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What changed in ADVANCED ENERGY INDUSTRIES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ADVANCED ENERGY INDUSTRIES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+319 added−364 removedSource: 10-K (2024-02-20) vs 10-K (2023-02-17)

Top changes in ADVANCED ENERGY INDUSTRIES INC's 2023 10-K

319 paragraphs added · 364 removed · 192 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeIn 2022, Advanced Energy launched a 10-week leadership essential training program for our people leaders across all corporate levels, providing the opportunity for employees to develop and enhance the essential competencies needed to empower, engage, and inspire high-performing teams.
Biggest changeAdditionally, we offer a discounted employee stock purchase plan. Learning and Development We create growth and development opportunities to support our employees and offer internal and external learning and development opportunities. We also perform internal talent reviews and succession planning. In 2023, Advanced Energy continued our 10-week leadership essential training program for our people leaders across all corporate levels.
Acquisitions in Part II, Item 8 “Financial Statements and Supplementary Data.” Products and Services PRODUCTS Advanced Energy’s 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.
Acquisitions in Part II, Item 8 “Financial Statements and Supplementary Data.” Products 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.
ITEM 1. BUSINESS Overview Advanced Energy provides highly engineered, mission-critical, precision power conversion, measurement, and control solutions to our global customers.
ITEM 1. BUSINESS Overview Advanced Energy provides highly engineered, critical, precision power conversion, measurement, and control solutions to our global customers.
TRUMPF Hüttinger GmbH + Co. KG XP Power Ltd. Acbel Polytech Inc. Delta Electronics, Inc. Flex Ltd. Lite-On Technology Corp. ​ ABB Ltd. Delta Electronics, Inc.
TRUMPF Hüttinger GmbH + Co. KG XP Power Ltd. Acbel Polytech Inc. Delta Electronics, Inc. Flex Ltd. Lite-On Technology Corp. ​ Acbel Polytech Inc. Delta Electronics, Inc.
Our broad portfolio of high and low voltage power products are used in a wide range of applications, such as semiconductor equipment, industrial production, medical and life science equipment, data centers computing, networking, and telecommunications. We also supply related sensing, controls, and instrumentation products primarily for advanced measurement and calibration of power and temperature for multiple industrial markets.
We have a broad portfolio of high and low voltage power products used in a wide range of applications, such as semiconductor equipment, industrial production, medical and life science equipment, data centers computing, networking, and telecommunications. We also supply related sensing, controls, and instrumentation products primarily for advanced measurement and calibration of power and temperature for multiple industrial markets.
Information contained on our website is not incorporated by reference in, or otherwise part of, this annual report on Form 10-K nor any of our other filings with the SEC. ​
Information contained on our website is not incorporated by reference in, or otherwise part of, this annual report on Form 10-K nor any of our other filings with the SEC. ​ 10 Table of Contents
Recent Acquisitions On April 25, 2022, we acquired 100% of the issued and outstanding shares of capital stock of SL Power Electronics Corporation (“SL Power”), which is based in Calabasas, California. This acquisition added complementary products to Advanced Energy’s medical power offerings and extends our presence in several advanced industrial markets.
Recent Acquisitions On April 25, 2022, we acquired 100% of the issued and outstanding shares of capital stock of SL Power Electronics Corporation (“SL Power”), which is based in Calabasas, California. This acquisition added complementary products to Advanced Energy’s medical power offerings and extends our presence in several advanced industrial markets. For additional information, see Note 2.
Our sales operations are primarily located in the U.S., China, the United Kingdom, Germany, Israel, Japan, South Korea, India, Singapore, Philippines, Hong Kong, Ireland, and Taiwan. In addition to a direct sales force, we have independent sales representatives, channel partners and distributors that support our selling efforts.
Our sales operations are primarily located in China, Germany, Hong Kong, India, Ireland, Israel, Japan, South Korea, Philippines, Singapore, Taiwan, the United Kingdom, and United States. 6 Table of Contents In addition to a direct sales force, we have independent sales representatives, channel partners and distributors that support our selling efforts.
Our employees are not represented by unions, except for statutory organization rights applicable to our employees in China, Germany, and Mexico. 10 Table of Contents Diversity, Equity, and Inclusion We are committed to creating an inclusive work environment where all our team members feel respected, valued, and empowered. We are also committed to expanding gender diversity.
Our employees are not represented by unions, except for statutory organization rights applicable to our employees in China, Germany, and Mexico. 8 Table of Contents Diversity, Equity, and Inclusion We are committed to creating an inclusive work environment where all of our employees feel respected, valued, and empowered.
We believe we are in material compliance with all such laws and regulations. Available Information Our website address is www.advancedenergy.com .
We believe we are in material compliance with all such laws and regulations. 9 Table of Contents Available Information Our website address is www.advancedenergy.com .
These core values are the foundation of how we operate. We have a globally diverse workforce with approximately 12,000 employees as of December 31, 2022. Our employees are located worldwide in more than 20 countries and are comprised of approximately 55% male and 45% female employees.
These core values are the foundation of how we operate. We have a globally diverse workforce with approximately 10,000 employees as of December 31, 2023. Our employees are located across the globe in more than 20 countries and are comprised of approximately 55% male and 45% female employees.
The loss of a large customer could have a material adverse effect on our results of operations . ​ For more information related to our expectations for the markets we serve, see Business Environment and Trends in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” For a discussion of our backlog, see Results of Continuing Operations in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Marketing, Sales, and Distribution We sell our products through direct and indirect sales channels.
For more information related to our expectations for the markets we serve, see Business Environment and Trends in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” For a discussion of our backlog, see Results of Continuing Operations in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Marketing, Sales, and Distribution We sell our products through direct and indirect sales channels.
Revenue in Part II, Item 8 “Financial Statements and Supplementary Data” for information regarding our revenue by geographic area and Part I, Item 1A “Risk Factors” for a discussion of certain risks related to our foreign operations. Manufacturing The manufacturing of our products is primarily performed at our sites in the Philippines, Malaysia, and China.
Revenue in Part II, Item 8 “Financial Statements and Supplementary Data” for information regarding our revenue by geographic area. See Part I, Item 1A “Risk Factors” for a discussion of certain risks related to our sales and marketing operations. Manufacturing We manufacture our products primarily in the Philippines, Malaysia, Mexico, and China.
The following table summarizes research and development expenses and the percentage of these expenses as compared to total sales (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2022 2021 2020 Research and Development Expenses ​ $ 191,020 ​ $ 161,831 ​ $ 143,961 % of Sales ​ 10.4% ​ 11.1% ​ 10.2% ​ Human Capital Our people are our strength and AE is committed to a core set of values: innovation, integrity, empowerment, partnership, accountability, and execution.
The following table summarizes research and development expenses and the percentage of these expenses as compared to total revenue (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2023 2022 2021 Research and development ​ $ 202,439 ​ $ 191,020 ​ $ 161,831 % of Revenue ​ 12.2% ​ 10.4% ​ 11.1% ​ Human Capital Our people are our strength, and we are committed to sustaining a culture grounded in our core values: innovation, integrity, empowerment, partnership, accountability, and execution.
We maintain customer service offices at many of the locations listed above, as well as other sites near our customers’ locations. We believe that customer service and technical support are important competitive factors and are essential to building and maintaining close, long-term relationships with our customers. In October 2022, additional restrictions were announced by the U.S.
We maintain customer service offices at many of the locations listed above, as well as other sites near our customers’ locations. We believe that customer service and technical support are important competitive factors and are essential to building and maintaining close, long-term relationships with our customers. Refer to Note 3.
Lite-On Technology Corp. ​ ​ Research and Development We perform research and development (“R&D”) on products to develop new or emerging applications, technological advances to provide higher performance, lower cost, or other attributes that we may expect to advance our customers’ products.
Lite-On Technology Corp. ​ ​ Research and Development We perform research and development to develop products to address new or emerging applications, technological advances to provide higher performance, lower cost, or other attributes that we may expect to appeal to current or potential customers.
Our customers in the Industrial and Medical market are primarily global and regional original equipment manufacturers, incorporating our advanced power, embedded power, and measurement products into a wide variety of equipment used in applications, such as advanced material fabrication, medical devices, analytical instrumentation, test and measurement equipment, robotics, industrial production, and large-scale connected light-emitting diode applications.
Our products are used in a wide variety of applications, such as advanced material fabrication, medical devices, analytical instrumentation, test and measurement equipment, robotics, industrial production, and large-scale connected light-emitting diode applications.
We meet these requirements by offering comprehensive local repair service and customer support through our worldwide support organization in the United States (“U.S.”), China, Japan, Korea, Taiwan, Germany, Ireland, Singapore, Israel, and United Kingdom. Support services include warranty and non-warranty repair services, calibration, upgrades, and refurbishments on the products we sell.
We offer comprehensive repair service and customer support through our worldwide support organization in the United States, China, Japan, Korea, Taiwan, Germany, Ireland, Singapore, Israel, and the United Kingdom. Support services include warranty and non-warranty repair services, calibration, upgrades, and refurbishments of our products.
We face a wide variety of competitors, and no single company dominates any of our markets. Significant competitive factors in our markets include product performance, compatibility with adjacent products, price, quality, reliability, and level of customer service and support. We encounter substantial competition from foreign and domestic companies for each of our product lines.
Significant competitive factors in our markets include product performance, compatibility with adjacent products, price, quality, reliability, meeting customer demand, and level of customer service and support. We encounter substantial competition from foreign and domestic companies for each of our product lines. Some of our competitors have greater financial and other resources than we do.
Our strategy in the Telecom and Networking market is to optimize our portfolio of products to more differentiated applications, and to focus on 5G infrastructure applications. Customers Our products are sold worldwide to OEMs, integrators, distributors and directly to end users.
Our strategy in the market is to optimize our portfolio of power conversion products to more differentiated applications, and to focus on 5G infrastructure applications. Customers Our products are sold worldwide to OEMs, distributors, and directly to end users. During the year ended December 31, 2023, Applied Materials, Inc. accounted for 22% of our total revenue.
We use numerous companies, including contract manufacturers, to supply parts for the manufacture and support of our products. Although we make reasonable efforts to assure that parts are available from multiple qualified suppliers, some key parts may be obtained from a sole supplier or a limited group of suppliers.
Although we make reasonable efforts to ensure that parts are available from multiple qualified suppliers and at the lowest possible cost, some key parts may only be obtained from a sole supplier or a limited group of suppliers.
During the year ended December 31, 2022, Applied Materials, Inc. and Lam Research Corporation accounted for 20% and 14%, respectively, of our total revenue compared to 20% and 10%, respectively, of our total revenue during the prior year.
During the year ended December 31, 2022, Applied Materials, Inc. and Lam Research Corporation accounted for 20% and 14%, respectively, of our total revenue. We expect that the sale of products to our largest customers will continue to account for a significant percentage of our revenue for the foreseeable future.
Employee Engagement We believe that our continued success depends, in part, on our ability to attract and retain qualified personnel. In 2022, we conducted our biennial confidential employee survey on topics relating to confidence in company leadership, ethical conduct, career growth opportunities, and suggestions on how we can make our company a great place to work.
In 2022, we conducted our biennial confidential employee survey on topics relating to confidence in company leadership, ethical conduct, career growth opportunities, and suggestions on how we can make our company a great place to work. In 2023 we communicated the results of the employee survey with our employees, leaders, executive team, and Board of Directors.
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 . Our plasma power solutions enable innovation in complex semiconductor and thin film plasma processes such as dry etch and deposition.
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 . Advanced Energy is organized on a global, functional basis and operates in the single segment of power electronics conversion products.
Health and Safety We are committed to providing a safe work environment for our employees and have a global team responsible for health and safety related to on-site operations, including hazard and risk identification. We are also committed to the standards of the Responsible Business Alliance Code of Conduct, which promotes labor, health and safety, environmental and ethics best practices.
Health and Safety We are committed to providing a safe work environment for our employees and have a global team that is responsible for health and safety related activities including hazard and risk identification.
We also have an internship program designed to help develop our talent pipeline and perform internal talent reviews and succession planning to ensure we have a strong workforce for the future. Community Involvement We have an active Community Investment Steering Committee and offer each employee eight hours of paid time off to volunteer with a non-profit organization of their choice.
We also have internship and graduate development programs designed to develop a talent pipeline. Community Involvement We have an active Community Investment Steering Committee and offer employees paid time off to participate in company-organized initiatives and volunteer with a non-profit organization of their choice.
With a growing presence at both cloud service providers and industry-leading data center server and storage vendors, our strategy in the Data Center and Computing market is to penetrate selected customers and applications based on our differentiated capability and competitive strengths in power density, efficiency, and controls.
Our strategy in the market is to penetrate selected customers and applications based on our differentiated capabilities and competitive strengths in power density, efficiency, and controls.
Our Educational Scholarship Program, available to children of Advanced Energy employees, celebrates education accomplishments and supports them in pursuing their career and learning goals. 11 Table of Contents Environmental Matters We are subject to federal, state, and local environmental laws and regulations, as well as the environmental laws and regulations of the foreign federal and local jurisdictions in which we have manufacturing and service facilities.
Environmental Matters We are subject to federal, state, and local environmental laws and regulations, as well as the environmental laws and regulations of the foreign federal and local jurisdictions in which we have manufacturing and service facilities.
Telecom service providers are investing in 5G infrastructure, and this trend is expected to drive demand for our products into the Telecom and Networking market. In datacom, demand is driven by networking investments by telecom service providers and enterprises upgrading their networks, as well as cloud service providers and data centers investing in their networks for increased bandwidth.
Telecom and Networking Market Demand in the Telecommunication and Networking market is driven by adoption of more advanced mobile standards, such as 5G technologies, networking investments by telecommunication service providers, enterprises upgrading their communication networks, and data centers investing in their networks for increased bandwidth.
Growth in the Industrial and Medical market is driven by investment in complex manufacturing processes or automation, increased adoption of smart power, sensing, and control solutions across many industrial applications, new investments in clean and sustainable technologies, and growing investment in medical devices and life science equipment.
Industrial and Medical Market The growth in the industrial and medical market is fueled by continued investment in complex manufacturing processes, increased adoption of new industrial technologies such as automation and clean energy, and increased breadth and precision requirements of medical devices and life sciences equipment.
Our strategy in the Industrial and Medical market is to expand our product offerings and channel reach, leveraging common platforms, derivatives, and customizations to further penetrate a broader set of applications.
We serve our broad customer base through both our direct sales force and indirect sales channels including independent sales representatives, channel partners, and distributors. 5 Table of Contents Our strategy in the market is to expand our product offerings and channel reach, leveraging common platforms, providing platform derivatives, and offering customizations to further penetrate a broader set of applications.
Further, the rapid growth and adoption of artificial intelligence and machine learning are driving accelerated demand for server and storage racks with increased power density and higher efficiency, which complements Advanced Energy’s strengths.
In addition, the rapid growth of artificial intelligence and machine learning are driving increased demand for substantially higher power in servers and racks, which has increased the importance of power efficiency and power density and accelerated the transition from 12 Volt to 48 Volt infrastructure in data center server racks.
Total Rewards We offer competitive compensation and benefits to our employees to attract and retain a talented, highly engaged workforce. Our compensation programs are focused on equitable, fair pay practices including market-based base pay, an annual pay-for-performance incentive that over 40% of our non-manufacturing employees participate in, and a discounted employee stock purchase plan.
We continue to invest in improving our employee experience through strategies targeted at improving communication, providing internal career development opportunities, and simplifying our internal business processes. Total Rewards We provide market-competitive compensation and benefits to our employees to attract and retain a talented, highly engaged workforce. Our compensation programs are focused on equitable and fair pay practices, including market-based compensation.
Our strategy in the Semiconductor Equipment market is to defend our proprietary positions in our core applications by capturing new design and product generations, growing our market position in applications where we have lower market share, such as remote plasma source and dielectric etch, and leveraging our product portfolio in areas including embedded power, high voltage power systems, and critical sensing and controls to grow our market share and content at our original OEM customers.
Our strategy is to strengthen our proprietary positions in our core applications with leading market share, such as conductor etch and deposition, grow our market position in targeted applications with lower market share, such as dielectric etch and remote plasma source, and leverage our broad product portfolio to expand our content at our OEM customers.
Some of our competitors have greater financial and other resources than we do. In some cases, competitors are smaller than we are, but are well established in specific product niches.
Other competitors are smaller than we are but may be well established in specific product niches. Overall, our Industrial and Medical competitors tend to be smaller, and in other product markets we encounter mostly larger competitors.
In 2022, our Board of Directors had three female members, and we added two females to our executive leadership team. In addition, through a combination of internal promotion and external hiring, we doubled the number of females represented at the vice president and above level, as compared with 2021.
We remain committed to expanding our diversity through targeted hiring and development initiatives. Through a combination of internal promotions and external hiring, we continue to see increases in the number of female employees represented at the director and above level, as compared with 2022.
GLOBAL SUPPORT Our services group offers warranty and after-market repair services in the regions in which we operate, providing us with preventive maintenance opportunities. Our customers continue to pursue low cost of ownership of their capital equipment and are increasingly sensitive to the costs of system downtime.
Our network of global service support centers provides repair services, calibration, conversions, upgrades, refurbishments, and used equipment to companies using our products. Our service group offers warranty and after-market repair services, providing our customers with preventive maintenance opportunities to support a lower cost of ownership and higher utilization for their capital equipment.
Driven by the growing adoption of cloud computing, market demand for server and storage equipment has shifted from traditional enterprise on-premises computing to the data center, driving investments in data center infrastructure. Beyond the cloud, demand for edge computing is also growing, driven by the need for faster processing, lower latency, and higher data security at edge applications.
Data Center Computing Market The Data Center Computing Market is driven by the growing adoption of cloud computing, as the market shifts from traditional enterprise on-premises computing to the data center.
Intellectual Property We seek patent protection for inventions governing new products or technologies as part of our ongoing research and development. We currently hold 350 U.S. issued patents and 416 foreign issued patents, and we have 568 patent applications pending in the U.S., Europe, and Asia.
Accordingly, we devote significant personnel and financial resources to the development of new products and the enhancement of existing products. Our investments in research and development enable us to create intellectual property, including patents, know-how and trade secrets. We hold numerous U.S. and foreign patents and have multiple patent applications pending in the U.S., Europe, and Asia.
DATA CENTER COMPUTING MARKET Advanced Energy serves the Data Center Computing market with industry leading power conversion products and technologies, which we sell to OEMs and original design manufacturers (“ODMs”) of data center server and storage systems, as well as cloud service providers and their partners.
Advanced Energy benefits from these trends as one of the leading providers of high-efficiency, high-density, 48 Volt server power conversion solutions and technologies. Our products are designed into data center server and storage systems, as well as used by cloud service providers and their partners in their custom designed server racks and power shelves.
The industry’s transition to advanced technology nodes and to increased layers in memory devices require an increased number of plasma-based etch and deposition process tools and higher content of our advanced power solutions per tool.
Our plasma power solutions are used to create plasma-based etch and deposition processes, and transition to advanced technology nodes typically require higher content of our advanced power solutions per tool. Our other semiconductor market products are incorporated in a wide range of applications including ion implant, inspection, metrology, thermal, epitaxy, and back-end test and packaging.
We have an active Corporate Diversity, Equity, and Inclusion (DE&I) Steering Committee to further increase our commitment to diversity and equity. We offer an annual Advanced Energy STEM (science, technology, engineering, and mathematics) Diversity Scholarship to support and develop emerging talent and promote greater ethnic, racial and gender diversity in STEM.
We also have an active Corporate Diversity & Inclusion Steering Committee to further increase our commitment to gender, ethnic and racial diversity. We have an active Women’s Leadership Forum that is focused on career development and internal networking.
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Our network of global service support centers provides repair services, calibration, conversions, upgrades, refurbishments, and used equipment to companies using our products. Advanced Energy is organized on a global, functional basis and operates in the single segment for power electronics conversion products.
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The majority of Advanced Energy’s products are capable of meeting various customer requirements. We also provide repair and maintenance services for our products. 4 Table of Contents Our plasma power products offer solutions to enable innovation in complex semiconductor and thin film plasma processes such as dry etch and deposition.
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On June 1, 2021, we acquired 100% of the issued and outstanding shares of capital stock of TEGAM, Inc. (“TEGAM”), which is based in Geneva, Ohio. This acquisition added metrology and calibration instrumentation to Advanced Energy’s radio frequency (“RF”) process power solutions in our Semiconductor Equipment and Industrial and Medical markets. For additional information, see Note 2.
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End Markets Advanced Energy generates revenue from the sale of a broad range of advanced and embedded power products and services to global original equipment manufacturers (“OEM”) and end customers.
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We also provide repair and maintenance services for our products.
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Our customers select our products based on various performance metrics such as high power conversion efficiency, high power density, and low noise emission, as well as our ability to customize our solutions to meet the unique requirements of a wide range of critical applications.
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We principally serve global original equipment manufacturers (“OEM”) and end customers in a wide range of semiconductor and industrial technology applications with a broad range of advanced and embedded power products. 5 Table of Contents Our plasma power solutions include RF power supplies, RF matching networks, RF instrumentation, direct current (“DC”) power systems, pulsed DC power systems, low frequency alternating current (“AC”) power systems, and remote plasma sources for reactive gas applications.
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The future growth and demand for our products is driven by a combination of factors within each of the end markets we serve, as follows: Semiconductor Equipment Market The semiconductor equipment market supports and enables the long-term growing need for more production capacity and new process technologies to meet expanding demand for semiconductors across many applications driven by megatrends such as artificial intelligence, Internet of Things (IoT) and automobile electrification.
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These solutions are used in a wide range of thin film processes across multiple semiconductor applications, including plasma-based dry etch, dry strip, atomic layer etch, atomic layer deposition, chemical vapor deposition, physical vapor deposition, electro-chemical deposition, and ion implantation.
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Advanced Energy is a critical technology leader in the industry and provides one of the broadest portfolios of power conversion and related products, including plasma power, high-voltage power, embedded power, and adjacent sensing solutions.
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In addition, these solutions are used in the processing of advanced materials in adjacent industries such as flat panel display, solar cell manufacturing, architectural glass coating, thin film coating, optical coating, and hard coatings. Our power control modules and thermal instrumentation products are used in semiconductor and industrial markets, in which time-temperature cycles affect material properties, productivity, and yield.
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We supply this market with critical, precision power conversion products that deliver precise and highly reliable, low noise and/or differentiated power. In addition, our sensing, control, and instrumentation products complement our power solutions.
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These products are used in processes such as etch, deposition, thermal processing, epitaxy and crystal growing. They are also used in many industrial production applications for chemical processing, the manufacturing of metal, carbon fiber, and glass, as well as numerous other industrial power applications.
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Advanced Energy serves this market by providing application-specific AC-DC and DC-DC power conversion products to many leading OEMs of wireless infrastructure equipment and computer networking equipment. Our solutions are often customized with unique features such as ruggedization for mobile radio in the field.
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Our RF, micro-ohm, and temperature metrology instruments and calibration systems are used to make critical measurements and calibrate customer hardware with speed and high accuracy in a wide range of applications, such as semiconductor manufacturing, medical, aerospace, and food processing industries.
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The loss of a large customer could have a material adverse effect on our results of operations .
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Our embedded power products are designed to maximize energy conversion efficiency, minimize physical sizes, and to meet a variety of standards, such as International Electrotechnical Commission (“IEC”) 60601-1 for medical equipment or IEC 60950-1 for information technology equipment. Our lower power RF power supplies are designed into surgical equipment for a range of therapeutic applications.
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We also perform limited specialty manufacturing for some of our products in the U.S., the United Kingdom, and Europe. In 2023, we announced that we would be expanding our presence in our Mexico factory and beginning construction of a new factory located near Bangkok, Thailand as part of our multi-year factory optimization and consolidation plans.
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Our low-voltage AC-DC and DC-DC power supply products maximize performance, lower energy costs, and minimize the form factor. These products target mission critical applications across a variety of industrial technology applications such as medical equipment, data center servers and storage systems. Our high and lower voltage DC-DC products are designed to meet the demanding requirements of OEMs worldwide.
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Our manufacturing requires raw materials, mainly a wide variety of mechanical and electrical components, which are often made to our specifications. We use numerous companies, including contract manufacturers, to supply parts for the manufacture and support of our products.
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Our DC-DC solutions and custom-built power conversion products offer high and low voltage topology, ranging from benchtop and rackmount systems to micro-size printed circuit board mount modules. The high voltage power systems target applications including semiconductor equipment, electrostatic clamping of substrates, scientific instrumentation, mass spectrometry, and x-ray systems for industrial and analytical applications.
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We address supply challenges and reduce the associated risks to production by endeavoring to select and qualify alternate suppliers for key parts, maintain appropriate inventories of critical components, and competitively source parts through electronic bidding tools to find the lowest possible total cost.
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The low voltage board mounted power solutions are designed for a wide range of industrial applications. Our programmable DC power supplies provide accurate power delivery and measurement for use in a wide range of test, measurement, and scientific research applications.
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See Part I, Item 1A, “Risk Factors” for a discussion of certain risks related to our manufacturing operations. Intellectual Property Protection of our technology assets through intellectual property rights is important for our competitive position. We believe that continued research and development of technologically advanced solutions and applications is critical for us to compete effectively in the markets we serve.
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PowerInsight, our big data analytics solution, transforms the data acquired from our power delivery systems into useable insights, through a combination of enhanced data sets and advanced analytics. These capabilities allow our customers to maximize performance, reduce costs and improve yield in their manufacturing processes.
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See Part I, Item 1A, “Risk Factors” for a discussion of certain risks related to our reliance on our intellectual property. ​ 7 Table of Contents Competition The markets we serve are highly competitive and characterized by rapid technological development and changing customer requirements. We face a wide variety of competitors, and no single company dominates any of our markets.
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Markets Our products compete in markets for high tech applications using capital equipment.
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We also strive to follow the standards of the Responsible Business Alliance Code of Conduct at selected manufacturing sites, which promotes labor, health, safety, environmental, and ethics best practices. Employee Engagement We believe that our continued success depends, in part, on our ability to attract and retain qualified personnel.
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The majority of our markets are not generally subject to significant seasonality; however, these markets are cyclical due to changes in customers’ manufacturing capacity requirements and spending, which depend in part on capacity utilization, demand for 6 Table of Contents customers’ products, inventory levels relative to demand, and access to affordable capital.
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Our Educational Scholarship Program, available to children of Advanced Energy employees, celebrates education accomplishments and provides financial support for them to pursue their career and learning goals. We also offer an annual Advanced Energy STEM (science, technology, engineering, and mathematics) Scholarship in the United States to support and develop emerging talent in STEM.
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Other factors, such as global economic and market conditions and technological advances in the applications we serve can also have an impact on our financial results, both positively and negatively.
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For more information related to the markets in which we compete and the current environment in those markets, see Business Environment and Trends in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” SEMICONDUCTOR EQUIPMENT MARKET The Semiconductor Equipment market is driven by the long-term growing need for more semiconductor production capacity and new process technologies.
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While the semiconductor and semiconductor equipment industries are inherently cyclical, over the long-term, integrated circuits content is growing across many industries driven by increased demand for processing, storing, and transmitting the growing amount of data.
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To meet the growing demand, the chip industry continues to invest in production capacity for both leading-edge and trailing-edge nodes logic devices, the latest memory devices, back-end test, and advanced wafer-level packaging.
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As etching and deposition processes become more challenging due to shrinking device geometry and increasing aspect ratios in advanced 3D devices, more advanced RF and DC plasma generation technologies are needed. We strive to provide a broad range of best-in-class, industry-leading RF and DC power solutions.
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Beyond etch and deposition processes, growing complexity at advanced nodes also drives a higher number of other process steps across the wafer fab, including inspection, metrology, thermal, ion implantation, and semiconductor test and assembly, where Advanced Energy is actively participating as a critical technology provider.
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In addition, our global support services group offers comprehensive local repair service, upgrade, and retrofit offerings to extend the useable life of our customers’ capital equipment for additional technology generations.
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INDUSTRIAL AND MEDICAL MARKET Advanced Energy serves the Industrial and Medical market with mission-critical power components that deliver high reliability, precise, low noise or differentiated power to the equipment they serve.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

90 edited+54 added−34 removed45 unchanged
Biggest changeRisks associated with these transactions are many, including the following which could adversely affect our financial results: ● the inability to complete proposed transactions timely or at all due to the failure to obtain regulatory or other approvals, litigation or other disputes, and any ensuing obligation to pay a termination fee; ● the failure to realize expected revenues, gross and operating margins, net income, and other returns from acquired businesses; ● the inability to successfully integrate product and/or service offerings to realize all anticipated benefits from business combinations; ● a failure to perform adequate due diligence with respect to business combination and investment transactions and our ability to evaluate the results, is dependent upon the completeness and accuracy of statements and disclosures made or actions taken by third parties and their representatives; ● we have incurred and will incur additional depreciation and amortization expense over the useful lives of certain assets acquired in connection with business combination and investment transactions and, to the extent that the value of goodwill or intangible assets acquired in connection with a business combination 16 Table of Contents and investment transaction becomes impaired, we may be required to incur additional material charges related to impairment of those assets; ● deterioration in our effective tax rate; ● a failure to retain and motivate key employees of acquired businesses; ● an inability to integrate with our existing enterprise resource planning (“ERP”) and other global information technology systems to realize productivity improvement and cost efficiencies; ● our ability to diligence and maintain appropriate business processes, procedures, and internal controls at the acquired business; ● the risk of litigation or claims associated with a proposed or completed transaction; and ● unknown, underestimated, undisclosed or undetected commitments or liabilities or non-compliance with laws, regulations, or policies.
Biggest changeRisks associated with these transactions are many, including the following which could adversely affect our financial results: ● the inability to source or complete transactions timely or at all; ● any obligation to pay a termination fee or undergo litigation resulting from failed deals; ● the failure to perform adequate due diligence on target companies; ● the failure to realize expected revenues, gross and operating margins, net income, and other returns from acquired businesses; ● the inability to successfully integrate product and/or service offerings to realize anticipated benefits from business combinations; ● the inability to integrate acquired business into our existing enterprise resource planning and other global information technology systems to realize productivity improvement and cost efficiencies; ● we have incurred and will incur additional depreciation and amortization expense over the useful lives of certain assets acquired in connection with business combination and investment transactions and, to the extent that the value of goodwill or intangible assets acquired in connection with a business combination and investment transaction becomes impaired, we may be required to incur additional material charges related to impairment of those assets; ● deterioration in our effective tax rate; ● a failure to retain and motivate key employees of acquired businesses; ● our ability to maintain appropriate business processes, procedures, and internal controls at the acquired business; ● litigation or claims associated with a proposed or completed transaction; and ● unknown, underestimated, undisclosed or undetected commitments or liabilities or non-compliance by acquired business with laws, regulations, or policies.
This requires us to identify and train existing or new employees to perform necessary functions, which we may be unable to do, or could result in unexpected costs, reduced productivity, or difficulties with respect to internal processes and controls.
This requires us to identify and train existing or new employees to perform necessary functions, which we may be unable to do, or which could result in unexpected costs, reduced productivity, or difficulties with respect to internal processes and controls.
A significant portion of our operations and supply chain outside the United States are located in the Asia Pacific region, including China, which exposes us to risks, such as exchange controls and currency restrictions, changes in local economic conditions, changes in customs regulations and tariffs, changes in tax policies, changes in laws and regulations, possible retaliatory government actions, potential inability to enforce intellectual property protection or contracts terms, and recent changes in U.S. policy regarding overseas manufacturing and export controls.
A significant portion of our operations and supply chain outside the United States are located in the Asia Pacific region, including China, which exposes us to risks, such as exchange controls and currency restrictions, changes in local economic conditions, changes in customs regulations and tariffs, changes in tax policies, changes in local laws and regulations, possible retaliatory government actions, potential inability to enforce intellectual property protection or contracts terms, and changes in U.S. policy regarding overseas manufacturing and export controls.
As a result, we are limited in our ability to predict the level of future sales or commitments from our current customers, which may diminish our ability to allocate labor, materials, and equipment in the manufacturing process effectively. In addition, we may purchase inventory in anticipation of sales that do not materialize, resulting in excess and obsolete inventory write-offs.
As a result, we are limited in our ability to predict the level of future revenue or commitments from our current customers, which may diminish our ability to allocate labor, materials, and equipment in the manufacturing process effectively. In addition, we may purchase inventory in anticipation of sales that do not materialize, resulting in excess and obsolete inventory write-offs.
Infringement, misappropriation, and unlawful use of our intellectual property rights, and resulting unauthorized manufacture or sale of equipment using our IP rights, could result in lost revenue. Monitoring and detecting any unauthorized use of intellectual property is difficult and costly and we cannot be certain that the protective measures we have implemented will completely prevent misuse.
Infringement, misappropriation, and unlawful use of our intellectual property rights, and resulting unauthorized manufacture or sale of equipment using our IP rights, could result in lost revenue. Monitoring and detecting any unauthorized use of intellectual property is difficult and costly and we cannot be certain that the protective measures we have implemented will completely prevent theft or misuse.
Because our operating expenses are based on anticipated revenue levels, our sales cycle for development work is relatively long, and a high percentage of our expenses are fixed for the short term, a small variation in the timing of recognition of revenue can cause significant variations in operating results from period to period.
Because our operating expenses are based on anticipated revenue levels, our revenue cycle for development work is relatively long, and a high percentage of our expenses are fixed for the short term, a small variation in the timing of recognition of revenue can cause significant variations in operating results from period to period.
The COVID-19 pandemic has adversely impacted our ability (a) to manufacture, test, service and ship our products, (b) to get required materials and sub-assemblies to build and service our products and (c) to staff labor and management for manufacturing, research and development, supply chain, service, and administrative operations.
The COVID-19 pandemic adversely impacted our ability (a) to manufacture, test, service and ship our products, (b) to get required materials and sub-assemblies to build and service our products, and (c) to staff labor and management for manufacturing, research and development, supply chain, service, and administrative operations.
We are also impacted by sudden changes in customers’ manufacturing capacity requirements and spending, which depend in part on technology transitions, capacity utilization, demand for customers’ products, inventory levels relative to demand, and access to affordable capital.
We are impacted by sudden changes in customers’ manufacturing capacity requirements and spending, which depend in part on technology transitions, capacity utilization, demand for customers’ products, inventory levels relative to demand, and access to affordable capital.
Changes to those assumptions could have a significant effect on future contributions. Additionally, a material deterioration in the funded status of the plan could increase pension expenses and reduce our profitability. See Note 17. Employee Retirement Plans and Postretirement Benefits in Part II, Item 8 “Financial Statements and Supplementary Data” contained herein. Our intangible assets may become impaired.
Changes to those assumptions could have a significant effect on future contributions. Additionally, a material deterioration in the funded status of the plan could increase pension expenses and reduce our profitability. See Note 15. Employee Retirement Plans and Postretirement Benefits in Part II, Item 8 “Financial Statements and Supplementary Data” contained herein. Our intangible assets may become impaired.
ITEM 1A. RISK FACTORS Our business, financial condition, operating results, and cash flows can be impacted by a number of factors, including, but not limited to, those set forth below, any of which could cause our results to be adversely impacted and could result in a decline in the value or loss of an investment in our common stock.
ITEM 1A. RISK FACTORS Our business, financial condition, operating results, and cash flows can be impacted by a number of factors, including, but not limited to, those set forth below, any of which could adversely impact our results and result in a decline in the value or loss of an investment in our common stock.
We are experiencing claims from customers and suppliers and are involved in litigation related to the legacy inverter product line. We review such claims and vigorously defend against such lawsuits in the ordinary course of our business. We cannot assure that any such claims or litigation will not have a material adverse effect on our business or financial statements.
We have experienced claims from customers and suppliers and are involved in litigation related to the legacy inverter product line. We review such claims and vigorously defend against such lawsuits in the ordinary course of our business. We cannot assure that any such claims or litigation will not have a material adverse effect on our business or financial statements.
Such risks and uncertainties may also impact the accuracy of forward-looking statements included in this Form 10-K and other reports we file with the Securities and Exchange Commission. Macroeconomic and Industry Risks The industries in which we compete are subject to volatile and unpredictable fluctuation or cycles.
Such risks and uncertainties may also impact the accuracy of forward-looking statements included in this Form 10-K and other reports we file with the Securities and Exchange Commission. Business and Industry Risks The industries in which we compete are subject to volatile and unpredictable fluctuation or cycles.
These include limitations or restrictions, among other things, on our ability and the ability of our subsidiaries to: ● incur additional indebtedness; ● pay dividends or make distributions on our capital stock or certain other restricted payments or investments; ● conduct stock buybacks; ● make domestic and foreign investments and extend credit; ● engage in transactions with affiliates; ● transfer and sell assets; ● effect a consolidation or merger or sell, transfer, lease, or otherwise dispose of all or substantially all our assets; and ● create liens on our assets to secure debt.
These include limitations or restrictions, among other things, on our ability and the ability of our subsidiaries to: ● incur additional indebtedness; 22 Table of Contents ● pay dividends or make distributions on our capital stock or certain other restricted payments or investments; ● conduct stock buybacks; ● make domestic and foreign investments and extend credit; ● engage in transactions with affiliates; ● transfer and sell assets; ● effect a consolidation or merger or sell, transfer, lease, or otherwise dispose of all or substantially all our assets; and ● create liens on our assets to secure debt.
As a supplier to the global semiconductor equipment, telecom, networking, data center computing, industrial, and medical industries, we are subject to business fluctuations, the timing, length, and volatility of which can be difficult to predict.
As a supplier to the global semiconductor equipment, telecommunication, networking, data center computing, industrial, and medical industries, we are subject to business fluctuations, the timing, length, and volatility of which can be difficult to predict.
Given the global nature of our business, we have both domestic and international concentrations of cash and investments. The value of our cash, cash equivalents, and marketable securities can be adversely affected by liquidity, credit deterioration, inflation, foreign currency exchange rate fluctuations, financial results, economic risk, political risk, sovereign risk, or other factors.
Given the global nature of our business, we have both domestic and international concentrations of cash and 16 Table of Contents investments. The value of our cash, cash equivalents, and marketable securities can be adversely affected by liquidity, credit deterioration, inflation, foreign currency exchange rate fluctuations, financial results, economic risk, political risk, sovereign risk, or other factors.
Legal proceedings, enforcement actions and claims, whether with or without merit, and associated internal investigations, may be time-consuming and expensive to prosecute, defend or conduct; divert management’s attention and other resources; inhibit our ability to sell our products or services; prevent us from using our technology; result in adverse judgments for damages, injunctive relief, penalties, and fines; and 22 Table of Contents adversely affect our business.
Legal proceedings, enforcement actions and claims, whether with or without merit, and associated internal investigations, may be time-consuming and expensive to prosecute, defend or conduct; divert management’s attention and other resources; inhibit our ability to sell our products or services; prevent us from using our technology; result in adverse judgments for damages, injunctive relief, penalties, and fines; and adversely affect our business.
Given such up-front investments we make to 12 Table of Contents develop, evaluate, and qualify products in the design win process, our success and future growth depend on our products being designed into our customers’ new generations of equipment as they develop new technologies and applications.
Given such up-front investments we make to develop, evaluate, and qualify products in the design win process, our success and future growth depend on our products being designed into our customers’ new generations of equipment as they develop new technologies and applications.
Our customers continually exert pressure on us to reduce our prices and extend payment terms and we may be required to enter into long term reduced pricing agreements, extended payment terms, exclusivity arrangements, or other unfavorable contract terms with our largest customers to remain competitive. In addition, we compete in markets in which customers may dual or multi-source their power.
Our customers continually exert pressure on us to reduce our prices and extend payment terms and we may be required to enter into long term reduced pricing agreements, extended payment terms, exclusivity arrangements, and other unfavorable contract terms. In addition, we compete in markets in which customers may dual or multi-source their power.
The design win process is highly competitive, the design windows may be narrow, and there is no assurance we will succeed with new design wins for our existing customers or new customers’ next generations of equipment.
The design win process is highly competitive, the design windows may be narrow, and there is no assurance we will succeed with new design wins for our existing 11 Table of Contents customers or new customers’ next generations of equipment.
The market price of our common stock has fluctuated and may continue to fluctuate for reasons over which we have no control. The stock market has from time to time experienced, and is likely to continue to experience, extreme price and volume fluctuations.
Risks Relating to Ownership of Our Common Stock The market price of our common stock has fluctuated and may continue to fluctuate for reasons over which we have no control. The stock market has from time to time experienced, and is likely to continue to experience, extreme price and volume fluctuations.
Significant judgment is required to determine the recognition and measurement attribute prescribed in the accounting guidance for uncertainty in income taxes. The Organization for Economic Co-operation and Development (“OECD”), an international association comprised of 36 countries, including the United States, has made changes to numerous long-standing tax principles.
Significant judgment is required to determine the recognition and measurement attribute prescribed in the accounting guidance for uncertainty in income taxes. The Organization for Economic Co-operation and Development (“OECD”), an international association comprised of 36 countries, including the U.S., has made changes to numerous long-standing tax principles.
There can be no assurance that the outcomes from these continuous examinations will not have an adverse effect on our operating results and financial condition . 23 Table of Contents Our business is subject to complex and evolving U.S. and international laws and regulations regarding privacy and data protection.
There can be no assurance that the outcomes from these continuous examinations will not have an adverse effect on our operating results and financial condition . Our business is subject to complex and evolving U.S. and international laws and regulations regarding privacy and data protection.
If we do not comply with current or future regulations, directives, and standards: ● we could be subject to fines and penalties; ● our production or shipments could be suspended; and ● we could be prohibited from offering particular products in specified markets.
If we do not comply with current or future regulations, directives, and standards: ● we could be subject to fines and penalties; ● our production or shipments could be suspended; and 21 Table of Contents ● we could be prohibited from offering particular products in specified markets.
We continue to devote significant resources to network security, data encryption, network redundancy, and other measures to protect our systems and data from unauthorized external access or internal misuse, and we may be required to expend greater resources in the future, especially in the face of continuously evolving and increasingly sophisticated cybersecurity threats and privacy and data protection laws.
We continue to devote significant resources to network security, data encryption, network redundancy, and other measures to protect our systems and data from unauthorized external access or internal misuse, 13 Table of Contents and we may be required to expend greater resources in the future for cybersecurity protection, compliance, and remediation, especially in the face of continuously evolving and increasingly sophisticated cybersecurity threats and privacy and data protection laws.
Tightening of credit markets, turmoil in the financial markets, and a weakening global economy have in the past and could again contribute to slowdowns in the industries in which we operate and adversely impact the global demand for our products. Some of our key markets depend largely on consumer spending.
Additionally, tightening of credit markets, turmoil in the financial markets, and a weakening global economy have in the past contributed and could again contribute to slowdowns in the industries in which we operate and adversely impact the global demand for our products. Some of our key markets ultimately depend on a combination of consumer and business spending.
As a result of the technical complexity of these products, design defects, skilled labor turnover, changes in our or our suppliers’ manufacturing processes or the inadvertent use of defective or nonconforming materials by us or our suppliers could adversely affect our manufacturing yields and product reliability.
As a result of the technical 15 Table of Contents complexity of these products, design defects, skilled labor turnover, changes in our or our suppliers’ manufacturing processes or the inadvertent use of defective or nonconforming materials or components by us or our suppliers could adversely affect our manufacturing quality and product reliability.
We must achieve design wins to retain our existing customers and to obtain new customers, although design wins achieved do not necessarily result in substantial sales. Driven by continuing technology migration and changing customer demand, the markets we serve are constantly changing in terms of advancement in applications, core technology and competitive pressures.
We must achieve design wins to retain our existing customers and to obtain new customers, although design wins achieved may not necessarily result in substantial revenue or gross profit. Driven by continuing technology migration and changing customer demand, the markets we serve are constantly changing in terms of advancement in applications, core technology, and competitive pressures.
Beginning in 2021 and continuing into 2023, there has been a shortage of critical components caused by a variety of factors, including increased demand for electronic components used in a wide variety of industries, the pandemic-driven rise in consumer demand for technology goods, logistics-related disruptions in shipping, capacity limitations at some suppliers, labor shortages, and other factors.
In recent years, there has been a shortage of critical components caused by a variety of factors, including increased demand for electronic components used in a wide variety of industries, the pandemic-driven rise in consumer demand for technology goods, logistics-related disruptions in shipping, capacity limitations at some suppliers, and labor shortages.
This may lead to customers cancelling orders prior to shipment causing a decrease in sales, which may have a material adverse effect on our business and results of operations.
These situations may lead to customers cancelling orders prior to shipment causing a decrease in revenue, which may have a material adverse effect on our business and results of operations.
Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as usernames, passwords, or other information to gain access to our customers’ data or our data, including our intellectual property and other confidential business information, or our information technology systems.
Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as usernames, passwords, or other information to gain access to our customers’ data or our data or our information technology systems.
We attempt to protect our intellectual property rights through a variety of methods including patents and non-disclosure agreements; however, we might not be able to protect our technology, and customers or competitors might be able to develop similar technology independently.
Our success depends significantly on our proprietary technology. We attempt to protect our intellectual property rights through a variety of methods including trade secrets, patents, and non-disclosure agreements; however, we might not be able to protect our technology, and customers or competitors might be able to develop similar technology independently.
We and our third-party providers have experienced, and expect to continue to experience, cybersecurity or confidential information theft incidents, some of which may be successful.
We and our third party providers have experienced, and expect to continue to experience, cybersecurity events or confidential information theft incidents, some of which could be devastating.
These forecasts are based on our customers’ and our expectations as to demand for our products. As the quarter and the year progress, such demand can change rapidly or we may realize that our customers’ expectations were overly optimistic or pessimistic, especially when industry or general economic conditions change.
We place orders with many of our suppliers based on our expectations as to demand for our products and our customers’ forecasts. As the quarter and the year progress, such demand can change rapidly or we may realize that our customers’ expectations were overly optimistic or pessimistic, especially when industry or general economic conditions change.
If existing or new customers do not choose our designs or we agree to suboptimal commercial terms with these customers, our market share may be reduced, the potential revenues related to the lifespan of our customers’ products may not be realized, and our business, financial condition and results of operations could be materially and adversely impacted.
If existing or new customers do not choose our designs or we cannot agree to pricing, volumes, and other key commercial terms with these customers, our market share may decline, potential revenues related to the lifespan of our products may not be realized, and our business, financial condition, and results of operations could be materially and adversely impacted.
Consequently, manufacturing our products in China may subject us to an increased risk that unauthorized parties may attempt to copy our products or otherwise obtain or use our intellectual property. Generally, our efforts to obtain international patents have been concentrated in the European Union and certain industrialized countries in Asia, Korea, Japan, and Taiwan.
Consequently, manufacturing our products in China may subject us to an increased risk that unauthorized parties may attempt to copy our products or otherwise obtain or use our intellectual property. Generally, our efforts to obtain international patents have been concentrated in the European Union and Korea, Japan, and Taiwan. Third parties may also assert claims against us and our products.
