | (441) | | | - |
| Changes in operating assets and liabilities, net of assets acquired | | | | | | |
| Accounts and other receivable, net | | | 35,135 | | | (68,591) |
| Accounts receivable, net | | | 33,444 | | | 13,590 |
| Inventories | | | 9,025 | | | (70,407) |
| Inventories | | | (26,786) | | | (25,699) |
| Other assets | | | 4,121 | | | (11,858) |
| Other assets | | | 2,617 | | | (8,971) |
| Accounts payable | | | (3,001) | | | 16,770 |
| Other liabilities and accrued expenses | | | (32,384) | | | (18,512) |
| Net cash from operating activities from continuing operations | | | 7,993 | | | 31,880 |
| Net cash from operating activities from discontinued operations | | | (710) | | | (2,069) |
| Net cash from operating activities | | | 7,283 | | | 29,811 |
| | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | |
| Purchases of long-term investments | | | (2,092) | | | - |
| Purchases of property and equipment | | | (46,782) | | | (39,507) |
| Acquisitions, net of cash acquired | | | - | | | (145,779) |
(16,629) | | | (16,210) |
| Net cash from investing activities | | | (18,721) | | | (16,210) |
| | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
| Proceeds from long-term borrowings | | | 575,000 | | | - |
| Payment of fees for long-term borrowings | | | (12,985) | | | - |
| Payments on long-term borrowings | | | (5,000) | | | (5,000) |
| Dividend payments | | | (11,422) | | | (11,407) |
| Payment for purchase of note hedges | | | (115,000) | | | - |
| Proceeds from sale of warrants | | | 74,865 | | | - |
| Purchase and retirement of common stock | | | (40,000) | | | (25,955) |
(3,810) | | | (3,814) |
| Net payments related to stock-based awards | | | (5,327) | | | (1,991) |
| Net cash from financing activities | | | (14,137) | | | (10,805) |
| | | | | | | |
| EFFECT OF CURRENCY TRANSLATION ON CASH AND CASH EQUIVALENTS | | | (1,201) | | | 51 |
| | | | | | | |
| NET CHANGE IN CASH AND CASH EQUIVALENTS | | | (26,776) | | | 2,847 |
| CASH AND CASH EQUIVALENTS, beginning of period | | | 1,044,556 | | | 458,818 |
| CASH AND CASH EQUIVALENTS, end of period | | $ | 1,017,780 | | $ | 461,665 |
| | | | | | | |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | | | | | | |
| Cash paid for interest | | $ | 6,302 | | $ | 2,590 |
| Cash paid for income taxes | | $ | 2,471 | | $ | 2,838 |

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Advanced Energy Industries, Inc., a Delaware corporation, and its consolidated subsidiaries ("we," "us," "our," "Advanced Energy," or the "Company") provides highly engineered, critical, precision power conversion, measurement, and control solutions to our global customers. We design, manufacture, sell and support precision power products that transform, refine, and modify the raw electrical power coming from either the utility or the building facility and convert it into various types of highly controllable, usable power that is predictable, repeatable, and customizable to meet the necessary requirements for powering a wide range of complex equipment. Many of our products enable our original equipment manufacturer ("OEM") customers to customers to reduce or optimize their energy consumption through increased power conversion efficiency, power density, power coupling, and process control across a wide range of applications.

Our plasma power solutions enable innovation in complex semiconductor and thin film plasma-based manufacturing processes such as dry etch and deposition. Our broad portfolio of high and low voltage power products is used in a wide range of applications, such as semiconductor equipment, industrial production, medical and life science equipment, data centers computing, networking, and telecommunications. We also supply related sensing, controls, and instrumentation products primarily for advanced measurement and calibration of power and temperature for multiple industrial markets. Our network of global service support centers provides repair services, calibration, conversions, upgrades, refurbishments, and used equipment to companies using our products.

In management's opinion, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly Advanced Energy's financial position as of March 31, 2024, and the results of our operations and cash flows for the three and nine months ended September 30, 2023.and 2022.months ended March 31, 2024 and 2023.

The unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been omitted pursuant to such rules and regulations. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2023 and other financial information filed with the SEC.

Use of Estimates in the Preparation of the Consolidated Financial Statements

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The significant estimates, assumptions, and judgments include, but are not limited to,

| ● | ● |
| ● | ● |
| excess and obsolete inventory, | acquisitions and asset valuations; and |
| ● | ● |
| pension obligations; | income tax and other provisions, |
income taxes and other provisions, and acquisitions and asset valuations.

Significant Accounting Policies

Our accounting policies are described in Note 1 to our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022.

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

2023.

New Accounting Standards

From time to time, the Financial Accounting Standards Board ("FASB") or other standards setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification ("ASC") are communicated through issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, will not have a material impact on the consolidated financial statements upon adoption.

New Accounting Standards Issued But Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07 "Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures." ASU 2023-07 expands disclosure requirements to require additional information about significant segment expenses. In addition, the ASU enhances interim disclosures, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, and provides new disclosures requirements for entities with a single reportable segment. This guidance will be effective for us in our Annual Report on Form 10-K for the year
the FASB issued the following ASUs that we adopted in the current year:

| Issuance Date | ASU | Title |
| March 2020 | 2020-04 | Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting |
| January 2021 | 2021-01 | Reference Rate Reform (Topic 848): Scope |
| December 2022 | 2022-06 | Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 |

This collective guidance provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria that reference LIBOR or another reference rate that is expected to be discontinued.

Our Credit Agreement (see Note 18. Long-Term Debt) and interest rate swap agreements (see Note 7. Derivative Financial Instruments) referenced the one-month USD LIBOR rate. On March 31, 2023, we executed agreements with our debt holders and the counterparties to our interest rate swap agreements to transition the benchmark interest rate from LIBOR to the one-month-USD Term Secured Overnight Financing Rate ("SOFR"). The impact of This transition and the adoption of the above guidance was not material to our consolidated financial statements.

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except per share data)

NOTE 2. ACQUISITIONS

On April 25, 2022, We acquired 100% of the issued and outstanding shares of capital stock of SL Power Electronics Corporation ("SL Power"), which is based in Calabasas, California. We accounted for this transaction as a business combination. This acquisition added complementary products to Advanced Energy's medical power offerings and extended our presence in several advanced industrial markets.
ending December 31, 2024. We do not expect the above guidance to materially impact our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09 "Improvements to Income Tax Disclosures." ASU 2023-09 requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as additional disclosure on income taxes paid. This guidance will be effective for us on January 1, 2025. We do not expect the above guidance to materially impact our consolidated financial statements.
the components of the fair value of the total consideration transferred were as follows:

| | | | |
| Cash paid. for acquisition | | $ | 145,693 |
| Less cash acquired | | | (3,484) |
| Total fair value of purchase consideration | | $ | 142,209 |

We allocated the purchase price consideration to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, with the excess allocated to goodwill.



In March 2024, the U.S. Securities and Exchange Commission (the "SEC") issued climate-related disclosure rules. These rules do not change accounting treatment, but they significantly expand the climate-related information companies are required to disclose. Several petitions were filed challenging these climate-related disclosure rules and, in April 2024, the SEC voluntarily stayed the rules, pending completion of judicial review. We do not expect the above disclosure requirement to materially impact our


| | | | |
| | | Fair Value |
| Current assets and, liabilities, net | | $ | 12,329 |
| Property and equipment | | | 3,567 |
| Operating lease right-of-use assets | | | 4,640 |
| Deferred tax and other liabilities | | | (2,326) |
| Intangible assets | | | 57,600 |
| Goodwill | | | 71,039 |
| Operating lease liability | | | (4,640) |
| Total fair value of net assets acquired | | $ | 142,209 |

the following table summarizes the intangible assets acquired:


| | | | | | | | |
| | | | | | Amortization | | Useful Life |
| | | Fair Value | | Method | | (in years) |
| Customer relationships | | $ | 50,500 | | Straight-line | | 10 |
| Technology | | | 7,100 | | Straight-line | | 5 |
| Total | | $ | 57,600 | | | | |

To estimate the fair value of intangible assets, we used a multi-period excess earnings approach for the customer relationships and a relief from royalty approach for developed technology. Goodwill represents SL Power's assembled workforce and the expected operating synergies from combining operations. We expect virtually all of the goodwill to be deductible for tax purposes.

10

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED consolidated financial statements. - (Continued)

We are evaluating the disclosure requirements and changes to our business processes, systems, and controls to support the additional disclosures.

NOTE 2. REVENUE

Disaggregation of revenue

The following tables present additional information regarding our revenue:

Revenue by Market

| | | | | | | || | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | Three Months Ended March 31, |
| | | 2024 | | 2023 |
| Semiconductor Equipment | | $ | 185,033 | | $ | 266,600 | | $ | 552,419 | | $ | 698,354 |179,903 | | $ | 194,209 |
| Industrial and Medical | | | 115,226 | | | 119,587 | | | 365,849 | | | 307,436 |83,418 | | | 123,020 |
| Data Center Computing | | | 68,286 | | | 87,542 | | | 187,021 | | | 232,941 |
| Data Center Computing | | | 41,902 | | | 59,659 |
| Telecom and Networking | | | 41,446 | | | 42,545 | | | 145,250 | | | 115,951 |22,252 | | | 48,152 |
| Total | | $ | 409,991 | | $ | 516,274 | | $ | 1,250,539 | | $ | 1,354,682 |
| Total | | $ | 327,475 | | $ | 425,040 |

Revenue by Region

| | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | Three Months Ended March 31, | | |
| | | 2023 | | 2022 | | 2023 | | 2022 |
| | | 2024 | | | 2023 | | |
| North America | | $ | 184,783 | | $ | 238,115 | | $ | 537,241 | | $ | 626,953 |
| North America | | $ | 134,079 | | 40.9 | % | | $ | 180,942 | | 42.5 | % | |
| Asia | | | 178,190 | | | 215,401 | | | 543,871 | | | 557,629 |
| Asia | | | 151,943 | | 46.4 | | | | 179,183 | | 42.2 | | |
| Europe | | | 46,088 | | | 61,456 | | | 164,867 | | | 157,972 |
| Europe | | | 40,553 | | 12.4 | | | | 62,566 | | 14.7 | | |
| Other | | | 930 | | | 1,302 | | | 4,560 | | | 12,128 |
| Other | | | 900 | | 0.3 | | | | 2,349 | | 0.6 | | |
| Total | | $ | 409,991 | | $ | 516,274 | | $ | 1,250,539 | | $ | 1,354,682 |
| Total | | $ | 327,475 | | 100.0 | % | | $ | 425,040 | | 100.0 | % | |

Revenue by Significant Countries

| | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | Three Months Ended March 31, | | |
| | | 2024 | | | 2023 | | 2022 |
| United States | | $ | 156,710 | | $ | 179,205 | | $ | 457,325 | | $ | 530,240 |
| United States | | $ | 107,816 | | 32.9 | % | | $ | 153,506 | | 36.1 | % | |
| Taiwan | | | 39,473 | | 12.1 | | | | 36,361 | | 8.6 | | |
| China | | | 41,391 | | | 53,522 | | | 132,039 | | | 139,652 |
| China | | | 18,891 | | 5.8 | | | | 37,456 | | 8.8 | | |
| All others | | | 211,890 | | | 283,547 | | | 661,175 | | | 684,790 |
| All others | | | 161,295 | | 49.2 | | | | 197,717 | | 46.5 | | |
| Total | | $ | 409,991 | | $ | 516,274 | | $ | 1,250,539 | | $ | 1,354,682 |
| Total | | $ | 327,475 | | 100.0 | % | | $ | 425,040 | | 100.0 | % | |

9

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except per share data)

We attribute revenue to individual countries and regions based on the customer's ship to location. Apart from the United States and Taiwan, no revenue attributable to any individual country exceeded 10% of our total consolidated revenues in the three and nine months ended September 30, 2023 and 2022.during the periods presented.

Revenue by Category

| | | | | | | | |
| | | Three Months Ended September 30, | |Nine Months Ended September 30, |
| | | Three Months Ended March 31, | |
| | | 2023 | | 2022 | | 2023 | |2022 |
| | | 2024 | | 2023 | |
| Product | | $ | 369,129 | | $ | 471,627 | | $ | 1,118,284 | |$ | 1,238,480 |
| Product | | $ | 286,264 | | $ | 379,274 | |
| Services | | | 40,862 | | | 44,647 | | |132,255 | | | 116,202 |
| Services and other | | | 41,211 | | | 45,766 | |
| Total | | $ | 409,991 | | $ | 516,274 | | $ | 1,250,539 | | $ | 1,354,682 |
| Total | | $ | 327,475 | | $ | 425,040 | |

Other revenue includes certain spare parts and products sold by our service group.

Significant Customers

During the three months ended March 31, 2024, Applied Materials, Inc. and Lam Research Corporation accounted for 30% and 10%, respectively, of our total revenue. During the three months ended March 31, 2023, Applied Materials Inc. accounted for 21% of our total revenue.
our remaining performance obligations primarily relate to customer purchase orders for products we have not yet shipped. We expect to fulfill the majority of these performance obligations within one year.

11

As of March 31, 2024, the account receivable balance from Applied Materials, Inc. and Lam Research Corporation accounted for 37% and 10%, respectively, of our total accounts receivable. As of December 31, 2023, the account receivable balance from Applied Materials, Inc. accounted for 26% of our total accounts receivable. No other customer's account receivable exceeded 10% of our total accounts receivable in the periods presented.

ADVANCED ENERGY INDUSTRIES, Inc.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except per share data)

NOTE 3. INCOME TAX

The following table summarizes tax expense and the effective tax rate for our income from continuing operations:

| | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| | | Three Months Ended March 31, | |
| | | 2023 | | 2022 | | 2023 | |2022 | |
| | | 2024 | | 2023 | |
| Income from continuing operations, before income tax | | $ | 34,525 | | $ | 86,512 | | $ | 106,263 | | $ | 186,341 | |7,574 | | $ | 39,488 | |
| Provision for Income tax | | $ | 874 | | $ | 11,639 | | $ | 13,405 | | $ | 29,795 | |
| Income tax provision | | $ | 1,787 | | $ | 7,736 | |
| Effective tax rate | | | 2.5% | | | 13.5% | | | 12.6% | | | 16.0% | |
| Effective tax rate | | | 23.6 | % | | 19.6 | % |

Our effective tax rates differ from the U.S. federal statutory rate of 21% for the three and nine months ended September 30, 2023 and 2022, months ended March 31, 2024 and 2023, primarily due to the benefit of earnings in foreign jurisdictions which are subject to lower tax rates, as well as tax credits, partially offset by net U.S. tax on foreign operations. The effective tax rate for the three and nine months ended September 30, 2023 was lower 2024 was higher than the same periods in 2023 primarily due to unfavorable mix of earnings.

As of January 1, 2024, the Pillar II minimum global effective tax rate of 15% enacted by the Organization for Economic Cooperation and Development ("OECD") was effectuated. More than 140 countries agreed to enact the Pillar II global minimum tax. However, the timing of the implementation for each country varies. To date, we have determined that there was an immaterial global minimum tax liability as a result of Pillar II, as certain tax jurisdictions either will not have Pillar II enacted until after December 31, 2024 or satisfied the safe harbor test to prevent any minimum tax under Pillar II. We continue to monitor the jurisdictions for any changes and include any appropriate minimum tax throughout the year.
the greater impact of beneficial discrete items primarily related to tax. strategies we implemented in the three months ended September 30, 2023 relative to the beneficial discrete items recorded in the three months ended September 30, 2022.


