UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~April~~July 1, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-50307

FormFactor, Inc.

(Exact name of registrant as specified in its charter)


Delaware						13-3711155
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

7005 Southfront Road, Livermore, California 94551

(Address of principal executive offices, including zip code)

(925) 290-4000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.001 par value

FORM

Nasdaq Global Market

______________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of the Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~May 3,~~August 2, 2023, ~~77,144,094~~77,656,368 shares of the registrant’s common stock, par value $0.001 per share, were outstanding.

FORMFACTOR, INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED ~~APRIL~~JULY 1, 2023

INDEX


Part I.	Financial Information

Item 1.	Financial Statements (Unaudited):

	Condensed Consolidated Balance Sheets as of ~~April~~July 1,~~, 202~~3 2023 and December 31,~~, 20~~2 2 2022	3

	Condensed Consolidated Statements of Income for the three and six months ended ~~April~~July 1,~~, 202~~3 2023 and ~~March~~June 2 65 , 20 2 22022	4

	Condensed Consolidated Statements of Comprehensive Income for the three and six months ended ~~April~~J uly 1,~~, 202~~3 2023 and ~~March~~June 2 65 , 20 2 22022	5

	Condensed Consolidated Statement of Stockholders' Equity for the three and six months ended ~~April~~July 1,~~, 202~~3 2023 and ~~March~~June 2 65 , 20 2 22022	6

	Condensed Consolidated Statements of Cash Flows for the ~~three~~ si x months ended ~~April~~July 1,~~, 202~~3 2023 and ~~March~~June 2 65 , 20 2 22022	7

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1921

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2731

Item 4.	Controls and Procedures	2731

Part II.	Other Information	2832



Item 1A.	Risk Factors	2832









Item 6.	Exhibits	2933

Signatures		3034

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

FORMFACTOR, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)


		April 1, 2023		December 31, 2022			July 1, 2023		December 31, 2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	112,360	$	109,130	Cash and cash equivalents	$	97,981	$	109,130
Marketable securities	Marketable securities	123,891		129,006		Marketable securities	138,943		129,006
Accounts receivable, net of allowance for credit losses of $169 and $168		103,969		88,143
Accounts receivable, net of allowance for credit losses of $510 and $168						Accounts receivable, net of allowance for credit losses of $510 and $168	94,013		88,143
Inventories, net	Inventories, net	116,553		123,157		Inventories, net	120,298		123,157
Restricted cash	Restricted cash	1,207		1,221		Restricted cash	1,144		1,221
Prepaid expenses and other current assets	Prepaid expenses and other current assets	22,941		23,895		Prepaid expenses and other current assets	25,876		23,895
Total current assets	Total current assets	480,921		474,552		Total current assets	478,255		474,552
Restricted cash	Restricted cash	2,287		2,631		Restricted cash	2,265		2,631
Operating lease, right-of-use-assets	Operating lease, right-of-use-assets	30,420		31,362		Operating lease, right-of-use-assets	31,001		31,362
Property, plant and equipment, net of accumulated depreciation	Property, plant and equipment, net of accumulated depreciation	198,232		189,848		Property, plant and equipment, net of accumulated depreciation	204,577		189,848
Goodwill	Goodwill	211,773		211,444		Goodwill	211,929		211,444
Intangibles, net	Intangibles, net	24,486		26,751		Intangibles, net	22,149		26,751
Deferred tax assets	Deferred tax assets	67,951		67,646		Deferred tax assets	71,172		67,646
Other assets	Other assets	3,686		3,994		Other assets	3,790		3,994
Total assets	Total assets	$	1,019,756	$	1,008,228	Total assets	$	1,025,138	$	1,008,228

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	63,756	$	69,308	Accounts payable	$	63,770	$	69,308
Accrued liabilities	Accrued liabilities	31,981		42,115		Accrued liabilities	31,413		42,115
Current portion of term loan, net of unamortized issuance costs	Current portion of term loan, net of unamortized issuance costs	1,142		1,045		Current portion of term loan, net of unamortized issuance costs	1,150		1,045
Deferred revenue	Deferred revenue	23,779		29,846		Deferred revenue	19,899		29,846
Operating lease liabilities	Operating lease liabilities	7,512		7,353		Operating lease liabilities	7,871		7,353
Total current liabilities	Total current liabilities	128,170		149,667		Total current liabilities	124,103		149,667
Term loan, less current portion, net of unamortized issuance costs	Term loan, less current portion, net of unamortized issuance costs	14,034		14,389		Term loan, less current portion, net of unamortized issuance costs	13,765		14,389
Deferred tax liabilities	Deferred tax liabilities	2,905		2,732		Deferred tax liabilities	2,704		2,732
Long-term operating lease liabilities	Long-term operating lease liabilities	26,407		27,587		Long-term operating lease liabilities	26,458		27,587
Deferred grant	Deferred grant	18,000		—		Deferred grant	18,000		—
Other liabilities	Other liabilities	5,868		5,568		Other liabilities	5,845		5,568
Total liabilities	Total liabilities	195,384		199,943		Total liabilities	190,875		199,943

Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:

Common stock, $0.001 par value:	Common stock, $0.001 par value:					Common stock, $0.001 par value:
250,000,000 shares authorized; 77,142,023 and 76,914,590 shares issued and outstanding		77		77

250,000,000 shares authorized; 77,184,012 and 76,914,590 shares issued and outstanding						250,000,000 shares authorized; 77,184,012 and 76,914,590 shares issued and outstanding	77		77
Additional paid-in capital	Additional paid-in capital	858,195		844,842		Additional paid-in capital	867,517		844,842
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(4,186)		(5,578)		Accumulated other comprehensive loss	(4,445)		(5,578)
Accumulated deficit	Accumulated deficit	(29,714)		(31,056)		Accumulated deficit	(28,886)		(31,056)
Total stockholders’ equity	Total stockholders’ equity	824,372		808,285		Total stockholders’ equity	834,263		808,285
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	1,019,756	$	1,008,228	Total liabilities and stockholders’ equity	$	1,025,138	$	1,008,228

The accompanying notes are an integral part of these condensed consolidated financial statements.

FORMFACTOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)


		Three Months Ended				Three Months Ended				Six Months Ended
		April 1, 2023		March 26, 2022				July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
Revenues	Revenues	$	167,448	$	197,174		Revenues	$	155,916	$	203,907	$	323,364	$	401,081
Cost of revenues	Cost of revenues	106,370		102,950			Cost of revenues	95,633		109,538		202,003		212,488
Gross profit	Gross profit	61,078		94,224			Gross profit	60,283		94,369		121,361		188,593
Operating expenses:	Operating expenses:						Operating expenses:
Research and development	Research and development	28,245		27,134			Research and development	28,340		28,317		56,585		55,451
Selling, general and administrative	Selling, general and administrative	32,742		32,906			Selling, general and administrative	33,255		33,406		65,997		66,312
Total operating expenses	Total operating expenses	60,987		60,040			Total operating expenses	61,595		61,723		122,582		121,763
Operating income		91		34,184
Interest income (expense), net		1,276		(54)
Operating income (loss)							Operating income (loss)	(1,312)		32,646		(1,221)		66,830
Interest income, net							Interest income, net	1,482		181		2,758		127

Other income, net	Other income, net	23		192			Other income, net	450		551		473		743
Income before income taxes	Income before income taxes	1,390		34,322			Income before income taxes	620		33,378		2,010		67,700
Provision for income taxes		48		4,450
Provision (benefit) for income taxes							Provision (benefit) for income taxes	(208)		3,136		(160)		7,586
Net income	Net income	$	1,342	$	29,872		Net income	$	828	$	30,242	$	2,170	$	60,114
Net income per share:	Net income per share:						Net income per share:
Basic	Basic	$	0.02	$	0.38		Basic	$	0.01	$	0.39	$	0.03	$	0.77
Diluted	Diluted	$	0.02	$	0.38		Diluted	$	0.01	$	0.38	$	0.03	$	0.76
Weighted-average number of shares used in per share calculations:	Weighted-average number of shares used in per share calculations:						Weighted-average number of shares used in per share calculations:
Basic	Basic	77,066		78,246			Basic	77,159		77,897		77,112		78,071
Diluted	Diluted	77,255		79,468			Diluted	77,616		79,210		77,450		79,423

The accompanying notes are an integral part of these condensed consolidated financial statements.

FORMFACTOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


		Three Months Ended				Three Months Ended				Six Months Ended
		April 1, 2023		March 26, 2022				July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
Net income	Net income	$	1,342	$	29,872		Net income	$	828	$	30,242	$	2,170	$	60,114
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:						Other comprehensive income (loss), net of tax:
Translation adjustments	Translation adjustments	832		(2,698)			Translation adjustments	(122)		(3,856)		710		(6,554)
Unrealized gains (losses) on available-for-sale marketable securities	Unrealized gains (losses) on available-for-sale marketable securities	603		(1,204)			Unrealized gains (losses) on available-for-sale marketable securities	(85)		(547)		518		(1,751)
Unrealized gains (losses) on derivative instruments	Unrealized gains (losses) on derivative instruments	(43)		874			Unrealized gains (losses) on derivative instruments	(52)		(116)		(95)		758
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:	1,392		(3,028)			Other comprehensive income (loss), net of tax:	(259)		(4,519)		1,133		(7,547)
Comprehensive income	Comprehensive income	$	2,734	$	26,844		Comprehensive income	$	569	$	25,723	$	3,303	$	52,567

The accompanying notes are an integral part of these condensed consolidated financial statements.

FORMFACTOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except shares)

(Unaudited)


		Shares of Common Stock	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit		Total			Shares of Common Stock	Common Stock		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total

		Three Months Ended April 1, 2023							Six Months Ended July 1, 2023
Balances, December 31, 2022	Balances, December 31, 2022	76,914,590	$	77	$	844,842	$	(5,578)		$	(31,056)	$	808,285	Balances, December 31, 2022	76,914,590	$	77	$	844,842	$	(5,578)	$	(31,056)	$	808,285
Issuance of common stock under the Employee Stock Purchase Plan	Issuance of common stock under the Employee Stock Purchase Plan	210,055	—		5,024		—			—		5,024		Issuance of common stock under the Employee Stock Purchase Plan	210,055	—		5,024		—		—		5,024

Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax	Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax	17,378	—		(387)		—			—		(387)		Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax	59,367	—		(456)		—		—		(456)

Stock-based compensation	Stock-based compensation	—	—		8,716		—			—		8,716		Stock-based compensation	—	—		18,107		—		—		18,107
Other comprehensive income	Other comprehensive income	—	—		—		1,392			—		1,392		Other comprehensive income	—	—		—		1,133		—		1,133
Net income	Net income	—	—		—		—			1,342		1,342		Net income	—	—		—		—		2,170		2,170
Balances, July 1, 2023														Balances, July 1, 2023	77,184,012	$	77	$	867,517	$	(4,445)	$	(28,886)	$	834,263

															Three Months Ended July 1, 2023
Balances, April 1, 2023	Balances, April 1, 2023	77,142,023	$	77	$	858,195	$	(4,186)		$	(29,714)	$	824,372	Balances, April 1, 2023	77,142,023	$	77	$	858,195	$	(4,186)	$	(29,714)	$	824,372

Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax														Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax	41,989	—		(69)		—		—		(69)

Stock-based compensation														Stock-based compensation	—	—		9,391		—		—		9,391
Other comprehensive loss														Other comprehensive loss	—	—		—		(259)		—		(259)
Net income														Net income	—	—		—		—		828		828
Balances, July 1, 2023														Balances, July 1, 2023	77,184,012	$	77	$	867,517	$	(4,445)	$	(28,886)	$	834,263


