FORMFACTOR INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933, which are subject to risks and uncertainties. The forward-looking statements include statements concerning, among other things, our business strategy, financial and operating results, gross margins, liquidity and capital expenditure requirements and impact of accounting standards. In some cases, you can identify these statements by forward-looking words, such as "may," "might," "will," "could," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "intend" and "continue," the negative or plural of these words and other comparable terminology. The forward-looking statements are only predictions based on our current expectations and our projections about future events. All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to us as 25 of the filing date of this Quarterly Report on Form 10-Q. You should not place undue reliance on these forward-looking statements. We have no obligation to update any of these statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these statements, including risks related to general market trends, the benefits of acquisitions and investments, uncertainties related to COVID-19 and the impact of our responses to it, the interpretation and impacts of changes in export controls and other trade barriers, our ability to execute our business strategy and other risks discussed in the section titled “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 28, 2019 and in this Quarterly Report on Form 10-Q. You should carefully consider the numerous risks and uncertainties described under these sections. The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the accompanying notes contained in this Quarterly Report on Form 10-Q. Unless expressly stated or the context otherwise requires, the terms “we,” “our,” “us” and “FormFactor” refer to FormFactor, Inc. and its subsidiaries. Overview FormFactor, Inc., headquartered in Livermore, California, is a leading provider of test and measurement solutions. We provide a broad range of high-performance probe cards, analytical probes, probe stations, metrology systems, and thermal and cryogenic sub-systems to both semiconductor companies and scientific institutions. Our products provide electrical and optical information from a variety of semiconductor and electro-optical devices and integrated circuits from research, through development to production. Customers use our products and services to lower production costs, improve yields, and enable development of their complex next-generation products. We operate in two reportable segments consisting of the Probe Cards segment and the Systems segment. Sales of our probe cards and analytical probes are included in the Probe Cards segment, while sales of our probe stations, metrology systems and thermal sub-systems are included in the Systems segment. We generated net income of $59.3 million in the first nine months of fiscal 2020 as compared to $20.7 million in the first nine months of fiscal 2019. The increase in net income was primarily due to increased revenues and leverage on operating expenses, which only marginally increased on significantly higher operating levels. Impact of COVID-19 The COVID-19 pandemic continues to cause serious illness and death in many of the regions that we, our customers and our suppliers operate. The COVID-19 pandemic has resulted in significant governmental actions designed to control the spread of the virus, including the imposition of safety requirements and other orders in locations where we have manufacturing and other activities. We have maintained social distancing, contact tracing, and various other measures to enable our manufacturing sites to continue efficient production. We believe that we operate in a critical infrastructure industry, as defined by the U.S. Department of Homeland Security. This reduces the current and anticipated impacts of the COVID-19 pandemic on our major customers and suppliers, and upon our operations, as compared to companies that are not part of the critical infrastructure. We currently continue to operate in all of our manufacturing sites at production levels comparable to those prior to the pandemic, albeit subject to certain safety and related constraints. Our other operations are similarly continuing with substantial work-from-home activities. If the provisions of governmental health orders or other safety requirements applicable to us or our customers or suppliers become more restrictive for an extended period of time, or if we have repeated occurrences of COVID-19 in any of our facilities, we may experience disruptions or delays in manufacturing, product design, product development, customer support, manufacturing and sales, and an overall loss of productivity and efficiency. Even with our continued operations, COVID-19 