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Item 7. Management’s Discussion and Analysis

2023-02-17 compared with 2022-03-16 · 197 added, 222 removed, 187 unchanged (69% of the section changed)

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Certain statements set forth below under this caption constitute forward-looking statements.

Special Note Regarding Forward-Looking Statements "

in this Annual Report on Form 10-K for additional factors relating to such statements and see "

Risk Factors "

in Part I, Item 1A for a discussion of certain risks applicable to our business, financial condition, and results of operations.

See “Special Note Regarding Forward-Looking Statements” in this annual report on Form 10-K for additional factors relating to such statements and see “Risk Factors” in Part I, Item 1A for a discussion of certain risks applicable to our business, financial condition, and results of operations.

The following section discusses our results of operations for 2022 and 2021 and year-to-year comparisons between those periods.

Discussions of 2019 and year-to-year comparisons between 2020 and 2019 are not included in this Form 10-K and can be found within Part II, Item 7 "Management’s Discussion and Analysis for Financial Condition and Results of Operations"

in our 2020 Form 10-K for the year ended December 31, 2020.

Discussions of 2020 and year-to-year comparisons between 2021 and 2020 are not included in this Form 10-K and can be found within Part II, Item 7 “Management’s Discussion and Analysis for Financial Condition and Results of Operations” in our Form 10-K for the year ended December 31, 2021.

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.

Our power solutions enable innovation in complex semiconductor and thin film plasma processes such as dry etch, strip and deposition, high and low voltage applications such as semiconductor process control, data center computing, networking, telecommunication, medical equipment, life science applications, industrial technology and production, scientific instruments, clean technology production, advanced material production and temperature-critical thermal applications.

We also supply related sensing, controls, and instrumentation products for advanced measurement and calibration of RF power and temperature, electrostatic instrumentation products for test and measurement applications, and gas sensing and monitoring solutions for multiple industrial markets.

Our network of global service support centers provides a recurring revenue opportunity as we offer repair services, conversions, upgrades, refurbishments, and used equipment to companies using our products.

Our products are sold into the Semiconductor Equipment, Industrial and Medical, Data Center Computing, and Telecom and Networking markets, and we have provided market revenue data in this Annual Report on Form 10-K to enable tracking of trends.

Advanced Energy is organized on a global, functional basis and operates in a single segment structure for power electronics conversion products.

Many of our products enable customers to reduce or optimize their energy consumption through increased power conversion efficiency, power density, power coupling, and process control across a wide range of applications .

Our plasma power solutions enable innovation in complex semiconductor and thin film plasma processes such as dry etch and deposition.

Our broad portfolio of high and low voltage power products are used in a wide range of applications, such as semiconductor equipment, industrial production, medical and life science equipment, data centers computing, networking, and telecommunications.

We also supply related sensing, controls, and instrumentation products primarily for advanced measurement and calibration of power and temperature for multiple industrial markets.

Our network of global service support centers provides repair services, calibration, conversions, upgrades, refurbishments, and used equipment to companies using our products.

Critical Accounting Estimates

The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America ("U.S.

GAAP") requires us to make judgments, assumptions, and estimates that affect the amounts reported.

Operations and Summary of Significant Accounting Policies and Estimates in Part II, Item 8 "Financial Statements and Supplementary Data"

describes the significant accounting policies used in the preparation of our consolidated financial statements.

The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) requires us to make judgments, assumptions, and estimates that affect the amounts reported.

Summary of Operations and Significant Accounting Policies and Estimates in Part II, Item 8 “Financial Statements and Supplementary Data” describes the significant accounting policies used in the preparation of our consolidated financial statements.

The accounting positions described below are significantly affected by critical accounting estimates.

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We must also identify and include in the allocation all acquired tangible and intangible assets that meet certain criteria, including assets that were not previously recorded by the acquired entity.

The estimates most commonly involve property, plant and equipment and intangible assets.

The estimates also include the fair value of contracts including commodity purchase and sale agreements, storage contracts, and transportation contracts.

of the purchase price over the net fair value of acquired assets and assumed liabilities is recorded as goodwill, which is not amortized but instead is evaluated for impairment at least annually.

The estimates most commonly involve intangible assets.

The excess of the purchase price over the net fair value of acquired assets and assumed liabilities is recorded as goodwill, which is not amortized but instead is evaluated for impairment at least annually.

Pursuant to U.S.

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For more details see Note 5.

Income Taxes in Part II, Item 8 "Financial Statements and Supplementary Data."

We value our inventory at the lower of cost (first-in, first-out method) or net realizable value.

We regularly review inventory quantities on hand and record a provision to write-down excess and obsolete inventory to its estimated net realizable value, if less than cost, based primarily on our estimated forecast of product demand.

Our industry is subject to technological change, new product developments, and changes in end-user demand for our products which can fluctuate significantly.

Any significant changes in end-user demand, technology or new product developments could have a significant impact on the value of our inventory and our reported operating results.

Income Taxes in Part II, Item 8 “Financial Statements and Supplementary Data.”

Inventories are valued at the lower of cost (using the first-in, first-out method) or net realizable value.

General market conditions, as well as our design activities, can cause certain products to become obsolete and we adjust our inventory carrying value for estimated excess and obsolescence equal to the difference between the cost of inventory and the estimated net realizable value based on projected end-user demand, which is determined by considering historical usage, customer orders and forecast, and qualitative considerations such as market and economic conditions.

The determination of projected end-user demand requires the use of estimates and assumptions related to projected unit sales for each product.

Demand for our products can fluctuate significantly.

A significant decrease in demand could result in an increase in the charges for excess inventory quantities on hand.

Defined Benefit Pension Plans

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We believe the accounting estimates related to our pension plans are critical accounting estimates because they are highly susceptible to change from period to period based on the performance of plan assets, actuarial valuations, market conditions and contracted benefit changes.

While we believe that our assumptions are appropriate, significant differences in our actual

experience or significant changes in our assumptions may materially affect our net pension and postretirement benefit obligations and related expense.

Human Capital Resources

Our corporate citizenship, social responsibility and commitment to our employees extends beyond the products we make.

We conduct anonymous surveys to seek feedback from our employees on important topics related to confidence in company leadership, career growth opportunities, and improvements on how we can make our company a great place to work.

In addition, we share the results of the survey with our Board.

To further increase our commitment to diversity and equity, in 2020 we announced the launch of our inaugural Advanced Energy STEM Diversity Scholarship, which is aimed at developing emerging talent and promoting greater ethnic, racial and gender diversity in STEM.

The annual program accepts applications from undergraduate and post-graduate students attending five leading institutions in the field of power technologies.

Total Rewards

As part of our total rewards philosophy, we believe in offering and maintaining competitive compensation and benefits programs for our employees in order to attract and retain a talented, highly engaged workforce.

Our compensation programs are focused on equitable, fair pay practices including market-based base pay, an annual pay-for-performance incentive plan, and discounted employee stock purchase plan.

In addition to our competitive compensation practices, we offer a strong benefits package in each of the countries in which we operate.

In the majority of our non-U.S.

operations, we offer additional benefits that supplement governmental statutory benefits.

In the U.S., we offer a competitive benefits package that includes four different health care plan options with employee premiums lower than the market average, dental, vision, disability and life insurance, health savings and flexible spending accounts, paid time off, 8-weeks of paid parental leave for both parents, company matched 401(k) contributions, flexible work schedules, expanded mental health coverage, and employee assistance programs.

With the challenging times created by COVID-19, we continued our commitment to ensure our employees maintained financial security and provided certain employees the ability to work from home, paid leave time for our employees who may have been impacted by temporary site closures, and paid leave time for vaccinations.

Learning and Development

To support our employees in reaching their full potential and to build internal capabilities, we offer a wide range of internal and external learning and development opportunities.

We have a program for education assistance reimbursement that provides financial support to employees who seek to expand their skills and abilities.

We also have an internship program designed to help support a talent pipeline.

We have a robust succession planning process to develop internal leadership capabilities and technical bench strength, ensuring we have a strong workforce for the future.

Diversity, Equity & Inclusion

In 2021, we relaunched our Corporate Inclusion, Diversity and Equity Steering Committee, which was tasked with researching, developing, and proposing strategies and initiatives aimed at creating and fostering engagement, awareness, respect, and inclusion for our employees, customers, vendors, and communities.

This committee provides global guidance and direction while enabling local activities to develop specific, targeted initiatives as appropriate.

Health and Safety

We are committed to providing a safe work environment for our employees.

We provide regular health and safety training in both on-site format and through our virtual training tool that assigns training requirements based on job profiles and site-specific requirements.

Our Environmental, Health and Safety organization is a global team responsible for health and safety related to on-site operations, including hazard and risk identification.

Workplace safety is also addressed in operations meetings and monthly business reviews.

We are also committed to the standards of the Responsible Business Alliance Code of Conduct, which promotes labor, health and safety, environmental and ethics best practices.

Community Involvement

Our charitable contributions committee, founded in 2010, is supported and led by our employees.

The committee provides financial support for 501(c)(3) corporations, non-profit institutions, and organizations that improve education, the environment, health, and social services across the communities in which we operate and where our employees live.

We provide financial support to workforce initiatives led by the local chamber of commerce in northern Colorado and partnered with a community college to provide equipment and funding to train technicians and develop skilled labor that may lead to employment opportunities with us or other local companies.

We offer each employee eight hours of paid time off to volunteer with a 501(c)(3) organization of the employee’s choosing.

Our Educational Scholarship Program, available to children of Advanced Energy employees, celebrates education accomplishments and facilitates career and learning goals.

While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our net pension and postretirement benefit obligations and related expenses.

Business Environment and Trends

Advanced Energy operates in a single segment structure for power electronics conversion products.

We operate in four vertical markets or applications and provide revenue information to enable tracking of market trends.

Advanced Energy is organized on a global, functional basis and operates in the single segment for power electronics conversion products.

Within this segment, our products are sold into the Semiconductor Equipment, Industrial and Medical, Data Center Computing, and Telecom and Networking markets.

In April 2022, we acquired SL Power.

Acquisitions in Part II, Item 8 “Financial Statements and Supplementary Data.” This acquisition added complementary products to Advanced Energy’s medical power offerings and extends our presence in several advanced industrial markets.

The demand environment in each of our markets is impacted by various market trends, customer buying patterns, design wins, macroeconomic and other factors.

During 2021 we saw growth in our Semiconductor Equipment and Industrial and Medical markets but weakening demand in our Data Center Computing and Telecom and Networking markets.

At the beginning of 2020 we saw the spread of COVID-19, which grew into a global pandemic.

Our focus on providing a healthy and safe working environment for our employees led to intermittent shutdowns of our manufacturing facilities to implement new health and safety protocols and additional investments to comply with government guidelines.

During 2020 and 2021 there were periods when some of our manufacturing facilities were not operating or were operating at reduced capacity due to government mandates to restrict travel, maintain social distancing, and implement health and safety procedures.

Additionally, ongoing restrictions related to COVID-19 and disruptions in an already challenged global supply chain limited the availability of certain materials, parts, subcomponents, and subassemblies needed for production during 2021, impacting our ability to ship product to meet customer demand.

The shortage of critical components was caused in part by the pandemic-driven rise in consumer demand for technology goods, increased demand for electronic components used in a wide variety of industries, logistics-related disruptions in shipping, and capacity limitations at some suppliers due to COVID-19, its variants, labor shortages, and other factors.

See Part I, Item 1A "Risk Factors"

for a discussion of certain risks related to COVID-19.

During 2022, growth in all four of our markets was strong driven by investment in new technology, capacity, and macroeconomic recovery.

However, we were limited in our ability to fulfill this demand due to supply chain shortages for critical integrated circuits, resulting in longer lead times for our products.

These supply constraints have led to longer lead times in procuring materials and subcomponents and, in some cases, meaningfully higher costs for the subcomponents.

We have implemented measures to improve the supply of critical materials and components and to mitigate the impact of these higher input costs, and these actions have enabled us to better meet customer demand.

However, it is not clear how long global supply constraint conditions will continue, how quickly the supply chain will recover, the extent to which our mitigating actions will be successful, or to what extent we can recover our higher costs.

One result of the supply chain constraints is that our backlog throughout the first three quarters of the year remained above backlog at the end of 2021.