10

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except per share data)

NOTE 4. STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE

Accumulated Other Comprehensive Income

The following table summarizes the components of, and changes in, accumulated other comprehensive income

The following table summarizes our earnings per share ("EPS"):
(loss), net of income taxes.

| | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | | Foreign Currency Translation | | | Change in Fair Value of Cash Flow Hedges | | | Minimum Pension Benefit Retirement Liability | | | Total |

| | | 2023 | | 2022 | | 2023 | | 2022 |

| Income from continuing operations | | $ | 33,651 | | $ | 74,873 | | $ | 92,858 | | $ | 156,546 |
| Balance at December 31, 2023 | | $ | (10,796) | | $ | 5,474 | | $ | 11,436 | | $ | 6,114 |
| Less: income from continuing operations attributable to noncontrolling interest | | | - | | | 9 | | | - | | | 16 |
| Other comprehensive income prior to reclassifications | | | (6,589) | | | 1,405 | | | - | | | (5,184) |
| Income from continuing operations attributable to Advanced Energy Industries, Inc. | | $ | 33,651 | | $ | 74,864 | | $ | 92,858 | | $ | 156,530 |
| Amounts reclassified from accumulated other comprehensive income | | | - | | | (2,785) | | | - | | | (2,785) |
| Balance at March 31, 2024 | | $ | (17,385) | | $ | 4,094 | | $ | 11,436 | | $ | (1,855) |

Amounts reclassified from accumulated other comprehensive income (loss) to the specific caption within the
Consolidated Statements of Operations were as follows:

| | | | | | |
| | | Three Months Ended March 31, | | To Caption on |
| | | | | |
| Basic weighted-average common shares outstanding | | | 37,575 | || 37,379 | | | 37,541 | | |37,482 |
| | | 2024 | | Consolidated Statements of Operations |
| Cash flow hedges | | $ | (2,785) | | Interest expense |

Earnings Per Share

The following table summarizes our earnings per share ("EPS"):

| Dilutive effect of stock awards | | | 279 | | | 251 | || 301 | | | 243 |
| | | | | | | | |
| | | Three Months Ended March 31, | |

| Diluted weighted-average common shares outstanding | | | 37,854 | | |37,630 | | | 37,842 | | | 37,725 |
| | | | || | | | | | | | |

| | | 2024 | | 2023 | |
| Income from continuing operations | | $ | 5,787 | | $ | 31,752 | |
| | | | | | | | |

| | | | | | | | || | | | |
| EPS from continuing operations | | | || | | | | | | | |

| | | | | | | | |
| Basic weighted-average common shares outstanding | | | 37,359 | | | 37,475 | |
| Dilutive effect of stock awards | | | 328 | | | 282 | |

| Basic EPS | | $ | 0.90 | | $ | 2.00 | |$ | 2.47 | | $ | 4.18 |
| Diluted EPS | | $ |0.89 | | $ | 1.99 | | $ | 2.45 | | $ | 4.15 |

| Diluted weighted-average common shares outstanding | | | 37,687 | | | 37,757 | |
| | | | | | | | |
| | | | | | | | |

| | | | | | | | || | | | |
| | | | || | | | | | | | |

| EPS from continuing operations | | | | | | | |
| Basic EPS | | $ | 0.15 | | $ | 0.85 | |
| Diluted EPS | | $ | 0.15 | | $ | 0.84 | |

| Anti-dilutive shares not included above | | | | | | | || | | | |
| Stock awards | | |27 | | | 121
| | | | | | | | |
| | | | | | | | |
| Anti-dilutive shares not included above | |
| | | 84 | | | 58 |
| Stock awards | | | 28 | | | 102 | |
| Convertible Notes | | | 1,448 | | | - | || 1,448 | | | - |
| Warrants | | | 3,194 | | | - | |
| Total anti-dilutive shares | | | 3,222 | | | 102 | |

11

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except per share data)

We compute basic earnings per share of common stock ("Basic EPS") by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period.

See Note 16. Long-Term Debt for information regarding our Convertible Notes, Note Hedges, and Warrants. For diluted earnings per share of common stock ("Diluted EPS"), we increase the weighted-average number of common shares outstanding during the period, as needed, to include the following:

| | ● | Dilutive impact associated with the Convertible Notes using the if-converted method. The Convertible Notes are repayable in cash up to par value and in cash or shares of common stock for the excess over par value. When the stock price is lower than the strike price, there is no dilutive or anti-dilutive impact. Prior to conversion, we do not consider the Note Hedges for purposes of Diluted EPS as their effect would be anti-dilutive. Upon conversion, we expect the Note Hedges to offset the dilutive effect of the Convertible Notes when the stock price is above $137.46 but below $179.76; |
| | ● | Additional common shares that would have been outstanding if our outstanding stock awards had been converted to common shares using the treasury stock method. We exclude any stock awards that have an anti-dilutive effect; and |
| | ● | Dilutive effect of the Warrants issued concurrently with the Convertible Notes using the treasury stock method. For all periods presented, the Warrants did not increase the weighted-average number of common shares outstanding because the $179.76 exercise price of the Warrants exceeded the average market price of our common stock. |

Share Repurchase

To repurchase shares of our common stock, we periodically enter into stock repurchase agreements. The following table summarizes these repurchases:

| | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in thousands, except per share amounts) | | 2023 | | 2022 | | 2023 | | 2022 |
| Amount paid or accrued to repurchase shares | | $ | 40,000 | | $ | 2,342 | | $ | 40,000 | | $ | 25,955 |
| Number of shares repurchased | | | 378 | | | 34 | | | 378 | | | 346 |
| Average repurchase price per share | | $ | 105.74 | | $ | 69.39 | | $ | 105.74 | | $ | 75.07 |

There were no shares repurchased from related parties. Repurchased shares were retired and assumed the status of authorized and unissued shares.

At September 30, 2023,
At March 31, 2024, the remaining amount authorized by the Board of Directors ("the Board") for future share repurchases was $199.2 million with no time limitation.

13

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

There were no share repurchases during any periods presented.

NOTE 5. FAIR VALUE MEASUREMENTS

The following tables present information about our assets and liabilities measured at fair value on a recurring basis:

| | | | | | | | | | | | | | | |
| | | | | March 31, 2024 |
| Description | | Balance Sheet Classification | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | | | | | Fair Value |
| Certificates of deposit | | Other current assets | | $ | - | | $ | 177 | | $ | - | | $ | 177 |
| Foreign currency forward contracts | | Other accrued expenses | | | - | | | 195 | | | - | | | 195 |
| Interest rate swaps | | Other current assets | | | - | | | 5,211 | | | - | | | 5,211 |
| Net assets measured at fair value on a recurring basis | || Investments | | Other assets | | $ | - | | | 8,519 | | $ | - | | | 8,519 |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | December 31, 2023 |
| Description | | Balance Sheet Classification | | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | | | | | Fair Value |
| Certificates of deposit | | Other current assets | | $ | - | | $ | 163 | | $ | - | | $ | 163 |
| Interest rate swaps | | Other assets | | | - | | | 6,995 | | | - | | | 6,995 |
| Net assets measured at fair value on a recurring basis | || Investments | | Other assets | | $ | - | | | 5,952 | | $ | - | | | 5,952 |

For all periods presented, there were no transfers into or out of Level 3.
12

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except per share data)

NOTE 6. DERIVATIVE FINANCIAL INSTRUMENTS

Changes in foreign currency exchange rates impact our results of operations and cash flows. We may manage these risks through the use of derivative financial instruments, primarily forward contracts with banks. These forward contracts manage the exchange rate risk associated with assets and liabilities denominated in nonfunctional currencies. Typically, we execute these derivative instruments for one-month periods and do not designate them as hedges; however, they do partially offset the economic fluctuations of certain of our assets and liabilities due to foreign exchange rate changes.

The following table summarizes the notional amount of outstanding foreign currency forward contracts:

| | | | | | | |
| | | March 31, | | December 31, |
| | | 2024 | | 2023 |
| Foreign currency forward contracts | | $ | 86,825 | | $ | - |

Gains and losses related to foreign currency exchange contracts were offset by corresponding gains and losses on the revaluation of the underlying assets and liabilities. Both are included as a component of other income (expense), net in our Consolidated Statements of Operations.

We have executed interest rate swap contracts with independent financial institutions to partially reduce the variability of cash flows in LIBOR indexed debt interest payments on our Term Loan Facility (under our existing Credit Agreement, see Note 18. Long-Term Debt). On March 31, 2023, we executed agreements with our debt holders and the counterparties to our interest rate swap agreements to transition the benchmark interest rate from LIBOR to SOFR. that fix a portion of the interest payments related to the outstanding principal balance on our Term Loan Facility to a total interest rate of 1.172%. The interest rate swap contracts expire on September 10, 2024 and are accounted for as cash flow hedging instruments.

14

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except per share data)

the interest rate swap contracts fix a portion of the outstanding principal balance on our Term Loan Facility.to a total interest rate of 1.172%. This is comprised of a 0.322% average fixed rate per annum in exchange for a variable interest rate based on SOFR plus the credit spread in our existing Credit Agreement (see Note 18. Long-Term Debt), which is 75 basis points at current leverage ratios plus a LIBOR to SOFR transitional rate adjustment of 0.10%.

See Note 16. Long-Term Debt for information regarding the Term Loan Facility.

The following table summarizes the notional amount of our qualified hedging instruments:

| | | | | | | |
| | | March 31, | | December 31, |
| | | 2024 | | 2023 |
| Interest rate swap contracts | | $ | 216,344 | | $ | 220,719 |

The following table summarizes the amounts, net of tax, recorded in accumulated other comprehensive income on the Consolidated Balance Sheets for qualifying hedges.

| | | | | | | |
| | | March 31, | | December 31, |
| | | 2024 | | 2023 |
| Interest rate swap contract gains | | $ | 4,094 | | $ | 5,350 |

See Note 6. Fair Value Measurements for information regarding fair value of derivative instruments.

As a result of using derivative financial instruments, we are exposed to the risk that counterparties to contracts could fail to meet their contractual obligations. We manage this credit risk by reviewing counterparty creditworthiness on a regular basis and limiting exposure to any single counterparty.

13

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except per share data)

NOTE 7. ACCOUNTS RECEIVABLE, NET

NOTE 8. ACCOUNTS AND OTHER RECEIVABLES, NET

We record accounts and other receivables at net realizable value.We record accounts receivable at net realizable value. Our accounts receivable, net balance on the Consolidated Balance Sheets was $247.5 million at March 31, 2024. The following table summarizes the changes in expected credit losses related to receivables:

| | | | |
| December 31, 2023 | | $ | 1,762 |
| Additions | | | 33 |
| Deductions - write-offs, net of recoveries | | | (297) |
| March 31, 2024 | | $ | 1,795 |
| Foreign currency translation | | | (5) |
| September 30, 2023 | | $ | 1,732 |

NOTE 8. INVENTORIES

We value inventories at the lower of cost or net realizable value, computed on a first-in, first-out basis. Components of inventories were as follows:

| | | | | | | |
| | | March 31, | | December 31, |
| | | 2024 | | 2023 |
| Parts and raw materials | | $ | 264,042 | | $ | 249,698 |
| Work in process | | | 15,730 | | | 14,595 |
| Finished goods | | | 81,565 | | | 71,844 |
| Total | | $ | 364,003 | | $ | 376,012 |
| Total | | $ | 361,337 | | $ | 336,137 |

15

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except per share data)

NOTE 9. PROPERTY AND EQUIPMENT, NET

Property and equipment, net is comprised of the following:

| | | | | | | | | |
| | | Estimated Useful | | March 31, | | December 31, |
| | | Life (in years) | | 2024 | | 2023 |
| Buildings, machinery, and equipment | | 5 to 25 | | $ | 196,042 | | $ | 191,744 |
| Software | | 3 to 10 | | | 29,905 | | | 24,526 |
| Computer equipment, furniture, fixtures, and vehicles | | 3 to 5 | | | 19,430 | | | 19,281 |
| Leasehold improvements | | 2 to 10 | | | 81,365 | | | 79,764 |
| Construction in process | | | | | 19,525 | | | 18,226 |
| Capital projects in process | | | | | 25,159 | | | 21,721 |
| | | | | | 351,901 | | | 337,036 |
| Less: Accumulated depreciation | | | | | (176,448) | | | (169,371) |
| Property and equipment, net | | | | $ | 175,453 | | $ | 167,665 |

The following table summarizes depreciation expense. All depreciation expense is recorded in income from continuing operations:

| | | | | | | | |
| | | Three Months Ended September 30, | |Nine Months Ended September 30, |
| | | Three Months Ended March 31, | |
| | | 2023 | | 2022 | | 2023 | |2022 |
| | | 2024 | | 2023 | |
| Depreciation expense | | $ | 9,749 | | $ | 8,507 | | $ | 28,578 | | $ | 25,352 |
| Depreciation expense | | $ | 10,005 | | $ | 9,461 | |

NOTE 11. GOODWILL

The following table summarizes the changes in goodwill:

| | | | | |
| December 31, 2022 | | $ | 281,433 | |
| Measurement period adjustments | | | 353 | |
| Foreign currency translation | | | (73) | |
| September 30, 2023 | | $ | 281,713 | |

14

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except per share data)

NOTE 10. INTANGIBLE ASSETS AND GOODWILL

Intangible assets consisted of the following:

| | | | | | | | | | | | |
| | | March 31, 2024 |
| | | Gross Carrying | | Accumulated | | Net Carrying | | Weighted Average Remaining |
| | | Amount | | Amortization | | Amount | | Useful Life (in years) |
| Technology | | $ | 97,171 | | $ | (56,574) | | $ | 40,597 |
| Technology | | $ | 97,514 | | $ | (63,086) | | $ | 34,428 | | 6.9 |
| Customer relationships | | | 167,981 | | | (61,451) | | | 106,530 | | 9.3 |
| Trademarks and other | | | 27,040 | | | (12,336) | | | 14,704 |
| Trademarks and other | | | 27,104 | | | (13,672) | | | 13,432 | | 5.3 |
| Total | | $ | 291,691 | | $ | (123,480) | | $ | 168,211 |
| Total | | $ | 292,599 | | $ | (138,209) | | $ | 154,390 | | 8.4 |
| | | | | | | | | | | | |
| | | December 31, 2023 |
| | | Gross Carrying | | Accumulated | | Net Carrying | | Weighted Average Remaining |
| | | Amount | | Amortization | | Amount | | Useful Life (in years) |
| Technology | | $ | 97,237 | | $ | (47,196) | | $ | 50,041 |
| Technology | | $ | 97,961 | | $ | (60,412) | | $ | 37,549 | | 6.8 |
| Customer relationships | | | 168,685 | | | (58,835) | | | 109,850 | | 9.5 |
| Trademarks and other | | | 27,036 | | | (10,408) | | | 16,628 |
| Trademarks and other | | | 27,141 | | | (13,062) | | | 14,079 | | 5.6 |
| Total | | $ | 291,904 | | $ | (102,378) | | $ | 189,526 |

| Total | | $ | 293,787 | | $ | (132,309) | | $ | 161,478 | | 8.5 |
At September 30, 2023, the weighted average remaining useful life of intangibles subject to amortization was approximately 8.7 years.

Amortization expense related to intangible assets is as follows:

| | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | Three Months Ended March 31, |
| | | 2023 | | 2022 | | 2023 | | 2022 |
| | | 2024 | | 2023 |
| Amortization expense | | $ | 7,049 | | $ | 7,049 | | $ | 21,186 | | $ | 19,081 |
| Amortization expense | | $ | 6,947 | | $ | 7,062 |

Estimated amortization expense related to intangibles is as follows:

| | | | |
| Year Ending December 31, | | | |
| 2024 (remaining) | | $ | 18,259 |
| 2025 | | | 20,988 |
| 2026 | | | 19,272 |
| 2027 | | | 17,366 |
| 2028 | | | 16,131 |
| Thereafter | | | 62,374 |
| Total | | $ | 154,390 |

NOTE 13. RESTRUCTURING COSTS

In The fourth quarter of 2022, we approved a restructuring plan (the "2022 Plan"), which is expected to further improve our operating efficiencies and drive the realization of synergies from our business combinations by consolidating our operations, optimizing our factory footprint, including moving certain production into our higher volume factories, reducing redundancies, and lowering our cost structure. The majority of these actions impact our factory operations and should partially mitigate the impact of lower volumes on gross margins. Although we expect additional charges under this plan as we refine and execute our actions, we anticipate the 2022 Plan will be substantially completed, and associated expenses will be incurred, by the end of 2024
The following table summarizes the changes in goodwill:

| | | | |
| December 31, 2023 | | $ | 283,840 |
| Foreign currency translation and other | | | (3,006) |
| March 31, 2024 | | $ | 280,834 |

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except per share data)

In 2018, we committed to a RESTRUCTURING, plan (the "2018 Plan") to optimize our manufacturing footprint and to improve our operating efficiencies and synergies related to business combinations. We incurred severance costs primarily related to the transition AND exit of our facility in Shenzhen, China and actions associated with synergies related to the acquisition of Artesyn Embedded Technologies, Inc.'s embedded power business. This plan is substantially complete with the closure of our Shenzhen facility in February 2023.
NOTE 11. RESTRUCTURING, ASSET IMPAIRMENTS, AND OTHER CHARGES

Details of restructuring, asset impairments, and other charges are as follows:


The tables below summarize the charges related to our restructuring plans:

| | | | | | | | |
| | | Three Months Ended March 31, | |
| | | | | | | | | || | | |
| | | Three Months Ended September 30, | |Nine Months Ended September 30, |

| | | 2024 | | 2023 | |
| Restructuring | | $ | (31) | | | 1,043 | |

| | | 2023 | | 2022 | | 2023 | | 2022 |
| Other charges | | | 276 | | | - | |
| Severance and related charges | | $ | 4,709 | | $ | 121 | | $ | 8,906 | | $ |833 |
| Total restructuring, asset impairments, and other charges | | $ | 245 | | $ | 1,043 | |

Restructuring

We have two restructuring plans in process:

2023 Plan

In 2023, we approved a plan intended to optimize and further consolidate our manufacturing operations and functional support groups as well as a general reduction-in-force to align our expenses to revenue levels (the "2023 Plan"). We expect additional charges of $1.0 million to $2.0 million to be incurred in future periods through the second quarter of 2025. We anticipate the 2023 Plan will be substantially completed by the end of 2024, with the final activities concluding in the second quarter 2025.