		Three Months Ended March 26, 2022							Six Months Ended June 25, 2022
Balances, December 25, 2021	Balances, December 25, 2021	78,240,506	$	78	$	898,945	$	(1,449)		$	(81,794)	$	815,780	Balances, December 25, 2021	78,240,506	$	78	$	898,945	$	(1,449)	$	(81,794)	$	815,780
Issuance of common stock under the Employee Stock Purchase Plan	Issuance of common stock under the Employee Stock Purchase Plan	157,642	—		5,645		—			—		5,645		Issuance of common stock under the Employee Stock Purchase Plan	157,642	—		5,645		—		—		5,645
Issuance of common stock pursuant to exercise of options	Issuance of common stock pursuant to exercise of options	6,000	—		42		—			—		42		Issuance of common stock pursuant to exercise of options	6,000	—		42		—		—		42
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax	Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax	2,612	—		(72)		—			—		(72)		Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax	234,076	—		(4,243)		—		—		(4,243)
Purchase and retirement of common stock through repurchase program	Purchase and retirement of common stock through repurchase program	(240,548)	—		(9,397)		—			—		(9,397)		Purchase and retirement of common stock through repurchase program	(1,443,491)	(1)		(54,327)		—		—		(54,328)
Stock-based compensation	Stock-based compensation	—	—		7,831		—			—		7,831		Stock-based compensation	—	—		14,522		—		—		14,522
Other comprehensive loss	Other comprehensive loss	—	—		—		(3,028)			—		(3,028)		Other comprehensive loss	—	—		—		(7,547)		—		(7,547)
Net income	Net income	—	—		—		—			29,872		29,872		Net income	—	—		—		—		60,114		60,114
Balances, June 25, 2022														Balances, June 25, 2022	77,194,733	$	77	$	860,584	$	(8,996)	$	(21,680)	$	829,985

															Three Months Ended June 25, 2022
Balances, March 26, 2022	Balances, March 26, 2022	78,166,212	$	78	$	902,994	$	(4,477)		$	(51,922)	$	846,673	Balances, March 26, 2022	78,166,212	$	78	$	902,994	$	(4,477)	$	(51,922)	$	846,673

Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax														Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax	231,464	—		(4,171)		—		—		(4,171)
Purchase and retirement of common stock through repurchase program														Purchase and retirement of common stock through repurchase program	(1,202,943)	(1)		(44,930)		—		—		(44,931)
Stock-based compensation														Stock-based compensation	—	—		6,691		—		—		6,691
Other comprehensive loss														Other comprehensive loss	—	—		—		(4,519)		—		(4,519)
Net income														Net income	—	—		—		—		30,242		30,242
Balances, June 25, 2022														Balances, June 25, 2022	77,194,733	$	77	$	860,584	$	(8,996)	$	(21,680)	$	829,985

The accompanying notes are an integral part of these condensed consolidated financial statements.

FORMFACTOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


		Three Months Ended					Six Months Ended
		April 1, 2023		March 26, 2022			July 1, 2023		June 25, 2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	1,342	$	29,872	Net income	$	2,170	$	60,114
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	Depreciation	7,576		6,960		Depreciation	15,121		14,146
Amortization	Amortization	2,378		2,369		Amortization	4,766		4,702
Reduction in the carrying amount of right-of-use assets	Reduction in the carrying amount of right-of-use assets	1,690		2,492		Reduction in the carrying amount of right-of-use assets	3,914		4,414
Stock-based compensation expense	Stock-based compensation expense	9,290		7,520		Stock-based compensation expense	18,494		13,878

Deferred income tax benefit						Deferred income tax benefit	(3,639)		(3,703)
Provision for excess and obsolete inventories	Provision for excess and obsolete inventories	4,973		2,501		Provision for excess and obsolete inventories	8,628		4,726

Other adjustments to reconcile net income to net cash provided by operating activities	Other adjustments to reconcile net income to net cash provided by operating activities	133		182		Other adjustments to reconcile net income to net cash provided by operating activities	1,801		3,846
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable	Accounts receivable	(15,926)		966		Accounts receivable	(6,830)		5,530
Inventories	Inventories	1,375		(17,080)		Inventories	(5,880)		(32,268)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	1,009		(144)		Prepaid expenses and other current assets	(1,099)		1,295
Other assets	Other assets	(55)		(73)		Other assets	(83)		(40)
Accounts payable	Accounts payable	(1,819)		10,150		Accounts payable	3,578		7,521
Accrued liabilities	Accrued liabilities	(10,209)		(3,120)		Accrued liabilities	(10,606)		4,102
Other liabilities	Other liabilities	319		87		Other liabilities	456		73
Deferred revenues	Deferred revenues	(6,046)		3,908		Deferred revenues	(9,945)		2,727
Deferred grant	Deferred grant	18,000		—		Deferred grant	18,000		—
Operating lease liabilities	Operating lease liabilities	(1,721)		(2,435)		Operating lease liabilities	(4,065)		(4,262)
Net cash provided by operating activities	Net cash provided by operating activities	12,309		44,155		Net cash provided by operating activities	34,781		86,801
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Acquisition of property, plant and equipment	Acquisition of property, plant and equipment	(19,701)		(15,606)		Acquisition of property, plant and equipment	(40,177)		(30,116)

Acquisition of business						Acquisition of business	—		(3,121)
Purchases of marketable securities	Purchases of marketable securities	(27,311)		(23,462)		Purchases of marketable securities	(66,650)		(52,344)

Purchase of promissory note receivable						Purchase of promissory note receivable	—		(1,000)
Proceeds from maturities and sales of marketable securities	Proceeds from maturities and sales of marketable securities	33,473		17,990		Proceeds from maturities and sales of marketable securities	58,363		45,470
Net cash used in investing activities	Net cash used in investing activities	(13,539)		(21,078)		Net cash used in investing activities	(48,464)		(41,111)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from issuances of common stock	Proceeds from issuances of common stock	5,024		5,687		Proceeds from issuances of common stock	5,024		5,687
Purchase of common stock through stock repurchase program	Purchase of common stock through stock repurchase program	—		(9,397)		Purchase of common stock through stock repurchase program	—		(54,328)
Tax withholdings related to net share settlements of equity awards	Tax withholdings related to net share settlements of equity awards	(387)		(72)		Tax withholdings related to net share settlements of equity awards	(456)		(4,243)

Principal repayments on term loans	Principal repayments on term loans	(259)		(2,234)		Principal repayments on term loans	(519)		(4,379)

Net cash provided by (used) in financing activities		4,378		(6,016)
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	4,049		(57,263)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	(276)		(1,142)		Effect of exchange rate changes on cash, cash equivalents and restricted cash	(1,958)		(3,470)
Net increase in cash, cash equivalents and restricted cash		2,872		15,919
Net decrease in cash, cash equivalents and restricted cash						Net decrease in cash, cash equivalents and restricted cash	(11,592)		(15,043)
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	112,982		155,342		Cash, cash equivalents and restricted cash, beginning of period	112,982		155,342
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	115,854	$	171,261	Cash, cash equivalents and restricted cash, end of period	$	101,390	$	140,299

The accompanying notes are an integral part of these condensed consolidated financial statements.

FORMFACTOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


		Three Months Ended					Six Months Ended
		April 1, 2023		March 26, 2022			July 1, 2023		June 25, 2022
Non-cash investing and financing activities:	Non-cash investing and financing activities:					Non-cash investing and financing activities:
Decrease in accounts payable and accrued liabilities related to property, plant and equipment purchases	Decrease in accounts payable and accrued liabilities related to property, plant and equipment purchases	$	3,755	$	2,524	Decrease in accounts payable and accrued liabilities related to property, plant and equipment purchases	$	9,187	$	4,165

Operating lease, right-of-use assets obtained in exchange for lease obligations	Operating lease, right-of-use assets obtained in exchange for lease obligations	727		3,359		Operating lease, right-of-use assets obtained in exchange for lease obligations	3,635		3,438

Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Cash paid for income taxes, net	Cash paid for income taxes, net	$	7,391	$	890	Cash paid for income taxes, net	$	9,427	$	6,473
Cash paid for interest	Cash paid for interest	106		163		Cash paid for interest	212		294
Operating cash outflows from operating leases	Operating cash outflows from operating leases	2,191		2,094		Operating cash outflows from operating leases	4,514		4,379

Reconciliation of cash, cash equivalents and restricted cash:	Reconciliation of cash, cash equivalents and restricted cash:					Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	Cash and cash equivalents	$	112,360	$	167,182	Cash and cash equivalents	$	97,981	$	136,395
Restricted cash, current	Restricted cash, current	1,207		2,026		Restricted cash, current	1,144		2,102
Restricted cash, non-current	Restricted cash, non-current	2,287		2,053		Restricted cash, non-current	2,265		1,802
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	115,854	$	171,261	Total cash, cash equivalents and restricted cash	$	101,390	$	140,299

The accompanying notes are an integral part of these condensed consolidated financial statements.

FORMFACTOR, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 — Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial information of FormFactor, Inc. is unaudited and has been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). However, such information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the notes thereto included in our 2022 Annual Report on Form 10-K filed with the SEC on February 24, 2023. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

Fiscal Year

We operate on a 52/53 week fiscal year, whereby the fiscal year ends on the last Saturday of December. Fiscal 2023 and 2022 contain 52 weeks and 53 weeks, respectively, and the ~~three~~six months ended ~~April~~July 1, 2023 and ~~March 26,~~June 25, 2022 each contained 1326 weeks. Fiscal 2023 will end on December 30, 2023.

Significant Accounting Policies

Our significant accounting policies have not changed during the ~~three~~six months ended ~~April~~July 1, 2023 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, except for:

Government Assistance

In January 2023, we received $18.0 million in cash from a California Competes Grant (the “Grant”) awarded from the California Governor’s Office of Business and Economic Development. The Grant requires FormFactor to create and maintain full-time jobs and make significant infrastructure investments within California over a 5-year term. If we do not meet the requirements of the Grant, we will be required to repay all or a portion of the Grant.

The Grant is included in our Condensed Consolidated Balance Sheets within Deferred grant and we have elected to recognize the Grant when earned as an offset to Cost of revenues and Operating expenses within our Condensed Consolidated Statements of Income. We have elected to present the proceeds from the Grant as cash provided by operating activities within our Condensed Consolidated Statements of Cash Flows as the ~~grant~~Grant is to offset operations.

New Accounting Pronouncements

Reference Rate Reform

In March 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU provides temporary optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offered Rate (“LIBOR“) or another reference rate expected to be discontinued. In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848,” extending the relief offered in Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the optional expedients in Topic 848.

In May 2023, the Company entered into a rate replacement amendment to its credit facility loan agreement to replace LIBOR with the Secured Overnight Financing Rate (“SOFR”) and concurrently signed an amendment to modify the floating rate option on its interest rate swap to match that of the debt. The Company applied practical expedients provided in Topic 848 allowing the modified instrument to be accounted for and presented in the same manner as the instrument existing before the modification. These modifications had no significant impact on our financial statements. Refer to Note 6,Debt for further information regarding the terms of the credit facility loan agreement and interest rate swap agreement.

Reclassifications

Certain immaterial reclassifications were made to the prior year financial statements to conform to the current year presentation.

Note 2 — Concentration of Credit and Other Risks

~~Each of the~~The following ~~customers~~customer accounted for 10% or more of our revenues for the periods indicated:

Three Months Ended
April 1,
2023 March 26,
2022
Intel Corporation 20.0 % 20.8 %
Taiwan Semiconductor Manufacturing Co., LTD. * 10.7 %
20.0 % 31.5 %


	Three Months Ended				Six Months Ended
	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
Intel Corporation	14.2	%	20.9	%	17.2	%	20.9	%

At ~~April~~July 1, 2023 ~~two customers accounted for 17.9%~~ and ~~15.9% of gross accounts receivable, respectively. At~~ December 31, 2022, one customer accounted for 15.3% and 13.8% of gross accounts ~~receivable.~~receivable, respectively.

Note 3 — Inventories, net

Inventories are stated at the lower of cost (principally standard cost, which approximates actual cost on a first in, first out basis) or net realizable value.

Inventories, net, consisted of the following (in thousands):


		April 1, 2023		December 31, 2022			July 1, 2023		December 31, 2022
Raw materials	Raw materials	$	57,748	$	55,726	Raw materials	$	55,491	$	55,726
Work-in-progress	Work-in-progress	39,376		46,067		Work-in-progress	44,549		46,067
Finished goods	Finished goods	19,429		21,364		Finished goods	20,258		21,364
		$	116,553	$	123,157		$	120,298	$	123,157

Note 4 — Goodwill and Intangible Assets

Goodwill by reportable segment was as follows (in thousands):


		Probe Cards		Systems		Total			Probe Cards		Systems		Total
Goodwill, as of December 25, 2021	Goodwill, as of December 25, 2021	$	178,424	$	33,875	$	212,299	Goodwill, as of December 25, 2021	$	178,424	$	33,875	$	212,299

Addition - Woburn Acquisition	Addition - Woburn Acquisition	—		550		550		Addition - Woburn Acquisition	—		550		550
Foreign currency translation	Foreign currency translation	—		(1,405)		(1,405)		Foreign currency translation	—		(1,405)		(1,405)
Goodwill, as of December 31, 2022	Goodwill, as of December 31, 2022	178,424		33,020		211,444		Goodwill, as of December 31, 2022	178,424		33,020		211,444

Foreign currency translation	Foreign currency translation	—		329		329		Foreign currency translation	—		485		485
Goodwill, as of April 1, 2023		$	178,424	$	33,349	$	211,773
Goodwill, as of July 1, 2023								Goodwill, as of July 1, 2023	$	178,424	$	33,505	$	211,929

We have not recorded goodwill impairments for the ~~three~~six months ended ~~April~~July 1, 2023.

Intangible assets were as follows (in thousands):


		April 1, 2023						December 31, 2022							July 1, 2023						December 31, 2022
Intangible Assets	Intangible Assets	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net		Intangible Assets	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Existing developed technologies	Existing developed technologies	$	171,750	$	152,260	$	19,490	$	171,441	$	151,212	$	20,229	Existing developed technologies	$	171,896	$	153,200	$	18,696	$	171,441	$	151,212	$	20,229
Customer relationships	Customer relationships	50,996		46,559		4,437		50,912		45,003		5,909		Customer relationships	51,036		48,085		2,951		50,912		45,003		5,909
Trade name	Trade name	7,992		7,833		159		7,972		7,759		213		Trade name	8,000		7,898		102		7,972		7,759		213

In-process research and development	In-process research and development	400		—		400		400		—		400		In-process research and development	400		—		400		400		—		400
		$	231,138	$	206,652	$	24,486	$	230,725	$	203,974	$	26,751		$	231,332	$	209,183	$	22,149	$	230,725	$	203,974	$	26,751

Amortization expense was included in our Condensed Consolidated Statements of Income as follows (in thousands):


		Three Months Ended				Three Months Ended				Six Months Ended
		April 1, 2023		March 26, 2022				July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
Cost of revenues	Cost of revenues	$	831	$	808		Cost of revenues	$	838	$	788	$	1,669	$	1,596
Selling, general and administrative	Selling, general and administrative	1,547		1,561			Selling, general and administrative	1,550		1,545		3,097		3,106
		$	2,378	$	2,369			$	2,388	$	2,333	$	4,766	$	4,702

The estimated future amortization of definite-lived intangible assets, excluding in-process research and development, is as follows (in thousands):


Fiscal Year	Fiscal Year	Amount		Fiscal Year	Amount
Remainder of 2023	Remainder of 2023	$	4,813	Remainder of 2023	$	2,435
2024	2024	4,611		2024	4,624
2025	2025	4,268		2025	4,280
2026	2026	3,175		2026	3,184
2027	2027	2,832		2027	2,839
Thereafter	Thereafter	4,387		Thereafter	4,387
		$	24,086		$	21,749

Note 5 — Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):


		April 1, 2023		December 31, 2022			July 1, 2023		December 31, 2022
Accrued compensation and benefits	Accrued compensation and benefits	$	20,028	$	15,864	Accrued compensation and benefits	$	17,386	$	15,864
Employee stock purchase plan contributions withheld						Employee stock purchase plan contributions withheld	4,142		4,585
Accrued income and other taxes	Accrued income and other taxes	3,241		12,817		Accrued income and other taxes	3,944		12,817
Accrued warranty	Accrued warranty	3,872		4,199		Accrued warranty	3,506		4,199
Employee stock purchase plan contributions withheld		1,533		4,585
Accrued restructuring charges	Accrued restructuring charges	376		1,249		Accrued restructuring charges	207		1,249
Other accrued expenses	Other accrued expenses	2,931		3,401		Other accrued expenses	2,228		3,401
		$	31,981	$	42,115		$	31,413	$	42,115

Note 6— Debt

On June 22, 2020, we entered into an $18.0 million 15-year credit facility loan agreement (the “Building Term Loan”) with MUFG Union Bank, National Association (“Union Bank”). The proceeds of the Building Term Loan were used to purchase a building adjacent to our leased facilities in Livermore, California. On May 19, 2023, we amended the Building Term Loan, replacing the benchmark reference rate LIBOR with the term SOFR, with no change to the amount or timing of contractual cash flows.

The Building Term Loan bears interest at a rate equal to the applicable SOFR rate, plus 0.1148%, plus 1.75% per annum. Interest payments are payable in monthly installments over a fifteen-year period. The interest rate at July 1, 2023 was 5.17%.

On March 17, 2020, we entered into an interest rate swap agreement with Union Bank to hedge the interest payment on the Building Term Loan for the notional amount of $18.0 million. As future levels of LIBOR over the life of the loan were uncertain, we entered into this interest-rate swap agreement to hedge the exposure in interest rate risks associated with movement in LIBOR rates. By entering into the agreement, we converted a floating-rate interest at one-month LIBOR plus 1.75% into a fixed-rate interest at 2.75%. This agreement was amended on May 19, 2023 to replace the benchmark reference rate LIBOR with the term SOFR to match the Building Term Loan agreement (as amended). After the amendment, the interest rate swap continues to convert our floating-rate interest into a fixed-rate at 2.75%.

Note 7 — Restructuring Charges

2022 Restructuring Plan

On October 25, 2022, we adopted a restructuring plan (“2022 restructuring plan”) to align our cost structure with reduced demand levels, by streamlining and improving the efficiency and business effectiveness of our operations. This plan included lowering headcount by approximately 13% of our workforce.

The Company has recognized 2022 restructuring plan charges of approximately $8.1 million for severance and employee-related costs, including $0.3 million for stock-based compensation, with $7.1 million within the Probe Cards segment, $0.5 million within the Systems segment, and $0.5 million within Corporate. We do not expect to incur additional material costs related to the 2022 restructuring plan.

2021 Restructuring Plan

On September 25, 2021, we adopted restructuring plans (“2021 restructuring plans”) to improve our business effectiveness and streamline our operations by consolidating certain manufacturing facilities for both the Probe Cards segment and the Systems segment. This included plans to consolidate or relocate certain leased locations in the United States to other locations in the United States, Germany and Asia. As a result of these changes to certain work locations, we have incurred personnel related costs to sever, relocate, or retain select employees. Additionally, as part of these plans we have undertaken actions to adjust capacity for certain product offerings, which included contract termination costs to satisfy contract obligations.

The Company has recognized 2021 restructuring plans charges of approximately ~~$12.7~~$13.3 million, with ~~$9.9~~$10.1 million within the Probe Cards segment and ~~$2.8~~$3.2 million within the Systems segment, ~~and~~which were comprised of ~~$1.3~~$1.4 million of severance and employee-related costs, ~~$1.8~~$2.0 million in contract and lease termination costs, ~~$9.1~~$9.4 million in inventory impairments and other inventory related costs, and $0.5 million of cost related to impairment of leasehold improvements, facility exits and fixed asset related costs. We do not expect additional material costs related to the 2021 restructuring plan.

Total restructuring charges for both the 2022 and 2021 restructuring plans included in our Condensed Consolidated Statements of Income were as follows (in thousands):


		Three Months Ended																Three Months Ended
		April 1, 2023								March 26, 2022								July 1, 2023						June 25, 2022
		Probe Cards			Systems			Total		Probe Cards		Systems			Total			Probe Cards		Systems		Total		Probe Cards		Systems		Total
Cost of revenues	Cost of revenues	$	70		$	(45)		$	25	$	39	$	100		$	139	Cost of revenues	$	47	$	285	$	332	$	227	$	227	$	454
Research and development	Research and development	4			66			70		—		146			146		Research and development	170		51		221		—		53		53
Selling, general and administrative	Selling, general and administrative	1,060			62			1,122		3		25			28		Selling, general and administrative	6		59		65		—		74		74
		$	1,134		$	83		$	1,217	$	42	$	271		$	313		$	223	$	395	$	618	$	227	$	354	$	581

				Six Months Ended
							July 1, 2023							June 25, 2022
																		Probe Cards		Systems		Total		Probe Cards		Systems		Total
Cost of revenues																	Cost of revenues	$	106	$	251	$	357	$	266	$	327	$	593
Research and development																	Research and development	182		109		291		—		199		199
Selling, general and administrative																	Selling, general and administrative	1,069		118		1,187		3		99		102
																		$	1,357	$	478	$	1,835	$	269	$	625	$	894

1112

Changes to the restructuring accrual in the ~~three~~six months ended ~~April~~July 1, 2023 were as follows (in thousands):


		Employee Severance and Benefits		Stock-based Compensation		Inventory Impairments & Other Inventory Related Costs		Total			Employee Severance and Benefits		Stock-based Compensation		Inventory Impairments & Other Inventory Related Costs		Contract Termination & Other Costs		Total
December 31, 2022	December 31, 2022	$	1,249	$	—	$	—	$	1,249	December 31, 2022	$	1,249	$	—	$	—	$	—	$	1,249
Restructuring charges	Restructuring charges	842		295		80		1,217		Restructuring charges	917		295		390		233		1,835
Cash payments	Cash payments	(1,715)		—		(63)		(1,778)		Cash payments	(1,959)		—		(89)		(233)		(2,281)

Non-cash settlement	Non-cash settlement	—		(295)		(17)		(312)		Non-cash settlement	—		(295)		(301)		—		(596)
April 1, 2023		$	376	$	—	$	—	$	376
July 1, 2023										July 1, 2023	$	207	$	—	$	—	$	—	$	207

Note 78 — Fair Value and Derivative Instruments

Whenever possible, the fair values of our financial assets and liabilities are determined using quoted market prices of identical securities or quoted market prices of similar securities from active markets. The three levels of inputs that may be used to measure fair value are as follows:

•Level 1 valuations are obtained from real-time quotes for transactions in active exchange markets involving identical securities;

•Level 2 valuations utilize significant observable inputs, such as quoted prices for similar assets or liabilities, quoted prices near the reporting date in markets that are less active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

•Level 3 valuations utilize unobservable inputs to the valuation methodology and include our own data about assumptions market participants would use in pricing the asset or liability based on the best information available under the circumstances.

We did not have any transfers of assets or liabilities measured at fair value on a recurring basis to or from Level 1, Level 2 or Level 3 during the three and six months ended ~~April~~July 1, 2023 or the year ended December 31, 2022.

The carrying values of Cash, Accounts receivable, net, Restricted cash, Prepaid expenses and other current assets, Accounts payable, and Accrued liabilities approximate fair value due to their short maturities.

No changes were made to our valuation techniques during the first ~~three~~six months of fiscal 2023.

