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Item 7. Management’s Discussion and Analysis

2026-02-20 compared with 2025-02-21 · 99 added, 61 removed, 275 unchanged (37% of the section changed)

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in our 2024 Annual Report on Form 10‑K, which was filed with the SEC on February 21, 2025.

We are a leader in the design, engineering, and manufacturing of critical fluid delivery subsystems and components for semiconductor capital equipment.

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.

We are a leader in the design, engineering, and manufacturing of critical fluid delivery subsystems and components primarily for semiconductor capital equipment, as well as other industries such as defense/aerospace and medical.

Our product offerings include gas and chemical delivery subsystems, collectively known as fluid delivery 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 provide precision-machined components, weldments, electron beam (“e‑beam”) and laser-welded components, precision vacuum and hydrogen brazing and surface treatment technologies, and other proprietary products for the commercial space, aerospace, defense, medical device, and general-industrial industries.

This vertically integrated portion of our business is primarily focused on metal and plastic parts that are used in gas and chemical systems, respectively.

Our chemical delivery subsystems precisely blend and dispense the reactive liquid chemistries used in semiconductor manufacturing processes such as chemical-mechanical planarization, electroplating, and cleaning.

We also provide precision-machined components, weldments, e‑beam and laser welded components, precision vacuum and hydrogen brazing and surface treatment technologies, and other proprietary products.

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 original equipment manufacturers (“OEMs”) outsource all or a portion of the design, engineering, and manufacturing of their gas delivery subsystems to a few specialized suppliers, including us.

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 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 allows OEMs to leverage suppliers’ highly specialized engineering, design, and production skills while focusing their internal resources on their own value-added processes.

Outsourcing these subsystems allows OEMs to leverage their suppliers’ highly specialized engineering, design, and production skills while focusing their internal resources on their own value-added processes.

Outsourcing enables 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.

We have a global footprint with production facilities in California, Minnesota, Oregon, Texas, Singapore, Malaysia, and Mexico.

The following table summarizes key financial information for the periods indicated.

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Macroeconomic Conditions

The semiconductor industry is cyclical in nature and is impacted by macroeconomic factors in the markets and industries in which we operate.

Such factors include market trends, supply chain shortages, availability of skilled labor, geopolitical tension and retaliatory trade policies, and other factors.

The industry entered a cyclical downturn in the fourth quarter of 2022 for the primary semiconductor equipment markets we serve, resulting in weakened customer demand.

Although the total market for semiconductor capital equipment has experienced year-over-year stability and growth, inventory digestion at our customers and the relative spending levels within the markets we primarily serve, in particular lower spending levels for deposition and etch equipment, has resulted in continued lower demand from our customers over the past two years relative to the total semiconductor capital equipment market, despite incremental growth in demand.

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 cost reduction initiatives starting in the fourth quarter of 2022, which continued through the second quarter of 2024.

Industry overcapacity and a number of macroeconomic factors may contribute to a reduced spending environment, which combined with increased export controls for advanced semiconductor-related goods and services shipped to China and delayed business investment in electronic memory capacity may have varying levels of unfavorable consequences to our business.

We are continually monitoring the global trade environment and any changes in tariffs, trade agreements, restrictions or sanctions that may impact us, our manufacturing facilities, or our customers.

President Trump has issued executive orders directing the U.S.

to impose new tariffs on imports from China, temporarily stayed an order imposing new tariffs on Canada and Mexico, issued the imposition of tariffs on imported steel and aluminum products, and may impose additional tariffs on these or other nations.

Given our manufacturing presence in Mexico, we are currently evaluating the potential impact of potential tariffs on Mexican imports on our business.

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.

The semiconductor capital equipment industry is inherently cyclical.

Overall semiconductor equipment spending in 2025 increased compared to 2024 levels, characterized by healthy demand in our primary markets of etch and deposition.

During fiscal year 2025, our revenue grew 11.6% to $947.7 million, driven by sustained demand from our primary customers, including Lam Research and Applied Materials.

