10-Q 1 aeis-20240331x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to          

Commission File Number: 000-26966

Graphic

ADVANCED ENERGY INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Delaware

84-0846841

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

1595 Wynkoop Street, Suite 800, Denver, Colorado

80202

(Address of principal executive offices)

(Zip Code)

(970) 407-6626

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

AEIS

Nasdaq Global Select Market

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

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

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

Large accelerated filer þ

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

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

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

As of April 26, 2024, there were 37,442,660 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

ADVANCED ENERGY INDUSTRIES, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

ITEM 1.

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

3

Consolidated Balance Sheets

3

Consolidated Statements of Operations

4

Consolidated Statements of Comprehensive Income (Loss)

5

Consolidated Statements of Stockholders’ Equity

6

Consolidated Statements of Cash Flows

7

Notes to Consolidated Financial Statements

8

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

22

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

34

ITEM 4.

CONTROLS AND PROCEDURES

35

PART II OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

35

ITEM 1A.

RISK FACTORS

35

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

36

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

36

ITEM 4.

MINE SAFETY DISCLOSURES

36

ITEM 5.

OTHER INFORMATION

36

ITEM 6.

EXHIBITS

37

SIGNATURES

38

2

PART I FINANCIAL INFORMATION

ITEM 1.         UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Balance Sheets

(In thousands, except per share amounts)

March 31, 

December 31, 

    

2024

    

2023

ASSETS

 

  

 

  

 

Current assets:

 

  

 

  

 

Cash and cash equivalents

$

1,017,780

$

1,044,556

Accounts receivable, net

 

247,510

 

282,430

Inventories

 

361,337

 

336,137

Other current assets

44,990

48,771

Total current assets

 

1,671,617

 

1,711,894

Property and equipment, net

 

175,453

 

167,665

Operating lease right-of-use assets

106,167

95,432

Other assets

 

135,627

 

136,448

Intangible assets, net

 

154,390

 

161,478

Goodwill

 

280,834

 

283,840

TOTAL ASSETS

$

2,524,088

$

2,556,757

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

Current liabilities:

 

 

Accounts payable

$

137,934

$

141,850

Accrued payroll and employee benefits

 

49,384

 

73,595

Other accrued expenses

 

60,094

 

66,662

Customer deposits and other

 

13,531

 

15,997

Current portion of long-term debt

20,000

20,000

Current portion of operating lease liabilities

17,049

17,744

Total current liabilities

 

297,992

 

335,848

Long-term debt, net

891,495

895,679

Operating lease liabilities

99,853

89,330

Pension benefits

48,567

49,135

Other long-term liabilities

43,298

42,583

Total liabilities

 

1,381,205

 

1,412,575

Commitments and contingencies (Note 15)

 

 

Stockholders' equity:

 

 

Preferred stock, $0.001 par value, 1,000 shares authorized, none issued and outstanding

 

 

Common stock, $0.001 par value, 70,000 shares authorized; 37,434 and 37,318 issued and outstanding at March 31, 2024 and December 31, 2023, respectively

 

37

 

37

Additional paid-in capital

 

153,643

 

148,300

Accumulated other comprehensive income

 

(1,855)

 

6,114

Retained earnings

 

991,058

 

989,731

Total stockholders' equity

 

1,142,883

 

1,144,182

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

2,524,088

$

2,556,757

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

3

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Operations

(In thousands, except per share amounts)

Three Months Ended March 31, 

    

2024

2023

    

Revenue, net

$

327,475

$

425,040

Cost of revenue

 

214,646

 

269,929

Gross profit

 

112,829

 

155,111

Operating expenses:

 

 

Research and development

 

49,836

 

51,610

Selling, general, and administrative

 

55,124

 

55,358

Amortization of intangible assets

 

6,947

 

7,062

Restructuring, asset impairments, and other charges

 

245

 

1,043

Total operating expenses

 

112,152

 

115,073

Operating income

 

677

 

40,038

Interest income

12,645

3,585

Interest expense

(7,127)

(2,730)

Other income (expense), net

 

1,379

 

(1,405)

Income from continuing operations, before income tax

 

7,574

 

39,488

Income tax provision

 

1,787

 

7,736

Income from continuing operations

 

5,787

 

31,752

Loss from discontinued operations, net of income tax

 

(571)

 

(831)

Net income

$

5,216

$

30,921

Basic weighted-average common shares outstanding

 

37,359

 

37,475

Diluted weighted-average common shares outstanding

 

37,687

 

37,757

Earnings per share:

 

  

 

  

Continuing operations:

 

  

 

  

Basic earnings per share

$

0.15

$

0.85

Diluted earnings per share

$

0.15

$

0.84

Discontinued operations:

 

 

Basic loss per share

$

(0.02)

$

(0.02)

Diluted loss per share

$

(0.02)

$

(0.02)

Net income:

 

 

Basic earnings per share

$

0.14

$

0.83

Diluted earnings per share

$

0.14

$

0.82

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

4

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

Three Months Ended March 31, 

    

2024

    

2023

Net income

$

5,216

$

30,921

Other comprehensive loss, net of income tax

 

  

 

  

Foreign currency translation

 

(6,589)

 

(196)

Change in fair value of cash flow hedges

 

(1,380)

 

(1,817)

Comprehensive income (loss)

$

(2,753)

$

28,908

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

5

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Stockholders' Equity

(In thousands, except per share amounts)

Common Stock

Accumulated

Additional

Other

Total

Paid-in

Comprehensive

Retained

Stockholders'

Shares

Amount

Capital

Income (Loss)

Earnings

Equity

Balances, December 31, 2022

    

37,429

$

37

$

134,640

$

16,320

$

915,270

$

1,066,267

Stock issued from equity plans

100

(1,991)

(1,991)

Stock-based compensation

6,543

6,543

Dividends declared ($0.10 per share)

(3,814)

(3,814)

Other comprehensive loss

(2,013)

(2,013)

Net income

30,921

30,921

Balances, March 31, 2023

37,529

$

37

$

139,192

$

14,307

$

942,377

$

1,095,913

Balances, December 31, 2023

37,318

$

37

$

148,300

$

6,114

$

989,731

$

1,144,182

Stock issued from equity plans

116

(5,327)

(5,327)

Stock-based compensation

10,591

10,591

Dividends declared ($0.10 per share)

(3,810)

(3,810)

Other comprehensive loss

(7,969)

(7,969)

Deferred compensation

79

(79)

Net income

5,216

5,216

Balances, March 31, 2024

37,434

$

37

$

153,643

$

(1,855)

$

991,058

$

1,142,883

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

6

ADVANCED ENERGY INDUSTRIES, INC.

Unaudited Consolidated Statements of Cash Flows

(In thousands)

Three Months Ended March 31, 

    

2024

    

2023

CASH FLOWS FROM OPERATING ACTIVITIES:

 

  

 

  

Net income

$

5,216

$

30,921

Less: loss from discontinued operations, net of income tax

 

(571)

 

(831)

Income from continuing operations, net of income tax

 

5,787

 

31,752

Adjustments to reconcile net income to net cash from operating activities:

 

  

 

  

Depreciation and amortization

 

16,952

 

16,523

Stock-based compensation

 

11,005

 

6,801

Amortization of debt issuance costs and debt discount

816

128

Deferred income tax benefit

 

(9)

 

(617)

Loss (gain) on disposal and sale of assets

 

(7)

 

115

Unrealized gain on investment

(441)

Changes in operating assets and liabilities, net of assets acquired

 

 

Accounts receivable, net

 

33,444

 

13,590

Inventories

 

(26,786)

 

(25,699)

Other assets

 

2,617

 

(8,971)

Accounts payable

 

(3,001)

 

16,770

Other liabilities and accrued expenses

 

(32,384)

 

(18,512)

Net cash from operating activities from continuing operations

 

7,993

 

31,880

Net cash from operating activities from discontinued operations

 

(710)

 

(2,069)

Net cash from operating activities

 

7,283

 

29,811

CASH FLOWS FROM INVESTING ACTIVITIES:

 

  

 

  

Purchases of long-term investments

(2,092)

Purchases of property and equipment

 

(16,629)

 

(16,210)

Net cash from investing activities

 

(18,721)

 

(16,210)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

 

  

Payments on long-term borrowings

(5,000)

(5,000)

Dividend payments

(3,810)

(3,814)

Net payments related to stock-based awards

 

(5,327)

 

(1,991)

Net cash from financing activities

 

(14,137)

 

(10,805)

EFFECT OF CURRENCY TRANSLATION ON CASH AND CASH EQUIVALENTS

 

(1,201)

 

51

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

(26,776)

 

2,847

CASH AND CASH EQUIVALENTS, beginning of period

 

1,044,556

 

458,818

CASH AND CASH EQUIVALENTS, end of period

$

1,017,780

$

461,665

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

  

 

  

Cash paid for interest

$

6,302

$

2,590

Cash paid for income taxes

$

2,471

$

2,838

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

7

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

NOTE 1.     DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

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

In management's opinion, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly Advanced Energy’s financial position as of March 31, 2024, and the results of our operations and cash flows for the three months ended March 31, 2024 and 2023.