Customers may delay delivery of products or cancel orders prior to shipment, subject to possible cancellation penalties. Delays in delivery schedules and/or customer changes to backlog orders during any particular period could cause a decrease in sales and have a material adverse effect on our business and results of operations. Orders with our suppliers cannot always be amended in response.
Customers may delay delivery of products or cancel orders prior to shipment and may not be subject to cancellation penalties. Delays in delivery schedules and/or customer changes to backlog orders during any particular period could cause a decrease in revenue and have a material adverse effect on our business and results of operations.
Our sales are primarily made on a purchase order basis, and we generally have no long-term purchase commitments from our customers, which is typical in the industries we serve.
Our sales are primarily made on a purchase order basis, or are pulled from “just in time” bins or hubs by our customers, and we generally have no long-term purchase commitments from our customers, which is typical in the industries we serve.
In addition, our suppliers and customers are also subject to natural and other disaster risk exposure. A natural disaster, fire, explosion, or other event that results in a prolonged disruption to our operations, or the operations of our customers or suppliers, may materially adversely affect our business, results of operations, or financial condition.
A natural disaster, fire, explosion, or other event that results in a prolonged disruption to our operations or the operations of our customers or suppliers, may materially adversely affect our business, results of operations, or financial condition.
This includes performing service to fulfill obligations under existing service maintenance contracts. There is no certainty that these can be performed profitably, and they could be adversely affected by higher than anticipated product failure rates, loss of critical service technician skills, an inability to obtain service parts, customer demands and disputes and the cost of repair parts, among other factors.
There is no certainty that these contracts can be performed profitably, and our business could be adversely affected by higher than anticipated product failure rates, loss of critical service technician skills, an inability to obtain service parts, customer demands and disputes, and the cost of repair parts, among other factors.
Natural disasters, uncontrollable occurrences, or other operational issues at any of our manufacturing facilities could significantly reduce or disrupt our productivity at such site and could prevent us from meeting our customers’ requirements in a timely manner, or at all.
Natural disasters, uncontrollable occurrences, or other operational issues at any of our manufacturing facilities could significantly reduce or disrupt our productivity at such site and could prevent us from meeting our customers’ requirements in a timely manner, or at all. In addition, our suppliers and customers are also subject to natural and other disaster risk exposure.
Any change in the value of the Chinese Yuan could significantly increase the labor and other costs incurred in the operation of our China facilities and the cost of raw materials, parts, components, and subassemblies that we source there, which could materially and adversely affect our results of operations.
Unfavorable currency fluctuations could significantly increase the labor and other costs incurred in the operation of our international facilities and the cost of raw materials, parts, components, and subassemblies that we source there, which could materially and adversely affect our results of operations.
If we are unable to protect our intellectual property successfully, our business, financial condition, and results of operations could be materially and adversely affected. Patent, trademark laws, and trade secret protection may not be adequate to deter infringement or misappropriation of our patents, trademarks, trade secrets and similar proprietary rights.
If we are unable to protect our intellectual property successfully, our business, financial condition, and results of operations could be materially and adversely affected. Patents, trademarks, and trade secret protection may not be adequate to deter infringement or misappropriation of our proprietary rights. For example, patents issued to us may be challenged, invalidated, or circumvented.
Uncertain or adverse economic and business conditions, including uncertainties and volatility in the financial markets, rising inflation and interest rates, economic recession, national debt, or fiscal or monetary concerns, could materially adversely impact our operating results.
We are exposed to risks associated with worldwide financial markets and the global economy. Uncertain or adverse economic and business conditions, including uncertainties and volatility in the financial markets, rising inflation and interest rates, economic recession, national debt, and fiscal or monetary concerns, could materially adversely impact our operating results and financial condition.
Our success producing goods internationally and competing in international markets is subject to our ability to manage various risks and difficulties, including, but not limited to: ● our ability to effectively manage our employees at remote locations who are operating in different business environments from the United States; ● our ability to develop and maintain relationships with suppliers and other local businesses; ● interruptions to our and/or our suppliers’ supply chain; ● compliance with product safety requirements and standards that are different from those of the United States; ● variations and changes in laws applicable to our operations in different jurisdictions, including enforceability of contract rights; ● ineffective or inadequate legal protection of intellectual property rights in certain countries; ● global trade issues and changes in and uncertainties with respect to trade and export regulations, trade policies and sanctions, tariffs, and international trade disputes, including new and changing export regulations for certain exports to China and any retaliatory measures; ● delays or restrictions on personnel travel and in shipping materials or finished products between and within countries; 17 Table of Contents ● political instability, natural disasters, health epidemics, disruptions in financial markets, and deterioration of economic conditions; ● our ability to maintain appropriate business processes, procedures, and internal controls, and comply with environmental, health and safety, anti-corruption, and other regulatory requirements; ● customs regulations including customs audits in various countries that occur from time to time; ● the ability to provide enough levels of technical support in different locations; ● our ability to obtain business licenses that may be needed in international locations to support expanded operations; ● timely collecting accounts receivable from foreign customers, including significant balances in accounts receivable from foreign customers; and ● changes in tariffs, income tax, value added tax, and foreign currency exchange rates. ​ Our debt obligations and the restrictive covenants in the agreements governing our debt could limit our ability to operate our business or pursue our business strategies, could adversely affect our business, financial condition, results of operations, and cash flows, and could significantly reduce stockholder benefits from a change of control event.
Additionally, our success producing goods internationally and competing in international markets is subject to our ability to manage various operational risks and difficulties, including, but not limited to: ● our ability to effectively manage our employees at remote locations who are operating in different business environments from the United States; ● our ability to develop and maintain relationships with suppliers and other local businesses; ● interruptions to our and/or our suppliers’ supply chain; ● compliance with product safety requirements and standards that are different from those of the United States; ● variations and changes in laws applicable to our operations in different jurisdictions, including enforceability of contract rights; ● ineffective or inadequate legal and physical protection of intellectual property rights in certain countries; ● global trade issues and changes in and uncertainties with respect to trade and export regulations, trade policies and sanctions, tariffs, and international trade disputes, including new and changing export regulations for certain exports to China and any retaliatory measures; ● delays or restrictions on personnel travel and in shipping materials or finished products between and within countries; ● political instability, natural disasters, health epidemics, disruptions in financial markets, and deterioration of economic conditions; ● our ability to maintain appropriate business processes, procedures, and internal controls, and comply with environmental, health and safety, anti-corruption, and other regulatory requirements; ● customs regulations including customs audits in various countries that occur from time to time; ● the ability to provide enough levels of technical support in different locations; ● our ability to obtain business licenses that may be needed in international locations to support expanded operations; ● changes in tariffs, income tax, value added tax, and foreign currency exchange rates; and ● laws and regulations regarding privacy, data use and processing, data privacy and protection, cybersecurity, and network security . ​ ​ 17 Table of Contents Our operations in the Asia Pacific region, including China, are subject to significant political and economic uncertainties over which we have little or no control and we may be unable to alter our business practice in time to avoid reductions in revenues.
To meet rapidly changing demand in each of the industries we serve, we must effectively manage our resources and production capacity. During periods of decreasing demand for our products, we must be able to appropriately align our cost structure with prevailing market conditions, effectively manage our supply chain, and motivate and retain key employees.
During periods of decreasing demand for our products, we must be able to appropriately align our cost structure with prevailing market conditions, effectively manage our supply chain, and motivate and retain key employees.
Our debt obligations impose financial covenants on us and our subsidiaries that require us to maintain a certain leverage ratio. The financial covenants place certain restrictions on our business that may affect our ability to execute our business strategy successfully or take other actions that we believe would be in the best interests of our Company.
The financial covenants place certain restrictions on our business that may affect our ability to execute our business strategy successfully or take other actions that we believe would be in the best interests of our Company.
Any such incidents and claims could severely harm our business and reputation, result in significant expenses, harm our competitive position, and prevent us from selling certain products, all of which could have a material and adverse impact on our business and results of operations. We are, and expect to continue to be, involved in litigation.
Any such incidents and claims could severely harm our business and reputation, result in significant expenses, harm our competitive position, and prevent us from selling certain products, all of which could have a material and adverse impact on our business and results of operations. Our supply chain is subject to regulatory risk .
Legal proceedings are costly and could have a material adverse effect on our commercial relationships, business, financial condition, and operating results.
We are, and expect to continue to be, involved in litigation. Legal proceedings are costly and could have a material adverse effect on our commercial relationships, business, financial condition, and operating results.
For information on our Credit Facility, see Note 21. Credit Facility and Note 8. Derivative Financial Instruments in Part II, Item 8 “Financial Statements and Supplementary Data.” Our operating results are subject to fluctuations, and if we fail to meet the expectations of securities analysts or investors, our share price may decrease significantly.
Derivative Financial Instruments in Part II, Item 8 “Financial Statements and Supplementary Data.” Our operating results are subject to fluctuations, and if we fail to meet the expectations of securities analysts or investors, our share price may decrease significantly. Our annual and quarterly results may vary significantly depending on various factors, many of which are beyond our control.
Many of these laws and regulations are subject to change and uncertain interpretation and could result in claims, changes to our business practices, penalties, increased cost of operations, or declines in customer growth or engagement, or otherwise harm our business.
Many of these laws and regulations are subject to change and uncertain interpretation and could result in claims, changes to our business practices, penalties, increased cost of operations, or declines in customer growth or engagement, or otherwise harm our business. Regulatory authorities around the world have implemented or are considering several legislative and regulatory proposals concerning data protection.
If our information security measures are breached or fail and a customer’s or our data is improperly obtained or unauthorized access to our information technology systems occurs, we may incur significant legal and financial exposure and liabilities. As part of our day-to-day business, we store our data and certain data about our customers in our global information technology system.
If our information security measures are breached, disrupted, or fail, we may incur significant legal and financial exposure and liabilities. As part of our day-to-day business, we process, transmit and store our own confidential data and certain data about our customers and employees in our global information technology system.
Any breach of the covenants or other event of default could cause a default on our debt obligations, which could result in our credit facility being immediately due and payable, and such default may also constitute a default of our other obligations.
Any breach of the covenants or other event of default could cause a default on our credit agreement, which could result in the entire outstanding balance being immediately due and payable.
Our results of operations could be affected by natural or other disasters in the locations in which we or our customers or suppliers operate. We have manufacturing and other operations in locations subject to natural disasters such as severe weather and geological events including earthquakes or tsunamis that could disrupt operations.
Disruptions to our manufacturing operations or the operations of our customers or suppliers, due to natural or other disasters, uncontrollable events or other issues could affect our results of operations. Certain of our manufacturing and other operations are in locations subject to natural disasters, such as severe weather and geological events, including earthquakes or tsunamis, that could disrupt operations.
Currency exchange rate fluctuations could have an adverse effect on our sales and results of operations, and we could experience losses with respect to forward exchange contracts into which we may enter. Unfavorable currency fluctuations could require us to increase prices to foreign customers, which could result in lower net sales by us to such customers.
Unfavorable currency exchange rate fluctuations may lead to lower operating margins, or may cause us to raise prices, which could result in reduced revenue. Currency exchange rate fluctuations could have an adverse effect on our revenue and results of operations, and we could experience losses with respect to forward exchange contracts into which we may enter.
Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.
Despite our implementation of cybersecurity measures, there is no assurance that our actions will be sufficient to prevent future threats and incidents. Because the techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures.
Alternatively, if we do not adjust the prices for our products in response to unfavorable currency fluctuations, our results of operations could be materially and adversely affected.
These increased costs could require us to increase prices to foreign customers, which could result in lower net revenue from such customers. Alternatively, if we do not adjust the prices for our products in response to unfavorable currency fluctuations, our results of operations could be materially and adversely affected.
Any impairment or revised useful life could have a 20 Table of Contents material and adverse effect on our financial position and results of operations and could harm the trading price of our common stock.
Any impairment or revised useful life could have a material and adverse effect on our financial position and results of operations and could harm the trading price of our common stock. The conditional conversion features of the Convertible Notes, if triggered, may adversely affect our financial condition and operating results.
Our credit facility restricts our ability to pay dividends on our capital stock under certain circumstances. Although we have declared cash dividends on our common stock since 2021, we are not required to do so, and we may reduce or eliminate our cash dividend in the future. This could adversely affect the market price of our common stock.
Although 24 Table of Contents we have declared cash dividends on our common stock since 2021, we are not required to do so, and we may reduce or eliminate our cash dividend in the future. This could adversely affect the market price of our common stock. For information on our Credit Agreement, see Note 18. Long-Term Debt and Note 7.
A significant decline in sales from these or our other large customers, or our inability to collect on these sales, could materially and adversely impact our business, results of operations and financial condition. ​ The loss of and inability to attract and retain key personnel could significantly harm our results of operations and competitive position.
A significant decline in revenue from this or our other large customers, the loss of this or another large customer, or any inability to collect from large customers could materially and adversely impact our business, results of operations, and financial condition.
The process of seeking patent protection can be time consuming and expensive and patents may not be issued for currently pending or future applications. Moreover, our existing patents or any new patents that may be issued may not be sufficient in scope or strength to provide meaningful protection or any commercial advantage to us.
Moreover, our existing patents or any new patents that may be issued may not be sufficient in scope or strength to provide meaningful protection or any commercial advantage to us.
Third parties may also assert claims against us and our products. Claims that our products infringe the rights of others, whether or not meritorious, can be expensive and time-consuming to defend and resolve, and may divert the efforts and attention of management and personnel.
Claims that our products infringe the rights of others, whether or not meritorious, can be expensive and time-consuming to defend and resolve, and may divert the efforts and attention of management and personnel. The inability to obtain rights to use third party intellectual property on commercially reasonable terms could also have an adverse impact on our business.
The inability to obtain rights to use third party intellectual property on commercially reasonable terms could also have an adverse impact on our business. In addition, we may face claims based on the theft or unauthorized use or disclosure of third-party trade secrets and other confidential business information.
In addition, we may face claims based on the theft or unauthorized use or disclosure of third party trade secrets and other confidential business information.
A significant portion of our sales and accounts receivable are concentrated among a few customers. Consistent with prior years, in 2022, two customers each represented over 10% of our total revenue, and our ten largest customers, in the aggregate, accounted for over half of our total revenue.
Consistent with prior years, a limited number of customers accounted for a significant portion of our business. In 2023, one customer represented over 10% of our total revenue, and our ten largest customers, in the aggregate, accounted for over half of our total revenue. At December 31, 2023, the same customer accounted for over 10% of our total accounts receivable.
These changes have affected the timing and amount of customers’ purchases and investments in technology, and continue to affect our orders, net sales, operating expenses, and net income. We may not be able to respond adequately or quickly to the decline in demand by reducing our costs.
These changes have affected the timing and amount of customers’ purchases and investments in technology, and continue to affect our orders, net revenue, operating expenses, and net income.
In addition, patents issued to us may be challenged, invalidated, or circumvented. The loss or expiration of any of our key patents could lead to a significant loss of sales of certain of our products and could materially affect our future operating results.
The loss or expiration of any of our key patents could lead to a significant loss of sales of certain of our products and could materially affect our future operating results. The process of seeking patent protection can be time consuming and expensive and patents may not be issued for currently pending or future applications.
If any of our products are defective or fail, we might be required to repair, redesign, or recall those products, pay damages (including liquidated damages) or warranty claims, and we could suffer significant harm to our reputation. Furthermore, some of our products are used in medical device applications where malfunction of the device could result in serious injury.
To the extent our products are defective or fail, we might be required to repair, redesign, replace, or recall those products, pay damages (including liquidated damages) or fulfill warranty claims, and we could suffer significant expenses as well as harm to our reputation.
Governments, customers, investors, and employees are enhancing their focus on ESG practices and disclosures, and expectations in this area are rapidly evolving and increasing. Failure to adequately maintain appropriate ESG practices that meet diverse stakeholder expectations may result in an inability to attract customers, the loss of business, diluted market valuation, and an inability to attract and retain top talent.
Failure to adequately maintain appropriate ESG practices that meet diverse stakeholder expectations may result in an inability to attract customers, the loss of business, diluted market valuation, and an inability to attract and retain top talent. Maintaining possibly unlawful ESG programs could expose us to litigation threat.
We could also be required to alter our manufacturing, operations, and product design, and incur substantial expenses in order to comply with environmental, health and safety regulations.
We could also be required to alter our manufacturing, operations, and product design, and incur substantial expenses to comply with environmental, health and safety regulations. Any failure to comply with these regulations could subject us to significant costs and liabilities that could adversely affect our business, financial condition, and results of operations.
To the extent we experience increased warranty claim activity or increased costs associated with servicing those claims, our warranty accrual will increase, resulting in additional expenses in the line “Income (loss) from discontinued operations, net of income taxes” on our Consolidated Statement of Operations in future periods. We plan to continue supporting inverter customers with service maintenance and repair operations.
Our estimate of costs to fulfill our warranty obligations is based on historical experience and expectation of future conditions. To the extent we experience increased warranty claim activity or increased costs associated with servicing those claims, our warranty accrual will increase, resulting in additional expenses in our Consolidated Statements of Operations in future periods.
Further, in 2022, we increased prices and implemented surcharges across many of our products to reflect our higher supply chain costs. Although these price changes have generally been accepted by our customers, the higher prices could make our products less competitive in the market over time and could have an adverse effect on our results of operations.
Conversely, in 2022, we increased prices and implemented surcharges across many of our products to reflect our higher supply chain costs. Although these price changes were generally accepted by our customers, we did experience some loss of business.
Supply chain disruptions, manufacturing interruptions or delays, or the failure to accurately forecast customer demand, could affect our ability to meet customer demand, lead to higher costs, or result in excess or obsolete inventory. We place orders with many of our suppliers based on our customers’ quarterly forecasts and our annual forecasts.
Further, our ability to generate revenue or gross profit from design wins is in part or wholly dependent upon the success of our customers’ solutions. Failure to accurately forecast customer demand, supply chain disruptions, or manufacturing interruptions or delays could affect our ability to meet customer demand, lead to higher costs, or result in excess or obsolete inventory.
As part of our business strategy, we have and will likely continue to acquire companies or businesses and make investments to further our business.
Our long-term success and results of operations depend on our ability to successfully identify, close, integrate, and realize the anticipated benefits from our acquisitions and strategic investments. As part of our business strategy, we have and will likely continue to acquire companies or businesses and make investments to further our business.
Our products may suffer from defects or errors leading to increased costs, damages, or warranty claims. Our products use complex system designs and components that may contain errors or defects, particularly when we incorporate new technology into our products or release new versions.
Our products may suffer from defects or errors leading to increased costs, damages, or warranty claims. Our products use complex system designs and components that may contain errors or defects. The manufacture of these products often involves a highly complex and precise process and the utilization of specially qualified components.
Our assets and cash flow may not be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default.
Such breach or default may also constitute a default of our 2.50% convertible senior notes (“Convertible Notes”), which could also result in the entire outstanding balance being immediately due and payable. Our assets and cash flow may not be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default.
Economic uncertainty exacerbates negative trends in consumer and business spending and may cause our customers to push out, cancel, or refrain from placing orders. Difficulties or increased costs in obtaining capital and uncertain market conditions may also lead to a reduction of sales and greater instances of nonpayment.
Economic uncertainty exacerbates negative trends in consumer and business spending and may cause our 12 Table of Contents customers to delay, cancel, or refrain from placing orders.
Changes in our provision for income taxes or adverse outcomes resulting from examination of our income tax returns could adversely affect our results.
As we are subject to examination by tax authorities in every jurisdiction where we do business, an unfavorable audit outcome could adversely affect us. 20 Table of Contents Changes in our provision for income taxes or adverse outcomes resulting from examination of our income tax returns could adversely affect our results.
Additionally, we continue to evaluate our manufacturing facilities and may decide to conduct optimization and consolidation initiatives, which may or may not be successful. If we are unable to adjust our business strategy successfully for some of our product lines to reflect our customers’ price sensitivity, our business and financial condition could be harmed.
If we are unable to maintain our pricing strategy or adjust our business strategy successfully for some of our product lines to reflect our customers’ price sensitivity, our business and financial condition could be harmed. Our business strategy for many of our product lines is focused on product performance and technology innovation to provide enhanced efficiencies and productivity.
We accrue a warranty reserve for estimated costs to provide warranty services, 19 Table of Contents including the cost of technical support, product repairs, and product replacement for units that cannot be repaired. Our estimate of costs to fulfill our warranty obligations is based on historical experience and expectation of future conditions.
Furthermore, some of our products are used in medical device applications where malfunction of the device could result in serious injury. We accrue a warranty reserve for estimated costs to provide warranty services, including the cost of technical support, product repairs, and product replacement for units that cannot be repaired.
As governments continue to look for ways to increase their revenue streams, they could increase audits of companies to accelerate the recovery of monies perceived as owed to them under current or past regulations. As we are subject to examination by tax authorities in every jurisdiction where we do business, an unfavorable audit outcome could adversely affect us.
International governments have heightened their review and scrutiny of multinational businesses like ours, which could increase our compliance costs and future tax liability to those governments. As governments continue to look for ways to increase their revenue streams, they could increase audits of companies to accelerate the recovery of monies perceived as owed to them under current or past regulations.
Any failure to comply with these regulations could subject us to significant costs and liabilities that could adversely affect our business, financial condition, and results of operations. 24 Table of Contents Our failure to maintain appropriate environmental, social, and governance (“ESG”) practices and disclosures could result in reputational harm, a loss of customer and investor confidence, and adverse business and financial results.
Our failure to maintain appropriate environmental, social, and governance (“ESG”) practices and disclosures could result in reputational harm, a loss of customer and investor confidence, and adverse business and financial results. Governments, customers, investors, and employees are enhancing their focus on ESG practices and disclosures, and expectations in this area are rapidly evolving and increasing.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changePROPERTIES Information concerning our principal properties is set forth below: ​ ​ ​ ​ ​ ​ Location Principal Activity Ownership Denver, Colorado ​ Corporate headquarters, general and administrative ​ Leased Fort Collins, Colorado ​ Research and development, distribution, sales, and service ​ Leased Penang, Malaysia ​ Manufacturing and distribution ​ Leased Rosario, Philippines ​ Manufacturing ​ Owned Santa Rosa, Philippines ​ Manufacturing ​ Leased Shenzhen, China ​ Manufacturing, distribution, service, and research and development ​ Leased Zhongshan, China ​ Manufacturing ​ Leased Xianghe, China ​ Manufacturing ​ Leased Mexicali, Mexico ​ Manufacturing ​ Leased Lockport, New York ​ Manufacturing, distribution, service, and research and development ​ Leased Singapore, Singapore ​ Global operations headquarters (sales, service, and research and development) ​ Leased Quezon, Philippines ​ Engineering, research and development, administration, and support ​ Leased Taipei, Taiwan ​ Sales, distribution, and service ​ Leased Hong Kong, Hong Kong ​ Distribution and general and administrative ​ Leased ​ In addition to the above principal properties, we have several other facilities throughout the U.S., North America, Europe, and Asia.
Biggest changePROPERTIES Information concerning our principal properties is set forth below: ​ ​ ​ ​ ​ ​ Location Principal Activity Ownership Denver, Colorado ​ Corporate headquarters, general and administrative ​ Leased Fort Collins, Colorado ​ Research and development, distribution, sales, and service ​ Leased Penang, Malaysia ​ Manufacturing and distribution ​ Leased Rosario, Philippines ​ Manufacturing ​ Owned Santa Rosa, Philippines ​ Manufacturing ​ Leased Zhongshan, China ​ Manufacturing ​ Leased Mexicali, Mexico ​ Manufacturing ​ Leased Littlehampton, United Kingdom ​ Manufacturing, distribution, sales, service, and research and development ​ Leased Lockport, New York ​ Manufacturing, distribution, service, and research and development ​ Leased Singapore, Singapore ​ Global operations headquarters (sales, service, and research and development) ​ Leased Quezon, Philippines ​ Engineering, research and development, administration, and support ​ Leased Taipei, Taiwan ​ Sales, distribution, and service ​ Leased Hong Kong, Hong Kong ​ Distribution and general and administrative ​ Leased ​ 26 Table of Contents In addition to the above principal properties, we have several other facilities throughout North America, Europe, and Asia.
Removed
At the end of 2022, we ceased operations in our Shenzhen, China facility and completed the transfer of production activity to our manufacturing operations in Penang, Malaysia. The Shenzhen, China facility is expected to close in early 2023.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeFor further information see Note 19 . Commitments and Contingencies in Part II, Item 8 “Financial Statements and Supplementary Data.” ​ ITEM 4. MINE SAFETY DISCLOSURES Not applicable. ​ 25 Table of Contents PART II
Biggest changeFor further information see Note 17 . Commitments and Contingencies in Part II, Item 8 “Financial Statements and Supplementary Data.” ​ ITEM 4. MINE SAFETY DISCLOSURES Not applicable. ​ 27 Table of Contents PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeITEM 4. MINE SAFETY DISCLOSURES ​ 25 ​ ​ ​ ​ ​ PART II ​ 26 ​ ​ ​ ​ ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ​ 26 ​ ​ ​ ​
Biggest changeITEM 4. MINE SAFETY DISCLOSURES ​ 27 ​ ​ ​ ​ ​ PART II ​ 28 ​ ​ ​ ​ ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ​ 28 ​ ​ ​ ​

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table summarizes these repurchases during the year ended December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Month Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs ​ ​ (in thousands, except price per share data) January ​ ​ 82 ​ $ 80.02 ​ ​ 82 ​ $ 121,783 February ​ ​ — ​ $ — ​ ​ — ​ $ 121,783 March ​ ​ — ​ $ — ​ ​ — ​ $ 121,783 First quarter ​ ​ 82 ​ $ 80.02 ​ ​ 82 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ April ​ ​ — ​ $ — ​ ​ — ​ $ 121,783 May ​ ​ 103 ​ $ 76.23 ​ ​ 103 ​ $ 113,969 June ​ ​ 127 ​ $ 72.42 ​ ​ 127 ​ $ 104,765 Second quarter ​ ​ 230 ​ $ 74.12 ​ ​ 230 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ July ​ ​ 34 ​ $ 69.39 ​ ​ 34 ​ $ 200,000 August ​ ​ — ​ $ — ​ ​ — ​ $ 200,000 September ​ ​ — ​ $ — ​ ​ — ​ $ 200,000 Third quarter ​ ​ 34 ​ $ 69.39 ​ ​ 34 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ October ​ ​ 10 ​ $ 69.16 ​ ​ 10 ​ $ 199,320 November ​ ​ — ​ $ — ​ ​ — ​ $ 199,320 December ​ ​ — ​ $ — ​ ​ — ​ $ 199,320 Fourth quarter ​ ​ 10 ​ $ 69.16 ​ ​ 10 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ ​ 356 ​ $ 74.90 ​ ​ 356 ​ $ 199,320 ​ 27 Table of Contents Performance Graph The performance graph below shows the five-year cumulative total stockholder return on our common stock in comparison to certain other indices during the period from December 31, 2017 through December 31, 2022.
Biggest changeMost recently, the Board approved a $40.0 million increase to the program specifically for a $40.1 million stock repurchase that occurred concurrently with the September 12, 2023 issuance of the Convertible Notes. ​ The following table summarizes stock repurchases during the year ended December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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) September ​ ​ 378 ​ $ 105.74 ​ ​ 378 ​ ​ ​ Total ​ ​ 378 ​ $ 105.74 ​ ​ 378 ​ $ 199,192 ​ We did not repurchase any shares during the fourth quarter of 2023.
The comparison assumes $100 invested on December 31, 2017 in Advanced Energy common stock and in each of the indices and assumes reinvestment of dividends, if any. Dollar amounts in the graph are rounded to the nearest whole dollar.
The comparison assumes $100 invested on December 31, 2018 in Advanced Energy common stock and in each of the indices and assumes reinvestment of dividends, if any. Dollar amounts in the graph are rounded to the nearest whole dollar.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Principal Market Our common stock is listed on the NASDAQ Global Select Market under the symbol “AEIS.” On January 31, 2023, the number of common stockholders of record was 258.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information and Dividends Our common stock is listed on the NASDAQ Global Select Market under the symbol “AEIS.” On January 31, 2024, the number of common stockholders of record was 236.
RESERVED Not applicable. ​ 28 Table of Contents
RESERVED Not applicable. ​ 29 Table of Contents
The performance shown in the graph represents past performance and should not be considered an indication of future performance. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2017 2018 2019 2020 2021 2022 Advanced Energy Industries, Inc. $ 100.00 ​ $ 63.62 ​ $ 105.51 ​ $ 143.70 ​ $ 135.52 ​ $ 128.26 NASDAQ Composite $ 100.00 ​ $ 96.12 ​ $ 129.97 ​ $ 186.69 ​ $ 226.63 ​ $ 151.61 Dow Jones US Electrical Components & Equipment $ 100.00 ​ $ 86.48 ​ $ 105.18 ​ $ 124.75 ​ $ 154.36 ​ $ 125.51 S&P 1000 $ 100.00 ​ $ 88.33 ​ $ 108.70 ​ $ 120.84 ​ $ 149.60 ​ $ 126.61 ​ Information relating to compensation plans under which our equity securities are authorized for issuance is set forth in Part III, Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this annual report on Form 10-K. ​ ITEM 6.
The performance shown in the graph represents past performance and should not be considered an indication of future performance. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2018 2019 2020 2021 2022 2023 Advanced Energy Industries, Inc. $ 100.00 ​ $ 165.85 ​ $ 225.88 ​ $ 213.02 ​ $ 201.60 ​ $ 257.03 NASDAQ Composite $ 100.00 ​ $ 136.73 ​ $ 198.33 ​ $ 242.38 ​ $ 163.58 ​ $ 236.70 Dow Jones US Electrical Components & Equipment $ 100.00 ​ $ 123.68 ​ $ 149.34 ​ $ 187.20 ​ $ 154.45 ​ $ 197.36 S&P 1000 $ 100.00 ​ $ 125.11 ​ $ 141.32 ​ $ 177.08 ​ $ 152.22 ​ $ 177.01 ​ Information relating to compensation plans under which our equity securities are authorized for issuance is set forth in Part III, Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this annual report on Form 10-K. ​ ITEM 6.
In each of the four quarters in 2022, we paid quarterly cash dividends of $0.10 per share, totaling $15.2 million for the full year.
This does not include stockholders whose shares are held in “street name” through brokers or other nominees. In each of the four quarters in 2023, we paid quarterly cash dividends of $0.10 per share, totaling $15.2 million for the full year.
Removed
This does not include stockholders whose shares are held in “street name” through brokers or other nominees. Dividend Policy In March 2021, the Board of Directors (the “Board”) declared the first quarterly cash dividend since our inception as a public company.
Added
Purchases of Equity Securities by the Issuer To repurchase shares of our common stock, we periodically enter into stock repurchase agreements, open market transactions, and/or other transactions in accordance applicable federal securities laws.
Removed
Purchases of Equity Securities by the Issuer The following table summarizes actions by our Board of Directors in relation to the stock repurchase program: ​ ​ ​ ​ Date Action September 2015 ​ Authorized a program to repurchase up to $150.0 million of our common stock ​ ​ ​ May 2018 ​ Approved a $50.0 million increase in the repurchase program ​ ​ ​ December 2019 ​ Authorized the removal of the expiration date and increased the balance available for the repurchase program by $25.1 million ​ ​ ​ July 2021 ​ Approved an increase to the repurchase program, which authorized the Company to repurchase up to $200.0 million with no time limitation ​ ​ ​ July 2022 ​ Approved an increase to the repurchase program from its remaining authorization of $102.4 million, to repurchase up to $200.0 million with no time limitation ​ 26 Table of Contents To execute the repurchase of shares of our common stock, we periodically enter into stock repurchase agreements.
Added
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. ​ During the past three years, our Board approved several increases to the stock repurchase program.
Added
The maximum dollar value of shares that may yet be purchased under share repurchase program does not have a time limit. 28 Table of Contents Performance Graph The performance graph below shows the five-year cumulative total stockholder return on our common stock in comparison to certain other indices during the period from December 31, 2018 through December 31, 2023.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeITEM 6. RESERVED ​ 28 ​ ​ ​ ​ ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ​ 29 ​ ​ ​ ​ ITEM 7A . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ​ 43 ​ ​ ​ ​ ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ​ 45 ​ ​ ​ ​
Biggest changeITEM 6. RESERVED ​ 29 ​ ​ ​ ​ ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ​ 30 ​ ​ ​ ​ ITEM 7A . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ​ 42 ​ ​ ​ ​ ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ​ 44 ​ ​ ​ ​

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

42 edited+52 added−89 removed10 unchanged
Biggest changeThe following table sets forth certain data derived from our Consolidated Statements of Operations (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ 2022 ​ 2021 Sales ​ $ 1,845,422 $ 1,455,954 ​ Gross profit ​ ​ 675,506 ​ 532,322 ​ Operating expenses ​ ​ 442,411 ​ 380,641 ​ Operating income from continuing operations ​ ​ 233,095 ​ 151,681 ​ Other income (expense), net ​ ​ 8,646 ​ (2,970) ​ Income from continuing operations, before income taxes ​ ​ 241,741 ​ 148,711 ​ Provision for income taxes ​ ​ 39,850 ​ 14,004 ​ Income from continuing operations ​ ​ $ 201,891 ​ $ 134,707 ​ ​ The following table sets forth the percentage of sales represented by certain items reflected in our Consolidated Statements of Operations: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ 2022 2021 ​ Sales ​ ​ ​ 100.0 % ​ 100.0 % Gross profit ​ ​ 36.6 36.6 Operating expenses ​ ​ 24.0 26.1 Operating income from continuing operations ​ ​ 12.6 10.4 Other income (expense), net ​ ​ 0.5 (0.2) Income from continuing operations, before income taxes ​ ​ 13.1 10.2 Provision for income taxes ​ ​ 2.2 1.0 Income from continuing operations ​ ​ ​ 10.9 % ​ 9.3 % ​ ​ 34 Table of Contents SALES, NET The following tables summarize net sales and percentages of sales by markets (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ Change 2022 v. 2021 ​ ​ ​ 2022 2021 Dollar Percent ​ Semiconductor Equipment ​ $ 930,809 ​ $ 710,174 ​ ​ $ 220,635 31.1 % Industrial and Medical ​ 426,763 ​ 341,176 ​ ​ 85,587 25.1 ​ Data Center Computing ​ ​ 327,466 ​ ​ 270,924 ​ ​ ​ 56,542 20.9 ​ Telecom and Networking ​ 160,384 ​ 133,680 ​ ​ 26,704 20.0 ​ Total ​ $ 1,845,422 ​ $ 1,455,954 ​ ​ $ 389,468 26.8 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ 2022 2021 ​ Semiconductor Equipment ​ ​ 50.5 % ​ 48.8 % Industrial and Medical ​ ​ 23.1 ​ 23.4 Data Center Computing ​ ​ ​ 17.7 ​ ​ 18.6 ​ Telecom and Networking ​ ​ 8.7 ​ 9.2 Total ​ ​ 100.0 % ​ 100.0 % ​ OPERATING EXPENSE The following table summarizes our operating expenses (in thousands) and as a percentage of sales: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ ​ 2022 2021 ​ Research and development ​ ​ $ 191,020 10.4 % $ 161,831 11.1 % Selling, general, and administrative ​ ​ 218,463 11.8 ​ 191,998 13.2 ​ Amortization of intangible assets ​ ​ ​ 26,114 1.4 ​ 22,060 1.5 ​ Restructuring charges ​ ​ 6,814 0.4 ​ 4,752 0.3 ​ Total operating expenses ​ ​ $ 442,411 24.0 % $ 380,641 26.1 % ​ SALES AND BACKLOG Sales Sales increased $389.5 million, or 26.8%, to $1,845.4 million, as compared to $1,456.0 million in the prior year.
Biggest changeThe following table summarizes our Consolidated Statements of Operations and as a percentage of revenue (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ 2023 ​ ​ 2022 Revenue $ 1,655,810 100.0 % $ 1,845,422 100.0 % Gross profit ​ 592,398 ​ 35.8 ​ ​ 675,506 ​ 36.6 ​ Operating expenses ​ 478,704 ​ 28.9 ​ ​ 442,411 ​ 24.0 ​ Operating income from continuing operations ​ 113,694 ​ 6.9 ​ ​ 233,095 ​ 12.6 ​ Interest income ​ ​ 27,092 ​ 1.6 ​ ​ ​ 4,147 ​ 0.2 ​ Interest expense ​ ​ (16,566) ​ (1.0) ​ ​ ​ (7,325) ​ (0.4) ​ Other income (expense), net ​ (1,759) ​ (0.1) ​ ​ 11,824 ​ 0.6 ​ Income from continuing operations, before income tax ​ 122,461 ​ 7.4 ​ ​ 241,741 ​ 13.1 ​ Income tax provision (benefit) ​ (8,288) ​ (0.5) ​ ​ 39,850 ​ 2.2 ​ Income from continuing operations ​ $ 130,749 ​ 7.9 % ​ $ 201,891 ​ 10.9 % ​ ​ Revenue The following tables summarize net revenue and percentages of revenue by markets (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ Change 2023 v. 2022 ​ ​ ​ 2023 ​ 2022 Dollar Percent ​ Semiconductor Equipment ​ $ 743,794 44.9 % ​ $ 930,809 50.5 % ​ $ (187,015) (20.1) % Industrial and Medical ​ 474,449 ​ 28.7 ​ ​ 426,763 ​ 23.1 ​ ​ 47,686 11.2 ​ Data Center Computing ​ ​ 249,874 ​ 15.1 ​ ​ ​ 327,466 ​ 17.7 ​ ​ ​ (77,592) (23.7) ​ Telecom and Networking ​ 187,693 ​ 11.3 ​ ​ 160,384 ​ 8.7 ​ ​ 27,309 17.0 ​ Total ​ $ 1,655,810 ​ 100.0 % ​ $ 1,845,422 ​ 100.0 % ​ $ (189,612) (10.3) % Total revenue decreased from the same period in the prior year due to market downturns in the Semiconductor Equipment and Data Center Computing markets, which were partially offset by revenue increases in the Industrial and Medical and the Telecom and Networking markets driven by improved supply of certain components. ​ 32 Table of Contents Backlog Backlog represents outstanding orders for products we expect to deliver within the next 12 months.
Net Cash From Investing Activities Net cash from investing activities in 2022 was ($208.3) million, driven by the following: ● ($58.9) million in purchases of property and equipment as we invested in our manufacturing footprint and capacity; and ● ($149.4) million for business combinations.
Net cash used in investing activities in 2022 was $208.3 million, driven by the following: ● $149.4 million paid for business combinations; and ● $58.9 million in purchases of property and equipment as we invested in our manufacturing footprint and capacity.
Share Repurchases To execute the repurchase of shares of our common stock, we periodically enter into stock repurchase agreements.
Share Repurchases To repurchase shares of our common stock, we periodically enter into stock repurchase agreements.
Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our consolidated financial statements upon adoption. To understand the impact of recently issued guidance, whether adopted or to be adopted, please review the information provided in Note 1.
Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our consolidated financial statements upon adoption.
It is not clear how long these supply shortages will persist or how quickly our supply chain will recover. 33 Table of Contents Results of Continuing Operations The analysis presented below is organized to provide the information we believe will be helpful for understanding of our historical performance and relevant trends going forward and should be read in conjunction with our consolidated financial statements, including the notes thereto, in Part II, Item 8 “Financial Statements and Supplementary Data” of this annual report on Form 10-K.
Results of Continuing Operations The analysis presented below is organized to provide the information we believe will be helpful for understanding of our historical performance and relevant trends going forward and should be read in conjunction with our consolidated financial statements, including the notes thereto, in Part II, Item 8 “Financial Statements and Supplementary Data” of this annual report on Form 10-K.
Business Combinations We record the assets acquired and liabilities assumed in a business combination at their acquisition date fair values. Fair values of assets acquired, and liabilities assumed are based upon available information and may involve engaging an independent third party to perform an appraisal. Estimating fair values can be complex and subject to significant business judgment.
Fair values of assets acquired, and liabilities assumed are based upon available information and may involve engaging an independent third party to perform an appraisal. Estimating fair values can be complex and subject to significant business judgment.
In addition to the available capacity on the Revolving Facility, prior to the maturity date of our Credit Agreement, we may also request an increase to the financing commitments in either the Term Loan Facility or Revolving Facility by an aggregate amount not to exceed $250.0 million at identical terms to our existing Credit Facility.
In addition to the available capacity on the Revolving Facility, prior to the maturity date of our Credit Agreement, we may request an increase to the financing commitments in either the Term Loan Facility or Revolving Facility by an aggregate amount not to exceed $115.0 million. Any requested increase is subject to lender approval.
Credit Facility , respectively, in Part II, Item 8 “Financial Statements and Supplementary Data.” Recent Accounting Pronouncements 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”).
Long-Term Debt , respectively, in Part II, Item 8 “Financial Statements and Supplementary Data.” Recent Accounting Pronouncements From time to time, updates to the Accounting Standards Codification are communicated through issuance of an Accounting Standards Update.
Within this segment, our products are sold into the Semiconductor Equipment, Industrial and Medical, Data Center Computing, and Telecom and Networking markets. In April 2022, we acquired SL Power. See Note 2.
Within this segment, our products are sold into the Semiconductor Equipment, Industrial and Medical, Data Center Computing, and Telecom and Networking markets. On April 25, 2022, we acquired 100% of the issued and outstanding shares of capital stock of SL Power, which is based in Calabasas, California.
At December 31, 2022, the remaining amount authorized by the Board of Directors for future share repurchases was $199.3 million. 41 Table of Contents Cash Flows A summary of our cash from operating, investing, and financing activities was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2022 2021 Net cash from operating activities from continuing operations ​ $ 183,731 ​ $ 140,914 Net cash from operating activities from discontinued operations ​ (144) ​ (669) Net cash from operating activities ​ 183,587 ​ 140,245 Net cash from investing activities ​ (208,272) ​ (47,302) Net cash from financing activities ​ (61,865) ​ (25,372) Effect of currency translation on cash and cash equivalents ​ 996 ​ (3,567) Net change in cash and cash equivalents ​ (85,554) ​ 64,004 Cash and cash equivalents, beginning of period ​ 544,372 ​ 480,368 Cash and cash equivalents, end of period ​ $ 458,818 ​ $ 544,372 ​ Net Cash From Operating Activities Net cash from operating activities from continuing operations was $183.7 million, an increase of $42.8 million, compared to $140.9 million in the prior year.
Long-Term Debt in Part II, Item 8 “ Financial Statements and Supplementary Data .” At December 31, 2023, the remaining amount authorized by the Board for future share repurchases was $199.2 million with no time limitation. 39 Table of Contents Cash Flows A summary of our cash from operating, investing, and financing activities was as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2023 2022 Net cash from operating activities from continuing operations ​ ​ $ 212,925 ​ $ 183,731 Net cash from operating activities from discontinued operations ​ ​ (3,988) ​ (144) Net cash from operating activities ​ ​ 208,937 ​ 183,587 Net cash from investing activities ​ ​ (64,751) ​ (208,272) Net cash from financing activities ​ ​ 445,684 ​ (61,865) Effect of currency translation on cash and cash equivalents ​ ​ (4,132) ​ 996 Net change in cash and cash equivalents ​ ​ 585,738 ​ (85,554) Cash and cash equivalents, beginning of period ​ ​ 458,818 ​ 544,372 Cash and cash equivalents, end of period ​ ​ $ 1,044,556 ​ $ 458,818 ​ Net Cash From Operating Activities Net cash from operating activities from continuing operations was $212.9 million, an increase of $29.2 million, compared to $183.7 million in the prior year.
The accounting positions described below are significantly affected by critical accounting estimates. Such accounting positions require significant judgments, assumptions, and estimates to be used in the preparation of the consolidated financial statements, actual results could differ materially from the amounts reported based on variability in factors affecting these statements.
Such accounting positions require significant judgments, assumptions, and estimates to be used in the preparation of the consolidated financial statements. Actual results could differ materially from the amounts reported based on variability in factors affecting these statements. Inventories We value inventories at the lower of cost or net realizable value, computed on a first-in, first-out basis.
Starting in the fourth quarter of 2022, the market entered a cyclical downturn due to changing macroeconomic conditions, overcapacity in the market for memory devices, general semiconductor inventory digestion resulting in falling fab utilization and reduced fab expansion plans, and new export restrictions to China for certain semiconductor equipment.
Semiconductor Equipment Market Beginning in the fourth quarter of 2022, the Semiconductor Equipment market entered a downturn due to a combination of unfavorable macroeconomic conditions, overcapacity in the market for memory devices, prolonged weakness in demand for consumer electronics, general semiconductor inventory consumption resulting in falling manufacturing utilization, and new U.S. export restrictions to China for certain semiconductor equipment.
In addition, management’s incentive plans include these non-GAAP measures as criteria for achievements. These non-GAAP measures are not in accordance with U.S. GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. However, we believe these non-GAAP measures provide additional information that enables readers to evaluate our business from the perspective of management.
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 in accordance with U.S. GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies.
Additionally, higher material costs not recovered impacted gross margins 36 Table of Contents by approximately 200 basis points, compared to approximately five basis points in the prior year. We expect that the amount of higher material costs and related recoveries will abate as the supply chain normalizes and scarce parts become more available from original manufacturers.
We expect that the amount of higher material costs and related recoveries will abate as the supply chain normalizes and scarce parts become more available from original manufacturers.
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 . Our plasma power solutions enable innovation in complex semiconductor and thin film plasma processes such as dry etch and deposition.
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.
Backlog at any particular date is not necessarily indicative of actual sales which may be generated for any succeeding period. In addition, there is uncertainty of the timing of when backlog can convert into revenue due to continuing supply constraints.
Backlog at any particular date is not necessarily indicative of actual revenue which may be generated for any succeeding period.
During 2022, we paid quarterly cash dividends of $0.10 per share, totaling $15.2 million for the full year.
Derivative Financial Instruments in Part II, Item 8 “Financial Statements and Supplementary Data.” Dividends During 2023, we paid quarterly cash dividends of $0.10 per share, totaling $15.2 million for the full year.
GAAP, an entity is allowed a reasonable period of time (not to exceed one year) to obtain the information necessary to identify and measure the fair value of the assets acquired and liabilities assumed in a business combination . 29 Table of Contents Income Taxes We are subject to income taxes in the United States and numerous foreign jurisdictions.
GAAP, an entity is allowed a reasonable period of time (not to exceed one year) to obtain the information necessary to identify and measure the fair value of the assets acquired and liabilities assumed in a business combination . Off-Balance Sheet Arrangements As of December 31, 2023, we did not have any off-balance sheet arrangements pursuant to Regulation S-K.
