FORMFACTOR INC 10-Q

Item 1. Financial Statements FORMFACTOR, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) (Unaudited) June 29, 2024 December 30, 2023 ASSETS Current assets: Cash and cash equivalents $ 195,914 $ 177,812 Marketable securities 161,710 150,507 Accounts receivable, net of allowance for credit losses of $ 501 and $ 501 113,277 102,957 Inventories, net 114,814 111,685 Restricted cash 5,939 1,152 Prepaid expenses and other current assets 28,964 29,667 Total current assets 620,618 573,780 Restricted cash 2,098 2,309 Operating lease, right-of-use-assets 26,650 30,519 Property, plant and equipment, net of accumulated depreciation 204,102 204,399 Goodwill 199,548 201,090 Intangibles, net 11,657 12,938 Deferred tax assets 88,841 78,964 Other assets 2,751 2,795 Total assets $ 1,156,265 $ 1,106,794 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 62,235 $ 63,857 Accrued liabilities 49,523 41,037 Current portion of term loan, net of unamortized issuance costs 1,090 1,075 Deferred revenue 17,953 16,704 Operating lease liabilities 8,240 8,422 Total current liabilities 139,041 131,095 Term loan, less current portion, net of unamortized issuance costs 12,765 13,314 Long-term operating lease liabilities 21,441 25,334 Deferred grant 18,000 18,000 Other liabilities 17,102 10,247 Total liabilities 208,349 197,990 Stockholders’ equity: Common stock, $ 0.001 par value: 250,000,000 shares authorized; 77,281,052 and 77,376,903 shares issued and outstanding 77 77 Additional paid-in capital 863,283 861,448 Accumulated other comprehensive loss ( 7,948 ) ( 4,052 ) Accumulated income 92,504 51,331 Total stockholders’ equity 947,916 908,804 Total liabilities and stockholders’ equity $ 1,156,265 $ 1,106,794 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 FORMFACTOR, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Revenues $ 197,474 $ 155,916 $ 366,199 $ 323,364 Cost of revenues 110,574 95,633 216,561 202,003 Gross profit 86,900 60,283 149,638 121,361 Operating expenses: Research and development 31,564 28,340 60,191 56,585 Selling, general and administrative 37,874 33,255 70,953 65,997 Total operating expenses 69,438 61,595 131,144 122,582 Gain on sale of business 310 — 20,581 — Operating income (loss) 17,772 ( 1,312 ) 39,075 ( 1,221 ) Interest income, net 3,415 1,482 6,571 2,758 Other income, net 360 450 880 473 Income before income taxes 21,547 620 46,526 2,010 Provision (benefit) for income taxes 2,155 ( 208 ) 5,353 ( 160 ) Net income $ 19,392 $ 828 $ 41,173 $ 2,170 Net income per share: Basic $ 0.25 $ 0.01 $ 0.53 $ 0.03 Diluted $ 0.25 $ 0.01 $ 0.52 $ 0.03 Weighted-average number of shares used in per share calculations: Basic 77,235 77,159 77,343 77,112 Diluted 78,717 77,616 78,746 77,450 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 FORMFACTOR, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited) Three Months Ended Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Net income $ 19,392 $ 828 $ 41,173 $ 2,170 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments ( 1,075 ) ( 122 ) ( 3,358 ) 710 Unrealized gains (losses) on available-for-sale marketable securities ( 39 ) ( 85 ) ( 237 ) 518 Unrealized losses on derivative instruments ( 69 ) ( 52 ) ( 301 ) ( 95 ) Other comprehensive income (loss) ( 1,183 ) ( 259 ) ( 3,896 ) 1,133 Comprehensive income $ 18,209 $ 569 $ 37,277 $ 3,303 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 Income (Deficit) Total Three Months Ended June 29, 2024 Balances, March 30, 2024 77,241,118 $ 77 $ 857,326 $ ( 6,765 ) $ 73,112 $ 923,750 Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax 112,129 — ( 1,729 ) — — ( 1,729 ) Purchase and retirement of common stock through repurchase program ( 72,195 ) — ( 2,904 ) — — ( 2,904 ) Stock-based compensation — — 10,590 — — 10,590 Other comprehensive loss — — — ( 1,183 ) — ( 1,183 ) Net income — — — — 19,392 19,392 Balances, June 29, 2024 77,281,052 $ 77 $ 863,283 $ ( 7,948 ) $ 92,504 $ 947,916 Six Months Ended June 29, 2024 Balances, December 30, 2023 77,376,903 $ 77 $ 861,448 $ ( 4,052 ) $ 51,331 $ 908,804 Issuance of common stock under the Employee Stock Purchase Plan 197,014 — 4,948 — — 4,948 Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax 191,086 — ( 3,569 ) — — ( 3,569 ) Purchase and retirement of common stock through repurchase program ( 483,951 ) — ( 20,302 ) — — ( 20,302 ) Stock-based compensation — — 20,758 — — 20,758 Other comprehensive loss — — — ( 3,896 ) — ( 3,896 ) Net income — — — — 41,173 41,173 Balances, June 29, 2024 77,281,052 $ 77 $ 863,283 $ ( 7,948 ) $ 92,504 $ 947,916 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 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 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 June 29, 2024 July 1, 2023 Cash flows from operating activities: Net income $ 41,173 $ 2,170 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 14,563 15,121 Amortization 1,280 4,766 Reduction in the carrying amount of right-of-use assets 3,195 3,914 Stock-based compensation expense 20,614 18,494 Deferred income tax benefit ( 10,181 ) ( 3,639 ) Provision for excess and obsolete inventories 6,277 8,628 Gain on sale of business ( 20,581 ) — Other adjustments to reconcile net income to net cash provided by operating activities 344 1,801 Changes in assets and liabilities: Accounts receivable ( 10,833 ) ( 6,830 ) Inventories ( 14,469 ) ( 5,880 ) Prepaid expenses and other current assets 2,094 ( 1,099 ) Other assets 14 ( 83 ) Accounts payable 2,317 3,578 Accrued liabilities 10,244 ( 10,606 ) Other liabilities 7,316 456 Deferred revenues 4,940 ( 9,945 ) Deferred grant — 18,000 Operating lease liabilities ( 3,417 ) ( 4,065 ) Net cash provided by operating activities 54,890 34,781 Cash flows from investing activities: Acquisition of property, plant and equipment ( 21,834 ) ( 40,177 ) Proceeds from sale of business 21,585 — Purchases of marketable securities ( 78,524 ) ( 66,650 ) Proceeds from maturities and sales of marketable securities 68,813 58,363 Net cash used in investing activities ( 9,960 ) ( 48,464 ) Cash flows from financing activities: Proceeds from issuances of common stock 4,948 5,024 Purchase of common stock through stock repurchase program ( 20,271 ) — Tax withholdings related to net share settlements of equity awards ( 3,569 ) ( 456 ) Payments on term loan ( 534 ) ( 519 ) Net cash provided by (used in) financing activities ( 19,426 ) 4,049 Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 2,826 ) ( 1,958 ) Net increase (decrease) in cash, cash equivalents and restricted cash 22,678 ( 11,592 ) Cash, cash equivalents and restricted cash, beginning of year 181,273 112,982 Cash, cash equivalents and restricted cash, end of year $ 203,951 $ 101,390 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 FORMFACTOR, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six Months Ended June 29, 2024 July 1, 2023 Non-cash investing and financing activities: Decrease in accounts payable and accrued liabilities related to property, plant and equipment purchases $ 3,388 $ 9,187 Operating lease, right-of-use assets obtained in exchange for lease obligations — 3,635 Supplemental disclosure of cash flow information: Cash paid for income taxes, net $ 6,924 $ 9,427 Cash paid for interest 201 212 Operating cash outflows from operating leases 4,563 4,514 Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents $ 195,914 $ 97,981 Restricted cash, current 5,939 1,144 Restricted cash 2,098 2,265 Total cash, cash equivalents and restricted cash $ 203,951 $ 101,390 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 2023 Annual Report on Form 10-K filed with the SEC on February 23, 2024. 