What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-07 compared with 2023-08-09 · 129 added, 69 removed, 226 unchanged (47% of the section changed)

15 unchanged sentences

our dependence on expenditures by manufacturers in the semiconductor capital equipment industry;

our reliance on a very small number of original equipment manufacturer customers for a significant portion of our sales;

our reliance on a very small number of original equipment manufacturer ("OEM") customers for a significant portion of our sales;

our customers’ significant negotiating leverage;

26 unchanged sentences

For a description of our non-GAAP metrics and reconciliations to the most comparable GAAP metrics, please refer below to the section entitled Non-GAAP Financial Results within this report.

Three Months Ended Six Months Ended

2022 June 30,

Three Months Ended Nine Months Ended

September 29,

2023 September 30,

2022 September 29,

2023 September 30,

(dollars in thousands, except per share amounts)

11 unchanged sentences

During much of 2022, many of these factors impacted our ability to fulfill high customer demand;

however, the industry entered a cyclical downturn in the fourth quarter of 2022, leading to reductions in spending on semiconductor capital equipment, the primary industry in which we operate, resulting in weakened customer demand in the first half of 2023.

In particular, industry overcapacity and a number of macroeconomic factors may have contributed to this reduced spending environment, including persistent levels of high inflation, higher interest rates, supply chain disruptions, and other macroeconomic uncertainties.

Additionally, increased export controls for semiconductor-related goods and services shipped to China and delayed business investment in electronic memory capacity had varying levels of unfavorable consequences to our business.

To help mitigate these impacts and to better align our resources and cost structure with current and expected future levels of business, we initiated labor and other cost reduction initiatives starting in the fourth quarter of 2022 and continuing through the first quarter of 2023.

As a result of these programs, we incurred severance charges of $1.1 million and $1.3 million in the fourth quarter of 2022 and first quarter of 2023, respectively.

As a result of these programs, we incurred severance charges of $1.1 million, $1.3 million, and $0.8 million in the fourth quarter of 2022 and the first and third quarters of 2023, respectively.

While challenging macroeconomic conditions have impacted and will continue to impact our business and customers in the near term, we believe demand for semiconductors, semiconductor capital equipment, and our products will return to growth, fueled by the long-term growing need for more semiconductor productive capacity and enhanced process technologies.

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Financial Statements (Unaudited) – Note 8—Long-Term Debt ).

An analysis of the changes in our debt-service cost is provided below under the heading Comparison of the Three and Six Months Ended June 30, 2023 and July 1, 2022 – Interest expense, net.

An analysis of the changes in our debt-service cost is provided below under the heading Comparison of the Three and Nine Months Ended September 29, 2023 and September 30, 2022 – Interest expense, net.

Results of Operations

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The period‑to‑period comparison of results is not necessarily indicative of results for future periods.

Three Months Ended Six Months Ended

2022 June 30,

Three Months Ended Nine Months Ended

September 29,

2023 September 30,

2022 September 29,

2023 September 30,

(in thousands

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

Three Months Ended Six Months Ended

2022 June 30,

Three Months Ended Nine Months Ended

September 29,

2023 September 30,

2022 September 29,

2023 September 30,

Net sales 100.0 100.0 100.0 100.0

12 unchanged sentences

Net income (loss) (5.3) 8.2 (5.1) 6.0

Comparison of the Three and Six Months Ended June 30, 2023 and July 1, 2022

Three Months Ended Change Six Months Ended Change

2022 Amount % June 30,

Comparison of the Three and Nine Months Ended September 29, 2023 and September 30, 2022

Three Months Ended Change Nine Months Ended Change

September 29,

2023 September 30,

2022 Amount % September 29,

2023 September 30,

2022 Amount %

1 unchanged sentence

Net sales $ 196,761 $ 355,643 $ (158,882) (44.7) % $ 607,639 $ 978,349 $ (370,710) (37.9) %

The decrease in net sales from the three and six months ended July 1, 2022 to the three and six months ended June 30, 2023 was primarily due to reduced customer demand stemming from reduced spending within the semiconductor capital equipment industry.

The decrease in net sales from the three and nine months ended September 30, 2022 to the three and nine months ended September 29, 2023 was primarily due to reduced customer demand stemming from reduced spending within the semiconductor capital equipment industry.

Further detail is provided above under the section entitled Macroeconomic Conditions and Business Update .

Cost of sales, Gross profit, and Gross margin

Three Months Ended Change Six Months Ended Change

2022 Amount % June 30,

Three Months Ended Change Nine Months Ended Change

September 29,

2023 September 30,

2022 Amount % September 29,

2023 September 30,

2022 Amount %

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Gross margin 12.2 % 17.9 % -570 bps 13.7 % 16.7 % -300 bps

The decrease in the gross amounts of cost of sales and gross profit from the three and six months ended July 1, 2022 to the three and six months ended June 30, 2023 was primarily due to the factors mentioned in the commentary above under the heading, “ Net Sales .”

The decrease in the gross amounts of cost of sales and gross profit from the three and nine months ended September 30, 2022 to the three and nine months ended September 29, 2023 was primarily due to the factors mentioned in the commentary above under the heading, “ Net Sales .”

The decrease in gross margin from three and nine months ended September 30, 2022 to the three and nine months ended September 29, 2023 was primarily due to reduced factory utilization as a result of lower volume due to reduced customer demand.

Additionally, increased excess and obsolete inventory expense unfavorably impacted gross margin by 150bps and 50bps for the three and nine months ended September 29, 2023.

Research and development

Three Months Ended Change Six Months Ended Change

2022 Amount % June 30,

Three Months Ended Change Nine Months Ended Change

September 29,

2023 September 30,

2022 Amount % September 29,

2023 September 30,

2022 Amount %

1 unchanged sentence

Research and development $ 5,188 $ 4,859 $ 329 6.8 % $ 14,689 $ 14,617 $ 72 0.5 %

The increase in research and development expenses from the second quarter of 2022 to the second quarter of 2023 was primarily due to increased program costs related to the development of our new products.

The decrease from the six months ended July 1, 2022 to the six months ended June 30, 2023 was primarily due to reduced employee-related expense.

The increase in research and development expenses from the three and nine months ended September 30, 2022 to the three and nine months ended September 29, 2023 was primarily due to increased program costs related to the development of our new products.

Selling, general, and administrative

Three Months Ended Change Six Months Ended Change

2022 Amount % June 30,

Three Months Ended Change Nine Months Ended Change

September 29,

2023 September 30,

2022 Amount % September 29,

2023 September 30,

2022 Amount %

1 unchanged sentence

Selling, general, and administrative $ 20,066 $ 22,195 $ (2,129) (9.6) % $ 59,733 $ 66,565 $ (6,832) (10.3) %

The decrease in selling, general, and administrative expense from the second quarter of 2022 to the second quarter of 2023 was primarily due to reduced employee-related expenses, inclusive of share-based compensation expense, of $2.2 million and reduced occupancy-related costs of $0.3 million, partially offset by increased IT system and related consulting and software costs of $1.0 million.

The decrease in selling, general, and administrative expense from the six months ended July 1, 2022 to the six months ended June 30, 2023 was primarily due to a $3.1 million loss accrual recorded in the first quarter of 2022 relating to an expected settlement of an employment-related legal matter, reduced employee-related expenses, inclusive of share-based compensation expense, of $2.7 million, and reduced occupancy-related costs of $0.4 million, partially offset by increased IT system and related consulting and software costs of $1.6 million.

The decrease in selling, general, and administrative expense from the third quarter of 2022 to the third quarter of 2023 was primarily due to reduced employee-related expenses, inclusive of share-based compensation expense, of $1.3 million, a $1.0 million loss accrual recorded in the third quarter of 2022 relating to an expected settlement of an employment-related legal matter, and reduced occupancy-related costs of $0.2 million, partially offset by increased consulting and software costs of $0.7 million.

The decrease in selling, general, and administrative expense from the nine months ended September 30, 2022 to the nine months ended September 29, 2023 was primarily due to reduced employee-related expenses, inclusive of share-based compensation expense, of $4.2 million, loss accruals recorded in the first and third quarters of 2022 relating to an expected settlement of employment-related legal matters totaling $4.1 million, and reduced occupancy-related costs of $0.6 million, partially offset by increased information technology systems and related consulting and software costs of $2.2 million.

Amortization of intangible assets

Three Months Ended Change Six Months Ended Change

2022 Amount % June 30,

Three Months Ended Change Nine Months Ended Change

September 29,

2023 September 30,

2022 Amount % September 29,

2023 September 30,

2022 Amount %

1 unchanged sentence

Amortization of intangible assets $ 3,639 $ 3,959 $ (320) (8.1) % $ 11,565 $ 13,963 $ (2,398) (17.2) %

The decrease in amortization expense from the three and six months ended July 1, 2022 to the three and six months ended June 30, 2023 was primarily due to certain intangible assets becoming fully amortized in 2022.

The decrease in amortization expense from the three and nine months ended September 30, 2022 to the three and nine months ended September 29, 2023 was primarily due to certain intangible assets becoming fully amortized in 2022.

Interest expense, net

Three Months Ended Change Six Months Ended Change

2022 Amount % June 30,

Three Months Ended Change Nine Months Ended Change

September 29,

2023 September 30,

2022 Amount % September 29,

2023 September 30,

2022 Amount %

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Weighted average borrowing rate 7.06 % 3.97 % +309 bps 6.60 % 2.74 % +386 bps

The increase in interest expense, net from the three and six months ended July 1, 2022 to the three and six months ended June 30, 2023 was due to an increase in our average amount borrowed and an increase in our weighted average borrowing rate.

The increase in the average amount borrowed was due to a net draw on our revolving credit facility of $15.0 million in the second quarter of 2022, partially offset by quarterly term loan payments and a $5.0 million payment on our revolving credit facility in the second quarter of 2023.

The increase in our weighted average borrowing rate is due to increased risk-free, short-term borrowing rates as a result of tightening monetary policy, which impacts BSBY, the variable component of our borrowing rate under our credit facilities.

The increase in interest expense, net from the three and nine months ended September 30, 2022 to the three and nine months ended September 29, 2023 was due to increases in our weighted average borrowing rate, partially offset by decreases in our average amount borrowed.

The increases in our weighted average borrowing rate were primarily due to increased risk-free, short-term borrowing rates as a result of tightening monetary policy, which impacts the Bloomberg Short Term Bank Yield ("BSBY"), the variable component of our borrowing rate under our credit facilities.

The decreases in our average amount borrowed was primarily due to quarterly term loan payments and payments on our revolving credit facilities in the second and third quarters of 2023.

Other expense (income), net

Three Months Ended Change Six Months Ended Change

2022 Amount % June 30,

Three Months Ended Change Nine Months Ended Change

September 29,

2023 September 30,

2022 Amount % September 29,

2023 September 30,

2022 Amount %

1 unchanged sentence

Other expense (income), net $ 29 $ (210) $ 239 n/m $ 913 $ (674) $ 1,587 n/m

The change in other expense, net from the three and six months ended July 1, 2022 to the three and six months ended June 30, 2023 was primarily due to currency exchange rate fluctuations during the quarter related to our local currency payables of our foreign operations.

The change in other expense, net from the three and nine months ended September 30, 2022 to the three and nine months ended September 29, 2023 was primarily due to currency exchange rate fluctuations during the quarter related to our local currency payables of our foreign operations.

Income tax expense

Three Months Ended Change Six Months Ended Change

2022 Amount June 30,

Three Months Ended Change Nine Months Ended Change

September 29,

2023 September 30,

2022 Amount September 29,

2023 September 30,

(dollars in thousands)

2 unchanged sentences

Effective income tax rate -4.4 % 1.6 % -67.4 % 4.9 %

The increase in income tax expense from the three and six months ended July 1, 2022 to the three and six months ended June 30, 2023 was primarily due to recording a valuation allowance against our U.S.

federal and state deferred tax assets, resulting in a $11.1 million charge to income tax expense.

The decrease in income tax expense from the third quarter of 2022 to the third quarter of 2023 was primarily due to reduced U.S.

tax expense as a result of lower taxable income in the U.S.

year-over-year, partially offset by higher foreign income tax expense.

Because we recorded a valuation allowance against our U.S.

state and federal deferred income taxes, we currently do not record tax benefits on our GAAP U.S.

taxable losses.

The increase in income tax expense from the nine months ended September 30, 2022 to the nine months ended September 29, 2023 was primarily due to recording a valuation allowance against our U.S.

federal and state deferred tax assets, resulting in an $11.1 million charge to income tax expense during the second quarter of 2023.

Non‑GAAP Financial Results

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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.

All non-GAAP adjustments are presented on a gross basis.

Non-GAAP gross profit, operating income, and net income are defined as:

gross profit, operating income, or net income (loss), 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 (loss), respectively;

gross profit, operating income (loss), or net income (loss), 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 (loss), and net income (loss), respectively;

and (2) the tax impacts associated with these non-GAAP adjustments, as well as non-recurring discrete tax items, including deferred tax asset valuation allowance charges.

All non-GAAP adjustments are presented on a gross basis;

the related income tax effects, including current and deferred income tax expense, are included in the adjustment line under the heading "Tax adjustments related to non-GAAP adjustments".

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.

5 unchanged sentences

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:

Three Months Ended Six Months Ended

2022 June 30,

Three Months Ended Nine Months Ended

September 29,

2023 September 30,

2022 September 29,

2023 September 30,

(dollars in thousands)

11 unchanged sentences

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:

Three Months Ended Six Months Ended

2022 June 30,

Three Months Ended Nine Months Ended

September 29,

2023 September 30,

2022 September 29,

2023 September 30,

(dollars in thousands, except per share amounts)

10 unchanged sentences

Non-GAAP operating margin 2.2 % 11.6 % 3.9 % 10.1 %

(1) During the first quarter of 2022, we recorded a loss accrual of $3.1 million relating to an expected settlement of an employment-related legal matter.

We expect the settlement to be finalized and paid in 2023.

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

(2) As part of the purchase price allocation of our acquisition of IMG, we recorded acquired-inventories at fair value, resulting in a fair value step-up.

3 unchanged sentences

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 Six Months Ended

2022 June 30,

All non-GAAP adjustments are presented on a gross basis;

the related income tax effects, including current and deferred income tax expense, are included in the adjustment line under the heading "Tax adjustments related to non-GAAP adjustments".

Three Months Ended Nine Months Ended

September 29,

2023 September 30,

2022 September 29,

2023 September 30,

(dollars in thousands, except per share amounts)

13 unchanged sentences

Shares used to compute non-GAAP diluted EPS 29,733,904 29,050,396 29,507,060 28,965,834

(1) During the first quarter of 2022, we recorded a loss accrual of $3.1 million relating to an expected settlement of an employment-related legal matter.

We expect the settlement to be finalized and paid in 2023.

(2) As part of the purchase price allocation of our acquisition of IMG, we recorded acquired-inventories at fair value, resulting in a fair value step-up.

3 unchanged sentences

(5) Adjusts U.S.

GAAP income tax expense for impact of our non-GAAP adjustments, as defined, including the impacts of excluding share-based compensation and amortization of intangible assets.

GAAP income tax expense for impact of our non-GAAP adjustments, which are presented on a gross basis, including the impacts of excluding share-based compensation and amortization of intangible assets.

The adjustment reflects income tax benefits generated from U.S.

taxable losses, on a non-GAAP basis, as we do not have a valuation allowance against our U.S.

federal and state deferred tax assets on a non-GAAP basis.

Refer to footnote 6 below.

(6) During the second quarter of 2023, we recorded a valuation allowance of $11.1 million against our U.S.

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by the end of 2023, projections of future taxable income, and other quantitative and qualitative information.

We believe adjusting for this discrete tax event is consistent with our non-GAAP financial results policy, which emphasizes current period operating performance and comparability with historical periods.

On a non-GAAP basis, we added back the expense associated with our recognition of a valuation allowance against our U.S.

federal and state deferred tax assets, because recording a valuation allowance would not have been appropriate, as we were in, and expect to remain in a three-year cumulative U.S.

income position on a non-GAAP basis.

Liquidity and Capital Resources

3 unchanged sentences

Our primary liquidity requirements arise from:

(i) working capital requirements, including procurement of raw materials inventory for use in our factories and employee-related costs, (ii) business acquisitions, (iii) interest and principal payments under our credit facilities, (iv) research and development investments and capital expenditures, and (v) payment of income taxes.

(i) working capital requirements, including procurement of raw materials inventory for use in our factories and employee-related costs, (ii) business acquisitions, (iii) interest and principal payments under our credit facilities, (iv) research and development investments, (v) capital expenditures, and (vi) payment of income taxes.

We have no significant long-term purchase commitments related to procuring raw materials inventory.

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(i) sales to our customers and the related changes in our net operating assets and liabilities and (ii) proceeds from our credit facilities and equity offerings, when applicable.

Our credit facilities are comprised of $150.0 million term loan facility and a $250.0 million revolving credit facility, of which $95.0 million remained available to draw on as of June 30, 2023.

Our credit facilities are comprised of a $150.0 million term loan facility and a $250.0 million revolving credit facility, of which $105.0 million remained available to draw on as of September 29, 2023.

Summary of Cash Flows

We ended the second quarter of 2023 with cash and cash equivalents of $84.6 million, a decrease of $1.9 million from the prior year ended December 30, 2022.

The decrease was primarily due to capital expenditures of $10.8 million and net payments on our credit facilities of $8.8 million, partially offset by net cash provided by operating activities of $16.1 million.

We ended the third quarter of 2023 with cash and cash equivalents of $75.9 million, a decrease of $10.5 million from the prior year ended December 30, 2022.

The decrease was primarily due to net payments on our credit facilities of $20.6 million and capital expenditures of $13.2 million, partially offset by net cash provided by operating activities of $20.1 million.

The following table sets forth a summary of operating, investing, and financing activities for the periods presented:

Six Months Ended

Nine Months Ended

September 29,

2023 September 30,

(in thousands)

3 unchanged sentences

Net decrease in cash $ (10,537) $ (19,032)

Our cash provided by operating activities of $16.1 million during the six months ended June 30, 2023 consisted of net loss of $20.7 million, net non-cash charges of $35.3 million, consisting primarily of deferred income taxes of $10.0 million, depreciation and amortization of $17.1 million, and share-based compensation expense of $7.9 million, and a decrease in our net operating assets and liabilities of $1.4 million.

Our cash provided by operating activities of $20.1 million during the nine months ended September 29, 2023 consisted of net loss of $31.1 million, offset by net non-cash charges of $48.4 million, consisting primarily of depreciation and amortization of $26.0 million, share-based compensation expense of $12.7 million, and deferred income taxes of $9.4 million, and a decrease in our net operating assets and liabilities of $2.7 million.

Deferred taxes consists primarily of a $11.1 million charge related to a valuation allowance recorded against our U.S.

and state deferred tax assets in the second quarter of 2023.

The decrease in our net operating assets and liabilities of $1.4 million during the six months ended June 30, 2023 was primarily due to a decrease in accounts receivable and inventories of $40.6 million and $17.5 million, respectively, partially offset by a decrease in accounts payable and other liabilities of $45.0 million and $11.6 million, respectively.

This compares to cash used in operating activities of $26.9 million during the six months ended July 1, 2022.

The increase in cash provided by operating activities from the six months ended July 1, 2022 to the six months ended June 30, 2023 was primarily due to favorable changes in the balances of accounts receivable and inventories during the six months ended June 30, 2023 compared to the six months ended July 1, 2022, partially offset by less aggregate net income (loss) and net non-cash charges and a larger unfavorable change in the balance of accounts payable during the six months ended June 30, 2023 compared to the six months ended July 1, 2022

Cash used in investing activities during the six months ended June 30, 2023 and July 1, 2022 consisted of capital expenditures.

The reduction in capital expenditures from the six months ended July 1, 2022 to the six months ended June 30, 2023 was due to reduced factory capacity expansion projects.

Cash used in financing activities during the six months ended June 30, 2023 consisted of net payment on our credit facilities of $8.8 million, partially offset by net proceeds from share-based compensation activity of $1.7 million.

Cash provided by financing activities during the six months ended July 1, 2022 consisted of net proceeds from our credit facilities of $11.3 million and net proceeds from share-based compensation activity of $0.6 million.

The change in net payments on our credit facilities was due to fluctuations in working capital requirements relative to the geographic distribution of available cash during the periods then ended.

The increase in net proceeds from share-based compensation activity from the six months ended July 1, 2022 to the six months ended June 30, 2023 was due to increased stock option exercises.

The decrease in our net operating assets and liabilities of $2.7 million during the nine months ended September 29, 2023 was primarily due to a decrease in accounts receivable and inventories of $33.0 million and $16.8 million, respectively, partially offset by a decrease in accounts payable and accrued and other liabilities of $34.8 million and $20.9 million, respectively.

This compares to cash used in operating activities of $7.3 million during the nine months ended September 30, 2022.

The increase in cash provided by operating activities from the nine months ended September 30, 2022 to the nine months ended September 29, 2023 was primarily due to favorable changes in the balances of accounts receivable and inventories during the nine months ended September 29, 2023 compared to the nine months ended September 30, 2022, partially offset by less aggregate net income (loss) and net non-cash charges and unfavorable changes in the balance of accounts payable and accrued and other liabilities during the nine months ended September 29, 2023 compared to the nine months ended September 30, 2022.

Cash used in investing activities during the nine months ended September 29, 2023 and September 30, 2022 consisted of capital expenditures.

The reduction in capital expenditures from the nine months ended September 30, 2022 to the nine months ended September 29, 2023 was due to reduced factory capacity expansion projects.

Cash used in financing activities during the nine months ended September 29, 2023 consisted of net payment on our credit facilities of $20.6 million, partially offset by net proceeds from share-based compensation activity of $3.3 million.

Cash provided by financing activities during the nine months ended September 30, 2022 consisted of net proceeds from our credit facilities of $9.4 million and net proceeds from share-based compensation activity of $0.9 million.

The change in net payments on, and net proceeds from, our credit facilities relates to fluctuations in cash required for working capital purposes relative to the geographic distribution of available cash during the periods then ended.

The increase in net proceeds from share-based compensation activity from the nine months ended September 30, 2022 to the nine months ended September 29, 2023 was due to increased stock option exercises.

Critical Accounting Estimates

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis