FORMFACTOR INC 10-Q

Item 1. Financial Statements FORMFACTOR, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) (Unaudited) June 25, 2022 December 25, 2021 ASSETS Current assets: Cash and cash equivalents $ 136,395 $ 151,010 Marketable securities 129,919 125,055 Accounts receivable, net of allowance for credit losses of $ 193 and $ 195 107,726 115,541 Inventories, net 143,475 111,548 Restricted cash 2,102 2,233 Prepaid expenses and other current assets 17,447 18,652 Total current assets 537,064 524,039 Restricted cash 1,802 2,099 Operating lease, right-of-use-assets 33,499 35,210 Property, plant and equipment, net of accumulated depreciation 157,814 146,555 Goodwill 212,357 212,299 Intangibles, net 30,872 36,342 Deferred tax assets 65,059 61,995 Other assets 3,980 1,981 Total assets $ 1,042,447 $ 1,020,520 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 60,927 $ 57,862 Accrued liabilities 54,835 50,836 Current portion of term loans, net of unamortized issuance costs 4,725 8,931 Deferred revenue 31,255 23,224 Operating lease liabilities 7,843 7,901 Total current liabilities 159,585 148,754 Term loans, less current portion, net of unamortized issuance costs 14,915 15,434 Deferred tax liabilities 2,909 3,623 Long-term operating lease liabilities 29,511 31,009 Other liabilities 5,542 5,920 Total liabilities 212,462 204,740 Stockholders’ equity: Common stock, $ 0.001 par value: 250,000,000 shares authorized; 77,194,733 and 78,240,506 shares issued and outstanding 77 78 Additional paid-in capital 860,584 898,945 Accumulated other comprehensive loss ( 8,996 ) ( 1,449 ) Accumulated deficit ( 21,680 ) ( 81,794 ) Total stockholders’ equity 829,985 815,780 Total liabilities and stockholders’ equity $ 1,042,447 $ 1,020,520 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 25, 2022 June 26, 2021 June 25, 2022 June 26, 2021 Revenues $ 203,907 $ 188,076 $ 401,081 $ 374,712 Cost of revenues 109,538 111,793 212,488 221,723 Gross profit 94,369 76,283 188,593 152,989 Operating expenses: Research and development 28,317 25,454 55,451 49,500 Selling, general and administrative 33,406 30,479 66,312 60,494 Total operating expenses 61,723 55,933 121,763 109,994 Operating income 32,646 20,350 66,830 42,995 Interest income 300 148 438 342 Interest expense ( 119 ) ( 116 ) ( 311 ) ( 296 ) Other income (expense), net 551 ( 194 ) 743 ( 22 ) Income before income taxes 33,378 20,188 67,700 43,019 Provision for income taxes 3,136 2,283 7,586 5,489 Net income $ 30,242 $ 17,905 $ 60,114 $ 37,530 Net income per share: Basic $ 0.39 $ 0.23 $ 0.77 $ 0.48 Diluted $ 0.38 $ 0.23 $ 0.76 $ 0.47 Weighted-average number of shares used in per share calculations: Basic 77,897 77,463 78,071 77,530 Diluted 79,210 79,466 79,423 79,621 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 25, 2022 June 26, 2021 June 25, 2022 June 26, 2021 Net income $ 30,242 $ 17,905 $ 60,114 $ 37,530 Other comprehensive income (loss), net of tax: Translation adjustments and other ( 3,856 ) 632 ( 6,554 ) ( 1,747 ) Unrealized losses on available-for-sale marketable securities ( 547 ) ( 97 ) ( 1,751 ) ( 228 ) Unrealized gains (losses) on derivative instruments ( 116 ) ( 89 ) 758 ( 315 ) Other comprehensive income (loss), net of tax ( 4,519 ) 446 ( 7,547 ) ( 2,290 ) Comprehensive income $ 25,723 $ 18,351 $ 52,567 $ 35,240 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 Income (Loss) Accumulated Deficit Total Six Months Ended June 25, 2022 Balances, December 25, 2021 78,240,506 $ 78 $ 898,945 $ ( 1,449 ) $ ( 81,794 ) $ 815,780 Issuance of common stock under the Employee Stock Purchase Plan 157,642 — 5,645 — — 5,645 Issuance of common stock pursuant to exercise of options 6,000 — 42 — — 42 Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax 234,076 — ( 4,243 ) — — ( 4,243 ) Purchase and retirement of common stock through repurchase program ( 1,443,491 ) ( 1 ) ( 54,327 ) — — ( 54,328 ) Stock-based compensation — — 14,522 — — 14,522 Other comprehensive loss — — — ( 7,547 ) — ( 7,547 ) Net income — — — — 60,114 60,114 Balances, June 25, 2022 77,194,733 $ 77 $ 860,584 $ ( 8,996 ) $ ( 21,680 ) $ 829,985 Three Months Ended June 25, 2022 Balances, March 26, 2022 78,166,212 $ 78 $ 902,994 $ ( 4,477 ) $ ( 51,922 ) $ 846,673 Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax 231,464 — ( 4,171 ) — — ( 4,171 ) Purchase and retirement of common stock through repurchase program ( 1,202,943 ) ( 1 ) ( 44,930 ) — — ( 44,931 ) Stock-based compensation — — 6,691 — — 6,691 Other comprehensive loss — — — ( 4,519 ) — ( 4,519 ) Net income — — — — 30,242 30,242 Balances, June 25, 2022 77,194,733 $ 77 $ 860,584 $ ( 8,996 ) $ ( 21,680 ) $ 829,985 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 FORMFACTOR, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except shares) (Unaudited) Shares of Common Stock Common Stock Shares of Treasury Stock Treasury Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Six Months Ended June 26, 2021 Balances, December 26, 2020 77,437,997 $ 78 — $ — $ 903,838 $ 5,886 $ ( 165,718 ) $ 744,084 Issuance of common stock under the Employee Stock Purchase Plan 228,784 — — — 5,065 — — 5,065 Issuance of common stock pursuant to exercise of options 100,000 — — — 844 — — 844 Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax 308,219 — — — ( 5,261 ) — — ( 5,261 ) Purchase and retirement of common stock through repurchase program ( 620,200 ) ( 1 ) — — ( 23,950 ) — — ( 23,951 ) Stock-based compensation — — — — 13,526 — — 13,526 Other comprehensive loss — — — — — ( 2,290 ) — ( 2,290 ) Net income — — — — — — 37,530 37,530 Balances, June 26, 2021 77,454,800 $ 77 — $ — $ 894,062 $ 3,596 $ ( 128,188 ) $ 769,547 Three Months Ended June 26, 2021 Balances, March 27, 2021 77,758,530 $ 78 ( 136,402 ) $ ( 5,738 ) $ 915,136 $ 3,150 $ ( 146,093 ) $ 766,533 Issuance of common stock pursuant to exercise of options 50,000 — — — 422 — — 422 Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax 266,470 — — — ( 4,120 ) — — ( 4,120 ) Purchase and retirement of common stock through repurchase program ( 620,200 ) ( 1 ) 136,402 5,738 ( 23,950 ) — — ( 18,213 ) Stock-based compensation — — — — 6,574 — — 6,574 Other comprehensive income — — — — — 446 — 446 Net income — — — — — — 17,905 17,905 Balances, June 26, 2021 77,454,800 $ 77 — $ — $ 894,062 $ 3,596 $ ( 128,188 ) $ 769,547 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 25, 2022 June 26, 2021 Cash flows from operating activities: Net income $ 60,114 $ 37,530 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 14,146 12,678 Amortization 4,702 13,900 Reduction in the carrying amount of right-of-use assets 4,414 3,652 Stock-based compensation expense 13,878 13,665 Provision for excess and obsolete inventories 4,726 6,898 Non-cash restructuring charges 710 — Gain on contingent consideration — ( 95 ) Other adjustments to reconcile net income to net cash provided by operating activities ( 567 ) 1,211 Changes in assets and liabilities: Accounts receivable 5,530 ( 1,194 ) Inventories ( 32,268 ) ( 20,388 ) Prepaid expenses and other current assets 1,295 3,179 Other assets ( 40 ) ( 344 ) Accounts payable 7,521 ( 2,028 ) Accrued liabilities 4,102 ( 235 ) Other liabilities 73 184 Deferred revenues 2,727 1,522 Operating lease liabilities ( 4,262 ) ( 3,980 ) Net cash provided by operating activities 86,801 66,155 Cash flows from investing activities: Acquisition of property, plant and equipment ( 30,116 ) ( 31,322 ) Acquisition of business ( 3,121 ) — Purchases of marketable securities ( 52,344 ) ( 71,186 ) Purchase of promissory note receivable ( 1,000 ) — Proceeds from maturities and sales of marketable securities 45,470 42,695 Net cash used in investing activities ( 41,111 ) ( 59,813 ) Cash flows from financing activities: Proceeds from issuances of common stock 5,687 5,909 Purchase of common stock through stock repurchase program ( 54,328 ) ( 23,951 ) Tax withholdings related to net share settlements of equity awards ( 4,243 ) ( 5,261 ) Payment of contingent consideration — ( 3,873 ) Principal repayments on term loans ( 4,379 ) ( 4,740 ) Net cash used in financing activities ( 57,263 ) ( 31,916 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 3,470 ) ( 1,558 ) Net decrease in cash, cash equivalents and restricted cash ( 15,043 ) ( 27,132 ) Cash, cash equivalents and restricted cash, beginning of period 155,342 191,098 Cash, cash equivalents and restricted cash, end of period $ 140,299 $ 163,966 The accompanying notes are an integral part of these condensed consolidated financial statements. 8 FORMFACTOR, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six Months Ended June 25, 2022 June 26, 2021 Non-cash investing and financing activities: Increase (decrease) in accounts payable and accrued liabilities related to property, plant and equipment purchases $ ( 4,165 ) $ 2,906 Operating lease, right-of-use assets obtained in exchange for lease obligations 3,438 11,629 Supplemental disclosure of cash flow information: Cash paid for income taxes, net $ 6,473 $ 4,559 Cash paid for interest 294 339 Operating cash outflows from operating leases 4,379 4,352 Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents $ 136,395 $ 160,273 Restricted cash, current 2,102 1,857 Restricted cash, non-current 1,802 1,836 Total cash, cash equivalents and restricted cash $ 140,299 $ 163,966 The accompanying notes are an integral part of these condensed consolidated financial statements. 9 FORMFACTOR, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 — Basis of Presentation and New Accounting Pronouncements Basis of Presentation The accompanying condensed consolidated financial information of FormFactor, Inc. is unaudited and has been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). However, such information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the notes thereto included in our 2021 Annual Report on Form 10-K filed with the SEC on February 18, 2022. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year. Fiscal Year We operate on a 52/53 week fiscal year, whereby the fiscal year ends on the last Saturday of December. Fiscal 2022 and 2021 contain 53 weeks and 52 weeks, respectively, and the six months ended June 25, 2022 and June 26, 2021 each contained 26 weeks. Fiscal 2022 will end on December 31, 2022. Significant Accounting Policies Our significant accounting policies have not changed during the six months ended June 25, 2022 from those disclosed in our Annual Report on Form 10-K for the year ended December 25, 2021. Reclassifications Certain immaterial reclassifications were made to the prior year financial statements to conform to the current year presentation. New Accounting Pronouncements ASU 2020-04 In March 2020, the FASB issued ASU 2020-04, “Referenced Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU provides temporary optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848),” which permits entities to apply optional expedients in Topic 848 to derivative instruments modified because of discounting transition resulting from reference rate reform. ASU 2020-04 became effective upon issuance and may be applied prospectively to contract modifications made on or before December 31, 2022. ASU 2021-01 became effective upon issuance and may be applied on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 or prospectively for contract modifications made on or before December 31, 2022. The Company has not yet applied the relief afforded by these standard amendments and is currently assessing contracts that will require modification due to reference rate reform to which these standard amendments may be applied. ASU 2021-08 In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification 606, “Revenue from Contracts with Customers,” as if it had originated the contracts. The Company elected to early adopt on a prospective basis during the second quarter of fiscal 2022. The adoption did not have a material effect on the Company's Consolidated Financial Statements. 10 Note 2 — Concentration of Credit and Other Risks Each of the following customers accounted for 10 % or more of our revenues for the periods indicated: Three Months Ended Six Months Ended June 25, 2022 June 26, 2021 June 25, 2022 June 26, 2021 Intel Corporation 20.9 % 16.2 % 20.9 % 22.1 % Samsung Electronics., LTD. * 14.7 % * * Taiwan Semiconductor Manufacturing Co., LTD. * 11.0 % * 11.2 % 20.9 % 41.9 % 20.9 % 33.3 % At June 25, 2022, one customer accounted for 20.0 % of gross accounts receivable. At December 25, 2021, one customer accounted for 13.8 % of gross accounts receivable. 