Advanced Energy Industries 10Q 2024 Q3 Quarterly report

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 September 30, 2024
or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

Commission File Number: 000-26966

ADVANCED ENERGY INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

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

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

(970) 407-6626

(Registrant’s telephone number, including area code)

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

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

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

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

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

Large accelerated filer þ

Accelerated filer ◻

Non-accelerated filer ◻

Smaller reporting company ☐

Emerging growth company ☐

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

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

As of October 28, 2024, there were 37,673,067 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

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ADVANCED ENERGY INDUSTRIES, INC.

FORM 10-Q

TABLE OF CONTENTS



	PART I FINANCIAL INFORMATION

ITEM 1.	UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	3

	Consolidated Balance Sheets	3

	Consolidated Statements of Operations	4

	Consolidated Statements of Comprehensive Income (Loss)	5

	Consolidated Statements of Stockholders’ Equity	6

	Consolidated Statements of Cash Flows	7

	Notes to Consolidated Financial Statements	8

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	25

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	42

ITEM 4.	CONTROLS AND PROCEDURES	43

	PART II OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	43

ITEM 1A.	RISK FACTORS	43

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	44

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	44

ITEM 4.	MINE SAFETY DISCLOSURES	44

ITEM 5.	OTHER INFORMATION	44

ITEM 6.	EXHIBITS	45

	SIGNATURES	46

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PART I FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Balance Sheets

(In thousands, except per share amounts)


	September 30,		December 31,
	2024		2023
ASSETS
Current assets:
Cash and cash equivalents	$	657,288	$	1,044,556
Accounts receivable, net		259,399		282,430
Inventories		377,740		336,137
Other current assets		51,281		48,771
Total current assets		1,345,708		1,711,894
Property and equipment, net		181,875		167,665
Operating lease right-of-use assets		86,003		95,432
Other assets		134,948		136,448
Intangible assets, net		145,290		161,478
Goodwill		299,036		283,840
TOTAL ASSETS	$	2,192,860	$	2,556,757

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	133,006	$	141,850
Accrued payroll and employee benefits		62,743		73,595
Other accrued expenses		66,048		66,662
Customer deposits and other		11,351		15,997
Current portion of long-term debt		—		20,000
Current portion of operating lease liabilities		18,360		17,744
Total current liabilities		291,508		335,848
Long-term debt, net		564,000		895,679
Operating lease liabilities		80,264		89,330
Pension benefits		50,374		49,135
Other long-term liabilities		42,322		42,583
Total liabilities		1,028,468		1,412,575

Commitments and contingencies (Note 15)

Stockholders' equity:
Preferred stock, $0.001 par value, 1,000 shares authorized, none issued and outstanding		—		—
Common stock, $0.001 par value, 70,000 shares authorized; 37,671 and 37,318 issued and outstanding at September 30, 2024 and December 31, 2023, respectively		38		37
Additional paid-in capital		180,529		148,300
Accumulated other comprehensive income		2,089		6,114
Retained earnings		981,736		989,731
Total stockholders' equity		1,164,392		1,144,182
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	2,192,860	$	2,556,757

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

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ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Operations

(In thousands, except per share amounts)



	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Revenue, net	$	374,217	$	409,991	$	1,066,639	$	1,250,539
Cost of revenue		240,149		262,650		692,001		801,007
Gross profit		134,068		147,341		374,638		449,532

Operating expenses:
Research and development		53,561		50,391		155,732		153,414
Selling, general, and administrative		56,237		55,131		166,374		166,102
Amortization of intangible assets		6,772		7,049		20,519		21,186
Restructuring, asset impairments, and other charges		28,546		4,709		29,416		8,906
Total operating expenses		145,116		117,280		372,041		349,608
Operating income (loss)		(11,048)		30,061		2,597		99,924

Interest income		11,018		6,396		35,782		14,282
Interest expense		(6,378)		(3,780)		(20,461)		(9,368)
Other income (expense), net		(8,139)		1,848		(6,122)		1,425
Income (loss) from continuing operations, before income tax		(14,547)		34,525		11,796		106,263
Income tax provision (benefit)		(400)		874		4,552		13,405
Income (loss) from continuing operations		(14,147)		33,651		7,244		92,858
Loss from discontinued operations, net of income tax		(758)		(930)		(1,904)		(2,076)
Net income (loss)	$	(14,905)	$	32,721	$	5,340	$	90,782

Basic weighted-average common shares outstanding		37,532		37,575		37,455		37,541
Diluted weighted-average common shares outstanding		37,532		37,854		37,785		37,842

Earnings (loss) per share:
Continuing operations:
Basic earnings per share	$	(0.38)	$	0.90	$	0.19	$	2.47
Diluted earnings per share	$	(0.38)	$	0.89	$	0.19	$	2.45
Discontinued operations:
Basic loss per share	$	(0.02)	$	(0.02)	$	(0.05)	$	(0.06)
Diluted loss per share	$	(0.02)	$	(0.02)	$	(0.05)	$	(0.05)
Net income (loss):
Basic earnings (loss) per share	$	(0.40)	$	0.87	$	0.14	$	2.42
Diluted earnings (loss) per share	$	(0.40)	$	0.86	$	0.14	$	2.40

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

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ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Comprehensive Income (Loss)

(In thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Net income (loss)	$	(14,905)	$	32,721	$	5,340	$	90,782
Other comprehensive income (loss), net of income tax
Foreign currency translation		12,401		(5,069)		3,251		(6,798)
Change in fair value of cash flow hedges		(1,738)		(1,822)		(5,474)		(3,840)
Defined employee benefit plan		(1,751)		—		(1,802)		(292)
Comprehensive income (loss)	$	(5,993)	$	25,830	$	1,315	$	79,852

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

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ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Stockholders' Equity

(In thousands, except per share amounts)



	Common Stock
						Accumulated
				Additional		Other				Total
				Paid-in		Comprehensive		Retained		Stockholders'
	Shares	Amount		Capital		Income (Loss)		Earnings		Equity
Balances, December 31, 2022	37,429	$	37	$	134,640	$	16,320	$	915,270	$	1,066,267
Stock issued from equity plans	100		—		(1,991)		—		—		(1,991)
Stock-based compensation	—		—		6,543		—		—		6,543
Dividends declared ($0.10 per share)	—		—		—		—		(3,814)		(3,814)
Other comprehensive loss	—		—		—		(2,013)		—		(2,013)
Net income	—		—		—		—		30,921		30,921
Balances, March 31, 2023	37,529		37		139,192		14,307		942,377		1,095,913
Stock issued from equity plans	121		1		606		—		—		607
Stock-based compensation	—		—		7,423		—		—		7,423
Dividends declared ($0.10 per share)	—		—		—		—		(3,778)		(3,778)
Other comprehensive loss	—		—		—		(2,026)		—		(2,026)
Net income	—		—		—		—		27,140		27,140
Balances, June 30, 2023	37,650		38		147,221		12,281		965,739		1,125,279
Stock issued from equity plans	8		—		130		—		—		130
Stock-based compensation	—		—		7,506		—		—		7,506
Share repurchases	(378)		(1)		(1,530)		—		(38,469)		(40,000)
Dividends declared ($0.10 per share)	—		—		—		—		(3,830)		(3,830)
Other comprehensive loss	—		—		—		(6,891)		—		(6,891)
Warrants and note hedges, net	—		—		(40,135)		—		—		(40,135)
Tax impact of convertible notes and note hedges	—		—		26,091		—		—		26,091
Net income	—		—		—		—		32,721		32,721
Balances, September 30, 2023	37,280	$	37	$	139,283	$	5,390	$	956,161	$	1,100,871

