What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-24 compared with 2022-02-28 · 118 added, 112 removed, 186 unchanged (55% of the section changed)

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Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in the section entitled Item 1A – Risk Factors.

For a comparison of our financial condition, results of operations, and cash flows for 2020 to 2019, refer to Part II, Item 7 in our 2020 Annual Report on Form 10‑K, which was filed with the Securities and Exchange Commission on March 5, 2021.

For a comparison of our financial condition, results of operations, and cash flows for 2021 to 2020, refer to Part II, Item 7 in our 2021 Annual Report on Form 10‑K, which was filed with the Securities and Exchange Commission on February 28, 2022.

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 primary 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.

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(dollars in thousands, except per share amounts)

Non-GAAP gross margin

Operating expenses

Operating income

Non-GAAP net income

Non-GAAP diluted EPS

Gross margin, non-GAAP

Operating margin

Operating margin, non-GAAP

Net income, non-GAAP

Diluted EPS, non-GAAP

Key Factors Affecting Our Business

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In 2022, we derived over 90% of our sales from the semiconductor capital equipment industry.

Demand for semiconductor capital equipment can fluctuate significantly based on changes in general economic conditions, including consumer spending, demand for semiconductor products, pricing, and other factors.

Demand for semiconductor capital equipment can fluctuate significantly based on changes in regulatory intervention and general economic conditions, including consumer spending, demand for semiconductor products, pricing, and other factors.

In the past, these fluctuations have resulted in significant variations in the levels of spending within the semiconductor capital equipment industry, and as a result, our results of operations.

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Our customers are a significant component of this consolidation, resulting in our sales being concentrated in a few customers.

In 2021, our top two customers were Lam Research and Applied Material, accounting for approximately 53% and 32% of sales, respectively.

In 2022, our top two customers were Lam Research and Applied Material, accounting for a combined 79% of sales.

Our customers often require reduced prices or other pricing, quality, or delivery commitments as a condition to their purchasing from us in any given period or increasing their purchase volume, which can, among other things, result in reduced gross margins in order to maintain or expand our market share.

Although we do not have any long-term contracts that require customers to place orders with us, Lam Research and Applied Materials have been our customers for over a decade.

In November 2021, we acquired IMG, and California-based leader in precision machining and specialty joining and plating, for approximately $270.0 million.

In November 2021, we acquired IMG, a California-based leader in precision machining and specialty joining and plating, for approximately $270.0 million.

Between 2017 and 2020, we engaged in four separate business combinations for a combined investment of approximately $200.0 million.

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We intend to continue to evaluate opportunistic acquisitions to supplement our organic growth, and any such acquisitions could have a material impact on our business and results of operations.

COVID‑19 Pandemic and Global Supply Chain

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 of 2021 due to the EMCO restrictions.

In addition to the recent impacts in Malaysia, we experienced 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.

Additionally, our supply chain has been negatively impacted as a result of the larger, ongoing global supply chain disruption, impacting our ability to source certain components timely.

These factors 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.

Macroeconomic Conditions

We participated in the continuation of unprecedented demand for semiconductor capital equipment in 2022, driven by increased secular demand for semiconductors, as well as the ever-increasing levels of complexity in the manufacturing thereof.

Macroeconomic factors have, however, created, and may continue to create, volatility and uncertainty in our industry, including persistent levels of high inflation, higher interest rates, foreign currency rate fluctuations, and supply chain challenges.

Additionally, increased controls around exporting goods and services to China may impact the overall size of the semiconductor capital equipment industry going forward, and the conflict in Ukraine has given rise to potential global security issues that may adversely affect international business and economic conditions as well as economic sanctions imposed by the international community that have impacted the global economy.

Regarding the COVID‑19 pandemic, although our factories and operations are currently not directly affected by any restrictions, measures, or shutdowns, increases in positive case rates may change the extent to which our business becomes adversely impacted by such restrictions, measures, or shutdowns on a go-forward basis.

While these challenging macroeconomic conditions may impact business and customers in the near-term, we believe secular demand for semiconductors, both in quantity and performance, and constant technological innovation will drive long-term, sustainable growth in the semiconductor capital equipment industry.

Components of Our Results of Operations

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Research and development – Research and development expense consists primarily of activities related to product design and other development activities, new component testing and evaluation, and test equipment and fixture development.

We expect research and development expense will continue to increase in absolute dollars due to continued development of our own IP and product offerings for existing and new customer markets and increases in our customers’ demand for new product designs.