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 25, 2022 December 25, 2021 Raw materials $ 68,247 $ 57,673 Work-in-progress 52,619 35,935 Finished goods 22,609 17,940 $ 143,475 $ 111,548 Note 4 — Acquisition Woburn Acquisition On June 9, 2022, we acquired the assets of the dilution refrigerator product line of American ULT Cryogenics, formerly d/b/a JanisULT (“Woburn”), for total consideration of $ 3.1 million. This acquisition adds cryogen-free dilution refrigerators capable of cooling to sub-10 millikelvin to our product portfolio, which is required for operation of superconducting quantum computers. As of the reporting date, we have not completed the valuation of assets acquired and liabilities assumed. Upon the completion of purchase accounting, we expect certain amounts provisionally recorded as goodwill will be ultimately allocated to developed technologies, but at this time we do not have an estimate of the allocation of value between amortizing and non-amortizing intangible assets. We do expect that some amount of intangible assets provisionally recorded as goodwill will ultimately be allocated to an amortizing intangible asset. At the time such amount is estimable, we will record any amortization required between the acquisition date and the date at which the amounts become estimable. While we do not yet have a reasonable basis on which to record any such amortization, the impact to the financial statements as a whole is not expected to be material assuming typical lives of these assets and ranges of potential allocation of value. The amounts presented below represent provisional amounts of assets acquired and liabilities assumed, which are recorded based on the best information available, and are subject to revision as the fair value of the associated assets acquired and 11 liabilities assumed are finalized. The total estimated purchase price has been provisionally allocated to the underlying assets acquired and liabilities assumed, as follows (in thousands): Amount Accounts receivable $ 178 Inventories 6,064 Property, plant and equipment 479 Prepaid expenses and other current assets 117 Other assets 28 Tangible assets acquired 6,866 Deferred revenue ( 5,513 ) Accounts payable and accrued liabilities ( 30 ) Total tangible assets acquired and liabilities assumed 1,323 Goodwill 1,798 Net Assets Acquired $ 3,121 Note 5 — Goodwill and Intangible Assets Goodwill by reportable segment was as follows (in thousands): Probe Cards Systems Total Goodwill, as of December 26, 2020 $ 178,072 $ 34,689 $ 212,761 Addition - Baldwin Park Acquisition 352 — 352 Addition - HPD Acquisition — 1,254 1,254 Foreign currency translation — ( 2,068 ) ( 2,068 ) Goodwill, as of December 25, 2021 178,424 33,875 212,299 Addition - Woburn Acquisition — 1,798 1,798 Foreign currency translation — ( 1,740 ) ( 1,740 ) Goodwill, as of June 25, 2022 $ 178,424 $ 33,933 $ 212,357 We have no t recorded goodwill impairments for the six months ended June 25, 2022. Intangible assets were as follows (in thousands): June 25, 2022 December 25, 2021 Intangible Assets Gross Accumulated Amortization Net Gross Accumulated Amortization Net Existing developed technologies $ 170,627 $ 149,338 $ 21,289 $ 172,259 $ 148,784 $ 23,475 Customer relationships 50,827 41,966 8,861 51,270 39,254 12,016 Trade name 7,952 7,630 322 8,054 7,603 451 Backlog — — — 1,896 1,896 — In-process research and development 400 — 400 400 — 400 $ 229,806 $ 198,934 $ 30,872 $ 233,879 $ 197,537 $ 36,342 Amortization expense was included in our Condensed Consolidated Statements of Income as follows (in thousands): Three Months Ended Six Months Ended June 25, 2022 June 26, 2021 June 25, 2022 June 26, 2021 Cost of revenues $ 788 $ 5,505 $ 1,596 $ 10,595 Selling, general and administrative 1,545 1,590 3,106 3,305 $ 2,333 $ 7,095 $ 4,702 $ 13,900 