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

- Company: [Advanced Energy Industries Inc](/companies/aeis.md) (CIK 927003)
- Form: 10-Q
- Filed: 2023-10-31
- Accepted by EDGAR: Oct 31, 2023, 16:00 ET
- Period: 2023-09-30
- Accession: 0001558370-23-017112
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/927003/000155837023017112/aeis-20230930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/927003/000155837023017112/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $410.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.25bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $262.6m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $801.0m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $147.3m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $449.5m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $50.4m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $153.4m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $55.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $166.1m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $30.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $99.9m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $874.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $13.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $32.7m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $90.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.86 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $2.40 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.87 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $2.42 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 37,854,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 37,842,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $124.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $46.8m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $11.4m | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $40.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $985.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $1.67bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $2.49bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $314.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $1.39bn | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $899.8m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $20.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $1.10bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 53,491 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 Securities and Exchange Commission on February 17, 2023 (“the 2022 Form 10-K”).

### 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 (the “Exchange Act”). 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, events, or circumstances will continue. The inclusion of words such as “anticipate,” “expect,” “estimate,” “can,” “may,” “might,” “continue,” “enable,” “plan,” “intend,” “should,” “could,” “would,” “will,” “likely,” “potential,” “believe,” and similar expressions and the negative versions thereof indicate forward-looking statements; however, not all forward-looking statements may contain such words or expressions. These forward-looking statements are based upon information available as of the date of this report and management’s current estimates, forecasts, and assumptions. Although we believe that our expectations reflected in or suggested by these forward-looking statements are reasonable, we may not achieve the results, performance, plans, or objectives expressed or implied by such 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 the length, severity, or nature of any market and demand deterioration; supply chain cost increases and other inflationary pressures; recession; economic volatility and cyclicality 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 our solar inverter product line and 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;
- the potential impact of dilution related to our convertible debt, hedge, and warrant transactions;
- the ability to repay all or a part of our debt obligations;
- 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, 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 the 2022 Form 10-K. Other factors might also contribute to the differences between our forward-looking statements and our actual results. Other than as required by law, 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 this raw power into various types of highly controllable, usable power that is predictable, repeatable, and customizable to meet the exacting requirements for powering a wide range of complex equipment. Many of our products enable our original equipment manufacturer (“OEM”) customers to optimize their energy consumption through increased power conversion efficiency, power density, power coupling, and process control across a wide range of applications.

Advanced Energy’s precision power products and solutions are designed to enable new process technologies, improve productivity, lower the cost of ownership, and provide critical power capabilities for our customers. These products are designed to meet our customers’ demanding requirements in efficiency, flexibility, performance, and reliability. The majority of Advanced Energy’s products are designed to meet the unique requirements of each customer’s equipment. We also provide repair and maintenance services for our products.

Our plasma power solutions enable innovation in complex semiconductor and thin film plasma-based manufacturing 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, controls, and instrumentation products primarily for advanced measurement and calibration of power and temperature for multiple industrial markets. Our network of global service support centers provides repair services, calibration, conversions, upgrades, refurbishments, and used equipment to companies using our products.

Advanced Energy is organized on a global, functional basis and operates in the single segment for power electronics conversion products. Within this segment, our products are sold into the Semiconductor Equipment, Industrial and Medical, Data Center Computing, and Telecom and Networking markets.

On September 12, 2023, we completed a private, unregistered offering of $575.0 million aggregate principal amount 2.50% convertible senior notes (“Convertible Notes”) and received net proceeds of approximately $562.1 million after the discount for the initial purchasers’ fees. We intend to use the net proceeds to fund future growth, which may include strategic acquisitions, opportunistically repay existing outstanding indebtedness, repurchase our common stock, or general corporate purposes. See *Note 18. Long-Term Debt* in Part I, Item 1 “Unaudited Consolidated Financial Statements” and Liquidity and Capital Resources below.

Concurrent with the Convertible Notes issuance, we repurchased 0.4 million shares of common stock for $40.0 million and entered into hedge and warrant contracts with respect to our common stock (see *Note 5. Earnings Per Share* and *Note 18. Long-Term Debt* in Part I, Item 1 “Unaudited Consolidated Financial Statements”).

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. Since the fourth quarter of 2022, demand in some of our markets began to decline, most notably due to the semiconductor cyclical downturn and reduced investments in the Data Center Computing market. Subsequently, in the third quarter of 2023, demand in the Industrial and Medical market started to moderate due to macroeconomic conditions, and in this market, our ability to fulfill demand continues to be partially limited by ongoing supply constraints for some materials and components. We were constrained by supply chain shortages for critical integrated circuits, resulting in longer lead times for our products in 2022. 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 $514.5 million at the end of the third quarter of 2023.