Backlog declined at the end of 2022 to $875.3 million, a decrease as compared to $1,093.0 million at the end of the third quarter of 2022, driven by approximately 40% of sequential decline from China-based semiconductor customers’ orders as a result of U.S.

export controls introduced in October 2022, and the remainder from lower demand and changes in ordering patterns from our semiconductor customers as we improved our lead times.

Despite the decline at the end of 2022, backlog remains high compared to previous years.

COVID related disruptions did materially impact our liquidity, ability to access capital, ability to comply with our debt covenants or the fair value of our assets in 2022.

SEMICONDUCTOR EQUIPMENT MARKET

Growth in the Semiconductor Equipment market is driven by growing integrated circuits content across many industries, increased demand for processing and storage in advanced applications such as artificial intelligence, cloud computing, and autonomous vehicles, and the rapid adoption of advanced mobile connectivity solutions such as 5G, which enhances existing and enables new wireless applications.

To address the long-term growing demand for semiconductor devices, the industry continues to invest in production capacities for both leading-edge and trailing-edge nodes, logic devices, the latest memory devices including 3D-NAND, DRAM, and new emerging memories such as MRAM, and back-end test and advanced wafer-level packaging.

The industry’s transition to advanced technology nodes in logic and DRAM and to increased layers in 3D-NAND memory devices require an increased number of plasma-based etch and deposition process tools and higher content of our advanced power solutions per tool.

As etching and deposition processes become more challenging due to increasing aspect ratios in advanced 3D devices, more advanced RF, and DC technologies are needed.

We are meeting these challenges by providing a broader range of more complex RF and DC power solutions.

Beyond etch and deposition processes, the growing complexity at the advanced nodes also drive a higher number of other processes across the wafer fab, including inspection, metrology, thermal, ion implantation, and semiconductor test, where Advanced Energy is actively participating as a critical technology provider.

The Semiconductor Equipment market is driven by the long-term growing need for more semiconductor production capacity and new process technologies.

While the semiconductor and semiconductor equipment industries are inherently cyclical, over the long-term, integrated circuits content is growing across many industries driven by increased demand for processing, storing, and transmitting the growing amount of data.

To meet the growing demand, the chip industry continues to invest in production capacity for both leading-edge and trailing-edge nodes logic devices, the latest memory devices, back-end test, and advanced wafer-level packaging.

The industry’s transition to advanced technology nodes and to increased layers in memory devices require an increased number of plasma-based etch and deposition process tools and higher content of our advanced power solutions per tool.

As etching and deposition processes become more challenging due to shrinking device geometry and increasing aspect ratios in advanced 3D devices, more advanced RF and DC plasma generation technologies are needed.

We strive to provide a broad range of best-in-class, industry-leading RF and DC power solutions.

Beyond etch and deposition processes, growing complexity at advanced nodes also drives a higher number of other process steps across the wafer fab, including inspection, metrology, thermal, ion implantation, and semiconductor test and assembly, where Advanced Energy is actively participating as a critical technology provider.

In addition, our global support services group offers comprehensive local repair service, upgrade, and retrofit offerings to extend the useable life of our customers’ capital equipment for additional technology generations.

The acquisition of Artesyn in September 2019 expanded Advanced Energy’s reach within the Semiconductor Equipment market by adding a broad

range of low voltage applications as well as back-end test and assembly equipment makers.

Our strategy in the Semiconductor Equipment market is to defend our proprietary positions in our core applications, grow our market position in applications where we have lower share, including remote plasma source and dielectric etch, and leverage our product portfolio in areas such as embedded power, high voltage power system, and critical sensing and controls to grow our share and contents at our key OEM customers.

The Semiconductor Equipment market is experiencing continued demand growth since 2019, driven by higher semiconductor contents across many industries, increased capital intensity at the leading-edge process nodes, semiconductor device makers investing in the trailing-edge nodes due to supply constraints and increased regional investments of semiconductor capacities.

Advanced Energy participated in this market growth by delivering record revenue from the Semiconductor Equipment market in 2021, even with the negative impact of limited availability of critical parts due to global supply constraints.

In addition, increased demand for semiconductor devices for a wide range of applications as global economies begin to recover is expected to drive investment in new capacity throughout 2022.

Our strategy in the Semiconductor Equipment market is to defend our proprietary positions in our core applications by capturing new design and product generations, growing our market position in applications where we have lower market share, such as remote plasma source and dielectric etch, and leveraging our product portfolio in areas including embedded power, high voltage power systems, and critical sensing and controls to grow our market share and content at our original OEM customers.

The Semiconductor Equipment market continued to experience demand growth driven by investments in both leading and trailing edge semiconductor capacity throughout the first three quarters of 2022.

Advanced Energy participated in the market growth while overcoming supply chain challenges and delivered record revenue from the Semiconductor Equipment market in 2022.

Starting in the fourth quarter of 2022, the market entered a cyclical downturn due to changing macroeconomic conditions, overcapacity in the market for memory devices, general semiconductor inventory digestion resulting in falling fab utilization and reduced fab expansion plans, and new export restrictions to China for certain semiconductor equipment.

These factors adversely impacted our demand, backlog, and revenue in the fourth quarter of 2022 and are expected to continue in 2023.

We believe long-term drivers for demand growth in this market will eventually resume, due to the need to invest in new fab capacity to support growing demand for semiconductor devices in a wide range of applications, the continued transition to next generation processing nodes, increased complexity of advanced processes requiring more complex and innovative power solutions, and the regionalization of some semiconductor capacity.

INDUSTRIAL AND MEDICAL MARKET

Customers in the Industrial and Medical market incorporate 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, horticulture, motor drives, and connected light-emitting diodes.

OEM customers design equipment utilizing our process power technologies in a variety of industrial production applications including glass coating, glass manufacturing, flat panel displays, photovoltaics solar cell manufacturing, and similar thin film manufacturing, including data storage and decorative, hard and optical coatings.

These applications employ similar technologies to those used in the Semiconductor Equipment market to deposit films on non-semiconductor substrates.

Our strategy around these applications is to leverage our thin film deposition technologies into an expanded set of new materials and applications in adjacent 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.

Examples of products sold into the Industrial and Medical market includes high voltage products for analytical instrumentation, medical equipment, low voltage power supplies used in applications for medical devices, test and measurement, medical lasers, scientific instrumentation and industrial equipment, and power control modules and thermal instrumentation products for material fabrication, processing, and treatment.