2022 Plan

This plan was approved to further improve our operating efficiencies and drive the realization of synergies from our business combinations by consolidating our operations, optimizing our factory footprint, including moving certain production into our higher volume factories, reducing redundancies, and lowering our cost structure. We anticipate the 2022 Plan will be substantially completed by the end of 2024.

Our restructuring liabilities are included in other accrued expenses in our Consolidated Balance Sheets. Changes in restructuring liabilities were as follows:

| | | - | | | - | | | - | | | | |
| Total restructuring charges | | $ | 4,709 | | $ | 121 | | $ |8,906 | | $ | 1,178 || | | 2023 Plan | | 2022 Plan | | Other | | Total |
| December 31, 2023 | | $ | 14,224 | | $ | 2,930 | | $ | 188 | | $ | 17,342 |


| | | | | | | | | | |
| | | Cumulative Cost Through |
| | | September 30, 2023 |
| | | 2022 Plan | | 2018 Plan | | Total |

| Costs incurred and charged to expense | | | (88) | | | 57 | | | - | | | (31) |
| Severance and related charges | | $ | 14,792 | | $ | 20,963 | | $ | 35,755 |
| Facility relocation and closure charges | || - | | | 7,160 | | | 7,160 |

| Costs paid or otherwise settled | | | (4,099) | | | (2,220) | | | (188) | | | (6,507) |
| March 31, 2024 | | $ | 10,037 | | $ | 767 | | $ | - | | $ | 10,804 |

| Total restructuring charges | | $ | 14,792 | | $ | 28,123 | | $ | 42,915 |

Charges related to our restructuring plans are as follows:
our restructuring liabilities are included in other accrued expenses in our Consolidated Balance Sheets. Changes in restructuring liabilities were as follows:

| | | | | | | |
| | | | | | | |
| | | 2022 Plan || 2018 Plan | | Total |
| | | Three Months Ended March 31, |
| | | 2024 | | 2023 |

| December 31, 2022 | | $ | 5,788 | | $ | 1,422 || $ | 7,210 |
| Costs incurred and charged to expense | | | 9,004 | | | (98) || | 8,906 |

| Severance and related charges | | $ | (31) | | $ | 1,043 |

| | | | | | | | | | |
| | | Cumulative Cost Through |

| Costs paid or otherwise settled | | |(8,314) | | | (960) | | | (9,274) |
| | | March 31, 2024 |
| | | 2023 Plan | | 2022 Plan | | Total |

| September 30, 2023 | | $ | 6,478 | | $ | 364 | | $ | 6,842 |
| Severance and related charges | | $ | 17,015 | | $ | 14,044 | | $ | 31,059 |

Other Charges

In connection with vacating and relocating facilities, we incurred other charges of $0.3 million.

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except per share data)

NOTE 12. WARRANTIES

Our sales agreements include customary product warranty provisions, which generally range from 12 to 36 months after shipment. We record the estimated warranty obligations cost when we recognize revenue. This estimate is based on historical experience by product and configuration.

Our estimated warranty obligation is included in other accrued expenses in our Consolidated Balance Sheets. Changes in our product warranty obligation were as follows:

| | | | ||
| December 31, 2023 | | $ | 4,007 |
| Net increases to accruals | | | 436 |
| Warranty expenditures | | | (595) |
| Effect of changes in exchange rates | | | 139 |
| March 31, 2024 | | $ | 3,987 |

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except per share data)

NOTE 13. LEASES

Components of total operating lease cost were as follows:

| | | | | | | | |
| | | Three Months Ended September 30, | |Nine Months Ended September 30, |
| | | Three Months Ended March 31, | |
| | | 2023 | | 2022 | | 2023 | |2022 |
| | | 2024 | | 2023 | |
| Operating lease cost | | $ | 5,629 | | $ | 5,613 | | $ | 16,965 | | $ | 17,061 |
| Operating lease cost | | $ | 5,860 | | $ | 5,680 | |
| Short-term and variable lease cost | | | 1,100 | | | 1,177 | | | 3,170 | | |3,516 |667 | | | 1,083 | |
| Total operating lease cost | | $ | 6,729 | | $ | 6,790 | | $ | 20,135 | | $ | 20,577 |6,527 | | $ | 6,763 | |

Payments on our operating lease liabilities are as follows:

| | | | |
| Year Ending December 31, | | | |
| 2024 (remaining) | | $ | 17,405 |
| 2025 | | | 20,576 |
| 2026 | | | 17,968 |
| 2027 | | | 15,529 |
| 2028 | | | 15,168 |
| Thereafter | | | 60,360 |
| Total lease payments | | | 147,006 |
| Less: Interest | | | (30,104) |
| Present value of lease liabilities | | $ | 116,902 |

In addition to the above, we have lease agreements that commence in October 2023 with total payments of $31.8 million through 2036.with total payments of $36.3 million that commence on various dates in 2024 and 2025 and extend through 2040.

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except per share data)

The following tables present additional information about our lease agreements:

| | | | | | | | | |
| | | | March 31, | | | | December 31, | |
| | | 2024 | | | 2023 | |
| Weighted average remaining lease term (in years) | | | 8.5 | | | | 8.3 | |
| Weighted average discount rate | | | 5.2 | % | | | 5.0 | % |

| | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | Three Months Ended March 31, |
| | 2024 | | 2023 |
| Cash paid for operating leases | $ | 5,683 | | $ | 5,557 | | $ | 17,290 | | $ | 16,642 |5,721 | | $ | 5,820 |
| Right-of-use assets obtained in exchange for operating lease liabilities | $ | 9,271 | | $ | 2,222 | | $ | 11,900 | | $ | 14,433 |16,837 | | $ | 208 |

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except per share data)

NOTE 14. STOCK-BASED COMPENSATION

The Compensation Committee of our Board administers our stock plans. As of March 31, 2024, we had two active stock-based incentive compensation plans: the 2023 Omnibus Incentive Plan ("the 2023 Incentive Plan") and the Employee Stock Purchase Plan ("ESPP"). The 2023 Incentive Plan was approved by stockholders on April 27, 2023 and amended and restated on November 2, 2023. We issue all new equity compensation grants under these two plans; however, outstanding awards previously issued under inactive plans will continue to vest and remain exercisable in accordance with the terms of the respective plans.

The 2023 Incentive Plan provides for the grant of awards including stock options, stock appreciation rights, performance stock units, performance units, stock, restricted stock, restricted stock units, and cash incentive awards.restricted stock, stock units, unrestricted stock, and dividend equivalent rights. Any of the awards issued may be issued as performance-based awards to align stock compensation awards.to the attainment of annual or long-term performance goals.

The following table summarizes information related to our stock-based incentive compensation plans:

| | | |
| | | March 31, 2024 |
| Shares available for future issuance under the 2023 Incentive Plan | | 1,840 |
| Shares available for future issuance under the ESPP | | 577 |

Generally, we grant restricted stock units ("RSUs") with a three year time-based vesting schedule. Certain RSUs contain performance-based or market-based vesting conditions in addition to the time-based vesting requirements. RSUs are generally granted with a grant date fair value based on the market price of our stock on the date of grant.

Generally, we grant stock option awards with an exercise price equal to the market price of our stock at the date of grant and with either a three or four-year vesting schedule or performance-based vesting. Stock option awards generally have a term of ten years.
Stock-based Compensation Expense

We recognize stock-based compensation expense based on the fair value of the awards issued and the functional area of the employee receiving the award. During the three months ended March 31, 2024, stock-based compensation expense includes $1.8 million related to a modification for accounting purposes of prior awards. Stock-based compensation was as follows:

| | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | Three Months Ended March 31, | |
| | | 2023 | | 2022 | | 2023 | |2022 |
| | | 2024 | | 2023 | |
| Stock-based compensation expense | | $ | 8,075 | | $ | 6,022 | |$ | 22,813 | | $ | 15,008 |11,005 | | $ | 6,801 | |

Restricted Stock Units

Generally, we grant restricted stock units ("RSUs") with a three year time-based vesting schedule. Certain RSUs contain performance-based or market-based vesting conditions in addition to the time-based vesting requirements. RSUs are generally granted with a grant date fair value based on the market price of our stock on the date of grant.

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except per share data)

Changes in our RSUs were as follows:

| | | | | | |
| | | Nine Months Ended September 30, 2023 |
| | | Three Months Ended March 31, 2024 |
| | | | | Weighted- |
| | | | | Average |
| | | Number of | | Grant Date |
| | | RSUs | | Fair Value |
| RSUs outstanding at beginning of period | | 917 | | $ | 85.96 |
| RSUs granted | | 502 | | $ | 105.06 |
| RSUs vested | | (171) | | $ | 89.48 |
| RSUs forfeited | | (73) | | $ | 74.93 |
| RSUs outstanding at end of period | | 1,175 | | $ | 94.29 |

Stock Options

Generally, we grant stock option awards with an exercise price equal to the market price of our stock at the date of grant and with either a three or four-year vesting schedule or performance-based vesting. Stock option awards generally have a term of ten years.

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except per share data)

Changes in our stock options were as follows:

| | | | | | | |
| | | Nine Months Ended September 30, 2023 | |
| | | Three Months Ended March 31, 2024 |
| | | | | Weighted- | |
| | | | | Average ||
| | | Number of | | Exercise Price | |
| | | Options | | per Share | |
| Options outstanding at beginning of period | | 89 | | $ | 76.69 |
| Options exercised | | (2) | | $ | 26.32 |
| Options outstanding at end of period | | 87 | | $ | 78.14 |

NOTE 15. COMMITMENTS AND CONTINGENCIES

We are involved in disputes and legal actions arising in the normal course of our business. While we currently believe that the amount of any ultimate loss would not be material to our financial position, the outcome of these actions is inherently difficult to predict. In the event of an adverse outcome, the ultimate loss could have a material adverse effect on our financial position or reported results of operations. An unfavorable decision in intellectual property litigation also could require material changes in production processes and products or result in our inability to ship products or components found to have violated third party intellectual property rights. We accrue loss contingencies in connection with our commitments and contingencies, including litigation, when it is probable that a loss has occurred, and the amount of such loss can be reasonably estimated. We are not currently a party to any legal action that we believe would reasonably have a material adverse impact on our business, financial condition, results of operations or cash flows.

We maintain defined benefit pension plans for certain of our non-U.S. employees, including the United Kingdom. In light of the recent United Kingdom's High Court ruling in the case of Virgin Media Ltd v. NTL Pension Trustees II Ltd & Ors, which is scheduled for appeal in June 2024, we are reviewing past amendments made to our United Kingdom pension plans to evaluate whether any changes were implemented in conflict with section 37 of the United Kingdom Pension Schemes Act 1993. Should there be a challenge to any previous amendments to our pension plan in the United Kingdom, we could face potential litigation and compliance risks. We continue to account for our United Kingdom pension arrangements in accordance with the plan agreements and amendments, as we believe they represent a mutual understanding and agreement among all parties.

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except per share data)

NOTE 16. LONG-TERM DEBT

Long-term debt on our Consolidated Balance Sheets consists of the following:

| | | | | | | |
| | | March 31, | | December 31, |
| | | 2024 | | 2023 |
| Convertible Notes due 2028 | | $ | 575,000 | | $ | 575,000 |
| Term Loan Facility due 2026 | | | 350,000 | | | 355,000 |
| Gross long-term debt, including current maturities | | | 925,000 | | | 930,000 |
| Less: debt discount | | | (13,505) | | | (14,321) |
| Net long-term debt, including current maturities | | | 911,495 | | | 915,679 |
| Less: current maturities | | | (20,000) | | | (20,000) |
| Net long-term debt | | $ | 891,495 | | $ | 895,679 |

For all periods presented, we were in compliance with the covenants under all debt agreements. Contractual maturities of our gross long-term debt, including current maturities, are as follows:

| | | | |
| Year Ending December 31, | | |
| 2024 (remaining) | | $ | 5,000 |
15,000 |
| 2025 | | | 20,000 |
| 2026 | | | 315,000 |
| 2027 | | | - |
| 2028 | | | 575,000 |
| Total | | $ | 925,000 |

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except per share data)

The following table summarizes our borrowings:

| | | | | | | | |
| | | March 31, 2024 |
| | | Balance | | Interest || Unused |
| | | | | Rate || Line |
| | | | | | | Fee |
| Convertible Notes | | $ | 575,000 | | 2.50% || - |
| Term Loan Facility at fixed interest rate due to interest rate swap | | | 216,344 | | 1.17% | | - |
| Term Loan Facility at variable interest rate | | | 134,906 | | 6.17% | | - |
| Revolving Facility at variable interest rate | | | - | | 6.17% | | 0.10% |
133,656 | | 6.18% |
| Total borrowings | | $ | 925,000 | | |

The interest rate swap contracts expire on September 10, 2024. After that date, this portion of our Term Loan Facility will be subject to a variable interest rate. For more information, see Note 6. Derivative Financial Instruments. The Term Loan Facility and Revolving Facility bear interest, at our option, at a rate based on the Base Rate or SOFR, as defined in the Credit Agreement, plus an applicable margin.

We record interest expense and unused line of credit fees in other income (expense), net in our Consolidated Statements of Operations.
The following table summarizes interest expense related to our debt:

| | | | | | | | |
| | | Three Months Ended September 30, | |Nine Months Ended September 30, |
| | | Three Months Ended March 31, | |
| | | 2023 | | 2022 | | 2023 | | 2022 |
| | | 2024 | | 2023 | |
| Interest expense | | $ | 3,528 | | $ | 1,842 | | $ | 8,818 | |$ | 4,303 |
| Interest expense | | $ | 6,302 | | $ | 2,590 | |
| Amortization of debt issuance costs | | | 820 | | | 133 | |
| Unused line of credit fees and other | | | 52 | | | 51 | | | 152 | | | 152 |
| Total interest expense | | $ | 3,825 | | $ | 2,029 | | $ | 9,479 | | $ | 4,868 |
| Total interest expense related to debt | | $ | 7,122 | | $ | 2,723 | |

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except per share data)

Convertible Senior Notes due 2028

On September 12, 2023, we completed a private, unregistered offering of $575.0 million aggregate principal amount of 2.50% convertible senior notes ("Convertible Notes").and received net proceeds of approximately $562.1 million after the discount for the initial purchasers' fees. We used $40.0 million of the net proceeds to repurchase approximately 0.4 million shares of common stock and $40.1 million to fund the net cost of convertible note hedge transactions ("Note Hedges") (after such costs were offset by the proceeds from the sale of warrants to purchase our common stock ("Warrants").

The Convertible Notes mature on September 15, 2028, unless earlier repurchased, redeemed, or converted. Interest is payable semi-annually in arrears in March and September. We do not maintain a sinking fund.