1213

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):


April 1, 2023		Level 1		Level 2		Level 3		Total
July 1, 2023										July 1, 2023	Level 1		Level 2		Level 3		Total
Assets:	Assets:									Assets:
Cash equivalents:	Cash equivalents:									Cash equivalents:
Money market funds	Money market funds	$	44,777	$	—	$	—	$	44,777	Money market funds	$	30,179	$	—	$	—	$	30,179
Commercial paper		—		4,475		—		4,475

U.S. treasuries										U.S. treasuries	1,691		—		—		1,691
		44,777		4,475		—		49,252			31,870		—		—		31,870
Marketable securities:	Marketable securities:									Marketable securities:
U.S. treasuries	U.S. treasuries	25,144		—		—		25,144		U.S. treasuries	46,803		—		—		46,803
Certificates of deposit	Certificates of deposit	—		471		—		471		Certificates of deposit	—		235		—		235
U.S. agency securities	U.S. agency securities	—		13,062		—		13,062		U.S. agency securities	—		14,733		—		14,733
Corporate bonds	Corporate bonds	—		53,899		—		53,899		Corporate bonds	—		53,097		—		53,097
Commercial paper	Commercial paper	—		31,315		—		31,315		Commercial paper	—		24,075		—		24,075
		25,144		98,747		—		123,891			46,803		92,140		—		138,943
Foreign exchange derivative contracts	Foreign exchange derivative contracts	—		763		—		763		Foreign exchange derivative contracts	—		549		—		549
Promissory note receivable	Promissory note receivable	—		—		943		943		Promissory note receivable	—		—		926		926
Interest rate swap derivative contracts	Interest rate swap derivative contracts	—		2,041		—		2,041		Interest rate swap derivative contracts	—		2,263		—		2,263
Total assets	Total assets	$	69,921	$	106,026	$	943	$	176,890	Total assets	$	78,673	$	94,952	$	926	$	174,551
Liabilities:	Liabilities:									Liabilities:
Foreign exchange derivative contracts										Foreign exchange derivative contracts	$	—	$	(60)	$	—	$	(60)

Interest rate swap derivative contracts		$	—	$	(2)	$	—	$	(2)

Total liabilities	Total liabilities	$	—	$	(2)	$	—	$	(2)	Total liabilities	$	—	$	(60)	$	—	$	(60)


December 31, 2022	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	21,279	$	—	$	—	$	21,279
Commercial paper	—		4,969		—		4,969

U.S. agency securities	—		996		—		996
	21,279		5,965		—		27,244
Marketable securities:
U.S. treasuries	25,019		—		—		25,019
Certificates of deposit	—		706		—		706
U.S. agency securities	—		11,045		—		11,045
Corporate bonds	—		67,396		—		67,396
Commercial paper	—		24,840		—		24,840
	25,019		103,987		—		129,006
Foreign exchange derivative contracts	—		664		—		664
Promissory note receivable	—		—		943		943
Interest rate swap derivative contracts	—		2,374		—		2,374
Total assets	$	46,298	$	112,990	$	943	$	160,231
Liabilities:
Foreign exchange derivative contracts	$	—	$	(193)	$	—	$	(193)

Total liabilities	$	—	$	(193)	$	—	$	(193)

Cash Equivalents

The fair value of our cash equivalents is determined based on quoted market prices for similar or identical securities.

Marketable Securities

We classify our marketable securities as available-for-sale and value them utilizing a market approach. Our investments are

1314

priced by pricing vendors who provide observable inputs for their pricing without applying significant judgment. Broker pricing is used mainly when a quoted price is not available, the investment is not priced by our pricing vendors or when a broker price is more reflective of fair value. Our broker-priced investments are categorized as Level 2 investments because fair value is based on similar assets without applying significant judgments. In addition, all investments have a sufficient trading volume to demonstrate that the fair value is appropriate.

Unrealized gains and losses were immaterial and were recorded as a component of Accumulated other comprehensive loss in our Condensed Consolidated Balance Sheets. We did not have any other-than-temporary unrealized gains or losses at either period end included in these financial statements.

Interest Rate Swaps

The fair value of our interest rate swap contracts is determined at the end of each reporting period based on valuation models that use interest rate yield curves as inputs. For accounting purposes, our interest rate swap contracts qualify for, and are designated as, cash flow hedges. The cash flows associated with the interest rate swaps are reported in Net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows and the fair value of the interest rate swap contracts are recorded within Prepaid expenses and other current assets and Other assets in our Condensed Consolidated Balance Sheets.

Foreign Exchange Derivative Contracts

We operate and sell our products in various global markets. As a result, we are exposed to changes in foreign currency exchange rates. We utilize foreign currency forward contracts to hedge against future movements in foreign exchange rates that affect certain existing foreign currency denominated assets and liabilities and forecasted foreign currency revenue and expense transactions. Under this program, our strategy is to have increases or decreases in our foreign currency exposures mitigated by gains or losses on the foreign currency forward contracts in order to mitigate the risks and volatility associated with foreign currency transaction gains or losses.

We do not use derivative financial instruments for speculative or trading purposes. For accounting purposes, certain of our foreign currency forward contracts are not designated as hedging instruments and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Condensed Consolidated Balance Sheets with changes in fair value recorded within Other income, net in our Condensed Consolidated Statement of Income for both realized and unrealized gains and losses. Certain of our foreign currency forward contracts are designated as cash flow hedges, and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Condensed Consolidated Balance Sheets with changes in fair value recorded as a component of Accumulated other comprehensive loss and reclassified into earnings in the same period in which the hedged transaction affects earnings, and in the same line item on the Condensed Consolidated Statements of Income as the impact of the hedge transaction.

The fair value of our foreign exchange derivative contracts was determined based on current foreign currency exchange rates and forward points. All of our foreign exchange derivative contracts outstanding at ~~April~~July 1, 2023 will mature by the ~~first~~second quarter of fiscal 2024.

The following table provides information about our foreign currency forward contracts outstanding as of ~~April~~July 1, 2023 (in thousands):

Currency

Contract Position

Contract Amount
(Local Currency)

Contract Amount
(U.S. Dollars)

Currency

Contract Position

Contract Amount
(Local Currency)

Contract Amount
(U.S. Dollars)

Euro Dollar

Buy

23,004

24,250

Euro Dollar

Buy

18,558

19,903

Euro Dollar

Sell

2,356

2,472

Euro Dollar

Sell

1,077

1,176

Japanese Yen

Sell

3,227,282

24,377

Japanese Yen

Sell

3,104,537

21,583

Korean Won

Buy

1,751,490

1,355

Korean Won

Buy

1,258,185

962

Taiwan Dollar

Sell

43,413

1,435

Taiwan Dollar

Sell

31,197

1,001

Our foreign currency contracts are classified within Level 2 of the fair value hierarchy as they are valued using pricing models that utilize observable market inputs.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

We measure and report our non-financial assets such as Property, plant and equipment, Goodwill and Intangible assets at fair value on a non-recurring basis if we determine these assets to be impaired or in the period when we make a business

1415

acquisition. Other than as discussed in Note 6,7, Restructuring Charges, there were no assets or liabilities measured at fair value on a nonrecurring basis during the three and six months ended ~~April~~July 1, 2023 or ~~March 26,~~June 25, 2022.

Note 89 — Warranty

We offer warranties on certain products and record a liability for the estimated future costs associated with warranty claims at the time revenue is recognized. The warranty liability is based upon historical experience and our estimate of the level of future costs. While we engage in product quality programs and processes, our warranty obligation is affected by product failure rates, material usage and service delivery costs. We regularly monitor product returns for warranty and maintain a reserve for the related expenses based upon our historical experience and any specifically identified failures. As we sell new products to our customers, we must exercise considerable judgment in estimating the expected failure rates. This estimating process is based on historical experience of similar products, as well as various other assumptions that we believe to be reasonable under the circumstances. We provide for the estimated cost of product warranties at the time revenue is recognized as a component of Cost of revenues in our Condensed Consolidated Statement of Income.

Changes in our warranty liability were as follows (in thousands):


		Three Months Ended					Six Months Ended
		April 1, 2023		March 26, 2022			July 1, 2023		June 25, 2022
Balance at beginning of period	Balance at beginning of period	$	4,199	$	2,805	Balance at beginning of period	$	4,199	$	2,805
Accruals	Accruals	1,390		1,214		Accruals	2,934		3,846
Settlements	Settlements	(1,717)		(1,244)		Settlements	(3,627)		(2,673)
Balance at end of period	Balance at end of period	$	3,872	$	2,775	Balance at end of period	$	3,506	$	3,978

Note 910 — Property, Plant and Equipment, net

Property, plant and equipment, net consisted of the following (in thousands):


		April 1, 2023		December 31, 2022			July 1, 2023		December 31, 2022
Land	Land	$	17,136	$	17,136	Land	$	17,136	$	17,136
Building and building improvements	Building and building improvements	44,444		44,932		Building and building improvements	44,452		44,932
Machinery and equipment	Machinery and equipment	280,936		276,180		Machinery and equipment	284,837		276,180
Computer equipment and software	Computer equipment and software	46,568		45,813		Computer equipment and software	46,774		45,813
Furniture and fixtures	Furniture and fixtures	7,481		7,540		Furniture and fixtures	7,468		7,540
Leasehold improvements	Leasehold improvements	87,318		86,500		Leasehold improvements	88,416		86,500
Sub-total	Sub-total	483,883		478,101		Sub-total	489,083		478,101
Less: Accumulated depreciation and amortization	Less: Accumulated depreciation and amortization	(342,763)		(335,711)		Less: Accumulated depreciation and amortization	(349,123)		(335,711)
Net, property, plant and equipment	Net, property, plant and equipment	141,120		142,390		Net, property, plant and equipment	139,960		142,390
Construction-in-process	Construction-in-process	57,112		47,458		Construction-in-process	64,617		47,458
Total	Total	$	198,232	$	189,848	Total	$	204,577	$	189,848

Note 1011 — Stockholders’ Equity and Stock-Based Compensation

Common Stock Repurchase Programs

On October 26, 2020, our Board of Directors authorized a two-year program to repurchase up to $50 million of outstanding common stock to offset potential dilution from issuances of common stock under our stock-based compensation programs. During the ~~three~~six months ended ~~March 26,~~June 25, 2022, we repurchased ~~240,548~~676,408 shares of common stock for ~~$9.4~~$26.0 million. We utilized the remaining funds available for repurchase under this program during fiscal 2022.

On May 20, 2022, our Board of Directors authorized an additional program to repurchase up to $75 million of outstanding common stock, also with the primary purpose to offset potential dilution from issuances of common stock under our stock-based compensation programs. The share repurchase program will expire on May 20, 2024. During the ~~three~~six months ended ~~April~~July 1, 2023, we did not repurchase any common stock. As of ~~April~~July 1, 2023, $18.6 million remained available for future repurchases.

1516

Our policy related to repurchases of our common stock is to charge the excess of cost over par value to additional paid-in capital once the shares are retired. All repurchases were made in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended.

Restricted Stock Units

Restricted stock unit (“RSU”) activity under our equity incentive plan was as follows:


		Units	Weighted Average Grant Date Fair Value			Units	Weighted Average Grant Date Fair Value
RSUs at December 31, 2022	RSUs at December 31, 2022	2,227,081	$	35.28	RSUs at December 31, 2022	2,227,081	$	35.28
Awards granted	Awards granted	79,020	25.51		Awards granted	1,014,619	30.97
Awards vested	Awards vested	(30,751)	34.87		Awards vested	(75,144)	37.76
Awards forfeited	Awards forfeited	(82,523)	35.16		Awards forfeited	(122,881)	35.09
RSUs at April 1, 2023		2,192,827	34.94
RSUs at July 1, 2023					RSUs at July 1, 2023	3,043,675	33.78

Performance Restricted Stock Units

We may grant Performance RSUs (“PRSUs”) to certain executives, which vest based upon us achieving certain market performance criteria. There were no market based PRSUs granted during the ~~three~~six months ended ~~April~~July 1, 2023. PRSUs are included as part of the RSU activity above.

