FORMFACTOR INC 10-Q

Item 1. Financial Statements FORMFACTOR, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) (Unaudited) July 1, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 97,981 $ 109,130 Marketable securities 138,943 129,006 Accounts receivable, net of allowance for credit losses of $ 510 and $ 168 94,013 88,143 Inventories, net 120,298 123,157 Restricted cash 1,144 1,221 Prepaid expenses and other current assets 25,876 23,895 Total current assets 478,255 474,552 Restricted cash 2,265 2,631 Operating lease, right-of-use-assets 31,001 31,362 Property, plant and equipment, net of accumulated depreciation 204,577 189,848 Goodwill 211,929 211,444 Intangibles, net 22,149 26,751 Deferred tax assets 71,172 67,646 Other assets 3,790 3,994 Total assets $ 1,025,138 $ 1,008,228 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 63,770 $ 69,308 Accrued liabilities 31,413 42,115 Current portion of term loan, net of unamortized issuance costs 1,150 1,045 Deferred revenue 19,899 29,846 Operating lease liabilities 7,871 7,353 Total current liabilities 124,103 149,667 Term loan, less current portion, net of unamortized issuance costs 13,765 14,389 Deferred tax liabilities 2,704 2,732 Long-term operating lease liabilities 26,458 27,587 Deferred grant 18,000 — Other liabilities 5,845 5,568 Total liabilities 190,875 199,943 Stockholders’ equity: Common stock, $ 0.001 par value: 250,000,000 shares authorized; 77,184,012 and 76,914,590 shares issued and outstanding 77 77 Additional paid-in capital 867,517 844,842 Accumulated other comprehensive loss ( 4,445 ) ( 5,578 ) Accumulated deficit ( 28,886 ) ( 31,056 ) Total stockholders’ equity 834,263 808,285 Total liabilities and stockholders’ equity $ 1,025,138 $ 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 Six Months Ended July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 Revenues $ 155,916 $ 203,907 $ 323,364 $ 401,081 Cost of revenues 95,633 109,538 202,003 212,488 Gross profit 60,283 94,369 121,361 188,593 Operating expenses: Research and development 28,340 28,317 56,585 55,451 Selling, general and administrative 33,255 33,406 65,997 66,312 Total operating expenses 61,595 61,723 122,582 121,763 Operating income (loss) ( 1,312 ) 32,646 ( 1,221 ) 66,830 Interest income, net 1,482 181 2,758 127 Other income, net 450 551 473 743 Income before income taxes 620 33,378 2,010 67,700 Provision (benefit) for income taxes ( 208 ) 3,136 ( 160 ) 7,586 Net income $ 828 $ 30,242 $ 2,170 $ 60,114 Net income per share: Basic $ 0.01 $ 0.39 $ 0.03 $ 0.77 Diluted $ 0.01 $ 0.38 $ 0.03 $ 0.76 Weighted-average number of shares used in per share calculations: Basic 77,159 77,897 77,112 78,071 Diluted 77,616 79,210 77,450 79,423 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 July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 Net income $ 828 $ 30,242 $ 2,170 $ 60,114 Other comprehensive income (loss), net of tax: Translation adjustments ( 122 ) ( 3,856 ) 710 ( 6,554 ) Unrealized gains (losses) on available-for-sale marketable securities ( 85 ) ( 547 ) 518 ( 1,751 ) Unrealized gains (losses) on derivative instruments ( 52 ) ( 116 ) ( 95 ) 758 Other comprehensive income (loss), net of tax: ( 259 ) ( 4,519 ) 1,133 ( 7,547 ) Comprehensive income $ 569 $ 25,723 $ 3,303 $ 52,567 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 FORMFACTOR, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except shares) (Unaudited) Shares of Common Stock Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Total Six Months Ended July 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 59,367 — ( 456 ) — — ( 456 ) Stock-based compensation — — 18,107 — — 18,107 Other comprehensive income — — — 1,133 — 1,133 Net income — — — — 2,170 2,170 Balances, July 1, 2023 77,184,012 $ 77 $ 867,517 $ ( 4,445 ) $ ( 28,886 ) $ 834,263 Three Months Ended July 1, 2023 Balances, April 1, 2023 77,142,023 $ 77 $ 858,195 $ ( 4,186 ) $ ( 29,714 ) $ 824,372 Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax 41,989 — ( 69 ) — — ( 69 ) Stock-based compensation — — 9,391 — — 9,391 Other comprehensive loss — — — ( 259 ) — ( 259 ) Net income — — — — 828 828 Balances, July 1, 2023 77,184,012 $ 77 $ 867,517 $ ( 4,445 ) $ ( 28,886 ) $ 834,263 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 CASH FLOWS (In thousands) (Unaudited) Six Months Ended July 1, 2023 June 25, 2022 Cash flows from operating activities: Net income $ 2,170 $ 60,114 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 15,121 14,146 Amortization 4,766 4,702 Reduction in the carrying amount of right-of-use assets 3,914 4,414 Stock-based compensation expense 18,494 13,878 Deferred income tax benefit ( 3,639 ) ( 3,703 ) Provision for excess and obsolete inventories 8,628 4,726 Other adjustments to reconcile net income to net cash provided by operating activities 1,801 3,846 Changes in assets and liabilities: Accounts receivable ( 6,830 ) 5,530 Inventories ( 5,880 ) ( 32,268 ) Prepaid expenses and other current assets ( 1,099 ) 1,295 Other assets ( 83 ) ( 40 ) Accounts payable 3,578 7,521 Accrued liabilities ( 10,606 ) 4,102 Other liabilities 456 73 Deferred revenues ( 9,945 ) 2,727 Deferred grant 18,000 — Operating lease liabilities ( 4,065 ) ( 4,262 ) Net cash provided by operating activities 34,781 86,801 Cash flows from investing activities: Acquisition of property, plant and equipment ( 40,177 ) ( 30,116 ) Acquisition of business — ( 3,121 ) Purchases of marketable securities ( 66,650 ) ( 52,344 ) Purchase of promissory note receivable — ( 1,000 ) Proceeds from maturities and sales of marketable securities 58,363 45,470 Net cash used in investing activities ( 48,464 ) ( 41,111 ) Cash flows from financing activities: Proceeds from issuances of common stock 5,024 5,687 Purchase of common stock through stock repurchase program — ( 54,328 ) Tax withholdings related to net share settlements of equity awards ( 456 ) ( 4,243 ) Principal repayments on term loans ( 519 ) ( 4,379 ) Net cash provided by (used in) financing activities 4,049 ( 57,263 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 1,958 ) ( 3,470 ) Net decrease in cash, cash equivalents and restricted cash ( 11,592 ) ( 15,043 ) Cash, cash equivalents and restricted cash, beginning of period 112,982 155,342 Cash, cash equivalents and restricted cash, end of period $ 101,390 $ 140,299 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 July 1, 2023 June 25, 2022 Non-cash investing and financing activities: Decrease in accounts payable and accrued liabilities related to property, plant and equipment purchases $ 9,187 $ 4,165 Operating lease, right-of-use assets obtained in exchange for lease obligations 3,635 3,438 Supplemental disclosure of cash flow information: Cash paid for income taxes, net $ 9,427 $ 6,473 Cash paid for interest 212 294 Operating cash outflows from operating leases 4,514 4,379 Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents $ 97,981 $ 136,395 Restricted cash, current 1,144 2,102 Restricted cash, non-current 2,265 1,802 Total cash, cash equivalents and restricted cash $ 101,390 $ 140,299 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 six months ended July 1, 2023 and June 25, 2022 each contained 26 weeks. Fiscal 2023 will end on December 30, 2023. Significant Accounting Policies Our significant accounting policies have not changed during the six months ended July 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 the Grant 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. New Accounting Pronouncements Reference Rate Reform In March 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2020-04, “Reference 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 GAAP 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 December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848,” extending the relief offered in Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the optional expedients in Topic 848. In May 2023, the Company entered into a rate replacement amendment to its credit facility loan agreement to replace LIBOR with the Secured Overnight Financing Rate (“SOFR”) and concurrently signed an amendment to modify the floating rate option on its interest rate swap to match that of the debt. The Company applied practical expedients provided in Topic 848 allowing the modified instrument to be accounted for and presented in the same manner as the instrument existing before the modification. These modifications had no significant impact on our financial statements. Refer to Note 6, Debt for further information regarding the terms of the credit facility loan agreement and interest rate swap agreement. Reclassifications Certain immaterial reclassifications were made to the prior year financial statements to conform to the current year presentation. 9 Note 2 — Concentration of Credit and Other Risks The following customer accounted for 10 % or more of our revenues for the periods indicated: Three Months Ended Six Months Ended July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 Intel Corporation 14.2 % 20.9 % 17.2 % 20.9 % At July 1, 2023 and December 31, 2022, one customer accounted for 15.3 % and 13.8 % of gross accounts receivable, respectively. 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): July 1, 2023 December 31, 2022 Raw materials $ 55,491 $ 55,726 Work-in-progress 44,549 46,067 Finished goods 20,258 21,364 $ 120,298 $ 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 — 485 485 Goodwill, as of July 1, 2023 $ 178,424 $ 33,505 $ 211,929 We have no t recorded goodwill impairments for the six months ended July 1, 2023. Intangible assets were as follows (in thousands): July 1, 2023 December 31, 2022 Intangible Assets Gross Accumulated Amortization Net Gross Accumulated Amortization Net Existing developed technologies $ 171,896 $ 153,200 $ 18,696 $ 171,441 $ 151,212 $ 20,229 Customer relationships 51,036 48,085 2,951 50,912 45,003 5,909 Trade name 8,000 7,898 102 7,972 7,759 213 In-process research and development 400 — 400 400 — 400 $ 231,332 $ 209,183 $ 22,149 $ 230,725 $ 203,974 $ 26,751 10 Amortization expense was included in our Condensed Consolidated Statements of Income as follows (in thousands): Three Months Ended Six Months Ended July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 Cost of revenues $ 838 $ 788 $ 1,669 $ 1,596 Selling, general and administrative 1,550 1,545 3,097 3,106 $ 2,388 $ 2,333 $ 4,766 $ 4,702 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 $ 2,435 2024 4,624 2025 4,280 2026 3,184 2027 2,839 Thereafter 4,387 $ 21,749 Note 5 — Accrued Liabilities Accrued liabilities consisted of the following (in thousands): July 1, 2023 December 31, 2022 Accrued compensation and benefits $ 17,386 $ 15,864 Employee stock purchase plan contributions withheld 4,142 4,585 Accrued income and other taxes 3,944 12,817 Accrued warranty 3,506 4,199 Accrued restructuring charges 207 1,249 Other accrued expenses 2,228 3,401 $ 31,413 $ 42,115 Note 6 — Debt On June 22, 2020, we entered into an $ 18.0 million 15-year credit facility loan agreement (the “Building Term Loan”) with MUFG Union Bank, National Association (“Union Bank”). The proceeds of the Building Term Loan were used to purchase a building adjacent to our leased facilities in Livermore, California. On May 19, 2023, we amended the Building Term Loan, replacing the benchmark reference rate LIBOR with the term SOFR, with no change to the amount or timing of contractual cash flows. The Building Term Loan bears interest at a rate equal to the applicable SOFR rate, plus 0.1148 %, plus 1.75 % per annum. Interest payments are payable in monthly installments over a fifteen-year period. The interest rate at July 1, 2023 was 5.17 %. On March 17, 2020, we entered into an interest rate swap agreement with Union Bank to hedge the interest payment on the Building Term Loan for the notional amount of $ 18.0 million. As future levels of LIBOR over the life of the loan were uncertain, we entered into this interest-rate swap agreement to hedge the exposure in interest rate risks associated with movement in LIBOR rates. By entering into the agreement, we converted a floating-rate interest at one-month LIBOR plus 1.75 % into a fixed-rate interest at 2.75 %. This agreement was amended on May 19, 2023 to replace the benchmark reference rate LIBOR with the term SOFR to match the Building Term Loan agreement (as amended). After the amendment, the interest rate swap continues to convert our floating-rate interest into a fixed-rate at 2.75 %. 11 Note 7 — 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 $ 13.3 million, with $ 10.1 million within the Probe Cards segment and $ 3.2 million within the Systems segment, which were comprised of $ 1.4 million of severance and employee-related costs, $ 2.0 million in contract and lease termination costs, $ 9.4 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 July 1, 2023 June 25, 2022 Probe Cards Systems Total Probe Cards Systems Total Cost of revenues $ 47 $ 285 $ 332 $ 227 $ 227 $ 454 Research and development 170 51 221 — 53 53 Selling, general and administrative 6 59 65 — 74 74 $ 223 $ 395 $ 618 $ 227 $ 354 $ 581 Six Months Ended July 1, 2023 June 25, 2022 Probe Cards Systems Total Probe Cards Systems Total Cost of revenues $ 106 $ 251 $ 357 $ 266 $ 327 $ 593 Research and development 182 109 291 — 199 199 Selling, general and administrative 1,069 118 1,187 3 99 102 $ 1,357 $ 478 $ 1,835 $ 269 $ 625 $ 894 12 Changes to the restructuring accrual in the six months ended July 1, 2023 were as follows (in thousands): Employee Severance and Benefits Stock-based Compensation Inventory Impairments & Other Inventory Related Costs Contract Termination & Other Costs Total December 31, 2022 $ 1,249 $ — $ — $ — $ 1,249 Restructuring charges 917 295 390 233 1,835 Cash payments ( 1,959 ) — ( 89 ) ( 233 ) ( 2,281 ) Non-cash settlement — ( 295 ) ( 301 ) — ( 596 ) July 1, 2023 $ 207 $ — $ — $ — $ 207 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 July 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 six months of fiscal 2023. 13 Assets and Liabilities Measured at Fair Value on a Recurring Basis Assets and liabilities measured at fair value on a recurring basis were as follows (in thousands): July 1, 2023 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 30,179 $ — $ — $ 30,179 U.S. treasuries 1,691 — — 1,691 31,870 — — 31,870 Marketable securities: U.S. treasuries 46,803 — — 46,803 Certificates of deposit — 235 — 235 U.S. agency securities — 14,733 — 14,733 Corporate bonds — 53,097 — 53,097 Commercial paper — 24,075 — 24,075 46,803 92,140 — 138,943 Foreign exchange derivative contracts — 549 — 549 Promissory note receivable — — 926 926 Interest rate swap derivative contracts — 2,263 — 2,263 Total assets $ 78,673 $ 94,952 $ 926 $ 174,551 Liabilities: Foreign exchange derivative contracts $ — $ ( 60 ) $ — $ ( 60 ) Total liabilities $ — $ ( 60 ) $ — $ ( 60 ) 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 14 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 July 1, 2023 will mature by the second quarter of fiscal 2024. The following table provides information about our foreign currency forward contracts outstanding as of July 1, 2023 (in thousands): Currency Contract Position Contract Amount (Local Currency) Contract Amount (U.S. Dollars) Euro Dollar Buy 18,558 $ 19,903 Euro Dollar Sell 1,077 1,176 Japanese Yen Sell 3,104,537 21,583 Korean Won Buy 1,258,185 962 Taiwan Dollar Sell 31,197 1,001 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 15 acquisition. Other than as discussed in 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 July 1, 2023 or June 25, 2022. 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 July 1, 2023 June 25, 2022 Balance at beginning of period $ 4,199 $ 2,805 Accruals 2,934 3,846 Settlements ( 3,627 ) ( 2,673 ) Balance at end of period $ 3,506 $ 3,978 Note 10 — Property, Plant and Equipment, net Property, plant and equipment, net consisted of the following (in thousands): July 1, 2023 December 31, 2022 Land $ 17,136 $ 17,136 Building and building improvements 44,452 44,932 Machinery and equipment 284,837 276,180 Computer equipment and software 46,774 45,813 Furniture and fixtures 7,468 7,540 Leasehold improvements 88,416 86,500 Sub-total 489,083 478,101 Less: Accumulated depreciation and amortization ( 349,123 ) ( 335,711 ) Net, property, plant and equipment 139,960 142,390 Construction-in-process 64,617 47,458 Total $ 204,577 $ 189,848 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 the six months ended June 25, 2022, we repurchased 676,408 shares of common stock for $ 26.0 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 six months ended July 1, 2023, we did no t repurchase any common stock. As of July 1, 2023, $ 18.6 million remained available for future repurchases. 16 Our policy related to repurchases of our common stock is to charge the excess of cost over par value to additional paid-in capital once the shares are retired. 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 1,014,619 30.97 Awards vested ( 75,144 ) 37.76 Awards forfeited ( 122,881 ) 35.09 RSUs at July 1, 2023 3,043,675 33.78 Performance Restricted Stock Units We may grant Performance RSUs (“PRSUs”) to certain executives, which vest based upon us achieving certain market performance criteria. There were no market based PRSUs granted during the six months ended July 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: Six Months Ended July 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 Six Months Ended July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 Cost of revenues $ 1,515 $ 734 $ 3,425 $ 1,812 Research and development 2,363 1,695 4,735 3,681 Selling, general and administrative 5,326 3,929 10,334 8,385 Total stock-based compensation $ 9,204 $ 6,358 $ 18,494 $ 13,878 Unrecognized Compensation Costs At July 1, 2023, the unrecognized stock-based compensation was as follows (dollars in thousands): Unrecognized Expense Average Expected Recognition Period in Years Restricted stock units $ 60,794 2.28 Performance restricted stock units 7,789 1.72 Employee stock purchase plan 246 0.09 Total unrecognized stock-based compensation expense $ 68,829 2.22 17 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 July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 Weighted-average shares used in computing basic net income per share 77,159 77,897 77,112 78,071 Add potentially dilutive securities 457 1,313 338 1,352 Weighted-average shares used in computing diluted net income per share 77,616 79,210 77,450 79,423 Securities not included as they would have been antidilutive 486 23 343 — 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 July 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 are subject to legal proceedings and claims in the ordinary course of business, the outcomes of which cannot be estimated with certainty. Our ability to estimate the outcomes may change in the near term and the effect of any such change could have a material adverse effect on our financial position, results of operations or cash flows. Note 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 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 July 1, 2023 and the weighted-average discount rate was 4.28 %. The components of lease expense were as follows (in thousands): Three Months Ended Six Months Ended July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022 Lease expense: Operating lease expense $ 2,124 $ 2,183 $ 4,076 $ 4,404 Short-term lease expense 136 76 293 116 Variable lease expense 483 677 1,229 1,135 $ 2,743 $ 2,936 $ 5,598 $ 5,655 18 Future minimum payments under our non-cancelable operating leases were as follows as of July 1, 2023 (in thousands): Fiscal Year Amount Remainder of 2023 $ 4,295 2024 8,667 2025 8,575 2026 7,049 2027 6,631 Thereafter 3,434 Total minimum lease payments 38,651 Less: interest ( 4,322 ) Present value of net minimum lease payments 34,329 Less: current portion ( 7,871 ) Total long-term operating lease liabilities $ 26,458 Note 15 — Revenue Transaction price allocated to the remaining performance obligations: On July 1, 2023, we had $ 9.4 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 46.7 % of our remaining performance obligations as revenue in the remainder of fiscal 2023, approximately 45.8 % in fiscal 2024, and approximately 7.5 % 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 July 1, 2023 and December 31, 2022 were $ 4.1 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 July 1, 2023 and December 31, 2022 were $ 21.0 million and $ 30.9 million, respectively. During the six months ended July 1, 2023, we recognized $ 21.5 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 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 19 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 July 1, 2023 June 25, 2022 Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total Revenues $ 115,303 $ 40,613 $ — $ 155,916 $ 167,708 $ 36,199 $ — $ 203,907 Gross profit 42,112 21,124 ( 2,953 ) 60,283 78,420 18,276 ( 2,327 ) 94,369 Gross margin 36.5 % 52.0 % 38.7 % 46.8 % 50.5 % 46.3 % Six Months Ended July 1, 2023 June 25, 2022 Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total Revenues $ 242,631 $ 80,733 $ — $ 323,364 $ 327,691 $ 73,390 $ — $ 401,081 Gross profit 85,735 41,870 ( 6,244 ) 121,361 155,622 37,683 ( 4,712 ) 188,593 Gross margin 35.3 % 51.9 % 37.5 % 47.5 % 51.3 % 47.0 % 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 July 1, 2023 June 25, 2022 Probe Cards Systems Total Probe Cards Systems Total Market: Foundry & Logic $ 81,967 $ — $ 81,967 $ 122,380 $ — $ 122,380 DRAM 30,464 — 30,464 36,843 — 36,843 Flash 2,872 — 2,872 8,485 — 8,485 Systems — 40,613 40,613 — 36,199 36,199 Total $ 115,303 $ 40,613 $ 155,916 $ 167,708 $ 36,199 $ 203,907 Timing of revenue recognition: Products transferred at a point in time $ 112,985 $ 40,040 $ 153,025 $ 166,701 $ 33,081 $ 199,782 Products and services transferred over time 2,318 573 2,891 1,007 3,118 4,125 Total $ 115,303 $ 40,613 $ 155,916 $ 167,708 $ 36,199 $ 203,907 Geographical region: United States $ 31,131 $ 11,542 $ 42,673 $ 21,539 $ 9,703 $ 31,242 Taiwan 25,316 4,196 29,512 45,188 4,832 50,020 South Korea 26,455 1,408 27,863 27,418 1,337 28,755 China 16,516 6,992 23,508 40,578 9,157 49,735 Europe 2,415 8,401 10,816 3,824 4,267 8,091 Japan 3,902 4,030 7,932 6,716 3,221 9,937 Malaysia 6,177 500 6,677 16,157 87 16,244 Singapore 1,718 1,105 2,823 5,131 1,977 7,108 Rest of the world 1,673 2,439 4,112 1,157 1,618 2,775 Total $ 115,303 $ 40,613 $ 155,916 $ 167,708 $ 36,199 $ 203,907 20 Six Months Ended July 1, 2023 June 25, 2022 Probe Cards Systems Total Probe Cards Systems Total Market: Foundry & Logic $ 183,529 $ — $ 183,529 $ 236,501 $ — $ 236,501 DRAM 50,354 — 50,354 71,280 — 71,280 Flash 8,748 — 8,748 19,910 — 19,910 Systems — 80,733 80,733 — 73,390 73,390 Total $ 242,631 $ 80,733 $ 323,364 $ 327,691 $ 73,390 $ 401,081 Timing of revenue recognition: Products transferred at a point in time $ 236,903 $ 79,510 $ 316,413 $ 325,537 $ 68,497 $ 394,034 Products and services transferred over time 5,728 1,223 6,951 2,154 4,893 7,047 Total $ 242,631 $ 80,733 $ 323,364 $ 327,691 $ 73,390 $ 401,081 Geographical region: United States $ 55,772 $ 24,632 $ 80,404 $ 41,515 $ 15,374 $ 56,889 Taiwan 64,213 5,628 69,841 87,710 15,379 103,089 China 34,992 15,615 50,607 73,369 14,765 88,134 South Korea 46,027 2,611 48,638 52,299 3,957 56,256 Europe 5,841 14,401 20,242 6,206 10,280 16,486 Japan 11,038 7,871 18,909 11,501 7,818 19,319 Malaysia 16,501 1,446 17,947 37,674 769 38,443 Singapore 4,918 3,245 8,163 15,415 2,589 18,004 Rest of the world 3,329 5,284 8,613 2,002 2,459 4,461 Total $ 242,631 $ 80,733 $ 323,364 $ 327,691 $ 73,390 $ 401,081