We may redeem for cash all or any portion of the Convertible Notes, at our option, on or after September 202026 if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period (including the last trading day of such period). The redemption price is 100% of the principal amount plus accrued and unpaid interest.
20


Prior to May 15, 2028, holders have the option to convert all or a portion of their Convertible Notes under the following circumstances:

| | ● | during any calendar quarter if the last reported sale price of our common stock, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days is greater than or equal to 130% of the conversion price on each applicable trading day; |
| | ● | during the five business day period immediately after any five consecutive trading day period in which the trading price per $1,000 principal amount of the Convertible Notes for each trading day was less than 98% of the product of the last reported sale price of our common stock on each such trading day and the conversion rate on each such trading day; |
| | ● | if Advanced Energy calls any or all of the Convertible Notes for redemption; or |
| | ● | upon the occurrence of specified corporate transactions or events described in the indenture. |

From May 15, 2028 through the maturity date, holders have the option to convert at any time regardless of circumstances.

The initial conversion rate is 7.2747 shares of common stock per $1,000 principal amount, which is equivalent to an initial conversion price of approximately $137.46 per share of common stock. The conversion rate is subject to adjustment upon the occurrence of certain specified events as set forth in the indenture.

Upon conversion, Advanced Energy will do the following:

| | ● | pay cash up to the aggregate principal amount to be converted; and |
| | ● | pay or deliver cash, shares of our common stock, or a combination (at our election) with respect to the remainder, if any, of the conversion obligation in excess of the aggregate principal amount being converted. |

Concurrent with the Convertible Notes issuance, we entered into the Note Hedges with respect to our common stock. We will exercise the Note Hedges simultaneously when the Convertible Notes are settled. The Note Hedges have a $137.46 per share initial exercise price and cover, subject to customary anti-dilution adjustments, the number of shares of common stock that initially underlie the Convertible Notes and are expected to reduce the potential dilution to the common stock and/or offset potential cash payments in excess of the principal amount upon conversion of

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(In thousands, except per share data)

The Convertible Notes. We paid approximately $115.0 million in cash for the Note Hedges, which we recorded to additional paid-in capital in our Statements of Stockholders' Equity.
The $562.6 million remaining outstanding principal amount of the 2.50% Convertible Notes, net of unamortized issuance costs, continues to be classified as long-term debt as none of the conversion triggers occurred as of March 31, 2024. The redemption price is 100% of the principal amount plus accrued and unpaid interest. The Convertible Notes mature on September 15, 2028, unless earlier repurchased, redeemed, or converted. Interest is payable semi-annually in arrears in March and September.


Also concurrent with the issuance of our Convertible Notes, we sold Warrants, which provide the counterparties the option to acquire approximately 4.2 million aggregate shares of our common stock (subject to customary anti-dilution adjustments), which is the same number of shares of our common stock covered by the Note Hedges at a $179.76 per share initial exercise price, which represents a 70% premium over the $105.74 closing price of our common stock on September 7, 2023. The Warrants expire on July 7, 2029. We received aggregate proceeds of $74.9 million for the sale of Warrants, which we recorded to additional paid-in capital in our Statements of Stockholders' Equity.

If the market value per share of our common stock exceeds The exercise price of the Warrants during the measurement period at the maturity of such Warrants, the Warrants will have a dilutive effect on our earnings per share as we will owe the counterparties a number of shares of common stock in an amount based on the excess of such market price per share of the common stock over the Warrants' exercise price.

The Note Hedge and Warrants are separate from The Convertible Notes the Convertible Notes holders have no rights with respect to the Note hedges and warrants Counterparties in the Note Hedge and Warrants transactions have no rights with respect to the Convertible Notes. However,


Concurrent with the Convertible Notes issuance, we entered into hedges and sold warrants with respect to our common stock. In combination, the Note hedges and warrants synthetically increase the initial conversion price on the Convertible Notes from $137.46 to $179.76, reducing the potential dilutive effect.of the Convertible Notes.

We recorded a $26.1 million deferred tax asset to reflect the impact of the Convertible Notes and Note Hedges.

Credit Agreement

Our credit agreement dated as of September 10, 2019, as amended (the "Credit Agreement") consists of a senior unsecured term loan facility ("Term Loan Facility") and a senior unsecured revolving facility ("Revolving Facility"). Both mature on September 9, 2026.

On March 31, 2023, we executed agreements pursuant to the Credit Agreement to transition the benchmark interest rate from LIBOR to SOFR. The impact of this transition was not material to our consolidated financial statements.

On September 7, 2023, we entered into an additional amendment to the Credit Agreement to amend certain definitions, covenants, and events of default.to enable the issuance of the Convertible Notes and the entry into the Note Hedges and Warrants.

The following table summarizes our availability to withdraw on the Revolving Facility:

| | | | | | | |
| | | March 31, | | December 31, |
| | | 2024 | | 2023 |
| Available capacity on Revolving Facility | | $ | 200,000 | | $ | 200,000 |

As part of our available capacity on the Revolving Facility, prior to the maturity date of the Credit Agreement, we may also request an increase to the financing commitments in either the Term Loan Facility or Revolving Facility by an aggregate amount not to exceed $115.0 million. Any requested increase is subject to lender approval.

We use level 2 measurements to estimate the fair value of our debt. As of September 30, 2023, the outstanding principal balance on our Term Loan Facility approximates fair value, and March 31, 2024, we estimate the fair value of our Convertible Notes to be $585.9 million, and the par value of the Term Loan Facility approximates its fair value.

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Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This management discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the Securities and Exchange Commission on February 20, 2024 ("2023 Form 10-K").

Special Note on Forward-Looking Statements

This Quarterly Report on Form 10-Q contains, in addition to historical information, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Statements in this report that are not historical information are forward-looking statements. For example, statements relating to our beliefs, expectations, and plans are forward-looking statements, as are statements that certain actions, conditions, events, or circumstances will continue. The inclusion of words such as "anticipate," "expect," "estimate," "can," "may," "might," "continue," "enable," "plan," "intend," "should," "could," "would," "will," "likely," "potential," "believe," and similar expressions and the negative versions thereof indicate forward-looking statements; however, not all forward-looking statements may contain such words or expressions. These forward-looking statements are based upon information available as of the date of this report and management's current estimates, forecasts, and assumptions. Although we believe that our expectations reflected in or suggested by these forward-looking statements are reasonable, we may not achieve the results, performance, plans, or objectives expressed or implied by such forward-looking statements. Forward-looking statements involve risks and uncertainties, which are difficult to predict and many of which are beyond our control.

Risks and uncertainties to which our forward-looking statements are subject include:

| | ● | macroeconomic risks, including the length, severity, or nature of any market and demand deterioration; supply chain cost increases and other inflationary pressures; recession; economic volatility and cyclicality changes in financial markets; higher interest rates; labor shortages and expense; foreign currency fluctuations; and pricing controls; |
| | ● | volatility and business fluctuations in the industries in which we compete; |
| | ● | political and geographical risks, including trade and export controls, war, terrorism, international disputes and geopolitical tensions, natural disasters, public health issues, and industrial accidents; |
| | ● | sufficiency and availability of components and materials; |
| | ● | our level of and ability to manage backlog orders; |
| | ● | our ability to achieve design wins with new and existing customers; |
| | ● | our ability to develop new products expeditiously and be successful in the design win process with our customers; |
| | ● | our ability to accurately forecast and meet customer demand; |
| | ● | the ability to stay on the leading edge of innovation, and obtain and defend necessary intellectual property protections; |
| | ● | risks related to global economic conditions, including, but not limited to, the impact of escalating global conflicts on macroeconomic conditions, economic uncertainty, market volatility, rising interest rates, inflation, or recession; |
| | ● | the ability to protect our trade secrets and confidential information from misappropriation or infringement; |
| | ● | risks inherent in our international operations, including the effect of trade and export controls, political and geographical risks, fluctuations in currency exchange rates; |
| | ● | customer price sensitivity; |
| | ● | concentration of our customer base; |
| | ● | risks associated with breach of our information security measures; |
| | ● | market acceptance of and demand for, our products; |
| | ● | our loss of or inability to attract and retain key personnel; |
| | ● | the fair value of our assets and financial instruments; |
| | ● | disruptions to our manufacturing operations or those of our customers or suppliers; |
| | ● | research and development expenses; |
| | ● | risks associated with our manufacturing footprint optimization and movement of manufacturing locations for certain products; |
| | ● | selling, general, and administrative expenses; |

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| | ● | sufficiency and availability of capital resources; |
| | ● | our ability to obtain equity or debt financing on favorable terms; |
successfully identify, close, integrate and realize anticipated benefits from our acquisitions; |
| | ● | our production and operations strategy; |
| | ● | quality issues or unanticipated costs in fulfilling our warranty obligations (including our discontinued solar inverter product line), and adequacy of our warranty reserves; |
| | ● | our ability to enforce, protect and maintain our proprietary technology and intellectual property rights; |
| | ● | our tax assets and liabilities; |
| | ● | our other commitments and contingent liabilities; |
| | ● | our ability to achieve cost savings, profitability, and gross margin goals; |

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| | ● | changes to tax laws and regulations or our tax rates; |

| | ● | adequacy of our reserve for excess and obsolete inventory; |
| | ● | unanticipated costs in fulfilling our warranty obligations (including our solar inverter product line and other discontinued businesses), and adequacy of our warranty reserves; |
| | ● | changes in federal, state, local and foreign regulations, including with respect to privacy and data protection, and environmental regulation; |
| | ● | adequacy of reserves for bad debt sales returns, and other reserves or impairments; |
| | ● | effect of our debt obligations and restrictive covenants on our ability to operate our business; |
| | ● | our estimates of the fair value of assets acquired; |
| | ● | risks related to our unfunded pension obligations; |
| | ● | restructuring activities and expenses; |
| | ● | restructuring and severance activities; |
| | ● | our acquisition, divestiture, and joint venture activities; |
| | ● | legal matters, claims, and proceedings; |
| | ● | the integration of our acquisitions; |
| | ● | our estimates of the fair value of intangible assets; and |
| | ● | the potential impact of dilution related to our convertible debt, hedge, and warrant transactions. |

| | ● | the ability to repay all or a part of our debt obligations; |
| | ● | industry and market trends; and |
| | ● | cost fluctuations and pressures, including prices of components, commodities and raw materials, and costs of labor, transportation, energy, and insurance. |

Actual results could differ materially and adversely from those expressed in any forward-looking statements, and readers are cautioned not to place undue reliance on forward-looking statements. Factors that could contribute to these differences or prove our forward-looking statements, by hindsight, to be overly optimistic or unachievable include, but are not limited to, the risks and uncertainties listed above and described in Part I, Item 1A in the 2022 Form 10-K. Other factors might also contribute to the differences between our forward-looking statements and our actual results. Other than as required by law,2023 Form 10-K. We assume no obligation to update any forward-looking statement or provide the reasons why our actual results might differ.

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BUSINESS AND MARKET OVERVIEW

Company Overview

Advanced Energy provides highly engineered, critical, precision power conversion, measurement, and control solutions to our global customers. We design, manufacture, sell and support precision power products that transform, refine, and modify the raw electrical power coming from either the utility or the building facility and convert it into various types of highly controllable, usable power that is predictable, repeatable, and customizable to meet the necessary requirements for powering a wide range of complex equipment. Many of our products enable our original equipment manufacturer ("OEM") customers to customers to reduce or optimize their energy consumption through increased power conversion efficiency, power density, power coupling, and process control across a wide range of applications.

We are organized on a global, functional basis and operate as a single segment of power electronics conversion products. Within this segment, our products are sold into the Semiconductor Equipment, Industrial and Medical, Data Center Computing, and Telecom and Networking markets.

Product and Services

Our precision power products and solutions are designed to enable new process technologies, improve productivity, lower the cost of ownership, and provide critical power capabilities for our customers. These products are designed to meet our customers' demanding requirements in efficiency, flexibility, performance, and reliability. The majority of Advanced Energy's products are designed to meet the unique requirements of each customer's equipment. capable of meeting various customer requirements. We also provide repair and maintenance services for our products.

Our plasma power products offer solutions to enable innovation in complex semiconductor and thin film plasma processes such as dry etch and deposition. Our broad portfolio of high and low voltage power products are used in a wide range of applications, such as semiconductor equipment, industrial production, medical and life science equipment, data center computing, networking, and telecommunications. We also supply related sensing, controls, and instrumentation products primarily for advanced measurement and calibration of power and temperature for multiple industrial markets. Our network of global service support centers provides repair services, calibration, conversions, upgrades, refurbishments, and used equipment to companies using our products.

Advanced Energy is organized on a global, functional basis and operates in the single segment for power electronics conversion products. Within this segment, Our products are sold into the Semiconductor Equipment, Industrial and Medical, Data Center Computing, and Telecom and Networking markets.
Our service group offers warranty and after-market repair services, providing our customers with preventive maintenance opportunities to support a lower cost of ownership and higher utilization for their capital equipment. We offer comprehensive repair service and customer support through our worldwide support organization. Support services include warranty and non-warranty repair services, calibration, upgrades, and refurbishments of our products.


On September 12, 2023, we completed a private, unregistered offering of $575.0 million aggregate principal amount 2.50% convertible senior notes ("Convertible Notes") and received net proceeds of approximately $562.1 million after the discount for the initial purchasers' fees. We intend to use the net proceeds to fund future growth, which may include strategic acquisitions, opportunistically repay existing outstanding indebtedness, repurchase our common stock, or general corporate purposes. See Note 18. Long-Term Debt in Part I, Item 1 "Unaudited Consolidated Financial Statements" and Liquidity and capital Resources below.

Concurrent with the Convertible Notes issuance, We repurchased 0.4 million shares of common stock for $40.0 million and entered into hedge and warrant contracts with respect to our common stock (see Note 5. Earnings Per Share and Note 18. Long-Term Debt in Part I, Item 1 "Unaudited Consolidated Financial Statements").

On April 25, 2022, we acquired 100% of the issued and outstanding shares of capital stock of SL Power Electronics Corporation ("SL Power"), which is based in Calabasas, California. See Note 2. Acquisitions in Part I, Item 1 "Unaudited Consolidated Financial Statements." This acquisition added complementary products to Advanced Energy's medical power offerings and extends our presence in several advanced industrial markets.

27

End Markets Summary

The demand environment in each of our markets is impacted by macroeconomic conditions, various market trends, customer buying patterns, design wins, macroeconomic conditions, and other factors. Since the fourth quarter of 2022, demand in some of our markets began to decline, most notably due to the semiconductor cyclical downturn and reduced investments. in the Data Center Computing market. Subsequently, in the third quarter of 2023, demand in the Industrial and Medical market started to moderate due to macroeconomic conditions, and in this market, our ability to fulfill demand continues to be partially limited by ongoing supply constraints for some materials and components. We were constrained by supply chain shortages for critical integrated circuits, resulting in longer lead times for our products in 2022. Some of these supply constraints continued into 2023. We implemented measures to improve the supply of critical materials and components and to mitigate the impact of these higher input costs, and these actions have enabled us to better meet customer demand Due to improved component supply, lead times for our products declined, which resulted in our 12-month backlog normalizing from $875.3 million at the end of 2022 to $514.5 million at the end of the third quarter of 2023. and other factors. Although we are currently experiencing a lower demand environment, we continue to believe that the long-term market growth drivers support our long-term strategy, research and development efforts, and capital investments. However, in the short-term it is unclear how certain macroeconomic conditions, including higher interest rates impacting end customers' capital investment and customer buying patterns, will affect customer demand and our revenue.

Semiconductor Equipment Market

The Semiconductor Equipment market is driven by the long-term growing need for more semiconductor production capacity and new process technologies to meet increasing demand for integrated circuits that enable processing, storing, and transmitting a growing amount of data across many industries. To meet this demand, the chip industry continues to invest In production capacity for both leading-edge and trailing-edge nodes, logic devices, the latest memory devices, back-end test, and advanced wafer-level packaging. The industry's transition to advanced technology nodes and to increased layers in memory devices requires an increased number of plasma-based etch and deposition process tools and higher content of our advanced power solutions per tool. Advanced Energy is a critical technology leader in the industry and provides one of the industry's broadest portfolios of power conversion and related products, including plasma power, high-voltage power, and adjacent sensing solutions, to Semiconductor capital Equipment OEMs targeting a wide range of process technologies and device types. Our strategy in this market is to defend our proprietary positions in our core applications by capturing new design and product generations, grow our market position in applications where we have lower market share, such as remote plasma source and dielectric etch, and leverage our broad product portfolio in areas such as high and low voltage embedded power products to grow our market share and content at our OEM customers.
In the first quarter of 2024, the ongoing Semiconductor Equipment market downturn continued to limit our business. The market entered a downturn beginning in the fourth quarter of 2022 due to a combination of unfavorable


The Semiconductor Equipment market experienced demand growth driven by investments in both leading and trailing edge semiconductor capacity throughout the first three quarters of 2022. Starting in the fourth quarter of 2022 the market entered a downturn due to deteriorating
macroeconomic conditions, overcapacity in the market for memory devices, prolonged weakness in demand for consumer electronics, such as smartphone, impacting leading-edge wafer capacity investments plans, general semiconductor inventory digestion resulting in falling fab built up semiconductor inventory consumption resulting in falling manufacturing utilization, and new U.S. export restrictions to China for certain semiconductor equipment.During the first nine months of 2023, these factors continued to impact our revenue, and they are expected to continue in the fourth quarter of 2023 and into 2024.