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 2024 and 2023 each contain 52 weeks and the six months ended June 29, 2024 and July 1, 2023 each contained 26 weeks. Fiscal 2024 will end on December 28 , 2024. Significant Accounting Policies Our significant accounting policies have not changed during the six months ended June 29, 2024 from those disclosed in our Annual Report on Form 10-K for the year ended December 30, 2023. New Accounting Pronouncements ASU 2023-09 In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-09, “ Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ” The ASU includes requirements that an entity disclose specific categories in the rate reconciliation and provide additional information for reconciling items that are greater than five percent of the amount computed by multiplying pretax income by the applicable statutory income tax rate. The standard also requires that entities disclose income before income taxes and provision for income taxes disaggregated between domestic and foreign. This ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted. We have not yet determined the impact of this standard on our financial statements. ASU 2023-07 In November 2023, the FASB issued ASU 2023-07, “ Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures .” The ASU includes requirements that an entity disclose the title of the chief operating decision maker (“CODM”) and on an interim and annual basis, significant segment expenses and the composition of other segment items for each segment's reported profit. The standard also permits disclosure of additional measures of segment profit. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, on a retrospective basis, with early adoption permitted. We have not yet determined the impact of this standard on our financial statements. Note 2 — Concentration of Credit and Other Risks Each of the following customers accounted for 10 % or more of our revenues for the periods indicated: Three Months Ended Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 SK hynix Inc. 19.5 % * 17.6 % * Intel Corporation 16.7 % 14.2 % 16.3 % 17.2 % 36.2 % 14.2 % 33.9 % 17.2 % * Less than 10% of revenues. At June 29, 2024 and December 30, 2023, two customers accounted for 21.2 % and 11.2 % and two customers accounted for 17.8 % and 11.0 % of gross accounts receivable, respectively. 9 Note 3 — Inventories, net Inventories are stated at the lower of cost (principally standard cost, which approximates actual cost on a first in, first out basis) or net realizable value. Inventories, net, consisted of the following (in thousands): June 29, 2024 December 30, 2023 Raw materials $ 53,047 $ 50,808 Work-in-progress 41,349 39,336 Finished goods 20,418 21,541 $ 114,814 $ 111,685 Note 4 — Divestitures China Operations Divestiture On February 7, 2024, the Company entered into a definitive agreement to sell its China operations to Grand Junction Semiconductor Pte. Ltd. (“Grand Junction”) for $ 25.0 million in cash, subject to customary purchase price adjustments, and establish an exclusive distribution and partnership agreement to continue sales and support of our products in the region. The following subsidiaries were included as part of the divestiture: Microprobe Hong Kong Limited, FormFactor Technology (Suzhou) Co. Ltd., Cascade Microtech Singapore Pte, Ltd, and FormFactor International (Shanghai) Trading Co., Ltd. These entities supported both the Probe Cards and Systems segments. On February 26, 2024, we closed on the sale of the operations in China to Grand Junction and received total consideration of $ 21.4 million, net of cash transferred and transaction expenses, and after customary adjustments for indebtedness and changes in net working capital. The disposition of the China operations did not meet the criteria to be classified as a discontinued operation in the Company’s financial statements because the disposition did not represent a strategic shift that had, or will have, a major effect on the Company’s operations and financial results. The following table summarizes the fair value of the sale proceeds received in connection with the divestiture (in thousands): February 26, 2024 Gross purchase price $ 25,000 Working capital adjustment 159 Cash transferred to the buyer at closing ( 2,743 ) Direct costs to sell ( 986 ) Fair value of sale consideration, net $ 21,430 10 The carrying amount of net assets associated with the China operations was approximately $ 1.2 million. The major classes of assets and liabilities sold consisted of the following (in thousands): February 26, 2024 ASSETS Accounts receivable, net $ 1,174 Inventories, net 3,729 Other current assets 391 Total current assets 5,294 Property, plant and equipment, net 1,283 Goodwill 1,117 Other assets 3,029 Total assets $ 10,723 LIABILITIES Deferred Revenue $ 3,739 Other current liabilities 1,546 Other liabilities 4,283 Total liabilities $ 9,568 As a result of the divestiture, the Company recognized a pre-tax gain of $ 20.3 million. The Company recorded an income tax liability associated with the divestiture of approximately $ 3.3 million. FRT Divestiture On September 18, 2023, the Company announced entry into a definitive agreement to sell its FRT Metrology (“FRT”) business to Camtek Ltd. (“Camtek”) for $ 100 million in cash, subject to customary purchase price adjustments. The Company acquired FRT GmbH in fiscal 2019 for total consideration of $ 24.4 million, net of cash acquired. Headquartered in Bergisch Gladbach, Germany, the FRT business is a leading supplier of high-precision metrology solutions for the Advanced Packaging and Silicon Carbide markets, and was part of the Company's Systems segment. On November 1, 2023, we closed on the sale of the FRT business to Camtek and received net cash proceeds of $ 100.1 million, net of cash transferred and transaction expenses, and after customary adjustments for indebtedness and changes in net working capital. The following table summarizes the fair value of the sale proceeds received in connection with the divestiture (in thousands): November 1, 2023 Gross purchase price $ 99,100 Estimated working capital adjustment 4,266 Cash transferred to the buyer at closing ( 2,049 ) Direct costs to sell ( 1,225 ) Fair value of sale consideration $ 100,092 11 The carrying amount of net assets associated with the FRT business was approximately $ 26.8 million. The major classes of assets and liabilities sold consisted of the following (in thousands): November 1, 2023 ASSETS Accounts receivable, net $ 7,738 Inventories, net 6,446 Other current assets 635 Total current assets 14,819 Intangibles, net 6,897 Goodwill 10,660 Other assets 1,612 Total assets $ 33,988 LIABILITIES Current liabilities $ 4,300 Other liabilities 2,856 Total liabilities $ 7,156 As a result of the divestiture, the Company recognized a pre-tax gain of $ 73.3 million. The Company recorded an income tax liability associated with the divestiture of approximately $ 6.0 million. Note 5 — Goodwill and Intangible Assets Goodwill by reportable segment was as follows (in thousands): Probe Cards Systems Total Goodwill, as of December 31, 2022 $ 178,424 $ 33,020 $ 211,444 Reduction - FRT divestiture — ( 10,660 ) ( 10,660 ) Foreign currency translation — 306 306 Goodwill, as of December 30, 2023 178,424 22,666 201,090 Reduction - China divestiture ( 1,055 ) ( 62 ) ( 1,117 ) Foreign currency translation — ( 425 ) ( 425 ) Goodwill, as of June 29, 2024 $ 177,369 $ 22,179 $ 199,548 We have no t recorded goodwill impairments for the six months ended June 29, 2024. Intangible assets were as follows (in thousands): June 29, 2024 December 30, 2023 Intangible Assets Gross Accumulated Amortization Net Gross Accumulated Amortization Net Existing developed technologies $ 159,258 $ 149,008 $ 10,250 $ 159,593 $ 148,445 $ 11,148 Trade name 7,770 7,712 58 7,808 7,728 80 Customer relationships 47,920 46,971 949 48,022 46,712 1,310 In-process research and development 400 — 400 400 — 400 $ 215,348 $ 203,691 $ 11,657 $ 215,823 $ 202,885 $ 12,938 Amortization expense was included in our Condensed Consolidated Statements of Income as follows (in thousands): Three Months Ended Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Cost of revenues $ 449 $ 838 $ 898 $ 1,669 Selling, general and administrative 191 1,550 382 3,097 $ 640 $ 2,388 $ 1,280 $ 4,766 12 The estimated future amortization of definite-lived intangible assets, excluding in-process research and development, is as follows (in thousands): Fiscal Year Amount Remainder of 2024 $ 1,280 2025 2,330 2026 1,630 2027 1,630 2028 1,630 Thereafter 2,757 $ 11,257 Note 6 — Accrued Liabilities Accrued liabilities consisted of the following (in thousands): June 29, 2024 December 30, 2023 Accrued compensation and benefits $ 31,865 $ 20,073 Accrued income and other taxes 5,877 8,205 Accrued employee stock purchase plan contributions withheld 4,727 4,263 Accrued warranty 3,359 3,177 Other accrued expenses 3,695 5,319 $ 49,523 $ 41,037 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 six months ended June 29, 2024 or the year ended December 30, 2023. 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 2024. 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): June 29, 2024 Level 1 Level 2 Total Assets: Cash equivalents: Money market funds $ 132,315 $ — $ 132,315 U.S. treasuries 1,698 — 1,698 Commercial paper — 4,483 4,483 U.S. agency securities — 994 994 134,013 5,477 139,490 Marketable securities: U.S. treasuries 61,305 — 61,305 U.S. agency securities — 12,026 12,026 Corporate bonds — 75,090 75,090 Commercial paper — 13,289 13,289 61,305 100,405 161,710 Interest rate swap derivative contracts — 2,137 2,137 Total assets $ 195,318 $ 108,019 $ 303,337 Liabilities: Foreign exchange derivative contracts $ — $ ( 195 ) $ ( 195 ) Total liabilities $ — $ ( 195 ) $ ( 195 ) December 30, 2023 Level 1 Level 2 Total Assets: Cash equivalents: Money market funds $ 110,980 $ — $ 110,980 U.S. treasuries 4,581 — 4,581 115,561 — 115,561 Marketable securities: U.S. treasuries 45,837 — 45,837 U.S. agency securities — 10,003 10,003 Corporate bonds — 81,350 81,350 Commercial paper — 13,317 13,317 45,837 104,670 150,507 Foreign exchange derivative contracts — 284 284 Interest rate swap derivative contracts — 1,989 1,989 Total assets $ 161,398 $ 106,943 $ 268,341 Liabilities: Foreign exchange derivative contracts $ — $ ( 30 ) $ ( 30 ) Total liabilities $ — $ ( 30 ) $ ( 30 ) 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 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. 14 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 Swap The fair value of our interest rate swap contract 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 contract qualifies for, and is designated as a cash flow hedge. The hedged risk is the interest rate exposure to changes in interest payments attributable to changes in our variable-rate interest over the interest rate swap term. The changes in cash flows of the interest rate swap are expected to exactly offset changes in cash flows of the variable-rate debt. Cash settlements, in the form of cash payments or cash receipts, are recognized as a component of interest expense. 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 June 29, 2024 will mature by the second quarter of fiscal 2025. The following table provides information about our foreign currency forward contracts outstanding as of June 29, 2024 (in thousands): Currency Contract Position Contract Amount (Local Currency) Contract Amount (U.S. Dollars) Euro Buy 29,118 $ 31,562 Japanese Yen Sell 2,422,207 15,125 Korean Won Buy 3,986,488 2,890 Taiwan Dollar Sell 96,108 2,959 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 acquisition. There were no assets or liabilities measured at fair value on a nonrecurring basis during the three and six months ended June 29, 2024 or July 1, 2023. 