#### Semiconductor Equipment Market

The Semiconductor Equipment market is driven by the long-term growing need for more semiconductor production capacity and new process technologies to meet increasing demand for integrated circuits that enable processing, storing, and transmitting a growing amount of data across many industries. To meet this demand, the chip industry continues to invest in production capacity for both leading-edge and trailing-edge nodes, logic devices, the latest memory devices, back-end test, and advanced wafer-level packaging. The industry’s transition to advanced technology nodes and to increased layers in memory devices requires an increased number of plasma-based etch and deposition process tools and higher content of our advanced power solutions per tool. Advanced Energy is a critical technology leader in the industry and provides one of the industry’s broadest portfolios of power conversion and related products, including plasma power, high-voltage power, and adjacent sensing solutions, to semiconductor capital equipment OEMs targeting a wide range of process technologies and device types. Our strategy in this market is to defend our proprietary positions in our core applications by capturing new design and product generations, grow our market position in applications where we have lower market share, such as remote plasma source and dielectric etch, and leverage our broad product portfolio in areas such as high and low voltage embedded power products to grow our market share and content at our 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, prolonged weakness in demand for consumer electronics, such as smartphone, impacting leading-edge wafer capacity investments plans, general semiconductor inventory digestion resulting in falling fab utilization, and new U.S. export restrictions to China for certain semiconductor equipment. During the first nine months of 2023, these factors continued to impact our revenue, and they are expected to continue in the fourth quarter of 2023 and into 2024. We believe long-term drivers for demand growth in this market will eventually resume, due to the need to invest in new fab capacity to support growing demand for semiconductor devices in a wide range of applications, the continued transition to next generation processing nodes, increased complexity of advanced processes requiring more complex and innovative power solutions, and the regionalization of some semiconductor capacity.

#### Industrial and Medical Market

Advanced Energy serves the Industrial and Medical market with mission-critical, precision power products and solutions that deliver precise and highly reliable, low noise or differentiated power to OEM equipment. We also supply sensing, control, and instrumentation products to complement our power solutions. 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 are primarily global and regional OEMs that incorporate our solutions into a wide variety of applications, such as advanced material fabrication, medical devices, analytical instrumentation, test and measurement equipment, robotics, industrial production, and large-scale connected light-emitting diode applications. We serve this diverse market through both our direct sales force and indirect sales channels including independent sales representatives, channel partners, and distributors. Our strategy in the 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 on critical components limited our ability to fulfill product shipments at the level of customer demand and resulted in increased backlog. During the first nine months of 2023, we secured critical components, enabling us to deliver record revenues in the first nine months in this market. However, in the third quarter of 2023 we began to see lower demand in this market due largely to macroeconomic factors and normalization of backlog levels. It is unclear how the macroeconomic conditions, including higher interest rates impacting end customer’s capital investment and potential recession, may affect customer demand and our revenue in the remainder of 2023 and into 2024. In addition, although the supply of critical components has improved, we continue to see some shortages and product delivery, and revenue levels in this market will continue to be partially dependent on our ability to secure supplies of critical components. Long-term, we continue to believe the diverse Industrial and Medical market offers many growth opportunities, and we plan to continue our investments to grow revenue in this market.

#### Data Center Computing Market

Advanced Energy serves the Data Center Computing market with industry-leading power conversion products and technologies, which we sell to OEMs and original design manufacturers of data center server and storage systems, as well as cloud service providers and their partners. Driven by the growing adoption of cloud computing and increasing demand for edge applications, the server and storage market is shifting from traditional enterprise on-premises computing to the data center. In addition, the rapid growth and adoption of artificial intelligence and machine learning are driving increased demand for substantially higher power server racks requiring increased power density and higher efficiency in server power supplies and accelerating the transition from 12 Volt to 48 Volt infrastructure in data center server racks. Advanced Energy benefits from these trends as an industry leader in providing high-efficiency, high-density, 48 Volt server power solutions to data center infrastructure customers. Our strategy in the market is to penetrate selected customers and applications based on our differentiated capabilities and competitive strengths in power density, efficiency, and controls.

In the first half of 2023, we saw reduced revenues due to slowing demand in the enterprise server and storage market as customers delayed investments. In addition, ongoing supply constraints limited our ability to meet the full demand. However, improved supply of critical components and demand for high end computing applications from some customers led to increased revenue in the third quarter of 2023 from the lower levels in first half of 2023. It is not clear how quickly our enterprise server and storage customers will return to their historical level of investments.

#### Telecom and Networking Market

Advanced Energy’s customers in the Telecom and Networking market include many leading OEMs of wireless infrastructure equipment, telecommunication equipment and computer networking equipment. Growth in the market is driven by adoption of more advanced mobile standards, including 5G technologies which enable new advanced applications such as autonomous vehicles and virtual/augmented reality. 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 market is to optimize our portfolio of power conversion products to more differentiated applications, and to focus on 5G infrastructure applications.

During the first nine months of 2023, substantially improved supply of critical components allowed us to largely fulfill outstanding demand from the prior year and drive strong revenue growth in the Telecom and Networking market as compared to the first nine months of 2022. However, leading companies in this market have reported end user weakness, and we do not expect to sustain the revenue levels of the first nine months of 2023 in the fourth quarter of 2023 and into 2024.

### 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 accounting principles generally accepted in the United States of America (“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 September 30, 2023 | ​ ​ | ​ ​ 2022 | ​ ​ | ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2023 | ​ ​ | ​ ​ 2022 | ​ ​ |
| --- | --- | ---: | --- | ---: | --- | --- | ---: | --- | ---: | --- |
| Sales |  | $409,991 |  | $516,274 | ​ | ​ | $1,250,539 |  | $1,354,682 | ​ |
| Gross profit | ​ | 147,341 | ​ | 191,218 | ​ | ​ | 449,532 | ​ | 497,692 | ​ |
| Operating expenses | ​ | 117,280 | ​ | 113,646 | ​ | ​ | 349,608 | ​ | 322,698 | ​ |
| Operating income from continuing operations | ​ | 30,061 | ​ | 77,572 | ​ | ​ | 99,924 | ​ | 174,994 | ​ |
| Other income (expense), net | ​ | 4,464 | ​ | 8,940 | ​ | ​ | 6,339 | ​ | 11,347 | ​ |
| Income from continuing operations, before income tax | ​ | 34,525 | ​ | 86,512 | ​ | ​ | 106,263 | ​ | 186,341 | ​ |
| Provision for income tax | ​ | 874 | ​ | 11,639 | ​ | ​ | 13,405 | ​ | 29,795 | ​ |
| Income from continuing operations | ​ | $33,651 | ​ | $74,873 | ​ | ​ | $92,858 | ​ | $156,546 | ​ |

| ​ ​ ​ | ​ ​ | ​ Three Months Ended September 30, 2023 | ​ ​ | ​ 2022 | ​ ​ ​ ​ | ​ ​ ​ | ​ Nine Months Ended September 30, 2023 | ​ ​ | ​ 2022 | ​ ​ ​ ​ |
| --- | --- | --- | ---: | --- | ---: | --- | --- | ---: | --- | ---: |
| Sales | ​ | ​ | 100.0% | ​ | 100.0% | ​ | ​ | 100.0% | ​ | 100.0% |
| Gross profit | ​ |  | 35.9 |  | 37.0 | ​ |  | 35.9 |  | 36.7 |
| Operating expenses | ​ |  | 28.6 |  | 22.0 | ​ |  | 28.0 |  | 23.8 |
| Operating income from continuing operations | ​ |  | 7.3 |  | 15.0 | ​ |  | 8.0 |  | 12.9 |
| Other income (expense), net | ​ |  | 1.1 |  | 1.7 | ​ |  | 0.5 |  | 0.8 |
| Income from continuing operations, before income tax | ​ |  | 8.4 |  | 16.8 | ​ |  | 8.5 |  | 13.8 |
| Provision for income tax | ​ |  | 0.2 |  | 2.3 | ​ |  | 1.1 |  | 2.2 |
| Income from continuing operations | ​ | ​ | 8.2% | ​ | 14.5% | ​ | ​ | 7.4% | ​ | 11.6% |

#### SALES, NET

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

| ​ ​ ​ | ​ ​ | ​ ​ ​ ​ ​ Three Months Ended September 30, 2023 2022 | ​ ​ | ​ ​ | ​ ​ ​ ​ ​ Change 2023 v. 2022 ​ Dollar Percent ​ |
| --- | --- | ---: | --- | --- | ---: |
| Semiconductor Equipment | ​ | $185,033 ​ $266,600 | ​ | ​ | $(81,567) (30.6)% |
| Industrial and Medical | ​ | 115,226 ​ 119,587 | ​ | ​ | (4,361) (3.6)% |
| Data Center Computing | ​ | ​ 68,286 ​ ​ 87,542 | ​ | ​ | ​ (19,256) ​ (22.0)% |
| Telecom and Networking | ​ | 41,446 ​ 42,545 | ​ | ​ | (1,099) (2.6)% |
| Total | ​ | $409,991 ​ $516,274 | ​ | ​ | $(106,283) (20.6)% |
| ​ | ​ | ​ ​ ​ ​ ​ | ​ | ​ | ​ ​ ​ ​ ​ |
| ​ | ​ | **Nine Months Ended September 30,** | **​** | ​ | **Change 2023 v. 2022** ​ |
| ​ | ​ | **2023** **2022** |  |  | **Dollar** **Percent** ​ |
| Semiconductor Equipment | ​ | $552,419 ​ $698,354 | ​ | ​ | $(145,935) (20.9)% |
| Industrial and Medical | ​ | 365,849 ​ 307,436 | ​ | ​ | 58,413 19.0% |
| Data Center Computing | ​ | ​ 187,021 ​ ​ 232,941 | ​ | ​ | ​ (45,920) (19.7)% |
| Telecom and Networking | ​ | 145,250 ​ 115,951 | ​ | ​ | 29,299 25.3% |
| Total | ​ | $1,250,539 ​ $1,354,682 | ​ | ​ | $(104,143) (7.7)% |