Our gas monitoring products serve multiple applications in the energy market, air quality monitoring and automobile emission monitoring and testing.

The acquisition of Artesyn in September 2019 substantially expanded Advanced Energy’s portfolio of products and opportunities in the Industrial and Medical market.

In the first half of 2020, the COVID-19 pandemic impacted demand for our products in this market, but demand started to recover in the second half of 2020.

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, such as medical, test and measurement, horticulture, and many other industrial applications.

During 2021, we saw improvement in industrial markets as global economic growth resumed and our customers were able to increase capacity after governmental restrictions were relaxed during the second half of 2020.

Demand for medical products during 2020 was driven by critical care applications, offset by lower investment related to elective procedures.

During 2021, demand for critical applications has declined while other demand has improved.

During 2021, overall customer demand improved, but supply constraints of critical components limited our ability to ship product at the level of customer demand.

However, even with the limited supply, revenue from the Industrial and Medical market grew in the year as a result of our growth strategy.

We expect demand in the Industrial and Medical market to grow in 2022, but the supply constraint condition has extended into the year.

It is not clear how long these supply shortages will persist or how quickly our supply will recover.

Growth in the Industrial and Medical market is driven by investment in complex manufacturing processes or automation, increased adoption of smart power, sensing, and control solutions across many industrial applications, new investments in clean and sustainable technologies, and growing investment in medical devices and life science equipment.

Our customers in the Industrial and Medical market are primarily global and regional original equipment manufacturers, incorporating our advanced power, embedded power, and measurement products into a wide variety of equipment used in applications, such as advanced material fabrication, medical devices, analytical instrumentation, test and measurement equipment, robotics, industrial production, and large-scale connected light-emitting diode applications.

Examples of products sold into the Industrial and Medical market include high voltage and low voltage power supplies used in applications such as medical devices, scientific instrumentation and industrial equipment, power control modules and thermal instrumentation products for material fabrication, production process control and many precision industrial sensing applications.

During 2022, we saw increased demand in the Industrial and Medical market as our customers increased investments in their production capacity and the medical technology industry recovered from the pandemic-related slowdown.

Although overall customer demand increased, supply constraints of critical components limited our ability to fulfill product shipments at the level of customer demand and resulted in increased backlog.

Going into 2023, we expect product delivery and revenue levels will depend on the level of customers’ demand and on resolving supply chain constraints.

It is not clear how long these supply chain constraints will persist or on what timeline our supply chain will recover.

DATA CENTER COMPUTING MARKET

Following the acquisition of Artesyn in September 2019, Advanced Energy entered the Data Center Computing market with industry leading power conversion products and technologies, which we sell to OEMs and 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 enterprise on-premises computing to the data center, driving investments in data center infrastructure.

In addition, the data center industry has started to transition to 48 Volt infrastructure, where 48 Volt DC power replaces 12 Volt in server racks in order to improve overall power efficiency.

Advanced Energy benefits from these trends by leading the industry in providing 48 Volt server power solutions to the data center industry.

Further, demand for edge computing is growing, driven by the need for faster processing, lower latency, higher data security, and more reliability than traditional cloud computing.

With a wide range of many unique configurations and requirements, edge computing creates additional opportunities for Advanced Energy.

Lastly, the rapid growth and adoption of Artificial Intelligence and machine learning is driving accelerated demand for server and storage racks with increased power density and higher efficiency, which plays well to Advanced Energy’s strengths.

With a growing presence at both cloud service providers and industry leading data center server and storage vendors, we believe Advanced Energy is well positioned to continue to capitalize on the ongoing shift towards cloud computing.

Our strategy in the Data Center and Computing market is to penetrate additional customers and applications based on our differentiated capability and competitive strengths in power density, efficiency, and controls.

In late 2019 and through 2020, demand for our embedded power products in the Data Center Computing market increased significantly driven by our share gains and a capacity ramp at hyperscale customers.

In addition, we believe as a consequence of COVID-19, hyperscale demand has risen in the near term given the increased need for cloud and network applications in the current environment.

Demand declined in the second half of 2020 as a result of market digestion but started to recover during 2021.

However, our 2021 revenue declined due to the limited availability of parts given global supply constraints, which prevented us from producing products to meet the growing demand.

We expect demand in this market to grow in 2022, but the supply constraint condition has extended into this year.

It is not clear how long these supply shortages will persist or how quickly our supply will recover.

Advanced Energy serves the Data Center Computing market with industry leading power conversion products and technologies, which we sell to OEMs and original design manufacturers (“ODMs”) of data center server and storage systems, as well as cloud service providers and their partners.

Driven by the growing adoption of cloud computing, market demand for server and storage equipment has shifted from traditional enterprise on-premises computing to the data center, driving investments in data center infrastructure.

Beyond the cloud, demand for edge computing is also growing, driven by the need for faster processing, lower latency, and higher data security at edge applications.

In addition, the data center industry has begun transitioning from 12 Volt to 48 Volt infrastructure in data center server racks to improve overall power efficiency.

Advanced Energy benefits from these trends by being an industry leader in providing high-efficiency 48 Volt server power solutions to the data center industry.

Further, the rapid growth and adoption of artificial intelligence and machine learning are driving accelerated demand for server and storage racks with increased power density and higher efficiency, which complements Advanced Energy’s strengths.

With a growing presence at both cloud service providers and industry-leading data center server and storage vendors, our strategy in the Data Center and Computing market is to penetrate selected customers and applications based on our differentiated capability and competitive strengths in power density, efficiency, and controls.

Customer demand for our products rose during 2022 with continued demand for cloud and network applications.

In addition, we were able to secure additional critical components compared to the prior year, allowing us to deliver higher revenue in the Data Center Computing market.

Despite the improved performance, the supply of the critical components remains highly constrained, impacting our ability to fulfill product shipments at the level of customer demand.

Although we expect lower overall demand in 2023 as cloud and enterprise customers slow investments to digest capacity investments, we continue to be supply constrained and our performance will be partially dependent on our ability to secure critical components and customers’ timing of new programs.

It is not clear how long these supply chain constraints will persist or how quickly our supply chain will recover.

TELECOM AND NETWORKING MARKET

The acquisition of Artesyn in September 2019 provided Advanced Energy with a portfolio of products and technologies that are used across the Telecom and Networking market.