15 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): Six Months Ended June 29, 2024 July 1, 2023 Balance at beginning of year $ 3,177 $ 4,199 Accruals 4,361 2,934 Settlements ( 4,179 ) ( 3,627 ) Balance at end of period $ 3,359 $ 3,506 Note 9 — Property, Plant and Equipment, net Property, plant and equipment, net consisted of the following (in thousands): June 29, 2024 December 30, 2023 Land $ 17,124 $ 17,124 Building and building improvements 46,375 46,526 Machinery and equipment 296,345 286,215 Computer equipment and software 47,241 46,866 Furniture and fixtures 7,489 7,490 Leasehold improvements 91,837 91,063 Sub-total 506,411 495,284 Less: Accumulated depreciation and amortization ( 368,422 ) ( 358,021 ) Net property, plant and equipment 137,989 137,263 Construction-in-progress 66,113 67,136 Total $ 204,102 $ 204,399 Note 10 — Stockholders’ Equity and Stock-Based Compensation Common Stock Repurchase Programs On May 20, 2022, our Board of Directors authorized a two-year program to repurchase up to $ 75.0 million of outstanding common stock to offset potential dilution from issuance of common stock under our stock-based compensation programs. During fiscal 2022 and fiscal 2023, we repurchased and retired 1,700,893 shares of common stock for $ 56.4 million and 504,352 shares of common stock for $ 18.6 million, respectively, utilizing the remaining shares available for repurchase under the program. On October 30, 2023, our Board of Directors authorized an additional two-year program to repurchase up to $ 75.0 million of outstanding common stock, with the primary purpose of offsetting potential dilution from issuance of common stock under our stock-based compensation programs. This share repurchase program will expire on October 30, 2025. During fiscal 2023 we repurchased and retired 32,020 shares of common stock for $ 1.2 million. During the six months ended June 29, 2024, we repurchased and retired 483,951 shares of common stock for $ 20.3 million, and as of June 29, 2024, $ 53.5 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. Share repurchases are subject to an excise tax enabled by the Inflation Reduction Act that is generally 1% of the fair market value of the shares repurchased at the time of the repurchase, net of the fair market value of certain new stock issuances during the same taxable year. Certain exceptions apply to the excise tax. The excise tax incurred reduces the amount available under the repurchase programs, as applicable, and is included in the cost of shares repurchased in the Condensed Consolidated Statement of Stockholders Equity. 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 30, 2023 2,165,729 $ 35.85 Awards granted 149,829 54.41 Awards vested ( 266,910 ) 31.30 Awards forfeited ( 22,393 ) 33.36 RSUs at June 29, 2024 2,026,255 37.79 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 June 29, 2024. PRSUs are included as part of the RSU activity above. Employee Stock Purchase Plan Information related to activity under our Employee Stock Purchase Plan (“ESPP”) was as follows: Six Months Ended June 29, 2024 Shares issued 197,014 Weighted average per share purchase price $ 25.11 Weighted average per share discount from the fair value of our common stock on the date of issuance $ ( 13.66 ) Stock-Based Compensation Stock-based compensation was included in our Condensed Consolidated Statements of Income as follows (in thousands): Three Months Ended Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Cost of revenues $ 1,932 $ 1,515 $ 3,860 $ 3,425 Research and development 2,614 2,363 5,227 4,735 Selling, general and administrative 5,663 5,326 11,527 10,334 Total stock-based compensation $ 10,209 $ 9,204 $ 20,614 $ 18,494 Unrecognized Compensation Costs At June 29, 2024, the unrecognized stock-based compensation was as follows (dollars in thousands): Unrecognized Expense Average Expected Recognition Period in Years Restricted stock units $ 39,732 1.78 Performance restricted stock units 7,437 1.69 Employee stock purchase plan 264 0.09 Total unrecognized stock-based compensation expense $ 47,433 1.76 17 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 Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Weighted-average shares used in computing basic net income per share 77,235 77,159 77,343 77,112 Add potentially dilutive securities 1,482 457 1,403 338 Weighted-average shares used in computing diluted net income per share 78,717 77,616 78,746 77,450 Securities not included as they would have been antidilutive 64 486 32 343 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 June 29, 2024 from those disclosed in our Annual Report on Form 10-K for the year ended December 30, 2023. 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 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 year to 10 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 to 2 years. We did not include any of our renewal options in our lease terms for calculating our lease liability as the renewal options allow us to maintain operational flexibility and we are not reasonably certain we will exercise these options at this time. The weighted-average remaining lease term for our operating leases was 4.2 years as of June 29, 2024 and the weighted-average discount rate was 4.65 %. The components of lease expense were as follows (in thousands): Three Months Ended Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Lease expense: Operating lease expense $ 2,050 $ 2,124 $ 4,180 $ 4,076 Short-term lease expense 85 136 145 293 Variable lease expense 1,052 483 1,862 1,229 $ 3,187 $ 2,743 $ 6,187 $ 5,598 18 Future minimum payments under our non-cancelable operating leases were as follows as of June 29, 2024 (in thousands): Fiscal Year Amount Remainder of 2024 $ 4,515 2025 9,043 2026 7,638 2027 7,208 2028 3,892 Thereafter 1,391 Total minimum lease payments 33,687 Less: interest ( 4,006 ) Present value of net minimum lease payments 29,681 Less: current portion ( 8,240 ) Total long-term operating lease liabilities $ 21,441 Note 14 — Revenue Transaction price allocated to the remaining performance obligations: On June 29, 2024, we had $ 9.2 million of remaining performance obligations, which were comprised of deferred service contracts, extended warranty contracts, and contracts with overtime revenue recognition that are not yet delivered. We expect to recognize approximately 65.1 % of our remaining performance obligations as revenue in the remainder of fiscal 2024, approximately 27.7 % in fiscal 2025, and approximately 7.2 % in fiscal 2026 and thereafter. The foregoing excludes the value of other remaining performance obligations as they have original durations of one year or less, and also excludes information about variable consideration allocated entirely to a wholly unsatisfied performance obligation. Contract balances: The timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable is recorded at the invoiced amount, net of an allowance for credit losses. A receivable is recognized in the period we deliver goods or provide services or when our right to consideration is unconditional. A contract asset is recorded when we have performed under the contract but our right to consideration is conditional on something other than the passage of time. Contract assets as of June 29, 2024 and December 30, 2023 were $ 5.1 million and $ 3.8 million, respectively, and are reported on the Condensed Consolidated Balance Sheets as a component of Prepaid expenses and other current assets. Contract liabilities include payments received and payments due in advance of performance under a contract and are satisfied as the associated revenue is recognized. Contract liabilities are reported on the Condensed Consolidated Balance Sheets at the end of each reporting period as a component of Deferred revenue and Other liabilities. Contract liabilities as of June 29, 2024 and December 30, 2023 were $ 19.1 million and $ 18.0 million, respectively. During the six months ended June 29, 2024, we recognized $ 10.5 million of revenue that was included in contract liabilities as of December 30, 2023. During the six months ended June 29, 2024, we divested contract liabilities of $ 1.7 million as of December 30, 2023 with the divestiture of our China operations. 