| ​ ​ ​ | ​ ​ ​ | ​ Three Months Ended September 30, 2023 | ​ ​ | ​ 2022 | ​ ​ ​ ​ | ​ ​ ​ | ​ Nine Months Ended September 30, 2023 | ​ ​ | ​ 2022 | ​ ​ ​ ​ |
| --- | --- | --- | ---: | --- | ---: | --- | --- | ---: | --- | ---: |
| Semiconductor Equipment | ​ |  | 45.1% | ​ | 51.6% | ​ |  | 44.2% | ​ | 51.6% |
| Industrial and Medical | ​ |  | 28.1 | ​ | 23.2 | ​ |  | 29.3 | ​ | 22.7 |
| Data Center Computing | ​ | ​ | 16.7 ​ | ​ | 17.0 ​ | ​ | ​ | 15.0 ​ | ​ | 17.2 ​ |
| Telecom and Networking | ​ |  | 10.1 | ​ | 8.2 | ​ |  | 11.5 | ​ | 8.5 |
| 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 September 30, ​ 2023 ​ 2022 ​ |
| --- | --- | ---: |
| Research and development | ​ | $50,391 12.3% $49,760 9.6% |
| Selling, general, and administrative | ​ | 55,131 ​ 13.4 ​ ​ 56,716 ​ 11.0 ​ |
| Amortization of intangible assets | ​ | ​ 7,049 ​ 1.7 ​ ​ ​ 7,049 ​ 1.4 ​ |
| Restructuring charges | ​ | 4,709 ​ 1.1 ​ ​ 121 ​ - ​ |
| Total operating expenses | ​ | $117,280 ​ 28.6% $113,646 ​ 22.0% |
| ​ | ​ | ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ |
| ​ | **​** | **Nine Months Ended September 30,** **​** |
| ​ |  | **2023** **​** **2022** **​** |
| Research and development | ​ | $153,414 12.3% $141,383 10.4% |
| Selling, general, and administrative | ​ | 166,102 ​ 13.3 ​ ​ 161,056 ​ 11.9 ​ |
| Amortization of intangible assets | ​ | ​ 21,186 ​ 1.7 ​ ​ ​ 19,081 ​ 1.4 ​ |
| Restructuring charges | ​ | 8,906 ​ 0.7 ​ ​ 1,178 ​ 0.1 ​ |
| Total operating expenses | ​ | $349,608 ​ 28.0% $322,698 ​ 23.8% |

#### SALES AND BACKLOG

#### Total Sales

Sales decreased $106.3 million, or 20.6%, to $410.0 million for the three months ended September 30, 2023 and decreased $104.1 million, or 7.7%, to $1,250.5 million for the nine months ended September 30, 2023 as compared to the same periods in the prior year.

Revenues in three months ended September 30, 2023 declined from the same period in the prior year mainly due to the impact of market downturns in all of our markets, particularly the Semiconductor Equipment and Data Center Computing markets. Revenues in the first nine months of 2023 were also impacted by Semiconductor Equipment and Data Center Computing market downturns, but revenues in the Industrial and Medical and the Telecom and Networking markets increased as compared to the same periods in the prior year due to improved supply of certain components.

#### Backlog

The following table summarizes our backlog (in thousands):

| ​ ​ ​ | ​ | ​ ​ September 30, 2023 | ​ ​ | ​ ​ December 31, 2022 | ​ ​ ​ | ​ ​ Change from Year End Dollar | ​ | ​ ​ ​ Percent ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Backlog | ​ | $514,471 | ​ | $875,346 | ​ | $(360,875) | ​ | (41.2)% |

Backlog represents outstanding orders for products we expect to deliver within the next 12 months. Backlog at September 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 continue to decrease due to macroeconomic factors. We continue to expect backlog to return to a more normalized range of $400 million to $500 million.

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, cancellations, or export controls. 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 $81.6 million, or 30.6%, to $185.0 million for the three months ended September 30, 2023 and $145.9 million, or 20.9%, to $552.4 million for the nine months ended September 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 nine months was partially mitigated by strong service revenues and growth in certain applications, such as high voltage power supplies.

Sales in the Industrial and Medical market decreased $4.4 million, or 3.6%, to $115.2 million for the three months ended September 30, 2023 as compared to same period in the prior year. Sales increased $58.4 million, or 19.0%, to $365.8 million for the nine months ended September 30, 2023 as compared to the same period in the prior year. The decrease in sales for the three month period was primarily related to softer macroeconomic conditions in the third quarter of 2023. The increase in sales for the nine month period was primarily due to relatively stable demand for our portfolio of products across several industrial and medical applications and improved material availability.

Sales in the Data Center Computing market decreased $19.3 million, or 22.0%, to $68.3 million for the three months ended September 30, 2023 and $45.9 million, or 19.7%, to $187.0 million for the nine months ended September 30, 2023 as compared to the same periods in the prior year. The decrease in Data Center Computing market sales was due to the cyclical downturn in the data center server and storage market, partially offset by increased demand for advanced computing applications by some customers.