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 2022 $ 4,650 2023 6,968 2024 4,390 2025 4,142 2026 3,134 Thereafter 7,188 $ 30,472 Note 6 — Accrued Liabilities Accrued liabilities consisted of the following (in thousands): June 25, 2022 December 25, 2021 Accrued compensation and benefits $ 32,001 $ 29,706 Accrued income and other taxes 9,468 8,086 Accrued warranty 3,978 2,805 Employee stock purchase plan contributions withheld 4,789 4,693 Accrued restructuring charges 592 2,478 Other accrued expenses 4,007 3,068 $ 54,835 $ 50,836 Note 7 — Restructuring Charges On September 25, 2021, we adopted restructuring plans to improve our business effectiveness and streamline our operations by consolidating certain manufacturing facilities for both the Probe Cards segment and the Systems segment. This included plans to consolidate or relocate certain leased locations in the United States to other locations in the United States, Germany and Asia. As a result of these changes to certain work locations, we have incurred, and expect to incur, personnel related costs to sever, relocate, or retain select employees. Additionally, this included plans to adjust capacity for certain product offerings, which resulted in contract termination costs to satisfy contract obligations. We expect the actions defined under these plans will be largely completed by the end of December 2022, except facilities charges which may extend beyond that time. These plans are expected to result in FormFactor recording restructuring and other charges in the aggregate amount of approximately $ 5.0 million to $ 8.5 million, estimated to be comprised primarily of $ 1.0 million to $ 2.0 million of severance and employee-related costs, $ 1.5 million to $ 2.5 million in contract and lease termination costs, $ 2.0 million to $ 3.0 million in inventory impairments, and $ 0.5 million to $ 1.0 million of cost related to impairment of leasehold improvements, facility exits, and other costs. Approximately $ 2.5 million to $ 4.5 million is expected within each of the Probe Cards and Systems segments, respectively. The Company has recognized to date restructuring and other charges in the aggregate amount of $ 5.0 million, comprised of $ 1.2 million of severance and employee-related costs, $ 1.5 million in contract and lease termination costs, $ 2.0 million in inventory impairments, and $ 0.3 million of cost related to impairment of leasehold improvements, facility exits and other costs. 13 Restructuring charges by reportable segment included in our Condensed Consolidated Statements of Income were as follows (in thousands): Three Months Ended Six Months Ended June 25, 2022 June 25, 2022 Probe Cards Systems Total Probe Cards Systems Total Cost of revenues $ 227 $ 227 $ 454 $ 266 $ 327 $ 593 Research and development — 53 53 — 199 199 Selling, general and administrative — 74 74 3 99 102 $ 227 $ 354 $ 581 $ 269 $ 625 $ 894 Changes to the restructuring accrual in the six months ended June 25, 2022 were as follows (in thousands): Employee Severance and Benefits Inventory Impairments Contract Termination Costs Total December 25, 2021 $ 1,028 $ — $ 1,450 $ 2,478 Restructuring charges 185 646 — 894 Cash payments ( 621 ) — ( 1,450 ) ( 2,071 ) Non-cash settlement — ( 646 ) — ( 709 ) June 25, 2022 $ 592 $ — $ — $ 592 Note 8 — 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 three and six months ended June 25, 2022 or the year ended December 25, 2021. The carrying values of Cash, Accounts receivable, net, Restricted cash, Prepaid expenses and other current assets, Accounts payable, Accrued liabilities, and Term loans, net of unamortized issuance costs, approximate fair value due to their short maturities. No changes were made to our valuation techniques during the first six months of fiscal 2022. 14 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 25, 2022 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 39,228 $ — $ — $ 39,228 Commercial paper — 3,393 — 3,393 U.S. agency securities — 2,558 — 2,558 U.S. treasuries 1,995 — — 1,995 41,223 5,951 — 47,174 Marketable securities: Corporate bonds — 64,930 — 64,930 U.S. treasuries 35,894 — — 35,894 Commercial paper — 22,480 — 22,480 U.S. agency securities — 5,912 — 5,912 Certificates of deposit — 703 — 703 35,894 94,025 — 129,919 Promissory note receivable — — 1,007 1,007 Interest rate swap derivative contracts — 1,990 — 1,990 Total assets $ 77,117 $ 101,966 $ 1,007 $ 180,090 Liabilities: Foreign exchange derivative contracts $ — $ ( 1,146 ) $ — $ ( 1,146 ) December 25, 2021 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 9,526 $ — $ — $ 9,526 U.S. agency securities — 5,556 — 5,556 U.S. treasuries 2,500 — — 2,500 Commercial paper — 1,000 — 1,000 12,026 6,556 — 18,582 Marketable securities: Corporate bonds — 52,709 — 52,709 U.S. treasuries 38,985 — — 38,985 Commercial paper — 32,162 — 32,162 Certificates of deposit — 1,199 — 1,199 38,985 86,070 — 125,055 Interest rate swap derivative contracts — 629 — 629 Total assets $ 51,011 $ 93,255 $ — $ 144,266 Liabilities: Foreign exchange derivative contracts $ — $ ( 489 ) $ — $ ( 489 ) Interest rate swap derivative contracts — ( 55 ) — ( 55 ) Total liabilities $ — $ ( 544 ) $ — $ ( 544 ) 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 15 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. 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 Swaps The fair value of our interest rate swap contracts 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 contracts qualify for, and are designated as, cash flow hedges. 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 (expense), 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 25, 2022 will mature by the second quarter of fiscal 2023. The following table provides information about our foreign currency forward contracts outstanding as of June 25, 2022 (in thousands): Currency Contract Position Contract Amount (Local Currency) Contract Amount (U.S. Dollars) Euro Dollar Buy ( 21,445 ) $ ( 24,117 ) Japanese Yen Sell 2,247,411 16,633 Korean Won Buy ( 1,010,988 ) ( 779 ) Taiwan Dollar Sell 28,890 974 Total USD notional amount of outstanding foreign exchange contracts $ ( 7,289 ) 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 We measure and report our non-financial assets such as Property, plant and equipment, Goodwill and Intangible assets at fair value on a non-recurring basis if we determine these assets to be impaired or in the period when we make a business 16 acquisition. Other than as discussed in Note 4, Acquisition , and Note 7, Restructuring Charges, there were no assets or liabilities measured at fair value on a nonrecurring basis during the three and six months ended June 25, 2022 or June 26, 2021. Note 9 — 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 25, 2022 June 26, 2021 Balance at beginning of period $ 2,805 $ 3,918 Accruals 3,846 3,472 Settlements ( 2,673 ) ( 3,132 ) Balance at end of period $ 3,978 $ 4,258 Note 10 — Property, Plant and Equipment, net Property, plant and equipment, net consisted of the following (in thousands): June 25, 2022 December 25, 2021 Land $ 4,751 $ 4,751 Building and building improvements 44,429 41,722 Machinery and equipment 263,851 252,632 Computer equipment and software 45,727 44,667 Furniture and fixtures 7,434 7,293 Leasehold improvements 83,127 82,266 Sub-total 449,319 433,331 Less: Accumulated depreciation and amortization ( 323,779 ) ( 312,700 ) Net, property, plant and equipment 125,540 120,631 Construction-in-process 32,274 25,924 Total $ 157,814 $ 146,555 Note 11 — Stockholders’ Equity and Stock-Based Compensation Common Stock Repurchase Programs On October 26, 2020, our Board of Directors authorized a two-year program to repurchase up to $ 50 million of outstanding common stock to offset potential dilution from issuances of common stock under our stock-based compensation programs. During fiscal 2021 we repurchased and retired 622,400 shares of common stock for $ 24.0 million. During the six months ended June 25, 2022, we repurchased and retired 676,408 shares of common stock for $ 26.0 million, utilizing the remaining funds available for repurchase. On May 20, 2022, our Board of Directors authorized an additional program to repurchase up to $ 75 million of outstanding common stock, also with the primary purpose to offset potential dilution from issuances of common stock under our stock-based compensation programs. The share repurchase program will expire on May 20, 2024. During the three months ended June 25, 2022, we repurchased and retired 767,083 shares of common stock for $ 28.4 million under the program. As of June 25, 2022, $ 46.6 million remained available for future repurchases. 17 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. 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 25, 2021 2,166,934 $ 28.63 Awards granted 63,697 41.25 Awards vested ( 338,825 ) 16.73 Awards forfeited ( 51,941 ) 30.23 RSUs at June 25, 2022 1,839,865 31.22 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 PRSUs granted during the six months ended June 25, 2022. 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 25, 2022 Shares issued 157,642 Weighted average per share purchase price $ 35.81 Weighted average per share discount from the fair value of our common stock on the date of issuance $ ( 6.93 ) 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 25, 2022 June 26, 2021 June 25, 2022 June 26, 2021 Cost of revenues $ 734 $ 1,079 $ 1,812 $ 2,414 Research and development 1,695 1,663 3,681 3,352 Selling, general and administrative 3,929 3,846 8,385 7,899 Total stock-based compensation $ 6,358 $ 6,588 $ 13,878 $ 13,665 Unrecognized Compensation Costs At June 25, 2022, the unrecognized stock-based compensation was as follows (dollars in thousands): Unrecognized Expense Average Expected Recognition Period in Years Restricted stock units $ 27,430 1.80 Performance restricted stock units 7,202 1.74 Employee stock purchase plan 285 0.61 Total unrecognized stock-based compensation expense $ 34,917 1.77 18 Note 12 — 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 25, 2022 June 26, 2021 June 25, 2022 June 26, 2021 Weighted-average shares used in computing basic net income per share 77,897 77,463 78,071 77,530 Add potentially dilutive securities 1,313 2,003 1,352 2,091 Weighted-average shares used in computing diluted net income per share 79,210 79,466 79,423 79,621 Securities not included as they would have been antidilutive 23 128 — 118 Note 13 — Commitments and Contingencies Leases See Note 14, Leases . Contractual Obligations and Commitments Our contractual obligations and commitments have not materially changed as of June 25, 2022 from those disclosed in our Annual Report on Form 10-K for the year ended December 25, 2021. Legal Matters From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. As of June 25, 2022, and as of the filing of this Quarterly Report on Form 10-Q, we were not involved in any material legal proceedings. Note 14 — 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 to 7 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 to 3 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 6 years as of June 25, 2022 and the weighted-average discount rate was 3.69 %. The components of lease expense were as follows (in thousands): Three Months Ended Six Months Ended June 25, 2022 June 26, 2021 June 25, 2022 June 26, 2021 Lease expense: Operating lease expense $ 2,183 $ 2,048 $ 4,404 $ 4,171 Short-term lease expense 76 45 116 82 Variable lease expense 677 426 1,135 963 $ 2,936 $ 2,519 $ 5,655 $ 5,216 19 Future minimum payments under our non-cancelable operating leases were as follows as of June 25, 2022 (in thousands): Fiscal Year Amount Remainder of 2022 $ 4,319 2023 7,564 2024 7,224 2025 7,187 2026 6,505 Thereafter 9,143 Total minimum lease payments 41,942 Less: interest ( 4,588 ) Present value of net minimum lease payments 37,354 Less: current portion ( 7,843 ) Total long-term operating lease liabilities $ 29,511 Note 15 — Revenue Transaction price allocated to the remaining performance obligations: On June 25, 2022, we had $ 9.7 million of remaining performance obligations, which were comprised of deferred service contracts and extended warranty contracts and contracts with overtime revenue recognition that are not yet delivered. We expect to recognize approximately 66.9 % of our remaining performance obligations as revenue in the remainder of fiscal 2022, approximately 27.7 % in fiscal 2023, and approximately 5.4 % in fiscal 2024 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 25, 2022 and December 25, 2021 were $ 2.0 million and $ 0.9 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 25, 2022 and December 25, 2021 were $ 32.2 million and $ 24.2 million, respectively. During the six months ended June 25, 2022, we recognized $ 16.5 million of revenue that was included in contract liabilities as of December 25, 2021. 