# Advanced Energy Industries Inc: Form 10-Q for the period ended Jun 30, 2023

- Company: [Advanced Energy Industries Inc](/companies/aeis.md) (CIK 927003)
- Form: 10-Q
- Filed: 2023-08-03
- Accepted by EDGAR: Aug 3, 2023, 16:01 ET
- Period: 2023-06-30
- Accession: 0001558370-23-013181
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/927003/000155837023013181/aeis-20230630x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/927003/000155837023013181/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-04-01 to 2023-06-30 | $415.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2023-01-01 to 2023-06-30 | $840.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-04-01 to 2023-06-30 | $268.4m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2023-01-01 to 2023-06-30 | $538.4m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-04-01 to 2023-06-30 | $147.1m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2023-01-01 to 2023-06-30 | $302.2m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-04-01 to 2023-06-30 | $51.4m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2023-01-01 to 2023-06-30 | $103.0m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-04-01 to 2023-06-30 | $55.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2023-01-01 to 2023-06-30 | $111.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-04-01 to 2023-06-30 | $29.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-01-01 to 2023-06-30 | $69.9m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $4.8m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $12.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $27.1m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | $58.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.72 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | $1.54 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.72 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | $1.55 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 37,803,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 37,804,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | $52.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $33.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2023-01-01 to 2023-06-30 | $7.6m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2023-06-30 | $455.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-06-30 | $1.15bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-06-30 | $1.95bn | us-gaap:Assets |
| Current liabilities | at 2023-06-30 | $303.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-06-30 | $824.6m | us-gaap:Liabilities |
| Long-term debt | at 2023-06-30 | $343.5m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-06-30 | $20.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-06-30 | $1.13bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 50,069 characters.

This management discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on February 17, 2023.

### Special Note on Forward-Looking Statements

This Quarterly Report on Form 10-Q 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; economic volatility and cyclicality; the length, severity, or nature of any market deterioration or improvement; changes in financial markets; higher interest rates; labor shortages and expense; foreign currency fluctuations and pricing controls;
- 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;
- 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;
- unanticipated costs in fulfilling our warranty obligations (including of solar inventers or other discontinued businesses), and 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;
- our acquisition, divestiture, and joint venture activities;
- the integration of our acquisitions;
- industry and market trends; and
- cost fluctuations and pressures, including prices of components, commodities and raw materials, and costs of labor, transportation, energy, and insurance.

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 in our Annual Report on Form 10-K for the year ended December 31, 2022. 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.

#### BUSINESS AND MARKET 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 is used in a wide range of applications, such as semiconductor equipment, industrial production, medical and life science equipment, data center computing, networking, and telecommunications. We also supply related sensing, control, 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.

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. See *Note 2. Acquisitions* in Part I, Item 1 “Unaudited Consolidated Financial Statements.” 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 conditions, and other factors. Fulfilling demand was difficult in 2022, as we were constrained by supply chain shortages for critical integrated circuits, resulting in longer lead times for our products. Some of these supply constraints continued into 2023. We 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. Due to improved component supply, lead times for our products declined, which resulted in our 12-month backlog normalizing from $875.3 million at the end of 2022 to $644.7 million at the end of the second quarter of 2023. Since the fourth quarter of 2022, demand in some of our markets has declined, most notably due to the semiconductor cyclical downturn and reduced investments in the data center market. Moreover, our ability to fulfill demand continues to be limited by ongoing supply constraints for some products. In addition, although the amounts are lower than in 2022, we continue to pay premiums for some critical parts, which are partially reimbursed by our customers. While we expect these premiums to abate by the end of 2023, it is not clear how quickly the global supply constraints will fully recover, the extent to which our mitigating actions will be successful, or to what extent we can recover our higher costs.

#### 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 circuit 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 node 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 etch and deposition processes become more challenging due to shrinking device geometry and increasing aspect ratios in advanced 3D devices, more advanced Radio Frequency (“RF”) and Direct Current (“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 usable 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 equipment manufacturer (“OEM”) customers.

The Semiconductor Equipment market experienced demand growth driven by investments in both leading and trailing edge semiconductor capacity throughout the first three quarters of 2022. Starting in the fourth quarter of 2022, the market entered a downturn due to deteriorating 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 U.S. export restrictions to China for certain semiconductor equipment. During the first half of 2023, these factors continued to impact our demand, backlog, and revenue, and they are expected to continue throughout 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 Markets

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, who incorporate 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. During the first half of 2023, we saw continued demand across a number of industrial and medical applications, and we were able to secure additional critical components, enabling us to deliver record quarterly revenues in both the first and second quarter of 2023 in this market. However, it is unclear how the macroeconomic conditions, including higher interest rates and potential recession, may affect our revenue in the remainder of 2023. In addition, product delivery and revenue levels will also be dependent on our ability to secure supply of critical components.

