FORMFACTOR INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22 Cautionary Statement Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933, which are subject to risks and uncertainties. The forward-looking statements include statements concerning, among other things, our business strategy, financial and operating results, gross margins, liquidity and capital expenditure requirements and impact of accounting standards. In some cases, you can identify these statements by forward-looking words, such as “may,” “might,” “will,” “could,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend” and “continue,” the negative or plural of these words and other comparable terminology. The forward-looking statements are only predictions based on our current expectations and our projections about future events. All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q. You should not place undue reliance on these forward-looking statements. We have no obligation to update any of these statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these statements, including risks related to general market trends, the benefits of acquisitions and investments, our supply chain, uncertainties related to global, regional or national public health-related crises and the impact of our responses to them, the interpretation and impacts of changes in export controls and other trade barriers, military conflicts, political volatility and similar factors, our ability to execute our business strategy and other risks discussed in the section titled “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2022 and in this Quarterly Report on Form 10-Q. You should carefully consider the numerous risks and uncertainties described under these sections. The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the accompanying notes contained in this Quarterly Report on Form 10-Q. Unless expressly stated or the context otherwise requires, the terms “we,” “our,” “us” and “FormFactor” refer to FormFactor, Inc. and its subsidiaries. Overview FormFactor, Inc., headquartered in Livermore, California, is a leading provider of essential test and measurement technologies along the full semiconductor product lifecycle - from metrology and inspection, characterization, modeling, reliability, and design de-bug, to qualification and production test. We provide a broad range of high-performance probe cards, analytical probes, probe stations, metrology systems, thermal systems, and cryogenic systems to both semiconductor companies and scientific institutions. Our products provide electrical and physical information from a variety of semiconductor and electro-optical devices and integrated circuits from early research, through development, to high-volume production. Customers use our products and services to accelerate profitability by optimizing device performance and advancing yield knowledge. We operate in two reportable segments consisting of the Probe Cards segment and the Systems segment. Sales of our probe cards and analytical probes are included in the Probe Cards segment, while sales of our probe stations, metrology systems, thermal systems and cryogenic systems are included in the Systems segment. On September 18, 2023, we announced entry into a definitive agreement to sell our FRT Metrology (“FRT”) business for $100 million in cash, subject to customary purchase price adjustments. See Note 4, Assets Held-For-Sale Divestiture , for further details of the divestiture. FRT is a leading supplier of high-precision metrology solutions for the Advanced Packaging and Silicon Carbide markets, and produces metrology systems that are included in the Systems segment results. On November 1, 2023, we closed on the sale of FRT to Camtek and received cash proceeds of $103.8 million after preliminary adjustments with respect to cash, indebtedness, and working capital. We generated net income of $6.5 million in the first nine months of fiscal 2023 as compared to $64.5 million in the first nine months of fiscal 2022. The decrease in net income was primarily due to a decline in revenues and the associated decline in gross margins and higher operating expenses. The first half of fiscal 2022 was strong, realizing $60.1 million of the $64.5 million net income for the first nine months of fiscal 2022, followed by the semiconductor industry weakness that began in the third quarter of fiscal 2022 and has continued into the nine months ended September 30, 2023. Significant Accounting Policies and the Use of Estimates Management’s Discussion and Analysis and Note 2, Summary of Significant Accounting Policies , to the Consolidated Financial Statements in our 2022 Annual Report on Form 10-K describe the significant accounting estimates and significant accounting policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ from management’s estimates. During the nine months ended September 30, 2023, there were no significant changes in our 23 significant accounting policies or estimates from those reported in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission on February 24, 2023, 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 presented 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. Results of Operations The following table sets forth our operating results as a percentage of revenues for the periods indicated: Three Months Ended Nine Months Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Revenues 100.0 % 100.0 % 100.0 % 100.0 % Cost of revenues 59.6 65.6 61.5 56.9 Gross profit 40.4 34.4 38.5 43.1 Operating expenses: Research and development 18.1 14.7 17.7 14.1 Selling, general and administrative 20.7 17.5 20.5 16.8 Total operating expenses 38.8 32.2 38.2 30.9 Operating income 1.6 2.2 0.3 12.2 Interest income, net 0.9 0.3 0.9 0.1 Other income, net 0.5 0.6 0.2 0.3 Income before income taxes 3.0 3.1 1.4 12.6 Provision for income taxes 0.5 0.7 0.1 1.5 Net income 2.5 % 2.4 % 1.3 % 11.1 % Revenues by Segment and Market Three Months Ended Nine Months Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 (In thousands) Probe Cards $ 128,339 $ 139,365 $ 370,970 $ 467,056 Systems 43,236 41,504 123,969 114,894 $ 171,575 $ 180,869 $ 494,939 $ 581,950 24 Three Months Ended September 30, 2023 % of Revenues September 24, 2022 % of Revenues $ Change % Change (Dollars in thousands) Probe Cards Markets: Foundry & Logic $ 96,366 56.2 % $ 90,605 50.1 % $ 5,761 6.4 % DRAM 27,478 16.0 34,922 19.3 (7,444) (21.3) Flash 4,495 2.6 13,838 7.7 (9,343) (67.5) Systems Market: Systems 43,236 25.2 41,504 22.9 1,732 4.2 Total revenues $ 171,575 100.0 % $ 180,869 100.0 % $ (9,294) (5.1) % Nine Months Ended September 30, 2023 % of Revenues September 24, 2022 % of Revenues $ Change % Change (Dollars in thousands) Probe Cards Markets: Foundry & Logic $ 279,895 56.6 % $ 327,106 56.3 % $ (47,211) (14.4) % DRAM 77,832 15.7 106,202 18.2 (28,370) (26.7) Flash 13,243 2.7 33,748 5.8 (20,505) (60.8) Systems Market: Systems 123,969 25.0 114,894 19.7 9,075 7.9 Total revenues $ 494,939 100.0 % $ 581,950 100.0 % $ (87,011) (15.0) % Foundry & Logic — The decrease in Foundry & Logic product revenue for the nine months ended September 30, 2023, compared to the nine months ended September 24, 2022, was driven by the weaker demand in the semiconductor industry, especially in the personal computer and mobile sectors, that began in the third quarter of fiscal 2022, has continued into the nine months ended September 30, 2023 and has resulted in decreased unit sales across the majority of our major customers. The increase in Foundry & Logic product revenue for the three months ended September 30, 2023, compared to the three months ended September 24, 2022, was the result of an increase in unit sales driven by stronger demand in the personal computer sector. DRAM — The decrease in DRAM product revenue for the three and nine months ended September 30, 2023, compared to the three and nine months ended September 24, 2022, was driven by lower customer production activity and demand for our products in light of worldwide excess supply of DRAM chips, along with weaker demand in the overall semiconductor industry. These declines for the three and nine months ended September 30, 2023 were partially offset due to increased demand for high bandwidth memory (“HBM”) chips utilized in artificial intelligence. Flash — The decrease in Flash product revenue for the three and nine months ended September 30, 2023, compared to the three and nine months ended September 24, 2022, was driven by lower customer production activity and demand for our products in light of worldwide excess supply, a result of the semiconductor industry's overall demand weakening and Flash market weakness. Systems — The increase in Systems market revenue for the nine months ended September 30, 2023, compared to the nine months ended September 24, 2022, was driven by increased sales of probe stations, thermal systems, and cryogenic systems, partially offset by decreased sales of our metrology systems. The increase in Systems market revenue for the three months ended September 30, 2023, compared to the three months ended September 24, 2022, was driven by increased sales of metrology and thermal systems, partially offset by decreased sales of cryogenic systems. 25 Revenues by Geographic Region Three Months Ended Nine Months Ended September 30, 2023 % of Revenues September 24, 2022 % of Revenues September 30, 2023 % of Revenue September 24, 2022 % of Revenue (Dollars in thousands) United States $ 43,725 25.5 % $ 38,089 21.1 % $ 124,129 25.1 % $ 94,978 16.3 % Taiwan 42,975 25.0 36,838 20.4 112,816 22.8 139,927 24.0 South Korea 35,075 20.4 28,937 16.0 83,713 16.9 85,193 14.6 China 21,750 12.7 36,728 20.3 72,357 14.6 124,862 21.5 Europe 9,296 5.4 11,798 6.5 29,538 6.0 28,284 4.9 Japan 6,964 4.1 7,692 4.3 25,873 5.2 27,011 4.6 Malaysia 5,964 3.5 6,509 3.6 23,911 4.8 44,952 7.7 Singapore 3,677 2.1 10,357 5.7 11,840 2.4 28,361 4.9 Rest of the world 2,149 1.3 3,921 2.1 10,762 2.2 8,382 1.5 Total revenues $ 171,575 100.0 % $ 180,869 100.0 % $ 494,939 100.0 % $ 581,950 100.0 % Geographic revenue information is based on the location to which we ship the product. For example, if a certain South Korean customer purchases through its U.S. subsidiary and requests the products to be shipped to an address in South Korea, this sale will be reflected in the revenue for South Korea rather than the U.S. Changes in revenue by geographic region for the three and nine months ended September 30, 2023, compared to the three and nine months ended September 24, 2022, were primarily attributable to changes in customer demand, shifts in customer regional manufacturing strategies, particularly with our large multinational customers, and product sales mix. More specifically, the increase in revenues for the United States, and decreases in revenues for China and Malaysia, were driven principally by a single large U.S.