We expect research and development expense will continue to increase in absolute dollars due to continued development of our own intellectual property and product offerings for existing and new customer markets and increases in our customers’ demand for new product designs.

Selling, general, and administrative – Selling expense consists primarily of salaries and commissions paid to our sales and sales support employees and other costs related to the sales of our products.

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Interest expense consists of interest on our outstanding debt under our credit facilities, including amortization of debt issuance costs, and any other indebtedness we may incur in the future.

Borrowings under our credit facilities are generally subject to variable interest rates, which fluctuate depending on macroeconomic factors and can result in increased interest expense in periods of rising interest rates.

Other Expense (Income), Net

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Accordingly, these transactions are not subject to material exchange rate fluctuations.

Income Tax Expense (Benefit)

Income tax expense (benefit) consists primarily of taxes on our taxable income related to our domestic and foreign operations, offset by the benefit of our tax holiday in Singapore, which was extended through 2026.

In 2021, the benefit related to our Singapore tax holiday, compared to the Singapore statutory tax rate, was $9.7 million.

Income tax is also impacted by certain withholding taxes, stock option and RSU activity, and credit generation.

Stock options and RSUs have historically provided a discrete benefit to our provision for income taxes in the period they were exercised or vested, respectively, due to increases in our stock price.

Income Tax Expense

Income tax expense consists primarily of taxes on our taxable income related to our domestic and foreign operations, offset by the benefit of our tax holiday in Singapore, which was extended through 2026.

In 2022, the tax benefit resulting from our Singapore tax holiday, compared to the Singapore statutory tax rate, was approximately $11.7 million.

Income tax is also impacted by certain withholding taxes, stock option and restricted share unit (“RSU”) activity, and credit generation.

Critical Accounting Estimates

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Inventories are stated at the lower of cost or net realizable value.

The majority of our inventory values are based upon standard costs.

On a quarterly basis, we analyze the value of our inventory and periodically record write-downs for estimated excess and obsolete inventory.

This analysis is based on estimated future consumption compared to inventory quantities on-hand.

The estimate is based on how assumptions of historical consumption, recency of purchases, backlog, and other factors indicate future consumption.

The majority of our inventories are valued on a standard cost basis, which approximates actual costs on a first-in, first-out basis.

The remainder of our inventories are valued on an average cost basis, which approximates actual costs on a first-in, first-out basis.

Quarterly, we assess the value of our inventory and periodically write it down for excess quantities or obsolescence to its estimated net realizable value.

This assessment is based on estimated future consumption compared to inventory quantities on-hand.

The estimate for future consumption is based on how assumptions of historical consumption, recency of purchases, backlog, and other factors indicate future consumption.

Once the value of inventory is adjusted, the original cost of our inventory, less the write-down, represents its new cost basis.

Reversal of these write-downs are recognized only when the related inventory has been scrapped or sold .

During 2022, 2021, and 2020, we wrote down inventory determined to be excessive or obsolete by $5.0 million, $1.9 million, and $4.6 million, respectively.

Business Combinations

We account for business combinations using the acquisition method of accounting, which requires that assets acquired and liabilities assumed are recorded at fair value.

Any excess of the purchase price over the fair value of specifically identifiable assets is recorded as goodwill.

Significant judgment is required in estimating the fair value of intangible assets.

Our typical intangible assets acquired include customer relationships and order backlogs.

The most critical areas of judgment in applying the acquisition method include selecting the appropriate valuation techniques and assumptions that are used to measure the acquired assets and assumed liabilities at fair value.

There are several methods that can be used to determine the fair value of intangible assets.

We typically use an income approach to value the specifically identifiable intangible assets, which is based on forecasts of expected future cash flows.

Under the income approach, we utilize a multi-period excess earnings methodology to value the primary intangible asset of a business combination.

Assumptions around expected future cash flows used in the fair value estimates are based on available historical information and industry, market, and peer data to inform our future expectations.

We typically consult with an independent advisor to assist in the valuation of intangible assets.

While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition dates, our estimates are inherently uncertain and subject to refinement.

In addition, unanticipated market or macroeconomic events and circumstances may occur that could affect the accuracy or validity of the estimates and assumptions.

If the estimates do not reflect future results or assumptions utilized in the valuation are inaccurate, then our recorded intangible assets and goodwill may become impaired.

In November 2021, in connection with our acquisition of IMG, we recorded identifiable intangibles and preliminary goodwill of $65.0 million and $161.0 million, respectively.

We believe the accounting estimate related to excess and obsolete inventory is a critical accounting estimate because it requires us to make assumptions about future inventory consumption and recoverability of cost, which can be uncertain.

Changes in these estimates can have a material impact on our financial statements.

Results of Operations

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Interest expense, net

Other expense, net

Other expense (income), net

Income before income taxes

Income tax expense (benefit)

Income tax expense

The following table sets forth our results of operations as a percentage of our total sales for the periods presented.

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Interest expense, net

Other expense, net

Other expense (income), net

Income before income taxes

Income tax expense (benefit)

Income tax expense

Comparison of 2022 and 2021

(dollars in thousands)

The increase in net sales from 2020 to 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, as noted above in the commentary above under the heading, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Key Factors Affecting Our Business – COVID‑19 Pandemic and Global Supply Chain .

The increase in net sales from 2021 to 2022 was primarily due to strong demand from our customers as a result of continued growth in the global wafer fabrication equipment market throughout much of 2022, as well as incremental sales from our acquisition of IMG in November 2021.

Net sales to U.S.

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The increase in the gross amounts of cost of sales and gross profit from 2021 to 2022 was primarily due to the factors mentioned in the commentary above under the above heading, Net Sales .

The 250 basis point increase in our gross margin from 2020 to 2021 was primarily due to was primarily due to increased factory utilization, cost reduction initiatives, and customer mix, partially offset by increased materials and logistics costs and increased factory inefficiency due to challenges in our supply chain, as noted above in the commentary above under the heading, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Key Factors Affecting Our Business – COVID‑19 Pandemic and Global Supply Chain .

Additionally, our gross margin for 2021 was impacted by the following discrete items on a year-over-year basis:

We incurred a $1.4 million contract settlement loss in 2020 that did not recur in 2021, favorably impacting gross margin, and we incurred $1.7 million in charges related to acquired-inventory being recorded at fair value, the majority of which was from our acquisition of IMG, unfavorably impacting gross margin..

The 40 basis point increase in gross margin from 2021 to 2022 was primarily due to increased factory utilization and operating leverage, as well as accretive margins from our acquisition of IMG in November 2021, partially offset by increased materials, logistics, and labor costs observed throughout 2022.

These cost increases were primarily due to investments in our capacity to service customer demand, inflationary macroeconomic conditions that put pressure on the cost of labor, materials and factory costs, and the impacts of certain supply chain challenges on logistics costs and factory efficiency.

Research and Development

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Research and development

The increase in research and development expenses from 2020 to 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.

The increase in research and development expenses from 2021 to 2022 was primarily due to increased employee-related expense of $2.6 million, inclusive of increased share-based compensation expense of $0.3 million, as we expand our engineering team to design and engineer next generation, high performance solutions for our customers, as well as increased program costs, including consulting, travel, materials, and fixtures costs, related to the development of our new products .

Selling, General, and Administrative

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Selling, general, and administrative

The increase in selling, general, and administrative expense from 2020 to 2021 was primarily due to (i) $4.4 million in transaction costs associated with our acquisition of IMG in November 2021, a (ii) $4.3 million in employee-related costs (excluding share-based compensation expense) due to increased headcount, salaries, and bonus charges, (iii) $1.3 million in increased IT hardware, software, and service costs, and (iv) $0.8 million in increased share-based compensation expense, partially offset by $1.8 million in executive transition costs that we incurred in 2020 that did not recur in 2021.

The increase in selling, general, and administrative expense from 2021 to 2022 was primarily due to (1) incremental costs from our acquisition of IMG in November 2021 of $11.6 million, primarily consisting of employee-related expenses;

(2) increased employee-related expenses (excluding IMG) of $5.5 million, which includes $1.4 million in increased share-based compensation expense;

(3) loss accruals recorded in the first and third quarters of 2022 relating to expected settlements of employment-related legal matters totaling $4.1 million;

(4) increased consulting and professional fees of $2.1 million;

(5) increased depreciation expense and amortization of capitalized cloud-computing implementation costs of $1.1 million;

(6) increased IT, software, and related services costs of $0.7 million;

(7) increased travel costs of $0.6 million;

and (8) increased occupancy-related costs of $0.5 million;

partially offset by (9) reduced transaction costs associated with our acquisition of IMG of $4.1 million.

Amortization of Intangible Assets

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Amortization of intangibles assets

The increase in amortization expense from 2020 to 2021 was due to incremental amortization expense from intangible assets acquired in connection with our acquisition of IMG in November 2021.

Interest Expense

The increase in amortization expense from 2021 to 2022 was primarily due to incremental amortization expense from intangible assets acquired in connection with our acquisition of IMG, partially offset by reduced amortization expense from certain intangible assets becoming fully amortized in the fourth quarter of 2021 and the first quarter of 2022 .

Interest Expense , Net

(dollars in thousands)

Interest expense, net

The decrease in interest expense from 2020 to 2021 was primarily due to a 101 basis point decrease in our weighted average interest rate during the year, from 3.75% to 2.74%, and a $10.7 million decrease in the average amount borrowed during the year.

The decrease in our weighted average interest rate from 2020 to 2021 was primarily due to decreases in the applicable margin component of our all-in borrowing rate due to continuous decreases in our leverage ratio during 2020 and 2021 and a lower overall applicable margin we incur for borrowings under our October 2021 amended and restated credit agreement.

Other Expense, Net

Weighted average borrowings outstanding

Weighted average borrowing rate

The increase in interest expense, net from 2021 to 2022 was due to a $116.0 million increase in our average amount borrowed during the year and a 63 basis point increase in our weighted average borrowing rate.

Our average amount borrowed was primarily the result of drawing $130.0 million on our revolving credit facility in November 2021 to partially fund our acquisition of IMG.

The year-over-year increase in our weighted average borrowing rate was primarily due to higher overall prevailing short-term borrowing rates in the second half of 2022 compared to 2021, partially offset by a lower overall applicable margin following the amendment and restatement of our credit agreement in October 2021.

Other Expense (Income), Net

(dollars in thousands)

Other expense (income), net

The increase in other expense, net from 2020 to 2021 was primarily due to a $0.7 million loss on extinguishment of debt we incurred in connection with entering into an amended and restated credit agreement in October 2021, partially offset by favorable foreign currency fluctuations for transaction denominated in currencies other than the U.S.

Income Tax Benefit

The change in other expense (income), net from 2021 to 2022 was primarily due to currency exchange rate fluctuations during the year, reflecting an overall strengthening U.S.

dollar against local currency payables of our foreign operations .

Income Tax Expense

(dollars in thousands)

Income tax expense (benefit)

The increase in tax expense from 2020 to 2021 was primarily due to increased taxable income in the U.S, partially offset by increased discrete benefits from share-based compensation activity.

Non-GAAP Results

Management uses non-GAAP metrics to evaluate our operating and financial results.

Income tax expense

Income before income taxes

Effective income tax rate

The decrease in income tax expense from 2021 to 2022 was primarily due to decreased taxable income in the U.S., partially offset by reduced benefits from share-based compensation activity.

The reduction in benefits from share-based compensation activity was primarily due to RSU awards vesting in 2022 at lower fair values relative to their grant-date fair values compared to 2021, in which RSU awards vested at higher fair values relative to their grant-date fair values .

Non-GAAP Financial Results

Management uses these 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 gross profit, operating income, and net income are defined as:

gross profit, operating income, or net income, respectively, excluding (1) amortization of intangible assets, share-based compensation expense, and discrete or infrequent charges and gains that are outside of normal business operations, including acquisition-related costs, contract and legal settlement gains and losses, facility shutdown costs, and severance costs associated with reduction-in-force programs, to the extent they are present in gross profit, operating income, and net income;

and (2) the tax impacts associated with these non-GAAP adjustments, as well as non-recurring discrete tax items.

Non-GAAP diluted EPS is defined as non-GAAP net income divided by weighted average diluted ordinary shares outstanding during the period.

Non-GAAP gross margin and non-GAAP operating margin are defined as non-GAAP gross profit and non-GAAP operating income, respectively, divided by net sales.

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.

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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:

The following table presents our unaudited non‑GAAP gross profit and non-GAAP gross margin and a reconciliation from gross profit, the most comparable GAAP measure, for the periods indicated:

(dollars in thousands)

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Facility shutdown costs (1)

Contract settlement loss (2)

Fair value adjustment to inventory from acquisitions (2)

Other non-recurring expense, net (4)

Non-GAAP gross profit

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Non-GAAP gross margin

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.

Included in this amount for 2021 are (i) write-off costs associated with inventories determined during the period to be obsolete of $2.9 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 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 $0.5 million, and (iii) accelerated depreciation charges associated with property and equipment that was expected to be abandoned at the time of facility closure of $0.4 million.

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.

As part of our purchase price allocation for our acquisition of IMG in November 2021 and our acquisition of a precision machining operation in Mexico in December 2020, we recorded acquired-inventories at fair value, resulting in a fair value step-up of $3.9 million (preliminary) and $0.2 million, respectively.

These amounts are released to cost of sales as acquired-inventories are sold.

Included in this amount for 2021 is primarily a non-recurring settlement charge.

Included in this amount for the 2020 is a $3.6 million loss on the sale of inventories and property and equipment from our Tampa, Florida facility, as well as costs associated with restructuring and transitioning key leadership roles.

The following table presents our unaudited non‑GAAP net income and non-GAAP diluted EPS and and a reconciliation from net income, the most comparable GAAP measure, for the periods indicated:

During the second quarter of 2020, we announced the closure of our manufacturing facility in Union City, California, which we completed in 2021.

Included in this amount are costs and charges directly related to the facility closure.

As part of the purchase price allocations of our acquisitions of IMG in November 2021 and a precision machining operation in Mexico in December 2020, we recorded acquired-inventories at fair value, resulting in a fair value step-up.

These amounts represent the release of the step-up to cost of sales as acquired-inventories were sold.

Included in this amount for 2022 are severance costs associated with our global reduction-in-force program that began near the end of 2022.

The following table presents our unaudited non ‑GAAP operating income and non-GAAP operating margin and a reconciliation from operating income, the most comparable GAAP measure, for the periods indicated:

(dollars in thousands)

GAAP operating income

Non-GAAP adjustments:

Amortization of intangible assets

Share-based compensation

Facility shutdown costs (1)

Settlement loss (2)

Fair value adjustment to inventory from acquisitions (3)

Acquisition costs (4)

Non-GAAP operating income

GAAP operating margin

Non-GAAP operating margin

During the second quarter of 2020, we announced the closure of our manufacturing facility in Union City, California, which we completed in 2021.

Included in this amount are costs and charges directly related to the facility closure.

During the first and third quarters of 2022, we recorded loss accruals of $3.1 million and $1.0 million, respectively, relating to expected settlements of employment-related legal matters.

We expect the settlements to be finalized and paid within 12 months.

These amounts represent the release of the step-up to cost of sales as acquired-inventories were sold.

Included in this amount are transaction-related costs incurred in connection with our acquisition of IMG in November 2021.

Included in this amount for 2022 are severance costs associated with our global reduction-in-force program that began near the end of 2022.

Included in this amount for 2021 are primarily non-capitalized costs incurred in connection with our implementation of a new ERP system and our implementation of a Sarbanes-Oxley compliance program.

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:

(dollars in thousands, except per share amounts)

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Facility shutdown costs (1)

Contract settlement loss (2)

Settlement loss (2)

Fair value adjustment to inventory from acquisitions (3)

Acquisition costs (4)

Other non-recurring expense, net (5)

Loss on extinguishment of debt (6)

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Shares used to compute diluted EPS

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.

Included in this amount for 2021 are (i) write-off costs associated with inventories determined during the period to be obsolete of $2.9 million, (ii) other shutdown related charges of $0.3 million, and (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.

See footnote 2 to the reconciliation of U.S.

GAAP gross profit to non-GAAP gross profit above.

See footnote 2 to the reconciliation of U.S.

GAAP gross profit to non-GAAP gross profit above.

Included in this amount are incremental transaction-related costs incurred in connection with our acquisition of IMG in November 2021.

Included in this amount for 2021 are primarily non-capitalized costs incurred in connection with our implementation of a new ERP system and a Sarbanes Oxley (“SOX”) compliance program and a non-recurring settlement charge.

Included in this amount for 2020 are primarily (i) a $3.6 million loss on the sale of inventories and property and equipment from our Tampa, Florida facility, (ii) non-capitalized costs incurred in connection with our implementation of a new ERP system and a SOX compliance program, and (iii) costs associated with restructuring and transitioning key leadership roles, including a $1.8 million bonus payment to our former Chief Executive Officer in connection with his transition to executive chairman .

In October 2021, we entered into an amended and restated credit agreement, which includes a group of financial institutions as direct lenders underlying the agreement.

Under the debt modification literature codified in ASC 470, a portion of the refinance was treated as an extinguishment.

Accordingly, $0.7 million of existing capitalized deferred issuance costs were written off as a loss on extinguishment of debt.

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.