2022
ANNUAL
REPORT
Dear Stockholders:
A Message from Our CEO
2022 was one of the best years in Advanced Energy’s history, highlighted by record financial performance and
improvements across many areas of the company. Demand for Advanced Energy’s industry-leading power conversion
and control solutions grew meaningfully from the previous year. While electronic component availability remained a
significant challenge, our engineering, supply chain and operations teams executed extremely well to deliver strong
revenue and earnings growth for the year. We believe we substantially outperformed our markets in 2022 by
delivering record revenues in three of our four markets and increasing sales to each market by more than 20% year-
over-year. As a result, 2022 revenue surpassed the 3-year financial target we set in December 2019 with a compound
annual growth rate of greater than 30%.
We made significant progress across our strategic initiatives during the year. New product and technology
development is foundational to our long-term success. Our investments and execution enabled us to double the number
of new products launched in 2022, and we expect to further accelerate the number of product launches in 2023.
Following the acquisition and rapid integration of SL Power, a leading supplier of medical and industrial power
solutions, we created a dedicated medical product team to deliver our broad set of technologies to our customers and
increased our share position in the medical power market. Lastly, we invested in operational improvement and capacity
projects across our factory network, which directly contributed to our strong financial results.
Looking forward, we are very excited about the future of Advanced Energy. Despite a cyclical downturn for the
semiconductor equipment industry in 2023, we believe our diversification and balanced market exposure will enable
us to perform substantially better than in prior cycles. With our solid development pipeline, we will continue to
introduce more innovative technologies and differentiated products to address our customers’ most challenging power
conversion requirements. Our customer engagement continues to increase with our targeted strategies, and we believe
we will continue to gain share across our markets for precision power applications. With a focus on long-term
shareholder value creation, we believe we are positioned to emerge from this market cycle stronger and continue to
drive earnings growth over time.
On behalf of our employees and the Board of Directors, we thank you for your continued support.
Best Regards,
Stephen D. Kelley
President and Chief Executive Officer
March 13, 2023
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number: 000-26966
ADVANCED ENERGY INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
1595 Wynkoop Street, Suite 800, Denver, Colorado
(Address of principal executive offices)
84-0846841
(I.R.S. Employer Identification No.)
80202
(Zip Code)
Registrant’s telephone number, including area code: (970) 407-6626
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.001 par value
Trading Symbol(s)
AEIS
Name of each exchange on which registered
NASDAQ Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act: Yes ☐ No
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of
the Exchange Act.
Large accelerated filer
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to section 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant was $2,706,820,026 as of June 30, 2022, based upon the
price at which such common stock was last sold on such date.
As of February 10, 2023, there were 37,468,514 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this annual report on Form 10-K incorporates information by reference from the registrant’s definitive proxy statement for its 2023 annual meeting of
stockholders (to be filed with the Commission under Regulation 14A no later than 120 days after the end of the registrant’s fiscal year ended December 31, 2022).
ADVANCED ENERGY INDUSTRIES, INC.
FORM 10-K
TABLE OF CONTENTS
ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
PART I
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
ITEM 6. RESERVED
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
PART III
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 16. FORM 10-K SUMMARY
SIGNATURES
PART IV
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Special Note Regarding Forward-Looking Statements
This annual report on Form 10-K contains, in addition to historical information, forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Statements in this report that are not historical information are forward-looking
statements. For example, statements relating to our beliefs, expectations and plans are forward-looking statements, as are
statements that certain actions, conditions, or circumstances will continue. The inclusion of words such as “anticipate,”
“expect,” “estimate,” “can,” “may,” “might,” “continue,” “enable,” “plan,” “intend,” “should,” “could,” “would,”
“likely,” “potential,” or “believe,” as well as statements that events or circumstances “will” occur or continue, indicate
forward-looking statements. Forward-looking statements involve risks and uncertainties, which are difficult to predict
and many of which are beyond our control.
Risks and uncertainties to which our forward-looking statements are subject include:
• macroeconomic risks, including supply chain cost increases and other inflationary pressures, recession,
changes in financial markets, economic volatility and cyclicality, higher interest rates, labor shortages,
foreign currency fluctuations, and pricing controls;
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political and geographical risks, including trade and export controls, war, terrorism, international disputes
and geopolitical tensions, natural disasters, public health issues, and industrial accidents;
sufficiency and availability of components and materials;
our level of and ability to manage backlog orders;
our ability to develop new products expeditiously and be successful in the design win process with our
customers;
the ability to stay on the leading edge of innovation, and obtain and defend necessary intellectual property
protections;
the ability to protect our trade secrets and confidential information from misappropriation or infringement;
our future sales;
our future profitability;
our competition;
• market acceptance of, and demand for, our products;
•
•
•
•
•
the fair value of our assets and financial instruments;
research and development expenses;
selling, general, and administrative expenses;
sufficiency and availability of capital resources;
ability to obtain equity or debt financing on favorable terms;
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capital expenditures;
our production and operations strategy;
our share repurchase program;
our tax assets and liabilities;
our other commitments and contingent liabilities;
adequacy of our reserve for excess and obsolete inventory;
adequacy of our warranty reserves;
adequacy of reserves for bad debt, sales returns, and other reserves or impairments;
our estimates of the fair value of assets acquired;
restructuring activities and expenses;
unanticipated costs in fulfilling our warranty obligations for solar inverters;
the integration of our acquisitions;
industry and market trends;
our acquisition, divestiture, and joint venture activities; and
cost fluctuations and pressures, including prices of components, commodities and raw materials, and costs
of labor, transportation, energy, pension, and healthcare.
Actual results could differ materially and adversely from those expressed in any forward-looking statements.
Neither we nor any other person assumes responsibility for the accuracy and completeness of such forward-looking
statements and readers are cautioned not to place undue reliance on forward-looking statements. Factors that could
contribute to these differences or prove our forward-looking statements, by hindsight, to be overly optimistic or
unachievable include the factors described in Part I, Item 1A “Risk Factors.” Other factors might also contribute to the
differences between our forward-looking statements and our actual results. We assume no obligation to update any
forward-looking statement or provide the reasons why our actual results might differ.
Market and Industry Data
The market and industry data used in this annual report on Form 10-K are based on independent industry
publications, customers, trade or business organizations, reports by market research firms and other published statistical
information from third parties, as well as information based on management’s good faith estimates, which we derive
from our review of internal information and independent sources. Although we believe these sources to be reliable, we
have not independently verified the accuracy or completeness of the information.
PART I
Unless the context otherwise requires, as used in this Form 10-K, references to “Advanced Energy,” “the
Company,” “we,” “us” or “our” refer to Advanced Energy Industries, Inc. and its consolidated subsidiaries.
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ITEM 1. BUSINESS
Overview
Advanced Energy provides highly engineered, mission-critical, precision power conversion, measurement, and
control solutions to our global customers. We design, manufacture, sell and support precision power products that
transform, refine, and modify the raw electrical power coming from either the utility or the building facility and convert
it into various types of highly controllable, usable power that is predictable, repeatable, and customizable to meet the
necessary requirements for powering a wide range of complex equipment. Many of our products enable customers to
reduce or optimize their energy consumption through increased power conversion efficiency, power density, power
coupling, and process control across a wide range of applications.
Our plasma power solutions enable innovation in complex semiconductor and thin film plasma processes such
as dry etch and deposition. Our broad portfolio of high and low voltage power products are used in a wide range of
applications, such as semiconductor equipment, industrial production, medical and life science equipment, data centers
computing, networking, and telecommunications. We also supply related sensing, controls, and instrumentation products
primarily for advanced measurement and calibration of power and temperature for multiple industrial markets. Our
network of global service support centers provides repair services, calibration, conversions, upgrades, refurbishments,
and used equipment to companies using our products.
Advanced Energy is organized on a global, functional basis and operates in the single segment for power
electronics conversion products. Within this segment, our products are sold into the Semiconductor Equipment,
Industrial and Medical, Data Center Computing, and Telecom and Networking markets.
We incorporated in Colorado in 1981 and reincorporated in Delaware in 1995. Our executive offices are located
at 1595 Wynkoop Street, Suite 800, Denver, Colorado 80202, and our telephone number is 970-407-6555.
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.
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. 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. We also provide repair and maintenance services for our products.
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.
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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. 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. 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. 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.
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.
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. 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. 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. 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.
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.
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. 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.
Markets
Our products compete in markets for high tech applications using capital equipment. 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
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customers’ products, inventory levels relative to demand, and access to affordable capital. 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. 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. 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. 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. 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. 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. 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. 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. 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.
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. 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. 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. Examples of products sold into the Industrial
and Medical market include high voltage and low voltage power supplies used in applications such as medical devices,
scientific instrumentation and industrial equipment, power control modules and thermal instrumentation products for
material fabrication, production process control and many precision industrial sensing applications. 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.
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. 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. In
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addition, the data center industry has begun transitioning from 12 Volt to 48 Volt infrastructure in data center server
racks to improve overall power efficiency. Advanced Energy benefits from these trends by being an industry leader in
providing high-efficiency 48 Volt server power solutions to the data center industry. 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. 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.
TELECOM AND NETWORKING MARKET
Our customers in the Telecom and Networking market include many leading vendors of wireless infrastructure
equipment, telecommunication equipment and computer networking. The wireless telecom market continues to evolve
with more advanced mobile standards. 5G wireless technology promises to drive substantial growth opportunities for the
telecom industry as it enables new advanced applications such as autonomous vehicles and virtual/augmented reality.
Telecom service providers 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. 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. During the years
ended December 31, 2022 and 2021, our ten largest customers, in the aggregate, accounted for over half of our total
revenue.
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.
We expect that the sale of products to our largest customers will continue to account for a significant percentage
of our sales for the foreseeable future. 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. 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. 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. Commerce Department related to the
export of semiconductor equipment for advanced computing chips that have had a negative impact on our semiconductor
distribution channels.
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Refer to Note 3. 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.
In addition, we perform limited specialty manufacturing for some of our products in the U.S., Mexico, United Kingdom,
and Europe. See Part I, Item 1A, “Risk Factors” for a discussion of certain risks related to our manufacturing operations.
Manufacturing requires raw materials, including a wide variety of mechanical and electrical components, to be
manufactured to our specifications. 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. Global
supply chain constraints have impacted the availability of materials, parts, and subcomponents needed for production. In
some cases, we paid premiums or expedite fees to obtain critical parts to meet urgent customer needs. In some of those
instances, we passed the additional costs along to our customers. We expect the related supply chain challenges will
continue into 2023. However, we seek to reduce costs, lower the risks of production and service interruptions, and
mitigate key parts shortages by:
•
selecting and qualifying alternate suppliers where practical for key parts using rigorous technical and
commercial evaluation of suppliers’ products and business processes including testing their components’
performance, quality, and reliability on our power conversion products used in our customers’ and their
customers’ processes. The qualification process for our process power products, particularly as it pertains
to semiconductor customers, follows semiconductor industry standard practices, such as “copy exact;”
• monitoring the financial condition and overall performance of key suppliers from stable geographies;
•
procuring alternate parts from commercial, widely available nodes and processes;
• maintaining appropriate inventories of key parts, including making last time purchases of key parts when
notified by suppliers that they are ending the supply of those parts;
•
•
qualifying new parts where possible and in geographies that reduce costs without degradation in quality;
and
locating certain manufacturing operations in areas that are closer to suppliers and customers.
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. A substantial majority of our patents are related to our
process power products and solutions business. Generally, our efforts to obtain international patents have been
concentrated in the industrialized countries within Europe and Asia because there are other manufacturers and
developers of power conversion and control systems in those countries, as well as customers for those systems for which
our intellectual property applies. In addition to patents, we possess other intellectual property, including trademarks,
know-how, trade secrets, and copyrights. We leverage our proprietary technology and trade secrets to deliver on our
strategy of selling differentiated products for our most important customer solutions. During 2022 we strengthened our
trade secret and confidential information protection measures including by disabling USB drives on company-issued
laptops, increasing the frequency of internal data loss protection searches, and we brought lawsuits against two former
employees who misappropriated confidential data.
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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. 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.
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. Competitors in each of our market verticals include, but
are not limited to, the following:
Semiconductor Equipment
COMET Holding AG.
Industrial and Medical
Data Center Computing
Telecom and Networking
Cosel Co., Ltd.
Acbel Polytech Inc.
ABB Ltd.
Daihen Corp.
Delta Electronics, Inc.
Delta Electronics, Inc.
Delta Electronics, Inc.
MKS Instruments, Inc.
MEAN WELL Enterprises
Flex Ltd.
Lite-On Technology Corp.
TRUMPF Hüttinger GmbH
+ Co. KG
TDK-Lambda
Americas Inc.
Lite-On Technology Corp.
TRUMPF Hüttinger GmbH
+ Co. KG
XP Power Ltd.
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. We believe that continued development of technological applications, as well as enhancements to
existing products and related software to support customer requirements, are critical for us to compete in the markets we
serve. Accordingly, we devote significant personnel and financial resources to the development of new products and the
enhancement of existing products, and we expect these investments to continue.
The following table summarizes research and development expenses and the percentage of these expenses as
compared to total sales (in thousands):
Research and Development Expenses
% of Sales
Human Capital
$ 191,020 $ 161,831
11.1%
10.4%
Years Ended December 31,
2021
2022
2020
$ 143,961
10.2%
Our people are our strength and AE is committed to a core set of values: innovation, integrity, empowerment,
partnership, accountability, and execution. 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. Our employees are not represented by unions, except for statutory organization rights applicable to
our employees in China, Germany, and Mexico.
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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. 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 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.
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.
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. Over 85% of employees participated in the 2022 survey, and we achieved higher scores across most
dimensions compared to the 2020 survey with high employee engagement reported by over 85% of our employees.
Results of the survey were shared with our employees, our executive team, and our Board of Directors, to help us make
further improvements in 2023.
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.
Learning and Development
We seek to create growth and development opportunities to support our employees in reaching their full
potential and offer internal and external learning and development opportunities. In 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. 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. Our Educational Scholarship Program, available to
children of Advanced Energy employees, celebrates education accomplishments and supports them in pursuing their
career and learning goals.
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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. We
believe we are in material compliance with all such laws and regulations.
Available Information
Our website address is www.advancedenergy.com. We make available, free of charge on our website, our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these
reports as soon as reasonably practicable after filing such reports with, or furnishing them to, the Securities and
Exchange Commission (“SEC”). Such reports are also available at www.sec.gov. 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.
ITEM 1A. RISK FACTORS
Our business, financial condition, operating results, and cash flows can be impacted by a number of factors,
including, but not limited to, those set forth below, any of which could cause our results to be adversely impacted and
could result in a decline in the value or loss of an investment in our common stock. Other factors may also exist that we
cannot anticipate or that we currently do not consider to be material based on information that is currently available.
These risks and uncertainties have the potential to materially affect our business, financial condition, results of
operations, cash flows and future results. Such risks and uncertainties may also impact the accuracy of forward-looking
statements included in this 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.
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. 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. 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.
To meet rapidly changing demand in each of the industries we serve, we must effectively manage our resources
and production capacity. During periods of decreasing demand for our products, we must be able to appropriately align
our cost structure with prevailing market conditions, effectively manage our supply chain, and motivate and retain key
employees. During periods of increasing demand, we must have enough manufacturing capacity and inventory to fulfill
customer orders, effectively manage our supply chain, and attract, retain, and motivate enough qualified individuals. If
we are not able to timely and appropriately adapt to changes in our business environment or to accurately assess where
we are positioned within a business cycle, our business, financial condition, or results of operations may be materially
and adversely affected.
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. New products
designed for capital equipment manufacturers typically have a lifespan of many years. Increasingly, we are required to
accelerate our investment in research and development to meet the time-to-market, performance and technology
adoption cycle needs of our customers simply to compete for design wins. Given such up-front investments we make to
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develop, evaluate, and qualify products in the design win process, our success and future growth depend on our products
being designed into our customers’ new generations of equipment as they develop new technologies and applications.
We must work with these manufacturers early in their design cycles to modify, enhance and upgrade our products or
design new products that meet the requirements of their new systems. The design win process is highly competitive, 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. 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.
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. 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.
Our sales are primarily made on a purchase order basis, and we generally have no long-term purchase
commitments from our customers, which is typical in the industries we serve. As a result, we are limited in our ability to
predict the level of future sales or commitments from our current customers, which may diminish our ability to allocate
labor, materials, and equipment in the manufacturing process effectively. In addition, we may purchase inventory in
anticipation of sales that do not materialize, resulting in excess and obsolete inventory write-offs. 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. In addition, to assure availability of certain components or to obtain priority pricing, we have
entered into contracts with some of our suppliers that require us to purchase a specified number of components and
subassemblies each quarter, even if we are not able to use such components or subassemblies. Moreover, we have
obligations to some of our customers to hold a minimum amount of finished goods in inventory, to fulfill just in time
orders, regardless of whether the customers expect to place such orders. We currently have firm purchase commitments
and agreements with various suppliers to ensure the availability of components. If demand for our products exceeds our
customers’ and our forecasts, we may not be able to timely obtain enough raw materials, parts, components, or
subassemblies, on favorable terms or at all, to fulfill the excess demand. 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.
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. These supply constraints led to longer lead times in
procuring materials and subcomponents and, in some cases, meaningfully higher costs for the subcomponents. It is not
clear how long global supply constraint conditions will continue, how quickly the supply chain will recover, the extent to
which our mitigating actions will be successful, or to what extent we can recover our higher costs. As such, our forward-
looking projections of revenues, earnings, and cash flow may be adversely impacted if any of these situations continue
for longer than we expect or further deteriorate.
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COVID-19 could continue to affect our business, workforce, supply chain, results of operations, financial condition
and/or cash flows.
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.
COVID-19 continues to impact the global supply chain causing disruptions such as higher input costs through
material premiums, expedite fees, price increases, and higher logistic costs. The pandemic has also resulted in economic
volatility in many countries, which could adversely impact future customer purchases of our products. The COVID-19
situation continues to evolve and to the extent that it adversely affects our business, financial condition, operating
results, and cash flows, it may also have the effect of heightening many of the other risks described in this “Risk
Factors” section. Other impacts may arise that we are not aware of currently.
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. 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.
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. 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 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. Unauthorized access to our data or inability to access our data (e.g. through
ransomware or denial of service), including any regarding our technology or customers, could expose us to a risk of loss
of this information, loss of business, litigation, and possible liability. These security measures may be breached by
intentional misconduct by computer hackers, employee error, employee malfeasance, or otherwise. Additionally, third
parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as
usernames, passwords, or other information to gain access to our customers’ data or our data, including our intellectual
property and other confidential business information, or our information technology systems. Because the techniques
used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until
launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative
measures. Any security breach or theft of any kind of confidential information including trade secrets could result in a
loss of confidence by our customers, damage our reputation, disrupt our business, lead to legal liability, and adversely
impact our future sales.
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Business Risks
We continue to evolve our manufacturing footprint and where our product lines are manufactured.
Our manufacturing facilities are located globally, and the majority of our products are manufactured in a select
few key facilities. Most facilities are under operating leases and interruptions in operations could be caused by early
termination of existing leases by landlords or failure by landlords to renew existing leases upon expiration, including the
possibility that suitable operating locations may not be available in proximity to existing facilities, which could result in
labor or supply chain risks. 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. 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.
Our business strategy for many of our product lines has been focused on product performance and technology
innovation to provide enhanced efficiencies and productivity. Our customers continually exert pressure on us to reduce
our prices and extend payment terms and we may be required to enter into long term reduced pricing agreements,
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. We
believe some of our Asia-based competitors benefit from local governmental funding incentives and purchasing
preferences from end-user customers in their respective countries. If competition against any of our product lines should
come to focus solely on price rather than on product performance and technology innovation, we would need to adjust
our business strategy, product offerings and product costs accordingly, and if we are unable to do so, our business,
financial condition, and results of operations could be materially and adversely affected. 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.
