ICHOR HOLDINGS, LTD. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated unaudited financial statements and related notes included elsewhere in this report. The following discussion contains forward‑looking statements based upon our current plans, expectations, and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward‑looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in “Risk Factors.” Overview We are a leader in the design, engineering, and manufacturing of critical fluid delivery subsystems and components for semiconductor capital equipment. Our product offerings include gas and chemical delivery systems and subsystems, collectively known as fluid delivery systems and subsystems, which are key elements of the process tools used in the manufacturing of semiconductor devices. Our gas delivery subsystems deliver, monitor, and control precise quantities of the specialized gases used in semiconductor manufacturing processes such as etch and deposition. Our chemical delivery systems and subsystems precisely blend and dispense the reactive liquid chemistries used in semiconductor manufacturing processes such as chemical-mechanical planarization, electroplating, and cleaning. We also manufacture precision machined components, weldments, and proprietary products for use in fluid delivery systems for direct sales to our customers. This vertically integrated portion of our business is primarily focused on metal and plastic parts that are used in gas and chemical systems, respectively. Fluid delivery subsystems ensure accurate measurement and uniform delivery of specialty gases and chemicals at critical steps in the semiconductor manufacturing processes. Any malfunction or material degradation in fluid delivery reduces yields and increases the likelihood of manufacturing defects in these processes. Most OEMs outsource all or a portion of the design, engineering, and manufacturing of their gas delivery subsystems to a few specialized suppliers, including us. Additionally, many OEMs are also increasingly outsourcing the design, engineering, and manufacturing of their chemical delivery subsystems due to the increased fluid expertise required to manufacture these subsystems. Outsourcing these subsystems has allowed OEMs to leverage the suppliers’ highly specialized engineering, design, and production skills while focusing their internal resources on their own value-added processes. We believe that this outsourcing trend has enabled OEMs to reduce their costs and development time, as well as provide growth opportunities for specialized subsystems suppliers like us. We have a global footprint with production facilities in California, Minnesota, Oregon, Texas, Singapore, Malaysia, the United Kingdom, Korea, and Mexico. The following summarizes key financial information for the periods indicated. Amounts are presented in accordance with GAAP unless explicitly identified as being a non-GAAP metric. For a description of our non-GAAP metrics and reconciliations to the most comparable GAAP metrics, please refer to Item 2 – Non-GAAP Financial Results within this report. Three Months Ended Nine Months Ended September 24, 2021 September 25, 2020 September 24, 2021 September 25, 2020 (dollars in thousands) Net sales $ 262,855 $ 227,678 $ 809,729 $ 669,270 Gross profit $ 43,637 $ 32,506 $ 130,502 $ 90,542 Gross margin 16.6 % 14.3 % 16.1 % 13.5 % Non-GAAP gross margin 16.7 % 14.6 % 16.6 % 14.1 % Operating expenses $ 22,440 $ 19,974 $ 65,833 $ 63,206 Operating income $ 21,197 $ 12,532 $ 64,669 $ 27,336 Net income $ 18,537 $ 10,548 $ 56,040 $ 20,758 Non-GAAP net income $ 23,421 $ 14,581 $ 71,453 $ 39,208 Diluted EPS $ 0.64 $ 0.45 $ 1.93 $ 0.89 Non-GAAP diluted EPS $ 0.81 $ 0.62 $ 2.47 $ 1.69 15 COVID-19 Pandemic and Market Conditions Update The COVID‑19 pandemic and related economic repercussions have created, and are expected to continue to create, significant volatility, uncertainty, and turmoil in our industry. While our facilities are currently not subject to any site-wide government shutdowns, in June 2021, the Malaysian government instituted an Enhanced Movement Control Order (“EMCO”), which impacted our weldment facility in Malaysia through both on-site employee restrictions as well as a complete shutdown of all manufacturing in the region during early July. While we were able to reopen our factory in mid-July, once the government confirmed we were an essential business, we remained under headcount limitations until the third week of August. With 50% of our weldment capacity located in Malaysia, our overall output in the country was reduced by 40% in the third quarter due to the EMCO restrictions. In addition to the recent impacts in Malaysia, increases in direct costs within our factories associated with employee personal protective equipment (“PPE”), facility cleaning and layout changes, together with increases in logistics costs and employee labor costs, as well as other operating inefficiencies have resulted in, and may continue to result in, lower revenues and operating margins. The extent and duration of these impacts cannot be specifically quantified given the dynamic nature and breadth of the pandemic’s impact on our operations and that of our customers and suppliers. Results of Operations The following table sets forth our unaudited results of operations for the periods presented. The period‑to‑period comparison of results is not necessarily indicative of results for future periods. Three Months Ended Nine Months Ended September 24, 2021 September 25, 2020 September 24, 2021 September 25, 2020 (in thousands) Consolidated Statements of Operations Data: Net sales $ 262,855 $ 227,678 $ 809,729 $ 669,270 Cost of sales 219,218 195,172 679,227 578,728 Gross profit 43,637 32,506 130,502 90,542 Operating expenses: Research and development 3,905 3,269 11,469 10,100 Selling, general, and administrative 15,147 13,367 44,195 43,098 Amortization of intangible assets 3,388 3,338 10,169 10,008 Total operating expenses 22,440 19,974 65,833 63,206 Operating income 21,197 12,532 64,669 27,336 Interest expense, net 1,487 2,052 4,997 6,728 Other expense (income), net (104 ) 242 103 213 Income before income taxes 19,814 10,238 59,569 20,395 Income tax expense (benefit) 1,277 (310 ) 3,529 (363 ) Net income $ 18,537 $ 10,548 $ 56,040 $ 20,758 16 The following table sets forth our unaudited results of operations as a percentage of our total sales for the periods presented. Three Months Ended Nine Months Ended September 24, 2021 September 25, 2020 September 24, 2021 September 25, 2020 Consolidated Statements of Operations Data: Net sales 100.0 100.0 100.0 100.0 Cost of sales 83.4 85.7 83.9 86.5 Gross profit 16.6 14.3 16.1 13.5 Operating expenses: Research and development 1.5 1.4 1.4 1.5 Selling, general, and administrative 5.8 5.9 5.5 6.4 Amortization of intangible assets 1.3 1.5 1.3 1.5 Total operating expenses 8.5 8.8 8.1 9.4 Operating income 8.1 5.5 8.0 4.1 Interest expense, net 0.6 0.9 0.6 1.0 Other expense (income), net 0.0 0.1 0.0 0.0 Income before income taxes 7.5 4.5 7.4 3.0 Income tax expense (benefit) 0.5 (0.1 ) 0.4 (0.1 ) Net income 7.1 4.6 6.9 3.1 Comparison of the three and nine months ended September 24, 2021 and September 25, 2020 Net Sales Three Months Ended Change Nine Months Ended Change September 24, 2021 September 25, 2020 Amount % September 24, 2021 September 25, 2020 Amount % (dollars in thousands) Net sales $ 262,855 $ 227,678 $ 35,177 15.5 % $ 809,729 $ 669,270 $ 140,459 21.0 % The increase in net sales from the three and nine months ended September 25, 2020 to the three and nine months ended September 24, 2021 was primarily due to strong demand from our customers as a result of continued growth in the global wafer fabrication equipment market, partially offset by production constraints as a result of challenges in our supply chain, primarily due to the EMCO restrictions at our Malaysia factory beginning in June 2021, as noted above in the commentary above under the heading, “ COVID‑19 Pandemic and Market Conditions Update ,” and delivery timelines with certain key suppliers. Net sales to U.S. customers increased by $2.1 million and $40.5 million for the three and nine months ended September 24, 2021, respectively. On a relative basis, net sales to U.S. customers as a percent of total net sales decreased from 55.1% and 54.4% to 48.6% and 50.0% for the three and nine months ended September 24, 2021, respectively. Net sales to international customers increased by $33.0 million and $100.0 million for the three and nine months ended September 24, 2021, respectively. On a relative basis, net sales to international customers as a percent of total net sales increased from 44.8% and 45.6% to 51.5% and 50.0% for the three and nine months ended September 24, 2021, respectively. 17 Cost of Sales , Gross Profit , and Gross Margin Three Months Ended Change Nine Months Ended Change September 24, 2021 September 25, 2020 Amount % September 24, 2021 September 25, 2020 Amount % (dollars in thousands) Cost of sales $ 219,218 $ 195,172 $ 24,046 12.3 % $ 679,227 $ 578,728 $ 100,499 17.4 % Gross profit $ 43,637 $ 32,506 $ 11,131 34.2 % $ 130,502 $ 90,542 $ 39,960 44.1 % Gross margin 16.6 % 14.3 % + 230 bps 16.1 % 13.5 % + 260 bps The increase in the gross amounts of cost of sales and gross profit for the three and nine months ended September 24, 2021 were primarily due to the factors mentioned in the commentary above under the heading, “ Net Sales ”. The increase in our gross margin from the three and nine months ended September 25, 2020 to the three and nine months ended September 24, 2021 was primarily due to increased factory utilization, partially offset by increased materials and logistics costs and increased factory inefficiency due to challenges in our supply chain, primarily due to the EMCO restrictions at our Malaysia factory in beginning in June 2021, as noted above in the commentary above under the heading, “ COVID‑19 Pandemic and Market Conditions Update ,” and delivery timelines with certain key suppliers. The following discrete, non‑recurring items favorably impacted our gross margin for the three and nine months ended September 24, 2021 on a year-over-year basis: Gross margin increased from the third quarter of 2020 to the third quarter of 2021 due to $0.4 million, or 18 basis points, in costs incurred in connection with the planned closure of our Union City, California facility in the third quarter of 2020 that did not recur in the third quarter of 2021. The facility ceased operations during the second quarter of 2021. Gross margin increased from the nine months ended September 25, 2020 to the nine months ended September 24, 2021 due to a $1.4 million, or 21 basis point, contract settlement loss in the first quarter of 2020 that did not recur in the nine months ended September 24, 2021. This was partially offset by a $0.4 million, or 6 basis point, increase in Union City facility shutdown costs in the nine months ended September 24, 2021 compared to the nine months ended September 25, 2020. Research and Development Three Months Ended Change Nine Months Ended Change September 24, 2021 September 25, 2020 Amount % September 24, 2021 September 25, 2020 Amount % (dollars in thousands) Research and development $ 3,905 $ 3,269 $ 636 19.5 % $ 11,469 $ 10,100 $ 1,369 13.6 % The increase in research and development expenses from the three and nine months ended September 25, 2020 to the three and nine months ended September 24, 2021 was primarily due to increased employee-related expense, as we expand our engineering team to design and engineer next generation, high performance solutions for our customers. Selling, General, and Administrative Three Months Ended Change Nine Months Ended Change September 24, 2021 September 25, 2020 Amount % September 24, 2021 September 25, 2020 Amount % (dollars in thousands) Selling, general, and administrative $ 15,147 $ 13,367 $ 1,780 13.3 % $ 44,195 $ 43,098 $ 1,097 2.5 % The increase in selling, general, and administrative expense from the third quarter of 2020 to the third quarter of 2021 was primarily due (i) $1.6 million in increased employee-related expense, which is inclusive of a $0.5 million increase in share-based compensation expense, and (ii) $0.3 million in increased computer hardware and software costs to support the growing organization and our ERP implementation project, partially offset by (iii) $0.3 million in reduced professional and consulting fees. 18 The increase in selling, general, and administrative expense from the nine months ended September , 2020 to the nine months ended September 24 , 2021 was primarily due to (i) $2.2 million in increas e d employee-related expense, which is inclusive of a $0.2 million increase in share-based compensation expense, (ii) $1.1 million in increase d computer hardware and software costs to support the growing organization and our ERP implementation project, and (iii) $0.3 