GAAP”) requires us to make judgments, assumptions, and estimates that affect the amounts reported. Note 1. Summary of Operations and Significant Accounting Policies and Estimates in Part II, Item 8 “Financial Statements and Supplementary Data” describes the significant accounting policies used in the preparation of our consolidated financial statements.
Summary of Operations and Significant Accounting Policies and Estimates in Part II, Item 8 “Financial Statements and Supplementary Data” describes the significant accounting policies used in the preparation of our consolidated financial statements. The accounting positions described below are significantly affected by critical accounting estimates.
Net Cash From Financing Activities Net cash from financing activities in 2022 was ($61.9) million and included: ● ($15.2) million for dividend payments; ● ($20.0) million for repayment of long-term debt; and ● ($26.6) million related to repurchases of our common stock.
Net Cash From Financing Activities Net cash provided by financing activities in 2023 was $445.7 million, driven by the following: ● $561.1 million net proceeds from issuance of long-term debt; ● $74.9 million proceeds from sale of warrants; ● $115.0 million payment for purchase of note hedges; ● $40.0 million related to repurchases of our common stock; ● $20.0 million for repayments on long-term borrowing; and ● $15.2 million for dividend payments. 40 Table of Contents The net cash used in financing activities in 2022 was $61.9 million, driven by the following: ● $26.6 million related to repurchases of our common stock; ● $20.0 million for repayment of long-term debt; and ● $15.2 million for dividend payments.
The following table summarizes these repurchases: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, (in thousands, except per share amounts) 2022 2021 2020 Amount paid or accrued to repurchase shares ​ $ 26,635 ​ $ 78,125 ​ $ 11,630 Number of shares repurchased ​ 356 ​ 901 ​ 244 Average repurchase price per share ​ $ 74.90 ​ $ 86.76 ​ $ 47.75 ​ In July 2022, the Board of Directors approved an increase to the share repurchase plan that increased the remaining amount authorized for future repurchases to a maximum of $200.0 million with no time limitation.
The following table summarizes these repurchases: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, (in thousands, except per share amounts) 2023 2022 2021 Amount paid or accrued to repurchase shares ​ ​ $ 40,132 ​ $ 26,635 ​ $ 78,125 Number of shares repurchased ​ ​ 378 ​ 356 ​ 901 Average repurchase price per share ​ ​ $ 105.74 ​ $ 74.90 ​ $ 86.76 ​ The above table reflects a $40.1 million repurchase of our common stock that was concurrent with the Convertible Notes issuance.
In addition, we may, depending upon the number or size of additional acquisitions, seek additional debt or equity financing from time to time; however, such additional financing may not be available on acceptable terms, if at all.
In addition, we may, depending upon the number or size of additional acquisitions, seek additional debt or equity financing from time to time; however, such additional financing may not be available on acceptable terms, if at all. 38 Table of Contents Debt On September 12, 2023, we completed a private, unregistered offering of $575.0 million Convertible Notes and received net proceeds of approximately $561.1 million after the discount for the initial purchasers’ fees.
The increase is primarily due to an increase in net income. This was partially offset by an unfavorable increase in net operating assets driven primarily by an increase in accounts receivable due to our strong revenue growth.
The increase is primarily due to a favorable decrease in accounts receivable and inventory. This was partially offset by a decrease in net income driven primarily by slowing market demand.
Overview Advanced Energy provides highly engineered, mission-critical, precision power conversion, measurement, and control solutions to our global customers.
The following section discusses our results of operations for 2023 and 2022 and year-to-year comparisons between those periods. Company Overview Advanced Energy provides highly engineered, critical, precision power conversion, measurement, and control solutions to our global customers.
Our future effective income tax rate depends on various factors, such as changes in tax laws, regulations, accounting principles, or interpretations thereof, and the geographic composition of our pre-tax income. We carefully monitor these factors and adjust our effective income tax rate accordingly.
The effective tax rate for 2023 was lower than the same periods in 2022 primarily due to a $25.6 million release of a deferred tax asset valuation allowance in 2023. Our future effective income tax rate depends on various factors, such as changes in tax laws, regulations, accounting principles, or interpretations thereof, and the geographic composition of our pre-tax income.
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, make business decisions, including developing budgets and forecasting future periods.
As additional jurisdictions enact such legislation, our effective tax rate and cash tax payments could increase in future years. 36 Table of Contents 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.
Our primary sources of liquidity are our available cash, investments, cash generated from current operations, and available borrowing capacity under the Revolving Facility (defined below).
Our primary sources of liquidity continue to be our available cash, investments, cash generated from operations, and available borrowing capacity under the Revolving Facility (defined in Note 18. Long-Term Debt in Part II, Item 8 “Financial Statements and Supplementary Data”).
The tax effect of our non-GAAP adjustments represents the anticipated annual tax rate applied to each non-GAAP adjustment after consideration of their respective book and tax treatments and effect of adoption of the 2017 Tax Cuts and Jobs Act. ​ ​ ​ ​ ​ ​ ​ ​ Reconciliation of non-GAAP measure ​ ​ ​ ​ ​ ​ Operating expenses and operating income from continuing ​ Years Ended December 31, operations, excluding certain items (in thousands) 2022 2021 Gross profit from continuing operations, as reported ​ $ 675,506 ​ $ 532,322 Adjustments to gross profit: ​ ​ ​ Stock-based compensation ​ 1,478 ​ 764 Facility expansion, relocation costs and other ​ 5,295 ​ 6,189 Acquisition-related costs ​ ​ (299) ​ ​ 3,585 Non-GAAP gross profit ​ 681,980 ​ 542,860 Non-GAAP gross margin ​ 37.0% ​ 37.3% ​ ​ ​ ​ ​ ​ ​ Operating expenses from continuing operations, as reported ​ ​ 442,411 ​ ​ 380,641 Adjustments: ​ ​ ​ ​ Amortization of intangible assets ​ (26,114) ​ (22,060) Stock-based compensation ​ (18,371) ​ (14,975) Acquisition-related costs ​ (8,637) ​ (6,803) Facility expansion, relocation costs and other ​ — ​ (229) Restructuring ​ (6,814) ​ (4,752) Non-GAAP operating expenses ​ ​ 382,475 ​ ​ 331,822 Non-GAAP operating income ​ $ 299,505 ​ $ 211,038 Non-GAAP operating margin ​ 16.2% ​ 14.5% ​ ​ ​ ​ ​ ​ ​ Reconciliation of non-GAAP measure ​ ​ ​ ​ ​ Income from continuing operations, excluding certain items Years Ended December 31, (in thousands, except per share amounts) 2022 2021 Income from continuing operations, less non-controlling interest, net of income taxes $ 201,875 ​ $ 134,663 Adjustments: ​ Amortization of intangible assets 26,114 ​ 22,060 Acquisition-related costs 8,338 ​ 10,388 Facility expansion, relocation costs, and other 5,295 ​ 6,418 Restructuring 6,814 ​ 4,752 Unrealized foreign currency gain ​ (7,645) ​ ​ (3,543) Acquisition-related costs and other included in other (income) expense, net ​ (8,417) ​ ​ (2,186) Tax effect of non-GAAP adjustments (3,008) ​ (1,346) Non-GAAP income, net of income taxes, excluding stock-based compensation ​ 229,366 ​ ​ 171,206 Stock-based compensation, net of taxes ​ 15,444 ​ ​ 12,042 Non-GAAP income, net of income taxes $ 244,810 ​ $ 183,248 Non-GAAP diluted earnings per share $ 6.49 ​ $ 4.78 ​ 39 Table of Contents Impact of Inflation In previous years, inflation did not have a material impact on our operations.
In addition, the tax effect also includes a discrete tax benefit associated with the release of a portion of our deferred tax asset valuation allowance. ​ ​ ​ ​ ​ ​ ​ ​ ​ Reconciliation of non-GAAP measure ​ ​ ​ ​ ​ ​ ​ Operating expenses and operating income from continuing ​ ​ Years Ended December 31, operations, excluding certain items (in thousands) 2023 2022 Gross profit from continuing operations, as reported ​ ​ $ 592,398 ​ $ 675,506 Adjustments to gross profit: ​ ​ ​ ​ Stock-based compensation ​ ​ 2,059 ​ 1,478 Facility expansion, relocation costs and other ​ ​ 2,334 ​ 5,295 Acquisition-related costs ​ ​ ​ 238 ​ ​ (299) Non-GAAP gross profit ​ ​ 597,029 ​ 681,980 Non-GAAP gross margin ​ ​ 36.1% ​ 37.0% ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses from continuing operations, as reported ​ ​ ​ 478,704 ​ ​ 442,411 Adjustments: ​ ​ ​ ​ ​ Amortization of intangible assets ​ ​ (28,254) ​ (26,114) Stock-based compensation ​ ​ (28,942) ​ (18,371) Acquisition-related costs ​ ​ (4,026) ​ (8,637) Facility expansion, relocation costs and other ​ ​ (189) ​ — Restructuring, asset impairments, and other charges ​ ​ (26,977) ​ (6,814) Non-GAAP operating expenses ​ ​ ​ 390,316 ​ ​ 382,475 Non-GAAP operating income ​ ​ $ 206,713 ​ $ 299,505 Non-GAAP operating margin ​ ​ 12.5% ​ 16.2% ​ 37 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ Reconciliation of non-GAAP measure ​ ​ ​ ​ ​ ​ ​ Income from continuing operations, excluding certain items ​ ​ Years Ended December 31, (in thousands, except per share amounts) ​ 2023 2022 Income from continuing operations, less non-controlling interest, net of income tax ​ ​ $ 130,749 ​ $ 201,875 Adjustments: ​ ​ ​ Amortization of intangible assets ​ ​ 28,254 ​ 26,114 Acquisition-related costs ​ ​ 4,264 ​ 8,338 Facility expansion, relocation costs, and other ​ ​ 2,523 ​ 5,295 Restructuring, asset impairments, and other charges ​ ​ 26,977 ​ 6,814 Unrealized foreign currency gain ​ ​ ​ (89) ​ ​ (7,645) Acquisition-related costs and other included in other income (expense), net ​ ​ ​ (1,516) ​ ​ (8,417) Tax effect of non-GAAP adjustments, including certain discrete tax benefits ​ ​ (31,303) ​ (3,008) Non-GAAP income, net of income tax, excluding stock-based compensation ​ ​ ​ 159,859 ​ ​ 229,366 Stock-based compensation, net of tax ​ ​ ​ 24,181 ​ ​ 15,444 Non-GAAP income, net of income tax ​ ​ $ 184,040 ​ $ 244,810 Non-GAAP diluted earnings per share ​ ​ $ 4.88 ​ $ 6.49 ​ ​ ​ ​ ​ ​ ​ ​ Reconciliation of non-GAAP measure ​ Year Ended December 31, Per share earnings excluding certain items 2023 2022 Diluted earnings per share from continuing operations, as reported ​ $ 3.46 ​ $ 5.35 Add back: ​ ​ ​ ​ ​ ​ Per share impact of non-GAAP adjustments, net of tax ​ 1.42 ​ ​ 1.14 Non-GAAP earnings per share ​ $ 4.88 ​ $ 6.49 ​ Liquidity and Capital Resources Liquidity Adequate liquidity and cash generation is important to the execution of our strategic initiatives.
Provision for Income Taxes (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ ​ 2022 2021 Income from continuing operations, before income taxes ​ $ 241,741 ​ $ 148,711 ​ Provision for income taxes ​ $ 39,850 ​ $ 14,004 ​ Effective tax rate ​ ​ 16.5 % ​ 9.4 % ​ Our effective tax rate increased in 2022 compared to 2021, primarily driven by a change in tax law from the 2017 Tax Cuts and Jobs Act related to the capitalization of R&D expenses, as it impacts the net U.S. tax on foreign operations, that went into effect in January 2022, offset by the benefit of earnings in foreign jurisdictions which are subject to lower tax rates.
Income Tax Provision (Benefit) The following table summarizes tax provision (benefit) (in thousands) and the effective tax rate for our income from continuing operations: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ ​ 2023 2022 Income from continuing operations, before income tax ​ ​ $ 122,461 ​ $ 241,741 ​ Income tax provision (benefit) ​ ​ $ (8,288) ​ $ 39,850 ​ Effective tax rate ​ ​ ​ (6.8) % ​ 16.5 % ​ Our effective tax rates differ from the U.S. federal statutory rate of 21% for 2023 and 2022, primarily due to a valuation allowance release for certain deferred tax assets in 2023 and 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 in 2022.
In addition, they exclude discontinued operations and other non-recurring items such as acquisition-related costs and restructuring expenses, as they are not indicative of future performance.
In addition, we exclude discontinued operations and other non-recurring items such as acquisition-related costs, facility expansion and related costs, restructuring, asset impairments, and other charges, 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.
Information regarding our obligations relating to income taxes, lease obligations, pension liabilities, and debt are provided in Note 5. Income Taxes , Note 16. Leases , Note 17. Employee Retirement Plans and Postretirement Benefits, and Note 21.
Contractual Obligations In the normal course of business, we enter into contracts and commitments that obligate us to make payments in the future. Information regarding our obligations relating to income taxes, lease obligations, pension liabilities, and debt is provided in Note 4. Income Taxes , Note 14. Leases , Note 15. Employee Retirement Plans and Postretirement Benefits, and Note 18.
Intangible Assets in Part II, Item 8 “Financial Statements and Supplementary Data.” Restructuring In the fourth quarter of 2022, management approved a restructuring plan (the “2022 Plan”), which is expected to further improve our operating efficiencies and drive the realization of synergies from our business combinations by consolidating our operations, optimizing our factory footprint including moving certain production into our higher volume factories, and reducing redundancies.
We anticipate the 2023 Plan will be substantially completed by the end of 2024, with the final activities concluding by June 2025. ​ 2022 Plan This plan was approved to further improve our operating efficiencies and drive the realization of synergies from our business combinations by consolidating our operations, optimizing our factory footprint, including moving certain production into our higher volume factories, reducing redundancies, and lowering our cost structure.
The presentation of this additional information should not be considered a substitute for results prepared in accordance with U.S. GAAP. 38 Table of Contents The non-GAAP results presented below exclude the impact of non-cash related charges, such as stock-based compensation and amortization of intangible assets.
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.
Restructuring Costs in Part II, Item 8 “Financial Statements and Supplementary Data.” Other Income (Expense), net Other income (expense), net consists primarily of interest income and expense, foreign exchange gains and losses, gains and losses on sales of fixed assets, and other miscellaneous items. ​ Other income (expense), net was $8.6 million in 2022, as compared to ($3.0) million in the prior year.
Other income (expense), net consists primarily of foreign exchange gains and losses, gains and losses on sales of fixed assets, and other miscellaneous items.
Summary of Operations and Significant Accounting Policies and Estimates in Part II, Item 8 “Financial Statements and Supplementary Data.” ​
To understand the impact of recently issued guidance from the Financial Accounting Standards Board (“FASB”) or other standards setting bodies, whether adopted or to be adopted, please review the information provided in Note 1. Summary of Operations and Significant Accounting Policies and Estimates in Part II, Item 8 “Financial Statements and Supplementary Data.” ​
Acquisitions in Part II, Item 8 “Financial Statements and Supplementary Data.” This acquisition added complementary products to Advanced Energy’s medical power offerings and extends our presence in several advanced industrial markets. The demand environment in each of our markets is impacted by various market trends, customer buying patterns, design wins, macroeconomic and other factors.
End Markets Summary and Trends As further described below, the demand environment in each of our markets is impacted by macroeconomic conditions, various market trends, customer buying patterns, design wins, and other factors.
For additional information on our Credit Facility, see Note 21. Credit Facility in Part II, Item 8 “Financial Statements and Supplementary Data.” Dividends In March 2021, the Board of Directors (the “Board”) declared the first quarterly cash dividend since our inception as a public company.