Employee Stock Purchase Plan

Information related to activity under our Employee Stock Purchase Plan (“ESPP”) was as follows:


	~~Three~~Six Months Ended
	~~April~~July 1, 2023
Shares issued	210,055
Weighted average per share purchase price	$	23.92
Weighted average per share discount from the fair value of our common stock on the date of issuance	$	(4.22)

Stock-Based Compensation

Stock-based compensation was included in our Condensed Consolidated Statements of Income as follows (in thousands):


		Three Months Ended				Three Months Ended				Six Months Ended
		April 1, 2023		March 26, 2022				July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
Cost of revenues	Cost of revenues	$	1,910	$	1,078		Cost of revenues	$	1,515	$	734	$	3,425	$	1,812
Research and development	Research and development	2,372		1,986			Research and development	2,363		1,695		4,735		3,681
Selling, general and administrative	Selling, general and administrative	5,008		4,456			Selling, general and administrative	5,326		3,929		10,334		8,385
Total stock-based compensation	Total stock-based compensation	$	9,290	$	7,520		Total stock-based compensation	$	9,204	$	6,358	$	18,494	$	13,878

Unrecognized Compensation Costs

At ~~April~~July 1, 2023, the unrecognized stock-based compensation was as follows (dollars in thousands):


		Unrecognized Expense		Average Expected Recognition Period in Years		Unrecognized Expense		Average Expected Recognition Period in Years
Restricted stock units	Restricted stock units	$	39,761	1.98	Restricted stock units	$	60,794	2.28
Performance restricted stock units	Performance restricted stock units	9,486		1.86	Performance restricted stock units	7,789		1.72
Employee stock purchase plan	Employee stock purchase plan	985		0.33	Employee stock purchase plan	246		0.09
Total unrecognized stock-based compensation expense	Total unrecognized stock-based compensation expense	$	50,232	1.93	Total unrecognized stock-based compensation expense	$	68,829	2.22

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Note 1112 — Net Income per Share

The following table reconciles the shares used in calculating basic net income per share and diluted net income per share (in thousands):


		Three Months Ended		Three Months Ended			Six Months Ended
		April 1, 2023	March 26, 2022			July 1, 2023	June 25, 2022	July 1, 2023	June 25, 2022

Weighted-average shares used in computing basic net income per share	Weighted-average shares used in computing basic net income per share	77,066	78,246		Weighted-average shares used in computing basic net income per share	77,159	77,897	77,112	78,071
Add potentially dilutive securities	Add potentially dilutive securities	189	1,222		Add potentially dilutive securities	457	1,313	338	1,352
Weighted-average shares used in computing diluted net income per share	Weighted-average shares used in computing diluted net income per share	77,255	79,468		Weighted-average shares used in computing diluted net income per share	77,616	79,210	77,450	79,423

Securities not included as they would have been antidilutive	Securities not included as they would have been antidilutive	1,121	—		Securities not included as they would have been antidilutive	486	23	343	—

Note 1213 — Commitments and Contingencies

Leases

See Note ~~13,~~14, Leases.

Contractual Obligations and Commitments

Our contractual obligations and commitments have not materially changed as of ~~April~~July 1, 2023 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

Legal Matters

From time to time, we ~~may be~~are subject to legal proceedings and claims in the ordinary course of ~~business. As~~business, the outcomes of ~~April 1, 2023,~~which cannot be estimated with certainty. Our ability to estimate the outcomes may change in the near term and asthe effect of ~~the filing~~any such change could have a material adverse effect on our financial position, results of ~~this Quarterly Report on Form 10-Q, we were not involved in any material legal proceedings.~~operations or cash flows.

Note 1314 — Leases

We lease real estate space under non-cancelable operating lease agreements for commercial and industrial space, as well as for a portion of our corporate headquarters located in Livermore, California. Our leases have remaining terms of 1 to 6 years, and some leases include options to extend up to 20 years. We also have operating leases for automobiles with remaining lease terms of 1 year. We did not include any of our renewal options in our lease terms for calculating our lease liability as the renewal options allow us to maintain operational flexibility and we are not reasonably certain we will exercise these options at this time. The weighted-average remaining lease term for our operating leases was 5 years as of ~~April~~July 1, 2023 and the weighted-average discount rate was ~~3.92%~~4.28%.

The components of lease expense were as follows (in thousands):


		Three Months Ended				Three Months Ended				Six Months Ended
		April 1, 2023		March 26, 2022				July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
Lease expense:	Lease expense:						Lease expense:
Operating lease expense	Operating lease expense	$	1,952	$	2,221		Operating lease expense	$	2,124	$	2,183	$	4,076	$	4,404
Short-term lease expense	Short-term lease expense	157		40			Short-term lease expense	136		76		293		116
Variable lease expense	Variable lease expense	746		458			Variable lease expense	483		677		1,229		1,135
		$	2,855	$	2,719			$	2,743	$	2,936	$	5,598	$	5,655

1718

Future minimum payments under our non-cancelable operating leases were as follows as of ~~April~~July 1, 2023 (in thousands):


Fiscal Year	Fiscal Year	Amount		Fiscal Year	Amount
Remainder of 2023	Remainder of 2023	$	6,190	Remainder of 2023	$	4,295
2024	2024	8,106		2024	8,667
2025	2025	8,018		2025	8,575
2026	2026	6,641		2026	7,049
2027	2027	5,756		2027	6,631
Thereafter	Thereafter	3,431		Thereafter	3,434
Total minimum lease payments	Total minimum lease payments	38,142		Total minimum lease payments	38,651
Less: interest	Less: interest	(4,223)		Less: interest	(4,322)
Present value of net minimum lease payments	Present value of net minimum lease payments	33,919		Present value of net minimum lease payments	34,329
Less: current portion	Less: current portion	(7,512)		Less: current portion	(7,871)
Total long-term operating lease liabilities	Total long-term operating lease liabilities	$	26,407	Total long-term operating lease liabilities	$	26,458

Note 1415 — Revenue

Transaction price allocated to the remaining performance obligations: On ~~April~~July 1, 2023, we had ~~$9.8~~$9.4 million of remaining performance obligations, which were comprised of deferred service contracts and extended warranty contracts and contracts with overtime revenue recognition that are not yet delivered. We expect to recognize approximately ~~67.6%~~46.7% of our remaining performance obligations as revenue in the remainder of fiscal 2023, approximately ~~26.8%~~45.8% in fiscal 2024, and approximately ~~5.6%~~7.5% in fiscal 2025 and thereafter. The foregoing excludes the value of other remaining performance obligations as they have original durations of one year or less, and also excludes information about variable consideration allocated entirely to a wholly unsatisfied performance obligation.

Contract balances: The timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable is recorded at the invoiced amount, net of an allowance for credit losses. A receivable is recognized in the period we deliver goods or provide services or when our right to consideration is unconditional. A contract asset is recorded when we have performed under the contract but our right to consideration is conditional on something other than the passage of time. Contract assets as of ~~April~~July 1, 2023 and December 31, 2022 were ~~$2.9~~$4.1 million and $1.9 million, respectively, and are reported on the Condensed Consolidated Balance Sheets as a component of Prepaid expenses and other current assets.

Contract liabilities include payments received and payments due in advance of performance under a contract and are satisfied as the associated revenue is recognized. Contract liabilities are reported on the Condensed Consolidated Balance Sheets at the end of each reporting period as a component of Deferred revenue and Other liabilities. Contract liabilities as of ~~April~~July 1, 2023 and December 31, 2022 were ~~$24.9~~$21.0 million and $30.9 million, respectively. During the ~~three~~six months ended ~~April~~July 1, 2023, we recognized ~~$14.0~~$21.5 million of revenue that was included in contract liabilities as of December 31, 2022.

Costs to obtain a contract: We generally expense sales commissions when incurred as a component of Selling, general and administrative expense, as the amortization period is typically less than one year.

Revenue by category: Refer to Note ~~15,~~16, Operating Segments and Enterprise-Wide Information, for further details.

Note 1516 — Operating Segments and Enterprise-Wide Information

Our chief operating decision maker (“CODM”) is our Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire company. We operate in two reportable segments consisting

1819

of the Probe Cards segment and the Systems segment. The following table summarizes the operating results by reportable segment (dollars in thousands):


		Three Months Ended																										Three Months Ended
		April 1, 2023													March 26, 2022													July 1, 2023											June 25, 2022
		Probe Cards				Systems				Corporate and Other		Total			Probe Cards			Systems				Corporate and Other		Total				Probe Cards			Systems			Corporate and Other		Total			Probe Cards			Systems			Corporate and Other		Total
Revenues	Revenues	$	127,328			$	40,120			$	—	$	167,448		$	159,983		$	37,191			$	—	$	197,174		Revenues	$	115,303		$	40,613		$	—	$	155,916		$	167,708		$	36,199		$	—	$	203,907
Gross profit	Gross profit	43,623				20,746				(3,291)		61,078			77,202			19,407				(2,385)		94,224			Gross profit	42,112			21,124			(2,953)		60,283			78,420			18,276			(2,327)		94,369
Gross margin	Gross margin	34.3		%		51.7		%				36.5		%	48.3		%	52.2		%				47.8		%	Gross margin	36.5		%	52.0		%			38.7		%	46.8		%	50.5		%			46.3		%

					Six Months Ended
									July 1, 2023												June 25, 2022
																												Probe Cards			Systems			Corporate and Other		Total			Probe Cards			Systems			Corporate and Other		Total

Revenues																											Revenues	$	242,631		$	80,733		$	—	$	323,364		$	327,691		$	73,390		$	—	$	401,081
Gross profit																											Gross profit	85,735			41,870			(6,244)		121,361			155,622			37,683			(4,712)		188,593
Gross margin																											Gross margin	35.3		%	51.9		%			37.5		%	47.5		%	51.3		%			47.0		%

Operating results provide useful information to our management for assessment of our performance and results of operations. Certain components of our operating results are utilized to determine executive compensation along with other measures.

Corporate and Other includes unallocated expenses relating to amortization of intangible assets, inventory and fixed asset fair value adjustments due to acquisitions, share-based compensation, and restructuring charges which are not used in evaluating the results of, or in allocating resources to, our reportable segments.

Certain revenue category information by reportable segment was as follows (in thousands):


		Three Months Ended													Three Months Ended
		April 1, 2023						March 26, 2022							July 1, 2023						June 25, 2022
		Probe Cards		Systems		Total		Probe Cards		Systems		Total			Probe Cards		Systems		Total		Probe Cards		Systems		Total
Market:	Market:													Market:
Foundry & Logic	Foundry & Logic	$	101,562	$	—	$	101,562	$	114,121	$	—	$	114,121	Foundry & Logic	$	81,967	$	—	$	81,967	$	122,380	$	—	$	122,380
DRAM	DRAM	19,890		—		19,890		34,437		—		34,437		DRAM	30,464		—		30,464		36,843		—		36,843
Flash	Flash	5,876		—		5,876		11,425		—		11,425		Flash	2,872		—		2,872		8,485		—		8,485
Systems	Systems	—		40,120		40,120		—		37,191		37,191		Systems	—		40,613		40,613		—		36,199		36,199
Total	Total	$	127,328	$	40,120	$	167,448	$	159,983	$	37,191	$	197,174	Total	$	115,303	$	40,613	$	155,916	$	167,708	$	36,199	$	203,907
Timing of revenue recognition:	Timing of revenue recognition:													Timing of revenue recognition:
Products transferred at a point in time	Products transferred at a point in time	$	126,678	$	36,710	$	163,388	$	158,836	$	35,416	$	194,252	Products transferred at a point in time	$	112,985	$	40,040	$	153,025	$	166,701	$	33,081	$	199,782
Products and services transferred over time	Products and services transferred over time	650		3,410		4,060		1,147		1,775		2,922		Products and services transferred over time	2,318		573		2,891		1,007		3,118		4,125
Total	Total	$	127,328	$	40,120	$	167,448	$	159,983	$	37,191	$	197,174	Total	$	115,303	$	40,613	$	155,916	$	167,708	$	36,199	$	203,907
Geographical region:	Geographical region:													Geographical region:
United States														United States	$	31,131	$	11,542	$	42,673	$	21,539	$	9,703	$	31,242
Taiwan	Taiwan	$	38,897	$	1,432	$	40,329	$	42,522	$	10,547	$	53,069	Taiwan	25,316		4,196		29,512		45,188		4,832		50,020
United States		24,641		13,090		37,731		19,976		5,671		25,647
South Korea														South Korea	26,455		1,408		27,863		27,418		1,337		28,755
China	China	18,476		8,623		27,099		32,791		5,608		38,399		China	16,516		6,992		23,508		40,578		9,157		49,735
South Korea		19,572		1,203		20,775		24,881		2,620		27,501
Europe														Europe	2,415		8,401		10,816		3,824		4,267		8,091
Japan														Japan	3,902		4,030		7,932		6,716		3,221		9,937
Malaysia	Malaysia	10,324		946		11,270		21,517		682		22,199		Malaysia	6,177		500		6,677		16,157		87		16,244
Japan		7,136		3,841		10,977		4,785		4,597		9,382
Europe		3,426		6,000		9,426		2,382		6,013		8,395
Singapore	Singapore	3,200		2,140		5,340		10,284		612		10,896		Singapore	1,718		1,105		2,823		5,131		1,977		7,108
Rest of the world	Rest of the world	1,656		2,845		4,501		845		841		1,686		Rest of the world	1,673		2,439		4,112		1,157		1,618		2,775
Total	Total	$	127,328	$	40,120	$	167,448	$	159,983	$	37,191	$	197,174	Total	$	115,303	$	40,613	$	155,916	$	167,708	$	36,199	$	203,907


