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Item 7. Management’s Discussion and Analysis

2025-02-21 compared with 2024-02-23 · 98 added, 91 removed, 262 unchanged (42% of the section changed)

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Risk Factors” and elsewhere in this Annual Report on Form 10-K.

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, metrology systems, 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.

FormFactor, Inc., headquartered in Livermore, California, is a leading provider of electrical and optical 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 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, reducing scrap, and improving yields.

We operate in two reportable segments consisting of the Probe Cards segment and the Systems segment.

Sales of our probe cards and analytical probes are included in the Probe Cards segment, while sales of our probe stations, metrology systems, thermal systems and cryogenic systems are included in the Systems segment.

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.

Our fiscal 2024 financial results reflected our strengthening momentum driven by increasing demand for high bandwidth memory (“HBM”) chips utilized in generative artificial intelligence applications.

On February 26, 2024, we completed the sale of our China operations, resulting in net consideration received of $21.4 million and a pre-tax gain of $20.3 million.

With this transaction, we established an exclusive distribution and partnership agreement to continue sales and support of our products in the region (the “China Transaction”).

We generated net income of $69.6 million in fiscal 2024 compared to net income of $82.4 million in fiscal 2023 and net income of $50.7 million in fiscal 2022.

On November 1, 2023, we completed the sale of our FRT Metrology (“FRT”) business.

As a result of the transaction, we received aggregate net consideration of $99.8 million and the transaction resulted in a gain of $73.0 million.

The increase in net income in fiscal 2023 compared to fiscal 2022 was primarily due to the $73.0 million gain recognized from the sale of our FRT business.

Apart from this gain, the semiconductor industry weakness that began in the third quarter of fiscal 2022 continued into fiscal 2023, impacting our Probe Cards segment with a $93.5 million reduction in revenue and the associated decline in gross margins as a result of the lower operating levels.

Despite the overall semiconductor industry weakness that impacted the Probe Cards segment, the Systems segment continued to show strength with revenue increasing $8.7 million, or about 5.6% in fiscal 2022, since customer spending for products in this segment is driven by research and development of next-generation innovation.

The decrease in net income in fiscal 2022 compared to fiscal 2021 was primarily due to decreased revenues, lower margins driven primarily by a less favorable product mix and lower factory utilization, and increased restructuring charges.

This was partially offset by a reduction in the amortization of intangibles and in the annual effective tax rate.

The first half of fiscal 2022 was strong, producing net income of $60.1 million with $401.1 million in revenue at 47.0% gross margins.

In the second half of fiscal 2022, revenues declined, mainly within the Probe Cards segment, and mix became less favorable, resulting in a net loss of $9.4 million with $346.9 million in revenue at 31.0% gross margins.

Despite the decline in total revenues in the second half of fiscal 2022, the Systems segment recognized record revenue levels in the third and fourth quarters of fiscal 2022.

The decrease in net income in fiscal 2024 compared to fiscal 2023 was primarily due to a reduced gain on sale of business with the fiscal 2024 gain from the China Transaction being less than the fiscal 2023 gain from the sale of our FRT business further described below.

Excluding the impact of gains in each period, our financial performance was driven by the strengthening of certain areas of the semiconductor industry, which increased demand in some markets within our Probe Cards segment, particularly with demand for HBM chips utilized in generative artificial intelligence applications and the ramp of new mobile application processor designs.

While we experienced growth in total revenues year over year, the Systems segment was negatively impacted due to the absence of metrology system sales as a result of the sale of our FRT Metrology business in the fourth quarter of fiscal 2023.

The increase in net income in fiscal 2023 compared to fiscal 2022 was primarily due to a gain recognized from the sale of our FRT business of $73.0 million.

Systems segment showed strength in fiscal 2023 with revenue increasing $8.7 million, or about 5.6%, compared to fiscal 2022, driven by our customers' spending on research and development of next-generation innovation.

Recent Development

On February 7, 2024, we signed an agreement with Grand Junction Semiconductor Pte.

to divest our China operations and establish an exclusive distribution and partnership agreement to continue sales and support of our products in the region (the “China Transaction”).

The China Transaction is expected to close in the first half of 2024.

In February 2025, we, together with MBK Partners, a private equity firm, acquired FICT Limited (“FICT”) from Advantage Partners Inc.

In connection with the acquisition, we obtained a 20% equity interest in FICT, in exchange for funding $59.6 million of the purchase price.

