What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-25 compared with 2024-02-26 · 66 added, 55 removed, 175 unchanged (41% of the section changed)

6 unchanged sentences

Our principal market is semiconductor capital equipment.

Semiconductors packaged as integrated circuits (“ICs”), or “chips”, are used in consumer electronics, server and enterprise systems, mobile computing (including smart phones and tablets), data storage devices, and embedded automotive and control systems.

Semiconductors packaged as ICs, or “chips,” are used in consumer electronics, server and enterprise systems, mobile computing (including smart phones and tablets), data storage devices, and embedded automotive and control systems.

Our core focus is the measurement and control of the structure, composition, and geometry of semiconductor devices as they are fabricated on silicon wafers to improve device performance and manufacturing yields.

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We believe that, over the long term, our customers will continue to invest in advanced technologies and new materials to enable smaller design rules and higher density applications that fuel demand for process control equipment.

The following table summarizes certain key financial information for the periods indicated below (in thousands, except per share and percent data):

The following table summarizes certain key financial information for the periods indicated below:

(in thousands, except for percentages

and per share data)

Gross profit as a percent of revenue

1 unchanged sentence

Diluted earnings per share

• In fiscal 2023, revenue decreased 19% compared to fiscal 2022, primarily due to a decrease in sales to memory and foundry customers in advanced nodes.

The decreases were partially offset by increases in sales to wafer substrate, memory and discrete & specialty customers in specialty device and advanced packaging applications.

• Gross profit as a percentage of revenue decreased to 52% for fiscal 2023 from 54% for fiscal 2022.

This was primarily driven by decreased revenue volume, unfavorable product mix, and increased manufacturing costs due to inflationary pressures.

• The increase in operating expenses in fiscal 2023 compared to fiscal 2022 was primarily due to higher general and administrative expenses related to litigation and restructuring charges which included reductions in workforce.

Our cash, cash equivalents and marketable securities balance increased to $697.8 million at the end of fiscal 2023 compared to $547.8 million at the end of fiscal 2022.

This increase was primarily the result of $172.0 million of cash generated from operating activities, partially offset by cash used for capital expenditures of $22.6 million and $10.8 million of cash used for tax payments related to net share settlement of employee stock-based compensation plans.

In 2022 and 2023, the United States government implemented additional export regulations for U.S.

• In fiscal 2024, revenue increased 21% compared to fiscal 2023, primarily due to an increase in sales in our inspection business of Dragonfly systems and other products in support of advanced packaging needs for chips used in Artificial Intelligence (AI) applications.

• Gross profit as a percentage of revenue increased to 52.2% for fiscal 2024 compared to 51.5% for fiscal 2023.

This was primarily driven by an increase in volume and change in product mix, partially offset by write-downs related to the impairment and exit of certain lithography inventory in fiscal 2024.

• The increase in operating expenses in fiscal 2024 compared to fiscal 2023 was primarily due to increases in research and development, and sales and marketing expenses related to increased headcount and compensation costs, project costs, travel expenses and write-off of purchased in process research and development assets.

Our cash, cash equivalents and marketable securities balance increased to $852.3 million at the end of fiscal 2024 from $697.8 million at the end of fiscal 2023.

This increase was primarily the result of $245.7 million of cash generated from operating activities, partially offset by cash used for capital expenditures of $31.9 million, acquisitions of $26.8 million, purchases of common stock of $25.1 million and $19.0 million of cash used for tax payments related to net share settlement of employee stock-based compensation plans.

In recent years, the U.S.

government implemented additional export regulations for U.S.

semiconductor technology sold in China.

We have applied for export licenses to continue doing business with our customers that are affected by the new export rules.

However, the new export controls have resulted in lower net sales in China for fiscal 2023 compared to the prior fiscal year.

However, the new export controls have resulted in lower net sales in China for fiscal 2024 compared to the prior fiscal years.

For a discussion of the risks related to our business and operations, see Part I, Item 1A – Risk Factors of this Annual Report on Form 10-K.

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Our revenue is derived from the sale of our systems and software, spare parts, and services.

Our revenue was $815.9 million, $1,005.2 million and $788.9 million for the years ended December 30, 2023, December 31, 2022 and January 1, 2022, respectively.

This represents a decrease of 18.8% from 2022 to 2023 and an increase of 27.4% from 2021 to 2022.

Our revenue was $987.3 million, $815.9 million and $1,005.2 million for the years ended December 28, 2024, December 30, 2023 and December 31, 2022, respectively.

This represents an increase of 21.0% from 2023 to 2024 and a decrease of 18.8% from 2022 to 2023.

