What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-30 compared with 2021-05-04 · 124 added, 75 removed, 200 unchanged (50% of the section changed)

19 unchanged sentences

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 and cryogenic systems are included in the Systems segment.

We generated net income of $19.6 million in the first three months of fiscal 2021 as compared to $15.9 million in the first three months of fiscal 2020.

The increase in net income was primarily due to increased revenues, partially offset by higher operating expenses.

We generated net income of $37.5 million in the first six months of fiscal 2021 as compared to $36.4 million in the first six months of fiscal 2020.

The increase in net income was primarily due to increased revenues, partially offset by slightly lower margins on a lower mix of Foundry & Logic probe card sales and higher operating expenses on higher operating levels.

Impact of COVID-19

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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.

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Actual results in these areas could differ from management’s estimates.

During the three months ended March 27, 2021, 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 26, 2020, which was filed with the Securities and Exchange Commission on February 22, 2021.

During the six months ended June 26, 2021, 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 26, 2020, which was filed with the Securities and Exchange Commission on February 22, 2021.

Results of Operations

The following table sets forth our operating results as a percentage of revenues for the periods indicated:

Three Months Ended

2021 March 28,

Three Months Ended Six Months Ended

2021 June 27,

2020 June 26,

2021 June 27,

Revenues 100.0 % 100.0 % 100.0 % 100.0 %

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Interest expense (0.1) (0.1) (0.1) (0.2)

Other income (expense), net 0.1 (0.1)

Other expense, net (0.1) — — —

Income before income taxes 10.8 14.3 11.5 13.0

2 unchanged sentences

Revenues by Segment and Market

Three Months Ended

2021 March 28,

Three Months Ended Six Months Ended

2021 June 27,

2020 June 26,

2021 June 27,

(In thousands)

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Three Months Ended

2021 % of Revenues March 28,

2021 % of Revenues June 27,

2020 % of Revenues $ Change % Change

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Total revenues $ 188,076 100.0 % $ 157,824 100.0 % $ 30,252 19.2 %

The increase in Foundry & Logic product revenue for the three months ended March 27, 2021, compared to the three months ended March 28, 2020, 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 components and chipsets for 5G handsets, work and study from home infrastructure spending, and adoption of advanced packaging architectures like heterogeneous integration and high-bandwidth memory (“HBM”).

The relative increase in DRAM product revenue for the three months ended March 27, 2021, compared to the three months ended March 28, 2020, was driven by a decreased customer demand for the three months ended March 28, 2020 as a result of the absorption of large purchases in fiscal 2019, that did not recur in the three months ended March 27, 2021.

The increase in Flash product revenue for the three months ended March 27, 2021, compared to the three months ended March 28, 2020, was driven by increased sales as a result of increased customer demand for our legacy products and increased sales resulting from the acquisition of Baldwin Park.

Six Months Ended

2021 % of Revenues June 27,

2020 % of Revenues $ Change % Change

(Dollars in thousands)

Probe Cards Markets:

Foundry & Logic $ 217,136 57.9 % $ 215,092 67.6 % $ 2,044 1.0 %

DRAM 75,986 20.3 43,748 13.7 32,238 73.7

Flash 19,417 5.2 9,659 3.0 9,758 101.0

Systems Market:

Systems 62,173 16.6 50,078 15.7 12,095 24.2

Total revenues $ 374,712 100.0 % $ 318,577 100.0 % $ 56,135 17.6 %

The decrease in Foundry & Logic product revenue for the three months ended June 26, 2021, compared to the three months ended June 27, 2020, was driven principally by lower demand from one major customer, partially offset by increased unit sales to other large semiconductor foundries and integrated device manufacturers, demonstrating success in diversifying across our strategic accounts.

The increase in Foundry & Logic product revenue for the six months ended June 26, 2021, compared to the six months ended June 27, 2020, was driven principally by increased unit sales to large semiconductor foundries and integrated device manufacturers, partially offset by lower demand from one major customer.

The increase in DRAM product revenue for the three and six months ended June 26, 2021, compared to the three and six months ended June 27, 2020, was driven by an increase in sales as a result of increased design wins and customer demand.

The increase in Flash product revenue for the three and six months ended June 26, 2021, compared to the three and six months ended June 27, 2020, was driven by increased sales resulting from the acquisition of Baldwin Park.