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. At December 31 2022, one customer
accounted for over 10% of our total accounts receivable.
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.
Our success depends to a significant degree upon the continuing contributions of our management, technical,
marketing, and sales employees. We may not be successful in retaining our employees or attracting and retaining
additional skilled personnel as required. If we are unable to attract, retain and motivate qualified employees and leaders,
we may be unable to fully capitalize on current and new market opportunities, which could adversely impact our
business and results of operations. Our success in hiring and retaining employees depends on a variety of factors,
including the attractiveness of our compensation and benefit programs, global economic or political and industry
conditions, our organizational structure, our reputation, culture and working environment, competition for talent and the
availability of qualified employees, the readiness for and availability of career development opportunities, and our ability
to offer a challenging and rewarding work environment. We have experienced, and may continue to experience,
increasing costs to attract and retain needed talent, driven by macro-economic conditions and a highly competitive labor
market. We must develop succession plans capable of maintaining continuity during the inevitable unpredictability of
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employee retention. If our succession plans do not operate effectively, our business could be adversely affected. In
addition, the loss or retirement of key employees presents particular challenges to the extent it involves the departure of
employees with particularly valuable knowledge or experiences. 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.
The market price of our common stock has fluctuated and may continue to fluctuate for reasons over which we have
no control.
The stock market has from time to time experienced, and is likely to continue to experience, extreme price and
volume fluctuations. Prices of securities of technology companies are especially volatile and have often fluctuated for
reasons that are unrelated to their operating performance. In the past, companies that have experienced volatility in the
market price of their stock have been the subject of securities class action litigation. If we were the subject of securities
class action litigation, it could result in substantial costs and a diversion of management’s attention and resources.
We may not pay dividends on our common stock.
Holders of our common stock are only entitled to receive dividends when and if they are declared by our Board
of Directors. 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.
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.
Our annual and quarterly results may vary significantly depending on various factors, many of which are
beyond our control. Because our operating expenses are based on anticipated revenue levels, our sales cycle for
development work is relatively long, and a high percentage of our expenses are fixed for the short term, a small variation
in the timing of recognition of revenue can cause significant variations in operating results from period to period. If our
earnings do not meet the expectations of securities analysts or investors, the price of our stock could decline.
Our long-term success and results of operations depend on our ability to successfully 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. Risks 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
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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.
•
•
•
•
•
•
During the year ended December 31, 2022, we acquired SL Power, and we are continuing to integrate SL
Power with our business. Integrating SL Power’s operations with ours requires significant management attention, effort,
and expenditures, and we may not be able to achieve the longer-term integration or other business goals in an effective,
complete, timely or cost-efficient manner.
Commercial and Financial Related Risks
We are subject to risks inherent in international operations.
Given the global nature of our business, we have both domestic and international concentrations of cash and
investments. The value of our cash, cash equivalents, and marketable securities can be adversely affected by liquidity,
credit deterioration, inflation, foreign currency exchange rate fluctuations, financial results, economic risk, political risk,
sovereign risk, or other factors.
Sales to customers outside the United States represented 61% of our total revenue during the year ended
December 31, 2022. Refer to Note 3. Revenue in Part II, Item 8 “Financial Statements and Supplementary Data” for
additional information regarding our revenue by geographic area
We are a global organization with an expanding presence in international locations.
Our success producing goods internationally and competing in international markets is subject to our ability to
manage various risks and difficulties, including, but not limited to:
•
•
•
•
•
•
•
•
our ability to effectively manage our employees at remote locations who are operating in different business
environments from the United States;
our ability to develop and maintain relationships with suppliers and other local businesses;
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;
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•
•
•
•
•
•
•
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.
Our debt obligations could make us more vulnerable to general adverse economic and industry conditions and
could limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate,
thereby placing us at a disadvantage to our competitors that have less debt. We may enter into additional debt obligations
at any time.
Our debt obligations impose financial covenants on us and our subsidiaries that require us to maintain a certain
leverage ratio. The financial covenants place certain restrictions on our business that may affect our ability to execute
our business strategy successfully or take other actions that we believe would be in the best interests of our Company.
These include limitations or restrictions, among other things, on our ability and the ability of our subsidiaries to:
•
•
incur additional indebtedness;
pay dividends or make distributions on our capital stock or certain other restricted payments or
investments;
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.
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. Our assets and cash flow may not be sufficient to fully repay borrowings under our outstanding debt
instruments if accelerated upon an event of default. If we are unable to repay, refinance, or restructure our indebtedness
as required, or amend the covenants contained in these agreements, the lenders can exercise all rights and remedies
available under our debt obligations or applicable laws or equity. There can be no assurance that we will have sufficient
financial resources or be able to arrange financing to repay any borrowings at such time.
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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, or fiscal or monetary concerns, could
materially adversely impact our operating results. 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. 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. These conditions may similarly affect our key suppliers, which could
affect their ability to deliver parts and result in delays for our products. Further, these conditions and uncertainty about
future economic conditions including inflation, interest rates, the transition away from the London Interbank Offered
Rate and transition to the Secured Overnight Financing Rate, availability of capital markets, consumer spending rates,
energy availability and costs and the effects of government initiatives to manage economic conditions could make it
challenging for us to forecast our operating results and evaluate the risks that may affect our business, financial
condition, and results of operations.
Our legacy inverter products may suffer higher than anticipated litigation, damage, or warranty claims.
Our legacy inverter products (of which we discontinued the manufacture, engineering, and sale in
December 2015 and which are reflected as discontinued operations in this filing) contain components that may contain
errors or defects and were sold with original product warranties ranging from one to ten years with an option to purchase
additional warranty coverage for up to 20 years. If any of our products are defective or fail because of their design, we
might be required to repair, redesign, or recall those products or to pay damages (including liquidated damages) or
warranty claims, and we could suffer significant harm to our reputation. We are experiencing claims from customers and
suppliers and 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. Our involvement in such litigation could
result in significant expense to us and divert the efforts of our technical and management personnel. We also accrue a
warranty reserve for estimated costs to provide warranty services including the cost of technical support, product repairs,
and product replacement for units that cannot be repaired. Our estimate of costs to fulfill our warranty obligations is
based on historical experience and expectation of future conditions. To the extent we experience increased warranty
claim activity or increased costs associated with servicing those claims, our warranty accrual will increase, resulting in
additional expenses in the line “Income (loss) from discontinued operations, net of income taxes” on our Consolidated
Statement of Operations in future periods. We plan to continue supporting inverter customers with service maintenance
and repair operations. This includes performing service to fulfill obligations under existing service maintenance
contracts. There is no certainty that these can be performed profitably, and 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.
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. Further, the manufacture of these products
often involves a highly complex and precise process and the utilization of specially qualified components that conform
to stringent specifications. Many of our products also require highly skilled labor. 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. 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. We accrue a warranty reserve for estimated costs to provide warranty services,
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including the cost of technical support, product repairs, and product replacement for units that cannot be repaired. Our
estimate of costs to fulfill our warranty obligations is based on historical experience and expectation of future conditions.
To the extent we experience increased warranty claim activity or increased costs associated with servicing those claims,
our warranty accrual will increase, resulting in decreased gross profit.
Unfavorable currency exchange rate fluctuations may lead to lower operating margins, or may cause us to raise
prices, which could result in reduced sales.
Currency exchange rate fluctuations could have an adverse effect on our sales and results of operations, and we
could experience losses with respect to forward exchange contracts into which we may enter. Unfavorable currency
fluctuations could require us to increase prices to foreign customers, which could result in lower net sales by us to such
customers. Alternatively, if we do not adjust the prices for our products in response to unfavorable currency fluctuations,
our results of operations could be materially and adversely affected. In addition, we have large, long-term liabilities,
such as local lease and pension liabilities in Asia and Europe creating more significant exposure to fluctuations in the
value of the Philippine Peso, Chinese Yuan, British Pound, Euro, Hong Kong Dollar, and New Taiwan Dollar. We do
not attempt to hedge these exposures given the long-term nature of the underlying liabilities and the non-cash nature of
the foreign exchange gain or loss.
The Chinese government is continually pressured by its trading partners to allow its currency to float in a
manner like other major currencies. Any change in the value of the Chinese Yuan could significantly increase the labor
and other costs incurred in the operation of our 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.
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.
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. The U.S. and
China regularly have significant disagreements over geopolitical, trade and economic issues. Any escalating political
controversies between the U.S. and China, whether or not directly related to our business, could have a material adverse
effect on our operations, business, results of operations, and financial condition. We continuously evaluate the risk of
operations in China, including manufacturing and supply chain, and the potential financial impact to our operations
Return on investments or interest rate declines on plan investments could result in additional unfunded pension
obligations for our pension plan.
We currently have unfunded obligations to our pension plans. The extent of future contributions to the pension
plan depends heavily on market factors such as the discount rate used to calculate our future obligations and the actual
return on plan assets which enable future payments. We estimate future contributions to the plan using assumptions with
respect to these and other items. Changes to those assumptions could have a significant effect on future contributions.
Additionally, a material deterioration in the funded status of the plan could increase pension expenses and reduce our
profitability. See Note 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.
We periodically review the carrying value of our goodwill and the estimated useful lives of our intangible
assets, taking into consideration any events or circumstances that might result in either a diminished fair value, or for
intangible assets, a revised useful life. The events and circumstances include significant changes in the business climate,
legal factors, operating performance indicators, and competition. Any impairment or revised useful life could have a
20
material and adverse effect on our financial position and results of operations and could harm the trading price of our
common stock.
Regulatory, Legal, Tax, and Compliance Related Risks
Significant developments stemming from recent U.S. government actions with respect to trade policies and export
regulations, including export license requirements, tariffs, and trade sanctions have adversely impacted and could
further adversely impact our business.
U.S. government actions are imposing greater restrictions and economic disincentives on international trade.
Recently, the government has amended and expanded export regulations regarding sales to companies on the U.S. Entity
List preventing sales of U.S. foreign direct product, and in October 2022, placed unilateral export controls on the export,
reexport, and transfer of technology sold in China for certain advanced computing and semiconductor manufacturing
equipment and related parts and services. The implementation and interpretation of these rules is ongoing and evolving
and creates challenges in managing our operations and international sales and increases our exposure to foreign
competitors. The U.S. government may promulgate additional export controls or license requirements that will further
limit our ability to sell products and services to non-U.S. customers, including China. Additionally, the U.S. Department
of Defense continues to issue lists of companies it has determined to be owned or controlled by China’s People’s
Liberation Army on which sanctions could be levied by executive order, and the Department of Commerce continues to
expand the list of designated military end users from China and Russia for whom export licenses are now required. In
addition, the US Government has previously initiated the imposition of additional tariffs on certain foreign goods,
including steel and aluminum, semiconductor manufacturing equipment and spare parts thereof and has also announced
the imposition of import license requirements on aluminum articles.
China has passed numerous regulations, including the Export Control Law of the People’s Republic of China,
effective December 1, 2020, the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation
and Other Measures promulgated on January 9, 2021, and the Anti-Foreign Sanctions Law of the People’s Republic of
China, released on July 24, 2021. These laws provide China with the framework to ban exports to specific foreign
entities on its Control List, block application of foreign laws, impose its own sanctions on entities and countries and
provides a counterweight to the U.S. government’s restrictions through provisions for retaliatory action and
extraterritorial jurisdiction. The potential imposition of retaliatory measures could adversely impact demand for our
products, prohibit our ability to sell products or purchase necessary components, and could adversely affect our business.
Changes in U.S. trade policy could result in one or more U.S. trading partners adopting responsive trade policy
making it more difficult or costly for us to export our products to those countries. As indicated above, these measures
could also result in increased costs for goods imported into the U.S. This in turn could require us to increase prices to our
customers which may reduce demand, or, if we are unable to increase prices, result in lowering our margin on goods and
services sold. To the extent that trade tariffs and other restrictions imposed by the U.S. increase the price of
semiconductor equipment and related parts imported into the U.S., the cost of our materials may be adversely affected
and the demand from customers for products and services may be diminished, which could adversely affect our revenues
and profitability.
The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action
related to tariffs, trade sanctions, or policies has the potential to further adversely impact demand for our products, our
costs, our customers, our suppliers, and the U.S. economy, which in turn could adversely impact our business, financial
condition, and results of operations.
Changes in U.S. social, political, regulatory, and economic conditions or in laws and policies governing foreign
trade, manufacturing, development and investment in the territories and countries where we currently develop and sell
products, and any negative sentiments towards the United States as a result of such changes, could adversely affect our
business. In addition, negative sentiments towards the United States among non-U.S. customers and among non-U.S.
employees or prospective employees could adversely affect sales or hiring and retention, respectively.
21
We are highly dependent on our intellectual property.
Our success depends significantly on our proprietary technology. We attempt to protect our intellectual property
rights through 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.
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. 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. 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 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. We may initiate claims, enforcement
actions or litigation against third parties for infringement of our proprietary rights, which claims could result in costly
litigation, the diversion of our technical and management personnel, and the assertion of counterclaims by defendants.
In addition, the laws of some foreign countries might not afford our intellectual property the same protections
as do the laws of the United States. Our intellectual property is not protected by patents in several countries in which we
do business, and we have limited or no patent protection in other countries, including China. 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.
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. 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. 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. Legal proceedings are costly and could have a material
adverse effect on our commercial relationships, business, financial condition, and operating results.
We may be involved in legal proceedings, litigation, enforcement actions, or claims regarding product
performance, product warranty, product certification, product liability, patent infringement, misappropriation of trade
secrets, other intellectual property rights, antitrust, environmental regulations, securities, contracts, unfair competition,
employment, workplace safety, and other matters. 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
adversely affect our business. We can provide no assurance of the outcome of these legal proceedings, enforcement
actions or claims or that the insurance we maintain will be adequate to cover them.
Changes in tax laws, tax rates, or mix of earnings in tax jurisdictions in which we do business, could impact our
future tax liabilities and related corporate profitability.
We are subject to income taxes in the U.S. (federal and state) and numerous foreign jurisdictions. Tax laws,
regulations, and administrative practices in various jurisdictions by their nature are complex and may be subject to
significant change due to economic, political, and other conditions, and significant judgment is required in evaluating
and estimating our provision and accruals for these taxes. As both domestic and foreign governments contemplate or
make changes in tax law to raise more revenues, our results could be adversely affected. Further, there are many
transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. Our
effective tax rates could be adversely affected by earnings being lower than anticipated in jurisdictions where we have
lower statutory rates and earnings higher than anticipated in jurisdictions where we have higher statutory rates, losses
incurred in jurisdictions for which we are not able to realize the related tax benefit, changes in foreign currency
exchange rates, entry into new businesses and geographies and changes to our existing businesses, acquisitions
(including integrations) and investments, changes in our deferred tax assets and liabilities and their valuation, and
changes in the relevant tax, accounting, and other laws, regulations, administrative practices, principles, and
interpretations, including fundamental changes to the tax laws applicable to corporate multinationals. The U.S., many
countries in the European Union, and several other countries are actively considering changes in this regard.
Increased governmental action on income tax regulations could adversely impact our business.
International governments have heightened their review and scrutiny of multinational businesses like ours,
which could increase our compliance costs and future tax liability to those governments. As governments continue to
look for ways to increase their revenue streams, they could increase audits of companies to accelerate the recovery of
monies perceived as owed to them under current or past regulations. As we are subject to examination by tax authorities
in every jurisdiction where we do business, an unfavorable audit outcome could adversely affect us.
Changes in our provision for income taxes or adverse outcomes resulting from examination of our income tax
returns could adversely affect our results.
Our provision for income taxes is subject to volatility and could be adversely affected by earnings being lower
than anticipated in countries that have lower tax rates and higher than anticipated in countries that have higher tax rates;
by changes in the valuation of our deferred tax assets and liabilities; by changes, regulations, and interpretations of
research and development capitalization and tax credit regulations, foreign-derived intangible income (“FDII”), global
intangible low-tax income (“GILTI”) and base erosion and anti-abuse tax (“BEAT”) laws; by expiration of or lapses in
tax incentives; by transfer pricing adjustments, including the effect of acquisitions on our legal structure; by tax effects
of nondeductible compensation; by tax costs related to intercompany realignments; by changes in accounting principles;
or by changes in tax laws and regulations, treaties, or interpretations thereof, including changes to the taxation of
earnings of our foreign subsidiaries, the deductibility of expenses attributable to foreign income, and the foreign tax
credit rules. Significant judgment is required to determine the recognition and measurement attribute prescribed in the
accounting guidance for uncertainty in income taxes. The Organization for Economic Co-operation and Development
(“OECD”), an international association comprised of 36 countries, including the United States, has made changes to
numerous long-standing tax principles. There can be no assurance that these changes, once adopted by countries, will not
have an adverse impact on our provision for income taxes. Further, because of certain of our ongoing employment and
capital investment actions and commitments, our income in certain countries is subject to reduced tax rates. Our failure
to meet these commitments could adversely impact our provision for income taxes. In addition, we are the subject of
regular examination of our income tax returns by tax authorities. We regularly assess the likelihood of adverse outcomes
resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no
assurance that the outcomes from these continuous examinations will not have an adverse effect on our operating results
and financial condition.
23
Our business is subject to complex and evolving U.S. and international laws and regulations regarding privacy and
data protection. Many of these laws and regulations are subject to change and uncertain interpretation and could
result in claims, changes to our business practices, penalties, increased cost of operations, or declines in 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, including measures to ensure that encryption of users’ data does not hinder law
enforcement agencies’ access to that data. In addition, the interpretation and application of consumer and data protection
laws in the U.S., Europe, China and elsewhere are often uncertain and in flux. It is possible that these laws may be
interpreted and applied in a manner that is inconsistent with our data practices. Violation of any of these rules could
result in fines or orders requiring that we change our data practices, which could have an adverse effect on our business
and results of operations. Complying with these various laws could cause us to incur substantial costs or require us to
change our business practices in a manner adverse to our business.
We are subject to numerous governmental regulations.
We are subject to federal, state, local and foreign regulations, including environmental regulations and
regulations relating to the design and operation of our products and control systems and regulations governing the
import, export and customs duties related to our products. We might incur significant costs as we seek to ensure that our
products meet safety and emissions standards, many of which vary across the states and countries in which our products
are used. In the past, we have invested significant resources to redesign our products to comply with these directives. In
addition, through recent acquisitions, we expanded our presence in the medical market to include more highly regulated
applications and added a medical-certified manufacturing center to our operating footprint. We may encounter increased
costs to maintain compliance with the quality systems and other regulations and requirements that apply to the acquired
business. Compliance with future regulations, directives, and standards could require us to modify or redesign some
products, make capital expenditures, or incur substantial costs. Also, we may incur significant costs in complying with
the numerous imports, exports, and customs regulations as we seek to sell our products internationally. If we do not
comply with current or future regulations, directives, and standards:
• we could be subject to fines and penalties;
•
• we could be prohibited from offering particular products in specified markets.
our production or shipments could be suspended; and
If we were unable to comply with current or future regulations, directives and standards, our business, financial
condition, and results of operations could be materially and adversely affected.
We are subject to risks associated with environmental, health, and safety regulations.
We are subject to environmental, health, and safety regulations in connection with our global business
operations, such as regulations related to the development, manufacture, sale, shipping, and use of our products;
handling, discharge, recycling and disposal of hazardous materials used in our products or in producing our products; the
operation of our facilities; and the use of our real property. The failure or inability to comply with existing or future
environmental, health and safety regulations could result in significant remediation or other legal liabilities; the
imposition of penalties and fines; restrictions on the development, manufacture, sale, shipping or use of certain of our
products; limitations on the operation of our facilities or ability to use our real property; and a decrease in the value of
our real property. 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. 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
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. 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. In addition, standards and processes for
measuring and reporting carbon emissions and other sustainability metrics may change over time, resulting in
inconsistent data, or could result in significant revisions to our sustainability commitments or our ability to achieve them.
Any scrutiny of our carbon emissions or other sustainability disclosures or our failure to achieve related goals could
adversely impact our reputation or performance.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Information concerning our principal properties is set forth below:
Location
Denver, Colorado
Fort Collins, Colorado
Penang, Malaysia
Rosario, Philippines
Santa Rosa, Philippines
Shenzhen, China
Zhongshan, China
Xianghe, China
Mexicali, Mexico
Lockport, New York
Singapore, Singapore
Quezon, Philippines
Taipei, Taiwan
Hong Kong, Hong Kong
Principal Activity
Corporate headquarters, general and administrative
Research and development, distribution, sales, and service
Manufacturing and distribution
Manufacturing
Manufacturing
Manufacturing, distribution, service, and research and development
Manufacturing
Manufacturing
Manufacturing
Manufacturing, distribution, service, and research and development
Global operations headquarters (sales, service, and research and development)
Engineering, research and development, administration, and support
Sales, distribution, and service
Distribution and general and administrative
Ownership
Leased
Leased
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Leased
In addition to the above principal properties, we have several other facilities throughout the U.S., North
America, Europe, and Asia. We consider the properties that we own or lease as adequate to meet our current and future
requirements. We regularly assess the size, capability, and location of our global infrastructure and periodically make
adjustments based on these assessments. 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
We are involved in disputes and legal actions arising in the normal course of our business. Although it is not
possible to predict the outcome of these matters, we believe that the results of these proceedings will not have a material
adverse effect on our financial condition, results of operations, or liquidity. For 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
PART II
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. 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. 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. We currently anticipate that a quarterly cash dividend of $0.10 per share will
continue to be paid on a quarterly basis, although the declaration of any future cash dividend is at the discretion of the
Board and will depend on our financial condition, results of operations, capital requirements, business conditions, and
other factors.
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
September 2015
Action
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
To execute the repurchase of shares of our common stock, we periodically enter into stock repurchase
agreements. The 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
January
February
March
First quarter
April
May
June
Second quarter
July
August
September
Third quarter
October
November
December
Fourth quarter
Total
(in thousands, except price per share data)
82
82
$ 121,783
$ 80.02
— $ 121,783
— $ —
— $ 121,783
— $ —
82
$ 80.02
82
— $ —
$ 76.23
$ 72.42
$ 74.12
103
127
230
34
$ 69.39
— $ —
— $ —
$ 69.39
34
$ 69.16
10
— $ —
— $ —
$ 69.16
10
— $ 121,783
$ 113,969
$ 104,765
103
127
230
34
$ 200,000
— $ 200,000
— $ 200,000
34
$ 199,320
10
— $ 199,320
— $ 199,320
10
356
$ 74.90
356
$ 199,320
27
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. 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
performance shown in the graph represents past performance and should not be considered an indication of future
performance.
Advanced Energy Industries, Inc.
NASDAQ Composite
Dow Jones US Electrical Components & Equipment
S&P 1000
December 31,
2017
$ 100.00
$ 100.00
$ 100.00
$ 100.00
2018
$ 63.62
$ 96.12
$ 86.48
$ 88.33
2019
$ 105.51
$ 129.97
$ 105.18
$ 108.70
2020
2021
$ 143.70 $ 135.52
$ 186.69 $ 226.63
$ 124.75 $ 154.36
$ 120.84 $ 149.60
2022
$ 128.26
$ 151.61
$ 125.51
$ 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. RESERVED
Not applicable.
28
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements set forth below under this caption constitute forward-looking statements. See “Special
Note Regarding Forward-Looking Statements” in this annual report on Form 10-K for additional factors relating to such
statements and see “Risk Factors” in Part I, Item 1A for a discussion of certain risks applicable to our business, financial
condition, and results of operations.
The following section discusses our results of operations for 2022 and 2021 and year-to-year comparisons
between those periods. 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.
Overview
Advanced Energy provides highly engineered, mission-critical, precision power conversion, measurement, and
control solutions to our global customers. We design, manufacture, sell and support precision power products that
transform, refine, and modify the raw electrical power coming from either the utility or the building facility and convert
it into various types of highly controllable, usable power that is predictable, repeatable, and customizable to meet the
necessary requirements for powering a wide range of complex equipment. Many of our products enable customers to
reduce or optimize their energy consumption through increased power conversion efficiency, power density, power
coupling, and process control across a wide range of applications.
Our plasma power solutions enable innovation in complex semiconductor and thin film plasma processes such
as dry etch and deposition. Our broad portfolio of high and low voltage power products are used in a wide range of
applications, such as semiconductor equipment, industrial production, medical and life science equipment, data centers
computing, networking, and telecommunications. We also supply related sensing, controls, and instrumentation products
primarily for advanced measurement and calibration of power and temperature for multiple industrial markets. Our
network of global service support centers provides repair services, calibration, conversions, upgrades, refurbishments,
and used equipment to companies using our products.
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. 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. 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.
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. We must also identify and include in the allocation all acquired tangible and intangible
assets that meet certain criteria, including assets that were not previously recorded by the acquired entity. The estimates
most commonly involve intangible assets. The excess of the purchase price over the net fair value of acquired assets and
assumed liabilities is recorded as goodwill, which is not amortized but instead is evaluated for impairment at least
annually. Pursuant to U.S. 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
Income Taxes
We are subject to income taxes in the United States and numerous foreign jurisdictions. 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. 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. 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. 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.
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.
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. 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. 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. 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. General
market conditions, as well as our design activities, can cause certain products to become obsolete and we adjust our
inventory carrying value for estimated excess and obsolescence equal to the difference between the cost of inventory and
the estimated net realizable value based on projected end-user demand, which is determined by considering historical
usage, customer orders and forecast, and qualitative considerations such as market and economic conditions. The
determination of projected end-user demand requires the use of estimates and assumptions related to projected unit sales
for each product. Demand for our products can fluctuate significantly. A significant decrease in demand could result in
an increase in the charges for excess inventory quantities on hand.
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.
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. 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. 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. 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. 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
Business Environment and Trends
Advanced Energy is organized on a global, functional basis and operates in the single segment for power
electronics conversion products. Within this segment, our products are sold into the Semiconductor Equipment,
Industrial and Medical, Data Center Computing, and Telecom and Networking markets.
In April 2022, we acquired SL Power. See Note 2. 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. 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. These supply constraints have led to longer lead times in procuring materials and subcomponents and,
in some cases, meaningfully higher costs for the subcomponents. We have implemented measures to improve the supply
of critical materials and components and to mitigate the impact of these higher input costs, and these actions have
enabled us to better meet customer demand. However, it is not clear how long global supply constraint conditions will
continue, how quickly the supply chain will recover, the extent to which our mitigating actions will be successful, or to
what extent we can recover our higher costs. One result of the supply chain constraints is that our backlog throughout the
first three quarters of the year remained above backlog at the end of 2021. Backlog declined at the end of 2022 to
$875.3 million, a decrease as compared to $1,093.0 million at the end of the third quarter of 2022, driven by
approximately 40% of sequential decline from China-based semiconductor customers’ orders as a result of U.S. export
controls introduced in October 2022, and the remainder from lower demand and changes in ordering patterns from our
semiconductor customers as we improved our lead times. Despite the decline at the end of 2022, backlog remains high
compared to previous years.
COVID related disruptions did materially impact our liquidity, ability to access capital, ability to comply with
our debt covenants or the fair value of our assets in 2022.
SEMICONDUCTOR EQUIPMENT MARKET
The Semiconductor Equipment market is driven by the long-term growing need for more semiconductor
production capacity and new process technologies. 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. 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. 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. 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. 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. 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. 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.
31
The Semiconductor Equipment market continued to experience demand growth driven by investments in both
leading and trailing edge semiconductor capacity throughout the first three quarters of 2022. Advanced Energy
participated in the market growth while overcoming supply chain challenges and delivered record revenue from the
Semiconductor Equipment market in 2022. 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. These factors adversely impacted our demand, backlog, and revenue in the
fourth quarter of 2022 and are expected to continue in 2023. 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.
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. 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. 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. Examples of products sold into the Industrial
and Medical market include high voltage and low voltage power supplies used in applications such as medical devices,
scientific instrumentation and industrial equipment, power control modules and thermal instrumentation products for
material fabrication, production process control and many precision industrial sensing applications. 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.
During 2022, we saw increased demand in the Industrial and Medical market as our customers increased
investments in their production capacity and the medical technology industry recovered from the pandemic-related
slowdown. Although overall customer demand increased, supply constraints of critical components limited our ability to
fulfill product shipments at the level of customer demand and resulted in increased backlog. Going into 2023, we expect
product delivery and revenue levels will depend on the level of customers’ demand and on resolving supply chain
constraints. It is not clear how long these supply chain constraints will persist or on what timeline our supply chain will
recover.
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. 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. In
addition, the data center industry has begun transitioning from 12 Volt to 48 Volt infrastructure in data center server
racks to improve overall power efficiency. Advanced Energy benefits from these trends by being an industry leader in
providing high-efficiency 48 Volt server power solutions to the data center industry. 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. 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.
32
Customer demand for our products rose during 2022 with continued demand for cloud and network
applications. In addition, we were able to secure additional critical components compared to the prior year, allowing us
to deliver higher revenue in the Data Center Computing market. Despite the improved performance, the supply of the
critical components remains highly constrained, impacting our ability to fulfill product shipments at the level of
customer demand. Although we expect lower overall demand in 2023 as cloud and enterprise customers slow
investments to digest capacity investments, we continue to be supply constrained and our performance will be partially
dependent on our ability to secure critical components and customers’ timing of new programs. It is not clear how long
these supply chain constraints will persist or how quickly our supply chain will recover.
TELECOM AND NETWORKING MARKET
Our customers in the Telecom and Networking market include many leading vendors of wireless infrastructure
equipment, telecommunication equipment and computer networking. The wireless telecom market continues to evolve
with more advanced mobile standards. 5G wireless technology promises to drive substantial growth opportunities for the
telecom industry as it enables new advanced applications such as autonomous vehicles and virtual/augmented reality.
Telecom service providers 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. 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.
Revenues in the Telecom and Networking market increased in 2022 compared to the same period in the prior
year due to increased customer demand and our ability to secure additional critical components. We expect demand to
remain stable in this market in 2023, but supply chain constraints continue to prevent us from fulfilling product
shipments at the level of customer demand. It is not clear how long these supply shortages will persist or how quickly
our supply chain will recover.
33
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.
The following table sets forth certain data derived from our Consolidated Statements of Operations (in
thousands):
Sales
Gross profit
Operating expenses
Operating income from continuing operations
Other income (expense), net
Income from continuing operations, before income taxes
Provision for income taxes
Income from continuing operations
$
$
1,845,422 $
Year Ended December 31,
2021
2022
1,455,954
532,322
380,641
151,681
(2,970)
148,711
14,004
134,707
675,506
442,411
233,095
8,646
241,741
39,850
201,891
$
The following table sets forth the percentage of sales represented by certain items reflected in our Consolidated
Statements of Operations:
Sales
Gross profit
Operating expenses
Operating income from continuing operations
Other income (expense), net
Income from continuing operations, before income taxes
Provision for income taxes
Income from continuing operations
Year Ended December 31,
2021
2022
100.0 %
36.6
24.0
12.6
0.5
13.1
2.2
10.9 %
100.0 %
36.6
26.1
10.4
(0.2)
10.2
1.0
9.3 %
34
SALES, NET
The following tables summarize net sales and percentages of sales by markets (in thousands):
Semiconductor Equipment
Industrial and Medical
Data Center Computing
Telecom and Networking
Total
Semiconductor Equipment
Industrial and Medical
Data Center Computing
Telecom and Networking
Total
OPERATING EXPENSE
Year Ended December 31,
Change 2022 v. 2021
2022
$ 930,809
426,763
327,466
160,384
$ 1,845,422
2021
$ 710,174
341,176
270,924
133,680
$ 1,455,954
Dollar
$ 220,635
85,587
56,542
26,704
$ 389,468
Percent
31.1 %
25.1
20.9
20.0
26.8 %
Year Ended December 31,
2022
2021
50.5 %
23.1
17.7
8.7
100.0 %
48.8 %
23.4
18.6
9.2
100.0 %
The following table summarizes our operating expenses (in thousands) and as a percentage of sales:
Research and development
Selling, general, and administrative
Amortization of intangible assets
Restructuring charges
Total operating expenses
SALES AND BACKLOG
Sales
Years Ended December 31,
2022
2021
$ 191,020
218,463
26,114
6,814
$ 442,411
10.4 % $ 161,831
191,998
11.8
22,060
1.4
0.4
4,752
24.0 % $ 380,641
11.1 %
13.2
1.5
0.3
26.1 %
Sales increased $389.5 million, or 26.8%, to $1,845.4 million, as compared to $1,456.0 million in the prior
year. The increase in sales was primarily due to increased demand for our products across all four of our markets and
measures we took to improve material availability and capacity, which allowed us to better meet higher demand. In
addition, premium recoveries, which are revenues we collected from our customers to partially reimburse us for
premiums we paid to secure scarce materials, represented $68.3 million in revenue in 2022 compared to $14.3 million in
2021. The acquisition of SL Power contributed $50.3 million to our total sales in 2022. For additional information, see
Note 2. Acquisitions in Part II, Item 8 “Financial Statements and Supplementary Data.”
35
Backlog
Backlog
The following table summarizes our backlog (in thousands):
December 31, December 31,
Change from
Year End
2022
$ 875,346
2021
Dollar
Percent
$ 927,810 $ (52,464)
(5.7)%
Backlog represents outstanding orders for products we expect to deliver within the next 12 months. Backlog at
the end of 2022 decreased from the end of 2021 primarily due to the impact of the China export controls regulation
announced in October 2022 by the U.S. Commerce Department, lower demand in the Semiconductor Equipment market,
and changes in order patterns for our semiconductor customers as we improved lead times, which occurred in the fourth
quarter of 2022. Backlog in our other markets increased for the year.
We believe the current backlog levels provide some level of revenue protection if demand levels are reduced
due to macroeconomic factors. We expect to bring our backlog back into normalized levels of $400 million to
$500 million over the next several quarters as parts availability improves and lead times are reduced.
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. Because our customers generally order on a purchase order basis, they can typically
cancel, change, or delay product purchase commitments with little or no notice.
Sales by Market
Sales in the Semiconductor Equipment market increased $220.6 million, or 31.1%, to $930.8 million, as
compared to $710.2 million in the prior year. The increase in sales was primarily due to the growth in the Semiconductor
Equipment market, particularly highlighted by the 40% increase in sales to our top two customers who are primarily in
this market. In addition, we improved our ability to secure critical components and increased delivery to our customers
in this market.
Sales in the Industrial and Medical market increased $85.6 million, or 25.1%, to $426.8 million, as compared to
$341.2 million in the prior year. The increase in sales was primarily due to the acquisition of SL Power, which added
incremental sales of $46.5 million in this market. The remainder of the increase in revenue was due to increased demand
for our portfolio of products across our medical and industrial applications and improved material availability.
Sales in the Data Center Computing market increased $56.5 million, or 20.9%, to $327.5 million, as compared
to $270.9 million in the prior year. The increase in Data Center Computing market sales was due to better supply
availability, enabling us to partially fulfill product shipments against higher customer demand.
Sales in the Telecom and Networking market increased $26.7 million, or 20.0%, to $160.4 million as compared
to $133.7 million in the prior year. The increase in sales was primarily due to improved material availability, allowing us
to meet the increased demand.
GROSS PROFIT AND GROSS MARGIN
Gross profit dollars in 2022 increased by $143.2 million to $675.5 million, or 36.6% of revenue, as compared to
prior year’s $532.3 million, or 36.6% of revenue, primarily driven by higher revenue.
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. Additionally, higher material costs not recovered impacted gross margins
36
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.
OPERATING EXPENSE
Research and Development
We perform R&D of products to develop new or emerging applications, technological advances to provide
higher performance, lower cost, or other attributes that we may expect to advance our customers’ products. We believe
that continued development of technological applications, as well as enhancements to existing products and related
software to support customer requirements, are critical for us to compete in the markets we serve. Accordingly, we
devote significant personnel and financial resources to the development of new products and the enhancement of
existing products, and we expect these investments to continue.
R&D expenses increased $29.2 million to $191.0 million, as compared to $161.8 million in the prior year. The
increase in research and development expense is primarily driven by increased headcount and compensation costs of
$20.4 million, as we invest in new programs to maintain and increase our technological leadership and provide solutions
to our customers’ evolving needs.
Selling, General and Administrative
Our selling expenses support domestic and international sales and marketing activities that include personnel,
trade shows, advertising, third-party sales representative commissions, and other selling and marketing activities. Our
general and administrative expenses support our worldwide corporate, legal, tax, financial, governance, administrative,
information systems, and human resource functions in addition to our general management, including acquisition related
activities.
Selling, general and administrative (“SG&A”) expenses increased $26.5 million to $218.5 million, as compared
to $192.0 million in the prior year. The increase in SG&A is primarily related to $16.9 million from increased headcount
and associated costs including sales commissions and compensation driven by higher revenue and $6.0 million from the
addition of SL Power. See Note 2. Acquisitions in Part II, Item 8 “Financial Statements and Supplementary Data” for
additional details.
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. 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. The majority of these actions impact our factory operations and should
partially mitigate the impact of lower volumes on gross margins. We anticipate the 2022 Plan will be substantially
completed, and associated expenses will be incurred by 2024.
In 2018, we committed to a restructuring plan (the “2018 Plan”) to optimize our manufacturing footprint and to
improve our operating efficiencies and synergies related to business combinations. We incurred severance costs
primarily related to the transition and exit of our facility in Shenzhen, China and actions associated with synergies
related to the acquisition of Artesyn Embedded Technologies, Inc.’s embedded power business (“Artesyn”). This plan is
37
substantially complete with the closure of our Shenzhen facility expected in 2023. For additional information, see
Note 14. 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. The
increase in income between periods is primarily a result of higher unrealized foreign exchange gains of $4.2 million due
to the strengthening U.S. dollar compared to our other foreign currencies and a one-time gain on the sale of intellectual
property from a previous acquisition. This was partially offset by higher interest expenses because of increasing interest
rates.
Provision for Income Taxes
(in thousands)
Income from continuing operations, before income taxes
Provision for income taxes
Effective tax rate
Years Ended December 31,
2022
$ 241,741
$ 39,850
2021
$ 148,711
14,004
$
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.
The Inflation Reduction Act (“IRA”) and CHIPS and Science Act (“CHIPS Act”) were both enacted in
August 2022. The IRA introduced new provisions including a 15% corporate alternative minimum tax for certain large
corporations that have at least an average of $1 billion adjusted financial statement income over a consecutive three-tax-
year period and a 1% excise tax surcharge on stock repurchases. The CHIPS Act provides a variety of incentives
associated with investments in domestic semiconductor manufacturing and related activities. The IRA and the CHIPS
Act are applicable for tax years beginning after December 31, 2022 and had no benefit to our consolidated financial
statements for any of the periods presented, and we do not expect them to have a direct material impact on our future
results of operations, financial condition, or cash flows.
Our future effective income tax rate depends on various factors, such as changes in tax laws, regulations,
accounting principles, or interpretations thereof, and the geographic composition of our pre-tax income. We carefully
monitor these factors and adjust our effective income tax rate accordingly.
Non-GAAP Results
Management uses non-GAAP operating income and non-GAAP earnings per share (“EPS”) to evaluate
business performance without the impacts of certain non-cash charges and other charges which are not part of our usual
operations. We use these non-GAAP measures to assess performance against business objectives, make business
decisions, including developing budgets and forecasting future periods. In addition, management’s incentive plans
include these non-GAAP measures as criteria for achievements. These non-GAAP measures are not in accordance with
U.S. GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. However,
we believe these non-GAAP measures provide additional information that enables readers to evaluate our business from
the perspective of management. The presentation of this additional information should not be considered a substitute for
results prepared in accordance with U.S. GAAP.