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Although we expect these factors to continue to impact our business levels in the near term, we believe the long-term growth drivers for demand growth in this market will eventually resume due to the need to invest in new fab capacity to support growing demand for semiconductor devices in a wide range of applications, the continued transition to next generation processing nodes, increased complexity of advanced processes requiring more complex and innovative power solutions, and the regionalization of some semiconductor capacity.resume due to the need for more manufacturing capacity to support expected demand growth for semiconductor devices and related capital equipment.

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Industrial and Medical Market

Advanced Energy serves the Industrial and Medical market with mission-critical, precision power products and solutions that deliver precise and highly reliable, low noise or differentiated power to OEM equipment. We also supply sensing, control, and instrumentation products to complement our power solutions. Growth Following a year of record revenue in the Industrial and Medical market, is driven by investment in complex manufacturing processes or automation, increased adoption of smart power, sensing, and control solutions across many industrial applications, new investments in clean and sustainable technologies, and growing investment in medical devices and life science equipment. Our customers are primarily global and regional OEMs that incorporate our solutions into a wide variety of applications, such as advanced material fabrication, medical devices, analytical instrumentation, test and measurement equipment, robotics, industrial production, and large-scale connected light-emitting diode applications. we serve this diverse market through both our direct sales force and indirect sales channels including independent sales representatives, channel partners, and distributors. Our strategy in the market is to expand our product offerings and channel reach, leveraging common platforms, derivatives, and customizations to further penetrate a broader set of applications.starting in the second half of 2023, we began to experience the impact of weaker macroeconomic conditions on our demand. In addition, in the first quarter of 2024, we saw a rebalancing of customers' inventories as a result of fulfilling outstanding backlog and shorter lead times for our products. This trend accelerated in the first quarter of 2024. While we believe the long term growth drivers in these markets remain strong, we expect these factors will continue to limit our revenue levels in the near term.

During 2022, we saw increased demand in the Industrial and Medical market as our customers increased investments in their production capacity and the medical technology industry recovered from the pandemic-related slowdown. Although overall customer demand increased, supply constraints on critical components limited our ability to fulfill product shipments at the level of customer demand. and resulted In increased backlog. During the first nine months of 2023, we secured critical components, enabling us to deliver record revenues in the first nine months in this market. However, in the third quarter of 2023 we began to see lower demand in this market due largely to macroeconomic factors and normalization of backlog levels. It is unclear how the macroeconomic conditions, including higher interest rates impacting end customer's capital investment and potential recession, may affect customer demand and our revenue in the remainder of 2023 and into 2024. In addition, although the supply of critical components has improved, we continue to see some shortages and product delivery, and revenue levels in this market will continue to be partially dependent on our ability to secure supplies of critical components. Long-term, we continue to believe the diverse Industrial and Medical market offers many growth opportunities, and we plan to continue our investments to grow revenue in this market.

Data Center Computing Market

Advanced Energy serves the Data Center Computing market with industry-leading power conversion products and technologies, which we sell to OEMs and original design manufacturers of data center server and storage systems, as well as cloud service providers and their partners. Driven by the growing adoption of cloud computing and increasing demand for edge applications, the server and storage market is shifting from traditional enterprise on-premises computing to the data center. In addition, the rapid growth and adoption of artificial intelligence, and machine learning are driving increased demand for substantially higher power server racks requiring increased power density and higher efficiency in server power supplies and accelerating the transition from 12 Volt to 48 Volt infrastructure in data center server racks. Advanced Energy benefits from these trends as an industry leader in providing high-efficiency, high-density, 48 Volt server power solutions to data center infrastructure customers. Our strategy in the market is to penetrate selected customers and applications based on our differentiated capabilities and competitive strengths in power density, efficiency, and controls.
While there is increased demand for high end computing applications, such as artificial intelligence, continued slow


In the first half of 2023, we saw reduced revenues due to slowing demand in the enterprise server and storage market as customers delayed investments. In addition, ongoing supply constraints limited our ability to meet the full demand. However, improved supply of critical components and demand for high end computing applications from some customers led to increased revenue in the third quarter of 2023 from the lower levels in first half of 2023. It is not clear how quickly our enterprise server and storage customers will return to their historical level of investments.and timing of large customer orders impacted our revenue in the first quarter of 2024. However, we are beginning to see indications of recovery in this market driven by hyperscale and artificial intelligence investments.

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Telecom and Networking Market

Advanced Energy's customers in the Telecom and Networking market include many leading OEMs of wireless infrastructure equipment, telecommunication equipment and computer networking equipment. Growth in the market is driven by adoption of more advanced mobile standards, including 5G technologies which enable new advanced applications such as autonomous vehicles and virtual/augmented reality. In datacom, demand is driven by networking investments.by telecom service providers and enterprises upgrading their networks, as well as cloud service providers and data centers investing in their networks for increased bandwidth. Our strategy in the market is to optimize our portfolio of power conversion products to more differentiated applications, and to focus on 5G infrastructure applications.

During the first nine months of 2023, substantially improved supply of critical components allowed us to largely fulfill outstanding demand from the prior year and drive strong revenue growth in the Telecom and Networking Marketas compared to the first nine months of 2022. However,
Telecom and Networking Market

Starting in 2023, leading companies in this market have reported end user weakness, and we do not expect to sustain the revenue levels of the first nine months of 2023 In the fourth quarter of 2023 and into 2024.reported weak demand, and the slower demand environment continued in 2024. In addition, we experienced the impact of customers rebalancing inventories as a result of fulfilling outstanding backlog and shorter lead times for our products.

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Results of Continuing Operations

The analysis presented below is organized to provide the information we believe will be helpful for understanding of our historical performance and relevant trends going forward and should be read in conjunction with our "Unaudited Consolidated Financial Statements" in Part I, Item 1 of this report, including the notes thereto. Also included in the following analysis are measures that are not prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). A reconciliation of the non-GAAP measures to U.S. GAAP is provided below.

The following table sets forth certain data derived from our Consolidated Statements of Operations (in thousands):

| | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | Three Months Ended March 31, | |
| | | 2023 | | 2022 | | | 2023 | |2022 | |
| | | 2024 | | | 2023 | |
| Sales | | $ | 409,991 | | $ | 516,274 | | | $ | 1,250,539 | | $ | 1,354,682 | |
| Revenue | | $ | 327,475 | | 100.0 | % | | $ | 425,040 | | 100.0 | % |
| Gross profit | | | 147,341 | | | 191,218 | | | | 449,532 | | | 497,692 | |
| Gross profit | | | 112,829 | | 34.5 | | | | 155,111 | | 36.5 | |
| Operating expenses | | | 117,280 | | | 113,646 | | | | 349,608 | | | 322,698 | |
| Operating expenses | | | 112,152 | | 34.2 | | | | 115,073 | | 27.1 | |
| Operating income from continuing operations | | | 30,061 | | | 77,572 | | | | 99,924 | | | 174,994 | |677 | | 0.2 | | | | 40,038 | | 9.4 | |
| Other income (expense), net | | | 4,464 | | | 8,940 | | | | 6,339 | | | 11,347 | |
| Interest income | | | 12,645 | | 3.9 | | | | 3,585 | | 0.8 | |
| Income from continuing operations, before income tax | | | 34,525 | | | 86,512 | | | | 106,263 | | | 186,341 | |
| Interest expense | | | (7,127) | | (2.2) | | | | (2,730) | | (0.6) | |
| Provision for income tax | | | 874 | | | 11,639 | | | | 13,405 | | | 29,795 | |
| Income from continuing operations | | $ | 33,651 | | $ | 74,873 | | | $ | 92,858 | | $ | 156,546 | |

| | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | 2023 | | 2022 | | | 2023 | | 2022 | |
| Sales | | | 100.0 | % | | 100.0 | % | | | 100.0 | % | | 100.0 | % |
| Gross profit | | | 35.9 | | | 37.0 | | | | 35.9 | | | 36.7 | |
| Operating expenses | | | 28.6 | | | 22.0 | | | | 28.0 | | | 23.8 | |
| Operating income from continuing operations | | | 7.3 | | | 15.0 | | | | 8.0 | | | 12.9 | |
| Other income (expense), net | | | 1.1 | | | 1.7 | | | | 0.5 | | | 0.8 | |1,379 | | 0.4 | | | | (1,405) | | (0.3) | |
| Income from continuing operations, before income tax | | | 8.4 | | | 16.8 | | | | 8.5 | | | 13.8 | |7,574 | | 2.3 | | | | 39,488 | | 9.3 | |
| Provision for Income tax | | | 0.2 | | | 2.3 | | | | 1.1 | | | 2.2 | |
| Income tax provision | | | 1,787 | | 0.5 | | | | 7,736 | | 1.8 | |
| Income from continuing operations | | $ | 5,787 | | 1.8 | % | | $ | 31,752 | | 7.5 | % | | 8.2 | % | | 14.5 | % | | | 7.4 | % | | 11.6 | % |

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Revenue

The following tables summarize net sales and percentages of net sales, by markets (in thousands):

| | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | | Change 2023 v. 2022 | |
| | | Three Months Ended March 31, | | | Change 2024 v. 2023 | |
| | | 2024 | | | 2023 | | | Dollar | | Percent | |
| Semiconductor Equipment | | $ | 185,033 | | $ | 266,600 | | | $ | (81,567) | | (30.6) | % |179,903 | | 54.9 | % | | $ | 194,209 | | 45.7 | % | | $ | (14,306) | | (7.4) | % |
| Industrial and Medical | | | 115,226 | | | 119,587 | | | | (4,361) | | (3.6) | % |83,418 | | 25.5 | | | | 123,020 | | 28.9 | | | | (39,602) | | (32.2) | % |
| Data Center Computing | | | 68,286 | | | 87,542 | | | | (19,256) | | (22.0) | % |
| Data Center Computing | | | 41,902 | | 12.8 | | | | 59,659 | | 14.0 | | | | (17,757) | | (29.8) | % |
| Telecom and Networking | | | 41,446 | | | 42,545 | | | | (1,099) | | (2.6) | % |22,252 | | 6.8 | | | | 48,152 | | 11.3 | | | | (25,900) | | (53.8) | % |
| Total | | $ | 409,991 | | $ | 516,274 | | | $ | (106,283) | | (20.6) | % |
| Total | | $ | 327,475 | | 100.0 | % | | $ | 425,040 | | 100.0 | % | | $ | (97,565) | | (23.0) | % |
| | | | | | | | | | | | | | | | | | | |

Total revenue decreased from the same period in the prior year due to a cyclical downturn in the semiconductor and data center industries as well as lower demand within our Industrial and Medical and Telecom and Networking markets.

Revenue by Market

| | | | | | | | | | | | | |
| | | Nine Months Ended September 30, | | | Change 2023 v. 2022 | |
| | | Three Months Ended March 31, | | Change 2024 v. 2023 | |
| | | 2023 | | 2022 | | | Dollar || Percent | |
| | | 2024 | | 2023 | | Dollar | | Percent | |
| |
| | | (in thousands) |

| Semiconductor Equipment | | $ | 552,419 | | $ | 698,354 | | | $ | (145,935) | | (20.9) | % |179,903 | | $ | 194,209 | | $ | (14,306) | | (7.4) | % |
| Industrial and Medical | | | 365,849 | | | 307,436 | | | | 58,413 | | 19.0 |% |
| | | | | | | | | | | | | |

The decrease in Semiconductor Equipment revenue was primarily due to an ongoing cyclical downturn in the semiconductor industry.

| Data Center Computing | | | 187,021 | | | 232,941 | | | | (45,920) | |(19.7) | % || | | | | | | | | | | | | |
| | | Three Months Ended March 31, | | Change 2024 v. 2023 | |

| Telecom and Networking | | | 145,250 | | | 115,951 | | || 29,299 | | 25.3 | % |
| | | 2024 | | 2023 | | Dollar | | Percent | |
| |
| | | (in thousands) |

| Total | | $ | 1,250,539 | | $ | 1,354,682 | | | $ | (104,143) | | (7.7) | % |
| Industrial and Medical | | $ | 83,418 | | $ | 123,020 | | $ | (39,602) | | (32.2) | % |
| | | | | | | | | | | | | |

The decrease in Industrial and Medical revenue was primarily due to lower demand and reduction of customers' inventories.

| | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | Three Months Ended March 31, | | Change 2024 v. 2023 | |
| | | 2023 | | 2022 | || 2023 | | 2022 | |
| | | 2024 | | 2023 | | Dollar | | Percent | |
| |
| | | (in thousands) |

| Semiconductor Equipment | | | 45.1 | % | | 51.6 | % | | | 44.2 | % | | 51.6 | % || Data Center Computing | | $ | 41,902 | | $ | 59,659 | | $ | (17,757) | | (29.8) | % |
| | | | | | | | | | | | | |


The decrease in Data Center Computing revenue was due to the cyclical downturn in the data center server and storage market and timing of large hyperscale programs at some customers.

| | | | | | | | | | | | | |
| Industrial and Medical | || 28.1 | | | 23.2 | | | | 29.3 | | |22.7 | |
| | | Three Months Ended March 31, | | Change 2024 v. 2023 | |
| | | 2024 | | 2023 | | Dollar | | Percent | |
| |

| Data Center Computing | | |16.7 | | | 17.0 | | | | 15.0 | | | 17.2 | || | | (in thousands) |
| Telecom and Networking | | $ | 22,252 | | $ | 48,152 | | $ | (25,900) | | (53.8) | % |

| | | | | | | | | | | | | |

The decrease in Telecom and Networking revenue was due to a slowing demand environment, reduced capital spend, and inventory rebalancing from our customers following a strong 2023.
Telecom and Networking | | | 10.1 | | | 8.2 | | | | 11.5 | || 8.5 | |


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Gross Profit and Gross Margin

| | | | | | | | | | | | | |
| | | Three Months Ended March 31, | | Change 2024 v. 2023 | |

| Total | | | 100.0 | % | | 100.0 | % || | 100.0 | % | | 100.0 | % |
| | | 2024 | | 2023 | | Dollar | | Percent | |
| |
| | | (in thousands) |
| Gross profit | | $ | 112,829 | | $ | 155,111 | | $ | (42,282) | | (27.3) | % |
| Gross margin | | | 34.5 | % | | 36.5 | % | | | | | |


The decrease in gross profit was largely due to the decline in revenue and higher operating costs based on investments made in 2023. Gross margin percentage declined year over year primarily due to a decline in volume across all markets, which drove lower utilization in the manufacturing operations. This was partially offset by favorable product mix due to the overall revenue decline being weighted towards lower margin products. Additionally, we paid lower premiums for scarce parts compared to previous periods.

Operating Expenses

The following table summarizes our operating expenses (in thousands) and as a percentage of revenue:

| | | | | | | | | | | | | |
| | | Three Months Ended March 31, | |
| | | 2024 | | | 2023 | |
| Research and development | | $ | 50,391 | | 12.3 | % | | $ | 49,760 | | 9.6 | % |49,836 | | 15.2 | % | | $ | 51,610 | | 12.1 | % |
| Selling, general, and administrative | | | 55,131 | | 13.4 | | | | 56,716 | | 11.0 | |55,124 | | 16.8 | | | | 55,358 | | 13.0 | |
| Amortization of intangible assets | | | 7,049 | | 1.7 | | | | 7,049 | | 1.4 | |6,947 | | 2.1 | | | | 7,062 | | 1.7 | |
| Restructuring, charges | | | 4,709 | | 1.1 | | | | 121 | | - | |
| Restructuring, asset impairments, and other charges | | | 245 | | 0.1 | | | | 1,043 | | 0.2 | |
| Total operating expenses | | $ | 117,280 | | 28.6 | % | | $ | 113,646 | | 22.0 | % |112,152 | | 34.2 | % | | $ | 115,073 | | 27.0 | % |

Research and Development

| | | | | | | | | | | | | |
| | | Nine Months Ended September 30, | |
| | | Three Months Ended March 31, | | Change 2024 v. 2023 | |
| | | 2024 | | 2023 | | Dollar | | Percent | |
| |
| | | (in thousands) |

| Research and development | | $ | 153,414 | | 12.3 | % | | $ | 141,383 | | 10.4 | % |49,836 | | $ | 51,610 | | $ | (1,774) | | (3.4) | % |
| Selling, general, and administrative | | | 166,102 | | 13.3 | | | | 161,056 | | 11.9 | |
| | | | | | | | | | | | | |

The decrease in research and development was primarily driven by $1.3 million in lower program and material costs. In addition, we had a $0.4 million decline in compensation costs due to lower headcount and variable compensation, partially offset by higher stock-based compensation expense.

