FORMFACTOR INC 10-Q

Item 1. Financial Statements FORMFACTOR, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) (Unaudited) April 1, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 112,360 $ 109,130 Marketable securities 123,891 129,006 Accounts receivable, net of allowance for credit losses of $ 169 and $ 168 103,969 88,143 Inventories, net 116,553 123,157 Restricted cash 1,207 1,221 Prepaid expenses and other current assets 22,941 23,895 Total current assets 480,921 474,552 Restricted cash 2,287 2,631 Operating lease, right-of-use-assets 30,420 31,362 Property, plant and equipment, net of accumulated depreciation 198,232 189,848 Goodwill 211,773 211,444 Intangibles, net 24,486 26,751 Deferred tax assets 67,951 67,646 Other assets 3,686 3,994 Total assets $ 1,019,756 $ 1,008,228 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 63,756 $ 69,308 Accrued liabilities 31,981 42,115 Current portion of term loan, net of unamortized issuance costs 1,142 1,045 Deferred revenue 23,779 29,846 Operating lease liabilities 7,512 7,353 Total current liabilities 128,170 149,667 Term loan, less current portion, net of unamortized issuance costs 14,034 14,389 Deferred tax liabilities 2,905 2,732 Long-term operating lease liabilities 26,407 27,587 Deferred grant 18,000 — Other liabilities 5,868 5,568 Total liabilities 195,384 199,943 Stockholders’ equity: Common stock, $ 0.001 par value: 250,000,000 shares authorized; 77,142,023 and 76,914,590 shares issued and outstanding 77 77 Additional paid-in capital 858,195 844,842 Accumulated other comprehensive loss ( 4,186 ) ( 5,578 ) Accumulated deficit ( 29,714 ) ( 31,056 ) Total stockholders’ equity 824,372 808,285 Total liabilities and stockholders’ equity $ 1,019,756 $ 1,008,228 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 April 1, 2023 March 26, 2022 Revenues $ 167,448 $ 197,174 Cost of revenues 106,370 102,950 Gross profit 61,078 94,224 Operating expenses: Research and development 28,245 27,134 Selling, general and administrative 32,742 32,906 Total operating expenses 60,987 60,040 Operating income 91 34,184 Interest income (expense), net 1,276 ( 54 ) Other income, net 23 192 Income before income taxes 1,390 34,322 Provision for income taxes 48 4,450 Net income $ 1,342 $ 29,872 Net income per share: Basic $ 0.02 $ 0.38 Diluted $ 0.02 $ 0.38 Weighted-average number of shares used in per share calculations: Basic 77,066 78,246 Diluted 77,255 79,468 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 April 1, 2023 March 26, 2022 Net income $ 1,342 $ 29,872 Other comprehensive income (loss), net of tax: Translation adjustments 832 ( 2,698 ) Unrealized gains (losses) on available-for-sale marketable securities 603 ( 1,204 ) Unrealized gains (losses) on derivative instruments ( 43 ) 874 Other comprehensive income (loss), net of tax: 1,392 ( 3,028 ) Comprehensive income $ 2,734 $ 26,844 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 Three Months Ended April 1, 2023 Balances, December 31, 2022 76,914,590 $ 77 $ 844,842 $ ( 5,578 ) $ ( 31,056 ) $ 808,285 Issuance of common stock under the Employee Stock Purchase Plan 210,055 — 5,024 — — 5,024 Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax 17,378 — ( 387 ) — — ( 387 ) Stock-based compensation — — 8,716 — — 8,716 Other comprehensive income — — — 1,392 — 1,392 Net income — — — — 1,342 1,342 Balances, April 1, 2023 77,142,023 $ 77 $ 858,195 $ ( 4,186 ) $ ( 29,714 ) $ 824,372 Three Months Ended March 26, 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 2,612 — ( 72 ) — — ( 72 ) Purchase and retirement of common stock through repurchase program ( 240,548 ) — ( 9,397 ) — — ( 9,397 ) Stock-based compensation — — 7,831 — — 7,831 Other comprehensive loss — — — ( 3,028 ) — ( 3,028 ) Net income — — — — 29,872 29,872 Balances, March 26, 2022 78,166,212 $ 78 $ 902,994 $ ( 4,477 ) $ ( 51,922 ) $ 846,673 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 FORMFACTOR, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Three Months Ended April 1, 2023 March 26, 2022 Cash flows from operating activities: Net income $ 1,342 $ 29,872 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 7,576 6,960 Amortization 2,378 2,369 Reduction in the carrying amount of right-of-use assets 1,690 2,492 Stock-based compensation expense 9,290 7,520 Provision for excess and obsolete inventories 4,973 2,501 Other adjustments to reconcile net income to net cash provided by operating activities 133 182 Changes in assets and liabilities: Accounts receivable ( 15,926 ) 966 Inventories 1,375 ( 17,080 ) Prepaid expenses and other current assets 1,009 ( 144 ) Other assets ( 55 ) ( 73 ) Accounts payable ( 1,819 ) 10,150 Accrued liabilities ( 10,209 ) ( 3,120 ) Other liabilities 319 87 Deferred revenues ( 6,046 ) 3,908 Deferred grant 18,000 — Operating lease liabilities ( 1,721 ) ( 2,435 ) Net cash provided by operating activities 12,309 44,155 Cash flows from investing activities: Acquisition of property, plant and equipment ( 19,701 ) ( 15,606 ) Purchases of marketable securities ( 27,311 ) ( 23,462 ) Proceeds from maturities and sales of marketable securities 33,473 17,990 Net cash used in investing activities ( 13,539 ) ( 21,078 ) Cash flows from financing activities: Proceeds from issuances of common stock 5,024 5,687 Purchase of common stock through stock repurchase program — ( 9,397 ) Tax withholdings related to net share settlements of equity awards ( 387 ) ( 72 ) Principal repayments on term loans ( 259 ) ( 2,234 ) Net cash provided by (used) in financing activities 4,378 ( 6,016 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 276 ) ( 1,142 ) Net increase in cash, cash equivalents and restricted cash 2,872 15,919 Cash, cash equivalents and restricted cash, beginning of period 112,982 155,342 Cash, cash equivalents and restricted cash, end of period $ 115,854 $ 171,261 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) Three Months Ended April 1, 2023 March 26, 2022 Non-cash investing and financing activities: Decrease in accounts payable and accrued liabilities related to property, plant and equipment purchases $ 3,755 $ 2,524 Operating lease, right-of-use assets obtained in exchange for lease obligations 727 3,359 Supplemental disclosure of cash flow information: Cash paid for income taxes, net $ 7,391 $ 890 Cash paid for interest 106 163 Operating cash outflows from operating leases 2,191 2,094 Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents $ 112,360 $ 167,182 Restricted cash, current 1,207 2,026 Restricted cash, non-current 2,287 2,053 Total cash, cash equivalents and restricted cash $ 115,854 $ 171,261 The accompanying notes are an integral part of these condensed consolidated financial statements. 8 FORMFACTOR, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 — Basis of Presentation and Significant Accounting Policies Basis of Presentation 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 2022 Annual Report on Form 10-K filed with the SEC on February 24, 2023. 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 2023 and 2022 contain 52 weeks and 53 weeks, respectively, and the three months ended April 1, 2023 and March 26, 2022 each contained 13 weeks. Fiscal 2023 will end on December 30, 2023. Significant Accounting Policies Our significant accounting policies have not changed during the three months ended April 1, 2023 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, except for: Government Assistance In January 2023, we received $ 18.0 million in cash from a California Competes Grant (the “Grant”) awarded from the California Governor’s Office of Business and Economic Development. The Grant requires FormFactor to create and maintain full-time jobs and make significant infrastructure investments within California over a 5-year term. If we do not meet the requirements of the Grant, we will be required to repay all or a portion of the Grant. The Grant is included in our Condensed Consolidated Balance Sheets within Deferred grant and we have elected to recognize when earned as an offset to Cost of revenues and Operating expenses within our Condensed Consolidated Statements of Income. We have elected to present the proceeds from the Grant as cash provided by operating activities within our Condensed Consolidated Statements of Cash Flows as the grant is to offset operations. 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 April 1, 2023 March 26, 2022 Intel Corporation 20.0 % 20.8 % Taiwan Semiconductor Manufacturing Co., LTD. * 10.7 % 20.0 % 31.5 % At April 1, 2023, two customers accounted for 17.9 % and 15.9 % of gross accounts receivable, respectively. At December 31, 2022, 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. 9 Inventories, net, consisted of the following (in thousands): April 1, 2023 December 31, 2022 Raw materials $ 57,748 $ 55,726 Work-in-progress 39,376 46,067 Finished goods 19,429 21,364 $ 116,553 $ 123,157 Note 4 — Goodwill and Intangible Assets Goodwill by reportable segment was as follows (in thousands): Probe Cards Systems Total Goodwill, as of December 25, 2021 $ 178,424 $ 33,875 $ 212,299 Addition - Woburn Acquisition — 550 550 Foreign currency translation — ( 1,405 ) ( 1,405 ) Goodwill, as of December 31, 2022 178,424 33,020 211,444 Foreign currency translation — 329 329 Goodwill, as of April 1, 2023 $ 178,424 $ 33,349 $ 211,773 We have no t recorded goodwill impairments for the three months ended April 1, 2023. Intangible assets were as follows (in thousands): April 1, 2023 December 31, 2022 Intangible Assets Gross Accumulated Amortization Net Gross Accumulated Amortization Net Existing developed technologies $ 171,750 $ 152,260 $ 19,490 $ 171,441 $ 151,212 $ 20,229 Customer relationships 50,996 46,559 4,437 50,912 45,003 5,909 Trade name 7,992 7,833 159 7,972 7,759 213 In-process research and development 400 — 400 400 — 400 $ 231,138 $ 206,652 $ 24,486 $ 230,725 $ 203,974 $ 26,751 Amortization expense was included in our Condensed Consolidated Statements of Income as follows (in thousands): Three Months Ended April 1, 2023 March 26, 2022 Cost of revenues $ 831 $ 808 Selling, general and administrative 1,547 1,561 $ 2,378 $ 2,369 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 2023 $ 4,813 2024 4,611 2025 4,268 2026 3,175 2027 2,832 Thereafter 4,387 $ 24,086 10 Note 5 — Accrued Liabilities Accrued liabilities consisted of the following (in thousands): April 1, 2023 December 31, 2022 Accrued compensation and benefits $ 20,028 $ 15,864 Accrued income and other taxes 3,241 12,817 Accrued warranty 3,872 4,199 Employee stock purchase plan contributions withheld 1,533 4,585 Accrued restructuring charges 376 1,249 Other accrued expenses 2,931 3,401 $ 31,981 $ 42,115 Note 6 — Restructuring Charges 2022 Restructuring Plan On October 25, 2022, we adopted a restructuring plan (“2022 restructuring plan”) to align our cost structure with reduced demand levels, by streamlining and improving the efficiency and business effectiveness of our operations. This plan included lowering headcount by approximately 13 % of our workforce. The Company has recognized 2022 restructuring plan charges of approximately $ 8.1 million for severance and employee-related costs, including $ 0.3 million for stock-based compensation, with $ 7.1 million within the Probe Cards segment, $ 0.5 million within the Systems segment, and $ 0.5 million within Corporate. We do not expect to incur additional material costs related to the 2022 restructuring plan. 2021 Restructuring Plan On September 25, 2021, we adopted restructuring plans (“2021 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 personnel related costs to sever, relocate, or retain select employees. Additionally, as part of these plans we have undertaken actions to adjust capacity for certain product offerings, which included contract termination costs to satisfy contract obligations. The Company has recognized 2021 restructuring plans charges of approximately $ 12.7 million, with $ 9.9 million within the Probe Cards segment and $ 2.8 million within the Systems segment, and were comprised of $ 1.3 million of severance and employee-related costs, $ 1.8 million in contract and lease termination costs, $ 9.1 million in inventory impairments and other inventory related costs, and $ 0.5 million of cost related to impairment of leasehold improvements, facility exits and fixed asset related costs. We do not expect additional material costs related to the 2021 restructuring plan. Total restructuring charges for both the 2022 and 2021 restructuring plans included in our Condensed Consolidated Statements of Income were as follows (in thousands): Three Months Ended April 1, 2023 March 26, 2022 Probe Cards Systems Total Probe Cards Systems Total Cost of revenues $ 70 $ ( 45 ) $ 25 $ 39 $ 100 $ 139 Research and development 4 66 70 — 146 146 Selling, general and administrative 1,060 62 1,122 3 25 28 $ 1,134 $ 83 $ 1,217 $ 42 $ 271 $ 313 11 Changes to the restructuring accrual in the three months ended April 1, 2023 were as follows (in thousands): Employee Severance and Benefits Stock-based Compensation Inventory Impairments & Other Inventory Related Costs Total December 31, 2022 $ 1,249 $ — $ — $ 1,249 Restructuring charges 842 295 80 1,217 Cash payments ( 1,715 ) — ( 63 ) ( 1,778 ) Non-cash settlement — ( 295 ) ( 17 ) ( 312 ) April 1, 2023 $ 376 $ — $ — $ 376 Note 7 — Fair Value and Derivative Instruments Whenever possible, the fair values of our financial assets and liabilities are determined using quoted market prices of identical securities or quoted market prices of similar securities from active markets. The three levels of inputs that may be used to measure fair value are as follows: • Level 1 valuations are obtained from real-time quotes for transactions in active exchange markets involving identical securities; • Level 2 valuations utilize significant observable inputs, such as quoted prices for similar assets or liabilities, quoted prices near the reporting date in markets that are less active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and • Level 3 valuations utilize unobservable inputs to the valuation methodology and include our own data about assumptions market participants would use in pricing the asset or liability based on the best information available under the circumstances. We did not have any transfers of assets or liabilities measured at fair value on a recurring basis to or from Level 1, Level 2 or Level 3 during the three months ended April 1, 2023 or the year ended December 31, 2022. The carrying values of Cash, Accounts receivable, net, Restricted cash, Prepaid expenses and other current assets, Accounts payable, and Accrued liabilities approximate fair value due to their short maturities. No changes were made to our valuation techniques during the first three months of fiscal 2023. 12 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): April 1, 2023 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 44,777 $ — $ — $ 44,777 Commercial paper — 4,475 — 4,475 44,777 4,475 — 49,252 Marketable securities: U.S. treasuries 25,144 — — 25,144 Certificates of deposit — 471 — 471 U.S. agency securities — 13,062 — 13,062 Corporate bonds — 53,899 — 53,899 Commercial paper — 31,315 — 31,315 25,144 98,747 — 123,891 Foreign exchange derivative contracts — 763 — 763 Promissory note receivable — — 943 943 Interest rate swap derivative contracts — 2,041 — 2,041 Total assets $ 69,921 $ 106,026 $ 943 $ 176,890 Liabilities: Interest rate swap derivative contracts $ — $ ( 2 ) $ — $ ( 2 ) Total liabilities $ — $ ( 2 ) $ — $ ( 2 ) December 31, 2022 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 21,279 $ — $ — $ 21,279 Commercial paper — 4,969 — 4,969 U.S. agency securities — 996 — 996 21,279 5,965 — 27,244 Marketable securities: U.S. treasuries 25,019 — — 25,019 Certificates of deposit — 706 — 706 U.S. agency securities — 11,045 — 11,045 Corporate bonds — 67,396 — 67,396 Commercial paper — 24,840 — 24,840 25,019 103,987 — 129,006 Foreign exchange derivative contracts — 664 — 664 Promissory note receivable — — 943 943 Interest rate swap derivative contracts — 2,374 — 2,374 Total assets $ 46,298 $ 112,990 $ 943 $ 160,231 Liabilities: Foreign exchange derivative contracts $ — $ ( 193 ) $ — $ ( 193 ) Total liabilities $ — $ ( 193 ) $ — $ ( 193 ) 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 13 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, 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 April 1, 2023 will mature by the first quarter of fiscal 2024. The following table provides information about our foreign currency forward contracts outstanding as of April 1, 2023 (in thousands): Currency Contract Position Contract Amount (Local Currency) Contract Amount (U.S. Dollars) Euro Dollar Buy 23,004 $ 24,250 Euro Dollar Sell 2,356 2,472 Japanese Yen Sell 3,227,282 24,377 Korean Won Buy 1,751,490 1,355 Taiwan Dollar Sell 43,413 1,435 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 14 acquisition. Other than as discussed in Note 6, Restructuring Charges, there were no assets or liabilities measured at fair value on a nonrecurring basis during the three months ended April 1, 2023 or March 26, 2022. Note 8 — Warranty We offer warranties on certain products and record a liability for the estimated future costs associated with warranty claims at the time revenue is recognized. The warranty liability is based upon historical experience and our estimate of the level of future costs. While we engage in product quality programs and processes, our warranty obligation is affected by product failure rates, material usage and service delivery costs. We regularly monitor product returns for warranty and maintain a reserve for the related expenses based upon our historical experience and any specifically identified failures. As we sell new products to our customers, we must exercise considerable judgment in estimating the expected failure rates. This estimating process is based on historical experience of similar products, as well as various other assumptions that we believe to be reasonable under the circumstances. We provide for the estimated cost of product warranties at the time revenue is recognized as a component of Cost of revenues in our Condensed Consolidated Statement of Income. Changes in our warranty liability were as follows (in thousands): Three Months Ended April 1, 2023 March 26, 2022 Balance at beginning of period $ 4,199 $ 2,805 Accruals 1,390 1,214 Settlements ( 1,717 ) ( 1,244 ) Balance at end of period $ 3,872 $ 2,775 Note 9 — Property, Plant and Equipment, net Property, plant and equipment, net consisted of the following (in thousands): April 1, 2023 December 31, 2022 Land $ 17,136 $ 17,136 Building and building improvements 44,444 44,932 Machinery and equipment 280,936 276,180 Computer equipment and software 46,568 45,813 Furniture and fixtures 7,481 7,540 Leasehold improvements 87,318 86,500 Sub-total 483,883 478,101 Less: Accumulated depreciation and amortization ( 342,763 ) ( 335,711 ) Net, property, plant and equipment 141,120 142,390 Construction-in-process 57,112 47,458 Total $ 198,232 $ 189,848 Note 10 — 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 the three months ended March 26, 2022, we repurchased 240,548 shares of common stock for $ 9.4 million. We utilized the remaining funds available for repurchase under this program during fiscal 2022. 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 April 1, 2023, we did no t repurchase any common stock. As of April 1, 2023, $ 18.6 million remained available for future repurchases. 15 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 31, 2022 2,227,081 $ 35.28 Awards granted 79,020 25.51 Awards vested ( 30,751 ) 34.87 Awards forfeited ( 82,523 ) 35.16 RSUs at April 1, 2023 2,192,827 34.94 Performance Restricted Stock Units We may grant Performance RSUs (“PRSUs”) to certain executives, which vest based upon us achieving certain market performance criteria. There were no market based PRSUs granted during the three months ended April 1, 2023. 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: Three Months Ended April 1, 2023 Shares issued 210,055 Weighted average per share purchase price $ 23.92 Weighted average per share discount from the fair value of our common stock on the date of issuance $ ( 4.22 ) Stock-Based Compensation Stock-based compensation was included in our Condensed Consolidated Statements of Income as follows (in thousands): Three Months Ended April 1, 2023 March 26, 2022 Cost of revenues $ 1,910 $ 1,078 Research and development 2,372 1,986 Selling, general and administrative 5,008 4,456 Total stock-based compensation $ 9,290 $ 7,520 Unrecognized Compensation Costs At April 1, 2023, the unrecognized stock-based compensation was as follows (dollars in thousands): Unrecognized Expense Average Expected Recognition Period in Years Restricted stock units $ 39,761 1.98 Performance restricted stock units 9,486 1.86 Employee stock purchase plan 985 0.33 Total unrecognized stock-based compensation expense $ 50,232 1.93 16 Note 11 — Net Income per Share The following table reconciles the shares used in calculating basic net income per share and diluted net income per share (in thousands): Three Months Ended April 1, 2023 March 26, 2022 Weighted-average shares used in computing basic net income per share 77,066 78,246 Add potentially dilutive securities 189 1,222 Weighted-average shares used in computing diluted net income per share 77,255 79,468 Securities not included as they would have been antidilutive 1,121 — Note 12 — Commitments and Contingencies Leases See Note 13, Leases . Contractual Obligations and Commitments Our contractual obligations and commitments have not materially changed as of April 1, 2023 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022. Legal Matters From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. As of April 1, 2023, and as of the filing of this Quarterly Report on Form 10-Q, we were not involved in any material legal proceedings. Note 13 — Leases We lease real estate space under non-cancelable operating lease agreements for commercial and industrial space, as well as for a portion of our corporate headquarters located in Livermore, California. Our leases have remaining terms of 1 to 6 years, and some leases include options to extend up to 20 years. We also have operating leases for automobiles with remaining lease terms of 1 year. 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 5 years as of April 1, 2023 and the weighted-average discount rate was 3.92 %. The components of lease expense were as follows (in thousands): Three Months Ended April 1, 2023 March 26, 2022 Lease expense: Operating lease expense $ 1,952 $ 2,221 Short-term lease expense 157 40 Variable lease expense 746 458 $ 2,855 $ 2,719 17 Future minimum payments under our non-cancelable operating leases were as follows as of April 1, 2023 (in thousands): Fiscal Year Amount Remainder of 2023 $ 6,190 2024 8,106 2025 8,018 2026 6,641 2027 5,756 Thereafter 3,431 Total minimum lease payments 38,142 Less: interest ( 4,223 ) Present value of net minimum lease payments 33,919 Less: current portion ( 7,512 ) Total long-term operating lease liabilities $ 26,407 Note 14 — Revenue Transaction price allocated to the remaining performance obligations: On April 1, 2023, we had $ 9.8 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 67.6 % of our remaining performance obligations as revenue in the remainder of fiscal 2023, approximately 26.8 % in fiscal 2024, and approximately 5.6 % in fiscal 2025 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 April 1, 2023 and December 31, 2022 were $ 2.9 million and $ 1.9 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 April 1, 2023 and December 31, 2022 were $ 24.9 million and $ 30.9 million, respectively. During the three months ended April 1, 2023, we recognized $ 14.0 million of revenue that was included in contract liabilities as of December 31, 2022. 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 15, Operating Segments and Enterprise-Wide Information , for further details. Note 15 — 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 18 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 April 1, 2023 March 26, 2022 Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total Revenues $ 127,328 $ 40,120 $ — $ 167,448 $ 159,983 $ 37,191 $ — $ 197,174 Gross profit 43,623 20,746 ( 3,291 ) 61,078 77,202 19,407 ( 2,385 ) 94,224 Gross margin 34.3 % 51.7 % 36.5 % 48.3 % 52.2 % 47.8 % 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 April 1, 2023 March 26, 2022 Probe Cards Systems Total Probe Cards Systems Total Market: Foundry & Logic $ 101,562 $ — $ 101,562 $ 114,121 $ — $ 114,121 DRAM 19,890 — 19,890 34,437 — 34,437 Flash 5,876 — 5,876 11,425 — 11,425 Systems — 40,120 40,120 — 37,191 37,191 Total $ 127,328 $ 40,120 $ 167,448 $ 159,983 $ 37,191 $ 197,174 Timing of revenue recognition: Products transferred at a point in time $ 126,678 $ 36,710 $ 163,388 $ 158,836 $ 35,416 $ 194,252 Products and services transferred over time 650 3,410 4,060 1,147 1,775 2,922 Total $ 127,328 $ 40,120 $ 167,448 $ 159,983 $ 37,191 $ 197,174 Geographical region: Taiwan $ 38,897 $ 1,432 $ 40,329 $ 42,522 $ 10,547 $ 53,069 United States 24,641 13,090 37,731 19,976 5,671 25,647 China 18,476 8,623 27,099 32,791 5,608 38,399 South Korea 19,572 1,203 20,775 24,881 2,620 27,501 Malaysia 10,324 946 11,270 21,517 682 22,199 Japan 7,136 3,841 10,977 4,785 4,597 9,382 Europe 3,426 6,000 9,426 2,382 6,013 8,395 Singapore 3,200 2,140 5,340 10,284 612 10,896 Rest of the world 1,656 2,845 4,501 845 841 1,686 Total $ 127,328 $ 40,120 $ 167,448 $ 159,983 $ 37,191 $ 197,174