ADVANCED ENERGY INDUSTRIES, INC.

FORM 10-Q

TABLE OF CONTENTS



	~~Page~~
PART I FINANCIAL ~~STATEMENTS~~INFORMATION	3

ITEM 1.	UNAUDITED ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS	3

	~~Condensed~~ Consolidated Balance Sheets	3

	~~Condensed~~ Consolidated Statements of Operations	4

	~~Condensed~~ Consolidated Statements of Comprehensive Income (Loss)	5

	~~Condensed~~ Consolidated Statements of Stockholders’ Equity	6

	Consolidated Statements of Cash Flows	6 7

	Notes to ~~Condensed~~ Consolidated Financial Statements	7 8

ITEM 2. ~~MANAGEMENT'S~~	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	19 22

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	27 34

ITEM 4.	CONTROLS AND PROCEDURES	28 35

	PART II OTHER INFORMATION	29

ITEM 1.	LEGAL PROCEEDINGS	29 35

ITEM 1A.	RISK FACTORS	29 35

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	40 36

ITEM ~~6. EXHIBITS~~ 3.	40DEFAULTS UPON SENIOR SECURITIES	36

~~SIGNATURES~~ ITEM 4.	41MINE SAFETY DISCLOSURES	36
~~EX-31.1~~
~~EX-31.2~~ ITEM 5.	OTHER INFORMATION	36
~~EX-32.1~~
~~EX-32.2~~ ITEM 6.	EXHIBITS	37

	SIGNATURES	38

~~Table Of Contents~~

Table of Contents

PART I FINANCIAL ~~STATEMENTS~~

INFORMATION


~~ITEM 1.~~	~~UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited ~~Condensed~~ Consolidated Balance Sheets

(In thousands, except per share amounts)

September 30, December 31,
2017 2016
ASSETS
Current assets:

Cash and cash equivalents $ 366,572
$ 281,953
Marketable securities 3,046
4,737
Accounts receivable, net of allowances of $2,232 and $1,943, respectively 74,993
75,667
Inventories 73,520
55,770
Income taxes receivable 6,380
1,482
Other current assets 8,678
9,324
Current assets of discontinued operations 7,770
9,401
Total current assets 540,959
438,334
Deposits and other assets 2,432
1,835
Property and equipment, net 15,736
13,337
Goodwill 53,509
42,125
Intangible assets, net 34,435
28,071
Deferred income tax assets 58,590
32,197
Non-current assets of discontinued operations 15,630
15,630
TOTAL ASSETS $ 721,291
$ 571,529
LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable $ 41,275
$ 46,255
Income taxes payable 9
1,778
Accrued payroll and employee benefits 16,241
13,230
Customer deposits 5,410
5,774
Other accrued expenses 18,394
14,590
Current liabilities of discontinued operations 9,667
13,419
Total current liabilities 90,996
95,046
Deferred income tax liabilities 2,049
1,008
Uncertain tax positions 4,383
2,538
Long term deferred revenue 36,528
39,170
Other long-term liabilities 22,662
20,536
Non-current liabilities of discontinued operations 16,287
21,157
Total liabilities 172,905
179,455
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; 39,624 and 39,712
issued and outstanding, respectively 40
40
Additional paid-in capital 187,407
203,603
Retained earnings 362,815
195,364
Accumulated other comprehensive loss (1,876 ) (6,933 )
Total stockholders’ equity 548,386
392,074
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 721,291
$ 571,529


	March 31,		December 31,
	2024		2023
ASSETS
Current assets:
Cash and cash equivalents	$	1,017,780	$	1,044,556
Accounts receivable, net		247,510		282,430
Inventories		361,337		336,137
Other current assets		44,990		48,771
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		135,627		136,448
Intangible assets, net		154,390		161,478
Goodwill		280,834		283,840
TOTAL ASSETS	$	2,524,088	$	2,556,757

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
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		1,381,205		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; 37,434 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		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 Condensed Consolidated Financial Statements.~~unaudited consolidated financial statements.

~~Table Of Contents~~

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited ~~Condensed~~ Consolidated Statements of Operations

(In thousands, except per share amounts)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016

Sales:
Product $ 152,363
$ 107,650
$ 424,478
$ 294,695
Services 24,212
18,902
67,320
53,666
Total sales 176,575
126,552
491,798
348,361
Cost of sales:
Product 72,146
49,835
198,754
137,984
Services 12,195
10,594
34,838
28,748
Total cost of sales 84,341
60,429
233,592
166,732
Gross profit 92,234
66,123
258,206
181,629
Operating expenses:

Research and development 14,629
11,293
41,742
33,324
Selling, general and administrative 24,692
19,421
70,580
56,814
Amortization of intangible assets 1,240
1,048
3,176
3,180
Total operating expenses 40,561
31,762
115,498
93,318
Operating income 51,673
34,361
142,708
88,311
Other (expense) income, net 153
(55 ) (3,138 ) 1,138
Income from continuing operations, before income taxes 51,826
34,306
139,570
89,449
Provision for income taxes (31,968 ) 5,268
(25,538 ) 12,937
Income from continuing operations, net of income taxes 83,794
29,038
165,108
76,512
Income from discontinued operations, net of income taxes 70
1,323
2,343
6,661
Net income $ 83,864
$ 30,361
$ 167,451
$ 83,173

Basic weighted-average common shares outstanding 39,786
39,681
39,787
39,723
Diluted weighted-average common shares outstanding 40,172
39,967
40,207
40,015

Earnings per share:

Continuing operations:

Basic earnings per share $ 2.11
$ 0.73
$ 4.15
$ 1.93
Diluted earnings per share $ 2.09
$ 0.73
$ 4.11
$ 1.91
Discontinued operations:
Basic earnings per share $ —
$ 0.03
$ 0.06
$ 0.17
Diluted earnings per share $ —
$ 0.03
$ 0.06
$ 0.17
Net income:
Basic earnings per share $ 2.11
$ 0.77
$ 4.21
$ 2.09
Diluted earnings per share $ 2.09
$ 0.76
$ 4.16
$ 2.08



	Three Months Ended March 31,
	2024		2023
Revenue, net	$	327,475	$	425,040
Cost of revenue		214,646		269,929
Gross profit		112,829		155,111

Operating expenses:
Research and development		49,836		51,610
Selling, general, and administrative		55,124		55,358
Amortization of intangible assets		6,947		7,062
Restructuring, asset impairments, and other charges		245		1,043
Total operating expenses		112,152		115,073
Operating income		677		40,038

Interest income		12,645		3,585
Interest expense		(7,127)		(2,730)
Other income (expense), net		1,379		(1,405)
Income from continuing operations, before income tax		7,574		39,488
Income tax provision		1,787		7,736
Income from continuing operations		5,787		31,752
Loss from discontinued operations, net of income tax		(571)		(831)
Net income	$	5,216	$	30,921

Basic weighted-average common shares outstanding		37,359		37,475
Diluted weighted-average common shares outstanding		37,687		37,757

Earnings per share:
Continuing operations:
Basic earnings per share	$	0.15	$	0.85
Diluted earnings per share	$	0.15	$	0.84
Discontinued operations:
Basic loss per share	$	(0.02)	$	(0.02)
Diluted loss per share	$	(0.02)	$	(0.02)
Net income:
Basic earnings per share	$	0.14	$	0.83
Diluted earnings per share	$	0.14	$	0.82

The accompanying notes are an integral part of these ~~Unaudited Condensed Consolidated Financial Statements.~~unaudited consolidated financial statements.

~~Table Of Contents~~

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ADVANCED ENERGY INDUSTRIES, INC.

Unaudited ~~Condensed~~ Consolidated Statements of Comprehensive Income

(Loss)

(In thousands)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net income $ 83,864
$ 30,361
$ 167,451
$ 83,173
Other comprehensive income, net of tax:
Foreign currency translation adjustment 807
1,125
5,333
1,389
Unrealized (loss) gain on marketable securities (1 ) (1 ) (22 ) 9
Minimum benefit retirement liability (100 ) (16 ) (254 ) (40 )
Comprehensive income $ 84,570
$ 31,469
$ 172,508
$ 84,531


	Three Months Ended March 31,
	2024		2023
Net income	$	5,216	$	30,921
Other comprehensive loss, net of income tax
Foreign currency translation		(6,589)		(196)
Change in fair value of cash flow hedges		(1,380)		(1,817)
Comprehensive income (loss)	$	(2,753)	$	28,908

The accompanying notes are an integral part of these ~~Unaudited Condensed Consolidated Financial Statements.~~unaudited consolidated financial statements.

~~Table Of Contents~~

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited ~~Condensed~~ Consolidated Statements of ~~Cash Flows~~

Stockholders' Equity

(In ~~thousands)~~

Nine Months Ended September 30,
2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 167,451
$ 83,173
Income from discontinued operations, net of income taxes 2,343
6,661
Income from continuing operations, net of income taxes 165,108
76,512
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 6,792
5,938
Stock-based compensation expense 10,707
4,299
Provision for deferred income taxes (26,185 ) —
Loss on foreign exchange hedge 3,489
—
Net loss on disposal of assets 106
259
Changes in operating assets and liabilities, net of assets acquired:
Accounts receivable 4,119
(13,679 )
Inventories (15,062 ) (5,261 )
Other current assets (430 ) (73 )
Accounts payable (5,725 ) 10,619
Other current liabilities and accrued expenses 3,763
1,489
Income taxes (6,375 ) 2,562
Net cash provided by operating activities from continuing operations 140,307
82,665
Net cash used in operating activities from discontinued operations (7,293 ) (4,538 )
Net cash provided by operating activities 133,014
78,127
CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of marketable securities (86 ) (745 )
Proceeds from sale of marketable securities 1,883
7,161
Acquisition, net of cash acquired (17,347 ) —
Purchase of foreign exchange hedge (3,489 ) —
Purchases of property and equipment (5,646 ) (4,524 )
Net cash (used in) provided by investing activities from continuing operations (24,685 ) 1,892
Net cash used in investing activities from discontinued operations —
—
Net cash (used in) provided by investing activities (24,685 ) 1,892
CASH FLOWS FROM FINANCING ACTIVITIES:

Purchase and retirement of common stock (24,998 ) —
Net (payments) proceeds related to stock-based award activities (1,904 ) 1,753
Other financing activities 2
(3 )
Net cash (used in) provided by financing activities from continuing operations (26,900 ) 1,750
Net cash used in financing activities from discontinued operations —
(24 )
Net cash (used in) provided by financing activities (26,900 ) 1,726
EFFECT OF CURRENCY TRANSLATION ON CASH 1,138
(550 )
INCREASE IN CASH AND CASH EQUIVALENTS 82,567
81,195
CASH AND CASH EQUIVALENTS, beginning of period 289,517
169,720
CASH AND CASH EQUIVALENTS, end of period 372,084
250,915
Less cash and cash equivalents from discontinued operations 5,512
6,623
CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS, end of period $ 366,572
$ 244,292
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for interest $ 27
$ 173
Cash paid for income taxes 4,599
4,930
Cash received for refunds of income taxes 1,153
444
Cash held in banks outside the United States 271,777
176,815

thousands, except per share amounts)



	Common Stock
						Accumulated
				Additional		Other				Total
				Paid-in		Comprehensive		Retained		Stockholders'
	Shares	Amount		Capital		Income (Loss)		Earnings		Equity
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

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		—		—		10,591
Dividends declared ($0.10 per share)	—		—		—		—		(3,810)		(3,810)
Other comprehensive loss	—		—		—		(7,969)		—		(7,969)
Deferred compensation	—		—		79		—		(79)		—
Net income	—		—		—		—		5,216		5,216
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 Condensed Consolidated Financial Statements.~~unaudited consolidated financial statements.

~~Table Of Contents~~

Table of Contents

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	$	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
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 receivable, net		33,444		13,590
Inventories		(26,786)		(25,699)
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		(16,629)		(16,210)
Net cash from investing activities		(18,721)		(16,210)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term borrowings		(5,000)		(5,000)
Dividend payments		(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 ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)


~~NOTE 1.~~	~~BASIS OF PRESENTATION~~

NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Advanced Energy Industries, Inc., a Delaware corporation, and its ~~wholly-owned~~consolidated subsidiaries ("(“we,~~" "us," "our," "Advanced~~” “us,” “our,” “Advanced Energy,"” or the ~~"Company"~~“Company”) provides highly engineered, critical, precision power conversion, measurement, and control solutions to our global customers. We design, manufacture, sell and support precision power ~~conversion~~ 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 ~~forms. Our~~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 ~~manufacturing processes that use thin films for various products, such as semiconductor devices, flat panel displays, solar cells, architectural glass, optical coating~~customers to reduce or optimize their energy consumption through increased power conversion efficiency, power density, power coupling, and ~~decorative and functional coating for consumer products. We also supply thermal instrumentation products for advanced temperature~~process control ~~in the thin film process for these same markets. Our power control modules provide power control solutions for industrial~~across a wide range of applications where heat treatment and processing are used such as glass manufacturing, metal fabrication and treatment, and material and chemical processing. Our high voltage power supplies and modules are used in applications such as semiconductor ion implantation, scanning electron microscopy, chemical analysis such as mass spectrometry and various applications using X-ray technology and electron guns for both analytical and processing applications. Our network of global service support centers provides a recurring revenue opportunity as we offer repair services, conversions, upgrades, and refurbishments and sales of used equipment to companies using our products. As of December 31, 2015, we discontinued the production, engineering, and sales of our solar inverter product line. As such, all solar inverter revenues, costs, assets and liabilities are reported in Discontinued Operations for all periods presented herein. See ~~Note 3. Discontinued Operations.~~

In ~~the~~management's opinion, ~~of management,~~ the accompanying ~~Unaudited Condensed Consolidated Financial Statements~~unaudited consolidated financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly ~~the~~Advanced Energy’s financial position ~~of the Company~~ as of ~~September 30, 2017,~~March 31, 2024, and the results of our operations ~~for the three and nine months ended September 30, 2017 and 2016,~~ and cash flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016.~~

2023.

The ~~Unaudited Condensed Consolidated Financial Statements~~unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ~~("SEC"~~(“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"~~GAAP”) have been ~~condensed or~~ omitted pursuant to such rules and regulations. These ~~Unaudited Condensed Consolidated Financial Statements~~unaudited consolidated financial statements should be read in conjunction with the audited ~~Consolidated Financial Statements~~consolidated financial statements and ~~Notes~~notes thereto contained in our Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2016~~2023 and other financial information filed with the SEC.

~~ESTIMATES AND ASSUMPTIONS~~

Use of Estimates in the Preparation of the Consolidated Financial Statements

The preparation of our ~~Unaudited Condensed Consolidated Financial Statements~~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, ~~and~~the disclosure of contingent ~~assets and~~ liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. ~~We believe that the~~The significant estimates, assumptions, and judgments ~~when accounting for items and matters such as allowances for doubtful accounts,~~include, but are not limited to, excess and obsolete inventory, ~~warranty reserves, acquisitions, asset valuations, goodwill, asset life, depreciation, amortization, recoverability of assets, impairments, deferred revenue, stock option and restricted stock grants,~~income taxes and other provisions, ~~are reasonable, based upon information available at the time they are made. Actual results may differ from these estimates.~~

~~CRITICAL ACCOUNTING POLICIES~~

and acquisitions and asset valuations.

Significant Accounting Policies

Our accounting policies are described in Note 1 to our audited ~~Consolidated Financial Statements and Notes contained~~consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~.

~~NEW ACCOUNTING STANDARDS~~

2023.

New Accounting Standards

From time to time, the Financial Accounting Standards Board ~~("FASB"~~(“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, iswill not ~~expected to~~ have a material impact on the ~~Consolidated Financial Statements~~consolidated financial statements upon adoption.

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~~ADVANCED ENERGY INDUSTRIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(in thousands except per share data)~~

New Accounting Standards Issued But Not Yet Adopted

In ~~May 2014,~~November 2023, the FASB issued ASU ~~2014-09, "Revenue from Contracts with Customers" and has subsequently issued several supplemental and/or clarifying ASUs (collectively known as "ASC 606"). ASC 606 implements a five step model for how~~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 ~~should recognize revenue in order to depict the transfer~~can disclose multiple segment measures of ~~promised goods~~profit or ~~services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange~~loss, and provides new disclosures requirements for ~~those goods or services.~~entities with a single reportable segment. This guidance will be effective for ~~fiscal periods beginning after December 15, 2017 and~~us in our Annual Report on Form 10-K for the ~~interim periods within that year.~~year

~~Advanced Energy has established a cross-functional implementation team~~

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

ending December 31, 2024. We do not expect the above guidance to analyze its current portfolio of customer contracts. We have completed the disaggregation of the related sales order data and have begun testing contract elements and considering supporting software applications. The implementation team is also responsible for identifying and implementing changes to existing business processes, controls, and systems in order to support revenue recognition and disclosure under the new standard. Based onmaterially impact our preliminary review of our customer contracts, we expect that revenue with the majority of our customers will continue to be recognized at a point in time, generally upon shipment of products, consistent with our current revenue recognition model. Upon adoption of ASC 606, however, we also believe some of our revenue from sales of products to customers will be recognized in advance of actual customer billing, (for example: just in time inventory programs) due to the terms of certain customer contracts. As such, various balance sheet line items will be impacted. Advanced Energy believes the adoption of ASC606 will have an impact on both the timing of revenue recognition and various line items within the Consolidated Balance Sheet.

The standard permits the use of either the retrospective or cumulative effect transition method. Our team is continuing to evaluate the impact that the adoption will have on our Consolidated Financial Statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing reporting.

consolidated financial statements.

In ~~February 2016,~~December 2023, the FASB issued ASU ~~2016-02, "Leases (Topic 842),"~~2023-09 “Improvements to ~~increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key~~Income Tax Disclosures.” ASU 2023-09 requires disaggregated information about ~~leasing arrangements. ASU 2016-02 is~~a reporting entity’s effective tax rate reconciliation as well as additional disclosure on income taxes paid. This guidance will be effective for ~~fiscal years beginning after December 15, 2018, including interim periods within~~us on January 1, 2025. We do not expect the ~~year~~above guidance to materially impact our consolidated financial statements.

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 ~~adoption. Early adoption is permitted. Advanced Energy is currently assessing~~judicial review. We do not expect the above disclosure requirement to materially impact our consolidated financial statements. We are evaluating the disclosure requirements and ~~has not yet determined~~changes to our business processes, systems, and controls to support the ~~impact ASU 2016-02 may have on its Consolidated Financial Statements.~~additional disclosures.

NOTE 2. REVENUE

Disaggregation of revenue

The following tables present additional information regarding our revenue:

Revenue by Market


	Three Months Ended March 31,
	2024		2023
Semiconductor Equipment	$	179,903	$	194,209
Industrial and Medical		83,418		123,020
Data Center Computing		41,902		59,659
Telecom and Networking		22,252		48,152
Total	$	327,475	$	425,040

Revenue by Region


	Three Months Ended March 31,
	2024				2023
North America	$	134,079	40.9	%	$	180,942	42.5	%
Asia		151,943	46.4			179,183	42.2
Europe		40,553	12.4			62,566	14.7
Other		900	0.3			2,349	0.6
Total	$	327,475	100.0	%	$	425,040	100.0	%

Revenue by Significant Countries


	Three Months Ended March 31,
	2024				2023
United States	$	107,816	32.9	%	$	153,506	36.1	%
Taiwan		39,473	12.1			36,361	8.6
China		18,891	5.8			37,456	8.8
All others		161,295	49.2			197,717	46.5
Total	$	327,475	100.0	%	$	425,040	100.0	%

In October 2016, the FASB issued ASU 2016-16, “Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory.” ASU 2016-16 changes the timing of income tax recognition for an intercompany sale of assets. ASU 2016-16 requires the seller’s tax effects and the buyer’s deferred taxes to be recognized immediately upon the sale instead of deferring accounting for the income tax implications until the assets are sold to a third party or recovered through use. ASU 2016-16 is effective for fiscal years beginning after December 15, 2017 including interim periods within the year of adoption. Modified retrospective adoption is required with any cumulative-effect adjustment recorded to retained earnings as of the beginning of the period of adoption. Early adoption is allowed but only if adopted in the first quarter of fiscal year 2017. Advanced Energy is currently assessing the impact of ASU 2016-16 adoption and while it has not completed the assessment, it has determined the impact of ASU 2016-16 adoption will require the recognition of deferred tax assets totaling approximately $18 million to $22 million with a corresponding increase to Retained Earnings in its Consolidated Financial Statements upon adoption.


~~NOTE 2.~~	~~BUSINESS ACQUISITION~~

On July 3, 2017, Advanced Energy acquired all of the issued and outstanding shares of capital stock of Excelsys Holdings Limited (“Excelsys”), an electronics manufacturer in Cork, Ireland. This acquisition is part of Advanced Energy’s strategy to continue to grow and diversify its revenue through organic and inorganic opportunities. The high-efficiency, configurable power supplies that Excelsys manufactures for medical and industrial applications will further enhance Advanced Energy’s product portfolio.

~~The components of the fair value of the total consideration transferred for the Excelsys acquisition are as follows:~~

Cash paid to owners $ 18,512
Cash acquired (1,165 )
Total fair value of consideration transferred $ 17,347

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(inIn 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 during the periods presented.

Revenue by Category


	Three Months Ended March 31,
	2024		2023
Product	$	286,264	$	379,274
Services and other		41,211		45,766
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.

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.

NOTE 3. INCOME TAX

The following table summarizes ~~estimated fair values of the assets acquired and liabilities assumed as of July 3, 2017:~~

Accounts receivable $ 1,930
Inventories 1,048
Income taxes receivable 558
Other current assets 47
Property and equipment 256
Deferred income tax asset 35
Accounts payable (1,342 )
Income taxes payable (34 )
Other accrued expenses (719 )
Deferred income tax liabilities (946 )
833
Amortizable intangible assets:
Tradename 182
Customer relationships 1,595
Technology 5,808
Total amortizable intangible assets 7,585
Total identifiable net assets 8,418
Goodwill 8,929
Total fair value of consideration transferred $ 17,347

~~A summary of the intangible assets acquired, amortization method and estimated useful lives as of July 3, 2017 follows :~~

Amount Amortization Method Useful Life
Tradename $ 182
Straight-line 5
Customer relationships 1,595
Straight-line 10
Technology 5,808
Straight-line 10
$ 7,585

Goodwill and intangible assets are recorded in the functional currency of the entity and are subject to changes due to translation at each balance sheet date. The goodwill associated with the acquisition is the result of expected synergies and expansion of the technology into adjacent markets we already serve. Advanced Energy is in the process of finalizing the assessment of fair value for the assets acquired and liabilities assumed.


~~NOTE 3.~~	~~DISCONTINUED OPERATIONS~~

In December 2015, we completed the wind down of engineering, manufacturing and sales of our solar inverter product line (the "inverter business"). Accordingly, the results of our inverter business have been reflected as “Income from discontinued operations, net of income taxes” on our Unaudited Condensed Consolidated Statements of Operations for all periods presented herein.

The effect of extended inverter warranty sales to our customers continues to be reflected in deferred revenue in our Unaudited Condensed Consolidated Balance Sheets. Deferred revenue for extended inverter warranties and the associated costs of warranty service will be reflected in Sales and Cost of goods sold, respectively, from continuing operations in future periods in our Consolidated Statement of Operations, as the deferred revenue is earned and the associated services are rendered. Extended warranties related to the inverter product line are no longer offered.

~~Table of Contents~~

~~ADVANCED ENERGY INDUSTRIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(in thousands except per share data)~~

~~The items included in "Income from discontinued operations, net of income taxes" are as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Sales $ —
$ —
$ —
$ —
Cost of sales 944
3,095
47
672
Total operating income (including restructuring) (441 ) (1,473 ) (1,587 ) (3,759 )
Operating income (loss) from discontinued operations (503 ) (1,622 ) 1,540
3,087
Other income (loss) (86 ) (14 ) 291
325
Income (loss) from discontinued operations before income taxes (589 ) (1,636 ) 1,831
3,412
Provision (benefit) for income taxes (659 ) (2,959 ) (512 ) (3,249 )
Income from discontinued operations, net of income taxes $ 70
$ 1,323
$ 2,343
$ 6,661

~~Assets and Liabilities of discontinued operations within the Condensed Consolidated Balance Sheets are comprised of the following:~~

September 30, December 31,
2017 2016
Cash and cash equivalents $ 5,512
$ 7,564
Accounts and other receivables, net 1,372
1,670
Inventories 886
167
Current assets of discontinued operations $ 7,770
$ 9,401

Other assets $ 70
$ 70
Deferred income tax assets 15,560
15,560
Non-current assets of discontinued operations $ 15,630
$ 15,630

Accounts payable and other accrued expenses $ 988
$ 3,684
Accrued warranty 8,675
9,254
Accrued restructuring 4
481
Current liabilities of discontinued operations $ 9,667
$ 13,419

Accrued warranty $ 16,054
$ 20,976
Other liabilities 233
181
Non-current liabilities of discontinued operations $ 16,287
$ 21,157


~~NOTE 4.~~	~~INCOME TAXES~~

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

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Income from continuing operations before income taxes $ 51,826
$ 34,306
$ 139,570
$ 89,449
Provision (benefit) for income taxes (31,968 ) 5,268
(25,538 ) 12,937
Effective tax rate (61.7 )% 15.4 % (18.3 )% 14.5 %

~~Table of Contents~~

~~ADVANCED ENERGY INDUSTRIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(in thousands except per share data)~~

~~The~~


	Three Months Ended March 31,
	2024			2023
Income from continuing operations, before income tax	$	7,574		$	39,488
Income tax provision	$	1,787		$	7,736
Effective tax rate		23.6	%		19.6	%

Our effective tax rates ~~for the three and nine months ended September 30, 2017~~ differ from the U.S. federal statutory rate of ~~35%~~21% for the three 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 ~~the recognition of excess~~ tax ~~benefits attributable to stock based compensation as a component of~~credits, partially offset by net U.S. tax expense in accordance with ASU 2016-09 “Improvements to Employee Share-Based Payment Accounting” which was implemented in December 2016. In addition, after several attempts by the company to sell its remaining solar businesses, management elected to liquidate its U.S. solar business during the three months ended September 30, 2017 and has accordingly recognized a tax benefit of $40.2 million for a worthless stock tax deduction.

on foreign operations. The effective tax ~~rates~~rate for 2024 was higher than the ~~three and nine months ended September 30, 2016 differ from the federal statutory rate of 35%~~same periods in 2023 primarily due to unfavorable mix of earnings.

As of January 1, 2024, the ~~benefit~~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 ~~earnings in foreign~~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 ~~which are subject~~either will not have Pillar II enacted until after December 31, 2024 or satisfied the safe harbor test to ~~lower~~prevent any minimum tax ~~rates.~~under Pillar II. We continue to monitor the jurisdictions for any changes and include any appropriate minimum tax throughout the year.

~~Our policy is to classify accrued interest and penalties related to unrecognized tax benefits in our income tax provision. The amount~~

Table of interest and penalties accrued related to our unrecognized tax benefits for the three months ended September 30, 2017 and 2016 was $0.1 million, and for the nine months ended September 30, 2017 and 2016 was $0.2 million and $0.3 million, respectively.Contents

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
(loss), net of income taxes.


		Foreign Currency Translation		Change in Fair Value of Cash Flow Hedges		Minimum Pension Benefit Retirement Liability		Total
Balance at December 31, 2023	$	(10,796)	$	5,474	$	11,436	$	6,114
Other comprehensive income prior to reclassifications		(6,589)		1,405		-		(5,184)
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:


~~NOTE 5.~~	~~EARNINGS PER SHARE~~	Three Months Ended March 31,		To Caption on
		2024		Consolidated Statements of Operations
Cash flow hedges		$	(2,785)	Interest expense

~~Basic~~

Earnings Per Share

The following table summarizes our earnings per share ~~("EPS"~~(“EPS”) ~~is computed~~:


	Three Months Ended March 31,
	2024		2023
Income from continuing operations	$	5,787	$	31,752


Basic weighted-average common shares outstanding		37,359		37,475
Dilutive effect of stock awards		328		282
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		28		102
Warrants		3,194		—
Total anti-dilutive shares		3,222		102

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. ~~The computation of~~

See Note 16. Long-Term Debt for information regarding our diluted EPS is similar to the computation of our basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding (using the if-convertedConvertible Notes, Note Hedges, and ~~treasury stock methods), if our outstanding stock options and restricted stock units had been converted to common shares, and if such assumed conversion is dilutive.~~

~~The following is a reconciliation of the weighted-average shares outstanding used in the calculation of basic and diluted EPS for the three and nine months ended September 30, 2017 and 2016:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Income from continuing operations, net of income taxes $ 83,794
$ 29,038
$ 165,108
$ 76,512

Basic weighted-average common shares outstanding 39,786
39,681
39,787
39,723
Assumed exercise of dilutive stock options and restricted stock units 386
286
420
292
Diluted weighted-average common shares outstanding 40,172
39,967
40,207
40,015
Continuing operations:

Basic earnings per share $ 2.11
$ 0.73
$ 4.15
$ 1.93
Diluted earnings per share $ 2.09
$ 0.73
$ 4.11
$ 1.91

~~The following restricted stock units were excluded in the computation of~~Warrants. For diluted earnings per share ~~because they were anti-dilutive:~~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.

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Restricted stock units —
1
1
1

~~Stock Buyback~~

~~In September 2015, our~~

Share Repurchase

At March 31, 2024, the remaining amount authorized by the Board of Directors authorized a program to repurchase up to $150.0 million of our stock over a thirty-month period. In August 2017, we entered into a Fixed Dollar Share Repurchase Agreement to repurchase $25.0 million of shares of our common stock in (“the ~~open market. A total of 351,292 shares of our common stock was repurchased under the Share Repurchase Agreement at an average price of $71.16 per share. All~~Board”) for future share repurchases was $199.2 million with no time limitation. There were ~~executed in the open market, and~~ no ~~shares were repurchased from related parties. The $25.0 million~~ share ~~repurchase was recognized as a reduction to~~

~~Table of Contents~~

~~ADVANCED ENERGY INDUSTRIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(in thousands except per share data)~~

Additional paid-in capital. Repurchased shares were retired and assumed the status of authorized and unissued shares. As of September 30, 2017, we had $75.0 million remaining for the authorized repurchase of shares.

repurchases during any periods presented.


~~NOTE 6.~~	~~MARKETABLE SECURITIES AND ASSETS MEASURED AT FAIR VALUE~~

Our investments with original maturities of more than three months at time of purchase and that are intended to be held for no more than 12 months, are considered marketable securities available for sale.

~~Our marketable securities consist of certificates of deposit. The relative cost and fair value of our marketable securities are as follows:~~

September 30, 2017 December 31, 2016
Cost Fair Value Cost Fair Value
Total marketable securities $ 3,044
$ 3,046
$ 4,735
$ 4,737

~~The maturities of our marketable securities available for sale as of~~ ~~September 30, 2017~~ ~~are as follows:~~

The value and liquidity of the marketable securities we hold are affected by market conditions, as well as the ability of the issuers of such securities to make principal and interest payments when due, and the functioning of the markets in which these securities are traded. As of ~~September 30, 2017, we do not believe any of the underlying issuers of our marketable securities are at risk of default.~~

NOTE 5. FAIR VALUE MEASUREMENTS

The following tables present information about ~~the fair value hierarchy used to measure~~ our ~~marketable securities at fair value, on a recurring basis, as of September 30, 2017~~assets and ~~December 31, 2016. We did not have any financial~~ liabilities measured at fair value on a recurring ~~basis, as~~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
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
Investments	Other assets		—		5,952		—		5,952

Table of ~~September 30, 2017 and December 31, 2016.~~

September 30, 2017 Level 1 Level 2 Level 3 Total
Total marketable securities $ —
$ 3,046
$ —
$ 3,046

December 31, 2016 Level 1 Level 2 Level 3 Total
Total marketable securities $ —
$ 4,737
$ —
$ 4,737

~~There were no transfers in or out of Level 1, 2, or 3 fair value measurements during the three and nine months ended September 30, 2017.~~Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)


~~NOTE 7.~~	~~DERIVATIVE FINANCIAL INSTRUMENTS~~

~~We are impacted by changes~~

NOTE 6. DERIVATIVE FINANCIAL INSTRUMENTS

Changes in foreign currency exchange ~~rates.~~rates impact our results of operations and cash flows. We ~~attempt to mitigate~~may manage these risks through the use of derivative financial instruments, primarily forward ~~currency exchange rate contracts. During the three and nine months ended September 30, 2017 and 2016, we entered into currency exchange rate~~contracts with banks. These forward contracts ~~to attempt to mitigate~~manage the exchange rate risk associated with ~~intercompany debt~~assets and liabilities denominated in nonfunctional currencies. ~~These~~Typically, we execute these derivative instruments ~~are~~for one-month periods and do not ~~designated~~designate them as ~~hedges for accounting purposes;~~hedges; however, they ~~tend to~~do partially offset the economic fluctuations of certain of our ~~intercompany debt~~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 ~~rate changes. These forward~~ contracts ~~are typically for one month periods. At September 30, 2017, we had one outstanding Euro forward contract.We did not have any currency exchange rate contracts outstanding as of December 31, 2016.~~

~~The notional amount of the exchange contracts at September 30, 2017 was $10.6 million and the fair value of these contracts was not significant at September 30, 2017.~~

~~Table of Contents~~

~~ADVANCED ENERGY INDUSTRIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(in thousands except per share data)~~

~~During the three and nine months ended September 30, 2017 and 2016 the gains and losses recorded related to the foreign currency exchange contracts are as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Loss from foreign currency exchange contracts $ (469 ) $ —
$ (1,096 ) $ (569 )

~~These losses~~ were offset by corresponding gains and losses on the revaluation of the underlying ~~intercompany debt~~assets and ~~both~~liabilities. Both are included as a component of ~~Other~~other income (expense) ~~income,~~, net in our ~~Unaudited Condensed~~ Consolidated Statements of Operations.

~~During the first quarter of 2017 we entered into~~

We have executed interest rate swap contracts that fix a foreign currency exchange rate forward contract at a cost of $3.5 million, to mitigate the exchange rate risk associated with a planned offshore acquisition which was not consummated. This derivative instrument was designated as a hedge for accounting purposes. The hedge expired upon maturity in the first quarter of 2017. The costportion of the ~~forward contract is~~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. 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 asin 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 ~~component~~result of ~~Other (expense) income, net in our Condensed Consolidated Statement~~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.

