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Item 7. Management’s Discussion and Analysis

2024-11-14 compared with 2023-11-16 · 65 added, 58 removed, 262 unchanged (32% of the section changed)

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This section of this Form 10-K generally discusses fiscal 2024 and 2023 items and year-to-year comparisons between fiscal 2024 and 2023.

Discussions of fiscal 2021 items and year-to-year comparisons between fiscal 2022 and 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the 2022 Annual Report filed on November 17, 2022, and amended on August 8, 2023 (the “2022 Annual Report”).

Discussions of fiscal 2022 items and year-to-year comparisons between fiscal 2023 and 2022 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the 2023 Annual Report filed on November 16, 2023 (the "2023 Annual Report").

Our Management’s Discussion and Analysis (“MD&A”) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows.

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Any variable consideration such as sales incentives are recognized as a reduction of net revenue at the time of revenue recognition.

The Company’s performance obligations relate to contracts with a duration of less than one year, therefore as allowed under ASC 606, we have opted not to disclose the unsatisfied performance obligations for contracts with original expected durations of less than one year.

The length of time between invoicing and payment is not significant under our payment terms.

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Indicators of potential impairment, including significant and unforeseen customer losses, a significant adverse change in legal factors or in the business climate, a significant adverse action or assessment by a regulator, a significant stock price decline or unanticipated competition, may lead the Company to perform interim goodwill impairment assessments.

The Company performed its annual impairment test in the fourth quarter of fiscal 2024 and elected to perform the quantitative impairment test as permitted by ASC 350.

Based on the quantitative assessment performed on all its reporting units, the Company concluded that no impairment on the Company's recorded goodwill was required.

The persistent macroeconomic headwinds could, in the future, require changes to assumptions utilized in the determination of the estimated fair values of the reporting units which could result in future goodwill impairment charges.

Net sales and earnings growth rates could be negatively impacted by reductions or changes in demand for our products.

The discount rate utilized in our valuation model could also be impacted by changes in the underlying interest rates and risk premiums included in the determination of the cost of capital.

For further information on goodwill and other intangible assets, see Note 4 to our consolidated financial statements in Item 8.

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Results of Operations for fiscal 2024 and 2023

The following table reflects the income from operations for fiscal 2023 and 2022:

The following table reflects the (loss) / income from operations for fiscal 2024 and 2023:

(dollar amounts in thousands) 2024 2023 $ Change % Change

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Operating expenses 361,250 319,218 42,032 13.2 %

Income from operations $ 39,437 $ 470,072 $ (430,635) (91.6) %

(Loss) / Income from operations $ (92,496) $ 39,437 $ (131,933) (334.5) %

Bookings and Backlog

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Bookings $ 430,994 $ 656,170

(in thousands) September 30, 2023 October 1, 2022

(in thousands) September 28, 2024 September 30, 2023

Backlog $ 148,585 $ 423,824

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Our net revenues for fiscal 2024 decreased as compared to our net revenues for fiscal 2023.

The decrease in net revenue is primarily due to lower volume in Ball Bonding Equipment, Wedge Bonding Equipment, Advanced Solutions, APS and All Others, as further outlined in the tables presented immediately below.

The decrease in net revenue is primarily due to lower volume in Wedge Bonding Equipment, Advanced Solutions and All Others, offset by the higher volumes in Ball Bonding Equipment as further outlined in the tables presented immediately below.

The following table reflects the net revenue by reportable segment for fiscal 2024 and 2023:

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Ball Bonding Equipment

For fiscal 2023, the lower Ball Bonding Equipment net revenue as compared to fiscal 2022 was due to lower volume of customer purchases primarily in the General Semiconductor and Memory markets.

The lower volume in these end markets was a result of uncertainties in the overall macroeconomic environment, leading to a decline in consumer and industrial purchases.

This was exacerbated by the high semiconductor supply chain inventories, which contributed to low utilization of our equipment by our customers, resulting in lower demand for our products.

For fiscal 2024, the increase in Ball Bonding Equipment net revenue as compared to fiscal 2023 was primarily due to higher volumes of customer purchases related to technology transitions and improving market conditions in general semiconductor and memory end markets.

This has resulted in the reduction in semiconductor supply chain inventory levels and improved factory utilization levels.