million in increase costs related to the shutdown of our Union City, California facility, partially offset by (iv) $1.8 million in reduc ed executive transition costs associated with the transition of our former CEO to e xecutive c hairman in the first quarter of 2020 that did not recur in the first quarter of 2021 and (v) $1.2 million in reduc ed professional and consulting fees. Amortization of Intangible Assets Three Months Ended Change Nine Months Ended Change September 24, 2021 September 25, 2020 Amount % September 24, 2021 September 25, 2020 Amount % (dollars in thousands) Amortization of intangibles assets $ 3,388 $ 3,338 $ 50 1.5 % $ 10,169 $ 10,008 $ 161 1.6 % The increase in amortization expense from the three and nine months ended September 25, 2020 to the three and nine months ended September 24, 2021 was primarily due to incremental amortization expense from the acquisition of a customer relationship intangible asset in December 2020 in connection with our acquisition of a precision machining operation in Nogales, Mexico. Interest Expense, Net Three Months Ended Change Nine Months Ended Change September 24, 2021 September 25, 2020 Amount % September 24, 2021 September 25, 2020 Amount % (dollars in thousands) Interest expense, net $ 1,487 $ 2,052 $ (565 ) -27.5 % $ 4,997 $ 6,728 $ (1,731 ) -25.7 % The decrease in interest expense from the third quarter of 2020 to the third quarter of 2021 was primarily due to a 47‑basis point decrease in our weighted average interest rate, from 3.37% to 2.90%, and a $38.7 million decrease in our average amount borrowed during the quarter. The decrease in interest expense from the nine months ended September 25, 2020 to the nine months ended September 24, 2021 was primarily due to an 81‑basis point decrease in our weighted average interest rate, from 3.89% to 3.08%, and a $21.6 million decrease in our average amount borrowed during the nine‑month period. The decrease in our weighted average interest rate during the three and nine months ended September 24, 2021 was primarily driven by continued quarterly reductions in our consolidated leverage ratio, starting with the first quarter of 2020, which lowers the applicable margin component of our all-in interest rate. Additionally, for the nine months ended September 24, 2021, our weighted average interest rate was favorably impacted by reductions in LIBOR during the first half of 2021 compared to the first half of 2020. Interest expense for the three and nine months ended September 24, 2021 is net of an insignificant amount of interest income, net of premium amortization, associated with our marketable securities, which were originally purchased in May 2021. Other Expense (Income), Net Three Months Ended Change Nine Months Ended Change September 24, 2021 September 25, 2020 Amount % September 24, 2021 September 25, 2020 Amount % (dollars in thousands) Other expense (income), net $ (104 ) $ 242 $ (346 ) n/m $ 103 $ 213 $ (110 ) -51.6 % The change in other expense, net from the three and nine months ended September 25, 2020 to the three and nine months ended September 24, 2021 was primarily due to currency exchange rate changes during the quarter as a result of transactions denominated in the local currencies of our foreign operations. These local currencies consist primarily of the Singapore dollar, Malaysian ringgit, and euro. 19 Income Tax Expense ( Benefit ) Three Months Ended Change Nine Months Ended Change September 24, 2021 September 25, 2020 Amount % September 24, 2021 September 25, 2020 Amount % (dollars in thousands) Income tax expense (benefit) $ 1,277 $ (310 ) $ 1,587 n/m $ 3,529 $ (363 ) $ 3,892 n/m The increase in income tax expense from the third quarter of 2020 to the third quarter of 2021 was primarily due to increased taxable income in the U.S. in 2021 and a reduction in benefits from share-based compensation activity during the quarter. The increase in income tax expense from the nine months ended September 25, 2020 to the nine months ended September 24, 2021 was primarily due to increased taxable income in the U.S., partially offset by an increase in benefits from share-based compensation activity during the nine-month period. Non‑GAAP Financial Results Management uses non-GAAP metrics to evaluate our operating and financial results. We believe