The following table lists, for the periods indicated, the different sources of our revenue in dollars (thousands) and as percentages of our total revenue:

(in thousands, except for percentages)

Systems and software

Total revenue

Total systems and software revenue increased $167.1 million for the year ended December 28, 2024, as compared to the year ended December 30, 2023, primarily due to an increase in units shipped of our inspection product line to customers in support of advanced packaging needs for chips used in AI applications.

Parts and services revenue is generated from part sales, maintenance service contracts, and system upgrades, as well as time and material billable service calls.

During fiscal 2024, the increase in total parts and services revenue was primarily due to increased spending by our customers on system upgrades and repairs of existing systems.

Total systems and software revenue decreased $182.4 million for the year ended December 30, 2023, as compared to the year ended December 31, 2022, primarily due to a decrease in units shipped of our metrology product lines to customers in advanced nodes applications.

This decline was partially offset by an increase in units shipped of our inspection and lithography product lines to customers in specialty devices and advanced packaging applications.

Parts and services revenue is generated from part sales, maintenance service contracts, and system upgrades, as well as time and material billable service calls.

Parts and services revenue is generated

from part sales, maintenance service contracts, and system upgrades, as well as time and material billable service calls.

During fiscal 2023, the decrease in total parts and services revenue was primarily due to lower factory utilization by several of our customers resulting in a decline in their spare parts requirements.

Total systems and software revenue increased $196.6 million for the year ended December 31, 2022, as compared to the year ended January 1, 2022, primarily due to an increase in overall demand for our products from semiconductor industry customers, particularly in advanced nodes applications, and specialty devices and advanced packaging.

The year-over-year change in systems revenue was primarily due to an increase in units shipped in our metrology and inspection product lines.

Parts and services revenue is generated from part sales, maintenance service contracts, and system upgrades, as well as time and material billable service calls.

During fiscal 2022, the increase in parts and services revenue was primarily due to increased spending by our customers on system upgrades and repairs of existing systems.

The following table sets forth, for the periods indicated, our revenue by geographic region as percentages of our revenue.

(in thousands, except for percentages)

United States

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Our gross profit has been and will likely continue to be affected by a variety of factors, including manufacturing efficiencies, provision for excess and obsolete inventory, pricing by competitors or suppliers, new product introductions, production volume, inventory step-up from purchase accounting, customization and reconfiguration of systems, international and domestic sales mix, system and software product mix, and parts and services margins.

Our gross profit was $420.3 million, $539.2 million and $429.1 million for the years ended December 30, 2023, December 31, 2022, and January 1, 2022, respectively.

Our gross profit represented 51.5%, 53.6% and 54.4% of our revenue for the years ended December 30, 2023, December 31, 2022, and January 1, 2022, respectively.

Our gross profit was $515.3 million, $420.3 million and $539.2 million for the years ended December 28, 2024, December 30, 2023, and December 31, 2022, respectively.

Our gross profit represented 52.2%, 51.5% and 53.6% of our revenue for the years ended December 28, 2024, December 30, 2023, and December 31, 2022, respectively.

The increase in gross profit as a percentage of revenue from 2023 to 2024 was primarily due to an increase in revenue volume and change in product mix, partially offset by write-downs related to the impairment and exit of certain lithography inventory.

The decrease in gross profit as a percentage of revenue from 2022 to 2023 was primarily due to decreased revenue volume, unfavorable product mix, and increased manufacturing costs due to inflationary pressures during the 2023 fiscal period.

The decrease in gross profit as a percentage of revenue from 2021 to 2022 was primarily due to supply chain cost increases in the 2022 fiscal period, partially offset by higher factory utilization associated with increased sales volume during the 2022 fiscal period.

Operating Expenses.

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Our research and development expenses were $116.8 million, $104.4 million and $112.0 million in fiscal years 2024, 2023 and 2022, respectively.

The year-over-year dollar increase from 2023 through 2024 was primarily due to write-off of acquired in-process research and development of $4.0 million and increased compensation costs of $1.6 million, outside services costs of $3.3 million, product development costs of $1.9 million, travel costs of $0.6 million, research and development project costs of $0.5 million, freight and duty costs of $0.2 million and depreciation expenses of $0.2 million.

The year-over-year dollar decrease from 2022 through 2023 was primarily due to decreases of $4.6 million for the write-off of acquired in-process research and development assets and cost containment initiatives of $3.3 million, partially offset by increases in depreciation expenses of $0.6 million and travel expenses of $0.3 million.