-based company with operations in these regions. The decrease in revenues for China was also impacted by lowered demand from a large Chinese DRAM integrated device manufacturer and the impact of expanded export license requirements imposed by the United States government beginning the fourth quarter of fiscal 2022 for exporting advanced U.S. semiconductor technology to China. Cost of Revenues and Gross Margins Cost of revenues consists primarily of manufacturing materials, compensation and benefits, shipping and handling costs, manufacturing-related overhead (including equipment costs, related occupancy, and computer services), warranty adjustments, inventory adjustments (including write-downs for inventory obsolescence), and amortization of certain intangible assets. Our manufacturing operations rely on a limited number of suppliers to provide key components and materials for our products, some of which are a sole source. We order materials and supplies based on backlog and forecasted customer orders. Tooling and setup costs related to changing manufacturing lots at our suppliers are also included in the cost of revenues. We expense all warranty costs, inventory provisions and amortization of certain intangible assets as cost of revenues. Our gross profit and gross margin were as follows (dollars in thousands): Three Months Ended September 30, 2023 September 24, 2022 $ Change % Change Gross profit $ 69,285 $ 62,213 $ 7,072 11.4 % Gross margin 40.4 % 34.4 % Nine Months Ended September 30, 2023 September 24, 2022 $ Change % Change Gross profit $ 190,646 $ 250,806 $ (60,160) (24.0) % Gross margin 38.5 % 43.1 % 26 Our gross profit and gross margin by segment were as follows (dollars in thousands): Three Months Ended September 30, 2023 September 24, 2022 Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total Gross profit $ 49,383 $ 22,396 $ (2,494) $ 69,285 $ 48,252 $ 22,284 $ (8,323) $ 62,213 Gross margin 38.5 % 51.8 % 40.4 % 34.6 % 53.7 % 34.4 % Nine Months Ended September 30, 2023 September 24, 2022 Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total Gross profit $ 135,118 $ 64,266 $ (8,738) $ 190,646 $ 203,874 $ 59,967 $ (13,035) $ 250,806 Gross margin 36.4 % 51.8 % 38.5 % 43.7 % 52.2 % 43.1 % Probe Cards — For the three months ended September 30, 2023, gross margins increased compared to the three months ended September 24, 2022, primarily due to a more favorable product mix and lower inventory excess and obsolescence reserves, partially offset by greater warranty reserves. For the nine months ended September 30, 2023, gross margins decreased compared to the nine months ended September 24, 2022, primarily due to lower revenues and unfavorable absorption of costs on these lower production volumes. Systems — For the three and nine months ended September 30, 2023, gross margins decreased compared to the three and nine months ended September 24, 2022, primarily as a result of a less favorable product mix. Corporate and Other — Corporate and Other includes unallocated expenses relating to share-based compensation and amortization of intangible assets, inventory and fixed asset fair value adjustments due to acquisitions, and restructuring, which are not used in evaluating the results of, or in allocating resources to, our reportable segments. Overall — Gross profit and gross margins fluctuate with revenue levels, product mix, selling prices, factory loading, labor costs, and material costs. For the three months ended September 30, 2023, compared to the three months ended September 24, 2022, gross profit and gross margins have increased because of a more favorable product mix and less inventory excess and obsolescence reserves, partially offset by greater warranty reserves. For the nine months ended September 30, 2023, compared to the nine ended September 24, 2022, gross profit and gross margins have decreased because of lower revenue levels and unfavorable absorption of costs on lower production volumes. Cost of revenues included stock-based compensation expense as follows (in thousands): Three Months Ended Nine Months Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Stock-based compensation $ 1,376 $ 1,022 $ 4,801 $ 2,834 27 Research and Development Three Months Ended September 30, 2023 September 24, 2022 $ Change % Change (Dollars in thousands) Research and development $ 31,014 $ 26,549 $ 4,465 16.8 % % of revenues 18.1 % 14.7 % Nine Months Ended September 30, 2023 September 24, 2022 $ Change % Change (Dollars in thousands) Research and development $ 87,599 $ 82,000 $ 5,599 6.8 % % of revenues 17.7 % 14.1 % Research and development expenses in the three and nine months ended September 30, 2023 increased when compared to the corresponding period in the prior year primarily due to an increase in headcount to support our continued investment in technology leadership. Increased stock-based compensation from timing of grants, salary adjustments, depreciation, and general operational costs also contributed to the increase. A detail of the changes is as follows (in thousands): Three Months Ended September 30, 2023 compared to Three Months Ended September 24, 2022 Nine Months Ended September 30, 2023 compared to Nine Months Ended September 24, 2022 Employee compensation costs $ 2,343 $ 2,064 Stock-based compensation 1,146 2,200 Project material costs 672 (23) Depreciation 210 584 Other general operational costs 94 774 $ 4,465 $ 5,599 Research and development included stock-based compensation expense as follows (in thousands): Three Months Ended Nine Months Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Stock-based compensation $ 3,173 $ 2,027 $ 7,908 $ 5,708 Selling, General and Administrative Three Months Ended September 30, 2023 September 24, 2022 $ Change % Change (Dollars in thousands) Selling, general and administrative $ 35,564 $ 31,637 $ 3,927 12.4 % % of revenues 20.7 % 17.5 % Nine Months Ended September 30, 2023 September 24, 2022 $ Change % Change (Dollars in thousands) Selling, general and administrative $ 101,561 $ 97,949 $ 3,612 3.7 % % of revenues 20.5 % 16.8 % 28 Selling, general and administrative expenses increased in the three and nine months ended September 30, 2023 when compared to the corresponding period in the prior year. The drivers of the increase for the three month period were increased consulting fees related to the divestiture of FRT, stock-based compensation from timing of grants, performance-based compensation, and general operating expenses, partially offset by lower headcount and amortization of intangibles from significant intangibles becoming fully amortized. The drivers of the increase for the nine month period were increased consulting fees related to the divestiture of FRT, stock-based compensation from timing of grants, and general operating expenses, partially offset by lower performance-based compensation, headcount, and amortization of intangibles from significant intangibles becoming fully amortized. A detail of the changes is as follows (in thousands): Three Months Ended September 30, 2023 compared to Three Months Ended September 24, 2022 Nine Months Ended September 30, 2023 compared to Nine Months Ended September 24, 2022 Consulting fees $ 2,539 $ 3,357 Stock-based compensation 1,344 3,293 Amortization of intangibles (1,090) (1,099) General operating expenses 599 1,965 Employee compensation 535 (4,650) Restructuring charges — 746 $ 3,927 $ 3,612 Selling, general and administrative included stock-based compensation expense as follows (in thousands): Three Months Ended Nine Months Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Stock-based compensation $ 6,290 $ 4,946 $ 16,624 $ 13,331 Interest Income (Expense), Net Interest income is earned on our cash, cash equivalents, restricted cash and marketable securities. The increase in interest income for the three and nine months ended September 30, 2023 compared with the corresponding period of the prior year was attributable to an increase in investment yields due to the higher interest rate environment. Interest expense primarily includes interest on our term loan, interest rate swap derivative contracts, and term loan issuance costs amortization charges. The interest expense for the three and nine months ended September 30, 2023 compared to the same period of the prior year decreased due to lower outstanding debt. Other Income, Net Other income, net, primarily includes the effects of foreign currency impact and various other gains and losses. We partially mitigate our risks from currency movements by hedging certain balance sheet exposures, which minimizes the impacts during periods of foreign exchange volatility. Provision for Income Taxes Three Months Ended Nine Months Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 (In thousands, except percentages) Provision for income taxes $ 786 $ 1,274 $ 626 $ 8,860 Effective tax rate 15.2 % 22.6 % 8.7 % 12.1 % Provision for income taxes reflects the tax provision on our operations in foreign and U.S. jurisdictions, offset by tax benefits from tax credits and the foreign-derived intangible income (“FDII”) deduction. Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss by jurisdiction, changes to the valuation allowance, changes to U.S. federal, state or foreign tax laws, changes in stock-based compensation expense/benefit, future expansion into areas with varying country, state, and local income tax rates, and deductibility of certain costs and expenses by jurisdiction. 29 The decrease in our effective tax rate for the three months ended September 30, 2023, when compared to the corresponding period in the prior year, was primarily driven by higher than normal effective rates for the three months ended September 24, 2022 as a result of a rapid change in expected 2022 taxable income driven by the weaker demand in the semiconductor industry in the second half of fiscal year 2022, as described previously. The decrease in our effective tax rate for the nine months ended September 30, 2023, when compared to the corresponding period in the prior year, was primarily driven by relatively higher benefits from FDII and U.S. tax credits as compared to taxable income, resulting from higher Research and development spending and lower taxable income in the U.S. for the nine months ended September 30, 2023. The Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (“CHIPS Act”) was signed into law on August 9, 2022. The CHIPS Act provides for various incentives and tax credits, among other items, including the Advanced Manufacturing Investment Credit (“AMIC”), which equals 25% of qualified investments in an advanced manufacturing facility that is placed in service after December 31, 2022. At least a portion of our future capital expenditures and research and development costs will qualify for this credit, which benefits us by allowing us to net the credit received against our costs. The AMIC credit is accounted for outside of ASC 740 as a reduction to the depreciable basis of the assets used in operations and will not have an impact on our effective tax rate. Beginning in 2022, the U.S. Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminated the existing option to deduct research and development expenditures and requires taxpayers to amortize such expenditures attributable to domestic and foreign research over five and fifteen years, respectively, pursuant to IRC Section 174. While the capitalization requirement has a negative impact on our cash flows, there are offsetting benefits from the enactment of this provision that we have included in our estimated annual effective tax rate. While it is possible that Congress may defer, modify, or repeal this provision, potentially with retroactive effect, we have no assurance that this provision will be deferred, modified, or repealed. Changes in our tax provisions or an increase in our tax liabilities, whether due to changes in applicable laws and regulations, the interpretation or application thereof, or a final determination of tax audits or litigation or agreements, could have a material adverse effect on our financial position, results of operations and/or cash flows. Liquidity and Capital Resources Capital Resources Our working capital was $377.1 million at September 30, 2023, compared to $324.9 million at December 31, 2022. Cash and cash equivalents primarily consist of deposits held at banks and money market funds. Marketable securities primarily consist of corporate bonds, U.S. treasuries, commercial paper, and U.S. agency securities. We typically invest in highly rated securities with low probabilities of default. Our investment policy requires investments to be rated single A or better, and limits the types of acceptable investments, issuer concentration and duration of the investment. Our cash, cash equivalents and marketable securities totaled approximately $244.4 million at September 30, 2023, compared to $238.1 million at December 31, 2022. Based on our historical results of operations, we expect that our cash, cash equivalents, and marketable securities on hand, and the cash we expect to generate from operations, will be sufficient to fund our short-term and long-term liquidity requirements primarily arising from: research and development, capital expenditures, working capital, outstanding commitments, and other liquidity requirements associated with existing operations. However, we cannot be certain that our cash, cash equivalents, and marketable securities on hand, and cash generated from operations, will be available in the future to fund all of our capital and operating requirements. In addition, any future strategic investments and significant acquisitions may require additional cash and capital resources. To the extent necessary, we may consider entering into short and long-term debt obligations, raising cash through a stock issuance, or obtaining new financing facilities, which may not be available on terms favorable to us. If we are unable to obtain sufficient cash or capital to meet our needs on a timely basis and on favorable terms, our business and operations could be materially and adversely affected. If we are unsuccessful in maintaining or growing our revenues, maintaining or reducing our cost structure, or increasing our available cash through debt or equity financings, our cash, cash equivalents and marketable securities may decline. We utilize a variety of tax planning and financing strategies to manage our worldwide cash and deploy funds to locations where needed. As part of these strategies, we indefinitely reinvest a portion of our foreign earnings. Should we require additional capital in the United States, we may elect to repatriate indefinitely-reinvested foreign funds or raise capital in the United States. 30 Cash Flows The following table sets forth our net cash flows from operating, investing and financing activities: Nine Months Ended September 30, 2023 September 24, 2022 (In thousands) Net cash provided by operating activities $ 55,352 $ 111,048 Net cash used in investing activities $ (49,994) $ (52,013) Net cash used in financing activities $ (1,308) $ (84,964) Operating Activities Net cash provided by operating activities for the nine months ended September 30, 2023 was attributable to net income of $6.5 million and net non-cash expenses of $71.5 million, which includes depreciation, amortization, stock-based compensation, and the provision for excess and obsolete inventories, partially offset by an increase in net working capital of $22.7 million. The increase in net working capital is related to decreases in deferred revenues and accrued liabilities of $12.9 million and $5.3 million, respectively, and increases in inventory, net and accounts receivable, net of $8.9 million and $7.8 million, respectively, partially offset by an increase from a deferred grant of $18.0 million. Investing Activities Net cash used in investing activities for the nine months ended September 30, 2023 primarily related to $46.1 million in property, plant and equipment purchases and $3.9 million in net purchases of marketable securities. Financing Activities Net cash used in financing activities for the nine months ended September 30, 2023 primarily related to $9.3 million tax withholding payments associated with the net share settlements of our equity awards and $0.8 million principal payments made towards the repayment of our term loan, partially offset by $8.8 million received from issuances of common stock under our employee stock purchase plan. Debt Building Term Loan On June 22, 2020, we entered into an $18.0 million 15-year credit facility loan agreement (the “Building Term Loan”). The proceeds of the Building Term Loan were used to 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 London Interbank Offered Rate (“LIBOR“) with the term Secured Overnight Financing Rate (“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 September 30, 2023 was 7.19%. As of September 30, 2023, the balance outstanding pursuant to the Building Term Loan was $14.7 million. On March 17, 2020, we entered into an interest rate swap agreement to hedge the interest payment on the Building Term Loan for the notional amount of $18.0 million, and an amortization period that matches the debt. As future levels of LIBOR over the life of the loan are uncertain, we entered into this interest-rate swap agreement to hedge the exposure in interest rate risks associated with movement in LIBOR rates. By entering into the agreement, we 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 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%. As of September 30, 2023, the notional amount of the loan that is subject to this interest rate swap is $14.7 million. 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 nine months ended September 24, 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. 31 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 nine months ended September 30, 2023, we did not repurchase any shares of common stock. As of September 30, 2023, $18.6 million remained available for future repurchases. On October 30, 2023, our Board of Directors authorized an additional program to repurchase up to $75 million of outstanding common stock, also with the primary purpose of offsetting potential dilution from issuance of common stock under our stock-based compensation programs. The share repurchase program will expire on October 30, 2025. Contractual Obligations and Commitments The following table summarizes our significant contractual commitments to make future payments in cash under contractual obligations as of September 30, 2023: Payments Due In Fiscal Year Remainder 2023 2024 2025 2026 2027 Thereafter Total Operating leases $ 2,175 $ 8,773 $ 8,670 $ 7,151 $ 6,734 $ 3,541 $ 37,044 Term loans - principal payments 266 1,080 1,111 1,142 1,175 9,940 14,714 Term loans - interest payments (1) 266 1,023 935 856 771 2,846 6,697 Total $ 2,707 $ 10,876 $ 10,716 $ 9,149 $ 8,680 $ 16,327 $ 58,455 (1) Represents our minimum interest payment commitments at 7.19% per annum for the Building Term Loan. This excludes any amounts related to our interest rate swap. Off-Balance Sheet Arrangements Historically, we have not participated in transactions that have generated relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of September 30, 2023, we were not involved in any such off-balance sheet arrangements. Recent Accounting Standards For a description of a recent change in accounting standards, including the expected dates of adoption and estimated effects, if any, in our condensed consolidated financial statements, see Note 1, Basis of Presentation and Significant Accounting Policies, in Part I, Item 1 of this Form 10-Q.