For more information see Note 18 Long-Term Debt in Part II, Item 8 “Financial Statements and Supplementary Data.” For more information on the interest rate swap that fixes the interest rate for a portion of our Term Loan Facility, see Note 7.
Gross margin percentage remained flat year over year as the benefit of higher volume and favorable mix was offset primarily by higher material costs related to premiums paid to brokers for scarce parts. Premium recoveries, which represent revenue at zero gross margin, impacted gross margins by approximately 140 basis points, compared to approximately 35 basis points in the prior year.
Premium recoveries impacted gross margins by approximately 35 basis points in the current year, compared to approximately 140 basis points in the prior period. Additionally, when including higher material costs not recovered, gross margin was impacted by approximately 70 basis points in the current year, compared to approximately 200 basis points in the prior period.
We believe long-term drivers for demand growth in this market will eventually resume, due to the need to invest in new fab capacity to support growing demand for semiconductor devices in a wide range of applications, the continued transition to next generation processing nodes, increased complexity of advanced processes requiring more complex and innovative power solutions, and the regionalization of some semiconductor capacity.
As mentioned above, we believe the long-term growth drivers for demand in this market will resume, due to the need for more manufacturing capacity to support growing demand for semiconductor devices and the related capital equipment. Industrial and Medical Market We delivered record revenue in the Industrial and Medical market in 2023.
Both the Term Loan Facility and Revolving Facility mature on September 9, 2026. 40 Table of Contents The following table summarizes borrowings under our Credit Facility and the associated interest rate (in thousands, except for interest rates). ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ Balance Interest Rate Unused Line Fee Term Loan Facility subject to a fixed interest rate due to interest rate swap ​ $ 238,219 ​ 1.271% ​ — Term Loan Facility subject to a variable interest rate ​ ​ 136,781 ​ 5.134% ​ — Revolving Facility subject to a variable interest rate ​ ​ — ​ 5.134% ​ 0.10% Total borrowings under the Credit Agreement ​ $ 375,000 ​ ​ ​ ​ ​ As of December 31, 2022, we had $200.0 million in available funding under the Revolving Facility.
The following table summarizes our borrowings (in thousands, except for interest rates). ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ ​ Balance Interest Rate Convertible Notes ​ $ 575,000 ​ 2.50% Term Loan Facility at fixed interest rate due to interest rate swap ​ ​ 220,719 ​ 1.17% Term Loan Facility at variable interest rate ​ ​ 134,281 ​ 6.21% Total borrowings ​ $ 930,000 ​ ​ ​ The interest rate swap contracts expire on September 10, 2024.
Amortization of Intangibles Amortization expense increased $4.1 million to $26.1 million, as compared to $22.1 million in the prior year. The increase was primarily driven by incremental amortization of newly acquired intangible assets from the SL Power acquisition. For additional information, see Note 2. Acquisitions and Note 13.
Amortization of Intangible Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ Change 2023 v. 2022 ​ ​ ​ 2023 2022 Dollar Percent ​ ​ ​ (in thousands) Amortization of intangible assets ​ $ 28,254 ​ $ 26,114 ​ $ 2,140 8.2 % ​ The increase in amortization was primarily driven by incremental amortization of acquired intangible assets from the SL Power acquisition.
Under this method, we recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as for operating loss and tax credit carryforwards.
Income Taxes We follow the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for future tax consequences.
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The following section discusses our results of operations for 2022 and 2021 and year-to-year comparisons between those periods.
Added
The results of operations of SL Power are included in our consolidated results from the acquisition date forward. This acquisition added complementary products to Advanced Energy’s medical power offerings and extends our presence in several advanced industrial markets. See Note 2.
Removed
Discussions of 2020 and year-to-year comparisons between 2021 and 2020 are not included in this Form 10-K and can be found within Part II, Item 7 “Management’s Discussion and Analysis for Financial Condition and Results of Operations” in our Form 10-K for the year ended December 31, 2021.
Added
Acquisitions in Part II, Item 8 “Financial Statements and Supplementary Data.” Business Environment and Trends 2023 Summary Results and Key Activities For the year ended December 31, 2023, our revenue was $1,655.8 million, representing a decline of 10.3% as compared to 2022.
Removed
Our broad portfolio of high and low voltage power products are used in a wide range of applications, such as semiconductor equipment, industrial production, medical and life science equipment, data centers computing, networking, and telecommunications. We also supply related sensing, controls, and instrumentation products primarily for advanced measurement and calibration of power and temperature for multiple industrial markets.
Added
The decline was attributable to lower revenue from our Semiconductor Equipment and Data Center Computing markets, both of which experienced a reduced demand environment starting in the fourth quarter 2022 and continued into 2023.
Removed
Our network of global service support centers provides repair services, calibration, conversions, upgrades, refurbishments, and used equipment to companies using our products. Critical Accounting Estimates The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“U.S.
Added
These declines were partially offset by higher revenues in the Industrial and Medical and Telecom and Networking markets, as improved supply of critical components during 2023 enabled us to fulfill demand and reduce backlog for our products. For more details on the trends in our end markets, see “End Markets Summary and Trends” elsewhere in this Item 7.
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Significant judgment is required in determining our provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws. We record a provision for income taxes for the anticipated tax consequences of the reported results of operations using the asset and liability method.
Added
In 2023, we reported higher operating expenses of $478.7 million, primarily attributable to $27.0 million of charges related to our restructuring initiatives which are focused on optimizing manufacturing, support operations and to a lesser extent a general workforce reduction to align to our revenue levels.
Removed
Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled.
Added
These actions should largely be complete in 2024 and are expected to enable a more efficient and cost-effective operating structure.
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We calculate tax expense consistent with intraperiod tax allocation methodology resulting in an allocation of current year tax expense/benefit between continuing operations and discontinued operations. We record a valuation allowance to reduce our deferred tax assets to the net amount that we believe is more likely than not to be realized.
Added
Although we experienced a challenging demand environment related to our revenue, we achieved $212.9 million cash flow from continuing operating activities as we managed our working capital and core spending levels, resulting in a $25.4 million increase in cash flow from operating activities compared to 2022.
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We recognize tax benefits from uncertain tax positions only if we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position.
Added
On September 12, 2023, we completed a private, unregistered offering of $575.0 million aggregate principal amount 2.50% convertible senior notes (“Convertible Notes”) and received net proceeds of approximately $561.1 million after the discount for the initial purchasers’ fees.
Removed
Although we believe that we have adequately reserved for our uncertain tax positions, we can provide no assurance that the final tax outcome of these matters will not be materially different. We adjust these reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate.
Added
We intend to use the net proceeds to fund future growth, which 30 Table of Contents may include strategic acquisitions, opportunistically repay existing outstanding indebtedness, repurchase our common stock, or general corporate purposes. See Note 18. Long-Term Debt in Part II, Item 8 “ Financial Statements and Supplementary Data ” and Liquidity and Capital Resources below.
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To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and operating results.
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Concurrent with the Convertible Notes issuance, we repurchased 0.4 million shares of common stock for $40.1 million and entered into hedge and warrant contracts with respect to our common stock (see Note 5. Stockholders’ Equity and Earnings Per Share and Note 18. Long-Term Debt in Part II, Item 8 “ Financial Statements and Supplementary Data ”).
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The provision for income taxes includes the effects of any reserves that we believe are appropriate, as well as the related net interest and penalties. For more details see Note 5.
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Entering 2024, although we are experiencing a lower demand environment, we continue to believe that the long-term market growth drivers support our long-term strategy, research and development efforts, and capital investments.
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Income Taxes in Part II, Item 8 “Financial Statements and Supplementary Data.” Inventories Inventories are valued at the lower of cost (using the first-in, first-out method) or net realizable value.
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However, in the short-term it is unclear how the macroeconomic conditions, including higher interest rates impacting end customer’s capital investment and potential macroeconomic weakness, will affect our customer demand and revenue.
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Defined Benefit Pension Plans Accounting for pension plans requires that we make assumptions that involve considerable judgment which are significant inputs in the actuarial models that measure our net pension obligations and ultimately impact our earnings.
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During 2023, these factors continued to impact our revenue, but we were able to partially offset the market weakness by growing revenues in areas such as high voltage and service. Entering 2024, we expect the factors driving the market downturn to continue in the near-term.
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These include the discount rate, long-term expected rate of return on assets, compensation trends, inflation considerations, health care cost trends and other assumptions, as well as determining the fair value of assets in our funded plans.
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The year started with strong demand driven by customer investments in production capacity. In addition, increased supply of critical components allowed us to fulfill the higher level of customer demand and drove the record quarterly revenues in both the first and second quarter of 2023.
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Specifically, the discount rates, as well as the expected rates of return on assets and plan asset fair value determination, are important assumptions used in determining the plans’ funded status and annual net periodic pension and benefit costs. We evaluate these critical assumptions at least annually on a plan and country-specific basis.
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However, in the second half of 2023 we began to see lower demand in this market largely driven by macroeconomic factors, including higher interest rates, which has adversely impacted end customer’s capital investment. Entering 2024, we expect weaker macroeconomics condition to continue to impact our revenue in the near-term.
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We also, with the help of actuaries, periodically evaluate other assumptions involving demographic factors, such as retirement age, mortality, and turnover, and update them to reflect our experience and expectations for the future.
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Data Center Computing Market As compared to revenue levels exiting 2022, in the first half of 2023, we saw reduced revenues in the Data Center Computing market due to slowing demand in the enterprise server and storage market as customers delayed investments.
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We believe the accounting estimates related to our pension plans are critical accounting estimates because they are highly susceptible to change from period to period based on the performance of plan assets, actuarial valuations, market conditions and contracted benefit changes.
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Increased demand for high end computing applications, such as artificial intelligence, from some of our customers led to increased revenue in the second half of 2023. These investments can have disparate cycles, and it is not clear how quickly our enterprise server and storage customers will return to their historical level of investments.
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While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our net pension and postretirement benefit obligations and related expenses. 30 Table of Contents Business Environment and Trends Advanced Energy is organized on a global, functional basis and operates in the single segment for power electronics conversion products.
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Telecom and Networking Market During the period, substantially improved supply of critical components allowed us to largely fulfill outstanding demand from the prior year and drove strong revenue growth in the Telecom and Networking market as compared to 31 Table of Contents 2022.
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During 2022, growth in all four of our markets was strong driven by investment in new technology, capacity, and macroeconomic recovery. However, we were limited in our ability to fulfill this demand due to supply chain shortages for critical integrated circuits, resulting in longer lead times for our products.
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However, leading companies in this market have reported end user weakness, and we expect and plan for a slower demand environment in 2024.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+3 added−6 removed4 unchanged
Biggest changeWith respect to the portion of our Credit Facility that is subject a variable interest rate, a hypothetical increase of 100 basis points (1%) in interest rates would have a $1.4 million annual impact on our interest expense. A change in interest rates does not have a material impact upon our future earnings and cash flow for fixed rate debt.
Biggest changeDerivative Financial Instruments in Part II, Item 8 “Financial Statements and Supplementary Data.” As of December 31, 2023 with respect to the borrowed portion of our Credit Facility that is subject to a variable interest rate, a hypothetical increase of 100 basis points (1%) in interest rates would have an insignificant impact on our interest expense.
Foreign Currency Exchange Rate Risk We are impacted by changes in foreign currency exchange rates through sales and purchasing transactions when we sell products and purchase materials in currencies different from the currency in which product and manufacturing costs were incurred.
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.
Credit Facility in Part II, Item 8 “Financial Statements and Supplementary Data.” For more information on the interest rate swap that fixes the interest rate for a portion of our Term Loan Facility, see Note 8.
Long-Term Debt in Part II, Item 8 “Financial Statements and Supplementary Data.” For more information on the interest rate swap that fixes the interest rate for a portion of our Term Loan Facility, see Note 7.
Changes in exchange rates therefore may have a material impact on their valuation in USD and may impact our view of their attractiveness. ​ From time to time, we may enter into foreign currency exchange rate contracts to hedge against changes in foreign currency exchange rates on assets and liabilities expected to be settled at a future date, including foreign currency, which may be required for a potential foreign acquisition.
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.
However, increases in interest rates could impact our ability to refinance existing maturities and acquire additional debt on favorable terms. ​ 44 Table of Contents
A change in interest rates does not have a material impact upon our future earnings and cash flow for fixed rate debt. However, increases in interest rates could impact our ability to refinance existing maturities and acquire additional debt on favorable terms. ​ 43 Table of Contents
The functional currencies of our worldwide facilities primarily include the United States Dollar (USD), Euro, South Korean Won, New Taiwan Dollar, Japanese Yen, Pound Sterling, Chinese Yuan, and Mexican Peso.
Although these translation changes have no immediate cash impact, the translation changes may impact future borrowing capacity, and overall value of our net assets. 42 Table of Contents 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.
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.
Operating results and cash flow statements are translated at average rates of exchange during each reporting period.
Derivative Financial Instruments in Part II, Item 8 “Financial Statements and Supplementary Data.” The Term Loan Facility and Revolving Facility bear interest, at our option, at a rate based on a reserve adjusted “Eurodollar Rate” or “Base Rate,” as defined in the Credit Agreement, plus an applicable margin. Our interest payments are impacted by interest rate fluctuations.
The Term Loan Facility and Revolving Credit Facility bear interest, at our option, at a rate based on the Base Rate or SOFR, as defined in the Credit Agreement, plus an applicable margin. The interest rate swap contracts expire on September 10, 2024.
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Our purchasing and sales activities are primarily denominated in the USD, Japanese Yen, Euro, and Chinese Yuan. 43 Table of Contents Currency exchange rates vary daily and often one currency strengthens against the USD while another currency weakens.
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We are subject to risks associated with revenue and purchasing activities and costs to operate that are denominated in currencies other than our functional currencies such as the Singapore Dollar, Malaysian Ringgit, Mexican Peso and Philippine Peso. The impact of a change in one or more of these particular exchange rates would be immaterial.
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Because of the complex interrelationship of the worldwide supply chains and distribution channels, it is difficult to quantify the impact of a change in one or more particular exchange rates. As currencies fluctuate against each other we are exposed to foreign currency exchange rate risk on sales, purchasing transactions, and labor.
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Interest Rate Risk Our interest rate risk exposure relates primarily on our variable rate Term Loan Facility. As of December 31, 2023 we have interest rate swap agreements in effect that fix the interest rate for $220.7 million at 1.17% of our Term Loan Facility, while $134.3 million of the Term Loan Facility remains floating at 6.21%.
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Exchange rate fluctuations could require us to increase prices to foreign customers, which could result in lower net sales. Alternatively, if we do not adjust the prices for our products in response to unfavorable currency fluctuations, our results of operations could be adversely impacted. Changes in the relative buying power of our customers may impact sales volumes.
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After that date, the entire balance of our Term Loan Facility will be subject to a variable interest rate. In addition, should we have future borrowings under our Revolving Facility, those borrowings would be subject to a variable rate. For more information see Note 18.
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Acquisitions are a large component of our capital deployment strategy. A significant number of acquisition target opportunities are located outside the U.S., and their value may be denominated in foreign currency.
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Interest Rate Risk Our market risk exposure relates primarily to changes in interest rates on our Credit Facility.
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The following table summarizes borrowings (in thousands) under our Credit Facility and the associated interest rate. ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ Balance Interest Rate Unused Line Fee Term Loan Facility subject to a fixed interest rate ​ $ 238,219 ​ 1.271% ​ — Term Loan Facility subject to a variable interest rate ​ ​ 136,781 ​ 5.134% ​ — Revolving Facility subject to a variable interest rate ​ ​ — ​ 5.134% ​ 0.10% Total borrowings under the Credit Agreement ​ $ 375,000 ​ ​ ​ ​ ​ For more information on the Term Loan Facility see Note 21.

Other AEIS 10-K year-over-year comparisons