Balances, December 31, 2023	37,318	$	37	$	148,300	$	6,114	$	989,731	$	1,144,182
Stock issued from equity plans	116		—		(5,327)		—		—		(5,327)
Stock-based compensation	—		—		10,591		—		—		10,591
Dividends declared ($0.10 per share)	—		—		—		—		(3,810)		(3,810)
Other comprehensive loss	—		—		—		(7,969)		—		(7,969)
Deferred compensation	—		—		79		—		(79)		—
Net income	—		—		—		—		5,216		5,216
Balances, March 31, 2024	37,434		37		153,643		(1,855)		991,058		1,142,883
Stock issued from equity plans	93		—		(173)		—		—		(173)
Stock issuance (Note 2. Acquisition)	144		1		4,463		—		—		4,464
Stock-based compensation	—		—		10,720		—		—		10,720
Dividends declared ($0.10 per share)	—		—		—		—		(3,848)		(3,848)
Other comprehensive loss	—		—		—		(4,968)		—		(4,968)
Deferred compensation	—		—		1,033		—		(64)		969
Net income	—		—		—		—		15,029		15,029
Balances, June 30, 2024	37,671		38		169,686		(6,823)		1,002,175		1,165,076
Stock issued from equity plans	19		—		(529)		—		—		(529)
Stock-based compensation	—		—		11,481		—		—		11,481
Share repurchases	(19)		—		(89)		—		(1,681)		(1,770)
Dividends declared ($0.10 per share)	—		—		—		—		(3,871)		(3,871)
Other comprehensive income	—		—		—		8,912		—		8,912
Deferred compensation	—		—		(20)		—		18		(2)
Net loss	—		—		—		—		(14,905)		(14,905)
Balances, September 30, 2024	37,671	$	38	$	180,529	$	2,089	$	981,736	$	1,164,392

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

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ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Cash Flows

(In thousands)


	Nine Months Ended September 30,
	2024		2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	5,340	$	90,782
Less: loss from discontinued operations, net of income tax		(1,904)		(2,076)
Income from continuing operations, net of income tax		7,244		92,858
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		51,824		49,764
Stock-based compensation		34,303		22,813
Amortization and write off of debt issuance costs and debt discount		3,036		378
Deferred income tax benefit		305		(996)
Other		1,041		394
Changes in operating assets and liabilities, net of assets acquired
Accounts receivable, net		23,604		35,135
Inventories		(41,187)		9,025
Other assets		576		4,121
Accounts payable		(8,778)		(26,203)
Other liabilities and accrued expenses		(21,718)		(59,049)
Net cash from operating activities from continuing operations		50,250		128,240
Net cash from operating activities from discontinued operations		(2,191)		(3,307)
Net cash from operating activities		48,059		124,933

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of long-term investments		(2,698)		(3,447)
Purchases of property and equipment		(44,045)		(46,782)
Acquisitions, net of cash acquired		(13,762)		—
Net cash from investing activities		(60,505)		(50,229)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings		—		575,000
Payment of fees for long-term borrowings		(105)		(12,985)
Payments on long-term borrowings		(355,000)		(15,000)
Dividend payments		(11,529)		(11,422)
Payment for purchase of note hedges		—		(115,000)
Proceeds from sale of warrants		—		74,865
Purchase and retirement of common stock		(1,770)		(40,000)
Net payments related to stock-based awards		(6,029)		(1,254)
Net cash from financing activities		(374,433)		454,204

EFFECT OF CURRENCY TRANSLATION ON CASH AND CASH EQUIVALENTS		(389)		(1,795)

NET CHANGE IN CASH AND CASH EQUIVALENTS		(387,268)		527,113
CASH AND CASH EQUIVALENTS, beginning of period		1,044,556		458,818
CASH AND CASH EQUIVALENTS, end of period	$	657,288	$	985,931

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

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

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

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

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

Use of Estimates in the Preparation of the Consolidated Financial Statements

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

Significant Accounting Policies

Our accounting policies are described in Note 1. Summary of Operations and Significant Accounting Policies and Estimates to our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2023.

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

New Accounting Standards

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

New Accounting Standards Issued But Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07 “Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures.” ASU 2023-07 expands disclosure requirements to require additional information about significant segment expenses. In addition, the ASU enhances interim disclosures, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, and provides new disclosures requirements for entities with a single reportable segment. This guidance will be effective for us in our Annual Report on Form 10-K for the year ending December 31, 2024. We do not expect the above guidance to materially impact our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09 “Improvements to Income Tax Disclosures.” ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional disclosure on income taxes paid. This guidance will be effective for us on January 1, 2025. We do not expect the above guidance to materially impact our consolidated financial statements.

In March 2024, the SEC issued climate-related disclosure rules. These rules do not change accounting treatment, but they significantly expand the climate-related information companies are required to disclose. Several petitions were filed challenging these climate-related disclosure rules and, in April 2024, the SEC voluntarily stayed the rules, pending completion of judicial review. We do not expect the above disclosure requirement to materially impact our consolidated financial statements. We are evaluating the disclosure requirements and changes to our business processes, systems, and controls to support the additional disclosures.

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

NOTE 2. ACQUISITIONS

On June 20, 2024, we acquired 100% of the issued and outstanding shares of capital stock of Airity Technologies, Inc. (“Airity”), which is based in Redwood City, California. We accounted for this transaction as a business combination. Airity focuses on high voltage power conversion technologies and products, which broadens our range of targeted applications in our Semiconductor Equipment and Industrial and Medical markets.

The following table summarizes the consideration paid:


	Consideration
Cash paid at closing	$	14,301
Advanced Energy common stock		4,463
Settlement of payables		(654)
Indemnity holdback payable on the one-year anniversary		1,500
Total fair value of purchase consideration	$	19,610

We are still evaluating the fair value of the assets acquired and liabilities assumed, inclusive of the acquired
intangible assets, including their estimated useful lives, related tax impacts, and resulting goodwill. Our preliminary allocation of the fair value of purchase consideration was as follows:


	Fair Value
Cash	$	539
Current assets and liabilities, net		457
Property and equipment		42
Deferred tax liability		(2,229)
Intangible assets		4,200
Goodwill (not deductible for tax purposes)		16,601
Total fair value of net assets acquired	$	19,610

We included Airity’s results of operations in our consolidated financial statements from the date of acquisition.

In connection with the acquisition, we entered into agreements with certain former Airity employees. On the closing date, these individuals received a total of 0.1 million shares of Advanced Energy common stock valued at $15.6 million based on the June 20, 2024 closing price, of which $4.5 million was allocated to purchase consideration and $11.1 million will be future compensation. We will record the $11.1 million as stock-based compensation expense over the three-year expected vesting period.

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

NOTE 3. REVENUE

Disaggregation of revenue

The following tables present additional information regarding our revenue:

Revenue by Market


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Semiconductor Equipment	$	197,497	$	185,033	$	565,721	$	552,419
Industrial and Medical		76,837		115,226		239,359		365,849
Data Center Computing		80,653		68,286		195,519		187,021
Telecom and Networking		19,230		41,446		66,040		145,250
Total	$	374,217	$	409,991	$	1,066,639	$	1,250,539

Revenue by Region


	Three Months Ended September 30,								Nine Months Ended September 30,
	2024				2023				2024				2023
North America	$	175,691	47.0	%	$	184,783	45.1	%	$	482,564	45.2	%	$	537,241	42.9	%
Asia		163,212	43.6			178,190	43.5			467,110	43.8			543,871	43.5
Europe		34,892	9.3			46,088	11.2			115,258	10.8			164,867	13.2
Other		422	0.1			930	0.2			1,707	0.2			4,560	0.4
Total	$	374,217	100.0	%	$	409,991	100.0	%	$	1,066,639	100.0	%	$	1,250,539	100.0	%

Revenue by Significant Countries


	Three Months Ended September 30,								Nine Months Ended September 30,
	2024				2023				2024				2023
United States	$	134,614	35.9	%	$	156,710	38.2	%	$	371,925	34.9	%	$	457,325	36.6	%
Mexico		40,953	10.9			27,464	6.7			109,768	10.3			77,953	6.2
Taiwan		40,990	11.0			33,136	8.1			119,571	11.2			98,842	7.9
China		28,725	7.7			41,391	10.1			70,298	6.6			132,039	10.6
All others		128,935	34.5			151,290	36.9			395,077	37.0			484,380	38.7
Total	$	374,217	100.0	%	$	409,991	100.0	%	$	1,066,639	100.0	%	$	1,250,539	100.0	%

We attribute revenue to individual countries and regions based on the customer’s ship to location. Excluding the specific countries listed above, no individual country exceeded 10% of our total consolidated revenues during the periods presented.

Revenue by Category


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Product	$	332,647	$	369,129	$	944,279	$	1,118,284
Services and other		41,570		40,862		122,360		132,255
Total	$	374,217	$	409,991	$	1,066,639	$	1,250,539

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

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

Significant Customers

During the three months ended September 30, 2024, Applied Materials, Inc. and Lam Research Corporation accounted for 25% and 11%, respectively, of our total revenue. During the nine months ended September 30, 2024, Applied Materials, Inc. and Lam Research Corporation accounted for 27% and 10%, respectively, of our total revenue. During the three and nine months ended September 30, 2023, Applied Materials Inc. accounted for 23% and 21%, respectively, of our total revenue. No other customer’s revenue exceeded 10% of our total revenue in the periods presented.