	Six Months Ended
	July 1, 2023						June 25, 2022
	Probe Cards		Systems		Total		Probe Cards		Systems		Total
Market:
Foundry & Logic	$	183,529	$	—	$	183,529	$	236,501	$	—	$	236,501
DRAM	50,354		—		50,354		71,280		—		71,280
Flash	8,748		—		8,748		19,910		—		19,910
Systems	—		80,733		80,733		—		73,390		73,390
Total	$	242,631	$	80,733	$	323,364	$	327,691	$	73,390	$	401,081
Timing of revenue recognition:
Products transferred at a point in time	$	236,903	$	79,510	$	316,413	$	325,537	$	68,497	$	394,034
Products and services transferred over time	5,728		1,223		6,951		2,154		4,893		7,047
Total	$	242,631	$	80,733	$	323,364	$	327,691	$	73,390	$	401,081
Geographical region:
United States	$	55,772	$	24,632	$	80,404	$	41,515	$	15,374	$	56,889
Taiwan	64,213		5,628		69,841		87,710		15,379		103,089
China	34,992		15,615		50,607		73,369		14,765		88,134
South Korea	46,027		2,611		48,638		52,299		3,957		56,256
Europe	5,841		14,401		20,242		6,206		10,280		16,486
Japan	11,038		7,871		18,909		11,501		7,818		19,319
Malaysia	16,501		1,446		17,947		37,674		769		38,443
Singapore	4,918		3,245		8,163		15,415		2,589		18,004
Rest of the world	3,329		5,284		8,613		2,002		2,459		4,461
Total	$	242,631	$	80,733	$	323,364	$	327,691	$	73,390	$	401,081

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933, which are subject to risks and uncertainties. The forward-looking statements include statements concerning, among other things, our business strategy, financial and operating results, gross margins, liquidity and capital expenditure requirements and impact of accounting standards. In some cases, you can identify these statements by forward-looking words, such as “may,” “might,” “will,” “could,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend” and “continue,” the negative or plural of these words and other comparable terminology.

The forward-looking statements are only predictions based on our current expectations and our projections about future events. All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q. You should not place undue reliance on these forward-looking statements. We have no obligation to update any of these statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these statements, including risks related to general market trends, the benefits of acquisitions and investments, our supply chain, uncertainties related to ~~COVID-19 and other~~ global, regional or national public health-related crises and the impact of our responses to them, the interpretation and impacts of changes in export controls and other trade barriers, military conflicts, political volatility and similar factors, our ability to execute our business strategy and other risks discussed in the section titled “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2022 and in this Quarterly Report on Form 10-Q. You should carefully consider the numerous risks and uncertainties described under these sections.

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the accompanying notes contained in this Quarterly Report on Form 10-Q. Unless expressly stated or the context otherwise requires, the terms “we,” “our,” “us” and “FormFactor” refer to FormFactor, Inc. and its subsidiaries.

Overview

FormFactor, Inc., headquartered in Livermore, California, is a leading provider of essential test and measurement technologies along the full semiconductor product lifecycle - from metrology and inspection, characterization, modeling, reliability, and design de-bug, to qualification and production test. We provide a broad range of high-performance probe cards, analytical probes, probe stations, metrology systems, thermal systems, and cryogenic systems to both semiconductor companies and scientific institutions. Our products provide electrical and physical information from a variety of semiconductor and electro-optical devices and integrated circuits from early research, through development, to high-volume production. Customers use our products and services to accelerate profitability by optimizing device performance and advancing yield knowledge.

We operate in two reportable segments consisting of the Probe Cards segment and the Systems segment. Sales of our probe cards and analytical probes are included in the Probe Cards segment, while sales of our probe stations, metrology systems, thermal systems and cryogenic systems are included in the Systems segment.

We generated net income of ~~$1.3~~$2.2 million in the first ~~three~~six months of fiscal 2023 as compared to ~~$29.9~~$60.1 million in the first ~~three~~six months of fiscal 2022. The decrease in net income was primarily due to a decline in revenues and the associated decline in gross ~~margins.~~margins and higher operating expenses.

Significant Accounting Policies and the Use of Estimates

Management’s Discussion and Analysis and Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements in our 2022 Annual Report on Form 10-K describe the significant accounting estimates and significant accounting policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ from management’s estimates. During the ~~three~~six months ended ~~April~~July 1, 2023, there were no significant changes in our significant accounting policies or estimates from those reported in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission on February 24, 2023, except for:

Government Assistance

2022

Results of Operations

The following table sets forth our operating results as a percentage of revenues for the periods indicated:


		Three Months Ended				Three Months Ended				Six Months Ended
		April 1, 2023		March 26, 2022				July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
Revenues	Revenues	100.0	%	100.0	%		Revenues	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenues	Cost of revenues	63.5		52.2			Cost of revenues	61.3		53.7		62.5		53.0
Gross profit	Gross profit	36.5		47.8			Gross profit	38.7		46.3		37.5		47.0
Operating expenses:	Operating expenses:						Operating expenses:
Research and development	Research and development	16.9		13.8			Research and development	18.2		13.9		17.5		13.8
Selling, general and administrative	Selling, general and administrative	19.5		16.7			Selling, general and administrative	21.3		16.4		20.4		16.5

Total operating expenses	Total operating expenses	36.4		30.5			Total operating expenses	39.5		30.3		37.9		30.3
Operating income		0.1		17.3
Interest income		0.8		0.1
Interest expense		(0.1)		(0.1)
Operating income (loss)							Operating income (loss)	(0.8)		16.0		(0.4)		16.7
Interest income, net							Interest income, net	0.9		—		0.9		—

Other income, net	Other income, net	—		0.1			Other income, net	0.3		0.3		0.1		0.2
Income before income taxes	Income before income taxes	0.8		17.4			Income before income taxes	0.4		16.3		0.6		16.9
Provision for income taxes		—		2.2
Provision (benefit) for income taxes							Provision (benefit) for income taxes	(0.1)		1.5		(0.1)		1.9
Net income	Net income	0.8	%	15.2	%		Net income	0.5	%	14.8	%	0.7	%	15.0	%

Revenues by Segment and Market


		Three Months Ended					Three Months Ended				Six Months Ended
		April 1, 2023		March 26, 2022					July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022

		(In thousands)				(In thousands)
Probe Cards	Probe Cards	$	127,328	$	159,983			Probe Cards	$	115,303	$	167,708	$	242,631	$	327,691
Systems	Systems	40,120		37,191				Systems	40,613		36,199		80,733		73,390
		$	167,448	$	197,174				$	155,916	$	203,907	$	323,364	$	401,081

Three Months Ended
April 1,
2023 % of Revenues March 26,
2022 % of Revenues $ Change % Change
(Dollars in thousands)
Probe Cards Markets:
Foundry & Logic $ 101,562 60.6 % $ 114,121 57.8 % $ (12,559) (11.0) %
DRAM 19,890 11.9 34,437 17.5 (14,547) (42.2)
Flash 5,876 3.5 11,425 5.8 (5,549) (48.6)
Systems Market:
Systems 40,120 24.0 37,191 18.9 2,929 7.9
Total revenues $ 167,448 100.0 % $ 197,174 100.0 % $ (29,726) (15.1) %


	Three Months Ended
	July 1, 2023		% of Revenues		June 25, 2022		% of Revenues		$ Change		% Change

	(Dollars in thousands)
Probe Cards Markets:
Foundry & Logic	$	81,967	52.6	%	$	122,380	60.0	%	$	(40,413)	(33.0)	%
DRAM	30,464		19.5		36,843		18.0		(6,379)		(17.3)
Flash	2,872		1.9		8,485		4.2		(5,613)		(66.2)
Systems Market:
Systems	40,613		26.0		36,199		17.8		4,414		12.2
Total revenues	$	155,916	100.0	%	$	203,907	100.0	%	$	(47,991)	(23.5)	%

	Six Months Ended
	July 1, 2023		% of Revenues		June 25, 2022		% of Revenues		$ Change		% Change

	(Dollars in thousands)
Probe Cards Markets:
Foundry & Logic	$	183,529	56.7	%	$	236,501	58.9	%	$	(52,972)	(22.4)	%
DRAM	50,354		15.6		71,280		17.8		(20,926)		(29.4)
Flash	8,748		2.7		19,910		5.0		(11,162)		(56.1)
Systems Market:
Systems	80,733		25.0		73,390		18.3		7,343		10.0
Total revenues	$	323,364	100.0	%	$	401,081	100.0	%	$	(77,717)	(19.4)	%

Foundry & Logic — The decrease in Foundry & Logic product revenue for the three and six months ended ~~April~~July 1, 2023, compared to the three and six months ended ~~March 26,~~June 25, 2022, was driven by the ~~weakening~~weaker demand in the semiconductor industry, especially in the personal computer and mobile sectors, that began in the third quarter of fiscal 2022 and has continued into the three and six months ended ~~April~~July 1, 2023 and has resulted in decreased unit sales across ~~all~~the majority of our major customers.

DRAM — The decrease in DRAM product revenue for the three and six months ended ~~April~~July 1, 2023, compared to the three and six months ended ~~March 26,~~June 25, 2022, was driven by lower customer production activity and demand ~~a result~~for our products in light of worldwide excess supply of DRAM chips, along with weaker demand in the overall semiconductor ~~industry's overall~~industry. The decline for the six months ended July 1, 2023 was partially offset within the second quarter of fiscal 2023 due to increased demand ~~weakening and DRAM market weakness.~~for high bandwidth memory (“HBM”) chips utilized in artificial intelligence.

Flash — The decrease in Flash product revenue for the three and six months ended ~~April~~July 1, 2023, compared to the three and six months ended ~~March 26,~~June 25, 2022, was driven by ~~decreased~~lower customer production activity and demand ~~from large multi-national customers,~~for our products in light of worldwide excess supply, a result of the semiconductor industry's overall demand weakening and Flash market weakness.

Systems — The increase in Systems market revenue for the three and six months ended ~~April~~July 1, 2023, compared to the three and six months ended ~~March 26,~~June 25, 2022, was driven by increased sales of ~~our 200 millimeter~~ probe stations and cryogenic systems, partially offset by decreased sales of our metrology systems.

Revenues by Geographic Region


		Three Months Ended									Three Months Ended				Six Months Ended
		April 1, 2023		% of Revenues		March 26, 2022		% of Revenues					July 1, 2023		% of Revenues		June 25, 2022		% of Revenues		July 1, 2023		% of Revenue		June 25, 2022		% of Revenue

		(Dollars in thousands)								(Dollars in thousands)
United States												United States	$	42,673	27.4	%	$	31,242	15.3	%	$	80,404	24.9	%	$	56,889	14.2	%
Taiwan	Taiwan	$	40,329	24.1	%	$	53,069	26.9	%			Taiwan	29,512		18.9		50,020		24.5		69,841		21.6		103,089		25.7
United States		37,731		22.5		25,647		13.0
South Korea												South Korea	27,863		17.9		28,755		14.1		48,638		15.0		56,256		14.0
China	China	27,099		16.2		38,399		19.5				China	23,508		15.1		49,735		24.4		50,607		15.7		88,134		22.0
South Korea		20,775		12.4		27,501		13.9
Europe												Europe	10,816		6.9		8,091		4.0		20,242		6.3		16,486		4.1
Japan												Japan	7,932		5.1		9,937		4.9		18,909		5.8		19,319		4.8
Malaysia	Malaysia	11,270		6.7		22,199		11.3				Malaysia	6,677		4.3		16,244		8.0		17,947		5.6		38,443		9.6
Japan		10,977		6.6		9,382		4.8
Europe		9,426		5.6		8,395		4.3
Singapore	Singapore	5,340		3.2		10,896		5.5				Singapore	2,823		1.8		7,108		3.5		8,163		2.5		18,004		4.5
Rest of the world	Rest of the world	4,501		2.7		1,686		0.8				Rest of the world	4,112		2.6		2,775		1.3		8,613		2.6		4,461		1.1
Total revenues	Total revenues	$	167,448	100.0	%	$	197,174	100.0	%			Total revenues	$	155,916	100.0	%	$	203,907	100.0	%	$	323,364	100.0	%	$	401,081	100.0	%

Geographic revenue information is based on the location to which we ship the product. For example, if a certain South Korean customer purchases through their U.S. subsidiary and requests the products to be shipped to an address in South Korea, this sale will be reflected in the revenue for South Korea rather than the U.S.

Changes in revenue by geographic region for the three and six months ended ~~April~~July 1, 2023, compared to the three and six months ended ~~March 26,~~June 25, 2022, were primarily attributable to changes in customer demand, shifts in customer regional manufacturing strategies, particularly with our large multinational customers, and product sales mix. More specifically, the increase in revenues for the United States, and decreases in revenues for China and Malaysia were driven principally by a single large U.S.-based company with operations in these regions. The decrease in revenues for China ~~mentioned previously is~~was also impacted by lowered demand from a large Chinese DRAM integrated device manufacturer and the impact from expanded export license requirements imposed by the United States government in the fourth quarter of fiscal 2022 for exporting advanced U.S. semiconductor technology ~~sold in~~to China.

Cost of Revenues and Gross Margins

Cost of revenues consists primarily of manufacturing materials, compensation and benefits, shipping and handling costs, manufacturing-related overhead (including equipment costs, related occupancy, and computer services), warranty adjustments, inventory adjustments (including write-downs for inventory obsolescence), and amortization of certain intangible assets. Our manufacturing operations rely on a limited number of suppliers to provide key components and materials for our products, some of which are a sole source. We order materials and supplies based on backlog and forecasted customer orders. Tooling and setup costs related to changing manufacturing lots at our suppliers are also included in the cost of revenues. We expense all warranty costs, inventory provisions and amortization of certain intangible assets as cost of revenues.

Our gross profit and gross margin were as follows (dollars in thousands):


		Three Months Ended												Three Months Ended
		April 1, 2023				March 26, 2022			$ Change		% Change			July 1, 2023			June 25, 2022			$ Change		% Change
Gross profit	Gross profit	$	61,078			$	94,224		$	(33,146)	(35.2)	%	Gross profit	$	60,283		$	94,369		$	(34,086)	(36.1)	%
Gross margin	Gross margin	36.5		%		47.8		%					Gross margin	38.7		%	46.3		%

					Six Months Ended
														July 1, 2023			June 25, 2022			$ Change		% Change

Gross profit													Gross profit	$	121,361		$	188,593		$	(67,232)	(35.6)	%
Gross margin													Gross margin	37.5		%	47.0		%

2225

Our gross profit and gross margin by segment were as follows (dollars in thousands):


		Three Months Ended																										Three Months Ended
		April 1, 2023													March 26, 2022													July 1, 2023											June 25, 2022
		Probe Cards				Systems				Corporate and Other		Total			Probe Cards			Systems				Corporate and Other		Total				Probe Cards			Systems			Corporate and Other		Total			Probe Cards			Systems			Corporate and Other		Total
Gross profit	Gross profit	$	43,623			$	20,746			$	(3,291)	$	61,078		$	77,202		$	19,407			$	(2,385)	$	94,224		Gross profit	$	42,112		$	21,124		$	(2,953)	$	60,283		$	78,420		$	18,276		$	(2,327)	$	94,369
Gross margin	Gross margin	34.3		%		51.7		%				36.5		%	48.3		%	52.2		%				47.8		%	Gross margin	36.5		%	52.0		%			38.7		%	46.8		%	50.5		%			46.3		%

					Six Months Ended
									July 1, 2023												June 25, 2022
																												Probe Cards			Systems			Corporate and Other		Total			Probe Cards			Systems			Corporate and Other		Total

Gross profit																											Gross profit	$	85,735		$	41,870		$	(6,244)	$	121,361		$	155,622		$	37,683		$	(4,712)	$	188,593
Gross margin																											Gross margin	35.3		%	51.9		%			37.5		%	47.5		%	51.3		%			47.0		%

Probe Cards — For the three and six months ended ~~April~~July 1, 2023, gross margins decreased compared to the three and six months ended ~~March 26,~~June 25, 2022, primarily due to unfavorable absorption of costs on lower production volumes, ~~and~~ greater inventory excess and obsolescence ~~reserves.~~reserves, and lower standard margins related to a less favorable product mix.

Systems — For the three and six months ended ~~April~~July 1, 2023, gross margins ~~decreased~~increased compared to the three and six months ended ~~March 26,~~June 25, 2022, primarily as a result of ~~less~~higher volume on more favorable product mix.

Corporate and Other — Corporate and Other includes unallocated expenses relating to share-based compensation and amortization of intangible assets, inventory and fixed asset fair value adjustments due to acquisitions, and restructuring, which are not used in evaluating the results of, or in allocating resources to, our reportable segments.

Overall — Gross profit and gross margins fluctuate with revenue levels, product mix, selling prices, factory loading, labor costs, and material costs. For the three and six months ended ~~April~~July 1, 2023, compared to the three and six months ended ~~March 26,~~June 25, 2022, gross profit and gross margins have decreased onbecause of lower revenue levels, unfavorable absorption of costs on lower production volumes, and greater inventory excess and obsolescence reserves.

Cost of revenues included stock-based compensation expense as follows (in thousands):

Three Months Ended
April 1,
2023 March 26,
2022
Stock-based compensation $ 1,910 $ 1,078


	Three Months Ended				Six Months Ended
	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
Stock-based compensation	$	1,515	$	734	$	3,425	$	1,812

Research and Development


		Three Months Ended												Three Months Ended
		April 1, 2023				March 26, 2022			$ Change		% Change			July 1, 2023			June 25, 2022			$ Change		% Change

		(Dollars in thousands)												(Dollars in thousands)
Research and development	Research and development	$	28,245			$	27,134		$	1,111	4.1	%	Research and development	$	28,340		$	28,317		$	23	0.1	%
% of revenues	% of revenues	16.9		%		13.8		%					% of revenues	18.2		%	13.9		%

					Six Months Ended
														July 1, 2023			June 25, 2022			$ Change		% Change

					(Dollars in thousands)

Research and development													Research and development	$	56,585		$	55,451		$	1,134	2.0	%
% of revenues													% of revenues	17.5		%	13.8		%

Research and development expenses in the three and six months ended ~~April~~July 1, 2023 increased when compared to the corresponding period in the prior year primarily due to an increase in headcount ~~which is~~ to support our continued investment in technology leadership. Increased stock-based compensation from timing of grants, salary adjustments, depreciation, and general operational costs ~~annual salary adjustments, and stock-based compensation~~ also contributed to the increase. These increases were partially offset by lower performance-based compensation and project material costs.

A detail of the changes is as follows (in thousands):


	~~Three Months Ended April 1, 2023 compared to Three Months Ended March 26, 2022~~
~~Other general operational costs~~	$	~~490~~
~~Stock-based compensation~~	~~386~~
~~Depreciation~~	~~263~~
~~Project material costs~~	~~(214)~~

~~Employee compensation costs~~	~~186~~
	$	~~1,111~~


	Three Months Ended July 1, 2023 compared to Three Months Ended June 25, 2022		Six Months Ended July 1, 2023 compared to Six Months Ended June 25, 2022
Stock-based compensation	$	668	$	1,054
Project material costs	(471)		(695)
Employee compensation costs	(494)		(279)
Depreciation	111		374
Restructuring charges	167		—
Other general operational costs	42		680
	$	23	$	1,134

Research and development included stock-based compensation expense as follows (in thousands):

Three Months Ended
April 1,
2023 March 26,
2022
Stock-based compensation $ 2,372 $ 1,986


	Three Months Ended				Six Months Ended
	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
Stock-based compensation	$	2,363	$	1,695	$	4,735	$	3,681

Selling, General and Administrative


		Three Months Ended												Three Months Ended
		April 1, 2023				March 26, 2022			$ Change		% Change			July 1, 2023			June 25, 2022			$ Change		% Change

		(Dollars in thousands)												(Dollars in thousands)
Selling, general and administrative	Selling, general and administrative	$	32,742			$	32,906		$	(164)	(0.5)	%	Selling, general and administrative	$	33,255		$	33,406		$	(151)	(0.5)	%
% of revenues	% of revenues	19.5		%		16.7		%					% of revenues	21.3		%	16.4		%

					Six Months Ended
														July 1, 2023			June 25, 2022			$ Change		% Change

					(Dollars in thousands)

Selling, general and administrative													Selling, general and administrative	$	65,997		$	66,312		$	(315)	(0.5)	%
% of revenues													% of revenues	20.4		%	16.5		%

Selling, general and administrative expenses decreased in the three and six months ended ~~April~~July 1, 2023 when compared to the corresponding period in the prior year, primarily driven by lower performance-based compensation ~~mostly~~and a reduction of headcount, partially offset by ~~restructuring charges,~~ higher stock-based compensation, consulting fees, and ~~higher~~ general operating expenses.

A detail of the changes is as follows (in thousands):


	~~Three Months Ended April 1, 2023 compared to Three Months Ended March 26, 2022~~
~~Employee compensation~~	~~(2,385)~~
~~General operating expenses~~	~~843~~
~~Restructuring charges~~	~~826~~
~~Stock-based compensation~~	~~552~~



	$	~~(164)~~


	Three Months Ended July 1, 2023 compared to Three Months Ended June 25, 2022		Six Months Ended July 1, 2023 compared to Six Months Ended June 25, 2022
Employee compensation	$	(2,812)	$	(5,185)
Stock-based compensation	1,397		1,949
Consulting fees	665		818
General operating expenses	599		1,312

Restructuring charges	—		791

	$	(151)	$	(315)

Selling, general and administrative included stock-based compensation expense as follows (in thousands):

Three Months Ended
April 1,
2023 March 26,
2022
Stock-based compensation $ 5,008 $ 4,456


	Three Months Ended				Six Months Ended
	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
Stock-based compensation	$	5,326	$	3,929	$	10,334	$	8,385

Interest Income (Expense), Net

Interest income is earned on our cash, cash equivalents, restricted cash and marketable securities. The increase in interest income for the three and six months ended ~~April~~July 1, 2023 compared with the corresponding period of the prior year was attributable to an increase in investment yields due to the higher interest rate environment.

Interest expense primarily includes interest on our term loan, interest rate swap derivative contracts, and term loan issuance costs amortization charges. The interest expense for the three and six months ended ~~April~~July 1, 2023 compared to the same period of the prior year decreased due to lower outstanding debt.

Other Income, Net

Other income, net, primarily includes the effects of foreign currency impact and various other gains and losses. We partially mitigate our risks from currency movements by hedging certain balance sheet exposures, which minimizes the impacts during periods of foreign exchange volatility.

2428

Provision for Income Taxes


		Three Months Ended							Three Months Ended					Six Months Ended
		April 1, 2023			March 26, 2022						July 1, 2023			June 25, 2022			July 1, 2023			June 25, 2022

		(In thousands, except percentages)						(In thousands, except percentages)
Provision for income taxes		$	48		$	4,450
Provision (benefit) for income taxes										Provision (benefit) for income taxes	$	(208)		$	3,136		$	(160)		$	7,586
Effective tax rate	Effective tax rate	3.5		%	13.0		%			Effective tax rate	(33.5)		%	9.4		%	(8.0)		%	11.2		%

Provision for income taxes reflects the tax provision on our operations in foreign and U.S. jurisdictions, offset by tax benefits from tax credits and the foreign-derived intangible income (“FDII”) deduction. Our effective tax rate may vary from period to period based on changes in estimated taxable income or loss by jurisdiction, changes to the valuation allowance, changes to U.S. federal, state or foreign tax laws, changes in ASC 718 stock-based compensation expense/benefit, future expansion into areas with varying country, state, and local income tax rates, and deductibility of certain costs and expenses by jurisdiction.

~~We have utilized~~The decrease in our ~~previous net operating loss carryforwards allowing us to benefit more from the available FDII deduction, which, combined with higher research and development tax credits, results in a lower worldwide~~ effective tax rate for the three and six months ended ~~April~~July 1, 2023, when compared to the corresponding period in the prior ~~year.~~year, was primarily driven by a change within the second quarter of fiscal 2023 to the estimated annual taxable income, including by jurisdiction.

The Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (“CHIPS Act”) was signed into law on August 9, 2022. The CHIPS Act provides for various incentives and tax credits among other items, including the Advanced Manufacturing Investment Credit (“AMIC”), which equals 25% of qualified investments in an advanced manufacturing facility that is placed in service after December 31, 2022. At least a portion of our future capital expenditures and research and development costs will qualify for this credit, which benefits us by allowing us to net the credit received against our costs. The AMIC credit is accounted for outside of ASC 740 as a reduction to the depreciable basis of the assets used in operations and will not have an impact on our effective tax rate.

Beginning in 2022, the U.S. Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminated the existing option to deduct research and development expenditures and requires taxpayers to amortize such expenditures attributable to domestic and foreign research over five and fifteen years, respectively, pursuant to IRC Section 174. While the capitalization requirement has a negative impact on our cash flows, there are offsetting benefits from the enactment of this provision that we have included in our estimated annual effective tax rate. While it is possible that Congress may defer, modify, or repeal this provision, potentially with retroactive effect, we have no assurance that this provision will be deferred, modified, or repealed. Changes in our tax provisions or an increase in our tax liabilities, whether due to changes in applicable laws and regulations, the interpretation or application thereof, or a final determination of tax audits or litigation or agreements, could have a material adverse effect on our financial position, results of operations and/or cash flows.

Liquidity and Capital Resources

Capital Resources

Our working capital was ~~$352.8~~$354.2 million at ~~April~~July 1, 2023, compared to $324.9 million at December 31, 2022.

Cash and cash equivalents primarily consist of deposits held at banks and money market ~~funds, and commercial paper.~~funds. Marketable securities primarily consist of corporate bonds, U.S. treasuries, commercial paper, and U.S. agency ~~securities, corporate bonds, and commercial paper.~~securities. We typically invest in highly rated securities with low probabilities of default. Our investment policy requires investments to be rated single A or better, and limits the types of acceptable investments, issuer concentration and duration of the investment.

Our cash, cash equivalents and marketable securities totaled approximately ~~$236.3~~$236.9 million at ~~April~~July 1, 2023, compared to $238.1 million at December 31, 2022. Based on our historical results of operations, we expect that our cash, cash equivalents, and marketable securities on hand, and the cash we expect to generate from operations, will be sufficient to fund our short-term and long-term liquidity requirements primarily arising from: research and development, capital expenditures, working capital, outstanding commitments, and other liquidity requirements associated with existing operations. However, we cannot be certain that our cash, cash equivalents, and marketable securities on hand, and cash generated from operations, will be available in the future to fund all of our capital and operating requirements. In addition, any future strategic investments and significant acquisitions may require additional cash and capital resources. To the extent necessary, we may consider entering into short and long-term debt obligations, raising cash through a stock issuance, or obtaining new financing facilities, which may not be available on terms favorable to us. If we are unable to obtain sufficient cash or capital to meet our needs on a timely basis and on favorable terms, our business and operations could be materially and adversely affected.

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If we are unsuccessful in maintaining or growing our revenues, maintaining or reducing our cost structure, or increasing our available cash through debt or equity financings, our cash, cash equivalents and marketable securities may decline.

We utilize a variety of tax planning and financing strategies to manage our worldwide cash and deploy funds to locations where needed. As part of these strategies, we indefinitely reinvest a portion of our foreign earnings. Should we require additional capital in the United States, we may elect to repatriate indefinitely-reinvested foreign funds or raise capital in the United States.

Cash Flows

The following table sets forth our net cash flows from operating, investing and financing activities:


		Three Months Ended					Six Months Ended
		April 1, 2023		March 26, 2022			July 1, 2023		June 25, 2022

		(In thousands)					(In thousands)
Net cash provided by operating activities	Net cash provided by operating activities	$	12,309	$	44,155	Net cash provided by operating activities	$	34,781	$	86,801
Net cash used in investing activities	Net cash used in investing activities	$	(13,539)	$	(21,078)	Net cash used in investing activities	$	(48,464)	$	(41,111)
Net cash provided by (used) in financing activities		$	4,378	$	(6,016)
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	$	4,049	$	(57,263)

Operating Activities

Net cash provided by operating activities for the ~~three~~six months ended ~~April~~July 1, 2023 was attributable to net income of ~~$1.3~~$2.2 million and net non-cash expenses of ~~$26.0~~$49.1 million, which includes depreciation, amortization, stock-based compensation, and the provision for excess and obsolete inventories, partially offset by an increase in net working capital of ~~$15.1~~$16.5 million. The increase in net working capital related to ~~an increase in accounts receivable of $15.9 million and~~ decreases in accrued liabilities and deferred revenues of ~~$10.2~~$10.6 million and ~~$6.0~~$9.9 million, respectively, and increases in accounts receivable and inventory of $6.8 million and $5.9 million, respectively, partially offset by an increase in deferred grant of $18.0 million.

Investing Activities

Net cash used in investing activities for the ~~three~~six months ended ~~April~~July 1, 2023 primarily related to ~~$19.7~~$40.2 million in property, plant and equipment purchases ~~partially offset by $6.2~~and $8.3 million in net ~~cash received from the maturities and sales~~purchases of marketable securities.

Financing Activities

Net cash provided by financing activities for the ~~three~~six months ended ~~April~~July 1, 2023 primarily related to $5.0 million received from issuances of common stock under our employee stock purchase plan, partially offset by ~~$0.3~~$0.5 million principal payments made towards the repayment of our term loan and ~~$0.4~~$0.5 million related to tax withholdings associated with the net share settlements of our equity awards.

Debt

Building Term Loan

On June 22, 2020, we entered into an $18.0 million 15-year credit facility loan agreement (the “Building Term Loan”). The proceeds of the Building Term Loan were used to ~~finance the~~ purchase of a building adjacent to our leased facilities in Livermore, California. On May 19, 2023, we amended the Building Term Loan, replacing the benchmark reference rate London Interbank Offered Rate (“LIBOR“) with the term Secured Overnight Financing Rate (“SOFR”), with no change to the amount or timing of contractual cash flows.

The Building Term Loan bears interest at a rate equal to the applicable ~~LIBOR~~SOFR rate, plus 0.1148%, plus 1.75% per annum. Interest payments are payable in monthly installments over a fifteen-year period. The interest rate at ~~April~~July 1, 2023 was ~~4.66%~~5.17%. As of ~~April~~July 1, 2023, the balance outstanding pursuant to the Building Term Loan was ~~$15.2~~$15.0 million.

On March 17, 2020, we entered into ~~a forward starting~~an interest rate swap agreement to hedge the interest ~~payments~~payment on the Building Term Loan for the notional amount of $18.0 million, and an amortization period that matches the debt. As future levels of LIBOR over the life of the loan are uncertain, we entered into this interest-rate swap agreement to hedge the exposure in interest rate risks associated with movement in LIBOR rates. By entering into the agreement, we converted a ~~floating~~floating-rate interest ~~rate of~~at one-month LIBOR plus 1.75% into a ~~fixed~~fixed-rate interest at 2.75%. This agreement was amended on May 19, 2023 to replace the benchmark reference rate LIBOR with the term SOFR to match the Building Term Loan agreement (as amended). After the amendment, the interest rate ofswap continues to convert our floating-rate interest into a fixed-rate at 2.75%. As of ~~April~~July 1, 2023, the notional amount of the loan that is subject to this interest rate swap is ~~$15.2~~$15.0 million.

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Stock Repurchase Programs

On May 20, 2022, our Board of Directors authorized an additional program to repurchase up to $75 million of outstanding common stock, also with the primary purpose to offset potential dilution from issuances of common stock under our stock-based compensation programs. The share repurchase program will expire on May 20, 2024. During the ~~three~~six months ended ~~April~~July 1, 2023, we did not repurchase any shares of common stock. As of ~~April~~July 1, 2023, $18.6 million remained available for future repurchases.

Contractual Obligations and Commitments

The following table summarizes our significant contractual commitments to make future payments in cash under contractual obligations as of ~~April~~July 1, 2023:


		Payments Due In Fiscal Year															Payments Due In Fiscal Year
		Remainder 2023		2024		2025		2026		2027		Thereafter		Total			Remainder 2023		2024		2025		2026		2027		Thereafter		Total
Operating leases	Operating leases	$	6,190	$	8,106	$	8,018	$	6,641	$	5,756	$	3,431	$	38,142	Operating leases	$	4,295	$	8,667	$	8,575	$	7,049	$	6,631	$	3,434	$	38,651
Term loans - principal payments	Term loans - principal payments	791		1,080		1,111		1,142		1,175		9,940		15,239		Term loans - principal payments	529		1,080		1,111		1,142		1,175		9,940		14,977
Term loans - interest payments (1)	Term loans - interest payments (1)	729		912		834		763		688		2,538		6,464		Term loans - interest payments (1)	519		985		900		824		742		2,739		6,709
Total	Total	$	7,710	$	10,098	$	9,963	$	8,546	$	7,619	$	15,909	$	59,845	Total	$	5,343	$	10,732	$	10,586	$	9,015	$	8,548	$	16,113	$	60,337

(1) Represents our minimum interest payment commitments at ~~4.66%~~5.17% per annum for the Building Term Loan. This excludes any amounts related to our interest rate swap.

Off-Balance Sheet Arrangements

Historically, we have not participated in transactions that have generated relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of ~~April~~July 1, 2023, we were not involved in any such off-balance sheet arrangements.

Recent Accounting Standards

For a description of a recent change in accounting standards, including the expected dates of adoption and estimated effects, if any, in our condensed consolidated financial statements, see Note 1, Basis of Presentation and Significant Accounting Policies, in Part I, Item 1 of this Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

For financial market risks related to changes in interest rates and foreign currency exchange rates, reference is made to Item 7A “Quantitative and Qualitative Disclosures about Market Risk” contained in Part II of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Our exposure to market risk has not changed materially since December 31, 2022.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer), as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in

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Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls

Control systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems’ objectives are being met. Further, the design of any control systems must reflect the fact that there are resource constraints, and the benefits of all controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of a simple error or mistake. Control systems can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based, in part, on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

CEO and CFO Certifications

We have attached as exhibits to this Quarterly Report on Form 10-Q the certifications of our Chief Executive Officer and Chief Financial Officer, which are required in accordance with the Exchange Act. We recommend that this Item 4 be read in conjunction with the certifications for a more complete understanding of the subject matter presented.

PART II - OTHER INFORMATION

Item 1A. Risk Factors

There have been no material changes during the ~~three~~six months ended ~~April~~July 1, 2023 to the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2022. If any of the identified risks actually occur, our business, financial condition and results of operations could suffer. The trading price of our common stock could decline and you may lose all or part of your investment in our common stock. The risks and uncertainties described in our Annual Report on Form 10-K for the year ended December 31, 2022 are not the only ones we face. Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our business operations.

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Item 6. Exhibits

The following exhibits are filed herewith and this list constitutes the exhibit index.

Exhibit

Incorporated by Reference

Filed

Number

Exhibit Description

Form

Date

Number

Herewith

31.01

Certification of Chief Executive Officer pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.02

Certification of Chief Financial Officer pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.01

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~April~~July 1, 2023, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~April~~July 1, 2023, formatted in Inline XBRL (included as Exhibit 101)

______________________________________

* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		FormFactor, Inc.

Date:	~~May 9,~~August 8, 2023	By:	/s/ SHAI SHAHAR

			Shai Shahar
			Chief Financial Officer
			(Duly Authorized Officer, Principal Financial Officer, and Principal Accounting Officer)

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