has had, and may have further, negative impacts on our supply chain, workforce and customers. The continued progression of the COVID-19 pandemic and associated macro-economic, trade-related, and site-specific restrictions, including but not limited to the effects of any overall global, regional or national economic slowdowns or other economic downturns, increased trade and transport costs, and inability to access customer sites for certain activities could also negatively impact our business or results of operations. As the COVID-19 pandemic is a widespread public health crisis, it is adversely affecting major economies and financial markets world-wide. A resulting economic downturn can be expected to eventually negatively affect the demand for our products, and contribute to volatile demand and supply conditions affecting the markets for our products. 26 Governments in several countries where we operate, including the United States, have enacted stabilization and stimulus measures in an effort to counteract some of the impacts of COVID-19. We have benefited and may continue to benefit from some of these measures directly or indirectly, although we do not believe those benefits have had or will have a material effect upon our financial results or financial condition. Governments may discontinue, amend, replace or otherwise change or supplement such stabilization and stimulus measures in ways that are difficult to predict, and it is possible that such changes could have a material effect upon our financial results or financial condition, or the financial results or financial condition of our customers or suppliers. While to date the disruptions in our operations, supply chain and customer demand as a result of the COVID-19 pandemic have been somewhat limited, we believe that the COVID-19 pandemic represents a sustained threat that may give rise to a variety of more significant adverse impacts on our business and financial results. We consider this as a near or longer term trend, although we cannot identify or quantify the specific impacts given current levels of uncertainty and the broad variety of effects that may arise from a pandemic of this magnitude. For a further description of the uncertainties and business risks associated with the COVID-19 pandemic, see the section entitled “Risk Factors” in this Quarterly Report. Significant Accounting Policies and the Use of Estimates Management’s Discussion and Analysis and Note 2, Summary of Significant Accounting Policies , to the Consolidated Financial Statements in our 2019 Annual Report on Form 10-K describe the significant accounting estimates and significant accounting policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ from management’s estimates. During the nine months ended September 26, 2020, there were no significant changes in our significant accounting policies or estimates from those reported in our Annual Report on Form 10-K for the year ended December 28, 2019, which was filed with the Securities and Exchange Commission on February 21, 2020. Results of Operations The following table sets forth our operating results as a percentage of revenues for the periods indicated: Three Months Ended Nine Months Ended September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019 Revenues 100.0 % 100.0 % 100.0 % 100.0 % Cost of revenues 56.9 60.7 57.6 60.3 Gross profit 43.1 39.3 42.4 39.7 Operating expenses: Research and development 12.9 14.3 13.1 14.6 Selling, general and administrative 17.9 18.4 16.6 18.8 Total operating expenses 30.8 32.7 29.7 33.4 Operating income 12.3 6.6 12.7 6.3 Interest income 0.1 0.5 0.3 0.5 Interest expense (0.1) (0.3) (0.1) (0.4) Other income, net 0.2 0.2 — 0.1 Income before income taxes 12.5 7.0 12.9 6.5 Provision (benefit) for income taxes (0.3) 1.1 0.9 1.5 Net income 12.8 % 5.9 % 12.0 % 5.0 % 27 Revenues by Segment and Market Three Months Ended Nine Months Ended September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019 (In thousands) Probe Cards $ 150,773 $ 116,447 $ 419,272 $ 338,187 Systems 27,223 24,157 77,301 72,648 $ 177,996 $ 140,604 $ 496,573 $ 410,835 Three Months Ended September 26, 2020 % of Revenues September 28, 2019 % of Revenues $ Change % Change (Dollars in thousands) Probe Cards Markets: Foundry & Logic $ 108,411 60.9 % $ 68,431 48.7 % $ 39,980 58.4 % DRAM 31,379 17.6 39,425 28.0 (8,046) (20.4) Flash 10,983 6.2 8,591 6.1 2,392 27.8 Systems Market: Systems 27,223 15.3 24,157 17.2 3,066 12.7 Total revenues $ 177,996 100.0 % $ 140,604 100.0 % $ 37,392 26.6 % Nine Months Ended September 26, 2020 % of Revenues September 28, 2019 % of Revenues $ Change % Change (Dollars in thousands) Probe Cards Markets: Foundry & Logic $ 323,503 65.1 % $ 213,453 51.9 % $ 110,050 51.6 % DRAM 75,127 15.1 104,355 25.4 (29,228) (28.0) Flash 20,642 4.2 20,379 5.0 263 1.3 Systems Market: Systems 77,301 15.6 72,648 17.7 4,653 6.4 Total revenues $ 496,573 100.0 % $ 410,835 100.0 % $ 85,738 20.9 % The increase in Foundry & Logic product revenue for the three and nine months ended September 26, 2020, compared to the three and nine ended September 28, 2019, was driven principally by increased unit sales to large semiconductor foundries and integrated device manufacturers, demonstrating success in diversifying across our strategic accounts. Additionally, sales have increased due to the demand for 5G handsets and devices and work from home infrastructure spending. The decrease in DRAM product revenue for the three and nine months ended September 26, 2020, compared to the three and nine months ended September 28, 2019, was driven by a decreased customer demand as a result of the absorption of large purchases in fiscal 2019. The increase in Flash product revenue for the three months ended September 26, 2020, compared to the three months ended September 28, 2019, was driven by increased sales as a result of increased customer demand for our legacy products and the acquisition of Baldwin Park. This increase helped offset what would have otherwise been a decrease in demand in the nine months ended September 26, 2020, compared to the nine months ended September 28, 2019. Our revenue in this market continues to be highly variable. The increase in Systems product revenue for the three months ended September 26, 2020, compared to the three months ended September 28, 2019, was driven by increased sales of metrology systems due to the acquisition for FRT GmbH and increased sales of probe stations, partially offset by lower revenue from thermal sub-systems. The increase in Systems product revenue for the nine months ended September 26, 2020, compared to the nine months ended September 28, 2019, was driven by our acquisition of FRT GmbH, partially offset by lower revenue from thermal sub-systems and 200mm stations. 28 Due to COVID-19, there were various impacts across our segments due to governmental mandates of social distancing. This resulted in a temporary factory shutdown for almost two weeks during our first fiscal quarter of 2020 in certain locations, limiting our manufacturing capacity. We believe these shutdowns negatively affected revenue and impacted our ability to maintain typical lead times, especially in our Probes segment. Revenues by Geographic Region Three Months Ended Nine Months Ended September 26, 2020 % of Revenue September 28, 2019 % of Revenue September 26, 2020 % of Revenue September 28, 2019 % of Revenue (Dollars in thousands) China $ 28,546 16.0 % $ 31,383 22.3 % $ 120,946 24.4 % $ 73,581 17.9 % Taiwan 36,935 20.8 % 18,255 13.0 % 101,886 20.5 % 55,514 13.5 % United States 36,328 20.4 % 33,665 23.9 % 96,365 19.4 % 106,297 25.9 % South Korea 29,571 16.6 % 23,597 16.8 % 58,772 11.8 % 78,491 19.1 % Europe 16,979 9.5 % 9,548 6.8 % 52,154 10.5 % 29,689 7.2 % Japan 17,145 9.6 % 16,929 12.0 % 35,574 7.2 % 43,454 10.6 % Asia-Pacific 1 8,954 5.0 % 5,665 4.0 % 23,317 4.7 % 16,611 4.0 % Rest of the world 3,538 2.1 % 1,562 1.2 % 7,559 1.5 % 7,198 1.8 % Total revenues $ 177,996 100.0 % $ 140,604 100.0 % $ 496,573 100.0 % $ 410,835 100.0 % 1 Asia-Pacific includes all countries in the region except China, Japan, South Korea and Taiwan, which are disclosed separately. Geographic revenue information is based on the location to which we ship the product. For example, if a certain South Korean customer purchases through their U.S. subsidiary and requests the products to be shipped to an address in South Korea, this sale will be reflected in the revenue for South Korea rather than the U.S. Changes in revenue by geographic region for the three and nine months ended September 26, 2020, compared to the three and nine months ended September 28, 2019, were primarily attributable to changes in customer demand, shifts in customer regional manufacturing strategies, particularly with our large multinational customers, and product sales mix. Cost of Revenues and Gross Margins Cost of revenues consists primarily of manufacturing materials, compensation and benefits, shipping and handling costs, manufacturing-related overhead and amortization of certain intangible assets. Our manufacturing operations rely on a limited number of suppliers to provide key components and materials for our products, some of which are a sole source. We order materials and supplies based on backlog and forecasted customer orders. Tooling and setup costs related to changing manufacturing lots at our suppliers are also included in the cost of revenues. We expense all warranty costs, inventory provisions and amortization of certain intangible assets as cost of revenues. Our gross profit and gross margin were as follows (dollars in thousands): Three Months Ended September 26, 2020 September 28, 2019 $ Change % Change Gross profit $ 76,749 $ 55,318 $ 21,431 38.7 % Gross margin 43.1 % 39.3 % Nine Months Ended September 26, 2020 September 28, 2019 $ Change % Change Gross profit $ 210,306 $ 163,191 $ 47,115 28.9 % Gross margin 42.4 % 39.7 % 29 Our gross profit and gross margin by segment were as follows (dollars in thousands): Three Months Ended September 26, 2020 September 28, 2019 Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total Gross profit $ 69,641 $ 13,565 $ (6,457) $ 76,749 $ 48,127 $ 13,015 $ (5,824) $ 55,318 Gross margin 46.2 % 49.8 % — % 43.1 % 41.3 % 53.9 % — % 39.3 % Nine Months Ended September 26, 2020 September 28, 2019 Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total Gross profit $191,907 $ 37,618 $ (19,219) $ 210,306 $141,913 $ 38,703 $ (17,425) $ 163,191 Gross margin 45.8 % 48.7 % — % 42.4 % 42.0 % 53.3 % — % 39.7 % Probe Cards For the three and nine months ended September 26, 2020, gross profit and gross margins increased compared to the three and nine months ended September 28, 2019, primarily due to increased sales, product mix, and higher factory utilization. Systems For the three months ended September 26, 2020, gross profit increased due to the additional contribution of FRT GmbH. This increase helped offset the nine months ended September 26, 2020 gross profit decrease as a result of a less favorable product mix. Gross margin decreased compared to the three and nine months ended September 28, 2019, primarily as a result of less favorable product mix. Corporate and Other Corporate and Other includes unallocated expenses relating to amortization of intangible assets, share-based compensation, restructuring charges, net, and charges related to inventory stepped up to fair value due to acquisitions which are not used in evaluating the results of, or in allocating resources to, our reportable segments. Overall Gross profit and gross margin fluctuate with revenue levels, product mix, selling prices, factory loading and material costs. For the three and nine months ended September 26, 2020, compared to the three and nine months ended September 28, 2019, gross profit and gross margins have improved, primarily on higher sales and product mix. Cost of revenues included stock-based compensation expense as follows (in thousands): Three Months Ended Nine Months Ended September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019 Stock-based compensation $ 962 $ 1,117 $ 2,800 $ 3,031 Future gross margins may be adversely impacted by lower revenues, unfavorable product mix and lower factory utilization. Our gross margins may also be adversely affected if we are required to record additional inventory write-downs for estimated average selling prices that are below cost or because of a decrease in demand. 30 Research and Development Three Months Ended September 26, 2020 September 28, 2019 $ Change % Change (Dollars in thousands) Research and development $ 22,878 $ 20,096 $ 2,782 13.8 % % of revenues 12.9 % 14.4 % Nine Months Ended September 26, 2020 September 28, 2019 $ Change % Change (Dollars in thousands) Research and development $ 65,064 $ 59,893 $ 5,171 8.6 % % of revenues 13.1 % 14.6 % The increase in research and development expenses in the three and nine months ended September 26, 2020 when compared to the corresponding period in the prior year was primarily driven by increased headcount combined with higher variable performance based compensation, annual compensation adjustments, higher project material costs, and the addition of the acquisition of Baldwin Park, partially offset by a decrease in travel due to travel restrictions and decreased stock-based compensation related to the timing of annual grants. A detail of the changes is as follows (in thousands): Three Months Ended September 26, 2020 compared to Three Months Ended September 28, 2019 Nine Months Ended September 26, 2020 compared to Nine Months Ended September 28, 2019 Employee compensation costs 2,721 5,280 Project material costs 737 1,000 Depreciation 40 190 Stock-based compensation (402) (676) Other general operations (314) (623) $ 2,782 $ 5,171 Research and development included stock-based compensation expense as follows (in thousands): Three Months Ended Nine Months Ended September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019 Stock-based compensation $ 1,326 $ 1,729 $ 4,154 $ 4,830 31 Selling, General and Administrative Three Months Ended September 26, 2020 September 28, 2019 $ Change % Change (Dollars in thousands) Selling, general and administrative $ 31,834 $ 25,887 $ 5,947 23.0 % % of revenues 17.9 % 18.4 % Nine Months Ended September 26, 2020 September 28, 2019 $ Change % Change (Dollars in thousands) Selling, general and administrative $ 82,282 $ 77,354 $ 4,928 6.4 % % of revenues 16.6 % 18.8 % The increase in selling, general and administrative in the