FORMFACTOR INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 30, 2023 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. 22 Overview FormFactor, Inc., headquartered in Livermore, California, is a leading provider of essential test and measurement technologies along the full semiconductor product lifecycle — from 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, thermal systems, and cryogenic systems to both semiconductor companies and scientific institutions. Our products provide electrical 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, thermal systems and cryogenic systems are included in the Systems segment. We generated net income of $41.2 million in the first six months of fiscal 2024 as compared to $2.2 million in the first six months of fiscal 2023. On February 26, 2024, we completed the sale of our China operations and established an exclusive distribution and partnership agreement to continue sales and support of our products in the region (the “China Transaction”). As a result of the China Transaction, we received net consideration of $21.4 million and the China Transaction resulted in a gain of $20.3 million. The increase in net income in the first six months of fiscal 2024 compared to the first six months of fiscal 2023 was due to two factors. Certain areas of the semiconductor industry strengthened in the second quarter of fiscal 2024, increasing demand in most markets within our Probe Cards segment, particularly with demand for high bandwidth memory (“HBM”) chips utilized in generative artificial intelligence applications, seasonal ramp of new mobile application processor designs, and demand for client PC and server microprocessor designs. While we experienced growth in total revenues during the first six months of fiscal 2024, our Systems segment revenues were negatively impacted due to the absence of metrology system sales during the first six months of fiscal 2024 as a result of the sale of our FRT Metrology business in the fourth quarter of fiscal 2023. Additionally, the increase in net income was attributable to the $20.3 million gain recognized from the China Transaction. Critical Accounting Estimates Management’s Discussion and Analysis and Note 2, Summary of Significant Accounting Policies , to the Consolidated Financial Statements in our 2023 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 six months ended June 29, 2024, there were no significant changes in our significant accounting policies or estimates from those reported in our Annual Report on Form 10-K for the year ended December 30, 2023. 23 Results of Operations The following table sets forth our operating results as a percentage of revenues for the periods indicated: Three Months Ended Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Revenues 100.0 % 100.0 % 100.0 % 100.0 % Cost of revenues 56.0 61.3 59.1 62.5 Gross profit 44.0 38.7 40.9 37.5 Operating expenses: Research and development 16.0 18.2 16.4 17.5 Selling, general and administrative 19.2 21.3 19.4 20.4 Total operating expenses 35.2 39.5 35.8 37.9 Gain on sale of business 0.2 — 5.6 — Operating income (loss) 9.0 (0.8) 10.7 (0.4) Interest income, net 1.7 0.9 1.8 0.9 Other income, net 0.2 0.3 0.2 0.1 Income before income taxes 10.9 0.4 12.7 0.6 Provision (benefit) for income taxes 1.1 (0.1) 1.5 (0.1) Net income 9.8 % 0.5 % 11.2 % 0.7 % Revenues by Segment and Market Three Months Ended Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 (In thousands) Probe Cards $ 166,792 $ 115,303 $ 303,493 $ 242,631 Systems (1) 30,682 40,613 62,706 80,733 $ 197,474 $ 155,916 $ 366,199 $ 323,364 (1) During the fourth quarter of fiscal 2023, we completed the sale of our FRT Metrology business. As a result, metrology systems revenue will not recur in future periods. We generated no metrology systems revenue during the three and six months ended June 29, 2024, compared to $4.5 million and $8.6 million, during the three and six months ended July 1, 2023, respectively. 24 Three Months Ended June 29, 2024 % of Revenues July 1, 2023 % of Revenues $ Change % Change (Dollars in thousands) Probe Cards Markets: Foundry & Logic $ 103,660 52.5 % $ 81,967 52.6 % $ 21,693 26.5 % DRAM 58,042 29.4 30,464 19.5 27,578 90.5 Flash 5,090 2.6 2,872 1.9 2,218 77.2 Systems Market: Systems (1) 30,682 15.5 40,613 26.0 (9,931) (24.5) Total revenues $ 197,474 100.0 % $ 155,916 100.0 % $ 41,558 26.7 % Six Months Ended June 29, 2024 % of Revenues July 1, 2023 % of Revenues $ Change % Change (Dollars in thousands) Probe Cards Markets: Foundry & Logic $ 190,428 52.0 % $ 183,529 56.7 % $ 6,899 3.8 % DRAM 103,938 28.4 50,354 15.6 53,584 106.4 Flash 9,127 2.5 8,748 2.7 379 4.3 Systems Market: Systems (1) 62,706 17.1 80,733 25.0 (18,027) (22.3) Total revenues $ 366,199 100.0 % $ 323,364 100.0 % $ 42,835 13.2 % (1) During the fourth quarter of fiscal 2023, we completed the sale of our FRT Metrology business. As a result, metrology systems revenue will not recur in future periods. We generated no metrology systems revenue during the three and six months ended June 29, 2024, compared to $4.5 million and $8.6 million, during the three and six months ended July 1, 2023, respectively. Foundry & Logic — The increase in Foundry & Logic product revenue for the three and six months ended June 29, 2024, compared to the three and six months ended July 1, 2023, was driven by the seasonal ramp of new mobile application processor designs and stronger probe-card demand for client PC and server microprocessor designs. DRAM — The increase in DRAM product revenue for the three and six months ended June 29, 2024, compared to the three and six months ended July 1, 2023, was driven by increased demand for HBM chips utilized in generative artificial intelligence applications. Flash — The increase in Flash product revenue for the three and six months ended June 29, 2024, compared to the three and six months ended July 1, 2023, was driven by increased customer production activity and demand for our products. Systems — The decrease in Systems market revenue for the three and six months ended June 29, 2024, compared to the three and six months ended July 1, 2023, was driven by the absence of sales of our metrology systems, and decreased sales of probe stations and cryogenic systems due to timing of demand. During the fourth quarter of fiscal 2023, we completed the sale of our FRT Metrology business. The decrease in Systems revenue from sources not associated with metrology systems for the three and six months ended June 29, 2024 was $5.4 million, or 15.0%, and $9.4 million, or 13.0%, respectively. 25 Revenues by Geographic Region Three Months Ended Six Months Ended June 29, 2024 % of Revenues July 1, 2023 % of Revenues June 29, 2024 % of Revenue July 1, 2023 % of Revenue (Dollars in thousands) South Korea $ 49,107 24.9 % $ 27,863 17.9 % $ 99,824 27.3 % $ 48,638 15.0 % United States 47,891 24.3 42,673 27.4 93,657 25.6 80,404 24.9 Taiwan 44,813 22.7 29,512 18.9 74,690 20.4 69,841 21.6 China 25,087 12.7 23,508 15.1 40,700 11.1 50,607 15.7 Europe 8,815 4.5 10,816 6.9 17,664 4.8 20,242 6.3 Japan 7,611 3.9 7,932 5.1 16,153 4.4 18,909 5.8 Malaysia 6,602 3.3 6,677 4.3 8,465 2.3 17,947 5.6 Singapore 4,522 2.3 2,823 1.8 9,280 2.5 8,163 2.5 Rest of the world 3,026 1.4 4,112 2.6 5,766 1.6 8,613 2.6 Total revenues $ 197,474 100.0 % $ 155,916 100.0 % $ 366,199 100.0 % $ 323,364 100.0 % 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 six months ended June 29, 2024, compared to the three and six months ended July 1, 2023, were primarily attributable to changes in customer demand, shifts in customer regional manufacturing strategies, particularly with our large multinational customers, product sales mix, and impacts from trade restrictions. Specifically, the changes in revenue by geographic region was attributable to the following: • The increase in revenue for South Korea for the three and six months ended June 29, 2024, compared to the three and six months ended July 1, 2023 was driven principally by increased demand for our DRAM probe card products, including those for HBM. • The increase in revenues for the United States, and decreases in revenues for China and Malaysia, for the six months ended June 29, 2024, compared to the six months ended July 1, 2023 were driven principally by a single large U.S.-based company with operations in these regions that shifted shipments from these regions to the United States. • The decrease in revenues for China for the six months ended June 29, 2024, compared to the six months ended July 1, 2023, was also impacted by lowered demand caused by expanded export license requirements imposed by the U.S. government beginning the fourth quarter of fiscal 2022 for exporting advanced U.S. semiconductor technology to China. These trade restrictions have caused, and continue to drive, multinational customers to concentrate operations in regions other than China, and lowering overall demand in China, impacting our geographical mix. 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 costs, 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. 26 Our gross profit and gross margin were as follows (dollars in thousands): Three Months Ended June 29, 2024 July 1, 2023 $ Change % Change Gross profit $ 86,900 $ 60,283 $ 26,617 44.2 % Gross margin 44.0 % 38.7 % Six Months Ended June 29, 2024 July 1, 2023 $ Change % Change Gross profit $ 149,638 $ 121,361 $ 28,277 23.3 % Gross margin 40.9 % 37.5 % Our gross profit and gross margin by segment were as follows (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 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 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 % Probe Cards — For the three and six months ended June 29, 2024, gross profit and gross margins increased compared to the three and six months ended July 1, 2023, primarily due to greater revenues and a more favorable absorption of costs on higher production volumes. This was partially offset by an unfavorable product mix resulting from a higher concentration of sales of lower-margin DRAM products for the three and six months ended June 29, 2024 compared to the corresponding period in the prior year, up from 26.4% and 20.8% of Probe Card sales to 34.8% and 34.2% of Probe Card sales, and a lower concentration of higher-margin Foundry & Logic sales for the three and six months ended June 29, 2024 when compared to the corresponding period in the prior year, down from 71.1% and 75.6% of Probe Card sales to 62.1% and 62.7% of Probe Card sales. In general, our DRAM products have lower margins than our Foundry & Logic products. Systems — For the three and six months ended June 29, 2024, gross profit and gross margins decreased compared to the three and six months ended July 1, 2023, primarily as a result of lower revenues and a less favorable absorption of costs on lower production volumes, and a less favorable product mix. Corporate and Other — Corporate and Other includes unallocated expenses relating to stock-based compensation expense, amortization of intangible assets, inventory and fixed asset fair value adjustments due to acquisitions, and restructuring charges, net, which are not used in evaluating the results of, or in allocating resources to, our reportable segments. For the three and six months ended June 29, 2024, Corporate and Other gross profit increased compared to the three and six months ended July 1, 2023, primarily from the absence of amortization expense associated with our FRT Metrology business, which was sold during the fourth quarter of fiscal 2023. Overall — Gross profit and gross margins fluctuate with revenue levels, product mix, selling prices, factory loading, and material costs. For the three and six months ended June 29, 2024, compared to the three and six months ended July 1, 2023, gross profit and gross margins have increased primarily as a result of more favorable absorption of costs and lower inventory excess and obsolescence reserves, partially offset by an unfavorable product mix, as described above. 27 Cost of revenues included stock-based compensation expense as follows (in thousands): Three Months Ended Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Stock-based compensation $ 1,932 $ 1,515 $ 3,860 $ 3,425 Research and Development Three Months Ended June 29, 2024 July 1, 2023 $ Change % Change (Dollars in thousands) Research and development $ 31,564 $ 28,340 $ 3,224 11.4 % % of revenues 16.0 % 18.2 % Six Months Ended June 29, 2024 July 1, 2023 $ Change % Change (Dollars in thousands) Research and development $ 60,191 $ 56,585 $ 3,606 6.4 % % of revenues 16.4 % 17.5 % Research and development expenses in the three months ended June 29, 2024 increased compared to the corresponding period in the prior year primarily due to increased employee compensation costs from higher performance-based compensation, increased general operational costs and stock-based compensation expense. Research and development expenses in the six months ended June 29, 2024 increased compared to the corresponding period in the prior year primarily due to increased employee compensation costs from higher performance-based compensation, increased project material costs and general operational costs. A detail of the changes is as follows (in thousands): Three Months Ended June 29, 2024 compared to Three Months Ended July 1, 2023 Six Months Ended June 29, 2024 compared to Six Months Ended July 1, 2023 Employee compensation costs $ 2,938 $ 1,766 General operational costs 338 679 Stock-based compensation 251 492 Restructuring charges (221) (291) Depreciation (73) (182) Project material costs (9) 1,142 $ 3,224 $ 3,606 Research and development included stock-based compensation expense as follows (in thousands): Three Months Ended Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Stock-based compensation $ 2,614 $ 2,363 $ 5,227 $ 4,735 28 Selling, General and Administrative Three Months Ended June 29, 2024 July 1, 2023 $ Change % Change (Dollars in thousands) Selling, general and administrative $ 37,874 $ 33,255 $ 4,619 13.9 % % of revenues 19.2 % 21.3 % Six Months Ended June 29, 2024 July 1, 2023 $ Change % Change (Dollars in thousands) Selling, general and administrative $ 70,953 $ 65,997 $ 4,956 7.5 % % of revenues 19.4 % 20.4 % Selling, general and administrative expenses increased in the three months ended June 29, 2024 compared to the corresponding period in the prior year. The drivers of the increase for the three month period were increased employee compensation costs from higher performance-based compensation and increased commissions expense from increased revenues, partially offset by lower amortization expense from significant intangible assets becoming fully amortized. Selling, general and administrative expenses increased in the six months ended June 29, 2024 compared to the corresponding period in the prior year. The drivers of the increase for the six month period were increased employee compensation costs from higher performance-based compensation, increased consulting fees from transaction expenses related to the sale of our FRT Metrology business in the fourth quarter of fiscal 2023 and the China Transaction in the first quarter of fiscal 2024, increased stock-based compensation expense from an increase in weighted average fair value of awards outstanding, and increased recruiting costs, partially offset by lower amortization expense from significant intangible assets becoming fully amortized and lower restructuring charges. A detail of the changes is as follows (in thousands): Three Months Ended June 29, 2024 compared to Three Months Ended July 1, 2023 Six Months Ended June 29, 2024 compared to Six Months Ended July 1, 2023 Employee compensation costs $ 4,732 $ 4,431 Amortization of intangibles (1,360) (2,715) Commission expenses 782 736 Stock-based compensation 337 1,193 Recruiting costs 280 693 General operating expenses (200) 269 Consulting fees 48 1,239 Restructuring charges — (890) $ 4,619 $ 4,956 Selling, general and administrative included stock-based compensation expense as follows (in thousands): Three Months Ended Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Stock-based compensation $ 5,663 $ 5,326 $ 11,527 $ 10,334 Gain on sale of business Gain on sale of business of $0.3 million for the three months ended June 29, 2024 represents an adjustment to the gain recognized from the China Transaction. Gain on sale of business for the six months ended June 29, 2024 represents the gain recognized from the China Transaction of $20.3 million and an adjustment to the gain recognized from the sale of our FRT Metrology business of $0.3 million. See Note 4, Divestitures , for additional information. 29 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 six months ended June 29, 2024 compared with the corresponding period of the prior year, was attributable to an increase in weighted average yields due to the higher interest rate environment and on higher invested balances. 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 six months ended June 29, 2024 decreased compared to the corresponding period of the prior year due to lower outstanding debt. Other Income, Net Other income, net, primarily includes the effects of foreign currency 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 Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 (In thousands, except percentages) Provision (benefit) for income taxes $ 2,155 $ (208) $ 5,353 $ (160) Effective tax rate 10.0 % (33.5) % 11.5 % (8.0) % Provision (benefit) 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 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. The increase in our effective tax rate for the three and six months ended June 29, 2024 compared to the corresponding period in the prior year was primarily driven by higher taxable income during fiscal 2024. 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 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 increased to $481.6 million at June 29, 2024, compared to $442.7 million at December 30, 2023. 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 30 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 $357.6 million at June 29, 2024, compared to $328.3 million at December 30, 2023. 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. Cash Flows The following table sets forth our net cash flows from operating, investing and financing activities: Six Months Ended June 29, 2024 July 1, 2023 (In thousands) Net cash provided by operating activities $ 54,890 $ 34,781 Net cash used in investing activities $ (9,960) $ (48,464) Net cash provided by (used in) financing activities $ (19,426) $ 4,049 Operating Activities Net cash provided by operating activities consists of net income for the period adjusted for certain non-cash items and changes in certain operating assets and liabilities. Net cash provided by operating activities for the six months ended June 29, 2024 was attributable to net income of $41.2 million and net non-cash expenses of $15.5 million, partially offset by the increase in net working capital of $1.8 million. The cash used in net working capital is related to increased inventories of $14.5 million and increased accounts receivable, net, of $10.8 million, largely offset by increased accrued liabilities of $10.2 million, other liabilities of $7.3 million, and deferred revenue of $4.9 million. The non-cash expenses consisted of depreciation, amortization, stock-based compensation, and the provision for excess and obsolete inventories, partially offset by the $20.6 million gain on sale of business. Investing Activities Net cash used in investing activities for the six months ended June 29, 2024 primarily related to $21.8 million in property, plant and equipment purchases and $9.7 million in net purchases of marketable securities, partially offset by $21.6 million cash provided by the sale of businesses. Financing Activities Net cash used in financing activities for the six months ended June 29, 2024 primarily related to $20.3 million used to purchase common stock under our stock repurchase program, $3.6 million used to pay tax withholdings for net share settlements of employee stock awards, partially offset by $4.9 million received from issuances of common stock under our employee stock purchase plan. Debt 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 31 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 1.86% per annum. Interest payments are payable in monthly installments over a fifteen-year period. The interest rate at June 29, 2024, before consideration of the interest rate swap discussed in the next paragraph, was 7.19%. As of June 29, 2024, the balance outstanding pursuant to the Building Term Loan was $13.9 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. 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 June 29, 2024, the notional amount of the loan that is subject to this interest rate swap is $13.9 million. 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, also 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. Contractual Obligations and Commitments The following table summarizes our significant contractual commitments to make future payments in cash under contractual obligations as of June 29, 2024: Payments Due In Fiscal Year Remainder 2024 2025 2026 2027 2028 Thereafter Total Operating leases $ 4,515 $ 9,043 $ 7,638 $ 7,208 $ 3,892 $ 1,391 $ 33,687 Term loans - principal payments 544 1,111 1,142 1,175 1,208 8,732 13,912 Term loans - interest payments (1) 498 936 856 772 687 2,161 5,910 Total $ 5,557 $ 11,090 $ 9,636 $ 9,155 $ 5,787 $ 12,284 $ 53,509 (1) Represents our minimum interest payment commitments at 7.19% per annum, excluding the interest rate swap described in Debt , above. The table above excludes our gross liability for unrecognized tax benefits and our deferred grant. The gross liability for unrecognized tax benefits was $50.3 million as of June 29, 2024. The timing of any payments which could result from these unrecognized tax benefits will depend upon a number of factors and, accordingly, the timing of payment cannot be estimated. The deferred grant was $18.0 million as of June 29, 2024, and consists of cash received from a California Competes Grant awarded from the California Governor's Office of Business and Economic Development. The timing of any potential repayments is dependent upon a number of factors, including the number of employees and capital investments within California. Accordingly, the timing of any repayment cannot be estimated. 32 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 June 29, 2024, 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.