UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark one)
For the quarterly period ended June 29, 2024
Or
For the transition period from to
Commission file number: 000-50307
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(Address of principal executive offices, including zip code)
(925 ) 290-4000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||||||||
______________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of the Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| ☒ | Accelerated Filer | ☐ | Non-accelerated Filer | ☐ | |||||||||||||
| Smaller Reporting Company | Emerging Growth Company | ||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 31, 2024, 77,389,392 shares of the registrant’s common stock, par value $0.001 per share, were outstanding.
FORMFACTOR, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 29, 2024
INDEX
Item 5. | Other Information | |||||||
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FORMFACTOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
| June 29, 2024 | December 30, 2023 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Marketable securities | |||||||||||
Accounts receivable, net of allowance for credit losses of $ | |||||||||||
| Inventories, net | |||||||||||
| Restricted cash | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Restricted cash | |||||||||||
| Operating lease, right-of-use-assets | |||||||||||
| Property, plant and equipment, net of accumulated depreciation | |||||||||||
| Goodwill | |||||||||||
| Intangibles, net | |||||||||||
| Deferred tax assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued liabilities | |||||||||||
| Current portion of term loan, net of unamortized issuance costs | |||||||||||
| Deferred revenue | |||||||||||
| Operating lease liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Term loan, less current portion, net of unamortized issuance costs | |||||||||||
| Long-term operating lease liabilities | |||||||||||
| Deferred grant | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| Stockholders’ equity: | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Accumulated income | |||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | ||||||||||||||||||||
| Revenues | $ | $ | $ | $ | |||||||||||||||||||
| Cost of revenues | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Gain on sale of business | |||||||||||||||||||||||
| Operating income (loss) | ( | ( | |||||||||||||||||||||
| Interest income, net | |||||||||||||||||||||||
| Other income, net | |||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Provision (benefit) for income taxes | ( | ( | |||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Net income per share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted-average number of shares used in per share calculations: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | ( | ||||||||||||||||||||
| Unrealized gains (losses) on available-for-sale marketable securities | ( | ( | ( | ||||||||||||||||||||
| Unrealized losses on derivative instruments | ( | ( | ( | ( | |||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | ( | ||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except shares)
(Unaudited)
| Shares of Common Stock | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Income (Deficit) | Total | ||||||||||||||||||||||||||||||
Three Months Ended June 29, 2024 | |||||||||||||||||||||||||||||||||||
Balances, March 30, 2024 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax | ( | — | — | ( | |||||||||||||||||||||||||||||||
| Purchase and retirement of common stock through repurchase program | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
Balances, June 29, 2024 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
Six Months Ended June 29, 2024 | |||||||||||||||||||||||||||||||||||
Balances, December 30, 2023 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
| Issuance of common stock under the Employee Stock Purchase Plan | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax | ( | — | — | ( | |||||||||||||||||||||||||||||||
| Purchase and retirement of common stock through repurchase program | ( | ( | — | — | ( | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
Balances, June 29, 2024 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||||||||
Three Months Ended July 1, 2023 | |||||||||||||||||||||||||||||||||||
| Balances, April 1, 2023 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax | ( | — | — | ( | |||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
Balances, July 1, 2023 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
Six Months Ended July 1, 2023 | |||||||||||||||||||||||||||||||||||
| Balances, December 31, 2022 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Issuance of common stock under the Employee Stock Purchase Plan | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax | ( | — | — | ( | |||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
Balances, July 1, 2023 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Six Months Ended | |||||||||||
| June 29, 2024 | July 1, 2023 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation | |||||||||||
| Amortization | |||||||||||
| Reduction in the carrying amount of right-of-use assets | |||||||||||
| Stock-based compensation expense | |||||||||||
| Deferred income tax benefit | ( | ( | |||||||||
| Provision for excess and obsolete inventories | |||||||||||
| Gain on sale of business | ( | ||||||||||
| Other adjustments to reconcile net income to net cash provided by operating activities | |||||||||||
| Changes in assets and liabilities: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventories | ( | ( | |||||||||
| Prepaid expenses and other current assets | ( | ||||||||||
| Other assets | ( | ||||||||||
| Accounts payable | |||||||||||
| Accrued liabilities | ( | ||||||||||
| Other liabilities | |||||||||||
| Deferred revenues | ( | ||||||||||
| Deferred grant | |||||||||||
| Operating lease liabilities | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| Cash flows from investing activities: | |||||||||||
| Acquisition of property, plant and equipment | ( | ( | |||||||||
| Proceeds from sale of business | |||||||||||
| Purchases of marketable securities | ( | ( | |||||||||
| Proceeds from maturities and sales of marketable securities | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from issuances of common stock | |||||||||||
| Purchase of common stock through stock repurchase program | ( | ||||||||||
| Tax withholdings related to net share settlements of equity awards | ( | ( | |||||||||
| Payments on term loan | ( | ( | |||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash, beginning of year | |||||||||||
| Cash, cash equivalents and restricted cash, end of year | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Six Months Ended | |||||||||||
| June 29, 2024 | July 1, 2023 | ||||||||||
| Non-cash investing and financing activities: | |||||||||||
| Decrease in accounts payable and accrued liabilities related to property, plant and equipment purchases | $ | $ | |||||||||
| Operating lease, right-of-use assets obtained in exchange for lease obligations | |||||||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid for income taxes, net | $ | $ | |||||||||
| Cash paid for interest | |||||||||||
| Operating cash outflows from operating leases | |||||||||||
| Reconciliation of cash, cash equivalents and restricted cash: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash, current | |||||||||||
| Restricted cash | |||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
FORMFACTOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 — Basis of Presentation and Significant Accounting Policies
Basis of Presentation
Fiscal Year
We operate on a 52/53 week fiscal year, whereby the fiscal year ends on the last Saturday of December. Fiscal 2024 and 2023 each contain 52 weeks and the six months ended June 29, 2024 and July 1, 2023 each contained 26 weeks. Fiscal 2024 will end on December 28 , 2024.
Significant Accounting Policies
Our significant accounting policies have not changed during the six months ended June 29, 2024 from those disclosed in our Annual Report on Form 10-K for the year ended December 30, 2023.
New Accounting Pronouncements
ASU 2023-09
In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The ASU includes requirements that an entity disclose specific categories in the rate reconciliation and provide additional information for reconciling items that are greater than five percent of the amount computed by multiplying pretax income by the applicable statutory income tax rate. The standard also requires that entities disclose income before income taxes and provision for income taxes disaggregated between domestic and foreign. This ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted. We have not yet determined the impact of this standard on our financial statements.
ASU 2023-07
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” The ASU includes requirements that an entity disclose the title of the chief operating decision maker (“CODM”) and on an interim and annual basis, significant segment expenses and the composition of other segment items for each segment's reported profit. The standard also permits disclosure of additional measures of segment profit. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, on a retrospective basis, with early adoption permitted. We have not yet determined the impact of this standard on our financial statements.
Note 2 — Concentration of Credit and Other Risks
Each of the following customers accounted for 10
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | ||||||||||||||||||||
| SK hynix Inc. | % | * | % | * | |||||||||||||||||||
| Intel Corporation | % | % | % | % | |||||||||||||||||||
| % | % | % | % | ||||||||||||||||||||
* Less than 10% of revenues.
At June 29, 2024 and December 30, 2023, two customers accounted for 21.2 % and 11.2 % and two customers accounted for 17.8 % and 11.0 % of gross accounts receivable, respectively.
9
Note 3 — Inventories, net
Inventories are stated at the lower of cost (principally standard cost, which approximates actual cost on a first in, first out basis) or net realizable value.