38
The non-GAAP results presented below exclude the impact of non-cash related charges, such as stock-based
compensation and amortization of intangible assets. In addition, they exclude discontinued operations and other non-
recurring items such as acquisition-related costs and restructuring expenses, as they are not indicative of future
performance. The tax effect of our non-GAAP adjustments represents the anticipated annual tax rate applied to each
non-GAAP adjustment after consideration of their respective book and tax treatments and effect of adoption of the 2017
Tax Cuts and Jobs Act.
Reconciliation of non-GAAP measure
Operating expenses and operating income from continuing
operations, excluding certain items (in thousands)
Gross profit from continuing operations, as reported
Adjustments to gross profit:
Stock-based compensation
Facility expansion, relocation costs and other
Acquisition-related costs
Non-GAAP gross profit
Non-GAAP gross margin
Operating expenses from continuing operations, as reported
Adjustments:
Amortization of intangible assets
Stock-based compensation
Acquisition-related costs
Facility expansion, relocation costs and other
Restructuring
Non-GAAP operating expenses
Non-GAAP operating income
Non-GAAP operating margin
Reconciliation of non-GAAP measure
Income from continuing operations, excluding certain items
(in thousands, except per share amounts)
Income from continuing operations, less non-controlling interest, net of income taxes
Adjustments:
Amortization of intangible assets
Acquisition-related costs
Facility expansion, relocation costs, and other
Restructuring
Unrealized foreign currency gain
Acquisition-related costs and other included in other (income) expense, net
Tax effect of non-GAAP adjustments
Non-GAAP income, net of income taxes, excluding stock-based compensation
Stock-based compensation, net of taxes
Non-GAAP income, net of income taxes
Non-GAAP diluted earnings per share
Years Ended December 31,
2022
675,506 $
$
2021
532,322
1,478
5,295
(299)
681,980
37.0%
764
6,189
3,585
542,860
37.3%
442,411
380,641
(26,114)
(18,371)
(8,637)
—
(6,814)
382,475
299,505 $
16.2%
(22,060)
(14,975)
(6,803)
(229)
(4,752)
331,822
211,038
14.5%
$
Years Ended December 31,
2022
201,875 $
$
2021
134,663
26,114
8,338
5,295
6,814
(7,645)
(8,417)
(3,008)
229,366
15,444
244,810 $
6.49 $
22,060
10,388
6,418
4,752
(3,543)
(2,186)
(1,346)
171,206
12,042
183,248
4.78
$
$
39
Impact of Inflation
In previous years, inflation did not have a material impact on our operations. However, more recently, we have
experienced inflationary pressure from price increases in select components driven by factors such as higher global
demand, supply chain disruptions, higher labor expenses, and increased freight costs. In this environment, we are
actively working with our customers to adjust pricing that helps offset the inflationary pressure on the cost of our
components. We have also been able to recover some premiums on pricing related to securing scarce materials with our
customers, thus limiting the financial impact of inflationary pressures.
Liquidity and Capital Resources
Liquidity
We believe that adequate liquidity and cash generation is important to the execution of our strategic initiatives.
Our ability to fund our operations, acquisitions, capital expenditures, and product development efforts may depend on
our ability to generate cash from operating activities, which is subject to future operating performance, as well as general
economic, financial, competitive, legislative, regulatory, and other conditions, some of which may be beyond our
control. Our primary sources of liquidity are our available cash, investments, cash generated from current operations,
and available borrowing capacity under the Revolving Facility (defined below).
The following table summarizes our cash, cash equivalents, and marketable securities (in thousands):
Cash and cash equivalents
Marketable securities
Total cash, cash equivalents, and marketable securities
December 31, 2022
458,818
2,128
460,946
$
$
We believe the above sources of liquidity will be adequate to meet anticipated working capital needs,
anticipated levels of capital expenditures, contractual obligations, debt repayment, share repurchase programs, and
dividends for the next 12 months and on a long-term basis. In addition, we may, depending upon the number or size of
additional acquisitions, seek additional debt or equity financing from time to time; however, such additional financing
may not be available on acceptable terms, if at all.
Credit Facility
In September 2019, in connection with the acquisition of Artesyn, we entered into a credit agreement (“Credit
Agreement”) that provided aggregate financing of $500.0 million, consisting of a $350.0 million senior unsecured term
loan facility (the “Term Loan Facility”) and a $150.0 million senior unsecured revolving facility (the “Revolving
Facility” and together with the Term Loan Facility, the “Credit Facility”).
In April 2020, we executed interest rate swap contracts with independent financial institutions to partially
reduce the variability of cash flows in LIBOR indexed debt interest payments on our Term Loan Facility. The interest
rate swap contracts fixed a portion of the outstanding principal balance on our term loan to a total interest rate of
1.271%. For information additional information, see Note 8. Derivative Financial Instruments in Part II, Item 8
“Financial Statements and Supplementary Data.”
In September 2021, we amended the Credit Agreement whereby we borrowed an additional $85.0 million,
which increased the aggregate amount outstanding under the Term Loan Facility to $400.0 million. In addition, we
increased the Revolving Facility capacity by $50.0 million to $200.0 million. Both the Term Loan Facility and
Revolving Facility mature on September 9, 2026.
40
The following table summarizes borrowings under our Credit Facility and the associated interest rate (in
thousands, except for interest rates).
December 31, 2022
Term Loan Facility subject to a fixed interest rate due to interest rate swap
Term Loan Facility subject to a variable interest rate
Revolving Facility subject to a variable interest rate
Total borrowings under the Credit Agreement
Balance
$ 238,219
136,781
—
$ 375,000
Interest Rate Unused Line Fee
—
—
0.10%
1.271%
5.134%
5.134%
As of December 31, 2022, we had $200.0 million in available funding under the Revolving Facility. The Term
Loan Facility requires quarterly repayments of $5.0 million plus accrued interest, with the remaining balance due in
September 2026.
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.
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. During 2022, we paid quarterly cash dividends of $0.10 per share, totaling $15.2 million
for the full year. We currently anticipate that a cash dividend of $0.10 per share will continue to be paid on a quarterly
basis, although the declaration of any future cash dividend is at the discretion of the Board and will depend on our
financial condition, results of operations, capital requirements, business conditions, and other factors.
Share Repurchases
To execute the repurchase of shares of our common stock, we periodically enter into stock repurchase
agreements. The following table summarizes these repurchases:
(in thousands, except per share amounts)
Amount paid or accrued to repurchase shares
Number of shares repurchased
Average repurchase price per share
Years Ended December 31,
2021
$ 78,125
901
86.76
2020
$ 11,630
244
47.75
2022
$ 26,635
356
74.90
$
$
$
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. At
December 31, 2022, the remaining amount authorized by the Board of Directors for future share repurchases was
$199.3 million.
41
Cash Flows
A summary of our cash from operating, investing, and financing activities was as follows (in thousands):
Net cash from operating activities from continuing operations
Net cash from operating activities from discontinued operations
Net cash from operating activities
Net cash from investing activities
Net cash from financing activities
Effect of currency translation on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Net Cash From Operating Activities
Years Ended December 31,
2022
$ 183,731 $
(144)
183,587
(208,272)
(61,865)
996
(85,554)
544,372
$ 458,818 $
2021
140,914
(669)
140,245
(47,302)
(25,372)
(3,567)
64,004
480,368
544,372
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. 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.
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 from investing activities in 2021 was ($47.3) million, and primarily related to investment in facilities
and capacity.
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.
The net cash from financing activities in 2021 was ($25.4) million and included:
•
•
•
$83.7 million in proceeds from borrowings, net of debt-issuance costs paid;
($15.4) million for dividend payments;
($13.8) million for repayment of long-term debt;
42
•
•
($78.1) million related to repurchases of our common stock; and
($1.8) million related to stock-based award activities.
Off-Balance Sheet Arrangements
As of December 31, 2022, we did not have any off-balance sheet arrangements, as defined in
Item 303(a)(4)(ii) of Regulation S-K.
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
are provided in Note 5. Income Taxes, Note 16. Leases, Note 17. Employee Retirement Plans and Postretirement
Benefits, and Note 21. 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”). 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. Summary of Operations and Significant Accounting Policies and Estimates in Part II,
Item 8 “Financial Statements and Supplementary Data.”
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk and Risk Management
In the normal course of business, we have exposures to interest rate risk from our investments and Credit
Facility. We also have exposure to foreign exchange rate risk related to our foreign operations and foreign currency
transactions.
Foreign Currency Exchange Rate Risk
We are impacted by changes in foreign currency exchange rates through sales and purchasing transactions when
we sell products and purchase materials in currencies different from the currency in which product and manufacturing
costs were incurred.
Our reported financial results of operations, including the reported value of our assets and liabilities, are also
impacted by changes in foreign currency exchange rates. Assets and liabilities of substantially all our subsidiaries
outside the U.S. are translated at period end rates of exchange for each reporting period. Operating results and cash flow
statements are translated at average rates of exchange during each reporting period. Although these translation changes
have no immediate cash impact, the translation changes may impact future borrowing capacity and overall value of our
net assets.
The functional currencies of our worldwide facilities primarily include the United States Dollar (USD), Euro,
South Korean Won, New Taiwan Dollar, Japanese Yen, Pound Sterling, Chinese Yuan, and Mexican Peso. Our
purchasing and sales activities are primarily denominated in the USD, Japanese Yen, Euro, and Chinese Yuan.
43
Currency exchange rates vary daily and often one currency strengthens against the USD while another currency
weakens. Because of the complex interrelationship of the worldwide supply chains and distribution channels, it is
difficult to quantify the impact of a change in one or more particular exchange rates.
As currencies fluctuate against each other we are exposed to foreign currency exchange rate risk on sales,
purchasing transactions, and labor. Exchange rate fluctuations could require us to increase prices to foreign customers,
which could result in lower net sales. Alternatively, if we do not adjust the prices for our products in response to
unfavorable currency fluctuations, our results of operations could be adversely impacted. Changes in the relative buying
power of our customers may impact sales volumes.
Acquisitions are a large component of our capital deployment strategy. A significant number of acquisition
target opportunities are located outside the U.S., and their value may be denominated in foreign currency. Changes in
exchange rates therefore may have a material impact on their valuation in USD and may impact our view of their
attractiveness.
From time to time, we may enter into foreign currency exchange rate contracts to hedge against changes in
foreign currency exchange rates on assets and liabilities expected to be settled at a future date, including foreign
currency, which may be required for a potential foreign acquisition. Market risk arises from the potential adverse effects
on the value of derivative instruments that result from a change in foreign currency exchange rates. We may enter into
foreign currency forward contracts to manage the exchange rate risk associated with intercompany debt denominated in
nonfunctional currencies. We minimize our market risk applicable to foreign currency exchange rate contracts by
establishing and monitoring parameters that limit the types and degree of our derivative contract instruments. We enter
into derivative contract instruments for risk management purposes only. We do not enter into or issue derivatives for
trading or speculative purposes.
Interest Rate Risk
Our market risk exposure relates primarily to changes in interest rates on our Credit Facility. The following
table summarizes borrowings (in thousands) under our Credit Facility and the associated interest rate.
December 31, 2022
Term Loan Facility subject to a fixed interest rate
Term Loan Facility subject to a variable interest rate
Revolving Facility subject to a variable interest rate
Total borrowings under the Credit Agreement
Balance
$ 238,219
136,781
—
$ 375,000
Interest Rate Unused Line Fee
—
—
0.10%
1.271%
5.134%
5.134%
For more information on the Term Loan Facility see Note 21. 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. 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. With respect to the portion of our Credit
Facility that is subject a variable interest rate, a hypothetical increase of 100 basis points (1%) in interest rates would
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. However, increases in interest rates could impact our ability
to refinance existing maturities and acquire additional debt on favorable terms.
44
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 42)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
46
50
51
52
53
54
55
45
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Advanced Energy Industries, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Advanced Energy Industries, Inc. (the Company) as
of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, stockholders’
equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes
(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the
results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) and our report dated February 17, 2023 expressed an unqualified opinion
thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
46
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements
that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Description of the
Matter
Inventory Valuation
As more fully described in Notes 1 and 10 to the consolidated financial statements, the
Company has inventories with a carrying value of $376.0 million as of December 31, 2022.
The Company adjusts its inventory carrying value for estimated excess or obsolescence equal
to the difference between the cost of inventory and the estimated net realizable value based on
projected end-user demand, which is determined by considering historical usage, customer
orders and forecast, and qualitative considerations such as market and economic conditions.
Auditing management’s inventory valuation was complex and involved a high degree of
judgment because a critical factor in determining excess and obsolete inventory requires
management to determine projected end-user demand, which could be impacted by future
market and economic conditions.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of
internal controls related to the Company’s process for evaluating inventory valuation inclusive
of controls related to the development of and management’s review of the underlying data,
including historical usage and the estimation of projected end-user demand.
We evaluated certain inventories for excess or obsolescence by testing key inputs, including
historical usage and projected end-user demand, and by testing the completeness and accuracy
of the underlying data supporting management’s inventory valuation assessment. Specifically,
we compared the Company’s projected end-user demand to historical sales and inventory
usage. We assessed historical trends of management’s estimates and performed analyses to
evaluate management’s excess and obsolete inventory estimates and underlying assumptions.
We also performed a retrospective review of the prior year valuation assumptions, including
inventory write-off history.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2019.
Denver, Colorado
February 17, 2023
47
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Advanced Energy Industries, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Advanced Energy Industries, Inc.’s internal control over financial reporting as of December 31, 2022,
based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Advanced Energy
Industries, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2022, based on the COSO criteria.
As indicated in the accompanying Management’s Annual Report on Internal Control over Financial Reporting,
management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not
include the internal controls of SL Power Electronics, which is included in the 2022 consolidated financial statements of
the Company and constituted 2% and 3% of total and net assets, respectively, as of December 31, 2022 and 3% and 3%
of revenues and net income, respectively, for the year then ended. Our audit of internal control over financial reporting
of the Company also did not include an evaluation of the internal control over financial reporting of SL Power
Electronics.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related
consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three
years in the period ended December 31, 2022, and the related notes and our report dated February 17, 2023 expressed an
unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s
Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
48
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
/s/ Ernst & Young LLP
Denver, Colorado
February 17, 2023
49
ADVANCED ENERGY INDUSTRIES, INC.
Consolidated Balance Sheets
(In thousands, except per share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Accounts and other receivable, net
Inventories
Other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Other assets
Intangible assets, net
Goodwill
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued payroll and employee benefits
Other accrued expenses
Customer deposits and other
Current portion of long-term debt
Current portion of operating lease liabilities
Total current liabilities
Long-term debt, net
Operating lease liabilities
Pension benefits
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 19)
December 31, December 31,
2022
2021
$
$
$
$
$
$
458,818
300,683
376,012
53,001
1,188,514
148,462
100,177
84,056
189,526
281,433
1,992,168
170,467
82,733
76,750
26,322
20,000
16,771
393,043
353,262
94,460
44,031
41,105
925,901
544,372
237,227
338,410
42,225
1,162,234
114,830
101,769
66,911
159,406
212,190
1,817,340
193,708
55,833
62,671
22,141
20,000
15,843
370,196
372,733
95,180
67,255
40,480
945,844
Stockholders’ equity:
Preferred stock, $0.001 par value, 1,000 shares authorized, none issued and outstanding
Common stock, $0.001 par value, 70,000 shares authorized; 37,429 and 37,589 issued and outstanding at
December 31, 2022 and December 31, 2021, respectively
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings
Advanced Energy Industries, Inc. stockholders’ equity
Noncontrolling interest
Total stockholders’ equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
—
—
37
134,640
16,320
915,270
1,066,267
—
1,066,267
1,992,168
$
38
115,706
(1,216)
756,323
870,851
645
871,496
1,817,340
$
The accompanying notes are an integral part of these consolidated financial statements
50
ADVANCED ENERGY INDUSTRIES, INC.
Consolidated Statements of Operations
(In thousands, except per share amounts)
Sales, net
Cost of sales
Gross profit
Operating expenses:
Research and development
Selling, general, and administrative
Amortization of intangible assets
Restructuring
Total operating expenses
Operating income
2022
$ 1,845,422
1,169,916
675,506
Years Ended December 31,
2021
2020
$ 1,455,954 $ 1,415,826
873,957
541,869
923,632
532,322
191,020
218,463
26,114
6,814
442,411
233,095
161,831
191,998
22,060
4,752
380,641
151,681
143,961
188,590
20,129
13,166
365,846
176,023
Other income (expense), net
Income from continuing operations, before income taxes
Provision for income taxes
Income from continuing operations
Income (loss) from discontinued operations, net of income taxes
Net income
Income from continuing operations attributable to noncontrolling interest
Net income attributable to Advanced Energy Industries, Inc.
8,646
241,741
39,850
201,891
(2,215)
$ 199,676
16
$ 199,660
$
$
(2,970)
148,711
14,004
134,707
73
(17,876)
158,147
22,996
135,151
(421)
134,780 $ 134,730
55
134,736 $ 134,675
44
Basic weighted-average common shares outstanding
Diluted weighted-average common shares outstanding
37,463
37,721
38,143
38,355
38,314
38,542
Earnings per share:
Continuing operations:
Basic earnings per share
Diluted earnings per share
Discontinued operations:
Basic earnings (loss) per share
Diluted earnings (loss) per share
Net income:
Basic earnings per share
Diluted earnings per share
$
$
$
$
$
$
5.39
5.35
$
$
3.53 $
3.51 $
(0.06) $
(0.06) $
— $
— $
5.33
5.29
$
$
3.53 $
3.51 $
3.53
3.51
(0.01)
(0.01)
3.52
3.50
The accompanying notes are an integral part of these consolidated financial statements.
51
ADVANCED ENERGY INDUSTRIES, INC.
Consolidated Statements of Comprehensive Income
(In thousands)
Net income
Other comprehensive income (loss), net of income taxes
Foreign currency translation
Change in fair value of cash flow hedges
Minimum pension benefit retirement liability
Comprehensive income
Comprehensive income attributable to noncontrolling interest
Comprehensive income attributable to Advanced Energy Industries, Inc.
Years Ended December 31,
2021
$ 199,676 $ 134,780 $ 134,730
2020
2022
(10,543)
9,741
18,338
217,212
16
13,095
(2,139)
(7,664)
138,022
55
$ 217,196 $ 136,125 $ 137,967
(12,262)
4,246
9,405
136,169
44
The accompanying notes are an integral part of these consolidated financial statements.
52
ADVANCED ENERGY INDUSTRIES, INC.
Consolidated Statements of Stockholders’ Equity
(In thousands)
Advanced Energy Industries, Inc. Stockholders’ Equity
Common Stock
Accumulated
Additional
Other
Comprehensive Retained
Income (Loss) Earnings
$
Balances, December 31, 2019
Adoption of new accounting standards
Stock issued from equity plans
Stock-based compensation
Share repurchases
Other comprehensive income
Net income
Balances, December 31, 2020
Stock issued from equity plans
Stock-based compensation
Share repurchases
Dividends declared ($0.10 per share)
Other comprehensive income
Net income
Balances, December 31, 2021
Stock issued from equity plans
Stock-based compensation
Share repurchases
Dividends declared ($0.10 per share)
Other comprehensive income
Acquisition of non-controlling interest
Net income
Balances, December 31, 2022
Shares
38,358 $
—
179
—
(244)
—
—
38,293
197
—
(901)
—
—
—
37,589
196
—
(356)
—
—
—
—
37,429 $
Amount
38
—
—
—
—
—
—
38
—
—
—
—
—
—
38
—
—
(1)
—
—
—
—
37
Paid-in
Capital
104,849
—
(482)
12,272
(11,630)
—
—
105,009
(1,931)
15,428
(2,800)
—
—
—
115,706
(26)
19,624
(1,125)
—
—
461
—
134,640
$
$
$
Non-
Total
controlling Stockholders’
$ 577,724 $
(102)
—
—
—
—
134,675
712,297
—
—
(75,325)
(15,385)
—
134,736
756,323
—
—
(25,509)
(15,204)
—
—
199,660
$ 915,270 $
Interest
546
—
—
—
—
—
55
601
—
—
—
—
—
44
645
—
—
—
—
—
(661)
16
—
Equity
677,260
(102)
(482)
12,272
(11,630)
3,292
134,730
815,340
(1,931)
15,428
(78,125)
(15,385)
1,389
134,780
871,496
(26)
19,624
(26,635)
(15,204)
17,536
(200)
199,676
1,066,267
$
$
(5,897)
—
—
—
—
3,292
—
(2,605)
—
—
—
—
1,389
—
(1,216)
—
—
—
—
17,536
—
—
16,320
The accompanying notes are an integral part of these consolidated financial statements.
53
ADVANCED ENERGY INDUSTRIES, INC.
Consolidated Statements of Cash Flows
(In thousands)
Years Ended December 31,
2021
2020
2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Less: income (loss) from discontinued operations, net of income taxes
Income from continuing operations, net of income taxes
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization
Stock-based compensation expense
Provision for deferred income taxes
(Gain) loss from discount on notes receivable
(Gain) loss on disposal and sale of assets
Changes in operating assets and liabilities, net of assets acquired
Accounts and other receivable, net
Inventories
Other assets
Accounts payable
Other liabilities and accrued expenses
Net cash from operating activities from continuing operations
Net cash from operating activities from discontinued operations
Net cash from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Receipt (issuance) of notes receivable
Purchases of property and equipment
Acquisitions, net of cash acquired
Net cash from investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings
Payment of debt-issuance costs
Payments on long-term borrowings
Dividend payments
Purchase and retirement of common stock
Net payments related to stock-based awards
Net cash from financing activities
$ 199,676
(2,215)
201,891
$ 134,780
73
134,707
$ 134,730
(421)
135,151
60,296
19,849
(5,736)
—
(3,962)
(59,630)
(32,244)
(19,673)
(28,703)
51,643
183,731
(144)
183,587
—
(58,885)
(149,387)
(208,272)
—
—
(20,000)
(15,204)
(26,635)
(26)
(61,865)
52,893
15,739
1,326
(638)
1,496
5,271
(115,737)
(2,910)
67,111
(18,344)
140,914
(669)
140,245
3,050
(28,817)
(21,535)
(47,302)
85,000
(1,350)
(13,750)
(15,385)
(78,125)
(1,762)
(25,372)
47,770
12,272
(622)
721
1,296
15,412
11,658
1,750
(48,163)
24,914
202,159
(923)
201,236
(1,000)
(36,364)
(5,476)
(42,840)
—
—
(17,500)
—
(11,630)
(482)
(29,612)
EFFECT OF CURRENCY TRANSLATION ON CASH AND CASH EQUIVALENTS
996
(3,567)
5,143
NET CHANGE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of period
CASH AND CASH EQUIVALENTS, end of period
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest
Cash paid for income taxes
(85,554)
544,372
$ 458,818
64,004
480,368
$ 544,372
133,927
346,441
$ 480,368
$
$
6,608
17,546
$
$
4,040
32,543
$
$
5,278
21,032
The accompanying notes are an integral part of these consolidated financial statements.
54
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
NOTE 1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES AND
ESTIMATES
Advanced Energy Industries, Inc., a Delaware corporation, and its consolidated subsidiaries (“we,” “us,” “our,”
“Advanced Energy,” or the “Company”) design, manufacture, sell, and support precision power products that transform,
refine, and modify the raw electrical power coming from either the utility or the building facility and convert it into
various types of highly controllable, usable power that is predictable, repeatable, and customizable to meet the necessary
requirements for powering a wide range of complex equipment.
Our plasma power solutions enable innovation in complex semiconductor and thin film plasma processes such
as dry etch and deposition. Our broad portfolio of high and low voltage power products are used in a wide range of
applications, such as semiconductor equipment, industrial production, medical and life science equipment, data centers
computing, networking, and telecommunications. We also supply related sensing, controls, and instrumentation products
primarily for advanced measurement and calibration of power and temperature for multiple industrial markets. Our
network of global service support centers provides repair services, calibration, conversions, upgrades, refurbishments,
and used equipment to companies using our products.
As of December 31, 2015, we discontinued our engineering, production, and sales of our inverter product line.
As such, all inverter product revenues, costs, assets, and liabilities are reported in Discontinued Operations for all
periods presented herein. See Note 4. Discontinued Operations for more information. Ongoing inverter repair and
service operations are reported as part of our continuing operations.
Principles of Consolidation — Our consolidated financial statements include the Company and its subsidiaries.
All intercompany accounts and transactions have been eliminated. Our consolidated financial statements are stated in
United States (“U.S.”) Dollars and have been prepared in accordance with accounting principles generally accepted in
the United States (“U.S. GAAP”). We reclassified certain prior period amounts to conform to the current year
presentation.
Use of Estimates in the Preparation of the Consolidated Financial Statements — The preparation of our
consolidated financial statements in conformity with U.S. GAAP requires us to make estimates, assumptions, and
judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of
the financial statements, and the reported amounts of revenue and expenses during the reporting period. The significant
estimates, assumptions, and judgments include, but are not limited to:
•
•
excess and obsolete inventory;
pension obligations;
•
•
acquisitions and asset valuations, and
income taxes and other provisions.
Segment Information — Our Chief Executive Officer is the chief operating decision maker who reviews
financial information on a consolidated basis for purposes of allocating resources and evaluating financial performance.
Accordingly, we determined we operate in a single reporting segment.
Foreign Currency Translation — The functional currency of certain of our foreign subsidiaries is the local
currency. Assets and liabilities of these foreign subsidiaries are translated to the United States Dollar at prevailing
exchange rates on the balance sheet date. Revenues and expenses are translated at the average exchange rates in effect
for each period. Translation adjustments resulting from this process are reported as a separate component of other
comprehensive income.
For certain other subsidiaries, the functional currency is the U.S. Dollar. Foreign currency transactions are
recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates for foreign
55
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
currency denominated monetary assets and liabilities result in foreign currency transaction gains and losses, which are
reflected as unrealized (based on period end remeasurement) or realized (upon settlement of the transactions) in other
income (expense), net in our Consolidated Statements of Operations.
Derivatives — We use derivative financial instruments to manage risks associated with foreign currency and
interest rate fluctuations. Unless we meet specific hedge accounting criteria, changes in the fair value of derivative
financial instruments are recognized in the Consolidated Statements of Operations within other income (expense), net.
For derivatives designated as cash flow hedges, changes in fair value are recorded to accumulated other
comprehensive income (loss) on the Consolidated Balance Sheets and are reclassified into earnings when the underlying
forecasted transaction affects earnings. We reassess the probability of the underlying forecasted transactions occurring
on a quarterly basis.
Fair Value — We value our financial assets and liabilities using fair value measurements.
U.S. GAAP for fair value establishes a hierarchy that prioritizes fair value measurements based on the types of
inputs used for the various valuation techniques (market approach, income approach, and cost approach). Our financial
assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels of the
hierarchy and the related inputs are as follows:
• Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can
access on the measurement date.
• Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly.
• Level 3 — Unobservable inputs for the asset or liability.
We categorize fair value measurements within the fair value hierarchy based upon the lowest level of the most
significant inputs used to determine fair value. Our assessment of the significance of a particular input to the fair value
measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their
placement within the fair value hierarchy levels.
We have various assets and liabilities measured at fair value on a recurring basis, including:
Foreign currency forward contracts
We estimate the fair value based on the movement in the forward rates of foreign currency cash flows in which
the hedging instrument is denominated.
Interest rate swaps
We determine the fair value by estimating the net present value of the expected cash flows based on market
rates and the associated yield curves, adjusted for non-performance credit risk, as applicable.
Contingent consideration associated with business combinations
We determine the fair value by estimating the net present value of the expected cash flows based on the
probability of expected payment.
The carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable and other current
assets and liabilities approximate fair value as recorded due to the short-term nature of these instruments.
56
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
Our non-financial assets, which primarily consist of property and equipment, operating lease right-of-use assets,
goodwill, and other intangible assets, are not required to be carried at fair value on a recurring basis and are reported at
carrying value. However, on a periodic basis or whenever events or changes in circumstances indicate that their carrying
value may not be fully recoverable (and at least annually for goodwill), non-financial instruments are assessed for
impairment and, if applicable, written down to and recorded at fair value. See Note 12. Goodwill and Note 13. Intangible
Assets for further discussion and presentation of these amounts.
The fair value of borrowings approximates the recorded borrowing value based upon market interest rates for
similar facilities. See Note 21. Credit Facility for additional information. The fair value of contingent consideration and
other acquired assets and liabilities associated with our acquisitions are based on Level 3 inputs.
Cash, Cash Equivalents, and Marketable Securities — We consider all amounts on deposit with financial
institutions and highly liquid investments with an original maturity of three months or less at the time of purchase to be
cash equivalents. Cash and cash equivalents consist primarily of short-term money market instruments and demand
deposits with insignificant interest rate risk.
In some instances, we invest excess cash in money market funds not insured by the Federal Deposit Insurance
Corporation. We believe the investments in money market funds are on deposit with credit-worthy financial institutions
and the funds are highly liquid. These investments are reported at fair value and included in cash and cash equivalents.
We record interest income within other income (expense), net in our Consolidated Statement of Operations.
We classify investments with stated maturities of greater than three months at time of purchase as marketable
securities.
Concentrations of Credit Risk — Financial instruments with potential credit risk include cash and cash
equivalents, marketable securities, and trade accounts receivable. To preserve capital and maintain liquidity, we invest
with financial institutions we deem to be of high quality and sound financial condition. Our investments are in low-risk
instruments, and we limit our credit exposure in any one institution or type of investment instrument based upon criteria,
including creditworthiness.
We establish a reserve for credit losses based upon factors surrounding the credit risk of specific customers,
historical trends, and other information.
Accounts Receivable and Reserve for Credit Losses — Accounts receivable are recorded at net realizable
value. We maintain a credit approval process and we make judgments in connection with assessing our customers’
ability to pay. Despite this assessment, from time to time, our customers are unable to meet their payment obligations.
We continuously monitor our customers’ credit worthiness and use our judgment in establishing a provision for
estimated credit losses. We do not require collateral from customers. Our principal customers are original equipment
manufacturers (“OEM”) and end user customers, which operate globally through wholly owned subsidiaries that
purchase our products under substantially the same credit terms, with similar historical credit risks. As a result, we assess
credit risks as a single group. We evaluate collection risk and establish expected credit loss primarily through a
combination of the following: an assessment of customer credit risk ratings utilizing third party credit risk data, analysis
of historical aging and credit loss experience, and customer specific information.
Inventories — Inventories are valued at the lower of cost (using the first-in, first-out method) or net realizable
value. General market conditions, as well as our design activities, can cause certain products to become obsolete and we
adjust our inventory carrying value for estimated excess and obsolescence equal to the difference between the cost of
inventory and the estimated net realizable value based on projected end-user demand, which is determined by
considering historical usage, customer orders and forecast, and qualitative considerations such as market and economic
conditions. The determination of projected end-user demand requires the use of estimates and assumptions related to
57
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
projected unit sales for each product. Demand for our products can fluctuate significantly. A significant decrease in
demand could result in an increase in the charges for excess inventory quantities on hand.
Property and Equipment — Property and equipment are stated at cost or estimated fair value if acquired in a
business combination. Depreciation is computed over the estimated useful lives using the straight-line method. Additions
and improvements are capitalized, while maintenance and repairs are expensed as incurred.
When depreciable assets are retired, or otherwise disposed of, the cost and related accumulated depreciation are
removed from the accounts, and any related gains or losses are included in other income (expense), net, in our
Consolidated Statements of Operations.
Business Combinations — Business combinations are accounted for using the purchase method of accounting.
Under the purchase method, assets and liabilities, including intangible assets, are recorded at their fair values as of the
acquisition date. Acquisition costs in excess of amounts assigned to assets acquired and liabilities assumed are recorded
as goodwill. Transaction related costs associated with business combinations are expensed as incurred.
Leases — We lease manufacturing and office space under non-cancelable operating leases. Some of these
leases contain provisions for landlord funded leasehold improvements, which we record as a reduction to right-of-use
(“ROU”) assets and the related operating lease liabilities. Our lease agreements generally contain lease and non-lease
components, and we combine fixed payments for non-lease components with lease payments and account for them
together as a single lease component. Certain lease agreements may contain variable payments, which are expensed as
incurred and not included in the right-of-use lease assets and operating lease liabilities. When renewal options are
reasonably certain of exercise, we include the renewal period in the lease term. In many cases, we have leases with a
term of less than one year. We elected the practical expedient to exclude these short-term leases from our ROU assets
and operating lease liabilities. On an ongoing basis, we negotiate and execute new leases to meet business objectives.
Right-of-use assets and operating lease liabilities are recognized at the present value of the future lease
payments on the lease commencement date. The interest rate used to determine the present value of the future lease
payments is our incremental borrowing rate because the interest rate implicit in our leases is not readily determinable.
Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms
and payments. We have a centrally managed treasury function; therefore, we apply a portfolio approach for determining
the incremental borrowing rate applicable to the lease term. Operating lease expense is recognized on a straight-line
basis over the lease term.
Intangible Assets, Goodwill, and Other Long-Lived Assets — As a result of our acquisitions, we identified and
recorded intangible assets and goodwill. Intangible assets are valued based on estimates of future cash flows and
amortized over their estimated useful lives. Goodwill is subject to annual impairment testing, as well as testing upon the
occurrence of any event that indicates a potential impairment. Intangible assets and other long-lived assets are subject to
an impairment test if there is an indicator of impairment. The carrying value and ultimate realization of these assets is
dependent upon our estimates of future earnings and benefits that we expect to generate from their use. If our
expectations of future results and cash flows are significantly diminished, intangible assets and goodwill may be
impaired and the resulting charge to operations may be material. When we determine that the carrying value of
intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of
impairment, we use the projected undiscounted cash flow method to determine whether an impairment exists, and then
measure the impairment using discounted cash flows.
The estimation of useful lives and expected cash flows requires us to make judgments regarding future periods
that are subject to some factors outside of our control. Changes in these estimates can result in revisions to our carrying
value of these assets and may result in material charges to our results of operations.
58
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
We conduct an annual goodwill impairment analysis using an assessment of qualitative factors in determining if
it is more likely than not that goodwill is impaired. If this assessment indicates that it is more likely than not that
goodwill is impaired, the next step of impairment testing compares the fair value of a reporting unit to its carrying value.
Goodwill would be impaired if the resulting implied fair value of goodwill was less than the recorded carrying value of
the goodwill.
Debt Issuance Costs — We incurred debt issuance costs in connection with our debt facilities. Amounts paid
directly to lenders are classified as issuance costs. Commitment fees and other costs directly associated with obtaining
credit facilities are classified as deferred financing costs, which are recorded in the Consolidated Balance Sheets and
amortized over the term of the debt facility. We allocated deferred debt issuance costs incurred for the current credit
facility between the revolver and term loan based on their relative borrowing capacity. Deferred debt issuance costs
associated with the revolving credit facility are recorded within other assets and those associated with the term loan are
recorded as a reduction of the carrying value of the debt on the Consolidated Balance Sheets. We amortize the majority
of deferred debt issuance costs to interest expense using the effective interest rate method. Deferred debt issuance costs
on the line of credit are amortized on the straight-line basis over the life of the debt agreement. Amortization of debt
issuance costs is reflected in other income (expense), net on the Consolidated Statements of Operations.
See Note 21. Credit Facility for additional details.
Revenue Recognition — Net sales consist of revenue from the sale of products and support services.
We recognize substantially all revenue at a point in time when we satisfy our performance obligations.
Typically, this occurs on shipment of goods because, at that point, we transfer control to our customer. The transaction
price is based upon the standalone selling price. In most transactions, we have no obligations to our customers after the
date products are shipped, other than pursuant to warranty obligations. Revenue is recognized net of any taxes collected
from customers, which are subsequently remitted to governmental authorities. Surcharges, cost recoveries, and shipping
and handling fees billed to customers, if any, are recognized as revenue. The related cost for shipping and handling fees
is recognized in cost of sales. We expense the incremental costs of obtaining contracts when the amortization period of
the costs is less than one year. These costs are included in selling, general, and administrative expenses in our
Consolidated Statements of Operations. Payment terms for customers’ extended credit are typically net 30 days.
Support services include warranty and non-warranty repair services, upgrades, and refurbishments on the
products we sell. Repairs covered under our standard warranty do not generate revenue. We recognize substantially all
non-warranty revenue upon completion of service because that is the point in time when we satisfy our performance
obligation.
As part of our ongoing service business, we satisfy our service obligations under preventative maintenance
contracts and extended warranties, which had previously been offered on our discontinued inverter products. Any up-
front fees received for extended warranties or maintenance plans are deferred. Revenue under these arrangements is
recognized ratably over the underlying terms as we do not have historical information that would allow us to project the
estimated service usage pattern at this time.
Research and Development Expenses — Costs incurred to advance, test, or otherwise modify our proprietary
technology or develop new technologies are considered research and development costs and are expensed when
incurred. These costs are primarily comprised of costs associated with the operation of our laboratories and research
facilities, including internal labor, materials, and overhead.
Warranty Costs — We provide for the estimated costs to fulfill customer warranty obligations upon the
recognition of the related revenue. We offer warranty coverage for a majority of our precision power products for
periods typically ranging from 12 to 24 months after shipment. We warranted our inverter products for five to ten years
and provided the option to purchase additional warranty coverage for up to 20 years. The warranty expense accrued
59
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
related to our standard inverter product warranties is now considered part of our discontinued operations and is recorded
as such on our Consolidated Balance Sheets. See Note 4. Discontinued Operations for more information. See Note 15.
Warranties for more information on our warranties from continuing operations. We estimate the anticipated costs of
repairing our products under such warranties based on the historical costs of the repairs. The assumptions we use to
estimate warranty accruals are reevaluated periodically, considering actual experience, and when appropriate, the
accruals are adjusted. Should product failure rates differ from our estimates, actual costs could vary significantly from
our expectations.
Stock-Based Compensation — Accounting for stock-based compensation requires the measurement and
recognition of compensation expense for all stock-based awards made to employees and directors based on estimated
fair value at the grant date. We utilize the Black-Scholes Merton option pricing model to estimate the fair value of stock
options and Employee Stock Purchase Plan (“ESPP”) purchase rights. This model requires various estimates and
assumptions, including:
Fair value of the common stock
We use the market closing price of our common stock, as reported on the NASDAQ Exchange.
Expected term
The expected term is based on historical experience and represents the period we expect the stock option or
ESPP purchase right to be outstanding.
Expected volatility
We derive the expected volatility from the historical volatility of our common stock over a period equivalent to
the expected term.
Risk -free interest rate
We obtain the risk-free interest rate from the U.S. Treasury yield curve in effect at the time of grant for zero
coupon U.S. Treasury notes with maturities approximately equal to the expected term of the stock-based award.
Expected dividend
The expected dividend is based on the assumption that future dividend payments will follow recent historical
practice.
We estimate the fair value of restricted stock units (“RSUs”) on the grant date. For RSUs that contain a time-
based and/or performance-based vesting condition, we estimate fair value using the closing share price on the grant date.
We record stock-based compensation expense for awards with time-based vesting conditions on a straight-line
basis over the requisite service period. For awards with a performance-based vesting condition, we record stock-based
compensation expense (based on management’s assessment of the probability of meeting the performance conditions)
over the estimated period to achieve the performance conditions. Upon forfeiture or expiration of these awards, we
reverse the stock-based compensation expense.
Certain RSUs vest based on a market condition. We estimate the fair value and probability of achievement for
each tranche of these awards using a Monte Carlo simulation. Because the probability of achievement is a factor in the
Monte Carlo simulation, we recognize stock-based compensation expense over each tranche’s estimated achievement
period even if some or all of the shares never vest.
For all stock awards, we estimate forfeitures at the grant date and revise those estimates in subsequent periods if
actual forfeitures differ from our estimates.
60
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
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. A deferred tax asset or liability is computed for both the
expected future impact of differences between the financial statement and tax basis of assets and liabilities and for the
expected future tax benefit to be derived from tax loss and tax credit carryforwards. Tax rate changes are reflected in the
period such changes are enacted.
We assess the recoverability of our net deferred tax assets and the need for a valuation allowance on a quarterly
basis. Our assessment includes several factors, including historical results and taxable income projections for each
jurisdiction. The ultimate realization of deferred income tax assets is dependent on the generation of taxable income in
appropriate jurisdictions during the periods in which those temporary differences are deductible. We consider the
scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in
determining the amount of the valuation allowance. Based on the level of historical taxable income and projections for
future taxable income over the periods in which the deferred income tax assets are deductible, we determine if we will
realize the benefits of these deductible differences.
Accounting for income taxes requires a two-step approach to recognize and measure uncertain tax positions. In
general, we are subject to regular examination of our income tax returns by the Internal Revenue Service and other tax
authorities. The first step is to evaluate the tax position for recognition by determining, if based on the technical merits, it
is more likely than not that the position will be sustained upon audit, including resolutions of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of
being realized upon ultimate settlement. We regularly assess the likelihood of favorable or unfavorable outcomes
resulting from these examinations to determine the adequacy of our provision for income taxes. This evaluation is based
on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues
under audit, and new audit activity.
Under U.S. GAAP, an accounting policy election can be made to either recognize deferred taxes for temporary
basis differences expected to reverse as global intangible low-tax income (“GILTI”) in future years, or to provide for the
tax expense related to GILTI in the year that the tax is incurred as a period expense only. We have elected to account for
GILTI in the year that the tax is incurred.
Commitments and Contingencies — From time to time we are involved in disputes and legal actions arising in
the normal course of our business. While we currently believe that the amount of any ultimate loss would not be material
to our financial position, the outcome of these actions is inherently difficult to predict. In the event of an adverse
outcome, the ultimate loss could have a material adverse effect on our financial position or reported results of operations
in a particular period. An unfavorable decision, particularly in patent litigation, could require material changes in
production processes and products or result in our inability to ship products or components found to have violated third-
party patent rights. We accrue loss contingencies when it is probable that a loss has occurred or will occur, and the
amount of the loss can be reasonably estimated. Our estimates of probability of losses are subjective, involve significant
judgment and uncertainties, and are based on the best information we have at any given point in time. Resolution of
these uncertainties in a manner inconsistent with our expectations could have a significant impact on our results of
operations and financial condition.
New Accounting Standards
From time to time, the Financial Accounting Standards Board (“FASB”) or other standards setting bodies issue
new accounting pronouncements. Updates to the FASB Accounting Standards Codification (“ASC”) are communicated
through issuance of an Accounting Standards Update (“ASU”). Unless otherwise discussed, we believe that the impact
of recently issued guidance, whether adopted or to be adopted in the future, will not have a material impact on the
consolidated financial statements upon adoption.
61
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
New Accounting Standards Adopted
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 806) Accounting for
Contract Assets and Contract Liabilities from Contracts with Customers.” The amendments in ASU 2021-08 address
diversity and inconsistency related to the recognition and measurement of contract assets and contract liabilities acquired
in a business combination. ASU 2021-08 requires an acquirer to recognize and measure contract assets and contract
liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers.
We adopted ASU 2021-08 on a prospective basis effective January 1, 2022. The adoption will impact business
combinations subsequent to that date and require recognition and measurement of acquired contract assets and liabilities
in accordance with ASC 606. Specifically, we will account for the related revenue contracts of the acquiree as if we
originated the contracts. Adoption of ASU 2021-08 did not impact acquired contract assets or liabilities from prior
business combinations.
New Accounting Standards Issued But Not Yet Adopted
The FASB issued the following ASUs:
Issuance Date
ASU
Title
March 2020
2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting
January 2021
2021-01 Reference Rate Reform (Topic 848): Scope
December 2022 2022-06 Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848
This collective guidance provides optional expedients and exceptions for applying U.S. GAAP to contract
modifications and hedging relationships, subject to meeting certain criteria that reference LIBOR or another reference
rate that is expected to be discontinued. The above accounting standards will be in effect through December 31, 2024.
Our Credit Facility (refer to Note 21. Credit Facility) and interest rate swap agreements (refer to Note 8.
Derivative Financial Instruments) reference the one-month USD LIBOR rate. Both agreements contain provisions for
transition to a new reference rate upon discontinuance of LIBOR. We expect the one-month USD LIBOR rate to be
available through June 2023. We are currently assessing the potential timing of transitioning to a replacement interest
rate benchmark for our Credit Facility (refer to Note 21. Credit Facility) and do not expect the above guidance to
materially impact our consolidated financial statements.
NOTE 2. ACQUISITIONS
SL Power Electronics Corporation
On April 25, 2022, we acquired 100% of the issued and outstanding shares of capital stock of SL Power
Electronics Corporation (“SL Power”), which is based in Calabasas, California. We accounted for this transaction as a
business combination. This acquisition added complementary products to Advanced Energy’s medical power offerings
and extends our presence in several advanced industrial markets.
62
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
The components of the fair value of the total consideration transferred were as follows:
Cash paid for acquisition
Less cash acquired
Total fair value of purchase consideration
$
$
145,616
(3,484)
142,132
We allocated the purchase consideration to the assets acquired and liabilities assumed based on their estimated
fair values as of the acquisition date, with the excess allocated to goodwill.
Current assets and liabilities, net
Property and equipment
Operating lease right-of-use assets
Deferred taxes and other liabilities
Intangible assets
Goodwill
Operating lease liability
Total fair value of net assets acquired
The following table summarizes the intangible assets acquired:
Customer relationships
Technology
Total
Fair Value
11,990
4,191
4,640
(2,335)
57,600
70,686
(4,640)
142,132
$
$
Fair Value
$ 50,500 Straight-line
7,100 Straight-line
Amortization Useful Life
(in years)
10
5
Method
$ 57,600
To estimate the fair value of intangible assets, we used a multi-period excess earnings approach for the
customer relationships and a relief from royalty approach for developed technology. Goodwill represents SL Power’s
assembled workforce and the expected operating synergies from combining operations. We expect approximately 85%
of goodwill to be deductible for tax purposes. We are still evaluating the fair value for the assets acquired and liabilities
assumed. Accordingly, the purchase price allocation presented above is preliminary.
We included SL Power’s results of operations in our consolidated financial statements from the date of
acquisition. The following table summarizes SL Power’s contribution to sales in our Consolidated Statements of
Operations.
Sales, net
Year Ended December 31,
2022
$
50,321
63
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
TEGAM, Inc.
On June 1, 2021, we acquired 100% of the issued and outstanding shares of capital stock of TEGAM, Inc.,
which is based in Geneva, Ohio. We accounted for this transaction as a business combination. This acquisition added
metrology and calibration instrumentation to Advanced Energy’s RF process power solutions in our Semiconductor and
Industrial and Medical markets.
The components of the fair value of the total consideration transferred were as follows:
Cash paid at closing
Cash paid for indemnity holdback released in June 2022
Less cash acquired
Total fair value of purchase consideration
$
$
15,430
1,800
(177)
17,053
We allocated the purchase consideration to the assets acquired and liabilities assumed based on their estimated
fair values as of the acquisition date, with the excess allocated to goodwill.
Current assets and liabilities, net
Property and equipment
Operating lease right-of-use assets
Intangible assets
Goodwill (deductible for tax purposes)
Other
Operating lease liability
Total fair value of net assets acquired
Fair Value
3,475
755
425
6,900
5,917
6
(425)
17,053
$
$
A summary of the intangible assets acquired, amortization method, and estimated useful lives follows:
Technology
Customer relationships
Tradename
Total
Fair Value
Amortization
Method
$ 1,100 Straight-line
5,500 Straight-line
300 Straight-line
Useful Life
(in years)
5
15
5
$ 6,900
Goodwill represents TEGAM’s assembled workforce and the expected operating synergies from combining
operations. We included TEGAM’s results of operations in our consolidated financial statements from the date of
acquisition.
Intangible Assets Acquired
In January 2021, we acquired certain intangible assets related to the manufacturing of fiber optic sensing
equipment for a total purchase price of $6.5 million in cash. These intangible assets have an estimated useful life of
five years. See Note 13. Intangible Assets for additional details.
64
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
NOTE 3. REVENUE
Disaggregation of Revenue
The following tables presents additional information regarding our revenue:
Revenue by Market
Semiconductor Equipment
Industrial and Medical
Data Center Computing
Telecom and Networking
Total
Revenue by Region
North America
Asia
Europe
Other
Total
Revenue by Significant Countries
United States
China
Mexico
All others
Total
$
Years Ended December 31,
2021
710,174 $
341,176
270,924
133,680
2020
611,864
313,646
322,539
167,777
$ 1,845,422 $ 1,455,954 $ 1,415,826
2022
930,809 $
426,763
327,466
160,384
$
2022
857,490
754,997
219,119
13,816
$ 1,845,422
$
2022
723,564
180,355
131,573
809,930
Years Ended December 31,
2021
665,479
597,830
179,056
13,589
100.0 % $ 1,455,954
46.5 % $
40.9
11.9
0.7
45.7 % $
41.1
12.3
0.9
2020
687,821
606,893
117,989
3,123
100.0 % $ 1,415,826
Years Ended December 31,
2021
561,312
188,708
102,199
603,735
38.5 % $
13.0
7.0
41.5
39.2 % $
9.8
7.1
43.9
2020
530,965
173,554
150,896
560,411
$ 1,845,422
100.0 % $ 1,455,954
100.0 % $ 1,415,826
48.6 %
42.9
8.3
0.2
100.0 %
37.5 %
12.3
10.7
39.6
100.0 %
We attribute sales to individual countries and regions based on the customer’s ship to location. Apart from the
United States, no revenue attributable to any individual country exceeded 10% of our total consolidated revenues in
2022.
Revenue by Category
Product
Services
Total
Remaining Performance Obligations
2022
Years Ended December 31,
2021
$ 1,686,053 $ 1,318,213 $ 1,296,867
118,959
$ 1,845,422 $ 1,455,954 $ 1,415,826
159,369
137,741
2020
Our remaining performance obligations primarily relate to customer purchase orders for products we have not
yet shipped. We expect to fulfill the majority of these performance obligations within one year.
65
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
NOTE 4. DISCONTINUED OPERATIONS
In December 2015, we completed the wind down of engineering, manufacturing, and sales of our solar inverter
product line. Accordingly, the results of our inverter business are reflected as income (loss) from discontinued
operations, net of income taxes on our Consolidated Statements of Operations.
We defer revenue associated with sales of extended inverter warranties and include them within customer
deposits and other in our Consolidated Balance Sheets. Deferred revenue for extended inverter warranties and the
associated costs of warranty service will be reflected in Sales and Cost of goods sold, respectively, from continuing
operations in future periods in our Consolidated Statement of Operations as the deferred revenue is earned and the
associated services are rendered. We no longer offer extended warranties related to the inverter product line.
NOTE 5. INCOME TAXES
The geographic distribution of pretax income from continuing operations was as follows:
Domestic
Foreign
Income from continuing operations, before income taxes
$
$
Years Ended December 31,
2021
24,541
124,170
148,711
$
$
$
$
2022
5,969
235,772
241,741
2020
17,526
140,621
158,147
The provision for income taxes from continuing operations is summarized as follows:
Current:
Federal
State
Foreign
Total current provision
Deferred:
Federal
State
Foreign
Total deferred provision (benefit)
Total provision for income taxes
Years Ended December 31,
2021
2022
2020
$
$
23,370
1,949
20,267
45,586
$
(2,468)
929
14,217
12,678
(6,742)
(1,030)
2,036
(5,736)
39,850
762
(200)
764
1,326
14,004
$
$
$
5,475
1,927
16,216
23,618
(312)
1,270
(1,580)
(622)
22,996
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.
Our effective tax rate decreased in 2021 compared to 2020, primarily driven by one-time tax benefits due to
reductions in uncertain tax positions and increased tax credits.
66
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
The principal causes of the difference between the federal statutory rate and the effective income tax rate for
each of the years below are as follows:
Income taxes per federal statutory rate
State income taxes, net of federal deduction
U.S. tax on foreign operations
Foreign derived intangible income deduction
Tax effect of foreign operations
Uncertain tax positions
Audit settlements
Unremitted earnings
Tax credits
Change in valuation allowance
Withholding taxes
Executive compensation limitation
Other permanent items, net
Total provision for income taxes
$
2022
Years Ended December 31,
2021
31,229
534
5,786
(3,927)
(11,520)
(6,899)
7,764
261
(6,149)
(73)
756
1,926
(5,684)
14,004
$ 50,766 $
510
28,726
(6,259)
(28,432)
1,080
34
—
(5,857)
—
413
641
(1,772)
$ 39,850 $
2020
33,211
2,793
9,666
(4,070)
(20,527)
(3,215)
—
(567)
(2,292)
(1,175)
4,265
1,070
3,837
22,996
$
Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the
carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in
which the differences are expected to be reversed. Significant deferred tax assets and liabilities consist of the following:
Deferred tax assets
Net operating loss and tax credit carryforwards
Interest expense limitation
Pension obligation
Employee bonuses and commissions
Depreciation and amortization
Operating lease liabilities
Other
Deferred tax assets
Less: Valuation allowance
Net deferred tax assets
Deferred tax liabilities
Depreciation and amortization
Unremitted earnings
Operating lease right-of-use assets
Other
Deferred tax liabilities
Net deferred tax assets
December 31,
2022
December 31,
2021
$
47,733 $
7,282
7,301
9,276
25,879
10,136
17,102
124,709
(36,046)
88,663
54,210
7,344
10,778
3,861
26,358
19,405
20,288
142,244
(42,051)
100,193
35,678
4,115
8,392
1,801
49,986
38,677 $
$
37,515
4,435
17,558
3,364
62,872
37,321
Of the $38.7 million and $37.3 million net deferred tax asset on December 31, 2022 and 2021, respectively,
$48.1 million and $47.2 million, respectively, are included as a net non-current deferred tax asset within other assets on
the Consolidated Balance Sheets. $9.4 million and $9.9 million, respectively, are included as a net non-current deferred
tax liability within other long-term liabilities on the Consolidated Balance Sheets.
67
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
As of December 31, 2022, we have recorded a valuation allowance on $2.9 million of our U.S. domestic
deferred tax assets, largely attributable to state carryforward attributes that are expected to expire before sufficient
income can be realized in those jurisdictions. The remaining valuation allowance on deferred tax assets approximates
$33.1 million and is associated primarily with operations in Germany, Hong Kong, and Switzerland. As of December 31,
2022, there is not sufficient positive evidence to conclude that such deferred tax assets, presently reduced by a valuation
allowance, will be recognized. The December 31, 2022 valuation allowance balance reflects a decrease of $6.0 million
during the year. The change in the valuation allowance is primarily due to decreases from foreign exchange movements
and current year activity.
As of December 31, 2022, we had U.S., foreign and state tax loss carryforwards of $45.2 million,
$120.1 million, and $106.5 million, respectively. Additionally, we had $0.7 million and $30.5 million of capital loss and
interest expense limitation carryforwards, respectively. Finally, we had U.S. and state tax credit carryforwards of
$0.9 million and $1.9 million, respectively. The U.S. and state net operating losses, tax credits, and interest expense
limitation are subject to various utilization limitations under Section 382 of the Internal Revenue Code and applicable
state laws. These Section 382 limited attributes have various expiration periods through 2036 or, in the case of the
interest expense limitation amount, no expiration period. Much of the foreign loss carryforwards, and $8.0 million of the
federal net operating loss carry forwards, have no expiration period.
We operate under a tax holiday in Singapore and China. These tax holidays are in effect through June 30, 2027
and December 31, 2022, respectively. The tax holiday is conditional upon our meeting certain employment and
investment thresholds. The impact of the tax holidays decreased foreign taxes by $19.4 million and $13.3 million for
2022 and 2021, respectively. The benefit of the tax holiday on earnings per diluted share was $0.52 and $0.35 for 2022
and 2021, respectively.
As of December 31, 2022, we have undistributed earnings in certain foreign subsidiaries of approximately
$33.3 million that we have indefinitely invested, and on which we have not recognized deferred taxes. Estimating the
amount of potential tax is not practicable because of the complexity and variety of assumptions necessary to compute the
tax.
We account for uncertain tax positions by applying a minimum recognition threshold to tax positions before
recognizing these positions in the consolidated financial statements. The following table provides a reconciliation of our
total gross unrecognized tax benefits, which we include within other long-term liabilities on the Consolidated Balance
Sheets:
Balance at beginning of period
Additions based on tax positions taken during a prior period
Additions based on tax positions taken during a prior period -
acquisitions
Additions based on tax positions taken during the current period
Reductions based on tax positions taken during a prior period
Reductions related to a lapse of applicable statute of limitations
Reductions related to a settlement with taxing authorities
Balance at end of period
$
$
5,513
245
1,025
836
—
(152)
—
$
7,467
—
566
—
(4,575)
(1,114)
5,513
$
Years Ended December 31,
2021
2022
$
9,673
963
$
2020
13,009
219
—
—
—
(3,555)
—
9,673
The unrecognized tax benefits of $7.5 million, if recognized, will impact our effective tax rate. In accordance
with our accounting policy, we recognize accrued interest and penalties related to unrecognized tax benefits as a
component of tax expense. We had $0.6 million and $0.4 million of accrued interest and penalties on December 31, 2022
68
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
and 2021, respectively. With few exceptions, we are no longer subject to federal, state, or foreign income tax
examinations by tax authorities for years before 2019.
The Inflation Reduction Act (“IRA”) and CHIPS and Science Act (“CHIPS Act”) were both enacted in
August 2022. The IRA introduced new provisions including a 15% corporate alternative minimum tax for certain large
corporations that have at least an average of $1 billion adjusted financial statement income over a consecutive three-tax-
year period and a 1% excise tax surcharge on stock repurchases. The CHIPS Act provides a variety of incentives
associated with investments in domestic semiconductor manufacturing and related activities. The IRA and the CHIPS
Act are applicable for tax years beginning after December 31, 2022 and had no benefit to our consolidated financial
statements for any of the periods presented, and we do not expect them to have a direct material impact on our future
results of operations, financial condition, or cash flows.
NOTE 6. EARNINGS PER SHARE
We compute basic earnings per share (“EPS”) by dividing income available to common stockholders by the
weighted-average number of common shares outstanding during the period. The diluted EPS computation is similar to
basic EPS except we increase the denominator to include the number of additional common shares that would have been
outstanding (using the if-converted and treasury stock methods) if our outstanding stock options and restricted stock
units had been converted to common shares (when such conversion is dilutive).
The following table summarizes our earnings per share:
Income from continuing operations
Less: income from continuing operations attributable to noncontrolling interest
Income from continuing operations attributable to Advanced Energy Industries,
Inc.
Years Ended December 31,
2021
2022
$ 201,891 $ 134,707
44
16
2020
$ 135,151
55
$ 201,875 $ 134,663
$ 135,096
Basic weighted-average common shares outstanding
Assumed exercise of dilutive stock options and restricted stock units
Diluted weighted-average common shares outstanding
37,463
258
37,721
38,143
212
38,355
38,314
228
38,542
Continuing operations:
Basic earnings per share
Diluted earnings per share
Share Repurchases
$
$
5.39 $
5.35 $
3.53
3.51
$
$
3.53
3.51
To execute the repurchase of shares of our common stock, we periodically enter into stock repurchase
agreements. The following table summarizes these repurchases:
(in thousands, except per share amounts)
Amount paid or accrued to repurchase shares
Number of shares repurchased
Average repurchase price per share
69
2022
$ 26,635
356
74.90
Years Ended December 31,
2021
78,125
901
86.76
$
$
$
$
$
2020
11,630
244
47.75
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
There were no shares repurchased from related parties. Repurchased shares were retired and assumed the status
of authorized and unissued shares.
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. At
December 31, 2022, the remaining amount authorized by the Board of Directors for future share repurchases was
$199.3 million.
NOTE 7. FAIR VALUE MEASUREMENTS
The following tables present information about our assets and liabilities measured at fair value on a recurring
basis.
Description
Balance Sheet Classification
Level 1
Level 2
Level 3
Total
Fair Value
December 31, 2022
Assets:
Certificates of deposit
Interest rate swaps
Total assets measured at fair value on a
recurring basis
Other current assets
Other assets
$ — $ 2,128 $
—
15,310
— $ 2,128
15,310
—
$ — $ 17,438 $
— $ 17,438
December 31, 2021
Description
Balance Sheet Classification
Level 1
Level 2
Level 3
Total
Fair Value
Assets:
Certificates of deposit
Interest rate swaps
Total assets measured at fair value on a
recurring basis
Liabilities:
Other current assets
Other assets
$ — $ 2,296 $
—
2,739
— $ 2,296
2,739
—
$ — $ 5,035 $
— $ 5,035
Contingent consideration
Other current liabilities
$ — $
— $ 1,738
$ 1,738
Total liabilities measured at fair value on a
recurring basis
$ — $
— $ 1,738
$ 1,738
For all periods presented, there were no transfers into or out of Level 3.
NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS
Changes in foreign currency exchange rates impact us. We may manage these risks through the use of
derivative financial instruments, primarily forward contracts with banks. These forward contracts manage the exchange
rate risk associated with assets and liabilities denominated in nonfunctional currencies. Typically, we execute these
derivative instruments for one-month periods and do not designate them as hedges; however, they do partially offset the
economic fluctuations of certain of our assets and liabilities due to foreign exchange rate changes.
Gains and losses related to foreign currency exchange contracts were offset by corresponding gains and losses
on the revaluation of the underlying assets and liabilities. Both are included as a component of other income (expense),
70
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
net in our Consolidated Statements of Operations. As of December 31, 2022 and 2021, there were no foreign currency
forward contracts outstanding.
In April 2020, we executed interest rate swap contracts with independent financial institutions to partially
reduce the variability of cash flows in LIBOR indexed debt interest payments on our Term Loan Facility (under our
existing Credit Agreement dated September 10, 2019, as amended). These transactions are accounted for as cash flow
hedging instruments.
The interest rate swap contracts fixed a portion of the outstanding principal balance on our term loan to a total
interest rate of 1.271%. This is comprised of an 0.521% average fixed rate per annum in exchange for a variable interest
rate based on one-month USD-LIBOR-BBA plus the credit spread in our existing Credit Agreement (see Note 21. Credit
Facility), which is 75 basis points at current leverage ratios.
The following table summarizes the notional amount of our qualified hedging instruments:
Interest rate swap contracts
December 31, December 31,
2022
2021
$ 238,219 $ 255,719
The following table summarizes the amounts recorded in accumulated other comprehensive income (loss) on
the Consolidated Balance Sheets for qualifying hedges.
Interest rate swap contract gains
December 31, December 31,
2022
11,779 $
2021
2,107
$
See Note 7. Fair Value Measurements for information regarding the fair value of derivative instruments.
As a result of using derivative financial instruments, we are exposed to the risk that counterparties to contracts
could fail to meet their contractual obligations. We manage this credit risk by reviewing counterparty creditworthiness
on a regular basis and limiting exposure to any single counterparty.
NOTE 9. ACCOUNTS AND OTHER RECEIVABLE, NET
We record accounts and other receivable at net realizable value. Components of accounts and other receivable,
net of reserves, were as follows:
Amounts billed, net
Unbilled receivables
Total receivables, net
December 31, December 31,
2022
2021
$ 283,617 $ 217,549
19,678
$ 300,683 $ 237,227
17,066
“Amounts billed, net” represents amounts invoiced to customers in accordance with our terms and conditions.
These receivables are short term in nature and do not include any financing components.
“Unbilled receivables” consist of amounts where we satisfied our contractual obligations associated with
customer inventory stocking agreements. Such amounts typically become billable upon the customer’s consumption of
the inventory. We anticipate invoicing and collecting substantially all unbilled receivables within the next 12 months.
71
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
The following table summarizes the changes in expected credit losses related to receivables:
Balance at beginning of period
Additions
Deductions - write-offs, net of recoveries
Foreign currency translation
Other
Balance at end of period
NOTE 10. INVENTORIES
December 31, December 31,
2022
5,784 $
441
(4,381)
(30)
—
1,814 $
2021
7,602
135
(687)
(18)
(1,248)
5,784
$
$
We value inventories at the lower of cost or net realizable value and computed on a first-in, first-out basis.
Components of inventories were as follows:
Parts and raw materials
Work in process
Finished goods
Total
NOTE 11. PROPERTY AND EQUIPMENT, NET
Property and equipment, net is comprised of the following:
December 31, December 31,
2022
286,955 $
23,002
66,055
376,012 $
$
$
2021
261,365
24,222
52,823
338,410
Buildings, machinery, and equipment
Computer equipment, furniture, fixtures, and vehicles
Leasehold improvements
Construction in process
Less: Accumulated depreciation
Property and equipment, net
Estimated Useful December 31, December 31,
Life (in years)
2022
2021
5 to 25
3 to 5
2 to 10
$ 165,673 $ 134,635
33,490
48,370
5,914
222,409
(107,579)
$ 148,462 $ 114,830
36,281
63,103
18,226
283,283
(134,821)
72
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
The following table summarizes property and equipment by geographic area:
United States
Asia
Europe and other
Total
December 31,
2022
43,963 $
98,684
5,815
2021
22,860
87,283
4,687
148,462 $ 114,830
$
$
The following table summarizes depreciation expense. All depreciation expense is recorded in income from
continuing operations.
Depreciation expense
NOTE 12. GOODWILL
The following table summarizes the changes in goodwill:
Balance at beginning of period
Measurement period adjustments
Additions from acquisition
Foreign currency translation
Balance at end of period
Years Ended December 31,
2021
2022
$ 34,182 $ 30,833
2020
$ 27,641
December 31, December 31,
2022
2021
$ 212,190 $ 209,983
(1,426)
5,877
(2,244)
$ 281,433 $ 212,190
40
70,686
(1,483)
Additions and adjustments are the result of business combinations. Refer to Note 2. Acquisitions.
73
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
NOTE 13. INTANGIBLE ASSETS
Intangible assets consisted of the following:
Gross Carrying Accumulated Net Carrying
December 31, 2022
Technology
Customer relationships
Trademarks and other
Total
Technology
Customer relationships
Trademarks and other
Total
Amount
Amortization
Amount
50,041
97,237 $ (47,196) $
122,857
(44,774)
167,631
27,036
16,628
(10,408)
291,904 $ (102,378) $ 189,526
$
$
Gross Carrying Accumulated Net Carrying
December 31, 2021
Amount
Amortization
Amount
55,607
91,461 $ (35,854) $
84,519
(34,187)
118,706
27,244
19,280
(7,964)
237,411 $ (78,005) $ 159,406
$
$
At December 31, 2022, the weighted average remaining useful life of intangibles subject to amortization was
9.1 years.
Amortization expense related to intangible assets was as follows:
Years Ended December 31,
2021
22,060 $
$
2022
26,114
$
$
2020
20,129
28,242
25,175
20,976
19,260
17,357
78,516
189,526
Amortization expense
$
Estimated amortization expense related to intangibles is as follows:
Year Ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total
74
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
NOTE 14. RESTRUCTURING COSTS
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 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 2022 Plan will be substantially completed, and
associated expenses will be incurred by 2024.
In 2018, we committed to a restructuring plan (the “2018 Plan”) to optimize our manufacturing footprint and to
improve our operating efficiencies and synergies related to business combinations. We incurred severance costs
primarily related to the transition and exit of our facility in Shenzhen, China and actions associated with synergies
related to the acquisition of Artesyn Embedded Technologies, Inc.’s embedded power business (“Artesyn”). This plan is
substantially complete with the final closure of our Shenzhen facility expected in early 2023. The table below
summarizes the charges related to our restructuring plans:
Severance and related charges
Facility relocation and closure charges
Total restructuring charges
$
$
2022
Years Ended December 31,
2021
9,632
3,467 $
3,534
1,285
4,752 $ 13,166
6,469 $
345
6,814 $
2020
Severance and related charges
Facility relocation and closure charges
Total restructuring charges
$
$
$
—
$
5,788
21,061 $
7,160
28,221 $
26,849
7,160
34,009
Cumulative Cost
Through
December 31,
2018 Plan
2022
2022 Plan
5,788
Our restructuring liabilities are included in other accrued expenses in our Consolidated Balance Sheets.
Changes in restructuring liabilities were as follows:
2022 Plan 2018 Plan
— $ 10,641
4,752
—
(6,127)
—
(3)
—
9,263
— $
1,026
(8,751)
(116)
1,422
5,788
—
—
5,788
$
December 31, 2020
Costs incurred and charged to expense
Costs paid or otherwise settled
Foreign currency translation
December 31, 2021
Costs incurred and charged to expense
Costs paid or otherwise settled
Foreign currency translation
December 31, 2022
$
$
$
75
Total
$ 10,641
4,752
(6,127)
(3)
9,263
6,814
(8,751)
(116)
7,210
$
$
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
NOTE 15. WARRANTIES
Our sales agreements include customary product warranty provisions, which generally range from
12 to 24 months after shipment. We record the estimated warranty obligations cost when we recognize revenue. This
estimate is based on historical experience by product and configuration.
Our estimated warranty obligation is included in other accrued expenses in our Consolidated Balance Sheets.
Changes in our product warranty obligation were as follows:
Balance at beginning of period
Additions from acquisitions
Increases to accruals
Warranty expenditures
Effect of changes in exchange rates
Balance at end of period
NOTE 16. LEASES
Components of operating lease cost were as follows:
Operating lease cost
Short-term and variable lease cost
Total operating lease cost
Maturities of our operating lease liabilities are as follows:
Year Ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total lease payments
Less: Interest
Present value of lease liabilities
Years Ended December 31,
2022
3,350
181
5,620
(3,408)
(41)
5,702
2021
4,780
—
3,165
(4,587)
(8)
3,350
$
$
$
$
2022
Years Ended December 31,
2021
$ 22,626 $ 23,443
2,555
2020
$ 22,920
1,895
$ 27,464 $ 25,998 $ 24,815
4,838
$
$
21,476
19,019
15,508
13,458
11,857
57,760
139,078
(27,847)
111,231
The following tables present additional information about our lease agreements:
Weighted average remaining lease term (in years)
Weighted average discount rate
December 31,
2022
December 31,
2021
8.9
4.6 %
9.8
4.5 %
76
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
Cash paid for operating leases
Right-of-use assets obtained in exchange for operating lease liabilities
Year Ended December 31,
2021
23,668 $
$
16,399
2022
22,287 $
17,022 $
2020
21,877
33,741
$
$
NOTE 17. EMPLOYEE RETIREMENT PLANS AND POSTRETIREMENT BENEFITS
Defined Contribution Plans
We have a 401(k) profit-sharing and retirement savings plan covering substantially all full-time
U.S. employees. Participants may defer up to the maximum amount allowed permitted by law. Participants are
immediately vested in both their own contributions and profit-sharing contributions. Profit-sharing contributions, which
are discretionary, are approved by the Board of Directors. For the year ended December 31, 2022 we based our profit-
sharing contribution on matching 100% of employee contributions up to 3% of compensation plus an additional match of
50% on the next 2% of compensation. For the years ended December 31, 2021 and 2020 we based our profit-sharing
contribution on matching 50% of employee contributions up to 6% of the employee’s compensation.
During the years ended December 31, 2022, 2021, and 2020 we recognized total defined contribution plan costs
of $4.5 million, $3.1 million, and $2.6 million, respectively.
Defined Benefit Plans
We maintain defined benefit pension plans for certain of our non-U.S. employees in the United Kingdom,
Germany, and Philippines. Each plan is managed locally and in accordance with respective local laws and regulations.
To measure the expense and related benefit obligation, we make various assumptions, including discount rates
used to value the obligation, expected return on plan assets used to fund these expenses, and estimated future inflation
rates. We base these assumptions on historical experience as well as current facts and circumstances. We use an actuarial
analysis to measure the expense and liability associated with pension benefits.
The information provided below includes one pension plan which is part of discontinued operations. As such,
for all periods presented, all related expenses are reported in discontinued operations in the Consolidated Statements of
Operations.
77
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
Our projected benefit obligation and plan assets for defined benefit pension plans and the related assumptions
used to determine the related liabilities are as follows:
Projected benefit obligation, beginning of year
Service cost
Interest cost
Actuarial gain
Benefits paid
Translation adjustment
Projected benefit obligation, end of year
Fair value of plan assets, beginning of year
Expected return
Contributions
Benefits paid
Actuarial gain (loss)
Translation adjustment
Fair value of plan assets, end of year
Funded status of plan
Years Ended December 31,
2022
$ 85,776
1,133
1,819
(23,677)
(1,502)
(7,029)
56,520
$ 18,521
535
1,430
(1,124)
(5,060)
(1,813)
12,489
$ (44,031)
2021
$ 97,740
1,282
1,452
(8,682)
(2,010)
(4,006)
85,776
$ 17,293
641
1,775
(1,112)
71
(147)
18,521
$ (67,255)
The components of net periodic pension benefit cost recognized in our Consolidated Statements of Operations
for the periods presented are as follows:
Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial gains and losses
Net periodic pension cost
$
$
Assumptions used in the determination of the net periodic pension cost are:
Years Ended December 31,
2021
1,282
1,452
(642)
820
2,912
2022
1,133 $
1,819
(535)
322
2,739 $
$
$
2020
1,068
1,716
(683)
459
2,560
Years Ended December 31,
2021
2020
2022
Discount rate
Expected long-term return on plan assets
2.6 %
3.2 %
1.6 %
3.2 %
1.8 %
3.7 %
The fair value of our qualified pension plan assets by category was as follows:
Diversified Growth Fund
Corporate Bonds
Insurance Contracts
Cash
Total
Level 1
Level 2
Level 3
Total
December 31, 2022
$
$
— $
—
—
258
258
$
9,100
2,333
—
—
11,433
$
$
—
—
798
—
798
$
$
9,100
2,333
798
258
12,489
78
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
Diversified Growth Fund
Corporate Bonds
Insurance Contracts
Cash
Total
Level 1
Level 2
Level 3
Total
December 31, 2021
$
$
— $
—
—
648
648
$
12,249
4,640
$
—
—
$
16,889
—
—
984
—
984
$
$
12,249
4,640
984
648
18,521
The diversified growth fund aims to generate an “equity-like” return over an economic cycle with significantly
reduced volatility relative to equity markets and has the scope to use a diverse range of asset classes, including equities,
bonds, cash, and alternatives (e.g., property, infrastructure, high yield bonds, floating rate debt, private, equity, hedge
funds and currency). These investments are intended to provide a degree of protection against changes in the value of
our plan’s liabilities related to changes in long-term expectations for interest rates and inflation.
Expected future payments during the next ten years for our defined benefit pension plans are as follows:
Year Ending December 31,
2023
2024
2025
2026
2027
2028 to 2032
$
1,755
2,771
2,274
4,698
3,421
20,085
NOTE 18. STOCK-BASED COMPENSATION
The Board of Directors Compensation Committee administers our stock plans. As of December 31, 2022, we
had two active stock-based incentive compensation plans: the 2017 Omnibus Incentive Plan (“the 2017 Plan”) and the
ESPP. We issue all new equity compensation grants under these two plans; however, outstanding awards previously
issued under inactive plans will continue to vest and remain exercisable in accordance with the terms of the respective
plans.
On May 4, 2017, the stockholders approved the 2017 Plan, and all shares that were then available for issuance
under the 2008 Omnibus Incentive Plan (“the 2008 Plan”) are now available for issuance under the 2017 Plan. The 2017
Plan and 2008 Plan provide for the grant of stock options, stock appreciation rights, restricted stock, stock units
(including deferred stock units), unrestricted stock, and dividend equivalent rights. Any of the awards issued may be
issued as performance-based awards to align stock compensation awards to the attainment of annual or long-term
performance goals.
The following table summarizes information related to our stock-based incentive compensation plans:
Shares available for future issuance under the 2017 Omnibus Incentive Plan
Shares available for future issuance under the Employee Stock Purchase Plan
December 31, 2022
1,475
619
79
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
Stock-based Compensation Expense
We recognize stock-based compensation expense based on the fair value of the awards issued and the functional
area of the employee receiving the award. Stock-based compensation was as follows:
Stock-based compensation expense
$ 19,849 $ 15,739
Years Ended December 31,
2021
2022
2020
$ 12,272
Estimated forfeiture rates for our stock-based compensation expense applicable to stock options and RSUs were
approximately 9%, 8% and 5% for the years ended December 31, 2022, 2021 and 2020, respectively.
Restricted Stock Units
Generally, we grant RSUs with a three-year time-based vesting schedule. Certain RSUs contain performance-
based or market-based vesting conditions in addition to the time-based vesting requirements. RSUs are generally granted
with a grant date fair value based on the market price of our stock on the date of grant.
Changes in our unvested RSUs were as follows:
Year Ended December 31, 2022
RSUs outstanding at beginning of period
RSUs granted
RSUs vested
RSUs forfeited
RSUs outstanding at end of period
Number of
RSUs
Weighted-
Average
Grant Date
Fair Value
76.37
74.62
83.16
61.39
78.46
627 $
593 $
(162) $
(255) $
803 $
The total intrinsic value of RSUs converted to shares for the years ended December 31, 2022, 2021 and 2020
was $13.6 million, $19.2 million, and $9.2 million, respectively. As of December 31, 2022, there was $35.3 million of
total unrecognized compensation cost, net of expected forfeitures, related to non-vested RSUs, that we expect to
recognize through December 2025, with a weighted-average remaining vesting period of 1.3 years.
Stock Options
Generally, we grant stock option awards with an exercise price equal to the market price of our stock at the date
of grant and with either a three or four-year vesting schedule or performance-based vesting. Stock option awards
generally have a term of ten years.
80
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
Changes in our stock options were as follows:
Year Ended December 31, 2022
Weighted-
Average
Weighted-
Average
Remaining
Number of Exercise Price
Options outstanding at beginning of period
Options granted
Options exercised
Options outstanding at end of period
Options vested at end of period
Options
112
76
(37)
151
75
$
$
$
$
$
per Share
Contractual Life
24.41
85.97
23.26
55.48
24.97
5.63 years
2.04 years
The total intrinsic value of options exercised for the years ended December 31, 2022, 2021 and 2020 was
$2.6 million, $2.6 million, and $1.9 million, respectively. Options outstanding on December 31, 2022 have aggregate
intrinsic value of $4.6 million. As of December 31, 2022, there was $1.8 million of total unrecognized compensation
cost, net of expected forfeitures, related to the unvested options that we expect to recognize over a remaining period of
2.2 years.