The year-over-year dollar increase from 2021 through 2022 was primarily due to higher compensation costs of $7.4 million for increased headcount and variable compensation costs, the write-off of purchased in process research and development assets of $4.6 million and increased costs related to new product initiatives of approximately $3.3 million.

We continue to maintain our commitment to investing in new product development and enhancement to existing products.

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Our sales and marketing expenses were $76.2 million, $61.8 million and $65.7 million in fiscal years 2024, 2023 and 2022, respectively.

The year-over-year dollar increase from 2023 through 2024 was primarily due to increases in total compensation costs of $13.0 million, travel costs of $0.7 million, outside services costs of $0.3 million, sales and marketing costs of $0.3 million and production expenses of $0.1 million.

The year-over-year dollar decrease from 2022 through 2023 was primarily due to a decrease in total compensation costs of $1.5 million on lower headcount and variable compensation plan elements, a decrease in outside service expenses of $0.8 million and a decrease in depreciation expense of $0.7 million, partially offset by an increase in travel expenses of $0.3 million.

The year-over-year dollar increase from 2021 through 2022 was primarily due to increased total compensation costs of $5.8 million for higher headcount and variable compensation plan costs.

Higher travel related expenses of approximately $0.4 million contributed to the overall increase.

• General and Administrative .

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Our general and administrative expenses were $85.8 million, $83.1 million and $69.6 million in fiscal years 2024, 2023 and 2022, respectively.

The year-over-year dollar increase from 2023 through 2024 was primarily due to increases in depreciation expense of $1.8 million and facilities expense of $1.4 million, partially offset by a decrease in freight and duty costs of $0.5 million.

The year-over-year dollar increase from 2022 through 2023 was primarily due increased litigation expenses of $7.4 million, restructuring charges of $3.6 million for employee severance costs during the 2023 period, an increase in depreciation expense of $1.9 million and an increase in facilities expenses of $0.4 million.

The year-over-year dollar increase from 2021 through 2022 was primarily due to increased facilities expenses of $5.0 million, partially offset by a decrease of $3.8 million in depreciation expense.

• Amortization of Identifiable Intangible Assets .

Amortization of identifiable intangible assets, primarily purchased technology, was $49.4 million, $54.8 million and $55.3 million in fiscal years 2024, 2023 and 2022, respectively.

The year-over-year dollar decrease from 2022 through 2023 was primarily due to certain assets becoming fully amortized.

The year-over-year dollar increase from 2021 through 2022 was primarily due to a full year of amortization being included in the 2022 fiscal period for in-process research and development that became classified as an identifiable intangible asset in the second half of 2021.

The consecutive year-over-year dollar decreases from 2022 through 2024 were primarily due to certain assets becoming fully amortized.

Interest income, net .

2 unchanged sentences

Income taxes.

The following table provides details of income tax (dollars in millions):

The following table provides details of income tax:

(in thousands, except for percentages)

Income before provision for income taxes

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Effective tax rate

The income tax provision differs from the federal statutory income tax rate of 21% for 2023 primarily due to a benefit related to the Foreign Derived Intangible Income Deduction (“FDII”) of $13.0 million, excess benefits related to stock compensation of $3.4 million, tax benefits for research and development credits of $6.4 million, and a one-time benefit of $1.6 million related to the recognition of a tax benefit associated with the lapse of a statute of limitations.

The income tax provision differs from the federal statutory income tax rate of 21% for 2024 primarily due to a benefit related to the Foreign Derived Intangible Income Deduction (“FDII”) of $17.0 million, tax effect of share-based compensation of $6.9 million, tax benefits for research and development credits of $6.6 million, a decrease to the Company’s valuation allowance of $1.8 million, and a one-time benefit of $3.2 million related to the recognition of a tax benefit associated with the lapse of a statute of limitations.

These benefits were partially offset by non-deductible officer’s compensation of $3.4 million.

The income tax provision differs from the federal statutory income tax rate of 21% for 2023 primarily due to a benefit related to the FDII of $13.0 million, excess benefits related to stock compensation of $3.4 million, tax benefits for research and development credits of $6.4 million, and a one-time benefit of $1.6 million related to the recognition of a tax benefit associated with the lapse of a statute of limitations.

These benefits were partially offset by the inclusion of U.S.

tax on foreign source income of $0.5 million and non-deductible officer’s compensation of $2.3 million, and an increase to the Company’s valuation allowance of $2.9 million.

The income tax provision differs from the federal statutory income tax rate of 21% for 2022 primarily due to a benefit related to the Foreign Derived Intangible Income Deduction (“FDII”) of $25.4 million, excess benefits related to stock compensation of $3.5 million, tax benefits for research and development credits of $7.1 million, and a one-time benefit of $1.5 million related to the recognition of a tax benefit associated with the lapse of a statute of limitations.

The income tax provision differs from the federal statutory income tax rate of 21% for 2022 primarily due to a benefit related to the FDII of $25.4 million, excess benefits related to stock compensation of $3.5 million, tax benefits for research and development credits of $7.1 million, and a one-time benefit of $1.5 million related to the recognition of a tax benefit associated with the lapse of a statute of limitations.

These benefits were partially offset by the inclusion of U.S.

tax on foreign source income of $1.4 million and non-deductible officer’s compensation of $1.9 million.

The income tax provision differs from the federal statutory income tax rate of 21% for 2021 primarily due to a benefit related to the Foreign Derived Intangible Income Deduction (“FDII”) of $11.1 million, excess benefits related to stock compensation of $3.8 million, tax benefits for research and development credits of $3.6 million, tax benefit from foreign income being taxed at lower rates of $3.8 million, and a one-time benefit of $2.0 million from a reduction to recorded tax reserve related to a lapse of a statute of limitations.

These benefits were partially offset by the inclusion of U.S.

tax on foreign source income of $1.7 million.

Our future effective income tax rate depends on various factors, such as tax legislation, the geographic composition of our pre-tax income, the amount of our pre-tax income as business activities fluctuate, non-deductible expenses incurred in connection with acquisitions and research and development credits as a percentage of aggregate pre-tax income.

1 unchanged sentence

Our cash, cash equivalents and marketable securities consist of the following:

(in thousands)

Cash and cash equivalents

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A summary of cash provided by (used in) operating, investing, and financing activities is as follows:

(in thousands)

Cash provided by operating activities

Cash used in investing activities

Cash (used in) provided by financing activities

Cash used in financing activities

Operating Activities

Cash provided by operating activities during fiscal 2024 was $245.7 million, which reflects net income, adjusted to exclude the effect of non-cash operating charges, of $290.2 million.

Significant non-cash operating charges included depreciation, amortization, share-based compensation, provision for inventory valuation, deferred income taxes and write off of acquired in-process research and development.

Cash provided by operating activities in fiscal 2024 increased compared to fiscal 2023 primarily due to higher net income and continued improvements in inventory management.

Cash provided by operating activities during fiscal 2023 was $172.0 million, which reflects net income, adjusted to exclude the effect of non-cash operating charges, of $204.5 million.

Significant non-cash operating charges included depreciation, amortization, share-based compensation, provision for inventory valuation and deferred income taxes.

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Capital expenditures, net of proceeds in fiscal 2024, 2023 and 2022 were $31.9 million, $19.8 million and $18.4 million.

Capital expenditures were primarily for investments in facility improvements, demonstration and testing equipment, manufacturing and network equipment.

Capital expenditures were primarily for enterprise resource planning systems implementation, investments in facility improvements, demonstration and testing equipment, manufacturing and network equipment.

Purchases of marketable securities, net of proceeds from sales and maturities of marketable securities, for fiscal 2024, 2023 and 2022 was $167.9 million, $83.6 million and $4.6 million, respectively.

Net cash paid for acquisitions in fiscal 2022 and 2021 were $4.6 million and $23.8 million, respectively.

Net cash paid for acquisitions in fiscal 2024 and 2022 was $26.8 million and $4.6 million, respectively.

There were no acquisitions in fiscal 2023.

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Financing Activities

We used $9.5 million and $68.4 million of cash in financing activities for fiscal 2023 and 2022, respectively.

Financing activities provided $2.7 million in fiscal 2021.

Repurchases of common stock were $3.2 million and $65.3 million in fiscal 2023 and 2022, respectively.

There were no repurchases of common stock in 2021.

Tax withholding payments for vested equity awards, partially offset by proceeds from sales of shares through share-based compensation plans were $5.5 million and $0.8 million for fiscal 2023 and 2022, respectively.

In fiscal 2021 proceeds received from sales of shares through share-based compensation plans, partially offset by tax withholding payments for vested equity award, provided cash of $2.7 million.

Payments for contingent consideration for acquired business were $0.8 million and $2.3 million in fiscal 2023 and 2022.

There were no payments for contingent consideration for acquired business in fiscal 2021.

We have a credit agreement with a bank that provides for a line of credit that is secured by the marketable securities we have with the bank.

We are permitted to borrow up to 70% of the value of eligible securities held at the time the line of credit is accessed.

We used $35.7 million, $9.5 million and $68.4 million of cash in financing activities for fiscal 2024, 2023 and 2022, respectively.

Purchases of our common stock were $25.1 million, $3.2 million and $65.3 million in fiscal 2024, 2023 and 2022, respectively.

Tax withholding payments for vested equity awards, partially offset by proceeds from sales of shares through share-based compensation plans were $9.9 million, $5.5 million and $0.8 million for fiscal 2024, 2023 and 2022, respectively.

Payments for contingent consideration for acquired business were $0.7 million, $0.8 million and $2.3 million in fiscal 2024, 2023 and 2022.

We have a credit agreement with a bank that provides for a variable-rate line of credit that is secured by the marketable securities we have with the bank.

We are permitted to borrow up to 70% of the value of eligible securities held at the time the line of credit is accessed, up to a maximum of $100 million.

As of December 28, 2024, the available line of credit was approximately $100.0 million with an available interest rate of 6.2%.

The credit agreement is available to us until such time that either party terminates the arrangement at its discretion.

To date, we have not utilized the line of credit.

As of the date of this filing, we have not utilized the line of credit.

Our future capital requirements will depend on many factors, including the timing and amount of our revenue and our investment decisions, which will affect our ability to generate additional cash.

We expect that our existing cash, cash

equivalents, marketable securities and availability under our line of credit will be sufficient to meet our anticipated cash requirements for working capital, capital expenditures and other cash needs for the next 12 months following the filing of this Form 10-Q.

We expect that our existing cash, cash equivalents, marketable securities and availability under our line of credit will be sufficient to meet our anticipated cash requirements for working capital, capital expenditures and other cash needs for the next 12 months following the filing of this Form 10-Q.

Thereafter, if cash generated from operations and financing activities is insufficient to satisfy our working capital requirements, we may seek additional funding through bank borrowings, sales of securities or other means.

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The following table summarizes our significant contractual obligations at December 28, 2024, and the effect such obligations are expected to have on our liquidity and cash flows in future periods.

We are currently unable to provide a reasonably reliable estimate of the amount or periods when cash settlement of this liability may occur (dollars in thousands).

We are currently unable to provide a reasonably reliable estimate of the amount or periods when cash settlement of this liability may occur.

Payments due by period

(in thousands)

Operating lease obligations

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(1) Represents our agreements to purchase goods and services consisting of outstanding purchase orders for goods and services.

Critical Accounting Policies and Estimates

Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements included in this Form 10-K, which have been prepared in accordance with accounting principles generally accepted in the United States.

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Depending on the terms of the systems arrangement, we may also defer the recognition of a portion of the consideration expected to be received because we have to satisfy a future obligation (e.g., installation and extended warranties).

observable price to determine the standalone selling price for separate performance obligations or a cost-plus margin approach when one is not available.

We use an observable price to determine the standalone selling price for separate performance obligations or a cost-plus margin approach when one is not available.

Revenue from software licenses, which is primarily sold without systems, is recognized upfront at the point in time when the software is made available to the customer.

7 unchanged sentences

These amounts are recorded as deferred revenue in the Consolidated Balance Sheets.

Business combinations.

We account for business combinations under the acquisition method of accounting, which requires us to recognize separately from goodwill the assets acquired, and the liabilities assumed at their acquisition date fair values.

While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement.

As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.

Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recognized in our consolidated statements of operations.

Accounting for business combinations requires our management to make significant estimates and assumptions, especially at the acquisition date including our estimates for intangible assets, contractual obligations assumed, restructuring liabilities, pre-acquisition contingencies, and contingent consideration, where applicable.

Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, they are based, in part, on historical experience and information obtained from the management of the acquired companies and are inherently uncertain.

Estimates in valuing certain acquired intangible assets under the income approach include growth in future expected cash flows from product sales, acquired technologies, technology obsolescence rates, estimated cash flows from the projects when completed and discount rates.

Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.

Inventory Valuation.

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If actual product lifecycles, product demand and market conditions are less favorable than those originally projected by management, additional inventory write-downs may be required.

Long-Lived Assets.

Indefinite-Lived and Long-Lived Assets.

Goodwill is tested for impairment during the fourth quarter, or whenever events or circumstances indicate that its carrying value may not be recoverable.

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We reevaluate the uncertain tax positions each quarter based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues, and new audit activity.

Such a change in

recognition or measurement could result in the recognition of a tax benefit or an additional charge to the tax provision in the period.

Such a change in recognition or measurement could result in the recognition of a tax benefit or an additional charge to the tax provision in the period.

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