#### Data Center Computing Markets

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 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 accelerating 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 capabilities and competitive strengths in power density, efficiency, and controls.

In the first half of 2023, we saw reduced revenues due to slowing demand in the server and storage market on customers delaying investments and ongoing supply constraints limiting our ability to meet the full demand. It is not clear how long these supply chain constraints will persist or how quickly those customers will return to their historical level of investments.

#### Telecom and Networking Markets

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.

During the first half of 2023, substantially improved supply of critical components allowed us to partially fulfill outstanding demand from the prior year and drove strong revenue growth in the Telecom and Networking market. However, leading companies in this market have reported end user market weakness, and it is not clear if we can sustain the first half 2023 revenue level through the remainder of 2023.

### 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 “Unaudited Consolidated Financial Statements” in Part I, Item 1 of this report, including the notes thereto. Also included in the following analysis are measures that are not in accordance with U.S. GAAP. A reconciliation of the non-GAAP measures to U.S. GAAP is provided below.

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

| ​ ​ ​ | ​ ​ ​ | ​ ​ Three Months Ended June 30, 2023 | ​ ​ | ​ ​ 2022 | ​ ​ | ​ ​ ​ | ​ ​ Six Months Ended June 30, 2023 | ​ ​ | ​ ​ 2022 | ​ ​ |
| --- | --- | ---: | --- | ---: | --- | --- | ---: | --- | ---: | --- |
| Sales |  | $415,508 |  | $440,949 | ​ | ​ | $840,548 |  | $838,408 | ​ |
| Gross profit | ​ | 147,080 | ​ | 162,158 | ​ | ​ | 302,191 | ​ | 306,474 | ​ |
| Operating expenses | ​ | 117,255 | ​ | 109,393 | ​ | ​ | 232,328 | ​ | 209,052 | ​ |
| Operating income from continuing operations | ​ | 29,825 | ​ | 52,765 | ​ | ​ | 69,863 | ​ | 97,422 | ​ |
| Other income (expense), net | ​ | 2,425 | ​ | 3,249 | ​ | ​ | 1,875 | ​ | 2,407 | ​ |
| Income from continuing operations, before income taxes | ​ | 32,250 | ​ | 56,014 | ​ | ​ | 71,738 | ​ | 99,829 | ​ |
| Provision for income taxes | ​ | 4,795 | ​ | 11,203 | ​ | ​ | 12,531 | ​ | 18,156 | ​ |
| Income from continuing operations | ​ | $27,455 | ​ | $44,811 | ​ | ​ | $59,207 | ​ | $81,673 | ​ |

| ​ ​ ​ | ​ ​ | ​ Three Months Ended June 30, 2023 | ​ ​ | ​ 2022 | ​ ​ ​ ​ | ​ ​ ​ | ​ Six Months Ended June 30, 2023 | ​ ​ | ​ 2022 | ​ ​ ​ ​ |
| --- | --- | --- | ---: | --- | ---: | --- | --- | ---: | --- | ---: |
| Sales | ​ | ​ | 100.0% | ​ | 100.0% | ​ | ​ | 100.0% | ​ | 100.0% |
| Gross profit | ​ |  | 35.4 |  | 36.8 | ​ |  | 36.0 |  | 36.6 |
| Operating expenses | ​ |  | 28.2 |  | 24.8 | ​ |  | 27.6 |  | 24.9 |
| Operating income from continuing operations | ​ |  | 7.2 |  | 12.0 | ​ |  | 8.3 |  | 11.6 |
| Other income (expense), net | ​ |  | 0.6 |  | 0.7 | ​ |  | 0.2 |  | 0.3 |
| Income from continuing operations, before income taxes | ​ |  | 7.8 |  | 12.7 | ​ |  | 8.5 |  | 11.9 |
| Provision for income taxes | ​ |  | 1.2 |  | 2.5 | ​ |  | 1.5 |  | 2.2 |
| Income from continuing operations | ​ | ​ | 6.6% | ​ | 10.2% | ​ | ​ | 7.0% | ​ | 9.7% |