Our customers include many leading vendors of wireless infrastructure equipment, telecommunication equipment and computer networking.

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 have started to invest in 5G, and this trend is expected to drive demand of our products into the Telecom and Networking market.

In datacom, demand is driven by networking investments by telecom service providers and enterprises upgrading of their network, as well as cloud service providers and data centers investing in their networks for increased bandwidth.

Our strategy in Telecom and Networking is to optimize our portfolio of products to more differentiated applications, and to focus on 5G infrastructure applications primarily with U.S.

and European equipment providers.

Demand in late 2019 and the first half of 2020 was lower as geopolitical issues and consolidation of wireless telecom providers drove slower global investment in cellular and network infrastructure.

Revenue increased sequentially in the third and fourth quarters of 2020, primarily as a result of modest improvement in market conditions and improved manufacturing capacity amid COVID-19.

During 2021, revenue declined as a result of the limited availability of parts given global supply constraints and our internal decision to optimize our portfolio toward higher margin applications within the Telecom and Networking market.

Going into 2022, we expect demand in this market to recover driven by increased investments in 5G infrastructure, but the supply constraint condition has extended into the year.

It is not clear how long these supply shortages will persist or how quickly our supply will recover.

Telecom service providers are investing in 5G infrastructure, and this trend is expected to drive demand for our products into the Telecom and Networking market.

In datacom, demand is driven by networking investments by telecom service providers and enterprises upgrading their networks, as well as cloud service providers and data centers investing in their networks for increased bandwidth.

Our strategy in the Telecom and Networking market is to optimize our portfolio of products to more differentiated applications, and to focus on 5G infrastructure applications.

Revenues in the Telecom and Networking market increased in 2022 compared to the same period in the prior year due to increased customer demand and our ability to secure additional critical components.

We expect demand to remain stable in this market in 2023, but supply chain constraints continue to prevent us from fulfilling product shipments at the level of customer demand.

It is not clear how long these supply shortages will persist or how quickly our supply chain will recover.

Results of Continuing Operations

The analysis presented below is organized to provide the information we believe will be helpful for understanding of our historical performance and relevant trends going forward and should be read in conjunction with our consolidated financial statements, including the notes thereto, in Part II, Item 8 "Financial Statements and Supplementary Data"

of this Annual Report on Form 10-K.

Also included in the following analysis are measures that are not in accordance with U.S.

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):

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Provision for income taxes

Income from continuing operations, net of income taxes

Income from continuing operations

The following table sets forth the percentage of sales represented by certain items reflected in our Consolidated Statements of Operations:

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Provision for income taxes

Income from continuing operations, net of income taxes

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

Income from continuing operations

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

Year Ended December 31,

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Telecom and Networking

Years Ended December 31,

Year Ended December 31,

Semiconductor Equipment

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OPERATING EXPENSE

The following table summarizes our operating expense as a percentage of sales (in thousands):

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

Years Ended December 31,

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Total operating expenses

2021 Results Compared To 2020

SALES AND BACKLOG

Sales increased $389.5 million, or 26.8%, to $1,845.4 million, as compared to $1,456.0 million in the prior year.

The increase in sales was primarily due to increased demand and shipments in the Semiconductor Equipment and Industrial and Medical markets, offset by lower sales from the Data Center Computing market and the Telecom and Networking market.

In addition, the first half of 2020 was negatively impacted by factory shutdowns related to COVID-19.

Revenues in 2021 were negatively impacted across all of our markets by supply chain shortages for certain IC’s and other components, which limited our ability to ship to our total demand.

Sales in the Semiconductor Equipment market increased $98.3 million, or 16.1%, to $710.2 million, as compared to $611.9 million in the prior year.

The increase in sales during 2021 is primarily due to an overall increase in demand for semiconductor equipment used in deposition and etch applications, increasing power content in semiconductor manufacturing tools, and market share gains in several areas across our portfolio.

Sales to the Industrial and Medical market increased $27.5 million, or 8.8%, to $341.2 million, as compared to $313.6 million in the prior year.

Our customers in this market are primarily global and regional original equipment and device manufacturers.

The increase in sales year to date was primarily due to improving macroeconomic conditions and the continued recovery from the COVID-19 pandemic driving stronger demand.

Sales in the Data Center Computing market decreased $51.6 million, or 16.0%, to $270.9 million, as compared to $322.5 million in the prior year.

The decrease in Data Center Computing market sales is due in part to digestion of equipment at key accounts following strong revenue last year and supply constraints, which limited our ability to ship sufficiently to meet customer demand.

Sales in the Telecom and Networking market decreased $34.1 million, or 20.3%, as compared to $167.8 million in the prior year.

The decrease in sales was due to in part to our decision to optimize our product portfolio towards higher margin applications and production limitations due to supply constraints.

Over time, we expect that 5G infrastructure investments and upgrades to enterprise networks will drive growth in this market.

Our acquisitions of TEGAM and Versatile Power contributed $12.1 million to 2021 sales.

Acquisitions in Part II, Item 8 "Financial Statements and Supplementary Data"

The increase in sales was primarily due to increased demand for our products across all four of our markets and measures we took to improve material availability and capacity, which allowed us to better meet higher demand.

In addition, premium recoveries, which are revenues we collected from our customers to partially reimburse us for premiums we paid to secure scarce materials, represented $68.3 million in revenue in 2022 compared to $14.3 million in 2021.

The acquisition of SL Power contributed $50.3 million to our total sales in 2022.

For additional information, see Note 2.

Acquisitions in Part II, Item 8 “Financial Statements and Supplementary Data.”

The following table summarizes our backlog (in thousands):

Gross profit decreased $9.5 million to $532.3 million, or 36.6% of revenue, as compared to $541.9 million, or 38.3%, in the prior year.

The decrease in gross profit as a percent of revenue is largely related to higher material and freight costs.

Additional drivers of our decrease in gross profit include productivity inefficiencies resulting from supply constraints, COVID-19 capacity restrictions, and the transition of our Shenzhen, PRC manufacturing to Penang, Malaysia.

These decrease drivers were partly offset by increased volume and favorable product mix.

Backlog represents outstanding orders for products we expect to deliver within the next 12 months.

Backlog at the end of 2022 decreased from the end of 2021 primarily due to the impact of the China export controls regulation announced in October 2022 by the U.S.