Inventories, net, consisted of the following (in thousands):
| June 29, 2024 | December 30, 2023 | ||||||||||
| Raw materials | $ | $ | |||||||||
| Work-in-progress | |||||||||||
| Finished goods | |||||||||||
| $ | $ | ||||||||||
Note 4 — Divestitures
China Operations Divestiture
On February 7, 2024, the Company entered into a definitive agreement to sell its China operations to Grand Junction Semiconductor Pte. Ltd. (“Grand Junction”) for $25.0 million in cash, subject to customary purchase price adjustments, and establish an exclusive distribution and partnership agreement to continue sales and support of our products in the region. The following subsidiaries were included as part of the divestiture: Microprobe Hong Kong Limited, FormFactor Technology (Suzhou) Co. Ltd., Cascade Microtech Singapore Pte, Ltd, and FormFactor International (Shanghai) Trading Co., Ltd. These entities supported both the Probe Cards and Systems segments.
On February 26, 2024, we closed on the sale of the operations in China to Grand Junction and received total consideration of $21.4 million, net of cash transferred and transaction expenses, and after customary adjustments for indebtedness and changes in net working capital. The disposition of the China operations did not meet the criteria to be classified as a discontinued operation in the Company’s financial statements because the disposition did not represent a strategic shift that had, or will have, a major effect on the Company’s operations and financial results.
The following table summarizes the fair value of the sale proceeds received in connection with the divestiture (in thousands):
| February 26, 2024 | ||||||||
| Gross purchase price | $ | |||||||
Working capital adjustment | ||||||||
| Cash transferred to the buyer at closing | ( | |||||||
| Direct costs to sell | ( | |||||||
| Fair value of sale consideration, net | $ | |||||||
10
The carrying amount of net assets associated with the China operations was approximately $1.2 million. The major classes of assets and liabilities sold consisted of the following (in thousands):
| February 26, 2024 | ||||||||
| ASSETS | ||||||||
| Accounts receivable, net | $ | |||||||
| Inventories, net | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| Total assets | $ | |||||||
| LIABILITIES | ||||||||
| Deferred Revenue | $ | |||||||
| Other current liabilities | ||||||||
| Other liabilities | ||||||||
| Total liabilities | $ | |||||||
As a result of the divestiture, the Company recognized a pre-tax gain of $20.3 million. The Company recorded an income tax liability associated with the divestiture of approximately $3.3 million.
FRT Divestiture
On September 18, 2023, the Company announced entry into a definitive agreement to sell its FRT Metrology (“FRT”) business to Camtek Ltd. (“Camtek”) for $100 million in cash, subject to customary purchase price adjustments. The Company acquired FRT GmbH in fiscal 2019 for total consideration of $24.4 million, net of cash acquired. Headquartered in Bergisch Gladbach, Germany, the FRT business is a leading supplier of high-precision metrology solutions for the Advanced Packaging and Silicon Carbide markets, and was part of the Company's Systems segment.
On November 1, 2023, we closed on the sale of the FRT business to Camtek and received net cash proceeds of $100.1 million, net of cash transferred and transaction expenses, and after customary adjustments for indebtedness and changes in net working capital.
The following table summarizes the fair value of the sale proceeds received in connection with the divestiture (in thousands):
| November 1, 2023 | ||||||||
| Gross purchase price | $ | |||||||
| Estimated working capital adjustment | ||||||||
| Cash transferred to the buyer at closing | ( | |||||||
| Direct costs to sell | ( | |||||||
| Fair value of sale consideration | $ | |||||||
11
The carrying amount of net assets associated with the FRT business was approximately $26.8 million. The major classes of assets and liabilities sold consisted of the following (in thousands):
| November 1, 2023 | ||||||||
| ASSETS | ||||||||
| Accounts receivable, net | $ | |||||||
| Inventories, net | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Intangibles, net | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| Total assets | $ | |||||||
| LIABILITIES | ||||||||
| Current liabilities | $ | |||||||
| Other liabilities | ||||||||
| Total liabilities | $ | |||||||
As a result of the divestiture, the Company recognized a pre-tax gain of $73.3 million. The Company recorded an income tax liability associated with the divestiture of approximately $6.0 million.