Headquartered in Nagano, Japan, FICT is a provider of semiconductor test and high-performance computing industries with complex multi-layer organic substrates, printed circuit boards, and related leading-edge technologies and services.

Under the equity method, upon closing this investment, the investment will be included as a separate item in our Consolidated Balance Sheets and we will record our proportionate share of FICT’s net income or loss as a separate item in our Consolidated Statements of Operations.

We operate on a 52/53 week fiscal year, whereby the fiscal year ends on the last Saturday of December.

The fiscal years ended December 30, 2023, December 31, 2022 and December 25, 2021 included 52 weeks, 53 weeks (with 14 weeks in the fourth quarter) and 52 weeks, respectively.

The fiscal years ended December 28, 2024, December 30, 2023 and December 31, 2022 included 52 weeks, 52 weeks, and 53 weeks (with 14 weeks in the fourth quarter), respectively.

Use of Estimates

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Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles (“GAAP”).

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”).

The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses in the reporting period.

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Installation services are a distinct performance obligation apart from the systems and are recognized in the period they are performed.

Service contracts, which include repair and maintenance service contracts, and extended warranty contracts are also distinct performance obligations and are recognized over the contractual service period, which ranges from one to three years .

Service contracts, which include repair

and maintenance service contracts, and extended warranty contracts are also distinct performance obligations and are recognized over the contractual service period, which ranges from one to three years.

For these service contracts recognized over time, we use the input measure of days elapsed to measure progress.

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We generally do not grant return privileges, except for defective products during the warranty period.

Sales incentives and other programs that we may make available to

our customers are considered to be a form of variable consideration, which is estimated in determining the contract’s transaction price to be allocated to the performance obligations.

Sales incentives and other programs that we may make available to our customers are considered to be a form of variable consideration, which is estimated in determining the contract’s transaction price to be allocated to the performance obligations.

For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation based on its relative stand-alone selling price.

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(1) During the fourth quarter of fiscal 2023, we completed the sale of our FRT business.

As a result, Metrology Systems revenue will not recur in future periods.

The year ended December 30, 2023 includes Metrology Systems revenue of $21.2 million.

The years ended December 31, 2022 and December 25, 2021 include Metrology Systems revenue of $29.0 million and $23.7 million, respectively.

As a result, we generated no metrology systems revenue during fiscal 2024, compared to $21.2 million and $29.0 million, during fiscal 2023 and fiscal 2022, respectively.

Revenues by Market

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Systems Market:

Systems 156,515 21.0 136,393 17.7 20,122 14.8

165,199 24.9 156,515 21.0 8,684 5.5

Total revenues $ 663,102 100.0 % $ 747,937 100.0 % $ (84,835) (11.3) %

(1) During the fourth quarter of fiscal 2023, we completed the sale of our FRT business.

As a result, Metrology Systems revenue will not recur in future periods.

The year ended December 30, 2023 includes Metrology Systems revenue of $21.2 million.

The years ended December 31, 2022 and December 25, 2021 include Metrology Systems revenue of $29.0 million million and $23.7 million, respectively.

Foundry & Logic — The decrease in Foundry & Logic product revenue in fiscal 2023 compared to fiscal 2022 was driven by the weakening demand in the semiconductor industry, especially in the personal computer and mobile sectors, that began in the third quarter of fiscal 2022 and continued into fiscal 2023, resulting in decreased unit sales across several of our major customers for both us and our competitors.

DRAM — The decrease in DRAM product revenues in fiscal 2023 compared to fiscal 2022 was driven by lower customer production activity and demand for our products in light of worldwide excess supply of DRAM chips, along with weaker demand in the overall semiconductor industry, as discussed above.

These declines were partially offset due to increased demand for HBM chips utilized in generative artificial intelligence applications.

Flash — The decrease in Flash product revenue in fiscal 2023 compared to fiscal 2022 was driven by lower customer production activity and demand for our products in light of worldwide excess supply, a result of weaker demand in the overall semiconductor industry, as discussed above, and Flash market weakness.

Systems — The increase in Systems product revenue in fiscal 2023 compared to fiscal 2022 was driven by increased sales of probe stations and thermal systems, partially offset by decreased sales of our metrology systems.

As a result, we generated no metrology systems revenue during fiscal 2024, compared to $21.2 million and $29.0 million, during fiscal 2023 and fiscal 2022, respectively.

Foundry & Logic — The increase in Foundry & Logic product revenue in fiscal 2024 compared to fiscal 2023 was driven by the ramp of new mobile application processor designs.

DRAM — The increase in DRAM product revenues in fiscal 2024 compared to fiscal 2023 was driven by increased demand for HBM designs utilized in generative artificial intelligence applications as well as increased demand for other non-HBM DRAM designs, particularly DDR5.

Flash — The decrease in Flash product revenue in fiscal 2024 compared to fiscal 2023 was driven by lower customer production activity and demand for our products.

Systems — The decrease in Systems product revenue in fiscal 2024 compared to fiscal 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.

Excluding the impact of the sale of our FRT Metrology business, Systems revenue decreased by $6.3 million, or 4.4%, primarily due to a decline in sales of thermal systems and probe stations.

Revenues by Geographic Region

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(In thousands, except percentages)

South Korea $ 184,528 24.2 % $ 117,747 17.8 % $ 111,419 14.9 %

United States 183,716 24.1 171,781 25.9 127,730 17.1

Taiwan 173,515 22.7 147,842 22.3 169,789 22.7

South Korea 117,747 17.8 111,419 14.9 123,463 16.0

China 102,982 13.5 91,736 13.8 160,668 21.5

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Japan 33,946 4.4 36,791 5.5 38,419 5.1

Malaysia 26,601 4.0 50,067 6.7 49,485 6.4

Singapore 20,186 2.6 18,335 2.8 39,388 5.3

Malaysia 18,240 2.4 26,601 4.0 50,067 6.7

Rest of World 11,683 1.5 13,411 2.0 11,211 1.5

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For example, if a certain South Korean customer purchases through their 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 U.S.

Changes in revenue by geographic region in fiscal 2023 compared to fiscal 2022 were primarily attributable to changes in customer demand, shifts in customer regional manufacturing strategies, particularly with our large multinational customers, and product sales mix.

More specifically, the increase in revenues for the United States, and decreases in revenues for China and Malaysia, were driven principally by a single large U.S.-based company with operations in these regions that shifted shipments from these regions to the United States.

We expect the trade restrictions to continue to drive multinational customers to concentrate operations in regions other than China, impacting our geographical mix.

The decrease in revenues for China was also impacted by lowered demand from a large Chinese DRAM integrated device manufacturer and the impact of expanded export license requirements imposed by the U.S.

government beginning the fourth quarter of fiscal 2022 for exporting advanced U.S.

semiconductor technology to China.

These uncertain trade barriers affecting exports and imports between the United States and China contributed to the Company's decision to proceed with the China Transaction.

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 United States.

Changes in revenue by geographic region in fiscal 2024 compared to fiscal 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:

• Increased demand for our DRAM probe card products, including those for HBM, contributed to the increase in revenue for South Korea in fiscal 2024 compared to fiscal 2023.

• A single large U.S.-based company shifted shipments from Malaysia and China to the United States that contributed to the fluctuations in revenue for those regions in fiscal 2024 compared to fiscal 2023.

• Increased demand from a large Chinese DRAM integrated device manufacturer contributed to the increase in revenue for China in fiscal 2024 compared to fiscal 2023.

• Expanded export license requirements for the export of advanced U.S.

semiconductor technology to China that was imposed by the U.S.

government beginning the fourth quarter of fiscal 2022 have caused volatility in the Chinese region over the last two fiscal years, negatively impacting our revenue compared to fiscal 2022.

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.

We anticipate a further reduction in demand in fiscal 2025 due to additional tightening of export controls, which will limit our ability to ship advanced probe cards in the region.

Cost of Revenues and Gross Margins

Cost of revenues consists primarily of manufacturing materials, compensation and benefits, shipping and handling costs, manufacturing-related overhead (including equipment costs, related occupancy, and computer services), warranty adjustments, inventory adjustments (including write-downs for inventory obsolescence), and amortization of certain intangible assets.

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 cost, 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.

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Gross margin 39.8 % 51.7 % 39.6 %

Probe Cards — Gross profit and gross margin in the Probe Cards segment decreased in fiscal 2023 compared to fiscal 2022, primarily due to lower revenues and unfavorable absorption of costs on these lower production volumes, partially offset by lower inventory excess and obsolescence reserves.

Systems — Gross profit and gross margin in the Systems segment remained relatively flat in fiscal 2023 compared to fiscal 2022, despite the increase in revenue primarily as a result of less favorable product mix.

Corporate and Other — Corporate and Other includes unallocated expenses relating to amortization of intangible assets, inventory, fixed asset, and deferred revenue fair value adjustments due to acquisitions, stock-based compensation, and restructuring charges, net, which are not used in evaluating the results of, or in allocating resources to, our reportable segments.

The reduction in Corporate and Other in fiscal 2023, compared to fiscal 2022, is primarily due to a reduction in restructuring charges, partially offset by the increase in stock-based compensation expense.

In fiscal 2022, there was $11.8 million in restructuring charges arising from a change in estimate of excess and obsolete inventories and a headcount reduction targeted at aligning our cost structure with reduced demand levels within the Probe Cards segment.

Probe Cards — Gross profit and gross margin in the Probe Cards segment increased in fiscal 2024 compared to fiscal 2023, primarily due to greater revenues and more favorable absorption of costs on higher production volumes.

These increases were partially offset by an unfavorable product mix with a higher concentration of lower-margin DRAM product sales and a lower concentration of higher-margin Foundry & Logic product sales.

For fiscal 2024 compared to fiscal 2023, DRAM revenue was up from 22.9% of Probe Card sales to 36.3% of Probe Card sales, and Foundry & Logic revenue was down from 73.0% of Probe Card sales to 60.9% of Probe Card sales.

In general, our DRAM products have lower margins than our Foundry & Logic products.

Systems — Gross profit and gross margin in the Systems segment decreased fiscal 2024 compared to fiscal 2023, primarily as a result of lower revenues, 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, which was completed during the fourth quarter of fiscal 2023.

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.

The Corporate and Other gross loss decreased in fiscal 2024 compared to fiscal 2023, primarily due to 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 margin fluctuate with revenue levels, product mix, selling prices, factory loading and material costs.

For fiscal 2023 compared to fiscal 2022, gross profit and gross margins have decreased on lower revenue levels and unfavorable absorption of costs on lower production volumes, partially offset by a reduction of restructuring charges.

For fiscal 2024 compared to fiscal 2023, gross profit and gross margins have increased primarily as a result of more favorable absorption of costs on higher revenues, partially offset by an unfavorable product mix, as described above.

Stock-based compensation expense included in cost of revenues for fiscal 2024 and 2023 was $7.7 million and $6.9 million, respectively.

The increase of stock-based compensation in fiscal 2023 compared to fiscal 2022 was driven by an increase in weighted average fair value of awards outstanding and the timing of awards.

The increase of stock-based compensation in fiscal 2024 compared to fiscal 2023 was driven by an increase in weighted average fair value of awards outstanding.

Research and Development

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% of revenues 17.5 % 14.6 %

The increase in research and development expense in fiscal 2023 compared to fiscal 2022 was primarily driven by an increase in headcount designed to support our continued investment in technology leadership.

Increased stock-based compensation, depreciation, and general operational costs, also contributed to the increase.

These increases were partially offset by lower performance-based compensation and restructuring charges.

The increase in research and development expense in fiscal 2024 compared to fiscal 2023 was primarily driven by an increase in employee compensation costs from higher performance-based compensation and general operational costs.

The components of this increase were as follows (in thousands):

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Employee compensation costs $ 3,956

Stock-based compensation 2,435

Depreciation 892

General operational costs 2,169

Restructuring charges (1,207)

Stock-based compensation expense included within research and development in fiscal 2023 and 2022 was $10.7 million and $8.2 million, respectively.

The increase of stock-based compensation expense in fiscal 2023 compared to fiscal 2022 was driven by an increase in weighted average fair value of awards outstanding and the timing of awards.

Depreciation (380)

Project material costs 359

Stock-based compensation expense 69

Stock-based compensation expense included within research and development in fiscal 2024 and 2023 was relatively flat at $10.7 million in both periods.

Selling, General and Administrative

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% of revenues 20.1 % 17.6 %

The increase in selling, general and administrative expense in fiscal 2023 compared to fiscal 2022 was primarily driven by increased general operating expenses, increased costs from the sale of our FRT business, higher stock-based compensation expense, and higher consulting costs, partially offset by lower employee compensation from decreased headcount and lower performance-based compensation, lower amortization of intangibles, and lower restructuring charges.

The increase in selling, general and administrative expense in fiscal 2024 compared to fiscal 2023 was primarily driven by increased employee compensation from higher performance-based compensation and increased commissions expense from increased revenues, partially offset by lower amortization of intangibles.

The components of this overall increase were as follows (in thousands):

Fiscal 2024 compared to Fiscal 2023

General operating expenses $ 2,428

Sale of business 2,407

Stock-based compensation 1,797

Consulting fees 1,339

Restructuring charges (1,274)

Employee compensation costs $ 8,303

Amortization of intangibles (3,005)

Employee compensation (3,164)

Commission expenses 2,431

Consulting fees 753

Stock-based compensation expense 194

General operating expenses 98

Stock-based compensation expense included within selling, general and administrative in fiscal 2024 and 2023 was $21.3 million and $21.1 million, respectively.

The increase of stock-based compensation in fiscal 2023 compared to fiscal 2022 was driven by an increase in weighted average fair value of awards outstanding and the timing of awards.

Gain on sale of business

Gain on sale of business represents the gain on the sale of our FRT business of $73.0 million during the fourth quarter of fiscal 2023.

See Note 5, Divestiture , for additional information.

Gain on sale of business represents the gain on the sale of our China operations for $20.3 million during fiscal 2024 and the gain on the sale of our FRT business for $73.3 million, of which $73.0 million was recognized during fiscal 2023 and $0.3 million was recognized during fiscal 2024.

See Note 5, Divestitures , for additional information.

Interest Income and Interest Expense

Fiscal Year Ended

2024 December 30,

(Dollars in thousands)

Interest Income $ 14,111 $ 7,217

Weighted average balance of cash and investments $ 353,191 $ 248,728

Weighted average yield on cash and investments 4.56 % 3.44 %

Interest Expense $ 418 $ 421

Average debt outstanding $ 13,785 $ 14,848

Weighted average interest rate on debt 2.75 % 2.75 %

Interest income is earned on our cash, cash equivalents, restricted cash and marketable securities.

The increase in interest income in fiscal 2023 compared to fiscal 2022 was attributable to an increase in investment yields due to the higher interest rate environment as well as an increased average invested balance.

The increase in interest income in fiscal 2024 compared to fiscal 2023 was attributable to higher invested balances and higher weighted average yield on cash and investments.

Interest expense primarily includes interest on our term loan, interest rate swap derivative contract, and term loan issuance costs amortization charges.

The decrease in interest expense in fiscal 2023 compared to fiscal 2022 was primarily due to lower outstanding debt balances.

The interest expense for fiscal 2024 compared to fiscal 2023 was relatively flat.

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

Other income (expense), net

Other income (expense), net, includes the effects of foreign currency and various other gains and losses.

The decrease in Other income (expense), net, in fiscal 2023 compared to fiscal 2022 was primarily attributable to an other than temporary impairment on a debt receivable for $1.1 million and a decrease in foreign exchange gains.

Foreign exchange gains for fiscal 2023 were $0.6 million.

The increase in Other income (expense), net, in fiscal 2024 compared to fiscal 2023 was primarily attributable to an other than temporary impairment on a debt receivable for $1.1 million in fiscal 2023 that did not recur in fiscal 2024 and an increase in foreign exchange gains.

Foreign exchange gains for fiscal 2024 and fiscal 2023 were $1.0 million and $0.6 million, respectively.

Provision for income taxes

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

jurisdictions, offset by tax benefits from tax credits and the foreign-derived intangible income (“FDII”) deduction.

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 decrease in our effective tax rate for the fiscal year ended December 30, 2023, when compared to the corresponding period in the prior year, was primarily driven by the sale of our FRT business and the related capital gain exclusion for German tax purposes.

This significant benefit was offset by other items impacting the effective tax rate at a different percentage amount than the prior year due to increased income before taxes in fiscal 2023.

The increase in our effective tax rate for fiscal 2024, when compared to the corresponding period in the prior year, was primarily driven by the sale of our FRT business and the related capital gain exclusion for German tax purposes that impacted fiscal year ended December 30, 2023, that did not repeat in the current year.

The Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (the “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 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.

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Our working capital increased to $473.8 million at December 28, 2024 compared to $442.7 million at December 30, 2023.

Cash and cash equivalents primarily consist of deposits held at banks, money market funds, and U.S.

Cash and cash equivalents primarily consist of deposits held at banks and money market funds.

Marketable securities primarily consist of corporate bonds, U.S.

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Net cash provided by (used in) investing activities

(33,480) 29,049 (75,704)

Net cash used in financing activities

(64,612) (22,711) (95,932)

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.

The $67.2 million decrease in cash provided by operating activities for fiscal 2023, as compared to fiscal 2022, was primarily related to decreased net income, after adjusting for the impact from the $73.0 million gain recognized on the sale of our FRT business, and an investment in working capital of $14.1 million, due primarily to higher accounts receivable and lower deferred revenue that were partially offset by an increase from a deferred grant of $18.0 million and lower inventories.

In January 2023, we received $18.0 million in cash from a California Competes Grant awarded from the California Governor’s Office of Business and Economic Development, subject to job creation and other commitments over a 5-year term.

See Note 2, Government Assistance, of Notes to Consolidated Financial Statements for additional information.

Net cash provided by operating activities in fiscal 2023 was primarily attributable to net income of $82.4 million and net non-cash items of $14.4 million, which include depreciation, amortization, stock-based compensation, and the provision for excess and obsolete inventories, partially offset by the adjustment for the $73.0 million gain from the sale of our FRT business.

Net working capital resulted in an outflow of $32.2 million, primarily related to an increase in accounts receivable of $23.3 million, a decrease in deferred revenues of $10.2 million, an increase in inventories of $9.5 million, and a reduction in operating lease liabilities of $7.6 million, partially offset by an increase from a deferred grant of $18.0 million.

Net cash provided by operating activities in fiscal 2024 was primarily attributable to net income of $69.6 million and net non-cash items of $56.6 million, partially offset by the increase in net working capital of $8.7 million.

The cash used in net working capital is related to an increase of inventories of $8.3 million, a decrease in accounts payable of $8.2 million, and decreased operating lease liabilities of $7.3 million, partially offset by an increase of other liabilities of $9.8 million, accrued liabilities of $3.7 million, and deferred revenue of $2.7 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 and deferred income tax benefits.

Investing Activities

Net cash provided by investing activities in fiscal 2023 primarily related to $101.8 million cash provided by the sale of our FRT business, partially offset by $56.0 million of cash used in the acquisition of property, plant and equipment and $16.7 million used for the purchase of marketable securities, net of maturities.

Net cash used in investing activities in fiscal 2024 primarily related to $38.4 million in property, plant and equipment purchases and $15.1 million used for the purchase of marketable securities, net of maturities, partially offset by the $21.6 million cash provided by the sale of businesses.

Financing Activities

Net cash used in financing activities in fiscal 2023 primarily related to $19.8 million used to purchase common stock under our stock repurchase program, $10.7 million used to pay tax withholdings for net share settlements of employee equity awards, and $1.0 million of principal payments made towards the repayment of our term loan, partially offset by $8.8 million of proceeds received from issuances of common stock under our stock incentive plans.

Net cash used in financing activities in fiscal 2024 primarily related to $53.3 million used to purchase common stock under our stock repurchase program, $20.0 million used to pay tax withholdings for net share settlements of employee equity awards, and $1.1 million of principal payments made towards the repayment of our term loan, partially offset by $9.7 million of proceeds 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”) with MUFG Union Bank, National Association (“Union Bank”).

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On October 26, 2020, our Board of Directors authorized a two-year program to repurchase up to $50 million of outstanding common stock to offset potential dilution from issuances of common stock under our stock-based compensation programs.

During fiscal 2021 and 2022, we repurchased and retired 622,400 shares of common stock for $24.0 million and 676,408 shares of common stock for $26.0 million, respectively, utilizing the remaining shares available for repurchase under the program.

During fiscal 2022, we repurchased and retired 676,408 shares of common stock for $26.0 million, utilizing the remaining shares available for repurchase under the program.

On May 20, 2022, our Board of Directors authorized a two-year program to repurchase up to $75 million of outstanding common stock to offset potential dilution from issuance of common stock under our stock-based compensation programs.

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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 and as of December 30, 2023 $73.8 million remained available for future repurchases.

During fiscal 2023 and 2024, we repurchased and retired 32,020 shares of common stock for $1.2 million and 1,309,635 shares of common stock for $53.3 million, respectively, and as of December 28, 2024, $20.5 million remained available for future repurchases.

Contractual Obligations and Commitments

11 unchanged sentences

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 December 30, 2023.

The timing of any potential repayments is dependent upon a number of factors, including the number of employees and capital investments.

The deferred grant was $18.0 million as of December 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.

11 unchanged sentences

New Accounting Pronouncements

See Note 18, New Accounting Pronouncements , of Notes to Consolidated Financial Statements.

See Note 17, Recent Accounting Pronouncements , of Notes to Consolidated Financial Statements.

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-K

Item 7. Management’s Discussion and Analysis