AEIS 10-K & 10-Q changes, risk factors and insider trading

As a supplier to the global semiconductor equipment, industrial, medical, data center computing, industrial, medical, telecommunication, and networking industries, we are subject to business fluctuations, the timing, length, and volatility of which can be difficult to predict. We are impacted by sudden changes in customers’ manufacturing capacity requirements and spending, which depend in part on technology transitions, capacity utilization, demand for customers’ products, inventory levels relative to demand, access to affordable capital, and changes in geopolitical factors, including tariffs. These changes have affected the timing and amount of customers’ purchases and investments in technology, and continue to affect our orders, net revenue, operating expenses, and net income. In addition, several of the markets in which we compete are highly cyclical and experience downturns characterized by diminished product demand, production overcapacity, high inventory levels, and price erosion, which has caused, and in the future could cause, our revenue and gross margin to decline, adversely impacting our results of operations. It is difficult to predict the timing, length, and severity of such fluctuations and downturns, and we may not be able to respond adequately or quickly to the changes in demand.

Driven by continuing technology migration and changing customer demand, theThe markets we serve are constantly changing in terms of advancement in applications, core technology, and competitive pressures.pressures driven by continuing technology migration and changing customer demand. New products designed for capital equipment manufacturers typically have a lifespan of many years. Increasingly, we are required to accelerate our investment in research and development to meet the time-to-market, performance, and technology adoption cycle needs of our customers simply to compete for design wins. Given such up-front investments we make to develop, evaluate, and qualify products in the design win process, our success and future growth depend on our products being designed into our customers’ new generations of equipment as they develop new technologies and applications. We must work with these manufacturers early in their design cycles to modify, enhance, and upgrade our products or design new products that meet the requirements of their new systems. The design win process is highly competitive, the design windows may be narrow, and there is no assurance we will succeed with new design wins for our existing customers or new customers’ next generations of equipment. ForOur example,competitors may also be more successful in implementing an AI strategy and develop more successful products with the aid of AI technology. In the last few years, we have made significant investments to launch new technology platforms and products into the semiconductorSemiconductor and industrialIndustrial and medicalMedical markets.markets and upgrade our capabilities in the Data Center Computing market. If existing or new customers do not choose our designsdesigns, we are unable to maintain single source status, or we cannot agree to pricing, volumes, and other key commercial terms with these customers, our market share may decline, potential revenues related to the lifespan of our products may not be realized, and our business, financial condition, and results of operations could be materially and adversely impacted. Further, our ability to generate revenue or gross profit from design wins is in part or wholly dependent upon the success of our customers’ solutions.

In addition, to assure availability of certain components or obtain priority pricing, we have entered into contracts with some of our suppliers that require us to purchase a specified number of components and subassemblies each quarter, even if we are not able to use such components or subassemblies. Moreover, we have obligations to some of our customers to hold a minimum amount of finished goods in inventory to fulfill just in time orders, regardless of whether the customers expect to place such orders. We currently have firm purchase commitments and agreements with various suppliers to ensure the availability of components. If demand for our products does not meet expected levels, we might not be able to use all of the components that we are required to purchase under these commitments and agreements, and our cost of revenue may increase, which could have a material adverse effect on our results of operations. If demand for our products exceeds our customers’ and our forecasts, we may not be able to timely obtain enough raw materials, parts, components, or subassemblies, on favorable terms or at all, to fulfill the excess demand. Furthermore, some of our products have lengthy lifecycles and are subject to supplier parts obsolescence, and sole-sourced parts can create challenges in terms of purchasing parts on reasonable terms and lead-times. These situations may lead to customers cancelling orders prior to shipment causing a decrease in revenue, which may have a material adverse effect on our business and results of operations.

InFinally, recentif years, there was a shortageshortages of critical components caused by a variety of factors, including increased demand for electronic components used in a wide variety of industries, the pandemic-driven rise in consumer demand for technology goods, logistics-related disruptions in shipping, capacity limitations at some suppliers, and labor shortages. Theseor supply constraints ledwere to reoccur, we could again experience the longer lead times in procuring materials and subcomponents and, in some cases, meaningfully higher costs for the subcomponents.subcomponents that we faced in the wake of the pandemic. Our revenues, earnings, and cash flow may be adversely impacted if these conditions reoccur.

Our customers continually exert pressure on us to reduce our prices and extend payment terms and we have been and may be required to enter into long term reducedlong-term pricing agreements, extended payment terms, exclusivity arrangements, and other unfavorableless favorable contract terms. In addition, we compete in markets in which customers may dual or multi-source their power supply products. We believe some of our Asia-based competitors benefit from local governmental funding incentives and purchasing preferences from end-user customers in their respective countries. If competition against any of our product lines should come to focus solely on price rather than on product performance and technology innovation, we would need to adjust our business strategy, product offerings, and product costs accordingly, and if we are unable to do so, our business, financial condition, and results of operations could be materially and adversely affected. Conversely, in 2022, we not only increased prices but also implemented surcharges across many of our products to reflect our higher supply chain costs. Although these price changes were generally accepted by our customers, we did experience some loss of business. We continue to execute our pricing strategies and practices; however, we have in the past had to implement price increases and surcharges to reflect higher supply chain costs and any future price increases outside of our normal pricing strategy could make our products less competitive in the market over time and could have an adverse effect on our results of operations.

Consistent with prior years, a limited number of customers accounted for a significant portion of our business, revenue and accounts receivable.receivable in 2025. A significant decline in revenue from these or our other large customers, the loss of these or other large customers, or any inability to collect from large customers could materially and adversely impact our business, results of operations, and financial condition. The mix of products sold to our customers, particularly our large customers, may also impact our financial performance. For example, our Data Center Computing market generally has lower margins than our other markets. As Data Center Computing grows to comprise a larger proportion of our revenue, gross margin has been and could continue to be negatively impacted.