#### SALES, NET

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

| ​ ​ ​ | ​ ​ | ​ ​ ​ ​ ​ Three Months Ended June 30, 2023 2022 | ​ ​ | ​ ​ | ​ ​ ​ ​ ​ Change 2023 v. 2022 ​ Dollar Percent ​ |
| --- | --- | ---: | --- | --- | ---: |
| Semiconductor Equipment | ​ | $173,177 ​ $228,797 | ​ | ​ | $(55,620) (24.3)% |
| Industrial and Medical | ​ | 127,603 ​ 104,951 | ​ | ​ | 22,652 21.6% |
| Data Center Computing | ​ | ​ 59,076 ​ ​ 69,161 | ​ | ​ | ​ (10,085) ​ (14.6)% |
| Telecom and Networking | ​ | 55,652 ​ 38,040 | ​ | ​ | 17,612 46.3% |
| Total | ​ | $415,508 ​ $440,949 | ​ | ​ | $(25,441) (5.8)% |
| ​ | ​ | ​ ​ ​ ​ ​ | ​ | ​ | ​ ​ ​ ​ ​ |
| ​ | ​ | **Six Months Ended June 30,** | **​** | ​ | **Change 2023 v. 2022** ​ |
| ​ | ​ | **2023** **2022** |  |  | **Dollar** **Percent** ​ |
| Semiconductor Equipment | ​ | $367,386 ​ $431,754 | ​ | ​ | $(64,368) (14.9)% |
| Industrial and Medical | ​ | 250,623 ​ 187,849 | ​ | ​ | 62,774 33.4% |
| Data Center Computing | ​ | ​ 118,735 ​ ​ 145,399 | ​ | ​ | ​ (26,664) (18.3)% |
| Telecom and Networking | ​ | 103,804 ​ 73,406 | ​ | ​ | 30,398 41.4% |
| Total | ​ | $840,548 ​ $838,408 | ​ | ​ | $2,140 0.3% |

| ​ ​ ​ | ​ ​ ​ | ​ Three Months Ended June 30, 2023 | ​ ​ | ​ 2022 | ​ ​ ​ ​ | ​ ​ ​ | ​ Six Months Ended June 30, 2023 | ​ ​ | ​ 2022 | ​ ​ ​ ​ |
| --- | --- | --- | ---: | --- | ---: | --- | --- | ---: | --- | ---: |
| Semiconductor Equipment | ​ |  | 41.7% | ​ | 51.9% | ​ |  | 43.7% | ​ | 51.5% |
| Industrial and Medical | ​ |  | 30.7 | ​ | 23.8 | ​ |  | 29.8 | ​ | 22.4 |
| Data Center Computing | ​ | ​ | 14.2 ​ | ​ | 15.7 ​ | ​ | ​ | 14.1 ​ | ​ | 17.3 ​ |
| Telecom and Networking | ​ |  | 13.4 | ​ | 8.6 | ​ |  | 12.4 | ​ | 8.8 |
| Total | ​ |  | 100.0% | ​ | 100.0% | ​ |  | 100.0% | ​ | 100.0% |

#### OPERATING EXPENSES

The following tables summarize our operating expenses (in thousands) and as a percentage of sales:

| ​ ​ ​ | ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, ​ 2023 ​ 2022 ​ |
| --- | --- | ---: |
| Research and development | ​ | $51,413 12.4% $48,009 10.9% |
| Selling, general, and administrative | ​ | 55,613 ​ 13.4 ​ ​ 55,022 ​ 12.5 ​ |
| Amortization of intangible assets | ​ | ​ 7,075 ​ 1.7 ​ ​ ​ 6,523 ​ 1.5 ​ |
| Restructuring charges | ​ | 3,154 ​ 0.8 ​ ​ (161) ​ - ​ |
| Total operating expenses | ​ | $117,255 ​ 28.2% $109,393 ​ 24.8% |
| ​ | ​ | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ |
| ​ | **​** | **Six Months Ended June 30,** **​** |
| ​ |  | **2023** **​** **2022** **​** |
| Research and development | ​ | $103,023 12.3% $91,623 10.9% |
| Selling, general, and administrative | ​ | 110,971 ​ 13.2 ​ ​ 104,340 ​ 12.4 ​ |
| Amortization of intangible assets | ​ | ​ 14,137 ​ 1.7 ​ ​ ​ 12,032 ​ 1.4 ​ |
| Restructuring charges | ​ | 4,197 ​ 0.5 ​ ​ 1,057 ​ 0.1 ​ |
| Total operating expenses | ​ | $232,328 ​ 27.6% $209,052 ​ 24.9% |

#### SALES AND BACKLOG

#### Total Sales

Sales decreased $25.4 million, or 5.8%, to $415.5 million for the three months ended June 30, 2023 and increased $2.1 million, or 0.3%, to $840.5 million for the six months ended June 30, 2023 as compared to the same periods in the prior year.