three and nine months ended September 26, 2020 when compared to the corresponding period in the prior year was primarily due to an increase in headcount combined with higher variable performance based compensation, higher information technology security remediation costs, partially offset by the gain on contingent consideration from the remeasurement of the contingent consideration related to the acquisition of FRT GmbH, decreased travel due to travel restrictions, and decreased amortization of intangibles. A detail of the changes is as follows (in thousands): Three Months Ended September 26, 2020 compared to Three Months Ended September 28, 2019 Nine Months Ended September 26, 2020 compared to Nine Months Ended September 28, 2019 Employee compensation 3,713 7,216 Stock-based compensation (437) 593 Consulting fees 3,048 3,676 Amortization of intangibles 174 (1,523) Gain on contingent consideration (71) (3,771) General operating expenses (480) (1,263) $ 5,947 $ 4,928 Selling, general and administrative included stock-based compensation expense as follows (in thousands): Three Months Ended Nine Months Ended September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019 Stock-based compensation $ 3,221 $ 3,658 $ 9,820 $ 9,227 32 Interest Income and Interest Expense Three Months Ended Nine Months Ended September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019 (Dollars in thousands) Interest Income $ 249 $ 724 $ 1,310 $ 1,988 Weighted average balance of cash and investments $ 243,615 $ 193,092 $ 230,098 $ 173,975 Weighted average yield on cash and investments 0.57 % 2.02 % 1.03 % 2.07 % Interest Expense $ 193 $ 422 $ 682 $ 1,539 Average debt outstanding $ 37,295 $ 46,250 $ 38,327 $ 56,113 Weighted average interest rate on debt 1.65 % 4.26 % 2.05 % 4.42 % Interest income is earned on our cash, cash equivalents, restricted cash and marketable securities. The decrease in interest income for the three and nine months ended September 26, 2020 compared with the corresponding period of the prior year was attributable to lower investment yields due to the low interest rate environment. Interest expense primarily includes interest on our term loans, interest rate swap derivative contracts, and term loan issuance costs amortization charges. The decrease in interest expense for the three and nine months ended September 26, 2020 compared to the same period of the prior year was primarily due to lower outstanding debt balances due to the pay-off of the CMI Term Loan on June 30, 2020, partially offset by the FRT Term Loan originated in the fourth quarter of 2019 and the Building Term Loan originated in the second quarter of 2020. Other Expense, Net Other expense, net, primarily includes the effects of foreign currency impact and various other gains and losses. Provision for Income Taxes Three Months Ended Nine Months Ended September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019 (In thousands, except percentages) Provision (benefit) for income taxes $ (499) $ 1,584 $ 4,479 $ 5,906 Effective tax rate (2.2) % 16.1 % 7.0 % 22.2 % Provision (benefit) for income taxes reflects the tax provision on our operations in foreign and U.S. jurisdictions, offset by tax benefits from tax credits and the foreign-derived intangible income ("FDII") deduction. The effective tax rate for the third quarter of 2020 was significantly impacted by two discrete items. First, on July 23, 2020, the U.S. Department of Treasury and the Internal Revenue Service finalized regulations T.D. 9902 with respect to the global intangible low-taxes income high-tax exception, resulting in a decrease in our effective tax rate. This adjustment was retroactive to the fiscal years 2018 and 2019 and the cumulative impact is taken into account during the three months ended September 26, 2020. Second, we realized a significant discrete tax benefit from stock-based compensation due to stock price increases over the most recent three year period. These items together resulted in a decrease in our effective tax rate for the three and nine months ended September 26, 2020, compared to the three and nine months ended September 28, 2019. Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss by jurisdiction, changes to the valuation allowance, changes to U.S. federal, state or foreign tax laws, changes in ASC 718 stock-based compensation expense/benefit, future expansion into areas with varying country, state, and local income tax rates, and deductibility of certain costs and expenses by jurisdiction. We expect the FDII deduction and corresponding benefit to be available after utilizing our previous net operating loss carryforwards, resulting in a decrease from the U.S. statutory rate and included in our worldwide effective tax rate for the year ended December 26, 2020. Liquidity and Capital Resources Capital Resources Our working capital was $319.9 million at September 26, 2020, compared to $282.5 million at December 28, 2019. 