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. 19 Note 15 — Operating Segments and Enterprise-Wide Information Our 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 of the Probe Cards segment and the Systems segment. The following table summarizes the operating results by reportable segment (dollars in thousands): Three Months Ended June 29, 2024 July 1, 2023 Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total Revenues $ 166,792 $ 30,682 $ — $ 197,474 $ 115,303 $ 40,613 $ — $ 155,916 Gross profit 75,239 14,177 ( 2,516 ) 86,900 42,112 21,124 ( 2,953 ) 60,283 Gross margin 45.1 % 46.2 % 44.0 % 36.5 % 52.0 % 38.7 % Six Months Ended June 29, 2024 July 1, 2023 Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total Revenues $ 303,493 $ 62,706 $ — $ 366,199 $ 242,631 $ 80,733 $ — $ 323,364 Gross profit 126,030 28,683 ( 5,075 ) 149,638 85,735 41,870 ( 6,244 ) 121,361 Gross margin 41.5 % 45.7 % 40.9 % 35.3 % 51.9 % 37.5 % 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 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. 20 Certain revenue category information by reportable segment was as follows (in thousands): Three Months Ended June 29, 2024 July 1, 2023 Probe Cards Systems Total Probe Cards Systems Total Market: Foundry & Logic $ 103,660 $ — $ 103,660 $ 81,967 $ — $ 81,967 DRAM 58,042 — 58,042 30,464 — 30,464 Flash 5,090 — 5,090 2,872 — 2,872 Systems — 30,682 30,682 — 40,613 40,613 Total $ 166,792 $ 30,682 $ 197,474 $ 115,303 $ 40,613 $ 155,916 Timing of revenue recognition: Products transferred at a point in time $ 165,492 $ 28,129 $ 193,621 $ 112,985 $ 40,040 $ 153,025 Products and services transferred over time 1,300 2,553 3,853 2,318 573 2,891 Total $ 166,792 $ 30,682 $ 197,474 $ 115,303 $ 40,613 $ 155,916 Geographical region: South Korea $ 48,691 $ 416 $ 49,107 $ 26,455 $ 1,408 $ 27,863 United States 39,435 8,456 47,891 31,131 11,542 42,673 Taiwan 40,192 4,621 44,813 25,316 4,196 29,512 China 20,311 4,776 25,087 16,516 6,992 23,508 Europe 3,250 5,565 8,815 2,415 8,401 10,816 Japan 4,513 3,098 7,611 3,902 4,030 7,932 Malaysia 5,084 1,518 6,602 6,177 500 6,677 Singapore 4,112 410 4,522 1,718 1,105 2,823 Rest of World 1,204 1,822 3,026 1,673 2,439 4,112 Total $ 166,792 $ 30,682 $ 197,474 $ 115,303 $ 40,613 $ 155,916 21 Six Months Ended June 29, 2024 July 1, 2023 Probe Cards Systems Total Probe Cards Systems Total Market: Foundry & Logic $ 190,428 $ — $ 190,428 $ 183,529 $ — $ 183,529 DRAM 103,938 — 103,938 50,354 — 50,354 Flash 9,127 — 9,127 8,748 — 8,748 Systems — 62,706 62,706 — 80,733 80,733 Total $ 303,493 $ 62,706 $ 366,199 $ 242,631 $ 80,733 $ 323,364 Timing of revenue recognition: Products transferred at a point in time $ 301,133 $ 56,913 $ 358,046 $ 236,903 $ 79,510 $ 316,413 Products and services transferred over time 2,360 5,793 8,153 5,728 1,223 6,951 Total $ 303,493 $ 62,706 $ 366,199 $ 242,631 $ 80,733 $ 323,364 Geographical region: South Korea $ 99,363 $ 461 $ 99,824 $ 46,027 $ 2,611 $ 48,638 United States 75,031 18,626 93,657 55,772 24,632 80,404 Taiwan 67,371 7,319 74,690 64,213 5,628 69,841 China 28,997 11,703 40,700 34,992 15,615 50,607 Japan 8,860 7,293 16,153 11,038 7,871 18,909 Singapore 7,628 1,652 9,280 4,918 3,245 8,163 Europe 6,778 10,886 17,664 5,841 14,401 20,242 Malaysia 6,692 1,773 8,465 16,501 1,446 17,947 Rest of the world 2,773 2,993 5,766 3,329 5,284 8,613 Total $ 303,493 $ 62,706 $ 366,199 $ 242,631 $ 80,733 $ 323,364