Employee Stock Purchase Plan
The ESPP, a stockholder-approved plan, provides for the issuance of rights to purchase up to 1.5 million shares
of common stock. Most employees are eligible to participate in the ESPP if employed for at least 20 hours per week
during at least five months per calendar year. Participating employees may contribute up to the lesser of 15% of their
eligible earnings or $5,000 during each plan period. Currently, the plan period is six months. The purchase price of
common stock purchased under the ESPP is currently equal to the lower of 1) 85% of the fair market value of our
common stock on the commencement date of each plan period or 2) 85% of the fair market value of our common shares
on each plan period purchase date.
As of December 31, 2022, there was $0.5 million of total unrecognized compensation cost related to the ESPP
that we expect to recognize over a remaining period of five months.
Estimating Fair Value
We estimated the fair value of each stock option and ESPP purchase right on the grant date using the Black-
Scholes-Merton option pricing model with the following assumptions:
Stock Options
Risk-free interest rate
Expected dividend yield rate
Expected term
Expected volatility
Weighted average grant date fair value of options granted
ESPP
Risk-free interest rates
Expected dividend yield rate
Expected term
Expected volatility
Year Ended December 31,
2022
2.18 %
0.5 %
4.7 years
48.6 %
$ 35.84
2022
Years Ended December 31,
2021
1.63% - 4.65% % 0.04% - 0.10 % 0.10% - 0.18% %
— %
— %
0.1 %
2020
0.5 years
0.5 years
0.5 years
43.7 %
42.7 %
70.1 %
81
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
NOTE 19. COMMITMENTS AND CONTINGENCIES
We are involved in disputes and legal actions arising in the normal course of our business. While we currently
believe that the amount of any ultimate loss would not be material to our financial position, the outcome of these actions
is inherently difficult to predict. In the event of an adverse outcome, the ultimate loss could have a material adverse
effect on our financial position or reported results of operations. An unfavorable decision in intellectual property
litigation also could require material changes in production processes and products or result in our inability to ship
products or components found to have violated third-party intellectual property rights. We accrue loss contingencies in
connection with our commitments and contingencies, including litigation, when it is probable that a loss has occurred,
and the amount of the loss can be reasonably estimated. We are not currently a party to any legal action that we believe
would reasonably have a material adverse impact on our business, financial condition, results of operations or cash
flows.
NOTE 20. SIGNIFICANT CUSTOMER INFORMATION
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 year ended December 31, 2021 and 18% and 10%, respectively, of our total revenue during the year ended
December 31, 2020.
As of December 31, 2022 and 2021, the account receivable balance from Applied Materials, Inc. accounted for
18% of our total accounts receivable. No other customer’s account receivable exceeded 10% of our total accounts
receivable in the periods presented.
NOTE 21. CREDIT FACILITY
In September 2019, in connection with the acquisition of Artesyn, we entered into a credit agreement (“Credit
Agreement”) that provided aggregate financing of $500.0 million, consisting of a $350.0 million senior unsecured term
loan facility (the “Term Loan Facility”) and a $150.0 million senior unsecured revolving facility (the “Revolving
Facility” and together with the Term Loan Facility, the “Credit Facility”).
In September 2021, we amended the Credit Agreement whereby we borrowed an additional $85.0 million,
which increased the aggregate amount outstanding under the Term Loan Facility to $400.0 million. In addition, we
increased the Revolving Facility capacity by $50.0 million to $200.0 million. Both the Term Loan Facility and
Revolving Facility mature on September 9, 2026.
The following table summarizes borrowings under our Credit Facility and the associated interest rate.
December 31, 2022
Balance
$ 238,219
136,781
—
$ 375,000
Interest Rate Unused Line Fee
—
—
0.10%
1.271%
5.134%
5.134%
Term Loan Facility subject to a fixed interest rate due to interest rate swap
Term Loan Facility subject to a variable interest rate
Revolving Facility subject to a variable interest rate
Total borrowings under the Credit Agreement
82
ADVANCED ENERGY INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
(in thousands, except per share amounts)
For more information on the interest rate swap that fixes the interest rate for a portion of our Term Loan
Facility, see Note 8. Derivative Financial Instruments. The Term Loan Facility and Revolving Facility bear interest, at
our option, at a rate based on a reserve adjusted “Eurodollar Rate” or “Base Rate,” as defined in the Credit Agreement,
plus an applicable margin.
For all periods presented, we were in compliance with the Credit Agreement covenants. The following table
summarizes our availability to withdraw on the Revolving Facility.
Available capacity on Revolving Facility
December 31, December 31,
2022
200,000 $
$
2021
200,000
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.
The fair value of the Term Loan Facility approximates the outstanding balance of $375.0 million as of
December 31, 2022.
The debt obligation on our Consolidated Balance Sheets consists of the following:
Term Loan Facility
Less: debt discount
Total debt
Less current portion of long-term debt
Total long-term debt
December 31, December 31,
2022
375,000 $
(1,738)
373,262
(20,000)
353,262 $
$
$
2021
395,000
(2,267)
392,733
(20,000)
372,733
Contractual maturities of our debt obligations, excluding amortization of debt issuance costs, are as follows:
Year Ending December 31,
2023
2024
2025
2026
Total
$
$
20,000
20,000
20,000
315,000
375,000
Interest expense and unused line of credit fees were recorded in other income (expense), net in our Consolidated
Statements of Operations as follows:
Interest expense
Amortization of debt issuance costs
Unused line of credit fees and other
Total interest expense
$
$
83
Years Ended December 31,
2021
3,969
822
168
4,959
2022
6,607 $
547
202
7,356 $
$
$
2020
5,080
519
153
5,752
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures, which are designed to ensure that information required
to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded,
processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission’s
rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed
to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is
accumulated and communicated to management, including our Principal Executive Officer (Stephen D. Kelley,
President and Chief Executive Officer) and Principal Financial Officer (Paul Oldham, Chief Financial Officer), as
appropriate, to allow timely decisions regarding required disclosures.
As of the end of the period covered by this report, we conducted an evaluation, with the participation of
management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the disclosure controls and procedures pursuant to the Exchange Act Rule 13a 15(b). Based upon this
evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of December 31, 2022. The conclusions of the Chief Executive Officer and Chief Financial
Officer from this evaluation were communicated to the Audit and Finance Committee. Management recognizes that any
controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving
their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. We intend to continue to review and document our disclosure controls and procedures,
including our internal controls over financial reporting, and may from time to time make changes aimed at enhancing
their effectiveness and to ensure that our systems evolve with our business.
Management’s Annual Report on Internal Control over Financial Reporting
It is management’s responsibility to establish and maintain effective internal control over our financial
reporting, which is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer
and effected by our Board of Directors, management, and other personnel. Our internal control over financial reporting
is designed to provide reasonable assurance concerning the reliability of our financial reporting and the preparation of
our financial statements for external purposes in accordance with generally accepted accounting principles.
In April 2022, we acquired SL Power. Refer to Note 2. Acquisitions in Part II, Item 8 “Financial Statements and
Supplementary Data” for additional information. SL Power’s objectives regarding internal controls over financial
reporting are consistent, in all material respects, with Advanced Energy’s objectives. We are in the process of
completing a more comprehensive review of SL Power’s internal control over financial reporting and will be
implementing changes to better align their reporting and controls with the rest of Advanced Energy. As a result of the
timing of the acquisition, anticipated changes, and general guidance issued by the SEC regarding exclusion of certain
acquired businesses, we excluded SL Power from Advanced Energy’s December 31, 2022 assessment of internal
controls over financial reporting. SL Power accounted for approximately 2% of our total assets at December 31, 2022,
and 3% of our total net sales for the year ended December 31, 2022.
Management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of our internal control over financial reporting as of December 31, 2022, using the criteria described in
Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based upon this evaluation, management concluded that our internal control over financial reporting was
effective as of December 31, 2022.
84
Ernst & Young LLP, an independent registered public accounting firm, has audited our consolidated financial
statements included in this Form 10-K, and as part of the audit, has issued an audit report, included herein, on the
effectiveness of our internal control over financial reporting as of December 31, 2022.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during 2022 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Controls and Procedures
Management has concluded that our disclosure controls and procedures and internal control over financial
reporting provide reasonable assurance that the objectives of our control system are met. We do not expect, however,
that our disclosure controls and procedures or internal control over financial reporting will prevent or detect all
misstatements, errors, or fraud, if any. All control systems, no matter how well designed and implemented, have inherent
limitations, and therefore no evaluation can provide absolute assurance that every misstatement, error, or instance of
fraud, if any, or risk thereof, has been or will be prevented or detected. The occurrence of a misstatement, error, or fraud,
if any, would not necessarily require a conclusion that our controls and procedures are not effective.
ITEM 9B. OTHER INFORMATION
Not applicable.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
In accordance with General Instruction G (3) of Form 10-K, certain information required by this Part III is
incorporated by reference to the definitive proxy statement relating to our 2023 annual meeting of stockholders (the
“2023 Proxy Statement”), as set forth below. The 2023 Proxy Statement will be filed with the Securities and Exchange
Commission within 120 days after the end of our fiscal year.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information set forth in the 2023 Proxy Statement under the headings “Management” and “Proposal No. 1 -
Election of Directors” is incorporated herein by reference.
We adopted a Code of Ethical Conduct that applies to all employees, including our Chief Executive Officer,
Chief Financial Officer, and others performing similar functions. We posted a copy of the Code of Ethical Conduct on
our website at www.advancedenergy.com, and such Code of Ethical Conduct is available, in print, without charge, to
any stockholder who requests it from the Company’s Secretary. We intend to satisfy the disclosure requirements under
Item 5.05 of Form 8-K regarding amendments to, or waivers from, the Code of Ethical Conduct by posting such
information on our website at www.advancedenergy.com. We are not including the information contained on our
website as part of, or incorporating it by reference into, this report.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth in the 2023 Proxy Statement under the headings “Executive Compensation” is
incorporated herein by reference.
85
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information set forth in the 2023 Proxy Statement under the headings “Security Ownership of Certain
Beneficial Owners and Management” and “Equity Compensation Plan Information” is incorporated herein by reference.
Securities Authorized for Issuance under Equity Compensation Plans
The following table summarizes information about the equity incentive compensation plans as of December 31,
2022. All outstanding awards relate to our common stock.
Plan Category
Equity compensation plans approved
by security holders
Equity compensation plans not
approved by security holders
Total
(A)
(B)
Number of securities to be issued
upon exercise of outstanding
options, warrants and rights
Weighted average exercise price
of outstanding options, warrants
and rights
(C)
Number of securities remaining available
for future issuance under equity
compensation plans (excluding securities
reflected in column A)
(in thousands, except exercise price per share)
151
—
151
$
$
55.48
—
55.48
2,094 (1)
—
2,094
(1) This number includes 618 thousand shares available for future issuance under the Employee Stock Purchase Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
The information set forth in the 2023 Proxy Statement under the heading “Certain Relationships and Related
Transactions” is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information set forth in the 2023 Proxy Statement under the caption “Proposal No. 2 - Ratification of the
Appointment of Ernst & Young LLP as Advanced Energy’s Independent Registered Public Accounting Firm for 2023”
is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) Documents filed as part of this annual report on Form 10-K are as follows:
1. Financial Statements:
See Index to Financial Statements at Part II, Item 8 herein.
2. Financial Statement Schedules for the years ended December 31, 2022, 2021 and 2020
NOTE: All schedules have been omitted because they are either not applicable or the required information is
included in the financial statements and notes thereto.
86
(B) Exhibits:
Exhibit
Number
2.1
2.2
2.3
Description
Form
Incorporated by Reference
Exhibit
File No.
Filing Date
Stock Purchase Agreement by and among
Advanced Energy Industries, Inc., Artesyn
Embedded Technologies, Inc., Pontus Intermediate
Holdings II, LLC and Pontus Holdings, LLC, dated
May 14, 2019 **
First Amendment to the Stock Purchase Agreement
by and among Advanced Energy Industries, Inc.,
Artesyn Embedded Technologies, Inc., Pontus
Intermediate Holdings II, LLC and Pontus
Holdings, LLC, dated September 9, 2019 **
Stock Purchase Agreement, dated April 1, 2022,
by and among SL Power Electronics Corporation,
SL Delaware Holdings, Inc., Steel Partners
Holdings L.P., AEI US Subsidiary, LLC and
Advanced Energy Industries, Inc. **
8-K
000-26966 2.1
May 15, 2019
8-K
000-26966 2.2
September 10, 2019
8-K
000-26966 2.1
April 4, 2022
3.1
Amended and Restated Certificate of Incorporation
of Advanced Energy Industries, Inc.
10-Q
000-26966 3.1
August 5, 2019
3.2
Second Amended and Restated By-Laws of
Advanced Energy Industries, Inc.
8-K
000-26966 3.1
May 20, 2020
4.1
4.2
Form of Specimen Certificate for Common Stock
S-1
33-97188
4.1
September 21, 1995
Description of Advanced Energy Industries, Inc.
Securities
10-K
000-26966 4.2
March 2, 2020
10.1
Lease dated January 16, 2003, by and between
China Great Wall Computer Shenzhen Co., Ltd.,
Great Wall Limited and Advanced Energy
Industries (Shenzhen) Co., Ltd., for a building
located in Shenzhen, China
10.2
Form of Director and Officer Indemnification
Agreement
10-K
000-26966 10.18
February 24, 2004
Filed herewith
10.3
Form of Notice of Grant Stock Option under 2008
Omnibus Incentive Plan *
8-K
000-26966 10.3
May 10, 2013
10.4
Form of Non-Qualified Stock Option Agreement
under 2008 Omnibus Incentive Plan *
8-K
000-26966 10.5
May 10, 2013
10.5
2017 Omnibus Incentive Plan*
DEF 14A 000-26966 Appendix A March 14, 2017
10.6
2008 Omnibus Incentive Plan, as amended May 4,
2010 *
10-K
000-26966 10.37
March 2, 2011
10.7
Employee Stock Purchase Plan *
10.8
Offer Letter dated February 8, 2021 *
33-97188
10.17
September 21, 1995
000-26966 10.2
February 10, 2021
S-1
8-K
87
Exhibit
Number
Description
Form
Incorporated by Reference
Exhibit
File No.
Filing Date
10.9
Global Supply Agreement by and between
Advanced Energy Industries, Inc. and Applied
Materials, Inc. dated August 29, 2005 +
10.10
Shipping Amendment to the Global Supply
Agreement by and between Advanced Energy
Industries, Inc. and Applied Materials, Inc. dated
August 29, 2005 +
10.11
Bridge Amendment to the Global Supply
Agreement by and between Advanced Energy
Industries, Inc. and Applied Materials, Inc. dated
January 28, 2011 +
10.12
Offer Letter to Paul Oldham, dated March 26,
10-Q
000-26966 10.1
November 7, 2005
10-Q
000-26966 10.2
November 7, 2005
10-Q
000-26966 10.1
May 6, 2011
2018 *
8-K
000-26966 10.1
March 29, 2018
10.13
Form of Executive Change in Control and General
Severance Agreement
8-K
000-26966 10.1
August 6, 2018
10.14
Credit Agreement, dated September 10, 2019, by
and among Advanced Energy Industries, Inc.,
Bank of America N.A. as the Administrative
Agent, Bank of America N.A., Bank of the West
and HSBC Bank USA, N.A. as the Joint Lead
Arrangers and Joint Book Runners, and Citibank
N.A., as the Co-Manager
10.15
ISDA 2002 Master Agreement, by and between
Advanced Energy Industries, Inc. and HSBC Bank
USA, National Association, dated as of April 2,
2020 (the “HSBC ISDA Master Agreement”)
10.16
ISDA 2002 Master Agreement, by and between
Advanced Energy Industries, Inc. and Citibank,
N.A., dated as of April 7, 2020 (the “Citibank
ISDA Master Agreement”)
10.17
Schedule to the HSBC ISDA Master Agreement
8-K
000-26966 10.1
September 10, 2019
8-K
000-26966 10.1
April 10, 2020
8-K
8-K
000-26966 10.2
April 10, 2020
000-26966 10.3
April 10, 2020
10.18
Schedule to the Citibank ISDA Master Agreement
8-K
000-26966 10.4
April 10, 2020
10.19
Rate Swap Transaction Confirmation, by and
between Advanced Energy Industries, Inc. and
HSBC Bank USA, National Association, dated
April 7, 2020
10.20
Rate Swap Transaction Confirmation, by and
between Advanced Energy Industries, Inc. and
Citibank, N.A., dated April 9, 2020
8-K
000-26966 10.5
April 10, 2020
8-K
000-26966 10.6
April 10, 2020
88
Description
Form
Incorporated by Reference
Exhibit
File No.
Filing Date
Exhibit
Number
10.21
Amendment No. 1 to Credit Agreement, dated
September 9, 2021, by and among Advanced
Energy Industries, Inc., the guarantors party
thereto, Bank of America N.A. as the
Administrative Agent, and the lenders party thereto
(which included the marked Credit Agreement as
Exhibit A thereto)
10.22
Offer of Employment to Eduardo Bernal Acebedo
dated August 2, 2021 *
10.23
Form of Long-Term Incentive Plan
10.24
Amended and Restated Deferred Compensation
8-K
000-26966 10.2
September 9, 2021
8-K
8-K
000-26966 10.1
September 8, 2021
000-26966 10.1
February 4, 2021
Plan *
10-Q
000-26966 10.1
November 1, 2022
10.25
Form of Restricted Stock Unit Agreement under
2017 Omnibus Incentive Plan *
10.26
Form of LTI Performance Stock Unit Agreement
under 2017 Omnibus Incentive Plan *
21.1
Subsidiaries of Advanced Energy Industries, Inc.
23.1
Consent of Independent Registered Public
Accounting Firm
31.1
Certification of the Chief Executive Officer
Pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of the Principal Financial Officer
Pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of the Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
32.2
Certification of the Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema
Document
101.CAL Inline XBRL Taxonomy Extension Calculation
Linkbase Document
89
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Exhibit
Number
Description
Form
Incorporated by Reference
Exhibit
File No.
Filing Date
101.DEF Inline XBRL Taxonomy Extension Definition
Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase
Document
101.PRE Inline XBRL Taxonomy Extension Presentation
Linkbase Document
104
Cover Page Interactive Data File (formatted as
Inline XBRL with applicable taxonomy extension
information contained in Exhibits 101)
* Compensation Plan
** Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K.
+ Confidential treatment has been granted for portions of this agreement.
ITEM 16. FORM 10-K SUMMARY
None.
Filed herewith
Filed herewith
Filed herewith
Filed herewith
90
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this annual report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
ADVANCED ENERGY INDUSTRIES, INC.
(Registrant)
/s/ Stephen D. Kelley
Stephen D. Kelley
Chief Executive Officer
Date: February 17, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed below
by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures
Title
/s/ Stephen D. Kelley
Stephen D. Kelley
Chief Executive Officer and Director
(Principal Executive Officer)
Date
February 17, 2023
/s/ Paul Oldham
Paul Oldham
/s/ Grant H. Beard
Grant H. Beard
/s/ Frederick A. Ball
Frederick A. Ball
/s/ Anne T. DelSanto
Anne T. DelSanto
/s/ Tina M. Donikowski
Tina M. Donikowski
/s/ Ronald C. Foster
Ronald C. Foster
/s/ Edward C. Grady
Edward C. Grady
/s/ Lanesha T. Minnix
Lanesha T. Minnix
/s/ David W. Reed
David W. Reed
/s/ John A. Roush
John A. Roush
/s/ Brian M. Shirley
Brian M. Shirley
Chief Financial Officer and Executive Vice President
February 17, 2023
(Principal Financial and Accounting Officer)
Chairman of the Board
February 17, 2023
Director
Director
Director
Director
Director
Director
Director
Director
Director
91
February 17, 2023
February 17, 2023
February 17, 2023
February 17, 2023
February 17, 2023
February 17, 2023
February 17, 2023
February 17, 2023
February 17, 2023
Advanced Energy Industries, Inc.
1595 Wynkoop Street, Suite 800
Denver, CO 80202
advancedenergy.com