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. Revenue by Category: Refer to Note 16, Operating Segments and Enterprise-Wide Information , for further details. Note 16 — Operating Segments and Enterprise-Wide Information Our chief operating decision maker (“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 20 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 25, 2022 June 26, 2021 Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total Revenues $ 167,708 $ 36,199 $ — $ 203,907 $ 153,641 $ 34,435 $ — $ 188,076 Gross profit 78,420 18,276 ( 2,327 ) 94,369 66,600 16,907 ( 7,224 ) 76,283 Gross margin 46.8 % 50.5 % 46.3 % 43.3 % 49.1 % 40.6 % Six Months Ended June 25, 2022 June 26, 2021 Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total Revenues $ 327,691 $ 73,390 $ — $ 401,081 $ 312,539 $ 62,173 $ — $ 374,712 Gross profit $ 155,622 $ 37,683 $ ( 4,712 ) $ 188,593 $ 136,915 $ 30,506 $ ( 14,432 ) $ 152,989 Gross margin 47.5 % 51.3 % 47.0 % 43.8 % 49.1 % 40.8 % 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 executive 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. Certain revenue category information by reportable segment was as follows (in thousands): Three Months Ended June 25, 2022 June 26, 2021 Probe Cards Systems Total Probe Cards Systems Total Market: Foundry & Logic $ 122,380 $ — $ 122,380 $ 103,726 $ — $ 103,726 DRAM 36,843 — 36,843 42,088 — 42,088 Flash 8,485 — 8,485 7,827 — 7,827 Systems — 36,199 36,199 — 34,435 34,435 Total $ 167,708 $ 36,199 $ 203,907 $ 153,641 $ 34,435 $ 188,076 Timing of revenue recognition: Products transferred at a point in time $ 166,701 $ 33,081 $ 199,782 $ 153,129 $ 30,884 $ 184,013 Products and services transferred over time 1,007 3,118 4,125 512 3,551 4,063 Total $ 167,708 $ 36,199 $ 203,907 $ 153,641 $ 34,435 $ 188,076 Geographical region: Taiwan $ 45,188 $ 4,832 $ 50,020 $ 46,737 $ 5,147 $ 51,884 China 40,578 9,157 49,735 23,996 7,831 31,827 United States 21,539 9,703 31,242 24,174 8,476 32,650 South Korea 27,418 1,337 28,755 35,426 751 36,177 Malaysia 16,157 87 16,244 3,034 161 3,195 Japan 6,716 3,221 9,937 3,477 4,227 7,704 Europe 3,824 4,267 8,091 6,466 5,544 12,010 Singapore 5,131 1,977 7,108 8,602 1,360 9,962 Rest of the world 1,157 1,618 2,775 1,729 938 2,667 Total $ 167,708 $ 36,199 $ 203,907 $ 153,641 $ 34,435 $ 188,076 21 Six Months Ended June 25, 2022 June 26, 2021 Probe Cards Systems Total Probe Cards Systems Total Market: Foundry & Logic $ 236,501 $ — $ 236,501 $ 217,136 $ — $ 217,136 DRAM 71,280 — 71,280 75,986 — 75,986 Flash 19,910 — 19,910 19,417 — 19,417 Systems — 73,390 73,390 — 62,173 62,173 Total $ 327,691 $ 73,390 $ 401,081 $ 312,539 $ 62,173 $ 374,712 Timing of revenue recognition: Products transferred at a point in time $ 325,537 $ 68,497 $ 394,034 $ 311,605 $ 55,555 $ 367,160 Products and services transferred over time 2,154 4,893 7,047 934 6,618 7,552 Total $ 327,691 $ 73,390 $ 401,081 $ 312,539 $ 62,173 $ 374,712 Geographical region: Taiwan $ 87,710 $ 15,379 $ 103,089 $ 91,471 $ 5,993 $ 97,464 China 73,369 14,765 88,134 61,827 12,625 74,452 United States 41,515 15,374 56,889 45,482 16,654 62,136 South Korea 52,299 3,957 56,256 53,427 1,835 55,262 Malaysia 37,674 769 38,443 22,922 203 23,125 Japan 11,501 7,818 19,319 8,726 8,299 17,025 Singapore 15,415 2,589 18,004 16,229 2,291 18,520 Europe 6,206 10,280 16,486 9,299 12,710 22,009 Rest of the world 2,002 2,459 4,461 3,156 1,563 4,719 Total $ 327,691 $ 73,390 $ 401,081 $ 312,539 $ 62,173 $ 374,712