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

Use of Estimates in the Preparation of the Consolidated Financial Statements

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

Significant Accounting Policies

Our accounting policies are described in Note 1 to our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2023.

New Accounting Standards

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

New Accounting Standards Issued But Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07 “Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures.” ASU 2023-07 expands disclosure requirements to require additional information about significant segment expenses. In addition, the ASU enhances interim disclosures, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, and provides new disclosures requirements for entities with a single reportable segment. This guidance will be effective for us in our Annual Report on Form 10-K for the year

8

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

ending December 31, 2024. We do not expect the above guidance to materially impact our consolidated financial statements.

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

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

NOTE 2.    REVENUE

Disaggregation of revenue

The following tables present additional information regarding our revenue:

Revenue by Market

Three Months Ended March 31, 

    

2024

2023

Semiconductor Equipment

$

179,903

$

194,209

Industrial and Medical

 

83,418

 

123,020

Data Center Computing

41,902

59,659

Telecom and Networking

22,252

48,152

Total

$

327,475

$

425,040

Revenue by Region

Three Months Ended March 31, 

    

2024

2023

    

North America

$

134,079

40.9

%

$

180,942

42.5

%

Asia

151,943

46.4

179,183

42.2

Europe

40,553

12.4

62,566

14.7

Other

 

900

0.3

2,349

0.6

Total

$

327,475

100.0

%

$

425,040

100.0

%

Revenue by Significant Countries

Three Months Ended March 31, 

    

2024

2023

    

United States

$

107,816

32.9

%

$

153,506

36.1

%

Taiwan

39,473

12.1

36,361

8.6

China

18,891

5.8

37,456

8.8

All others

161,295

49.2

197,717

46.5

Total

$

327,475

100.0

%

$

425,040

100.0

%

9

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

We attribute revenue to individual countries and regions based on the customer’s ship to location. Apart from the United States and Taiwan, no revenue attributable to any individual country exceeded 10% of our total consolidated revenues during the periods presented.

Revenue by Category

Three Months Ended March 31, 

    

2024

2023

    

Product

$

286,264

$

379,274

Services and other

41,211

 

45,766

Total

$

327,475

 

$

425,040

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

Significant Customers

During the three months ended March 31, 2024, Applied Materials, Inc. and Lam Research Corporation accounted for 30% and 10%, respectively, of our total revenue. During the three months ended March 31, 2023, Applied Materials Inc. accounted for 21% of our total revenue.

As of March 31, 2024, the account receivable balance from Applied Materials, Inc. and Lam Research Corporation accounted for 37% and 10%, respectively, of our total accounts receivable. As of December 31, 2023, the account receivable balance from Applied Materials, Inc. accounted for 26% of our total accounts receivable. No other customer’s account receivable exceeded 10% of our total accounts receivable in the periods presented.

NOTE 3.    INCOME TAX

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

Three Months Ended March 31, 

    

2024

    

2023

    

Income from continuing operations, before income tax

$

7,574

$

39,488

Income tax provision

$

1,787

$

7,736

Effective tax rate

23.6

%

19.6

%

Our effective tax rates differ from the U.S. federal statutory rate of 21% for the three months ended March 31, 2024 and 2023, primarily due to the benefit of earnings in foreign jurisdictions which are subject to lower tax rates, as well as tax credits, partially offset by net U.S. tax on foreign operations. The effective tax rate for 2024 was higher than the same periods in 2023 primarily due to unfavorable mix of earnings.

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

10

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

NOTE 4.    STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE

Accumulated Other Comprehensive Income

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

    

Foreign Currency Translation

    

Change in Fair Value of Cash Flow Hedges

    

Minimum Pension Benefit Retirement Liability

    

Total

Balance at December 31, 2023

$

(10,796)

$

5,474

$

11,436

$

6,114

Other comprehensive income prior to reclassifications

(6,589)

1,405

-

(5,184)

Amounts reclassified from accumulated other comprehensive income

-

(2,785)

-

(2,785)

Balance at March 31, 2024

$

(17,385)

$

4,094

$

11,436

$

(1,855)

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

   

Three Months Ended March 31, 

To Caption on

2024

Consolidated Statements of Operations

Cash flow hedges

$

(2,785)

Interest expense

Earnings Per Share

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

Three Months Ended March 31, 

    

2024

    

2023

    

Income from continuing operations

$

5,787

$

31,752

Basic weighted-average common shares outstanding

 

37,359

 

37,475

Dilutive effect of stock awards

 

328

 

282

Diluted weighted-average common shares outstanding

 

37,687

 

37,757

EPS from continuing operations

 

  

 

  

Basic EPS

$

0.15

$

0.85

Diluted EPS

$

0.15

$

0.84

Anti-dilutive shares not included above

Stock awards

28

102

Warrants

3,194

Total anti-dilutive shares

3,222

102

11

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

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

See Note 16. Long-Term Debt for information regarding our Convertible Notes, Note Hedges, and Warrants. For diluted earnings per share of common stock (“Diluted EPS”), we increase the weighted-average number of common shares outstanding during the period, as needed, to include the following:

Dilutive impact associated with the Convertible Notes using the if-converted method. The Convertible Notes are repayable in cash up to par value and in cash or shares of common stock for the excess over par value. When the stock price is lower than the strike price, there is no dilutive or anti-dilutive impact. Prior to conversion, we do not consider the Note Hedges for purposes of Diluted EPS as their effect would be anti-dilutive. Upon conversion, we expect the Note Hedges to offset the dilutive effect of the Convertible Notes when the stock price is above $137.46 but below $179.76;
Additional common shares that would have been outstanding if our outstanding stock awards had been converted to common shares using the treasury stock method. We exclude any stock awards that have an anti-dilutive effect; and
Dilutive effect of the Warrants issued concurrently with the Convertible Notes using the treasury stock method. For all periods presented, the Warrants did not increase the weighted-average number of common shares outstanding because the $179.76 exercise price of the Warrants exceeded the average market price of our common stock.

Share Repurchase

At March 31, 2024, the remaining amount authorized by the Board of Directors (“the Board”) for future share repurchases was $199.2 million with no time limitation. There were no share repurchases during any periods presented.

NOTE 5.     FAIR VALUE MEASUREMENTS

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

March 31, 2024

Description

Balance Sheet Classification

Level 1

Level 2

Level 3

Total
Fair Value

Certificates of deposit

Other current assets

$

$

177

$

$

177

Foreign currency forward contracts

Other accrued expenses

195

195

Interest rate swaps

Other current assets

5,211

5,211

Investments

Other assets

8,519

8,519

December 31, 2023

Description

Balance Sheet Classification

Level 1

  

Level 2

  

Level 3

  

Total
Fair Value

Certificates of deposit

Other current assets

$

$

163

$

$

163

Interest rate swaps

Other assets

6,995

6,995

Investments

Other assets

5,952

5,952

12

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ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

NOTE 6.    DERIVATIVE FINANCIAL INSTRUMENTS

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

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

March 31, 

December 31, 

    

2024

    

2023

Foreign currency forward contracts

$

86,825

$

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

We have executed interest rate swap contracts that fix a portion of the interest payments related to the outstanding principal balance on our Term Loan Facility to a total interest rate of 1.172%. The interest rate swap contracts expire on September 10, 2024 and are accounted for as cash flow hedging instruments. See Note 16. Long-Term Debt for information regarding the Term Loan Facility.

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

March 31, 

December 31, 

    

2024

    

2023

Interest rate swap contracts

$

216,344

$

220,719

The following table summarizes the amounts, net of tax, recorded in accumulated other comprehensive income on the Consolidated Balance Sheets for qualifying hedges.

March 31, 

December 31, 

    

2024

    

2023

Interest rate swap contract gains

$

4,094

$

5,350

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

As a 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.

13

Table of Contents

ADVANCED ENERGY INDUSTRIES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(In thousands, except per share data)

NOTE 7.    ACCOUNTS RECEIVABLE, NET

We record accounts receivable at net realizable value. Our accounts receivable, net balance on the Consolidated Balance Sheets was $247.5 million at March 31, 2024. The following table summarizes the changes in expected credit losses related to receivables:

December 31, 2023

   

$

1,762

Additions

 

33

March 31, 2024

$

1,795

NOTE 8.    INVENTORIES

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

March 31, 

December 31, 

    

2024

    

2023

Parts and raw materials

$

264,042

$

249,698

Work in process

 

15,730

 

14,595

Finished goods

 

81,565

 

71,844

Total

$

361,337

$

336,137

NOTE 9.    PROPERTY AND EQUIPMENT, NET

Property and equipment, net is comprised of the following:

Estimated Useful

March 31, 

December 31, 

    

Life (in years)

    

2024

    

2023

Buildings, machinery, and equipment

5 to 25

$

196,042

$

191,744

Software

3 to 10

29,905

24,526

Computer equipment, furniture, fixtures, and vehicles

3 to 5

 

19,430

 

19,281

Leasehold improvements

2 to 10

 

81,365

 

79,764

Capital projects in process

 

25,159

 

21,721

 

351,901

 

337,036

Less: Accumulated depreciation

 

(176,448)

 

(169,371)

Property and equipment, net

$

175,453

$

167,665

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