Wedge Bonding Equipment

For fiscal 2023, the lower Wedge Bonding Equipment net revenue as compared to fiscal 2022 was due to lower volume of customer purchases primarily in the General Semiconductor market due to the lower power discrete devices demand, which was partially offset by the higher volume of customer purchases in the automotive and renewable energy market.

For fiscal 2024, the lower Wedge Bonding Equipment net revenue as compared to fiscal 2023 was primarily due to lower volume of customer purchases primarily in the general semiconductor market due to the lower power discrete devices demand, as well as in the automotive and renewable energy market.

Advanced Solutions

For fiscal 2023, the lower Advanced Solutions net revenue as compared to fiscal 2022 was due to timing of revenue recognition for certain customer contracts, which was partially offset by the higher volume of customer purchases in the General Semiconductor market.

For fiscal 2023, the lower APS net revenue as compared to fiscal 2022 was primarily due to lower volume of customer purchases primarily in spares, services and bonding tools.

The lower volume was also due to low utilization of our equipment resulting from the decline in consumer and industrial purchases and high semiconductor supply chain inventories.

For fiscal 2023, the lower net revenue in the “All Others” category as compared to fiscal 2022 was primarily due to lower volume of customer purchases in the General Semiconductor market and mini LED transfer solutions market.

The lower volume was a result of uncertainties in the overall macroeconomic environment, leading to a decline in consumer purchases.

For fiscal 2024, the lower Advanced Solutions net revenue as compared to fiscal 2023 was primarily due to lower volume of customer purchases primarily in the general semiconductor market and the cancellation of Project W.

For fiscal 2024, the lower net revenue in the “All Others” category as compared to fiscal 2023 was primarily due to lower volume of customer purchases in the general semiconductor market and mini LED transfer solutions from softness in the advanced display market.

Gross Profit Margin

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Ball Bonding Equipment

For fiscal 2023, the lower Ball Bonding Equipment gross profit margin as compared to fiscal 2022 was primarily driven by lower volume of customer purchases resulting from uncertainties in the overall macroeconomic environment and high semiconductor supply chain inventories, less favorable product mix, including lower sales of higher margin products, and less favorable customer mix.

For fiscal 2024, the higher Ball Bonding Equipment gross profit margin as compared to fiscal 2023 was primarily driven by a favorable product mix, including higher sales of higher margin products.

Wedge Bonding Equipment

For fiscal 2023, the higher Wedge Bonding Equipment gross profit margin as compared to fiscal 2022 was primarily driven by favorable product mix, including higher sales of higher margin products.

For fiscal 2024, the lower Wedge Bonding Equipment gross profit margin as compared to fiscal 2023 was primarily driven by less favorable product mix, including lower sales of higher margin products and a shift in customer mix, including higher sales to customers where we achieve lower average margins.

Advanced Solutions

For fiscal 2023, the higher Advanced Solutions gross profit margin as compared to fiscal 2022 was primarily due to the reversal of previously accrued customer credit program due to the change in accounting estimates resulting from new information.

For fiscal 2023, the lower APS gross profit margin as compared to fiscal 2022 was primarily driven by lower volume, less favorable product mix among the spares, services and bonding tools, and lower average selling prices of bonding tools.

For fiscal 2023, the lower All Others gross profit margin as compared to fiscal 2022 was primarily due to less favorable product mix.

This was partially offset by the reversal of previously accrued customer credit program due to the change in accounting estimates resulting from new information.

For fiscal 2024, the lower Advanced Solutions gross profit margin as compared to fiscal 2023 was primarily driven by the inventory write-down charges we incurred as a result of the cancellation of Project W and less favorable product mix, including lower sales of higher margin products.

For fiscal 2024, the lower All Others gross profit margin as compared to fiscal 2023 was primarily driven by the overall lower volumes, the provision of excess and obsolete materials, less favorable product mix, including lower sales of higher margin products and the reversal of previously accrued customer credit program in the prior year period.

Operating Expenses

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Selling, General and Administrative (“SG&A”)

For fiscal 2023, the higher SG&A expenses as compared to fiscal 2022 was primarily due to $15.4 million net unfavorable variance in foreign exchange, $2.7 million higher staff costs due to an increase in headcount, $1.7 million higher professional services and $1.2 million higher amortization.

These were partially offset by $10.5 million lower sales representative commissions.

For fiscal 2024, the higher SG&A expenses as compared to fiscal 2023 was primarily due to $4.8 million higher staff cost, $4.2 million higher sales representative commissions, $4.1 million severance expenses, $2.2 million higher miscellaneous expenses and $1.6 million higher professional services.

This was partially offset by $4.8 million net favorable variance in foreign exchange.

Research and Development (“R&D”)

For fiscal 2023, the higher R&D expenses as compared to fiscal 2022 was primarily due to $4.2 million higher prototype material costs and $3.3 million higher staff costs related to an increase in headcount.

For fiscal 2024, the higher R&D expenses as compared to fiscal 2023 was primarily to $8.4 million higher staff cost related to an increase in headcount and equity compensation, $4.1 million higher prototype materials and $1.1 million higher miscellaneous expenses.

This was partially offset by $6.9 million lower professional services.

Impairment Charges

For fiscal 2023, the Company recognized a non-cash impairment charge of $21.5 million related to goodwill and intangible assets in the Lithography reporting unit, as well as on an investment in a non-marketable equity security.

The impairment charge in the prior year period relates to the impairment on an investment in a non-marketable equity security.

Goodwill and Intangible Assets and Note 6:

Equity Investments of the Notes to the Consolidated Financial Statements for further information.

Income from Operations

For fiscal 2023, total income from operations was lower as compared to fiscal 2022.

This was primarily due to lower gross profit and higher operating expenses in fiscal 2023.

The following tables reflect the income/(loss) from operations by reportable segment for fiscal 2023 and 2022:

For fiscal 2024, the higher impairment charges as compared to the fiscal 2023 was due to $44.5 million impairment charges on long-lived assets related to the cancellation of Project W.

The impairment charge in the fiscal 2023 relates to non-cash impairment charge of $21.5 million related to goodwill and intangible assets in the Lithography reporting unit, as well as on the investment in the non-marketable equity security.

(Loss)/Income from Operations

The following table reflect the income/(loss) from operations by reportable segment for fiscal 2024 and 2023:

(dollar amounts in thousands) 2024 2023 $ Change % Change

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Corporate expenses (85,938) (83,907) (2,031) (2.4) %

Total income from operations $ 39,437 $ 470,072 $ (430,635) (91.6) %

Ball Bonding Equipment, Wedge Bonding Equipment, Advanced Solutions, APS and All Others

For fiscal 2023, the lower Ball Bonding Equipment, Wedge Bonding Equipment, and APS income from operations as compared to the prior year period was primarily due to the decrease in revenue and changes in operating expenses as explained under “Net Revenue” and “Operating Expenses” above.

For fiscal 2023, the higher Advanced Solutions loss from operations as compared to the prior year period was primarily due to the decrease in revenue and changes in operating expenses as explained under “Net Revenue” and “Operating Expenses” above.

For fiscal 2023, the loss from operations in the “All Others” category as compared to the income from operations in prior year period was primarily due to decrease in revenue as explained under “Net Revenue” above, the goodwill impairment charge, integration of newly acquired business and net unfavorable variance in foreign exchange.

Total (loss)/income from operations $ (92,496) $ 39,437 $ (131,933) (334.5) %

Ball Bonding Equipment

For fiscal 2024, the higher Ball Bonding Equipment income from operations as compared to fiscal 2023 was primarily due to the increase in revenue, gross margin and changes in operating expenses as explained under “Net Revenue”, "Gross Profit" and “Operating Expenses” above.

Wedge Bonding Equipment

For fiscal 2024, the lower Wedge Bonding Equipment income from operations as compared to fiscal 2023 was primarily due to the decrease in revenue, gross margin and changes in operating expenses as explained under “Net Revenue”, "Gross Profit" and “Operating Expenses” above.

Advanced Solutions

For fiscal 2024, the higher Advanced Solutions loss from operations as compared to fiscal 2023 was primarily due to the decrease in revenue, inventory write-down and impairment charges as explained under “Net Revenue”, “Gross Profit” and “Operating Expenses” above.

For fiscal 2024, the lower All Others loss from operations as compared to fiscal 2023 was primarily due to the decrease in revenue and changes in operating expenses as explained under “Net Revenue” and “Operating Expenses” above.

Interest Income and Expense

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Effective tax rate (18.3) % 20.8 % (39.1) %

For fiscal 2023, the decrease in provision for income taxes as compared to fiscal 2022 was primarily due to a decrease in profitability and the increase in effective tax rate was primarily related to the increase in the Global Intangible Low-Taxed Income (“GILTI”), resulting from the capitalization of research and development expenditures as mandated by the U.S.

