ADVANCED ENERGY INDUSTRIES INC

NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

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

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, 2025, and the results of our operations and cash flows for the three months ended March 31, 2025 and 2024.

The unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted pursuant to such rules and regulations. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2024 and other financial information filed with the SEC.

During 2025, we changed the presentation of our financial statements and accompanying footnote disclosures from thousands to millions. The change did not materially impact previously reported financial information; however, certain prior period amounts have insignificant differences due to rounding.

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 inNote 1. Summary of Operations and Significant Accounting Policies and Estimates to our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2024.

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 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 in our Annual Report on Form 10-K for the year ending December 31, 2025. We do not expect the above guidance to materially impact our consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03*“**Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.”*ASU 2024-03 requires disaggregated disclosure of income statement expenses for public business entities. The ASU does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. This guidance will be effective for us on January 1, 2027. We do not expect the above guidance to materially impact our consolidated financial statements.

NOTE 2. REVENUE

Disaggregation of revenue

The following tables present additional information regarding our revenue:

Revenue by Market

Revenue by Significant Countries

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

Revenue by Category

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

NOTE 3. INCOME TAX

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

Our effective tax rates differ from the U.S. federal statutory rate of 21% primarily due to the benefit of earnings in foreign jurisdictions which are subject to lower tax rates, as well as tax credits, partially offset by net U.S. tax on foreign operations. The effective tax rate for 2025 was lower than the same period in 2024 primarily due to a more favorable mix of earnings.

As of March 31, 2025, certain countries in which the Company operates have implemented or are in the process of implementing the Pillar II minimum global effective tax rate regime as put forth by the Organization for Economic Cooperation and Development (“OECD”). As countries continue to make revisions to their legislation and release additional guidance with respect to the global minimum tax, we continue to determine any potential impact in the countries in which we operate. The impact of these changes may have a material impact on our cash tax expense and tax rate.

NOTE 4.STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE

Accumulated Other Comprehensive Income (Loss)

The following table summarizes the components of, and changes in, accumulated other comprehensive income

(loss), net of income taxes.

Amounts reclassified from accumulated other comprehensive income (loss) to the specific caption within the

Consolidated Statements of Operations were as follows:

Earnings Per Share

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

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.

SeeNote 18. Long-Term Debtin our Annual Report on Form 10-K for the year ended December 31, 2024 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:

Share Repurchase

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

As of March 31, 2025 the remaining amount authorized by the Board of Directors (“our Board” or “the Board”) for future share repurchases was$196.5 million with no time limitation. During the period from April 1, 2025 through April 29, 2025, we spent a total of $22.7 million to repurchase 0.3 million shares of our common stock at an average price per share of $83.78.

NOTE 5. FAIR VALUE MEASUREMENTS

The following tables present information about our non-pension assets and liabilities measured at fair value on a recurring basis. We classify all items below within level 2 of the fair value hierarchy.

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 for accounting purposes; however, they do partially offset the economic fluctuations of certain of our assets and liabilities due to foreign exchange rate changes. The gains and losses related to these foreign currency exchange contracts are intended to offset the 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.

As of March 31, 2025 and December 31, 2024, we had $80.8 million and $70.6 million, respectively, of foreign currency forward contracts outstanding.

SeeNote 5. Fair Value Measurements for information regarding fair value of derivative instruments.

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

NOTE 7. ACCOUNTS RECEIVABLE, NET

We record accounts receivable at net realizable value. Our accounts receivable, net balance on the Consolidated Balance Sheets was $276.7 million as of March 31, 2025. The following table summarizes the changes in expected credit losses related to receivables:

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:

NOTE 9. INTANGIBLE ASSETS AND GOODWILL

Intangible assets consisted of the following:

Amortization expense related to intangible assets is as follows:

Estimated future amortization expense related to intangibles is as follows:

The following table summarizes the changes in goodwill:

NOTE 10. RESTRUCTURING, ASSET IMPAIRMENTS, AND OTHER CHARGES

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

Restructuring

We have the following restructuring plans in process:

2024 Plan

On July 29, 2024, we approved actions in furtherance of our manufacturing consolidation initiatives intended to optimize our manufacturing footprint and cost structure, including the closure of our Zhongshan, China manufacturing facility (the “2024 Plan”).

The amounts incurred as a result of the approved actions are estimates and actual results may differ, which could result in incremental restructuring charges in future periods. We anticipate the 2024 Plan will be substantially completed by the end of the second quarter of 2025, with final activities expected to conclude in 2026.

2023 Plan

In 2023, we approved a plan intended to optimize and further consolidate our manufacturing operations and functional support groups as well as a general reduction-in-force to align our expenses to revenue levels (the “2023 Plan”). We expect to incur approximately $1.0 million in additional charges through the second quarter of 2026. The 2023 Plan is substantially complete, with the final activities expected to conclude in 2026.

Changes in restructuring liabilities were as follows:

The above restructuring liability of $26.9 million is comprised of $24.4 million in other accrued expenses and $2.5 million included in other long-term liabilities on our Consolidated Balance Sheets.

Other Charges

Other charges relate to vacating and relocating facilities.

NOTE 11. WARRANTIES

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

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

NOTE 12. LEASES

Components of total operating lease cost were as follows:

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

In addition to the above, we have a lease agreement with total payments of $7.1 million that commences in the second quarter of 2025 and extends through 2040.

The following tables present additional information about our lease agreements:

NOTE 13. STOCK-BASED COMPENSATION

The Compensation Committee of our Board administers our stock plans. As of March 31, 2025, we havetwo active stock-based incentive compensation plans: the Amended and Restated 2023 Omnibus Incentive Plan (the “2023 Incentive Plan”) and the Employee Stock Purchase Plan (“ESPP”). We issue all new equity compensation grants under the 2023 Incentive Plan. Outstanding awards previously issued under inactive plans will continue to vest and remain exercisable in accordance with the terms of the respective plans. We do not have material outstanding stock option awards.

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

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

Stock-Based Compensation Expense

We recognize stock-based compensation expense based on the fair value of the awards issued and the functional area of the employee receiving the award. During the three months ended March 31, 2025, stock-based compensation expense included $0.9 million related to the acquisition of Airity Technologies, Inc. in June 2024 (the “Airity Acquisition”). Stock-based compensation was as follows:

Restricted Stock Units

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

Changes in our RSUs were as follows:

NOTE 14. COMMITMENTS AND CONTINGENCIES

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

NOTE15. LONG-TERM DEBT

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

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

The following table summarizes interest expense related to our debt:

Credit Agreement

Our credit agreement, dated as of September 10, 2019, as amended (the “Credit Agreement”) consists of a senior unsecured term loan facility (“Term Loan Facility”) and a senior unsecured revolving facility (“Revolving Facility”), both maturing on September 9, 2026.

For all periods presented, no amounts were outstanding on the Revolving Facility, and we had $600.0 million in available capacity.

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

Should we have future borrowings under the Term Loan Facility or Revolving Facility, they will bear interest, at our option, at a rate based on the Base Rate or SOFR, as defined in the Credit Agreement, plus an applicable margin.

Convertible Senior Notes due 2028

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

The net outstanding balance of $565.4 million continues to be classified as long-term debt as none of the conversion triggers occurred as of March 31, 2025. The redemption price is 100% of the principal amount plus accrued and unpaid interest.

The Convertible Notes mature on September 15, 2028, unless earlier repurchased, redeemed, or converted. Interest is payable semi-annually in arrears in March and September. We do not maintain a sinking fund.

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

We use level 2 measurements to estimate the fair value of our debt. As of March 31, 2025, we estimate the fair value of our Convertible Notes to be $603.5 million.

NOTE 16. SUPPLEMENTAL CASH FLOW INFORMATION AND OTHER DISCLOSURES

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