Note 5 — Goodwill and Intangible Assets
Goodwill by reportable segment was as follows (in thousands):
| Probe Cards | Systems | Total | |||||||||||||||
| Goodwill, as of December 31, 2022 | $ | $ | $ | ||||||||||||||
| Reduction - FRT divestiture | ( | ( | |||||||||||||||
| Foreign currency translation | |||||||||||||||||
Goodwill, as of December 30, 2023 | |||||||||||||||||
| Reduction - China divestiture | ( | ( | ( | ||||||||||||||
| Foreign currency translation | ( | ( | |||||||||||||||
Goodwill, as of June 29, 2024 | $ | $ | $ | ||||||||||||||
We have no t recorded goodwill impairments for the six months ended June 29, 2024.
Intangible assets were as follows (in thousands):
| June 29, 2024 | December 30, 2023 | |||||||||||||||||||||||||||||||||||||
| Intangible Assets | Gross | Accumulated Amortization | Net | Gross | Accumulated Amortization | Net | ||||||||||||||||||||||||||||||||
| Existing developed technologies | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Trade name | ||||||||||||||||||||||||||||||||||||||
| Customer relationships | ||||||||||||||||||||||||||||||||||||||
| In-process research and development | ||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
Amortization expense was included in our Condensed Consolidated Statements of Income as follows (in thousands):
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | ||||||||||||||||||||
| Cost of revenues | $ | $ | $ | $ | |||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
12
The estimated future amortization of definite-lived intangible assets, excluding in-process research and development, is as follows (in thousands):
| Fiscal Year | Amount | |||||||
Remainder of 2024 | $ | |||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Thereafter | ||||||||
| $ | ||||||||
Note 6 — Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
| June 29, 2024 | December 30, 2023 | ||||||||||
| Accrued compensation and benefits | $ | $ | |||||||||
| Accrued income and other taxes | |||||||||||
| Accrued employee stock purchase plan contributions withheld | |||||||||||
| Accrued warranty | |||||||||||
| Other accrued expenses | |||||||||||
| $ | $ | ||||||||||
Note 7 — Fair Value and Derivative Instruments
Whenever possible, the fair values of our financial assets and liabilities are determined using quoted market prices of identical securities or quoted market prices of similar securities from active markets. The three levels of inputs that may be used to measure fair value are as follows:
•Level 1 valuations are obtained from real-time quotes for transactions in active exchange markets involving identical securities;
•Level 2 valuations utilize significant observable inputs, such as quoted prices for similar assets or liabilities, quoted prices near the reporting date in markets that are less active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
•Level 3 valuations utilize unobservable inputs to the valuation methodology and include our own data about assumptions market participants would use in pricing the asset or liability based on the best information available under the circumstances.
We did not have any transfers of assets or liabilities measured at fair value on a recurring basis to or from Level 1, Level 2 or Level 3 during the six months ended June 29, 2024 or the year ended December 30, 2023.
The carrying values of Cash, Accounts receivable, net, Restricted cash, Prepaid expenses and other current assets, Accounts payable, and Accrued liabilities approximate fair value due to their short maturities.
No changes were made to our valuation techniques during the first six months of fiscal 2024.