As part of our day-to-day business, we process, transmit and store our own confidential data and certain data about our customers and employees in our global information technology system. We are subject to ongoing data security threats, including phishing attempts, denial of service attacks, ransomware, viruses, and other malware, employee error or malfeasance, theft, natural disasters, and hardware or software malfunctions, any one of which could compromise our data security, cause the loss of critical data, or disrupt operations, which could materially adversely affect our business and results of operations. Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as usernames, passwords, or other information to gain access to our customers’ data or our data or our information technology systems. We and our third party providers have experienced, and expect to continue to experience, cybersecurity events orfrom external actors and confidential information theft incidents,from internal actors, some of which could be devastating. We continue to devote significant resources to cybersecurity, IP protection, data encryption, and other measures to protect our systems and data from unauthorized external access or internal misuse, and we may be required to expend greater resources in the future for cybersecurity protection, compliance, and remediation, especially in the face of continuously evolving and increasingly sophisticated cybersecurity threats and privacy and data protection laws.

Our business could be adversely affected to the extent we fail to appropriately manage, expand, and update our information technology infrastructure. In particular, we are in the process of implementing a global enterprise resource planning (“ERP”) system and other enterprise-wide applications that will upgrade and standardize our information systems. These implementations are expected to occur in phases over the next several years. AnyIn delays,2025, we shifted our deployment strategy for the new ERP system to a more staggered approach and delayed widespread implementation to better align with our business needs and risk tolerance. Delays, unexpected challenges, or a failure to achieve our implementation goals may lead to cost overrun, diversion of management attention and resources, or otherwise adversely impact our operations. In addition, the failure to anticipate the necessary readiness and training needs, manage the transition to systems, or appropriately convert historical and concurrent data could lead to business disruption and potential loss of business. Failure or abandonment of any part of the ERP system could result in a write-off of part or all of the costs that have been capitalized on the project.

Our success depends to a significant degree upon the continuing contributions of our management, technical, marketing, and sales employees. We may not be successful in retaining our employees or attracting and retaining additional skilled personnel as required. If we are unable to attract, retain, and motivate qualified employees and leaders,leaders as required, we may be unable to fully capitalize on current and new market opportunities, which could adversely impact our business and results of operations. Our success in hiring and retaining employees depends on a variety of factors, including themarket attractiveness of ourcompetitive compensation and benefitbenefits programs, global economic or political and industry conditions, our organizational structure, our reputation, culture and working environment, competition for talent and the availability of qualified employees, the readiness for and availability of career development opportunities, and our ability to offer a challengingchallenging, safe, and rewarding work environment. We have experienced, and may continue to experience, increasing costs to attract and retain neededqualified talent, driven by macroeconomic conditions and a highly competitive labor market.

In addition, the loss or retirement of key employees presents particular challenges to the extent the departing employee had particularlyvaluable valuableinstitutional knowledge or experiences.experience. This requires us to identify and train existing or new employees to perform necessary functions, whichtherefore wecausing mayunforeseen be unable to do, ordelays, which could result in unexpected costs, reduced productivity, or difficultiesan with respectimpact to internal processes and controls. If we fail to have succession plans in place orfor ourkey succession plans do not operate effectively,roles, we may not be able to maintain continuity and our business could be adversely affected.

Certain of our manufacturing and other operations are in locations subject to natural disasters,disasters that could disrupt operations, such as severe weather and geological events, including earthquakes or tsunamis, which could disrupt operations.tsunamis. Natural disasters, uncontrollable occurrences (including the emergence of pandemics, epidemics, or widespread outbreaks of infectious disease), or other operational issues at any of our manufacturing or other facilities could significantly reduce or disrupt our productivity and could prevent us from meeting our customers’ requirements in a timely manner, or at all. In addition, our suppliers and customers are also subject to natural and other disaster risk exposure. A natural disaster, fire, explosion, pandemic, or other event that results in a prolonged disruption to our operations or the operations of our customers or suppliers, may materially adversely affect our business, workforce, supply chain, results of operations, financial condition, or cash flows.

Our long-term success and results of operations depend on our ability to successfully identify, close, integrate, and realize the anticipated benefits from our acquisitions andacquisitions, strategic investments.investments or divestitures.

As part of our business strategy, we have and will likely continue to acquire companies or businesses and make investments or divestitures to further our business. Risks associated with these transactions are many, including the following which could adversely affect our financial results:

Our products may suffer from defects or errors leading to increased costs, damages, orwarranty claims, claims outside of warranty or product liability claims.

Our products use complex system designs and components that may contain errors or defects in designs, manufacturing, firmware, software, component parts, or other materials. The manufacture of these products often involves a highly complex and precise process and the utilization of specially qualified components. The production of many of our products also requires highly skilled labor. As a result of the technical complexity of these products, design defects, skilled labor turnover, changes in our or our suppliers’ manufacturing processes or the inadvertent use of defective or nonconforming materials or components by us or our suppliers could adversely affect our manufacturing quality and product reliability. Our products could also be, and have in the past been, counterfeited, misbranded or sold without authorization on the “gray market.” To the extent our products are defective or fail, we might be required to repair, redesign, replace, or recall those products, pay damages (including liquidated damages), in connection with claims outside of warranty and/or product liability claims, or fulfill warranty claims, and we could suffer significant expenses as well as harm to our reputation. Furthermore, some of our products are used in medical device applications where malfunction of the device could result in serious injury.injury or in critical infrastructure where malfunction could result in significant damages. We accrue a warranty reserve for estimated costs to provide warranty services, including the cost of technical support, product repairs, and product replacement for units that cannot be repaired. Our estimate of costs to fulfill our warranty obligations is based on historical experience and expectation of future conditions. To the extent we experience increased warranty claim activity or increased costs associated with servicing those claims, our warranty accrual will increase, resulting in decreased gross profit.

We are a global organization. We have employees in 16the countries,Asia-Pacific ourregion, Europe, and North America. Our manufacturing facilities are located across the globe (mainly in the Asia-Pacific region), and revenue from customers outside the United States represented 66%70% of our total revenue during the year ended December 31, 2024.2025.

Our operations in the Asia Pacific region, including China,region are subject to significant political and economic uncertainties over which we have little or no control and we may be unable to alter our business practice in time to avoid reductions in revenues.