Commerce Department, lower demand in the Semiconductor Equipment market, and changes in order patterns for our semiconductor customers as we improved lead times, which occurred in the fourth quarter of 2022.

Backlog in our other markets increased for the year.

We believe the current backlog levels provide some level of revenue protection if demand levels are reduced due to macroeconomic factors.

We expect to bring our backlog back into normalized levels of $400 million to $500 million over the next several quarters as parts availability improves and lead times are reduced.

Backlog at any particular date is not necessarily indicative of actual sales which may be generated for any succeeding period.

In addition, there is uncertainty of the timing of when backlog can convert into revenue due to continuing supply constraints.

Because our customers generally order on a purchase order basis, they can typically cancel, change, or delay product purchase commitments with little or no notice.

Sales by Market

Sales in the Semiconductor Equipment market increased $220.6 million, or 31.1%, to $930.8 million, as compared to $710.2 million in the prior year.

The increase in sales was primarily due to the growth in the Semiconductor Equipment market, particularly highlighted by the 40% increase in sales to our top two customers who are primarily in this market.

In addition, we improved our ability to secure critical components and increased delivery to our customers in this market.

Sales in the Industrial and Medical market increased $85.6 million, or 25.1%, to $426.8 million, as compared to $341.2 million in the prior year.

The increase in sales was primarily due to the acquisition of SL Power, which added incremental sales of $46.5 million in this market.

The remainder of the increase in revenue was due to increased demand for our portfolio of products across our medical and industrial applications and improved material availability.

Sales in the Data Center Computing market increased $56.5 million, or 20.9%, to $327.5 million, as compared to $270.9 million in the prior year.

The increase in Data Center Computing market sales was due to better supply availability, enabling us to partially fulfill product shipments against higher customer demand.

Sales in the Telecom and Networking market increased $26.7 million, or 20.0%, to $160.4 million as compared to $133.7 million in the prior year.

The increase in sales was primarily due to improved material availability, allowing us to meet the increased demand.

GROSS PROFIT AND GROSS MARGIN

Gross profit dollars in 2022 increased by $143.2 million to $675.5 million, or 36.6% of revenue, as compared to prior year’s $532.3 million, or 36.6% of revenue, primarily driven by higher revenue.

Gross margin percentage remained flat year over year as the benefit of higher volume and favorable mix was offset primarily by higher material costs related to premiums paid to brokers for scarce parts.

Premium recoveries, which represent revenue at zero gross margin, impacted gross margins by approximately 140 basis points, compared to approximately 35 basis points in the prior year.

Additionally, higher material costs not recovered impacted gross margins

by approximately 200 basis points, compared to approximately five basis points in the prior year.

We expect that the amount of higher material costs and related recoveries will abate as the supply chain normalizes and scarce parts become more available from original manufacturers.

OPERATING EXPENSE

Research and Development

We perform R&D to develop new or emerging applications, technological advances to provide higher performance, or significant enhancements.

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.

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R&D expenses increased $29.2 million to $191.0 million, as compared to $161.8 million in the prior year.

The increase in research and development expense is related to increased headcount and associated costs, outside technical services, and engineering materials as we invested in new programs to maintain and increase our technological leadership and provide solutions to our customers’ evolving needs.

Our recent acquisitions of Versatile Power and TEGAM resulted in a combined increase of $2.5 million to R&D expenses.

Acquisitions in Part II, Item 8 "Financial Statements and Supplementary Data"

for additional details.

The increase in research and development expense is primarily driven by increased headcount and compensation costs of $20.4 million, as we invest in new programs to maintain and increase our technological leadership and provide solutions to our customers’ evolving needs.

Selling, General and Administrative

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Our general and administrative expenses support our worldwide corporate, legal, tax, financial, governance, administrative, information systems, and human resource functions in addition to our general management, including acquisition related activities.

Selling, general and administrative ("SG&A") expenses increased $3.4 million to $192.0 million, as compared to $188.6 million in the prior year.

The increase in SG&A is principally related to acquisition related activity partially offset by a reduction in variable compensation.

Acquisitions in Part II, Item 8 "Financial Statements and Supplementary Data"

for additional details.

Selling, general and administrative (“SG&A”) expenses increased $26.5 million to $218.5 million, as compared to $192.0 million in the prior year.

The increase in SG&A is primarily related to $16.9 million from increased headcount and associated costs including sales commissions and compensation driven by higher revenue and $6.0 million from the addition of SL Power.

Acquisitions in Part II, Item 8 “Financial Statements and Supplementary Data” for additional details.

Amortization of Intangibles

Amortization expense increased $4.1 million to $26.1 million, as compared to $22.1 million in the prior year.

The increase in 2021 was primarily driven by incremental amortization of newly acquired intangible assets.

The increase was primarily driven by incremental amortization of newly acquired intangible assets from the SL Power acquisition.

For additional information, see Note 2.

Intangible Assets in Part II, Item 8 "Financial Statements and Supplementary Data."

Acquisitions and Note 13.

Intangible Assets in Part II, Item 8 “Financial Statements and Supplementary Data.”

Restructuring

Restructuring charges relate to previously announced management plans to optimize our manufacturing footprint to lower cost regions, improvements in operating efficiencies, and synergies related to acquisitions.

In the fourth quarter of 2022, management approved a restructuring plan (the “2022 Plan”), which is expected to further improve our operating efficiencies and drive the realization of synergies from our business combinations by consolidating our operations, optimizing our factory footprint including moving certain production into our higher volume factories, and reducing redundancies.

The majority of these actions impact our factory operations and should partially mitigate the impact of lower volumes on gross margins.

We anticipate the 2022 Plan will be substantially completed, and associated expenses will be incurred by 2024.

In 2018, we committed to a restructuring plan (the “2018 Plan”) to optimize our manufacturing footprint and to improve our operating efficiencies and synergies related to business combinations.

We incurred severance costs primarily related to the transition and exit of our facility in Shenzhen, China and actions associated with synergies related to the acquisition of Artesyn Embedded Technologies, Inc.’s embedded power business (“Artesyn”).

substantially complete with the closure of our Shenzhen facility expected in 2023.

For additional information, see Note 14.

Restructuring Costs in Part II, Item 8 "Financial Statements and Supplementary Data."