Improved material availability and capacity allowed us to better meet overall demand and reduce backlog across our markets, which enabled us to partially mitigate the impact of the market decline in the Semiconductor and Data Center markets. Although the supply environment has improved, revenues in the first half of 2023 were also impacted by supply constraints for certain integrated circuits and other components, which limited our ability to fulfill product shipments to meet our total demand.

#### Backlog

The following table summarizes our backlog (in thousands):

| ​ ​ ​ | ​ | ​ ​ June 30, 2023 | ​ ​ | ​ ​ December 31, 2022 | ​ ​ ​ | ​ ​ Change from Year End Dollar | ​ | ​ ​ ​ Percent ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Backlog | ​ | $644,672 | ​ | $875,346 | ​ | $(230,674) | ​ | (26.4)% |

Backlog represents outstanding orders for products we expect to deliver within the next 12 months. Backlog at June 30, 2023 decreased from the end of 2022 due primarily to lower demand in some of our markets and improved lead times, which allowed our customers to reduce placing new orders for products with targeted deliveries in the later part of the 12-month backlog period.

We believe the current backlog levels provide some level of revenue protection should demand decrease due to macroeconomic factors. We continue to expect to bring our backlog back to a more normalized range 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 and may be adversely impacted by factors such as decreased demand or cancellations or export controls. In addition, there is uncertainty of the timing of when backlog can convert into revenue due to continuing supply constraints. Our customers can typically cancel, change, or delay product purchase commitments with little or no notice.

#### Sales by Market

Sales in the Semiconductor Equipment market decreased $55.6 million, or 24.3%, to $173.2 million for the three months ended June 30, 2023 and $64.4 million, or 14.9%, to $367.4 million for the six months ended June 30, 2023 as compared to the same periods in the prior year. The decrease in sales compared to the same periods in the prior year was primarily due to a cyclical downturn in the semiconductor industry and the U.S. export controls restricting shipments of equipment to Chinese semiconductor customers. The revenue decline in the first half was partially mitigated by strong service revenues, growth in certain applications such as high voltage power supplies, and reduction of backlog as customers returned to normalized inventory level.

Sales in the Industrial and Medical market increased $22.7 million, or 21.6%, to $127.6 million for the three months ended June 30, 2023 and $62.8 million, or 33.4%, to $250.6 million for the six months ended June 30, 2023 as compared to the same periods in the prior year. The increase in sales compared to the same periods in the prior year was primarily due to continued demand for our portfolio of products across several industrial and medical applications and improved material availability.

Sales in the Data Center Computing market decreased $10.1 million, or 14.6%, to $59.1 million for the three months ended June 30, 2023 and $26.7 million, or 18.3%, to $118.7 million for the six months ended June 30, 2023 as compared to the same periods in the prior year. The decrease in Data Center Computing market sales was due to slowing demand with some of our data center customers and supply constraints of certain components to meet our full demand.

Sales in the Telecom and Networking market increased $17.6 million, or 46.3%, to $55.7 million for the three months ended June 30, 2023 and $30.4 million, or 41.4%, to $103.8 million for the six months ended June 30, 2023 as compared to the same periods in the prior year. The increase in sales was primarily due to substantially improved material availability, allowing us to partially fulfill outstanding demand from the prior year.

#### GROSS PROFIT

For the three months ended June 30, 2023, gross profit decreased $15.1 million to $147.1 million, or 35.4% of revenue, as compared to $162.2 million, or 36.8% of revenue, in the same period in the prior year. For the six months ended June 30, 2023, gross profit decreased $4.3 million to $302.2 million, or 36.0% of revenue, as compared to $306.5 million, or 36.6% of revenue, in the same period in the prior year.

The decrease in gross profit as a percentage of revenue for the three and six months ended June 30, 2023 is largely due to the decline in sales, unfavorable product mix, and higher operating costs based on investments made in 2022, partially offset by lower premiums and related recoveries for securing critical parts.