13
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):
| June 29, 2024 | Level 1 | Level 2 | Total | |||||||||||||||||
| Assets: | ||||||||||||||||||||
| Cash equivalents: | ||||||||||||||||||||
| Money market funds | $ | $ | $ | |||||||||||||||||
| U.S. treasuries | ||||||||||||||||||||
| Commercial paper | ||||||||||||||||||||
| U.S. agency securities | ||||||||||||||||||||
| Marketable securities: | ||||||||||||||||||||
| U.S. treasuries | ||||||||||||||||||||
| U.S. agency securities | ||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||
| Commercial paper | ||||||||||||||||||||
| Interest rate swap derivative contracts | ||||||||||||||||||||
| Total assets | $ | $ | $ | |||||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Foreign exchange derivative contracts | $ | $ | ( | $ | ( | |||||||||||||||
| Total liabilities | $ | $ | ( | $ | ( | |||||||||||||||
| December 30, 2023 | Level 1 | Level 2 | Total | |||||||||||||||||
| Assets: | ||||||||||||||||||||
| Cash equivalents: | ||||||||||||||||||||
| Money market funds | $ | $ | $ | |||||||||||||||||
| U.S. treasuries | ||||||||||||||||||||
| Marketable securities: | ||||||||||||||||||||
| U.S. treasuries | ||||||||||||||||||||
| U.S. agency securities | ||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||
| Commercial paper | ||||||||||||||||||||
| Foreign exchange derivative contracts | ||||||||||||||||||||
| Interest rate swap derivative contracts | ||||||||||||||||||||
| Total assets | $ | $ | $ | |||||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Foreign exchange derivative contracts | $ | $ | ( | $ | ( | |||||||||||||||
| Total liabilities | $ | $ | ( | $ | ( | |||||||||||||||
Cash Equivalents
The fair value of our cash equivalents is determined based on quoted market prices for similar or identical securities.
Marketable Securities
We classify our marketable securities as available-for-sale and value them utilizing a market approach. Our investments are priced by pricing vendors who provide observable inputs for their pricing without applying significant judgment. Broker pricing is used mainly when a quoted price is not available, the investment is not priced by our pricing vendors or when a broker price is more reflective of fair value. Our broker-priced investments are categorized as Level 2 investments because fair value is based on similar assets without applying significant judgments. In addition, all investments have a sufficient trading volume to demonstrate that the fair value is appropriate.
14
Unrealized gains and losses were immaterial and were recorded as a component of Accumulated other comprehensive loss in our Condensed Consolidated Balance Sheets. We did not have any other-than-temporary unrealized gains or losses at either period end included in these financial statements.
Interest Rate Swap
The fair value of our interest rate swap contract is determined at the end of each reporting period based on valuation models that use interest rate yield curves as inputs. For accounting purposes, our interest rate swap contract qualifies for, and is designated as a cash flow hedge. The hedged risk is the interest rate exposure to changes in interest payments attributable to changes in our variable-rate interest over the interest rate swap term. The changes in cash flows of the interest rate swap are expected to exactly offset changes in cash flows of the variable-rate debt. Cash settlements, in the form of cash payments or cash receipts, are recognized as a component of interest expense. The cash flows associated with the interest rate swaps are reported in Net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows and the fair value of the interest rate swap contracts are recorded within Prepaid expenses and other current assets and Other assets in our Condensed Consolidated Balance Sheets.
Foreign Exchange Derivative Contracts
We operate and sell our products in various global markets. As a result, we are exposed to changes in foreign currency exchange rates. We utilize foreign currency forward contracts to hedge against future movements in foreign exchange rates that affect certain existing foreign currency denominated assets and liabilities and forecasted foreign currency revenue and expense transactions. Under this program, our strategy is to have increases or decreases in our foreign currency exposures mitigated by gains or losses on the foreign currency forward contracts in order to mitigate the risks and volatility associated with foreign currency transaction gains or losses.
We do not use derivative financial instruments for speculative or trading purposes. For accounting purposes, certain of our foreign currency forward contracts are not designated as hedging instruments and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Condensed Consolidated Balance Sheets with changes in fair value recorded within Other income, net in our Condensed Consolidated Statement of Income for both realized and unrealized gains and losses. Certain of our foreign currency forward contracts are designated as cash flow hedges, and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Condensed Consolidated Balance Sheets with changes in fair value recorded as a component of Accumulated other comprehensive loss and reclassified into earnings in the same period in which the hedged transaction affects earnings, and in the same line item on the Condensed Consolidated Statements of Income as the impact of the hedge transaction.
The fair value of our foreign exchange derivative contracts was determined based on current foreign currency exchange rates and forward points. All of our foreign exchange derivative contracts outstanding at June 29, 2024 will mature by the second quarter of fiscal 2025.
