UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the quarterly period ended June 30, ~~2021~~2022
or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the transition period from to

Commission file number: 000-26966

ADVANCED ENERGY INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Delaware	84-0846841
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1595 Wynkoop Street, Suite 800, Denver, Colorado	80202
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (970) 407-6626

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

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

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

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

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

Large accelerated filer þ

Accelerated filer ◻

Non-accelerated filer ◻

Smaller reporting company ☐

Emerging growth company ☐

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

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

As of July ~~30, 2021,~~29, 2022, there were ~~38,373,074~~37,358,977 shares of the registrant’s ~~Common Stock,~~common stock, par value $0.001 per share, outstanding.

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

FORM 10-Q

TABLE OF CONTENTS



	PART I FINANCIAL INFORMATION

ITEM 1.	UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	3

	Consolidated Balance Sheets	3

	Consolidated Statements of Operations	4

	Consolidated Statements of Comprehensive Income	5

	Consolidated Statements of Stockholders’ Equity	6

	Consolidated Statements of Cash Flows	7

	Notes to Consolidated Financial Statements	8

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2625

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3739

ITEM 4.	CONTROLS AND PROCEDURES	3941

	PART II OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	4041

ITEM 1A.	RISK FACTORS	4041

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	5442

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	42

ITEM 4.	MINE SAFETY DISCLOSURES	42

ITEM 5.	OTHER INFORMATION	42

ITEM 6.	EXHIBITS	5543

	SIGNATURES	5644

Table of Contents

PART I FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Balance Sheets

(In thousands, except per share amounts)


	June 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021
ASSETS
Current assets:
Cash and cash equivalents	$	507,176	$	480,368	$	372,685	$	544,372
Marketable securities		2,828		2,654
Accounts and other receivable, net		243,353		235,178		270,839		237,227
Inventories		296,739		221,346		395,866		338,410
Income taxes receivable		15,075		4,804
Other current assets		38,815		35,899		48,126		42,225
Total current assets		1,103,986		980,249		1,087,516		1,162,234
Property and equipment, net		115,160		114,731		126,793		114,830
Operating lease right-of-use assets		101,419		103,858		104,191		101,769
Deposits and other assets		18,646		19,101		29,644		19,669
Goodwill		214,211		209,983		280,885		212,190
Intangible assets, net		170,914		168,939		201,778		159,406
Deferred income tax assets		51,896		50,801		47,267		47,242
TOTAL ASSETS	$	1,776,232	$	1,647,662	$	1,878,074	$	1,817,340

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	206,723	$	125,224	$	197,870	$	193,708
Income taxes payable		12,770		11,850		22,665		9,226
Accrued payroll and employee benefits		49,375		63,487		58,478		55,833
Other accrued expenses		55,423		49,565		45,343		53,445
Customer deposits and other		20,065		12,179		27,754		22,141
Current portion of long-term debt		17,500		17,500		20,000		20,000
Current portion of operating lease liabilities		15,540		16,592		16,911		15,843
Total current liabilities		377,396		296,397		389,021		370,196
Long-term debt, net		296,045		304,546		363,001		372,733
Operating lease liabilities		95,034		95,993		99,099		95,180
Pension benefits		79,077		80,447		62,228		67,255
Deferred income tax liabilities		9,702		10,088		8,804		9,921
Uncertain tax positions		12,256		12,839
Long-term deferred revenue		6,900		7,352
Other long-term liabilities		23,216		24,660		31,041		30,559
Total liabilities		899,626		832,322		953,194		945,844

Commitments and contingencies (Note 17)

Stockholders' equity:
Preferred stock, $0.001 par value, 1,000 shares authorized, NaN issued and outstanding		—		—		—		—
Common stock, $0.001 par value, 70,000 shares authorized; 38,381 and 38,293 issued and outstanding at June 30, 2021 and December 31, 2020, respectively		38		38
Common stock, $0.001 par value, 70,000 shares authorized; 37,392 and 37,589 issued and outstanding at June 30, 2022 and December 31, 2021, respectively						37		38
Additional paid-in capital		103,795		105,009		121,982		115,706
Accumulated other comprehensive loss		(6,538)		(2,605)		(5,634)		(1,216)
Retained earnings		778,646		712,297		807,843		756,323
Advanced Energy stockholders' equity		875,941		814,739		924,228		870,851
Noncontrolling interest		665		601		652		645
Total stockholders’ equity		876,606		815,340		924,880		871,496
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,776,232	$	1,647,662	$	1,878,074	$	1,817,340

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

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Operations

(In thousands, except per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,


2021

2020

2021

2020
Sales, net

$
361,311

$
339,880

$
712,931

$
655,336
Cost of sales

226,278

209,576

440,395

412,801
Gross profit

135,033

130,304

272,536

242,535

Operating expenses:

Research and development

40,119

35,855

80,287

70,625
Selling, general, and administrative

48,110

48,174

94,841

94,165
Amortization of intangible assets

5,513

5,009

10,897

10,015
Restructuring expense

211

5,790

1,249

6,446
Total operating expenses

93,953

94,828

187,274

181,251
Operating income

41,080

35,476

85,262

61,284

Other income (expense), net

(3,662)

(1,587)

(4,169)

(5,097)
Income from continuing operations, before income taxes

37,418

33,889

81,093

56,187
Provision for income taxes

1,876

4,610

7,160

8,510
Income from continuing operations

35,542

29,279

73,933

47,677
Income (loss) from discontinued operations, net of income taxes

(102)

(151)

208

(471)
Net income

$
35,440

$
29,128

$
74,141

$
47,206
Income from continuing operations attributable to noncontrolling interest

31

(16)

64

(1)
Net income attributable to Advanced Energy Industries, Inc.

$
35,409

$
29,144

$
74,077

$
47,207

Basic weighted-average common shares outstanding

38,389

38,294

38,359

38,326
Diluted weighted-average common shares outstanding

38,586

38,458

38,589

38,525

Earnings per share:





Continuing operations:





Basic earnings per share

$
0.93

$
0.77

$
1.93

$
1.24
Diluted earnings per share

$
0.92

$
0.76

$
1.91

$
1.24
Discontinued operations:

Basic earnings (loss) per share

$
—

$
—

$
0.01

$
(0.01)
Diluted earnings (loss) per share

$
—

$
—

$
0.01

$
(0.01)
Net income:

Basic earnings per share

$
0.92

$
0.76

$
1.93

$
1.23
Diluted earnings per share

$
0.92

$
0.76

$
1.92

$
1.23



	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Sales, net	$	440,949	$	361,311	$	838,408	$	712,931
Cost of sales		278,791		226,278		531,934		440,395
Gross profit		162,158		135,033		306,474		272,536

Operating expenses:
Research and development		48,009		40,119		91,623		80,287
Selling, general, and administrative		55,022		48,110		104,340		94,841
Amortization of intangible assets		6,523		5,513		12,032		10,897
Restructuring expense (benefit)		(161)		211		1,057		1,249
Total operating expenses		109,393		93,953		209,052		187,274
Operating income		52,765		41,080		97,422		85,262

Other income (expense), net		3,249		(3,662)		2,407		(4,169)
Income from continuing operations, before income taxes		56,014		37,418		99,829		81,093
Provision for income taxes		11,203		1,876		18,156		7,160
Income from continuing operations		44,811		35,542		81,673		73,933
Income (loss) from discontinued operations, net of income taxes		180		(102)		82		208
Net income	$	44,991	$	35,440	$	81,755	$	74,141
Income from continuing operations attributable to noncontrolling interest		21		31		7		64
Net income attributable to Advanced Energy Industries, Inc.	$	44,970	$	35,409	$	81,748	$	74,077

Basic weighted-average common shares outstanding		37,520		38,389		37,535		38,359
Diluted weighted-average common shares outstanding		37,710		38,586		37,754		38,589

Earnings per share:
Continuing operations:
Basic earnings per share	$	1.19	$	0.93	$	2.18	$	1.93
Diluted earnings per share	$	1.19	$	0.92	$	2.16	$	1.91
Discontinued operations:
Basic earnings (loss) per share	$	—	$	—	$	—	$	0.01
Diluted earnings (loss) per share	$	—	$	—	$	—	$	0.01
Net income:
Basic earnings per share	$	1.20	$	0.92	$	2.18	$	1.93
Diluted earnings per share	$	1.19	$	0.92	$	2.17	$	1.92

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

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Comprehensive Income

(In thousands)


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Net income	$	35,440	$	29,128	$	74,141	$	47,206	$	44,991	$	35,440	$	81,755	$	74,141
Other comprehensive income (loss), net of income taxes
Foreign currency translation		1,068		2,500		(5,873)		(561)		(8,679)		1,068		(12,771)		(5,873)
Change in fair value of cash flow hedges		(2)		(2,844)		2,007		(2,844)		2,026		(2)		7,939		2,007
Minimum benefit retirement liability		(31)		—		(67)		154
Minimum pension benefit retirement liability										269		(31)		414		(67)
Comprehensive income	$	36,475	$	28,784	$	70,208	$	43,955	$	38,607	$	36,475	$	77,337	$	70,208
Comprehensive income attributable to noncontrolling interest		31		(16)		64		(1)		21		31		7		64
Comprehensive income attributable to Advanced Energy Industries, Inc.	$	36,444	$	28,800	$	70,144	$	43,956	$	38,586	$	36,444	$	77,330	$	70,144

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

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Stockholders’ Equity

(In ~~thousands)~~thousands, except per share amounts)

Advanced Energy Industries, Inc. Stockholders' Equity

Common Stock

Accumulated

Additional

Other

Non-

Total

Paid-in

Comprehensive

Retained

controlling

Stockholders’

Shares

Amount

Capital

Income

Earnings

Interest

Equity
Balances, December 31, 2019

38,358

$
38

$
104,849

$
(5,897)

$
577,724

$
546

$
677,260
Adoption of new accounting standards

—

—

—

—

(102)

—

(102)
Stock issued from equity plans

64

—

(2,171)

—

—

—

(2,171)
Stock-based compensation

—

—

3,048

—

—

—

3,048
Stock buyback

(170)

—

(7,248)

—

—

—

(7,248)
Other comprehensive income (loss)

—

—

—

(2,907)

—

—

(2,907)
Net income

—

—

—

—

18,063

15

18,078
Balances, March 31, 2020

38,252

$
38

$
98,478

$
(8,804)

$
595,685

$
561

$
685,958
Stock issued from equity plans

73

—

779

—

—

—

779
Stock-based compensation

—

—

2,837

—

—

—

2,837
Other comprehensive income (loss)

—

—

—

(344)

—

—

(344)
Net income

—

—

—

—

29,144

(16)

29,128
Balances, June 30, 2020

38,325

$
38

$
102,094

$
(9,148)

$
624,829

$
545

$
718,358

Balances, December 31, 2020

38,293

$
38

$
105,009

$
(2,605)

$
712,297

$
601

$
815,340
Stock issued from equity plans

93

—

(4,645)

—

—

—

(4,645)
Stock-based compensation

—

—

5,701

—

—

—

5,701
Dividend payments

—

—

—

—

(3,854)

—

(3,854)
Other comprehensive income (loss)

—

—

—

(4,968)

—

—

(4,968)
Net income

—

—

—

—

38,668

33

38,701
Balances, March 31, 2021

38,386

$
38

$
106,065

$
(7,573)

$
747,111

$
634

$
846,275
Stock issued from equity plans

67

—

956

—

—

—

956
Stock-based compensation

—

—

3,277

—

—

—

3,277
Stock buyback

(72)

—

(6,503)

—

—

—

(6,503)
Dividend payments

—

—

—

—

(3,874)

—

(3,874)
Other comprehensive income (loss)

—

—

—

1,035

—

—

1,035
Net income

—

—

—

—

35,409

31

35,440
Balances at June 30, 2021

38,381

$
38

$
103,795

$
(6,538)

$
778,646

$
665

$
876,606


	Advanced Energy Industries, Inc. Stockholders' Equity

	Common Stock
						Accumulated
				Additional		Other				Non-		Total
				Paid-in		Comprehensive		Retained		controlling		Stockholders’
	Shares	Amount		Capital		Income (Loss)		Earnings		Interest		Equity
Balances, December 31, 2020	38,293	$	38	$	105,009	$	(2,605)	$	712,297	$	601	$	815,340
Stock issued from equity plans	93		—		(4,645)		—		—		—		(4,645)
Stock-based compensation	—		—		5,701		—		—		—		5,701
Dividends declared ($0.10 per share)	—		—		—		—		(3,854)		—		(3,854)
Other comprehensive loss	—		—		—		(4,968)		—		—		(4,968)
Net income	—		—		—		—		38,668		33		38,701
Balances, March 31, 2021	38,386	$	38	$	106,065	$	(7,573)	$	747,111	$	634	$	846,275
Stock issued from equity plans	67		—		956		—		—		—		956
Stock-based compensation	—		—		3,277		—		—		—		3,277
Share repurchase	(72)		—		(199)		—		(6,304)		—		(6,503)
Dividends declared ($0.10 per share)									(3,874)				(3,874)
Other comprehensive income	—		—		—		1,035		—		—		1,035
Net income	—		—		—		—		35,409		31		35,440
Balances, June 30, 2021	38,381	$	38	$	110,099	$	(6,538)	$	772,342	$	665	$	876,606

Balances, December 31, 2021	37,589	$	38	$	115,706	$	(1,216)	$	756,323	$	645	$	871,496
Stock issued from equity plans	52		—		(2,430)		—		—		—		(2,430)
Stock-based compensation	—		—		3,906		—		—		—		3,906
Share repurchase	(82)		—		(254)		—		(6,340)		—		(6,594)
Dividends declared ($0.10 per share)	—		—		—		—		(3,789)		—		(3,789)
Other comprehensive income	—		—		—		1,966		—		—		1,966
Net income (loss)	—		—		—		—		36,778		(14)		36,764
Balances, March 31, 2022	37,559	$	38	$	116,928	$	750	$	782,972	$	631	$	901,319
Stock issued from equity plans	63		—		763		—		—		—		763
Stock-based compensation	—		—		5,016		—		—		—		5,016
Share repurchase	(230)		(1)		(725)		—		(16,293)		—		(17,019)
Dividends declared ($0.10 per share)	—		—		—		—		(3,806)		—		(3,806)
Other comprehensive loss	—		—		—		(6,384)		—		—		(6,384)
Net income	—		—		—		—		44,970		21		44,991
Balances, June 30, 2022	37,392	$	37	$	121,982	$	(5,634)	$	807,843	$	652	$	924,880

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

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Cash Flows

(In thousands)


	Six Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	74,141	$	47,206	$	81,755	$	74,141
Income (loss) from discontinued operations, net of income taxes		208		(471)
Less: income from discontinued operations, net of income taxes						82		208
Income from continuing operations, net of income taxes		73,933		47,677		81,673		73,933
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		25,744		23,196		28,877		25,744
Stock-based compensation expense		9,145		5,885		8,986		9,145
Provision for deferred income taxes		(1,663)		(1,439)		(1,977)		(1,663)
Discount on notes receivable		—		721
Loss on disposal of assets		446		231		374		446
Changes in operating assets and liabilities, net of assets acquired:
Changes in operating assets and liabilities, net of assets acquired
Accounts and other receivable, net		(9,025)		12,545		(27,790)		(9,025)
Inventories		(73,211)		(30,922)		(52,109)		(73,211)
Other assets		(1,752)		(7,528)		(5,402)		(1,752)
Accounts payable		80,269		6,468		2,491		80,269
Other liabilities and accrued expenses		(6,483)		12,853		(3,585)		(6,483)
Income taxes		(9,337)		(2,127)		16,003		(9,337)
Net cash from operating activities from continuing operations		88,066		67,560		47,541		88,066
Net cash from operating activities from discontinued operations		(377)		(586)		55		(377)
Net cash from operating activities		87,689		66,974		47,596		87,689

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities		—		(167)
Issuance of notes receivable		—		(1,000)
Proceeds from sale of property and equipment		29		69
Purchases of property and equipment		(14,232)		(13,391)		(25,476)		(14,203)
Acquisitions, net of cash acquired		(18,686)		—		(145,779)		(18,686)
Net cash from investing activities from continuing operations		(32,889)		(14,489)
Net cash from investing activities from discontinued operations		—		—
Net cash from investing activities		(32,889)		(14,489)		(171,255)		(32,889)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term borrowings		(8,750)		(8,750)		(10,000)		(8,750)
Dividend payments		(7,728)		—		(7,595)		(7,728)
Purchase and retirement of common stock		(6,503)		(7,248)		(23,578)		(6,503)
Net payments related to stock-based awards		(3,258)		(1,392)		(1,667)		(3,258)
Net cash from financing activities from continuing operations		(26,239)		(17,390)
Net cash from financing activities from discontinued operations		—		—
Net cash from financing activities		(26,239)		(17,390)		(42,840)		(26,239)

EFFECT OF CURRENCY TRANSLATION ON CASH		(1,753)		(899)
EFFECT OF CURRENCY TRANSLATION ON CASH AND CASH EQUIVALENTS						(5,188)		(1,753)

NET CHANGE IN CASH AND CASH EQUIVALENTS		26,808		34,196		(171,687)		26,808
CASH AND CASH EQUIVALENTS, beginning of period		480,368		346,441		544,372		480,368
CASH AND CASH EQUIVALENTS, end of period		507,176		380,637	$	372,685	$	507,176
Less cash and cash equivalents from discontinued operations		—		—
CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS, end of period	$	507,176	$	380,637

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	1,952	$	3,510	$	2,461	$	1,952
Cash paid for income taxes	$	21,393	$	10,709	$	9,982	$	21,393
Cash received for refunds of income taxes	$	3,105	$	572

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

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Advanced Energy Industries, Inc., a Delaware corporation, and its ~~wholly-owned~~consolidated subsidiaries ("we," "us," "our," "Advanced Energy," or the "Company") design, manufacture, sell, and support precision power products that transform, refine, and modify the raw electrical power coming from either the utility or the building facility and convert it into various types of ~~highly-controllable~~highly controllable, usable power that is predictable, repeatable, and ~~customizable.~~ customizable to meet the necessary requirements for powering a wide range of complex equipment.

telecommunication. We also supply related sensing, controls, and instrumentation products for advanced ~~temperature~~ measurement and ~~control,~~calibration of radio frequency ("RF") power and temperature, electrostatic instrumentation products for test and measurement applications, and gas sensing and monitoring solutions for ~~several~~multiple industrial markets. Our network of global service support centers ~~facilitates local~~provides a recurring revenue opportunity as we offer repair ~~and field service in key regions, provides~~services, conversions, upgrades, refurbishments, and ~~refurbishment services, and sells~~ used equipment to ~~businesses that use~~companies using our products.

In September 2019, we acquired the Artesyn Embedded Power business ("Artesyn"), which added new power products and technologies used in networking and computing, data center, including hyperscale, and industrial and medical applications. As of December 31, 2015, we discontinued our engineering, production, and sales of our inverter product line. As such, all inverter product revenues, costs, assets, and liabilities are reported in Discontinued Operations for all periods presented herein, and we currently report as a single unit. Ongoing inverter repair and service operations are reported as part of our continuing operations.

~~In the~~management's opinion, ~~of management,~~ the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the financial position of the Company as of June 30, ~~2021,~~2022, and the results of our operations and cash flows for the three and six months ended June 30, ~~2021~~2022 and ~~2020.~~2021.

The unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been omitted pursuant to such rules and regulations. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 and other financial information filed with the SEC.

Use of Estimates in the Preparation of the Consolidated Financial Statements

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

●

~~allowances for expected credit loss;~~

●

excess and obsolete inventory;

●

~~warranty reserves;~~

●

pension obligations;

●

~~right-of-use assets and related operating lease liabilities;~~

●

acquisitions and asset valuations;

●

~~asset lives;~~

●

~~depreciation and amortization;~~

●

~~recoverability of assets and potential impairment;~~

●

~~deferred revenue;~~

●

~~stock options, performance-based stock, and restricted stock grants;~~ and

●

taxes and other provisions.

Significant Accounting Policies

Our accounting policies are described in Note 1 to our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021.

We reclassified certain prior period amounts within these consolidated financial statements to conform to the current year presentation.

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

We believe our significant estimates, assumptions, and judgments are reasonable based on the information available at the time they are made. Actual results may differ from these estimates, making it possible that a change in these estimates could occur in the near term.

~~Critical Accounting Policies~~

~~Our accounting policies are described in Note 1 to our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2020.~~

New Accounting Standards

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

New Accounting Standards Adopted

In ~~August 2018,~~October 2021, the FASB issued ASU ~~2018-14, "Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20)~~2021-08, " ("Business Combinations (Topic 806) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." The amendments in ASU ~~2018-14").~~2021-08 address diversity and inconsistency related to the recognition and measurement of contract assets and contract liabilities acquired in a business combination. ASU ~~2018-14 eliminates requirements for certain disclosures~~2021-08 requires an acquirer to recognize and ~~requires additional disclosures under defined benefit pension plans~~measure contract assets and ~~other post-retirement plans.~~contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers.

We adopted ASU ~~2018-14 was~~2021-08 on a prospective basis effective ~~for us on~~ January 1, ~~2021.~~2022. The adoption will impact subsequent business combinations and require recognition and measurement of ~~adoption was~~acquired contract assets and liabilities in accordance with ASC 606. Specifically, we will account for the related revenue contracts of the acquiree as if we originated the contracts. Adoption of ASU 2021-08 did not ~~material to our consolidated financial statements.~~impact acquired contract assets or liabilities from prior business combinations.

New Accounting Standards Issued But Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04"). In January 2021, the FASB issued ASU ~~2020-04~~2021-01, "Reference Rate Reform (Topic 848): Scope" ("ASU 2021-01"). This collective guidance provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate that is expected to be discontinued. ASU 2020-04 and ASU 2021-01 will be in effect through December 31, 2022. We are currently assessing the potential impact of ASU 2020-04 and ASU 2021-01 on our consolidated financial statements.

Our Credit Facility (refer to Note 18. Credit Facility) and interest rate swap agreements (refer to Note 7. Derivative Financial Instruments) reference the one-month USD LIBOR rate. Both agreements contain provisions for transition to a new reference rate upon discontinuance of LIBOR. We expect the one-month USD LIBOR rate to be available through June 2023. We are currently assessing the potential timing of transitioning to a replacement interest rate benchmark for our Credit Facility and do not expect ASU 2020-04 and ASU 2020-01 to materially impact our consolidated financial statements.

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

NOTE 2. ACQUISITIONS

~~Intangible Assets Acquired~~SL Power Electronics Corporation

~~In January 2021,~~On April 25, 2022, we acquired ~~certain intangible assets related~~100% of the issued and outstanding shares of capital stock of SL Power Electronics Corporation ("SL Power"), which is based in Calabasas, California. We accounted for this transaction as a business combination. This acquisition added complementary products to Advanced Energy’s medical power offerings and extends our presence in several advanced industrial markets.

The components of the fair value of the total consideration transferred were as follows:


Cash paid for acquisition	$	146,863
Less cash acquired		(3,484)
Total fair value of purchase consideration	$	143,379

We allocated the purchase price to the ~~manufacturing~~assets acquired and liabilities assumed based on their estimated fair values as of ~~fiber optic sensing equipment~~the acquisition date, with the excess allocated to goodwill. The following table summarizes the estimated preliminary values of the assets acquired and liabilities assumed.


	Fair Value
Current assets and liabilities, net	$	12,320
Property and equipment		4,177
Operating lease right-of-use assets		4,996
Deferred tax asset		546
Intangible assets		55,300
Goodwill (deductible for tax purposes)		71,036
Operating lease liability		(4,996)
Total fair value of net assets acquired	$	143,379

Goodwill represents SL Power’s assembled workforce and expected operating synergies from combining operations. We are still evaluating the fair value for ~~$3.6~~the assets acquired and liabilities assumed. Accordingly, the purchase price allocation presented above is preliminary. SL Power’s results of operations were included in our consolidated financial statements from the date of acquisition. During the three and six months ended June 30, 2022, SL Power contributed $12.9 million in ~~cash and an additional $2.9 million expected~~revenue to ~~be paid within one year~~our Consolidated Statements of ~~the closing date. These intangible assets have an estimated useful life of five years. See~~ ~~Note 12. Intangible Assets~~ ~~for details.~~Operations.

TEGAM, Inc.

On June 1, 2021, we acquired 100% of the issued and outstanding shares of capital stock of TEGAM, Inc., which is based in Geneva, Ohio. We accounted for this transaction as a business combination. This acquisition added metrology and calibration instrumentation to Advanced Energy’s ~~radio frequency (“RF”)~~RF process power solutions in our ~~semiconductor~~Semiconductor and ~~advanced industrial~~Industrial and Medical markets.

The components of the fair value of the total consideration transferred were as follows:

Cash paid for acquisition

$
15,552
Holdback

2,100
Total fair value of consideration transferred

17,652
Less cash acquired

(472)
Total purchase price

$
17,180


Cash paid at closing	$	15,430
Cash paid for indemnity holdback released in June 2022		1,800
Less cash acquired		(177)
Total fair value of purchase consideration	$	17,053

~~We are still evaluating the fair value for the assets acquired and liabilities assumed. Accordingly, the purchase price allocation presented below is preliminary.~~

Preliminary
Fair Value
Current assets and liabilities, net

$
3,870
Property and equipment

734
Operating lease right-of-use assets

425
Intangible assets

6,900
Goodwill

5,670
Other non-current assets

31
Total assets acquired

17,630
Other non-current liabilities

25
Operating lease liability

425
Total liabilities assumed

450
Total fair value of net assets acquired

$
17,180

~~Versatile Power, Inc.~~

~~On December 31, 2020, we acquired 100% of the issued and outstanding shares of capital stock of Versatile Power, Inc., which is based in Campbell, California.~~ This acquisition added RF and programmable power supplies for medical and industrial applications to our product portfolio and further expands our presence in the medical market by adding proven technologies, deep customer relationships, expertise in medical design, and a medical-certified manufacturing center.

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

~~The components of~~We allocated the ~~fair value of the total consideration transferred were as follows:~~

Cash paid for acquisition

$
4,601
Holdback

950
Contingent consideration

1,500
Total fair value of consideration transferred

7,051
Less cash acquired

(245)
Total purchase price

$
6,806

~~We are still evaluating the fair value for~~purchase price to the assets acquired and liabilities ~~assumed. Accordingly,~~assumed based on their estimated fair values as of the ~~purchase price allocation presented below is preliminary.~~acquisition date, with the excess allocated to goodwill. The following table summarizes the values of the assets acquired and liabilities assumed.


	Preliminary Fair Value		Fair Value
Current assets and liabilities, net	$	1,013	$	3,475
Property and equipment		35		755
Operating lease right-of-use assets		463		425
Intangible assets		4,000		6,900
Goodwill		1,778
Total assets acquired		7,289
Goodwill (deductible for tax purposes)				5,917
Other non-current assets				31
Other non-current liabilities		20		(25)
Operating lease liability		463		(425)
Total liabilities assumed		483
Total fair value of net assets acquired	$	6,806	$	17,053

Goodwill represents TEGAM’s assembled workforce and expected operating synergies from combining operations. TEGAM’s results of operations were included in our consolidated financial statements from the date of acquisition.

NOTE 3. REVENUE

~~Revenue Recognition~~

We recognize revenue when we have satisfied our performance obligations which typically occurs when control of the products or services has been transferred to our customers. The transaction price is based upon the standalone selling price. In most transactions, we have no obligations to our customers after the date products are shipped, other than pursuant to warranty obligations. Shipping and handling fees billed to customers, if any, are recognized as revenue. The related shipping and handling costs are recognized in cost of sales. Support services include warranty and non-warranty repair services, upgrades, and refurbishments on the products we sell. Repairs that are covered under our standard warranty do not generate revenue.

Nature of goods and services

Products

Advanced Energy provides highly engineered, mission-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.~~ customizable to meet the necessary requirements for powering a wide range of complex equipment.

Our ~~products~~power solutions enable innovation in complex semiconductor and thin film ~~manufacturing~~plasma processes such as ~~plasma enhanced chemical~~dry etch, strip and ~~physical~~ deposition, high and ~~etch for various semiconductor~~low voltage applications such as process control, data center computing, networking, telecommunication, medical equipment, life science applications, industrial technology and ~~industrial products, industrial~~production, scientific instruments, clean technology production, advanced material production and temperature-critical thermal applications ~~for~~such as material and chemical ~~processes, and specialty power for critical industrial technology applications.~~processing. We also supply ~~thermal~~related sensing, controls, and instrumentation products for advanced ~~temperature~~ measurement and ~~control in these markets. As a result~~calibration of ~~the Artesyn acquisition, we now sell precision~~RF power ~~conversion~~and temperature, electrostatic instrumentation products ~~into the Telecom~~for test and ~~Networking, Data Center Computing (including hyperscale),~~measurement applications, and ~~Industrial~~gas sensing and ~~Medical markets.~~

~~Table of Contents~~

~~ADVANCED ENERGY INDUSTRIES, INC.~~

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

~~(In thousands, except per share data)~~

~~Our products are designed to enable new process technologies, improve productivity, and lower the cost of ownership~~monitoring solutions for our customers. We also provide repair and maintenance services for all our products. We principally serve original equipment manufacturers ("OEM") and end customers in the semiconductor, flat panel display, high voltage, solar panel, Telecom and Networking, Data Center Computing, Industrial and Medicalmultiple industrial markets. Our ~~advanced power products are~~network of global service support centers provides a recurring revenue opportunity as we offer repair services, conversions, upgrades, refurbishments, and used ~~in diverse markets, applications, and processes including the manufacture of capital~~ equipment for semiconductor device manufacturing, thin film applications for thin film renewables and architectural glass, and for other thin film applications including flat panel displays, and industrial coatings. Our embedded power products are used in a wide range of applications, such as 5G, data center (including hyperscale) and other industrial and medical applications.to companies using our products.

Services

Our services group offers warranty and after-market repair services in the regions in which we operate, providing us with preventive maintenance opportunities. Our customers continue to pursue low cost of ownership of their capital equipment and are increasingly sensitive to the costs of system downtime. They expect that suppliers offer comprehensive local repair service and customer support. To meet these market requirements, we maintain a worldwide support organization in the ~~United States ("~~U.S."), the People’s Republic of China ("PRC"), Japan, Korea, Taiwan, Germany, Ireland, Singapore, Israel, and Great Britain. Support services include warranty and non-warranty repair services, upgrades, and refurbishments on the products we sell.

As part of our ongoing service business, we satisfy our service obligations under preventative maintenance contracts and extended warranties which had previously been offered on our discontinued inverter products. Any up-front fees received for extended warranties or maintenance plans are deferred. Revenue under these arrangements is recognized ratably over the underlying terms as we do not have historical information which would allow us to project the estimated service usage pattern at this time.

~~The following table summarizes deferred revenue, which relates to extended warranties and service contracts. We expect to recognize this revenue ratably through the year 2031.~~

June 30,

December 31,

2021

2020
Deferred revenue

$
8,159

$
8,671

~~Disaggregation of Revenue~~

~~The following tables present additional information regarding our revenue:~~

Three Months Ended June 30,

Six Months Ended June 30,


2021

2020

2021

2020
Semiconductor Equipment

$
176,671

$
145,424

$
357,387

$
279,049
Industrial and Medical

83,197

70,886

161,612

132,865
Data Center Computing

69,458

83,316

128,612

169,499
Telecom and Networking

31,985

40,254

65,320

73,923
Total

$
361,311

$
339,880

$
712,931

$
655,336

Three Months Ended June 30,

Six Months Ended June 30,


2021

2020

2021

2020
Product

$
325,522

$
311,770

$
644,401

$
601,131
Services

35,789

28,110

68,530

54,205
Total

$
361,311

$
339,880

$
712,931

$
655,336

~~Table of Contents~~

~~ADVANCED ENERGY INDUSTRIES, INC.~~

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

~~(In thousands, except per share data)~~

Three Months Ended June 30,

Six Months Ended June 30,


2021

2020

2021

2020
United States

$
139,525

$
119,808

$
271,123

$
236,505
North America (excluding United States)

26,112

29,952

52,359

77,586
Asia

148,803

170,753

298,394

281,728
Europe

44,491

19,048

84,913

58,184
Other

2,380

319

6,142

1,333
Total

$
361,311

$
339,880

$
712,931

$
655,336

Three Months Ended June 30,

Six Months Ended June 30,


2021

2020

2021

2020
Product and service revenue recognized at point in time

$
361,071

$
339,667

$
712,464

$
654,948
Extended warranty and service contracts recognized over time

240

213

467

388
Total

$
361,311

$
339,880

$
712,931

$
655,336

~~NOTE 4. INCOME TAXES~~

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

Three Months Ended June 30,

Six Months Ended June 30,


2021

2020

2021

2020

Income from continuing operations, before income taxes

$
37,418

$
33,889

$
81,093

$
56,187

Provision for income taxes

$
1,876

$
4,610

$
7,160

$
8,510

Effective tax rate

5.0
%

13.6
%

8.8
%

15.1
%

The Company’s effective tax rates differ from the U.S. federal statutory rate of 21% for the three and six months ended June 30, 2021 and 2020, respectively, primarily due to the benefit of earnings in foreign jurisdictions which are subject to lower tax rates, partially offset by net U.S. tax on foreign operations and withholding taxes. The effective tax rate for the first half of 2021 was lower than the same period in 2020 primarily due to the mix of discrete events between the two periods.

1311

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

Performance obligations

Our unsatisfied performance obligations primarily relate to customer purchase orders for products we have not yet shipped. We expect to fulfill the majority of these performance obligations within one year. As a result, we elected not to disclose the amount of these remaining performance obligations.

Disaggregation of revenue

The following tables present additional information regarding our revenue:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Semiconductor Equipment	$	228,797	$	176,671	$	431,754	$	357,387
Industrial and Medical		104,951		83,197		187,849		161,612
Data Center Computing		69,161		69,458		145,399		128,612
Telecom and Networking		38,040		31,985		73,406		65,320
Total	$	440,949	$	361,311	$	838,408	$	712,931


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Product	$	403,977	$	325,522	$	766,853	$	644,401
Services		36,972		35,789		71,555		68,530
Total	$	440,949	$	361,311	$	838,408	$	712,931


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
United States	$	174,293	$	139,525	$	333,035	$	271,123
North America (excluding U.S.)		31,824		26,112		55,803		52,359
Asia		180,181		148,803		342,228		298,394
Europe		49,851		44,491		96,516		84,913
Other		4,800		2,380		10,826		6,142
Total	$	440,949	$	361,311	$	838,408	$	712,931

During the three months ended June 30, 2022, Applied Materials, Inc. and Lam Research Corporation accounted for 20% and 15%, respectively, of our total revenue compared to 20% and 10%, respectively, of our total revenue during the same period in the prior year. During the six months ended June 30, 2022, Applied Materials, Inc. and Lam Research Corporation accounted for 21% and 14%, respectively, of our total revenue compared to 20% and 10%, respectively, of our total revenue during the same period in the prior year.

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

NOTE 4. INCOME TAXES

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Income from continuing operations, before income taxes	$	56,014		$	37,418		$	99,829		$	81,093
Provision for income taxes	$	11,203		$	1,876		$	18,156		$	7,160
Effective tax rate		20.0	%		5.0	%		18.2	%		8.8	%

Our effective tax rates differ from the U.S. federal statutory rate of 21% for the three and six months ended June 30, 2022 and 2021, respectively, primarily due to the benefit of earnings in foreign jurisdictions which are subject to lower tax rates, as well as tax credits, partially offset by net U.S. tax on foreign operations. The effective tax rate for both the three and six months ended June 30, 2022 was higher than the same periods in 2021 primarily driven by the global impact to our provision from capitalizing and amortizing research and development expenses rather than immediately expensing them starting in 2022 as required by the 2017 Tax Cuts and Jobs Act. Congress has proposed tax legislation to delay the effective date of this change, but it is uncertain whether the proposed delay will ultimately be enacted into law. Additionally, there were beneficial discrete events in 2021 that did not recur in 2022.

NOTE 5. EARNINGS PER SHARE

~~Basic~~We compute basic earnings per share ("EPS") ~~is computed~~ by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. The ~~computation of our~~ diluted EPS computation is similar to ~~the computation of our~~ basic EPS except ~~that~~we increase the denominator ~~is increased~~ to include the number of additional common shares that would have been outstanding (using the if-converted and treasury stock methods), if our outstanding stock options and restricted stock units had been converted to common shares ~~and if~~(when such ~~assumed~~ conversion is ~~dilutive.~~dilutive).

The following is a reconciliation of the weighted-average shares outstanding used in the calculation of basic and diluted earnings per share:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Income from continuing operations	$	35,542	$	29,279	$	73,933	$	47,677	$	44,811	$	35,542	$	81,673	$	73,933
Income from continuing operations attributable to noncontrolling interest		31		(16)		64		(1)
Less: income from continuing operations attributable to noncontrolling interest										21		31		7		64
Income from continuing operations attributable to Advanced Energy Industries, Inc.	$	35,511	$	29,295	$	73,869	$	47,678	$	44,790	$	35,511	$	81,666	$	73,869

Basic weighted-average common shares outstanding		38,389		38,294		38,359		38,326		37,520		38,389		37,535		38,359
Assumed exercise of dilutive stock options and restricted stock units		197		164		230		199		190		197		219		230
Diluted weighted-average common shares outstanding		38,586		38,458		38,589		38,525		37,710		38,586		37,754		38,589

Continuing operations:
Basic earnings per share	$	0.93	$	0.77	$	1.93	$	1.24	$	1.19	$	0.93	$	2.18	$	1.93
Diluted earnings per share	$	0.92	$	0.76	$	1.91	$	1.24	$	1.19	$	0.92	$	2.16	$	1.91

~~The following stock awards were excluded in the computation~~13

Table of ~~diluted earnings~~Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share ~~because they were anti-dilutive:~~data)

Three Months Ended June 30,

Six Months Ended June 30,


2021

2020

2021

2020
Restricted stock units

1

3

1

1

Share Repurchase

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


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share amounts)	2021		2020		2021		2020		2022		2021		2022		2021
Amount paid to repurchase shares	$	6,503	$	—	$	6,503	$	7,248
Amount paid or accrued to repurchase shares									$	17,019	$	6,503	$	23,613	$	6,503
Number of shares repurchased		72		—		72		170		230		72		312		72
Average repurchase price per share	$	90.34	$	—	$	90.34	$	42.59	$	74.12	$	90.34	$	75.68	$	90.34
Remaining authorized by Board of Directors for future repurchases as of period end	$	31,866	$	42,751	$	31,866	$	42,751

There were 0 shares repurchased from related parties. ~~All shares repurchased were recognized as a reduction to Additional paid-in capital.~~ Repurchased shares were retired and assumed the status of authorized and unissued shares.

OnAt June 30, 2022, the remaining amount authorized by the Board of Directors for future share repurchases was $104.8 million. In July ~~29, 2021,~~2022, the Board of Directors approved an increase to the share repurchase ~~program, which~~plan that changed the remaining amount authorized ~~the Company~~for future repurchases to ~~repurchase up to $200~~a maximum of $200.0 million with no time limitation.

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

NOTE 6. FAIR VALUE MEASUREMENTS

The following tables present information about ~~the Company’s~~our assets and liabilities measured at fair value on a recurring basis.


		June 30, 2021									June 30, 2022
Description	Balance Sheet Classification	Level 1		Level 2		Level 3		Total Fair Value		Balance Sheet Classification	Level 1		Level 2		Level 3		Total Fair Value
Assets:
Certificates of deposit	Marketable securities	$	—	$	2,828	$	—	$	2,828	Marketable securities	$	—	$	2,162	$	—	$	2,162
Foreign currency forward contracts	Other current assets		—		32		—		32
Interest rate swaps										Deposits and other assets		—		12,372		—		12,372
Total assets measured at fair value on a recurring basis		$	—	$	2,860	$	—	$	2,860		$	—	$	14,534	$	—	$	14,534

Liabilities:
Foreign currency forward contracts										Other current liabilities	$	—	$	67	$	—	$	67
Contingent consideration	Other current liabilities	$	—	$	—	$	2,147	$	2,147	Other current liabilities		—		—		1,779		1,779
Contingent consideration	Other long-term liabilities		—		—		2,980		2,980
Interest rate swaps	Other long-term liabilities		—		172		—		172
Total liabilities measured at fair value on a recurring basis		$	—	$	172	$	5,127	$	5,299		$	—	$	67	$	1,779	$	1,846


		December 31, 2020									December 31, 2021
Description	Balance Sheet Classification	Level 1		Level 2		Level 3		Total Fair Value		Balance Sheet Classification	Level 1		Level 2		Level 3		Total Fair Value
Assets:
Certificates of deposit	Marketable securities	$	—	$	2,654	$	—	$	2,654	Marketable securities	$	—	$	2,296	$	—	$	2,296
Interest rate swaps										Deposits and other assets		—		2,739		—		2,739
Total assets measured at fair value on a recurring basis		$	—	$	2,654	$	—	$	2,654		$	—	$	5,035	$	—	$	5,035

Liabilities:
Contingent consideration	Other current liabilities	$	—	$	—	$	2,009	$	2,009	Other current liabilities	$	—	$	—	$	1,738	$	1,738
Contingent consideration	Other long-term liabilities		—		—		2,940		2,940
Interest rate swaps	Other long-term liabilities		—		2,811		—		2,811
Total liabilities measured at fair value on a recurring basis		$	—	$	2,811	$	4,949	$	7,760		$	—	$	—	$	1,738	$	1,738

The fair value of foreign currency forward contracts is based on the movement in the forward rates of foreign currency cash flows in which the hedging instrument is denominated. We determine the fair value of interest rate swaps by estimating the net present value of the expected cash flows based on market rates and associated yield curves, adjusted for non-performance credit risk, as applicable. See Note 7. Derivative Financial Instruments for additional information. The fair value of contingent consideration is determined by estimating the net present value of the expected cash flows based on the probability of expected payment.

For all periods presented, there were no0 transfers into or out of Level 3.

Table of 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~~Changes in foreign currency exchange ~~rates.~~rates impact us. We may manage these risks through the use of derivative financial instruments, primarily forward contracts with banks. These forward contracts manage the exchange rate risk associated with assets and liabilities denominated in nonfunctional currencies. ~~These~~Typically, we execute these derivative instruments ~~are typically executed~~ for one-month periods and do not ~~designated~~designate them as hedges; however, they do economically offset the fluctuations of our assets and liabilities due to foreign exchange rate changes.

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


	June 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021
Foreign currency forward contracts	$	36,596	$	—	$	63,743	$	—

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

In April 2020, ~~the Company~~we executed interest rate swap contracts with independent financial institutions to partially reduce the variability of cash flows in LIBOR indexed debt interest payments on our Term Loan Facility (under ~~the Company’s~~our existing Credit Agreement dated September 10, ~~2019)~~2019, as amended). These transactions are accounted for as cash flow hedging instruments.

The interest rate swap contracts fixed ~~85%~~a portion of the outstanding principal balance on our term loan to a total interest rate of 1.271%. This is comprised of 0.521% average fixed rate per annum in exchange for a variable interest rate based on one-month USD-LIBOR-BBA plus the credit spread in ~~the Company’s~~our existing Credit Agreement (see Note 18. Credit Facility), which is 75 basis points at current leverage ratios.

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


	June 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021
Interest rate swap contracts	$	264,469	$	273,219	$	246,969	$	255,719

~~At June 30, 2021,~~The following table summarizes the balances recorded in accumulated other comprehensive loss on the ~~Unaudited~~ Consolidated Balance Sheets ~~includes $0.1 million, net of tax, related to changes in fair value on the interest rate swap contracts.~~for qualifying hedges.


	June 30,		December 31,
	2022		2021
Interest rate swap contract gains	$	9,975	$	2,107

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

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

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

NOTE 8. ACCOUNTS AND OTHER ~~RECEIVABLE,~~RECEIVABLES, NET

~~Accounts~~We record accounts and other ~~receivable are recorded~~receivables at net realizable value. Components of accounts and other ~~receivable,~~receivables, net of reserves, were as follows:


	June 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021
Amounts billed, net	$	212,446	$	213,560	$	254,396	$	217,549
Unbilled receivables		30,907		21,618		16,443		19,678
Total receivables, net	$	243,353	$	235,178	$	270,839	$	237,227

"Amounts billed, ~~net consist of~~net" represents amounts ~~that have been~~ invoiced to ~~our~~ customers in accordance with our terms and conditions and ~~are shown net of~~reflects an allowance for expected credit losses. These receivables are ~~all short-term~~short term in nature and do not include any financing components.

"Unbilled ~~receivables~~receivables" consist of amounts where we ~~have~~ satisfied our contractual obligations ~~related to~~associated with customer inventory stocking ~~contracts with customers.~~agreements. Such amounts typically become billable toupon the ~~customer upon their~~customer’s consumption of the ~~inventory managed under the stocking contracts.~~inventory. We anticipate ~~that~~invoicing and collecting substantially all unbilled receivables ~~will be invoiced and collected over~~within the next twelve months. ~~These contracts do not include any financing components.~~

The following table summarizes the changes in expected credit losses:


	Six Months Ended
	June 30, 2021
Balance at beginning of period	$	7,602
December 31, 2021			$	5,784
Additions		-		449
Deductions - write-offs, net of recoveries		(662)
Foreign currency translation		(14)		(30)
Balance at end of period	$	6,926
June 30, 2022			$	6,203

NOTE 9. INVENTORIES

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


	June 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021
Parts and raw materials	$	215,203	$	141,337	$	291,732	$	261,365
Work in process		23,051		13,702		33,569		24,222
Finished goods		58,485		66,307		70,565		52,823
Total	$	296,739	$	221,346	$	395,866	$	338,410

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

NOTE 10. PROPERTY AND EQUIPMENT, NET

Property and equipment, net is comprised of the following:


	June 30,		December 31,		Estimated Useful	June 30,		December 31,
	2021		2020		Life (in years)	2022		2021
Buildings and land	$	2,832	$	1,776
Machinery and equipment		120,295		115,404
Computer and communication equipment		28,695		26,623
Furniture and fixtures		4,459		4,352
Vehicles		261		262
Buildings, machinery, and equipment					5 to 25	$	143,563	$	134,635
Computer equipment, furniture, fixtures, and vehicles					3 to 5		33,968		33,490
Leasehold improvements		44,757		42,984	2 to 10		53,176		48,370
Construction in process		5,400		3,693			16,985		5,914
		206,699		195,094			247,692		222,409
Less: Accumulated depreciation		(91,539)		(80,363)			(120,899)		(107,579)
Property and equipment, net	$	115,160	$	114,731		$	126,793	$	114,830

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


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Depreciation expense	$	7,510	$	6,571	$	14,847	$	13,181	$	8,466	$	7,510	$	16,845	$	14,847

~~��~~

NOTE 11. GOODWILL

The following table summarizes the changes in goodwill:


	Six Months Ended
	June 30, 2021
Balance at beginning of period	$	209,983
Measurement period adjustments to purchase price allocation		29
December 31, 2021			$	212,190
Measurement period adjustments				40
Additions from acquisition		5,670		71,036
Foreign currency translation		(1,471)		(2,381)
Balance at end of period	$	214,211
June 30, 2022			$	280,885

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

NOTE 12. INTANGIBLE ASSETS

Intangible assets consisted of the following:


	June 30, 2022
	Gross Carrying		Accumulated		Net Carrying
	Amount		Amortization		Amount
Technology	$	98,440	$	(40,847)	$	57,593
Customer relationships		164,157		(37,888)		126,269
Trademarks and other		27,027		(9,111)		17,916
Total	$	289,624	$	(87,846)	$	201,778


	June 30, 2021						December 31, 2021
	Gross Carrying		Accumulated		Net Carrying		Gross Carrying		Accumulated		Net Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount
Technology	$	91,945	$	(30,374)	$	61,571	$	91,461	$	(35,854)	$	55,607
Customer relationships		119,166		(30,426)		88,740		118,706		(34,187)		84,519
Trademarks and other		27,308		(6,705)		20,603		27,244		(7,964)		19,280
Total	$	238,419	$	(67,505)	$	170,914	$	237,411	$	(78,005)	$	159,406

December 31, 2020


Gross Carrying

Accumulated

Net Carrying

Amount

Amortization

Amount
Technology

$
85,075

$
(24,999)

$
60,076
Customer relationships

114,171

(26,880)

87,291
Trademarks and other

27,021

(5,449)

21,572
Total

$
226,267

$
(57,328)

$
168,939

At June 30, 2022, the weighted average remaining useful life of intangibles subject to amortization was approximately 9.4 years.

Amortization expense related to intangible assets is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Amortization expense	$	5,513	$	5,009	$	10,897	$	10,015	$	6,523	$	5,513	$	12,032	$	10,897

Estimated amortization expense related to intangibles is as follows:


Year Ending December 31,
2021 (remaining)	$	11,165
2022		22,106
2022 (remaining)			$	14,041
2023		22,087		28,132
2024		19,191		25,081
2025		14,697		20,893
2026				19,178
Thereafter		81,668		94,453
Total	$	170,914	$	201,778

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

NOTE 13. RESTRUCTURING COSTS

During 2018, we committed to a restructuring plan to optimize our manufacturing footprint and to improve our operating efficiencies and synergies related to our recent acquisitions. For the periods presented, we incurred severance costs primarily related to the transition and exit of our facility in Shenzhen, PRC and actions associated with synergies related to the Artesyn acquisition. The table below summarizes ~~the~~ restructuring charges:



	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Severance and related charges	$	190	$	4,853	$	594	$	5,005	$	(161)	$	190	$	712	$	594
Facility relocation and closure charges		21		937		655		1,441		—		21		345		655
Total restructuring charges	$	211	$	5,790	$	1,249	$	6,446
Total restructuring charges (benefit)									$	(161)	$	211	$	1,057	$	1,249


	Cumulative Cost		Cumulative Cost
	Through		Through
	June 30,		June 30,
	2021		2022
Severance and related charges	$	17,507	$	21,092
Facility relocation and closure charges		6,185		7,160
Total restructuring charges	$	23,692	$	28,252

Our restructuring liabilities are included in other accrued expenses in our ~~Unaudited~~ Consolidated Balance Sheets and related primarily to severance and ~~related charges.~~associated costs. Changes in restructuring liabilities were as follows:


	Six Months Ended
	June 30, 2021
Balance at beginning of period	$	10,641
December 31, 2021			$	9,263
Costs incurred and charged to expense		1,249		1,057
Costs paid or otherwise settled		(2,503)		(8,307)
Effects of changes in exchange rate		(1)		(13)
Balance at end of period	$	9,386
June 30, 2022			$	2,000

NOTE 14. WARRANTIES

~~Provisions of our~~Our sales agreements include customary product ~~warranties, generally ranging~~warranty provisions, which range from 12 ~~months~~ to 24 months after shipment. ~~The~~We record the estimated warranty obligations cost ~~of our warranty obligation is recorded~~ when ~~revenue is recognized and~~we recognize revenue. This estimate is based ~~upon~~on our historical experience by product and configuration.

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


	Six Months Ended
	June 30, 2021
Balance at beginning of period	$	4,780
December 31, 2021			$	3,350
Additions from acquisitions				181
Increases to accruals		1,520		3,435
Warranty expenditures		(2,253)		(1,472)
Effect of changes in exchange rates		(2)		(52)
Balance at end of period	$	4,045
June 30, 2022			$	5,442

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

NOTE 15. LEASES

The Company leases manufacturing and office space under non-cancelable operating leases. Some of these leases contain provisions for landlord funded leasehold improvements which are recorded as a reduction to right-of-use ("ROU") assets and the related operating lease liabilities. For leases containing an option to renew, we regularly evaluate the renewal options and when they are reasonably certain of exercise, we include the renewal period in our lease terms, along with the ROU assets and operating lease liabilities. In many cases, we have lease terms that are less than one year and therefore, we have elected the practical expedient to exclude these short-term leases from our ROU assets and operating lease liabilities. New leases are negotiated and executed to meet business objectives on an on-going basis.

Our leases do not provide an implicit rate. Accordingly, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. We have a centrally managed treasury function; therefore, we apply a portfolio approach for determining the incremental borrowing rate applicable to the lease term.

Components of operating lease cost were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Operating lease cost	$	6,052	$	4,860	$	11,973	$	9,694	$	5,729	$	6,052	$	11,448	$	11,973
Short-term and variable lease cost		284		1,339		1,126		2,647		1,249		284		2,339		1,126
Total operating lease cost	$	6,336	$	6,199	$	13,099	$	12,341	$	6,978	$	6,336	$	13,787	$	13,099

Maturities of our operating lease liabilities are as follows:


Year Ending December 31,
2021 (remaining)	$	10,562
2022		18,568
2022 (remaining)			$	11,093
2023		15,284		20,282
2024		12,967		17,662
2025		10,769		14,691
2026				13,348
Thereafter		74,927		68,689
Total lease payments		143,077		145,765
Less: Interest		(32,503)		(29,755)
Present value of lease liabilities	$	110,574	$	116,010

~~In addition, we have lease agreements that commence in the future between 2021 and 2023 with total payments of $8.3 million through 2026.~~


	June 30,			December 31,
	2022			2021
Weighted average remaining lease term (in years)		9.2			9.8
Weighted average discount rate		4.5	%		4.5	%

~~Other information related to leases, including supplemental cash flow information, consists of:~~


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Cash paid for operating leases	$	5,471	$	6,021	$	11,097	$	11,979
Right-of-use assets obtained in exchange for operating lease liabilities	$	7,681	$	5,040	$	12,222	$	7,232

June 30,

December 31,


2021


2020

Weighted average remaining lease term (in years)

10.25

10.65

Weighted average discount rate

4.58
%

4.63
%

Three Months Ended June 30,

Six Months Ended June 30,

2021

2020

2021

2020

Cash paid for operating leases
$
6,021

$
5,828

$
11,979

$
11,402

Right-of-use assets obtained in exchange for operating lease liabilities
$
5,040

$
2,270

$
7,232

$
24,478

~~Table of Contents~~

~~ADVANCED ENERGY INDUSTRIES, INC.~~

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

~~(In thousands, except per share data)~~

NOTE 16. STOCK-BASED COMPENSATION

As of June 30, 2022, we had 2 active stock-based incentive compensation plans: the 2017 Omnibus Incentive Plan ("the 2017 Plan") and the Employee Stock Purchase Plan ("ESPP"). We issue all new equity compensation grants under these 2 plans; however, outstanding awards previously issued under inactive plans will continue to vest and remain exercisable in accordance with the terms of the respective plans.

On May 4, 2017, the stockholders approved the ~~Company’s~~ 2017 ~~Omnibus Incentive~~ Plan ~~("the 2017 Plan"),~~ and all shares that were then available for issuance under the 2008 Omnibus Incentive Plan ("the 2008 Plan") are now available for issuance under the 2017 Plan. The 2017 Plan and 2008 Plan provide for the grant of stock options, stock appreciation rights, restricted stock, stock units (including deferred stock units), unrestricted stock, and dividend equivalent rights. Any of the awards issued may be issued as performance-based awards to align stock compensation awards to the attainment of annual or long-term performance ~~goals. As~~goals.

Table of ~~June 30, 2021, there were 1.9 million shares available for grant under the 2017 Plan.~~Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

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



		June 30, 2022
Shares available for future issuance under the 2017 Omnibus Incentive Plan		1,533
Shares available for future issuance under the Employee Stock Purchase Plan		642

Restricted stock units ("RSU’s") are generally granted with a grant date fair value equal to the market price of our stock on the date of grant and with generally a ~~three~~three-year vesting schedule. Certain RSUs contain performance-based or ~~four-year~~market-based vesting ~~schedule or performance-based vesting as determined at~~conditions in addition to the ~~time of grant.~~time-based requirements.

Stock option awards are generally granted with an exercise price equal to the market price of our stock on the date of grant and with either a three or four-year vesting schedule or performance-based vesting as determined at the time of grant. Stock option awards generally have a term of 10 years.

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. Stock-based compensation was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Stock-based compensation expense	$	3,444	$	2,837	$	9,145	$	5,885	$	5,058	$	3,444	$	8,986	$	9,145

Changes in our RSUs were as follows:


	Six Months Ended June 30, 2021			Six Months Ended June 30, 2022
		Weighted-			Weighted-
		Average			Average
	Number of	Grant Date		Number of	Grant Date
	RSUs	Fair Value		RSUs	Fair Value
RSUs outstanding at beginning of period	608	$	58.15	627	$	76.37
RSUs granted	358	$	95.79	518	$	72.86
RSUs vested	(173)	$	62.80	(132)	$	85.71
RSUs forfeited	(145)	$	66.23	(238)	$	59.78
RSUs outstanding at end of period	648	$	75.93	775	$	77.54

Changes in our stock options were as follows:


	Six Months Ended June 30, 2021			Six Months Ended June 30, 2022
		Weighted-			Weighted-
		Average			Average
	Number of	Exercise Price		Number of	Exercise Price
	Options	per Share		Options	per Share
Options outstanding at beginning of period	147	$	23.63	112	$	24.41
Options exercised	(23)	$	21.42
Options expired	—	$	—
Options granted				76	$	85.97
Options outstanding at end of period	124	$	24.03	188	$	49.12

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

NOTE 17. COMMITMENTS AND CONTINGENCIES

We are involved in disputes and legal actions arising in the normal course of our business. While we currently believe that the amount of any ultimate loss would not be material to our financial position, the outcome of these actions is inherently difficult to predict. In the event of an adverse outcome, the ultimate loss could have a material adverse effect on our financial position or reported results of operations. An unfavorable decision in ~~patent~~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 ~~patent~~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 the loss can be reasonably estimated. ~~The Company is~~We are not currently a party to any legal action that ~~the Company believes~~we believe would reasonably have a material adverse impact on its business, financial condition, results of operations or cash flows.

NOTE 18. ~~SIGNIFICANT CUSTOMER INFORMATION~~CREDIT FACILITY

In September 2019, in connection with the Artesyn Acquisition Agreement, we entered into a credit agreement ("Credit Agreement") that provided aggregate financing of $500.0 million, consisting of a $350.0 million senior unsecured term loan facility (the "Term Loan Facility") and a $150.0 million senior unsecured revolving facility (the "Revolving Facility" and together with the Term Loan Facility, the "Credit Facility").

In September 2021, we amended the Credit Agreement whereby we borrowed an additional $85.0 million, which increased the aggregate amount outstanding under the Term Loan Facility to $400.0 million. In addition, we increased the Revolving Facility capacity by $50.0 million to $200.0 million. Both the Term Loan Facility and Revolving Facility mature on September 9, 2026.

The following table summarizes ~~sales,~~borrowings under our Credit Facility and ~~percentages of sales, by customers that individually accounted for 10% or more of our sales:~~the associated interest rate.


	Three Months Ended June 30,								June 30, 2022
	2021				2020				Balance		Interest Rate	Unused Line Fee
Applied Materials, Inc.	$	73,833	20.4	%	$	64,408	19.0	%
Lam Research	$	36,317	10.1	%		*	*	%

	Six Months Ended June 30,
	2021				2020
Applied Materials, Inc.	$	141,621	19.9	%	$	115,389	17.6	%
Lam Research		*	*	%		*	*	%
Term Loan Facility subject to a fixed interest rate									$	246,969	1.271%	—
Term Loan Facility subject to a variable interest rate										138,031	2.416%	—
Revolving Facility subject to a variable interest rate										—	2.416%	0.10%
Total borrowings under the Credit Agreement									$	385,000

For more information on the interest rate swap that fixes the interest rate for a portion of our Term Loan Facility, see Note 7. Derivative Financial Instruments. The Term Loan Facility and Revolving Facility bear interest, at our option, at a rate based on a reserve adjusted "Eurodollar Rate" or "Base Rate," as defined in the Credit Agreement, plus an applicable margin.

For all periods presented, we were in compliance with the Credit Agreement covenants. The following table summarizes our availability to withdraw on the ~~accounts receivable balances, and percentages of the total accounts receivable, for customers that individually accounted for 10% or more of accounts receivable:~~Revolving Facility.


	June 30,				December 31,				June 30,		December 31,
	2021				2020				2022		2021
Applied Materials, Inc.	$	41,397	17.0	%	$	33,402	14.2	%
Nidec Motor Corporation		*	*	%	$	24,344	10.4	%
Available capacity on Revolving Facility									$	200,000	$	200,000

* Customer’s balance was less than 10% of total.

~~Our sales~~In addition to ~~Applied Materials, Inc. and Lam Research include precision power products used in semiconductor processing and solar and flat panel display. Our sales~~the available capacity on the Revolving Facility, prior to ~~Nidec Motor Corporation are primarily embedded power products used in industrial motor drives. No other customer accounted for 10% or more~~the maturity date of our ~~sales~~Credit Agreement, we may also request an increase to the financing commitments in either the Term Loan Facility or ~~accounts receivable balances during these periods.~~

Revolving Facility by an aggregate amount not to exceed $250.0 million at identical terms to our existing Credit Facility.

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

~~NOTE 19. CREDIT FACILITY~~

~~In September 2019, in connection with the Artesyn Acquisition Agreement, the Company entered into a credit agreement ("Credit Agreement") that provided aggregate financing~~The fair value of $500.0 million, consisting of a $350.0 million senior unsecured term loan facility (the "Term Loan Facility") and a $150.0 million senior unsecured revolving facility the ("Revolving Facility" and together with the Term Loan Facility ~~the "Credit Facility"). Both the Term Loan Facility and Revolving Facility mature on September 10, 2024.~~

~~The following table summarizes borrowings under our Credit Facility and the associated interest rate.~~

June 30, 2021

Balance

Interest Rate

Unused Line Fee
Term Loan Facility subject to a fixed interest rate

$
264,469

1.271%

-
Term Loan Facility subject to a variable interest rate

50,531

0.910%

-
Revolving Facility subject to a variable rate

—

0.910%

0.10%
Total borrowings under the Credit Agreement

$
315,000

~~For more information on the interest rate swap that fixes the interest rate for a portion of our Term Loan Facility, see~~ ~~Note 7. Derivative Financial Instruments~~. The Term Loan Facility and Revolving Facility bear interest, at the option of the Company, at a rate based on a reserve adjusted "Eurodollar Rate" or "Base Rate," as defined in the Credit Agreement, plus an applicable margin.

~~For all periods presented, we were in compliance with the Credit Agreement covenants and had $150.0 million available to withdraw on the Revolving Facility.~~

~~We classify the Credit Facility in Level 2 of the fair value hierarchy. The fair value of~~ ~~outstanding~~ ~~debt~~ approximates the ~~carrying value~~outstanding balance of ~~$313.5~~$385.0 million as of June 30, ~~2021.~~2022.

The debt obligation on our ~~Unaudited~~ Consolidated Balance Sheets consists of the following:


	June 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021
Term Loan Facility	$	315,000	$	323,750	$	385,000	$	395,000
Less: debt issuance costs		(1,455)		(1,704)
Less: debt discount						(1,999)		(2,267)
Total debt		313,545		322,046		383,001		392,733
Less current portion of long-term debt		(17,500)		(17,500)		(20,000)		(20,000)
Total long-term debt	$	296,045	$	304,546	$	363,001	$	372,733

Contractual maturities of ~~the Company’s~~our debt obligations, excluding amortization of debt issuance costs, ~~as of June 30, 2021~~ are as follows:


Year Ending December 31,
2021 (remaining)	$	8,750
2022		17,500
2022 (remaining)			$	10,000
2023		17,500		20,000
2024		271,250		20,000
2025				20,000
2026				315,000
Total	$	315,000	$	385,000

~~Table of Contents~~

~~ADVANCED ENERGY INDUSTRIES, INC.~~

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

~~(In thousands, except per share data)~~

Interest expense and unused line of credit fees were recorded in other income (expense), net in our ~~Unaudited~~ Consolidated Statements of Operations as follows:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Interest expense	$	979	$	1,145	$	1,964	$	3,243	$	1,338	$	979	$	2,460	$	1,964
Amortization of debt issuance costs		123		131		249		263		142		123		277		249
Unused line of credit fees and other		38		38		75		77		47		38		101		75
Total interest expense	$	1,140	$	1,314	$	2,288	$	3,583	$	1,527	$	1,140	$	2,838	$	2,288

2524

Table of Contents

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

This management discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, which was filed with the SEC on ~~February 24, 2021.~~March 16, 2022.

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. 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, 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, indicate 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:

●

macroeconomic risks, including supply chain cost increases and other inflationary pressures, recession, economic volatility and cyclicality, higher interest rates, labor shortages, foreign currency fluctuations, and pricing controls;

●

political and geographical risks, including trade and other international disputes, war, terrorism, geopolitical tensions, trade and export controls, natural disasters, public health issues, and industrial accidents;

●

sufficiency and availability of components and materials;

●

our future sales;

●

our future profitability;

●

managing backlog orders;

●

our ability to develop new products expeditiously and be successful in the design win process with our customers;

●

the ability to stay on the leading edge of innovation and obtain and defend necessary intellectual property protections;

●

our competition;

●

market acceptance of, and demand for, our products;

●

the fair value of our assets and financial instruments;

●

research and development expenses;

●

selling, general, and administrative expenses;

●

sufficiency and availability of capital resources;

●

capital expenditures;

●

our production and operations strategy;

●

our share repurchase program;

Table of Contents

●

our tax assets and liabilities;

●

our other commitments and contingent liabilities;

●

adequacy of our reserve for excess and obsolete inventory;

●

adequacy of our warranty reserves;

●

our estimates of the fair value of assets acquired;

●

restructuring activities and expenses;

●

unanticipated costs in fulfilling our warranty obligations for solar inverters;

●

the integration of our acquisitions;

●

industry trends;

●

our acquisition, divestiture, and joint venture activities; and

●

cost fluctuations and pressures, including prices of components, commodities and raw materials, and costs of labor, transportation, energy, pension, and healthcare.

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 that may affect our actual financial condition, results of operations and accuracy of our forward-looking statements, see the information under the caption "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q and, in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. We undertake no obligation to revise or update any forward-looking statements for any reason.

BUSINESS AND MARKET OVERVIEW

Advanced Energy provides highly engineered, mission-critical, precision power conversion, measurement, and control solutions to our global customers. We design, manufacture, sell and support precision power products that transform, refine, and modify the raw electrical power coming from either the utility or the building facility and convert it into various types of ~~highly-controllable,~~highly controllable, usable power that is predictable, repeatable, and ~~customizable.~~ customizable to meet the necessary requirements for powering a wide range of complex equipment.

Our plasma power solutions enable innovation in complex semiconductor and thin film plasma processes such as dry etch, strip ~~chemical~~ and ~~physical deposition,~~deposition. Our broad portfolio of high and low voltage power products are used in a wide range of applications, such as ~~process control,~~semiconductor equipment, industrial production, medical and life science equipment, data center ~~computing, networking, telecommunication, analytical instrumentation, medical equipment, industrial technology~~ and ~~temperature-critical thermal applications such as material and chemical processing.~~telecommunication. We also supply related sensing, controls, and instrumentation products for advanced ~~temperature~~ measurement and ~~control,~~calibration of radio frequency ("RF") power and temperature, electrostatic instrumentation products for test and measurement applications, and gas sensing and monitoring solutions for multiple industrial markets. Our network of global service support centers provides a recurring revenue opportunity as we offer repair services, conversions, upgrades, refurbishments, and used equipment to companies using our products.

~~Our~~Advanced Energy is organized on a global, functional basis and operates in the single segment for power electronics conversion products. Within this segment, our products are ~~primarily~~ sold into the Semiconductor Equipment, Industrial and Medical, Data Center Computing, and Telecom and Networking markets. ~~Advanced Energy is organized on a global, functional basis and operates in a single segment structure for power electronics conversion products.~~ We ~~sell our products into four markets or applications and~~ provide market revenue data ~~by market~~ to enable tracking of ~~market~~ trends.

~~During~~In April 2022, we acquired SL Power Electronics Corporation ("SL Power"). See Note 2. Acquisitions in Part I, Item 1 "Unaudited Consolidated Financial Statements." This acquisition added complementary products to Advanced Energy’s medical power offerings and extends our presence in several advanced industrial markets.

Table of Contents

At the ~~first three months~~beginning of 2020 we saw the spread of COVID-19, which grew into a global pandemic. Our focus on providing a healthy and safe working environment for our employees led to intermittent shutdowns of our manufacturing facilities to implement new health and safety protocols and additional investments to comply with government guidelines. ~~During~~Since 2020, ~~and the first half of 2021~~ there ~~were~~have been periods when some of our manufacturing facilities were not operating or were operating at reduced capacity due to government mandates to restrict travel, maintain social distancing, and implement health and safety procedures. Additionally, during the first half of 2022, there were ongoing restrictions related to COVID-19 and disruptions in an already challenged global supply chain that disrupted our workforce and limited the availability of certain materials, parts, subcomponents, and subassemblies needed for production, ~~during the first six months of 2021, impacting~~which impacted our ability to ~~ship~~fulfill product shipments to meet customer ~~demand.~~

~~Table~~demand and contributed to increased backlog. The shortage of ~~Contents~~

~~During~~critical components was caused by a variety of factors including the ~~second quarter~~pandemic-driven rise in consumer demand for technology goods, increased demand for electronic components used in a wide variety of ~~2021, customer demand was strong across our served markets. However, the limited availability of materials, parts, subcomponents,~~industries, logistics-related disruptions in shipping, and ~~subassemblies continued to affect our ability to produce quantities sufficient to meet demand. Also, our manufacturing facility in Malaysia operated~~capacity limitations at ~~reduced capacity during part of the quarter~~some suppliers due to COVID-19 and its variants, labor shortages, and other factors. We expect the ~~government’s Movement Control Order, designed~~challenges associated with this environment to ~~mitigate~~continue for the ~~spread~~remainder of ~~COVID-19.~~2022.

Although COVID-19 has impacted our revenues and manufacturing efficiency ~~over~~for the ~~past year,~~last two years, COVID-19 has not materially impacted our liquidity, our ability to access capital, our ability to comply with our debt covenants or the fair value of our assets. Additionally, we believe the accommodations we have made to our work environment, including employees utilizing work-from-home arrangements where necessary, will not impact our ability to maintain effective internal controls over financial reporting.

Looking forward, we expect that for the remainder of ~~2021~~2022 customer demand will remain strong across our served markets; however, our ability to procure ~~materials, parts,~~critical components ~~and subassemblies~~ to meet our customers’ needs will continue to be ~~challenged~~limited by ~~a worsening~~the ongoing constraints in the global supply chain caused in part by the pandemic-driven rise in consumer demand for tech goods, increased demand for automotive and other products using electronic components, logistics-related disruptions in shipping, and capacity limitations at some suppliers due to COVID-19, its variants, and other factors. As such, our forward-looking statements regarding revenues, earnings, and cash flow will be adversely impacted if the situation continues or further deteriorates.

chain. These supply ~~chain~~ constraints have led to longer lead times in procuring materials and subcomponents and, in some cases, higher costs and inventory level requirements. We have implemented measures to improve supply of critical materials and components and to mitigate the impact of these higher input costs, and these actions have enabled us to better meet customer demand. However, it is not clear how long this supply chain condition will continue, how quickly it may recover, the extent to which our mitigating actions will be successful, or to what extent we can recover our higher costs. In addition, recent increases in global inflation, interest rates, geopolitical tensions, and other factors impacting macroeconomic growth may ~~continue to have an adverse effect on our~~impact future ~~operations~~demand and our ~~financial results (including, but not limited to, revenue, gross profit, net profit,~~cost base. As such, our forward-looking projections of revenues, earnings, and cash ~~generation)~~flow may be adversely impacted if the supply chain constraint, COVID-19, or macroeconomic environment continues or further deteriorates.

For additional discussion on the potential impacts of COVID-19 to the future operations of our business, please see the information under the caption "Risk Factors" in Part II, in Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~

~~Recent Acquisitions~~

~~On December 31, 2020, we acquired 100% of the issued and outstanding shares of capital stock of Versatile Power, Inc., which is based in Campbell, California.~~ 2021This acquisition added radio frequency ("RF") and programmable power supplies for medical and industrial applications to our product portfolio and further expands our presence in the medical market by adding proven technologies, deep customer relationships, expertise in medical design, and a medical-certified manufacturing center. ~~For additional information, see~~ ~~Note 2. Acquisitions~~ ~~in Part I, Item 1 "Unaudited Consolidated Financial Statements."~~

In January 2021, we acquired certain intangible assets related to the manufacturing of fiber optic sensing equipment for $3.6 million in cash and $2.9 million in future consideration upon the completion of transition activities. For additional information, see ~~Note 2: Acquisitions~~ ~~in in Part I, Item 1 "Unaudited Consolidated Financial Statements."~~

~~On June 1, 2021, we acquired 100% of the issued and outstanding shares of capital stock of TEGAM, Inc., which is based in Geneva, Ohio. This acquisition added~~ ~~metrology and calibration instrumentation to Advanced Energy’s RF process power solutions in our semiconductor and advanced industrial markets.~~ ~~For additional information, see~~ ~~Note 2. Acquisitions~~ ~~in Part I, Item 1 "Unaudited Consolidated Financial Statements."~~

Table of Contents

Semiconductor Equipment Market

Growth in the Semiconductor Equipment market is driven by growing integrated circuits content across many industries ~~increased demand for~~such as processing and storage in advanced applications ~~such as~~including artificial intelligence, oredge and cloud computing, autonomous vehicles, and the rapid adoption of advanced mobile connectivity solutions such as 5G, ~~and enhancing~~which enhances existing and ~~enabling~~enables new wireless applications. To address the long-term growing demand for semiconductor devices, the industry continues to invest in production capacities for ~~advanced~~both leading-edge and trailing-edge nodes, logic devices, ~~at the 7nm technology node and beyond,~~ the latest memory devices, ~~including 3D-NAND, DRAM, and new emerging memories such as MRAM, and~~ back-end test, and advanced wafer-level packaging. The industry’s transition to advanced technology nodes in logic and DRAM and to increased layers in 3D NAND memory devices ~~is requiring~~require an increased number of plasma-based etch and deposition process tools and higher content of our advanced power solutions per tool. As etching and deposition processes become more challenging due to increasing aspect ratios in advanced 3D devices, more advanced RF and direct current ("DC") plasma generation technologies are needed. We ~~are meeting~~strive to meet these challenges by providing a broader range of more complex RF and DC power solutions. Beyond etch and deposition processes, the growing complexity at the advanced nodes also drive a higher number of other processes across the wafer fab, including inspection, metrology, thermal, ion implantation, and semiconductor test and assembly, where Advanced Energy is actively participating as a critical technology provider. In addition, our global support services group offers comprehensive local repair service, upgrade, and retrofit offerings to extend the useable life of our customers’ capital equipment for additional technology generations. ~~The acquisition of Artesyn~~Our strategy in ~~September 2019 expanded Advanced Energy’s reach within~~ the Semiconductor Equipment market ~~by adding a broad range of low~~is to defend our proprietary positions in our core applications, grow our market position in applications where we have lower share, including remote plasma source and dielectric etch, and leverage our product portfolio in areas such as embedded power, high voltage ~~applications as well as back-end test~~power system, and ~~assembly equipment makers.~~

~~Demand for semiconductor equipment has continued~~critical sensing and controls to grow ~~through the second quarter of 2021~~our share and contents at our key original equipment manufacturer ("OEM") customers.

The Semiconductor Equipment market continues to experience demand growth driven by ~~foundry logic~~higher semiconductor contents across many industries, increased capital intensity at the leading-edge process nodes, semiconductor device makers investing in the trailing-edge nodes due to supply constraints and ~~certain memory~~increased regional investments of semiconductor capacities. Advanced Energy participated in this market growth by delivering record revenue from the Semiconductor Equipment market in 2021 and ~~has surpassed prior peak levels. In addition, increased~~in the first half of 2022, even with the negative impact of the global supply constraints. Throughout the remainder of 2022, we expect demand will continue to increase as chipmakers invest in new fab capacities driven by growing demand for semiconductor devices for a wide range of applications, ~~as global economies begin~~the continued transition to ~~recover is expected~~next generation processing nodes, and the need to ~~drive investment throughout the remainder of 2021. However, due to the limited visibility and uncertainty arising from COVID-19 and its impact on the global economy~~resolve backlog and supply ~~chain, geopolitical uncertainty, overall levels of current investment by~~constraints in the industry. As a result, we expect to continue to invest in both increasing our ~~customers,~~capacity and ~~the cyclical nature of the~~capability to meet market ~~it is difficult to determine the extent or duration to which the increased~~ demand for ~~semiconductor equipment will continue.~~our products.

Industrial and Medical Markets

Customers in the Industrial and Medical market incorporate our advanced power, embedded power, and measurement products into a wide variety of equipment used in applications such as advanced material fabrication, medical devices, analytical instrumentation, test and measurement equipment, robotics, ~~horticulture, motor drives~~industrial production, and large-scale connected light-emitting ~~diodes.~~

OEM customers design equipment utilizing our process power technologies in a variety of industrial applications including glass coating, glass manufacturing, flat panel displays, photovoltaics solar cell manufacturing, and similar thin film manufacturing, including data storage and decorative, hard and optical coatings. These applications employ similar technologies to those used in the Semiconductor Equipment market to deposit films on non-semiconductor substrates. Our strategy around these applications is to leverage our thin film deposition technologies into an expanded set of new materials and applications in adjacent markets.diode applications.

Advanced Energy serves the Industrial and Medical market with mission-critical power components that deliver high reliability, precise, low noise or differentiated power to the equipment they serve. Our customers in this market are primarily global and regional original equipment and device manufacturers. These OEM customers incorporate our products and solutions into their equipment. Examples of products sold into the Industrial and Medical market ~~includes~~include high voltage ~~products for analytical instrumentation, medical equipment,~~and low voltage power supplies used in applications ~~for~~such as medical devices, analytical instruments, test and measurement, medical lasers, scientific instrumentation and industrial equipment, ~~and~~ power control modules and thermal instrumentation products for material fabrication, ~~processing,~~production process controls, and treatment. Our gas monitoring products serve multiple applications in the energy market, air quality monitoring, and automobile emission monitoring and testing. Our strategy in the Industrial and Medical market is to grow and expand our addressable market both organically through our global distribution channels and through acquisitions of products and technologies that are complimentary and adjacent to our core power conversionmany precision industrial sensing applications.

Table of Contents

~~Revenue for~~Growth in the Industrial and Medical ~~products improved~~market is being driven by growth investments in complex manufacturing processes or automation, increased adoption of smart power, sensing, and control solutions across many industrial applications, new investments in clean and sustainable technologies, and growing investments in medical devices and life science equipment. Our strategy in the ~~second half~~Industrial and Medical market is to expand our product offerings and channel reach, leveraging common platforms, derivatives, and customizations to further penetrate a broader set of ~~2020 after lower revenues in~~applications, such as medical, test and measurement, indoor farming, and many other applications.

During 2021 and the first half of 2020 primarily due to recessionary macroeconomic conditions, and production and supply chain delays related to COVID-19 that pushed shipments into the third and fourth quarter of 2020. Additionally,2022, we saw ~~modest improvement~~increased demand in ~~industrial markets~~the Industrial and Medical market as ~~global economic growth resumed and~~ our customers ~~were able to~~ increase investments in their production capacity ~~after governmental restrictions were relaxed during~~and the ~~second half of 2020. Demand for~~ medical products during 2020 was driven by critical care applications, offset by lower investment related to discretionary procedures. More recently, critical applications have saturated while other demand is only beginning to improve.technology industry recovers from the pandemic-related slowdown. In the first half of ~~2021,~~2022, overall customer demand ~~remained near~~increased compared to the ~~elevated levels from~~same period in the ~~fourth quarter of 2020,~~prior year, but supply ~~chain~~ constraints of critical components limited ~~the Company’s~~our ability to ~~ship~~fulfill product shipments at the level of customer demand. We expect ~~this condition~~demand in the Industrial and Medical market to ~~extend into~~continue to grow in the ~~third quarter~~remainder of ~~2021.~~2022, but product delivery will be dependent on resolving our supply constraint condition. It is not clear how long these supply shortages will persist or on what timelines our supply may recover.

Data Center Computing Markets

~~Following the acquisition of Artesyn in September 2019,~~ Advanced Energy ~~entered~~serves the Data Center Computing market with ~~industry-leading~~industry leading power conversion products and ~~low-voltage power conversion technologies. We~~technologies, which we sell to ~~many~~OEMs and original design manufacturers ("ODMs") of data center server and storage ~~manufacturers,~~systems, as well as cloud service providers and their partners. Driven by the growing adoption of cloud computing, market demand for server and storage equipment ~~has~~ shifted from traditional enterprise on-premises computing to the data ~~center. Nevertheless,~~center, driving investments in data center infrastructure. In addition, the data center industry started to transition to 48 Volt infrastructure, where 48 Volt DC power replaces 12 Volt in server racks in order to improve overall power efficiency. Advanced Energy benefits from these trends by leading the industry in providing high-efficiency 48 Volt server power solutions to the data center industry. Further, demand for edge computing is growing, driven by the need for faster processing, lower latency, higher data security, and more reliability than traditional cloud computing. Due to its wide range of many unique configurations and requirements, edge computing creates additional opportunities for Advanced Energy. Lastly, the rapid growth and adoption of artificial intelligence and machine learning are driving accelerated demand for server and storage racks with increased power density and higher efficiency, which compliments Advanced Energy’s strengths. With a growing presence at both cloud service providers and industry-leading data center server and storage vendors, we believe Advanced Energy is well positioned to continue to capitalize on the ongoing shift towards cloud computing. ~~In late 2019 and through 2020, demand for our embedded power products~~Our strategy in the Data Center and Computing market ~~increased significantly driven by share gains~~is to penetrate selected additional customers and ~~a capacity ramp at hyperscale customers. In addition, we believe~~profitable applications based on our differentiated capability and competitive strengths in power density, efficiency, and controls.

Customer demand for our products rose during the past two years as ~~a consequence of~~ COVID-19 ~~hyperscale~~accelerated demand ~~has risen in the near term given the increased need~~ for cloud and network ~~applications~~applications. However, our 2021 revenue declined year over year due to the limited availability of parts given global supply constraints, which prevented us from producing products to meet the growing customer demand. Revenue in this market in the ~~current environment. Demand for hyperscale products declined sequentially during the latter~~first half of ~~2020, as a result of market digestion at our existing customers following a ramp of investment earlier~~2022 increased compared to the same period in the ~~year. This digestion period continued into~~prior year as demand grew and we were able to secure additional critical components. However, the ~~first quarter~~supply of ~~2021, but demand increased in~~ the ~~second quarter and~~critical components remains highly constrained, impacting our ability to fulfill product shipments at the level of customer demand. It is ~~expected to improve further as we move through the remainder of 2021.~~not clear how long these supply shortages will persist or how quickly our supply may recover.

Telecom and Networking Markets

~~The acquisition of Artesyn~~Our customers in ~~September 2019 provided Advanced Energy with a portfolio of products and technologies that are used across~~ the Telecom and Networking ~~market. Our customers~~market include many leading vendors of wireless infrastructure equipment, telecommunication equipment and computer networking. The wireless telecom market continues to evolve with more advanced mobile standards. 5G wireless technology promises to drive substantial growth opportunities for the telecom industry as it enables new advanced applications such as autonomous vehicles and virtual/augmented reality. Telecom service providers ~~have started to invest~~are investing in 5G infrastructure, and this trend is expected to drive demand of our products into the Telecom and Networking market. In datacom, demand is driven by networking investments by telecom service providers and enterprises upgrading of their ~~network,~~networks, as well as cloud service providers and data ~~center networking investments~~centers investing in their networks for increased bandwidth. Demand in late 2019 and the first half of 2020 was lower as geopolitical issues and consolidation of wireless telecom providers drove slower global investment in cellular and network infrastructure. Revenue increased sequentiallyOur strategy in the ~~third~~Telecom and ~~fourth quarters primarily~~Networking market is to optimize our portfolio of products to more differentiated applications, and to focus on 5G infrastructure applications.

Table of Contents

During 2021, revenue declined on an annual basis as a result of ~~modest improvement in market conditions~~the limited availability of parts given global supply constraints and ~~improved manufacturing capacity amid COVID-19. In the first half of 2021, revenue declined as a result of declining investment in legacy LTE infrastructure,~~ our internal decision to optimize our portfolio toward higher margin and value-added applications ~~within~~for the Telecom and Networking ~~markets,~~market. Revenue increased in the first half of 2022 compared to the same period in the prior year due to increased customer demand and ~~availability~~our ability to secure additional critical components. For the remainder of ~~parts given global~~2022, we expect demand in this market to continue to grow driven by increased investments in 5G infrastructure in the U.S. and Europe, but the supply ~~constraints.~~constraint condition continues to negatively impact our ability to fulfill product shipments at the level of customer demand. It is not clear how long these supply shortages will persist or how quickly our supply may recover.

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 Consolidated Financial Statements" in Part I, Item 1 of this report, including the notes thereto. Also included in the following analysis are measures that are not in accordance with U.S. GAAP. A reconciliation of the non-GAAP measures to U.S. GAAP is provided below.

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Sales	$	440,949	$	361,311	$	838,408	$	712,931
Gross profit		162,158		135,033		306,474		272,536
Operating expenses		109,393		93,953		209,052		187,274
Operating income from continuing operations		52,765		41,080		97,422		85,262
Other income (expense), net		3,249		(3,662)		2,407		(4,169)
Income from continuing operations before income taxes		56,014		37,418		99,829		81,093
Provision for income taxes		11,203		1,876		18,156		7,160
Income from continuing operations, net of income taxes	$	44,811	$	35,542	$	81,673	$	73,933


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Sales		100.0	%		100.0	%		100.0	%		100.0	%
Gross profit		36.8			37.4			36.6			38.2
Operating expenses		24.8			26.0			24.9			26.3
Operating income from continuing operations		12.0			11.4			11.6			12.0
Other income (expense), net		0.7			(1.0)			0.3			(0.6)
Income from continuing operations before income taxes		12.7			10.4			11.9			11.4
Provision for income taxes		2.5			0.5			2.2			1.0
Income from continuing operations, net of income taxes		10.2	%		9.8	%		9.7	%		10.4	%

2930

Table of Contents

~~The following tables set forth certain data, and the percentage of sales each item reflects, derived from our Unaudited Consolidated Statements of Operations (in thousands):~~

Three Months Ended June 30,


Six Months Ended June 30,

2021

2020

2021

2020

Sales

$
361,311

$
339,880

$
712,931

$
655,336

Gross profit

135,033

130,304

272,536

242,535

Operating expenses

93,953

94,828

187,274

181,251

Operating income from continuing operations

41,080

35,476

85,262

61,284

Other income (expense), net

(3,662)

(1,587)

(4,169)

(5,097)

Income from continuing operations before income taxes

37,418

33,889

81,093

56,187

Provision for income taxes

1,876

4,610

7,160

8,510

Income from continuing operations, net of income taxes

$
35,542

$
29,279

$
73,933

$
47,677

Three Months Ended June 30,

Six Months Ended June 30,


2021

2020

2021

2020

Sales

100.0
%

100.0
%

100.0
%

100.0
%
Gross profit

37.4

38.3

38.2

37.0

Operating expenses

26.0

27.9

26.3

27.7

Operating income from continuing operations

11.4

10.4

12.0

9.4

Other income (expense), net

(1.0)

(0.5)

(0.6)

(0.8)

Income from continuing operations before income taxes

10.4

10.0

11.4

8.6

Provision for income taxes

0.5

1.4

1.0

1.3

Income from continuing operations, net of income taxes

9.8
%

8.6
%

10.4
%

7.3
%

SALES, NET

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


	Three Months Ended June 30,				Change 2021 v. 2020				Three Months Ended June 30,				Change 2022 v. 2021
	2021		2020		Dollar		Percent		2022		2021		Dollar		Percent
Semiconductor Equipment	$	176,671	$	145,424	$	31,247	21.5	%	$	228,797	$	176,671	$	52,126	29.5	%
Industrial and Medical		83,197		70,886		12,311	17.4			104,951		83,197		21,754	26.1
Data Center Computing		69,458		83,316		(13,858)	(16.6)			69,161		69,458		(297)	(0.4)
Telecom and Networking		31,985		40,254		(8,269)	(20.5)			38,040		31,985		6,055	18.9
Total	$	361,311	$	339,880	$	21,431	6.3	%	$	440,949	$	361,311	$	79,638	22.0	%



	Six Months Ended June 30,				Change 2021 v. 2020
	2021		2020		Dollar		Percent
Semiconductor Equipment	$	357,387	$	279,049	$	78,338	28.1	%
Industrial and Medical		161,612		132,865		28,747	21.6
Data Center Computing		128,612		169,499		(40,887)	(24.1)
Telecom and Networking		65,320		73,923		(8,603)	(11.6)
Total	$	712,931	$	655,336	$	57,595	8.8	%


	Three Months Ended June 30,						Six Months Ended June 30,						Six Months Ended June 30,				Change 2022 v. 2021
	2021			2020			2021			2020			2022		2021		Dollar		Percent
Semiconductor Equipment		48.9	%		42.8	%		50.1	%		42.6	%	$	431,754	$	357,387	$	74,367	20.8	%
Industrial and Medical		23.0			20.9			22.7			20.2			187,849		161,612		26,237	16.2
Data Center Computing		19.2			24.5			18.0			25.9			145,399		128,612		16,787	13.1
Telecom and Networking		8.9			11.8			9.2			11.3			73,406		65,320		8,086	12.4
Total		100.0	%		100.0	%		100.0	%		100.0	%	$	838,408	$	712,931	$	125,477	17.6	%


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Semiconductor Equipment		51.9	%		48.9	%		51.5	%		50.1	%
Industrial and Medical		23.8			23.0			22.4			22.7
Data Center Computing		15.7			19.2			17.3			18.0
Telecom and Networking		8.6			8.9			8.8			9.2
Total		100.0	%		100.0	%		100.0	%		100.0	%

~~Table of Contents~~

~~Total Sales~~

Sales increased $21.4 million, or 6.3%, to $361.3 million for the three months ended June 30, 2021 and $57.6 million, or 8.8%, for the six months ended June 30, 2021 as compared to the same periods in 2020, primarily due to increased demand in the Semiconductor Equipment and Industrial and Medical markets offset by lower sales from Data Center Computing products due in part to digestion of equipment at key accounts following strong revenue last year and more recently to supply constraints on key parts and components

Sales in the Semiconductor Equipment market increased $31.2 million, or 21.5%, for the three months ended June 30, 2021 and $78.3 million, or 28.1%, for the six months ended June 30, 2021 as compared to the same period in 2020 when semiconductor equipment volume was recovering from the cyclical downturn in 2019. The increase in sales during 2021 is primarily due to an overall increase in demand for semiconductor equipment used in deposition and etch applications, increasing power content in semiconductor manufacturing tools, and market share gains in RF match and remote plasma sources.

Sales in the Industrial and Medical market increased $12.3 million, or 17.4%, for the three months ended June 30, 2021 and $28.7 million, or 21.6%, for the six months ended June 30, 2021 as compared to the same periods in 2020. Our customers in this market are primarily global and regional original equipment and device manufacturers. The increase in sales was primarily due to improving macroeconomic conditions and the continued recovery from the COVID-19 pandemic within general industrial markets.

Sales in the Data Center Computing market decreased $13.9 million, or 16.6%, for the three months ended June 30, 2021 and $40.9 million, or 24.1%, for the six months ended June 30, 2021 as compared to the same periods in 2020. The decrease in Data Center Computing market sales is primarily due to digestion of products at our primary customers, compared to a strong ramp of revenue as a result of market share gains a year ago.

Sales in the Telecom and Networking market decreased $8.3 million, or 20.5%, for the three months ended June 30, 2021 and $8.6 million, or 11.6%, for the six months ended June 30, 2021 as compared to the same periods in 2020. The decrease in sales was due to in part to our decision to optimize our product portfolio towards higher margin applications and to the pace of 5G investment by network operators outside of China. Over time, we expect that 5G infrastructure investments and upgrades to enterprise networks will drive growth in this market.

~~Backlog~~

Our backlog was $534.7 million at June 30, 2021 as compared to $290.7 million at December 31, 2020. This reflects strong demand for our products as our markets and macro economies recover as well as longer lead times as some customers placed orders into future quarters to accommodate the constraints in the supply chain for certain components.

~~GROSS PROFIT~~

For the three months ended June 30, 2021, gross profit increased $4.7 million to $135.0 million, or 37.4% of sales. For the three months ended June 30, 2020, gross profit was $130.3 million, or 38.3% of sales. The decrease in gross profit as a percentage of revenue for the three months ended June 30, 2021 is driven by lower productivity resulting from supply chain constraints and COVID-19 capacity restrictions, particularly in Malaysia, and higher freight and inventory procurement costs, offset partially by a favorable sales mix. For the six months ended June 30, 2021, gross profit increased $30.0 million to $272.5 million, or 38.2% of sales, as compared to gross profit of $242.5 million, or 37.0% of sales, for the same period in 2020. The increase in gross profit as a percentage of revenue for the six months ended June 30, 2021 is largely related to increased volume and sales mix, partially offset by increased material and freight costs and productivity inefficiencies as we transition our Shenzhen, PRC manufacturing into Penang, Malaysia. Additionally, the six month period ended June 30, 2020 included $5.2 million in additional costs related to the increase in fair market value of Artesyn acquired inventory.

~~Table of Contents~~

OPERATING EXPENSES

Operating expenses decreased $0.8 million to $94.0 million, or 26.0% of sales, for the three months ended June 30, 2021 from $94.8 million, or 27.9% of sales, for the same period in 2020. The decrease in operating expenses is primarily due to a reduction in restructuring charges offset partially by increased research and development expenses. Operating expenses increased $6.0 million to $187.3 million, or 26.3% of sales, for the six months ended June 30, 2021 from $181.3 million, or 27.7% of sales, for the same period in 2020. The increase in operating expenses for the six month period ended June 30, 2021 is primarily due to increased investment in research and development, partially offset by a reduction in restructuring costs.

The following tables summarize our operating expenses (in thousands) and as a percentage of ~~sales~~sales:


	Three Months Ended June 30,
	2022				2021
Research and development	$	48,009	10.9	%	$	40,119	11.1	%
Selling, general, and administrative		55,022	12.5			48,110	13.3
Amortization of intangible assets		6,523	1.5			5,513	1.5
Restructuring charges (benefit)		(161)	—			211	0.1
Total operating expenses	$	109,393	24.8	%	$	93,953	26.0	%

	Six Months Ended June 30,
	2022				2021
Research and development	$	91,623	10.9	%	$	80,287	11.3	%
Selling, general, and administrative		104,340	12.4			94,841	13.3
Amortization of intangible assets		12,032	1.4			10,897	1.5
Restructuring charges		1,057	0.1			1,249	0.2
Total operating expenses	$	209,052	24.9	%	$	187,274	26.3	%

Table of Contents

SALES AND BACKLOG

Total Sales

Sales increased $79.6 million, or 22.0%, to $440.9 million for the three months ended June 30, 2022 and $125.5 million, or 17.6%, to $838.4 million for the six months ended June 30, 2022 as compared to the same periods ~~indicated:~~in the prior year.

Three Months Ended June 30,


2021


2020

Research and development

$
40,119

11.1
%

$
35,855

10.5
%
Selling, general, and administrative

48,110

13.3

48,174

14.2

Amortization of intangible assets

5,513

1.5

5,009

1.5

Restructuring charges

211

0.1

5,790

1.7

Total operating expenses

$
93,953

26.0
%

$
94,828

27.9
%

Six Months Ended June 30,


2021


2020

Research and development

$
80,287

11.3
%

$
70,625

10.8
%
Selling, general, and administrative

94,841

13.3

94,165

14.4

Amortization of intangible assets

10,897

1.5

10,015

1.5

Restructuring charges

1,249

0.2

6,446

1.0

Total operating expenses

$
187,274

26.3
%

$
181,251

27.7
%

The increase in sales was primarily due to growth in the overall Semiconductor Equipment market and measures we took to improve material availability and capacity, which allowed us to better meet the demand across our markets. During the three and six months ended June 30, 2022, the acquisition of SL Power Electronics Corporation ("SL Power") contributed $12.9 million to our total sales. For additional information, see Note 2. Acquisitions in Part I, Item 1 "Unaudited Consolidated Financial Statements."

Revenues in the first half of 2022 continued to be constrained relative to demand across all of our markets by supply chain shortages for certain integrated circuits and other components, which limited our ability to fulfill product shipments to meet our total demand. As a result, we saw an increase in backlog, as indicated in the table below.

Backlog

The following table summarizes our backlog (in thousands):


	June 30,		December 31,		June 30,		Change from Year End				Change from Same Period One Year Ago
	2022		2021		2021		Dollar		Percent		Dollar		Percent
Backlog	$	1,166,490	$	927,810	$	534,707	$	238,680	25.7	%	$	631,783	118.2	%

Backlog represents outstanding orders for products we expect to deliver within the next 12 months. Backlog increased meaningfully from the end of last year and the same period one year ago due to the global supply constraint environment, resulting in customers placing larger orders than historical levels in anticipation of longer-term demand and our lead time extending. We believe these higher backlog levels provide some level of revenue protection if demand levels are reduced due to macroeconomic factors.

Backlog at any particular date is not necessarily indicative of actual sales which may be generated for any succeeding period. In addition, there is uncertainty of the timing of when backlog can convert into revenue due to supply chain constraints. Because our customers generally order on a purchase order basis, they can typically cancel, change, or delay product purchase commitments with little or no notice.

Sales by Market

Sales in the Semiconductor Equipment market increased $52.1 million, or 29.5%, to $228.8 million for the three months ended June 30, 2022 and $74.4 million, or 20.8%, to $431.8 million for the six months ended June 30, 2022 as compared to the same periods in the prior year. The increase in sales during 2022 is primarily due to growth in the semiconductor equipment market, improving parts availability, increases in factory output, market share gains in selected areas, and expansion of our product portfolio.

Sales in the Industrial and Medical market increased $21.8 million, or 26.1%, to $105.0 million for the three months ended June 30, 2022 and $26.2 million, or 16.2%, to $187.8 million for the six months ended June 30, 2022, as compared to the same periods in the prior year. The increase in sales relative to the same period in the prior year was primarily due to incremental sales from our acquisition of SL Power, improved material availability, and increased demand for our products.

Sales in the Data Center Computing market decreased $0.3 million, or 0.4%, to $69.2 million for the three months ended June 30, 2022 and increased $16.8 million, or 13.1%, to $145.4 million for the six months ended June 30, 2022 as compared to the same periods in the prior year. The increase in Data Center Computing market sales during the

Table of Contents

six months ended June 30, 2022 is due in part to the digestion of equipment at key accounts in early 2021 and better supply availability, which enabled us to partially fulfill product shipments against higher customer demand.

Sales in the Telecom and Networking market increased $6.1 million, or 18.9%, to $38.0 million for the three months ended June 30, 2022 and $8.1 million, or 12.4%, to $73.4 million for the six months ended June 30, 2022 as compared to the same periods in the prior year. The increase in sales was primarily due to improved material availability enabling us to better meet higher customer demand.

GROSS PROFIT

For the three months ended June 30, 2022, gross profit increased $27.1 million to $162.2 million, or 36.8% of revenue, as compared to $135.0 million, or 37.4% of revenue, in the same period in the prior year. For the six months ended June 30, 2022, gross profit increased $33.9 million to $306.5 million, or 36.6% of revenue, as compared to $272.5 million, or 38.2% of revenue, in the same period in the prior year. The decrease in gross profit as a percent of revenue is largely related to higher material and freight costs. Additional drivers of our decrease in gross profit as a percentage of sales include productivity inefficiencies resulting from supply constraints, COVID-19 capacity restrictions, and the transition of our Shenzhen, People’s Republic of China manufacturing to Penang, Malaysia. These factors were partly offset by increased volume and favorable product mix.

OPERATING EXPENSE

Research and Development

We perform ~~research and development ("~~R~~&D")~~&D of products to develop new or emerging applications, technological advances to provide higher performance, lower cost, or other attributes that we may expect to advance our customers’ products. We believe that continued development of technological applications, as well as enhancements to existing products and related software to support customer requirements, are critical for us to compete in the markets we serve. Accordingly, we devote significant personnel and financial resources to the development of new products and the enhancement of existing products, and we expect these investments to continue.

Research and development expenses increased ~~$4.3~~$7.9 million to $48.0 million for the three months ended June 30, ~~2021~~2022 and increased ~~$9.7~~$11.3 million to $91.6 million for the six months ended June 30, ~~2021~~2022 as compared to the same ~~period~~periods in ~~2020.~~the prior year. The increase in research and development expense is related to the acquisition of SL Power, increased headcount and associated costs, outside technical services, and ~~material costs~~engineering materials as we ~~invested~~invest in new programs to maintain and increase our technological leadership and provide solutions to our customers’ evolving needs.

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 ("SG&A") expenses ~~decreased $0.1~~increased $6.9 million to $55.0 million for the three months ended June 30, ~~2021~~2022 and increased ~~$0.7~~$9.5 million to $104.3 million for the six months ended June 30, ~~2021~~2022 as compared to the same periods in ~~2020.~~the prior year. The increase in SG&A ~~for the six month period ended June 30, 2021~~ is principally related to ~~increased stock compensation~~acquisition related activities, sales commissions driven by higher revenue, an increase in

~~Table of Contents~~

~~the first quarter of 2021, primarily due to accelerated recognition of compensation related to our change in CEO, partially offset by decreased~~ headcount, and ~~facility costs principally associated with synergy activities.~~an increase in variable compensation.

Amortization of Intangibles

Amortization expense increased ~~$0.5~~$1.0 million to ~~$5.5~~$6.5 million during the three months ended June 30, ~~2021~~2022 and increased ~~$0.9~~$1.1 million to ~~$10.9~~$12.0 million ~~during~~for the six months ended June 30, ~~2021~~2022, as compared to the same ~~period~~periods in ~~2020.~~the prior year. The increase is primarily driven by incremental amortization of newly acquired intangible assets. For

Table of Contents

additional information, seeNote 2. Acquisitions and Note 12. Intangible Assets in Part I, Item 1 ~~“Unaudited~~"Unaudited Consolidated Financial Statements.”"

Restructuring

Restructuring charges relate to previously announced management plans to optimize our manufacturing footprint to lower cost regions, improvements in operating efficiencies, and synergies related to acquisitions. For additional information, see Note 13. Restructuring Costs in Part I, Item 1 ~~“Unaudited~~"Unaudited Consolidated Financial Statements."

OTHER INCOME (EXPENSE), NET

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

Other income (expense), net increased $6.9 million to $3.2 million for the three months ended June 30, ~~2021, other income (expense), net was ($3.7)~~2022 and increased $6.6 million ~~compared~~ to ~~other income (expense), net of ($1.6)~~$2.4 million for the same period in 2020. The increase in other expense is related to a decrease of ($0.8) million in our Artesyn tax indemnity receivable, prior year insurance recovery of $1.0 million, and slightly higher foreign currency related losses. For the six months ended June 30, ~~2021, other income (expense), net was ($4.2) million~~2022 as compared to ~~other income (expense) of ($5.1) million for~~ the same ~~period~~periods in ~~2020.~~the prior year. The ~~change~~increase in income between periods is primarily a result of higher unrealized foreign exchange gains due to ~~decreased~~the strengthening US dollar compared to our other foreign currencies. This was partially offset by higher interest expense ~~related to our September 2019 term note resulting from our~~on increasing interest ~~rate swap agreement executed in April 2020, and recorded discount from a facility draw by Bold Renewables Holdings, LLC in the prior period.~~rates.

PROVISION FOR INCOME TAXES

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Income from continuing operations, before income taxes	$	56,014		$	37,418		$	99,829		$	81,093
Provision for income taxes	$	11,203		$	1,876		$	18,156		$	7,160
Effective tax rate		20.0	%		5.0	%		18.2	%		8.8	%

Our effective tax rates differ from the U.S. federal statutory rate of 21% for the three and six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, primarily due to the benefit of earnings in foreign jurisdictions which are subject to lower tax rates, as well as tax credits, partially offset by net U.S. tax on foreign ~~operations and withholding taxes.~~operations. The effective tax rate for both the ~~first half of 2021~~three and six months ended June 30, 2022 was ~~lower~~higher than the same ~~period~~periods in ~~2020~~2021 primarily ~~due~~driven by the global impact to our provision from capitalizing and amortizing research and development expenses rather than immediately expensing them starting in 2022 as required by the ~~mix~~2017 Tax Cuts and Jobs Act. Congress has proposed tax legislation to delay the effective date of this change, but it is uncertain whether the proposed delay will ultimately be enacted into law. Additionally, there were beneficial discrete events ~~between the two periods.~~in 2021 that did not recur in 2022.

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

Non-GAAP Results

Management uses non-GAAP operating income and non-GAAP ~~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, make business decisions, including developing budgets and forecasting future periods. In addition, management’s incentive plans include these non-GAAP measures as criteria for achievements. These non-GAAP measures are not 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.

3334

Table of Contents

The non-GAAP results presented below exclude the impact of non-cash related charges, such as stock-based compensation, ~~and~~ amortization of intangible ~~assets.~~assets, and non-economic foreign exchange gains/losses. In addition, they exclude discontinued operations and other non-recurring items such as acquisition-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 and effect of adoption of the 2017 Tax Cuts and Jobs Act.


Reconciliation of Non-GAAP measure - operating expenses and operating income from continuing operations, excluding certain items (in thousands)	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Reconciliation of non-GAAP measure
Operating expenses and operating income from continuing operations,									Three Months Ended June 30,				Six Months Ended June 30,
excluding certain items (in thousands)									2022		2021		2022		2021
Gross profit from continuing operations, as reported	$	135,033	$	130,304	$	272,536	$	242,535	$	162,158	$	135,033	$	306,474	$	272,536
Adjustments to gross profit:
Stock-based compensation		215		156		565		378		402		215		633		565
Facility expansion, relocation costs and other		1,997		970		3,835		2,513		1,187		1,997		2,471		3,835
Acquisition-related costs		84		215		92		5,356		64		84		(438)		92
Non-GAAP gross profit		137,329		131,645		277,028		250,782		163,811		137,329		309,140		277,028
Non-GAAP gross margin		38.0%		38.7%		38.9%		38.3%		37.1%		38.0%		36.9%		38.9%

Operating expenses from continuing operations, as reported		93,953		94,828		187,274		181,251		109,393		93,953		209,052		187,274
Adjustments:
Amortization of intangible assets		(5,513)		(5,009)		(10,897)		(10,015)		(6,523)		(5,513)		(12,032)		(10,897)
Stock-based compensation		(3,229)		(2,681)		(8,580)		(5,507)		(4,656)		(3,229)		(8,353)		(8,580)
Acquisition-related costs		(2,328)		(2,978)		(4,356)		(5,383)		(4,159)		(2,328)		(5,827)		(4,356)
Facility expansion, relocation costs and other		(63)		(539)		(114)		(1,355)		—		(63)		—		(114)
Restructuring charges		(211)		(5,790)		(1,249)		(6,446)		161		(211)		(1,057)		(1,249)
Non-GAAP operating expenses		82,609		77,831		162,078		152,545		94,216		82,609		181,783		162,078
Non-GAAP operating income	$	54,720	$	53,814	$	114,950	$	98,237	$	69,595	$	54,720	$	127,357	$	114,950
Non-GAAP operating margin		15.1%		15.8%		16.1%		15.0%		15.8%		15.1%		15.2%		16.1%


Reconciliation of Non-GAAP measure - income from continuing operations, excluding certain items (in thousands, except per share amounts)	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Reconciliation of non-GAAP measure - income from continuing operations,									Three Months Ended June 30,				Six Months Ended June 30,
excluding certain items (in thousands, except per share amounts)									2022		2021		2022		2021
Income from continuing operations, less non-controlling interest, net of income taxes	$	35,511	$	29,295	$	73,869	$	47,678	$	44,790	$	35,511	$	81,666	$	73,869
Adjustments:
Amortization of intangible assets		5,513		5,009		10,897		10,015		6,523		5,513		12,032		10,897
Acquisition-related costs		2,412		3,193		4,448		10,739		4,223		2,412		5,389		4,448
Facility expansion, relocation costs and other		2,060		1,509		3,949		3,868
Facility expansion, relocation costs, and other										1,187		2,060		2,471		3,949
Restructuring charges		211		5,790		1,249		6,446		(161)		211		1,057		1,249
Unrealized foreign currency (gain) loss		885		1,058		(1,317)		1,058		(5,569)		885		(6,854)		(1,317)
Acquisition-related and other costs included in other income (expense), net		899		—		986		—
Acquisition-related costs and other included in other income (expense), net										85		899		85		986
Tax effect of non-GAAP adjustments		(2,043)		(2,595)		(3,327)		(3,965)		(752)		(2,043)		(1,821)		(3,327)
Non-GAAP income, net of income taxes, excluding stock-based compensation		45,448		43,259		90,754		75,839		50,326		45,448		94,025		90,754
Stock-based compensation, net of taxes		2,636		2,170		6,998		4,533		3,946		2,636		6,971		6,998
Non-GAAP income, net of income taxes	$	48,084	$	45,429	$	97,752	$	80,372	$	54,272	$	48,084	$	100,996	$	97,752
Non-GAAP diluted earnings per share	$	1.25	$	1.18	$	2.53	$	2.09	$	1.44	$	1.25	$	2.68	$	2.53

3435

Table of Contents

Impact of Inflation

In ~~recent~~previous years, inflation has not had a significant impact on our operations. However, more recently we ~~have seen~~are experiencing inflationary pressure from price increases in select components ~~related to the~~driven by factors such as higher global demand, supply chain ~~shortages. We continuously monitor operating price increases, particularly in connection~~disruptions, higher labor expenses, and increased freight costs. In this environment, we are actively working 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~~adjust pricing that helps offset the inflationary pressure on the cost ~~structure~~ of our ~~products from cost improvement initiatives and decreases in component part prices~~.components.

Liquidity and Capital Resources

~~LIQUIDITY~~Liquidity

We believe that adequate liquidity and cash generation is important to the execution of our strategic initiatives. Our ability to fund our operations, acquisitions, capital expenditures, and product development efforts may depend on our ability to generate cash from operating activities which is subject to future operating performance, as well as general economic, financial, competitive, legislative, regulatory, and other conditions, some of which may be beyond our control. Our primary sources of liquidity are our available cash, investments, ~~and~~ cash generated from current ~~operations.~~operations, and available borrowing capacity under the Revolving Facility (defined in Note 18. Credit Facility in Part I, Item 1 "Unaudited Consolidated Financial Statements").

~~At June 30, 2021, we had $510.0 million in~~The following table summarizes our cash, cash equivalents, and marketable ~~securities.~~ securities (in thousands):


	June 30, 2022
Cash and cash equivalents	$	372,685
Marketable securities		2,162
Total cash, cash equivalents, and marketable securities	$	374,847

We believe ~~that our current cash levels and our cash flows from future operations~~the above sources of liquidity will be adequate to meet anticipated working capital needs, anticipated levels of capital expenditures, ~~and~~ contractual obligations, debt repayment, share repurchase programs, and dividends for the next twelve ~~months.~~months and on a long-term basis. In addition, we may, depending upon the number or size of additional acquisitions, seek additional debt or equity financing from time to time; however, such additional financing may not be available on acceptable terms, if at all.

Credit Facility

In connection with the Artesyn acquisition in 2019, the Company entered into a credit agreement (the "Credit Agreement") that provided aggregate financing of $500.0 million, consisting of a $350.0 million senior unsecured term loan facility (the "Term Loan Facility") and a $150.0 million senior unsecured revolving facility (the "Revolving Facility"). Both the Term Loan Facility and the Revolving Facility mature on September 10, 2024. At June 30, 2021, we had $150.0 million in available funding under the Revolving Facility. The Term Loan Facility requires quarterly repayments of $4.4 million, plus accrued interest, with the remaining balance due in September 2024. For ~~more~~ information on ~~the~~our Credit Facility, see Note ~~19.~~18. Credit Facility and Note 7. Derivative Financial Instruments in Part I, Item 1 "Unaudited Consolidated Financial Statements."

~~Stock Repurchase~~

~~To execute the repurchase of shares of common stock, the Company periodically enters into stock repurchase agreements.~~ The following table summarizes ~~these repurchases:~~borrowings under our Credit Facility and the associated interest rate (in thousands, except for interest rates).

Three Months Ended June 30,

Six Months Ended June 30,
(in thousands, except per share amounts)

2021

2020

2021

2020
Amount paid to repurchase shares

$
6,503

$
—

$
6,503

$
7,248
Number of shares repurchased

72

—

72

170
Average repurchase price per share

$
90.34

$
—

$
90.34

$
42.59
Remaining authorized by Board of Directors for future repurchases as of period end

$
31,866

$
42,751

$
31,866

$
42,751


	June 30, 2022
	Balance		Interest Rate	Unused Line Fee
Term Loan Facility subject to a fixed interest rate	$	246,969	1.271%	—
Term Loan Facility subject to a variable interest rate		138,031	2.416%	—
Revolving Facility subject to a variable interest rate		—	2.416%	0.10%
Total borrowings under the Credit Agreement	$	385,000

As of June 30, 2022, we had $200.0 million in available funding under the Revolving Facility. The Term Loan Facility requires quarterly repayments of $5.0 million plus accrued interest, with the remaining balance due in September 2026.

~~On July 29, 2021,~~In addition to the ~~Board~~available capacity on the Revolving Facility, prior to the maturity date of ~~Directors approved~~our Credit Agreement, we may also request an increase to the ~~share repurchase program, which authorized~~financing commitments in either the ~~Company to repurchase up to $200 million with no time limitation.~~

~~We believe our current cash levels, available borrowing capacity under the~~Term Loan Facility or Revolving Facility ~~as well as expected cash generation from future operations, will be adequate~~by an aggregate amount not to ~~meet~~exceed $250.0 million at identical terms to our working capital requirements, debt repayment and capital expenditures, contractual obligations, share repurchase programs, and additional acquisitions on long-term and short-term basis. We may, however, depending upon the number or size of additional acquisitions, seek additional financing from time to time.existing Credit Facility.

3536

Table of Contents

Dividends

In ~~December 2020,~~March 2021, the ~~Company's~~ Board of Directors ~~("the Board"~~(the "Board") ~~approved a dividend program under which we intend to pay a quarterly cash dividend of $0.10 per share of capital stock. In March 2021, we paid~~declared the first quarterly cash dividend since our inception as a public company. During the six months ended June 30, ~~2021,~~2022, we paid quarterly cash dividends of $0.10 per share totaling ~~$7.7~~$7.6 million. ~~Future~~We currently anticipate that a cash dividend ~~payments are subject~~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 financial condition, results of operations, capital requirements, business conditions, and other factors.

Share Repurchase

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


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share amounts)	2022		2021		2022		2021
Amount paid or accrued to repurchase shares	$	17,019	$	6,503	$	23,613	$	6,503
Number of shares repurchased		230		72		312		72
Average repurchase price per share	$	74.12	$	90.34	$	75.68	$	90.34

At June 30, 2022, the remaining amount authorized by the Board of Directors for future share repurchases was $104.8 million. In July 2022, the Board of Directors approved an increase to the ~~Board's approval.~~share repurchase plan that changed the remaining amount authorized for future repurchases to a maximum of $200.0 million with no time limitation.

~~CASH FLOWS~~Cash Flows

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


	Six Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2022		2021
Net cash from operating activities from continuing operations	$	88,066	$	67,560	$	47,541	$	88,066
Net cash from operating activities from discontinued operations		(377)		(586)		55		(377)
Net cash from operating activities		87,689		66,974		47,596		87,689
Net cash from investing activities from continuing operations		(32,889)		(14,489)		(171,255)		(32,889)
Net cash from financing activities from continuing operations		(26,239)		(17,390)		(42,840)		(26,239)
Effect of currency translation on cash		(1,753)		(899)
Increase in cash and cash equivalents		26,808		34,196
Effect of currency translation on cash and cash equivalents						(5,188)		(1,753)
Net change in cash and cash equivalents						(171,687)		26,808
Cash and cash equivalents, beginning of period		480,368		346,441		544,372		480,368
Cash and cash equivalents, end of period	$	507,176	$	380,637	$	372,685	$	507,176

~~2021 CASH FLOWS COMPARED TO 2020~~

Net ~~cash from operating activities~~Cash From Operating Activities

Net cash from operating activities from continuing operations for the six months ended June 30, ~~2021~~2022, was ~~$88.1~~$47.5 million, as compared to ~~$67.6~~$88.1 million for the same period in ~~2020.~~the prior year. The ~~increase~~decrease of ~~$20.5~~$40.6 million in net cash flows from operating activities as compared to the same period in ~~2020,~~the prior year is due to an unfavorable increase in net operating assets driven primarily by our increased ~~profitability~~investment in inventory as ~~a result~~we attempted to mitigate supply chain constraints.

Table of ~~increased sales.~~Contents

Net Cash From Investing Activities

Net cash from investing activities for the six months ended June 30, 2022 was ($171.3) million, driven by the following:

●

($145.8) million for business combinations; and

●

($25.5) million in purchases of property and equipment largely driven by investments in our manufacturing footprint and capacity.

Net cash from investing ~~activities~~ for the six months ended June 30, 2021 was ($32.9) million, driven by the ~~use of $18.7 million for business combinations and $14.2 million related to investment in capacity and facilities as we continue to integrate certain locations.~~ following:

●

($14.2) million in purchases of property and equipment largely driven by investments in our manufacturing footprint and capacity; and

●

($18.7) million for business combinations.

Net Cash From Financing Activities

Net cash from ~~investing~~financing activities for the six months ended June 30, ~~2020~~2022 was ($~~14.5)~~42.8) million and ~~primarily related to investment in facilities and capacity.~~included the following:

●

($23.6) million related to repurchases of our common stock;

●

($10.0) million for repayment of long-term debt;

●

($7.6) million for dividend payments; and

●

($1.7) million in net payments related to stock-based award activities.

~~Net cash from financing activities~~

Net cash from financing activities for the six months ended June 30, 2021 was ($26.2) million and included the following:

●

($6.5) million related to repurchases of our common stock;

●

($8.8) million for repayment of long-term debt;

●

($3.3) million in net payments related to stock-based award activities; and

●

($7.7) million for dividend payments.

Effect of ~~long-term debt, ($7.7) million for dividend payments, ($6.5) million related to repurchases of our common stock,~~Currency Translation on Cash

During the three and ~~($3.3) million in net payments related to stock-based award activities. Net cash from financing activities for the~~ six months ended June 30, 2020 was ($17.4) million and included ($8.8) million for repayment of long-term debt, ($7.2) million related to repurchases of our common stock, and ($1.4) million in net payments related to stock-based award activities.

~~Table of Contents~~

~~Effect of currency translation on cash~~

~~During the six months ended June 30, 2021,~~2022, currency translation had an unfavorable impact primarily due to a stronger U.S. dollar. See "Foreign Currency Exchange Rate Risk" in Part I, Item 3 of this Form 10-Q for more information.

Table of Contents

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Note 1. Operation and Summary of Significant Accounting Policies and Estimates to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021, describes the significant accounting policies and methods used in the preparation of our consolidated financial statements. Our critical accounting estimates, discussed in the "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020, include 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. 2021, include:

●

estimates for the valuation of assets and liabilities acquired in business combinations;

●

accounting for income taxes;

●

inputs to actuarial models that measure our pension obligations; and

●

assessing excess and obsolete inventories.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk and Risk Management

In the normal course of business, we have exposures to interest rate risk from our investments and credit facility. We have exposure to foreign exchange rate risk related to our foreign operations and foreign currency ~~transactions and interest rate risk from our investments and credit facility.~~transactions.

See the "Risk Factors" set forth in Part I, Item 1A of our Annual Report on Form 10-K and Part II, Item 1A of this Form 10-Q for more information about the market risks to which we are exposed. There have been no material changes in our exposure to market risk from December 31, ~~2020.~~2021.

Foreign Currency Exchange Rate Risk

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

Our reported financial results of operations, including the reported value of our assets and liabilities, are also impacted by changes in foreign currency exchange rates. Assets and liabilities of substantially all our subsidiaries outside the U.S. are translated at period end rates of exchange for each reporting period. Operating results and cash flow statements are translated at ~~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 ~~USD, EUR, KRW, TWD, ILS, GBP,~~United States Dollar (USD), Euro, South Korean Won, New Taiwan Dollar, Japanese Yen, Pound Sterling, and ~~CNY.~~Chinese Yuan. Our purchasing and sales activities are primarily denominated in the USD, ~~JPY, EUR,~~Japanese Yen, Euro, and ~~CNY.~~Chinese Yuan.

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

Table of Contents

As currencies fluctuate against each other we are exposed to foreign currency exchange rate risk on sales, purchasing transactions, and labor. Exchange rate fluctuations could require us to increase prices to foreign customers, which could result in lower net ~~sales by us to such customers.~~sales. Alternatively, if we do not adjust the prices for our

~~Table of Contents~~

products in response to unfavorable currency fluctuations, our results of operations could be adversely impacted. Changes in the relative buying power of our customers may impact sales ~~volumes either positively or negatively.~~volumes.

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

~~The change in key currency rates were as follows:~~

Six Months Ended June 30,

From

To

2021

2020

Canadian Dollar (CAD)

USD

2.8
%
(4.6)
%
Swiss Franc (CHF)

USD

(4.6)
%
1.9
%
Chinese Yuan (CNY)

USD

1.2
%
(1.4)
%
Danish Krone (DKK)

USD

(3.3)
%
0.4
%
Euro (EUR)

USD

(3.3)
%
0.1
%
Pound Sterling (GBP)

USD

1.3
%
(6.5)
%
Israeli New Shekel (ILS)

USD

(1.4)
%
—
%
India Rupee (INR)

USD

(1.8)
%
(5.3)
%
Japanese Yen (JPY)

USD

(7.1)
%
0.9
%
South Korean Won (KRW)

USD

(3.9)
%
(3.7)
%
Philippines Peso (PHP)

USD

(1.7)
%
1.8
%
Singapore Dollar (SGD)

USD

(1.7)
%
1.8
%
New Taiwan Dollar (TWD)

USD

0.6
%
(3.5)
%

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

Interest Rate Risk

Our market risk exposure relates primarily to changes in interest rates inon our investment portfolio. We generally place our investments with high-credit quality issuers. By policy, we 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 June 30, 2021, our investments consisted primarily of certificates of deposit with maturity of less than one year. As a measurement of the sensitivity of our portfolio and if our investment portfolio balances remain constant, a hypothetical decrease of 100 basis points (1%) in interest rates would decrease annual pre-tax earnings by a nominal amount.

~~Table of Contents~~

Credit Facility. The following table summarizes borrowings (in thousands) under our Credit Facility and the associated interest rate.


	June 30, 2022
	Balance		Interest Rate	Unused Line Fee
Term Loan Facility subject to a fixed interest rate	$	246,969	1.271%	—
Term Loan Facility subject to a variable interest rate		138,031	2.416%	—
Revolving Facility subject to a variable interest rate		—	2.416%	0.10%
Total borrowings under the Credit Agreement	$	385,000

For more information on the Term Loan Facility see Note ~~19.~~18. Credit Facility in Part I, Item 1 "Unaudited Consolidated Financial Statements." For more information on the interest rate swap that fixes the interest rate for a portion of our Term Loan Facility, see Note 7. Derivative Financial Instruments in Part I, Item 1 "Unaudited Consolidated Financial Statements." The Term Loan Facility and Revolving Facility bear interest, at ~~the~~our option, ~~of the Company,~~ at a rate based on a reserve adjusted "Eurodollar Rate" or "Base Rate," as defined in the Credit Agreement, plus an applicable margin.

Our interest payments are impacted by interest rate fluctuations. With respect to the portion of our Credit Facility that is subject a variable interest rate, a hypothetical increase of 100 basis points (1%) in interest rates would ~~increase~~have a $1.4 million annual impact on our ~~commitments by an immaterial amount.~~interest expense. A change in interest rates does not have ana material impact upon our future earnings and cash flow for fixed rate debt. However, increases in interest rates could impact our ability to refinance existing maturities and acquire additional debt on favorable terms.

Table of Contents

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 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 Act is accumulated and communicated to management, including our Principal Executive Officer (Stephen D. Kelley, President and Chief Executive Officer) and Principal Financial Officer (Paul Oldham, 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 Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, ~~2021.~~2022. The conclusions of the Chief Executive Officer and Chief Financial Officer from this evaluation were communicated to the Audit Committee. 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 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

We are involved in disputes and legal actions arising in the normal course of our business. ~~Since December 31, 2020, there~~Although it is not possible to predict the outcome of these matters, we believe that the results of these proceedings will not have ~~been no~~a material ~~developments in legal proceedings in which we are involved. For a description~~adverse effect on our financial condition, results 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, 2020.~~

operations, or liquidity.

ITEM 1A. RISK FACTORS

~~Our business, financial condition, operating results, and cash flows can be impacted by a number of~~Information concerning our risk 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 material 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 report and other reports we file with the Securities and Exchange Commission.

~~COVID-19, natural disasters, and related risks~~

~~COVID-19 could further materially adversely affect our business, workforce, supply chain, results of operations, financial condition and/or cash flows.~~

The ongoing impact of COVID-19 and related foreign and domestic government actions restricting travel, commerce and gathering has adversely affected our manufacturing locations. COVID-19 has also resulted in economic recessions and high unemployment in many countries which could negatively impact future customer purchases of our products. If COVID-19 continues to spread and restrictions remain in place or are reinstituted, we may continue to see adverse impact on our ability (a) to manufacture, test, service and ship our products, (b) to get required materials and sub-assemblies to build and service our products and (c) to staff labor and management for manufacturing, research and development, supply chain, service, and administrative operations. Further, we may continue to experience adverse impact with our global supply chain partners, critical subassembly suppliers, parts distributors, and transportation service providers, which may result in increased costs, material shortages, and the inability to fully meet our customers’ demand. For example, in the first half of 2021 the combination of increased demand for semiconductor and other select components and the ongoing impact of COVID-19 has affected global electronics markets and impacted our ability to ship to our full demand levels. We expect these conditions will continue through the remainder of 2021 and will continue to adversely impact our ability to ship products to customers. After 2021, it is not known how long or significant this shortage will be, but it may continue to impact our results. In addition, much of our workforce continues to work remotely. While we have been successful in transitioning to this remote environment, the long-term impact on productivity and innovation is not yet clear. As a result, COVID-19 and its variants could adversely impact our near-term and long-term revenues, earnings and cash flow and could require further expenditures. This situation continues to evolve, and other impacts may arise that we are not aware of currently. We have an active rapid response team to mitigate risks we are aware of currently and as they arise.

~~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.

~~Table of Contents~~

~~Industry-related risks~~

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

As a supplier to the global semiconductor equipment, telecom, networking, data center computing, industrial, and medical industries, we are subject to business cycles, the timing, length, and volatility of which can be difficult to predict. Certain of 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. 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 enough manufacturing capacity and inventory to fulfill customer orders, effectively manage our supply chain, and attract, retain, and motivate enough 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. For example, following record levels of demand in the first half of 2018, the Semiconductor Equipment market experienced a decline, and, as a result, Advanced Energy’s revenue from the Semiconductor Equipment market declined 24.5% during 2019, as compared to 2018. Although the Semiconductor Equipment market improved during the fourth quarter of 2019 and throughout 2020, it is unclear how long this recovery will last. In addition, the market may be characterized in the future with more "mini-ramps" rather than sustained growth periods as experienced during 2015-2017 given market dynamics, inventory levels, and geopolitical changes. In addition, our Data Center Computing and Telecom and Networking markets are characterized by large program investments, which can cause variations in quarterly or annual revenues. For example, during 2020 our growth in Data Center Computing and Telecom and Networking has been driven by share gains at specific customer accounts. Towards the end of 2020, we began to experience a period of digestion by our major customers resulting in lower demand. This digestion continued in the first half of 2021 and overall business levels may not continue to be realized at these levels each quarter.

~~We must achieve design wins to retain our existing customers and to obtain new customers, even though design wins may be achieved, they may 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. Increasingly, we are required to accelerate our investment in research and development to meet time-to-market, performance and technology adoption cycle needs of our customers simply to compete for design wins. Given such up-front investments we make to develop, evaluate, and qualify products in the design win process, our success and future growth depend 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 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. If existing or new customers do not choose us during the design win process, our market share will be reduced, the potential revenues related to the lifespan of our customers’ products, which can be five to ten years, will not be realized, and our business, financial condition and results of operations would be materially and adversely impacted.

~~Table of Contents~~

~~Business model, acquisitions, and capital structure related risks~~

~~Despite the continued evolution of our manufacturing footprint our product lines are manufactured at only a few sites and our sites are not generally interchangeable.~~

Our power products for the semiconductor industry are manufactured in Shenzhen, PRC and Penang, Malaysia. Our high voltage products are manufactured in Ronkonkoma and Lockport, New York, Littlehampton, United Kingdom and Shenzhen, PRC. Our thermal instrumentation products are manufactured in Vancouver, Washington, Littlehampton, United Kingdom and Frankfurt, Germany. Our pyrometry solutions are manufactured in Ballerup, Denmark, Frankfurt, Germany, Magdeburg, Germany and Vancouver, Washington. Our telecom, networking, data center computing, and medical products are manufactured in Zhongshan, PRC, Rosario, Philippines and Santa Rosa, Philippines. Most facilities are 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, is not interchangeable. Natural, uncontrollable occurrences or other operational issues at any of our manufacturing facilities could significantly reduce or disrupt our productivity at such site and could prevent us from meeting our customers’ requirements in a timely manner, or at all.

Additionally, we have a plan to relocate our Shenzhen, PRC manufacturing facility by December 2021. As a result, we are investing in a dual manufacturing facility in Penang, Malaysia capable of manufacturing our semiconductor and other products. We believe this investment will help to mitigate our exposure to regional risks, improve our business continuity profile and lower costs over time. We opened this facility in 2020; however, it may take additional time to realize the facility’s full production capacity given the impact of COVID-19.

~~Our long-term success and results of operations depend on our ability to successfully integrate Artesyn’s business and operations and realize the anticipated benefits from the acquisition.~~

In September 2019, we acquired Artesyn, and we are continuing to combine Artesyn’s business with our business. The acquisition of Artesyn has significantly increased our embedded power product offerings, increased our exposure to the Industrial and Medical, Data Center Computing, and Telecom and Networking markets, and significantly increased the number of employees and facilities.

To realize the anticipated benefits of the acquisition, we must continue to combine our businesses in an efficient and effective manner and realize our synergy and cost-savings targets. Integrating Artesyn’s business and operations with ours requires significant management attention, effort, and expenditures, and we may not be able to achieve the longer-term integration goals in an effective, complete, timely or cost-efficient manner.

~~Potential risks related to the successful integration of Artesyn’s business include our ability to:~~

●

~~maintain and improve Artesyn’s financial and operating results while integrating and optimizing our combined sales, marketing, manufacturing, and corporate administrative organizations;~~

●

~~optimize our combined worldwide manufacturing footprint while utilizing Artesyn’s vertically integrated manufacturing model for a broader set of Company products;~~

●

~~successfully eliminate fixed costs previously absorbed by other businesses prior to the transaction;~~

●

~~recognize and capitalize on anticipated product sales and technology enhancement opportunities presented by our combined businesses;~~

●

~~integrate our information technology systems to mitigate cyber-security risks and enable the management and operation of the combined business.~~

If we are unable to successfully or timely integrate the operations of Artesyn’s business into our business over the long-term, we may be unable to realize the long-term revenue growth, synergies, cost-savings, and other anticipated benefits resulting from the acquisition and our business could be adversely affected. Additionally, we have and may continue to incur transaction-related costs, including legal, regulatory, and other costs associated with implementing integration plans, including facilities and systems consolidation costs and employment-related costs. Artesyn’s business

~~Table of Contents~~

~~and operations may not achieve the anticipated revenues and operating results. Any of the foregoing risks could materially harm our business, financial condition, and results of operations.~~

Our debt obligations and the restrictive covenants in the agreements governing our debt could limit our ability to operate our business or pursue our business strategies, could adversely affect our business, financial condition, results of operations, and cash flows, and could significantly reduce stockholder benefits from a change of control event.

Our debt obligations could make us more vulnerable to general adverse economic and industry conditions and could limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate, thereby placing us at a disadvantage to our competitors that have less indebtedness.

Our debt obligations impose financial covenants on us and our subsidiaries that require us to maintain a certain leverage ratio. The financial covenants place certain restrictions on our business that may affect our ability to execute our business strategy successfully or take other actions that we believe would be in the best interests of our Company. These include limitations or restrictions, among other things, on our ability and the ability of our subsidiaries to:

●

~~incur additional indebtedness;~~

●

~~pay dividends or make distributions on our capital stock or certain other restricted payments or investments;~~

●

~~make domestic and foreign investments and extend credit;~~

●

~~engage in transactions with affiliates;~~

●

~~transfer and sell assets;~~

●

~~effect a consolidation or merger or sell, transfer, lease, or otherwise dispose of all or substantially all our assets; and~~

●

~~create liens on our assets to secure debt.~~

Our debt obligations contain certain customary events of default. Any breach of the covenants or other event of default could cause a default on our debt obligations, which could restrict our ability to borrow under our revolving credit facility. If there were an event of default under certain provisions of our debt arrangements that was not cured or waived, the holders of the defaulted debt may be able to cause all amounts outstanding with respect to the debt instrument, plus any required settlement costs, to be due and payable immediately. Our assets and cash flow may not be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default. If we are unable to repay, refinance, or restructure our indebtedness as required, or amend the covenants contained in ~~these agreements, the lenders can exercise all rights and remedies available under our Credit Agreement or applicable laws or equity.~~

~~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, 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 number 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, 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 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 enough raw materials, parts, components, or subassemblies, on favorable terms or at all, to fulfill the excess demand. In addition, given the proprietary nature of our

~~Table of Contents~~

products, many of these parts are sole sourced or not easily interchangeable. For example, entering 2021 there was a global shortage of certain electronics and semiconductor parts given the emerging higher global demand for tech goods and the impact of COVID-19 and other disruptions on the global supply chain. If we are not able to obtain parts in a reasonable timeframe and at a reasonable cost our business may be adversely impacted.

~~Activities necessary to integrate acquisitions may result in costs more than 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 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 transitioned a significant amount of our supply base to Asian suppliers.~~

We transitioned the purchasing of a substantial portion of components for our 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.

~~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 of future sales or commitments from our current customers, which may diminish our ability to allocate labor, materials, and equipment in 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. Our customers continually exert pressure on us to reduce our prices and extend payment terms and we may be required to enter into long term reduced pricing agreements with our largest customers to remain competitive. In addition, we compete in markets in which customers may include dual or multi-sourcing of power. We believe some of our Asian competitors benefit from local governmental funding incentives and purchasing preferences from end-user customers in their respective countries. 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, product offerings and product costs accordingly, and if we are unable to do so, our business, financial condition, and results of operations could be materially and adversely affected.

~~Table of Contents~~

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

~~The following table summarizes the percentage of total sales derived from our ten largest customers:~~

Six Months Ended June 30,

Years Ended December 31,


2021

2020

2019
Ten largest customers

57.7
%

58.0
%

57.3
%

~~The following table summarizes sales to and percentage of total sales from Applied Materials, Inc. and Lam Research Corp., our two largest customers (in thousands):~~

Six Months Ended June 30,

Years Ended December 31,

2021

2020

2019
Applied Materials, Inc.

$
141,621

19.9
%

$
248,350

17.5
%

$
164,724

20.9
%
Lam Research

*

*
%

$
141,778

10.0
%

$
88,251

11.2
%

The following table summarizes the accounts receivable balances, and percentages of the total accounts receivable, for customers that individually accounted for 10% or more of accounts receivable (in thousands):

June 30,


December 31,

2021

2020

Applied Materials, Inc.

$
41,397

17.0
%

$
33,402

14.2
%
Nidec Motor Corporation

*

*
%

$
24,344

10.4
%

* Customer’s balance was less than 10% of total.

A significant decline in sales from large customers, or the Company’s inability to collect on these sales, could materially and adversely impact our business, results of operations and financial condition.

~~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 competitive position. Our success in hiring and retaining employees depends on a variety of factors, including the attractiveness of our compensation and benefit programs, global economic or political and industry conditions, our organizational structure, our reputation, culture and working environment, competition for talent and the availability of qualified employees, the availability of career development opportunities, and our ability to offer a challenging and rewarding work environment. We must develop our personnel to provide succession plans capable of maintaining continuity during 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.

~~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.

~~Table of Contents~~

~~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.

~~Commercial and financial related risks~~

~~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 customers or 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. Generally, our efforts to obtain international patents have been concentrated in the European Union and certain industrialized countries in Asia, including Korea, 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.

Our operations in the People’s Republic of China (PRC) and the Asia Pacific region 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 and tariffs, 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. At various times during recent years, the U.S. and PRC have had significant disagreements over geopolitical, trade and economic issues. Controversies may arise in the future between these two countries. Any escalating political controversies between the U.S. and PRC, whether or not directly related to our business, could 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.

Additionally, there is inherent risk, based on the complex relationships among PRC, Hong Kong, Taiwan, and the United States, that political, diplomatic, and national security influences might lead to trade, technology, or capital disputes, and/or disruptions, in particular those affecting the semiconductor industry. This would adversely affect our business with PRC, Hong Kong, and/or Taiwan and perhaps the entire Asia Pacific region or global economy.

Actions by the Chinese government extending its territorial claims, such as the recent passage of the national security law in Hong Kong and the planned establishment of an Air Defense Identification Zone over the South China Sea, raises the fear of conflict that could result in international reprisal. Actions by the U.S. government on trade policy against the PRC and companies like Huawei Technologies Co., Ltd. have also escalated tensions. Lastly, the recent U.S. and PRC consulate closures and the continuing Hong Kong political unrest is creating more uncertainty. Should the PRC take any actions against Taiwan, we could see additional risks to diplomatic and trade relations in the region. Given our expanded presence in the PRC and Hong Kong, the Company’s business results, operations and financial condition could be adversely affected by these developments and other changes to political, diplomatic, and social conditions.

~~Table of Contents~~

~~Moreover, PRC’s policies towards, and treatment of, U.S. companies operating in PRC and Hong Kong could change quickly resulting in an adverse impact on the Company.~~

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

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.

Sales to our customers outside the United States were approximately 68.7% and 59.2% of our total sales for the year ended December 31, 2020 and 2019, respectively. Our acquisitions 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 enough 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 significant balances in accounts receivable from foreign customers; 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.

~~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 and has negatively impacted the global demand for our products. Some of our key markets depend largely on consumer spending. Economic uncertainty exacerbates negative trends in consumer spending and may cause our customers to push out, cancel, or refrain from placing orders.

Difficulties or increased costs 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 including inflation, interest rates, availability of capital markets, consumer spending rates, energy availability and costs and the effects of government initiatives to manage 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 results of operations.

~~Table of Contents~~

~~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 impact of control failures in the event of non-compliance.

~~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 increasing claims from customers and suppliers and increasing litigation related to the legacy inverter product line. We review such claims and vigorously defend against such lawsuits in the ordinary course of our business. We cannot assure that any such claims or litigation brought against us will not have a material adverse effect on our business or financial statements. Our involvement in such litigation could result in significant expense to us and divert the efforts of 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 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 additional expenses in the line "Income (loss) from discontinued operations, net of income taxes" 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 4. Disposed and Discontinued Operations~~ in Part ~~II,~~I, Item ~~8 "Financial Statements and Supplementary Data" contained~~1A, “Risk Factors in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~

~~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 (loss) from discontinued operations, net of income taxes." See ~~Note 4. Disposed and Discontinued Operations~~ ~~in Part II, Item 8 "Financial Statements and Supplementary Data" contained~~2021. The risks described in our Annual Report on Form 10-K ~~for~~are not the ~~year ended December 31, 2020.~~

~~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, we have large, long term liabilities such

~~Table of Contents~~

as local lease and pension liabilities in Europe and Asia creating more significant exposure to fluctuations in the value of the Euro, Philippine Peso, and Chinese Yuan. The Company does not attempt to hedge these exposures given the long-term nature of the underlying liabilities and the non-cash nature of the foreign exchange gain or loss.

The PRC government is continually pressured by its trading partners to allow its currency to float in a manner like other major currencies. Any change in the value of the Chinese yuan could significantly increase the labor and other costs incurred in the operation of our Shenzhen and Zhongshan facilities and the cost of raw materials, parts, components, and subassembliesonly risks that we ~~source in the PRC, which could~~face; additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially ~~and~~ adversely affect ~~our results of operations.~~

~~The United Kingdom’s exit from 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 European Union ("EU"). On January 23, 2020, the UK left the EU, which is commonly referred to as "Brexit," and was in a transitionary period through December 31, 2020. As of January 1, 2021, EU Trade Agreements no longer apply to the UK. The UK has taken steps to reproduce the effects of trading agreements that previously applied through the provisional application of new trade agreements not yet ratified and has introduced the UK Global Tariff. These changes result in increased regulatory complexities on imports and exports between the UK and EU countries and may adversely affect our sales, operations, and financial results. Our operations in the UK may be adversely affected by significant fluctuations in the UK exchange rates and increased administrative costs and tariffs on the importation of parts for manufacturing and repair services. 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.

~~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. The acquisition of Artesyn added additional information systems that are initially different from current systems. 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, because 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 usernames, 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.

~~Table of Contents~~

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 our 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. We have experienced increased litigation related to our legacy inverter product line. 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 our pension plan.~~

~~We currently~~operating results. There have ~~unfunded obligations to our pension plans. The extent of future contributions~~been no material changes to the ~~pension plan depends heavily on market~~risk 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 17. Employee Retirement Plans and Postretirement Benefits~~ ~~in Part II, Item 8 "Financial Statements and Supplementary Data" contained~~previously disclosed in our Annual Report on Form ~~10-K for the year ended December 31, 2020.~~

~~Our intangible assets may become impaired.~~

~~The following table summarizes our goodwill and intangible assets (in thousands):~~

June 30,

2021
Goodwill

$
214,211
Intangible assets, net

170,914
Total

$
385,125

We periodically review the estimated useful lives of our 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 changes 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 of operations and could harm the trading price of our common stock.

~~International trade, tax, and regulatory related risks~~

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

U.S. government actions are imposing greater restrictions and economic disincentives on international trade. It has initiated the imposition of additional tariffs on certain foreign goods, including steel and aluminum, semiconductor manufacturing equipment and spare parts thereof and has also announced the imposition of import license requirements on aluminum articles. The government has amended and expanded export regulations regarding sales to companies on the U.S. Entity List. These changes prevent sales of foreign produced direct product of the U.S. that is manufactured10-K.

~~Table of Contents~~

using controlled U.S.-origin equipment, technology, and software located outside the United States to companies on the U.S. Entity List. Additionally, the U.S. Department of Defense continues to issue lists of companies it has determined to be owned or controlled by China’s People’s Liberation Army on which sanctions could be levied by executive order, and the Department of Commerce has published their "first tranche" of designated military end users from China and Russia for whom export licenses are now required.

Furthermore, the government has determined that the Special Administrative Region of Hong Kong is no longer sufficiently autonomous to justify being treated as separate from China and has eliminated certain license exceptions for the export of controlled goods to Hong Kong and has removed Hong Kong as a separate shipping destination under the Export Administration Regulations ("EAR").

In response to U.S. Government actions, China passed the Export Control Law of the People’s Republic of China, effective December 1, 2020. The Export Control Law provides the Chinese government with the framework to ban exports of strategic materials and advanced technologies to specific foreign entities on its Control List and also provides a counterweight to the U.S. government’s restrictions through provisions for retaliatory action and extraterritorial jurisdiction.

Changes in U.S. trade policy could result in one or more U.S. trading partners adopting responsive trade policy making it more difficult or costly for us to export our products to those countries. As indicated above, these measures could also result in increased costs for goods imported into the U.S. This in turn could require us to increase prices to our customers which may reduce demand, or, if we are unable to increase prices, result in lowering our margin on goods and services sold. To the extent that trade tariffs and other restrictions imposed by the U.S. increase the price of semiconductor equipment and related parts imported into the U.S., the cost of our materials may be adversely affected and the demand from customers for products and services may be diminished, which could adversely affect our revenues and profitability.

The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could adversely impact our business, financial condition, and results of operations.

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.

~~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.

~~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 by their nature are complex and 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

~~Table of Contents~~

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 several other countries are actively considering changes in this regard.

~~Changes in our provision for income taxes or adverse outcomes resulting from examination of our income tax returns could adversely affect our results.~~

Our provision for income taxes is subject to volatility and could be adversely affected by earnings being lower than anticipated in countries that have lower tax rates and higher than anticipated in countries that have higher tax rates; by changes in the valuation of our deferred tax assets and liabilities; by changes, regulations, and interpretations of foreign-derived intangible income ("FDII"), global intangible low-tax income ("GILTI") and base erosion and anti-abuse tax laws ("BEAT"); by expiration of or lapses in tax incentives; by transfer pricing adjustments, including the effect of acquisitions on our legal structure; by tax effects of nondeductible compensation; by tax costs related to intercompany realignments; by changes in accounting principles; or by changes in tax laws and regulations, treaties, or interpretations thereof, including changes to the taxation of earnings of our foreign subsidiaries, the deductibility of expenses attributable to foreign income, and the foreign tax credit rules. Significant judgment is required to determine the recognition and measurement attribute prescribed in the accounting guidance for uncertainty in income taxes. The Organization for Economic Co-operation and Development ("OECD"), an international association comprised of 36 countries, including the United States, has made changes to numerous long-standing tax principles. There can be no assurance that these changes, once adopted by countries, will not have an adverse impact on our provision for income taxes. Further, because of certain of our ongoing employment and capital investment actions and commitments, our income in certain countries is subject to reduced tax rates. Our failure to meet these commitments could adversely impact our provision for income taxes. In addition, we are the subject of regular examination of our income tax returns by tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse effect on our operating results and financial condition.

Our business is subject to complex and evolving U.S. and international laws and regulations regarding privacy and data protection. Many of these laws and regulations are subject to change and uncertain interpretation and could result in claims, changes to our business practices, penalties, increased cost of operations, or declines in user growth or engagement, or otherwise harm our business.

Regulatory authorities around the world have implemented or are considering several legislative and regulatory proposals concerning data protection, including measures to ensure that encryption of users’ data does not hinder law enforcement agencies’ access to that data. In addition, the interpretation and application of consumer and data protection laws in the U.S., Europe and elsewhere are often uncertain and in flux. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data practices. These legislative and regulatory proposals, if adopted, and such interpretations could, in addition to the possibility of fines, result in an order requiring that we change our data practices, which could have an adverse effect on our business and results of operations. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business.

~~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 resources to redesign our products to comply with these directives. In addition, with our acquisition of Versatile Power, Inc., we expanded our presence in the medical market to include more highly regulated applications and added its medical-certified manufacturing center to our operating footprint. We may encounter increased costs to maintain compliance with the quality systems and other regulations and requirements that

~~Table of Contents~~

apply to the acquired business. 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 numerous imports, exports, 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 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 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 such minerals originate from the Democratic Republic of Congo and adjoining countries. We must perform sufficient due diligence to determine whether such minerals are 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 the components of our products are certified as conflict mineral free.

~~General Risk Factors~~

Our failure to maintain appropriate environmental, social, and governance ("ESG") practices and disclosures could result in reputational harm, a loss of customer and investor confidence, and adverse business and financial results.

Governments, investors, customers, and employees are enhancing their focus on ESG practices and disclosures, and expectations in this area are rapidly evolving and increasing. While we monitor the various and evolving standards and associated reporting requirements, failure to adequately maintain appropriate ESG practices that meet diverse stakeholder expectations may result in the loss of business, diluted market valuation, an inability to attract customers, and an inability to attract and retain top talent.

5341

Table of Contents

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

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


Month	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs

	(in thousands, except price per share data)
January		82	$	80.02		82	$	121,783
February		—	$	—		—	$	121,783
March		—	$	—		—	$	121,783
First quarter		82	$	80.02		82

April		—	$	—		—	$	121,783
May		103	$	76.23		103	$	113,969
June		127	$	72.42		127	$	104,765
Second quarter		230	$	74.12		230

Total		312	$	75.68		312	$	104,765

~~In September 2015,~~

The following table summarizes actions by our Board of Directors ~~authorized a program~~in relation to ~~repurchase up to $150.0 million of our stock. In May 2018, our Board of Directors approved a $50 million increase in~~ the ~~repurchase authorization. In December 2019, our Board of Directors authorized the removal of the expiration date from the repurchase program and increased the balance available for~~ stock repurchase ~~by $25.1 million.~~program:

~~On July 29, 2021, the Board of Directors approved an increase to the share repurchase program, which authorized the Company to repurchase up to $200 million with no time limitation.~~

Date

Action
September 2015

Authorized a program to repurchase up to $150.0 million of our common stock

May 2018

Approved a $50.0 million increase in the repurchase program

December 2019

Authorized the removal of the expiration date and increased the balance available for the repurchase program by $25.1 million

July 2021

Approved an increase to the repurchase program, which authorized the Company to repurchase up to $200.0 million with no time limitation

July 2022

Approved an increase to the repurchase program from its remaining authorization of $102.4 million, to repurchase up to $200.0 million with no time limitation

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

None

ITEM 5. OTHER INFORMATION

None

5442

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~~

~~Incorporated by Reference~~

~~Form~~

~~File No.~~

~~Exhibit~~

~~Filing Date~~

~~31.1~~

~~Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

~~Filed herewith~~

~~31.2~~

~~Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~.

~~Filed herewith~~

~~32.1~~

~~Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~.

~~Filed herewith~~

~~32.2~~

~~Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~.

~~Filed herewith~~

~~101.INS~~

~~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.~~

~~Filed herewith~~

~~101.SCH~~

~~XBRL Taxonomy Extension Schema Document.~~

~~Filed herewith~~

~~101.CAL~~

~~XBRL Taxonomy Extension Calculation Linkbase Document.~~

~~Filed herewith~~

~~101.DEF~~

~~XBRL Taxonomy Extension Definition Linkbase Document.~~

~~Filed herewith~~

~~101.LAB~~

~~XBRL Taxonomy Extension Label Linkbase Document.~~

~~Filed herewith~~

~~101.PRE~~

~~XBRL Taxonomy Extension Presentation Linkbase Document.~~

~~Filed herewith~~

~~104~~

~~Cover Page Interactive Data File – formatted in Inline XBRL and contained in Exhibit 101~~

~~Filed herewith~~

Exhibit		Incorporated by Reference
Number	Description	Form	File No.	Exhibit	Filing Date
2.1	Stock Purchase Agreement, dated April 1, 2022 by and among SL Power Electronics Corporation, SL Delaware Holdings, Inc., Steel Partners Holdings L.P., AEI US Subsidiary, LLC and Advanced Energy Industries, Inc.	8-K	000-26966	2.1	April 4, 2022

31.1	Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				Filed herewith

31.2	Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				Filed herewith

32.1	Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.				Filed herewith

32.2	Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.				Filed herewith

101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.				Filed herewith

101.SCH	Inline XBRL Taxonomy Extension Schema Document.				Filed herewith

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.				Filed herewith

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.				Filed herewith

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.				Filed herewith

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.				Filed herewith

104	Cover Page Interactive Data File – formatted in Inline XBRL and contained in Exhibit 101				Filed herewith

5543

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:	August ~~4, 2021~~3, 2022	/s/ Paul Oldham
		Paul Oldham
		Chief Financial Officer and Executive Vice President

5644


Cash paid for acquisition	$	15,552
Holdback		2,100
Total fair value of consideration transferred		17,652
Less cash acquired		(472)
Total purchase price	$	17,180


	Preliminary Fair Value
Current assets and liabilities, net	$	3,870
Property and equipment		734
Operating lease right-of-use assets		425
Intangible assets		6,900
Goodwill		5,670
Other non-current assets		31
Total assets acquired		17,630
Other non-current liabilities		25
Operating lease liability		425
Total liabilities assumed		450
Total fair value of net assets acquired	$	17,180


Cash paid for acquisition	$	4,601
Holdback		950
Contingent consideration		1,500
Total fair value of consideration transferred		7,051
Less cash acquired		(245)
Total purchase price	$	6,806


		Six Months Ended June 30,
From	To	2021		2020
Canadian Dollar (CAD)	USD	2.8	%	(4.6)	%
Swiss Franc (CHF)	USD	(4.6)	%	1.9	%
Chinese Yuan (CNY)	USD	1.2	%	(1.4)	%
Danish Krone (DKK)	USD	(3.3)	%	0.4	%
Euro (EUR)	USD	(3.3)	%	0.1	%
Pound Sterling (GBP)	USD	1.3	%	(6.5)	%
Israeli New Shekel (ILS)	USD	(1.4)	%	—	%
India Rupee (INR)	USD	(1.8)	%	(5.3)	%
Japanese Yen (JPY)	USD	(7.1)	%	0.9	%
South Korean Won (KRW)	USD	(3.9)	%	(3.7)	%
Philippines Peso (PHP)	USD	(1.7)	%	1.8	%
Singapore Dollar (SGD)	USD	(1.7)	%	1.8	%
New Taiwan Dollar (TWD)	USD	0.6	%	(3.5)	%


	Six Months Ended June 30,		Years Ended December 31,
	2021		2020		2019
Ten largest customers	57.7	%	58.0	%	57.3	%


Date		Action
September 2015		Authorized a program to repurchase up to $150.0 million of our common stock

May 2018		Approved a $50.0 million increase in the repurchase program

December 2019		Authorized the removal of the expiration date and increased the balance available for the repurchase program by $25.1 million

July 2021		Approved an increase to the repurchase program, which authorized the Company to repurchase up to $200.0 million with no time limitation

July 2022		Approved an increase to the repurchase program from its remaining authorization of $102.4 million, to repurchase up to $200.0 million with no time limitation