Restructuring Costs in Part II, Item 8 “Financial Statements and Supplementary Data.”

Other Income (Expense), net

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Other income (expense), net was $8.6 million in 2022, as compared to ($3.0) million in the prior year.

The decrease between periods is primarily due to decreased interest expense related to our term note due to lower interest rates, as well as more favorable impacts from foreign exchange rate changes and gains on certain acquisition related reserves.

The increase in income between periods is primarily a result of higher unrealized foreign exchange gains of $4.2 million due to the strengthening U.S.

dollar compared to our other foreign currencies and a one-time gain on the sale of intellectual property from a previous acquisition.

This was partially offset by higher interest expenses because of increasing interest rates.

Provision for Income Taxes

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Effective tax rate

Our effective tax rates differ from the U.S.

federal statutory rate of 21% for the years ended December 31, 2021, 2020, and 2019, primarily due to the benefit of earnings in foreign jurisdictions which are subject to lower tax rates, as well as reductions in uncertain tax positions and tax credits, offset by net U.S.

tax on foreign operations, withholding taxes, and audit settlements.

The effective tax rate for 2021 was lower than the same period in 2020, primarily due to the mix of discrete events between the two periods.

Our effective tax rate increased in 2022 compared to 2021, primarily driven by a change in tax law from the 2017 Tax Cuts and Jobs Act related to the capitalization of R&D expenses, as it impacts the net U.S.

tax on foreign operations, that went into effect in January 2022, offset by the benefit of earnings in foreign jurisdictions which are subject to lower tax rates.

The Inflation Reduction Act (“IRA”) and CHIPS and Science Act (“CHIPS Act”) were both enacted in August 2022.

The IRA introduced new provisions including a 15% corporate alternative minimum tax for certain large corporations that have at least an average of $1 billion adjusted financial statement income over a consecutive three-tax-year period and a 1% excise tax surcharge on stock repurchases.

The CHIPS Act provides a variety of incentives associated with investments in domestic semiconductor manufacturing and related activities.

The IRA and the CHIPS Act are applicable for tax years beginning after December 31, 2022 and had no benefit to our consolidated financial statements for any of the periods presented, and we do not expect them to have a direct material impact on our future results of operations, financial condition, or cash flows.

Our future effective income tax rate depends on various factors, such as changes in tax laws, regulations, accounting principles, or interpretations thereof, and the geographic composition of our pre-tax income.

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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.

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.

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GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies.

we believe these non-GAAP measures provide additional information that enables readers to evaluate our business from the perspective of management.

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.

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The tax effect of our non-GAAP adjustments represents the anticipated annual tax rate applied to each non-GAAP adjustment after consideration of their respective book and tax treatments and effect of adoption of the 2017 Tax Cuts and Jobs Act.

Reconciliation of non-GAAP measure - operating expenses and operating income from

Reconciliation of non-GAAP measure

Operating expenses and operating income from continuing

Years Ended December 31,

continuing operations, excluding certain items (in thousands)

operations, excluding certain items (in thousands)

Gross profit from continuing operations, as reported

10 unchanged sentences

Facility expansion, relocation costs and other

Restructuring charges

Restructuring

Non-GAAP operating expenses

1 unchanged sentence

Non-GAAP operating margin

Reconciliation of non-GAAP measure - income from continuing operations,

Year Ended December 31,

excluding certain items (in thousands, except per share amounts)

Reconciliation of non-GAAP measure

Income from continuing operations, excluding certain items

Years Ended December 31,

(in thousands, except per share amounts)

Income from continuing operations, less non-controlling interest, net of income taxes

2 unchanged sentences

Facility expansion, relocation costs, and other

Restructuring charges

Unrealized foreign currency (gain) loss

Restructuring

Unrealized foreign currency gain

Acquisition-related costs and other included in other (income) expense, net

5 unchanged sentences

Impact of Inflation

In recent years, inflation has not had a significant impact on our operations.

However, more recently we are experiencing price increases in select components driven by higher global demand, supply chain disruptions, and increased freight costs.

We continuously monitor operating price increases, particularly in connection with the supply of component parts used in our manufacturing process.

To the extent permitted by competition, we pass increased costs on to our customers by increasing sales prices over time.

From time to time, we may also reduce prices to customers based on reductions in the cost structure of our products from cost improvement initiatives and decreases in component part prices .

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

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Our primary sources of liquidity are our available cash, investments, cash generated from current operations, and available borrowing capacity under the Revolving Facility (defined below).

On December 31, 2021, we had $546.7 million in cash, cash equivalents, and marketable securities.

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 twelve months and on a long-term basis.

We may, however, depending upon the number or size of additional acquisitions, seek additional financing from time to time.

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

December 31, 2022

Cash and cash equivalents

Marketable securities

Total cash, cash equivalents, and marketable securities

In addition, we may, depending upon the number or size of additional acquisitions, seek additional debt or equity financing from time to time;

however, such additional financing may not be available on acceptable terms, if at all.

Credit Facility

In September 2019, in connection with the Artesyn Acquisition Agreement, we entered into a credit agreement ("Credit Agreement") that provided aggregate financing of $500.0 million, consisting of a $350.0 million senior unsecured term loan facility (the "Term Loan Facility") and a $150.0 million senior unsecured revolving facility (the "Revolving Facility"

and together with the Term Loan Facility, the "Credit Facility").

In April 2020, we executed interest rate swap contracts with independent financial institutions to partially reduce the variability of cash flows in LIBOR indexed debt interest payments on our Term Loan Facility (under our existing Credit Agreement dated September 10, 2019, as amended).

In September 2019, in connection with the acquisition of Artesyn, we entered into a credit agreement (“Credit Agreement”) that provided aggregate financing of $500.0 million, consisting of a $350.0 million senior unsecured term loan facility (the “Term Loan Facility”) and a $150.0 million senior unsecured revolving facility (the “Revolving Facility” and together with the Term Loan Facility, the “Credit Facility”).

The interest rate swap contracts fixed a portion of the outstanding principal balance on our term loan to a total interest rate of 1.271%.

Derivative Financial Instruments in Part II, Item 8 "Financial Statements and Supplemental Data"

for additional information.

For information additional information, see Note 8.

Derivative Financial Instruments in Part II, Item 8 “Financial Statements and Supplementary Data.”