A significant portion of our operations and supply chain outside the United States are located in the Asia Pacific region, including China, which exposes us to risks, such as exchange controls and currency restrictions, changes in local economic conditions, changes in customs regulations and tariffs, changes in tax policies, changes inand local laws and regulations, possible retaliatory government actions, potential inability to enforce intellectual property protection or contracts terms, and changes in U.S. policy regarding overseas manufacturing and export controls. TheIn particular, the U.S. and China regularly have significant disagreements over geopolitical, trade, and economic issues.issues, and there are currently considerable trade tensions between the two countries. Any escalating political controversies between the U.S. and China,China or other countries in the Asia Pacific region in which we operate, whether or not directly related to our business, could have a material adverse effect on our operations, business, results of operations, and financial condition. Additionally, the Chinese government exercises substantial control over the Chinese economy, and ourmay operationsexercise andpreferential treatment of local companies. Our supply chain in China may be subject to various U.S. or China government and regulatory interference.actions. Policy changes, preferential treatment of local companies,changes or the imposition of new, stricter regulations or interpretations of existing regulations could require changes to our operating activities, increase our costs,costs or limit our ability to sell products in China. We continuously evaluate the riskAsia ofPacific operations in China, including manufacturing and supply chain, and the potential financial impact to our operations.region.

Regulatory, Legal, Tax, and Compliance Related Risks

As a global company, we are subject to the trade policies, export/import controls, and other rules and regulations, including tariffs, trade sanctions, and license requirements of the U.S. and other government authorities. We expect continued exposure to risk arising from ongoing activity in both the further promulgation of newly imposed global trade regulations and increased enforcement of existing regulations. The implementation and interpretation of some of these complex rules and other regulatory actions is uncertain and evolving, trending towards continued increasing restrictions, which iscan deleteriousmake to our business andit challenging for us to manage our operations and forecast our operating results.

Since October 2022, we have been particularly affected by U.S. government-imposed export regulations on U.S. semiconductor and supercomputing technology and related parts and services sold in China. OverAs thea past few years, the U.S. government has introduced several additional regulatory changes that impose extensive restrictions and compliance obligations, andresult, Chinese customers may replacereplaced us at least in part with competitors whooperate areoutside notthe subjectscope toof U.S. export rules. Additionally, our ability to maintain business in China may be dependent at least in part on obtaining export licenses. Obtaining export licenses may be difficult, costly, and time-consuming, and there is no assurance we will be issued licenses in time to meet customer requirements or at all.

WeThe current political landscape has introduced greater uncertainty with respect to trade regulation, and we cannot predict the extent to which unfavorable international trade policies may be implemented in the future andor to what extent our business may be impacted. Future regulatory changes that could materially and adversely affect our business include but are not limited to additional or increased tariffs, additions or updates to various restricted party lists, further restrictions on selling products to entities in certain countries whose actions or functions are intended to support policies contrary to U.S. national security, new customs rules or requirements, and retaliatory trade actions or trade wars. Additionally, with increasing geopolitical risks, we might experience customers or governments of our customers promotingmay promote their own domestic businesses and competitors. Any or all of the foregoing could decrease demand for our products, increase costs and decrease margins, reduce the competitiveness of our products, or restrict our ability to sell products, provide services or purchase necessary equipment and supplies, which in turn could have a material and adverse effect on our business, results of operations, or financial condition.

Our success depends significantly on our proprietary technology. We attempt to protect our intellectual property rights through a variety of methods including trade secrets, patents, and non-disclosure agreements; however, we might not be able to protect our technology, and customers or competitors might be able to develop similar technology independently.technology. Infringement, misappropriation, and unlawful use of our intellectual property rights, and resulting unauthorized manufacture or sale of equipment using our IP rights, or loss of IP from employee turnover, could result in lost revenue. Monitoring and detecting any unauthorized use of intellectual property is difficult and costly and we cannot be certain that the protective measures we have implemented will completely prevent theft or misuse. If we are unable to protect our intellectual property successfully, our business, financial condition, and results of operations could be materially and adversely affected.

In addition, the laws of some foreign countries might not afford our intellectual property the same protections as do the laws of the United States. Our intellectual property is not protected by patents in several countries in which we do business, and we have limited or no patent protection in other countries, including China. Consequently, manufacturing our products in Chinathese countries may subject us to an increased risk that unauthorized parties may attempt to copy our products or otherwise obtain or use our intellectual property. Generally, our efforts to obtain international patents have been concentrated in the European Union and Korea, Japan, and Taiwan.

Third parties may also assert claims against us and our products.products or business practices. Claims that our products or business practices infringe the rights of others, whether or not meritorious, can be expensive and time-consuming to defend and resolve, and may divert the efforts and attention of management and personnel. The inability to obtain rights to use third party intellectual property on commercially reasonable terms could also have an adverse impact on our business. In addition, we may face claims based on the theft or unauthorized use or disclosure of third party trade secrets and other confidential business information. Any such incidents and claims could severely harm our business and reputation, result in significant expenses, harm our competitive position, and prevent us from selling certain products, all of which could have a material and adverse impact on our business and results of operations.

Requirements applicable to our supply chain include rules aimed at promoting transparency as well as rules that restrict sourcing from certain locations or suppliers. For example, rules aimed at extinguishing forced labor require extensive efforts to map supply chains effectively and efficiently beyond tier 1 suppliers for any involvement in human rights abuses. Goods suspected of being manufactured with forced labor could be blocked from importation into the U.S., which could impact revenue. Another possible risk is U.S. or foreign governments that restrict our access to supply; for example, if China werehas torestricted further restrict exportexports of rare earth minerals, ourand suppliers’the abilityU.S. togovernment’s obtainexport controls have resulted in restricted supply chains. Given such supply may be constrained andrestrictions, we may be unable to obtain sufficient quantities, or obtain supply in a timely manner, in sufficient quantities, or at a commercially reasonable cost.

We may be involved in legal proceedings, litigation, enforcement actions, or claims arising from our business, including, but not limited to, those regarding product performance, product warranty, product certification, product liability, patent infringement, misappropriation of trade secrets, other intellectual property rights, antitrust, various regulations such as environmental regulations,or privacy, securities, contracts, unfair competition, employment, workplace safety, business practices, and other matters. Legal proceedings, enforcement actions and claims, whether with or without merit, and associated internal investigations, may be time-consuming and expensive to prosecute, defend or conduct; divert management’s attention and other resources; inhibit our ability to sell our products or services; prevent us from using our technology; result in adverse judgments for damages, injunctive relief, penalties, and fines; and adversely affect our business. We can provide no assurance of the outcome of these legal proceedings, enforcement actions, or claims or that the insurance we maintain will provide coverage or be adequate to cover them.

Furthermore, due to shifting economic and political conditions, tax policies, laws, or rates in various jurisdictions may be subject to significant changes in ways that could harm our financial condition and operating results. For example, various jurisdictions around the world have enacted or are considering revenue-based taxes such as digital services taxes and other targeted taxes, which could lead to inconsistent and potentially overlapping international tax regimes. The Organization for Economic Cooperation and Development (“OECD”) is coordinating negotiations with the goal of achieving consensus around substantial changes to international tax policies, including the implementation of a minimum global effective tax rate of 15%. These changes could increase our effective tax rate and cash tax payments could increase in future years, create additional compliance burdens, and/or require changes to our tax compliance processes.

Our provision for income taxes is subject to volatility and could be adversely affected by earnings being lower than anticipated in countries that have lower tax rates and higher than anticipated in countries that have higher tax rates; by changes in the valuation of our deferred tax assets and liabilities; by changes, regulations, and interpretations of research and development capitalization and tax credit regulations, foreign-derived intangible income (“FDII”), global intangible low-tax income (“GILTI”) and base erosion and anti-abuse tax (“BEAT”) laws; by expiration of or lapses in tax incentives; by transfer pricing adjustments, including the effect of acquisitions on our legal structure; by tax effects of nondeductible compensation; by tax costs and related tax effects from intercompany realignments; by changes in accounting principles; or by changes in tax laws and regulations, treaties, or interpretations thereof, including changes to the taxation of earnings of our foreign subsidiaries, the deductibility of expenses attributable to foreign income, and the foreign tax credit rules.rules, and the impacts of the One Big Beautiful Bill (“OBBB”) Act. Significant judgment is required to determine the recognition and measurement attribute prescribed in the accounting guidance for uncertainty in income taxes. The Organization for Economic Co-operation and Development (“OECD”), an international association, including the U.S., has made changes to numerous long-standing tax principles. There can be no assurance that these changes, onceas adopted by countries in which we operate, will not have an adverse impact on our provision for income taxes. Further, because of certain of our ongoing employment and capital investment actions and commitments, our income in certain countries is subject to reduced tax rates. Our failure to meet these commitments could adversely impact our provision for income taxes. In addition, we are the subject of regular examination of our income tax returns by tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse effect on our operating results and financial condition.

We are subject to federal, state, local and foreign regulations, including environmental regulations and regulations relating to the design and operation of our products and control systems and regulations governing the import, export and customs duties related to our products. We might incur significant costs as we seek to ensure that our products meet safety and emissions standards, many of which vary across the states and countries in which our products are used. In the past, we have invested significant resources to redesign our products to comply with these directives. In addition, through previous acquisitions, we expanded our presence in the medical market to include more highly regulated applications and added a medical-certified manufacturing center to our operating footprint. We may encounter increased costs to maintain compliance with the quality systems and other regulations and requirements that apply to the acquired business. Compliance with future regulations, directives, and standards could require us to modify or redesign some products, make capital expenditures, or incur substantial costs. Also, we may incur significant costs in complying with the numerous imports, exports, and customs regulations as we seek to sell our products internationally. If we do not comply with current or future regulations, directives, and standards:standards, we could be subject to fines and penalties, our production or shipments could be suspended, and we could be prohibited from offering particular products in specified markets. If we were unable to comply with current or future regulations, directives and standards, our business, financial condition, and results of operations could be materially and adversely affected.

We are subject to environmental, health, and safety regulations in connection with our global business operations, such as regulations related to the development, manufacture, sale, shipping, and use of our products; handling, discharge, recycling and disposal of hazardous materials used in our products or in producing our products; restrictions on the presence of certain substances in our products; the operation of our facilities; and the use of our real property. The failure or inability to comply with existing or future environmental, health and safety regulations, including with respect to energy consumption and climate change,regulations could result in significant remediation or other legal liabilities; the imposition of penalties and fines; restrictions on the development, manufacture, sale, shipping, or use of certain of our products; limitations on the operation of our facilities or ability to use our real property; and a decrease in the value of our real property. We could also be required to alter our manufacturing, operations, and product design, and incur substantial expenses to comply with environmental, health and safety regulations. Any failure to comply with these regulations could subject us to significant costs and liabilities that could adversely affect our business, financial condition, and results of operations.

Failure to adequately maintain appropriate ESG practices that meet diverse stakeholder expectations may result in an inability to attract customers, the loss of business, diluted market valuation, and an inability to attract and retain top talent. Maintaining possibly unlawful ESG programs could expose us to litigation threat. In addition, standards and processes for measuring and reporting carbon emissions and other sustainability metrics may change over time, resultingwhich may result in inconsistent data, or could result in significant revisions to our sustainability commitments or our ability to achieve them. Any scrutiny of our carbon emissions or other sustainability disclosures or our failure to achieve related goals could adversely impact our reputation or performance. As governments impose greenhouse gas emission reporting requirements and climate risk assessment requirements, along with other ESG-related laws, or customers make ESG-related demands, we are subject to at least some of these rules and concomitant regulatory risk exposure. Also, certain customers request ESG related performance data in relation to our products. ESG complianceexposure, and reportingthe costly,potential for regulatory scrutiny, enforcement actions, and wereputational could be at a disadvantage compared to companies that do not have similar reporting requirements or that have more resources to devote to ESG efforts.harm.

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

In the event anyOne of the conditional conversion features of the Convertible Notes was triggered as of December 31, 2025 due to the trading price of our common stock exceeding 130% of the Convertible Notes conversion price on at least 20 out of the 30 consecutive trading days prior to such date. As a result, the Convertible Notes are triggered,currently holdersconvertible willat the option of the holders, in whole or in part, until March 31, 2026, and may in the future continue to be entitled to convertconvertible at anythe timeoption of the holders during specified periods atin theirthe option.event the current conversion features or any additional conditional conversion features of the Convertible Notes are triggered. If one or more holders elect to convert, we would be required to settle any converted principal amount of such Convertible Notes through payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to convert, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as current rather than long-term liability, which would result in a material reduction of our net working capital. For example, during 2025 our stock price exceeded the conversion price of our Convertible Notes, resulting in the reclassification of the outstanding principal of our Convertible Notes to current.

The Convertible Notes currently are convertible through March 31, 2026, and may in the future continue to be, convertible at the option of their holders. The conversion of some or all of the Convertible Notes may dilute the ownership interests of our stockholders. Upon conversion, we have the option to pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock with respect to the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted. If we elect to settle the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted in shares of our common stock or a combination of cash and shares of our common stock, that action will dilute the ownership interest of our stockholders. Additionally, any sales in the public market of our common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock.

In September 2023, we entered into hedge and warrant transactions on our own common stock. These contracts are expected to reduce the potential dilution to our common stock upon any conversion of the Convertible Notes and/or offset any cash payments we are required to make in excess of the principal amount. TheBecause the market value per share of our common stock currently exceeds the exercise price of the warrants, we expect the warrants couldto separately have a dilutive effect on our common stock toas we will owe the extentwarrant thatcounterparties additional shares of common stock based on the excess of such market price per share of ourthe common stock exceedsover the exercise price.

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

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

The counterparties for our hedge transactions are financial institutions, and we are subject to the risk that any or all of them might default. Our exposure is not secured by any collateral. If a counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor. Our exposure will depend on many factors but, generally, an increase in our exposure will correlate to an increase in the market price and in the volatility of our common stock. In addition, counterparties may not be financially stable or viable. Upon a default by a counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock.

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

We are organized on a global, functional basis and operate as a single segment of power electronics conversion products. Within this segment, our products are sold intoin the Semiconductor Equipment, Data Center Computing, Industrial and Medical, Data Center Computing, and Telecom and Networking markets.

For the year ended December 31, 2024,2025, our revenue was $1,482.0$1,798.8 million, representing aan declineincrease of 10.5%21.4% as compared to 2023.2024. The declineincrease was primarily attributable to lowermore than doubling of revenue from our Industrial and Medical and Telecom and Networking markets due to customer inventory rebalancing, resulting in a lower demand environment. These declines were partially offset by higher revenues in the Semiconductor Equipment market, from the 2023 trough level, and growing AI-related demand in the Data Center Computing market. For more details on the trends in our end markets, see “End Markets Summary and Trends” elsewhere in this Item 7.below.

InDuring the thirdsecond quarter of 2024,2025, we terminated our prior credit agreement, dated as of September 10, 2019 (and subsequently amended) and entered into ana amendmentnew tocredit theagreement Creditconsisting Agreementof toa increasesenior theunsecured capacityterm loan and a senior unsecured revolving facility, both maturing on theMay Revolving8, Facility from $200.0 million to $600.0 million. This amendment was in connection with the concurrent prepayment, using existing cash on hand, of the full $345.0 million outstanding principal balance under our Term Loan Facility.2030. See Note 18.7. Long-Term Debt in Part II, Item 8 “Financial Statements and Supplementary Data” and Liquidity and Capital Resources below.

Sales in the Semiconductor Equipment market increased $48.8$47.4 million, or 6.6%,6.0%, to $792.6$839.9 million, as compared to $743.8$792.5 million in the prior year. The increase was primarily due to improvedincreased demand asfor weplatforms emergeused in leading-edge process tools and incremental revenue generated from thenew cyclical troughproducts in 2023.this market, partially offset by lower trailing-edge logic demand.

Sales in the Data Center Computing market increased $34.3$303.1 million, or 13.7%,106.7%, to $284.2$587.3 million, as compared to $249.9$284.2 million in the prior year. The increase was due to acceleratedgrowing hyperscale investments in AInew, AI-driven platforms and growinggrowth adoptionassociated ofwith nextnew generationdesign highwins powersecured solutions.in 2024.

Sales in the TelecomIndustrial and NetworkingMedical market decreased $98.6$33.9 million, or 52.5%,10.7%, to $89.1$282.3 millionmillion, as compared to $187.7$316.2 million in the prior year. The decrease was primarily due to thelower priordemand yearas benefitinga from the improved supplyresult of criticalongoing components.customer Thisinventory enabledrebalancing fulfillmentand of outstanding orders in 2023, which did not continue in 2024. In addition, we experienced acontinued slow demand environment andin inventory rebalancing at many of our customers, which we expect to continue.2025.

The decreaseincrease in gross profit was largely due to the declineincrease in revenue,revenue partially offset by reduction inand manufacturing expenses.cost improvements. Gross margin declinedimproved mainly due to the impact of lowerhigher volume, largely offset by lower manufacturing, material, and otherapproximately costs of 170140 basis points andresulting favorablefrom mixmanufacturing ofcost 150reduction basis points.programs.

Research and development expenses increased $9.4$20.6 million to $211.8$232.4 million, as compared to $202.4$211.8 million in the prior year. The increase is related to higher compensation costs, related to stock-based compensation expenseand asannual wellmerit asincreases, and higher engineering program and materials costs compared to the prior year. This was partially offset by lower variable compensation.costs.

Selling, general and administrative expenses increased $3.5$17.8 million to $224.5$242.4 million, as compared to $221.0$224.6 million in the prior year. The increase is primarilymainly drivendue byto higher compensation costs, related to stock-based compensation expense, partially offset by actions taken to control costs, including headcount reduction and lowerannual variablemerit compensation.increases.

Amortization expense decreased $2.2$3.9 million to $26.0$22.1 million, as compared to $28.3$26.0 million in the prior year. CertainThe decrease is primarily due to certain intangible assets reachedreaching the end of their estimated useful life in the current year.life. This was partially offset by amortization of intangible assets acquired in the Airity acquisition.acquisition in 2024. For additional information, see Note 2. Acquisition and Note 11.5. Intangible Assets and Goodwill in Part II, Item 8 “Financial Statements and Supplementary Data.”

For additional information about this and prior yearprior-year restructuring plans, see Note 12.11. Restructuring, Asset Impairments, and Other Charges in Part II, Item 8 “Financial Statements and Supplementary Data.”

Interest Income, Interest Expense, and Other IncomeExpense, (Expense), netNet

Other expense, net was $2.0$9.2 million in 2024,2025, as compared to $1.8$2.0 million of expense in the prior year. Other expense, net consists primarily of foreign exchange gains and losses and other miscellaneous items. WeDuring had2025, we recorded a $9.7 million increase in unrealized foreign exchange losseslosses, during the year 2024 compared to unrealized gains inwhile the prior year.year Additionally,included in$3.0 2024,million weof incurredexpense costsrelated associatedto withnonrecurring foreign currency translation adjustments. These prior-year adjustments related to liquidatedthe liquidation of certain foreign operations andas well as the write-off of debt discount and fees associated with the early repayment of our Termprior Loansenior Facilityunsecured prepayment.term Thereloan werefacility. noSee suchNote costs7. duringLong-Term the same periodsDebt in thePart priorII, year.Item 8 “Financial Statements and Supplementary Data” for information regarding our debt.

Income Tax Provision (Benefit)

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

Our effective tax rates differ from the U.S. federal statutory rate of 21% for the years ended December 31, 20242025 and 2023,2024, primarily due to valuation allowance releases partially offset by the impact of non-US tax law changes in 2025, and the intercompany transfer of intellectual property among certain of our subsidiaries in 2024 and a valuation allowance release in 2023.2024. Additionally, both 20242025 and 20232024 included the benefit of earnings in foreign jurisdictions which are subject to lower tax rates, as well as tax credits, partially offset by net U.S. tax on foreign operations.operations and the net effect of Pillar II top-up taxes.

As of JanuaryDecember 1,31, 2024,2025, certain countries in which the Company operates have implemented or are in the process of implementing the Pillar II minimum global effective tax rate ofregime 15%as enactedput forth by the Organization for Economic Cooperation and Development (“OECD”). wasSpecifically, effectuated.the MoreOECD thanreleased 140prospective “Side-by-Side” guidance in early 2026 which is generally beneficial to U.S. parented organizations, but will require adoption by member countries agreed to enact the Pillar II global minimum tax. However, the timing of the implementation for each country varies. For the year ended December 31, 2024, we included an estimate of global minimum tax liability as a result of those countries where we conduct business that have adopted Pillar II.implement. As countries continue to make revisions to their legislation and release additional guidance with respect to the global minimum tax, we continue to determine any potential cash tax expense and tax rate impact in the countries in which we operate. The impact of these changes may have a material impact on our cash tax expense and tax rate.

Management uses non-GAAP net income, non-GAAP operating incomeincome, and non-GAAP earnings per share (“EPS”) to evaluate business performance without the impacts of certain non-cash charges and other charges which are not part of our usual operations. We use these non-GAAP measures to assess performance against business objectives, and make business decisions, including developing budgets and forecasting future periods. In addition, management’s incentive plans include certain of these non-GAAP measures as criteria for achievements. These non-GAAP measures are not prepared in accordance with U.S. GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. However, we believe these non-GAAP measures provide additional information that enables readers to evaluate our business from the perspective of management. The presentation of this additional information should not be considered a substitute for results prepared in accordance with U.S. GAAP.

The non-GAAP results presented below exclude the impact of non-cash related charges, such as stock-based compensation, amortization of intangible assets, and long-term unrealized foreign exchange gains and losses. In addition, we exclude discontinued operations and other non-recurring items such as acquisition-related costs, facilityfacility, expansioninfrastructure, and relatedother transition costs, and restructuring expenses, as they are not indicative of future performance. The tax effect of our non-GAAP adjustments represents the anticipated annual tax rate applied to each non-GAAP adjustment after consideration of their respective book and tax treatments. Non-GAAP results also exclude non-recurring discrete tax expenses or benefits. Finally, non-GAAP resultsdiluted excludeweighted-average one-timecommon taxshares benefitsare andadjusted lossesto associatedreflect withthe changesdilutive inimpact of our legalconvertible entitynotes structurebased oron ownershipthe higher note hedge strike price instead of certainthe assets.initial conversion price.

As of December 31, 2024,2025, our cash and cash equivalents totaled $722.1$791.2 million, and our available funding under our undrawn Revolving Facility is $600.0 million. Additionally, we generated $132.9$234.7 million of cash flow from continuing operations in 2024.2025. We believe our sources of liquidity will be adequate to meet operational needs, including capital expenditures, as well as anticipated debt service, share repurchase programs, dividends, and dividends.strategic investments. During the ordinary course of business, we evaluate our cash requirements and, if necessary, adjust our expenditures to reflect the current market conditions and our projected revenue and demand. Our capital expenditures are primarily directed towards manufacturing and operations and can materially influence our available cash for other initiatives. In the recent year, our capital expenditures increased as we are investing in our factories to expand capacity and in our new ERP system.

Our business and results of operations continue to be influenced by a dynamic global trade, geopolitical, and supply chain environment. We continue to monitor developments related to tariffs and trade policy, including recent court rulings affecting certain U.S. tariffs. While the tariff impact was not material to our results, we remain focused on potential governmental responses and development of potential future recoveries to adjust our mitigation strategies with our customers.policy. In addition, heightened geopolitical instability, including the conflicts in the Middle East, has contributed to volatility in energy markets, disruptions to global shipping, and broader macroeconomic uncertainty. Increased demand relative to supply for AI-related equipment and semiconductors is extending lead times and increasing prices of certain components, impacting both timing of some customer demand and many of our suppliers. We continue to take actions to procure strategic supply of materials and endeavor to recover increased costs through pricing actions. While these factors were not material to our results in the current quarter, they could become material in future periods and adversely affect our costs such as higher energy and supply chain costs, as well as negatively impact our ability to sell our products and provide services.

Due to increased investments in AI applications by leading hyperscale customers, along with adoption of our next-generation high-power solutions, revenue in the Data Center Computing market more than doubledincreased in the first quarterhalf of 2026 compared to the same quarterperiod in the previous year.

We expect thesethis trendstrend to continuecontinue, supportingalong healthywith adoption of our next generation high power solutions, to support growing demand in the remainder of the year.2026.

WeIn the first half of 2026, we believe thatdemand in the Industrial and Medical market beganhas returned to recovernormalized startinglevels inafter thecustomers secondcompleted quartertheir ofinventory 2025 following a major industry downturnrebalancing as a result of macroeconomic conditions and supply chain disruptions from prior years. The recovery continued in the firstsecond quarter of 2026 compared to the same quarter in the previous year. In addition, weWe expect demand to continue to improve in the remainder of 2026, paced by overall economic conditions.2026.

Demand in the TelecommunicationTelecom and Networking market is driven by adoption of more advanced mobile standards, such as 5G technologies, networking investments by telecommunication service providers, enterprises upgrading their communication networks, and data centers investing in their networks for AI-driven increased bandwidth.

End market demand in the Telecom and Networking market remained stable in 2025. Revenue in the first quarterhalf of 20262026, increasedwith growth primarily duedriven toby growthdemand in AI-related applications. We expect this trend to continue for the remainder of the year.2026.

Semiconductor Equipment revenue for the three and six months ended MarchJune 31,30, 2026 was relatively flat asincreased compared to the same periodperiods in the prior year, but increased sequentially from the fourth quarter2025 on strengthening demand.equipment demand driven by investments in AI.

The increaseincreases in Data Center Computing revenue wasfor the three and six months ended June 30, 2026, compared to the same periods in 2025 were due to increased AI investments by leading hyperscale customers and incremental growth associated with design wins secured previously.

The increaseincreases in Industrial and Medical revenue wasfor the three and six months ended June 30, 2026, compared to the same periods in 2025 were primarily due to recovery in the end markets as a result of ongoingthe completion of customer inventory rebalancing and an improved demand environment.

The increaseincreases in Telecom and Networking revenue wasfor the three and six months ended June 30, 2026, compared to the same periods in 2025 were primarily driven by growth in AI-related applications.

The increase in gross profit was largely due to anthe increase in revenue and manufacturingmix costdriven improvements.by new products. Gross margin improvedgrew mainly due to theimproved impact of higher volume, and approximately 60 basis points resulting from manufacturing cost reduction programs, partially offset bymix, the impact of tariffstariff duringrefunds thefor three120 monthsbasis endedpoints, Marchand 31,higher 2026.volume.

The increase in research and development expense was driven by higher compensation costs related to stock-based compensation and annual merit increases, and higher engineering program and materials costs compared to the same periodperiods in the prior year.

Amortization of IntangiblesIntangible Assets

The increasedecrease in restructuring, asset impairments, and other charges is primarily driven by the timing of our restructuring plan decisions.

We experienced aan decreaseincrease in interest income caused by lowerhigher cash balances.balances primarily as a result of net proceeds from the issuance of the 2031 Notes.

Other expense, net consists primarily of foreign exchange gains and losses and other miscellaneous items. For the three and six months ended MarchJune 31,30, 2026, we had a $3.4$3.1 million improvementand $6.5 million improvement, respectively, in other expense, net compared to the same periodperiods in the prior year primarily as a result of foreign exchange gains.

Interest expense remained relatively flat compared to the same period in the prior year. See Note 6. Long-Term Debt in Part I, Item 1 “Unaudited Consolidated Financial Statements” for information regarding our debt.

Our effective tax rate differs from the U.S. federal statutory rate of 21% primarily due to the benefit of earnings in foreign jurisdictions whichthat are subject to lower tax rates, as well as tax credits, partially offset by net U.S. tax on foreign operations. The effective tax rate asfor the three months ended June 30, 2026, was higher than the effective tax rate for the same period in 2025 primarily due to the tax effect of Marchthe 31,convertible note inducement charge incurred in the second quarter of 2026 isbeing treated as a discrete event and disallowed as an expense for tax purposes, partially offset by the release of tax reserves based on statute of limitation expirations and the settlement of an audit in the same period. The effective tax rate for the six months ended June 30, 2026, was lower than the effective tax rate for the same period in 2025 primarily due to excess tax benefits recognized in 2026 from stock-basedshare-based compensation.compensation and the release of tax reserves based on statute of limitation expirations and the settlement of an audit in the same period.

As of MarchJune 31,30, 2026, certain countries in which the Company operates have implemented or are in the process of implementing the Pillar II minimum global effective tax rate regime as put forth by the Organization for Economic Cooperation and Development (“OECD”). Specifically, the OECD released prospective “Side-by-Side” guidance in early 2026 which is generally beneficial to U.S. parented organizations,organizations but will require adoption by member countries to implement. As countries continue to make revisions to their legislation and release additional guidance with respect to the global minimum tax, we continue to monitor and evaluate any potential cash tax expenseexpenses and associated impacts to the effective tax rate impacts in the jurisdictionscountries in which thewe Company operates.operate.

On July 4, 2025, the One Big Beautiful Bill (“OBBB”) Act, which includes a broad range of elective tax law items available in 2025 and prescribed tax law changes in 2026, was signed into law in the United States. The Company has reflected the impact of the OBBB’s elective tax law items in its financial statements for the period ending MarchJune 31,30, 2026. The OBBB is expected to have an overall positive effect on the GAAP and non-GAAP effective tax rate of the Company, benefiting from revisions to foreign-derived intangible income (FDII) and the foreign tax credit rules.