33 Cash and cash equivalents primarily consist of deposits held at banks and money market funds. Marketable securities primarily consist of U.S. treasuries and corporate bonds. We typically invest in highly-rated securities with low probabilities of default. Our investment policy requires investments to be rated single A or better, and limits the types of acceptable investments, issuer concentration and duration of the investment. Our cash, cash equivalents and marketable securities totaled approximately $241.5 million at September 26, 2020, compared to $220.9 million at December 28, 2019. We believe that we will be able to satisfy our working capital requirements and scheduled term loan repayments for at least the next twelve months with the liquidity provided by our existing cash, cash equivalents, marketable securities and cash provided by operations. To the extent necessary, we may consider entering into short and long-term debt obligations, raising cash through a stock issuance, or obtaining new financing facilities, which may not be available on terms favorable to us. Our future capital requirements may vary materially from those now planned. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition. As a result of the current and uncertain future impact of COVID-19, we have taken actions to preserve and improve our liquidity primarily by limiting our exposures to volatile markets and investments, as well as actively working to minimize counterparty risk, for example, by directly investing in securities where the counterparty is the U.S. Government rather than a similar investment where the counterparty is a bank. If we are unsuccessful in maintaining or growing our revenues, maintaining or reducing our cost structure (in response to a potential reduction in demand due to an industry downturn, COVID-19, or other event), or increasing our available cash through debt or equity financings, our cash, cash equivalents and marketable securities may decline. We utilize a variety of tax planning and financing strategies to manage our worldwide cash and deploy funds to locations where needed. As part of these strategies, we indefinitely reinvest a portion of our foreign earnings. Should we require additional capital in the United States, we may elect to repatriate indefinitely-reinvested foreign funds or raise capital in the United States. Cash Flows The following table sets forth our net cash flows from operating, investing and financing activities: Nine Months Ended September 26, 2020 September 28, 2019 (In thousands) Net cash provided by operating activities $ 124,209 $ 83,378 Net cash used in investing activities (56,195) (40,047) Net cash used in financing activities $ (28,970) $ (18,976) Operating Activities Net cash provided by operating activities for the nine months ended September 26, 2020 was primarily attributable to net income of $59.3 million and net non-cash expenses of $61.8 million, further fluctuated by changes in operating assets and liabilities, as explained below. Accounts receivable, net, decreased $1.0 million to $96.9 million at September 26, 2020, compared to $97.9 million at December 28, 2019, as a result of changes in customer sales mix, timing of customer shipments and timing of customer payments, offset slightly by the increased accounts receivable due to the acquisitions of FRT and Baldwin Park. Inventories, net, increased $11.4 million to $94.6 million at September 26, 2020, compared to $83.3 million at December 28, 2019, as a result of anticipated projected customer demand, as well as smaller impact related to increased inventory purchases to mitigate the impact of COVID-19 on our supply chain and the increased inventory due to the acquisitions of FRT and Baldwin Park. Accounts payable increased $22.0 million to $62.9 million at September 26, 2020, compared to $40.9 million at December 28, 2019, as a result of timing of vendor payments. 34 Investing Activities Net cash used in investing activities for the nine months ended September 26, 2020 was primarily related to $41.9 million of acquisition of property, plant and equipment, which includes $24.0 million used in the acquisition of a building adjacent to our leased facilities in Livermore, California. Additionally, we paid $35.0 million of acquisition of Baldwin Park, net of cash acquired, partially offset by $20.6 million of net proceeds from sales of marketable securities. Financing Activities Net cash used in financing activities for the nine months ended September 26, 2020 primarily related to $41.1 million of principal payments made towards the repayment of our term loans and $15.4 million related to tax withholding associated with the net share settlements of our equity awards, partially offset by $18.0 million of proceeds received from the new term loan for our building purchase, as well as $9.6 million of proceeds received from issuances of common stock under our employee stock purchase plan and stock option plans. Debt CMI Term Loan On June 24, 2016, we entered into a senior secured term loan facility of $150 million (the “CMI Term Loan”). The proceeds of the CMI Term Loan were used to finance a portion of the purchase price paid in connection with the Cascade Microtech acquisition in fiscal 2016 and to pay related bank fees and expenses. The CMI Term Loan bore interest at a rate equal to, at our option, (i) the applicable London Interbank Offered Rate ("LIBOR") rate plus 2.00% per annum or (ii) Base Rate plus 1.00% per annum. We elected to pay interest at 2.00% over the one-month LIBOR rate. Interest payments were payable in monthly installments over a five-year period. The principal payments on the CMI Term Loan were paid in equal quarterly installments that began June 30, 2016, in an annual amount equal to 5% of original principal for year one, 10% for year two, 20% for year three, 30% for year four and 35% for year five. The final payment on the CMI Term Loan was June 30, 2020. FRT Term Loan On October 25, 2019, we entered into a $23.4 million three-year credit facility loan agreement (the "FRT Term Loan"), to fund the acquisition of FRT GmbH, which we acquired on October 9, 2019. The FRT Term Loan bears interest at a rate equal to the Euro Interbank Offered Rate ("EURIBOR") plus 1.75% per annum and will be repaid in quarterly installments of approximately $2.0 million plus interest. The interest rate at September 26, 2020 was 1.30%. As of September 26, 2020, the balance outstanding pursuant to the FRT term loan was $18.3 million. Building Term Loan On June 22, 2020, we entered into an $18.0 million 15-year credit facility loan agreement (the “Building Term Loan”). The proceeds of the Building Term Loan were used to finance the purchase a building adjacent to our leased facilities in Livermore, California. The Building Term Loan bears interest at a rate equal to the applicable LIBOR rate plus 1.75% per annum. Interest payments are payable in monthly installments over a fifteen-year period. The interest rate at September 26, 2020 was 1.91%. As of September 26, 2020, the balance outstanding pursuant to the Building Term Loan was $17.8 million. On March 17, 2020, we entered into a forward starting interest rate swap agreement to hedge the interest payments on the Building Term Loan for the notional amount of $18.0 million, and an amortization period that matches the debt. As future levels of LIBOR over the life of the loan are uncertain, we entered into this interest-rate swap agreement to hedge the exposure in interest rate risks associated with movement in LIBOR rates. By entering into the agreement, we convert a floating rate interest at one-month LIBOR plus 1.75% into a fixed rate interest at 2.75%. The interest rate swap also includes a 0% floor that is effective for one year from the date of the swap. As of September 26, 2020, the notional amount of the loan that is subject to this interest rate swap is $17.8 million. See Note 6, Debt , of Notes to Condensed Consolidated Financial Statements. 35 Stock Repurchase Program In October 2020, our Board of Directors authorized a program to repurchase up to $50.0 million of outstanding common stock to offset potential dilution from issuances of common stock under our stock-based compensation plans. The share repurchase program will expire on October 28, 2022. Contractual Obligations and Commitments The following table summarizes our significant contractual commitments to make future payments in cash under contractual obligations as of September 26, 2020: Payments Due In Fiscal Year Remainder 2020 2021 2022 2023 2024 Thereafter Total Operating leases $ 1,877 $ 6,773 $ 5,549 $ 4,724 $ 4,471 $ 16,272 $ 39,666 Term loans - principal payments 2,278 9,133 9,161 1,050 1,080 13,368 36,070 Term loans - interest payments (1) 145 503 377 290 271 1,433 3,019 Total $ 4,300 $ 16,409 $ 15,087 $ 6,064 $ 5,822 $ 31,073 $ 78,755 (1) Represents our minimum interest payment commitments at 1.91% per annum for the Building Term Loan and 1.30% per annum for the FRT Term Loan. This also excludes any amounts related to our interest rate swap; see Note 6, Debt , of Notes to Condensed Consolidated Financial Statements. Off-Balance Sheet Arrangements Historically, we have not participated in transactions that have generated relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of September 26, 2020, we were not involved in any such off-balance sheet arrangements. Recent Accounting Pronouncements See Note 1, Basis of Presentation and New Accounting Pronouncements , of Notes to Condensed Consolidated Financial Statements.