Tax Cuts and Jobs Act of 2017 (“TCJA”) effective in fiscal 2023 and the net release of valuation allowances recorded against certain loss and credit carryforwards in fiscal 2022, partially offset by tax benefits from changes jurisdictional mix of profitability.

For fiscal 2024, the decrease in provision for income taxes and effective tax rate as compared to fiscal 2023 was primarily due to a decrease in overall profitability, the tax impact of the one-time charge for cancellation of Project W, and the tax benefit from the U.S.

Tax Court opinion in Varian Medical Systems, Inc.

Commissioner related to the U.S.

Tax Cuts and Jobs Act of 2017 (“TCJA”) one-time transition tax, partially offset by an increase in valuation allowance.

Please refer to “Note 14:

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LIQUIDITY AND CAPITAL RESOURCES

The following table reflects the total cash, cash equivalents and short-term investments as of September 30, 2023 and October 1, 2022:

(dollar amounts in thousands) September 30, 2023 October 1, 2022 Change

The following table reflects the total cash, cash equivalents and short-term investments as of September 28, 2024 and September 30, 2023:

(dollar amounts in thousands) September 28, 2024 September 30, 2023 Change

Cash and cash equivalents $ 227,147 $ 529,402 $ (302,255)

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Net cash provided by operating activities $ 31,037 $ 173,404

Net cash (used in) / provided by investing activities (91,338) 133,799

Net cash used in investing activities (138,501) (91,338)

Net cash used in financing activities (196,100) (111,876)

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Cash and cash equivalents, end of period $ 227,147 $ 529,402

Net cash provided by operating activities consisted of net loss of $69.0 million, non-cash adjustments of $179.3 million and a net unfavourable change in operating assets and liabilities of $79.2 million.

The non-cash adjustments were primarily due to impairment charges of $44.5 million and inventory write-down of $57.3 million as a result of the cancellation of the Project.

The net change in operating assets and liabilities was primarily driven by an increase in accounts and notes receivable of $34.7 million, an increase in inventories of $31.5 million, and a decrease in income tax payable of $17.7 million.

This was partially offset by a decrease in prepaid expenses and other current assets of $9.1 million.

The increase in accounts and other receivable was primarily due to the timing of payments due.

The increase in inventories was due to the buildup of long lead time materials to fulfill certain customer purchase orders.

The decrease in income tax payable is primarily due to the current year payment of the U.S.

one-time transition tax and tax benefit from the U.S.

Tax Court opinion in Varian Medical Systems, Inc.

Commissioner .

The decrease in prepaid expenses was mainly due the transfer of contract assets to net account receivables.

The net cash used in investing activities was due to net purchase of short-term investments of $120.0 million, capital expenditures of $16.1 million and investment in a private equity fund of $2.4 million.

The net cash used in financing activities was primarily due to common stock repurchases of $150.8 million and dividend payments of $44.2 million.

Net cash provided by operating activities consisted of net income of $57.1 million, non-cash adjustments of $73.8 million and a net favorable change in operating assets and liabilities of $42.4 million.

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The decrease in income tax payable was primarily due to lower profitability.

The net cash used in investing activities was due to net purchase of short-term investments of $10.0 million, cash outflow for the AJA acquisition of $36.9 million and capital expenditures of $44.4 million.

The net cash used in financing activities was primarily due to common stock repurchases of $69.2 million and dividend payments of $42.0 million.

Net cash provided by operating activities consisted of net income of $433.5 million, non-cash adjustments of $22.6 million and a net unfavorable change in operating assets and liabilities of $65.9 million.

The net change in operating assets and liabilities was primarily driven by a decrease in accounts payable and accrued expenses and other current liabilities of $128.7 million, and an increase in prepaid expenses and other current assets of $37.9 million and inventories of $14.9 million.

This was partially offset by a decrease in accounts and notes receivable of $113.3 million and income tax payable of $4.9 million.

The decrease in accounts payable and accrued expenses and other current liabilities was primarily due to lower purchases in the fourth quarter of fiscal 2022, lower accrued employee compensation, accrued customer obligations and accrued commissions.

The increase in prepaid expenses and other current assets was mainly due to the addition of contract assets in fiscal 2022.

The increase in inventories was due to increased manufacturing activities to meet higher demand in the first half of fiscal 2022 followed by slower utilization due to lower demand in the second half of fiscal 2022.

The decrease in accounts and notes receivable was due to lower sales in the fourth quarter of fiscal 2022 and a change in customer mix of different credit terms.

The net cash provided by investing activities was primarily due to net maturity of short-term investments of $157.0 million, partially offset by capital expenditures of $23.0 million.

The net cash used in investing activities was due to net purchase of short-term investments of $10.0 million, cash outflow for the acquisition of Advanced Jet Automation Co., Ltd.

of $36.9 million and capital expenditures of $44.4 million.

The net cash used in financing activities was primarily due to common stock repurchases of $69.2 million and dividend payments of $42.0 million.

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The actual amounts for fiscal 2025 will vary depending on market conditions.

Expenditures are anticipated to be primarily used for research and development projects, enhancements to our manufacturing operations, improvements to our information technology security, implementation of our enterprise resource planning system and leasehold improvements for our facilities.

Expenditures are anticipated to be primarily used for research and development projects, enhancements to our manufacturing operations, improvements to our information technology security, ongoing implementation of our enterprise resource planning system and leasehold improvements for our facilities.

Our ability to make these expenditures will depend, in part, on our future cash flows, which are determined by our future operating performance and, therefore, subject to prevailing macroeconomic conditions, trade tensions, inflationary pressures, geopolitical tensions, including the ongoing Israel-Hamas war, tensions in the Middle East, and the prolonged Ukraine/Russia conflict, and other factors, some of which are beyond our control.

As of September 30, 2023 and October 1, 2022, approximat e ly $576.9 million and $499.8 million of cash, cash equivalents, and short-term investments were held by the Company’s foreign subsidiaries, respectively, with a large portion of the cash amounts expected to be available for use in the U.S.

As of September 28, 2024 and September 30, 2023, approximately $302.6 million and $576.9 million of cash, cash equivalents, and short-term investments were held by the Company’s foreign subsidiaries, respectively, with a large portion of the cash amounts expected to be available for use in the U.S.

without incurring additional U.S.

The decrease is primarily due to the repatriation of cash held by the Company's foreign subsidiaries to the U.S.

The Company’s operations and capital requirements are funded primarily by cash on hand, cash generated by foreign operating activities and cash from our existing Facility Agreements.

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Share Repurchase Program

On August 15, 2017, the Company’s Board of Directors authorized the Program to repurchase up to $100 million of the Company’s common stock on or before August 1, 2020.

On August 15, 2017, the Company's Board of Directors authorized a program (the "Program") to repurchase up to $100 million of the Company’s common stock on or before August 1, 2020.

In 2018, 2019 and 2020, the Board of Directors increased the share repurchase authorization under the Program to $200 million, $300 million and $400 million, respectively.

On March 3, 2022, the Board of Directors increased the share repurchase authorization under the Program by an additional $400 million to $800 million, and extended its duration through August 1, 2025.

On May 7, 2022, the Company entered into a written trading plan under Rule 10b5-1 of the Exchange Act to facilitate repurchases under the Program.

This trading plan was most recently modified on May 29, 2023.

On November 17, 2023, the Company modified its written trading plan under Rule 10b5-1 of the Exchange Act, dated as of May 7, 2022, to facilitate repurchases under the Program.

The modification provided for the purchase of up to approximately $169 million of the Company’s common stock from November 20, 2023 through August 1, 2025.

The Program may be suspended or discontinued at any time and is funded using the Company’s available cash, cash equivalents and short-term investments.

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As of September 28, 2024, our remaining stock repurchase authorization under the Program was approximately $30.3 million.

On August 23, 2023, June 8, 2023, March 2, 2023 and November 16, 2022, the Board of Directors declared a quarterly dividend $0.19 per share of common stock.

During the fiscal year ended September 30, 2023, the Company declared dividends of $0.76 per share of common stock.

On August 26, 2024, May 16, 2024, March 14, 2024 and November 15, 2023, the Board of Directors declared a quarterly dividend $0.20 per share of common stock, resulting in an aggregate dividend of $0.80 per share of common stock for the fiscal year ended September 28, 2024.

The declaration of any future cash dividend is at the discretion of the Board of Directors and will depend on the Company’s financial condition, results of operations, capital requirements, business conditions and other factors, as well as a determination that such dividends are in the best interests of the Company’s stockholders.

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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