The non-GAAP results presented below exclude the impact of non-cash related charges, such as stock-based compensation, amortization of intangible assets, and long-term unrealized foreign exchange gains and losses. In addition, we exclude discontinued operations and other items such as acquisition-related costs, facility, infrastructure, and other transition costs, and restructuring expenses, as they are not indicative of future performance. The tax effect of our non-GAAP adjustments represents the anticipated annual tax rate applied to each non-GAAP adjustment after consideration of their respective book and tax treatments. Non-GAAP results also exclude certain non-recurring discrete tax expenses or benefits. Finally, non-GAAP diluted weighted-average common shares are adjusted to reflect the dilutive impact of our convertible notes based on the higher note hedge strike price instead of the initial conversion price.

Adequate liquidity and cash generation are important to the execution of our strategic initiatives. Our ability to fund our operations, acquisitions, capital expenditures, and product development efforts may depend on our ability to generate cash from operating activities, which is subject to future operating performance, as well as general economic, financial, competitive, legislative, regulatory, and other conditions, some of which may be beyond our control. Our primary sources of liquidity continue to be our available cash, proceeds from the issuance of convertible notes, cash generated from operations, and available borrowing capacity under the Revolving Facility (defined in Note 6. Long-Term Debt in Part I, Item 1 “Unaudited Consolidated Financial Statements”).

As of MarchJune 31,30, 2026, our cash and cash equivalents totaled $699.5$1,396.5 million, while our available funding under our undrawn Revolving Facility was $600.0 million. We believe our sources of liquidity will be adequate to meet operational needs, including capital expenditures, as well as anticipated debt service, share repurchase programs, dividends, and strategic investments. We have suspended activity under our share repurchase plan in connection with the issuance of the redemption notice for the remaining 2028 Notes. The share repurchase program has no expiration date, has not been terminated, and remains authorized.

During the ordinary course of business, we evaluate our cash requirements and, if necessary, adjust our expenditures to reflect the current market conditions and our projected revenue and demand. Our capital expenditures are primarily directed towards manufacturing and operations and can materially influence our available cash for other initiatives. In the past year and through the firstsecond quarter, our capital expenditures increased as we are investing in our factories to expand capacity and in our new ERP system. In addition, we may seek additional debt or equity financing from time to time; however, such additional financing may not be available on acceptable terms, if at all.

As of MarchJune 31,30, 2026, our only outstanding debt isincludes $136.7 million principal amount of the $575.02028 million Convertible Notes, which mature on September 15, 2028Notes and carry$1.15 abillion 2.5%principal interestamount rate.of the 2031 Notes. As of June 30, 2026, we had no borrowings under our Credit Agreement. Should we have future borrowings under our Term Loan Facility or Revolving Facility,Facility of our Credit Agreement, those borrowings would be subject to a variable rate.

As of MarchJune 31,30, 2026, no amounts were outstanding under the Revolving Facility, and we had $600.0 million in available funding. In addition to the available capacity on the Revolving Facility, prior to the maturity date of the Credit Agreement, we may request an increase to the financing commitments in either the Term Loan Facility or Revolving Facility by an aggregate amount not to exceed $250.0 million. Any requested increase is subject to lender approval.

During the threesix months ended MarchJune 31,30, 2026, we paid quarterly cash dividends of $0.10 per share, totaling $3.8$7.9 million. We currently anticipate that a cash dividend of $0.10 per share will continue to be paid on a quarterly basis, although the declaration of any future cash dividend is at the discretion of our Board and will depend on our financial condition, results of operations, capital requirements, business conditions, and other factors.

Net cash used infrom continuing operations for the threesix months ended MarchJune 31,30, 20262026, was $5.6$80.0 million, as compared to cash from continuing operations of $29.2$75.7 million for the same period in the prior year. The $34.8$4.3 million decreaseincrease was primarily due to higher net income from continuing operations offset by a net increase in working capital driven by increases in accounts receivable as a result ofon higher revenue and increased inventoriesinventory to support anticipated future demand partially offset by increasedan increase in accounts payable. In addition, accrued expenses decreased primarily due to the timing of incentive compensation payments.

Net cash used in investing activities for the threesix months ended MarchJune 31,30, 20262026, was $38.0$87.5 million primarily due to $36.6$86.1 million in purchases of property and equipment, which was largely driven by continued investments in our manufacturing footprint and capacity, our new ERP system, and investments in other capabilities across multiple sites.

Net cash used in investing activities for the threesix months ended MarchJune 31,30, 20252025, was $15.1$43.6 million primarily due to $13.9$42.0 million in purchases of property and equipment, which was largely driven by investments in our manufacturing footprint and capacity, and $1.2$1.6 million in purchases of investments.

Net cash used infrom financing activities for the threesix months ended MarchJune 31,30, 20262026, was $44.9$616.8 million anddriven includedby $0.5net proceeds of $1,129.3 million from issuance of the 2031 Notes partially offset by $440.5 million for repurchasepartial repayment of commonthe stock,2028 $40.6Notes. In connection with the 2031 Notes, $69.0 million was paid for the cost of the Capped Call and $44.6 million was received for the partial unwind of the Note Hedges and Warrants associated with the 2028 Notes. Additionally, other financing activities include $39.1 million in net payments related to stock-based award activities, and $3.8$7.9 million for dividend payments.

Net cash used in financing activities for the threesix months ended MarchJune 31,30, 20252025, was $13.4$42.8 million and included $3.8 million for dividend payments, $0.5$23.7 million for repurchase of common stock, and $9.1$8.0 million in net payments related to stock-based award activities.activities, and $7.7 million for dividend payments. In addition, we paid $1.9 million in fees related to entering the Credit Agreement and $1.5 million for the release of the holdback associated with the Airity Acquisition.

During the threesix months ended MarchJune 31,30, 2026, foreign currency translation had a minimal impact on cash. See “Foreign Currency Exchange Rate Risk” in Part I, Item 3 for more information.