As of September 30, 2024, the account receivable balance from Applied Materials, Inc. accounted for 28% of our total accounts receivable. As of December 31, 2023, the account receivable balance from Applied Materials, Inc. accounted for 26% of our total accounts receivable. No other customer’s account receivable exceeded 10% of our total accounts receivable in the periods presented.

NOTE 4. INCOME TAX

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
Income (loss) from continuing operations, before income tax	$	(14,547)		$	34,525		$	11,796		$	106,263
Income tax provision (benefit)	$	(400)		$	874		$	4,552		$	13,405
Effective tax rate		(2.7)	%		2.5	%		38.6	%		12.6	%

Our effective tax rates differ from the U.S. federal statutory rate of 21% 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 previously announced Zhongshan, China factory closure impacted our effective tax rate in both the three and nine months ended September 30, 2024. For the nine months ended September 30, 2024, our effective tax rate was higher than the same period in the prior year due to smaller beneficial discrete items in the current period relative to the larger beneficial discrete items in the prior period.

As of January 1, 2024, the Pillar II minimum global effective tax rate of 15% enacted by the Organization for Economic Cooperation and Development (“OECD”) was effectuated. More than 140 countries agreed to enact the Pillar II global minimum tax. However, the timing of the implementation for each country varies. To date, we have determined that there was an immaterial global minimum tax liability as a result of Pillar II, as certain tax jurisdictions either will not have Pillar II enacted until after December 31, 2024 or satisfied the safe harbor test to prevent any minimum tax under Pillar II. We continue to monitor the jurisdictions for any changes and include any appropriate minimum tax throughout the year.

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

NOTE 5. STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE

Accumulated Other Comprehensive Income (Loss)

The following table summarizes the components of, and changes in, accumulated other comprehensive income
(loss), net of income taxes.


		Foreign Currency Translation		Change in Fair Value of Cash Flow Hedges		Defined Employee Benefit Plan		Total
Balance at December 31, 2022	$	(12,823)	$	11,848	$	17,295	$	16,320
Other comprehensive income (loss) prior to reclassifications		(196)		595		—		399
Amounts reclassified from accumulated other comprehensive income (loss)		—		(2,412)		—		(2,412)
Balance at March 31, 2023		(13,019)		10,031		17,295		14,307
Other comprehensive income (loss) prior to reclassifications		(1,533)		2,555		—		1,022
Amounts reclassified from accumulated other comprehensive income (loss)		—		(2,756)		(292)		(3,048)
Balance at June 30, 2023		(14,552)		9,830		17,003		12,281
Other comprehensive income (loss) prior to reclassifications		(5,069)		1,036		—		(4,033)
Amounts reclassified from accumulated other comprehensive income (loss)		—		(2,858)		—		(2,858)
Balance at September 30, 2023	$	(19,621)	$	8,008	$	17,003	$	5,390


		Foreign Currency Translation		Change in Fair Value of Cash Flow Hedges		Defined Employee Benefit Plan		Total
Balance at December 31, 2023	$	(10,796)	$	5,474	$	11,436	$	6,114
Other comprehensive income (loss) prior to reclassifications		(6,589)		1,405		—		(5,184)
Amounts reclassified from accumulated other comprehensive income (loss)		—		(2,785)		—		(2,785)
Balance at March 31, 2024		(17,385)		4,094		11,436		(1,855)
Other comprehensive income (loss) prior to reclassifications		(2,561)		395		—		(2,166)
Amounts reclassified from accumulated other comprehensive income (loss)		—		(2,751)		(51)		(2,802)
Balance at June 30, 2024		(19,946)		1,738		11,385		(6,823)
Other comprehensive income (loss) prior to reclassifications		10,816		444		(2,228)		9,032
Amounts reclassified from accumulated other comprehensive income (loss)		1,585		(2,182)		477		(120)
Balance at September 30, 2024	$	(7,545)	$	—	$	9,634	$	2,089

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

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


	Three Months Ended September 30,				Nine Months Ended September 30,				To Caption on Consolidated
	2024		2023			2024		2023	Statements of Operations
Foreign currency translation	$	1,585	$	—	$	1,585	$	—	Other income (expense), net
Cash flow hedges		(2,182)		(2,858)		(7,718)		(8,026)	Interest expense
Defined employee benefit plan		477		—		426		(292)	Other income (expense), net
Total reclassifications	$	(120)	$	(2,858)	$	(5,707)	$	(8,318)

Earnings (Loss) Per Share

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Income (loss) from continuing operations	$	(14,147)	$	33,651	$	7,244	$	92,858


Basic weighted-average common shares outstanding		37,532		37,575		37,455		37,541
Dilutive effect of stock awards		—		279		330		301
Diluted weighted-average common shares outstanding		37,532		37,854		37,785		37,842


EPS from continuing operations
Basic EPS	$	(0.38)	$	0.90	$	0.19	$	2.47
Diluted EPS	$	(0.38)	$	0.89	$	0.19	$	2.45


Anti-dilutive shares not included above
Stock awards		371		27		4		84
Warrants		3,076		3,180		3,212		3,180
Total anti-dilutive shares		3,447		3,207		3,216		3,264

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

See Note 18. Long-Term Debt in our Annual Report on Form 10-K for the year ended December 31, 2023 for information regarding our Convertible Notes, Note Hedges, and Warrants. For diluted earnings per share of common stock (“Diluted EPS”), we increase the weighted-average number of common shares outstanding during the period, as needed, to include the following:

●

Additional common shares that would have been outstanding if our outstanding stock awards had been converted to common shares using the treasury stock method. We exclude any stock awards that have an anti-dilutive effect;

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

●

Dilutive impact associated with the Convertible Notes using the if-converted method. The Convertible Notes are repayable in cash up to par value and in cash or shares of common stock for the excess over par value. When the stock price is lower than the strike price, there is no dilutive or anti-dilutive impact. Prior to conversion, we do not consider the Note Hedges for purposes of Diluted EPS as their effect would be anti-dilutive. Upon conversion, we expect the Note Hedges to offset the dilutive effect of the Convertible Notes when the stock price is above $137.46 but below $179.76; and

●

Dilutive effect of the Warrants issued concurrently with the Convertible Notes using the treasury stock method. For all periods presented, the Warrants did not increase the weighted-average number of common shares outstanding because the $179.76 exercise price of the Warrants exceeded the average market price of our common stock.

Share Repurchase

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts)	2024		2023		2024		2023
Amount paid or accrued to repurchase shares	$	1,770	$	40,000	$	1,770	$	40,000
Number of shares repurchased		19		378		19		378
Average repurchase price per share	$	93.58	$	105.74	$	93.58	$	105.74

At September 30, 2024, the remaining amount authorized by the Board of Directors for future share repurchases was $197.4 million with no time limitation.

NOTE 6. FAIR VALUE MEASUREMENTS

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


		September 30, 2024
Description	Balance Sheet Classification	Level 1		Level 2		Level 3		Total Fair Value
Certificates of deposit	Other current assets	$	—		157		—	$	157
Foreign currency forward contracts	Other accrued expenses	$	—		168		—	$	168
Investments	Other assets	$	—		9,668		—	$	9,668


		December 31, 2023
Description	Balance Sheet Classification	Level 1		Level 2		Level 3		Total Fair Value
Certificates of deposit	Other current assets	$	—		163		—	$	163
Interest rate swaps	Other assets	$	—		6,995		—	$	6,995
Investments	Other assets	$	—		5,952		—	$	5,952

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

NOTE 7. DERIVATIVE FINANCIAL INSTRUMENTS

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

At September 30, 2024 we have $105.9 million foreign currency forward contracts outstanding. There were no foreign currency forward contracts outstanding at December 31, 2023.

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

We had interest rate swap contracts that fixed a portion of the interest payments on our Term Loan Facility. The interest rate swap contracts expired on September 10, 2024. In connection with the expiration, there are no longer any related balances for these contracts within accumulated other comprehensive income on the Consolidated Balance Sheets as of September 30, 2024. See Note 16. Long-Term Debt for information regarding the Term Loan Facility.

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

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

NOTE 8. ACCOUNTS RECEIVABLE, NET

We record accounts receivable at net realizable value. Our accounts receivable, net balance on the Consolidated Balance Sheets was $259.4 million at September 30, 2024. The following table summarizes the changes in expected credit losses related to receivables:


December 31, 2023	$	1,762
Additions		94
Deductions - write-offs, net of recoveries		(399)
September 30, 2024	$	1,457

NOTE 9. INVENTORIES

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


	September 30,		December 31,
	2024		2023
Parts and raw materials	$	273,793	$	249,698
Work in process		19,502		14,595
Finished goods		84,445		71,844
Total	$	377,740	$	336,137

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

NOTE 10. INTANGIBLE ASSETS AND GOODWILL

Intangible assets consisted of the following:


	September 30, 2024
	Gross Carrying		Accumulated		Net Carrying		Weighted Average Remaining
	Amount		Amortization		Amount		Useful Life (in years)
Technology	$	100,988	$	(69,407)	$	31,581	7.1
Customer relationships		170,486		(68,944)		101,542	8.8
Trademarks and other		27,219		(15,052)		12,167	4.9
Total	$	298,693	$	(153,403)	$	145,290	8.1

	December 31, 2023
	Gross Carrying		Accumulated		Net Carrying		Weighted Average Remaining
	Amount		Amortization		Amount		Useful Life (in years)
Technology	$	97,961	$	(60,412)	$	37,549	6.8
Customer relationships		168,685		(58,835)		109,850	9.5
Trademarks and other		27,141		(13,062)		14,079	5.6
Total	$	293,787	$	(132,309)	$	161,478	8.5

Amortization expense related to intangible assets is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Amortization expense	$	6,772	$	7,049	$	20,519	$	21,186

Estimated future amortization expense related to intangibles is as follows:


Year Ending December 31,
2024 (remaining)	$	5,573
2025		22,148
2026		20,063
2027		17,815
2028		16,569
Thereafter		63,122
Total	$	145,290

The following table summarizes the changes in goodwill:


December 31, 2023	$	283,840
Additions from acquisition		16,601
Foreign currency translation and other		(1,405)
September 30, 2024	$	299,036

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

NOTE 11. RESTRUCTURING, ASSET IMPAIRMENTS, AND OTHER CHARGES

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Restructuring	$	27,790	$	4,709	$	27,844	$	8,906
Other charges		756		—		1,572		—
Total restructuring, asset impairments, and other charges	$	28,546	$	4,709	$	29,416	$	8,906

Restructuring

We have the following restructuring plans in process:

2024 Plan

On July 29, 2024, we approved actions in furtherance of our previously announced manufacturing consolidation initiatives intended to optimize our manufacturing footprint and cost structure, including the previously announced closure of our Zhongshan, China facility (the “2024 Plan”). In connection with the 2024 Plan, we recorded a $28.5 million charge during the third quarter of 2024 primarily associated with expected employment-related charges for, among other things, one-time cash payments for severance, benefits expenses, payroll taxes, and other ancillary costs. The charge includes estimated liabilities for lease termination and facility exit costs, which could be subject to further adjustments. The remaining contractual rental obligations under the lease agreements are recorded in current portion of operating lease liabilities and operating lease liabilities on our Consolidated Balance Sheets.

We expect to incur $1.0 million to $2.0 million in additional charges related to our announced actions and continue to evaluate our operations and cost structure, which could result in incremental restructuring charges in future periods. We anticipate the 2024 Plan will be substantially completed by the second quarter of 2025, with final activities concluding in 2026.

2023 Plan

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

2022 Plan

This plan was approved to improve our operating efficiencies and drive the realization of synergies from our business combinations by consolidating our operations, optimizing our factory footprint, including moving certain production into our higher volume factories, reducing redundancies, and lowering our cost structure. The 2022 Plan is now complete.

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

Changes in restructuring liabilities were as follows:


	2024 Plan		2023 Plan		2022 Plan		Other		Total
December 31, 2023	$	—	$	14,224	$	2,930	$	188	$	17,342
Costs incurred and charged to expense		28,454		(698)		88		—		27,844
Costs paid		(855)		(7,653)		(3,018)		(188)		(11,714)
Foreign currency translation		457		—		—		—		457
September 30, 2024	$	28,056	$	5,873	$	—	$	—	$	33,929

$28.3 million of the above restructuring liability is included in other accrued expenses and $5.6 million is included in other long-term liabilities on our Consolidated Balance Sheets.

Charges related to our restructuring plans are as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Severance and related charges	$	27,356	$	4,709	$	27,410	$	8,906
Facility relocation and closure charges		434		—		434		—
Total restructuring charges	$	27,790	$	4,709	$	27,844	$	8,906


	Cumulative Cost Through
	September 30, 2024
	2024 Plan		2023 Plan		2022 Plan		Total
Severance and related charges	$	28,020	$	16,405	$	14,075	$	58,500
Facility relocation and closure charges		434		—		—		434
Total restructuring charges	$	28,454	$	16,405	$	14,075	$	58,934

Other Charges

Other charges relate to vacating and relocating facilities.

NOTE 12. WARRANTIES

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

We include warranty obligation in other accrued expenses in our Consolidated Balance Sheets. Changes in our product warranty obligation were as follows:


December 31, 2023	$	4,007
Net increases to accruals		2,088
Warranty expenditures		(1,640)
Effect of changes in exchange rates		155
September 30, 2024	$	4,610

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

NOTE 13. LEASES

Components of total operating lease cost were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Operating lease cost	$	5,859	$	5,629	$	17,575	$	16,965
Short-term and variable lease cost		897		1,100		2,474		3,170
Total operating lease cost	$	6,756	$	6,729	$	20,049	$	20,135

Estimated future payments on our operating lease liabilities are as follows:


Year Ending December 31,
2024 (remaining)	$	6,127
2025		22,557
2026		17,077
2027		13,616
2028		13,171
Thereafter		50,930
Total lease payments		123,478
Less: Interest		(24,854)
Present value of lease liabilities	$	98,624

In addition to the above, we have lease agreements with total payments of $32.8 million that commence on various dates in 2024 and 2025 and extend through 2040.

In connection with the closure of our Zhongshan, China facility under the 2024 Plan (see Note 11. Restructuring, Asset Impairments, and Other Charges), we expect to terminate the facility’s lease agreement before its expiration. During the third quarter of 2024, we reduced both the operating lease right-of-use asset and operating lease liability by $20.7 million.

The following tables present additional information about our lease agreements:


	September 30,			December 31,
	2024			2023
Weighted average remaining lease term (in years)		7.8			8.3
Weighted average discount rate		5.5	%		5.0	%


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Cash paid for operating leases	$	5,823	$	5,683	$	17,476	$	17,290
Right-of-use assets obtained in exchange for operating lease liabilities	$	7,367	$	9,271	$	25,784	$	11,900

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

NOTE 14. STOCK-BASED COMPENSATION

The Compensation Committee of our Board of Directors administers our stock plans. As of September 30, 2024, we had two active stock-based incentive compensation plans: the Amended and Restated 2023 Omnibus Incentive Plan (the “2023 Incentive Plan”) and the Employee Stock Purchase Plan (“ESPP”). The 2023 Incentive Plan was approved by stockholders on April 27, 2023 and amended and restated on November 2, 2023. We issue all new equity compensation grants under the 2023 Incentive Plan; however, outstanding awards previously issued under now inactive plans will continue to vest and remain exercisable in accordance with the terms of the respective plans.

The 2023 Incentive Plan provides for the grant of awards including stock options, stock appreciation rights, performance stock units, performance units, stock, restricted stock, restricted stock units, and cash incentive awards.

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


		September 30, 2024
Shares available for future issuance under the 2023 Incentive Plan		1,809
Shares available for future issuance under the ESPP		556

Stock-Based Compensation Expense

We recognize stock-based compensation expense based on the fair value of the awards issued and the functional area of the employee receiving the award. During the nine months ended September 30, 2024, stock-based compensation expense includes $1.8 million related to a modification for accounting purposes of prior awards. Stock-based compensation was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Stock-based compensation expense	$	11,914	$	8,075	$	34,303	$	22,813

See Note 2. Acquisitions for information regarding future stock-based compensation expense related to the Airity acquisition.