#### 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 $3.4 million to $51.4 million for the three months ended June 30, 2023 and increased $11.4 million to $103.0 million for the six months ended June 30, 2023 as compared to the same periods in the prior year. The increase in research and development expense is primarily driven by increased headcount and compensation costs of $3.2 million for the three months ended June 30, 2023 and $7.5 million for the six months ended June 30, 2023, both of which are partially due to the SL Power acquisition.

In addition, we incurred higher program and material costs as we invest in new programs to maintain and increase our technological leadership and provide solutions to our customers’ evolving needs of $0.2 million for the three months ended June 30, 2023 and $3.9 million for the six months ended June 30, 2023.

#### 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, corporate development, and human resource functions.

Selling, general and administrative (“SG&A”) expenses increased $0.6 million to $55.6 million for the three months ended June 30, 2023 and increased $6.6 million to $111.0 million for the six months ended June 30, 2023 as compared to the same periods in the prior year. The increase in SG&A is primarily related to increased headcount and associated costs, including sales commissions and stock-based compensation.

#### Amortization of Intangibles

Amortization expense increased $0.6 million to $7.1 million during the three months ended June 30, 2023 and increased $2.1 million to $14.1 million for the six months ended June 30, 2023 as compared to the same periods in the prior year. The increase was primarily driven by incremental amortization of acquired intangible assets from the SL Power acquisition. For additional information, see *Note 2. Acquisitions* and *Note 12. Intangible Assets* in Part I, Item 1 “Unaudited Consolidated Financial Statements.”

#### Restructuring

In the fourth quarter of 2022, we 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 early 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 closure of our Shenzhen facility in February 2023. For additional information, see *Note 13. Restructuring Costs* in Part I, Item 1 “Unaudited Consolidated Financial Statements.”

#### 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 decreased $0.8 million to $2.4 million for the three months ended June 30, 2023, and decreased $0.5 million to $1.9 million for the six months ended June 30, 2023 as compared to the same periods in the prior year. The decrease in income between periods is primarily a result of higher unrealized foreign exchange losses and an increase in interest expense due to a higher interest rate on the portion of our Term Loan Facility subject to a variable interest rate (see *Note 18. Credit Facility* in Part I, Item 1 “Unaudited Consolidated Financial Statements.”). This was partially offset by higher interest income on our cash because of higher interest rates.

#### PROVISION FOR INCOME TAXES

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

| ​ ​ ​ | ​ ​ | ​ ​ ​ Three Months Ended June 30, 2023 | ​ ​ ​ ​ 2022 | ​ ​ ​ Six Months Ended June 30, 2023 | ​ ​ ​ ​ 2022 ​ |
| --- | --- | ---: | ---: | ---: | ---: |
| Income from continuing operations, before income taxes | ​ | $32,250 ​ | $56,014 ​ | $71,738 ​ | $99,829 ​ |
| Provision for income taxes | ​ | $4,795 ​ | $11,203 ​ | $12,531 ​ | $18,156 ​ |
| Effective tax rate | ​ | ​ 14.9% | ​ 20.0% | ​ 17.5% | ​ 18.2% |

Our effective tax rates differ from the U.S. federal statutory rate of 21% for the three and six months ended June 30, 2023 and 2022, respectively, 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 the three and six months ended June 30, 2023 was lower than the same periods in 2022 primarily due to the impact of beneficial discrete items in the three months ended June 30, 2023 relative to unfavorable discrete items recorded in the three months ended June 30, 2022.

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.

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.