The following table provides information about our foreign currency forward contracts outstanding as of June 29, 2024 (in thousands):
| Currency | Contract Position | Contract Amount (Local Currency) | Contract Amount (U.S. Dollars) | |||||||||||||||||
| Euro | Buy | $ | ||||||||||||||||||
| Japanese Yen | Sell | |||||||||||||||||||
| Korean Won | Buy | |||||||||||||||||||
| Taiwan Dollar | Sell | |||||||||||||||||||
Our foreign currency contracts are classified within Level 2 of the fair value hierarchy as they are valued using pricing models that utilize observable market inputs.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
15
Note 8 — Warranty
We offer warranties on certain products and record a liability for the estimated future costs associated with warranty claims at the time revenue is recognized. The warranty liability is based upon historical experience and our estimate of the level of future costs. While we engage in product quality programs and processes, our warranty obligation is affected by product failure rates, material usage and service delivery costs. We regularly monitor product returns for warranty and maintain a reserve for the related expenses based upon our historical experience and any specifically identified failures. As we sell new products to our customers, we must exercise considerable judgment in estimating the expected failure rates. This estimating process is based on historical experience of similar products, as well as various other assumptions that we believe to be reasonable under the circumstances. We provide for the estimated cost of product warranties at the time revenue is recognized as a component of Cost of revenues in our Condensed Consolidated Statement of Income.
Changes in our warranty liability were as follows (in thousands):
| Six Months Ended | |||||||||||
| June 29, 2024 | July 1, 2023 | ||||||||||
| Balance at beginning of year | $ | $ | |||||||||
| Accruals | |||||||||||
| Settlements | ( | ( | |||||||||
| Balance at end of period | $ | $ | |||||||||
Note 9 — Property, Plant and Equipment, net
Property, plant and equipment, net consisted of the following (in thousands):
| June 29, 2024 | December 30, 2023 | ||||||||||
| Land | $ | $ | |||||||||
| Building and building improvements | |||||||||||
| Machinery and equipment | |||||||||||
| Computer equipment and software | |||||||||||
| Furniture and fixtures | |||||||||||
| Leasehold improvements | |||||||||||
| Sub-total | |||||||||||
| Less: Accumulated depreciation and amortization | ( | ( | |||||||||
| Net property, plant and equipment | |||||||||||
| Construction-in-progress | |||||||||||
| Total | $ | $ | |||||||||
Note 10 — Stockholders’ Equity and Stock-Based Compensation
Common Stock Repurchase Programs
On May 20, 2022, our Board of Directors authorized a two-year program to repurchase up to $75.0 million of outstanding common stock to offset potential dilution from issuance of common stock under our stock-based compensation programs. During fiscal 2022 and fiscal 2023, we repurchased and retired 1,700,893 shares of common stock for $56.4 million and 504,352 shares of common stock for $18.6 million, respectively, utilizing the remaining shares available for repurchase under the program.
On October 30, 2023, our Board of Directors authorized an additional two-year program to repurchase up to $75.0 million of outstanding common stock, with the primary purpose of offsetting potential dilution from issuance of common stock under our stock-based compensation programs. This share repurchase program will expire on October 30, 2025. During fiscal 2023 we repurchased and retired 32,020 shares of common stock for $1.2 million. During the six months ended June 29, 2024, we repurchased and retired 483,951 shares of common stock for $20.3 million, and as of June 29, 2024, $53.5 million remained available for future repurchases.
16
Our policy related to repurchases of our common stock is to charge the excess of cost over par value to additional paid-in capital once the shares are retired. Share repurchases are subject to an excise tax enabled by the Inflation Reduction Act that is generally 1% of the fair market value of the shares repurchased at the time of the repurchase, net of the fair market value of certain new stock issuances during the same taxable year. Certain exceptions apply to the excise tax. The excise tax incurred reduces the amount available under the repurchase programs, as applicable, and is included in the cost of shares repurchased in the Condensed Consolidated Statement of Stockholders Equity. All repurchases were made in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended.