Restricted Stock Units

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

Changes in our RSUs were as follows:


	Nine Months Ended September 30, 2024
		Weighted-
		Average
	Number of	Grant Date
	RSUs	Fair Value
RSUs outstanding at beginning of period	917	$	85.96
RSUs granted	546	$	104.79
RSUs vested	(286)	$	90.22
RSUs forfeited	(87)	$	77.73
RSUs outstanding at end of period	1,090	$	94.92

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

Stock Options

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

Changes in our stock options were as follows:


	Nine Months Ended September 30, 2024
		Weighted-
		Average
	Number of	Exercise Price
	Options	per Share
Options outstanding at beginning of period	89	$	76.69
Options exercised	(10)	$	26.32
Options outstanding at end of period	79	$	83.05

NOTE 15. COMMITMENTS AND CONTINGENCIES

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

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

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

NOTE 16. LONG-TERM DEBT

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


	September 30,		December 31,
	2024		2023
Convertible Notes due 2028	$	575,000	$	575,000
Term Loan Facility		—		355,000
Gross long-term debt, including current maturities		575,000		930,000
Less: debt discount		(11,000)		(14,321)
Net long-term debt, including current maturities		564,000		915,679
Less: current maturities		—		(20,000)
Net long-term debt	$	564,000	$	895,679

For all periods presented, we were in compliance with the covenants under all debt agreements.

The following table summarizes interest expense related to our debt:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Interest expense	$	5,736	$	3,528	$	18,403	$	8,818
Amortization of debt issuance costs		794		245		2,469		509
Capitalized interest		(157)		—		(428)		—
Total interest expense related to debt	$	6,373	$	3,773	$	20,444	$	9,327

Credit Agreement

Our credit agreement dated as of September 10, 2019, as amended (the “Credit Agreement”) consist of a senior unsecured term loan facility (“Term Loan Facility”) and a senior unsecured revolving facility (“Revolving Facility”), both maturing on September 9, 2026. On September 9, 2024, we entered into an amendment to the Credit Agreement to increase the capacity on the Revolving Facility from $200.0 million to $600.0 million. This amendment was in connection with the concurrent prepayment, using existing cash on hand, of the full $345.0 million outstanding principal balance under our Term Loan Facility.

For all periods presented, no amounts were outstanding on the Revolving Facility. The following table summarizes our availability to withdraw on the Revolving Facility:


	September 30,		December 31,
	2024		2023
Available capacity on Revolving Facility	$	600,000	$	200,000

In addition to our available capacity on the Revolving Facility, prior to the maturity date of the Credit Agreement, we may request an increase to the financing commitments in either the Term Loan Facility or Revolving Facility by an aggregate amount not to exceed $250.0 million. Any requested increase is subject to lender approval.

The interest rate swap contracts previously entered into relative to the Term Loan Facility expired on September 10, 2024. Should we have future borrowings under the Term Loan Facility or Revolving Facility, they will bear interest, at our option, at a rate based on the Base Rate or SOFR, as defined in the Credit Agreement, plus an applicable margin.

Convertible Senior Notes due 2028

On September 12, 2023, we completed a private, unregistered offering of $575.0 million aggregate principal amount of 2.50% convertible senior notes due 2028 (“Convertible Notes”).

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

The $564.0 million remaining outstanding principal amount of the Convertible Notes, net of unamortized issuance costs, continues to be classified as long-term debt as none of the conversion triggers occurred as of September 30, 2024. The redemption price is 100% of the principal amount plus accrued and unpaid interest. The Convertible Notes mature on September 15, 2028, unless earlier repurchased, redeemed, or converted. Interest is payable semi-annually in arrears in March and September.

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

We use level 2 measurements to estimate the fair value of our debt. As of September 30, 2024, we estimate the fair value of our Convertible Notes to be $598.2 million.

NOTE 17. SUPPLEMENTAL CASH FLOW INFORMATION AND OTHER DISCLOSURES

Certain of our cash and non-cash activities were as follows:


	Nine Months Ended September 30,
	2024		2023
Non-cash investing activities:
Capital expenditures in accounts payable and other accrued expenses	$	7,200	$	7,699
Cash paid for:
Interest expense	$	17,975	$	8,060
Income taxes	$	29,041	$	45,040
Cash received from income taxes	$	1,627	$	828
Depreciation expense	$	31,305	$	28,578

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

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

Special Note on Forward-Looking Statements

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

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

●

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

●

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

●

our ability to accurately forecast and meet customer demand;

●

risks related to global economic conditions, such as the impact of escalating global conflicts on macroeconomic conditions, economic uncertainty, market volatility, rising interest rates, inflation, or recession;

●

risks inherent in our international operations, including the effect of trade and export controls, political and geographical risks, the impact of tariffs on our supply or products, and fluctuations in currency exchange rates;

●

concentration of our customer base;

●

risks associated with breach of our information security measures;

●

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

●

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

●

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

●

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

●

quality issues or unanticipated costs in fulfilling our warranty obligations (including our discontinued solar inverter product line), and adequacy of our warranty reserves;

●

our ability to enforce, protect and maintain our proprietary technology and intellectual property rights;

●

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

●

changes to tax laws and regulations or our tax rates;

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●

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

●

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

●

customer price sensitivity;

●

risks related to our unfunded pension obligations;

●

restructuring and severance activities;

●

legal matters, claims, investigations, and proceedings;

●

our estimates of the fair value of intangible assets; and

●

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

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

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BUSINESS AND MARKET OVERVIEW

Company Overview

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

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

Recent Events

Airity Acquisition

On June 20, 2024, we acquired Airity Technologies, Inc. (“Airity”), which is based in Redwood City, California. This acquisition adds high voltage power conversion technologies and products, which broadens our range of targeted applications within our Semiconductor Equipment and Industrial and Medical markets. See Note 2. Acquisitions in Part I, Item 1 “Unaudited Consolidated Financial Statements.”

2024 Restructuring Plan

In July 2024, we approved further manufacturing consolidation initiatives, including the previously announced closure of our Zhongshan, China facility. In connection with the 2024 Plan, we recorded a $28.5 million charge primarily associated with expected employment-related charges and facility exit costs. We expect to incur $1.0 million to $2.0 million in additional charges related to our announced actions and continue to evaluate our operations and cost structure, which could result in incremental restructuring charges in future periods. For additional information, see Note 11. Restructuring, Asset Impairments, and Other Charges in Part I, Item 1 “Unaudited Consolidated Financial Statements.”

Credit Agreement Amendment

On September 9, 2024, we used existing cash on hand to prepay the full $345.0 million outstanding principal balance under our Term Loan Facility. As of September 30, 2024, our only outstanding debt is the Convertible Notes due in 2028. On the same date, we entered into an additional amendment to the Credit Agreement to increase the capacity on the Revolving Facility from $200.0 million to $600.0 million. See Note 16. Long-Term Debt in Part I, Item 1 “Unaudited Consolidated Financial Statements” for additional information.

Product and Services

Our precision power products and solutions are designed to enable new process technologies, improve productivity, lower the cost of ownership, and provide critical power capabilities for our customers. These products are designed to meet our customers’ demanding requirements in efficiency, flexibility, performance, and reliability. We also provide repair and maintenance services for our products.

Our plasma power products offer solutions to enable innovation in complex semiconductor and thin film plasma processes such as dry etch and deposition. Our broad portfolio of high and low voltage power products is used in a wide range of applications, such as semiconductor equipment, industrial production, medical and life science equipment, data center computing, networking, and telecommunications. We also supply related sensing, controls, and instrumentation products primarily for advanced measurement and calibration of power and temperature for multiple industrial markets.

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Our network of global service support centers provides repair services, calibration, conversions, upgrades, refurbishments, and used equipment to companies that use our products.

End Markets Summary

The demand environment in each of our markets is impacted by macroeconomic conditions, various market trends, customer buying patterns, design wins, and other factors. Although we are currently experiencing a lower demand environment in certain markets, we continue to believe that the long-term market growth drivers support our long-term strategy, research and development efforts, and capital investments. However, in the short-term it is unclear how certain macroeconomic conditions, including the effect of higher interest rates impacting end customers’ capital investment, the timing of inventory digestion, and customer buying patterns, will affect customer demand and our revenue.

Semiconductor Equipment Market

The Semiconductor Equipment market is slowly recovering from a cyclical downturn, which began in the fourth quarter of 2022. Since the market bottomed in 2023, demand had modestly recovered in the first nine months of 2024, but a number of external factors continued to limit the market, including unfavorable macroeconomic conditions, prolonged weak demand for consumer electronics, low fab utilization, and U.S. export restrictions to China.

We continue to believe the long-term growth drivers will support cyclical growth for this market as more manufacturing capacity is needed to support increasing demand for semiconductor devices and related capital equipment.