Sales in the Telecom and Networking market decreased $1.1 million, or 2.6%, to $41.4 million for the three months ended September 30, 2023 and increased $29.3 million, or 25.3%, to $145.3 million for the nine months ended September 30, 2023 as compared to the same periods in the prior year. The decrease in sales during the three month period was due to slowing market demand. The increase in sales for the nine month period was primarily due to substantially improved material availability, allowing us to largely fulfill outstanding demand from the prior year.

#### GROSS PROFIT

For the three months ended September 30, 2023, gross profit decreased $43.9 million to $147.3 million, or 35.9% of revenue, as compared to $191.2 million, or 37.0% of revenue, in the same period in the prior year. For the nine months ended September 30, 2023, gross profit decreased $48.2 million to $449.5 million, or 35.9% of revenue, as compared to $497.7 million, or 36.7% of revenue, in the same period in the prior year.

The decrease in gross profit as a percentage of revenue for the three and nine months ended September 30, 2023 was 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 EXPENSES

#### Research and Development

We perform research and development (“R&D”) 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 $0.6 million to $50.4 million for the three months ended September 30, 2023 and increased $12.0 million to $153.4 million for the nine months ended September 30, 2023 as compared to the same periods in the prior year. The increase in R&D expense for the three months ended September 30, 2023 was primarily driven by increased headcount and compensation costs. The increase for the nine months ended September 30, 2023 was primarily driven by increased headcount and compensation costs of $8.3 million, which was partially due to the SL Power acquisition. In addition, during the nine months ended September 2023, we incurred $3.8 million in higher program and material costs as we invested in new programs to maintain and increase our technological leadership and provide solutions to our customers’ evolving needs.

#### Selling, General, and Administrative

Our selling expenses support domestic and international sales and marketing activities that include personnel, trade shows, advertising, third-party sales representative commissions, and other selling and marketing activities. Our general and administrative expenses support our worldwide corporate, legal, tax, financial, governance, administrative, information systems, corporate development, and human resource functions.

Selling, general and administrative (“SG&A”) expenses decreased $1.6 million to $55.1 million for the three months ended September 30, 2023 and increased $5.0 million to $166.1 million for the nine months ended September 30, 2023 as compared to the same periods in the prior year. The decrease in SG&A during the three month period was primarily due to lower employee variable compensation expense, partially offset by higher stock-based compensation cost. The increase in SG&A for the nine month period was primarily related to higher stock-based compensation cost and the addition of SL Power, partially offset by lower employee variable compensation expense.

#### Amortization of Intangibles

Amortization expense remained the same at $7.0 million during the three months ended September 30, 2023 and increased $2.1 million to $21.2 million for the nine months ended September 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, reducing redundancies, and lowering our cost structure. The majority of these actions impact our factory operations and should partially mitigate the impact of lower volumes on gross margins. Although we expect additional charges under this plan as we refine and execute our actions, we anticipate the 2022 Plan will be substantially completed, and associated expenses will be incurred, by the end of 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. 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 $4.4 million to $4.5 million for the three months ended September 30, 2023, and decreased $5.0 million to $6.3 million for the nine months ended September 30, 2023 as compared to the same periods in the prior year.

The decrease in income between periods was primarily a result of lower unrealized foreign exchange gains and a one-time gain in 2022 from the sale of intellectual property from a previous acquisition that did not recur in 2023. In addition, we experienced 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 and the issuance of our Convertible Notes. This was partially offset by higher interest income on our cash due to higher interest rates and additional cash on hand in the last month of the quarter as a result of the Convertible Notes issuance.

See *Note 18. Long-Term Debt* in Part I, Item 1 “Unaudited Consolidated Financial Statements” for information regarding our Convertible Notes.

#### PROVISION FOR INCOME TAX

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

| ​ ​ ​ | ​ ​ | ​ ​ Three Months Ended September 30, 2023 | ​ | ​ ​ 2022 | ​ ​ | ​ ​ Nine Months Ended September 30, 2023 | ​ | ​ ​ 2022 | ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- |
| Income from continuing operations, before income tax | ​ | $34,525 | ​ | $86,512 | ​ | $106,263 | ​ | $186,341 | ​ |
| Provision for income tax | ​ | $874 | ​ | $11,639 | ​ | $13,405 | ​ | $29,795 | ​ |
| Effective tax rate | ​ | ​ 2.5% | ​ | ​ 13.5% | ​ | ​ 12.6% | ​ | ​ 16.0% | ​ |