Restricted Stock Units
Restricted stock unit (“RSU”) activity under our equity incentive plan was as follows:
| Units | Weighted Average Grant Date Fair Value | ||||||||||
RSUs at December 30, 2023 | $ | ||||||||||
| Awards granted | |||||||||||
| Awards vested | ( | ||||||||||
| Awards forfeited | ( | ||||||||||
RSUs at June 29, 2024 | |||||||||||
Performance Restricted Stock Units
We may grant Performance RSUs (“PRSUs”) to certain executives, which vest based upon us achieving certain market performance criteria. There were no market based PRSUs granted during the six months ended June 29, 2024. PRSUs are included as part of the RSU activity above.
Employee Stock Purchase Plan
Information related to activity under our Employee Stock Purchase Plan (“ESPP”) was as follows:
| Six Months Ended | ||||||||
| June 29, 2024 | ||||||||
| Shares issued | ||||||||
| Weighted average per share purchase price | $ | |||||||
| Weighted average per share discount from the fair value of our common stock on the date of issuance | $ | ( | ||||||
Stock-Based Compensation
Stock-based compensation was included in our Condensed Consolidated Statements of Income as follows (in thousands):
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | ||||||||||||||||||||
| Cost of revenues | $ | $ | $ | $ | |||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Total stock-based compensation | $ | $ | $ | $ | |||||||||||||||||||
Unrecognized Compensation Costs
At June 29, 2024, the unrecognized stock-based compensation was as follows (dollars in thousands):
Unrecognized Expense | Average Expected Recognition Period in Years | ||||||||||
| Restricted stock units | $ | ||||||||||
| Performance restricted stock units | |||||||||||
| Employee stock purchase plan | |||||||||||
| Total unrecognized stock-based compensation expense | $ | ||||||||||
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Note 11 — Net Income per Share
The following table reconciles the shares used in calculating basic net income per share and diluted net income per share (in thousands):
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | ||||||||||||||||||||
| Weighted-average shares used in computing basic net income per share | |||||||||||||||||||||||
| Add potentially dilutive securities | |||||||||||||||||||||||
| Weighted-average shares used in computing diluted net income per share | |||||||||||||||||||||||
| Securities not included as they would have been antidilutive | |||||||||||||||||||||||
Note 12 — Commitments and Contingencies
Leases
See Note 13, Leases.
Contractual Obligations and Commitments
Our contractual obligations and commitments have not materially changed as of June 29, 2024 from those disclosed in our Annual Report on Form 10-K for the year ended December 30, 2023.
Legal Matters
From time to time, we are subject to legal proceedings and claims in the ordinary course of business, the outcomes of which cannot be estimated with certainty. Our ability to estimate the outcomes may change in the near term and the effect of any such change could have a material adverse effect on our financial position, results of operations or cash flows.
Note 13 — Leases
We lease real estate space under non-cancelable operating lease agreements for commercial and industrial space, as well as for a portion of our corporate headquarters located in Livermore, California. Our leases have remaining terms of 1 year to 10 years, and some leases include options to extend up to 20 years. We also have operating leases for automobiles with remaining lease terms of 1 year to 2 years. We did not include any of our renewal options in our lease terms for calculating our lease liability as the renewal options allow us to maintain operational flexibility and we are not reasonably certain we will exercise these options at this time. The weighted-average remaining lease term for our operating leases was 4.2 years as of June 29, 2024 and the weighted-average discount rate was 4.65 %.