Industrial and Medical Market

Beginning in the second half of 2023, the impact of weaker macroeconomic conditions started to impact demand for our products in the Industrial and Medical Market. In addition, in the first nine months of 2024, elevated inventory levels of our products following the supply chain crisis and extended lead times resulted in high levels of inventory rebalancing by our customers. We expect these factors will continue to limit our revenue levels in the near term, but we believe the long-term growth drivers will enable growth to return to this market after end markets recover and our customer inventories return to normal levels.

Data Center Computing Market

The Data Center Computing Market experienced weak demand starting in the first quarter of 2023 and continued until the first quarter of 2024, driven by reduced investments of our hyperscale customers, lower demand for Enterprise systems and the timing impact of large customer orders on our revenues. Starting in the second quarter of 2024, demand rebounded from both our hyperscale and enterprise customers, driven by accelerated investments in artificial intelligence and improved demand in the traditional server market, which we expect to continue for several quarters.

Telecom and Networking Market

Starting in 2023, leading companies in both the telecom and networking markets reported weakening demand. However, improved supply of critical components in 2023 drove higher customer orders and more than offset weakening market conditions, which continued in 2024. As end demand softens and customers rebalance their elevated inventory levels of our products, demand for our products declined meaningfully in the first nine months of 2024, which we expect to continue for several quarters.

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Results of Continuing Operations

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

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


	Three Months Ended September 30,								Nine Months Ended September 30,
	2024				2023				2024				2023
Revenue	$	374,217	100.0	%	$	409,991	100.0	%	$	1,066,639	100.0	%	$	1,250,539	100.0	%
Gross profit		134,068	35.8			147,341	35.9			374,638	35.1			449,532	35.9
Operating expenses		145,116	38.8			117,280	28.6			372,041	34.9			349,608	28.0
Operating income (loss) from continuing operations		(11,048)	(3.0)			30,061	7.3			2,597	0.2			99,924	8.0
Interest income		11,018	2.9			6,396	1.6			35,782	3.4			14,282	1.1
Interest expense		(6,378)	(1.7)			(3,780)	(0.9)			(20,461)	(1.9)			(9,368)	(0.7)
Other income (expense), net		(8,139)	(2.2)			1,848	0.5			(6,122)	(0.6)			1,425	0.1
Income (loss) from continuing operations, before income tax		(14,547)	(3.9)			34,525	8.4			11,796	1.1			106,263	8.5
Income tax provision (benefit)		(400)	(0.1)			874	0.2			4,552	0.4			13,405	1.1
Income (loss) from continuing operations	$	(14,147)	(3.8)	%	$	33,651	8.2	%	$	7,244	0.7	%	$	92,858	7.4	%

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Revenue

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


	Three Months Ended September 30,								Change 2024 v. 2023
	2024				2023				Dollar		Percent
Semiconductor Equipment	$	197,497	52.8	%	$	185,033	45.1	%	$	12,464	6.7	%
Industrial and Medical		76,837	20.5			115,226	28.1			(38,389)	(33.3)	%
Data Center Computing		80,653	21.6			68,286	16.7			12,367	18.1	%
Telecom and Networking		19,230	5.1			41,446	10.1			(22,216)	(53.6)	%
Total	$	374,217	100.0	%	$	409,991	100.0	%	$	(35,774)	(8.7)	%

	Nine Months Ended September 30,								Change 2024 v. 2023
	2024				2023				Dollar		Percent
Semiconductor Equipment	$	565,721	53.0	%	$	552,419	44.2	%	$	13,302	2.4	%
Industrial and Medical		239,359	22.4			365,849	29.3			(126,490)	(34.6)	%
Data Center Computing		195,519	18.3			187,021	15.0			8,498	4.5	%
Telecom and Networking		66,040	6.3			145,250	11.5			(79,210)	(54.5)	%
Total	$	1,066,639	100.0	%	$	1,250,539	100.0	%	$	(183,900)	(14.7)	%

Total revenues in the three month period decreased from the same period in the prior year due to customer inventory rebalancing, resulting in lower demand in our Industrial and Medical and Telecom and Networking markets. This offset a modest revenue recovery in the Semiconductor Equipment market from the trough level a year ago and a demand recovery in the Data Center Computing market.

Total revenues in the nine month period decreased from the same periods in the prior year due primarily to customer inventory rebalancing, resulting in lower demand in our Industrial and Medical and Telecom and Networking markets. The Semiconductor Equipment market modestly recovered from the cyclical trough in 2023, and revenue in the Data Center Computing market was impacted by weak demand in the first quarter followed by a rebound beginning in the second and third quarter driven by investments in artificial intelligence.

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Revenue by Market


	Three Months Ended September 30,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(in thousands)
Semiconductor Equipment	$	197,497	$	185,033	$	12,464	6.7	%

	Nine Months Ended September 30,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(in thousands)
Semiconductor Equipment	$	565,721	$	552,419	$	13,302	2.4	%

The increase in Semiconductor Equipment revenue for the three month period was primarily due to improved demand for our products compared to the same period in the prior year. The revenue for the nine month period modestly increased from the cyclical trough in 2023.


	Three Months Ended September 30,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(in thousands)
Industrial and Medical	$	76,837	$	115,226	$	(38,389)	(33.3)	%

	Nine Months Ended September 30,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(in thousands)
Industrial and Medical	$	239,359	$	365,849	$	(126,490)	(34.6)	%

The decrease in Industrial and Medical revenues for both the three and nine month periods was primarily due to lower demand and customers working down their elevated inventories compared to a record year in 2023 and shortened lead times following the supply chain crisis.


	Three Months Ended September 30,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(in thousands)
Data Center Computing	$	80,653	$	68,286	$	12,367	18.1	%

	Nine Months Ended September 30,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(in thousands)
Data Center Computing	$	195,519	$	187,021	$	8,498	4.5	%

The increase in Data Center Computing revenue for the three and nine month periods was due to increased hyperscale investments mostly driven by artificial intelligence adoption, and, to a lesser degree, a recovery in demand for traditional enterprise servers.


	Three Months Ended September 30,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(in thousands)
Telecom and Networking	$	19,230	$	41,446	$	(22,216)	(53.6)	%

	Nine Months Ended September 30,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(in thousands)
Telecom and Networking	$	66,040	$	145,250	$	(79,210)	(54.5)	%

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The decrease in Telecom and Networking revenues for both the three and nine month periods was due to the prior year benefit of improved supply of critical components. This enabled fulfillment of outstanding orders in 2023, which did not continue in 2024. In addition, we experienced a slow demand environment and inventory rebalancing from our customers, which we expect to continue.

Gross Profit and Gross Margin


	Three Months Ended September 30,						Change 2024 v. 2023
	2024			2023			Dollar		Percent

	(in thousands)
Gross profit	$	134,068		$	147,341		$	(13,273)	(9.0)	%
Gross margin		35.8	%		35.9	%

	Nine Months Ended September 30,						Change 2024 v. 2023
	2024			2023			Dollar		Percent

	(in thousands)
Gross profit	$	374,638		$	449,532		$	(74,894)	(16.7)	%
Gross margin		35.1	%		35.9	%

For both the three and nine month periods, the decrease in gross profit was largely due to the decline in revenue and higher operating costs based on investments made in 2023. Gross margin declined in both periods due to the decline in volume, which drove manufacturing utilization lower. This was partially offset by more favorable product mix, savings realized from our restructuring programs, and lower premiums paid for scarce parts.

Operating Expenses

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


	Three Months Ended September 30,
	2024				2023
Research and development	$	53,561	14.3	%	$	50,391	12.3	%
Selling, general, and administrative		56,237	15.0			55,131	13.4
Amortization of intangible assets		6,772	1.8			7,049	1.7
Restructuring, asset impairments, and other charges		28,546	7.6			4,709	1.1
Total operating expenses	$	145,116	38.8	%	$	117,280	28.6	%

	Nine Months Ended September 30,
	2024				2023
Research and development	$	155,732	14.6	%	$	153,414	12.3	%
Selling, general, and administrative		166,374	15.6			166,102	13.3
Amortization of intangible assets		20,519	1.9			21,186	1.7
Restructuring, asset impairments, and other charges		29,416	2.8			8,906	0.7
Total operating expenses	$	372,041	34.9	%	$	349,608	28.0	%

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Research and Development


		Three Months Ended September 30,				Change 2024 v. 2023
		2024		2023		Dollar		Percent

		(in thousands)
Research and development		$	53,561	$	50,391	$	3,170	6.3	%

		Nine Months Ended September 30,				Change 2024 v. 2023
		2024		2023		Dollar		Percent

	(in thousands)
Research and development		$	155,732	$	153,414	$	2,318	1.5	%

During the three and nine month periods we experienced an increase in R&D related to higher stock-based compensation expense as well as higher program and materials cost compared to the same periods in the prior year. This was partially offset by lower variable compensation cost.

Selling, General and Administrative


	Three Months Ended September 30,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(in thousands)
Selling, general, and administrative	$	56,237	$	55,131	$	1,106	2.0	%

	Nine Months Ended September 30,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(in thousands)
Selling, general, and administrative	$	166,374	$	166,102	$	272	0.2	%

Selling, general, and administrative expense remained constant due to actions taken to control costs, including headcount reduction and lower variable employee compensation, partially offset by higher stock-based compensation cost.

Amortization of Intangibles Assets


	Three Months Ended September 30,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(in thousands)
Amortization of intangible assets	$	6,772	$	7,049	$	(277)	(3.9)	%

	Nine Months Ended September 30,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(in thousands)
Amortization of intangible assets	$	20,519	$	21,186	$	(667)	(3.1)	%

Amortization expense remained constant. We acquired new intangible assets in the Airity acquisition, but this was offset by certain other intangible assets reaching the end of their estimated useful life.

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Restructuring, Asset Impairments and Other Charges


	Three Months Ended September 30,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(in thousands)
Restructuring, asset impairments, and other charges	$	28,546	$	4,709	$	23,837	506.2	%

	Nine Months Ended September 30,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(in thousands)
Restructuring, asset impairments, and other charges	$	29,416	$	8,906	$	20,510	230.3	%

The increase in restructuring, asset impairments, and other charges is primarily driven by the timing of our restructuring plan decisions.

2024 Plan

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

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


	Three Months Ended September 30,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(in thousands)
Interest income	$	11,018	$	6,396	$	4,622	72.3	%
Interest expense	$	(6,378)	$	(3,780)	$	(2,598)	68.7	%
Other income (expense), net	$	(8,139)	$	1,848	$	(9,987)	540.4	%

	Nine Months Ended September 30,				Change 2024 v. 2023
	2024		2023		Dollar		Percent

	(in thousands)
Interest income	$	35,782	$	14,282	$	21,500	150.5	%
Interest expense	$	(20,461)	$	(9,368)	$	(11,093)	118.4	%
Other income (expense), net	$	(6,122)	$	1,425	$	(7,547)	529.6	%

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

Interest expense increased due to interest associated with the Convertible Notes and a higher interest rate on the portion of our Term Loan Facility subject to a variable interest rate. We prepaid in full the Term Loan Facility on September 9, 2024, and the interest rate swap contracts expired on September 10, 2024. Should we have future borrowings under our Term Loan Facility or Revolving Facility, those borrowings would be subject to a variable rate.

See Note 16. Long-Term Debt in Part I, Item 1 “Unaudited Consolidated Financial Statements” for information regarding our debt.

Other income (expense), net consists primarily of foreign exchange gains and losses and other miscellaneous items. We had unrealized foreign exchange losses during the three and nine months ended September 30, 2024 compared to unrealized gains in the same periods in the prior year. Additionally, during the three months ended September 30, 2024, we incurred costs associated with foreign currency translation adjustments related to liquidated foreign operations and debt discount and fees associated with our Term Loan Facility prepayment. There were no such costs during the same periods in the prior year.

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Income Tax

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
Income (loss) from continuing operations, before income tax	$	(14,547)		$	34,525		$	11,796		$	106,263
Income tax provision (benefit)	$	(400)		$	874		$	4,552		$	13,405
Effective tax rate		(2.7)	%		2.5	%		38.6	%		12.6	%

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Non-GAAP Results

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

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


Reconciliation of non-GAAP measure
Operating expenses and operating income from continuing	Three Months Ended September 30,				Nine Months Ended September 30,
operations, excluding certain items (in thousands)	2024		2023		2024		2023
Gross profit from continuing operations, as reported	$	134,068	$	147,341	$	374,638	$	449,532
Adjustments to gross profit:
Stock-based compensation		1,046		615		2,931		1,587
Facility expansion, relocation costs and other		868		171		2,337		1,188
Acquisition-related costs		—		44		(13)		194
Non-GAAP gross profit		135,982		148,171		379,893		452,501
Non-GAAP gross margin		36.3%		36.1%		35.6%		36.2%

Operating expenses from continuing operations, as reported		145,116		117,280		372,041		349,608
Adjustments:
Amortization of intangible assets		(6,772)		(7,049)		(20,519)		(21,186)
Stock-based compensation		(10,868)		(7,460)		(31,372)		(21,226)
Acquisition-related costs		(1,581)		(611)		(4,781)		(2,654)
Facility expansion, relocation costs and other		(488)		—		(488)		—
Restructuring, asset impairments, and other charges		(28,546)		(4,898)		(29,416)		(9,095)
Non-GAAP operating expenses		96,861		97,262		285,465		295,447
Non-GAAP operating income	$	39,121	$	50,909	$	94,428	$	157,054
Non-GAAP operating margin		10.5%		12.4%		8.9%		12.6%

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Reconciliation of non-GAAP measure
Income from continuing operations, excluding certain items	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts)	2024		2023		2024		2023
Income (loss) from continuing operations, less non-controlling interest, net of income tax	$	(14,147)	$	33,651	$	7,244	$	92,858
Adjustments:
Amortization of intangible assets		6,772		7,049		20,519		21,186
Acquisition-related costs		1,581		655		4,768		2,848
Facility expansion, relocation costs, and other		1,356		171		2,825		1,188
Restructuring, asset impairments, and other charges		28,546		4,898		29,416		9,095
Unrealized foreign currency loss (gain)		3,993		(1,604)		691		(2,817)
Other costs included in other income (expense), net		3,665		(1,516)		3,665		(1,516)
Tax effect of non-GAAP adjustments, including certain discrete tax benefits		(4,172)		(1,101)		(5,292)		(3,273)
Non-GAAP income, net of income tax, excluding stock-based compensation		27,594		42,203		63,836		119,569
Stock-based compensation, net of tax		9,412		6,299		27,099		17,794
Non-GAAP income, net of income tax	$	37,006	$	48,502	$	90,935	$	137,363

Reconciliation of non-GAAP measure
Weighted-average common shares adjusted for stock awards	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2024		2023		2024		2023
Diluted weighted-average common shares outstanding		37,532		37,854		37,785		37,842
Dilutive effect of stock awards		360		-		-		-
Non-GAAP diluted weighted-average common shares outstanding		37,892		37,854		37,785		37,842


Reconciliation of non-GAAP measure	Three Months Ended September 30,				Nine Months Ended September 30,
Per share earnings excluding certain items	2024		2023		2024		2023
Diluted earnings (loss) per share from continuing operations, as reported	$	(0.38)	$	0.89	$	0.19	$	2.45
Add back:
Per share impact of non-GAAP adjustments, net of tax		1.36		0.39		2.22		1.18
Non-GAAP earnings per share	$	0.98	$	1.28	$	2.41	$	3.63

Liquidity and Capital Resources

Liquidity

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

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As of September 30, 2024, our cash and cash equivalents totaled $657.3 million, while our available funding under our Revolving Facility was $600.0 million. Additionally, we generated $50.3 million of cash flow from continuing operations in the nine months ended September 30, 2024. We believe our sources of liquidity will be adequate to meet anticipated debt service, share repurchase programs, and dividends. During the ordinary course of business, we evaluate our cash requirements and, if necessary, adjust our expenditures to reflect the current market conditions and our projected revenue and demand. Our capital expenditures are primarily directed towards manufacturing and operations and can materially influence our available cash for other initiatives.

In addition, we may seek additional debt or equity financing from time to time; however, such additional financing may not be available on acceptable terms, if at all.

Debt

On September 9, 2024, we used existing cash on hand to prepay the full $345.0 million outstanding principal balance under our Term Loan Facility. On the same date, we entered into an additional amendment to the Credit Agreement to increase the capacity on the Revolving Facility from $200.0 million to $600.0 million.

As of September 30, 2024, our only outstanding debt is the $575.0 million Convertible Notes, which mature on September 15, 2028 and carry a 2.5% interest rate.

See Note 16. Long-Term Debt in Part I, Item 1 “Unaudited Consolidated Financial Statements” for additional information.

The interest rate swap contracts previously entered into related to the Term Loan Facility expired on September 10, 2024. Should we have future borrowings under our Term Loan Facility or Revolving Facility, those borrowings would be subject to a variable rate.

As of September 30, 2024, no amounts were outstanding under the Revolving Facility, and we had $600.0 million in available funding.

In addition to the available capacity on the Revolving Facility, prior to the maturity date of our Credit Agreement, we may request an increase to the financing commitments in either the Term Loan Facility or Revolving Facility by an aggregate amount not to exceed $250.0 million. Any requested increase is subject to lender approval.

For more information see Note 16. Long-Term Debt in Part I, Item 1 “Unaudited Consolidated Financial Statements.”

Dividends

During the nine months ended September 30, 2024, we paid quarterly cash dividends of $0.10 per share, totaling $11.5 million. We currently anticipate that a cash dividend of $0.10 per share will continue to be paid on a quarterly basis, although the declaration of any future cash dividend is at the discretion of the Board of Directors and will depend on our financial condition, results of operations, capital requirements, business conditions, and other factors.

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Cash Flows

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


	Nine Months Ended September 30,
	2024		2023
Net cash from operating activities from continuing operations	$	50,250	$	128,240
Net cash used in operating activities from discontinued operations		(2,191)		(3,307)
Net cash from operating activities		48,059		124,933
Net cash used in investing activities		(60,505)		(50,229)
Net cash used in financing activities		(374,433)		454,204
Effect of currency translation on cash and cash equivalents		(389)		(1,795)
Net change in cash and cash equivalents		(387,268)		527,113
Cash and cash equivalents, beginning of period		1,044,556		458,818
Cash and cash equivalents, end of period	$	657,288	$	985,931

Operating Activities

Net cash from operating activities from continuing operations for the nine months ended September 30, 2024 was $50.3 million, as compared to $128.2 million for the same period in the prior year. This $77.9 million decrease was primarily due to lower net income from continuing operations. Additionally, during the current year, we had a significant use of cash for inventories due to a strategic inventory buildup as well as lower cash flow from accounts receivable as a result of a decline in revenue. In addition, we had unfavorable changes in accounts payable, accrued expenses, and other liabilities.

Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2024 was $60.5 million, primarily driven by the following:

●

$44.0 million in purchases of property and equipment largely driven by investments in our manufacturing footprint and capacity;

●

$13.8 million for the Airity acquisition; and

●

$2.7 million in purchases of investments.

Net cash used in investing activities for the nine months ended September 30, 2023 was $50.2 million, primarily driven by the following:

●

$46.8 million in purchases of property and equipment largely driven by investments in our manufacturing footprint and capacity; and

●

$3.4 million in purchases of investments.

Financing Activities

Net cash used in financing activities for the nine months ended September 30, 2024 was $374.4 million and included the following:

●

$355.0 million for repayment of long-term debt;

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●

$11.5 million for dividend payments;

●

$1.8 million for repurchase of common stock; and

●

$6.0 million in net payments related to stock-based award activities.

Net cash from financing activities for the nine months ended September 30, 2023 was $454.2 million and included the following:

●

$562.0 million net proceeds from issuance of long-term debt;

●

$74.9 million proceeds from the sale of Warrants;

●

$115.0 million for purchase of Note Hedges;

●

$40.0 million for repurchase of common stock;

●

$15.0 million for repayment of long-term debt;

●

$11.4 million for dividend payments; and

●

$1.3 million in net payments related to stock-based award activities.

Effect of Currency Translation on Cash

During the nine months ended September 30, 2024, foreign currency translation had a minimal impact on cash. See “Foreign Currency Exchange Rate Risk” in Part I, Item 3 for more information.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Note 1. Summary of Operations and Significant Accounting Policies and Estimates to the consolidated financial statements in the 2023 Form 10-K describes the significant accounting policies and methods used in the preparation of our consolidated financial statements. Our critical accounting estimates, discussed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the 2023 Form 10-K, include assessing excess and obsolete inventories, accounting for income taxes, and estimates for the valuation of assets and liabilities acquired in business combinations.

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk and Risk Management

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

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

Foreign Currency Exchange Rate Risk

We are impacted by changes in foreign currency exchange rates through revenue and purchasing transactions when we sell products and purchase materials in currencies different from the currency in which product and manufacturing costs were incurred. Our reported financial results of operations, including the reported value of our assets and liabilities, are also impacted by changes in foreign currency exchange rates. Assets and liabilities of substantially all our subsidiaries outside the U.S. are translated at period end rates of exchange for each reporting period. Operating results and cash flow statements are translated at average rates of exchange during each reporting period. Although these translation changes have no immediate cash impact, the translation changes may impact future borrowing capacity, and overall value of our net assets.

The functional currencies of our worldwide facilities primarily include the United States Dollar, Euro, South Korean Won, New Taiwan Dollar, Japanese Yen, Pound Sterling, and Chinese Yuan. We are subject to risks associated with revenue and purchasing activities and costs to operate that are denominated in currencies other than our functional currencies, such as the Singapore Dollar, Malaysian Ringgit, Mexican Peso, Philippine Peso, and Thai Baht. Historically, the impact of changes to these particular exchange rates has not been material to our operating results.

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

At the present time, a change in interest rates does not have an impact upon our future earnings and cash flow because our only outstanding debt is the Convertible Notes, which carry a fixed 2.5% interest rate. However, increases in interest rates could impact the decision to borrow under our Credit Agreement, ability to refinance existing maturities, and acquire additional debt on favorable terms.

For more information see Note 16. Long-Term Debt in Part I, Item 1 “Unaudited Consolidated Financial Statements.”

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

As of the end of the period covered by this report, we conducted an evaluation, with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures pursuant to the Exchange Act Rule 13a-15(b). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2024. The conclusions of the Chief Executive Officer and Chief Financial Officer from this evaluation were communicated to the Audit and Finance Committee. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. We intend to continue to review and document our disclosure controls and procedures, including our internal controls over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

Changes in Internal Control over Financial Reporting

Our assessment of the effectiveness of internal control over financial reporting excludes Airity, which we acquired in a business combination on June 20, 2024. See Note 2. Acquisitions in Part I, Item 1 “Unaudited Consolidated Financial Statements.” Airity’s total assets and total revenue excluded from management’s assessment represent less than 1% of the related consolidated financial statement amounts as of September 30, 2024.

Aside from the above, there was no change in our internal control over financial reporting that occurred during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

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

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

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

The following table summarizes these repurchases during the three months ended September 30, 2024:


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)
July 1 to July 31, 2024		—	$	—		—	$	199,192
August 1 to August 31, 2024		—	$	—		—	$	199,192
September 1 to September 30, 2024		19	$	93.58		19	$	197,404

At September 30, 2024, the remaining amount authorized by the Board of Directors for future share repurchases was $197.4 million with no time limitation.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

None

ITEM 5. OTHER INFORMATION

Rule 10b5-1 Trading Arrangements

During the three months ended September 30, 2024, no director or officer adopted or terminated a “Rule 10b5-1 trading arrangement” or a “Non-Rule 10b5-1 trading arrangement” (as defined in Item 408 of Regulation S-K).

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ITEM 6. EXHIBITS

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

Exhibit		Incorporated by Reference
Number	Description	Form	File No.	Exhibit	Filing Date

10.1	Amendment No. 4 to Credit Agreement by and among Advanced Energy Industries, Inc., the guarantors party thereto, Bank of America, NA as the administrative agent, and the lenders party thereto	8-K	000-26966	10.1	Sep. 11, 2024

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 Link base Document.				Filed herewith

101.DEF	Inline XBRL Taxonomy Extension Definition Link base Document.				Filed herewith

101.LAB	Inline XBRL Taxonomy Extension Label Link base Document.				Filed herewith

101.PRE	Inline XBRL Taxonomy Extension Presentation Link base Document.				Filed herewith

104	Cover Page Interactive Data File (Formatted in Inline XBRL and contained in Exhibit 101)				Filed herewith

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SIGNATURES

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


		ADVANCED ENERGY INDUSTRIES, INC.

Dated:	October 30, 2024	/s/ Paul Oldham
		Paul Oldham
		Chief Financial Officer and Executive Vice President

		/s/ Bernard R. Colpitts, Jr.
		Bernard R. Colpitts, Jr.
		Chief Accounting Officer and Controller

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Advanced Energy Industries (AEIS) 10-Q2024 Q3 Quarterly report

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