AEIS Advanced Energy Industries Inc - 10-K

ITEM 1A.         RISK FACTORS

Our business, financial condition, operating results, and cash flows can be impacted by a number of factors, including, but not limited to, those set forth below, any of which could adversely impact our results and result in a decline in the value or loss of an investment in our common stock. Other factors may also exist that we cannot anticipate or that we currently do not consider to be material based on information that is currently available. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows and future results. Such risks and uncertainties may also impact the accuracy of forward-looking statements included in this Form 10-K and other reports we file with the SEC.

Business and Industry Risks

The industries in which we compete are subject to unpredictable fluctuation or cycles, which may be volatile.

As a supplier to the global semiconductor equipment, 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.

To meet rapidly changing demand in each of the industries we serve, we must effectively manage our resources and production capacity. During periods of decreasing demand for our products, we must be able to appropriately align our cost structure with prevailing market conditions, effectively manage our supply chain, and motivate and retain key employees. During periods of increasing demand, we must have enough manufacturing capacity and inventory to fulfill customer orders, effectively manage our supply chain, and attract, retain, and motivate enough qualified individuals. If we are not able to timely and appropriately adapt to changes in our business environment or to accurately assess where we are positioned within a business cycle, our business, financial condition, or results of operations may be materially and adversely affected.

For example, infrastructure investments in artificial intelligence (“AI”) have increased substantially, which is driving significant demand increases in the Data Center Computing market. We accelerated investments to increase capacity and make upgrades to support higher demand and new product requirements in the market, but if we are unable to timely or efficiently scale to meet growing demand or if we have not accurately assessed the magnitude or sustainability of such demand, our results of operations could be adversely impacted.

We must achieve design wins to retain our existing customers and to obtain new customers, although design wins achieved may not necessarily result in substantial revenue or gross profit.

The markets we serve are constantly changing in terms of advancement in applications, core technology, and competitive 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

Table of Contents

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. Our 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 Semiconductor and Industrial and Medical markets and upgrade our capabilities in the Data Center Computing market. If existing or new customers do not choose our designs, 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.

Failure to accurately forecast customer demand, supply chain disruptions, or manufacturing interruptions or delays could affect our ability to meet customer demand, lead to higher costs, or result in excess or obsolete inventory.

We place orders with many of our suppliers based on our expectations as to demand for our products and our customers’ forecasts. As the quarter and the year progress, such demand and product mix can change rapidly or we may realize that our customers’ expectations were overly optimistic or pessimistic, especially when industry or general economic conditions change.

Our sales are primarily made on a purchase order basis or are pulled from “just in time” bins or hubs by our customers, and we generally do not have long-term purchase commitments from our customers. As a result, we are limited in our ability to predict the level of future revenue or commitments from our current customers, which may diminish our ability to allocate labor, materials, and equipment in the manufacturing process effectively. In addition, we may purchase inventory in anticipation of sales that do not materialize, resulting in excess and obsolete inventory write-offs. Customers may delay delivery of products or cancel orders prior to shipment and may not be subject to cancellation penalties. Delays in delivery schedules and/or customer changes to backlog orders during any particular period could cause a decrease in revenue and have a material adverse effect on our business and results of operations. Orders with our suppliers cannot always be amended in response to changing demand conditions.

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.

Finally, if shortages of critical components or supply constraints were 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 that we faced in the wake of the pandemic. Our revenues, earnings, and cash flow may be adversely impacted if these conditions reoccur.

Table of Contents

We are exposed to risks associated with worldwide financial markets and the global economy.

Uncertain or adverse economic and business conditions, including uncertainties and volatility in the financial markets, rising inflation and interest rates, economic recession, national debt, and fiscal or monetary concerns, could materially adversely impact our operating results and financial condition. Disruptions in the global economy or financial markets, higher interest rates and market volatility could have an adverse impact on our access to and cost of capital. Additionally, tightening of credit markets, turmoil in the financial markets, and a weakening global economy have contributed in the past and could again contribute to slowdowns in the industries in which we operate and adversely impact the global demand for our products. Some of our key markets ultimately depend on a combination of consumer and business spending. Economic uncertainty exacerbates negative trends in consumer and business spending and may cause our customers to delay, cancel, or refrain from placing orders. Difficulties or increased costs in obtaining capital and uncertain market conditions may also lead to customer liquidity constraints, a reduction of revenue, and greater instances of nonpayment or other failures to perform their obligations. Adverse or uncertain economic conditions may similarly affect our key suppliers, which could affect their ability to deliver parts and result in delays for our products. Further, these conditions and uncertainty about future economic conditions could also make it challenging for us to forecast our operating results and evaluate the risks that may affect our business, financial condition, and results of operations.

We must scale our manufacturing capacity and secure sufficient critical components to meet customer demand.

Our manufacturing facilities are located globally, and the majority of our products are manufactured in a select few key facilities. Most facilities are under operating leases, and interruptions in operations could be caused by early termination of existing leases by landlords or failure by landlords to renew existing leases upon expiration, including the possibility that suitable operating locations may not be available in proximity to existing facilities, which could result in labor or supply chain risks, including risks related to our ability to secure critical components to meet customer demand. Additionally, we are executing a restructuring plan to optimize and consolidate our manufacturing operations and improve operating efficiencies, which we expect to be substantially complete during 2027. We continue to expand output in and evaluate our existing manufacturing facilities, and we may decide to conduct additional optimization and consolidation initiatives. We also recently constructed a new factory in Thailand in connection with our consolidation plans. These plans and any future initiatives, however, may or may not be ultimately successful in achieving our intended results. If the actual costs and charges are greater than anticipated, the actual cost savings or operating efficiencies are lower than anticipated, market conditions deviate from our expectations, we encounter delays or other challenges, or we experience a loss of continuity or inefficiency during transitional periods, our business and results of operations may be adversely affected.

