What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-04-29 compared with 2024-10-30 · 93 added, 111 removed, 134 unchanged (60% of the section changed)

Management’s Discussion And Analysis of Financial Condition And Results Of Operations

You should read the following discussion of our financial condition and results of operations in conjunction with the Condensed Consolidated Financial Statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K filed with the SEC on March 6, 2024.

This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve substantial risks and uncertainties.

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These forward-looking statements reflect our current views about future events and involve known risks, uncertainties and other factors that may cause our actual results, performance or achievement to be materially different from those expressed or implied by the forward-looking statements.

Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K filed with the SEC on March 6, 2024.

Furthermore, such forward-looking statements speak only as of the date of this report.

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We ship a majority of our products and provide most of our services to U.S.

registered customers with locations both in and outside the U.S.

registered customers with both domestic and international locations.

In addition to U.S.

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Fiscal year 2025 is a 52-week period ending December 26, 2025 and fiscal year 2024 was a 52-week ended December 27, 2024.

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

The fiscal quarters ended March 28, 2025 and March 29, 2024 were both 13-week periods.

Discussion of Results of Operations for the Three months ended March 28, 2025 compared to the Three months ended March 29, 2024

Three Months Ended

Revenues by Segment

(Dollars in millions)

September 27,

2024 September 29,

Change September 27,

2024 September 29,

2025 March 29,

Products $ 457.0 $ 418.5 9.2 %

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Services as a percentage of total revenues 11.9 % 12.4 %

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 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

For the three-month period ended March 28, 2025, Products revenues increased compared to the same period 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.

Services revenues increased for the three-month period ended March 28, 2025 compared to the same period in the prior year primarily due to an increase in demand across its customer base.

Three Months Ended

Revenues by Geography

(Dollars in millions)

September 27,

2024 September 29,

Change September 27,

2024 September 29,

2025 March 29,

United States $ 119.8 $ 141.0 (15.0) %

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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 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 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.

For the three months ended March 28, 2025, U.S.

revenues decreased compared to the same period in the prior year, primarily due to a shift of product revenues from U.S.

to international markets.

International revenues increased for the three months ended March 28, 2025 compared to the same period in the prior year, primarily as a result of market improvement driving higher customer demand.

Cost of Revenues

Three Months Ended Nine Months Ended

Three Months Ended

Cost of revenues by Segment

(Dollars in millions)

September 27,

2024 September 29,

Change September 27,

2024 September 29,

2025 March 29,

Products $ 390.3 $ 354.0 10.3 %

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

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.

For the three-month period ended March 28, 2025, Cost of Products revenues increased by $36.3 million compared to the same period in the prior year.

The increase was primarily driven by higher sales volumes, which resulted in a $30.7 million increase in material costs.

The remaining increase was attributable to higher labor and overhead costs associated with increased production activity.

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

For the three-month period ended March 28, 2025, Services Cost of revenues increased by $3.2 million compared to the same period in the prior year.

The increase was driven by a higher volume of service orders, which resulted in increased labor costs of $1.7 million and overhead cost of $1.6 million.

Three Months Ended

Gross Profit by Segment

(Dollars in millions)

September 27,

2024 September 29,

Change September 27,

2024 September 29,

2025 March 29,

Products $ 66.7 $ 64.5 3.4 %

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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 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.

Products gross profit increased for the three-month period ended March 28, 2025 compared to the same period in the prior year primarily due to higher revenue levels.

However, Products gross margin decreased primarily due to an unfavorable product mix and a shift in sales volumes across different geographic regions.

Services gross profit and gross margin decreased for the three-month period ended March 28, 2025 compared to the same period in the prior year.

The decrease was primarily due to higher fixed costs which did not scale proportionately with the increase in Services revenue.

Operating Margin

Three Months Ended Nine Months Ended

Three Months Ended

Operating Profit by Segment

(Dollars in millions)

September 27,

2024 September 29,

Change September 27,

2024 September 29,

2025 March 29,

Products $ 10.1 $ 14.7 (31.3) %

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Total Company 2.5 % 3.6 %

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.