Table of ~~Operations.~~Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)


~~NOTE 8.~~	~~INVENTORIES~~

NOTE 7. ACCOUNTS RECEIVABLE, NET

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
March 31, 2024	$	1,795

NOTE 8. INVENTORIES

We value inventories ~~are valued~~ at the lower of cost or ~~market and~~net realizable value, computed on a first-in, first-out ~~(FIFO)~~ basis. Components of ~~Inventories are~~inventories were as follows:

September 30, December 31,
2017 2016
Parts and raw materials $ 52,991
$ 43,278
Work in process 8,901
5,292
Finished goods 11,628
7,200
Inventories $ 73,520
$ 55,770


	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	$	361,337	$	336,137


~~NOTE 9.~~	~~PROPERTY AND EQUIPMENT~~

NOTE 9. PROPERTY AND EQUIPMENT, NET

Property and equipment, ~~are as follows:~~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
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 March 31,
	2024		2023
Depreciation expense	$	10,005	$	9,461

September 30, December 31,
2017 2016
Buildings and land $ 1,656
$ 1,581
Machinery and equipment 35,270
32,743
Computer and communication equipment 26,452
24,637
Furniture and fixtures 1,379
1,267
Vehicles 340
357
Leasehold improvements 16,538
15,546
Construction in process 1,072
644
82,707
76,775
Less: Accumulated depreciation (66,971 ) (63,438 )
Property and equipment, net $ 15,736
$ 13,337

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(inIn thousands, except per share data)

~~Depreciation expense included in our income from continuing operations, is as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Depreciation expense $ 1,333
$ 845
$ 3,616
$ 2,758


~~NOTE 10.~~	~~GOODWILL~~

~~The following summarizes the changes in goodwill during the nine months ended September 30, 2017:~~

September 30, 2017 Additions Effect of Changes in Exchange Rates December 31, 2016
Goodwill $ 53,509
$ 8,929
$ 2,455
$ 42,125

NOTE ~~11.~~10. INTANGIBLE ASSETS

AND GOODWILL

Intangible assets ~~subject to amortization~~ consisted of the ~~following as of September 30, 2017 and December 31, 2016:~~

September 30, 2017 Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Technology-based $ 18,537
$ (5,082 ) $ 13,455
Customer relationships 29,865
(10,012 ) 19,853
Trademarks and other 2,601
(1,474 ) 1,127
Total amortizable intangibles $ 51,003
$ (16,568 ) $ 34,435

December 31, 2016 Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Technology-based $ 11,643
$ (3,673 ) $ 7,970
Customer relationships 26,608
(7,451 ) 19,157
Trademarks and other 2,223
(1,279 ) 944
Total amortizable intangibles $ 40,474
$ (12,403 ) $ 28,071

~~Amortization expense for our intangible assets included in our income from continuing operations is as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Amortization expense $ 1,240
$ 1,048
$ 3,176
$ 3,180

~~Table of Contents~~

~~ADVANCED ENERGY INDUSTRIES, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)~~

~~(in thousands except per share data)~~

following:


	March 31, 2024
	Gross Carrying		Accumulated		Net Carrying		Weighted Average Remaining
	Amount		Amortization		Amount		Useful Life (in years)
Technology	$	97,514	$	(63,086)	$	34,428	6.9
Customer relationships		167,981		(61,451)		106,530	9.3
Trademarks and other		27,104		(13,672)		13,432	5.3
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	$	97,961	$	(60,412)	$	37,549	6.8
Customer relationships		168,685		(58,835)		109,850	9.5
Trademarks and other		27,141		(13,062)		14,079	5.6
Total	$	293,787	$	(132,309)	$	161,478	8.5

Amortization expense related to intangible assets ~~for each of the five years 2017 (remaining) through 2021 and thereafter~~ is as follows:

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

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

Year Ending December 31,
2017 (remaining) $ 1,180
2018 4,842
2019 4,825
2020 4,146
2021 4,043
Thereafter 15,399
$ 34,435

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)


~~NOTE 12.~~	~~WARRANTIES~~

~~Provisions~~

NOTE 11. RESTRUCTURING, ASSET IMPAIRMENTS, AND OTHER CHARGES

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


	Three Months Ended March 31,
	2024		2023
Restructuring	$	(31)		1,043
Other charges		276		—
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:


	2023 Plan		2022 Plan		Other		Total
December 31, 2023	$	14,224	$	2,930	$	188	$	17,342
Costs incurred and charged to expense		(88)		57		—		(31)
Costs paid or otherwise settled		(4,099)		(2,220)		(188)		(6,507)
March 31, 2024	$	10,037	$	767	$	—	$	10,804

Charges related to our restructuring plans are as follows:


	Cumulative Cost Through
	March 31, 2024
	2023 Plan		2022 Plan		Total
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 ~~warranties, ranging~~warranty provisions, which generally range from 12 to 36 months to 24 ~~months following~~after shipment. ~~The~~We record the estimated warranty obligations cost ~~of warranties is recorded~~ when ~~revenue is recognized and~~we recognize revenue. This estimate is based ~~upon~~on historical experience by product ~~configuration~~ and ~~geographic region.~~

~~We establish accruals for our~~configuration.

Our estimated warranty ~~obligations that are probable to result in future costs. The warranty accrual~~obligation is included in ~~our Other~~other accrued expenses in our ~~balance sheet.~~Consolidated Balance Sheets. Changes in our product warranty ~~accrual~~obligation were as follows:

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Balances at beginning of period $ 3,933
$ 1,933
$ 2,329
$ 1,633
Increases to accruals 333
789
2,722
1,726
Warranty expenditures (439 ) (197 ) (1,236 ) (811 )
Effect of changes in exchange rates 6
(8 ) 18
(31 )
Balances at end of period $ 3,833
$ 2,517
$ 3,833
$ 2,517


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


~~NOTE 13.~~	~~PENSION LIABILITY~~

NOTE 13. LEASES

Components of total operating lease cost were as follows:


	Three Months Ended March 31,
	2024		2023
Operating lease cost	$	5,860	$	5,680
Short-term and variable lease cost		667		1,083
Total operating lease cost	$	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 ~~connection~~addition to the above, we have lease agreements with the HiTek acquisition on April 12, 2014, we acquired the HiTek Power Limited Pension Scheme ("HPLPS"). The HPLPS has been closed to new participants and additional accruals since 2006. In order to measure the expense and related benefit obligation, various assumptions are made including discount rates used to value the obligation, expected return on plan assets used to fund these expenses and estimated future inflation rates. These assumptions are based on historical experience as well as current facts and circumstances. An actuarial analysis is used to measure the expense and liability associated with pension benefits. We are committed to make annual fixedtotal payments of ~~$0.9~~$36.3 million ~~into the HPLPS through April 30,~~that commence on various dates in 2024 and ~~then $1.8 million from May 1, 2024~~2025 and extend through ~~November 30, 2033.~~2040.

~~The net pension liability is included in Other long-term liabilities in our balance sheet as follows:~~

September 30, December 31,
2017 2016
Pension liability $ 20,353
$ 18,836

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(inIn thousands, except per share data)

~~The components of the net periodic pension expense for the three and nine months ended September 30, 2017 and 2016 were as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net periodic (benefit) expense:
Expected return on plan assets $ (128 ) $ (121 ) $ (394 ) $ (385 )
Interest cost 242
235
742
747
Amortization of actuarial gains and losses 64
80
197
255
Net periodic expense $ 178
$ 194
$ 545
$ 617

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 March 31,
	2024		2023
Cash paid for operating leases	$	5,721	$	5,820
Right-of-use assets obtained in exchange for operating lease liabilities	$	16,837	$	208


~~NOTE 14.~~	~~STOCK-BASED COMPENSATION~~

~~On May 4, 2017,~~

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 ~~shareholders approved the Company's 2017~~2023 Omnibus Incentive Plan ("(“the ~~2017 Plan"~~2023 Incentive Plan”) and ~~all shares that were then available for issuance under~~ the ~~2008 Omnibus~~Employee Stock Purchase Plan (“ESPP”). The 2023 Incentive Plan ~~are now available for issuance~~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 ~~2017 Plan. We have reserved a total~~terms of ~~4,936,598 shares of Advanced Energy’s common stock for issuance under~~ the ~~2017 Plan.~~ respective plans.

The ~~2017~~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, ~~(including deferred stock units), unrestricted stock,~~ and ~~dividend equivalent rights. Any of the~~cash incentive awards ~~issued under the 2017 Plan may be issued as performance based awards~~.

The following table summarizes information related to ~~align~~our stock-based incentive compensation ~~awards to the attainment of annual or long-term performance goals. As of September 30, 2017, there were 4,189,179 shares available for grant under the 2017 Plan.~~

Stock option awards are granted with an exercise price equal to the market price of our stock at the date of grant and have either a time based vesting schedule of three or four years, or a performance based vesting schedule based upon achievement of organizational performance goals over a three year period, and a term of 10 years. The fair value of each award was estimated on the date of grant using the Black-Scholes-Merton option pricing model.

Restricted stock units (“RSU’s”) are granted with either a time based vesting schedule of three or four years, or a performance based vesting schedule based upon achievement of organizational performance goals over a three year period. The fair value of each RSU is determined based upon the closing fair market value of our common stock on the grant date.

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

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 ~~for~~was as follows:


	Three Months Ended March 31,
	2024		2023
Stock-based compensation expense	$	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 ~~three and nine months ended September 30, 2017 and~~ ~~2016~~ ~~is as follows:~~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.

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Stock-based compensation expense $ 3,453
$ 1,301
$ 10,707
$ 4,299

~~A summary of activity for stock option awards during the three and nine months ended~~ ~~September 30, 2017~~ ~~is as follows:~~

Three Months Ended September 30, 2017 Nine Months Ended September 30, 2017
Number of Options Weighted-Average Exercise Price per Share Number of Options Weighted-Average Exercise Price per Share
Options outstanding at beginning of period 375
$ 17.95
474
$ 17.47
Options exercised (20 ) $ 14.58
(114 ) $ 15.35
Options forfeited —
$ —
(5 ) $ 18.19
Options outstanding at end of period 355
$ 18.14
355
$ 18.14

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(inIn thousands, except per share data)

~~A summary of activity for RSU awards for the three and nine months ended~~ ~~September 30, 2017~~ is

Changes in our RSUs were as follows:

Three Months Ended September 30, 2017 Nine Months Ended September 30, 2017
Number of RSUs Weighted-Average Grant Date Fair Value Number of RSUs Weighted- Average Grant Date Fair Value
RSUs outstanding at beginning of period 411
$ 49.56
354
$ 29.60
RSUs granted 2
$ 74.56
250
$ 63.59
RSUs vested (20 ) $ 28.99
(205 ) $ 30.60
RSUs forfeited (1 ) $ 34.12
(7 ) $ 31.73
RSUs outstanding at end of period 392
$ 50.71
392
$ 50.71


	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.

Changes in our stock options were as follows:


	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 have firm purchase commitments and agreements with various suppliers to ensure the availability of components. The obligation as of September 30, 2017 is approximately $95.5 million. Our policy with respect to all purchase commitments is to record losses, if any, when they are probable and reasonably estimable. We continuously monitor these commitments for exposure to potential losses and will record a provision for losses when it is deemed necessary.

NOTE 15. COMMITMENTS AND CONTINGENCIES

We are involved in disputes and legal actions arising in the normal course of our business. ~~There~~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 ~~been no~~a material ~~developments~~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 ~~proceedings~~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 ~~involved during the nine months ended September 30, 2017.~~


~~NOTE 16.~~	~~RELATED PARTY TRANSACTIONS~~

~~Members of our Board of Directors hold various executive positions and serve as directors at other companies, including companies that are our customers. Sales~~reviewing past amendments made to our ~~related party customers~~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 ~~three~~plan agreements and ~~nine months ended September 30, 2017~~amendments, as we believe they represent a mutual understanding and ~~2016 were as follows:~~agreement among all parties.

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Sales to related parties $ 648
$ 673
$ 1,255
$ 896
Number of related party customers 1
2
1
3

~~Our accounts receivable balance from related party customers with outstanding balances as of September 30, 2017 and December 31, 2016 was as follows:~~

September 30, December 31,
2017 2016
Accounts receivable from related parties $ 277
$ —
Number of related party customers 1
—

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(inIn thousands, except per share data)


~~NOTE 17.~~	~~SIGNIFICANT CUSTOMER INFORMATION~~

~~The following table summarizes sales, and percentages~~

NOTE 16. LONG-TERM DEBT

Long-term debt on our Consolidated Balance Sheets consists of ~~sales, by customers that individually accounted for 10% or more~~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 ~~sales for the three and nine months ended~~gross long-term debt, including current maturities, are as follows:


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


	March 31, 2024
	Balance		Interest Rate
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%
Total borrowings	$	925,000

The interest rate swap contracts expire on September ~~30, 2017 and 2016:~~

Three Months Ended September 30,
2017 % of Total Sales 2016 % of Total Sales
Applied Materials, Inc. $ 50,078
28.4 % $ 45,806
36.2 %
LAM Research 46,315
26.2 % 24,305
19.2 %

Nine Months Ended September 30,
2017 % of Total Sales 2016 % of Total Sales
Applied Materials, Inc. $ 165,239
33.6 % $ 118,364
34.0 %
LAM Research 114,325
23.2 % 73,319
21.0 %

~~The following table summarizes the accounts receivable balances, and percentages of the total accounts receivable, for customers~~10, 2024. After that ~~individually accounted for 10% or more of accounts receivable as of September 30, 2017 and December 31, 2016:~~

September 30, December 31,
2017 2016
Applied Materials, Inc. $ 32,681
43.6 % $ 31,078
41.1 %
LAM Research 3,550
4.7 % 14,317
18.9 %

~~Our sales to Applied Materials, Inc. and LAM Research include precision power products used in semiconductor processing and solar and flat panel display. No other customer accounted for 10% or more~~date, this portion of our ~~sales or accounts receivable balances during these periods.~~


~~NOTE 18.~~	~~CREDIT FACILITY~~

~~On July 28, 2017, the Company entered into a~~Term Loan Agreement (the “Loan Agreement”) with Bank of America N.A. ("BA") which provides a revolving line of credit of up to $100.0 million subject to certain funding conditions through July 28, 2022. Interest on amounts drawn shall be paid quarterly based upon the LIBOR Daily Floating Rate then in effect, plus between one and one-quarter (1.25%) and one and three-quarters (1.75%) percentage points depending on the Funded Debt to EBITDA ratio. As of September 30, 2017, the interest rate was 2.49%.The obligations under the Loan Agreement are unsecured until the Funded Debt to EBITDA ratio exceeds 2.0 to 1.0, at which time the Company and certain affiliates’ tangible and intangible personal propertyFacility will be subject to a ~~first priority, perfected lien~~variable interest rate. For more information, see Note 6. Derivative Financial Instruments. The Term Loan Facility and ~~security~~Revolving Facility bear interest, at our option, at a rate based on the Base Rate or SOFR, as defined in ~~favor~~the Credit Agreement, plus an applicable margin.

The following table summarizes interest expense related to our debt:


	Three Months Ended March 31,
	2024		2023
Interest expense	$	6,302	$	2,590
Amortization of debt issuance costs		820		133
Total interest expense related to debt	$	7,122	$	2,723

Convertible Senior Notes due 2028

On September 12, 2023, we completed a private, unregistered offering of BA$575.0 million aggregate principal amount of 2.50% convertible senior notes (“Convertible Notes”).

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

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.

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

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 ~~a Security Agreement.~~the Credit Agreement to transition the benchmark interest rate from LIBOR to SOFR. The ~~Loan Agreement requires us~~impact of this transition was not material to ~~pay certain fees~~our consolidated financial statements.

On September 7, 2023, we entered into an additional amendment to the ~~lenders. During~~Credit Agreement to amend certain definitions, covenants, and events of default.

The following table summarizes our availability to withdraw on the ~~nine months ended September 30, 2017,~~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 ~~had less than $0.1~~may 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 March 31, 2024, we estimate the fair value of our Convertible Notes to be $585.9 million, and the par value of ~~expenses related to interest and unused line of credit fees. Our credit availability under~~ the Term Loan ~~Agreement was $100.0 million at September 30, 2017.~~Facility approximates its fair value.

~~Table Of Contents~~

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

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

~~The following discussion~~

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.~~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," "enables," "plan," "intend," "should," "could," "would," "likely," "potential," or "believe," as well as statements that events or circumstances "will" occur or continue,“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. ~~Therefore, actual~~

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

●

volatility and business fluctuations in the industries in which we compete;

●

our ability to achieve design wins with new and existing customers;

●

our ability to accurately forecast and meet customer demand;

●

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;

●

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;

●

our loss of or inability to attract and retain key personnel;

●

disruptions to our manufacturing operations or those of our customers or suppliers;

●

risks associated with our manufacturing footprint optimization and movement of manufacturing locations for certain products;

●

our ability to successfully identify, close, integrate and realize anticipated benefits from our acquisitions;

●

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 ability to achieve cost savings, profitability, and gross margin goals;

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●

changes to tax laws and regulations or our tax rates;

●

changes in federal, state, local and foreign regulations, including with respect to privacy and data protection, and environmental regulation;

●

effect of our debt obligations and restrictive covenants on our ability to operate our business;

●

risks related to our unfunded pension obligations;

●

restructuring and severance activities;

●

legal matters, claims, and proceedings;

●

our estimates of the fair value of intangible assets; and

●

the potential impact of dilution related to our convertible debt, hedge, and warrant transactions.

Actual results could differ materially and adversely from those expressed in any ~~forward-looking statements. Neither we nor any other person assumes responsibility for the accuracy and completeness of such~~ forward-looking statements, and readers are cautioned not to place undue reliance on forward-looking statements.

~~For additional information regarding factors~~ Factors that ~~may affect our actual financial condition, results of operations and accuracy of~~could contribute to these differences or prove our forward-looking statements, ~~see~~by hindsight, to be overly optimistic or unachievable include, but are not limited to, the ~~information under the caption "Risk Factors"~~risks and uncertainties listed above and described in Part ~~II,~~I, Item 1A ~~of this Quarterly Report on~~in the 2023 Form ~~10-Q and, in our Annual Report on Form 10-K for the year ended~~ ~~December 31, 2016~~.10-K. We ~~undertake~~assume no obligation to ~~revise or~~ update any forward-looking ~~statements for any reason.~~statement or provide the reasons why our actual results might differ.

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BUSINESS AND MARKET OVERVIEW

Company Overview

~~BUSINESS 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, ~~electrical power into various usable forms. Our power conversion products~~ refine, ~~modify~~ and ~~control~~modify the raw electrical power coming from aeither the utility or the building facility and convert it into various types of highly controllable, usable power that is predictable, repeatable, and ~~customizable. Our~~customizable to meet the necessary requirements for powering a wide range of complex equipment. Many of our products enable 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 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 ~~manufacturing~~plasma processes such as ~~plasma enhanced chemical~~dry etch and ~~physical deposition~~deposition. Our broad portfolio of high and ~~etch for various~~low voltage power products are used in a wide range of applications, such as semiconductor equipment, industrial production, medical and ~~industrial products, industrial thermal applications for material~~life science equipment, data center computing, networking, and ~~chemical processes, and specialty power for critical industrial applications.~~telecommunications. We also supply ~~thermal~~related sensing, controls, and instrumentation products primarily for advanced measurement and calibration of power and temperature ~~control in these~~for multiple industrial markets. Our network of global service support centers provides ~~local~~ repair ~~and field service capability in key regions as well as provides~~services, calibration, conversions, upgrades, refurbishments, and ~~refurbishment services, and sales of~~ used equipment to ~~businesses~~companies using our products.

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.

End Markets Summary

The demand environment in each of our markets is impacted by macroeconomic conditions, various market trends, customer buying patterns, design wins, and other factors. Although we are currently experiencing a lower demand environment, we continue to believe that ~~use~~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

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 macroeconomic conditions, overcapacity in the market for memory devices, prolonged weakness in demand for consumer electronics, built up semiconductor inventory consumption resulting in falling manufacturing utilization, and U.S. export restrictions to China for certain semiconductor equipment.

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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 in this market will resume due to the need for more manufacturing capacity to support expected demand growth for semiconductor devices and related capital equipment.

Industrial and Medical Market

Following a year of record revenue in the Industrial and Medical market, 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. ~~The markets we serve include:~~

~~Semiconductor capital equipment market - Customers~~This trend accelerated in the ~~semiconductor capital equipment market incorporate~~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 ~~products into equipment that make integrated circuits. Our power conversion systems provide~~revenue levels in the ~~energy to enable thin film processes, such as deposition and etch, and~~near term.

Data Center Computing Market

While there is increased demand for high ~~voltage~~end computing applications, such as ~~ion implant, wafer inspection~~artificial intelligence, continued slow demand in the enterprise server and ~~metrology.~~

~~Industrial power capital equipment~~storage market ~~- Our industrial power capital~~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 ~~is comprised~~driven by hyperscale and artificial intelligence investments.

Telecom and Networking Market

Starting in 2023, leading companies in this market reported weak demand, and the slower demand environment continued in 2024. In addition, we experienced the impact of ~~products~~customers rebalancing inventories as a result of fulfilling outstanding backlog and shorter lead times for ~~Thin Films Industrial Power and Specialty Power applications.~~


◦	Thin Films Industrial Power applications include glass coating, glass manufacturing, flat panel displays, solar cell manufacturing, and similar thin film manufacturing, including data storage, hard and optical coating.


◦	Specialty Power applications include power control modules for metal fabrication and treatment, and material and chemical processing. Our high voltage industrial applications include scanning electron microscopy, medical equipment, and instrumentation applications such as x-ray and mass spectroscopy, as well as general electron gun sources for scientific and industrial applications.

◦

Our thermal instrumentation products measure the temperature of the processed substrate or the process chamber. Our remote plasma sources deliver ionized gases for reactive chemical processes used in cleaning, surface treatment, and gas abatement. Precise control over the energy delivered to plasma-based processes enables the production of integrated circuits with reduced feature sizes and increased speed and performance.

our products.

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. This discussion~~forward and should be read in conjunction with our ~~Unaudited Condensed~~“Unaudited Consolidated Financial ~~Statements~~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.~~GAAP”). A reconciliation of the non-GAAP measures to U.S. GAAP is provided below.

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~~Results of Continuing Operations~~

The following table sets forth certain data ~~and the percentage of sales each item reflects,~~ derived from our ~~Unaudited Condensed~~ Consolidated Statements of Operations ~~for the periods indicated:~~(in thousands):


	Three Months Ended March 31,
	2024				2023
Revenue	$	327,475	100.0	%	$	425,040	100.0	%
Gross profit		112,829	34.5			155,111	36.5
Operating expenses		112,152	34.2			115,073	27.1
Operating income from continuing operations		677	0.2			40,038	9.4
Interest income		12,645	3.9			3,585	0.8
Interest expense		(7,127)	(2.2)			(2,730)	(0.6)
Other income (expense), net		1,379	0.4			(1,405)	(0.3)
Income from continuing operations, before income tax		7,574	2.3			39,488	9.3
Income tax provision		1,787	0.5			7,736	1.8
Income from continuing operations	$	5,787	1.8	%	$	31,752	7.5	%

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Sales $ 176,575
100.0 % $ 126,552
100.0 % $ 491,798
100.0 % $ 348,361
100.0 %
Gross profit 92,234
52.2
66,123
52.2
258,206
52.5
181,629
52.1
Operating expenses 40,561
23.0
31,762
25.1
115,498
23.5
93,318
26.8
Operating income from continuing operations 51,673
29.2
34,361
27.1
142,708
29.0
88,311
25.3
Other income (expense), net 153
0.1
(55 ) —
(3,138 ) (0.6 ) 1,138
0.3
Income from continuing operations before income taxes 51,826
29.3
34,306
27.1
139,570
28.4
89,449
25.6
Provision for income taxes (31,968 ) (18.2 ) 5,268
4.2
(25,538 ) (5.2 ) 12,937
3.7
Income from continuing operations, net of income taxes $ 83,794
47.5 % $ 29,038
22.9 % $ 165,108
33.6 % $ 76,512
21.9 %

~~SALES~~

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Revenue

The following tables ~~set forth~~summarize net sales and ~~percentage~~percentages of net sales, by ~~product group for~~markets (in thousands):


	Three Months Ended March 31,								Change 2024 v. 2023
	2024				2023				Dollar		Percent
Semiconductor Equipment	$	179,903	54.9	%	$	194,209	45.7	%	$	(14,306)	(7.4)	%
Industrial and Medical		83,418	25.5			123,020	28.9			(39,602)	(32.2)	%
Data Center Computing		41,902	12.8			59,659	14.0			(17,757)	(29.8)	%
Telecom and Networking		22,252	6.8			48,152	11.3			(25,900)	(53.8)	%
Total	$	327,475	100.0	%	$	425,040	100.0	%	$	(97,565)	(23.0)	%

Total revenue decreased from the ~~three~~same period in the prior year due to a cyclical downturn in the semiconductor and ~~nine months ended September 30, 2017~~data center industries as well as lower demand within our Industrial and ~~2016:~~

Three Months Ended September 30,
2017 % of Total Sales 2016 % of Total Sales Increase/ (Decrease) Percent Change
Semiconductor capital equipment market $ 116,468
66.0 % $ 81,157
64.1 % $ 35,311
43.5 %
Industrial power capital equipment market 35,895
20.3
26,493
20.9
9,402
35.5 %
Global service 24,212
13.7
18,902
15.0
5,310
28.1 %
Total sales $ 176,575
100.0 % $ 126,552
100.0 % $ 50,023
39.5 %

Nine Months Ended September 30,
2017 % of Total Sales 2016 % of Total Sales Increase/ (Decrease) Percent Change
Semiconductor capital equipment market $ 338,136
68.8 % $ 229,486
65.9 % $ 108,650
47.3 %
Industrial power capital equipment market 86,342
17.6
65,209
18.7
21,133
32.4 %
Global service 67,320
13.6
53,666
15.4
13,654
25.4 %
Total sales $ 491,798
100.0 % $ 348,361
100.0 % $ 143,437
41.2 %

~~Total Sales~~

~~Sales increased $50.0 million, or 39.5%, to $176.6 million for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016~~Medical and increased $10.7 million, or 6.5%, as compared to the three months ended June 30, 2017. Sales for the nine months ended September 30, 2017 increased $143.4 million, or 41.2%, to $491.8 million from $348.4 million for the nine months ended September 30, 2016. Telecom and Networking markets.

Revenue by Market


	Three Months Ended March 31,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(in thousands)
Semiconductor Equipment	$	179,903	$	194,209	$	(14,306)	(7.4)	%

The ~~increase~~decrease in ~~sales for both periods~~Semiconductor Equipment revenue was primarily due to ~~demand~~an ongoing cyclical downturn in the semiconductor ~~market driven by accelerated demand~~industry.


	Three Months Ended March 31,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(in thousands)
Industrial and Medical	$	83,418	$	123,020	$	(39,602)	(32.2)	%

The decrease in Industrial and ~~strength in etch applications, as well continued growth in global services. Total sales from Excelsys, which was acquired July 3, 2017, was $4.0 million for the three months ended September 30, 2017.~~

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Sales in the semiconductor market increased $35.3 million, or 43.5%, for the three months ending September 30, 2017 as compared to the three months ended September 30, 2016 and was flat as compared to the three months ended June 30, 2017. Semiconductor market sales for the nine months ended September 30, 2017 increased $108.7 million or 47.3% as compared to the same period in 2016. Our growth in the semiconductor market has been fueled by our leadership in etch applications, specifically related to advanced memory and transition to 3DNAND, along with advances in logic technology. Sales growth in each of the periods is driven primarily by recent program wins which have moved into production and delivery.

Sales in the industrial markets increased $9.4 million, or 35.5%, for the three months ended September 30, 2017 as compared to the three months ended September 30, 2016 and increased $9.6 million, or 36.6%, as compared to the three months ended June 30, 2017. For the nine months ended September 30, 2017, sales increased $21.1 million or 32.4% as compared to the same period in 2016. The increase in salesMedical revenue was primarily due to ~~the expansion~~lower demand and reduction of customers’ inventories.


	Three Months Ended March 31,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(in thousands)
Data Center Computing	$	41,902	$	59,659	$	(17,757)	(29.8)	%

The decrease in advanced coating applications. The industrial markets we serve include solar panel, flat panel display, power control modules, data storage, architectural glass, high voltage and other industrial manufacturing markets. Our customers in these markets are primarily global and regional original equipment manufacturers. For the three months ended September 30, 2017, sales from ExcelsysData Center Computing revenue was ~~$4.0 million.~~

~~Global service sales increased $5.3 million, or 28.1%, for the three months ended September 30, 2017 as compared~~due to the ~~three months ended September 30, 2016~~cyclical downturn in the data center server and ~~increased $1.6 million, or 7.2%, as compared~~storage market and timing of large hyperscale programs at some customers.


	Three Months Ended March 31,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(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.

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Gross Profit and Gross Margin


	Three Months Ended March 31,						Change 2024 v. 2023
	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 ~~three months ended June 30, 2017. Global service sales for the nine months ending September 30, 2017 increased $13.7 million, or 25.4%, as compared to the same period~~decline in ~~2016. The increase~~revenue and higher operating costs based on investments made in ~~global service sales in all periods is due to share gains and growth in the installed base.~~

~~Backlog~~

~~Our backlog was $112.1 million at September 30, 2017 as compared to $69.2 million at December 31, 2016. Backlog remains strong~~2023. Gross margin percentage declined year over year primarily due to ~~increased demand~~a decline in volume across all markets, which drove lower utilization in the ~~semiconductor and industrial thin film markets.~~

~~GROSS PROFIT~~

~~For~~manufacturing operations. This was partially offset by favorable product mix due to the ~~three months ended September 30, 2017, gross profit increased $26.1 million to $92.2 million as~~overall revenue decline being weighted towards lower margin products. Additionally, we paid lower premiums for scarce parts compared to gross profit of $66.1 million for the same period in 2016. Gross profit as a percent of sales remained flat between the periods at 52.2%. Gross profit for the nine months ended September 30, 2017 was $258.2 million, or 52.5% of sales, as compared to gross profit of $181.6 million, or 52.1% of sales, for the same period in 2016. The increase in gross profit is primarily attributable to increased volume. For the three months ended September 30, 2017 gross profit from Excelsys was $1.7 million which included$0.1 million associated with a step up in book basis for purchased inventory.

~~OPERATING EXPENSE~~

previous periods.

Operating expenses increased $8.8 million to $40.6 million, or 23.0% of sales, for the three months ended September 30, 2017 from $31.8 million, or 25.1% of sales, for the same period in 2016. Operating expenses increased $22.2 million to $115.5 million, or 23.5% of sales, for the nine months ended September 30, 2017, from $93.3 million, or 26.8% of sales, for the same period in 2016. For the three months ended September 30, 2017 operating expenses from Excelsys was $1.6 million which included $0.2 million in amortization for purchased intangibles.

Expenses

The following table summarizes our operating expenses (in thousands) and as a percentage of ~~sales for the periods indicated:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Research and development $ 14,629
8.3 % $ 11,293
8.9 % $ 41,742
8.5 % $ 33,324
9.6 %
Selling, general, and administrative 24,692
14.0
19,421
15.4
70,580
14.4
56,814
16.3
Amortization of intangible assets 1,240
0.7
1,048
0.8
3,176
0.6
3,180
0.9
Total operating expenses $ 40,561
23.0 % $ 31,762
25.1 % $ 115,498
23.5 % $ 93,318
26.8 %

revenue:


	Three Months Ended March 31,
	2024				2023
Research and development	$	49,836	15.2	%	$	51,610	12.1	%
Selling, general, and administrative		55,124	16.8			55,358	13.0
Amortization of intangible assets		6,947	2.1			7,062	1.7
Restructuring, asset impairments, and other charges		245	0.1			1,043	0.2
Total operating expenses	$	112,152	34.2	%	$	115,073	27.0	%

Research and Development

We perform research and development of products for new or emerging applications, technological changes 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 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.


	Three Months Ended March 31,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(in thousands)
Research and development	$	49,836	$	51,610	$	(1,774)	(3.4)	%

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Research and development expenses increased $3.3 million to $14.6 million, or 8.3% of sales, for the three months ended September 30, 2017 from $11.3 million, or 8.9% of sales, for the same period in 2016. Research and development expenses increased $8.4 million to $41.7 million, or 8.5% of sales, for the nine months ended September 30, 2017 from $33.3 million, or 9.6% of sales, for the same period in 2016.

The ~~increase~~decrease in research and development ~~expense is~~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 ~~our investment in new programs to maintain~~lower headcount and increase our technological leadership and provide solutions to our customers' evolving needs. For the three months ended September 30, 2017 research and development expense from Excelsys was $0.5 million.

variable compensation, partially offset by higher stock-based compensation expense.

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, and human resource functions in addition to our general management, including acquisition-related activities.

Selling, general and administrative expenses increased $5.3 million to $24.7 million, or 14.0%, of sales for the three months ended September 30, 2017 from $19.4 million, or 15.4% of sales, for the same period in 2016. Selling, general and administrative expenses increased $13.8 million to $70.6 million, or 14.4% of sales, for the nine months ended September 30, 2017 from $56.8 million, or 16.3% of sales, for the same period in 2016.


	Three Months Ended March 31,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(in thousands)
Selling, general, and administrative	$	55,124	$	55,358	$	(234)	(0.4)	%

The ~~increase~~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.

Amortization of Intangibles Assets


	Three Months Ended March 31,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(in thousands)
Amortization of intangible assets	$	6,947	$	7,062	$	(115)	(1.6)	%

Amortization expense remained flat as we did not acquire any new intangible assets.

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Restructuring, Asset Impairments and Other Charges


	Three Months Ended March 31,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(in thousands)
Restructuring, asset impairments, and other charges	$	245	$	1,043	$	(798)	(76.5)	%

The decrease in ~~both periods~~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

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 ~~stock based compensation, performance bonus,~~volume factories, reducing redundancies, and lowering our cost structure. We anticipate the
2022 Plan will be substantially completed by the end of 2024.

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

Interest Income, Interest Expense, and Other Income (Expenses), net


	Three Months Ended March 31,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(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 ~~headcount and payroll, and costs~~due to interest associated with ~~business development. For~~ the ~~three months ended~~Convertible Notes and a higher interest rate on the portion of our Term Loan Facility subject to a variable interest rate. The interest rate swap contracts expire on September ~~30, 2017 selling, general and administrative expense from Excelsys was $1.1 million.~~

~~Other Income (Expense), net~~

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 ~~interest income and expense,~~ foreign exchange gains and losses, gains and losses on sales
of fixed assets, and other miscellaneous items. ~~Other~~The increase in income ~~(expense), net~~between periods was primarily a ~~gain~~result of ~~$0.2 million~~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 March 31,
	2024			2023
Income from continuing operations, before income tax	$	7,574		$	39,488
Income tax provision	$	1,787		$	7,736
Effective tax rate		23.6	%		19.6	%

Our effective tax rates differ from the U.S. federal statutory rate of 21% for the three months ended September 30, 2017, as compared to a loss of $0.1 million for the same period in 2016. Other income (expense), net was a loss of $(3.1) million for the nine months ended September 30, 2017, as compared to a gain of $1.1 million for the same period in 2016. The loss for the nine months ended September 30, 2017 was primarily the cost of a foreign currency exchange rate forward contract that we entered into for a potential offshore acquisition that we decided not to consummate. See ~~Note 7. Derivative Financial Instruments~~ ~~in Part I, Item 1 "Unaudited Condensed Consolidated Financial Statements" contained herein.~~

~~Provision for Income Taxes~~

~~For the three~~March 31, 2024 and nine months ended September 30, 2017, the effective tax rates were (61.7)% and (18.3)%, respectively, compared to 15.4% and 14.5% for the three and nine months ended September 30, 2016, respectively. The effective tax rates for the three and nine months ended September 30, 2017 reflect the recognition of $40.2 million tax benefit associated with an estimated worthless stock deduction for the liquidation of one of our wholly owned solar inverter entities. The effective tax rates, without the $40.2 million estimated worthless stock benefit, for the three and nine months ended September 30, 2017, were 15.9% and 10.5%, respectively.

~~The effective tax rates for 2017 and 2016 are lower than the federal statutory rate~~2023, primarily due to the ~~tax~~ benefit of earnings in foreign jurisdictions which are subject to lower tax ~~rates. Additionally,~~rates, as well as tax credits, partially offset by net U.S. tax on foreign operations. The effective tax rate for 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 ~~rates for the three and nine months ended September 30, 2017 were favorably impacted~~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 ~~of ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payments, and the related impact from the~~for each country varies. To date, we have determined that there was an immaterial global minimum tax ~~benefit derived from the exercise of employee equity incentive instruments.~~

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.

~~Results of Discontinued Operations~~

~~We completed the wind down of our inverter engineering, manufacturing and sales product line in December 2015. Accordingly, the inverter product line is presented~~liability as a ~~discontinued operation~~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 ~~all periods presented herein. Extended warranties previously sold for~~any changes and include any appropriate minimum tax throughout the inverter product line are reflected in deferred revenue from continuing operations on our Unaudited Condensed Consolidated Balance Sheets and will be reflected in continuing operations in future periods as the deferred revenue is earned and the associated services are rendered.

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~~Income from discontinued operations, net of income taxes are as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Sales $ —
$ —
$ —
$ —
Cost of sales 944
3,095
47
672
Total operating expenses (441 ) (1,473 ) (1,587 ) (3,759 )
Operating income from discontinued operations (503 ) (1,622 ) 1,540
3,087
Other income (86 ) (14 ) 291
325
Income from discontinued operations before income taxes (589 ) (1,636 ) 1,831
3,412
Provision for income taxes (659 ) (2,959 ) (512 ) (3,249 )
Income from discontinued operations, net of income taxes $ 70
$ 1,323
$ 2,343
$ 6,661

Operating income from discontinued operations for the three and nine months ended September 30, 2017 and 2016 reflects the recovery of accounts receivable previously reserved for and the release of product warranty liability.

year.

Non-GAAP Results

Management uses non-GAAP operating income and non-GAAP ~~EPS~~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~~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 ~~the~~stock-based compensation, amortization of intangible assets, ~~stock-based compensation,~~ and ~~restructuring charges, as well~~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 ~~other nonrecurring~~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 March 31,
operations, excluding certain items (in thousands)	2024		2023
Gross profit from continuing operations, as reported	$	112,829	$	155,111
Adjustments to gross profit:
Stock-based compensation		829		383
Facility expansion, relocation costs and other		1,308		957
Acquisition-related costs		44		53
Non-GAAP gross profit		115,010		156,504
Non-GAAP gross margin		35.1%		36.8%

Operating expenses from continuing operations, as reported		112,152		115,073
Adjustments:
Amortization of intangible assets		(6,947)		(7,062)
Stock-based compensation		(10,176)		(6,418)
Acquisition-related costs		(1,266)		(878)
Restructuring, asset impairments, and other charges		(245)		(1,043)
Non-GAAP operating expenses		93,518		99,672
Non-GAAP operating income	$	21,492	$	56,832
Non-GAAP operating margin		6.6%		13.4%


Reconciliation of non-GAAP measure
Income from continuing operations, excluding certain items	Three Months Ended March 31,
(in thousands, except per share amounts)	2024		2023
Income from continuing operations, less non-controlling interest, net of income tax	$	5,787	$	31,752
Adjustments:
Amortization of intangible assets		6,947		7,062
Acquisition-related costs		1,310		931
Facility expansion, relocation costs, and other		1,308		957
Restructuring, asset impairments, and other charges		245		1,043
Unrealized foreign currency loss (gain)		(1,757)		1,053
Tax effect of non-GAAP adjustments, including certain discrete tax benefits		(622)		(1,121)
Non-GAAP income, net of income tax, excluding stock-based compensation		13,218		41,677
Stock-based compensation, net of tax		8,694		5,304
Non-GAAP income, net of income tax	$	21,912	$	46,981
Non-GAAP diluted earnings per share	$	0.58	$	1.24


Reconciliation of non-GAAP measure	Three Months Ended March 31,
Per share earnings excluding certain items	2024		2023
Diluted earnings per share from continuing operations, as reported	$	0.15	$	0.84
Add back:
Per share impact of non-GAAP adjustments, net of tax		0.43		0.40
Non-GAAP earnings per share	$	0.58	$	1.24

Reconciliation of Non-GAAP measure - operating expenses and operating income from continuing operations, excluding certain items Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Gross Profit from continuing operations, as reported $ 92,234
$ 66,123
$ 258,206
$ 181,629
Operating expenses from continuing operations, as reported 40,561
31,762
115,498
93,318
Adjustments:
Stock-based compensation (3,453 ) (1,301 ) (10,707 ) (4,299 )
Amortization of intangible assets (1,240 ) (1,048 ) (3,176 ) (3,180 )
Acquisition-related costs —
—
(150 ) —
Non-GAAP operating expenses from continuing operations 35,868
29,413
101,465
85,839
Non-GAAP operating income from continuing operations $ 56,366
$ 36,710
$ 156,741
$ 95,790

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Reconciliation of Non-GAAP measure - operating expenses and operating income from continuing operations, excluding certain items Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Gross Profit from continuing operations, as reported 52.2 % 52.2 % 52.5 % 52.1 %
Operating expenses from continuing operations, as reported 23.0
25.1
23.5
26.8
Adjustments:
Stock-based compensation (2.0 ) (1.1 ) (2.3 ) (1.3 )
Amortization of intangible assets (0.7 ) (0.8 ) (0.6 ) (0.9 )
Acquisition-related costs —
—
—
—
Non-GAAP operating expenses from continuing operations 20.3
23.2
20.6
24.6
Non-GAAP operating income from continuing operations 31.9 % 29.0 % 31.9 % 27.5 %

Reconciliation of Non-GAAP measure - income from continuing operations, excluding certain items Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Income from continuing operations, net of income taxes, as reported $ 83,794
$ 29,038
$ 165,108
$ 76,512
Adjustments:
Stock-based compensation 3,453
1,301
10,707
4,299
Amortization of intangible assets 1,240
1,048
3,176
3,180
Loss on foreign exchange hedge —
—
3,489
—
Acquisition-related costs —
—
150
—
Incremental expense associated with start-up of the Asia regional headquarters 1,133
—
1,133
—
Nonrecurring tax benefit associated with inverter business (40,194 ) —
(40,194 ) —
Tax effect of non-GAAP adjustments (1,426 ) (608 ) (4,451 ) (1,973 )
Non-GAAP income from continuing operations, net of income taxes $ 48,000
$ 30,779
$ 139,118
$ 82,018
Non-GAAP diluted earnings per share $1.19 $0.77 $3.46 $2.05

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~~Impact of Inflation~~

In recent years, inflation has not had a significant impact on our operations. However, we continuously monitor operating price increases, particularly in connection with the supply of component parts used in our manufacturing process. To the extent permitted by competition, we pass increased costs on to our customers by increasing sales prices over time. From time to time, we may also reduce prices to customers to decrease sales prices due to reductions in the cost structure of our products from cost improvement initiatives and decreases in component part prices.

Liquidity and Capital Resources

~~LIQUIDITY~~

~~We believe that adequate~~

Liquidity

Adequate liquidity and cash generation ~~are~~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 ~~are~~continue to be our available cash, investments, cash generated from ~~current~~ operations, ~~as well as~~and available borrowing capacity under the Revolving Facility (defined in Note 16. Long-Term Debt in Part I, Item 1 “Unaudited Consolidated Financial Statements”).

As of March 31, 2024, our ~~credit facility noted below.~~

~~At September 30, 2017, we had $369.6 million in~~ cash and cash equivalents ~~and marketable securities.~~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 ~~that~~ our ~~current and available cash levels, available credit facility, as well as our cash flows from future operations,~~sources of liquidity will be adequate to meet anticipated ~~working capital needs, levels~~debt service, share repurchase programs, and dividends. 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 ~~and contractual obligations for the next twelve months. We may, however,~~we pursue, seek additional debt or equity financing from time to ~~time.~~

time; however, such additional financing may not be available on acceptable terms, if at all.

Debt

On ~~July 28, 2017, Advanced Energy entered into~~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 Rate
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%
Total borrowings	$	925,000

The interest rate swap contracts expire on September 10, 2024. After that date, the entire balance of our Term Loan ~~Agreement (the “Loan Agreement”) with a bank which provides a revolving line of credit of up to $100.0 million~~Facility will be subject to ~~certain funding conditions through July 28, 2022. The credit facility provides us with further~~a variable interest rate. In addition, should we have future ~~flexibility for execution~~borrowings under our Revolving Facility, those borrowings would be subject to a variable rate.

As of ~~our strategic plans. At September 30, 2017,~~March 31, 2024, we had ~~$100.0~~$200.0 million in available funding under the Revolving Facility. The Term Loan ~~Agreement.~~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 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 ~~Agreement,~~Facility, see ~~"Note 18. Credit Facility" as set forth~~ 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 ~~this Form 10-Q.~~

~~In September 2015,~~$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 and will depend on our ~~Board~~financial condition, results of Directors authorized a program to repurchase up to $150.0 million of our stock over a thirty-month period. In August 2017, we entered into a Fixed Dollar Share Repurchase Agreement to repurchase $25.0 million of shares of our common stock in the open market. A total of 351,292 shares of our common stock was repurchased under the Share Repurchase Agreement at an average price of $71.16 per share. We retired the shares repurchased under the Share Repurchase Agreementoperations, capital requirements, business conditions, and ~~recognized the $25.0 million share repurchase as a reduction to Additional paid-in capital. As of September 30, 2017, we had $75.0 million remaining for the authorized repurchase of shares.~~

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~~CASH FLOWS~~

other factors.

Cash Flows

A summary of our cash ~~provided by and (used in)~~from operating, investing, and financing activities is as ~~follows:~~

Nine Months Ended September 30,
2017 2016
Net cash provided by operating activities from continuing operations $ 140,307
$ 82,665
Net cash used in operating activities from discontinued operations (7,293 ) (4,538 )
Net cash provided by operating activities 133,014
78,127

Net cash (used in) provided by investing activities from continuing operations (24,685 ) 1,892
Net cash used in investing activities from discontinued operations —
—
Net cash (used in) provided by investing activities (24,685 ) 1,892

Net cash (used in) provided by financing activities from continuing operations (26,900 ) 1,750
Net cash used in financing activities from discontinued operations —
(24 )
Net cash (used in) provided by financing activities (26,900 ) 1,726

EFFECT OF CURRENCY TRANSLATION ON CASH 1,138
(550 )
INCREASE IN CASH AND CASH EQUIVALENTS 82,567
81,195
CASH AND CASH EQUIVALENTS, beginning of period 289,517
169,720
CASH AND CASH EQUIVALENTS, end of period 372,084
250,915
Less cash and cash equivalents from discontinued operations 5,512
6,623
CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS, end of period $ 366,572
$ 244,292

~~2017 CASH FLOWS COMPARED TO 2016~~

follows (in thousands):


	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

Operating Activities

Net cash ~~provided by~~from operating activities

~~Net cash provided by operating activities~~ from continuing operations for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2024 was ~~$133.0~~$8.0 million, as compared to ~~$78.1~~$31.9 million for the same period in ~~2016.~~the prior year. The ~~increase~~decrease of ~~$54.9 million in net cash flows from operating activities is due to improved earnings from operations.~~

~~Net cash (used in) provided by investing activities~~

~~Net cash (used in) provided by investing activities for the nine months ended September 30, 2017 was $(24.7)~~$23.9 million as compared to ~~$1.9 million for~~ the ~~nine months ended September 30, 2016. Included~~same period in the prior year was primarily due to 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.

Investing Activities

Net cash used in investing activities for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2024 was ~~$17.3~~$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 used in ~~the acquisition of Excelsys and the purchase of $3.5 million in foreign currency exchange hedges. Included in the cash provided by~~ investing ~~activities~~ for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 was ~~$7.2~~$16.2 million due to purchases of ~~proceeds from the sale~~property and equipment largely driven by investments in our manufacturing footprint and capacity.

Table of ~~marketable securities.~~Contents

Financing Activities

Net ~~cash (used in) provided by financing activities~~

Net cash (used in) provided by financing activities for the nine months ended September 30, 2017 was $(26.9) million, as compared to $1.7 million for the nine months ended September 30, 2016. Included in cash used in financing activities for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2024 was ~~$25.0~~$14.1 million and included the following:

●

$5.0 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 ~~repurchase of company stock.~~three months ended March 31, 2023 was $10.8 million and included the following:

●

$5.0 million for repayment of long-term debt;

●

$3.8 million for dividend payment; and

●

$2.0 million in net payments related to stock-based award activities.

Effect of ~~currency translation~~Currency Translation on ~~cash~~

Cash

During the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2024, foreign currency translation had a ~~$1.1 million favorable~~minimal impact ~~as compared to a $0.6 million unfavorable impact during the nine months ended September 30, 2016. Our foreign operations primarily sell product and incur expenses~~on cash. See “Foreign Currency Exchange Rate Risk” in the related local currency. Exchange rate fluctuations could require us to increase prices to foreign customers, which could result in lower net sales by us to such customers. Alternatively, if we do not adjust the pricesPart I, Item 3 of this Form 10-Q for ~~our products in response to unfavorable currency fluctuations, our results of operations could be adversely impacted. The functional~~

~~Table Of Contents~~

currencies of our worldwide operations include U.S. dollar ("USD"), Canadian Dollar ("CAD"), Swiss Franc ("CHF"), Chinese Yuan ("CNY"), Euro ("EUR"), Pound Sterling ("GBP"), Indian Rupee ("INR"), Japanese Yen ("JPY"), South Korean Won ("KRW"), and New Taiwan Dollar ("TWD")more information. Our purchasing and sales activities are primarily denominated in USD, CNY, EUR, and JPY. The change in these key currency rates during the nine months ended September 30, 2017 and 2016 are as follows:

Nine Months Ended September 30,
From To 2017 2016
CAD USD 7.8 % 5.3 %
CHF USD 4.6 % 3.5 %
CNY USD 4.4 % (2.6 )%
EUR USD 12.3 % 3.3 %
GBP USD 8.6 % (12.0 )%
INR USD 4.0 % (0.7 )%
JPY USD 4.0 % 18.8 %
KRW USD 4.7 % 6.8 %
TWD USD 6.5 % 4.9 %

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 ~~Condensed Consolidated Financial Statements~~consolidated financial statements and accompanying notes. Note 1. ~~Operation and~~ Summary of Operations and Significant Accounting Policies and Estimates to the ~~Consolidated Financial Statements~~consolidated financial statements in ~~our Annual Report on~~the 2023 Form 10-K ~~for the year ended~~ ~~December 31, 2016~~ describes the significant accounting policies and methods used in the preparation of our ~~Consolidated Financial Statements.~~consolidated financial statements. Our critical accounting estimates, discussed in the ~~Management's~~“Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~Operations” in Part II, Item 7 of ~~our Annual Report on~~the 2023 Form 10-K, include assessing excess and obsolete inventories, accounting for ~~the year ended~~ ~~December 31, 2016, include~~income taxes, and estimates for ~~allowances for doubtful accounts, determining useful lives for depreciation and amortization,~~ the valuation of assets and liabilities acquired in business combinations, assessing the need for impairment charges for identifiable intangible assets and goodwill, establishing warranty reserves, accounting for income taxes, and assessing excess and obsolete inventories. combinations.

Such accounting policies and estimates require significant judgments and assumptions to be used in the preparation of the ~~Condensed Consolidated Financial Statements~~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~~

~~Interest Rate~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

~~Our~~ 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 exposure relates to changes in interest rates in our investment portfolio. We generally place our investments with high-credit quality issuers and by policy are averse to principal loss and seek to protect and preserve our invested funds by limiting default risk, market risk, and reinvestment risk.

~~As of~~ ~~September 30, 2017, our investments consisted of certificates of deposit, with maturities of less than 1 years (see~~ ~~Note 6. Marketable Securities and Assets Measured at Fair Value~~ in Part 1, Item 1 "Unaudited Condensed Consolidated Financial Statements"). As a measurement of the sensitivity of our portfolio and assuming that our investment portfolio balances remain constant, a hypothetical decrease of one percentage point in interest rates would decrease annual pre-tax earnings by a negligible amount.

from December 31, 2023.

Foreign Currency Exchange Rate Risk

We are impacted by changes in foreign currency exchange rates through ~~sales~~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 purchasing and sales activities are primarily denominated in the USD, EUR, JPY, and CNY. As these currencies fluctuate against each other, and other currencies, we are exposed to foreign currency exchange rate risk on sales, purchasing transactions and labor.

~~Table Of Contents~~

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 ~~many 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 ~~weighted-average~~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, Euro, South Korean Won, New Taiwan Dollar, Japanese Yen, Pound Sterling, 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. The impact of a change in one or more of these particular exchange rates would be immaterial.

From time to time, we may enter into foreign currency exchange rate contracts ~~with banks~~ to hedge against changes in foreign currency exchange rates on assets and liabilities expected to be settled at a future ~~date.~~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 ~~attempt~~may enter into foreign currency forward contracts to ~~mitigate~~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.

~~Currency exchange rates vary daily~~

Interest Rate Risk

Our interest rate risk exposure relates primarily to 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%.

The Term Loan Facility and ~~often one currency strengthens against~~Revolving Credit Facility bear interest, at our option, at a rate based on the ~~USD while another currency weakens. Because~~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 ~~the complex interrelationship of the worldwide supply chains and distribution channels, it is difficult~~our Term Loan Facility will be subject to ~~quantify the impact of~~ a ~~change in one or~~variable interest rate. In addition, should we have future borrowings under our Revolving Facility, those borrowings would be subject to a variable rate.

For more ~~particular exchange rates.~~

~~See the "Risk Factors" set forth~~information see Note 16. Long-Term Debt in Part I, Item 1A1 “Unaudited Consolidated Financial Statements.” For more information on the interest rate swap that fixes the interest rate for a portion of our ~~Annual Report~~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 ~~Form 10-K~~our interest expense. A change in interest rates does not have a material impact upon our future earnings and ~~Part II, Item 1A of this Form 10-Q~~cash flow for ~~more information about the market risks~~fixed rate debt. However, increases in interest rates could impact our ability to ~~which we are exposed. There have been no material changes in our exposure to market risk from~~ ~~December 31, 2016~~.

refinance existing maturities and acquire additional debt on favorable terms.


~~ITEM 4.~~	~~CONTROLS AND PROCEDURES~~

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 ~~Securities~~ Exchange Act ~~of 1934 ("Act")~~ is recorded, processed, summarized, and reported, within the time periods specified in the ~~Securities and Exchange Commission’s~~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 ~~(Yuval Wasserman,~~(Stephen D. Kelley, President and Chief Executive Officer) and Principal Financial Officer ~~(Thomas Liguori,~~(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, ~~the~~our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~September 30, 2017~~.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 ~~and procedures for~~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.

Changes in Internal Control over Financial Reporting

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

~~Table Of Contents~~

PART II OTHER INFORMATION


~~ITEM 1.~~	~~LEGAL PROCEEDINGS~~

ITEM 1. LEGAL PROCEEDINGS

We are involved in disputes and legal actions arising in the normal course of our business. ~~There have been no material developments in legal proceedings in which we are involved during the nine months ended~~ ~~September 30, 2017. For a description of previously reported legal proceedings refer to Part I, Item 3, "Legal Proceedings" of our Annual Report on Form 10-K for the year ended~~ ~~December 31, 2016~~.


~~ITEM 1A.~~	~~RISK FACTORS~~

Our business, financial condition, operating results and cash flows can be impacted by a number of factors, including, but not limited to, those set forth below, any of which could cause our results to be adversely impacted and could result in a decline in the value or loss of an investment in our common stock. Other factors may also exist that we cannot anticipate or that we currently do not consider to be significant based on information that is currently available. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows and future results. Such risks and uncertainties may also impact the accuracy of forward-looking statements included in this Form 10-Q and other reports we file with the Securities and Exchange Commission.

~~We conduct manufacturing at only a few sites and our sites are not generally interchangeable.~~

Our power products for the semiconductor industry are manufactured in Shenzhen, PRC. Our high voltage products are manufactured in Ronkonkoma, New York, Littlehampton, United Kingdom and Shenzhen, PRC. Our thermal instrumentation products that are used in the semiconductor industry are manufactured in Vancouver, Washington and Littlehampton, United Kingdom. Each facility is under operating lease and interruptions in operations could be caused by early termination of existing leases by landlords or failure by landlords to renew existing leases upon expiration, including the possibility that suitable operating locations may not be available in proximity to existing facilities which could result in labor or supply chain risks. Each facility manufactures different products, and therefore,Although it is not interchangeable. Natural, uncontrollable occurrences or other operational issues at any of our manufacturing facilities could significantly reduce our productivity at such site and could prevent us from meeting our customers’ requirements in a timely manner, or at all. In particular, for certain higher demand products manufactured out of our Littlehampton, United Kingdom site, we are experiencing longer delivery times and delayed shipments to customers which may continue over the short term. Any potential losses from such occurrences could significantly affect our relationship with customers, operations and results of operations for a prolonged period of time.

Our restructuring and other cost-reduction efforts in prior years have included transitioning manufacturing operations to our facility in Shenzhen from other manufacturing facilities, such as Fort Collins, Colorado and Littlehampton, United Kingdom, which renders us increasingly reliant upon our Shenzhen facility. A disruption in manufacturing at our Shenzhen facility, from whatever cause, could have a significantly adverse effect on our ability to fulfill customer orders, our ability to maintain customer relationships, our costs to manufacture our products and, as a result, our results of operations and financial condition.

~~Our evolving manufacturing footprint may increase our risk.~~

The nature of our manufacturing is evolving as we continue to grow by acquisition. Historically, our principal manufacturing location was in China; however, we have also added specialized manufacturing at our Littlehampton, United Kingdom and Ronkonkoma, New York facilities. From time to time we may be required to relocate manufacturing or migrate manufacturing of specific products between facilities or to third party manufacturers. We have been notified that we will be required to relocate our Shenzhen, PRC manufacturing facility by July 2020. If we do not successfully coordinate the timely manufacturing and distribution of our products during this time, we may have insufficient supply of products to meet customer demand, we could lose sales, we may experience a build-up in inventory, or we may incur additional costs.

Raw material, part, component, and subassembly shortages, exacerbated by our dependence on sole and limited source suppliers, could affect our ability to manufacture products and systems and could delay our shipments.

Our business depends on our ability to manufacture products that meet the rapidly changing demands of our customers. Our ability to timely manufacture our products depends in part on the timely delivery of raw materials, parts, components, and subassemblies from suppliers. We rely on sole and limited source suppliers for some of our raw materials, parts, components, and subassemblies that are critical to the manufacturing of our products.

~~This reliance involves several risks, including the following:~~

~~the inability to obtain an adequate supply of required parts, components, or subassemblies;~~

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~~supply shortages, if a sole or limited source provider ceases operations;~~

~~the need to fund the operating losses of a sole or limited source provider;~~

~~reduced control over pricing and timing of delivery of raw materials and parts, components, or subassemblies;~~

~~the need to qualify alternative suppliers;~~

~~suppliers that may provide parts, components or subassemblies that are defective, contain counterfeit goods or are otherwise misrepresented to us in terms of form, fit or function; and~~

~~the inability of our suppliers to develop technologically advanced products to support our growth and development of new products.~~

From time to time, our sole or limited source suppliers have given us notice that they are ending supply of critical parts, components, and subassemblies that are required for us to deliver product. If we cannot qualify alternative suppliers before ending supply of critical parts from the sole or limited source suppliers, we may be required to make a last-time-buy(s) and take possession of material amounts of inventory in advance of customer demand. In some instances, the last-time-buy materials required to be purchased may be for several years which in turn exposes us to additional excess and obsolescence risk. If we cannot qualify alternative suppliers before the last-time-buy materials are utilized in our products or legacy inverter warranty operations, we may be unable to deliver further product or legacy inverter warranty service to our customers.

Qualifying alternative suppliers could be time consuming and lead to delays in, or prevention of delivery of products to our customers, as well as increased costs. If we are unable to qualify additional suppliers and manage relationships with our existing and future suppliers successfully, if our suppliers experience financial difficulties including bankruptcy, or if our suppliers cannot meet our performance or quality specifications or timing requirements, we may experience shortages, delays, or increased costs of raw materials, parts, components, or subassemblies. This in turn could limit or prevent our ability to manufacture and ship our products, which could materially and adversely affect our relationships with our current and prospective customers and our business, financial condition, and results of operations.

~~Our orders of raw materials, parts, components, and subassemblies are based on demand forecasts.~~

We place orders with many of our suppliers based on our customers’ quarterly forecasts and our annual forecasts. These forecasts are based on our customers’ and our expectations as to demand for our products. As the quarter and the year progress, such demand can change rapidly or we may realize that our customers’ expectations were overly optimistic or pessimistic, especially when industry or general economic conditions change. Orders with our suppliers cannot always be amended in response. In addition, in order to assure availability of certain components or to obtain priority pricing, we have entered into contracts with some of our suppliers that require us to purchase a specified amount of components and subassemblies each quarter, even if we are not able to use such components or subassemblies. Moreover, we have obligations to some of our customers to hold a minimum amount of finished goods in inventory, in order to fulfill just in time orders, regardless of whether the customers expect to place such orders. We currently have firm purchase commitments and agreements with various suppliers to ensure the availability of components. If demand for our products does not continue at current levels, we might not be able to use all of the components that we are required to purchase under these commitments and agreements, and our reserves for excess and obsolete inventory may increase, which could have a material adverse effect on our results of operations. If demand for our products exceeds our customers’ and our forecasts, we may not be able to timely obtain sufficient raw materials, parts, components, or subassemblies, on favorable terms or at all, to fulfill the excess demand.

~~Significant developments stemming from recent U.S. government proposals concerning tariffs, tax reform and other economic proposals could have a material adverse effect on us.~~

~~Recent U.S. government proposals could impose greater restrictions and economic disincentives on international trade, particularly imports.~~

~~Proposals to date include~~ possible tariffs on goods imported into the United States, particularly from China, as well as possible border adjusted tax rules that could make the cost of imported product a non-tax deductible expense, potentially raising tax expense. While the final changes in regulation are not known at this time, any final regulation that adds a cost to imported product or limits a tax deductible expense could have a material effect on our costs and net income. We have our primary manufacturing facility in Shenzhen, China and a significant portion of our products are imported into the United States. Any increase in the cost of our goods imported into the United States could adversely impact our competitiveness. Depending on the final regulation, we may elect to move some of our manufacturing operations to the US which could increase our costs as well. Changes in U.S. social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories and countries where we currently develop and sell products, and any negative sentiments towards the United States as a result of such changes, could adversely affect our business. In addition, negative sentiments towards the United States among non-U.S. customers and among non-U.S. employees or prospective employees could adversely affect sales or hiring and retention, respectively.

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Some proposals, such as provisions that would make it easier (require less tax payment) to repatriate overseas cash to the U.S., as well as border adjusted tax regulations that could exclude export revenue from taxable income, may be a benefit to our company. The ability to repatriate cash to the U.S. would provide greater flexibility to acquire assets in the U.S. as well as perform share repurchases and potentially pay shareholder dividends. The ability to exclude export revenue from taxable income potentially makes manufacture of product in the US economically beneficial.

~~At this time, the final regulations are not known and therefore no assurance can be made that they will not have a material adverse effect.~~

~~Increased governmental action on income tax regulations could negatively impact our business.~~

International governments have heightened their review and scrutiny of multinational businesses like ours which could increase our compliance costs and future tax liability to those governments. As governments continue to look for ways to increase their revenue streams they could increase audits of companies to accelerate the recovery of monies perceived as owed to them under current or past regulations. Such an increase in audit activity could have a negative impact on companies which operate internationally, as we do.

~~Activities necessary to integrate acquisitions may result in costs in excess of current expectations or be less successful than anticipated.~~

We have completed acquisitions in the past and we may acquire other businesses in the future. The success of such transactions will depend on, among other things, our ability to integrate assets and personnel acquired in these transactions and to apply our internal controls process to these acquired businesses. The integration of acquisitions may require significant attention from our management, and the diversion of management’s attention and resources could have a material adverse effect on our ability to manage our business. Furthermore, we may not realize the degree or timing of benefits we anticipated when we first entered into the acquisition transaction. If actual integration costs are higher than amounts originally anticipated, if we are unable to integrate the assets and personnel acquired in an acquisition as anticipated, or if we are unable to fully benefit from anticipated synergies, our business, financial condition, results of operations, and cash flows could be materially adversely affected.

We have historically made acquisitions and divestitures. However, we may not find suitable acquisition candidates in the future and we may not be able to successfully integrate and manage acquired businesses. In either an acquisition or a divestiture, we may be required to make fundamental changes in our ERP, business processes and tools which could disrupt our core business and harm our financial condition.

In the past, we have made strategic acquisitions of other corporations and entities, as well as asset purchases, and we continue to evaluate potential strategic acquisitions of complementary companies, products, and technologies. We have also divested businesses. In the future, we could:

~~issue stock that would dilute our current stockholders' percentage ownership;~~

~~pay cash that would decrease our working capital;~~

~~incur debt;~~

~~assume liabilities; or~~

~~incur expenses related to impairment of goodwill and amortization.~~

~~Acquisitions and divestitures also involve numerous risks, including:~~

~~problems combining or separating the acquired/divested operations, systems, technologies, or products;~~

~~an inability to realize expected sales forecasts, operating efficiencies or product integration benefits;~~

~~difficulties in coordinating and integrating geographically separated personnel, organizations, systems, and facilities;~~

~~difficulties integrating business cultures;~~

~~unanticipated costs or liabilities;~~

~~diversion of management's attention from our core business;~~

~~adverse effects on existing business relationships with suppliers and customers;~~

~~potential loss of key employees, particularly those of purchased organizations;~~

~~incurring unforeseen obligations or liabilities in connection with either acquisitions or divestitures; and~~

the failure to complete acquisitions even after signing definitive agreements which, among other things, would result in the expensing of potentially significant professional fees and other charges in the period in which the acquisition or negotiations are terminated.

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Our operations in the People’s Republic of China are subject to significant political and economic uncertainties over which we have little or no control and we may be unable to alter our business practice in time to avoid reductions in revenues.

A significant portion of our operations outside the United States are located in the PRC, which exposes us to risks, such as exchange controls and currency restrictions, changes in local economic conditions, changes in customs regulations, changes in tax policies, changes in PRC laws and regulations, possible expropriation or other PRC government actions, and unsettled political conditions including potential changes in U.S. policy regarding overseas manufacturing. These factors may have a material adverse effect on our operations, business, results of operations, and financial condition. See "We are exposed to risks associated with worldwide financial markets and the global economy" risk factor below.

The PRC’s economy differs from the economies of most developed countries in many respects, including with respect to the amount of government involvement, level of development, rate of growth, control of foreign exchange and allocation of resources. While the economy of the PRC has experienced significant growth in the past 20 years, growth has been uneven across different regions and amongst various economic sectors of the PRC. The PRC government has implemented various measures to encourage economic development and guide the allocation of resources. Strikes by workers and picketing in front of the factory gates of certain companies in Shenzhen have caused unrest among some workers seeking higher wages, which could impact our manufacturing facility in Shenzhen. While some of the government's measures may benefit the overall economy of the PRC, they may have a negative effect on us. For example, our financial condition and results of operations may be materially and adversely affected by government control over capital investments or changes in tax regulations that are applicable to us as well as work stoppages.

~~Changes in tax laws, tax rates, or mix of earnings in tax jurisdictions in which we do business, could impact our future tax liabilities and related corporate profitability~~

We are subject to income taxes in the U.S. (federal and state) and numerous foreign jurisdictions. Tax laws, regulations, and administrative practices in various jurisdictions may be subject to significant change due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes. There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. Our effective tax rates could be adversely affected by earnings being lower than anticipated in jurisdictions where we have lower statutory rates and earnings higher than anticipated in jurisdictions where we have higher statutory rates, losses incurred in jurisdictions for which we are not able to realize the related tax benefit, changes in foreign currency exchange rates, entry into new businesses and geographies and changes to our existing businesses, acquisitions (including integrations) and investments, changes in our deferred tax assets and liabilities and their valuation, and changes in the relevant tax, accounting, and other laws, regulations, administrative practices, principles, and interpretations, including fundamental changes to the tax laws applicable to corporate multinationals. The U.S., many countries in the European Union, and a number of other countries are actively considering changes in this regard.

For example, on October 5, 2015, the Organisation for Economic Co-operation and Development (OECD) issued the final report on all 15 Base Erosion and Profit Shifting “BEPS” Action Plans. According to the OECD, the current rules have created opportunities for Base Erosion and Profit Shifting, and suggest new rules whereby profits are taxed where economic activities take place and value is created. OECD comments include new or reinforced international standards as well as concrete measures to help countries tackle BEPS. Among the highlights of the OECD Final Reports are the new transfer pricing approach and reinforced international standards on tax treaties, the setting of minimum standards on harmful tax practices, treaty abuse, country-by-country reporting and dispute resolution, action items requiring national legislation particularly in hybrid mismatches and interest restriction, and analytical reports with recommendations concerning digital economy and multilateral instruments. If countries in which we operate adopt the OECD recommendations as outlined in the BEPS Action Plans, it is uncertain to what extent the changes could impact the Company.

~~We are exposed to risks associated with worldwide financial markets and the global economy.~~

Our business depends on the expansion of manufacturing capacity in our end markets and the installation base for the products we sell. In the past, severe tightening of credit markets, turmoil in the financial markets, and a weakening global economy have contributed to slowdowns in the industries in which we operate. Some of our key markets depend largely on consumer spending. Economic uncertainty, such as that recently experienced in the PRC, exacerbates negative trends in consumer spending and may cause our customers to push out, cancel, or refrain from placing equipment orders.

Difficulties in obtaining capital and uncertain market conditions may also lead to a reduction of our sales and greater instances of nonpayment. These conditions may similarly affect our key suppliers, which could affect their ability to deliver parts and result in delays for our products. Further, these conditions and uncertainty about future economic conditions could make it challenging for us to forecast our operating results and evaluate the risks that may affect our business, financial condition, and

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~~results of operations. As discussed in “Our orders of raw materials, parts, components, and subassemblies are based on demand forecasts~~,” a significant percentage of our expenses are relatively fixed and based, in part, on expectations of future net sales. If a sudden decrease in demand for our products from one or more customers were to occur, the inability to adjust spending quickly enough to compensate for any shortfall would magnify the adverse impact of a shortfall in net sales on our results of operations. Conversely, if market conditions were to unexpectedly improve and demand for our products were to increase suddenly, we might not be able to respond quickly enough, which could have a negative impact on our results of operations and customer relations.

~~Our results of operations could be affected by natural disasters and other events in the locations in which we or our customers or suppliers operate.~~

We have manufacturing and other operations in locations subject to natural occurrences such as severe weather and geological events including earthquakes or tsunamis that could disrupt operations. In addition, our suppliers and customers also have operations in such locations. A natural disaster, fire, explosion, or other event that results in a prolonged disruption to our operations, or the operations of our customers or suppliers, may materially adversely affect our business, results of operations, or financial condition.

~~We transitioned a significant amount of our supply base to Asian suppliers.~~

We transitioned the purchasing of a substantial portion of components for our thin film products to Asian suppliers to lower our materials costs and shipping expenses. These components might require us to incur higher than anticipated testing or repair costs, which would have an adverse effect on our operating results. Customers who have strict and extensive qualification requirements might not accept our products if these lower-cost components do not meet their requirements. A delay or refusal by our customers to accept such products, as well as an inability of our suppliers to meet our purchasing requirements, might require us to purchase higher-priced components from our existing suppliers or might cause us to lose sales to these customers, either of which could lead to decreased revenue and gross margins and have an adverse effect on our results of operations.

~~The industries in which we compete are subject to volatile and unpredictable cycles.~~

As a supplier to the global semiconductor, flat panel display, solar, industrial and related industries, we are subject to business cycles, the timing, length, and volatility of which can be difficult to predict. These industries historically have been cyclical due to sudden changes in customers’ manufacturing capacity requirements and spending, which depend in part on capacity utilization, demand for customers’ products, inventory levels relative to demand, and access to affordable capital. These changes have affected the timing and amounts of customers’ purchases and investments in technology, and continue to affect our orders, net sales, operating expenses, and net income. In addition, we may not be able to respond adequately or quickly to the declines in demand by reducing our costs. We may be required to record significant reserves for excess and obsolete inventory as demand for our products changes.

To meet rapidly changing demand in each of the industries we serve, we must effectively manage our resources and production capacity. During periods of decreasing demand for our products, we must be able to appropriately align our cost structure with prevailing market conditions, effectively manage our supply chain, and motivate and retain key employees. During periods of increasing demand, we must have sufficient manufacturing capacity and inventory to fulfill customer orders, effectively manage our supply chain, and attract, retain, and motivate a sufficient number of qualified individuals. If we are not able to timely and appropriately adapt to changes in our business environment or to accurately assess where we are positioned within a business cycle, our business, financial condition, or results of operations may be materially and adversely affected.

~~We must continually design and introduce new products into the markets we serve to respond to competition and rapid technological changes.~~

We operate in a highly competitive environment where innovation is critical, our future success depends on many factors, including the effective commercialization and customer acceptance of our products and services. The development, introduction and support of a broadening set of products is critical to our continued success. Our results of operations could be adversely affected if we do not continue to develop new products, improve and develop new applications for existing products, and differentiate our products from those of competitors resulting in their adoption by customers.

~~We must achieve design wins to retain our existing customers and to obtain new customers, although design wins achieved do not necessarily result in substantial sales.~~

Driven by continuing technology migration and changing customers demand the markets we serve are constantly changing in terms of advancement in applications, core technology and competitive pressures. New products we design for capital equipment manufacturers typically have a lifespan of five to ten years. Our success and future growth depends on our products being designed into our customers new generations of equipment as they develop new technologies and applications. We must work with these manufacturers early in their design cycles to modify, enhance and upgrade our products or design new products that meet the

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requirements of their new systems. The design win process is highly competitive and we may win or lose new design wins for our existing customers or new customers next generations of equipment. In case existing or new customers do not choose our products as a result of the development, evaluation and qualification efforts related to the design win process, our market share will be reduced, the potential revenues related to the lifespan of our customers' products, which can be 5-10 years, will not be realized, and our business, financial condition and results of operations would be materially and adversely impacted.

~~We generally have no long-term contracts with our customers requiring them to purchase any specified quantities from us.~~

Our sales are primarily made on a purchase order basis, and we generally have no long-term purchase commitments from our customers, which is typical in the industries we serve. As a result, we are limited in our ability to predict the ~~level~~outcome of ~~future sales or commitments from our current customers, which may diminish our ability to allocate labor, materials, and equipment in~~these matters, we believe that the ~~manufacturing process effectively. In addition, we may purchase inventory in anticipation of sales that do not materialize, resulting in excess and obsolete inventory write-offs.~~

If we are unable to adjust our business strategy successfully for some of our product lines to reflect the increasing price sensitivity on the part of our customers, our business and financial condition could be harmed.

Our business strategy for many of our product lines has been focused on product performance and technology innovation to provide enhanced efficiencies and productivity. As a result of recent economic conditions and changes in various markets that we serve, our customers have experienced significant cost pressures. We have observed increased price sensitivity on the part of our customers. If competition against any of our product lines should come to focus solely on price rather than on product performance and technology innovation, we will need to adjust our business strategy and product offerings accordingly, and if we are unable to do so, our business, financial condition, and results of ~~operations could be materially and adversely affected.~~

~~Our competitive position could be weakened if we are unable to convince end users to specify that our products be used in the equipment sold by our customers.~~

The end users in our markets may direct equipment manufacturers to use a specified supplier’s product in their equipment at a particular facility. This occurs with frequency because our products are critical in manufacturing process control for thin-film applications. Our success, therefore, depends in part on our ability to have end users specify that our products be used at their facilities. In addition, we may encounter difficulties in changing established relationships of competitors that already have a large installed base of products within such facilities.

~~The markets we operate in are highly competitive.~~

We face substantial competition, primarily from established companies, some of which have greater financial, marketing, and technical resources than we do. We expect our competitors will continue to develop new products in direct competition with ours, improve the design and performance of their products, and introduce new products with enhanced performance characteristics. In order to remain competitive, we must improve and expand our products and product offerings. In addition, we may need to maintain a high level of investment in research and development and expand our sales and marketing efforts, particularly outside of the United States. We might not be able to make the technological advances and investments necessary to remain competitive. If we were unable to improve and expand our products and product offerings, our business, financial condition, and results of operations could be materially and adversely affected.

~~A significant portion of our sales and accounts receivable are concentrated among a few customers.~~

Our ten largest customers accounted for 70.2% and 66.5% of our sales for the nine months ended September 30, 2017 and 2016, respectively. During the nine months ended September 30, 2017, sales to Applied Materials, Inc. and Lam Research were $165.2 million and $114.3 million, respectively. During the nine months ended September 30, 2016 sales to Applied Materials, Inc., and Lam Research were $118.4 million and $73.3 million, respectively. A significant decline in sales from either or both of these ~~customers, or the Company's inability to collect on these sales, could materially and adversely impact our business, results of operations and financial condition.~~

~~We maintain significant amounts of cash in international locations.~~

Given the global nature of our business, we have both domestic and international concentrations of cash and investments. The value of our cash, cash equivalents, and marketable securities can be negatively affected by liquidity, credit deterioration, financial results, economic risk, political risk, sovereign risk or other factors. The Company intends to utilize its foreign cash to expand our international operations through internal growth and strategic acquisitions. If our intent changes or if these funds are needed for our U.S. operations, or we are negatively impacted by any of the factors above, our financial condition and results of operations could be materially adversely affected.

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We may not be able to successfully identify appropriate acquisition candidates, to integrate any businesses, products, technologies, or personnel that we might acquire in the future or achieve the anticipated benefits of such transactions, which may harm our business.

~~We are subject to risks inherent in international operations.~~

Sales to our customers outside the United States were approximately 32.1% and 32.9% of our total sales for the nine months ended September 30, 2017 and 2016. The acquisitions of the power controls modules and high voltage product lines have increased our presence in international locations. Our success producing goods internationally and competing in international markets is subject to our ability to manage various risks and difficulties, including, but not limited to:

~~our ability to effectively manage our employees at remote locations who are operating in different business environments from the United States;~~

~~our ability to develop and maintain relationships with suppliers and other local businesses;~~

~~compliance with product safety requirements and standards that are different from those of the United States;~~

~~variations and changes in laws applicable to our operations in different jurisdictions, including enforceability of intellectual property and contract rights;~~

~~trade restrictions, political instability, disruptions in financial markets, and deterioration of economic conditions;~~

~~customs regulations and the import and export of goods (including customs audits in various countries that occur from time to time);~~

~~the ability to provide sufficient levels of technical support in different locations;~~

~~our ability to obtain business licenses that may be needed in international locations to support expanded operations;~~

~~timely collecting accounts receivable from foreign customers including $20.3 million in accounts receivable from foreign customers as of September 30, 2017; and~~

~~changes in tariffs, taxes, and foreign currency exchange rates.~~

Our profitability and ability to implement our business strategies, maintain market share and compete successfully in international markets will be compromised if we are unable to manage these and other international risks successfully.

~~Globalization of sales increases risk of compliance with policy.~~

We operate in an increasingly complex sales environment around the world which places greater importance on our global control environment and imposes additional oversight risk. Such increased complexity could adversely affect our operating results by increasing compliance costs in the near-term and by increasing the risk of control failures in the event of non-compliance.

~~Market pressures and increased low-cost competition may reduce or eliminate our profitability.~~

Our customers continually exert pressure on us to reduce our prices and extend payment terms. Given the nature of our customer base and the highly competitive markets in which we compete, we may be required to reduce our prices or extend payment terms to remain competitive. We have recently seen pricing pressure from our largest customers due in part to low-cost competition and market consolidation. As a result of the competitive markets we serve, from time to time we may enter into long term pricing agreements with our largest customers that results in reduced product pricing. Such reduced product pricing may result in product margin declines unless we are successful in reducing our product costs ahead of such price reductions. We believe some of our Asian competitors benefit from local governmental funding incentives and purchasing preferences from end-user customers in their respective countries. Moreover, in order to be successful in the current competitive environment, we are required to accelerate our investment in research & development to meet time-to-market, performance and technology adoption cycle needs of our customers simply in order to compete for design wins, and if successful, receive potential purchase orders. Given such up-front investments we have to make and the competitive nature of our markets, we may not be able to reduce our expenses in an amount sufficient to offset potential margin declines or loss of business, and may not be able to meet customer product time-line expectations. The potential decrease in cash flow could materially and adversely impact our financial condition.

~~We are highly dependent on our intellectual property.~~

Our success depends significantly on our proprietary technology. We attempt to protect our intellectual property rights through patents and non-disclosure agreements; however, we might not be able to protect our technology, and competitors might be able to develop similar technology independently. In addition, the laws of some foreign countries might not afford our intellectual property the same protections as do the laws of the United States. Our intellectual property is not protected by patents in several countries in which we do business, and we have limited patent protection in other countries, including the PRC. The cost of applying for patents in foreign countries and translating the applications into foreign languages requires us to select carefully the inventions for which we apply for patent protection and the countries in which we seek such protection. Generally, our efforts to obtain international patents have been concentrated in the European Union and certain industrialized countries in Asia, including Korea,

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~~Japan, and Taiwan. If we are unable to protect our intellectual property successfully, our business, financial condition, and results of operations could be materially and adversely affected.~~

The PRC commercial law is relatively undeveloped compared to the commercial law in the United States. Limited protection of intellectual property is available under PRC law. Consequently, manufacturing our products in the PRC may subject us to an increased risk that unauthorized parties may attempt to copy our products or otherwise obtain or use our intellectual property. We may not be able to protect our intellectual property rights effectively. Additionally, we may not have adequate legal recourse in the event that we encounter infringements of our intellectual property in the PRC.

~~Our legacy inverter products may suffer higher than anticipated litigation, damage or warranty claims.~~

Our legacy inverter products (of which we discontinued the manufacture, engineering, and sale in December 2015 and which are reflected as Discontinued Operations in this filing) contain components that may contain errors or defects and were sold with original product warranties ranging from one to ten years with an option to purchase additional warranty coverage for up to 20 years. If any of our products are defective or fail because of their design, we might be required to repair, redesign or recall those products or to pay damages (including liquidated damages) or warranty claims, and we could suffer significant harm to our reputation. We are experiencing claims from customers and suppliers and in some cases litigation related to the legacy inverter product line. Prior suppliers of the legacy inverter business have made claims and have pursued lawsuits ranging from allegations of losses associated with raw material inventory and other commercial claims, to an allegation of improper use of proprietary design. We review such claims and vigorously defend against such lawsuits in the ordinary course of our business. We cannot assure you that any such claims or litigation brought against usproceedings will not have a material adverse effect on our ~~business~~financial condition, results of operations, or ~~financial statements. Our involvement in such litigation could result in significant expense to us and divert the efforts of~~liquidity.

ITEM 1A. RISK FACTORS

Information concerning our technical and management personnel. We also accrue a warranty reserve for estimated costs to provide warranty services including the cost of technical support, product repairs, and product replacement for units that cannot be repaired. Our estimate of costs to fulfill our warranty obligationsrisk factors is based on historical experience and expectation of future conditions. To the extent we experience increased warranty claim activity or increased costs associated with servicing those claims, our warranty accrual will increase, resulting in additional expenses in the line "Income (loss) from discontinued operations, net of tax” on our Consolidated Statement of Operations in future periods. We plan to continue supporting inverter customers with service maintenance and repair operations. This includes performing service to fulfill obligations under existing service maintenance contracts. There is no certainty that these can be performed profitably and could be adversely affected by higher than anticipated product failure rates, loss of critical service technician skills, an inability to obtain service parts, customer demands and disputes and cost of repair parts, among other factors. See Note 3. Discontinued Operationscontained in Part I, Item ~~1 "Unaudited Condensed Consolidated Financial Statements" contained herein.~~

~~Our products may suffer from defects or errors leading to damage or warranty claims.~~

Our products use complex system designs and components that may contain errors or defects, particularly when we incorporate new technology into our products or release new versions. If any of our products are defective or fail because of their design, we might be required to repair, redesign or recall those products, pay damages (including liquidated damages) or warranty claims, and we could suffer significant harm to our reputation. We accrue a warranty reserve for estimated costs to provide warranty services including the cost of technical support, product repairs, and product replacement for units that cannot be repaired. Our estimate of costs to fulfill our warranty obligations is based on historical experience and expectation of future conditions. To the extent we experience increased warranty claim activity or increased costs associated with servicing those claims, our warranty accrual will increase, resulting in decreased gross profit. In recent years, we have experienced increased warranty costs for our legacy inverter product lines, which is reflected in "Income from discontinued operations, net of income taxes." See ~~Note 3. Discontinued Operations~~ ~~in Part I, Item 1 "Unaudited Condensed Consolidated Financial Statements" contained herein.~~

~~Unfavorable currency exchange rate fluctuations may lead to lower operating margins, or may cause us to raise prices, which could result in reduced sales.~~

Currency exchange rate fluctuations could have an adverse effect on our sales and results of operations and we could experience losses with respect to forward exchange contracts into which we may enter. Unfavorable currency fluctuations could require us to increase prices to foreign customers, which could result in lower net sales by us to such customers. Alternatively, if we do not adjust the prices for our products in response to unfavorable currency fluctuations, our results of operations could be materially and adversely affected. In addition, most sales made by our foreign subsidiaries are denominated1A, “Risk Factors” in the currency of the country in which these products are sold and the currency in which they receive payment for such sales could be less valuable at the time of receipt as a result of exchange rate fluctuations. Given recent acquisitions in Europe, our exposure to fluctuations2023 Form 10-K. The risks described in the ~~value of~~2023 Form 10-K are not the ~~Euro is becoming more significant. From time~~only risks that we face. Additional risks and uncertainties not currently known to time, we enter into forward exchange contracts and local currency purchased options to reduce currency exposures related to likely or pending transactions including those arising from intercompany sales of inventory. However, we cannot be certain that our efforts will be adequate to protect us ~~against significant currency~~

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~~fluctuations~~ or that ~~such efforts will not expose us~~we currently deem to ~~additional exchange rate risks, which could~~be immaterial also may materially ~~and~~ adversely affect ~~our results of operations.~~

~~Recent developments relating to the United Kingdom's referendum vote in favor of leaving the European Union and related actions could adversely affect us.~~

On June 23, 2016, the United Kingdom (UK) held a referendum in which voters approved an exit from the EU. On March 29, 2017, the UK's ambassador to the EU delivered a letter to the president of the European Council that gave formal notice under Article 50 of the Lisbon Treaty of Britain's withdrawl from the EU, commonly referred to as "Brexit". As a result, negotiations have commenced to determine the terms of the UK's withdrawl from the EU as well as its relationship with the EU going forward, including the terms of trade between the UK and the EU. Although it is unknown what those terms will be, it is possible that there will be greater restrictions on imports and exports between the UK and EU countries and increased regulatory complexities. These changes may adversely affect our sales, operations and financial results. In particular, our operations in the UK may be adversely affected by extreme fluctuations in the UK exchange rates. Moreover, the imposition of any import restrictions and duties levied on our UK products as imported for EU customers may make our products more expensive for such customers and less competitive from a pricing perspective.

~~Changes in the value of the Chinese yuan could impact the cost of our operation in Shenzhen, PRC and our sales growth in our PRC markets.~~

The PRC government is continually pressured by its trading partners to allow its currency to float in a manner similar to other major currencies. In 2016, China’s currency devalued by a cumulative 6.5% against the U.S. dollar, making Chinese exports cheaper and imports into China more expensive by that amount. This devaluation negatively impacts U.S. businesses that trade with China because it puts them at a cost disadvantage. Any change in the value of the Chinese yuan may impact our ability to control the cost of our products in the world market. Specifically, the decision by the PRC government to allow the yuan to begin to float against the United States dollar could significantly increase the labor and other costs incurred in the operation of our Shenzhen facility and the cost of raw materials, parts, components, and subassemblies that we source in the PRC, thereby having a material and adverse effect on our financial condition and results of operations.

~~Difficulties with our enterprise resource planning (“ERP”) system and other parts of our global information technology system could harm our business and results of operation.~~

Like many multinational corporations, we maintain a global information technology system, including software products licensed from third parties. Any system, network or Internet failures, misuse by system users, the hacking into or disruption caused by unauthorized access or loss of license rights could disrupt our ability to timely and accurately manufacture and ship products or to report our financial information in compliance with the timelines mandated by the SEC. Any such failure, misuse, hacking, disruptions or loss would likely cause a diversion of management's attention from the underlying business and could harm our operations. In addition, a significant failure of our global information technology system could adversely affect our ability to complete an evaluation of our internal controls and attestation activities pursuant to Section 404 of the Sarbanes-Oxley Act of 2002.

If our network security measures are breached and unauthorized access is obtained to a customer's data or our data or our information technology systems, we may incur significant legal and financial exposure and liabilities.

As part of our day-to-day business, we store our data and certain data about our customers in our global information technology system. Unauthorized access to our data, including any regarding our customers, could expose us to a risk of loss of this information, loss of business, litigation and possible liability. These security measures may be breached by intentional misconduct by computer hackers, as a result of third-party action, employee error, malfeasance or otherwise. Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our customers' data or our data, including our intellectual property and other confidential business information, or our information technology systems. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Any security breach could result in a loss of confidence by our customers, damage our reputation, disrupt our business, lead to legal liability and negatively impact our future sales.

~~The loss of any of our key personnel could significantly harm our results of operations and competitive position.~~

Our success depends to a significant degree upon the continuing contributions of our key management, technical, marketing, and sales employees. We may not be successful in retaining our key employees or attracting or retaining additional skilled personnel as required. Failure to retain or attract key personnel could significantly harm our results of operations and

~~Table Of Contents~~

competitive position. We must develop our personnel to provide succession plans capable of maintaining continuity in the midst of the inevitable unpredictability of personnel retention. While we have plans for key management succession and long-term compensation plans designed to retain our senior employees, if our succession plans do not operate effectively, our business could be adversely affected.

~~Deterioration of demand for our inverter services could negatively impact our business.~~

Our business may be adversely affected by changes in national or global demand for our inverter service repair capabilities. Any such changes could adversely affect the carrying amount of our inverter service inventories, thereby negatively affecting our financial results from Continuing Operations.

We have been, and in the future may again be, involved in litigation. Litigation is costly and could result in further restrictions on our ability to conduct business or make use of market relationships we have developed, or an inability to prevent others from using technology.

Litigation may be necessary to enforce our commercial or property rights, to defend ourselves against claimed violations of such rights of others, or to protect our interests in regulatory, tax, customs, commercial, and other disputes or similar matters. Litigation often requires a substantial amount of our management's time and attention, as well as financial and other resources, including:

~~substantial costs in the form of legal fees, fines, and royalty payments;~~

~~restrictions on our ability to sell certain products or in certain markets;~~

~~an inability to prevent others from using technology we have developed; and~~

~~a need to redesign products or seek alternative marketing strategies.~~

~~Any of these events could have a significant adverse effect on our business, financial condition, and results of operations.~~

~~Return on investments or interest rate declines on plan investments could result in additional unfunded pension obligations for the HiTek Power pension plan.~~

We currently have unfunded obligations in the HiTek Power pension plan. The extent of future contributions to the pension plan depends heavily on market factors such as the discount rate used to calculate our future obligations and the actual return on plan assets which enable future payments. We estimate future contributions to the plan using assumptions with respect to these and other items. Changes to those assumptions could have a significant effect on future contributions. Additionally, a material deterioration in the funded status of the plan could increase pension expenses and reduce our profitability. See ~~Note 13. Pension Liability~~ ~~in Part I, Item 1 "Unaudited Condensed Consolidated Financial Statements" contained herein.~~

~~Funds associated with our marketable securities that we have traditionally held as short-term investments may not be liquid or readily available.~~

In the past, certain of our investments have been affected by external market conditions that impacted the liquidity of the investment. We do not currently have investments with reduced liquidity, but external market conditions that we cannot anticipate or mitigate may impact the liquidity of our marketable securities. Any changes in the liquidity associated with these investments may require us to borrow funds at terms that are not favorable or repatriate cash from international locations at a significant cost. We cannot be certain that we will be able to borrow funds or continue to repatriate cash on favorable terms, or at all. If we are unable to do so, our available cash may be reduced until those investments can be liquidated. The lack of available cash may prevent us from taking advantage of business opportunities that arise and may prevent us from executing some of our business plans, either of which could cause our business, financial condition, or ~~results of operations~~operating results. There have been no material changes to ~~be materially and adversely affected.~~

~~Our intangible assets may become impaired.~~

~~As of September 30, 2017, we have $53.5 million of goodwill and $34.4 million in intangible assets. We periodically review~~ the estimated useful lives of our goodwill and identifiable intangible assets, taking into consideration any events or circumstances that might result in either a diminished fair value, or for intangible assets, a revised useful life. The events and circumstances include significant changesrisk factors previously disclosed in the ~~business climate, legal factors, operating performance indicators, and competition. Any impairment or revised useful life could have a material and adverse effect on our financial position and results~~2023 Form 10-K.

Table of ~~operations, and could harm the trading price of our common stock.~~Contents

~~We are subject to numerous governmental regulations.~~

We are subject to federal, state, local and foreign regulations, including environmental regulations and regulations relating to the design and operation of our products and control systems and regulations governing the import, export and customs duties related to our products. We might incur significant costs as we seek to ensure that our products meet safety and emissions standards, many of which vary across the states and countries in which our products are used. In the past, we have invested significant

~~Table Of Contents~~

resources to redesign our products to comply with these directives. Compliance with future regulations, directives, and standards could require us to modify or redesign some products, make capital expenditures, or incur substantial costs. Also, we may incur significant costs in complying with the myriad of different import, export and customs regulations as we seek to sell our products internationally. If we do not comply with current or future regulations, directives, and standards:

~~we could be subject to fines and penalties;~~

~~our production or shipments could be suspended; and~~

~~we could be prohibited from offering particular products in specified markets.~~

~~If we were unable to comply with current or future regulations, directives and standards, our business, financial condition and results of operations could be materially and adversely affected.~~

~~Financial reform legislation will result in new laws and regulations that may increase our costs of operations.~~

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for Congress. On August 22, 2012, under the Dodd-Frank Act, the SEC adopted new requirements for companies that use certain minerals and metals, known as conflict minerals, in their products, whether or not these products are manufactured by third parties. These requirements require companies to perform due diligence, disclose and report whether or not such minerals originate from the Democratic Republic of Congo and adjoining countries. We have to perform sufficient due diligence to determine whether such minerals are used in the manufacture of our products. However, the implementation of these new requirements could adversely affect the sourcing, availability and pricing of such minerals if they are found to be used in the manufacture of our products. In addition, we incur costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals and metals used in our products. Since our supply chain is complex, we may not be able to sufficiently verify the origins for these minerals and metals used in our products through the due diligence procedures that we implement, which may harm our reputation. In such event, we may also face difficulties in satisfying customers who require that all of the components of our products are certified as conflict mineral free.

~~The market price of our common stock has fluctuated and may continue to fluctuate for reasons over which we have no control.~~

The stock market has from time to time experienced, and is likely to continue to experience, extreme price and volume fluctuations. Prices of securities of technology companies have been especially volatile and have often fluctuated for reasons that are unrelated to their operating performance. In the past, companies that have experienced volatility in the market price of their stock have been the subject of securities class action litigation. If we were the subject of securities class action litigation, it could result in substantial costs and a diversion of management’s attention and resources.

~~Our operating results are subject to fluctuations, and if we fail to meet the expectations of securities analysts or investors, our share price may decrease significantly~~.

Our annual and quarterly results may vary significantly depending on various factors, many of which are beyond our control. Because our operating expenses are based on anticipated revenue levels, our sales cycle for development work is relatively long, and a high percentage of our expenses are fixed for the short term, a small variation in the timing of recognition of revenue can cause significant variations in operating results from period to period. If our earnings do not meet the expectations of securities analysts or investors, the price of our stock could decline.

~~Deterioration of economic conditions could negatively impact our business.~~

Our business may be adversely affected by changes in national or global economic conditions, including inflation, interest rates, availability of capital markets, consumer spending rates, energy availability and costs (including fuel surcharges) and the effects of governmental initiatives to manage economic conditions. Any such changes could adversely affect the demand for our products both in domestic and export markets, or the cost and availability of our needed raw materials and packaging materials, thereby negatively affecting our financial results.

~~A disruption in credit and other financial markets and deterioration of national and global economic conditions, could, among other things:~~

~~negatively impact global demand for our products, which could result in a reduction of sales, operating income and cash flows;~~

~~make it more difficult or costly for us to obtain financing for our operations or investments or to refinance our debt in the future;~~

cause our lenders to depart from prior credit industry practice and make more difficult or expensive the granting of any technical or other waivers under our debt agreements to the extent we may seek them in the future;

~~decrease the value of our investments; and~~

~~impair the financial viability of our insurers.~~

~~Table Of Contents~~

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.

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. There were no share repurchases during the quarter covered by this Form 10-Q.

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).

~~Sales of Unregistered Securities~~

~~None.~~

~~Issuer Purchases of Equity Securities~~

Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program (1) Approximate Value of Shares that May Yet Be Purchased Under the Program (2)
August 1 - August 31, 2017 351,292
$ 71.16
351,292
$ 75,003,000
(1) In September 2015, our Board of Directors authorized a program to repurchase up to $150.0 million of our stock over a thirty-month period. Under this program, in August 2017, we entered into a Fixed Dollar Share Repurchase Agreement to repurchase $25.0 million of shares of our common stock in the open market.
(2) While the Company has remaining authority to repurchase up to $75.0 million of our common stock, the Company has no current commitments or obligations to repurchase any shares of our common stock.

Table of Contents

ITEM 6. EXHIBITS

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

Exhibit
Number		Description

~~ITEM 6.~~ 31.1	~~EXHIBITS~~



~~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.

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.

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.~~2002.

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.

101.INS		Inline XBRL Instance Document (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~~Document.

101.CAL		Inline XBRL Taxonomy Extension Calculation ~~Linkbase Document~~Link base Document.

101.DEF		Inline XBRL Taxonomy Extension Definition ~~Linkbase Document~~Link base Document.

101.LAB		Inline XBRL Taxonomy Extension Label ~~Linkbase Document~~Link base Document.

101.PRE		Inline XBRL Taxonomy Extension Presentation ~~Linkbase Document~~Link base Document.

104	~~Attached as~~	Cover Page Interactive Data File (Formatted in Inline XBRL and contained in Exhibit 101 to this report are the following materials from Advanced Energy, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Statements of Comprehensive Earnings, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Condensed Consolidated Statements of Stockholders’ Equity, and (vi) the Notes to the Condensed Consolidated Financial Statements.101)

~~Table Of Contents~~

~~SIGNATURES~~

Table of Contents

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 30, 2017~~ May 1, 2024		/s/ ~~Thomas Liguori~~Paul Oldham
			~~Thomas Liguori~~ Paul Oldham
			~~Executive Vice President & Chief Financial Officer~~

~~Table Of Contents~~

~~INDEX TO EXHIBITS~~



~~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.~~

~~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.~~ and Executive Vice President

~~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.~~	/s/ Bernard R. Colpitts, Jr.
		Bernard R. Colpitts, Jr.
~~32.2~~	~~Certification of the~~	Chief ~~Financial~~Accounting Officer ~~Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~

~~101.INS~~	~~XBRL Instance Document~~

~~101.SCH~~	~~XBRL Taxonomy Extension Schema Document~~

~~101.CAL~~	~~XBRL Taxonomy Extension Calculation Linkbase Document~~

~~101.DEF~~	~~XBRL Taxonomy Extension Definition Linkbase Document~~

~~101.LAB~~	~~XBRL Taxonomy Extension Label Linkbase Document~~

~~101.PRE~~	~~XBRL Taxonomy Extension Presentation Linkbase Document~~

	Attached as Exhibit 101 to this report are the following materials from Advanced Energy, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Statements of Comprehensive Earnings, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Condensed Consolidated Statements of Stockholders’ Equity, and ~~(vi) the Notes to the Condensed Consolidated Financial Statements.~~

	Controller


☑
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF ~~1934.~~1934
		For the quarterly period ended ~~September 30, 2017~~March 31, 2024
or
o ☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF ~~1934.~~1934
		For the transition period from to .

Delaware	84-0846841

~~Delaware~~		~~84-0846841~~
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
~~1625 Sharp Point Drive, Fort Collins, CO~~		~~80525~~
1595 Wynkoop Street, Suite 800, Denver, Colorado	80202
(Address of principal executive offices)		(Zip Code)

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



Large accelerated filer þ	Accelerated filer o ◻	Non-accelerated filer o ~~(Do not check if a smaller reporting company)~~ ◻	Smaller reporting company o ☐	Emerging growth company o ☐



	September 30,			December 31,
	2017			2016
ASSETS
Current assets:
Cash and cash equivalents	$	366,572		$	281,953
Marketable securities	3,046			4,737
Accounts receivable, net of allowances of $2,232 and $1,943, respectively	74,993			75,667
Inventories	73,520			55,770
Income taxes receivable	6,380			1,482
Other current assets	8,678			9,324
Current assets of discontinued operations	7,770			9,401
Total current assets	540,959			438,334
Deposits and other assets	2,432			1,835
Property and equipment, net	15,736			13,337
Goodwill	53,509			42,125
Intangible assets, net	34,435			28,071
Deferred income tax assets	58,590			32,197
Non-current assets of discontinued operations	15,630			15,630
TOTAL ASSETS	$	721,291		$	571,529
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	41,275		$	46,255
Income taxes payable	9			1,778
Accrued payroll and employee benefits	16,241			13,230
Customer deposits	5,410			5,774
Other accrued expenses	18,394			14,590
Current liabilities of discontinued operations	9,667			13,419
Total current liabilities	90,996			95,046
Deferred income tax liabilities	2,049			1,008
Uncertain tax positions	4,383			2,538
Long term deferred revenue	36,528			39,170
Other long-term liabilities	22,662			20,536
Non-current liabilities of discontinued operations	16,287			21,157
Total liabilities	172,905			179,455
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; 39,624 and 39,712 issued and outstanding, respectively	40			40
Additional paid-in capital	187,407			203,603
Retained earnings	362,815			195,364
Accumulated other comprehensive loss	(1,876		)	(6,933		)
Total stockholders’ equity	548,386			392,074
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	721,291		$	571,529



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016

Sales:
Product	$	152,363		$	107,650		$	424,478		$	294,695
Services	24,212			18,902			67,320			53,666
Total sales	176,575			126,552			491,798			348,361
Cost of sales:
Product	72,146			49,835			198,754			137,984
Services	12,195			10,594			34,838			28,748
Total cost of sales	84,341			60,429			233,592			166,732
Gross profit	92,234			66,123			258,206			181,629
Operating expenses:
Research and development	14,629			11,293			41,742			33,324
Selling, general and administrative	24,692			19,421			70,580			56,814
Amortization of intangible assets	1,240			1,048			3,176			3,180
Total operating expenses	40,561			31,762			115,498			93,318
Operating income	51,673			34,361			142,708			88,311
Other (expense) income, net	153			(55		)	(3,138		)	1,138
Income from continuing operations, before income taxes	51,826			34,306			139,570			89,449
Provision for income taxes	(31,968		)	5,268			(25,538		)	12,937
Income from continuing operations, net of income taxes	83,794			29,038			165,108			76,512
Income from discontinued operations, net of income taxes	70			1,323			2,343			6,661
Net income	$	83,864		$	30,361		$	167,451		$	83,173

Basic weighted-average common shares outstanding	39,786			39,681			39,787			39,723
Diluted weighted-average common shares outstanding	40,172			39,967			40,207			40,015

Earnings per share:
Continuing operations:
Basic earnings per share	$	2.11		$	0.73		$	4.15		$	1.93
Diluted earnings per share	$	2.09		$	0.73		$	4.11		$	1.91
Discontinued operations:
Basic earnings per share	$	—		$	0.03		$	0.06		$	0.17
Diluted earnings per share	$	—		$	0.03		$	0.06		$	0.17
Net income:
Basic earnings per share	$	2.11		$	0.77		$	4.21		$	2.09
Diluted earnings per share	$	2.09		$	0.76		$	4.16		$	2.08



Cash paid to owners	$	18,512
Cash acquired	(1,165		)
Total fair value of consideration transferred	$	17,347



Accounts receivable	$	1,930
Inventories	1,048
Income taxes receivable	558
Other current assets	47
Property and equipment	256
Deferred income tax asset	35
Accounts payable	(1,342		)
Income taxes payable	(34		)
Other accrued expenses	(719		)
Deferred income tax liabilities	(946		)
	833
Amortizable intangible assets:
Tradename	182
Customer relationships	1,595
Technology	5,808
Total amortizable intangible assets	7,585
Total identifiable net assets	8,418
Goodwill	8,929
Total fair value of consideration transferred	$	17,347



	Amount		Amortization Method	Useful Life
Tradename	$	182	Straight-line	5
Customer relationships	1,595		Straight-line	10
Technology	5,808		Straight-line	10
	$	7,585



	September 30, 2017				December 31, 2016
	Cost		Fair Value		Cost		Fair Value
Total marketable securities	$	3,044	$	3,046	$	4,735	$	4,737



September 30, 2017	Level 1		Level 2		Level 3		Total
Total marketable securities	$	—	$	3,046	$	—	$	3,046

December 31, 2016	Level 1		Level 2		Level 3		Total
Total marketable securities	$	—	$	4,737	$	—	$	4,737



September 30, 2017	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Technology-based	$	18,537	$	(5,082	)	$	13,455
Customer relationships	29,865		(10,012		)	19,853
Trademarks and other	2,601		(1,474		)	1,127
Total amortizable intangibles	$	51,003	$	(16,568	)	$	34,435



Year Ending December 31,
2017 (remaining)	$	1,180
2018	4,842
2019	4,825
2020	4,146
2021	4,043
Thereafter	15,399
	$	34,435



	Three Months Ended September 30, 2017				Nine Months Ended September 30, 2017
	Number of Options		Weighted-Average Exercise Price per Share		Number of Options		Weighted-Average Exercise Price per Share
Options outstanding at beginning of period	375		$	17.95	474		$	17.47
Options exercised	(20	)	$	14.58	(114	)	$	15.35
Options forfeited	—		$	—	(5	)	$	18.19
Options outstanding at end of period	355		$	18.14	355		$	18.14



	Three Months Ended September 30, 2017				Nine Months Ended September 30, 2017
	Number of RSUs		Weighted-Average Grant Date Fair Value		Number of RSUs		Weighted- Average Grant Date Fair Value
RSUs outstanding at beginning of period	411		$	49.56	354		$	29.60
RSUs granted	2		$	74.56	250		$	63.59
RSUs vested	(20	)	$	28.99	(205	)	$	30.60
RSUs forfeited	(1	)	$	34.12	(7	)	$	31.73
RSUs outstanding at end of period	392		$	50.71	392		$	50.71



	Three Months Ended September 30,
	2017		% of Total Sales		2016		% of Total Sales
Applied Materials, Inc.	$	50,078	28.4	%	$	45,806	36.2	%
LAM Research	46,315		26.2	%	24,305		19.2	%

	Nine Months Ended September 30,
	2017		% of Total Sales		2016		% of Total Sales
Applied Materials, Inc.	$	165,239	33.6	%	$	118,364	34.0	%
LAM Research	114,325		23.2	%	73,319		21.0	%



Reconciliation of Non-GAAP measure - operating expenses and operating income from continuing operations, excluding certain items	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Gross Profit from continuing operations, as reported	$	92,234		$	66,123		$	258,206		$	181,629
Operating expenses from continuing operations, as reported	40,561			31,762			115,498			93,318
Adjustments:
Stock-based compensation	(3,453		)	(1,301		)	(10,707		)	(4,299		)
Amortization of intangible assets	(1,240		)	(1,048		)	(3,176		)	(3,180		)
Acquisition-related costs	—			—			(150		)	—
Non-GAAP operating expenses from continuing operations	35,868			29,413			101,465			85,839
Non-GAAP operating income from continuing operations	$	56,366		$	36,710		$	156,741		$	95,790



		Nine Months Ended September 30,
From	To	2017		2016
CAD	USD	7.8	%	5.3	%
CHF	USD	4.6	%	3.5	%
CNY	USD	4.4	%	(2.6	)%
EUR	USD	12.3	%	3.3	%
GBP	USD	8.6	%	(12.0	)%
INR	USD	4.0	%	(0.7	)%
JPY	USD	4.0	%	18.8	%
KRW	USD	4.7	%	6.8	%
TWD	USD	6.5	%	4.9	%



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program (1)	Approximate Value of Shares that May Yet Be Purchased Under the Program (2)
August 1 - August 31, 2017	351,292	$	71.16	351,292	$	75,003,000
(1) In September 2015, our Board of Directors authorized a program to repurchase up to $150.0 million of our stock over a thirty-month period. Under this program, in August 2017, we entered into a Fixed Dollar Share Repurchase Agreement to repurchase $25.0 million of shares of our common stock in the open market.
(2) While the Company has remaining authority to repurchase up to $75.0 million of our common stock, the Company has no current commitments or obligations to repurchase any shares of our common stock.

~~Earliest~~

~~Latest~~

~~Certificates of deposit~~

~~10/10/2017~~

~~7/28/2018~~