Our revenue in this market continues to be highly variable.

The increase in Systems product revenue for the three months ended March 27, 2021, compared to the three months ended March 28, 2020, was driven by increased sales of cryogenic systems due to the acquisition of High Precision Devices, Inc.

(“HPD”) and increased sales of thermal sub-systems, partially offset by lower 300mm station sales.

The increase in Systems product revenue for the three and six months ended June 26, 2021, compared to the three and six months ended June 27, 2020, was driven by increased sales of cryogenic systems due to the acquisition of High Precision Devices, Inc.

(“HPD”) and increased sales of thermal sub-systems and metrology systems.

Due to COVID-19, there were various impacts across our segments due to governmental mandates of social distancing.

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We believe these shutdowns negatively affected revenue and impacted our ability to maintain typical lead times, especially in our Probes segment.

The plant shutdowns we experienced in the first fiscal quarter of 2020 did not recur in the first fiscal quarter of 2021, which presumably drove some of the increased sales in the first fiscal quarter of 2021 over the first fiscal quarter of 2020, particularly in the Probe Cards segment where the plant shutdowns in 2020 were longer in duration than the shutdowns for the Systems segment.

The plant shutdowns we experienced in the six months ended June 27, 2020 did not recur in the six months ended June 26, 2021, which presumably drove some of the increased sales, particularly in the Probe Cards segment where the plant shutdowns in 2020 were longer in duration than the shutdowns for the Systems segment.

Revenues by Geographic Region

Three Months Ended

Revenue March 28,

Three Months Ended Six Months Ended

Revenue June 27,

Revenue June 26,

Revenue June 27,

(Dollars in thousands)

Taiwan $ 51,884 27.6 % $ 33,171 21.0 % $ 97,464 26.0 % $ 64,951 20.4 %

China 42,625 22.8 % 43,642 27.1 %

South Korea 36,177 19.2 % 15,113 9.6 % 55,262 14.7 % 29,201 9.2 %

United States 32,650 17.4 % 28,121 17.8 % 62,136 16.6 % 60,037 18.8 %

China 31,827 16.9 % 48,758 30.9 % 74,452 19.9 % 92,400 29.0 %

Asia-Pacific 1

14,288 7.6 % 6,500 4.1 % 43,246 11.5 % 14,363 4.5 %

South Korea 19,085 10.2 % 14,088 8.8 %

Europe 12,010 6.4 % 14,132 9.0 % 22,009 5.9 % 35,175 11.0 %

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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 months ended March 27, 2021, compared to the three months ended March 28, 2020, were primarily attributable to changes in customer demand, shifts in customer regional manufacturing strategies, particularly with our large multinational customers, and product sales mix.

Changes in revenue by geographic region for the three and six months ended June 26, 2021, compared to the three and six months ended June 27, 2020, 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

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Three Months Ended

2021 March 28,

2021 June 27,

2020 $ Change % Change

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Gross margin 40.6 % 41.9 %

Six Months Ended

2021 June 27,

2020 $ Change % Change

Gross profit $ 152,989 $ 133,557 $ 19,432 14.5 %

Gross margin 40.8 % 41.9 %

Our gross profit and gross margin by segment were as follows (dollars in thousands):

Three Months Ended

March 27, 2021 March 28, 2020

June 26, 2021 June 27, 2020

Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total

1 unchanged sentence

Gross margin 43.3 % 49.1 % 40.6 % 46.0 % 44.6 % 41.9 %

For the three months ended March 27, 2021, gross profit and gross margins decreased compared to the three months ended March 28, 2020, primarily due to less favorable absorption of costs from the mix of volumes through production sites and due

to product mix on a less favorable mix of higher gross margin Foundry & Logic probe card sales combined with higher sales of lower gross margin Flash probe cards.

For the three months ended March 27, 2021, gross margins decreased compared to the three months ended March 28, 2020, primarily as a result of less favorable product mix, largely related to lower sales of stations and related accessories at somewhat reduced gross margins on the lower volumes, partially offset by higher gross margins on higher sales of thermal sub-systems and additional contribution from HPD, which was acquired in the fourth fiscal quarter of 2020.

Six Months Ended

June 26, 2021 June 27, 2020

Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total

Gross profit $136,915 $ 30,506 $ (14,432) $ 152,989 $122,266 $ 24,053 $ (12,762) $ 133,557

Gross margin 43.8 % 49.1 % 40.8 % 45.5 % 48.0 % 41.9 %

For the three and six months ended June 26, 2021, gross margins decreased compared to the three and six months ended June 27, 2020, primarily due to a lesser proportion of sales coming from higher gross margin Foundry & Logic probe card sales and a greater proportion of sales coming from lower gross margin DRAM sales, combined with higher materials costs.

For the three and six months ended June 26, 2021, gross margins increased compared to the three and six months ended June 27, 2020, primarily as a result of favorable product mix, largely related to increased sales of thermal sub-systems and metrology systems.

Corporate and Other

Corporate and Other includes unallocated expenses relating to share-based compensation and amortization of intangible assets, inventory and fixed asset fair value adjustments due to acquisitions which are not used in evaluating the results of, or in allocating resources to, our reportable segments.

Corporate and Other includes unallocated expenses relating to share-based compensation and amortization of intangible assets, inventory and fixed asset fair value adjustments due to acquisitions, and other which are not used in evaluating the results of, or in allocating resources to, our reportable segments.

Gross profit and gross margins fluctuate with revenue levels, product mix, selling prices, factory loading and material costs.

For the three months ended March 27, 2021, compared to the three months ended March 28, 2020, gross profit and gross margins have decreased, primarily on product mix.

For the three and six months ended June 26, 2021, compared to the three and six months ended June 27, 2020, gross profit has increased on greater revenue levels while gross margins have decreased, primarily on less favorable Probes segment product mix.

Cost of revenues included stock-based compensation expense as follows (in thousands):

Three Months Ended

2021 March 28,

Three Months Ended Six Months Ended

2021 June 27,

2020 June 26,

2021 June 27,

Stock-based compensation $ 1,079 $ 901 $ 2,414 $ 1,838

1 unchanged sentence

Three Months Ended

2021 March 28,

2021 June 27,

2020 $ Change % Change

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% of revenues 13.5 % 13.3 %

The increase in research and development expenses in the three months ended March 27, 2021 when compared to the corresponding period in the prior year was primarily driven by increased headcount, increased facilities costs in other general operations, higher project material costs, higher stock-based compensation and higher depreciation expense.

These increases are primarily related to our recent acquisitions of Baldwin Park and HPD.

Six Months Ended

2021 June 27,

2020 $ Change % Change

(Dollars in thousands)

Research and development $ 49,500 $ 42,186 $ 7,314 17.3 %

% of revenues 13.2 % 13.2 %

The increase in research and development expenses in the three and six months ended June 26, 2021 when compared to the corresponding period in the prior year was primarily driven by our recent acquisitions of Baldwin Park and HPD, which increased headcount and general operational costs.

Annual salary increases and higher stock-based compensation also contributed to the increase.

The increase is in alignment with current operating levels with no change as a percent of revenues for the six months ended June 26, 2021 when compared to the corresponding period in the prior year.

A detail of the changes is as follows (in thousands):

Three Months Ended March 27, 2021 compared to Three Months Ended March 27, 2020

Three Months Ended June 26, 2021 compared to Three Months Ended June 27, 2020 Six Months Ended June 26, 2021 compared to Six Months Ended June 27, 2020

Employee compensation costs $ 2,992 $ 4,429

Project material costs 304

Stock-based compensation 274 524

Project material costs 206 510

Depreciation 146 260

Other general operations 917 1,591

$ 4,535 $ 7,314

Research and development included stock-based compensation expense as follows (in thousands):

Three Months Ended

2021 March 28,

Three Months Ended Six Months Ended

2021 June 27,

2020 June 26,

2021 June 27,

Stock-based compensation $ 1,663 $ 1,389 $ 3,352 $ 2,828

1 unchanged sentence

Three Months Ended

2021 March 28,

2021 June 27,

2020 $ Change % Change

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% of revenues 16.2 % 14.4 %

The increase in selling, general and administrative in the three months ended March 27, 2021 when compared to the corresponding period in the prior year was primarily due to an increase in headcount, higher stock-based compensation, and increase in amortization of intangibles.

These increases are primarily related to the acquisitions of Baldwin Park and HPD, partially offset by decreased travel due to travel restrictions.

Six Months Ended

2021 June 27,

2020 $ Change % Change

(Dollars in thousands)

Selling, general and administrative $ 60,494 $ 50,448 $ 10,046 19.9 %

% of revenues 16.1 % 15.8 %

The increase in selling, general and administrative expenses in the three and six months ended June 26, 2021 when compared to the corresponding period in the prior year was primarily driven by our recent acquisitions of Baldwin Park and HPD, which increased headcount and general operational costs.

Annual salary increases and higher stock-based compensation also contributed to the increase, together with a benefit in the prior year related to contingent consideration for the acquisition of FRT GmbH ("FRT") that did not repeat.

A detail of the changes is as follows (in thousands):

Three Months Ended March 27, 2021 compared to Three Months Ended March 27, 2020

Employee compensation $ 2,072

Three Months Ended June 26, 2021 compared to Three Months Ended June 27, 2020 Six Months Ended June 26, 2021 compared to Six Months Ended June 27, 2020

Gain on contingent consideration $ 3,605 $ 3,605

Employee compensation costs 2,831 4,903

Stock-based compensation 494 1,300

Amortization of intangibles 202

Travel related costs (598)

Consulting fees (178)

General operating expenses 488 506

Consulting fees 145 (34)

Travel related costs 100 (498)

Amortization of intangibles 61 264

$ 7,724 $ 10,046

Selling, general and administrative included stock-based compensation expense as follows (in thousands):

Three Months Ended

2021 March 28,

Three Months Ended Six Months Ended

2021 June 27,

2020 June 26,

2021 June 27,

Stock-based compensation $ 3,846 $ 3,352 $ 7,899 $ 6,599

Interest Income and Interest Expense

Three Months Ended

2021 March 28,

Three Months Ended Six Months Ended

2021 June 27,

2020 June 26,

2021 June 27,

(Dollars in thousands)

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Interest income is earned on our cash, cash equivalents, restricted cash and marketable securities.

The decrease in interest income for the three months ended March 27, 2021 compared with the corresponding period of the prior year was attributable to lower investment yields due to the low interest rate environment despite higher invested balances.

The decrease in interest income for the three and six months ended June 26, 2021 compared with the corresponding period of the prior year was attributable to lower investment yields due to the low interest rate environment, despite higher invested balances.

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 months ended March 27, 2021 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 Building Term Loan that originated in the second quarter of 2020.

The decrease in interest expense for the three and six months ended June 26, 2021 compared to the same period of the prior year was primarily due to lower outstanding debt balances due to the pay-off of the term loan acquired when we purchased Cascade Microtech, Inc, and subsequently paid off on June 30, 2020, partially offset by the Building Term Loan that originated in the second quarter of 2020.

Interest expense was also lower due to lower average interest rates on the outstanding debt.

2 unchanged sentences

Provision for Income Taxes

Three Months Ended

2021 March 28,

Three Months Ended Six Months Ended

2021 June 27,

2020 June 26,

2021 June 27,

(In thousands, except percentages)

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Capital Resources

Our working capital was $351.5 million at March 27, 2021, compared to $332.5 million at December 26, 2020.

Our working capital was $343.6 million at June 26, 2021, compared to $332.5 million at December 26, 2020.

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.

treasuries, corporate bonds, and commercial paper.

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 $267.7 million at March 27, 2021, compared to $255.0 million at December 26, 2020.

Our cash, cash equivalents and marketable securities totaled approximately $256.2 million at June 26, 2021, compared to $255.0 million at December 26, 2020.

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.

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The following table sets forth our net cash flows from operating, investing and financing activities:

Three Months Ended

2021 March 28,

Six Months Ended

2021 June 27,

(In thousands)

3 unchanged sentences

Operating Activities

Net cash provided by operating activities for the three months ended March 27, 2021 was primarily attributable to net income of $19.6 million and net non-cash expenses of $27.4 million, further impacted by changes in operating assets and liabilities, as explained below.

Accounts receivable, net, decreased $4.1 million to $103.5 million at March 27, 2021, compared to $107.6 million at December 26, 2020, as a result of lower revenue for the three months ended March 27, 2021, compared to the revenue for the three months ended December 26, 2020.

Inventories, net, increased $5.5 million to $104.7 million at March 27, 2021, compared to $99.2 million at December 26, 2020, as a result of anticipated projected customer demand.

Accounts payable increased $5.7 million to $67.7 million at March 27, 2021, compared to $62.0 million at December 26, 2020, as a result of timing of payments to vendors.

Accrued liabilities decreased $11.8 million to $43.5 million at March 27, 2021, compared to $55.3 million at December 26, 2020, as a result of timing of payments for accrued taxes payable, a decrease in accrued variable compensation, decrease in employee compensation accrual, and decrease in employee stock purchase plan accrual from the issuance of common stock to employees under our employee stock purchase plan.

Net cash provided by operating activities for the six months ended June 26, 2021 was primarily attributable to net income of $37.5 million and net non-cash expenses of $51.9 million, further impacted by changes in operating assets and liabilities, as explained below.

Inventories, net, increased $12.7 million to $111.9 million at June 26, 2021, compared to $99.2 million at December 26, 2020, as a result of anticipated projected customer demand.

Due to provisions for excess and obsolete inventories of $6.9 million, the change in Inventories, net, was further impacted.

Operating lease liabilities increased $7.4 million to $42.1 million at June 26, 2021, compared to $34.7 million at December 26, 2020 as a result of additional right-of-use assets obtained in exchange for lease obligations of $11.6 million offset by lease payments.

Investing Activities

Net cash used in investing activities for the three months ended March 27, 2021 was primarily related to $13.5 million of acquisition of property, plant and equipment and $26.5 million of net cash used to purchase marketable securities.

Net cash used in investing activities for the six months ended June 26, 2021 was primarily related to $31.3 million property, plant and equipment acquisitions, and $28.5 million net cash used to purchase marketable securities.

Financing Activities

Net cash used in financing activities for the three months ended March 27, 2021 primarily related to $2.4 million of principal payments made towards the repayment of our term loans, $1.1 million related to tax withholding associated with the net share settlements of our equity awards, and $5.7 million used to purchase common stock under our stock repurchase program, partially offset by $5.5 million of proceeds received from issuances of common stock under our employee stock purchase plan and stock option plans.

Net cash used in financing activities for the six months ended June 26, 2021 primarily related to $24.0 million used to purchase common stock under our stock repurchase program, $5.3 million related to tax withholding associated with the net share settlements of our equity awards, and $4.7 million of principal payments made towards the repayment of our term loans, partially offset by $5.9 million of proceeds received from issuances of common stock under our employee stock purchase plan and stock option plans, and $3.9 million paid to settle the contingent consideration from the acquisition of FRT.

FRT Term Loan

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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 March 27, 2021 was 1.21%.

As of March 27, 2021, the balance outstanding pursuant to the FRT term loan was $14.4 million.

The interest rate at June 26, 2021 was 1.21%.

As of June 26, 2021, the balance outstanding pursuant to the FRT term loan was $12.5 million.

Building Term Loan

3 unchanged sentences

Interest payments are payable in monthly installments over a fifteen-year period.

The interest rate at March 27, 2021 was 1.87%.

As of March 27, 2021, the balance outstanding pursuant to the Building Term Loan was $17.3 million.

The interest rate at June 26, 2021 was 1.84%.

As of June 26, 2021, the balance outstanding pursuant to the Building Term Loan was $17.0 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.

1 unchanged sentence

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 March 27, 2021, the notional amount of the loan that is subject to this interest rate swap is $17.3 million.

As of June 26, 2021, the notional amount of the loan that is subject to this interest rate swap is $17.0 million.

Stock Repurchase Program

1 unchanged sentence

The share repurchase program will expire on October 28, 2022.

During the three months ended March 27, 2021, we repurchased 136,402 shares of common stock for $5.7 million and, as of March 27, 2021, $44.3 million remained available for future repurchases.

During the six months ended June 26, 2021, we repurchased 620,200 shares of common stock for $24.0 million and, as of June 26, 2021, $26.0 million remained available for future repurchases.

Contractual Obligations and Commitments

The following table summarizes our significant contractual commitments to make future payments in cash under contractual obligations as of March 27, 2021:

The following table summarizes our significant contractual commitments to make future payments in cash under contractual obligations as of June 26, 2021:

Payments Due In Fiscal Year

9 unchanged sentences

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 March 27, 2021, we were not involved in any such off-balance sheet arrangements.

As of June 26, 2021, we were not involved in any such off-balance sheet arrangements.

Recent Accounting Pronouncements

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis