What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-30 compared with 2024-07-26 · 102 added, 94 removed, 143 unchanged (58% of the section changed)

22 unchanged sentences

We conduct our operating activities primarily through our subsidiaries.

Over the long term, we believe the semiconductor market we serve will continue to grow due to multi-year industry demand from a broad range of drivers, such as new processor architectures that enable higher performance servers necessary for cloud, artificial intelligence (“AI”) and machine learning applications.

Over the long term, we believe the semiconductor market we serve will continue to grow due to multi-year industry demand from a broad range of drivers, such as new process architecture (e.g.

gate all around) and memory devices (e.g.

high bandwidth memory) necessary for cloud, artificial intelligence (“AI”) and machine learning (“ML”) applications.

We also believe that semiconductor original equipment manufacturers (“OEM”) are increasingly relying on partners like UCT to fulfill their expanding capacity requirements.

11 unchanged sentences

Fiscal year 2024 is a 52-week period ending December 27, 2024 and fiscal year 2023 was a 52-week ended December 29, 2023.

The fiscal quarters ended June 28, 2024 and June 30, 2023 were both 13-week periods.

Discussion of Results of Operations for the Three and Six months ended June 28, 2024 compared to the Three and Six months ended June 30, 2023

Three Months Ended Six Months Ended

The fiscal quarters ended September 27, 2024 and September 29, 2023 were both 13-week periods.

Discussion of Results of Operations for the Three and Nine months ended September 27, 2024 compared to the Three and Nine months ended September 29, 2023

Three Months Ended Nine Months Ended

Revenues by Segment

(Dollars in millions)

2024 June 30,

Change June 28,

2024 June 30,

September 27,

2024 September 29,

Change September 27,

2024 September 29,

Products $ 479.0 $ 380.9 25.8 % $ 1,350.2 $ 1,112.0 21.4 %

3 unchanged sentences

Services as a percentage of total revenues 11.4 % 12.4 % 12.0 % 13.8 %

For the three and six months ended June 28, 2024, Products revenues increased compared to the same periods in the prior year.

For the three and nine months ended September 27, 2024, Products revenues increased compared to the same periods in the prior year.

The increase in Products revenues was primarily due to an increase in customer demand, along with an overall market improvement in the semiconductor industry and in part due to the acquisition of HIS in October 2023.

Services revenues increased $4.4 million from the three months ended June 30, 2023 to the three months ended June 28, 2024 primarily due to increase in demand across its customer base.

Services revenues decreased $1.0 million from the six months ended June 30, 2023 to the six months ended June 28, 2024 primarily due to lower memory demand.

Three Months Ended Six Months Ended

Services revenues increased for three and nine months ended September 29, 2023 compared to the same periods in the prior year primarily due to increase in demand across its customer base.

Three Months Ended Nine Months Ended

Revenues by Geography

(Dollars in millions)

2024 June 30,

Change June 28,

2024 June 30,

September 27,

2024 September 29,

Change September 27,

2024 September 29,

United States $ 145.6 $ 125.8 15.7 % $ 432.7 $ 393.7 9.9 %

4 unchanged sentences

Revenues by geographic area are categorized based on the customer’s location to which the products were shipped or services were performed.

For the three and six months ended June 28, 2024, U.S.

For the three and nine months ended September 27, 2024, U.S.

revenues increased compared to the same periods in the prior year, primarily as the result of the October 2023 acquisition of HIS, whose customers are primarily U.S.

International revenues increased in the three and six months ended June 28, 2024 compared to the same periods in the prior year primarily as a result of market improvement driving higher customer demand.

International revenues increased in the three and nine months ended September 27, 2024 compared to the same periods in the prior year primarily as a result of market improvement driving higher customer demand.

Cost of Revenues

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

Cost of revenues by Segment

(Dollars in millions)

2024 June 30,

Change June 28,

2024 June 30,

September 27,

2024 September 29,

Change September 27,

2024 September 29,

Products $ 403.3 $ 329.3 22.5 % $ 1,141.2 $ 955.5 19.4 %

4 unchanged sentences

Cost of Products revenues consists of purchased materials, direct labor and manufacturing overhead.

Cost of Products revenues increased $72.8 million and $111.8 million for the three and six months ended June 28, 2024 compared to the same periods in the prior year.

The increase was due to higher sales volumes driving increased material costs of $63.6 million and $101.9 million for the three and six months ended June 28, 2024, respectively.

Cost of Services revenues consists of direct labor, overhead and materials (such as chemicals, gases and consumables).

Cost of Services revenues increased $1.4 million for the three months ended June 28, 2024 compared to the same period in the prior year driven by higher volumes of service orders, resulting in increased overhead costs of $1.4 million.

Cost of Services revenues decreased $2.7 million for the six months ended June 28, 2024 compared to the same period in the prior year driven by lower volumes of service orders resulting in decreased labor related costs of $3.7 million.

Three Months Ended Six Months Ended

Cost of Products revenues increased $74.0 million and $185.7 million for the three and nine months ended September 27, 2024 compared to the same periods in the prior year.

The increase was due to higher sales volumes driving increased material costs of $64.5 million and $166.4 million for the three and nine months ended September 27, 2024, respectively.

Services Cost of revenues consists of direct labor, overhead and materials (such as chemicals, gases and consumables).

Services Cost of revenues increased $3.2 million for the three months ended September 27, 2024 compared to the same period in the prior year driven by higher volumes of service orders, resulting in increased material cost and overhead cost $1.3 million and $1.4 million, respectively.

There was no significant change in Services Cost of revenues for the nine months ended September 27, 2024 compared to the same period in the prior year due to labor efficiencies offset by higher materials and overhead costs on higher sales.

Three Months Ended Nine Months Ended

Gross Profit by Segment

(Dollars in millions)

2024 June 30,

Change June 28,

2024 June 30,

September 27,

2024 September 29,

Change September 27,

2024 September 29,

Products $ 75.7 $ 51.6 46.7 % $ 209.0 $ 156.5 33.5 %

6 unchanged sentences

Gross profit and gross margins fluctuate with revenue levels, product mix, material costs, and labor costs.

Products gross profit and gross margin increased for the three and six months ended June 28, 2024 compared to the same periods in the prior year primarily due to higher revenue levels, product shift and volume shift from higher to lower cost regions.

Services gross profit increased for the three and six months ended June 28, 2024 compared to the same periods in the prior year primarily due to higher revenue levels.

Products gross profit and gross margin increased for the three and nine months ended September 27, 2024 compared to the same periods in the prior year primarily due to higher revenue levels, product shift and volume shift from higher to lower cost regions.

Services gross profit increased for the three and nine months ended September 27, 2024 compared to the same periods in the prior year primarily due to higher revenue levels.

Operating Margin

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

Operating Profit by Segment

(Dollars in millions)

2024 June 30,

Change June 28,

2024 June 30,

September 27,

2024 September 29,

Change September 27,

2024 September 29,

Products $ 22.4 $ 7.7 190.9 % $ 55.9 $ 27.3 104.8 %

5 unchanged sentences

Total Company 4.7 % 1.3 % 4.3 % 2.4 %

Operating profit and operating margin of Products increased for the three and six months period ended June 28, 2024 compared to the same periods in the prior year primarily due to increases in business volumes and customer demand partially offset by an increase in share-based compensation expense and by an increase in the amortization of intangibles in conjunction with the acquisition of HIS.

Operating profit and operating margin of Services increased for the three and six months period ended June 28, 2024 compared to the same periods in the prior year primarily due to the higher gross profit resulting from increased customer demand.

Operating profit and operating margin of Products increased for the three and nine months period ended September 27, 2024 compared to the same periods in the prior year primarily due to increases in business volumes and customer demand partially offset by increases in share-based compensation expense, in outside service spending, and in the amortization of intangibles in conjunction with the acquisition of HIS.

Operating profit and operating margin of Services increased for the three and nine months period ended September 27, 2024 compared to the same periods in the prior year primarily due to the higher gross profit resulting from increased customer demand.

Research and Development

Three Months Ended Six Months Ended

(Dollars in millions) June 28,

2024 June 30,

Change June 28,

2024 June 30,

Three Months Ended Nine Months Ended

(Dollars in millions) September 27,

2024 September 29,

Change September 27,

2024 September 29,

Research and development $ 7.1 $ 7.4 (4.1) % $ 21.2 $ 21.7 (2.3) %

Research and development as a percentage of total revenues 1.3 % 1.7 % 1.4 % 1.7 %

Research and development expenses were consistent in the three and six months ended June 28, 2024 compared to the same periods in the prior year.

Research and development expenses were consistent in the three and nine months ended September 27, 2024 compared to the same periods in the prior year.

Sales and Marketing

Three Months Ended Six Months Ended

(Dollars in millions) June 28,

2024 June 30,

Change June 28,

2024 June 30,

Three Months Ended Nine Months Ended

(Dollars in millions) September 27,

2024 September 29,

Change September 27,

2024 September 29,

Sales and marketing $ 14.4 $ 12.8 12.5 % $ 42.9 $ 38.6 11.1 %

Sales and marketing as a percentage of total revenues 2.7 % 2.9 % 2.8 % 3.0 %

Sales and marketing expenses increased for the three and six months period ended June 28, 2024 compared to the same periods in the prior year primarily due to the increase in employee related expenses.

Sales and marketing expenses increased for the three and nine months period ended September 27, 2024 compared to the same periods in the prior year primarily due to the increase in employee related expenses.

General and Administrative

Three Months Ended Six Months Ended

(Dollars in millions) June 28,

2024 June 30,

Change June 28,

2024 June 30,

Three Months Ended Nine Months Ended

(Dollars in millions) September 27,

2024 September 29,

Change September 27,

2024 September 29,

General and administrative $ 46.7 $ 39.3 18.8 % $ 135.1 $ 115.3 17.2 %

General and administrative as a percentage of total revenues 8.6 % 9.0 % 8.8 % 8.9 %

General and administrative expenses increased $8.1 million and $12.3 million in the three and six months ended June 28, 2024 compared to the same periods in the prior year primarily driven by increases in amortization of intangible assets acquired through business combinations and in share-based compensation expense in addition to a combination of other factors, none of which were individually significant.

General and administrative expenses increased $7.4 million and $19.8 million in the three and nine months ended September 27, 2024 compared to the same periods in the prior year primarily driven by increases in amortization of intangible assets acquired through business combinations, in outside service spending and in share-based compensation expense in addition to a combination of other factors, none of which were individually significant.

Interest and Other Expense, net

Three Months Ended Six Months Ended

(Dollars in millions) June 28,

2024 June 30,

Change June 28,

2024 June 30,

Three Months Ended Nine Months Ended

(Dollars in millions) September 27,

2024 September 29,

Change September 27,

2024 September 29,

Interest income $ 1.1 $ 1.2 (8.3) % $ 3.9 $ 2.5 56.0 %

1 unchanged sentence

Other income (expense), net $ (4.1) $ (2.1) 95.2 % $ 9.3 $ (0.8) (1262.5) %

Interest income increased $0.6 million and $1.5 million in the three and six months ended June 28, 2024 compared to the same periods in the prior year primarily due to higher interest income earned on cash and cash equivalent balances attributed to higher interest rates in the current period.

Interest expense was consistent in the three and six months ended June 28, 2024 compared to the same periods in the prior year.

Other income (expense), net, increased $18.9 million in the three months ended June 28, 2024 compared to the same period in the prior year primarily due to the gain from the change in the fair value of contingent earn-out of $24.1 million offset partially by the $3.6 million of debt financing costs incurred in conjunction with the amended credit agreement.

Other income (expense), net, increased $12.2 million in the six months ended June 28, 2024 compared to the same period in the prior year primarily due to the gain from the change in the fair value of contingent earn-out of $22.8 million offset partially by the $3.6 million of debt financing costs and by the $7.5 million unfavorable foreign exchange transactions and remeasurements.

Interest income increased $1.4 million in the nine months ended September 27, 2024 compared to the same period in the prior year primarily due to higher interest income earned on cash and cash equivalent balances attributed to higher interest rates in the current period.

Interest expense was consistent in the three and nine months ended September 27, 2024 compared to the same periods in the prior year.

Other expense, net, increased $2.0 million in the three months ended September 27, 2024 compared to the same period in the prior year primarily due to a loss from the change in the fair value of contingent earn-out of $0.8 million and by $1.3 million of unfavorable foreign exchange transactions and remeasurements.

Other income, net, increased $10.1 million in the nine months ended September 27, 2024 compared to the same period in the prior year primarily due to the gain from the change in a fair value of contingent earn-out of $22.0 million offset partially by the $3.6 million of debt financing costs and by the $8.7 million unfavorable foreign exchange transactions and remeasurements.

Provision for Income Taxes

Three Months Ended Six Months Ended

(Dollars in millions) June 28,

2024 June 30,

Change June 28,

2024 June 30,

Three Months Ended Nine Months Ended

(Dollars in millions) September 27,

2024 September 29,

Change September 27,

2024 September 29,

Provision for income taxes $ 9.9 $ 5.3 86.8 % $ 28.2 $ 17.1 64.9 %

Effective tax rate 97.1 % (70.7) % 66.0 % (488.6) %

The decrease in the effective tax rate for the three and six months ended June 28, 2024 compared to the same periods in the prior year is primarily attributable to changes in the geographic mix of worldwide earnings and financial results in jurisdictions which are taxed at different rates and the impact of losses in jurisdictions with full valuation allowances on deferred tax assets.

Company management continuously evaluates the need for a valuation allowance on its deferred tax assets and, as of June 28, 2024, concluded that a full valuation allowance on its U.S.

The increase in the effective tax rate for the three and nine months ended September 27, 2024 compared to the same periods in the prior year is primarily attributable to changes in the geographic mix of worldwide earnings and financial results in jurisdictions which are taxed at different rates and the impact of losses in jurisdictions with full valuation allowances on deferred tax assets.

The negative tax rates in the three and nine months ended September 29, 2023 were the result of pre-tax losses in those periods compared to pre-tax profits in the comparable periods ended September 27, 2024.

Company management continuously evaluates the need for a valuation allowance on its deferred tax assets and, as of September 27, 2024, concluded that a full valuation allowance on its U.S.

federal, state and certain of its foreign deferred tax assets remained appropriate.

2 unchanged sentences

The following table summarizes our cash and cash equivalents:

(In millions) June 28,

(In millions) September 27,

2024 December 29,

2 unchanged sentences

The following table summarizes the Condensed Consolidated Statements of Cash Flow information:

Six Months Ended

(In millions) June 28,

2024 June 30,

Nine Months Ended

(In millions) September 27,

2024 September 29,

Operating activities $ 47.9 $ 100.6

4 unchanged sentences

Our primary cash inflows and outflows were as follows:

• For the six months ended June 28, 2024, we generated cash from operating activities of $33.0 million compared to $64.4 million for the six months ended June 30, 2023.

• For the nine months ended September 27, 2024, we generated cash from operating activities of $47.9 million compared to $100.6 million for the nine months ended September 29, 2023.

The $52.7 million decrease in net cash provided by operating activities was driven by a $83.1 million unfavorable change in net working capital and by a $4.7 million decrease in non-cash items included in net income offset in part by an increase in net income of $35.1 million.

• The major contributors in net changes in operating assets and liabilities for the six months ended June 28, 2024 were as follows:

• The major contributors in net changes in operating assets and liabilities for the nine months ended September 27, 2024 were as follows:

◦ Accounts receivable increased $47.3 million primarily due to the timing of shipments and collections and $28.1 million increase in inventories due to increased production levels.

◦ Accounts payable increased $46.1 million, income taxes payable increased $1.4 million, and accrued compensation and related benefits increased $0.2 million, primarily due to the timing of payments.

• Net cash used in investing activities during the six months ended June 28, 2024 and June 30, 2023 consisted primarily of $31.0 million and $47.0 million purchases of property, plant and equipment, respectively.

• During the six months ended June 28, 2024, the cash provided in financing activities was $12.5 million compared to cash used in financing activities of $56.9 million in the six months ended June 30, 2023.

• Net cash used in investing activities during the nine months ended September 27, 2024 and September 29, 2023 consisted primarily of $46.2 million and $59.2 million purchases of property, plant and equipment, respectively.

• During the nine months ended September 27, 2024, the cash provided in financing activities was $8.8 million compared to cash used in financing activities of $61.0 million in the nine months ended September 29, 2023.

The $69.8 million increase in net cash provided by financing activities is due to the $23.5 million net cash proceeds from the amended credit agreement, a decrease of $24.6 million in principal payments on bank borrowings, and a $23.7 million decrease in share repurchases offset partially by the additional $2.2 million payment of debt issuance costs.

We believe we have sufficient capital to fund our working capital needs, satisfy our debt obligations, maintain our existing capital equipment, purchase new capital equipment and make strategic acquisitions from time to time.

As of June 28, 2024, we had cash and cash equivalents of $319.5 million compared to $307.0 million as of December 29, 2023.

Our cash and cash equivalents, cash generated from operations, and amounts available under our revolving line of credit described below were our principal sources of liquidity as of June 28, 2024.

As of September 27, 2024, we had cash and cash equivalents of $318.2 million compared to $307.0 million as of December 29, 2023.

Our cash and cash equivalents, cash generated from operations, and amounts available under our revolving line of credit described below were our principal sources of liquidity as of September 27, 2024.

Fluid Solutions has an existing factoring arrangement with a financial institution in which a portion of its accounts receivable are sold on a non-recourse basis.

As of June 28, 2024, Fluid Solutions factored $6.9 million under this arrangement.

As of September 27, 2024, Fluid Solutions factored $7.6 million under this arrangement.

We anticipate that our existing cash and cash equivalents balance and operating cash flow will be sufficient to service our indebtedness and meet our working capital requirements and technology development projects for at least the next twelve months.

5 unchanged sentences

No assurance can be given that additional financing will be available or that, if available, such financing can be obtained on terms favorable to our stockholders and us.

As of June 28, 2024, we have cash of approximately $244.0 million in our foreign subsidiaries.

As of September 27, 2024, we have cash of approximately $278.3 million in our foreign subsidiaries.

It is not practicable to determine the tax liability that might be incurred if the undistributed earnings of these foreign subsidiaries were to be distributed.

2 unchanged sentences

The following table summarizes our borrowings:

September 27,

(Dollars in millions) Amount

3 unchanged sentences

Debt issuance costs (7.7)

At June 28, 2024, the Company had an outstanding amount under the Term Loan of $496.9 million, gross of unamortized debt issuance costs of $8.3 million.

As of June 28, 2024, the interest rate on the outstanding Term Loan was 9.0%.

As of June 28, 2024, the Company had $146.1 million, net of $3.9 million of outstanding letters of credit, available under this revolving credit facility.

As of June 28, 2024, the Company was in compliance with the financial covenants contained within the Amended Credit Agreement.

At September 27, 2024, the Company had an outstanding amount under the Term Loan of $493.8 million, gross of unamortized debt issuance costs of $7.7 million.

As of September 27, 2024, the interest rate on the outstanding Term Loan was 8.9%.

As of September 27, 2024, the Company had $146.0 million, net of $4.0 million of outstanding letters of credit, available under this revolving credit facility.

As of September 27, 2024, the Company was in compliance with the financial covenants contained within the Amended Credit Agreement.

The Company has a credit agreement with a local bank in the Czech Republic that provides for a revolving credit facility in the aggregate of up to 7.0 million euros (approximately $7.8 million).

As of June 28, 2024, no debt was outstanding under this revolving credit facility.

As of September 27, 2024, no debt was outstanding under this revolving credit facility.

Fluid Solutions has credit facilities with various financial institutions in Israel that provides borrowings of up to $11.0 million.

As of June 28, 2024, Fluid Solutions had $6.0 million of outstanding debt with average interest rate ranges from 7.5% to 7.8%.

As of June 28, 2024, the Company’s total bank debt was $494.6 million, net of unamortized debt issuance costs of $8.3 million.

As of June 28, 2024, the Company had $146.1 million, $5.0 million and $7.5 million available to draw from our credit facilities in the U.S., Israel and Czech Republic, respectively.

As of September 27, 2024, Fluid Solutions had $6.1 million of outstanding debt with interest rate of 7.1%.

As of September 27, 2024, the Company’s total bank debt was $492.2 million, net of unamortized debt issuance costs of $7.7 million.

As of September 27, 2024, the Company had $146.0 million, $4.9 million and $7.8 million available to draw from our credit facilities in the U.S., Israel and Czech Republic, respectively.

See Note 6 - Borrowing Arrangements, of our Condensed Consolidated Financial Statements, included in Part 1 of this Form-10Q for additional information.

Capital Expenditures

Capital expenditures were $31.0 million during the six months ended June 28, 2024 and were primarily attributable to the capital invested in our manufacturing facilities worldwide.

Capital expenditures were $46.2 million during the nine months ended September 27, 2024 and were primarily attributable to the capital invested in our manufacturing facilities worldwide.

The Company’s anticipated capital expenditures for the remainder of 2024 are expected to be financed primarily from our cash flow generated from operations and cash on hand.

Contractual Obligations

The Company had commitments to various third parties to purchase inventories totaling approximately $497.8 million as of June 28, 2024.

The Company had commitments to various third parties to purchase inventories totaling approximately $495.7 million as of September 27, 2024.

In conjunction with the sale of our products in the ordinary course of business, we provide standard indemnification against certain liabilities to our customers, which may include claims of losses by their own customers resulting out of property damages, bodily injuries or deaths, or infringement of intellectual property rights by our products.

Our potential liability arising out of intellectual property infringement claims by any third party is generally uncapped.

As of June 28, 2024, we have not incurred any significant costs to defend lawsuits or settle claims related to these indemnification arrangements.

As of September 27, 2024, we have not incurred any significant costs to defend lawsuits or settle claims related to these indemnification arrangements.

As a result, we believe the estimated fair value of these arrangements is minimal.

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