35

Our effective tax rates differ from the U.S. federal statutory rate of 21% for the three and nine months ended September 30, 2023 and 2022, 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 nine months ended September 30, 2023 was lower than the same periods in 2022 primarily due to the greater impact of beneficial discrete items primarily related to tax strategies we implemented in the three months ended September 30, 2023 relative to the beneficial discrete items recorded in the three months ended September 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, and make business decisions, including developing budgets and forecasting future periods. In addition, management’s incentive plans include these non-GAAP measures as criteria for achievements. These non-GAAP measures are not in accordance with U.S. GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. 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, amortization of intangible assets, and long-term unrealized foreign exchange gains and losses. In addition, we exclude discontinued operations and other non-recurring items such as acquisition-related costs, facility expansion and 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 September 30, 2023 | ​ ​ | ​ ​ ​ ​ 2022 | ​ ​ ​ | ​ ​ ​ ​ Nine Months Ended September 30, 2023 | ​ ​ | ​ ​ ​ ​ 2022 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Gross profit from continuing operations, as reported | ​ | $147,341 | ​ | $191,218 | ​ | $449,532 | ​ | $497,692 |
| Adjustments to gross profit: | ​ |  | ​ |  | ​ |  | ​ |  |
| Stock-based compensation | ​ | 615 | ​ | 454 | ​ | 1,587 | ​ | 1,087 |
| Facility expansion, relocation costs and other | ​ | 171 | ​ | 1,662 | ​ | 1,188 | ​ | 4,133 |
| Acquisition-related costs | ​ | ​ 44 | ​ | ​ 66 | ​ | ​ 194 | ​ | ​ (372) |
| Non-GAAP gross profit | ​ | 148,171 | ​ | 193,400 | ​ | ​ 452,501 | ​ | ​ 502,540 |
| Non-GAAP gross margin | ​ | ​ 36.1% | ​ | 37.5% | ​ | 36.2% | ​ | 37.1% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Operating expenses from continuing operations, as reported | ​ | 117,280 | ​ | 113,646 | ​ | ​ 349,608 | ​ | ​ 322,698 |
| Adjustments: | ​ |  | ​ |  | ​ |  | ​ |  |
| Amortization of intangible assets | ​ | (7,049) | ​ | (7,049) | ​ | (21,186) | ​ | (19,081) |
| Stock-based compensation | ​ | (7,460) | ​ | (5,568) | ​ | (21,226) | ​ | (13,921) |
| Acquisition-related costs | ​ | (611) | ​ | (1,150) | ​ | (2,654) | ​ | (6,977) |
| Restructuring and other | ​ | (4,898) | ​ | (121) | ​ | (9,095) | ​ | (1,178) |
| Non-GAAP operating expenses | ​ | 97,262 | ​ | 99,758 | ​ | 295,447 | ​ | 281,541 |
| Non-GAAP operating income | ​ | $50,909 | ​ | $93,642 | ​ | $157,054 | ​ | $220,999 |
| Non-GAAP operating margin | ​ | ​ 12.4% | ​ | 18.1% | ​ | 12.6% | ​ | 16.3% |

*(in thousands, except per share amounts)*

| ​ Reconciliation of non-GAAP measure Income from continuing operations, excluding certain items | ​ ​ ​ | ​ ​ ​ ​ Three Months Ended September 30, 2023 | ​ ​ | ​ ​ ​ ​ 2022 | ​ ​ ​ | ​ ​ ​ ​ Nine Months Ended September 30, 2023 | ​ ​ | ​ ​ ​ ​ 2022 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Income from continuing operations, less non-controlling interest, net of income tax | ​ | $33,651 | ​ | $74,864 | ​ | $92,858 | ​ | $156,530 |
| Adjustments: | ​ | ​ | ​ | ​ | ​ |  | ​ |  |
| Amortization of intangible assets | ​ | 7,049 | ​ | 7,049 | ​ | 21,186 | ​ | 19,081 |
| Acquisition-related costs | ​ | 655 | ​ | 1,216 | ​ | 2,848 | ​ | 6,605 |
| Facility expansion, relocation costs, and other | ​ | 171 | ​ | 1,662 | ​ | 1,188 | ​ | 4,133 |
| Restructuring and other | ​ | 4,898 | ​ | 121 | ​ | 9,095 | ​ | 1,178 |
| Unrealized foreign currency gain | ​ | ​ (1,604) | ​ | ​ (6,169) | ​ | ​ (2,817) | ​ | ​ (13,023) |
| Acquisition-related costs and other included in other income (expense), net | ​ | ​ (1,516) | ​ | ​ (4,685) | ​ | ​ (1,516) | ​ | ​ (4,600) |
| Tax effect of non-GAAP adjustments | ​ | (1,101) | ​ | ​ 855 | ​ | ​ (3,273) | ​ | ​ (966) |
| Non-GAAP income, net of income tax, excluding stock-based compensation | ​ | ​ 42,203 | ​ | ​ 74,913 | ​ | ​ 119,569 | ​ | ​ 168,938 |
| Stock-based compensation, net of tax | ​ | ​ 6,299 | ​ | ​ 4,697 | ​ | ​ 17,794 | ​ | ​ 11,668 |
| Non-GAAP income, net of income tax | ​ | $48,502 | ​ | $79,610 | ​ | $137,363 | ​ | $180,606 |
| Non-GAAP diluted earnings per share | ​ | $1.28 | ​ | $2.12 | ​ | $3.63 | ​ | $4.79 |

| ​ Reconciliation of non-GAAP measure Per share earnings excluding certain items | ​ ​ | ​ ​ Three Months Ended September 30, 2023 | ​ | ​ ​ 2022 | ​ | ​ ​ Nine Months Ended September 30, 2023 | ​ | ​ ​ 2022 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Diluted earnings per share from continuing operations, as reported | ​ | $0.89 | ​ | $1.99 |  | $2.45 | ​ | $4.15 |
| Add back: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Per share impact of non-GAAP adjustments, net of tax |  | ​ 0.39 |  | ​ 0.13 | ​ | ​ 1.18 | ​ | ​ 0.64 |
| Non-GAAP earnings per share | ​ | $1.28 | ​ | $2.12 | ​ | $3.63 | ​ | $4.79 |

### 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. Long-Term Debt* in Part I, Item 1 “Unaudited Consolidated Financial Statements”).

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

| ​ ​ | ​ ​ | ​ ​ September 30, 2023 |
| --- | --- | ---: |
| Cash and cash equivalents | ​ | $985,931 |
| Marketable securities | ​ | 155 |
| Total cash, cash equivalents, and marketable securities | ​ | $986,086 |

We believe the above sources of liquidity will be adequate to meet anticipated working capital needs, anticipated levels of capital expenditures, contractual obligations, debt service, 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.

#### Debt

On September 12, 2023, we completed a private, unregistered offering of $575.0 million Convertible Notes and received net proceeds of approximately $562.1 million after the discount for the initial purchasers’ fees. We intend to use the net proceeds to fund future growth, which may include strategic acquisitions, opportunistically repay existing outstanding indebtedness, repurchase our common stock, or general corporate purposes.

The following table summarizes our borrowings (in thousands, except for interest rates).

| ​ ​ ​ | ​ ​ | ​ ​ September 30, 2023 Balance | ​ | ​ Interest Rate | ​ | ​ Unused Line Fee |
| --- | --- | --- | --- | ---: | --- | ---: |
| Convertible Notes | ​ | $575,000 | ​ | 2.50% | ​ | — |
| Term Loan Facility at fixed interest rate due to interest rate swap | ​ | ​ 225,094 | ​ | 1.17% | ​ | — |
| Term Loan Facility at variable interest rate | ​ | ​ 134,906 | ​ | 6.17% | ​ | — |
| Revolving Facility at variable interest rate | ​ | ​ — | ​ | 6.17% | ​ | 0.10% |
| Total borrowings | ​ | $935,000 | ​ | ​ | ​ | ​ |

As of September 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.

For more information see *Note 18 Long-Term Debt* 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.”

#### Dividends

During the three months ended September 30, 2023, we paid a quarterly cash dividend 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 repurchase 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 September 30, 2023 | ​ | ​ ​ 2022 | ​ ​ | ​ ​ Nine Months Ended September 30, 2023 | ​ | ​ ​ 2022 |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Amount paid or accrued to repurchase shares | ​ | $40,000 | ​ | $2,342 | ​ | $40,000 | ​ | $25,955 |
| Number of shares repurchased | ​ | 378 | ​ | 34 | ​ | 378 | ​ | 346 |
| Average repurchase price per share | ​ | $105.74 | ​ | $69.39 | ​ | $105.74 | ​ | $75.07 |

The above table reflects a $40.0 million repurchase of our common stock that was concurrent with the Convertible Notes issuance. See *Note 18. Long-Term Debt* in Part I, Item 1 “Unaudited Consolidated Financial Statements.” At September 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):

| ​ ​ ​ | ​ ​ | ​ ​ Nine Months Ended September 30, 2023 | ​ | ​ ​ 2022 | ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- |
| Net cash from operating activities from continuing operations | ​ | $128,240 | ​ | $112,982 | ​ |
| Net cash from operating activities from discontinued operations | ​ | (3,307) | ​ | (81) | ​ |
| Net cash from operating activities | ​ | 124,933 | ​ | 112,901 | ​ |
| Net cash from investing activities | ​ | (50,229) | ​ | (185,286) | ​ |
| Net cash from financing activities | ​ | 454,204 | ​ | (53,773) | ​ |
| Effect of currency translation on cash and cash equivalents | ​ | (1,795) | ​ | (9,161) | ​ |
| Net change in cash and cash equivalents | ​ | 527,113 | ​ | (135,319) | ​ |
| Cash and cash equivalents, beginning of period | ​ | 458,818 | ​ | 544,372 | ​ |
| Cash and cash equivalents, end of period | ​ | $985,931 | ​ | $409,053 | ​ |

#### Net Cash From Operating Activities

Net cash from operating activities from continuing operations for the nine months ended September 30, 2023, was $128.2 million, as compared to $113.0 million for the same period in the prior year. The increase of $15.2 million in net cash flows from operating activities as compared to the same period in the prior year was 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 nine months ended September 30, 2023 was ($50.2) million, primarily driven by the following:

- ($46.8) million in purchases of property and equipment largely driven by investments in our manufacturing footprint and capacity; and
- ($3.4) million in purchases of investments.

Net cash from investing for the nine months ended September 30, 2022 was ($185.3) million, primarily driven by the following:

- ($39.5) 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 nine months ended September 30, 2023 was $454.2 million and included the following:

- $562.1 million net proceeds from issuance of long-term debt;
- $74.9 million proceeds from the sale of Warrants;
- ($115.0) million for purchase of Note Hedges;
- ($40.0) million for repurchase of common stock;
- ($15.0) million for repayment of long-term debt;
- ($11.4) million for dividend payments; and
- ($1.3) million in net payments related to stock-based award activities.

Net cash from financing activities for the nine months ended September 30, 2022 was ($53.8) million and included the following:

- ($26.0) million related to repurchases of our common stock;
- ($15.0) million for repayment of long-term debt;
- ($11.4) million for dividend payments; and
- ($1.4) million in net payments related to stock-based award activities.

#### Effect of Currency Translation on Cash

During the nine months ended September 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 the 2022 Form 10-K 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 the 2022 Form 10-K, 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, 5,826 characters.

### Market Risk and Risk Management

In the normal course of business, we have exposure to interest rate risk from our investments and Credit Agreement. We also have exposure to foreign exchange rate risk related to our foreign operations and foreign currency transactions.

See “Risk Factors” set forth in Part I, Item 1A of the 2022 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 debt. The following table summarizes our borrowings (in thousands).

| ​ ​ ​ | ​ ​ | ​ ​ September 30, 2023 Balance | ​ | ​ Interest Rate | ​ | ​ Unused Line Fee |
| --- | --- | --- | --- | ---: | --- | ---: |
| Convertible Notes | ​ | $575,000 | ​ | 2.50% | ​ | — |
| Term Loan Facility at fixed interest rate due to interest rate swap | ​ | ​ 225,094 | ​ | 1.17% | ​ | — |
| Term Loan Facility at variable interest rate | ​ | ​ 134,906 | ​ | 6.17% | ​ | — |
| Revolving Facility at variable interest rate | ​ | ​ — | ​ | 6.17% | ​ | 0.10% |
| Total borrowings | ​ | $935,000 | ​ | ​ | ​ | ​ |

For more information see *Note 18 Long-Term Debt* 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. The interest rate swap contracts expire on September 10, 2024. After that date, this portion of our Term Loan Facility will be subject to a variable interest rate.

Our interest payments are impacted by interest rate fluctuations. With respect to the portion of our Credit Agreement 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, 2,415 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 Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SECs 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 September 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, 4,495 characters.

Information concerning our risk factors is contained in Part I, Item 1A, “Risk Factors” in the 2022 Form 10-K. 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. Aside from the risk factors below, there have been no material changes to the risk factors previously disclosed in the 2022 Form 10-K.

***The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and operating results.***

In the event the conditional conversion feature of the Convertible Notes is triggered, holders will be entitled to convert at any time during specified periods at their option. If one or more holders elect to convert, we would be required to settle any converted principal amount of such notes through payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as current rather than long-term liability, which would result in a material reduction of our net working capital.

***Conversion of the Convertible Notes may dilute the ownership interest of our stockholders and the existence of the Convertible Notes may depress the price of our common stock.***

The conversion of some or all of the Convertible Notes may dilute the ownership interests of our stockholders. Upon conversion, we have the option to pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock with respect to the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted. If we elect to settle the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted in shares of our common stock or a combination of cash and shares of our common stock, that action will dilute the ownership interest of our stockholders. Additionally, any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock.

In addition, the existence of the Convertible Notes may encourage short selling by market participants because the conversion could be used to satisfy short positions, and the anticipated conversion into shares of our common stock could depress the price of our common stock.

***The hedges and warrants in our own common stock may adversely affect the common stock’s trading price.***

In September 2023, we entered into hedge and warrant transactions on our own common stock. These contracts are expected to reduce the potential dilution to our common stock upon any conversion of the Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount. The warrants could separately have a dilutive effect on our common stock to the extent that the market price per share of our common stock exceeds the exercise price.

In addition, the counterparties or their affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and sell our common stock prior to the maturity of the Convertible Notes (and are likely to do in connection with any conversion or redemption). This activity could cause fluctuations in the market price of our common stock.

### We are subject to counterparty default risk with respect to the Note Hedges.

The counterparties are financial institutions, and we will be subject to the risk that any or all of them might default. Our exposure is not secured by any collateral. If a counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor. Our exposure will depend on many factors but, generally, an increase in our exposure will correlate to an increase in the market price and in the volatility of our common stock. In addition, upon a default by a counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurances as to the financial stability or viability of the counterparties.

Filed Oct 31, 2023.
Source: SEC EDGAR, the filing index for accession 0001558370-23-017112. Last ingested by Listed: Nov 2, 2026, 17:00 ET. No prices; not investment advice.