Operating profit and operating margin of Products decreased for the three-month period ended March 28, 2025 compared to the same period in the prior year.

The decrease was primarily due to higher employee-related expenses, which were driven by increased compensation costs.

These included annual salary increases, higher incentive compensation, and separation costs associated with the resignation of the Company’s former Chief Executive Officer (CEO).

Operating profit and operating margin of Services were consistent for the three-month period ended March 28, 2025 compared to the same period in the prior year.

Research and Development

Three Months Ended Nine Months Ended

(Dollars in millions) September 27,

2024 September 29,

Change September 27,

2024 September 29,

Three Months Ended

(Dollars in millions) March 28,

2025 March 29,

Research and development $ 7.6 $ 7.0 8.6 %

Research and development as a percentage of total revenues 1.5 % 1.5 %

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.

Research and development expenses remained consistent for the three-month period ended March 28, 2025 compared to the same period in the prior year.

Sales and Marketing

Three Months Ended Nine Months Ended

(Dollars in millions) September 27,

2024 September 29,

Change September 27,

2024 September 29,

Three Months Ended

(Dollars in millions) March 28,

2025 March 29,

Sales and marketing $ 14.9 $ 13.7 8.8 %

Sales and marketing as a percentage of total revenues 2.9 % 2.9 %

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.

Sales and marketing expenses increased for the three-month period ended March 28, 2025 compared to the same period in the prior year primarily due to higher employee-related expenses.

General and Administrative

Three Months Ended Nine Months Ended

(Dollars in millions) September 27,

2024 September 29,

Change September 27,

2024 September 29,

Three Months Ended

(Dollars in millions) March 28,

2025 March 29,

General and administrative $ 48.6 $ 44.6 9.0 %

General and administrative as a percentage of total revenues 9.4 % 9.3 %

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.

General and administrative expenses increased $4.0 million in the three-month period ended March 28, 2025 compared to the same period in the prior year.

The increase was primarily driven by non-recurring separation costs related to the resignation of the Company’s CEO, as well as an increase in employee-related expenses due to higher compensation costs, including annual salary increases and higher incentive compensation accruals.

These increases were partially offset by a decrease in stock-based compensation expense resulting from the forfeiture of restricted stock units and performance stock units following the former CEO’s resignation.

Interest and Other Expense, net

Three Months Ended Nine Months Ended

(Dollars in millions) September 27,

2024 September 29,

Change September 27,

2024 September 29,

Three Months Ended

(Dollars in millions) March 28,

2025 March 29,

Interest income $ 1.1 $ 1.4 (21.4) %

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Other income (expense), net $ 0.8 $ (3.8) (121.1) %

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.

Interest income was consistent in the three-month period ended March 28, 2025 compared to the same period in the prior year.

Interest expense decreased for the three-month period ended March 28, 2025 compared to the same period in the prior year primarily due to lower interest rates and reduced amortization of debt issuance costs.

Other income (expense), net, increased by $4.6 million for the three-month period ended March 28, 2025 compared to the same period in the prior year.

This increase was primarily due to favorable foreign exchange transaction and

remeasurement gains, as well as the absence of $1.3 million loss from the change in the fair value of contingent earn-out in the prior period.

Provision for Income Taxes

Three Months Ended Nine Months Ended

(Dollars in millions) September 27,

2024 September 29,

Change September 27,

2024 September 29,

Three Months Ended

(Dollars in millions) March 28,

2025 March 29,

Provision for income taxes $ 7.4 $ 9.9 (25.3) %

Effective tax rate 151.0 % 366.7 %

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.

The decrease in the effective tax rate for the three-month period ended March 28, 2025 compared to the same period 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 March 28, 2025, concluded that a full valuation allowance on its U.S.

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

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The following table summarizes our cash and cash equivalents:

(In millions) September 27,

(In millions) March 28,

2025 December 27,

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

Nine Months Ended

(In millions) September 27,

2024 September 29,

Three Months Ended

(In millions) March 28,

2025 March 29,

Operating activities $ 28.2 $ 9.8

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Our primary cash inflows and outflows were as follows:

• 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 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 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.

• For the three-month period ended March 28, 2025, we generated cash from operating activities of $28.2 million compared to $9.8 million for the same period in the prior year.

The $18.4 million increase in net cash provided by operating activities was primarily driven by a $16.4 million favorable change in net working capital and a $4.7 million increase in net income, partially offset by $2.7 million decrease in non-cash items included in net income.

• The major contributors in net changes in operating assets and liabilities for the three-month period ended March 28, 2025 were as follows:

◦ Accounts receivable decreased $23.1 million primarily due to the timing of shipments and collections and $6.4 million decrease in inventories due to increased production levels and corresponding consumption of inventory balances.

◦ Accounts payable decreased $8.5 million, other liabilities decreased $2.3 million, and accrued compensation and related benefits decreased $10.4 million, primarily due to the timing of payments.

• Net cash used in investing activities during the three-month period ended March 28, 2025 and March 29, 2024 consisted primarily of $12.4 million and $18.0 million purchases of property, plant and equipment, respectively.

• During the three-month period ended March 28, 2025, cash used in financing activities was $12.2 million compared to $4.5 million in the same period in the prior year.

The $7.7 million increase in net cash used by financing activities was primarily due to $7.5 million additional principal payments on bank borrowings.

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 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.

As of March 28, 2025, we had cash and cash equivalents of $317.6 million compared to $313.9 million as of December 27, 2024.

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 March 28, 2025.

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

As of March 28, 2025, there were outstanding customer invoices amounting to $7.5 million that we factored 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.

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

As of March 28, 2025, we have cash of approximately $277.5 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.

For undistributed earnings of foreign subsidiaries which are not considered indefinitely reinvested, deferred taxes have been accrued.

It is the Company’s practice and intention to reinvest the earnings of its non-U.S.

subsidiaries in those operations, except for certain of its subsidiaries based in Singapore.

However, since there is no expected Singapore or U.S.

tax liability on a distribution of those earnings, the Company does not have taxes accrued for unremitted foreign earnings as of March 28, 2025.

Borrowing Arrangements

The following table summarizes our borrowings:

September 27,

(Dollars in millions) Amount

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Term Loan $ 487.5 7.6 %

Fluid Solutions Debt Facilities 6.1 7.1 %

Debt issuance costs (6.6)

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 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 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.

At March 28, 2025, the Company had an outstanding amount under the Term Loan of $487.5 million, gross of unamortized debt issuance costs of $6.6 million.

As of March 28, 2025, the interest rate on the outstanding Term Loan was 7.6%.

As of March 28, 2025, the Company had $146.4 million, net of $3.6 million of outstanding letters of credit, available under this revolving credit facility.

As of March 28, 2025, the Company was in compliance with the financial covenants contained within the Amended Credit Agreement.

The Company maintains credit agreements with a local bank in Czechia and with a financial institution in Israel, which provide for revolving credit facilities of up to 7.0 million euros (approximately $7.5 million) and $5.0 million, respectively.

As of March 28, 2025, there were no borrowings outstanding under these facilities.

As of March 28, 2025, the Company’s total bank debt was $480.9 million, net of unamortized debt issuance costs of $6.6 million.

As of March 28, 2025, the Company had $146.4 million, $5.0 million and $7.5 million available to draw from our credit facilities in the U.S., Israel and Czechia, 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 $46.2 million during the nine months ended September 27, 2024 and were primarily attributable to the capital invested in our manufacturing facilities worldwide.

Capital expenditures were $12.4 million during the three months ended March 28, 2025 and were primarily attributable to the capital invested in our manufacturing facilities worldwide.

The Company’s anticipated capital expenditures for the remainder of 2025 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 $495.7 million as of September 27, 2024.

The Company had commitments to various third parties to purchase inventories totaling approximately $403.6 million as of March 28, 2025.

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

As of March 28, 2025, 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