| ​ Reconciliation of non-GAAP measure Operating expenses and operating income from continuing operations, excluding certain items (in thousands) | ​ ​ ​ | ​ ​ ​ ​ Three Months Ended June 30, 2023 | ​ ​ | ​ ​ ​ ​ 2022 | ​ ​ ​ | ​ ​ ​ ​ Six Months Ended June 30, 2023 | ​ ​ | ​ ​ ​ ​ 2022 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Gross profit from continuing operations, as reported | ​ | $147,080 | ​ | $162,158 | ​ | $302,191 | ​ | $306,474 |
| Adjustments to gross profit: | ​ |  | ​ |  | ​ |  | ​ |  |
| Stock-based compensation | ​ | 589 | ​ | 402 | ​ | 972 | ​ | 633 |
| Facility expansion, relocation costs and other | ​ | 60 | ​ | 1,187 | ​ | 1,017 | ​ | 2,471 |
| Acquisition-related costs | ​ | ​ 97 | ​ | ​ 64 | ​ | ​ 150 | ​ | ​ (438) |
| Non-GAAP gross profit | ​ | 147,826 | ​ | 163,811 | ​ | ​ 304,330 | ​ | ​ 309,140 |
| Non-GAAP gross margin | ​ | ​ 35.6% | ​ | 37.1% | ​ | 36.2% | ​ | 36.9% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Operating expenses from continuing operations, as reported | ​ | 117,255 | ​ | 109,393 | ​ | ​ 232,328 | ​ | ​ 209,052 |
| Adjustments: | ​ |  | ​ |  | ​ |  | ​ |  |
| Amortization of intangible assets | ​ | (7,075) | ​ | (6,523) | ​ | (14,137) | ​ | (12,032) |
| Stock-based compensation | ​ | (7,348) | ​ | (4,656) | ​ | (13,766) | ​ | (8,353) |
| Acquisition-related costs | ​ | (1,165) | ​ | (4,159) | ​ | (2,043) | ​ | (5,827) |
| Restructuring | ​ | (3,154) | ​ | 161 | ​ | (4,197) | ​ | (1,057) |
| Non-GAAP operating expenses | ​ | 98,513 | ​ | 94,216 | ​ | 198,185 | ​ | 181,783 |
| Non-GAAP operating income | ​ | $49,313 | ​ | $69,595 | ​ | $106,145 | ​ | $127,357 |
| Non-GAAP operating margin | ​ | ​ 11.9% | ​ | 15.8% | ​ | 12.6% | ​ | 15.2% |

*(in thousands, except per share amounts)*

| ​ Reconciliation of non-GAAP measure Income from continuing operations, excluding certain items | ​ ​ ​ | ​ ​ ​ ​ Three Months Ended June 30, 2023 | ​ ​ | ​ ​ ​ ​ 2022 | ​ ​ ​ | ​ ​ ​ ​ Six Months Ended June 30, 2023 | ​ ​ | ​ ​ ​ ​ 2022 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Income from continuing operations, less non-controlling interest, net of income taxes | ​ | $27,455 | ​ | $44,790 | ​ | $59,207 | ​ | $81,666 |
| Adjustments: | ​ | ​ | ​ | ​ | ​ |  | ​ |  |
| Amortization of intangible assets | ​ | 7,075 | ​ | 6,523 | ​ | 14,137 | ​ | 12,032 |
| Acquisition-related costs | ​ | 1,262 | ​ | 4,223 | ​ | 2,193 | ​ | 5,389 |
| Facility expansion, relocation costs, and other | ​ | 60 | ​ | 1,187 | ​ | 1,017 | ​ | 2,471 |
| Restructuring | ​ | 3,154 | ​ | (161) | ​ | 4,197 | ​ | 1,057 |
| Unrealized foreign currency gain | ​ | ​ (2,266) | ​ | ​ (5,569) | ​ | ​ (1,213) | ​ | ​ (6,854) |
| Acquisition-related costs and other included in other income (expense), net | ​ | ​ — | ​ | ​ 85 | ​ | ​ — | ​ | ​ 85 |
| Tax effect of non-GAAP adjustments | ​ | (1,051) | ​ | ​ (752) | ​ | ​ (2,172) | ​ | ​ (1,821) |
| Non-GAAP income, net of income taxes, excluding stock-based compensation | ​ | ​ 35,689 | ​ | ​ 50,326 | ​ | ​ 77,366 | ​ | ​ 94,025 |
| Stock-based compensation, net of taxes | ​ | ​ 6,191 | ​ | ​ 3,946 | ​ | ​ 11,495 | ​ | ​ 6,971 |
| Non-GAAP income, net of income taxes | ​ | $41,880 | ​ | $54,272 | ​ | $88,861 | ​ | $100,996 |
| Non-GAAP diluted earnings per share | ​ | $1.11 | ​ | $1.44 | ​ | $2.35 | ​ | $2.68 |

| ​ Reconciliation of non-GAAP measure Per share earnings excluding certain items ​ | ​ ​ | ​ ​ Three Months Ended June 30, 2023 | ​ | ​ ​ 2022 | ​ | ​ ​ Six Months Ended June 30, 2023 | ​ | ​ ​ 2022 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Diluted earnings per share from continuing operations, as reported | ​ | $0.73 | ​ | $1.19 |  | $1.57 | ​ | $2.16 |
| Add back: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Per share impact of non-GAAP adjustments, net of tax |  | ​ 0.38 |  | ​ 0.25 | ​ | ​ 0.78 | ​ | ​ 0.52 |
| Non-GAAP earnings per share | ​ | $1.11 | ​ | $1.44 | ​ | $2.35 | ​ | $2.68 |

### 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

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 in *Note 18. Credit Facility* in Part I, Item 1 “Unaudited Consolidated Financial Statements”).

The following table summarizes our cash, cash equivalents, and marketable securities (in thousands):

| ​ ​ | ​ ​ | ​ ​ June 30, 2023 |
| --- | --- | ---: |
| Cash and cash equivalents | ​ | $455,252 |
| Marketable securities | ​ | 175 |
| Total cash, cash equivalents, and marketable securities | ​ | $455,427 |

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

For information on our Credit Facility, see *Note 18. Credit Facility* and *Note 7. Derivative Financial Instruments* in Part I, Item 1 “Unaudited Consolidated Financial Statements.”

The following table summarizes borrowings under our Credit Facility and the associated interest rate (in thousands, except for interest rates).

| ​ ​ ​ | ​ ​ | ​ ​ June 30, 2023 Balance | ​ | ​ Interest Rate | ​ | ​ Unused Line Fee |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Term Loan Facility subject to a fixed interest rate due to interest rate swap | ​ | $229,469 | ​ | 1.172% | ​ | — |
| Term Loan Facility subject to a variable interest rate | ​ | ​ 135,531 | ​ | 5.952% | ​ | — |
| Revolving Facility subject to a variable interest rate | ​ | ​ — | ​ | 5.952% | ​ | 0.10% |
| Total borrowings under the Credit Agreement | ​ | $365,000 | ​ | ​ | ​ | ​ |

As of June 30, 2023, 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 $115.0 million.

#### Dividends

During the three months ended June 30, 2023, we paid quarterly cash dividends of $0.10 per share, totaling $3.8 million. We currently anticipate that a cash dividend of $0.10 per share will continue to be paid on a quarterly basis, although the declaration of any future cash dividend is at the discretion of the Board of Directors (the “Board”) and will depend on our financial condition, results of operations, capital requirements, business conditions, and other factors.

#### Share Repurchase

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)*

| ​ ​ | ​ ​ | ​ ​ Three Months Ended June 30, 2023 | ​ | ​ ​ 2022 | ​ ​ | ​ ​ Six Months Ended June 30, 2023 | ​ | ​ ​ 2022 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Amount paid or accrued to repurchase shares | ​ | $— | ​ | $17,019 | ​ | $— | ​ | $23,613 |
| Number of shares repurchased | ​ | — | ​ | 230 | ​ | — | ​ | 312 |
| Average repurchase price per share | ​ | $— | ​ | $74.12 | ​ | $— | ​ | $75.68 |

At June 30, 2023, the remaining amount authorized by the Board for future share repurchases was $199.3 million with no time limitation.

#### Cash Flows

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

| ​ ​ ​ | ​ ​ | ​ ​ Six Months Ended June 30, 2023 | ​ | ​ ​ 2022 | ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- |
| Net cash from operating activities from continuing operations | ​ | $55,504 | ​ | $47,541 | ​ |
| Net cash from operating activities from discontinued operations | ​ | (3,090) | ​ | 55 | ​ |
| Net cash from operating activities | ​ | 52,414 | ​ | 47,596 | ​ |
| Net cash from investing activities | ​ | (36,751) | ​ | (171,255) | ​ |
| Net cash from financing activities | ​ | (18,976) | ​ | (42,840) | ​ |
| Effect of currency translation on cash and cash equivalents | ​ | (253) | ​ | (5,188) | ​ |
| Net change in cash and cash equivalents | ​ | (3,566) | ​ | (171,687) | ​ |
| Cash and cash equivalents, beginning of period | ​ | 458,818 | ​ | 544,372 | ​ |
| Cash and cash equivalents, end of period | ​ | $455,252 | ​ | $372,685 | ​ |

#### Net Cash From Operating Activities

Net cash from operating activities from continuing operations for the six months ended June 30, 2023, was $55.5 million, as compared to $47.5 million for the same period in the prior year. The increase of $8.0 million in net cash flows from operating activities as compared to the same period in the prior year is primarily due to a favorable decrease in net operating assets driven primarily by a decrease in accounts receivable and inventories. This was partially offset by a decrease in accounts payable and accrued expenses and lower net income from continuing operations.

#### Net Cash From Investing Activities

Net cash from investing activities for the six months ended June 30, 2023 was ($36.8) million, primarily driven by the following:

- ($33.6) million in purchases of property and equipment largely driven by investments in our manufacturing footprint and capacity; and
- ($3.1) million in purchases of investments

Net cash from investing for the six months ended June 30, 2022 was ($171.3) million, primarily driven by the following:

- ($25.5) million in purchases of property and equipment largely driven by investments in our manufacturing footprint and capacity; and
- ($145.8) million for business combinations.

#### Net Cash From Financing Activities

Net cash from financing activities for the six months ended June 30, 2023 was ($19.0) million and included the following:

- ($10.0) million for repayment of long-term debt;
- ($7.6) million for dividend payments; and
- ($1.4) million in net payments related to stock-based award activities.

Net cash from financing activities for the six months ended June 30, 2022 was ($42.8) million and included the following:

- ($23.6) million related to repurchases of our common stock;
- ($10.0) million for repayment of long-term debt;
- ($7.6) million for dividend payments; and
- ($1.7) million in net payments related to stock-based award activities.

#### Effect of Currency Translation on Cash

During the six months ended June 30, 2023, foreign currency translation had a minimal impact on cash. See “Foreign Currency Exchange Rate Risk” in Part I, Item 3 of this Form 10-Q for more information.

### Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. *Note 1. Summary of Operations and Significant Accounting Policies and Estimates* to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022, describes the significant accounting policies and methods used in the preparation of our consolidated financial statements. Our critical accounting estimates, discussed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, include:

- estimates for the valuation of assets and liabilities acquired in business combinations;
- accounting for income taxes;
- inputs to actuarial models that measure our pension obligations; and
- assessing excess and obsolete inventories.

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

## Market risk

As filed, 5,767 characters.

### Market Risk and Risk Management

In the normal course of business, we have exposure 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.

See the “Risk Factors” set forth in Part I, Item 1A of our Annual Report on Form 10-K and Part II of this Form 10-Q, for more information about the market risks to which we are exposed. There have been no material changes in our exposure to market risk from December 31, 2022.

### 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, and Chinese Yuan. Our purchasing and sales activities are primarily denominated in the USD, Japanese Yen, Euro, and Chinese Yuan.

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.

| ​ ​ ​ | ​ ​ | ​ ​ June 30, 2023 Balance | ​ | ​ Interest Rate | ​ | ​ Unused Line Fee |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Term Loan Facility subject to a fixed interest rate due to interest rate swap | ​ | $229,469 | ​ | 1.172% | ​ | — |
| Term Loan Facility subject to a variable interest rate | ​ | ​ 135,531 | ​ | 5.952% | ​ | — |
| Revolving Facility subject to a variable interest rate | ​ | ​ — | ​ | 5.952% | ​ | 0.10% |
| Total borrowings under the Credit Agreement | ​ | $365,000 | ​ | ​ | ​ | ​ |

For more information on the Term Loan Facility see *Note 18. Credit Facility* in Part I, Item 1 “Unaudited Consolidated Financial Statements.” For more information on the interest rate swap that fixes the interest rate for a portion of our Term Loan Facility, see *Note 7. Derivative Financial Instruments* in Part I, Item 1 “Unaudited Consolidated Financial Statements.” The Term Loan Facility and Revolving Facility bear interest, at our option, at a rate based on the Base Rate or SOFR, as defined in the Credit Agreement, plus an applicable margin.

Our interest payments are impacted by interest rate fluctuations. With respect to the portion of our Credit Facility that is subject to a variable interest rate, a hypothetical increase of 100 basis points (1%) in interest rates would have 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.

## Controls and procedures

As filed, 2,478 characters.

### 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, Executive Vice President and Chief Financial Officer), as appropriate, to allow timely decisions regarding required disclosures.

As of the end of the period covered by this report, we conducted an evaluation, with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures pursuant to the Exchange Act Rule 13a-15(b). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2023. The conclusions of the Chief Executive Officer and Chief Financial Officer from this evaluation were communicated to the Audit and Finance Committee. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. We intend to continue to review and document our disclosure controls and procedures, including our internal controls over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.

### Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the quarter covered by this Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 560 characters.

Information concerning our risk factors is contained in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. The risks described in our Annual Report on Form 10-K are not the only risks that we face; additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or operating results. There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K.

Filed Aug 3, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-013181. Last ingested by Listed: Nov 2, 2026, 17:00 ET. No prices; not investment advice.