Selling, General and Administrative

| | | | | | | | | | | | | |

| Amortization of intangible assets | | | 21,186 | | 1.7 | | | | 19,081 | | 1.4 | |
| Restructuring charges | | | 8,906 | | 0.7 | || |1,178 | | 0.1 | |
| | | Three Months Ended March 31, | | Change 2024 v. 2023 | |
| | | 2024 | | 2023 | | Dollar | | Percent | |
| |
| | | (in thousands) |

| Total operating expenses | | $ | 349,608 | | 28.0 | % | | $ | 322,698 | | 23.8 | % |
| Selling, general, and administrative | | $ | 55,124 | | $ | 55,358 | | $ | (234) | | (0.4) | % |
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SALES AND BACKLOG

| | | | | | | | | | | | | |

Sales decreased $106.3 million, or 20.6%, to $410.0 million for The three months ended September 30, 2023 and decreased $104.1 million, or 7.7%, to $1,250.5 million for the nine months ended September 30, 2023 as compared to the same periods in the prior year.
The decrease in selling, general, and administrative was primarily related to actions taken to control costs, including headcount reduction and lower variable employee compensation, partially offset by higher stock-based compensation cost.


Revenues in three months ended September 30, 2023 declined from the same period in the prior year mainly due to the impact of market downturns in all of our markets, particularly the Semiconductor Equipment and Data Center Computing markets. Revenues in the first nine months of 2023 were also impacted by Semiconductor Equipment and Data Center Computing market downturns, but revenues in the Industrial and Medical and the Telecom and Networking markets increased as compared to the same periods in the prior year due to improved supply of certain components.


Amortization of Intangibles Assets


Backlog

The following table summarizes our backlog (in thousands):

| | | | | | | | | | | | | |
| | | September 30, | | December 31, | | Change from | |
| | | Three Months Ended March 31, | | Change 2024 v. 2023 | |
| | | | | | | Year End | |
| || 2023 || 2022 | | Dollar | | Percent | |

| | | 2024 | | 2023 | | Dollar | | Percent | |
| |
| | | (in thousands) |

| Backlog | | $ | 514,471 | | $ | 875,346 | | $ | (360,875) | | (41.2) | % |
| Amortization of intangible assets | | $ | 6,947 | | $ | 7,062 | | $ | (115) | | (1.6) | % |
Backlog represents outstanding orders for products we expect to deliver within the next 12 months. Backlog at September 30, 2023 decreased from the end of 2022 due primarily to lower demand in some of our markets and improved lead times, which allowed our customers to reduce placing new orders for products with targeted deliveries in the later part of the 12-month backlog period.
| | | | | | | | | | | | | |

We believe the current backlog levels provide some level of revenue protection should demand continue to decrease due to macroeconomic factors. we continue to expect backlog to return to a more normalized range of $400 million to $500 million.
Amortization expense remained flat as we did not acquire any new intangible assets.


Backlog at any particular date is not necessarily indicative of actual sales which may be generated for any succeeding period and may be adversely impacted by factors such as decreased demand, cancellations, or export controls. Our customers can typically cancel, change, or delay product purchase commitments with little or no notice.

Sales by Market

Sales in the Semiconductor Equipment market decreased $81.6 million, or 30.6%, to $185.0 million for the three months ended September 30, 2023 and $145.9 million, or 20.9%, to $552.4 million for the nine months ended September 30, 2023 as compared to the same periods in the prior year. The decrease in sales compared to the same periods in the prior year was primarily due to a cyclical downturn in the semiconductor industry and the U.S. export controls restricting shipments of equipment to Chinese semiconductor customers. The revenue decline in the first nine months was partially mitigated by strong service revenues and growth in certain applications, such as high voltage power supplies.

Sales in the Industrial and Medical market decreased $4.4 million, or 3.6%, to $115.2 million for the three months ended September 30, 2023 as compared to same period in the prior year. Sales increased $58.4 million, or 19.0%, to $365.8 million for the nine months ended September 30, 2023 as compared to the same period in the prior year. The decrease in sales for the three month period was primarily related to softer macroeconomic conditions in the third quarter of 2023. The increase in sales for the nine month period was primarily due to relatively stable demand for our portfolio of products across several industrial and medical applications and improved material availability.

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Sales in the Data Center Computing market decreased $19.3 million, or 22.0%, to $68.3 million for the three months ended September 30, 2023 and $45.9 million, or 19.7%, to $187.0 million for the nine months ended September 30, 2023 as compared to the same periods in the prior year. The decrease in Data Center Computing market sales was due to the cyclical downturn in the data center server and storage market, partially offset by increased demand for advanced computing applications by some customers.
Restructuring, Asset Impairments and Other Charges

Sales in the Telecom and Networking market decreased $1.1 million, or 2.6%, to $41.4 million for the three months ended September 30, 2023 and increased $29.3 million, or 25.3%, to $145.3 million for the nine months ended September 30, 2023 as compared to the same periods in the prior year. The decrease in sales during the three month period was due to slowing market demand. The increase in sales for the nine month period was primarily due to substantially improved material availability, allowing us to largely fulfill outstanding demand from the prior year.
| | | | | | | | | | | | | |
GROSS PROFIT

For the Three Months Ended September 30, 2023 gross profit decreased $43.9 million to $147.3 million, or 35.9% of revenue, as compared to $191.2 million, or 37.0% of revenue, in the same period in the prior year. For the nine months ended September 30, 2023, gross profit decreased $48.2 million to $449.5 million, or 35.9% of revenue, as compared to $497.7 million, or 36.7% of revenue, in the same period in the prior year.
| | | Three Months Ended March 31, | | Change 2024 v. 2023 | |
The decrease in gross profit as a percentage of revenue for the three and nine months ended September 30, 2023 was largely due to the decline in sales, unfavorable product mix, and higher operating costs based on investments made in 2022, partially offset by lower premiums and related recoveries for securing critical parts.
| | | 2024 | | 2023 | | Dollar | | Percent | |
| |
| | | (in thousands) |
We perform research and development ("R&D") to develop new or emerging applications, technological advances to provide higher performance, lower cost, or other attributes that we may expect to advance our customers' products. We believe that continued development of technological applications, as well as enhancements to existing products and related software to support customer requirements, are critical for us to compete in the markets we serve. Accordingly, we devote significant personnel and financial resources to the development of new products and the enhancement of existing products, and we expect these investments to continue.
| Restructuring, asset impairments, and other charges | | $ | 245 | | $ | 1,043 | | $ | (798) | | (76.5) | % |
| | | | | | | | | | | | | |

R&D expenses increased $0.6 million to $50.4 million for The three months ended September 30, 2023 and increased $12.0 million to $153.4 million for the nine months ended September 30, 2023 as compared to the same periods in the prior year. The increase in R&D expense for the three months ended September 30, 2023 was primarily driven by increased headcount and compensation costs. The increase for the nine months ended September 30, 2023 was primarily driven by increased headcount and compensation costs of $8.3 million, which was partially due to the SL Power acquisition. in addition, during the nine months ended September 2023 we incurred $3.8 million In higher program and material costs as we invested in new programs to maintain and increase our technological leadership and provide solutions to our customers' evolving needs.
The decrease in restructuring, asset impairments, and other charges is primarily driven by timing of our restructuring plan decisions. We have two restructuring plans in process, including the following:

2023 Plan


In 2023, we approved a plan intended to optimize and further consolidate our manufacturing operations and functional support groups as well as a general reduction-in-force to align our expenses to revenue levels (the "2023 Plan"). We expect additional charges of $1.0 million to $2.0 million to be incurred in future periods through the second quarter of 2025. We anticipate the 2023 Plan will be substantially completed by the end of 2024, with the final activities concluding in the second quarter of 2025.



Selling, General, and Administrative

Our selling expenses support domestic and international sales and marketing activities that include personnel, trade shows, advertising, third-party sales representative commissions, and other selling and marketing activities. Our general and administrative expenses support our worldwide corporate, legal, tax, financial, governance, administrative, information systems, corporate development, and human resource functions.

Selling, general and administrative ("SG&A") expenses decreased $1.6 million to $55.1 million for the three months ended September 30, 2023 and increased $5.0 million to $166.1 million for the nine months ended September 30, 2023 as compared to the same periods in the prior year. The decrease in SG&A during the three month period was primarily due to lower employee variable compensation expense, partially offset by higher stock-based compensation cost. The increase in SG&A for the nine month period was primarily related to higher stock-based compensation cost and the addition of SL Power, partially offset by lower employee variable compensation expense.

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Amortization of Intangibles

Amortization expense remained the same at $7.0 million during the three months ended September 30, 2023 and increased $2.1 million to $21.2 million for the nine months ended September 30, 2023 as compared to the same periods in the prior year. The increase was primarily driven by incremental amortization of acquired intangible assets from the SL Power acquisition. For additional information, see Note 2. Acquisitions and Note 12. Intangible Assets in Part I, Item 1 "Unaudited Consolidated Financial Statements."

Restructuring

in the fourth quarter of 2022 we approved a restructuring Plan(the "2022 plan which is expected



2022 Plan

This plan was approved to further improve our operating efficiencies and drive the realization of synergies from
our business combinations by consolidating our operations, optimizing our factory footprint, including moving certain
production into our higher volume factories, reducing redundancies, and lowering our cost structure. The majority of these actions impact our factory operations and should partially mitigate the impact of lower volumes on gross margins. Although we expect additional charges under this plan as we refine and execute our actions, We anticipate the
2022 Plan will be substantially completed and associated expenses will be incurred, by the end of 2024.

In 2018, we committed to a restructuring plan (the "2018 Plan") to optimize our manufacturing footprint and to improve our operating efficiencies and synergies related to business combinations. We incurred severance costs primarily related to the transition and exit of our facility in Shenzhen, China and actions associated with synergies related to the acquisition of Artesyn Embedded Technologies, Inc.'s embedded power business. This plan is substantially complete with the closure of our Shenzhen facility in February 2023.

For additional information, see Note 11. Restructuring, Asset Impairments, and Other Charges in Part I, Item 1 "Unaudited Consolidated Financial Statements."

OTHER Income, (EXPENSE), NET
Interest Income, Interest Expense, and Other Income (Expenses), net



Other income (expense), net consists primarily of Interest income and Expense, foreign exchange gains and losses, gains and losses on sales of fixed assets, and other miscellaneous items.

Other Income (expense), netdecreased $4.4 million to $4.5 million for the Three Months Ended September 30, 2023 and decreased $5.0 million to $6.3 million for the nine months ended September 30, 2023 as compared to the same periods in the prior year.

| | | | | | | | | | | | | |
| | | Three Months Ended March 31, | | Change 2024 v. 2023 | |
| | | 2024 | | 2023 | | Dollar | | Percent | |
The decrease in income between periods was primarily a result of lower unrealized foreign exchange gains and a one-time gain in 2022 from the sale of intellectual property from a previous acquisition that did not recur in 2023, in addition, we experienced an increase in Interest expense due to
| |
| | | (in thousands) |
| Interest income | | $ | 12,645 | | $ | 3,585 | | $ | 9,060 | | 252.7 | % |
| Interest expense | | $ | (7,127) | | $ | (2,730) | | $ | (4,397) | | 161.1 | % |
| Other income (expense), net | | $ | 1,379 | | $ | (1,405) | | $ | 2,784 | | 198.1 | % |
| | | | | | | | | | | | | |

We experienced an increase in interest income on higher cash balances, due in part to proceeds from issuance of the Convertible Notes in the third quarter of 2023, ability to concentrate cash in investment accounts, and higher short term market interest rates.

Interest expense increased due to interest associated with the Convertible Notes and
a higher interest rate on the portion of our Term Loan Facility subject to a variable interest rate. and The issuance of our Convertible Notes. This was partially offset by higher interest income on our cash due to higher interest rates and additional cash on hand in the last month of The quarter as a result of the Convertible Notes issuance. The interest rate swap contracts expire on September 10, 2024. After that date, the entire balance of our Term Loan Facility will be subject to a variable interest rate. In addition, should we have future borrowings under our Revolving Facility, those borrowings would be subject to a variable rate.

Other income (expense), net consists primarily of foreign exchange gains and losses, gains and losses on sales
of fixed assets, and other miscellaneous items. The increase in income between periods was primarily a result of higher

unrealized foreign exchange gains.

See Note 16. Long-Term Debt in Part I, Item 1 "Unaudited Consolidated Financial Statements" for information regarding our Convertible Notes.

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Income Tax Provision (Benefit)


The following table summarizes tax provision (in thousands) and the effective tax rate for our income from continuing operations:

| | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| | | Three Months Ended March 31, | |
| | | 2023 | | 2022 | | 2023 | |2022 | |
| | | 2024 | | 2023 | |
| Income from continuing operations, before income tax | | $ | 34,525 | | $ | 86,512 | | $ | 106,263 | | $ | 186,341 | |7,574 | | $ | 39,488 | |
| Provision for Income tax | | $ | 874 | | $ | 11,639 | | $ | 13,405 | | $ | 29,795 | |
| Income tax provision | | $ | 1,787 | | $ | 7,736 | |
| Effective tax rate | | | 2.5% | | | 13.5% | | | 12.6% | | | 16.0% ||
| Effective tax rate | | | 23.6 | % | | 19.6 | % |


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Our effective tax rates differ from the U.S. federal statutory rate of 21% for the three and nine months ended September 30, 2023, and 2022,months ended March 31, 2024 and 2023, primarily due to the benefit of earnings in foreign jurisdictions which are subject to lower tax rates, as well as tax credits, partially offset by net U.S. tax on foreign operations. The effective tax rate for the three and nine months ended September 30, 2023 was lower 2024 was higher than the same periods in 2023 primarily due to unfavorable mix of earnings.

As of January 1, 2024, the Pillar II minimum global effective tax rate of 15% enacted by the Organization for Economic Cooperation and Development ("OECD") was effectuated. More than 140 countries agreed to enact the Pillar II global minimum tax. However, the timing of the implementation for each country varies. To date, we have determined that there was an immaterial global minimum tax liability as a result of Pillar II, as certain tax jurisdictions either will not have Pillar II enacted until after December 31, 2024 or satisfied the safe harbor test to prevent any minimum tax under Pillar II. We continue to monitor the jurisdictions for any changes and include any appropriate minimum tax throughout the year.
the greater impact of beneficial discrete items primarily related to tax. strategies we implemented in the three months ended September 30, 2023 relative to the beneficial discrete items recorded in the three months ended September 30, 2022.

Our future effective income tax rate depends on various factors, such as changes in tax laws, regulations, accounting principles, or interpretations thereof, and the geographic composition of our pre-tax income. We carefully monitor these factors and adjust our effective income tax rate accordingly.

Non-GAAP Results

Management uses non-GAAP operating income and non-GAAP earnings per share ("EPS") to evaluate business performance without the impacts of certain non-cash charges and other charges which are not part of our usual operations. We use these non-GAAP measures to assess performance against business objectives, and make business decisions, including developing budgets and forecasting future periods. In addition, management's incentive plans include these non-GAAP measures as criteria for achievements. These non-GAAP measures are not prepared in accordance with U.S. GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. However, we believe these non-GAAP measures provide additional information that enables readers to evaluate our business from the perspective of management. The presentation of this additional information should not be considered a substitute for results prepared in accordance with U.S. GAAP.

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The non-GAAP results presented below exclude the impact of non-cash related charges, such as stock-based compensation, amortization of intangible assets, and long-term unrealized foreign exchange gains and losses. In addition, we exclude discontinued operations and other non-recurring items such as acquisition-related costs, facility expansion and related costs, and restructuring expenses, as they are not indicative of future performance. The tax effect of our non-GAAP adjustments represents the anticipated annual tax rate applied to each non-GAAP adjustment after consideration of their respective book and tax treatments.

| | | | | | | | |
| Reconciliation of non-GAAP measure | | | | | | | |
| Operating expenses and operating income from continuing | | Three Months Ended September 30, | | Nine Months Ended September 30, |March 31, | |
| operations, excluding certain items (in thousands) | | 2024 | | 2023 | |
| Gross profit from continuing operations, as reported | | $ | 147,341 | | $ | 191,218 | | $ | 449,532 | | $ | 497,692 |112,829 | | $ | 155,111 | |
| Adjustments to gross profit: | | | | | | | |
| Stock-based compensation | | | 615 | | | 454 | | | 1,587 | | | 1,087 |829 | | | 383 | |
| Facility expansion, relocation costs and other | | | 171 | | | 1,662 | | |1,188 | | | 4,133 |1,308 | | | 957 | |
| Acquisition-related costs | | | 44 | | | 53 | |
| Non-GAAP gross profit | | | 148,171 | | | 193,400 | || 452,501 | | | 502,540 |
| Non-GAAP gross profit | | | 115,010 | | | 156,504 | |
| Non-GAAP gross margin | | | 36.1% | | | 37.5% | | | 36.2% | | |37.1% |
| Non-GAAP gross margin | | | 35.1% | | | 36.8% | |
| | | | | | | | |
| Operating expenses from continuing operations, as reported | | | 117,280 | | | 113,646 | | | 349,608 | || 322,698 |112,152 | | | 115,073 | |
| Adjustments: | | | | | | | |
| Amortization of intangible assets | | | (7,049) | | | (7,049) | | | (21,186) | || (19,081) |(6,947) | | | (7,062) | |
| Stock-based compensation | | | (7,460) | | | (5,568) | | |(21,226) | | | (13,921) |(10,176) | | | (6,418) | |
| Acquisition-related costs | | | (611) | | | (1,150) | | |(2,654) | | | (6,977) |(1,266) | | | (878) | |
| Restructuring, and other | | | (4,898) | | | (121) | | | (9,095) | | |(1,178) |
| Restructuring, asset impairments, and other charges | | | (245) | | | (1,043) | |
| Non-GAAP operating expenses | | | 97,262 | | | 99,758 | | | 295,447 | || 281,541 |93,518 | | | 99,672 | |
| Non-GAAP operating income | | $ | 50,909 | | $ | 93,642 | | $ | 157,054 | | $ | 220,999 |21,492 | | $ | 56,832 | |
| Non-GAAP operating margin | | | 12.4% | | | 18.1% | | | 12.6% | || 16.3% |6.6% | | | 13.4% | |

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| | | | | | | | | | | | | |
| Reconciliation of non-GAAP measure | | | | | | | || | | | |
| Income from continuing operations, excluding certain items | | Three Months Ended September 30, | |Nine Months Ended September 30, |March 31, | |
| (in thousands, except per share amounts) | | 2024 | | 2023 | |
| Income from continuing operations, less non-controlling interest, net of income tax | | $ | 33,651 | | $ | 74,864 | | $ | 92,858 | | $ | 156,530 |5,787 | | $ | 31,752 | |
| Adjustments: | | | | | | | |
| Amortization of intangible assets | | | 7,049 | | | 7,049 | | | 21,186 | | | 19,081 |6,947 | | | 7,062 | |
| Acquisition-related costs | | | 655 | | | 1,216 | | |2,848 | | | 6,605 |1,310 | | | 931 | |
| Facility expansion, relocation costs, and other | | | 171 | | | 1,662 | | | 1,188 | || 4,133 |1,308 | | | 957 | |
| Restructuring, and other | | | 4,898 | | | 121 | | | 9,095 | || 1,178 |
| Restructuring, asset impairments, and other charges | | | 245 | | | 1,043 | |
| Unrealized foreign currency gain | | | (1,604) | | | (6,169) | | | (2,817) | | |(13,023) |
| Unrealized foreign currency loss (gain) | | | (1,757) | | | 1,053 | |
| Acquisition-related costs and other included in other income (expense), net | | | (1,516) | | | (4,685) | | | (1,516) | | | (4,600) |
| Tax effect of non-GAAP adjustments, | | | (1,101) | | | 855 | | | (3,273) | | | (966) |including certain discrete tax benefits | | | (622) | | | (1,121) | |
| Non-GAAP income, net of income tax, excluding stock-based compensation | | | 42,203 | | | 74,913 | || 119,569 | | | 168,938 |13,218 | | | 41,677 | |
| Stock-based compensation, net of tax | | | 6,299 | | | 4,697 | | | 17,794 | | | 11,668 |8,694 | | | 5,304 | |
| Non-GAAP income, net of income tax | | $ | 48,502 | | $ | 79,610 | |$ | 137,363 | | $ | 180,606 |21,912 | | $ | 46,981 | |
| Non-GAAP diluted earnings per share | | $ | 1.28 | | $ | 2.12 | |$ | 3.63 | | $ | 4.79 |0.58 | | $ | 1.24 | |

| | | | | | | | |
| Reconciliation of non-GAAP measure | | Three Months Ended September 30, | |Nine Months Ended September 30, |March 31, | |
| Per share earnings excluding certain items | | 2024 | | 2023 | |
| Diluted earnings per share from continuing operations, as reported | | $ | 0.89 | | $ | 1.99 | | $ | 2.45 | |$ | 4.15 |0.15 | | $ | 0.84 | |
| Add back: | | | | | | | |
| Per share impact of non-GAAP adjustments, net of tax | | | 0.39 | | | 0.13 | || 1.18 | | | 0.64 |0.43 | | | 0.40 | |
| Non-GAAP earnings per share | | $ | 1.28 | | $ | 2.12 | |$ | 3.63 | | $ | 4.79 |0.58 | | $ | 1.24 | |

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In previous years, inflation did not have a material impact on our operations. However, more recently, we have experienced inflationary pressure from price increases in select components driven by factors such as higher global demand, supply chain disruptions, higher labor expenses, and increased freight costs. In this environment, we are actively working with our customers to adjust pricing that helps offset the inflationary pressure on the cost of our components. We have also been able to recover some premiums on pricing related to securing scarce materials with our customers, thus limiting the financial impact of inflationary pressures.
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Liquidity and Capital Resources

Liquidity

Adequate liquidity and cash generation is important to the execution of our strategic initiatives. Our ability to fund our operations, acquisitions, capital expenditures, and product development efforts may depend on our ability to generate cash from operating activities, which is subject to future operating performance, as well as general economic, financial, competitive, legislative, regulatory, and other conditions, some of which may be beyond our control. Our primary sources of liquidity continue to be our available cash, investments, cash generated from current operations, and available borrowing capacity under the Revolving Facility (defined in Note 16. Long-Term Debt in Part I, Item 1 "Unaudited Consolidated Financial Statements").

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As of March 31, 2024, our cash and cash equivalents totaled $1,017.8 million, while our available funding under our Revolving Facility was $200.0 million. Additionally, we generated $8.0 million of cash flow from continuing operations in the three months ended March 31, 2024. We believe our

The following table summarizes our cash cash equivalents, and marketable securities (in thousands):

| | | | |
| | | September 30, 2023 |
| Cash and cash equivalents | | $ | 985,931 |
| Marketable securities | | | 155 |
| Total cash, cash equivalents, and marketable securities | | $ | 986,086 |

We believe the above
sources of liquidity will be adequate to meet anticipated working capital needs, anticipated levels of capital expenditures, contractual obligations, debt service, share repurchase programs, and dividends. for the next 12 months and on a long-term basis. During the ordinary course of business, we evaluate our cash requirements and, if necessary, adjust our expenditures to reflect the current market conditions and our projected revenue and demand. Our capital expenditures are primarily directed towards manufacturing and operations and can materially influence our available cash for other initiatives.

In addition, we may, depending upon the number or size of acquisitions we pursue, seek additional debt or equity financing from time to time; however, such additional financing may not be available on acceptable terms, if at all.

Debt

On September 12, 2023, we completed a private, unregistered offering of $575.0 million Convertible Notes and received net proceeds of approximately $561.1 million after the discount for the initial purchasers' fees. We intend to use the net proceeds to fund future growth, which may include strategic acquisitions, opportunistically repay existing outstanding indebtedness, repurchase our common stock, or general corporate purposes.

The following table summarizes our borrowings (in thousands, except for interest rates).

| | | | | | |
| | | March 31, 2024 |
| | | Balance | | Interest || Unused |
| | | | | Rate | | Line |
| | | | | | | Fee |
| Convertible Notes | | $ | 575,000 | | 2.50% || - |
| Term Loan Facility at fixed interest rate due to interest rate swap | | | 216,344 | | 1.17% |
| Term Loan Facility at variable interest rate | | | 133,656 | | 6.18% |
| Revolving Facility at variable interest rate | | | - | | 6.17% | | 0.10% |
| Total borrowings | | $ | 925,000 | | |

The interest rate swap contracts expire on September 10, 2024. After that date, the entire balance of our Term Loan Facility will be subject to a variable interest rate. In addition, should we have future borrowings under our Revolving Facility, those borrowings would be subject to a variable rate.

As of March 31, 2024,
As of September 30, 2023, we had $200.0 million in available funding under the Revolving Facility. The Term Loan Facility requires quarterly repayments of $5.0 million plus accrued interest, with the remaining balance due in September 2026.

In addition to the available capacity on the Revolving Facility, prior to the maturity date of our Credit Agreement, we may also request an increase to the financing commitments in either the Term Loan Facility or Revolving Facility by an aggregate amount not to exceed $115.0 million. Any requested increase is subject to lender approval.

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For more information see Note 16. Long-Term Debt in Part I, Item 1 "Unaudited Consolidated Financial Statements." For more information on the interest rate swap that fixes the interest rate for a portion of our Term Loan Facility, see Note 6. Derivative Financial Instruments in Part I, Item 1 "Unaudited Consolidated Financial Statements."

Dividends

During the three months ended March 31, 2024, we paid a quarterly cash dividend of $0.10 per share, totaling $3.8 million. We currently anticipate that a cash dividend of $0.10 per share will continue to be paid on a quarterly basis, although the declaration of any future cash dividend is at the discretion of the Board of Directors ("the Board") and will depend on our financial condition, results of operations, capital requirements, business conditions, and other factors.

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Share Repurchase

To repurchase shares of our common stock, we periodically enter into stock repurchase agreements. The following table summarizes these repurchases:

| | | | | | | | | | | | | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in thousands, except per share amounts) | | 2023 | | 2022 | | 2023 | | 2022 |
| Amount paid or accrued to repurchase shares | | $ | 40,000 | | $ | 2,342 | | $ | 40,000 | | $ | 25,955 |
| Number of shares repurchased | | | 378 | | | 34 | | | 378 | | | 346 |
| Average repurchase price per share | | $ | 105.74 | | $ | 69.39 | | $ | 105.74 | | $ | 75.07 |

The above table reflects a $40.0 million repurchase of our common stock that was concurrent with the Convertible Notes issuance. See Note 18. Long-Term Debt in Part I, Item 1 "Unaudited Consolidated Financial Statements." At September 30, 2023, the remaining amount authorized by the Board for future share repurchases was $199.3 million with no time limitation.

Cash Flows

A summary of our cash from operating, investing, and financing activities is as follows (in thousands):

| | | | | | | ||
| | | Nine Months Ended September 30, | |
| | | Three Months Ended March 31, |
| | | 2024 | | 2023 |
| Net cash from operating activities from continuing operations | | $ | 7,993 | | $ | 31,880 |
| Net cash used in operating activities from discontinued operations | | | (710) | | | (2,069) |
| Net cash from operating activities | | | 7,283 | | | 29,811 |
| Net cash used in investing activities | | | (18,721) | | | (16,210) |
| Net cash used in financing activities | | | (14,137) | | | (10,805) |
| Effect of currency translation on cash and cash equivalents | | | (1,201) | | | 51 |
| Net change in cash and cash equivalents | | | (26,776) | | | 2,847 |
| Cash and cash equivalents, beginning of period | | | 1,044,556 | | | 458,818 |
| Cash and cash equivalents, end of period | | $ | 1,017,780 | | $ | 461,665 |

Net Cash From Operating Activities

Net cash from operating activities from continuing operations for the nine months ended September 30, 2023, was $128.2 three months ended March 31, 2024 was $8.0 million, as compared to $31.9 million for the same period in the prior year. The increase of $15.2 million in net cash flows from operating activities decrease of $23.9 million as compared to the same period in the prior year was primarily due to a favorable decrease in net operating assets driven primarily by a decrease in accounts receivable and inventories. This was partially offset by a decrease in accounts payable and accrued expenses and lower net income from continuing operations.lower net income from continuing operations. Additionally, we had unfavorable decreases in accounts payable, accrued expenses, and other liabilities, as well as an unfavorable increase in inventory. This was partially offset by a favorable decrease in accounts receivable.

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Net Cash From Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2023 was ($50.2) three months ended March 31, 2024 was $18.7 million, primarily driven by the following:

| | ● | $16.6 million in purchases of property and equipment largely driven by investments in our manufacturing footprint and capacity; and |
| | ● | $2.1 million in purchases of investments. |

Net cash from investing for the nine months ended September 30, 2022 was ($185.3) million, primarily driven by the following:
Net cash used in investing for the three months ended March 31, 2023 was $16.2 million due to


| | ● | ($39.5) million in purchases of property and equipment largely driven by investments in our manufacturing footprint and capacity.and |

32

| | ● | ($145.8) million for business combinations. |
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Net Cash From Financing Activities

Net cash used in financing activities for the nine months ended September 30, 2023 was $454.2 three months ended March 31, 2024 was $14.1 million and included the following:

| | ● | $562.1 million net proceeds from issuance of long-term debt; |
| | ● | $5.0
| | ● | $74.9 million proceeds from the sale of Warrants; |
| | ● | ($115.0) million for purchase of Note Hedges; |
| | ● | ($40.0) million for repurchase of common stock; |
| | ● | ($15.0) million for repayment of long-term debt; |
| | ● | $3.8 million for dividend payments; and |
| | ● | $5.3 million in net payments related to stock-based award activities. |

Net cash used in financing activities for the nine months ended September 30, 2022 was ($53.8) three months ended March 31, 2023 was $10.8 million and included the following:

| | ● | ($26.0) million related to repurchases of our common stock; |
| | ● | $5.0
| | ● | ($15.0) million for repayment of long-term debt; |
| | ● | ($11.4) million for dividend payments; and |
| | ● | $3.8 million for dividend payment; and |
| | ● | $2.0 million in net payments related to stock-based award activities. |

Effect of Currency Translation on Cash

During the nine months ended September 30, 2023, During the three months ended March 31, 2024, foreign currency translation had a minimal impact on cash. See "Foreign Currency Exchange Rate Risk" in Part I, Item 3 of this Form 10-Q for more information.

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Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Note 1. Summary of Operations and Significant Accounting Policies and Estimates to the consolidated financial statements in the 2023 Form 10-K describes the significant accounting policies and methods used in the preparation of our consolidated financial statements. Our critical accounting estimates, discussed in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the 2023 Form 10-K, include

assessing excess and obsolete inventories, accounting for income taxes, and estimates for the valuation of assets and liabilities acquired in business combinations.|
| | ● | accounting for income taxes; |
| | ● | inputs to actuarial models that measure our pension obligations; and |
| | ● | assessing excess and obsolete inventories. |

Such accounting policies and estimates require significant judgments and assumptions to be used in the preparation of the consolidated financial statements and actual results could differ materially from the amounts reported based on variability in factors affecting these estimates.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk and Risk Management

In the normal course of business, we have exposure to interest rate risk from our investments and Credit Agreement. We also have exposure to foreign exchange rate risk related to our foreign operations and foreign currency transactions.

See "Risk Factors" set forth in Part I, Item 1A of the 2023 Form 10-K and Part II of this Form 10-Q, for more information about the market risks to which we are exposed. There have been no material changes in our exposure to market risk from December 31, 2023.

Foreign Currency Exchange Rate Risk

We are impacted by changes in foreign currency exchange rates through revenue and purchasing transactions when we sell products and purchase materials in currencies different from the currency in which product and manufacturing costs were incurred.

