ADVANCED ENERGY INDUSTRIES INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ​ ​ Report of Independent Registered Public Accounting Firm (PCAOB ID No. 42 ) 46 Consolidated Balance Sheets 50 Consolidated Statements of Operations 51 Consolidated Statements of Comprehensive Income 52 Consolidated Statements of Stockholders’ Equity 53 Consolidated Statements of Cash Flows 54 Notes to Consolidated Financial Statements 55 ​ ​ ​ 45 Table of Contents Report of In dependent Registered Public Accounting Firm ​ ​ To the Stockholders and the Board of Directors of Advanced Energy Industries, Inc. ​ Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Advanced Energy Industries, Inc. (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. ​ We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 17, 2023 expressed an unqualified opinion thereon. ​ Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. ​ 46 Table of Contents Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. ​ ​ ​ ​ Inventory Valuation Description of the Matter ​ As more fully described in Notes 1 and 10 to the consolidated financial statements, the Company has inventories with a carrying value of $376.0 million as of December 31, 2022. The Company adjusts its inventory carrying value for estimated excess or 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. Auditing management’s inventory valuation was complex and involved a high degree of judgment because a critical factor in determining excess and obsolete inventory requires management to determine projected end-user demand, which could be impacted by future market and economic conditions. How We Addressed the Matter in Our Audit ​ We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls related to the Company’s process for evaluating inventory valuation inclusive of controls related to the development of and management’s review of the underlying data, including historical usage and the estimation of projected end-user demand. We evaluated certain inventories for excess or obsolescence by testing key inputs, including historical usage and projected end-user demand, and by testing the completeness and accuracy of the underlying data supporting management’s inventory valuation assessment. Specifically, we compared the Company’s projected end-user demand to historical sales and inventory usage. We assessed historical trends of management’s estimates and performed analyses to evaluate management’s excess and obsolete inventory estimates and underlying assumptions. We also performed a retrospective review of the prior year valuation assumptions, including inventory write-off history. ​ ​ /s/ Ernst & Young LLP ​ We have served as the Company’s auditor since 2019. ​ Denver, Colorado February 17, 2023 ​ ​ 47 Table of Contents Report of Independent Registered Public Accounting Firm ​ ​ To the Stockholders and the Board of Directors of Advanced Energy Industries, Inc. ​ Opinion on Internal Control Over Financial Reporting We have audited Advanced Energy Industries, Inc.’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Advanced Energy Industries, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria. As indicated in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of SL Power Electronics, which is included in the 2022 consolidated financial statements of the Company and constituted 2% and 3% of total and net assets, respectively, as of December 31, 2022 and 3% and 3% of revenues and net income, respectively, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of SL Power Electronics. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated February 17, 2023 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 48 Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. ​ /s/ Ernst & Young LLP ​ Denver, Colorado February 17, 2023 ​ ​ 49 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. Consolidated Balance Sheets (In thousands, except per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2022 2021 ASSETS ​ ​ Current assets: ​ ​ Cash and cash equivalents ​ $ 458,818 ​ $ 544,372 Accounts and other receivable, net ​ 300,683 ​ 237,227 Inventories ​ 376,012 ​ 338,410 Other current assets ​ ​ 53,001 ​ ​ 42,225 Total current assets ​ 1,188,514 ​ 1,162,234 Property and equipment, net ​ 148,462 ​ 114,830 Operating lease right-of-use assets ​ ​ 100,177 ​ ​ 101,769 Other assets ​ 84,056 ​ 66,911 Intangible assets, net ​ 189,526 ​ 159,406 Goodwill ​ 281,433 ​ 212,190 TOTAL ASSETS ​ $ 1,992,168 ​ $ 1,817,340 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ Accounts payable ​ $ 170,467 ​ $ 193,708 Accrued payroll and employee benefits ​ 82,733 ​ 55,833 Other accrued expenses ​ 76,750 ​ 62,671 Customer deposits and other ​ 26,322 ​ 22,141 Current portion of long-term debt ​ ​ 20,000 ​ ​ 20,000 Current portion of operating lease liabilities ​ ​ 16,771 ​ ​ 15,843 Total current liabilities ​ 393,043 ​ 370,196 Long-term debt, net ​ ​ 353,262 ​ ​ 372,733 Operating lease liabilities ​ ​ 94,460 ​ ​ 95,180 Pension benefits ​ ​ 44,031 ​ ​ 67,255 Other long-term liabilities ​ ​ 41,105 ​ ​ 40,480 Total liabilities ​ 925,901 ​ 945,844 ​ ​ ​ ​ ​ ​ ​ Commitments and contingencies (Note 19) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders' equity: ​ ​ ​ ​ Preferred stock, $ 0.001 par value, 1,000 shares authorized, none issued and outstanding ​ — ​ — Common stock, $ 0.001 par value, 70,000 shares authorized; 37,429 and 37,589 issued and outstanding at December 31, 2022 and December 31, 2021, respectively ​ 37 ​ 38 Additional paid-in capital ​ 134,640 ​ 115,706 Accumulated other comprehensive income (loss) ​ 16,320 ​ ( 1,216 ) Retained earnings ​ 915,270 ​ 756,323 Advanced Energy Industries, Inc. stockholders' equity ​ 1,066,267 ​ 870,851 Noncontrolling interest ​ — ​ 645 Total stockholders' equity ​ 1,066,267 ​ 871,496 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ​ $ 1,992,168 ​ $ 1,817,340 ​ ​ ​ ​ ​ ​ ​ ​ The accompanying notes are an integral part of these consolidated financial statements ​ 50 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. Consolidated Statements of Operations (In thousands, except per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2022 2021 2020 Sales, net ​ ​ $ 1,845,422 ​ $ 1,455,954 ​ $ 1,415,826 Cost of sales ​ ​ 1,169,916 ​ 923,632 ​ 873,957 Gross profit ​ ​ 675,506 ​ 532,322 ​ 541,869 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses: ​ ​ ​ ​ ​ ​ Research and development ​ ​ 191,020 ​ 161,831 ​ 143,961 Selling, general, and administrative ​ ​ 218,463 ​ 191,998 ​ 188,590 Amortization of intangible assets ​ ​ 26,114 ​ 22,060 ​ 20,129 Restructuring ​ ​ 6,814 ​ 4,752 ​ 13,166 Total operating expenses ​ ​ 442,411 ​ 380,641 ​ 365,846 Operating income ​ ​ 233,095 ​ 151,681 ​ 176,023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income (expense), net ​ ​ 8,646 ​ ( 2,970 ) ​ ( 17,876 ) Income from continuing operations, before income taxes ​ ​ 241,741 ​ 148,711 ​ 158,147 Provision for income taxes ​ ​ 39,850 ​ 14,004 ​ 22,996 Income from continuing operations ​ ​ 201,891 ​ 134,707 ​ 135,151 Income (loss) from discontinued operations, net of income taxes ​ ​ ( 2,215 ) ​ 73 ​ ( 421 ) Net income ​ ​ $ 199,676 ​ $ 134,780 ​ $ 134,730 Income from continuing operations attributable to noncontrolling interest ​ ​ 16 ​ 44 ​ 55 Net income attributable to Advanced Energy Industries, Inc. ​ ​ $ 199,660 ​ $ 134,736 ​ $ 134,675 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic weighted-average common shares outstanding ​ ​ 37,463 ​ 38,143 ​ 38,314 Diluted weighted-average common shares outstanding ​ ​ 37,721 ​ 38,355 ​ 38,542 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings per share: ​ ​ ​ ​ ​ ​ Continuing operations: ​ ​ ​ ​ ​ ​ Basic earnings per share ​ ​ $ 5.39 ​ $ 3.53 ​ $ 3.53 Diluted earnings per share ​ ​ $ 5.35 ​ $ 3.51 ​ $ 3.51 Discontinued operations: ​ ​ ​ ​ ​ ​ ​ Basic earnings (loss) per share ​ ​ $ ( 0.06 ) ​ $ — ​ $ ( 0.01 ) Diluted earnings (loss) per share ​ ​ $ ( 0.06 ) ​ $ — ​ $ ( 0.01 ) Net income: ​ ​ ​ ​ ​ ​ ​ Basic earnings per share ​ ​ $ 5.33 ​ $ 3.53 ​ $ 3.52 Diluted earnings per share ​ ​ $ 5.29 ​ $ 3.51 ​ $ 3.50 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 51 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. Consolidated Statements of Comprehensive Income (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2022 2021 2020 Net income ​ $ 199,676 ​ $ 134,780 ​ $ 134,730 Other comprehensive income (loss), net of income taxes ​ ​ ​ Foreign currency translation ​ ( 10,543 ) ​ ( 12,262 ) ​ 13,095 Change in fair value of cash flow hedges ​ 9,741 ​ 4,246 ​ ( 2,139 ) Minimum pension benefit retirement liability ​ 18,338 ​ 9,405 ​ ( 7,664 ) Comprehensive income ​ ​ 217,212 ​ ​ 136,169 ​ ​ 138,022 Comprehensive income attributable to noncontrolling interest ​ 16 ​ 44 ​ 55 Comprehensive income attributable to Advanced Energy Industries, Inc. ​ $ 217,196 ​ $ 136,125 ​ $ 137,967 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 52 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. Consolidated Statements of Stockholders’ Equity (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Advanced Energy Industries, Inc. Stockholders' Equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ Non- ​ Total ​ ​ ​ ​ ​ ​ ​ Paid-in ​ Comprehensive ​ Retained ​ controlling ​ Stockholders' ​ ​ Shares ​ Amount ​ Capital ​ Income (Loss) ​ Earnings ​ Interest ​ Equity Balances, December 31, 2019 38,358 ​ $ 38 ​ $ 104,849 ​ $ ( 5,897 ) ​ $ 577,724 ​ $ 546 $ 677,260 Adoption of new accounting standards ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 102 ) ​ ​ — ​ ​ ( 102 ) Stock issued from equity plans ​ 179 ​ — ​ ( 482 ) ​ — ​ — ​ — ​ ​ ( 482 ) Stock-based compensation ​ — ​ — ​ 12,272 ​ — ​ — ​ — ​ ​ 12,272 Share repurchases ​ ( 244 ) ​ ​ — ​ ​ ( 11,630 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 11,630 ) Other comprehensive income ​ — ​ — ​ — ​ 3,292 ​ — ​ — ​ ​ 3,292 Net income ​ — ​ — ​ — ​ — ​ 134,675 ​ 55 ​ ​ 134,730 Balances, December 31, 2020 ​ 38,293 ​ ​ 38 ​ ​ 105,009 ​ ​ ( 2,605 ) ​ ​ 712,297 ​ ​ 601 ​ ​ 815,340 Stock issued from equity plans ​ 197 ​ — ​ ( 1,931 ) ​ — ​ — ​ — ​ ( 1,931 ) Stock-based compensation ​ — ​ — ​ 15,428 ​ — ​ — ​ — ​ 15,428 Share repurchases ​ ( 901 ) ​ ​ — ​ ​ ( 2,800 ) ​ ​ — ​ ​ ( 75,325 ) ​ ​ — ​ ​ ( 78,125 ) Dividends declared ($ 0.10 per share) ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 15,385 ) ​ ​ — ​ ​ ( 15,385 ) Other comprehensive income ​ — ​ — ​ — ​ 1,389 ​ — ​ — ​ 1,389 Net income ​ — ​ — ​ — ​ — ​ 134,736 ​ 44 ​ 134,780 Balances, December 31, 2021 ​ 37,589 ​ ​ 38 ​ ​ 115,706 ​ ​ ( 1,216 ) ​ ​ 756,323 ​ ​ 645 ​ ​ 871,496 Stock issued from equity plans ​ 196 ​ ​ — ​ ​ ( 26 ) ​ ​ — ​ ​ — ​ ​ — ​ ( 26 ) Stock-based compensation ​ — ​ ​ — ​ ​ 19,624 ​ ​ — ​ ​ — ​ ​ — ​ 19,624 Share repurchases ​ ( 356 ) ​ ​ ( 1 ) ​ ​ ( 1,125 ) ​ ​ — ​ ​ ( 25,509 ) ​ ​ — ​ ​ ( 26,635 ) Dividends declared ($ 0.10 per share) ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 15,204 ) ​ ​ — ​ ​ ( 15,204 ) Other comprehensive income ​ — ​ ​ — ​ ​ — ​ ​ 17,536 ​ ​ — ​ ​ — ​ 17,536 Acquisition of non-controlling interest ​ — ​ ​ — ​ ​ 461 ​ ​ — ​ ​ — ​ ​ ( 661 ) ​ ​ ( 200 ) Net income ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 199,660 ​ ​ 16 ​ 199,676 Balances, December 31, 2022 ​ 37,429 ​ $ 37 ​ $ 134,640 ​ $ 16,320 ​ $ 915,270 ​ $ — ​ $ 1,066,267 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 53 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. Consolidated Statements of Cash Flows (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2022 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: ​ ​ ​ Net income ​ $ 199,676 ​ $ 134,780 ​ $ 134,730 Less: income (loss) from discontinued operations, net of income taxes ​ ( 2,215 ) ​ 73 ​ ( 421 ) Income from continuing operations, net of income taxes ​ 201,891 ​ 134,707 ​ 135,151 Adjustments to reconcile net income to net cash from operating activities: ​ ​ ​ Depreciation and amortization ​ 60,296 ​ 52,893 ​ 47,770 Stock-based compensation expense ​ 19,849 ​ 15,739 ​ 12,272 Provision for deferred income taxes ​ ( 5,736 ) ​ 1,326 ​ ( 622 ) (Gain) loss from discount on notes receivable ​ ​ — ​ ​ ( 638 ) ​ ​ 721 (Gain) loss on disposal and sale of assets ​ ( 3,962 ) ​ 1,496 ​ 1,296 Changes in operating assets and liabilities, net of assets acquired ​ ​ ​ ​ ​ Accounts and other receivable, net ​ ( 59,630 ) ​ 5,271 ​ 15,412 Inventories ​ ( 32,244 ) ​ ( 115,737 ) ​ 11,658 Other assets ​ ( 19,673 ) ​ ( 2,910 ) ​ 1,750 Accounts payable ​ ( 28,703 ) ​ 67,111 ​ ( 48,163 ) Other liabilities and accrued expenses ​ 51,643 ​ ( 18,344 ) ​ 24,914 Net cash from operating activities from continuing operations ​ 183,731 ​ 140,914 ​ 202,159 Net cash from operating activities from discontinued operations ​ ( 144 ) ​ ( 669 ) ​ ( 923 ) Net cash from operating activities ​ 183,587 ​ 140,245 ​ 201,236 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM INVESTING ACTIVITIES: ​ ​ ​ Receipt (issuance) of notes receivable ​ ​ — ​ ​ 3,050 ​ ​ ( 1,000 ) Purchases of property and equipment ​ ( 58,885 ) ​ ( 28,817 ) ​ ( 36,364 ) Acquisitions, net of cash acquired ​ ​ ( 149,387 ) ​ ​ ( 21,535 ) ​ ​ ( 5,476 ) Net cash from investing activities ​ ( 208,272 ) ​ ( 47,302 ) ​ ( 42,840 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM FINANCING ACTIVITIES: ​ ​ ​ Proceeds from long-term borrowings ​ ​ — ​ ​ 85,000 ​ ​ — Payment of debt-issuance costs ​ ​ — ​ ​ ( 1,350 ) ​ ​ — Payments on long-term borrowings ​ ​ ( 20,000 ) ​ ​ ( 13,750 ) ​ ​ ( 17,500 ) Dividend payments ​ ​ ( 15,204 ) ​ ​ ( 15,385 ) ​ ​ — Purchase and retirement of common stock ​ ​ ( 26,635 ) ​ ​ ( 78,125 ) ​ ​ ( 11,630 ) Net payments related to stock-based awards ​ ( 26 ) ​ ( 1,762 ) ​ ( 482 ) Net cash from financing activities ​ ( 61,865 ) ​ ( 25,372 ) ​ ( 29,612 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ EFFECT OF CURRENCY TRANSLATION ON CASH AND CASH EQUIVALENTS ​ 996 ​ ( 3,567 ) ​ 5,143 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NET CHANGE IN CASH AND CASH EQUIVALENTS ​ ( 85,554 ) ​ 64,004 ​ 133,927 CASH AND CASH EQUIVALENTS, beginning of period ​ 544,372 ​ 480,368 ​ 346,441 CASH AND CASH EQUIVALENTS, end of period ​ $ 458,818 ​ $ 544,372 ​ $ 480,368 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: ​ ​ ​ Cash paid for interest ​ $ 6,608 ​ $ 4,040 ​ $ 5,278 Cash paid for income taxes ​ $ 17,546 ​ $ 32,543 ​ $ 21,032 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ ​ 54 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except per share amounts) NOTE 1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES Advanced Energy Industries, Inc., a Delaware corporation, and its consolidated subsidiaries (“we,” “us,” “our,” “Advanced Energy,” or the “Company”) 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 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. As of December 31, 2015, we discontinued our engineering, production, and sales of our inverter product line. As such, all inverter product revenues, costs, assets, and liabilities are reported in Discontinued Operations for all periods presented herein. See Note 4. Discontinued Operations for more information. Ongoing inverter repair and service operations are reported as part of our continuing operations. Principles of Consolidation — Our consolidated financial statements include the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. Our consolidated financial statements are stated in United States (“U.S.”) Dollars and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). We reclassified certain prior period amounts to conform to the current year presentation. Use of Estimates in the Preparation of the Consolidated Financial Statements — The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The significant estimates, assumptions, and judgments include, but are not limited to: ● excess and obsolete inventory; ● pension obligations; ● acquisitions and asset valuations, and ● income taxes and other provisions. ​ Segment Information — Our Chief Executive Officer is the chief operating decision maker who reviews financial information on a consolidated basis for purposes of allocating resources and evaluating financial performance. Accordingly, we determined we operate in a single reporting segment. Foreign Currency Translation — The functional currency of certain of our foreign subsidiaries is the local currency. Assets and liabilities of these foreign subsidiaries are translated to the United States Dollar at prevailing exchange rates on the balance sheet date. Revenues and expenses are translated at the average exchange rates in effect for each period. Translation adjustments resulting from this process are reported as a separate component of other comprehensive income. For certain other subsidiaries, the functional currency is the U.S. Dollar. Foreign currency transactions are recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates for foreign 55 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) currency denominated monetary assets and liabilities result in foreign currency transaction gains and losses, which are reflected as unrealized (based on period end remeasurement) or realized (upon settlement of the transactions) in other income (expense), net in our Consolidated Statements of Operations. Derivatives — We use derivative financial instruments to manage risks associated with foreign currency and interest rate fluctuations. Unless we meet specific hedge accounting criteria, changes in the fair value of derivative financial instruments are recognized in the Consolidated Statements of Operations within other income (expense), net. For derivatives designated as cash flow hedges, changes in fair value are recorded to accumulated other comprehensive income (loss) on the Consolidated Balance Sheets and are reclassified into earnings when the underlying forecasted transaction affects earnings. We reassess the probability of the underlying forecasted transactions occurring on a quarterly basis. Fair Value — We value our financial assets and liabilities using fair value measurements. U.S. GAAP for fair value establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach, and cost approach). Our financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels of the hierarchy and the related inputs are as follows: ● Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access on the measurement date. ● Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. ● Level 3 — Unobservable inputs for the asset or liability. We categorize fair value measurements within the fair value hierarchy based upon the lowest level of the most significant inputs used to determine fair value. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. We have various assets and liabilities measured at fair value on a recurring basis, including: Foreign currency forward contracts We estimate the fair value based on the movement in the forward rates of foreign currency cash flows in which the hedging instrument is denominated. Interest rate swaps We determine the fair value by estimating the net present value of the expected cash flows based on market rates and the associated yield curves, adjusted for non-performance credit risk, as applicable. Contingent consideration associated with business combinations We determine the fair value by estimating the net present value of the expected cash flows based on the probability of expected payment. The carrying amounts of our cash and cash equivalents, accounts receivable, accounts payable and other current assets and liabilities approximate fair value as recorded due to the short-term nature of these instruments. 56 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) Our non-financial assets, which primarily consist of property and equipment, operating lease right-of-use assets, goodwill, and other intangible assets, are not required to be carried at fair value on a recurring basis and are reported at carrying value. However, on a periodic basis or whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable (and at least annually for goodwill), non-financial instruments are assessed for impairment and, if applicable, written down to and recorded at fair value. See Note 12. Goodwill and Note 13. Intangible Assets for further discussion and presentation of these amounts. The fair value of borrowings approximates the recorded borrowing value based upon market interest rates for similar facilities. See Note 21. Credit Facility for additional information. The fair value of contingent consideration and other acquired assets and liabilities associated with our acquisitions are based on Level 3 inputs. Cash, Cash Equivalents, and Marketable Securities — We consider all amounts on deposit with financial institutions and highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents consist primarily of short-term money market instruments and demand deposits with insignificant interest rate risk. In some instances, we invest excess cash in money market funds not insured by the Federal Deposit Insurance Corporation. We believe the investments in money market funds are on deposit with credit-worthy financial institutions and the funds are highly liquid. These investments are reported at fair value and included in cash and cash equivalents. We record interest income within other income (expense), net in our Consolidated Statement of Operations. We classify investments with stated maturities of greater than three months at time of purchase as marketable securities. Concentrations of Credit Risk — Financial instruments with potential credit risk include cash and cash equivalents, marketable securities, and trade accounts receivable. To preserve capital and maintain liquidity, we invest with financial institutions we deem to be of high quality and sound financial condition. Our investments are in low-risk instruments, and we limit our credit exposure in any one institution or type of investment instrument based upon criteria, including creditworthiness. We establish a reserve for credit losses based upon factors surrounding the credit risk of specific customers, historical trends, and other information. Accounts Receivable and Reserve for Credit Losses — Accounts receivable are recorded at net realizable value. We maintain a credit approval process and we make judgments in connection with assessing our customers’ ability to pay. Despite this assessment, from time to time, our customers are unable to meet their payment obligations. We continuously monitor our customers’ credit worthiness and use our judgment in establishing a provision for estimated credit losses. We do not require collateral from customers. Our principal customers are original equipment manufacturers (“OEM”) and end user customers, which operate globally through wholly owned subsidiaries that purchase our products under substantially the same credit terms, with similar historical credit risks. As a result, we assess credit risks as a single group. We evaluate collection risk and establish expected credit loss primarily through a combination of the following: an assessment of customer credit risk ratings utilizing third party credit risk data, analysis of historical aging and credit loss experience, and customer specific information. Inventories — 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 57 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) 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. Property and Equipment — Property and equipment are stated at cost or estimated fair value if acquired in a business combination. Depreciation is computed over the estimated useful lives using the straight-line method. Additions and improvements are capitalized, while maintenance and repairs are expensed as incurred. When depreciable assets are retired, or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any related gains or losses are included in other income (expense), net, in our Consolidated Statements of Operations. Business Combinations — Business combinations are accounted for using the purchase method of accounting. Under the purchase method, assets and liabilities, including intangible assets, are recorded at their fair values as of the acquisition date. Acquisition costs in excess of amounts assigned to assets acquired and liabilities assumed are recorded as goodwill. Transaction related costs associated with business combinations are expensed as incurred. Leases — We lease manufacturing and office space under non-cancelable operating leases. Some of these leases contain provisions for landlord funded leasehold improvements, which we record as a reduction to right-of-use (“ROU”) assets and the related operating lease liabilities. Our lease agreements generally contain lease and non-lease components, and we combine fixed payments for non-lease components with lease payments and account for them together as a single lease component. Certain lease agreements may contain variable payments, which are expensed as incurred and not included in the right-of-use lease assets and operating lease liabilities. When renewal options are reasonably certain of exercise, we include the renewal period in the lease term. In many cases, we have leases with a term of less than one year. We elected the practical expedient to exclude these short-term leases from our ROU assets and operating lease liabilities. On an ongoing basis, we negotiate and execute new leases to meet business objectives. Right-of-use assets and operating lease liabilities are recognized at the present value of the future lease payments on the lease commencement date. The interest rate used to determine the present value of the future lease payments is our incremental borrowing rate because the interest rate implicit in our leases is not readily determinable. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments. We have a centrally managed treasury function; therefore, we apply a portfolio approach for determining the incremental borrowing rate applicable to the lease term. Operating lease expense is recognized on a straight-line basis over the lease term. Intangible Assets, Goodwill, and Other Long-Lived Assets — As a result of our acquisitions, we identified and recorded intangible assets and goodwill. Intangible assets are valued based on estimates of future cash flows and amortized over their estimated useful lives. Goodwill is subject to annual impairment testing, as well as testing upon the occurrence of any event that indicates a potential impairment. Intangible assets and other long-lived assets are subject to an impairment test if there is an indicator of impairment. The carrying value and ultimate realization of these assets is dependent upon our estimates of future earnings and benefits that we expect to generate from their use. If our expectations of future results and cash flows are significantly diminished, intangible assets and goodwill may be impaired and the resulting charge to operations may be material. When we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, we use the projected undiscounted cash flow method to determine whether an impairment exists, and then measure the impairment using discounted cash flows. The estimation of useful lives and expected cash flows requires us to make judgments regarding future periods that are subject to some factors outside of our control. Changes in these estimates can result in revisions to our carrying value of these assets and may result in material charges to our results of operations. 58 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) We conduct an annual goodwill impairment analysis using an assessment of qualitative factors in determining if it is more likely than not that goodwill is impaired. If this assessment indicates that it is more likely than not that goodwill is impaired, the next step of impairment testing compares the fair value of a reporting unit to its carrying value. Goodwill would be impaired if the resulting implied fair value of goodwill was less than the recorded carrying value of the goodwill. Debt Issuance Costs — We incurred debt issuance costs in connection with our debt facilities. Amounts paid directly to lenders are classified as issuance costs. Commitment fees and other costs directly associated with obtaining credit facilities are classified as deferred financing costs, which are recorded in the Consolidated Balance Sheets and amortized over the term of the debt facility. We allocated deferred debt issuance costs incurred for the current credit facility between the revolver and term loan based on their relative borrowing capacity. Deferred debt issuance costs associated with the revolving credit facility are recorded within other assets and those associated with the term loan are recorded as a reduction of the carrying value of the debt on the Consolidated Balance Sheets. We amortize the majority of deferred debt issuance costs to interest expense using the effective interest rate method. Deferred debt issuance costs on the line of credit are amortized on the straight-line basis over the life of the debt agreement. Amortization of debt issuance costs is reflected in other income (expense), net on the Consolidated Statements of Operations. See Note 21. Credit Facility for additional details. Revenue Recognition — Net sales consist of revenue from the sale of products and support services. We recognize substantially all revenue at a point in time when we satisfy our performance obligations. Typically, this occurs on shipment of goods because, at that point, we transfer control to our customer. The transaction price is based upon the standalone selling price. In most transactions, we have no obligations to our customers after the date products are shipped, other than pursuant to warranty obligations. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. Surcharges, cost recoveries, and shipping and handling fees billed to customers, if any, are recognized as revenue. The related cost for shipping and handling fees is recognized in cost of sales. We expense the incremental costs of obtaining contracts when the amortization period of the costs is less than one year. These costs are included in selling, general, and administrative expenses in our Consolidated Statements of Operations. Payment terms for customers’ extended credit are typically net 30 days. Support services include warranty and non-warranty repair services, upgrades, and refurbishments on the products we sell. Repairs covered under our standard warranty do not generate revenue. We recognize substantially all non-warranty revenue upon completion of service because that is the point in time when we satisfy our performance obligation. As part of our ongoing service business, we satisfy our service obligations under preventative maintenance contracts and extended warranties, which had previously been offered on our discontinued inverter products. Any up-front fees received for extended warranties or maintenance plans are deferred. Revenue under these arrangements is recognized ratably over the underlying terms as we do not have historical information that would allow us to project the estimated service usage pattern at this time. Research and Development Expenses — Costs incurred to advance, test, or otherwise modify our proprietary technology or develop new technologies are considered research and development costs and are expensed when incurred. These costs are primarily comprised of costs associated with the operation of our laboratories and research facilities, including internal labor, materials, and overhead. Warranty Costs — We provide for the estimated costs to fulfill customer warranty obligations upon the recognition of the related revenue. We offer warranty coverage for a majority of our precision power products for periods typically ranging from 12 to 24 months after shipment. We warranted our inverter products for five to ten years and provided the option to purchase additional warranty coverage for up to 20 years . The warranty expense accrued 59 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) related to our standard inverter product warranties is now considered part of our discontinued operations and is recorded as such on our Consolidated Balance Sheets. See Note 4. Discontinued Operations for more information. See Note 15. Warranties for more information on our warranties from continuing operations. We estimate the anticipated costs of repairing our products under such warranties based on the historical costs of the repairs. The assumptions we use to estimate warranty accruals are reevaluated periodically, considering actual experience, and when appropriate, the accruals are adjusted. Should product failure rates differ from our estimates, actual costs could vary significantly from our expectations. Stock-Based Compensation — Accounting for stock-based compensation requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair value at the grant date. We utilize the Black-Scholes Merton option pricing model to estimate the fair value of stock options and Employee Stock Purchase Plan (“ESPP”) purchase rights. This model requires various estimates and assumptions, including: Fair value of the common stock We use the market closing price of our common stock, as reported on the NASDAQ Exchange. ​ Expected term The expected term is based on historical experience and represents the period we expect the stock option or ESPP purchase right to be outstanding. ​ Expected volatility We derive the expected volatility from the historical volatility of our common stock over a period equivalent to the expected term. ​ Risk -free interest rate We obtain the risk-free interest rate from the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term of the stock-based award. ​ Expected dividend The expected dividend is based on the assumption that future dividend payments will follow recent historical practice. ​ We estimate the fair value of restricted stock units (“RSUs”) on the grant date. For RSUs that contain a time-based and/or performance-based vesting condition, we estimate fair value using the closing share price on the grant date. We record stock-based compensation expense for awards with time-based vesting conditions on a straight-line basis over the requisite service period. For awards with a performance-based vesting condition, we record stock-based compensation expense (based on management’s assessment of the probability of meeting the performance conditions) over the estimated period to achieve the performance conditions. Upon forfeiture or expiration of these awards, we reverse the stock-based compensation expense. Certain RSUs vest based on a market condition. We estimate the fair value and probability of achievement for each tranche of these awards using a Monte Carlo simulation. Because the probability of achievement is a factor in the Monte Carlo simulation, we recognize stock-based compensation expense over each tranche’s estimated achievement period even if some or all of the shares never vest. For all stock awards, we estimate forfeitures at the grant date and revise those estimates in subsequent periods if actual forfeitures differ from our estimates. 60 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) Income Taxes — We follow the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for future tax consequences. A deferred tax asset or liability is computed for both the expected future impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carryforwards. Tax rate changes are reflected in the period such changes are enacted. We assess the recoverability of our net deferred tax assets and the need for a valuation allowance on a quarterly basis. Our assessment includes several factors, including historical results and taxable income projections for each jurisdiction. The ultimate realization of deferred income tax assets is dependent on the generation of taxable income in appropriate jurisdictions during the periods in which those temporary differences are deductible. We consider the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in determining the amount of the valuation allowance. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred income tax assets are deductible, we determine if we will realize the benefits of these deductible differences. Accounting for income taxes requires a two-step approach to recognize and measure uncertain tax positions. In general, we are subject to regular examination of our income tax returns by the Internal Revenue Service and other tax authorities. The first step is to evaluate the tax position for recognition by determining, if based on the technical merits, it is more likely than not that the position will be sustained upon audit, including resolutions of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Under U.S. GAAP, an accounting policy election can be made to either recognize deferred taxes for temporary basis differences expected to reverse as global intangible low-tax income (“GILTI”) in future years, or to provide for the tax expense related to GILTI in the year that the tax is incurred as a period expense only. We have elected to account for GILTI in the year that the tax is incurred. Commitments and Contingencies — From time to time we are involved in disputes and legal actions arising in the normal course of our business. While we currently believe that the amount of any ultimate loss would not be material to our financial position, the outcome of these actions is inherently difficult to predict. In the event of an adverse outcome, the ultimate loss could have a material adverse effect on our financial position or reported results of operations in a particular period. An unfavorable decision, particularly in patent litigation, could require material changes in production processes and products or result in our inability to ship products or components found to have violated third-party patent rights. We accrue loss contingencies when it is probable that a loss has occurred or will occur, and the amount of the loss can be reasonably estimated. Our estimates of probability of losses are subjective, involve significant judgment and uncertainties, and are based on the best information we have at any given point in time. Resolution of these uncertainties in a manner inconsistent with our expectations could have a significant impact on our results of operations and financial condition. New Accounting Standards From time to time, the Financial Accounting Standards Board (“FASB”) or other standards setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification (“ASC”) are communicated through issuance of an Accounting Standards Update (“ASU”). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, will not have a material impact on the consolidated financial statements upon adoption. 61 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) New Accounting Standards Adopted In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 806) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” The amendments in ASU 2021-08 address diversity and inconsistency related to the recognition and measurement of contract assets and contract liabilities acquired in a business combination. ASU 2021-08 requires an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers. We adopted ASU 2021-08 on a prospective basis effective January 1, 2022. The adoption will impact business combinations subsequent to that date and require recognition and measurement of acquired contract assets and liabilities in accordance with ASC 606. Specifically, we will account for the related revenue contracts of the acquiree as if we originated the contracts. Adoption of ASU 2021-08 did not impact acquired contract assets or liabilities from prior business combinations. New Accounting Standards Issued But Not Yet Adopted The FASB issued the following ASUs: ​ Issuance Date ASU Title March 2020 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ​ January 2021 2021-01 Reference Rate Reform (Topic 848): Scope ​ December 2022 ​ 2022-06 Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 ​ This collective guidance provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria that reference LIBOR or another reference rate that is expected to be discontinued. The above accounting standards will be in effect through December 31, 2024. ​ Our Credit Facility (refer to Note 21. Credit Facility ) and interest rate swap agreements (refer to Note 8. Derivative Financial Instruments ) reference the one-month USD LIBOR rate. Both agreements contain provisions for transition to a new reference rate upon discontinuance of LIBOR. We expect the one-month USD LIBOR rate to be available through June 2023. We are currently assessing the potential timing of transitioning to a replacement interest rate benchmark for our Credit Facility (refer to Note 21. Credit Facility ) and do not expect the above guidance to materially impact our consolidated financial statements. ​ NOTE 2. ACQUISITIONS SL Power Electronics Corporation 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. We accounted for this transaction as a business combination. This acquisition added complementary products to Advanced Energy’s medical power offerings and extends our presence in several advanced industrial markets. 62 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) The components of the fair value of the total consideration transferred were as follows: ​ ​ ​ ​ ​ Cash paid for acquisition $ 145,616 Less cash acquired ​ ​ ( 3,484 ) Total fair value of purchase consideration ​ $ 142,132 ​ We allocated the purchase consideration to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, with the excess allocated to goodwill. ​ ​ ​ ​ ​ ​ Fair Value Current assets and liabilities, net ​ $ 11,990 Property and equipment ​ ​ 4,191 Operating lease right-of-use assets ​ ​ 4,640 Deferred taxes and other liabilities ​ ​ ( 2,335 ) Intangible assets ​ ​ 57,600 Goodwill ​ ​ 70,686 Operating lease liability ​ ​ ( 4,640 ) Total fair value of net assets acquired ​ $ 142,132 ​ The following table summarizes the intangible assets acquired: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortization Useful Life ​ ​ Fair Value ​ Method ​ (in years) Customer relationships ​ $ 50,500 Straight-line 10 Technology ​ 7,100 Straight-line 5 Total ​ $ 57,600 ​ To estimate the fair value of intangible assets, we used a multi-period excess earnings approach for the customer relationships and a relief from royalty approach for developed technology. Goodwill represents SL Power’s assembled workforce and the expected operating synergies from combining operations. We expect approximately 85 % of goodwill to be deductible for tax purposes. We are still evaluating the fair value for the assets acquired and liabilities assumed. Accordingly, the purchase price allocation presented above is preliminary. We included SL Power’s results of operations in our consolidated financial statements from the date of acquisition. The following table summarizes SL Power’s contribution to sales in our Consolidated Statements of Operations. ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 Sales, net ​ $ 50,321 ​ 63 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) TEGAM, Inc. On June 1, 2021, we acquired 100 % of the issued and outstanding shares of capital stock of TEGAM, Inc., which is based in Geneva, Ohio. We accounted for this transaction as a business combination. This acquisition added metrology and calibration instrumentation to Advanced Energy’s RF process power solutions in our Semiconductor and Industrial and Medical markets. The components of the fair value of the total consideration transferred were as follows: ​ ​ ​ ​ ​ Cash paid at closing $ 15,430 Cash paid for indemnity holdback released in June 2022 ​ ​ 1,800 Less cash acquired ​ ​ ( 177 ) Total fair value of purchase consideration ​ $ 17,053 ​ We allocated the purchase consideration to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, with the excess allocated to goodwill. ​ ​ ​ ​ ​ ​ ​ Fair Value Current assets and liabilities, net ​ $ 3,475 Property and equipment ​ ​ 755 Operating lease right-of-use assets ​ ​ 425 Intangible assets ​ ​ 6,900 Goodwill (deductible for tax purposes) ​ ​ 5,917 Other ​ ​ 6 Operating lease liability ​ ​ ( 425 ) Total fair value of net assets acquired ​ $ 17,053 ​ A summary of the intangible assets acquired, amortization method, and estimated useful lives follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Amortization Method Useful Life (in years) Technology ​ $ 1,100 Straight-line 5 Customer relationships ​ 5,500 Straight-line 15 Tradename ​ 300 Straight-line 5 Total ​ $ 6,900 ​ Goodwill represents TEGAM’s assembled workforce and the expected operating synergies from combining operations. We included TEGAM’s results of operations in our consolidated financial statements from the date of acquisition. Intangible Assets Acquired In January 2021, we acquired certain intangible assets related to the manufacturing of fiber optic sensing equipment for a total purchase price of $ 6.5 million in cash. These intangible assets have an estimated useful life of five years . See Note 13. Intangible Assets for additional details. 64 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) NOTE 3. REVENUE Disaggregation of Revenue The following tables presents additional information regarding our revenue: ​ Revenue by Market ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2022 2021 2020 Semiconductor Equipment ​ ​ $ 930,809 ​ $ 710,174 ​ $ 611,864 Industrial and Medical ​ ​ 426,763 ​ 341,176 ​ 313,646 Data Center Computing ​ ​ ​ 327,466 ​ ​ 270,924 ​ ​ 322,539 Telecom and Networking ​ ​ ​ 160,384 ​ ​ 133,680 ​ ​ 167,777 Total ​ ​ $ 1,845,422 ​ $ 1,455,954 ​ $ 1,415,826 ​ Revenue by Region ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2022 2021 2020 North America ​ ​ $ 857,490 ​ 46.5 % $ 665,479 ​ 45.7 % $ 687,821 ​ 48.6 % Asia ​ ​ ​ 754,997 ​ 40.9 ​ ​ 597,830 ​ 41.1 ​ ​ 606,893 ​ 42.9 ​ Europe ​ ​ ​ 219,119 ​ 11.9 ​ ​ 179,056 ​ 12.3 ​ ​ 117,989 ​ 8.3 ​ Other ​ ​ 13,816 0.7 ​ 13,589 0.9 ​ 3,123 0.2 ​ Total ​ ​ $ 1,845,422 100.0 % $ 1,455,954 100.0 % $ 1,415,826 100.0 % ​ Revenue by Significant Countries ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2022 2021 2020 United States ​ ​ $ 723,564 ​ 39.2 % $ 561,312 ​ 38.5 % $ 530,965 ​ 37.5 % China ​ ​ ​ 180,355 ​ 9.8 ​ ​ 188,708 ​ 13.0 ​ ​ 173,554 ​ 12.3 ​ Mexico ​ ​ ​ 131,573 ​ 7.1 ​ ​ 102,199 ​ 7.0 ​ ​ 150,896 ​ 10.7 ​ All others ​ ​ ​ 809,930 ​ 43.9 ​ ​ 603,735 ​ 41.5 ​ ​ 560,411 ​ 39.6 ​ Total ​ ​ $ 1,845,422 100.0 % $ 1,455,954 100.0 % $ 1,415,826 100.0 % ​ We attribute sales to individual countries and regions based on the customer’s ship to location. Apart from the United States, no revenue attributable to any individual country exceeded 10% of our total consolidated revenues in 2022. Revenue by Category ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2022 2021 2020 Product ​ $ 1,686,053 ​ $ 1,318,213 ​ $ 1,296,867 Services ​ ​ 159,369 ​ 137,741 ​ 118,959 Total ​ $ 1,845,422 $ 1,455,954 $ 1,415,826 ​ Remaining Performance Obligations Our remaining performance obligations primarily relate to customer purchase orders for products we have not yet shipped. We expect to fulfill the majority of these performance obligations within one year. 65 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) NOTE 4. DISCONTINUED OPERATIONS In December 2015, we completed the wind down of engineering, manufacturing, and sales of our solar inverter product line. Accordingly, the results of our inverter business are reflected as income (loss) from discontinued operations, net of income taxes on our Consolidated Statements of Operations. We defer revenue associated with sales of extended inverter warranties and include them within customer deposits and other in our Consolidated Balance Sheets. Deferred revenue for extended inverter warranties and the associated costs of warranty service will be reflected in Sales and Cost of goods sold, respectively, from continuing operations in future periods in our Consolidated Statement of Operations as the deferred revenue is earned and the associated services are rendered. We no longer offer extended warranties related to the inverter product line. ​ ​ NOTE 5. INCOME TAXES The geographic distribution of pretax income from continuing operations was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2022 2021 2020 Domestic ​ $ 5,969 ​ $ 24,541 ​ $ 17,526 Foreign ​ 235,772 ​ 124,170 ​ 140,621 Income from continuing operations, before income taxes ​ $ 241,741 ​ $ 148,711 ​ $ 158,147 ​ The provision for income taxes from continuing operations is summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2022 2021 2020 Current: ​ ​ ​ Federal ​ $ 23,370 ​ $ ( 2,468 ) ​ $ 5,475 State ​ 1,949 ​ 929 ​ 1,927 Foreign ​ 20,267 ​ 14,217 ​ 16,216 Total current provision ​ ​ 45,586 ​ ​ 12,678 ​ ​ 23,618 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deferred: ​ ​ ​ Federal ​ ​ ( 6,742 ) ​ ​ 762 ​ ​ ( 312 ) State ​ ( 1,030 ) ​ ( 200 ) ​ 1,270 Foreign ​ 2,036 ​ 764 ​ ( 1,580 ) Total deferred provision (benefit) ​ ( 5,736 ) ​ 1,326 ​ ( 622 ) Total provision for income taxes ​ $ 39,850 ​ $ 14,004 ​ $ 22,996 ​ 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. ​ Our effective tax rate decreased in 2021 compared to 2020, primarily driven by one-time tax benefits due to reductions in uncertain tax positions and increased tax credits. ​ 66 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) The principal causes of the difference between the federal statutory rate and the effective income tax rate for each of the years below are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2022 2021 2020 Income taxes per federal statutory rate ​ $ 50,766 ​ $ 31,229 ​ $ 33,211 State income taxes, net of federal deduction ​ ​ 510 ​ ​ 534 ​ ​ 2,793 U.S. tax on foreign operations ​ ​ 28,726 ​ ​ 5,786 ​ ​ 9,666 Foreign derived intangible income deduction ​ ​ ( 6,259 ) ​ ​ ( 3,927 ) ​ ​ ( 4,070 ) Tax effect of foreign operations ​ ​ ( 28,432 ) ​ ​ ( 11,520 ) ​ ​ ( 20,527 ) Uncertain tax positions ​ ​ 1,080 ​ ​ ( 6,899 ) ​ ​ ( 3,215 ) Audit settlements ​ ​ 34 ​ ​ 7,764 ​ ​ — Unremitted earnings ​ ​ — ​ ​ 261 ​ ​ ( 567 ) Tax credits ​ ​ ( 5,857 ) ​ ​ ( 6,149 ) ​ ​ ( 2,292 ) Change in valuation allowance ​ ​ — ​ ​ ( 73 ) ​ ​ ( 1,175 ) Withholding taxes ​ ​ 413 ​ ​ 756 ​ ​ 4,265 Executive compensation limitation ​ ​ 641 ​ ​ 1,926 ​ ​ 1,070 Other permanent items, net ​ ​ ( 1,772 ) ​ ​ ( 5,684 ) ​ ​ 3,837 Total provision for income taxes ​ $ 39,850 ​ $ 14,004 ​ $ 22,996 ​ Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to be reversed. Significant deferred tax assets and liabilities consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2022 2021 Deferred tax assets ​ ​ Net operating loss and tax credit carryforwards ​ $ 47,733 ​ $ 54,210 Interest expense limitation ​ ​ 7,282 ​ ​ 7,344 Pension obligation ​ 7,301 ​ 10,778 Employee bonuses and commissions ​ 9,276 ​ 3,861 Depreciation and amortization ​ 25,879 ​ 26,358 Operating lease liabilities ​ ​ 10,136 ​ ​ 19,405 Other ​ 17,102 ​ 20,288 Deferred tax assets ​ 124,709 ​ 142,244 Less: Valuation allowance ​ ( 36,046 ) ​ ( 42,051 ) Net deferred tax assets ​ 88,663 ​ 100,193 ​ ​ ​ ​ ​ ​ ​ Deferred tax liabilities ​ ​ ​ Depreciation and amortization ​ 35,678 ​ 37,515 Unremitted earnings ​ 4,115 ​ 4,435 Operating lease right-of-use assets ​ ​ 8,392 ​ ​ 17,558 Other ​ 1,801 ​ 3,364 Deferred tax liabilities ​ 49,986 ​ 62,872 Net deferred tax assets ​ $ 38,677 ​ $ 37,321 ​ Of the $ 38.7 million and $ 37.3 million net deferred tax asset on December 31, 2022 and 2021, respectively, $ 48.1 million and $ 47.2 million, respectively, are included as a net non-current deferred tax asset within other assets on the Consolidated Balance Sheets. $ 9.4 million and $ 9.9 million, respectively, are included as a net non-current deferred tax liability within other long-term liabilities on the Consolidated Balance Sheets. 67 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) As of December 31, 2022, we have recorded a valuation allowance on $ 2.9 million of our U.S. domestic deferred tax assets, largely attributable to state carryforward attributes that are expected to expire before sufficient income can be realized in those jurisdictions. The remaining valuation allowance on deferred tax assets approximates $ 33.1 million and is associated primarily with operations in Germany, Hong Kong, and Switzerland. As of December 31, 2022, there is not sufficient positive evidence to conclude that such deferred tax assets, presently reduced by a valuation allowance, will be recognized. The December 31, 2022 valuation allowance balance reflects a decrease of $ 6.0 million during the year. The change in the valuation allowance is primarily due to decreases from foreign exchange movements and current year activity. As of December 31, 2022, we had U.S., foreign and state tax loss carryforwards of $ 45.2 million, $ 120.1 million, and $ 106.5 million, respectively. Additionally, we had $ 0.7 million and $ 30.5 million of capital loss and interest expense limitation carryforwards, respectively. Finally, we had U.S. and state tax credit carryforwards of $ 0.9 million and $ 1.9 million, respectively. The U.S. and state net operating losses, tax credits, and interest expense limitation are subject to various utilization limitations under Section 382 of the Internal Revenue Code and applicable state laws. These Section 382 limited attributes have various expiration periods through 2036 or, in the case of the interest expense limitation amount, no expiration period. Much of the foreign loss carryforwards, and $ 8.0 million of the federal net operating loss carry forwards, have no expiration period. We operate under a tax holiday in Singapore and China. These tax holidays are in effect through June 30, 2027 and December 31, 2022, respectively. The tax holiday is conditional upon our meeting certain employment and investment thresholds. The impact of the tax holidays decreased foreign taxes by $ 19.4 million and $ 13.3 million for 2022 and 2021, respectively. The benefit of the tax holiday on earnings per diluted share was $ 0.52 and $ 0.35 for 2022 and 2021, respectively. As of December 31, 2022, we have undistributed earnings in certain foreign subsidiaries of approximately $ 33.3 million that we have indefinitely invested, and on which we have not recognized deferred taxes. Estimating the amount of potential tax is not practicable because of the complexity and variety of assumptions necessary to compute the tax. We account for uncertain tax positions by applying a minimum recognition threshold to tax positions before recognizing these positions in the consolidated financial statements. The following table provides a reconciliation of our total gross unrecognized tax benefits, which we include within other long-term liabilities on the Consolidated Balance Sheets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2022 2021 2020 Balance at beginning of period ​ $ 5,513 ​ $ 9,673 ​ $ 13,009 Additions based on tax positions taken during a prior period ​ 245 ​ 963 ​ 219 Additions based on tax positions taken during a prior period - acquisitions ​ 1,025 ​ — ​ — Additions based on tax positions taken during the current period ​ 836 ​ 566 ​ — Reductions based on tax positions taken during a prior period ​ — ​ — ​ — Reductions related to a lapse of applicable statute of limitations ​ ( 152 ) ​ ( 4,575 ) ​ ( 3,555 ) Reductions related to a settlement with taxing authorities ​ — ​ ( 1,114 ) ​ — Balance at end of period ​ $ 7,467 ​ $ 5,513 ​ $ 9,673 ​ The unrecognized tax benefits of $ 7.5 million, if recognized, will impact our effective tax rate. In accordance with our accounting policy, we recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense. We had $ 0.6 million and $ 0.4 million of accrued interest and penalties on December 31, 2022 68 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) and 2021, respectively. With few exceptions, we are no longer subject to federal, state, or foreign income tax examinations by tax authorities for years before 2019. ​ 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. ​ NOTE 6. EARNINGS PER SHARE We compute basic earnings per share (“EPS”) by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. The diluted EPS computation is similar to basic EPS except we increase the denominator to include the number of additional common shares that would have been outstanding (using the if-converted and treasury stock methods) if our outstanding stock options and restricted stock units had been converted to common shares (when such conversion is dilutive). The following table summarizes our earnings per share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2022 2021 2020 Income from continuing operations ​ $ 201,891 ​ $ 134,707 ​ $ 135,151 Less: income from continuing operations attributable to noncontrolling interest ​ 16 ​ 44 ​ 55 Income from continuing operations attributable to Advanced Energy Industries, Inc. ​ $ 201,875 ​ $ 134,663 ​ $ 135,096 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic weighted-average common shares outstanding ​ 37,463 ​ 38,143 ​ 38,314 Assumed exercise of dilutive stock options and restricted stock units ​ 258 ​ 212 ​ 228 Diluted weighted-average common shares outstanding ​ 37,721 ​ 38,355 ​ 38,542 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Continuing operations: ​ ​ ​ Basic earnings per share ​ $ 5.39 ​ $ 3.53 ​ $ 3.53 Diluted earnings per share ​ $ 5.35 ​ $ 3.51 ​ $ 3.51 ​ Share Repurchases To execute the repurchase of shares of our common stock, we periodically enter into stock repurchase agreements. The following table summarizes these repurchases: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, (in thousands, except per share amounts) 2022 2021 2020 Amount paid or accrued to repurchase shares ​ $ 26,635 ​ $ 78,125 ​ $ 11,630 Number of shares repurchased ​ 356 ​ 901 ​ 244 Average repurchase price per share ​ $ 74.90 ​ $ 86.76 ​ $ 47.75 ​ 69 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) There were no shares repurchased from related parties. Repurchased shares were retired and assumed the status of authorized and unissued shares. 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 . NOTE 7. FAIR VALUE MEASUREMENTS The following tables present information about our assets and liabilities measured at fair value on a recurring basis. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 Description ​ Balance Sheet Classification ​ Level 1 ​ Level 2 ​ Level 3 ​ Total Fair Value Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ Certificates of deposit ​ Other current assets ​ $ — ​ $ 2,128 ​ $ — ​ $ 2,128 Interest rate swaps ​ Other assets ​ ​ — ​ ​ 15,310 ​ ​ — ​ ​ 15,310 Total assets measured at fair value on a recurring basis ​ ​ ​ $ — ​ $ 17,438 ​ $ — ​ $ 17,438 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 Description ​ Balance Sheet Classification ​ Level 1 Level 2 Level 3 Total Fair Value Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ Certificates of deposit ​ Other current assets ​ $ — ​ $ 2,296 ​ $ — ​ $ 2,296 Interest rate swaps ​ Other assets ​ ​ — ​ ​ 2,739 ​ ​ — ​ ​ 2,739 Total assets measured at fair value on a recurring basis ​ ​ ​ $ — ​ $ 5,035 ​ $ — ​ $ 5,035 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contingent consideration ​ Other current liabilities ​ $ — ​ $ — ​ $ 1,738 ​ $ 1,738 Total liabilities measured at fair value on a recurring basis ​ ​ ​ $ — ​ $ — ​ $ 1,738 ​ $ 1,738 ​ For all periods presented, there were no transfers into or out of Level 3. ​ NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS Changes in foreign currency exchange rates impact us. We may manage these risks through the use of derivative financial instruments, primarily forward contracts with banks. These forward contracts manage the exchange rate risk associated with assets and liabilities denominated in nonfunctional currencies. Typically, we execute these derivative instruments for one-month periods and do not designate them as hedges; however, they do partially offset the economic fluctuations of certain of our assets and liabilities due to foreign exchange rate changes. Gains and losses related to foreign currency exchange contracts were offset by corresponding gains and losses on the revaluation of the underlying assets and liabilities. Both are included as a component of other income (expense), 70 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) net in our Consolidated Statements of Operations. As of December 31, 2022 and 2021, there were no foreign currency forward contracts outstanding. 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). These transactions are accounted for as cash flow hedging instruments. 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 %. This is comprised of an 0.521 % average fixed rate per annum in exchange for a variable interest rate based on one-month USD-LIBOR-BBA plus the credit spread in our existing Credit Agreement (see Note 21. Credit Facility ), which is 75 basis points at current leverage ratios. The following table summarizes the notional amount of our qualified hedging instruments: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2022 2021 Interest rate swap contracts ​ $ 238,219 ​ $ 255,719 ​ The following table summarizes the amounts recorded in accumulated other comprehensive income (loss) on the Consolidated Balance Sheets for qualifying hedges. ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2022 2021 Interest rate swap contract gains ​ $ 11,779 ​ $ 2,107 ​ See Note 7. Fair Value Measurements for information regarding the fair value of derivative instruments. As a result of using derivative financial instruments, we are exposed to the risk that counterparties to contracts could fail to meet their contractual obligations. We manage this credit risk by reviewing counterparty creditworthiness on a regular basis and limiting exposure to any single counterparty. ​ NOTE 9. ACCOUNTS AND OTHER RECEIVABLE, NET We record accounts and other receivable at net realizable value. Components of accounts and other receivable, net of reserves, were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2022 2021 Amounts billed, net ​ $ 283,617 ​ $ 217,549 Unbilled receivables ​ ​ 17,066 ​ 19,678 Total receivables, net ​ $ 300,683 ​ $ 237,227 ​ “Amounts billed, net” represents amounts invoiced to customers in accordance with our terms and conditions. These receivables are short term in nature and do not include any financing components. “Unbilled receivables” consist of amounts where we satisfied our contractual obligations associated with customer inventory stocking agreements. Such amounts typically become billable upon the customer’s consumption of the inventory. We anticipate invoicing and collecting substantially all unbilled receivables within the next 12 months. 71 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) The following table summarizes the changes in expected credit losses related to receivables: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2022 2021 Balance at beginning of period $ 5,784 ​ $ 7,602 Additions ​ 441 ​ 135 Deductions - write-offs, net of recoveries ​ ​ ( 4,381 ) ​ ​ ( 687 ) Foreign currency translation ​ ​ ( 30 ) ​ ​ ( 18 ) Other ​ ​ — ​ ​ ( 1,248 ) Balance at end of period ​ $ 1,814 ​ $ 5,784 ​ ​ ​ NOTE 10. INVENTORIES We value inventories at the lower of cost or net realizable value and computed on a first-in, first-out basis. Components of inventories were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2022 2021 Parts and raw materials ​ $ 286,955 ​ $ 261,365 Work in process ​ 23,002 ​ 24,222 Finished goods ​ 66,055 ​ 52,823 Total ​ $ 376,012 ​ $ 338,410 ​ ​ NOTE 11. PROPERTY AND EQUIPMENT, NET Property and equipment, net is comprised of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Estimated Useful ​ December 31, ​ December 31, ​ Life (in years) 2022 2021 Buildings, machinery, and equipment ​ 5 to 25 ​ $ 165,673 ​ $ 134,635 Computer equipment, furniture, fixtures, and vehicles ​ 3 to 5 ​ 36,281 ​ 33,490 Leasehold improvements ​ 2 to 10 ​ 63,103 ​ 48,370 Construction in process ​ ​ ​ 18,226 ​ 5,914 ​ ​ ​ ​ 283,283 ​ 222,409 Less: Accumulated depreciation ​ ​ ​ ( 134,821 ) ​ ( 107,579 ) Property and equipment, net ​ ​ ​ $ 148,462 ​ $ 114,830 ​ 72 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) The following table summarizes property and equipment by geographic area: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2022 2021 United States ​ $ 43,963 ​ $ 22,860 Asia ​ ​ 98,684 ​ ​ 87,283 Europe and other ​ ​ 5,815 ​ ​ 4,687 Total ​ $ 148,462 ​ $ 114,830 ​ The following table summarizes depreciation expense. All depreciation expense is recorded in income from continuing operations. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2022 2021 2020 Depreciation expense ​ $ 34,182 ​ $ 30,833 ​ $ 27,641 ​ ​ NOTE 12. GOODWILL The following table summarizes the changes in goodwill: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2022 2021 Balance at beginning of period ​ $ 212,190 ​ $ 209,983 Measurement period adjustments ​ ​ 40 ​ ​ ( 1,426 ) Additions from acquisition ​ ​ 70,686 ​ ​ 5,877 Foreign currency translation ​ ​ ( 1,483 ) ​ ​ ( 2,244 ) Balance at end of period $ 281,433 ​ $ 212,190 ​ Additions and adjustments are the result of business combinations. Refer to Note 2. Acquisitions. ​ 73 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) NOTE 13. INTANGIBLE ASSETS Intangible assets consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ Gross Carrying Accumulated Net Carrying ​ ​ Amount ​ Amortization ​ Amount Technology ​ $ 97,237 ​ $ ( 47,196 ) ​ $ 50,041 Customer relationships ​ 167,631 ​ ​ ( 44,774 ) ​ 122,857 Trademarks and other ​ 27,036 ​ ​ ( 10,408 ) ​ 16,628 Total ​ $ 291,904 ​ $ ( 102,378 ) ​ $ 189,526 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ Gross Carrying Accumulated Net Carrying ​ ​ Amount ​ Amortization ​ Amount Technology ​ $ 91,461 ​ $ ( 35,854 ) ​ $ 55,607 Customer relationships ​ 118,706 ​ ​ ( 34,187 ) ​ 84,519 Trademarks and other ​ 27,244 ​ ​ ( 7,964 ) ​ 19,280 Total ​ $ 237,411 ​ $ ( 78,005 ) ​ $ 159,406 ​ At December 31, 2022, the weighted average remaining useful life of intangibles subject to amortization was 9.1 years. Amortization expense related to intangible assets was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2022 2021 2020 Amortization expense ​ $ 26,114 ​ $ 22,060 ​ $ 20,129 ​ Estimated amortization expense related to intangibles is as follows: ​ ​ ​ ​ ​ Year Ending December 31, ​ ​ 2023 ​ $ 28,242 2024 ​ 25,175 2025 ​ 20,976 2026 ​ 19,260 2027 ​ ​ 17,357 Thereafter ​ 78,516 Total ​ $ 189,526 ​ ​ ​ 74 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) NOTE 14. RESTRUCTURING COSTS 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 business combinations by consolidating our operations, optimizing our factory footprint including moving certain production into our higher volume factories, and reducing redundancies. 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”). This plan is substantially complete with the final closure of our Shenzhen facility expected in early 2023. The table below summarizes the charges related to our restructuring plans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2022 2021 2020 Severance and related charges ​ $ 6,469 ​ $ 3,467 ​ $ 9,632 Facility relocation and closure charges ​ 345 ​ 1,285 ​ 3,534 Total restructuring charges ​ $ 6,814 ​ $ 4,752 ​ $ 13,166 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cumulative Cost ​ ​ ​ ​ ​ ​ ​ ​ Through ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2022 Plan 2018 Plan 2022 Severance and related charges $ 5,788 ​ $ 21,061 ​ $ 26,849 Facility relocation and closure charges ​ ​ — ​ ​ 7,160 ​ ​ 7,160 Total restructuring charges ​ $ 5,788 ​ $ 28,221 ​ $ 34,009 ​ Our restructuring liabilities are included in other accrued expenses in our Consolidated Balance Sheets. Changes in restructuring liabilities were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 Plan 2018 Plan Total December 31, 2020 ​ $ — ​ $ 10,641 ​ $ 10,641 Costs incurred and charged to expense ​ ​ — ​ ​ 4,752 ​ ​ 4,752 Costs paid or otherwise settled ​ ​ — ​ ​ ( 6,127 ) ​ ​ ( 6,127 ) Foreign currency translation ​ ​ — ​ ​ ( 3 ) ​ ​ ( 3 ) December 31, 2021 ​ $ — ​ $ 9,263 ​ $ 9,263 Costs incurred and charged to expense ​ ​ 5,788 ​ ​ 1,026 ​ ​ 6,814 Costs paid or otherwise settled ​ ​ — ​ ​ ( 8,751 ) ​ ​ ( 8,751 ) Foreign currency translation ​ ​ — ​ ​ ( 116 ) ​ ​ ( 116 ) December 31, 2022 ​ $ 5,788 ​ $ 1,422 ​ $ 7,210 ​ ​ 75 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) NOTE 15. WARRANTIES Our sales agreements include customary product warranty provisions, which generally range from 12 to 24 months after shipment. We record the estimated warranty obligations cost when we recognize revenue. This estimate is based on historical experience by product and configuration. Our estimated warranty obligation is included in other accrued expenses in our Consolidated Balance Sheets. Changes in our product warranty obligation were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2022 2021 Balance at beginning of period ​ $ 3,350 ​ $ 4,780 Additions from acquisitions ​ ​ 181 ​ ​ — Increases to accruals ​ 5,620 ​ 3,165 Warranty expenditures ​ ( 3,408 ) ​ ( 4,587 ) Effect of changes in exchange rates ​ ( 41 ) ​ ( 8 ) Balance at end of period ​ $ 5,702 ​ $ 3,350 ​ ​ NOTE 16. LEASES Components of operating lease cost were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2022 2021 ​ 2020 Operating lease cost ​ ​ $ 22,626 ​ $ 23,443 ​ $ 22,920 Short-term and variable lease cost ​ ​ ​ 4,838 ​ ​ 2,555 ​ ​ 1,895 Total operating lease cost ​ ​ $ 27,464 ​ $ 25,998 ​ $ 24,815 ​ Maturities of our operating lease liabilities are as follows: ​ ​ ​ ​ ​ Year Ending December 31, ​ ​ 2023 ​ $ 21,476 2024 ​ 19,019 2025 ​ 15,508 2026 ​ ​ 13,458 2027 ​ ​ 11,857 Thereafter ​ ​ 57,760 Total lease payments ​ ​ 139,078 Less: Interest ​ ​ ( 27,847 ) Present value of lease liabilities ​ $ 111,231 ​ ​ The following tables present additional information about our lease agreements: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ December 31, ​ ​ 2022 2021 ​ Weighted average remaining lease term (in years) ​ ​ 8.9 ​ ​ ​ 9.8 ​ Weighted average discount rate ​ 4.6 % ​ ​ 4.5 % ​ 76 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2022 2021 ​ 2020 Cash paid for operating leases ​ $ 22,287 ​ $ 23,668 ​ $ 21,877 Right-of-use assets obtained in exchange for operating lease liabilities ​ $ 17,022 ​ $ 16,399 ​ $ 33,741 ​ ​ NOTE 17. EMPLOYEE RETIREMENT PLANS AND POSTRETIREMENT BENEFITS Defined Contribution Plans We have a 401(k) profit-sharing and retirement savings plan covering substantially all full-time U.S. employees. Participants may defer up to the maximum amount allowed permitted by law. Participants are immediately vested in both their own contributions and profit-sharing contributions. Profit-sharing contributions, which are discretionary, are approved by the Board of Directors. For the year ended December 31, 2022 we based our profit-sharing contribution on matching 100 % of employee contributions up to 3 % of compensation plus an additional match of 50 % on the next 2 % of compensation. For the years ended December 31, 2021 and 2020 we based our profit-sharing contribution on matching 50 % of employee contributions up to 6 % of the employee’s compensation. During the years ended December 31, 2022, 2021, and 2020 we recognized total defined contribution plan costs of $ 4.5 million, $ 3.1 million, and $ 2.6 million, respectively. Defined Benefit Plans We maintain defined benefit pension plans for certain of our non-U.S. employees in the United Kingdom, Germany, and Philippines. Each plan is managed locally and in accordance with respective local laws and regulations. To measure the expense and related benefit obligation, we make various assumptions, including discount rates used to value the obligation, expected return on plan assets used to fund these expenses, and estimated future inflation rates. We base these assumptions on historical experience as well as current facts and circumstances. We use an actuarial analysis to measure the expense and liability associated with pension benefits. The information provided below includes one pension plan which is part of discontinued operations. As such, for all periods presented, all related expenses are reported in discontinued operations in the Consolidated Statements of Operations. 77 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) Our projected benefit obligation and plan assets for defined benefit pension plans and the related assumptions used to determine the related liabilities are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2022 2021 Projected benefit obligation, beginning of year ​ $ 85,776 ​ $ 97,740 Service cost ​ 1,133 ​ 1,282 Interest cost ​ 1,819 ​ 1,452 Actuarial gain ​ ( 23,677 ) ​ ( 8,682 ) Benefits paid ​ ( 1,502 ) ​ ( 2,010 ) Translation adjustment ​ ( 7,029 ) ​ ( 4,006 ) Projected benefit obligation, end of year ​ ​ 56,520 ​ ​ 85,776 ​ ​ ​ ​ ​ ​ ​ Fair value of plan assets, beginning of year ​ $ 18,521 ​ $ 17,293 Expected return ​ 535 ​ 641 Contributions ​ 1,430 ​ 1,775 Benefits paid ​ ( 1,124 ) ​ ( 1,112 ) Actuarial gain (loss) ​ ( 5,060 ) ​ 71 Translation adjustment ​ ( 1,813 ) ​ ( 147 ) Fair value of plan assets, end of year ​ ​ 12,489 ​ ​ 18,521 Funded status of plan ​ $ ( 44,031 ) ​ $ ( 67,255 ) ​ The components of net periodic pension benefit cost recognized in our Consolidated Statements of Operations for the periods presented are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2022 2021 2020 Service cost ​ $ 1,133 ​ $ 1,282 ​ $ 1,068 Interest cost ​ ​ 1,819 ​ ​ 1,452 ​ ​ 1,716 Expected return on plan assets ​ ( 535 ) ​ ( 642 ) ​ ( 683 ) Amortization of actuarial gains and losses ​ 322 ​ 820 ​ 459 Net periodic pension cost ​ $ 2,739 ​ $ 2,912 ​ $ 2,560 ​ Assumptions used in the determination of the net periodic pension cost are: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2022 2021 2020 Discount rate 2.6 % 1.6 % 1.8 % Expected long-term return on plan assets 3.2 % 3.2 % 3.7 % ​ The fair value of our qualified pension plan assets by category was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ Level 1 Level 2 Level 3 Total Diversified Growth Fund ​ $ — ​ $ 9,100 ​ $ — ​ $ 9,100 Corporate Bonds ​ — ​ ​ 2,333 ​ ​ — ​ ​ 2,333 Insurance Contracts ​ ​ — ​ ​ — ​ ​ 798 ​ ​ 798 Cash ​ 258 ​ ​ — ​ ​ — ​ ​ 258 Total ​ $ 258 ​ $ 11,433 ​ $ 798 ​ $ 12,489 ​ 78 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ Level 1 Level 2 Level 3 Total Diversified Growth Fund ​ $ — ​ $ 12,249 ​ $ — ​ $ 12,249 Corporate Bonds ​ — ​ 4,640 ​ — ​ 4,640 Insurance Contracts ​ ​ — ​ — ​ 984 ​ 984 Cash ​ 648 ​ — ​ — ​ 648 Total ​ $ 648 ​ $ 16,889 ​ $ 984 ​ $ 18,521 ​ The diversified growth fund aims to generate an “equity-like” return over an economic cycle with significantly reduced volatility relative to equity markets and has the scope to use a diverse range of asset classes, including equities, bonds, cash, and alternatives (e.g., property, infrastructure, high yield bonds, floating rate debt, private, equity, hedge funds and currency). These investments are intended to provide a degree of protection against changes in the value of our plan’s liabilities related to changes in long-term expectations for interest rates and inflation. Expected future payments during the next ten years for our defined benefit pension plans are as follows: ​ ​ ​ ​ ​ Year Ending December 31, ​ ​ 2023 ​ $ 1,755 2024 ​ ​ 2,771 2025 ​ ​ 2,274 2026 ​ ​ 4,698 2027 ​ ​ 3,421 2028 to 2032 ​ ​ 20,085 ​ ​ NOTE 18. STOCK-BASED COMPENSATION The Board of Directors Compensation Committee administers our stock plans. As of December 31, 2022, we had two active stock-based incentive compensation plans: the 2017 Omnibus Incentive Plan (“the 2017 Plan”) and the ESPP. We issue all new equity compensation grants under these two plans; however, outstanding awards previously issued under inactive plans will continue to vest and remain exercisable in accordance with the terms of the respective plans. On May 4, 2017, the stockholders approved the 2017 Plan, and all shares that were then available for issuance under the 2008 Omnibus Incentive Plan (“the 2008 Plan”) are now available for issuance under the 2017 Plan. The 2017 Plan and 2008 Plan provide for the grant of stock options, stock appreciation rights, restricted stock, stock units (including deferred stock units), unrestricted stock, and dividend equivalent rights. Any of the awards issued may be issued as performance-based awards to align stock compensation awards to the attainment of annual or long-term performance goals. The following table summarizes information related to our stock-based incentive compensation plans: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 Shares available for future issuance under the 2017 Omnibus Incentive Plan ​ 1,475 Shares available for future issuance under the Employee Stock Purchase Plan ​ 619 ​ 79 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) Stock-based Compensation Expense We recognize stock-based compensation expense based on the fair value of the awards issued and the functional area of the employee receiving the award. Stock-based compensation was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2022 2021 2020 Stock-based compensation expense ​ $ 19,849 ​ $ 15,739 ​ $ 12,272 ​ Estimated forfeiture rates for our stock-based compensation expense applicable to stock options and RSUs were approximately 9 %, 8 % and 5 % for the years ended December 31, 2022, 2021 and 2020, respectively. Restricted Stock Units Generally, we grant RSUs with a three-year time-based vesting schedule. Certain RSUs contain performance-based or market-based vesting conditions in addition to the time-based vesting requirements. RSUs are generally granted with a grant date fair value based on the market price of our stock on the date of grant. Changes in our unvested RSUs were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2022 ​ ​ Weighted- ​ ​ ​ ​ Average ​ ​ Number of ​ Grant Date ​ ​ RSUs ​ Fair Value RSUs outstanding at beginning of period 627 ​ $ 76.37 RSUs granted 593 ​ $ 74.62 RSUs vested ( 162 ) ​ $ 83.16 RSUs forfeited ( 255 ) ​ $ 61.39 RSUs outstanding at end of period 803 ​ $ 78.46 ​ The total intrinsic value of RSUs converted to shares for the years ended December 31, 2022, 2021 and 2020 was $ 13.6 million, $ 19.2 million, and $ 9.2 million, respectively. As of December 31, 2022, there was $ 35.3 million of total unrecognized compensation cost, net of expected forfeitures, related to non-vested RSUs, that we expect to recognize through December 2025, with a weighted-average remaining vesting period of 1.3 years. Stock Options Generally, we grant stock option awards with an exercise price equal to the market price of our stock at the date of grant and with either a three or four-year vesting schedule or performance-based vesting. Stock option awards generally have a term of ten years . 80 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) Changes in our stock options were as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2022 ​ ​ ​ ​ Weighted- Weighted- ​ ​ ​ ​ Average ​ Average ​ ​ Number of ​ Exercise Price ​ Remaining ​ ​ Options ​ per Share ​ Contractual Life Options outstanding at beginning of period 112 ​ $ 24.41 ​ ​ Options granted 76 ​ $ 85.97 ​ ​ Options exercised ( 37 ) ​ $ 23.26 ​ ​ Options outstanding at end of period 151 ​ $ 55.48 ​ 5.63 years Options vested at end of period 75 ​ $ 24.97 ​ 2.04 years ​ The total intrinsic value of options exercised for the years ended December 31, 2022, 2021 and 2020 was $ 2.6 million, $ 2.6 million, and $ 1.9 million, respectively. Options outstanding on December 31, 2022 have aggregate intrinsic value of $ 4.6 million. As of December 31, 2022, there was $ 1.8 million of total unrecognized compensation cost, net of expected forfeitures, related to the unvested options that we expect to recognize over a remaining period of 2.2 years. Employee Stock Purchase Plan The ESPP, a stockholder-approved plan, provides for the issuance of rights to purchase up to 1.5 million shares of common stock. Most employees are eligible to participate in the ESPP if employed for at least 20 hours per week during at least five months per calendar year. Participating employees may contribute up to the lesser of 15 % of their eligible earnings or $ 5,000 during each plan period. Currently, the plan period is six months. The purchase price of common stock purchased under the ESPP is currently equal to the lower of 1) 85 % of the fair market value of our common stock on the commencement date of each plan period or 2) 85 % of the fair market value of our common shares on each plan period purchase date. As of December 31, 2022, there was $ 0.5 million of total unrecognized compensation cost related to the ESPP that we expect to recognize over a remaining period of five months . Estimating Fair Value We estimated the fair value of each stock option and ESPP purchase right on the grant date using the Black-Scholes-Merton option pricing model with the following assumptions: ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ Stock Options 2022 Risk-free interest rate 2.18 % Expected dividend yield rate 0.5 % Expected term 4.7 years Expected volatility 48.6 % Weighted average grant date fair value of options granted ​ $ 35.84 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ESPP 2022 2021 2020 Risk-free interest rates 1.63 % - 4.65 % % 0.04 % - 0.10 % 0.10 % - 0.18 % % Expected dividend yield rate 0.1 % — % — % Expected term 0.5 years 0.5 years 0.5 years ​ Expected volatility 43.7 % 42.7 % 70.1 % ​ 81 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) NOTE 19. COMMITMENTS AND CONTINGENCIES We are involved in disputes and legal actions arising in the normal course of our business. While we currently believe that the amount of any ultimate loss would not be material to our financial position, the outcome of these actions is inherently difficult to predict. In the event of an adverse outcome, the ultimate loss could have a material adverse effect on our financial position or reported results of operations. An unfavorable decision in intellectual property litigation also could require material changes in production processes and products or result in our inability to ship products or components found to have violated third-party intellectual property rights. We accrue loss contingencies in connection with our commitments and contingencies, including litigation, when it is probable that a loss has occurred, and the amount of the loss can be reasonably estimated. We are not currently a party to any legal action that we believe would reasonably have a material adverse impact on our business, financial condition, results of operations or cash flows. ​ NOTE 20. SIGNIFICANT CUSTOMER INFORMATION During the year ended December 31, 2022, Applied Materials, Inc. and Lam Research Corporation accounted for 20 % and 14 %, respectively, of our total revenue compared to 20 % and 10 %, respectively, of our total revenue during the year ended December 31, 2021 and 18 % and 10 %, respectively, of our total revenue during the year ended December 31, 2020. As of December 31, 2022 and 2021, the account receivable balance from Applied Materials, Inc. accounted for 18 % of our total accounts receivable. No other customer’s account receivable exceeded 10% of our total accounts receivable in the periods presented. ​ NOTE 21. CREDIT FACILITY 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”). 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. In addition, we increased the Revolving Facility capacity by $ 50.0 million to $ 200.0 million. Both the Term Loan Facility and Revolving Facility mature on September 9, 2026. The following table summarizes borrowings under our Credit Facility and the associated interest rate. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 ​ ​ Balance Interest Rate Unused Line Fee Term Loan Facility subject to a fixed interest rate due to interest rate swap ​ $ 238,219 ​ 1.271 % ​ — Term Loan Facility subject to a variable interest rate ​ ​ 136,781 ​ 5.134 % ​ — Revolving Facility subject to a variable interest rate ​ ​ — ​ 5.134 % ​ 0.10 % Total borrowings under the Credit Agreement ​ $ 375,000 ​ ​ ​ ​ ​ 82 Table of Contents ADVANCED ENERGY INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued) (in thousands, except per share amounts) For more information on the interest rate swap that fixes the interest rate for a portion of our Term Loan Facility, see Note 8. Derivative Financial Instruments . The Term Loan Facility and Revolving Facility bear interest, at our option, at a rate based on a reserve adjusted “Eurodollar Rate” or “Base Rate,” as defined in the Credit Agreement, plus an applicable margin. For all periods presented, we were in compliance with the Credit Agreement covenants. The following table summarizes our availability to withdraw on the Revolving Facility. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2022 2021 Available capacity on Revolving Facility ​ $ 200,000 ​ $ 200,000 ​ 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. The fair value of the Term Loan Facility approximates the outstanding balance of $ 375.0 million as of December 31, 202 2. The debt obligation on our Consolidated Balance Sheets consists of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ ​ 2022 2021 ​ Term Loan Facility ​ $ 375,000 ​ $ 395,000 ​ Less: debt discount ​ ​ ( 1,738 ) ​ ​ ( 2,267 ) ​ Total debt ​ ​ 373,262 ​ ​ 392,733 ​ Less current portion of long-term debt ​ ​ ( 20,000 ) ​ ​ ( 20,000 ) ​ Total long-term debt ​ $ 353,262 ​ $ 372,733 ​ ​ Contractual maturities of our debt obligations, excluding amortization of debt issuance costs, are as follows: ​ ​ ​ ​ ​ Year Ending December 31, ​ 2023 ​ $ 20,000 2024 ​ ​ 20,000 2025 ​ ​ 20,000 2026 ​ ​ 315,000 Total ​ $ 375,000 ​ Interest expense and unused line of credit fees were recorded in other income (expense), net in our Consolidated Statements of Operations as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2022 2021 2020 Interest expense ​ $ 6,607 ​ $ 3,969 ​ $ 5,080 Amortization of debt issuance costs ​ ​ 547 ​ ​ 822 ​ ​ 519 Unused line of credit fees and other ​ ​ 202 ​ ​ 168 ​ ​ 153 Total interest expense ​ $ 7,356 ​ $ 4,959 ​ $ 5,752 ​ ​ 83 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. ​