the presentation of non-GAAP results is useful to investors for analyzing business trends and comparing performance to prior periods, along with enhancing investors’ ability to view our results from management’s perspective. Non-GAAP gross margin is defined as non-GAAP gross profit divided by net sales. Non-GAAP gross profit and non-GAAP net income are defined as: gross profit or net income excluding, as applicable, (1) amortization of intangible assets, share-based compensation expense, and non-recurring expenses, including contract settlement losses and facility shutdown costs, to the extent they are present in gross profit or net income; and (2) the tax impacts associated with our non-GAAP adjustments, as well as non-recurring discrete tax items. Non-GAAP diluted earnings per share (“EPS”) is defined as non-GAAP net income divided by weighted average diluted ordinary shares outstanding during the period. Non-GAAP results have limitations as an analytical tool, and you should not consider them in isolation or as a substitute for our results reported under GAAP. Other companies may calculate non-GAAP results differently or may use other measures to evaluate their performance, both of which could reduce the usefulness of our non-GAAP results as a tool for comparison. Because of these limitations, you should consider non-GAAP results alongside other financial performance measures and results presented in accordance with GAAP. In addition, in evaluating non-GAAP results, you should be aware that in the future we will incur expenses such as those that are the subject of adjustments in deriving non-GAAP results and you should not infer from our presentation of non-GAAP results that our future results will not be affected by these expenses or any unusual or non-recurring items. The following table presents our unaudited non‑GAAP gross profit and non-GAAP gross margin and and a reconciliation from gross profit, the most comparable GAAP measure, for the periods indicated: Three Months Ended Nine Months Ended September 24, 2021 September 25, 2020 September 24, 2021 September 25, 2020 (dollars in thousands, except per share amounts) U.S. GAAP gross profit $ 43,637 $ 32,506 $ 130,502 $ 90,542 Non-GAAP adjustments: Share-based compensation 343 289 947 724 Other non-recurring expense, net (1) — — 106 — Contract settlement loss (2) — — — 1,386 Facility shutdown costs (3) — 408 2,297 1,883 Fair value adjustment to inventory from acquisitions (4) — — 211 — Non-GAAP gross profit $ 43,980 $ 33,203 $ 134,063 $ 94,535 U.S. GAAP gross margin 16.6 % 14.3 % 16.1 % 13.5 % Non-GAAP gross margin 16.7 % 14.6 % 16.6 % 14.1 % (1) Included in this amount for the nine months ended September 24, 2021 is primarily a non-recurring settlement charge. (2) During the first quarter of 2020, we reached a mutual settlement with the counterparty of a contract dispute and, accordingly, recorded a $1.4 million contract settlement loss to cost of sales. (3) During the second quarter of 2020, we announced the closure of our manufacturing facility in Union City, California, which we completed during the second quarter of 2021. As of the end of the second quarter of 2021, the facility was closed and vacated, and no further charges are expected on a go-forward basis. 20 Included in this amount for the third quarter of 2020 are (i) severance costs associated with affected employees of $0.2 million, and (ii) accelerated depreciation charges associated with property and equipment expected to be abandoned at the time of facility closure of $0.2 million. Included in this amount for the nine months ended September 24, 2021 are (i) write-off costs associated with inventories determined during the period to be obsolete of $2.6 million and (ii) severance costs associated with affected employees of $0.2 million, partially offset by (iii) a gain realized upon the sale of equipment and other fixed assets of $0.5 million. Included in this amount for the nine months September 25, 2020 are (i) write-off costs associated with inventories determined during the period to be obsolete of $1.3 million, (ii) severance costs associated with affected employees of $0.4 million, and (iii) accelerated depreciation charges associated with property and equipment expected to be abandoned at the time of facility closure of $0.2 million. (4) As part of our purchase price allocation for our acquisition of a precision machining operation in Mexico in December 2020, we recorded acquired-inventory at fair value, resulting in a fair value step-up of $0.2 million. This was subsequently released to cost of sales in the first quarter of 2021 as acquired-inventory was sold. The following table presents our unaudited non‑GAAP net income and non-GAAP diluted EPS and a reconciliation from net income, the most comparable GAAP measure, for the periods indicated: Three Months Ended Nine Months Ended September 24, 2021 September 25, 2020 September 24, 2021 September 25, 2020 (dollars in thousands, except per share amounts) U.S. GAAP net income $ 18,537 $ 10,548 $ 56,040 $ 20,758 Non-GAAP adjustments: Amortization of intangible assets 3,388 3,338 10,169 10,008 Share-based compensation 3,010 2,417 8,106 7,423 Other non-recurring expense, net (1) 110 239 498 3,124 Contract settlement loss (2) — — — 1,386 Facility shutdown costs (3) — 481 2,682 2,017 Fair value adjustment to inventory from acquisitions (4) — — 211 — Tax adjustments related to non-GAAP adjustments (5) (1,624 ) (2,442 ) (6,253 ) (5,508 ) Non-GAAP net income $ 23,421 $ 14,581 $ 71,453 $ 39,208 U.S. GAAP diluted EPS $ 0.64 $ 0.45 $ 1.93 $ 0.89 Non-GAAP diluted EPS $ 0.81 $ 0.62 $ 2.47 $ 1.69 Shares used to compute diluted EPS 29,024,862 23,347,460 28,961,308 23,199,618 ( 1 ) Included in this amount for the third quarter of 2021 are primarily non-capitalized costs incurred in connection with our implementation of a new ERP system. Included in this amount for the the third quarter of 2020 are primarily (i) non-capitalized costs incurred in connection with our implementation of a new ERP system and a Sarbanes-Oxley (“SOX”) compliance program. Included in this amount for the nine months ended September 24, 2021 are primarily (i) non-capitalized costs incurred in connection with our implementation of a new ERP system and a SOX compliance program. Included in this amount for the nine months ended September 25, 2020 are primarily (i) a $1.8 million bonus payment to our former CEO in connection with his transition to executive chairman, (ii) acquisition-related expenses associated with a two-year retention agreement between the Company and key management personnel of IAN, (iii) non-capitalizable costs incurred in connection with our implementation of a new ERP system and a SOX compliance program, and (iv) a non-recurring settlement charge. (2) See footnote 2 to the previous table reconciling gross profit to non-GAAP gross profit. (3) During the second quarter of 2020, we announced the closure of our manufacturing facility in Union City, California, which we completed during the second quarter of 2021. As of the end of the second quarter of 2021, the facility was closed and vacated, and no further charges are expected on a go-forward basis. Included in this amount for the third quarter of 2020 are are (i) severance costs associated with affected employees of $0.2 million, and (ii) accelerated depreciation charges associated with property and equipment expected to be abandoned at the time of facility closure of $0.3 million. 21 Included in this amount for the nine months ended September 24, 2021 are (i) write-off costs associated with inventories determined during the period to be obsolete of $2.6 million, (ii) other shutdown related charges of $0.3 million, (iii) severance costs associated with affected employees of $0.2 million, partially offset by (iv) a gain realized upon the sale of equipment and other fixed assets of $0.5 million. Included in this amount for the nine months September 25, 2020 are (i) write-off costs associated with inventories determined during the period to be obsolete of $1.3 million, (ii) severance costs associated with affected employees of $0.4 million, and (iii) accelerated depreciation charges associated with property and equipment expected to be abandoned at the time of facility closure of $0.3 million. (4) See footnote 4 to the previous table reconciling gross profit to non-GAAP gross profit. ( 5 ) Adjusts U.S. GAAP income tax expense (benefit) for impact of our non-GAAP adjustments, as defined, including the impacts of excluding share-based compensation, amortization of intangible assets, and other non-recurring expenses. This adjustment also excludes the impact of non-recurring discrete tax items. Liquidity and Capital Resources We ended the third quarter of 2021 with cash of $128.0 million, a decrease of $124.9 million from December 25, 2020. The decrease during the nine months ended September 24, 2021 was primarily due to purchases of marketable securities of $105.0 million, payments on long-term debt of $36.6 million, and capital expenditures of $18.7 million, partially offset by cash provided by operating activities of $24.4 million, proceeds from maturities and sales of marketable securities of $6.0 million, and net proceeds from the issuance of shares under our share-based compensation plans of $4.5 million. We believe that our cash, the amounts available under our revolving credit facility, and our cash flows from operations will be sufficient to meet our anticipated cash needs for at least the next 12 months. Cash Flow Analysis The following table sets forth a summary of operating, investing, and financing activities for the periods presented: Nine Months Ended September 24, 2021 September 25, 2020 (in thousands) Cash provided by (used in) operating activities $ 24,411 $ (1,878 ) Cash used in investing activities (117,233 ) (8,291 ) Cash provided by (used in) financing activities (32,039 ) 28,476 Net decrease in cash $ (124,861 ) $ 18,307 Operating Activities Our cash provided by operating activities of $24.4 million during the nine months ended September 24, 2021 consisted of net income of $56.0 million and net non-cash charges of $27.3 million, partially offset by an increase in our net operating assets and liabilities of $58.9 million. Net non-cash charges primarily consisted of depreciation and amortization of $17.7 million, share-based compensation of $8.1 million, and deferred taxes of $1.0 million. The increase in our net operating assets and liabilities was primarily due to (i) an increase in inventories of $59.2 million, driven mostly by higher purchasing activity pursuant to strong customer demand and certain supply chain constraints, primarily due to a government-ordered shutdown of our Malaysia factory in July 2021, constraining production and shipments; (ii) an increase in accounts receivable of $20.7 million, driven mostly by higher sales in the third quarter of 2021 compared to the fourth quarter of 2020, as well as timing of customer payments; partially offset by (iii) an increase in accounts payable of $21.2 million, which is primarily due to higher purchases during the third quarter of 2021 compared to the fourth quarter of 2020, partially offset by timing of payments to suppliers. 22 Investing Activities Our cash used in investing activities of $117.2 million during the nine months ended September 24, 2021 consisted of purchases of marketable securities of $105.0 million, capital expenditures of $18.7 million, partially offset by proceeds from maturities and sales of marketable securities and proceeds from the sale of equipment and other fixed assets associated with our planned closure of our Union City, California facility of $0.5 million. Our capital expenditures primarily include capacity expansion projects, including machinery and clean rooms, at our factories. Pursuant to ASU 2018‑15, implementation costs associated with our new ERP implementation of approximately $2.1 million are capitalized as other non-current assets on our consolidated balances sheets and are reflected in cash provided by operating activities. Financing Activities Our cash used in financing activities of $32.0 million during the nine months ended September 24, 2021 consisted of payments on long-term debt of $36.6 million, of which $30.0 million was a paydown on our revolving credit facility, partially offset by net proceeds from the issuance of shares under our share-based compensation plans of $4.5 million. Critical Accounting Policies Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected. The critical accounting policies requiring estimates, assumptions, and judgments that we believe have the most significant impact on our consolidated financial statements are identified and described in our annual consolidated financial statements and the notes included in our Annual Report on Form 10‑K for the year ended December 25, 2020 (our “Annual Report”).