To better align our global operations with evolving customer demand and drive operational efficiencies, we initiated a geographic footprint rationalization and restructuring plan in 2025.

As part of this realignment, we began transitioning certain manufacturing activities and relocating machining assets to our expanded high-volume facilities, while concurrently consolidating our footprint through the closure of our facilities in Scotland and Korea.

During fiscal year 2025, we incurred restructuring, exit, severance, and related asset impairment charges of approximately $35 million in connection with these activities.

While we continue to benefit from the broader growth and cyclical recovery in the semiconductor equipment industry, our operations and financial results remain subject to significant risks and uncertainties within the global trade and regulatory landscape.

Specifically, the global trade environment remains complex.

The outcome of ongoing negotiations between the United States and other countries regarding "reciprocal tariffs" and national security-based trade measures remains uncertain and could materially affect our material costs, product pricing, and overall demand.

To date, although we have experienced modest increases in the costs of certain materials, tariffs have not had a material adverse impact on our overall demand or cost structure.

Additionally, our operations in Mexico currently benefit from exemptions under the U.S.-Mexico-Canada Agreement;

however, we cannot provide any assurance that these exclusions and exemptions will remain in place indefinitely, particularly as the USMCA undergoes its scheduled joint review in July 2026.

Any new, expanded, or reciprocal tariffs could have a material adverse impact on our business, financial condition, and results of operations in the future.

government also continues to expand and refine export controls and similar regulations aimed at restricting access to advanced semiconductor technology, particularly in China.

These controls, which require specific export licenses for many of our customers' products, create ongoing market uncertainty, could reduce demand for our equipment, and may disrupt our global supply chain.

While challenging macroeconomic and geopolitical conditions may persist in the near and intermediate term, we remain confident in our belief that the long-term demand for semiconductors, semiconductor capital equipment, and our products will continue to grow, driven by an increasing need for expanded semiconductor productive capacity and advanced manufacturing process technologies.

Components of Our Results of Operations

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The functional currency of our international operations is the U.S.

Transactions denominated in currencies other than the functional currency generate foreign exchange gains and losses that are included in other expense (income), net on the accompanying consolidated statements of operations.

Transactions denominated in currencies other than the functional currency generate foreign exchange gains and losses that are included in other expense, net on the accompanying consolidated statements of operations.

Substantially all of our sales contracts, and most of our agreements with third-party suppliers, provide for pricing and payment in U.S.

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therefore, we are not recording income tax benefits related to our U.S.

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

Income tax is also impacted by certain withholding taxes, Pillar 2 top-up taxes, stock option and restricted share unit (“RSU”) activity, and credit generation.

Critical Accounting Estimates

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Gross margin 9.3 % 12.2 % -290 bps

The decrease in gross margin from 2023 to 2024 was primarily due to unfavorable sales mix and increased factory labor and overhead costs, partially offset by lower severance costs associated with our global reduction-in-force programs (+20bps) and lower excess and obsolete inventory expense (+10bps).

The decrease in gross margin from 2024 to 2025 was primarily due to increased restructuring, country exit, and reduction-in-force related costs;

increased supplies and tooling, employee, and occupancy costs;

and unfavorable sales mix, partially offset by lower excess and obsolete inventory expense.

Research and development

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Research and development $ 23,086 $ 23,018 $ 68 0.3 %

The increase in research and development expenses from 2023 to 2024 was primarily due to increased material and service costs from our new product development programs of $1.9 million and increased employee-related expenses of $0.8 million, inclusive of share-based compensation expense.

Research and development expenses remained approximately unchanged from 2024 to 2025.

Selling, general, and administrative

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Selling, general, and administrative $ 95,650 $ 79,384 $ 16,266 20.5 %

Selling, general, and administrative expense remained approximately unchanged from 2023 to 2024.