If we are unable to maintain our pricing strategy or adjust our business strategy successfully for some of our product lines to reflect our customers’ price sensitivity, our business and financial condition could be harmed.

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 pricing agreements, extended payment terms, exclusivity arrangements, and other less 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. 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.

Table of Contents

A significant portion of our revenue and accounts receivable are concentrated among a few customers.

Consistent with prior years, a limited number of customers accounted for a significant portion of our business, revenue and accounts 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.

We expect that revenue from a few large customers will continue to account for a significant percentage of our total revenue in future periods; however, we generally do not have long-term purchase commitments. If our largest customers do not place orders, or if they substantially reduce, delay, or cancel orders, we may not be able to replace their business on a timely basis or at all. As a result, our future success depends on our ability to maintain and strengthen our existing customer relationships, build new customer relationships, and diversify our customer base. For more information about our significant customers, see Note 3. Revenue in Part II, Item 8 “Financial Statements and Supplementary Data.”

If our information security measures are breached, disrupted, or fail, we may incur significant legal and financial exposure and liabilities.

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 from external actors and confidential information theft 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.

Despite our implementation of cybersecurity measures, there is no assurance that our actions will be sufficient to prevent future threats and incidents. Because the techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. A cybersecurity event or other breach, disruption, or failure of our information and operational systems, could:

result in the disclosure, misuse, corruption, or loss of our confidential business information, intellectual property including trade secrets, or our customers’ data;

damage our reputation;

lead to a loss of confidence by our current and potential customers;

adversely impact our future revenue;

disrupt our business;

divert management attention; and

expose us to significant remediation costs, legal liability, and litigation risk.

Table of Contents

Difficulties with the implementation or transition to our next generation enterprise resource planning and other new enterprise-wide information technology system applications could harm our business and impact our results of operations.

Our business could be adversely affected to the extent we fail to appropriately manage, expand, and update our information technology infrastructure. In particular, w e 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. In 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.

The loss of and inability to attract and retain key personnel could significantly harm our results of operations and competitive position.

Our success depends to a significant degree upon the continuing contributions of our management, technical, marketing, and sales employees. If we are unable to attract, retain, and motivate qualified employees and 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 market competitive compensation and benefits 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 challenging, safe, and rewarding work environment. We have experienced, and may continue to experience, increasing costs to attract and retain qualified talent, driven by macroeconomic conditions and a highly competitive labor market.

In addition, the loss or retirement of key employees presents challenges to the extent the departing employee had valuable institutional knowledge or experience. This requires us to identify and train existing or new employees to perform necessary functions, therefore causing unforeseen delays, which could result in unexpected costs, reduced productivity, or an impact to internal processes and controls. If we fail to have succession plans in place for key roles, we may not be able to maintain continuity and our business could be adversely affected.

Disruptions to our manufacturing or other operations or the operations of our customers or suppliers, due to natural or other disasters, uncontrollable events or other issues could affect our results of operations.

Certain of our manufacturing and other operations are in locations subject to natural disasters that could disrupt operations, such as severe weather and geological events, including earthquakes or 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.

Table of Contents

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, strategic 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:

the inability to source or complete transactions timely or at all;

any obligation to pay a termination fee or undergo litigation resulting from failed deals;

the failure to perform adequate due diligence on target companies;

the failure to realize expected revenues, gross and operating margins, net income, and other returns from acquired businesses;

the inability to successfully integrate product and/or service offerings to realize anticipated benefits from business combinations;

the inability to integrate acquired business into our existing ERP and other global information technology systems to realize productivity improvement and cost efficiencies;

we have incurred and will incur additional depreciation and amortization expense over the useful lives of certain assets acquired in connection with business combination and, to the extent that the value of goodwill or intangible assets acquired in connection with a business combination becomes impaired, we may incur additional material charges related to impairment of those assets;

deterioration in our effective tax rate;

a failure to retain and motivate key employees of acquired businesses;

our ability to maintain appropriate business processes, procedures, and internal controls at the acquired business;

litigation or claims associated with a proposed or completed transaction; and

unknown, underestimated, undisclosed or undetected commitments or liabilities or non-compliance by acquired business with laws, regulations, or policies.

Our products may suffer from defects or errors leading to increased costs, damages, warranty 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 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.

Table of Contents

Our legacy inverter products may suffer higher than anticipated litigation, damage, or warranty claims.

Our legacy inverter products (of which we discontinued the manufacture, engineering, and sale in December 2015 and which are reflected as discontinued operations in this filing) contain components that may contain errors or defects and were sold with product warranties ranging from one to 20 years. If any of our products are defective or fail because of their design, we might be required to repair, redesign, or recall those products or to pay damages (including liquidated damages) or warranty claims, and we could suffer significant harm to our reputation. We have experienced claims from customers and suppliers and are involved in litigation related to the legacy inverter product line. We review such claims and vigorously defend against such lawsuits in the ordinary course of our business. We cannot assure that any such claims or litigation will not have a material adverse effect on our business or financial statements. Our involvement in such litigation could result in significant expense to us and divert the efforts of our technical and management personnel. We also 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 additional expenses in our Consolidated Statements of Operations in future periods. We plan to continue supporting inverter customers with service maintenance and repair operations. This includes performing service to fulfill obligations under existing service maintenance contracts. There is no certainty that these contracts can be performed profitably, and our business could be adversely affected by higher than anticipated product failure rates, loss of critical service technician skills, an inability to obtain service parts, customer demands and disputes, and the cost of repair parts, among other factors.

Table of Contents

International Operations Risks

We are subject to risks inherent in international operations.

We are a global organization. We have employees in the Asia-Pacific region, 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 70% of our total revenue during the year ended December 31, 2025.

Given the global nature of our business, we have both domestic and international concentrations of cash and investments. The value of our cash, cash equivalents, and marketable securities can be adversely affected by liquidity, credit deterioration, inflation, foreign currency exchange rate fluctuations, financial results, economic risk, political risk, sovereign risk, or other factors.

Additionally, our success producing goods internationally and competing in international markets is subject to our ability to manage various operational risks and difficulties, including, but not limited to:

our ability to effectively hire, manage, and retain our employees at locations operating in different business environments from the United States;

our ability to develop and maintain relationships with suppliers and other local businesses;

interruptions to our and/or our suppliers’ supply chain;

global trade issues and changes in and uncertainties with respect to trade and export regulations, trade policies and sanctions, tariffs, and international trade disputes, including export regulations for certain exports to China and any retaliatory measures;

compliance with product safety requirements and standards that are different from those of the United States;

variations and changes in laws applicable to our operations in different jurisdictions, including enforceability of contract rights;

ineffective or inadequate legal and physical protection of intellectual property rights in certain countries;

delays or restrictions on personnel travel and in shipping materials or finished products between and within countries;

political instability, international hostilities, natural disasters, health epidemics, disruptions in financial markets, and deterioration of economic conditions;

our ability to maintain appropriate business processes, procedures, and internal controls, and comply with environmental, health and safety, anti-corruption, and other regulatory requirements;

customs regulations including customs audits in various countries that occur from time to time;

the ability to provide enough levels of technical support in different locations;

our ability to obtain business licenses that may be needed in international locations to support expanded operations;

changes in tariffs, income tax, value added tax, and foreign currency exchange rates; and

laws and regulations regarding privacy, data use and processing, data privacy and  protection, cybersecurity, and network security .

Table of Contents

Our operations in the Asia Pacific 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, which exposes us to risks, such as exchange controls and currency restrictions, changes in local economic conditions, customs regulations and tariffs, tax policies, and 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. In particular, the U.S. and China regularly have significant disagreements over geopolitical, trade, and economic issues, and there are currently considerable trade tensions between the two countries. Any escalating political controversies between the U.S. and 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 may exercise preferential treatment of local companies. Our supply chain in China may be subject to various U.S. or China government and regulatory actions. Policy changes or the imposition of new, stricter regulations or interpretations of existing regulations could increase our costs or limit our ability to sell products in the Asia Pacific region.

Unfavorable currency exchange rate fluctuations may lead to lower operating margins, or may cause us to raise prices, which could result in reduced revenue.

Currency exchange rate fluctuations could have an adverse effect on our revenue and results of operations, and we could experience losses with respect to forward exchange contracts into which we may enter. Unfavorable currency fluctuations could significantly increase the labor and other costs incurred in the operation of our international facilities and the cost of raw materials, parts, components, and subassemblies that we source there, which could materially and adversely affect our results of operations. These increased costs could require us to increase prices to foreign customers, which could result in lower net revenue from such customers. Alternatively, if we do not adjust the prices for our products in response to unfavorable currency fluctuations, our results of operations could be materially and adversely affected. In addition, we have large, long-term liabilities, such as local lease and pension liabilities in Asia and Europe creating more significant exposure to fluctuations in numerous currencies. We do not attempt to hedge these exposures given the long-term nature of the underlying liabilities and the non-cash nature of the foreign exchange gain or loss.

Legal, Tax, and Compliance Related Risks

Continued restrictive global trade regulatory environment coupled with increasingly complex rules have adversely impacted our business, could further impact our business, and could erode the competitiveness of our products compared to local and global competitors .

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 both the further promulgation of global trade regulations and enforcement of existing regulations. The implementation and interpretation of some of these complex rules and other regulatory actions is uncertain and evolving, which can make it 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. As a result, Chinese customers replaced us at least in part with competitors operate outside the scope of 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.

In 2025, the U.S. government imposed significant tariffs on imports from a wide range of countries, with further tariffs threatened. The tariffs were imposed under various rules including Section 301 (punitive duties imposed

Table of Contents

by on imported goods, primarily from China, to counter unfair trade practices like intellectual property theft and forced technology transfer), Section 232 (tariffs that aim to protect U.S. national security), and the International Emergency Economic Powers Act. We are also subject to anti-dumping and countervailing duty rates. In 2025, higher costs from tariffs partially offset benefits from cost optimization across our operations, and we expect this negative dynamic to continue. If we are unable to mitigate the impact of these and any additional tariffs or other import restrictions in future periods, we can expect our results of operations to be adversely affected.

The 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 or 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, governments of our customers may 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 .

We are highly dependent on our intellectual property.

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. 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.

Patents, trademarks, and trade secret protection may not be adequate to deter infringement or misappropriation of our proprietary rights. For example, patents issued to us may be challenged, invalidated, or circumvented. The loss or expiration of any of our key patents could lead to a significant loss of sales of certain of our products and could materially affect our future operating results. The process of seeking patent protection can be time consuming and expensive and patents may not be issued for currently pending or future applications. Moreover, our existing patents or any new patents that may be issued may not be sufficient in scope or strength to provide meaningful protection or any commercial advantage to us. We may initiate claims, enforcement actions or litigation against third parties for infringement of our proprietary rights, which claims could result in costly litigation, the diversion of our technical and management personnel, and the assertion of counterclaims by defendants.

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 these 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.

Third parties may also assert claims against us and our 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.

Table of Contents

Our supply chain is subject to regulatory risk .

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, China has restricted exports of rare earth minerals, and the U.S. government’s export controls have resulted in restricted supply chains. Given such restrictions, we may be unable to obtain supply in a timely manner, in sufficient quantities, or at a commercially reasonable cost.

We are, and expect to continue to be, involved in litigation. Legal proceedings are costly and could have a material adverse effect on our commercial relationships, business, financial condition, and operating results.

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 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.

Changes in tax laws, tax rates, or mix of earnings in tax jurisdictions in which we do business could impact our future tax liabilities and related corporate profitability.

We are subject to income taxes in the U.S. (federal and state) and numerous foreign jurisdictions. Tax laws, regulations, and administrative practices in various jurisdictions by their nature are complex and may be subject to significant change due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes. As both domestic and foreign governments contemplate or make changes in tax law, our results could be adversely affected. Further, there are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. Our effective tax rates could be adversely affected by earnings being lower than anticipated in jurisdictions where we have lower statutory rates and earnings higher than anticipated in jurisdictions where we have higher statutory rates, losses incurred in jurisdictions for which we are not able to realize the related tax benefit, changes in foreign currency exchange rates, entry into new businesses and geographies and changes to our existing businesses, acquisitions (including integrations) and investments, changes in our deferred tax assets and liabilities and their valuation, and changes in the relevant tax, accounting, and other laws, regulations, administrative practices, principles, and interpretations, including fundamental changes to the tax laws applicable to corporate multinationals.

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.

Table of Contents

Increased governmental action on income tax regulations could adversely impact our business.

International governments have heightened their review and scrutiny of multinational businesses like ours, which could increase our compliance costs and future tax liability to those governments. As governments continue to look for ways to increase their revenue streams, they could increase audits of companies to accelerate the recovery of monies perceived as owed to them under current or past regulations. As we are subject to examination by tax authorities in every jurisdiction where we do business, an unfavorable audit outcome could adversely affect us.

Changes in our provision for income taxes or adverse outcomes resulting from examination of our income tax returns could adversely affect our results.

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, the foreign tax credit 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 OECD has made changes to numerous long-standing tax principles. There can be no assurance that these changes, as 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 .

Our business is subject to complex and evolving U.S. and international laws and regulations regarding privacy and data protection. Many of these laws and regulations are subject to change and uncertain interpretation and could result in claims, changes to our business practices, penalties, increased cost of operations, or declines in customer growth or engagement, or otherwise harm our business.

Regulatory authorities around the world have implemented or are considering several legislative and regulatory proposals concerning data protection. In addition, the interpretation and application of consumer and data protection laws in the U.S., Europe, China and elsewhere are often uncertain and in flux. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data practices. Violation of any of these rules could result in fines or orders requiring that we change our data practices, which could have an adverse effect on our business and results of operations. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business.

We are subject to numerous governmental regulations.

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

Table of Contents

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, 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 risks associated with environmental, health, and safety regulations.

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; 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 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.

Our failure to maintain appropriate environmental, social, and governance (“ESG”) practices and disclosures could result in reputational harm, a loss of customer and investor confidence, and adverse business and financial results.

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 change over time, which may result in inconsistent data, or 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 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, and the potential for regulatory scrutiny, enforcement actions, and reputational harm.

ESG compliance and reporting is costly, and we could be at a disadvantage compared to companies that do not have similar regulatory requirements, customer pressures, or that have more resources to devote to ESG efforts.

Commercial and Financial Related Risks

Our debt obligations and the restrictive covenants in certain of the agreements governing our debt could limit our ability to operate our business or pursue our business strategies, could adversely affect our business, financial condition, results of operations, and cash flows, and could significantly reduce stockholder benefits from a change of control event.

Our debt obligations could make us more vulnerable to general adverse economic and industry conditions and could limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate, thereby placing us at a disadvantage to our competitors that have less debt. We may enter into additional debt obligations at any time.

Our Credit Agreement, including the associated revolving line of credit, imposes financial covenants on us and our subsidiaries that require us to maintain a certain leverage ratio. The financial covenants place certain restrictions on

Table of Contents

our business that may affect our ability to execute our business strategy successfully or take other actions that we believe would be in the best interests of our Company. These include limitations or restrictions, among other things, on our ability and the ability of our subsidiaries to:

incur additional indebtedness;

pay dividends or make distributions on our capital stock or certain other restricted payments or investments;

conduct stock buybacks;

make domestic and foreign investments and extend credit;

engage in transactions with affiliates;

transfer and sell assets;

effect a consolidation or merger or sell, transfer, lease, or otherwise dispose of all or substantially all our assets; and

create liens on our assets to secure debt.

Any breach of the covenants or other event of default could cause a default on our Credit Agreement, which could result in the entire outstanding balance at that time being immediately due and payable. Such breach or default may also constitute a default of our Convertible Notes, which could also result in the entire outstanding balance being immediately due and payable. Our assets and cash flow may not be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default. If we are unable to repay, refinance, or restructure our indebtedness as required, or amend the covenants contained in these agreements, the lenders can exercise all rights and remedies available under our debt obligations or applicable laws or equity. There can be no assurance that we will have sufficient financial resources or be able to arrange financing to repay any borrowings at such time .

Return on investments or interest rate declines on plan investments could result in additional unfunded pension obligations for our pension plan.

We currently have unfunded obligations to our pension plans. The extent of future contributions to the pension plan depends heavily on market factors such as the discount rate used to calculate our future obligations and the actual return on plan assets which enable future payments. We estimate future contributions to the plan using assumptions with respect to these and other items. Changes to those assumptions could have a significant effect on future contributions. Additionally, a material deterioration in the funded status of the plan could increase pension expenses and reduce our profitability. See  Note 12. Employee Retirement Plans and Postretirement Benefits  in Part II, Item 8 “Financial Statements and Supplementary Data” contained herein.

Our intangible assets and goodwill may become impaired.

We periodically review the carrying value of our intangible assets and goodwill. We consider any events or circumstances that might result in either a diminished fair value, and for intangible assets, a revised useful life. The events and circumstances include significant changes in the business climate, legal factors, operating performance indicators, and competition. Any impairment or revised useful life could have a material and adverse effect on our financial position and results of operations and could harm the trading price of our common stock.

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

One 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 currently convertible at the option of the holders, in whole or in part, until March 31, 2026, and may in the future continue to be convertible at the option of the holders during specified periods in the 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

Table of Contents

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.

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

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

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

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

Table of Contents

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.

Risks Relating to Ownership of Our Common Stock

The market price of our common stock has fluctuated and may continue to fluctuate for reasons over which we have no control.

The stock market has from time to time experienced, and is likely to continue to experience, extreme price and volume fluctuations. Prices of securities of technology companies are especially volatile and have often fluctuated for reasons that are unrelated to their operating performance. In the past, companies that have experienced volatility in the market price of their stock have been the subject of securities class action litigation. If we were the subject of securities class action litigation, it could result in substantial costs and a diversion of management’s attention and resources.

We may not pay dividends on our common stock.

Holders of our common stock are only entitled to receive dividends when and if they are declared by our Board of Directors. Our Credit Agreement restricts our ability to pay dividends on our capital stock under certain circumstances. Although we have declared cash dividends on our common stock since 2021, we are not required to do so, and we may reduce or eliminate our cash dividend in the future. This could adversely affect the market price of our common stock. For information on our Credit Agreement, see Note 7. Long-Term Debt and Note 10. Derivative Financial Instruments in Part II, Item 8 “Financial Statements and Supplementary Data.”

Our operating results are subject to fluctuations, and if we fail to meet the expectations of securities analysts or investors, our share price may decrease significantly.

Our annual and quarterly results may vary significantly depending on various factors, many of which are beyond our control. Because our operating expenses are based on anticipated revenue levels, our revenue cycle for development work is relatively long, and a high percentage of our expenses are fixed for the short term, a small variation in the timing of recognition of revenue can cause significant variations in operating results from period to period. If our earnings do not meet the expectations of securities analysts or investors, the price of our stock could decline.

ITEM 7.            MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

The following section discusses our results of operations for 2025 and 2024 and year-to-year comparisons between those periods.

Company Overview

Advanced Energy provides highly engineered, critical, precision power conversion, measurement, and control solutions to our global customers. We design, manufacture, sell and service 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 in the Semiconductor Equipment, Data Center Computing, Industrial and Medical, and Telecom and Networking markets.

Business Environment and Trends

2025 Summary Results and Key Activities

For the year ended December 31, 2025, our revenue was $1,798.8 million, representing an increase of 21.4% as compared to 2024. The increase was primarily attributable to more than doubling of revenue from the Data Center Computing market. For more details on the trends in our end markets, see “End Markets Summary and Trends” below.

In 2025, we increased gross margin and gross profit largely as a result of executing our manufacturing cost improvement program and higher revenue. We reported higher operating expenses of $509.4 million, an increase of $16.7 million from 2024 primarily attributable to higher research and development program costs, higher compensation costs related to stock-based compensation and annual merit increases, partially offset by lower restructuring charges driven by the timing of our restructuring plan decisions.

Throughout 2025 we managed tariffs affecting AE announced by the U.S. government and continue to evaluate the impact of any additional tariffs or other trade policy measures on our supply chain or on our customers. While the tariff impact was not material to our results in 2025, the effects could be material in future periods as any further tariff, export control, trade restrictions, policy measures, and retaliatory responses to the U.S. trade policy announcements, or any related macroeconomic effects could adversely impact our product demand, production costs, or ability to sell our products and provide services.

During 2025, we continued to execute the 2024 Plan. Manufacturing operations in Zhongshan ceased during the second quarter of 2025. Final site closure activities are in progress and are expected to conclude in 2026. During the second quarter of 2025, we also approved actions related to consolidating our research and development, sales, and administrative functions in connection with our manufacturing and footprint consolidation. We expect these actions to be substantially complete during 2027 and do not expect to incur significant additional charges. See  Note 11. Restructuring, Asset Impairments, and Other Charges in Part II, Item 8 “Financial Statements and Supplementary Data.” We also continued progress on a new factory in Thailand.

Table of Contents

During the second quarter of 2025, we terminated our prior credit agreement, dated as of September 10, 2019 (and subsequently amended) and entered into a new credit agreement consisting of a senior unsecured term loan and a senior unsecured revolving facility, both maturing on May 8, 2030. See  Note 7. Long-Term Debt in Part II, Item 8 “ Financial Statements and Supplementary Data ” and Liquidity and Capital Resources below.

End Markets Summary and Trends

Advanced Energy generates revenue from the sale of a broad range of advanced and system power products and services to global original equipment manufacturers (“OEMs”), distributors, and end customers. Our customers select our products based on various performance metrics such as high power conversion efficiency, high power density, and low noise emission, and lower power consumption, as well as our ability to tailor our solutions to meet the unique requirements of their critical applications. The future growth and demand for our products is driven by a combination of factors within each of the end markets we serve, as follows:

Semiconductor Equipment Market

The Semiconductor Equipment market supports and enables the long-term need for production capacity and new process technologies to meet demand for semiconductor devices across many applications driven by megatrends such as artificial intelligence (“AI”), energy efficiency, automobile electrification, and Internet of things.

Our portfolio of power conversion and related products sold into this market includes plasma power, high-voltage power, system power, and adjacent sensing solutions. Our plasma power solutions are used to create plasma-based etch and deposition processes. Our semiconductor market products are incorporated into a wide range of applications, including dry etch and strip, deposition, ion implant, inspection and metrology, thermal, epitaxy, and back-end test and packaging.

In 2025, the Semiconductor Equipment market continued to be driven by demand for leading-edge devices in logic and memory used in AI applications, partially offset by lower trailing-edge logic demand due to capacity underutilization, particularly in China, U.S. export restrictions to China, and the impact of tariffs. However, end market conditions started to improve in the fourth quarter of 2025. We expect these improving conditions to continue into 2026 and to accelerate demand for our products in the second half of the year.

Data Center Computing Market

The Data Center Computing market is being driven by the rapid growth of AI and related investments. The accelerated power rating of next-generation AI processors and increased density of AI processors in each IT rack have significantly increased the power requirements for AI-based servers and racks which, in turn, increased the importance of high power efficiency, density, and reliability for server rack power solutions.

Our products are designed into data center server and storage systems and are also used by cloud service providers and their partners in their custom designed server racks and power shelves.

Due to increased investments in AI applications by leading hyperscale customers, along with adoption of our next- generation high-power solutions, our revenue in the Data Center Computing market more than doubled in 2025.

We expect continued investments and adoption of newer, higher power solutions for AI-related applications will continue to support robust demand in 2026.

Table of Contents

Industrial and Medical Market

The Industrial and Medical market is fueled by continued investment in complex manufacturing processes, increased adoption of new industrial technologies such as automation and clean energy, and increased breadth and precision requirements of medical devices and life science equipment.

We supply this market with critical, precision power conversion products that deliver precise and highly reliable, low noise and/or differentiated power. In addition, our sensing, control, and instrumentation products complement our power solutions. Our products are used in a wide variety of applications, such as advanced material fabrication, medical devices, life science, test and measurement equipment, robotics, industrial production, defense, aerospace, and large-scale lighting applications.

We believe that the Industrial and Medical market began to recover starting in the second quarter of 2025 following a major industry downturn as a result of macroeconomic conditions and supply chain disruptions from prior years. The positive trend continued in the second half of 2025 as customer inventories approached normalized levels. We expect this trend to continue in 2026, paced by overall economic conditions.

Telecom and Networking Market

Demand in the Telecommunication 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.

We serve this market by providing application-specific power conversion products to many leading OEMs of wireless infrastructure equipment and computer networking equipment.

End demand in the Telecom and Networking market remained stable in 2025, and we expect current market conditions to continue in 2026, with some potential for improvement driven by AI-related demand.

Table of Contents

Results of Continuing Operations

The analysis presented below is organized to provide the information we believe will be helpful for understanding of our historical performance and relevant trends going forward and should be read in conjunction with our consolidated financial statements, including the notes thereto, in Part II, Item 8 “Financial Statements and Supplementary Data” of this annual report on Form 10-K. Also included in the following analysis are measures that are not in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). A reconciliation of the non-GAAP measures to U.S. GAAP is provided below.

The following table summarizes our Consolidated Statements of Operations and as a percentage of revenue:

Year Ended December 31,

(in millions)

Revenue

Gross profit

Operating expenses

Operating income from continuing operations

Interest income

Interest expense

Other expense, net

Income from continuing operations, before income tax

Income tax provision (benefit)

Income from continuing operations

Table of Contents

Revenue

The following tables summarize net revenue and percentages of revenue by markets:

Year Ended December 31,

Change 2025 v. 2024

Dollar

Percent

(in millions)

Semiconductor Equipment

Data Center Computing

Industrial and Medical

Telecom and Networking

Total

Revenue by Market

Sales in the Semiconductor Equipment market increased $47.4 million, or 6.0%, to $839.9 million, as compared to $792.5 million in the prior year. The increase was primarily due to increased demand for platforms used in leading-edge process tools and incremental revenue generated from new products in this market, partially offset by lower trailing-edge logic demand.

Sales in the Data Center Computing market increased $303.1 million, or 106.7%, to $587.3 million, as compared to $284.2 million in the prior year. The increase was due to growing hyperscale investments in new, AI-driven platforms and growth associated with new design wins secured in 2024.

Sales in the Industrial and Medical market decreased $33.9 million, or 10.7%, to $282.3 million, as compared to $316.2 million in the prior year. The decrease was primarily due to lower demand as a result of ongoing customer inventory rebalancing and continued slow demand environment in 2025.

Sales in the Telecom and Networking market remained relatively flat compared to the prior year due to fairly stable end demand in this market.

Table of Contents

Gross Profit and Gross Margin

Year Ended December 31,

Change 2025 v. 2024

Dollar

Percent

(in millions)

Gross profit

Gross margin

The increase in gross profit was largely due to increase in revenue and manufacturing cost improvements. Gross margin improved mainly due to the impact of higher volume, and approximately 140 basis points resulting from manufacturing cost reduction programs.

Operating Expenses

The following table summarizes our operating expenses:

Year Ended December 31,

(in millions)

Research and development

Selling, general, and administrative

Amortization of intangible assets

Restructuring, asset impairments, and other charges

Total operating expenses

Research and Development

Research and development expenses increased $20.6 million to $232.4 million, as compared to $211.8 million in the prior year. The increase is related to higher compensation costs, related to stock-based compensation and annual merit increases, and higher engineering program and materials costs.

Selling, General and Administrative

Selling, general and administrative expenses increased $17.8 million to $242.4 million, as compared to $224.6 million in the prior year. The increase is mainly due to higher compensation costs, related to stock-based compensation and annual merit increases.

Amortization of Intangible Assets

Amortization expense decreased $3.9 million to $22.1 million, as compared to $26.0 million in the prior year. The decrease is primarily due to certain intangible assets reaching the end of their estimated useful life. This was partially offset by amortization of intangible assets acquired in the Airity acquisition in 2024. For additional information, see  Note 2. Acquisition and Note 5. Intangible Assets and Goodwill  in Part II, Item 8 “Financial Statements and Supplementary Data.”

Table of Contents

Restructuring, Asset Impairments and Other Charges

Restructuring, asset impairment and other charges decreased $17.8 million to $12.5 million, as compared to $30.3 million in the prior year, primarily driven by the timing of our restructuring plan decisions.

During the second quarter of 2025, we approved actions related to consolidating our research and development, sales, and administrative functions in connection with our manufacturing and footprint consolidation. We expect these actions to be substantially complete during 2027 and do not expect to incur significant additional charges.

For additional information about this and prior-year restructuring plans, see  Note 11. Restructuring, Asset Impairments, and Other Charges in Part II, Item 8 “Financial Statements and Supplementary Data.”

Interest Income, Interest Expense, and Other Expense, Net

We experienced a decrease in interest income and expense caused by lower cash and debt balances as a result of using cash on hand to fully prepay our prior senior unsecured term loan facility in the prior year.

Other expense, net was $9.2 million in 2025, as compared to $2.0 million of expense in the prior year. Other expense, net consists primarily of foreign exchange gains and losses and other miscellaneous items. During 2025, we recorded a $9.7 million increase in unrealized foreign exchange losses, while the prior year included $3.0 million of expense related to nonrecurring foreign currency translation adjustments. These prior-year adjustments related to the liquidation of certain foreign operations as well as the write-off of debt discount fees associated with the early repayment of our prior senior unsecured term loan facility. See Note 7. Long-Term Debt in Part II, Item 8 “Financial Statements and Supplementary Data” for information regarding our debt.

Table of Contents

Income Tax Provision (Benefit)

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

Years Ended December 31,

(in millions)

Income from continuing operations, before income tax

Income tax provision (benefit)

Effective tax rate

Our effective tax rates differ from the U.S. federal statutory rate of 21% for the years ended December 31, 2025 and 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. Additionally, both 2025 and 2024 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 and the net effect of Pillar II top-up taxes.

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

As of December 31, 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 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, 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 determine any potential cash tax expense and tax rate impact in the countries in which we 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 year ended December 31, 2025.

Non-GAAP Results

Management uses non-GAAP net income, non-GAAP operating income, and non-GAAP earnings per share (“EPS”) to evaluate business performance without the impacts of certain non-cash charges and other charges which are not part of our usual operations. We use these non-GAAP measures to assess performance against business objectives, and make business decisions, including developing budgets and forecasting future periods. In addition, management’s incentive plans include 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.

Table of Contents

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 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.

Reconciliation of non-GAAP measures

Non-GAAP gross profit, gross margin, operating expenses,

Years Ended December 31,

operating income, and operating margin

(in millions)

Gross profit from continuing operations, as reported

Adjustments to gross profit:

Stock-based compensation

Facility, infrastructure, and other transition costs

Non-GAAP gross profit

GAAP gross margin

Non-GAAP gross margin

Operating expenses from continuing operations, as reported

Adjustments:

Amortization of intangible assets

Stock-based compensation

Acquisition-related costs

Facility, infrastructure, and other transition costs

Restructuring, asset impairments, and other charges

Non-GAAP operating expenses

Non-GAAP operating income

Operating income, as reported

Adjustments to gross profit

Adjustments to operating expenses

Non-GAAP operating income

Income from continuing operations, as reported

GAAP operating margin

Non-GAAP operating margin

Table of Contents

Reconciliation of non-GAAP measure

Years Ended December 31,

Non-GAAP income, net of income tax

(in millions)

Income from continuing operations, net of income tax

Adjustments:

Amortization of intangible assets

Acquisition-related costs

Facility, infrastructure, and other transition costs

Restructuring, asset impairments, and other charges

Unrealized foreign currency loss (gain)

Other costs included in other expense, net

Stock-based compensation

Tax effect of non-GAAP adjustments, including certain discrete tax benefits

Non-GAAP income, net of income tax

Reconciliation of non-GAAP measure

Years Ended December 31,

Non-GAAP diluted weighted-average common shares

(in millions)

Diluted weighted-average common shares outstanding

Dilutive effect of convertible notes

Non-GAAP diluted weighted-average common shares outstanding

Reconciliation of non-GAAP measure

Year Ended December 31,

Non-GAAP earnings per share

Diluted earnings per share from continuing operations, as reported

Add back:

Per share impact of non-GAAP adjustments, net of tax

Non-GAAP earnings per share

Table of Contents

Reconciliation of non-GAAP measure

Year Ended December 31,

Non-GAAP provision for income taxes

(in millions)

Provision (benefit) for income taxes, as reported

Adjustment:

Non-GAAP items and other discrete tax items excluding stock-based compensation

Tax effect of stock-based compensation

Non-GAAP provision for income taxes

Reconciliation of non-GAAP measure

Year Ended December 31,

Non-GAAP income before income taxes

(in millions)

Income from continuing operations, before income tax

Adjustments:

Amortization of intangible assets

Stock-based compensation

Acquisition-related costs

Facility, infrastructure, and other transition costs

Restructuring, asset impairments, and other charges

Unrealized foreign currency loss (gain)

Other costs included in other expense, net

Non-GAAP income before income taxes

Effective tax rate, as reported

Non-GAAP effective tax rate

Liquidity and Capital Resources

Liquidity

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, cash generated from operations, and available borrowing capacity under the Revolving Facility (refer to Note 7. Long-Term Debt in Part II, Item 8 “Financial Statements and Supplementary Data”).

As of December 31, 2025, our cash and cash equivalents totaled $791.2 million, and our available funding under our undrawn Revolving Facility is $600.0 million. Additionally, we generated $234.7 million of cash flow from continuing operations in 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 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.

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.

Table of Contents

Debt

See Note 7. Long-Term Debt in Part II, Item 8 “Financial Statements and Supplementary Data” for information regarding the Credit Agreement.

As of December 31, 2025, our only outstanding debt is the $575.0 million Convertible Notes, which mature on September 15, 2028 and carry a 2.5% interest rate. As of December 31, 2025, our common stock traded above the conversion price for at least 20 trading days during a 30 consecutive trading-day period, which resulted in the Convertible Notes becoming convertible at the option of the holders. Accordingly, the Convertible Notes balance was reclassified from long-term to current debt as of December 31, 2025. Exclusive of any early conversion elections by the convertible noteholders, there are no scheduled debt maturities until 2028. See Note 7. Long-Term Debt in Part II, Item 8 “Financial Statements and Supplementary Data” for information regarding the Convertible Notes.

Should we have future borrowings under our Term Loan Facility or Revolving Facility, those borrowings would be subject to a variable rate.

As of December 31, 2025, 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.

Dividends

During 2025, we paid quarterly cash dividends of $0.10 per share, totaling $15.6 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 of Directors and will depend on our financial condition, results of operations, capital requirements, business conditions, and other factors.

Share Repurchases

To repurchase shares of our common stock, we periodically enter into share repurchase agreements. During the year we repurchased $30.4 million of shares and during 2024, we repurchased $1.8 million of shares. At December 31, 2025, the remaining amount authorized by the Board for future share repurchases was $166.9 million with no time limitation.

Cash Flows

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

Year Ended December 31,

(in millions)

Net cash from operating activities from continuing operations

Net cash used in operating activities from discontinued operations

Net cash from operating activities

Net cash used in investing activities

Net cash used in financing activities

Effect of currency translation on cash and cash equivalents

Net change in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Table of Contents

Net Cash From Operating Activities

Net cash from operating activities from continuing operations was $234.7 million, an increase of $101.7 million, compared to $133.0 million in the prior year. The increase was primarily due to higher net income from continuing operations driven by growth in the Data Center Computing and Semiconductor Equipment markets. Additionally, we had unfavorable changes in working capital from accounts receivable, inventories, and other assets which was partially offset by timing of payments.

Net Cash From Investing Activities

Net cash used in investing activities in 2025 was $109.8 million, an increase of $36.2 million, compared to $73.6 million in the prior year. The increase was primarily due to an increase of $50.6 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 From Financing Activities

Net cash used in financing activities in 2025 was $56.1 million, compared to a cash outflow of $377.1 million in the prior year. In 2024, we used existing cash on hand to make payments towards our prior senior unsecured term loan facility for $355.0 million, including $10.0 million in principal payment made in the first half of the year and the September prepayment of the remaining $345.0 million outstanding principal balance, and repurchased common stock for $1.8 million. In 2025, we repurchased $30.2 million of our common stock.

Critical Accounting Estimates

The preparation of consolidated financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions, and estimates that affect the amounts reported. Note 1. Summary of Operations and Significant Accounting Policies and Estimates in Part II, Item 8 “Financial Statements and Supplementary Data” describes the significant accounting policies used in the preparation of our consolidated financial statements. The accounting positions described below are significantly affected by critical accounting estimates. Such accounting policies and estimates require significant judgments and assumptions to be used in the preparation of the consolidated financial statements and actual results could differ materially from the amounts reported based on variability in factors affecting these estimates.

Inventories

We value inventories at the lower of cost or net realizable value, computed on a first-in, first-out basis. General market conditions, as well as our design activities, can cause certain products to become obsolete and we adjust our inventory carrying value for estimated excess and obsolescence equal to the difference between the cost of inventory and the estimated net realizable value based on projected end-user demand, which is determined by considering historical usage, customer orders and forecast, and qualitative considerations such as market and economic conditions. The determination of projected end-user demand requires the use of estimates and assumptions related to projected unit sales for each product. Demand for our products can fluctuate significantly. A significant decrease in demand could result in an increase in the charges for excess inventory quantities on hand.

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.

Table of Contents

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 more likely than not realize the benefits of these deductible differences.

Due to uncertainties in any tax audit outcome, our estimates of the ultimate settlement of our unrecognized tax positions may change and the actual tax benefits may differ significantly from the estimates. 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.

For more details see Note 14. Income Taxes in Part II, Item 8 “Financial Statements and Supplementary Data.”

Business Combinations

We record the assets acquired and liabilities assumed in a business combination at their acquisition date fair values. Fair values of assets acquired, and liabilities assumed are based upon available information and may involve engaging an independent third party to perform an appraisal. Estimating fair values can be complex and subject to significant business judgment. We must also identify and include in the allocation all acquired tangible and intangible assets that meet certain criteria, including assets that were not previously recorded by the acquired entity. The estimates most commonly involve intangible assets. The excess of the purchase price over the net fair value of acquired assets and assumed liabilities is recorded as goodwill, which is not amortized but instead is evaluated for impairment at least annually. Pursuant to U.S. GAAP, an entity is allowed a reasonable period of time (not to exceed one year) to obtain the information necessary to identify and measure the fair value of the assets acquired and liabilities assumed in a business combination .

Off-Balance Sheet Arrangements

As of December 31, 2025, we did not have any off-balance sheet arrangements pursuant to Regulation S-K.

Contractual Obligations

In the normal course of business, we enter into contracts and commitments that obligate us to make payments in the future. Information regarding our obligations relating to income taxes, lease obligations, pension liabilities, and debt is provided in Note 14. Income Taxes , Note 6. Leases , Note 12. Employee Retirement Plans and Postretirement Benefits, and Note 7. Long-Term Debt , respectively, in Part II, Item 8 “Financial Statements and Supplementary Data.”

Recent Accounting Pronouncements

From time to time, updates to the Accounting Standards Codification are communicated through issuance of an Accounting Standards Update. Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our consolidated financial statements upon adoption.

To understand the impact of recently issued guidance from the Financial Accounting Standards Board (“FASB”) or other standards setting bodies, whether adopted or to be adopted, please review the information provided in Note 1. Summary of Operations and Significant Accounting Policies and Estimates in Part II, Item 8 “Financial Statements and Supplementary Data.”

Table of Contents