The components of lease expense were as follows (in thousands):
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 29, 2024 | July 1, 2023 | June 29, 2024 | July 1, 2023 | ||||||||||||||||||||
| Lease expense: | |||||||||||||||||||||||
| Operating lease expense | $ | $ | $ | $ | |||||||||||||||||||
| Short-term lease expense | |||||||||||||||||||||||
| Variable lease expense | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
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Future minimum payments under our non-cancelable operating leases were as follows as of June 29, 2024 (in thousands):
| Fiscal Year | Amount | |||||||
Remainder of 2024 | $ | |||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Thereafter | ||||||||
| Total minimum lease payments | ||||||||
| Less: interest | ( | |||||||
| Present value of net minimum lease payments | ||||||||
| Less: current portion | ( | |||||||
| Total long-term operating lease liabilities | $ | |||||||
Note 14 — Revenue
Transaction price allocated to the remaining performance obligations: On June 29, 2024, we had $9.2 million of remaining performance obligations, which were comprised of deferred service contracts, extended warranty contracts, and contracts with overtime revenue recognition that are not yet delivered. We expect to recognize approximately 65.1 % of our remaining performance obligations as revenue in the remainder of fiscal 2024, approximately 27.7 % in fiscal 2025, and approximately 7.2 % in fiscal 2026 and thereafter. The foregoing excludes the value of other remaining performance obligations as they have original durations of one year or less, and also excludes information about variable consideration allocated entirely to a wholly unsatisfied performance obligation.
Contract balances: The timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable is recorded at the invoiced amount, net of an allowance for credit losses. A receivable is recognized in the period we deliver goods or provide services or when our right to consideration is unconditional. A contract asset is recorded when we have performed under the contract but our right to consideration is conditional on something other than the passage of time. Contract assets as of June 29, 2024 and December 30, 2023 were $5.1 million and $3.8 million, respectively, and are reported on the Condensed Consolidated Balance Sheets as a component of Prepaid expenses and other current assets.
Contract liabilities include payments received and payments due in advance of performance under a contract and are satisfied as the associated revenue is recognized. Contract liabilities are reported on the Condensed Consolidated Balance Sheets at the end of each reporting period as a component of Deferred revenue and Other liabilities. Contract liabilities as of June 29, 2024 and December 30, 2023 were $19.1 million and $18.0 million, respectively. During the six months ended June 29, 2024, we recognized $10.5 million of revenue that was included in contract liabilities as of December 30, 2023. During the six months ended June 29, 2024, we divested contract liabilities of $1.7 million as of December 30, 2023 with the divestiture of our China operations.
Costs to obtain a contract: We generally expense sales commissions when incurred as a component of Selling, general and administrative expense, as the amortization period is typically less than one year.
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Note 15 — Operating Segments and Enterprise-Wide Information
Our CODM is our Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire company. We operate in two reportable segments consisting of the Probe Cards segment and the Systems segment. The following table summarizes the operating results by reportable segment (dollars in thousands):
| Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| June 29, 2024 | July 1, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Probe Cards | Systems | Corporate and Other | Total | Probe Cards | Systems | Corporate and Other | Total | ||||||||||||||||||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Gross profit | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Gross margin | % | % | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||
Six Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
| June 29, 2024 | July 1, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Probe Cards | Systems | Corporate and Other | Total | Probe Cards | Systems | Corporate and Other | Total | ||||||||||||||||||||||||||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Gross profit | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Gross margin | % | % | % | % | % | % | |||||||||||||||||||||||||||||||||||||||||
Operating results provide useful information to our management for assessment of our performance and results of operations. Certain components of our operating results are utilized to determine compensation along with other measures.
Corporate and Other includes unallocated expenses relating to amortization of intangible assets, inventory and fixed asset fair value adjustments due to acquisitions, share-based compensation, and restructuring charges which are not used in evaluating the results of, or in allocating resources to, our reportable segments.
20
Certain revenue category information by reportable segment was as follows (in thousands):
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| June 29, 2024 | July 1, 2023 | ||||||||||||||||||||||||||||||||||
| Probe Cards | Systems | Total | Probe Cards | Systems | Total | ||||||||||||||||||||||||||||||
| Market: | |||||||||||||||||||||||||||||||||||
| Foundry & Logic | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| DRAM | |||||||||||||||||||||||||||||||||||
| Flash | |||||||||||||||||||||||||||||||||||