The increase in selling, general, and administrative expenses from 2024 to 2025 was primarily due to increased non-recurring restructuring, country exit, and reduction-in-force related costs of $9.4 million, increased employee-related costs of $2.8 million, increased legal and professional consulting costs of $1.3 million, increased outside service provider costs of $1.0 million, increased costs associated with software and IT services of $0.8 million, and increased share-based compensation of $1.7 million, partially offset by reduced transaction-related costs associated with our acquisitions pipeline of $0.8 million.

Amortization of intangible assets

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Weighted average borrowing rate 6.16 % 7.31 % -115 bps

The decrease in interest expense, net from 2023 to 2024 was primarily due to decreases in the weighted average amounts borrowed, partially offset by an increase in our weighted average borrowing rate.

The decrease in interest expense, net from 2024 to 2025 was primarily due to decreases in the weighted average amounts borrowed and decreases in our weighted average borrowing rate.

The reduction in our weighted average borrowings outstanding was primarily due to paying off our revolving credit facility in the first quarter of 2024.

The increase in our weighted average borrowing rate was due to higher applicable margin as a result of higher leverage ratios in 2024 (+29bps) and higher Bloomberg Short-Term Bank Yield ("BSBY") and Secured Overnight Financing Rate ("SOFR") rates as a result of a higher short-term borrowing interest rate macroeconomic environment (+22bps).

The decrease in our weighted average borrowing rate was due to lower average Secured Overnight Financing Rate ("SOFR") rates (-93bps), the variable component of our borrowing rate, and lower applicable margin (-22bps), the fixed component of our borrowing rate, as a result of lower average leverage ratios in 2025.

Other expense, net

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Other expense, net $ 1,674 $ 1,148 $ 526 45.8 %

The change in other expense, net from 2023 to 2024 was primarily due to currency exchange rate fluctuations during the year related to our local currency payables of our foreign operations.

The change in other expense, net from 2024 to 2025 was primarily due to debt issuance and modification costs connected to amending our credit agreement.

Income tax expense

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Effective tax rate (11.0) % (15.3) % +430 bps

The decrease in income tax expense from 2023 to 2024 was primarily due to recording a valuation allowance against our U.S.

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

The increase in income tax expense from 2024 to 2025 was primarily due to the impact of Organization for Economic Co-operation and Development ("OECD") Global Anti-Base Erosion Model Rules ("Pillar Two") on our Singapore operations, resulting in an increased tax accrual of $2.0 million.

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

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

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 transaction-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;

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 transaction-related costs, contract and legal settlement gains and losses, facility shutdown costs, inventory impairment charges, 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) with respect to non-GAAP net income (loss), the tax impacts associated with these non-GAAP adjustments, as well as non-recurring discrete tax items, including deferred tax asset valuation allowance charges.

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Non-GAAP adjustments:

Restructuring plan costs (1) 20,711 —

Share-based compensation 2,856 3,360

Facility shutdown costs (2) 2,760 —

Other (3) 1,171 908

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Non-GAAP gross margin 12.2 % 12.7 %

(1) Represents severance costs associated with our global reduction-in-force programs.

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

(1) Represents the costs associated with our Consolidation Restructuring Plan.

Included in this amount for the twelve months ended December 26, 2025 are:

(i) inventory impairment costs of $19.8 million;

and (ii) severance costs associated with affected employees of $0.9 million.

(2) Represents costs associated with the exit from our Scotland and Korea operations.

Included in this amount for the twelve months ended December 26, 2025 are:

(i) inventory write-off charges of $1.7 million;

and (ii) severance costs associated with affected employees of $1.1 million.

(3) Represents severance costs associated with our global reduction-in-force programs (other than severance costs associated with the exit from our Scotland and Korea operations, as described above).

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

2025 December 27,

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Non-GAAP adjustments:

Amortization of intangible assets 8,572 14,734

Restructuring plan costs (1) 26,644 —

Share-based compensation 16,728 15,576

Transaction-related costs (1) 785 —

Amortization of intangible assets 8,311 8,572

Facility shutdown costs (2) 6,726 —

Other (3) 1,408 1,600

Transaction-related costs (4) — 785

Non-GAAP operating income $ 20,545 $ 18,893

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Non-GAAP operating margin 2.2 % 2.2 %

(1) Represents the costs associated with our Consolidation Restructuring Plan.

