What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-05 compared with 2024-08-07 · 157 added, 111 removed, 209 unchanged (56% of the section changed)

15 unchanged sentences

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.

Our products provide electrical and optical 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.

1 unchanged sentence

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.

We generated net income of $59.9 million in the first nine months of fiscal 2024 as compared to $6.5 million in the first nine months of fiscal 2023.

Beginning in the second quarter of fiscal 2024, certain areas of the semiconductor industry strengthened, 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, 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 nine months of fiscal 2024, our Systems segment revenues were negatively impacted due to the absence of metrology system sales during the first nine 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 partially attributable to the $20.3 million gain recognized from the completion of the sale of our China operations and establishment of an exclusive distribution and partnership agreement to continue sales and support of our products in the region (the “China Transaction”).

Critical Accounting Estimates

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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.

During the nine months ended September 28, 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.

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

2023 June 29,

Three Months Ended Nine Months Ended

September 28,

2024 September 30,

2023 September 28,

2024 September 30,

Revenues 100.0 % 100.0 % 100.0 % 100.0 %

6 unchanged sentences

Gain on sale of business — — 3.6 —

Operating income (loss) 9.0 (0.8) 10.7 (0.4)

Operating income 8.6 1.6 9.9 0.3

Interest income, net 1.8 0.9 1.8 0.9

Other income, net 0.2 0.3 0.2 0.1

Other income (expense), net (0.3) 0.5 0.1 0.2

Income before income taxes 10.1 3.0 11.8 1.4

Provision (benefit) for income taxes 1.1 (0.1) 1.5 (0.1)

Provision for income taxes 1.1 0.5 1.4 0.1

Net income 9.0 % 2.5 % 10.4 % 1.3 %

Revenues by Segment and Market

Three Months Ended Six Months Ended

2023 June 29,

Three Months Ended Nine Months Ended

September 28,

2024 September 30,

2023 September 28,

2024 September 30,

(In thousands)

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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.

We generated no metrology systems revenue during the three and nine months ended September 28, 2024, compared to $8.0 million and $16.7 million, during the three and nine months ended September 30, 2023, respectively.

Three Months Ended

2024 % of Revenues July 1,

September 28,

2024 % of Revenues September 30,

2023 % of Revenues $ Change % Change

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Total revenues $ 207,917 100.0 % $ 171,575 100.0 % $ 36,342 21.2 %

Six Months Ended

2024 % of Revenues July 1,

Nine Months Ended

September 28,

2024 % of Revenues September 30,

2023 % of Revenues $ Change % Change

9 unchanged sentences

As a result, metrology systems revenue will not recur in future periods.

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.

Foundry & Logic — The increase in Foundry & Logic product revenue for the three and nine months ended September 28, 2024, compared to the three and nine months ended September 30, 2023, was driven by the 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 nine months ended September 28, 2024, compared to the three and nine months ended September 30, 2023, was driven by increased demand for HBM designs utilized in generative artificial intelligence applications and increased demand for commodity DRAM designs, particularly DDR5.

Flash — The increase in Flash product revenue for the three and nine months ended September 28, 2024, compared to the three and nine months ended September 30, 2023, was driven by increased customer production activity and demand for our products.

Systems — The decrease in Systems market revenue for the three and nine months ended September 28, 2024, compared to the three and nine months ended September 30, 2023, was primarily driven by the absence of metrology systems revenue due to the sale of our FRT Metrology business during the fourth quarter of fiscal 2023.

The fluctuation in Systems revenue from sources not associated with metrology systems for the three and nine months ended September 28, 2024, compared to the three and nine

months ended September 30, 2023, was an increase of $0.6 million, or 1.6%, and a decrease of $8.8 million, or 8.2%, respectively.

The increase for the three months ended September 28, 2024, compared to the three months ended September 30, 2023, was from increased sales of cryogenic systems, partially offset by decreased sales of thermal systems.

The decrease for the nine months ended September 28, 2024, compared to the nine months ended September 30, 2023, was from decreased sales of stations and thermal systems, partially offset by an increase in sales of cryogenic stations.

Revenues by Geographic Region

Three Months Ended Six Months Ended

2024 % of Revenues July 1,

2023 % of Revenues June 29,

Revenue July 1,

Three Months Ended Nine Months Ended

September 28,

2024 % of Revenues September 30,

2023 % of Revenues September 28,

Revenue September 30,

(Dollars in thousands)

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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.

Changes in revenue by geographic region for the three and nine months ended September 28, 2024, compared to the three and nine months ended September 30, 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.

• The increase in revenue for South Korea for the three and nine months ended September 28, 2024, compared to the three and nine months ended September 30, 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 the decrease in revenues for Malaysia, for the three and nine months ended September 28, 2024, compared to the three and nine months ended September 30, 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 overall increase in revenues for China for the three and nine months ended September 28, 2024, compared to the three and nine months ended September 30, 2023, was driven by increased demand from a large Chinese DRAM integrated device manufacturer.

• Despite the increase in revenues for China previously described, 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.

semiconductor technology to China has negatively impacted revenue for that region.

These requirements have restricted our ability to ship products to the region, decreasing demand from domestic China customers.

Additionally, these requirements have caused, and continue to drive, some of our multinational customers to concentrate operations in regions other than China, lowering overall demand for those customers within the region.

Cost of Revenues and Gross Margins

6 unchanged sentences

Three Months Ended

September 28,

2024 September 30,

2023 $ Change % Change

1 unchanged sentence

Gross margin 40.7 % 40.4 %

Six Months Ended

Nine Months Ended

September 28,

2024 September 30,

2023 $ Change % Change

3 unchanged sentences

Three Months Ended

June 29, 2024 July 1, 2023

September 28, 2024 September 30, 2023

Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total

1 unchanged sentence

Gross margin 42.3 % 41.5 % 40.7 % 38.5 % 51.8 % 40.4 %

Six Months Ended

June 29, 2024 July 1, 2023

Nine Months Ended

September 28, 2024 September 30, 2023

Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total

1 unchanged sentence

Gross margin 41.8 % 44.2 % 40.8 % 36.4 % 51.8 % 38.5 %

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.

Probe Cards — For the three and nine months ended September 28, 2024, gross profit and gross margins increased compared to the three and nine months ended September 30, 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 with a higher concentration of lower-margin DRAM sales and a lower concentration of higher-margin Foundry & Logic sales.

For the three and nine months ended September 28, 2024 compared to the corresponding period in the prior year, DRAM revenue was up from 21.4% and 21.0% of Probe Card sales to 35.0% and 34.5% of Probe Card sales, and Foundry & Logic revenue was down from 75.1% and 75.4% of Probe Card sales to 62.4% and 62.6% 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.

Systems — For the three and nine months ended September 28, 2024, gross profit and gross margins decreased compared to the three and nine months ended September 30, 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, in part related to the divestiture of the FRT Metrology business.

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.

For the three months ended September 28, 2024, the Corporate and Other gross loss increased compared to the three months ended September 30, 2023, primarily from the an increase in stock-based compensation expense and restructuring charges that were partially offset due to the absence of amortization expense associated with our FRT Metrology business, which was sold during the fourth quarter of fiscal 2023.

For the nine months ended September 28, 2024, the Corporate and Other gross loss decreased compared to the nine months ended September 30, 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.

For the three and nine months ended September 28, 2024, compared to the three and nine months ended September 30, 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.

Cost of revenues included stock-based compensation expense as follows (in thousands):

Three Months Ended Six Months Ended

2023 June 29,

Three Months Ended Nine Months Ended

September 28,

2024 September 30,

2023 September 28,

2024 September 30,

Stock-based compensation $ 1,934 $ 1,376 $ 5,794 $ 4,801

1 unchanged sentence

Three Months Ended

September 28,

2024 September 30,

2023 $ Change % Change

2 unchanged sentences

% of revenues 15.0 % 18.1 %

Six Months Ended

Nine Months Ended

September 28,

2024 September 30,

2023 $ Change % Change

2 unchanged sentences

% of revenues 15.9 % 17.7 %

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.

Research and development expenses in the three months ended September 28, 2024 increased compared to the corresponding period in the prior year primarily due to increased employee compensation costs from higher performance-based compensation and increased general operational costs, partially offset by lower compensation costs from decreased headcount as a result of 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, lower project material costs, and lower stock-based compensation expense.

Research and development expenses in the nine months ended September 28, 2024 increased compared to the corresponding period in the prior year primarily due to increased employee compensation costs from higher performance-based compensation, general operational costs, and increased project material costs, partially offset by lower compensation costs from decreased headcount as a result of 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.

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

Three Months Ended September 28, 2024 compared to Three Months Ended September 30, 2023 Nine Months Ended September 28, 2024 compared to Nine Months Ended September 30, 2023

Employee compensation costs $ 1,082 $ 2,713

Project material costs (853) 281

General operational costs 576 1,107

Stock-based compensation 251 492

Restructuring charges (221) (291)

Stock-based compensation expense (494) (2)

Depreciation (82) (264)

Project material costs (9) 1,142

$ 229 $ 3,835

Research and development included stock-based compensation expense as follows (in thousands):

Three Months Ended Six Months Ended

2023 June 29,

Stock-based compensation $ 2,614 $ 2,363 $ 5,227 $ 4,735

Three Months Ended Nine Months Ended

September 28,

2024 September 30,

2023 September 28,

2024 September 30,

Stock-based compensation expense

$ 2,679 $ 3,173 $ 7,906 $ 7,908

Selling, General and Administrative

Three Months Ended

September 28,

2024 September 30,

2023 $ Change % Change

2 unchanged sentences

% of revenues 17.1 % 20.7 %

Six Months Ended

Nine Months Ended

September 28,

2024 September 30,

2023 $ Change % Change

2 unchanged sentences

% of revenues 18.6 % 20.5 %

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.

Selling, general and administrative expenses for the three months ended September 28, 2024 compared to the corresponding period in the prior year was effectively flat.

The drivers of the fluctuation for the three month period were increased employee compensation costs from higher performance-based compensation and increased commissions expense from increased revenues, mostly offset by lower stock-based compensation expenses, lower transaction expenses related to the sale of our FRT Metrology business earlier in 2024, and lower general operating expenses.

Selling, general and administrative expenses increased in the nine months ended September 28, 2024 compared to the corresponding period in the prior year.

The drivers of the increase for the nine month period were increased employee compensation costs from higher performance-based compensation, increased commissions expense from increased revenues, increased consulting fees from the China Transaction in the first quarter of fiscal 2024 and increased general operating expenses, partially offset by lower amortization expense from significant intangible assets becoming fully amortized.

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

Three Months Ended September 28, 2024 compared to Three Months Ended September 30, 2023 Nine Months Ended September 28, 2024 compared to Nine Months Ended September 30, 2023

Employee compensation costs $ 2,884 $ 6,546

Amortization of intangibles (1,360) (2,715)

Stock-based compensation expense (1,967) (774)

Consulting fees (890) 347

Commission expenses 714 1,450

Stock-based compensation 337 1,193

Recruiting costs 280 693

Amortization of intangibles (249) (2,964)

General operating expenses (449) 394

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

2023 June 29,

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.

Three Months Ended Nine Months Ended

September 28,

2024 September 30,

2023 September 28,

2024 September 30,

Stock-based compensation expense

$ 4,323 $ 6,290 $ 15,850 $ 16,624

Interest Income (Expense), Net

Three Months Ended Nine Months Ended

September 28,

2024 September 30,

2023 September 28,

2024 September 30,

(Dollars in thousands)

Interest Income $ 3,770 $ 1,765 $ 10,542 $ 4,739

Weighted average balance of cash and investments $ 363,178 $ 233,001 $ 349,157 $ 232,710

Weighted average yield on cash and investments 4.68 % 3.79 % 4.59 % 3.33 %

Interest Expense $ 120 $ 103 $ 321 $ 319

Average debt outstanding $ 13,651 $ 14,718 $ 13,920 $ 14,980

Weighted average interest rate on debt 2.75 % 2.75 % 2.75 % 2.75 %

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.

The increase in interest income for the three and nine months ended September 28, 2024 compared with the corresponding period of the prior year, was attributable to 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.

The interest expense for the three and nine months ended September 28, 2024 was effectively flat compared to the corresponding periods in the prior year.

This stability is due to our interest rate swap, which fixes the interest rate on our long-term debt.

Other Income, Net

2 unchanged sentences

Provision for Income Taxes

Three Months Ended Six Months Ended

2023 June 29,

Three Months Ended Nine Months Ended

September 28,

2024 September 30,

2023 September 28,

2024 September 30,

(In thousands, except percentages)

Provision (benefit) for income taxes $ 2,155 $ (208) $ 5,353 $ (160)

Provision for income taxes $ 2,211 $ 786 $ 7,564 $ 626

Effective tax rate 10.6 % 15.2 % 11.2 % 8.7 %

Provision (benefit) for income taxes reflects the tax provision on our operations in foreign and U.S.

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 deduction.

1 unchanged sentence

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 decrease in our effective tax rate for the three months ended September 28, 2024 compared to the corresponding period in the prior year was primarily driven by stock-based compensation expense/benefit impacts on the provision for income tax expense.

The increase in our effective tax rate for the nine months ended September 28, 2024 compared to the corresponding period in the prior year was primarily driven by higher taxable U.S.

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.

At least a portion of our future capital expenditures and research and development costs is expected to 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.

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.

3 unchanged sentences

Capital Resources

Our working capital increased to $481.6 million at June 29, 2024, compared to $442.7 million at December 30, 2023.

Our working capital increased to $485.6 million at September 28, 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

securities with low probabilities of default.

treasuries, U.S.

agency securities, and commercial paper.

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 $357.6 million at June 29, 2024, compared to $328.3 million at December 30, 2023.

Our cash, cash equivalents and marketable securities totaled approximately $354.5 million at September 28, 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:

9 unchanged sentences

The following table sets forth our net cash flows from operating, investing and financing activities:

Six Months Ended

Nine Months Ended

September 28,

2024 September 30,

(In thousands)

1 unchanged sentence

Net cash used in investing activities $ (26,152) $ (49,994)

Net cash provided by (used in) financing activities $ (19,426) $ 4,049

Net cash used in financing activities $ (46,256) $ (1,308)

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.

Net cash provided by operating activities for the nine months ended September 28, 2024 was attributable to net income of $59.9 million and net non-cash expenses of $32.0 million, partially offset by the increase in net working capital of $10.3 million.

The cash used in net working capital is related to increased accounts receivable, net, of $13.3 million, increased inventories of $7.6 million, decreased accounts payable of $8.8 million, and decreased operating lease liabilities of $5.3 million, largely offset by increased accrued liabilities of $7.4 million, other liabilities of $9.3 million, and deferred revenue of $7.9 million.

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.

Net cash used in investing activities for the nine months ended September 28, 2024 primarily related to $30.8 million in property, plant and equipment purchases and $15.5 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.

Net cash used in financing activities for the nine months ended September 28, 2024 primarily related to $37.2 million used to purchase common stock under our stock repurchase program, $18.0 million used to pay tax withholdings for net share settlements of employee stock awards, partially offset by $9.7 million received from issuances of common stock under our employee stock purchase plan.

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.

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 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.

The interest rate at September 28, 2024, before consideration of the interest rate swap discussed in the next paragraph, was 7.07%.

As of September 28, 2024, the balance outstanding pursuant to the Building Term Loan was $13.6 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.

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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.

As of September 28, 2024, the notional amount of the loan that is subject to this interest rate swap is $13.6 million.

Stock Repurchase Programs

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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.

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.

During the nine months ended September 28, 2024, we repurchased and retired 889,683 shares of common stock for $37.2 million, and as of September 28, 2024, $36.6 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:

The following table summarizes our significant contractual commitments to make future payments in cash under contractual obligations as of September 28, 2024:

Payments Due In Fiscal Year

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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 gross liability for unrecognized tax benefits was $50.3 million as of September 28, 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.

The deferred grant was $18.0 million as of September 28, 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 over the 5-year term.

Accordingly, the timing of any repayment cannot be estimated.

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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.

As of September 28, 2024, we were not involved in any such off-balance sheet arrangements.

Recent Accounting Standards

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis