FORMFACTOR INC 10-Q

Item 1. Financial Statements FORMFACTOR, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) (Unaudited) June 28, 2025 December 28, 2024 ASSETS Current assets: Cash and cash equivalents $ 67,380 $ 190,728 Marketable securities 181,949 169,295 Accounts receivable, net of allowance for credit losses of $ 36 and $ 4 115,199 104,294 Inventories, net 110,789 101,676 Restricted cash 1,061 3,746 Prepaid expenses and other current assets 48,884 35,389 Total current assets 525,262 605,128 Restricted cash 2,464 2,732 Operating lease, right-of-use-assets 19,475 22,579 Property, plant and equipment, net of accumulated depreciation 259,288 210,230 Equity investment 67,264 — Goodwill 200,858 199,171 Intangibles, net 9,017 10,355 Deferred tax assets 94,795 92,012 Other assets 3,185 4,008 Total assets $ 1,181,608 $ 1,146,215 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 59,932 $ 62,287 Accrued liabilities 38,545 43,742 Current portion of term loan, net of unamortized issuance costs 1,121 1,106 Deferred revenue 16,450 15,847 Operating lease liabilities 7,919 8,363 Total current liabilities 123,967 131,345 Term loan, less current portion, net of unamortized issuance costs 11,644 12,208 Long-term operating lease liabilities 15,231 17,550 Deferred grant 18,000 18,000 Other liabilities 22,743 19,344 Total liabilities 191,585 198,447 Stockholders’ equity: Common stock, $ 0.001 par value: 250,000,000 shares authorized; 77,111,430 and 77,114,633 shares issued and outstanding 77 77 Additional paid-in capital 850,064 837,586 Accumulated other comprehensive income (loss) 3,450 ( 10,840 ) Accumulated income 136,432 120,945 Total stockholders’ equity 990,023 947,768 Total liabilities and stockholders’ equity $ 1,181,608 $ 1,146,215 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 FORMFACTOR, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended June 28, 2025 June 29, 2024 June 28, 2025 June 29, 2024 Revenues $ 195,798 $ 197,474 $ 367,154 $ 366,199 Cost of revenues 122,860 110,574 229,693 216,561 Gross profit 72,938 86,900 137,461 149,638 Operating expenses: Research and development 28,793 31,564 56,593 60,191 Selling, general and administrative 31,839 37,874 65,293 70,953 Total operating expenses 60,632 69,438 121,886 131,144 Gain on sale of business — 310 — 20,581 Operating income 12,306 17,772 15,575 39,075 Interest income, net 2,642 3,415 5,959 6,571 Other income (expense), net ( 6 ) 360 884 880 Income before income taxes 14,942 21,547 22,418 46,526 Provision for income taxes 2,372 2,155 3,447 5,353 Loss from equity investment 3,484 — 3,484 — Net income $ 9,086 $ 19,392 $ 15,487 $ 41,173 Net income per share: Basic $ 0.12 $ 0.25 $ 0.20 $ 0.53 Diluted $ 0.12 $ 0.25 $ 0.20 $ 0.52 Weighted-average number of shares used in per share calculations: Basic 77,107 77,235 77,226 77,343 Diluted 77,527 78,717 77,721 78,746 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 FORMFACTOR, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited) Three Months Ended Six Months Ended June 28, 2025 June 29, 2024 June 28, 2025 June 29, 2024 Net income $ 9,086 $ 19,392 $ 15,487 $ 41,173 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments 8,363 ( 1,075 ) 11,702 ( 3,358 ) Unrealized gains (losses) on available-for-sale marketable securities ( 110 ) ( 39 ) 260 ( 237 ) Unrealized gains (losses) on derivative instruments 1,234 ( 69 ) 2,328 ( 301 ) Other comprehensive income (loss), net of tax: 9,487 ( 1,183 ) 14,290 ( 3,896 ) Comprehensive income $ 18,573 $ 18,209 $ 29,777 $ 37,277 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 FORMFACTOR, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except shares) (Unaudited) Shares of Common Stock Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Income Total Three Months Ended June 28, 2025 Balances, March 29, 2025 77,075,636 $ 77 $ 844,488 $ ( 6,037 ) $ 127,346 $ 965,874 Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax 110,794 — ( 1,487 ) — — ( 1,487 ) Purchase and retirement of common stock through repurchase program ( 75,000 ) — ( 2,402 ) — — ( 2,402 ) Stock-based compensation — — 9,465 — — 9,465 Other comprehensive income — — — 9,487 — 9,487 Net income — — — — 9,086 9,086 Balances, June 28, 2025 77,111,430 $ 77 $ 850,064 $ 3,450 $ 136,432 $ 990,023 Six Months Ended June 28, 2025 Balances, December 28, 2024 77,114,633 $ 77 $ 837,586 $ ( 10,840 ) $ 120,945 $ 947,768 Issuance of common stock under the Employee Stock Purchase Plan 197,051 — 6,576 — — 6,576 Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax 204,775 — ( 3,619 ) — — ( 3,619 ) Issuance of common stock pursuant to private placement 334,971 — 15,000 — — 15,000 Purchase and retirement of common stock through repurchase program ( 740,000 ) — ( 24,609 ) — — ( 24,609 ) Stock-based compensation — — 19,130 — — 19,130 Other comprehensive income — — — 14,290 — 14,290 Net income — — — — 15,487 15,487 Balances, June 28, 2025 77,111,430 $ 77 $ 850,064 $ 3,450 $ 136,432 $ 990,023 Three Months Ended June 29, 2024 Balances, March 30, 2024 77,241,118 $ 77 $ 857,326 $ ( 6,765 ) $ 73,112 $ 923,750 Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax 112,129 — ( 1,729 ) — — ( 1,729 ) Purchase and retirement of common stock through repurchase program ( 72,195 ) — ( 2,904 ) — — ( 2,904 ) Stock-based compensation — — 10,590 — — 10,590 Other comprehensive loss — — — ( 1,183 ) — ( 1,183 ) Net income — — — — 19,392 19,392 Balances, June 29, 2024 77,281,052 $ 77 $ 863,283 $ ( 7,948 ) $ 92,504 $ 947,916 Six Months Ended June 29, 2024 Balances, December 30, 2023 77,376,903 $ 77 $ 861,448 $ ( 4,052 ) $ 51,331 $ 908,804 Issuance of common stock under the Employee Stock Purchase Plan 197,014 — 4,948 — — 4,948 Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax 191,086 — ( 3,569 ) — — ( 3,569 ) Purchase and retirement of common stock through repurchase program ( 483,951 ) — ( 20,302 ) — — ( 20,302 ) Stock-based compensation — — 20,758 — — 20,758 Other comprehensive loss — — — ( 3,896 ) — ( 3,896 ) Net income — — — — 41,173 41,173 Balances, June 29, 2024 77,281,052 $ 77 $ 863,283 $ ( 7,948 ) $ 92,504 $ 947,916 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 FORMFACTOR, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six Months Ended June 28, 2025 June 29, 2024 Cash flows from operating activities: Net income $ 15,487 $ 41,173 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 17,051 14,563 Amortization 1,339 1,280 Reduction in the carrying amount of right-of-use assets 3,593 3,195 Stock-based compensation expense 19,187 20,614 Deferred income tax benefit ( 2,639 ) ( 10,181 ) Provision for excess and obsolete inventories 6,695 6,277 Non-cash restructuring charges 2,160 — Gain on sale of business and assets ( 103 ) ( 20,581 ) Loss from equity investment 3,484 — Other adjustments to reconcile net income to net cash provided by operating activities ( 1,456 ) 344 Changes in assets and liabilities: Accounts receivable ( 9,570 ) ( 10,833 ) Inventories ( 12,367 ) ( 14,469 ) Prepaid expenses and other current assets ( 5,717 ) 2,094 Other assets 460 14 Accounts payable 9,649 2,317 Accrued liabilities ( 4,409 ) 10,244 Other liabilities 2,487 7,316 Deferred revenues 1,133 4,940 Operating lease liabilities ( 4,032 ) ( 3,417 ) Net cash provided by operating activities 42,432 54,890 Cash flows from investing activities: Acquisition of property, plant and equipment ( 84,840 ) ( 21,834 ) Proceeds from sale of business and assets 103 21,585 Purchase of equity investment ( 67,156 ) — Purchases of marketable securities ( 73,823 ) ( 78,524 ) Proceeds from maturities and sales of marketable securities 62,503 68,813 Net cash used in investing activities ( 163,213 ) ( 9,960 ) Cash flows from financing activities: Proceeds from issuances of common stock 21,576 4,948 Purchase of common stock through stock repurchase program, including excise tax paid ( 24,586 ) ( 20,271 ) Tax withholdings related to net share settlements of equity awards ( 3,619 ) ( 3,569 ) Payments on term loan ( 549 ) ( 534 ) Net cash used in financing activities ( 7,178 ) ( 19,426 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash 1,658 ( 2,826 ) Net increase (decrease) in cash, cash equivalents and restricted cash ( 126,301 ) 22,678 Cash, cash equivalents and restricted cash, beginning of year 197,206 181,273 Cash, cash equivalents and restricted cash, end of period $ 70,905 $ 203,951 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 FORMFACTOR, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six Months Ended June 28, 2025 June 29, 2024 Non-cash investing and financing activities: Decrease in accounts payable and accrued liabilities related to property, plant and equipment purchases $ 13,010 $ 3,388 Supplemental disclosure of cash flow information: Cash paid for income taxes, net $ 5,443 $ 6,924 Cash paid for interest 187 201 Operating cash outflows from operating leases 4,893 4,563 Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents $ 67,380 $ 195,914 Restricted cash, current 1,061 5,939 Restricted cash 2,464 2,098 Total cash, cash equivalents and restricted cash $ 70,905 $ 203,951 The accompanying notes are an integral part of these condensed consolidated financial statements. 8 FORMFACTOR, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 — Basis of Presentation and Significant Accounting Policies Basis of Presentation The accompanying condensed consolidated financial information of FormFactor, Inc. is unaudited and has been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). However, such information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the notes thereto included in our 2024 Annual Report on Form 10-K filed with the SEC on February 21, 2025. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year. Fiscal Year We operate on a 52/53 week fiscal year, whereby the fiscal year ends on the last Saturday of December. Fiscal 2025 and 2024 each contain 52 weeks and the six months ended June 28, 2025 and June 29, 2024 each contained 26 weeks. Fiscal 2025 will end on December 27 , 2025. Significant Accounting Policies Our significant accounting policies have not changed during the six months ended June 28, 2025 from those disclosed in our Annual Report on Form 10-K for the year ended December 28, 2024, except for: Equity Investment On February 21, 2025, Frontier Investments Co., Ltd (“HoldCo”), a joint holding company in which we hold a 20 % share of the equity and an affiliate of MBK Partners holds an 80 % share of the equity, through HoldCo’s wholly-owned subsidiary, FM Holdings Co., Ltd., acquired 100 % of the shares of FICT Limited (“FICT”) from Advantage Partners Inc. Our initial investment of $ 67.2 million is comprised of the funding of our share of the purchase price of $ 59.6 million, subject to changes in foreign currency fluctuations, and acquisition costs of $ 7.5 million. 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. This investment is accounted for as an equity method investment, with the income or loss from our pro-rata share of the HoldCo's financial results changing our carrying value of the investment. We report our pro-rata share of the HoldCo's financial results on a one-quarter lag as their results are not available in time to be recorded in the concurrent period. During the three and six months ended June 28, 2025, we recorded a $ 3.5 million loss of our equity share of the HoldCo using lag reporting. As of June 28, 2025, the carrying value of our investment was $ 67.3 million, and recorded in Equity investment on our Condensed Consolidated Balance Sheets. As of June 28, 2025, we had a $ 7.3 million basis difference between the carrying value of our investment and our proportionate share of the underlying net assets of the Holdco. The basis difference is accounted for as equity method goodwill that is not amortized. We engage in transactions with FICT, a related party and a supplier, in the normal course of business and at arm's length. Total related party purchases of inventory from FICT during the three and six months ended June 28, 2025 was $ 3.0 million and $ 4.8 million, respectively. New Accounting Pronouncements ASU 2024-03 In November 2024, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2024-03, “ Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses .” This ASU requires an entity to disclose, in tabular format, in the notes to the financial statements, specific information about certain costs and expenses. Although the ASU does not change the expense captions an entity presents on the face of the income statement, it requires disaggregation of certain expense captions into specified categories. The amendments in the ASU are effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted. An entity may apply the amendments prospectively for reporting periods after the effective date or retrospectively to any or all prior periods presented in 9 the financial statements. This ASU will impact only our disclosures and not our financial condition and results of operations. We are currently evaluating the effect the adoption of this ASU may have on our disclosures. ASU 2023-09 In December 2023, the FASB issued ASU 2023-09, “ Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ” The ASU includes requirements that an entity disclose specific categories in the rate reconciliation and provide additional information for reconciling items that are greater than five percent of the amount computed by multiplying pretax income by the applicable statutory income tax rate. The standard also requires that entities disclose income before income taxes and provision for income taxes disaggregated between domestic and foreign. This ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted. An entity may apply the amendments outlined in this ASU prospectively by providing the revised disclosures for the current period and continuing to provide the pre-ASU disclosures for the prior periods, or may apply the amendments retrospectively by providing the revised disclosures for all periods presented. We will adopt this ASU retrospectively for the period ending December 27, 2025, and it will impact only our disclosures with no impacts to our financial condition and results of operations. Note 2 — Concentration of Credit and Other Risks Each of the following customers accounted for 10 % or more of our revenues for the periods indicated: Three Months Ended Six Months Ended June 28, 2025 June 29, 2024 June 28, 2025 June 29, 2024 SK hynix Inc. 25.0 % 19.5 % 24.2 % 17.6 % Intel Corporation 12.4 % 16.7 % 12.2 % 16.3 % Taiwan Semiconductor Manufacturing Co., LTD. 10.4 % * * * 47.8 % 36.2 % 36.4 % 33.9 % * Less than 10% of revenues. At June 28, 2025, three customers accounted for 21.4 %, 16.4 %, and 15.6 % of gross accounts receivable, and at December 28, 2024, one customer accounted for 22.0 % of gross accounts receivable. Note 3 — Inventories, net Inventories are stated at the lower of cost (principally standard cost, which approximates actual cost on a first in, first out basis) or net realizable value. Inventories, net, consisted of the following (in thousands): June 28, 2025 December 28, 2024 Raw materials $ 48,747 $ 45,547 Work-in-progress 42,181 38,366 Finished goods 19,861 17,763 $ 110,789 $ 101,676 Note 4 — Divestiture On February 26, 2024, we closed on the sale of the operations in China to Grand Junction and received total consideration of $ 21.4 million, net of cash transferred and transaction expenses, and after customary adjustments for indebtedness and changes in net working capital. The disposition of the China operations did not meet the criteria to be classified as a discontinued operation in our financial statements because the disposition did not represent a strategic shift that had, or will have, a major effect on our operations and financial results. 10 The following table summarizes the fair value of the sale proceeds received in connection with the divestiture (in thousands): February 26, 2024 Gross purchase price $ 25,000 Working capital adjustment 159 Cash transferred to the buyer at closing ( 2,743 ) Direct costs to sell ( 986 ) Fair value of sale consideration, net $ 21,430 The carrying amount of net assets associated with the China operations was approximately $ 1.2 million. The major classes of assets and liabilities sold consisted of the following (in thousands): February 26, 2024 ASSETS Accounts receivable, net $ 1,174 Inventories, net 3,729 Other current assets 391 Total current assets 5,294 Property, plant and equipment, net 1,283 Goodwill 1,117 Other assets 3,029 Total assets $ 10,723 LIABILITIES Deferred revenue $ 3,739 Other current liabilities 1,546 Other liabilities 4,283 Total liabilities $ 9,568 As a result of the divestiture, we recognized a pre-tax gain of $ 20.3 million. We recorded income tax expense associated with the divestiture of approximately $ 3.3 million. Note 5 — Goodwill and Intangible Assets Goodwill by reportable segment was as follows (in thousands): Probe Cards Systems Total Goodwill, as of December 30, 2023 $ 178,424 $ 22,666 $ 201,090 Reduction - China divestiture ( 1,055 ) ( 62 ) ( 1,117 ) Foreign currency translation — ( 802 ) ( 802 ) Goodwill, as of December 28, 2024 177,369 21,802 199,171 Foreign currency translation — 1,687 1,687 Goodwill, as of June 28, 2025 $ 177,369 $ 23,489 $ 200,858 We have no t recorded goodwill impairments for the six months ended June 28, 2025. 11 Intangible assets were as follows (in thousands): June 28, 2025 December 28, 2024 Intangible Assets Gross Accumulated Amortization Net Gross Accumulated Amortization Net Existing developed technologies $ 160,694 $ 151,920 $ 8,774 $ 159,360 $ 149,631 $ 9,729 Trade name 7,887 7,873 14 7,736 7,700 36 Customer relationships 48,231 48,002 229 47,831 47,241 590 $ 216,812 $ 207,795 $ 9,017 $ 214,927 $ 204,572 $ 10,355 Amortization expense was included in our Condensed Consolidated Statements of Income as follows (in thousands): Three Months Ended Six Months Ended June 28, 2025 June 29, 2024 June 28, 2025 June 29, 2024 Cost of revenues $ 474 $ 449 $ 957 $ 898 Selling, general and administrative 191 191 382 382 $ 665 $ 640 $ 1,339 $ 1,280 The estimated future amortization of definite-lived intangible assets, excluding in-process research and development, is as follows (in thousands): Fiscal Year Amount Remainder of 2025 $ 1,125 2026 1,763 2027 1,741 2028 1,630 2029 1,630 Thereafter 1,128 $ 9,017 Note 6 — Accrued Liabilities Accrued liabilities consisted of the following (in thousands): June 28, 2025 December 28, 2024 Accrued compensation and benefits $ 23,088 $ 26,077 Accrued warranty 3,272 3,558 Accrued income and other taxes 2,013 2,969 Accrued employee stock purchase plan contributions withheld 5,295 6,034 Other accrued expenses 4,877 5,104 $ 38,545 $ 43,742 Note 7 — Fair Value and Derivative Instruments Whenever possible, the fair values of our financial assets and liabilities are determined using quoted market prices of identical securities or quoted market prices of similar securities from active markets. The three levels of inputs that may be used to measure fair value are as follows: • Level 1 valuations are obtained from real-time quotes for transactions in active exchange markets involving identical securities; • Level 2 valuations utilize significant observable inputs, such as quoted prices for similar assets or liabilities, quoted prices near the reporting date in markets that are less active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and • Level 3 valuations utilize unobservable inputs to the valuation methodology and include our own data about assumptions market participants would use in pricing the asset or liability based on the best information available under the circumstances. 12 We did not have any transfers of assets or liabilities measured at fair value on a recurring basis to or from Level 1, Level 2 or Level 3 during the six months ended June 28, 2025 or the year ended December 28, 2024. The carrying values of Cash, Accounts receivable, net, Restricted cash, Prepaid expenses and other current assets, Accounts payable, and Accrued liabilities approximate fair value due to their short maturities. No changes were made to our valuation techniques during the first six months of fiscal 2025. Assets and Liabilities Measured at Fair Value on a Recurring Basis Assets and liabilities measured at fair value on a recurring basis were as follows (in thousands): June 28, 2025 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 15,972 $ — $ — $ 15,972 Commercial paper — 2,985 — 2,985 15,972 2,985 — 18,957 Marketable securities: U.S. treasuries 85,638 — — 85,638 U.S. agency securities — 14,808 — 14,808 Corporate bonds — 70,386 — 70,386 Commercial paper — 11,117 — 11,117 85,638 96,311 — 181,949 Foreign exchange derivative contracts — 1,627 — 1,627 Promissory note receivable — — 1,515 1,515 Interest rate swap derivative contracts — 1,585 — 1,585 Total assets $ 101,610 $ 102,508 $ 1,515 $ 205,633 December 28, 2024 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 131,519 $ — $ — $ 131,519 Marketable securities: U.S. treasuries 71,252 — — 71,252 U.S. agency securities — 13,869 — 13,869 Corporate bonds — 83,176 — 83,176 Commercial paper — 998 — 998 71,252 98,043 — 169,295 Promissory note receivable — — 1,512 1,512 Interest rate swap derivative contracts — 2,025 — 2,025 Total assets $ 202,771 $ 100,068 $ 1,512 $ 304,351 Liabilities: Foreign exchange derivative contracts $ — $ ( 1,141 ) $ — $ ( 1,141 ) Total liabilities $ — $ ( 1,141 ) $ — $ ( 1,141 ) Cash Equivalents The fair value of our cash equivalents is determined based on quoted market prices for similar or identical securities. Marketable Securities We classify our marketable securities as available-for-sale and value them utilizing a market approach. Our investments are priced by pricing vendors who provide observable inputs for their pricing without applying significant judgment. Broker pricing is used mainly when a quoted price is not available, the investment is not priced by our pricing vendors or when a broker price 13 is more reflective of fair value. Our broker-priced investments are categorized as Level 2 investments because fair value is based on similar assets without applying significant judgments. In addition, all investments have a sufficient trading volume to demonstrate that the fair value is appropriate. Unrealized gains and losses were immaterial and were recorded as a component of Accumulated other comprehensive income (loss) in our Condensed Consolidated Balance Sheets. We did not have any other-than-temporary unrealized gains or losses at either period end included in these financial statements. Interest Rate Swap The fair value of our interest rate swap contract is determined at the end of each reporting period based on valuation models that use interest rate yield curves as inputs. For accounting purposes, our interest rate swap contract qualifies for, and is designated as a cash flow hedge. The hedged risk is the interest rate exposure to changes in interest payments attributable to changes in our variable-rate interest over the interest rate swap term. The changes in cash flows of the interest rate swap are expected to exactly offset changes in cash flows of the variable-rate debt. Cash settlements, in the form of cash payments or cash receipts, are recognized as a component of interest expense. The cash flows associated with the interest rate swaps are reported in Net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows and the fair value of the interest rate swap contracts are recorded within Prepaid expenses and other current assets and Other assets in our Condensed Consolidated Balance Sheets. Foreign Exchange Derivative Contracts We operate and sell our products in various global markets. As a result, we are exposed to changes in foreign currency exchange rates. We utilize foreign currency forward contracts to hedge against future movements in foreign exchange rates that affect certain existing foreign currency denominated assets and liabilities and forecasted foreign currency revenue and expense transactions. Under this program, our strategy is to have increases or decreases in our foreign currency exposures mitigated by gains or losses on the foreign currency forward contracts in order to mitigate the risks and volatility associated with foreign currency transaction gains or losses. We do not use derivative financial instruments for speculative or trading purposes. For accounting purposes, certain of our foreign currency forward contracts are not designated as hedging instruments and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Condensed Consolidated Balance Sheets with changes in fair value recorded within Other income (expense), net in our Condensed Consolidated Statement of Income for both realized and unrealized gains and losses. Certain of our foreign currency forward contracts are designated as cash flow hedges, and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Condensed Consolidated Balance Sheets with changes in fair value recorded as a component of Accumulated other comprehensive income (loss) and reclassified into earnings in the same period in which the hedged transaction affects earnings, and in the same line item on the Condensed Consolidated Statements of Income as the impact of the hedge transaction. The fair value of our foreign exchange derivative contracts was determined based on current foreign currency exchange rates and forward points. All of our foreign exchange derivative contracts outstanding at June 28, 2025 will mature by the first quarter of fiscal 2026. The following table provides information about our foreign currency forward contracts outstanding as of June 28, 2025 (in thousands): Currency Contract Position Contract Amount (Local Currency) Contract Amount (U.S. Dollars) Euro Buy 20,637 $ 22,656 Japanese Yen Sell 2,422,178 16,779 Korean Won Buy 1,803,550 1,333 Taiwan Dollar Sell 128,097 4,482 Our foreign currency contracts are classified within Level 2 of the fair value hierarchy as they are valued using pricing models that utilize observable market inputs. Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis We measure and report our non-financial assets such as Property, plant and equipment, Equity investment, Goodwill and Intangible assets at fair value on a non-recurring basis if we determine these assets to be impaired or in the period when we make a business acquisition. There were no assets or liabilities measured at fair value on a nonrecurring basis during the three and six months ended June 28, 2025 or June 29, 2024. 14 Note 8 — Warranty We offer warranties on certain products and record a liability for the estimated future costs associated with warranty claims at the time revenue is recognized. The warranty liability is based upon historical experience and our estimate of the level of future costs. While we engage in product quality programs and processes, our warranty obligation is affected by product failure rates, material usage and service delivery costs. We regularly monitor product returns for warranty and maintain a reserve for the related expenses based upon our historical experience and any specifically identified failures. As we sell new products to our customers, we must exercise considerable judgment in estimating the expected failure rates. This estimating process is based on historical experience of similar products, as well as various other assumptions that we believe to be reasonable under the circumstances. We provide for the estimated cost of product warranties at the time revenue is recognized as a component of Cost of revenues in our Condensed Consolidated Statement of Income. Changes in our warranty liability were as follows (in thousands): Six Months Ended June 28, 2025 June 29, 2024 Balance at beginning of year $ 3,558 $ 3,177 Accruals 3,076 4,361 Settlements ( 3,362 ) ( 4,179 ) Balance at end of period $ 3,272 $ 3,359 Note 9 — Property, Plant and Equipment, net Property, plant and equipment, net consisted of the following (in thousands): June 28, 2025 December 28, 2024 Land $ 35,274 $ 17,124 Building and building improvements 46,492 46,578 Machinery and equipment 328,580 307,201 Computer equipment and software 48,522 47,344 Furniture and fixtures 7,622 7,430 Leasehold improvements 103,978 101,374 Sub-total 570,468 527,051 Less: Accumulated depreciation and amortization ( 398,043 ) ( 379,968 ) Net property, plant and equipment 172,425 147,083 Construction-in-progress 86,863 63,147 Total $ 259,288 $ 210,230 Note 10 — Stockholders’ Equity and Stock-Based Compensation Common Stock Repurchase Programs On October 30, 2023, our Board of Directors authorized a 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. During fiscal 2024 we repurchased and retired 1,309,635 shares of common stock for $ 53.3 million. On March 29, 2025, our Board of Directors approved an increase to the repurchase program, authorizing the repurchase of an additional $ 1.6 million in shares of common stock. During the first fiscal quarter of 2025, we repurchased and retired 665,000 shares of common stock for $ 22.1 million, utilizing the remaining shares available for repurchase under the program. On April 24, 2025, our Board of Directors authorized a new 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. This share repurchase program will expire on April 24, 2027. During the six months ended June 28, 2025, we repurchased and retired 75,000 shares of common stock for $ 2.4 million under this plan, and as of June 28, 2025, $ 72.6 million remained available for future repurchases. 15 Our policy related to repurchases of our common stock is to charge the excess of cost over par value to additional paid-in capital once the shares are retired. Share repurchases are subject to an excise tax enabled by the Inflation Reduction Act that is generally 1% of the fair market value of the shares repurchased at the time of the repurchase, net of the fair market value of certain new stock issuances during the same taxable year. Certain exceptions apply to the excise tax. The excise tax incurred, if applicable, is included in the cost of shares repurchased in the Condensed Consolidated Statement of Stockholders Equity. All repurchases were made in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. Private Placement On January 10, 2025, Advantest America, Inc., a Delaware corporation, acquired 334,971 shares of our common stock in a private placement for $44.78 per share, representing the 5-day trailing volume-weighted average price prior to signing the related private placement agreement. Restricted Stock Units Restricted stock unit (“RSU”) activity under our equity incentive plan was as follows: Units Weighted Average Grant Date Fair Value RSUs at December 28, 2024 1,776,743 $ 39.07 Awards granted 65,964 32.27 Awards vested ( 312,849 ) 37.56 Awards forfeited ( 67,548 ) 37.21 RSUs at June 28, 2025 1,462,310 39.38 Performance Restricted Stock Units We may grant Performance RSUs (“PRSUs”) to certain executives, which vest based upon us achieving certain market performance criteria. There were no PRSUs granted during the six months ended June 28, 2025. PRSUs are included as part of the RSU activity above. Employee Stock Purchase Plan Information related to activity under our Employee Stock Purchase Plan (“ESPP”) was as follows: Six Months Ended June 28, 2025 Shares issued 197,051 Weighted average per share purchase price $ 33.37 Weighted average per share discount from the fair value of our common stock on the date of issuance $ ( 6.69 ) Stock-Based Compensation Stock-based compensation was included in our Condensed Consolidated Statements of Income as follows (in thousands): Three Months Ended Six Months Ended June 28, 2025 June 29, 2024 June 28, 2025 June 29, 2024 Cost of revenues $ 1,690 $ 1,932 $ 3,695 $ 3,860 Research and development 2,536 2,614 5,182 5,227 Selling, general and administrative 5,165 5,663 10,310 11,527 Total stock-based compensation $ 9,391 $ 10,209 $ 19,187 $ 20,614 Unrecognized Compensation Costs At June 28, 2025, the unrecognized stock-based compensation was as follows (dollars in thousands): Unrecognized Expense Average Expected Recognition Period in Years Restricted stock units $ 29,396 1.62 Performance restricted stock units 6,219 1.63 Employee stock purchase plan 320 0.09 Total unrecognized stock-based compensation expense $ 35,935 1.61 16 Note 11 — Net Income per Share The following table reconciles the shares used in calculating basic net income per share and diluted net income per share (in thousands): Three Months Ended Six Months Ended June 28, 2025 June 29, 2024 June 28, 2025 June 29, 2024 Weighted-average shares used in computing basic net income per share 77,107 77,235 77,226 77,343 Add potentially dilutive securities 420 1,482 495 1,403 Weighted-average shares used in computing diluted net income per share 77,527 78,717 77,721 78,746 Securities not included as they would have been antidilutive 620 64 558 32 Note 12 — Commitments and Contingencies Leases See Note 13, Leases . Contractual Obligations and Commitments Our contractual obligations and commitments have not materially changed as of June 28, 2025 from those disclosed in our Annual Report on Form 10-K for the year ended December 28, 2024. Legal Matters From time to time, we are subject to legal proceedings and claims in the ordinary course of business, the outcomes of which cannot be estimated with certainty. Our ability to estimate the outcomes may change in the near term and the effect of any such change could have a material adverse effect on our financial position, results of operations or cash flows. Note 13 — Leases We lease real estate space under non-cancelable operating lease agreements for commercial and industrial space, as well as for a portion of our corporate headquarters located in Livermore, California. Our leases have remaining terms of one to nine years , and some leases include options to extend up to twenty years . We also have operating leases for automobiles with remaining lease terms of one year . We did not include any of our renewal options in our lease terms for calculating our lease liability as the renewal options allow us to maintain operational flexibility and we are not reasonably certain we will exercise these options at this time. The weighted-average remaining lease term for our operating leases was four years as of June 28, 2025 and the weighted-average discount rate was 4.9 %. The components of lease expense were as follows (in thousands): Three Months Ended Six Months Ended June 28, 2025 June 29, 2024 June 28, 2025 June 29, 2024 Lease expense: Operating lease expense $ 2,186 $ 2,050 $ 4,337 $ 4,180 Short-term lease expense 132 85 236 145 Variable lease expense 932 1,052 1,712 1,862 $ 3,250 $ 3,187 $ 6,285 $ 6,187 17 Future minimum payments under our non-cancelable operating leases were as follows as of June 28, 2025 (in thousands): Fiscal Year Amount Remainder of 2025 $ 4,653 2026 8,093 2027 7,659 2028 4,097 2029 311 Thereafter 1,256 Total minimum lease payments 26,069 Less: interest ( 2,919 ) Present value of net minimum lease payments 23,150 Less: current portion ( 7,919 ) Total long-term operating lease liabilities $ 15,231 Note 14 — Revenue Transaction price allocated to the remaining performance obligations: On June 28, 2025, we had $ 17.4 million of remaining performance obligations, which were comprised of deferred service contracts, extended warranty contracts, and contracts with overtime revenue recognition that are not yet delivered. We expect to recognize approximately 49.4 % of our remaining performance obligations as revenue in the remainder of fiscal 2025, approximately 40.0 % in fiscal 2026, and approximately 10.6 % in fiscal 2027 and thereafter. The foregoing excludes the value of other remaining performance obligations as they have original durations of one year or less, and also excludes information about variable consideration allocated entirely to a wholly unsatisfied performance obligation. Contract balances: The timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable is recorded at the invoiced amount, net of an allowance for credit losses. A receivable is recognized in the period we deliver goods or provide services or when our right to consideration is unconditional. A contract asset is recorded when we have performed under the contract but our right to consideration is conditional on something other than the passage of time. Contract assets as of June 28, 2025 and December 28, 2024 were $ 8.6 million and $ 6.9 million, respectively, and are reported on the Condensed Consolidated Balance Sheets as a component of Prepaid expenses and other current assets. Contract liabilities include payments received and payments due in advance of performance under a contract and are satisfied as the associated revenue is recognized. Contract liabilities are reported on the Condensed Consolidated Balance Sheets at the end of each reporting period as a component of Deferred revenue and Other liabilities. Contract liabilities as of June 28, 2025 and December 28, 2024 were $ 18.0 million and $ 16.9 million, respectively. During the six months ended June 28, 2025, we recognized $ 12.6 million of revenue that was included in contract liabilities as of December 28, 2024. Costs to obtain a contract: We generally expense sales commissions when incurred as a component of Selling, general and administrative expense, as the amortization period is typically less than one year. Revenue by category: Refer to Note 15, Operating Segments and Enterprise-Wide Information , for further details. Note 15 — Operating Segments and Enterprise-Wide Information We operate in two reportable segments consisting of the Probe Cards segment and the Systems segment. Our chief operating decision maker (“CODM”) is our President and Chief Executive Officer, who assesses the reportable segments' performance by using each reportable segment's net contribution to make decisions about allocating resources and assessing performance for the entire company. The CODM uses net contribution for each reportable segment predominantly in the annual budget and forecasting process, as well as consideration of budget-to-actual variances on a quarterly basis when making decisions for assessment of our performance and results of operations. Certain components of net contribution are utilized to determine executive compensation along with other measures. 18 The following table provides net contribution by reportable segment and includes a reconciliation to net income before income taxes (dollars in thousands): Three Months Ended June 28, 2025 June 29, 2024 Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total Revenues $ 162,108 $ 33,690 $ — $ 195,798 $ 166,792 $ 30,682 $ — $ 197,474 Cost of revenues 100,040 20,419 ( 2,401 ) 122,860 91,553 16,505 ( 2,516 ) 110,574 Gross profit 62,068 13,271 ( 2,401 ) 72,938 75,239 14,177 ( 2,516 ) 86,900 Gross margin 38.3 % 39.4 % 37.3 % 45.1 % 46.2 % 44.0 % Research and development 20,974 5,261 2,558 28,793 23,710 5,240 2,614 31,564 Selling 7,181 3,424 1,369 11,974 8,353 4,174 1,367 13,894 Marketing 1,598 1,882 1,327 4,807 2,907 1,824 1,761 6,492 Net contribution $ 32,315 $ 2,704 $ ( 7,655 ) 27,364 $ 40,269 $ 2,939 $ ( 8,258 ) 34,950 General and administrative 15,058 17,488 Gain on sale of business — 310 Operating income 12,306 17,772 Interest income, net 2,642 3,415 Other income (expense), net ( 6 ) 360 Income before income taxes $ 14,942 $ 21,547 Six Months Ended June 28, 2025 June 29, 2024 Probe Cards Systems Corporate and Other Total Probe Cards Systems Corporate and Other Total Revenues $ 298,628 $ 68,526 $ — $ 367,154 $ 303,493 $ 62,706 $ — $ 366,199 Cost of revenues 184,945 39,740 ( 5,008 ) 229,693 177,463 34,023 ( 5,075 ) 216,561 Gross profit 113,683 28,786 ( 5,008 ) 137,461 126,030 28,683 ( 5,075 ) 149,638 Gross margin 38.1 % 42.0 % 37.4 % 41.5 % 45.7 % 40.9 % Research and development 42,030 9,229 5,334 56,593 44,558 10,406 5,227 60,191 Selling 13,747 7,084 4,170 25,001 15,573 7,760 3,067 26,400 Marketing 3,178 3,623 2,453 9,254 4,825 3,484 3,463 11,772 Net contribution $ 54,728 $ 8,850 $ ( 16,965 ) 46,613 $ 61,074 $ 7,033 $ ( 16,832 ) 51,275 General and administrative 31,038 32,781 Gain on sale of business — 20,581 Operating income 15,575 39,075 Interest income, net 5,959 6,571 Other income (expense), net 884 880 Income before income taxes $ 22,418 $ 46,526 Corporate and Other includes unallocated expenses relating to amortization of stock-based compensation expense, intangible assets, acquisition-related costs, including charges related to fixed assets stepped up to fair value, restructuring charges, and other costs, which are not used in evaluating the results of, or in allocating resources to, our reportable segments. Acquisition-related costs include transaction costs and any costs directly related to the acquisition and integration of acquired businesses. Net contribution represents Operating income excluding general and administrative expenses and gains on sale of business, which are not used in evaluating the results of, or in allocating resources to, our reportable segments. 19 Certain revenue category information by reportable segment was as follows (in thousands): Three Months Ended June 28, 2025 June 29, 2024 Probe Cards Systems Total Probe Cards Systems Total Market: Foundry & Logic $ 99,513 $ — $ 99,513 $ 103,660 $ — $ 103,660 DRAM 57,057 — 57,057 58,042 — 58,042 Flash 5,538 — 5,538 5,090 — 5,090 Systems — 33,690 33,690 — 30,682 30,682 Total $ 162,108 $ 33,690 $ 195,798 $ 166,792 $ 30,682 $ 197,474 Timing of revenue recognition: Products transferred at a point in time $ 160,552 $ 30,243 $ 190,795 $ 165,492 $ 28,129 $ 193,621 Products and services transferred over time 1,556 3,447 5,003 1,300 2,553 3,853 Total $ 162,108 $ 33,690 $ 195,798 $ 166,792 $ 30,682 $ 197,474 Geographical region: South Korea $ 55,836 $ 1,293 $ 57,129 $ 48,691 $ 416 $ 49,107 Taiwan 46,814 6,065 52,879 40,192 4,621 44,813 United States 32,849 8,075 40,924 39,435 8,456 47,891 Japan 7,080 7,586 14,666 4,513 3,098 7,611 China 4,633 4,767 9,400 20,311 4,776 25,087 Europe 3,224 4,024 7,248 3,250 5,565 8,815 Singapore 5,489 1,190 6,679 4,112 410 4,522 Malaysia 5,112 43 5,155 5,084 1,518 6,602 Rest of World 1,071 647 1,718 1,204 1,822 3,026 Total $ 162,108 $ 33,690 $ 195,798 $ 166,792 $ 30,682 $ 197,474 20 Six Months Ended June 28, 2025 June 29, 2024 Probe Cards Systems Total Probe Cards Systems Total Market: Foundry & Logic $ 184,785 $ — $ 184,785 $ 190,428 $ — $ 190,428 DRAM 105,915 — 105,915 103,938 — 103,938 Flash 7,928 — 7,928 9,127 — 9,127 Systems — 68,526 68,526 — 62,706 62,706 Total $ 298,628 $ 68,526 $ 367,154 $ 303,493 $ 62,706 $ 366,199 Timing of revenue recognition: Products transferred at a point in time $ 295,273 $ 61,578 $ 356,851 $ 301,133 $ 56,913 $ 358,046 Products and services transferred over time 3,355 6,948 10,303 2,360 5,793 8,153 Total $ 298,628 $ 68,526 $ 367,154 $ 303,493 $ 62,706 $ 366,199 Geographical region: South Korea $ 98,045 $ 2,255 $ 100,300 $ 99,363 $ 461 $ 99,824 Taiwan 87,561 10,680 98,241 67,371 7,319 74,690 United States 60,633 20,616 81,249 75,031 18,626 93,657 Japan 12,259 12,726 24,985 8,860 7,293 16,153 China 12,785 10,230 23,015 28,997 11,703 40,700 Europe 6,759 8,270 15,029 6,778 10,886 17,664 Singapore 10,360 2,568 12,928 7,628 1,652 9,280 Malaysia 7,664 91 7,755 6,692 1,773 8,465 Rest of the world 2,562 1,090 3,652 2,773 2,993 5,766 Total $ 298,628 $ 68,526 $ 367,154 $ 303,493 $ 62,706 $ 366,199 Note 16 — Subsequent Events One Big Beautiful Bill On July 4, 2025, the One Big Beautiful Bill (“OBBB”) Act, which includes a broad range of tax reform provisions that may affect our financial results, was signed into law in the United States. FASB Topic 740, Income Taxes , requires the effects of tax law changes to be recognized in the period of enactment. As the legislation was signed into law after the close of the second quarter, the impacts are not included in our operating results for the six months ended June 28, 2025. Among other provisions, the OBBB repealed the capitalization of domestic Research and Development expenditures and includes a reduced deduction rate on Foreign-derived Deduction Eligible Income and income from non-U.S. subsidiaries. We are currently evaluating the impact of these provisions which could affect our effective tax rate and deferred tax assets in 2025 and future periods. Revolving Credit Agreement On July 29, 2025, we entered into a Revolving Credit Agreement (the “Credit Agreement”) by and among the Borrower, Wells Fargo Bank, National Association, as Administrative Agent, and the lenders party thereto, providing us with a $150 million revolving credit facility (the “Facility”) with an option to draw additional Incremental Term Loans in $25 million increments. The Facility has a maturity date of July 29, 2030. The Facility may be used for working capital and other general corporate purposes, subject to the terms and conditions set forth in the Credit Agreement. Borrowings under the Facility will bear interest at a fluctuating rate per annum equal to, at our option, (i) the forward-looking secured overnight financing rate term, (ii) a base rate set forth in the Credit Agreement, or (iii) a combination thereof, plus, in each case, an applicable margin calculated based on our leverage ratio. Voluntary prepayments are permissible without penalty, subject to certain conditions pertaining to minimum notice and minimum prepayment and reduction amounts as described in the Credit Agreement. 21