ADVANCED ENERGY INDUSTRIES INC MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

This management discussion and analysis should be read in conjunction with our
Annual Report on Form 10-K for the year ended December 31, 2021, which was filed
with the SEC on March 16, 2022.

Special Note on Forward-Looking Statements

This Quarterly Report on Form 10-Q contains, in addition to historical
information, forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Statements in this report that are not historical
information are forward-looking statements. For example, statements relating to
our beliefs, expectations and plans are forward-looking statements, as are
statements that certain actions, conditions, or circumstances will continue. The
inclusion of words such as "anticipate," "expect," "estimate," "can," "may,"
"might," "continue," "enables," "plan," "intend," "should," "could," "would,"
"likely," "potential," or "believe," as well as statements that events or
circumstances "will" occur or continue, indicate forward-looking statements.
Forward-looking statements involve risks and uncertainties, which are difficult
to predict and many of which are beyond our control.

Risks and uncertainties to which our forward-looking statements are subject include:

macroeconomic risks, including supply chain cost increases and other

? inflationary pressures, recession, economic volatility and cyclicality, higher

interest rates, labor shortages, foreign currency fluctuations, and pricing

controls;

political and geographical risks, including trade and other international

? disputes, war, terrorism, geopolitical tensions, trade and export controls,

natural disasters, public health issues, and industrial accidents;

? sufficiency and availability of components and materials;

? our future sales;

? our future profitability;

? managing backlog orders;

? our ability to develop new products expeditiously and be successful in the

design win process with our customers;

? the ability to stay on the leading edge of innovation and obtain and defend

necessary intellectual property protections;

? our competition;

? market acceptance of, and demand for, our products;

? the fair value of our assets and financial instruments;

? research and development expenses;

? selling, general, and administrative expenses;

? sufficiency and availability of capital resources;

? capital expenses;

? our production and operations strategy;

? our share repurchase program;

                                       25

  Table of Contents

? our tax assets and liabilities;

? our other commitments and contingent liabilities;

? adequacy of our reserve for excess and obsolete inventory;

? adequacy of our warranty reserves;

? our estimates of the fair value of assets acquired;

? restructuring activities and expenses;

? unanticipated costs in fulfilling our warranty obligations for solar inverters;

? the integration of our acquisitions;

? industry trends;

? our acquisition, divestiture, and joint venture activities; and

cost fluctuations and pressures, including prices of components, commodities

? and raw materials, and costs of labor, transportation, energy, pension, and

healthcare.

Actual results could differ materially and adversely from those expressed in any forward-looking statements. Neither we nor any other person assumes responsibility for the accuracy and completeness of such forward-looking statements and readers are cautioned not to place undue reliance on forward-looking statements.

For additional information regarding factors that may affect our actual
financial condition, results of operations and accuracy of our forward-looking
statements, see the information under the caption "Risk Factors" in Part II,
Item 1A of this Quarterly Report on Form 10-Q and, in Part I, Item 1A in our
Annual Report on Form 10-K for the year ended December 31, 2021. We undertake no
obligation to revise or update any forward-looking statements for any reason.

BUSINESS AND MARKET OVERVIEW

Advanced Energy provides highly engineered, mission-critical, precision power
conversion, measurement, and control solutions to our global customers. We
design, manufacture, sell and support precision power products that transform,
refine, and modify the raw electrical power coming from either the utility or
the building facility and convert it into various types of highly controllable,
usable power that is predictable, repeatable, and customizable to meet the
necessary requirements for powering a wide range of complex equipment.

Our plasma power solutions enable innovation in complex semiconductor and thin
film plasma processes such as dry etch, strip and deposition. Our broad
portfolio of high and low voltage power products are used in a wide range of
applications, such as semiconductor equipment, industrial production, medical
and life science equipment, data center and telecommunication. We also supply
related sensing, controls, and instrumentation products for advanced measurement
and calibration of radio frequency ("RF") power and temperature, electrostatic
instrumentation products for test and measurement applications, and gas sensing
and monitoring solutions for multiple industrial markets. Our network of global
service support centers provides a recurring revenue opportunity as we offer
repair services, conversions, upgrades, refurbishments, and used equipment to
companies using our products.

Advanced Energy is organized on a global, functional basis and operates in the
single segment for power electronics conversion products. Within this segment,
our products are sold into the Semiconductor Equipment, Industrial and Medical,
Data Center Computing, and Telecom and Networking markets. We provide market
revenue data to enable tracking of trends.

In April 2022, we acquired SL Power Electronics Corporation ("SL Power").
See Note 2. Acquisitions in Part I, Item 1 "Unaudited Consolidated Financial
Statements." This acquisition added complementary products to Advanced Energy's
medical power offerings and extends our presence in several advanced industrial
markets.

                                       26

  Table of Contents

At the beginning of 2020 we saw the spread of COVID-19, which grew into a global
pandemic. Our focus on providing a healthy and safe working environment for our
employees led to intermittent shutdowns of our manufacturing facilities to
implement new health and safety protocols and additional investments to comply
with government guidelines. Since 2020, there have been periods when some of our
manufacturing facilities were not operating or were operating at reduced
capacity due to government mandates to restrict travel, maintain social
distancing, and implement health and safety procedures. Additionally, during the
first half of 2022, there were ongoing restrictions related to COVID-19 and
disruptions in an already challenged global supply chain that disrupted our
workforce and limited the availability of certain materials, parts,
subcomponents, and subassemblies needed for production, which impacted our
ability to fulfill product shipments to meet customer demand and contributed to
increased backlog. The shortage of critical components was caused by a variety
of factors including the pandemic-driven rise in consumer demand for technology
goods, increased demand for electronic components used in a wide variety of
industries, logistics-related disruptions in shipping, and capacity limitations
at some suppliers due to COVID-19 and its variants, labor shortages, and other
factors. We expect the challenges associated with this environment to continue
for the remainder of 2022.

Although COVID-19 has impacted our revenues and manufacturing efficiency for the
last two years, COVID-19 has not materially impacted our liquidity, our ability
to access capital, our ability to comply with our debt covenants or the fair
value of our assets. Additionally, we believe the accommodations we have made to
our work environment, including employees utilizing work-from-home arrangements
where necessary, will not impact our ability to maintain effective internal
controls over financial reporting.

Looking forward, we expect that for the remainder of 2022 customer demand will
remain strong across our served markets; however, our ability to procure
critical components to meet our customers' needs will continue to be limited by
the ongoing constraints in the global supply chain. These supply constraints
have led to longer lead times in procuring materials and subcomponents and, in
some cases, higher costs and inventory level requirements. We have implemented
measures to improve supply of critical materials and components and to mitigate
the impact of these higher input costs, and these actions have enabled us to
better meet customer demand. However, it is not clear how long this supply chain
condition will continue, how quickly it may recover, the extent to which our
mitigating actions will be successful, or to what extent we can recover our
higher costs. In addition, recent increases in global inflation, interest rates,
geopolitical tensions, and other factors impacting macroeconomic growth may
impact future demand and our cost base. As such, our forward-looking projections
of revenues, earnings, and cash flow may be adversely impacted if the supply
chain constraint, COVID-19, or macroeconomic environment continues or further
deteriorates.

For additional discussion on the potential impacts of COVID-19 to the future
operations of our business, please see the information under the caption "Risk
Factors" in Part II, in Item 1A of this Quarterly Report on Form 10-Q and Part
I, Item 1A in our Annual Report on Form 10-K for the year ended
December 31, 2021.

                                       27

  Table of Contents

Semiconductor Equipment Market

Growth in the Semiconductor Equipment market is driven by growing integrated
circuits content across many industries such as processing and storage in
advanced applications including artificial intelligence, edge and cloud
computing, autonomous vehicles, and the rapid adoption of advanced mobile
connectivity solutions such as 5G, which enhances existing and enables new
wireless applications. To address the long-term growing demand for semiconductor
devices, the industry continues to invest in production capacities for both
leading-edge and trailing-edge nodes, logic devices, the latest memory devices,
back-end test, and advanced wafer-level packaging. The industry's transition to
advanced technology nodes in logic and DRAM and to increased layers in 3D NAND
memory devices require an increased number of plasma-based etch and deposition
process tools and higher content of our advanced power solutions per tool. As
etching and deposition processes become more challenging due to increasing
aspect ratios in advanced 3D devices, more advanced RF and direct current ("DC")
plasma generation technologies are needed. We strive to meet these challenges by
providing a broader range of more complex RF and DC power solutions. Beyond etch
and deposition processes, the growing complexity at the advanced nodes also
drive a higher number of other processes across the wafer fab, including
inspection, metrology, thermal, ion implantation, and semiconductor test and
assembly, where Advanced Energy is actively participating as a critical
technology provider. In addition, our global support services group offers
comprehensive local repair service, upgrade, and retrofit offerings to extend
the useable life of our customers' capital equipment for additional technology
generations. Our strategy in the Semiconductor Equipment market is to defend our
proprietary positions in our core applications, grow our market position in
applications where we have lower share, including remote plasma source and
dielectric etch, and leverage our product portfolio in areas such as embedded
power, high voltage power system, and critical sensing and controls to grow our
share and contents at our key original equipment manufacturer ("OEM") customers.

The Semiconductor Equipment market continues to experience demand growth driven
by higher semiconductor contents across many industries, increased capital
intensity at the leading-edge process nodes, semiconductor device makers
investing in the trailing-edge nodes due to supply constraints and increased
regional investments of semiconductor capacities. Advanced Energy participated
in this market growth by delivering record revenue from the Semiconductor
Equipment market in 2021 and in the first half of 2022, even with the negative
impact of the global supply constraints. Throughout the remainder of 2022, we
expect demand will continue to increase as chipmakers invest in new fab
capacities driven by growing demand for semiconductor devices for a wide range
of applications, the continued transition to next generation processing nodes,
and the need to resolve backlog and supply constraints in the industry. As a
result, we expect to continue to invest in both increasing our capacity and
capability to meet market demand for our products.

Industrial and Medical Markets

Customers in the Industrial and Medical market incorporate our advanced power,
embedded power, and measurement products into a wide variety of equipment used
in applications such as advanced material fabrication, medical devices,
analytical instrumentation, test and measurement equipment, robotics, industrial
production, and large-scale connected light-emitting diode applications.

Advanced Energy serves the Industrial and Medical market with mission-critical
power components that deliver high reliability, precise, low noise or
differentiated power to the equipment they serve. Our customers in this market
are primarily global and regional original equipment and device manufacturers.
These OEM customers incorporate our products and solutions into their equipment.
Examples of products sold into the Industrial and Medical market include high
voltage and low voltage power supplies used in applications such as medical
devices, analytical instruments, test and measurement, medical lasers,
scientific instrumentation and industrial equipment, power control modules and
thermal instrumentation products for material fabrication, production process
controls, and many precision industrial sensing applications.

                                       28

Table of contents

Growth in the Industrial and Medical market is being driven by growth
investments in complex manufacturing processes or automation, increased adoption
of smart power, sensing, and control solutions across many industrial
applications, new investments in clean and sustainable technologies, and growing
investments in medical devices and life science equipment. Our strategy in the
Industrial and Medical market is to expand our product offerings and channel
reach, leveraging common platforms, derivatives, and customizations to further
penetrate a broader set of applications, such as medical, test and measurement,
indoor farming, and many other applications.

During 2021 and the first half 2022, we saw increased demand in the Industrial
and Medical market as our customers increase investments in their production
capacity and the medical technology industry recovers from the pandemic-related
slowdown. In the first half of 2022, overall customer demand increased compared
to the same period in the prior year, but supply constraints of critical
components limited our ability to fulfill product shipments at the level of
customer demand. We expect demand in the Industrial and Medical market to
continue to grow in the remainder of 2022, but product delivery will be
dependent on resolving our supply constraint condition. It is not clear how long
these supply shortages will persist or on what timelines our supply may recover.

Data Center Computing Markets

Advanced Energy serves the Data Center Computing market with industry leading
power conversion products and technologies, which we sell to OEMs and original
design manufacturers ("ODMs") of data center server and storage systems, as well
as cloud service providers and their partners. Driven by the growing adoption of
cloud computing, market demand for server and storage equipment shifted from
traditional enterprise on-premises computing to the data center, driving
investments in data center infrastructure. In addition, the data center industry
started to transition to 48 Volt infrastructure, where 48 Volt DC power replaces
12 Volt in server racks in order to improve overall power efficiency. Advanced
Energy benefits from these trends by leading the industry in providing
high-efficiency 48 Volt server power solutions to the data center industry.
Further, demand for edge computing is growing, driven by the need for faster
processing, lower latency, higher data security, and more reliability than
traditional cloud computing. Due to its wide range of many unique configurations
and requirements, edge computing creates additional opportunities for Advanced
Energy. Lastly, the rapid growth and adoption of artificial intelligence and
machine learning are driving accelerated demand for server and storage racks
with increased power density and higher efficiency, which compliments Advanced
Energy's strengths. With a growing presence at both cloud service providers and
industry-leading data center server and storage vendors, we believe Advanced
Energy is well positioned to continue to capitalize on the ongoing shift towards
cloud computing. Our strategy in the Data Center and Computing market is to
penetrate selected additional customers and profitable applications based on our
differentiated capability and competitive strengths in power density,
efficiency, and controls.

Customer demand for our products rose during the past two years as COVID-19
accelerated demand for cloud and network applications. However, our 2021 revenue
declined year over year due to the limited availability of parts given global
supply constraints, which prevented us from producing products to meet the
growing customer demand. Revenue in this market in the first half of 2022
increased compared to the same period in the prior year as demand grew and we
were able to secure additional critical components. However, the supply of the
critical components remains highly constrained, impacting our ability to fulfill
product shipments at the level of customer demand. It is not clear how long
these supply shortages will persist or how quickly our supply may recover.

Telecom and Networking Markets

Our customers in the Telecom and Networking market include many leading vendors
of wireless infrastructure equipment, telecommunication equipment and computer
networking. The wireless telecom market continues to evolve with more advanced
mobile standards. 5G wireless technology promises to drive substantial growth
opportunities for the telecom industry as it enables new advanced applications
such as autonomous vehicles and virtual/augmented reality. Telecom service
providers are investing in 5G infrastructure, and this trend is expected to
drive demand of our products into the Telecom and Networking market. In datacom,
demand is driven by networking investments by telecom service providers and
enterprises upgrading their networks, as well as cloud service providers and
data centers investing in their networks for increased bandwidth. Our strategy
in the Telecom and Networking market is to optimize our portfolio of products to
more differentiated applications, and to focus on 5G infrastructure
applications.

                                       29

  Table of Contents
During 2021, revenue declined on an annual basis as a result of the limited
availability of parts given global supply constraints and our internal decision
to optimize our portfolio toward higher margin and value-added applications for
the Telecom and Networking market. Revenue increased in the first half of 2022
compared to the same period in the prior year due to increased customer demand
and our ability to secure additional critical components. For the remainder of
2022, we expect demand in this market to continue to grow driven by increased
investments in 5G infrastructure in the U.S. and Europe, but the supply
constraint condition continues to negatively impact our ability to fulfill
product shipments at the level of customer demand. It is not clear how long
these supply shortages will persist or how quickly our supply may recover.

Results of Continuing Operations

The analysis presented below is organized to provide the information we believe
will be helpful for understanding of our historical performance and relevant
trends going forward and should be read in conjunction with our "Unaudited
Consolidated Financial Statements" in Part I, Item 1 of this report, including
the notes thereto. Also included in the following analysis are measures that are
not in accordance with U.S. GAAP. A reconciliation of the non-GAAP measures to
U.S. GAAP is provided below.

The following table sets forth certain data derived from our Consolidated Statements of Operations (in thousands):

                                                Three Months Ended June 30,             Six Months Ended June 30,
                                                  2022                2021                2022               2021
Sales                                        $      440,949      $      361,311      $      838,408     $      712,931
Gross profit                                        162,158             135,033             306,474            272,536
Operating expenses                                  109,393              93,953             209,052            187,274
Operating income from continuing
operations                                           52,765              41,080              97,422             85,262
Other income (expense), net                           3,249             (3,662)               2,407            (4,169)
Income from continuing operations before
income taxes                                         56,014              37,418              99,829             81,093
Provision for income taxes                           11,203               1,876              18,156              7,160
Income from continuing operations, net of
income taxes                                 $       44,811      $       35,542      $       81,673     $       73,933


                                               Three Months Ended June 30,           Six Months Ended June 30,
                                                 2022               2021              2022               2021
Sales                                                100.0 %            100.0 %           100.0 %            100.0 %
Gross profit                                          36.8               37.4              36.6               38.2
Operating expenses                                    24.8               26.0              24.9               26.3
Operating income from continuing
operations                                            12.0               11.4              11.6               12.0
Other income (expense), net                            0.7              (1.0)               0.3              (0.6)
Income from continuing operations before
income taxes                                          12.7               10.4              11.9               11.4
Provision for income taxes                             2.5                0.5               2.2                1.0
Income from continuing operations, net of
income taxes                                          10.2 %              9.8 %             9.7 %             10.4 %


                                       30

  Table of Contents

SALES, NET

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

                              Three Months Ended June 30,           Change 2022 v. 2021
                                2022                2021             Dollar       Percent
Semiconductor Equipment    $      228,797      $      176,671      $    52,126       29.5 %
Industrial and Medical            104,951              83,197           21,754       26.1
Data Center Computing              69,161              69,458            (297)      (0.4)
Telecom and Networking             38,040              31,985            6,055       18.9
Total                      $      440,949      $      361,311      $    79,638       22.0 %


                            Six Months Ended June 30,           Change 2022 v. 2021
                              2022               2021            Dollar       Percent
Semiconductor Equipment  $      431,754     $      357,387     $    74,367       20.8 %
Industrial and Medical          187,849            161,612          26,237       16.2
Data Center Computing           145,399            128,612          16,787       13.1
Telecom and Networking           73,406             65,320           8,086       12.4
Total                    $      838,408     $      712,931     $   125,477       17.6 %


                                                         Three Months Ended June 30,                     Six Months Ended June 30,
                                                      2022                      2021                   2022                   2021
Semiconductor Equipment                                     51.9 %                        48.9 %            51.5 %                    50.1 %
Industrial and Medical                                      23.8                          23.0              22.4                      22.7
Data Center Computing                                       15.7                          19.2              17.3                      18.0
Telecom and Networking                                       8.6                           8.9               8.8                       9.2
Total                                                      100.0 %                       100.0 %           100.0 %                   100.0 %


OPERATING EXPENSES

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

                                             Three Months Ended June 30,
                                              2022                  2021
Research and development                $  48,009    10.9 %   $  40,119    11.1 %
Selling, general, and administrative       55,022    12.5        48,110    13.3
Amortization of intangible assets           6,523     1.5         5,513    

1.5

Restructuring charges (benefit)             (161)       -           211    
0.1
Total operating expenses                $ 109,393    24.8 %   $  93,953    26.0 %

                                               Six Months Ended June 30,
                                              2022                  2021
Research and development                $  91,623    10.9 %   $  80,287    11.3 %
Selling, general, and administrative      104,340    12.4        94,841    13.3
Amortization of intangible assets          12,032     1.4        10,897    
1.5
Restructuring charges                       1,057     0.1         1,249     0.2
Total operating expenses                $ 209,052    24.9 %   $ 187,274    26.3 %


                                       31

  Table of Contents

SALES AND BACKLOG

Total Sales

Sales increased $79.6 million, or 22.0%, to $440.9 million for the three months
ended June 30, 2022 and $125.5 million, or 17.6%, to $838.4 million for the six
months ended June 30, 2022 as compared to the same periods in the prior year.

The increase in sales was primarily due to growth in the overall Semiconductor
Equipment market and measures we took to improve material availability and
capacity, which allowed us to better meet the demand across our markets. During
the three and six months ended June 30, 2022, the acquisition of SL Power
Electronics Corporation ("SL Power") contributed $12.9 million to our total
sales. For additional information, see Note 2. Acquisitions in Part I,
Item 1 "Unaudited Consolidated Financial Statements."

Revenues in the first half of 2022 continued to be constrained relative to
demand across all of our markets by supply chain shortages for certain
integrated circuits and other components, which limited our ability to fulfill
product shipments to meet our total demand. As a result, we saw an increase in
backlog, as indicated in the table below.

Backlog

The following table summarizes our backlog (in thousands):

                                                                                         Change from
                                                               Change from               Same Period
            June 30,       December 31,      June 30,            Year End                One Year Ago
              2022             2021             2021        Dollar      Percent       Dollar      Percent
Backlog    $ 1,166,490    $       927,810    $  534,707    $ 238,680       25.7 %    $ 631,783      118.2 %


Backlog represents outstanding orders for products we expect to deliver within
the next 12 months. Backlog increased meaningfully from the end of last year and
the same period one year ago due to the global supply constraint environment,
resulting in customers placing larger orders than historical levels in
anticipation of longer-term demand and our lead time extending. We believe these
higher backlog levels provide some level of revenue protection if demand levels
are reduced due to macroeconomic factors.

Backlog at any particular date is not necessarily indicative of actual sales
which may be generated for any succeeding period. In addition, there is
uncertainty of the timing of when backlog can convert into revenue due to supply
chain constraints. Because our customers generally order on a purchase order
basis, they can typically cancel, change, or delay product purchase commitments
with little or no notice.

Sales by Market

Sales in the Semiconductor Equipment market increased $52.1 million, or 29.5%,
to $228.8 million for the three months ended June 30, 2022 and $74.4 million, or
20.8%, to $431.8 million for the six months ended June 30, 2022 as compared to
the same periods in the prior year. The increase in sales during 2022 is
primarily due to growth in the semiconductor equipment market, improving parts
availability, increases in factory output, market share gains in selected areas,
and expansion of our product portfolio.

Sales in the Industrial and Medical market increased $21.8 million, or 26.1%, to
$105.0 million for the three months ended June 30, 2022 and $26.2 million, or
16.2%, to $187.8 million for the six months ended June 30, 2022, as compared to
the same periods in the prior year. The increase in sales relative to the same
period in the prior year was primarily due to incremental sales from our
acquisition of SL Power, improved material availability, and increased demand
for our products.

Sales in the Data Center Computing market decreased $0.3 million, or 0.4%, to
$69.2 million for the three months ended June 30, 2022 and increased $16.8
million, or 13.1%, to $145.4 million for the six months ended June 30, 2022 as
compared to the same periods in the prior year. The increase in Data Center
Computing market sales during the

                                       32

Table of contents

six months ended June 30, 2022 is due in part to the digestion of equipment at
key accounts in early 2021 and better supply availability, which enabled us to
partially fulfill product shipments against higher customer demand.

Sales in the Telecom and Networking market increased $6.1 million, or 18.9%, to
$38.0 million for the three months ended June 30, 2022 and $8.1 million, or
12.4%, to $73.4 million for the six months ended June 30, 2022 as compared to
the same periods in the prior year. The increase in sales was primarily due to
improved material availability enabling us to better meet higher customer
demand.

BIG PROFIT

For the three months ended June 30, 2022, gross profit increased $27.1 million
to $162.2 million, or 36.8% of revenue, as compared to $135.0 million, or 37.4%
of revenue, in the same period in the prior year. For the six months ended June
30, 2022, gross profit increased $33.9 million to $306.5 million, or 36.6% of
revenue, as compared to $272.5 million, or 38.2% of revenue, in the same period
in the prior year. The decrease in gross profit as a percent of revenue is
largely related to higher material and freight costs. Additional drivers of our
decrease in gross profit as a percentage of sales include productivity
inefficiencies resulting from supply constraints, COVID-19 capacity
restrictions, and the transition of our Shenzhen, People's Republic of China
manufacturing to Penang, Malaysia. These factors were partly offset by increased
volume and favorable product mix.

OPERATING EXPENSE

Research and Development

We perform R&D of products to develop new or emerging applications,
technological advances to provide higher performance, lower cost, or other
attributes that we may expect to advance our customers' products. We believe
that continued development of technological applications, as well as
enhancements to existing products and related software to support customer
requirements, are critical for us to compete in the markets we serve.
Accordingly, we devote significant personnel and financial resources to the
development of new products and the enhancement of existing products, and we
expect these investments to continue.

Research and development expenses increased $7.9 million to $48.0 million for
the three months ended June 30, 2022 and increased $11.3 million to $91.6
million for the six months ended June 30, 2022 as compared to the same periods
in the prior year. The increase in research and development expense is related
to the acquisition of SL Power, increased headcount and associated costs,
outside technical services, and engineering materials as we invest in new
programs to maintain and increase our technological leadership and provide
solutions to our customers' evolving needs.

Selling, General and Administrative

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

Selling, general and administrative ("SG&A") expenses increased $6.9 million to
$55.0 million for the three months ended June 30, 2022 and increased $9.5
million to $104.3 million for the six months ended June 30, 2022 as compared to
the same periods in the prior year. The increase in SG&A is principally related
to acquisition related activities, sales commissions driven by higher revenue,
an increase in headcount, and an increase in variable compensation.

Amortization of Intangibles

Amortization expense increased $1.0 million to $6.5 million during the three
months ended June 30, 2022 and increased $1.1 million to $12.0 million for the
six months ended June 30, 2022, as compared to the same periods in the prior
year. The increase is primarily driven by incremental amortization of newly
acquired intangible assets. For

                                       33

Table of contents

additional information, see Note 2. Acquisitions and Note 12. Intangible Assets in Part I, Item 1 “Unaudited Consolidated Financial Statements.”

restructuring

Restructuring charges relate to previously announced management plans to optimize our manufacturing footprint to lower cost regions, improvements in operating efficiencies, and synergies related to acquisitions. For additional information, see Note 13. Restructuring Costs in Part I, Item 1 “Unaudited Consolidated Financial Statements.”

OTHER INCOME (EXPENSE), NET

Other income (expense), net consists primarily of interest income and expense,
foreign exchange gains and losses, gains and losses on sales of fixed assets,
and other miscellaneous items.

Other income (expense), net increased $6.9 million to $3.2 million for the three
months ended June 30, 2022 and increased $6.6 million to $2.4 million for the
six months ended June 30, 2022 as compared to the same periods in the prior
year. The increase in income between periods is primarily a result of higher
unrealized foreign exchange gains due to the strengthening US dollar compared to
our other foreign currencies. This was partially offset by higher interest
expense on increasing interest rates.

PROVISION FOR INCOME TAXES

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

                                                             Three Months Ended June 30,           Six Months Ended June 30,
                                                               2022                2021             2022               2021

Income from continuing operations, before income taxes $56,014

$37,418 $99,829 $81,093
Provision for income taxes

                                $       11,203      $        1,876    $      18,156      $       7,160
Effective tax rate                                                  20.0 %               5.0 %           18.2 %              8.8 %

Our effective tax rates differ from the U.S. federal statutory rate of 21% for
the three and six months ended June 30, 2022 and 2021, respectively, primarily
due to the benefit of earnings in foreign jurisdictions which are subject to
lower tax rates, as well as tax credits, partially offset by net U.S. tax on
foreign operations. The effective tax rate for both the three and six months
ended June 30, 2022 was higher than the same periods in 2021 primarily driven by
the global impact to our provision from capitalizing and amortizing research and
development expenses rather than immediately expensing them starting in 2022 as
required by the 2017 Tax Cuts and Jobs Act. Congress has proposed tax
legislation to delay the effective date of this change, but it is uncertain
whether the proposed delay will ultimately be enacted into law. Additionally,
there were beneficial discrete events in 2021 that did not recur in 2022.

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

Non-GAAP Results

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

                                       34

  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 non-economic foreign exchange gains/losses. In addition, they exclude
discontinued operations and other non-recurring items such as
acquisition-related costs and restructuring expenses, as they are not indicative
of future performance. The tax effect of our non-GAAP adjustments represents the
anticipated annual tax rate applied to each non-GAAP adjustment after
consideration of their respective book and tax treatments and effect of adoption
of the 2017 Tax Cuts and Jobs Act.

Reconciliation of non-GAAP measure Operating expenses and operating income from continuing operations, Three Months Ended June 30Six Months Ended June 30excluding certain items (in thousands)

                                      2022                2021              2022             2021
Gross profit from continuing operations, as reported                   $   

162,158 $135,033 $306,474 $272,536
Adjustments to gross profit: Stock-based compensation

                                                          402                 215               633             565
Facility expansion, relocation costs and other                                  1,187               1,997             2,471           3,835
Acquisition-related costs                                                          64                  84             (438)              92
Non-GAAP gross profit                                                         163,811             137,329           309,140         277,028
Non-GAAP gross margin                                                           37.1%               38.0%             36.9%           38.9%

Operating expenses from continuing operations, as reported                    109,393              93,953           209,052         187,274

Adjustments:

Amortization of intangible assets                                             (6,523)             (5,513)          (12,032)        (10,897)
Stock-based compensation                                                      (4,656)             (3,229)           (8,353)         (8,580)
Acquisition-related costs                                                     (4,159)             (2,328)           (5,827)         (4,356)
Facility expansion, relocation costs and other                                      -                (63)                 -           (114)
Restructuring charges                                                             161               (211)           (1,057)         (1,249)
Non-GAAP operating expenses                                                    94,216              82,609           181,783         162,078
Non-GAAP operating income                                              $   

69,595 $54,720 $127,357 $114,950
Non-GAAP operating margin

                                                       15.8%               15.1%             15.2%           16.1%


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

                                                       Three Months Ended June 30,           Six Months Ended June 30,
excluding certain items (in thousands, except per share
amounts)                                                            2022                2021              2022               2021

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

                                  $       

44,790 $35,511 $81,666 $73,869
Adjustments: Amortization of intangible assets

                                       6,523               5,513            12,032             10,897
Acquisition-related costs                                               4,223               2,412             5,389              4,448
Facility expansion, relocation costs, and other                         1,187               2,060             2,471              3,949
Restructuring charges                                                   (161)                 211             1,057              1,249
Unrealized foreign currency (gain) loss                               (5,569)                 885           (6,854)            (1,317)

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

                                                      85                 899                85                986
Tax effect of non-GAAP adjustments                                      (752)             (2,043)           (1,821)            (3,327)

Non-GAAP income, net of income taxes, excluding stock-based compensation

                                                           50,326              45,448            94,025             90,754
Stock-based compensation, net of taxes                                  3,946               2,636             6,971              6,998
Non-GAAP income, net of income taxes                           $       

54,272 $48,084 $100,996 $97,752
Non-GAAP diluted earnings per share

                            $         1.44      $         1.25    $         2.68     $         2.53


                                       35

  Table of Contents

Impact of Inflation

In previous years, inflation has not had a significant impact on our operations.
However, more recently we are experiencing inflationary pressure from price
increases in select components driven by factors such as higher global demand,
supply chain disruptions, higher labor expenses, and increased freight costs. In
this environment, we are actively working with our customers to adjust pricing
that helps offset the inflationary pressure on the cost of our components.

Liquidity and Capital Resources

Liquidity

We believe that adequate liquidity and cash generation is important to the
execution of our strategic initiatives. Our ability to fund our operations,
acquisitions, capital expenditures, and product development efforts may depend
on our ability to generate cash from operating activities which is subject to
future operating performance, as well as general economic, financial,
competitive, legislative, regulatory, and other conditions, some of which may be
beyond our control. Our primary sources of liquidity are our available cash,
investments, cash generated from current operations, and available borrowing
capacity under the Revolving Facility (defined in Note 18. Credit Facility in
Part I, Item 1 "Unaudited Consolidated Financial Statements").

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

                                                          June 30, 2022
Cash and cash equivalents                                $       372,685
Marketable securities                                              2,162

Total cash, cash equivalents, and marketable securities $374,847


We believe the above sources of liquidity will be adequate to meet anticipated
working capital needs, anticipated levels of capital expenditures, contractual
obligations, debt repayment, share repurchase programs, and dividends for the
next twelve months and on a long-term basis. In addition, we may, depending upon
the number or size of additional acquisitions, seek additional debt or equity
financing from time to time; however, such additional financing may not be
available on acceptable terms, if at all.

Credit Facility

For information on our Credit Facility, see Note 18. Credit Facility and Note 7. Derivative Financial Instruments in Part I, Item 1 “Unaudited Consolidated Financial Statements.”

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

June 30, 2022

                                                           Balance     Interest Rate    Unused Line Fee
Term Loan Facility subject to a fixed interest rate       $ 246,969           1.271%                  -
Term Loan Facility subject to a variable interest rate      138,031           2.416%                  -
Revolving Facility subject to a variable interest rate            -           2.416%              0.10%
Total borrowings under the Credit Agreement               $ 385,000


As of June 30, 2022we had $200.0 million in available funding under the Revolving Facility. The Term Loan Facility requires quarterly repayments of $5.0 million plus increased interest, with the remaining balance due in September 2026.

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

                                       36

  Table of Contents

Dividends

In March 2021, the Board of Directors (the "Board") declared the first quarterly
cash dividend since our inception as a public company. During the six months
ended June 30, 2022, we paid quarterly cash dividends of $0.10 per share
totaling $7.6 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 the Board and will depend on
our financial condition, results of operations, capital requirements, business
conditions, and other factors.

Share Repurchase

To execute the repurchase of shares of our common stock, we periodically enter into stock repurchase agreements. The following table summarizes these repurchases:

                                                   Three Months Ended June 30,           Six Months Ended June 30,
(in thousands, except per share amounts)             2022                2021              2022               2021
Amount paid or accrued to repurchase shares     $        17,019      $       6,503    $       23,613      $      6,503
Number of shares repurchased                                230                 72               312                72
Average repurchase price per share              $         74.12      $     

90.34 $75.68 $90.34

At June 30, 2022, the remaining amount authorized by the Board of Directors for
future share repurchases was $104.8 million. In July 2022, the Board of
Directors approved an increase to the share repurchase plan that changed the
remaining amount authorized for future repurchases to a maximum of $200.0
million with no time limitation.

Cash Flow

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

                                                                     Six Months Ended June 30,
                                                                        2022              2021

Net cash from operating activities from continuing operations $47,541 $88,066
Net cash from operating activities from discontinued operations

                 55           (377)
Net cash from operating activities                                          47,596          87,689
Net cash from investing activities from continuing operations            (171,255)        (32,889)
Net cash from financing activities from continuing operations             (42,840)        (26,239)
Effect of currency translation on cash and cash equivalents                (5,188)         (1,753)
Net change in cash and cash equivalents                                  (171,687)          26,808
Cash and cash equivalents, beginning of period                             544,372         480,368
Cash and cash equivalents, end of period                           $      

372,685 $507,176

Net Cash From Operating Activities

Net cash from operating activities from continuing operations for the six months
ended June 30, 2022, was $47.5 million, as compared to $88.1 million for the
same period in the prior year. The decrease of $40.6 million in net cash flows
from operating activities as compared to the same period in the prior year is
due to an unfavorable increase in net operating assets driven primarily by our
increased investment in inventory as we attempted to mitigate supply chain
constraints.

                                       37

  Table of Contents

Net Cash From Investing Activities

Net cash from investing activities for the six months ended June 30, 2022 was
($171.3) milliondriven by the following:

? ($145.8) million for business combinations; and

? ($25.5) million in purchases of property and equipment largely driven by

investments in our manufacturing footprint and capacity.

Net cash from investing for the six months ended June 30, 2021 was ($32.9) milliondriven by the following:

? ($14.2) million in purchases of property and equipment largely driven by

investments in our manufacturing footprint and capacity; and

? ($18.7) million for business combinations.

Net Cash From Financing Activities

Net cash from financing activities for the six months ended June 30, 2022 was
($42.8) million and included the following:

? ($23.6) million related to repurchases of our common stock;

? ($10.0) million for repayment of long-term debt;

? ($7.6) million for dividend payments; and

? ($1.7) million in net payments related to stock-based award activities.

Net cash from financing activities for the six months ended June 30, 2021 was
($26.2) million and included the following:

? ($6.5) million related to repurchases of our common stock;

? ($8.8) million for repayment of long-term debt;

? ($3.3) million in net payments related to stock-based award activities; and

? ($7.7) million for dividend payments.

Effect of Currency Translation on Cash

During the three and six months ended June 30, 2022currency translation had an unfavorable impact primarily due to a stronger US dollar. See “Foreign Currency Exchange Rate Risk” in Part I, Item 3 of this Form 10-Q for more information.

                                       38

  Table of Contents

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity
with U.S. GAAP requires us to make judgments, assumptions and estimates that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Note 1. Operation and Summary of Significant Accounting
Policies and Estimates to the consolidated financial statements in our Annual
Report on Form 10-K for the year ended December 31, 2021, describes the
significant accounting policies and methods used in the preparation of our
consolidated financial statements. Our critical accounting estimates, discussed
in the "Management's Discussion and Analysis of Financial Condition and Results
of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year
ended December 31, 2021, include:

? estimates for the valuation of assets and liabilities acquired in business

combinations;

? accounting for income taxes;

? inputs to actuarial models that measure our pension obligations; and

? assessing excess and obsolete inventories.

Such accounting policies and estimates require significant judgments and assumptions to be used in the preparation of the consolidated financial statements and actual results could differ materially from the amounts reported based on variability in factors affecting these estimates.

© Edgar Online, source Glimpses

.

Leave a Comment