Our reported financial results of operations, including the reported value of our assets and liabilities, are also impacted by changes in foreign currency exchange rates. Assets and liabilities of substantially all our subsidiaries outside the U.S. are translated at period end rates of exchange for each reporting period. Operating results and cash flow statements are translated at average rates of exchange during each reporting period. Although these translation changes have no immediate cash impact, the translation changes may impact future borrowing capacity, and overall value of our net assets.

The functional currencies of our worldwide facilities primarily include the United States Dollar, (USD), Euro, South Korean Won, New Taiwan Dollar, Japanese Yen, Pound Sterling, and Chinese Yuan. Our purchasing and sales activities are primarily denominated in the USD, Japanese Yen, Euro, and Chinese Yuan.We are subject to risks associated with revenue and purchasing activities and costs to operate that are denominated in currencies other than our functional currencies, such as the Singapore Dollar, Malaysian Ringgit, Mexican Peso and Philippine Peso.

Currency exchange rates vary daily and often one currency strengthens against the USD while another currency weakens. Because of the complex interrelationship of the worldwide supply chains and distribution channels, it is difficult to quantify The impact of a change in one or more of these particular exchange rates

As currencies fluctuate against each other we are exposed to foreign currency exchange rate risk on sales, purchasing transactions, and labor. Exchange rate fluctuations could require us to increase prices to foreign customers, which could result in lower net sales. Alternatively, if we do not adjust the prices for our products in response to unfavorable currency fluctuations, our results of operations could be adversely impacted. Changes in the relative buying power of our customers may impact sales volumes.
would be immaterial.


Acquisitions are a large component of our capital deployment strategy. A significant number of acquisition target opportunities are located outside the U.S., and their value may be denominated in foreign currency. Changes in exchange rates therefore may have a material impact on their valuation in USD and may impact our view of their attractiveness.

From time to time, we may enter into foreign currency exchange rate contracts to hedge against changes in foreign currency exchange rates on assets and liabilities expected to be settled at a future date, including foreign currency, which may be required for a potential foreign acquisition. Market risk arises from the potential adverse effects on the value of derivative instruments that result from a change in foreign currency exchange rates. We may enter into foreign currency forward contracts to manage the exchange rate risk associated with intercompany debt denominated in nonfunctional currencies. We minimize our market risk applicable to foreign currency exchange rate contracts by establishing and monitoring parameters that limit the types and degree of our derivative contract instruments. We enter into derivative contract instruments for risk management purposes only. We do not enter into or issue derivatives for trading or speculative purposes.

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Interest Rate Risk

Our interest rate risk exposure relates primarily to changes in interest rates on our debt. The following table summarizes our borrowings (in thousands).our variable rate Term Loan Facility. As of March 31, 2024 we have interest rate swap agreements in effect that fix the interest rate for $216.3 million of our Term Loan Facility at 1.17%, while $133.7 million remains at a floating rate of 6.18%.

| | | | | | | | |
| | | September 30, 2023 |
| | | Balance | | Interest | | Unused |
| | | | | rate | | Line |
| | | | | | | Fee |
| Convertible Notes | | $ | 575,000 | | 2.50% | | - |
| Term Loan Facility. at fixed interest rate due to interest rate swap | | | 225,094 | | 1.17% | | - |
| Term Loan Facility at variable interest rate | | | 134,906 | | 6.17% | | - |
| Revolving Facility at variable interest rate | | | - | | 6.17% | | 0.10% |
| Total borrowings | | $ | 935,000 | | | | |

For more information see Note 18 Long-Term Debt in Part I, Item 1 "Unaudited Consolidated Financial Statements." For more information on the interest rate swap that fixes the interest rate for a portion of our Term Loan Facility see Note 7. Derivative Financial Instruments in Part I, Item 1 "Unaudited Consolidated Financial Statements."

The Term Loan Facility and Revolving Credit Facility bear interest, at our option, at a rate based on the Base Rate or SOFR, as defined in the Credit Agreement, plus an applicable margin. The interest rate swap contracts expire on September 10, 2024. After that date, the entire balance of our Term Loan Facility will be subject to a variable interest rate.

our interest payments are impacted by interest rate fluctuations. with respect to the portion of our Credit Agreement

In addition, should we have future borrowings under our Revolving Facility, those borrowings would be subject to a variable rate.

For more information see Note 16. Long-Term Debt in Part I, Item 1 "Unaudited Consolidated Financial Statements." For more information on the interest rate swap that fixes the interest rate for a portion of our Term Loan Facility, see Note 6. Derivative Financial Instruments in Part I, Item 1 "Unaudited Consolidated Financial Statements."

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As of March 31, 2024 with respect to the borrowed portion of our Credit Facility that is subject to a variable interest rate, a hypothetical increase of 100 basis points (1%) in interest rates would have an insignificant impact on our interest expense. A change in interest rates does not have a material impact upon our future earnings and cash flow for fixed rate debt. However, increases in interest rates could impact our ability to refinance existing maturities and acquire additional debt on favorable terms.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures, which are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC's rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Principal Executive Officer (Stephen D. Kelley, President and Chief Executive Officer) and Principal Financial Officer (Paul Oldham, Executive Vice President and Chief Financial Officer), as appropriate, to allow timely decisions regarding required disclosures.

As of the end of the period covered by this report, we conducted an evaluation, with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures pursuant to the Exchange Act Rule 13a-15(b). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2024. The conclusions of the Chief Executive Officer and Chief Financial Officer from this evaluation were communicated to the Audit and Finance Committee. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. We intend to continue to review and document our disclosure controls and procedures, including our internal controls over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

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Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the quarter covered by this Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are involved in disputes and legal actions arising in the normal course of our business. Although it is not possible to predict the outcome of these matters, we believe that the results of these proceedings will not have a material adverse effect on our financial condition, results of operations, or liquidity.

ITEM 1A. RISK FACTORS

Information concerning our risk factors is contained in Part I, Item 1A, "Risk Factors" in the 2023 Form 10-K. The risks described in the 2023 Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or operating results. Aside from the risk factors below, There have been no material changes to the risk factors previously disclosed in the 2023 Form 10-K.

The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and operating results.

In the event the conditional conversion feature of the Convertible Notes is triggered, holders will be entitled to convert at any time during specified periods at their option. If one or more holders elect to convert, we would be required to settle any converted principal amount of such notes through payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as current rather than long-term liability, which would result in a material reduction of our net working capital.

Conversion of the Convertible Notes may dilute the ownership interest of our stockholders and the existence of the Convertible Notes may depress the price of our common stock.

The conversion of some or all of the Convertible Notes may dilute the ownership interests of our stockholders. Upon conversion, we have the option to pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock with respect to the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted. If we elect to settle the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted in shares of our common stock or a combination of cash and shares of our common stock, that action will dilute the ownership interest of our stockholders. Additionally, any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock.

In addition, the existence of the Convertible Notes may encourage short selling by market participants because the conversion could be used to satisfy short positions, and the anticipated conversion into shares of our common stock could depress the price of our common stock.

The hedges and warrants in our own common stock may adversely affect the common stock's trading price.

In September 2023, we entered into hedge and warrant transactions on our own common stock. These contracts are expected to reduce the potential dilution to our common stock upon any conversion of the Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount. The warrants could separately have a dilutive effect on our common stock to the extent that the market price per share of our common stock exceeds the exercise price.

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In addition, the counterparties or their affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and sell our common stock prior to the maturity of the Convertible Notes (and are likely to do in connection with any conversion or redemption). This activity could cause fluctuations in the market price of our common stock.

We are subject to counterparty default risk with respect to the Note Hedges.

The counterparties are financial institutions, and we will be subject to the risk that any or all of them might default. Our exposure is not secured by any collateral. If a counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor. Our exposure will depend on many factors but, generally, an increase in our exposure will correlate to an increase in the market price and in the volatility of our common stock. In addition, upon a default by a counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the counterparties.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

To repurchase shares of our common stock, we periodically enter into stock repurchase agreements, open market transactions, and/or other transactions in accordance applicable federal securities laws. Before repurchasing our shares, we consider the market price of our common stock, the nature of other investment opportunities, available liquidity, cash flows from operations, general business and economic conditions, and other relevant factors.

The following table summarizes these repurchases:

| | | | | | | | | | | | | |
| Month | | Total | | Average | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum |
| | | Number of | | Price Paid | | | | Dollar |
| | | Shares | | Per Share | | | | Value of |
| | | Purchased | | | | | | Shares that |
| | | | | | | | | May Yet be |
| | | | | | | | | Purchased |
| | | | | | | | | Under the |
| | | | | | | | | Plans or |
| | | | | | | | | Programs |
| |
| | | (in thousands, except price per share data) |
| January | | | - | | $ | - | | | - | | $ | 199,320 |
| February | | | - | | $ | - | | | - | | $ | 199,320 |
| March | | | - | | $ | - | | | - | | $ | 199,320 |
At March 31, 2024, the remaining amount authorized by the Board of Directors ("the Board") for future share repurchases was $199.2
| First quarter | | | - | | $ | - | | | - | | | |
| | | | | | | | | | | | | |
| April | | | - | | $ | - | | | - | | $ | 199,320 |
| May | | | - | | $ | - | | | - | | $ | 199,320 |
| June | | | - | | $ | - | | | - | | $ | 199,320 |
| Second quarter | | | - | | $ | - | | | - | | | |
| | | | | | | | | | | | | |
| July | | | - | | $ | - | | | - | | $ | 199,320 |
| August | | | - | | $ | - | | | - | | $ | 199,320 |
| September | | | 378 | | $ | 105.74 | | | 378 | | $ | 199,320 |
| Third quarter | | | 378 | | $ | 105.74 | | | 378 | | | |
| | | | | | | | | | | | | |
| Total | | | 378 | | $ | 105.74 | | | 378 | | $ | 199,320 |

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the following table summarizes actions by our Board of Directors in relation to the stock repurchase program:


| | | |
| Date | | Action |
| September 2015 | | Authorized a program to repurchase up to $150.0 million of our common stock |
| | | |
| May 2018 | | Approved a $50.0 million increase in the repurchase program |
| | | |
| December 2019 | | Authorized the removal of the expiration date and increased the balance available for the repurchase program by $25.1 million |
| | | |
| July 2021 | | Approved an increase to the repurchase program, which authorized Advanced Energy Industries, Inc. to repurchase up to $200.0 million with no time limitation. |
| | | |
| July 2022 | | Approved an increase to the repurchase program from its remaining authorization of $102.4 million, to repurchase up to $200.0 million with no time limitation |
There were no share repurchases during the quarter covered by this Form 10-Q.
| | | |
| September 2023 | | Concurrent with the September 12, 2023 issuance of the Convertible Notes, approved a $40.0 million increase to the repurchase program specifically for the repurchase of our common stock in the same amount on that date |

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

None

ITEM 5. OTHER INFORMATION

During the three months ended March 31, 2024, no director or officer adopted or terminated a "Rule 10b5-1 trading arrangement" or a "Non-Rule 10b5-1 trading arrangement" (as defined in Item 408 of Regulation S-K).

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ITEM 6. EXHIBITS

The exhibits listed in the following index are filed as part of this Quarterly Report on Form 10-Q.

| Exhibit | | | |Incorporated by Reference |
| Number | | Description | |Form | | File No. | | Exhibit | | Filing Date |
| | | | | | | | | | | |
| 4.1 | | Indenture, dated as of September 12, 2023, between Advanced Energy Industries, Inc. and U.S. Bank Trust Company, National Association, as trustee (with the form of Global 2.50% Convertible Senior Note due 2028) | | 8-K | | 000-26966 | | 4.1 | | Sep. 13, 2023 |
| | | | | | | | | | | |
| 10.1 | | Form of Confirmation for Convertible Note Hedges | | 8-K | | 000-26966 | | 10.1 | | Sep. 13, 2023 |
| | | | | | | | | | | |
| | | (Certain personally identifiable information has been omitted from this exhibit pursuant to Item 601(a)(6) of Regulation S-K) | | | | | | | | |
| | | | | | | | | | | |
| 10.2 | | Form of Confirmation for Warrants | | 8-K | | 000-26966 | | 10.2 | | Sep. 13, 2023 |
| | | | | | | | | | | |
| | | (Certain personally identifiable information has been omitted from this exhibit pursuant to Item 601(a)(6) of Regulation S-K) | | | | | | | | |
| | | | | | | | | | | |
| 10.3 | | Amendment No. 3 to Credit Agreement, dated as of September 7, 2023, among Advanced Energy Industries, Inc., the guarantors party thereto, Bank of America, N.A., as Administrative Agent, and the Lenders party thereto | | 8-K | | 000-26966 | | 10.3 | | Sep. 13, 2023 |
| | | | | | | | | | | |
| 31.1 | | Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | || | | | | | Filed herewith |
| | | | || | | | | | |
| 31.2 | | Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | || | | | | | Filed herewith |
| | | | |
| 32.1 | | Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | || | | | | | Filed herewith |
| | | | | | | | | | | |
| 32.2 | | Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | || | | | | | Filed herewith |
| | | | || | | | | | |
| 101.INS | | Inline XBRL Instance Document | | | | | | | | Filed herewith |
| | | | || | | | | | |
| | | (The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | || | | | | | |
| | | | || | | | | | |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document. | || | | | | | Filed herewith |
| | | | |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Link base Document. | || | | | | | Filed herewith |
| | | | | | | | | | | |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Link base Document. | || | | | | | Filed herewith |
| | | | || | | | | | |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Link base Document. | | | | | | | | Filed herewith |
| | | | || | | | | | |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Link base Document. | || | | | | | Filed herewith |
| | | | |
| 104 | | Cover Page Interactive Data File | || | | | | | Filed herewith |
| | | | | | | | | | | |
| | | (Formatted in Inline XBRL and contained in Exhibit 101) | || | | | | | |

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| | | |
| | | ADVANCED ENERGY INDUSTRIES, INC. |
| | | |
| Dated: | October 31, 2023 | /s/ Paul Oldham |
| Dated: | May 1, 2024 | /s/ Paul Oldham |
| | | Paul Oldham |
| | | Chief Financial Officer and Executive Vice President |
| | | |
| | | /s/ Bernard R. Colpitts, Jr. |
| | | Bernard R. Colpitts, Jr. |
| | | Chief Accounting Officer and Controller |

38

EXHIBIT 31.1

I, Stephen D. Kelley, certify that:

| 1. | I have reviewed this Quarterly Report on Form 10-Q for the period ended March 31, 2024 of Advanced Energy Industries, Inc.; |

| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |

| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |

| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |

| | a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |

| | b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |

| | c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |

| | d. | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |

| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |

| | a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |

| | b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |

Date: May 1, 2024

| | |
| | /s/ Stephen D. Kelley |
| | Stephen D. Kelley |
| | Chief Executive Officer |


EXHIBIT 31.2

I, Paul Oldham, certify that:

| 1. | I have reviewed this Quarterly Report on Form 10-Q for the period ended March 31, 2024 of Advanced Energy Industries, Inc.; |

| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |

| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |

| 4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |

| | a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |

| | b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |

| | c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |

| | d. | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |

| 5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |

| | a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |

| | b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |

Date: May 1, 2024

| | |
| | /s/ Paul Oldham |
| | Paul Oldham |
| | Chief Financial Officer and Executive Vice President |


EXHIBIT 32.1

Certification of the Chief Executive Officer

Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906

of the Sarbanes-Oxley Act of 2002

I hereby certify, pursuant to 18 U.S.C. Section 1350, that the accompanying Quarterly Report on Form 10-Q for the period ended March 31, 2024, of Advanced Energy Industries, Inc., fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Advanced Energy Industries, Inc.

Date: May 1, 2024

| | |
| | /s/ Stephen D. Kelley |
| | Stephen D. Kelley |
| | Chief Executive Officer |

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.


EXHIBIT 32.2

Certification of the Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350,

as Adopted Pursuant to Section 906

of the Sarbanes-Oxley Act of 2002

I hereby certify, pursuant to 18 U.S.C. Section 1350, that the accompanying Quarterly Report on Form 10-Q for the period ended March 31, 2024, of Advanced Energy Industries, Inc., fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Advanced Energy Industries, Inc.

Date: May 1, 2024

| | |
| | /s/ Paul Oldham |
| | Paul Oldham |
| | Chief Financial Officer & Executive Vice President |

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.