Included in this amount for the twelve months ended December 26, 2025 are:

(i) inventory impairment costs of $19.8 million;

(ii) fixed asset charges of $3.1 million;

(iii) severance costs associated with affected employees of $1.7 million;

(iv) other direct and incremental restructuring related costs of $1.2 million;

and (v) operating lease ROU asset impairment charges of $0.9 million.

(2) Represents costs associated with the exit from our Scotland and Korea operations.

Included in this amount for the twelve months ended December 26, 2025 are:

(i) severance costs associated with affected employees of $1.8 million;

(ii) inventory write-off charges of $1.7 million;

(iii) operating lease ROU asset impairment charges of $1.3 million;

(iv) other direct and incremental facility exit-related costs of $1.3 million;

and (v) accelerated depreciation charges of $0.6 million.

(3) Represents severance costs associated with our global reduction-in-force programs (other than severance costs associated with the exit from our Scotland and Korea operations, as described above).

(4) Represents transaction-related costs incurred in connection with our acquisitions pipeline.

(2) Represents severance costs associated with our global reduction-in-force programs, and, for 2024, the amount includes $0.5 million of costs incurred in connection with exiting and consolidating one of our U.S.-based manufacturing facilities.

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

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Non-GAAP adjustments:

Amortization of intangible assets 8,572 14,734

Restructuring plan costs (1) 26,644 —

Share-based compensation 16,728 15,576

Transaction-related costs (1) 785 —

Amortization of intangible assets 8,311 8,572

Facility shutdown costs (2) 6,726 —

Other (3) 1,408 1,600

Transaction-related costs (4) — 785

Loss on extinguishment of debt (5) 667 —

Tax adjustments related to non-GAAP adjustments (6) 129 175

Tax expense from valuation allowance (4) — 11,094

Tax expense (benefit) from valuation allowance (7) 83 —

Non-GAAP net income $ 7,915 $ 5,888

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Non-GAAP diluted EPS $ 0.23 $ 0.18

Shares used to compute diluted non-GAAP EPS 33,135,552 29,514,553

(1) Represents transaction-related costs incurred in connection with our acquisition pipeline.

(2) Represents severance costs associated with our global reduction-in-force programs.

Additionally, for 2024, the amount includes $0.5 million of costs incurred in connection with exiting and consolidating one of our U.S.-based manufacturing facilities.

(3) Adjusts U.S.

GAAP income tax expense for the impact of our non-GAAP adjustments, which are presented on a gross basis.

During the second quarter of 2023, we recorded a valuation allowance against our U.S.

federal and state deferred tax assets on a GAAP basis.

In the first quarter of 2024, we determined that the valuation allowance should be recognized against our U.S.

federal and state deferred tax assets on a non-GAAP basis as we were not in a three-year cumulative U.S.

income position on a non-GAAP basis.

Accordingly, from the first quarter of 2024 and forward, tax expense on a GAAP and non-GAAP basis reflects a valuation allowance against our U.S.

federal and state deferred tax assets.

Refer to footnote 6 below.

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

federal and state deferred tax assets.

The valuation allowance was recorded based on an assessment of available positive and negative evidence, including an estimate of being in a three-year cumulative loss position in the U.S.

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

Shares used to compute non-GAAP diluted EPS 34,358,211 33,135,552

(1) Represents the costs associated with our Consolidation Restructuring Plan.

Included in this amount for 2025 are:

(i) inventory impairment costs of $19.8 million;

(ii) fixed asset charges of $3.1 million;

(iii) severance costs associated with affected employees of $1.7 million;

(iv) other direct and incremental restructuring related costs of $1.2 million;

and (v) operating lease ROU asset impairment charges of $0.9 million.

(2) Represents costs associated with the exit from our Scotland and Korea operations.

Included in this amount for the twelve months ended December 26, 2025 are:

(i) severance costs associated with affected employees of $1.8 million;

(ii) inventory write-off charges of $1.7 million;

(iii) operating lease ROU asset impairment charges of $1.3 million;

(iv) other direct and incremental facility exit-related costs of $1.3 million;

and (v) accelerated depreciation charges of $0.6 million.

(3) Represents severance costs associated with our global reduction-in-force programs (other than severance costs associated with the exit from our Scotland and Korea operations, as described above).

(4) Represents transaction-related costs incurred in connection with our acquisitions pipeline.

(5) In September 2025, 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, $0.2 million of existing capitalized deferred issuance costs were written off as a loss on extinguishment of debt and $0.5 million of third-party and lender fees were expensed as incurred.

(6) Adjusts GAAP income tax expense for the impact of our non-GAAP adjustments, which are presented on a gross basis.

(7) During the first quarter of 2025, we recorded a valuation allowance against the deferred tax assets of our Korea operations.

Liquidity and Capital Resources

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Summary of Cash Flows

We ended 2024 with cash and cash equivalents of $108.7 million, an increase of $28.7 million from 2023, which was primarily due to net proceeds of $136.7 million from our issuance of 3.8 million ordinary shares in March 2024 in connection with an underwritten public offering and net cash provided by operating activities of $27.9 million, partially offset by net payments on credit facilities of $120.6 million and capital expenditures of $17.6 million.

We ended 2025 with cash and cash equivalents of $98.3 million, a decrease of $10.4 million from 2024, which was primarily due to capital expenditures of $36.2 million and net payments on our credit facilities of $4.4 million, partially offset by cash provided by operating activities of $29.9 million.

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

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Net increase (decrease) in cash $ (10,379) $ 28,714 $ (6,515)

Our cash provided by operating activities of $27.9 million during 2024 consisted of net non-cash charges of $46.0 million, which consisted primarily of depreciation and amortization of $30.7 million and share-based compensation expense of $15.6 million, and a decrease in our net operating assets and liabilities of $2.7 million, partially offset by net loss of $20.8 million.

The decrease in our net operating assets and liabilities of $2.7 million during 2024 was primarily due to an increase in accounts payable of $29.1 million, partially offset by an increase in accounts receivable of $19.9 million, a decrease in accrued and other liabilities of $4.6 million, and an increase in inventories of $4.2 million.

Our cash provided by operating activities of $29.9 million during 2025 consisted of net non-cash charges of $73.7 million, which consisted primarily of depreciation and amortization of $33.5 million, inventory impairment of $19.8 million, and share-based compensation expense of $16.7 million, and a decrease in our net operating assets and liabilities of $9.0 million, partially offset by a net loss of $52.8 million.

The decrease in our net operating assets and liabilities of $9.0 million during 2025 was primarily due to a decrease in accounts receivable of $16.1 million and a decrease in prepaid assets of $7.9 million, partially offset by a decrease in accrued and other liabilities of $7.1 million and a decrease in accounts payable of $6.4 million.

Cash used in investing activities during 2025 and 2024 consisted of capital expenditures.

Cash provided by financing activities during 2024 consisted of net proceeds of $136.7 million from our issues of 3.8 million ordinary shares in March 2024 in connection with an underwritten public offering and net proceeds from share-based compensation activity of $2.4 million, partially offset by net payments on our credit facilities of $120.6 million.

The increase in cash provided by financing activities from 2023 to 2024 was primarily due to net proceeds from our issuance of shares, partially offset by increased net payments on our credit facilities.

Cash used in financing activities during 2025 consisted of net payments on our credit facilities of $4.4 million.

The decrease in cash provided by financing activities from 2024 to 2025 was primarily due to net proceeds from our issuance of shares in the prior year.

Recent Accounting Pronouncements

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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-K

Item 7. Management’s Discussion and Analysis