In September 2021, we amended the Credit Agreement whereby we borrowed an additional $85.0 million, which increased the aggregate amount outstanding under the Term Loan Facility to $400.0 million.

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Both the Term Loan Facility and Revolving Facility mature on September 9, 2026.

On December 31, 2021, we had $200.0 million in available funding under the Revolving Facility.

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

December 31, 2022

Interest Rate

Unused Line Fee

Term Loan Facility subject to a fixed interest rate due to interest rate swap

Term Loan Facility subject to a variable interest rate

Revolving Facility subject to a variable interest rate

Total borrowings under the Credit Agreement

As of December 31, 2022, we had $200.0 million in available funding under the Revolving Facility.

The Term Loan Facility requires quarterly repayments of $5.0 million plus accrued interest, with the remaining balance due in September 2026.

For more information on the Credit Facility, see Note 21.

Credit Facility and Note 8.

Derivative Financial Instruments in Part II, Item 8 "Financial Statements and Supplemental Data"

for additional information.

In December 2020, the Board approved a dividend program under which we began paying and intend to continue to pay a quarterly cash dividend of $0.10 per share of capital stock.

In March 2021, we paid the first quarterly cash dividend since our inception as a public company.

During 2021, we paid cash dividends totaling $15.4 million.

Future dividend payments are subject to the Board's future discretion and approval .

Share Repurchase

In addition to the available capacity on the Revolving Facility, prior to the maturity date of our Credit Agreement, we may also request an increase to the financing commitments in either the Term Loan Facility or Revolving Facility by an aggregate amount not to exceed $250.0 million at identical terms to our existing Credit Facility.

For additional information on our Credit Facility, see Note 21.

Credit Facility in Part II, Item 8 “Financial Statements and Supplementary Data.”

In March 2021, the Board of Directors (the “Board”) declared the first quarterly cash dividend since our inception as a public company.

During 2022, we paid quarterly cash dividends of $0.10 per share, totaling $15.2 million for the full year.

We currently anticipate that a cash dividend of $0.10 per share will continue to be paid on a quarterly basis, although the declaration of any future cash dividend is at the discretion of the Board and will depend on our financial condition, results of operations, capital requirements, business conditions, and other factors.

Share Repurchases

To execute the repurchase of shares of our common stock, we periodically enter into stock repurchase agreements.

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(in thousands, except per share amounts)

Amount paid to repurchase shares

Amount paid or accrued to repurchase shares

Number of shares repurchased

Average repurchase price per share

Remaining authorized by Board of Directors for future repurchases as of period end

On July 29, 2021, the Board approved an increase to the share repurchase program, which authorized the Company to repurchase up to $200 million in shares of our common stock with no time limitation.

In July 2022, the Board of Directors approved an increase to the share repurchase plan that increased the remaining amount authorized for future repurchases to a maximum of $200.0 million with no time limitation.

At December 31, 2022, the remaining amount authorized by the Board of Directors for future share repurchases was $199.3 million.

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

3 unchanged sentences

Net cash from operating activities

Net cash from investing activities from continuing operations

Net cash from financing activities from continuing operations

Net cash from investing activities

Net cash from financing activities

Effect of currency translation on cash and cash equivalents

Increase in cash and cash equivalents

Net change in cash and cash equivalents

Cash and cash equivalents, beginning of period

1 unchanged sentence

Net Cash From Operating Activities

Net cash from operating activities was $140.9 million, a decrease of $61.3 million, compared to $202.2 million in the prior year.

The decrease in net cash flows from operating activities as compared to 2020 was due to an unfavorable increase in net operating assets driven primarily by our increased investment in inventory as we attempted to mitigate supply chain constraints.

This was partially offset by an increase in accounts payable.

Net cash from operating activities from continuing operations was $183.7 million, an increase of $42.8 million, compared to $140.9 million in the prior year.

The increase is primarily due to an increase in net income.

This was partially offset by an unfavorable increase in net operating assets driven primarily by an increase in accounts receivable due to our strong revenue growth.

Net Cash From Investing Activities

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● ($149.4) million for business combinations.

● $6.1 million related to receipts on notes receivable and proceeds from sale of assets.

Net cash from investing activities in 2021 was ($47.3) million, and primarily related to investment in facilities and capacity.

1 unchanged sentence

Net cash from financing activities in 2022 was ($61.9) million and included:

● $83.7 million in proceeds from borrowings, net of debt-issuance costs paid;

● ($15.2) million for dividend payments;

1 unchanged sentence

● ($26.6) million related to repurchases of our common stock.

● $ (1.8) million in net payments related to stock-based award activities.

The net cash from financing activities in 2021 was ($25.4) million and included:

● $83.7 million in proceeds from borrowings, net of debt-issuance costs paid;

● ($15.4) million for dividend payments;

● ($13.8) million for repayment of long-term debt;

● ($78.1) million related to repurchases of our common stock;

and ($0.5) million related to stock-based award activities.

● ($1.8) million related to stock-based award activities.

Off-Balance Sheet Arrangements

5 unchanged sentences

Leases , Note 17.

Pension Liability and Note 21.

Credit Facility , respectively, in Part II, Item 8 "Financial Statements and Supplementary Data."

Employee Retirement Plans and Postretirement Benefits, and Note 21.

Credit Facility , respectively, in Part II, Item 8 “Financial Statements and Supplementary Data.”

Recent Accounting Pronouncements

From time to time, the Financial Accounting Standards Board ("FASB") or other standards setting bodies issue new accounting pronouncements.

Updates to the FASB Accounting Standards Codification ("ASC") are communicated through issuance of an Accounting Standards Update ("ASU").

From time to time, the Financial Accounting Standards Board (“FASB”) or other standards setting bodies issue new accounting pronouncements.

Updates to the FASB Accounting Standards Codification (“ASC”) are communicated through issuance of an Accounting Standards Update (“ASU”).

Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our consolidated financial statements upon adoption.

To understand the impact of recently issued guidance, whether adopted or to be adopted, please review the information provided in Note 1.

Operations and Summary of Significant Accounting Policies and Estimates in Part II, Item 8 "Financial Statements and Supplementary Data."

Summary of Operations and Significant Accounting Policies and Estimates in Part II, Item 8 “Financial Statements and Supplementary Data.”

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis