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 ~~March 26,~~June 25, 2022

☐ 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 ~~April~~July 27, 2022, ~~78,063,870~~77,132,681 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 ~~MARCH 26,~~JUNE 25, 2022

INDEX


Part I.	Financial Information

Item 1.	Financial Statements (Unaudited):

	Condensed Consolidated Balance Sheets as of ~~March 26,~~June 2 5 , 2022 and December 25, 2021	3

	Condensed Consolidated Statements of Income for the three a nd six months ended ~~March 26,~~ June 2 5 , 2022 and ~~March 27,~~June 26 , 2021	4

	Condensed Consolidated Statements of Comprehensive Income for the three an d si x months ended ~~March 26,~~June 2 5 , 2022 and ~~March 27,~~June 2 6 , 2021	5

	Condensed Consolidated Statement of Stockholders' Equity for the three and six months ended ~~March 26,~~June 2 5 , 2022 and ~~March 27,~~June 2 6 , 2021	6

	Condensed Consolidated Statements of Cash Flows for the ~~three~~six months ended ~~March 26,~~June 2 5 , 2022 and ~~March 27,~~June 2 6 , 2021	78

	Notes to Condensed Consolidated Financial Statements	910

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1922

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2732

Item 4.	Controls and Procedures	2832

Part II.	Other Information	2833



Item 1A.	Risk Factors	2833

Item 2.	Unregistered Sales of Equity Securities and use of proceeds	2933







Item 6.	Exhibits	3034

Signatures		3135

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

FORMFACTOR, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)


		March 26, 2022		December 25, 2021			June 25, 2022		December 25, 2021
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	167,182	$	151,010	Cash and cash equivalents	$	136,395	$	151,010
Marketable securities	Marketable securities	129,174		125,055		Marketable securities	129,919		125,055
Accounts receivable, net of allowance for credit losses of $194 and $195		113,505		115,541
Accounts receivable, net of allowance for credit losses of $193 and $195						Accounts receivable, net of allowance for credit losses of $193 and $195	107,726		115,541
Inventories, net	Inventories, net	125,590		111,548		Inventories, net	143,475		111,548
Restricted cash	Restricted cash	2,026		2,233		Restricted cash	2,102		2,233
Prepaid expenses and other current assets	Prepaid expenses and other current assets	18,671		18,652		Prepaid expenses and other current assets	17,447		18,652
Total current assets	Total current assets	556,148		524,039		Total current assets	537,064		524,039
Restricted cash	Restricted cash	2,053		2,099		Restricted cash	1,802		2,099
Operating lease, right-of-use-assets	Operating lease, right-of-use-assets	35,764		35,210		Operating lease, right-of-use-assets	33,499		35,210
Property, plant and equipment, net of accumulated depreciation	Property, plant and equipment, net of accumulated depreciation	152,179		146,555		Property, plant and equipment, net of accumulated depreciation	157,814		146,555
Goodwill	Goodwill	211,553		212,299		Goodwill	212,357		212,299
Intangibles, net	Intangibles, net	33,638		36,342		Intangibles, net	30,872		36,342
Deferred tax assets	Deferred tax assets	62,746		61,995		Deferred tax assets	65,059		61,995
Other assets	Other assets	2,799		1,981		Other assets	3,980		1,981
Total assets	Total assets	$	1,056,880	$	1,020,520	Total assets	$	1,042,447	$	1,020,520

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	65,378	$	57,862	Accounts payable	$	60,927	$	57,862
Accrued liabilities	Accrued liabilities	47,438		50,836		Accrued liabilities	54,835		50,836
Current portion of term loans, net of unamortized issuance costs	Current portion of term loans, net of unamortized issuance costs	6,790		8,931		Current portion of term loans, net of unamortized issuance costs	4,725		8,931
Deferred revenue	Deferred revenue	27,002		23,224		Deferred revenue	31,255		23,224
Operating lease liabilities	Operating lease liabilities	8,049		7,901		Operating lease liabilities	7,843		7,901
Total current liabilities	Total current liabilities	154,657		148,754		Total current liabilities	159,585		148,754
Term loans, less current portion, net of unamortized issuance costs	Term loans, less current portion, net of unamortized issuance costs	15,175		15,434		Term loans, less current portion, net of unamortized issuance costs	14,915		15,434
Deferred tax liabilities	Deferred tax liabilities	3,131		3,623		Deferred tax liabilities	2,909		3,623
Long-term operating lease liabilities	Long-term operating lease liabilities	31,366		31,009		Long-term operating lease liabilities	29,511		31,009
Other liabilities	Other liabilities	5,878		5,920		Other liabilities	5,542		5,920
Total liabilities	Total liabilities	210,207		204,740		Total liabilities	212,462		204,740

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; 78,166,212 and 78,240,506 shares issued and outstanding		78		78
250,000,000 shares authorized; 77,194,733 and 78,240,506 shares issued and outstanding						250,000,000 shares authorized; 77,194,733 and 78,240,506 shares issued and outstanding	77		78

Additional paid-in capital	Additional paid-in capital	902,994		898,945		Additional paid-in capital	860,584		898,945
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(4,477)		(1,449)		Accumulated other comprehensive loss	(8,996)		(1,449)
Accumulated deficit	Accumulated deficit	(51,922)		(81,794)		Accumulated deficit	(21,680)		(81,794)
Total stockholders’ equity	Total stockholders’ equity	846,673		815,780		Total stockholders’ equity	829,985		815,780
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	1,056,880	$	1,020,520	Total liabilities and stockholders’ equity	$	1,042,447	$	1,020,520

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
		March 26, 2022		March 27, 2021				June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Revenues	Revenues	$	197,174	$	186,636		Revenues	$	203,907	$	188,076	$	401,081	$	374,712
Cost of revenues	Cost of revenues	102,950		109,930			Cost of revenues	109,538		111,793		212,488		221,723
Gross profit	Gross profit	94,224		76,706			Gross profit	94,369		76,283		188,593		152,989
Operating expenses:	Operating expenses:						Operating expenses:
Research and development	Research and development	27,134		24,046			Research and development	28,317		25,454		55,451		49,500
Selling, general and administrative	Selling, general and administrative	32,906		30,015			Selling, general and administrative	33,406		30,479		66,312		60,494
Total operating expenses	Total operating expenses	60,040		54,061			Total operating expenses	61,723		55,933		121,763		109,994
Operating income	Operating income	34,184		22,645			Operating income	32,646		20,350		66,830		42,995
Interest income	Interest income	138		194			Interest income	300		148		438		342
Interest expense	Interest expense	(192)		(180)			Interest expense	(119)		(116)		(311)		(296)
Other income, net		192		172
Other income (expense), net							Other income (expense), net	551		(194)		743		(22)
Income before income taxes	Income before income taxes	34,322		22,831			Income before income taxes	33,378		20,188		67,700		43,019
Provision for income taxes	Provision for income taxes	4,450		3,206			Provision for income taxes	3,136		2,283		7,586		5,489
Net income	Net income	$	29,872	$	19,625		Net income	$	30,242	$	17,905	$	60,114	$	37,530
Net income per share:	Net income per share:						Net income per share:
Basic	Basic	$	0.38	$	0.25		Basic	$	0.39	$	0.23	$	0.77	$	0.48
Diluted	Diluted	$	0.38	$	0.25		Diluted	$	0.38	$	0.23	$	0.76	$	0.47
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	78,246		77,598			Basic	77,897		77,463		78,071		77,530
Diluted	Diluted	79,468		79,988			Diluted	79,210		79,466		79,423		79,621

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
		March 26, 2022		March 27, 2021				June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Net income	Net income	$	29,872	$	19,625		Net income	$	30,242	$	17,905	$	60,114	$	37,530
Other comprehensive loss, net of tax:
Other comprehensive income (loss), net of tax:							Other comprehensive income (loss), net of tax:
Translation adjustments and other	Translation adjustments and other	(2,698)		(2,379)			Translation adjustments and other	(3,856)		632		(6,554)		(1,747)
Unrealized losses on available-for-sale marketable securities	Unrealized losses on available-for-sale marketable securities	(1,204)		(131)			Unrealized losses on available-for-sale marketable securities	(547)		(97)		(1,751)		(228)
Unrealized gains (losses) on derivative instruments	Unrealized gains (losses) on derivative instruments	874		(226)			Unrealized gains (losses) on derivative instruments	(116)		(89)		758		(315)
Other comprehensive loss, net of tax		(3,028)		(2,736)
Other comprehensive income (loss), net of tax							Other comprehensive income (loss), net of tax	(4,519)		446		(7,547)		(2,290)
Comprehensive income	Comprehensive income	$	26,844	$	16,889		Comprehensive income	$	25,723	$	18,351	$	52,567	$	35,240

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 Shares of
Treasury
Stock Treasury
Stock Additional
Paid-in
Capital Accumulated
Other
Comprehensive
Income (Loss) Accumulated
Deficit Total
Three Months Ended March 26, 2022
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 157,642 — — — 5,645 — — 5,645
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 2,612 — — — (72) — — (72)
Purchase and retirement of common stock through repurchase program (240,548) — — — (9,397) — — (9,397)
Stock-based compensation — — — — 7,831 — — 7,831
Other comprehensive loss — — — — — (3,028) — (3,028)
Net income — — — — — — 29,872 29,872
Balances, March 26, 2022 78,166,212 $ 78 — $ — $ 902,994 $ (4,477) $ (51,922) $ 846,673


		Shares of Common Stock		Common Stock		Shares of Treasury Stock	Treasury 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 Income (Loss)		Accumulated Deficit		Total

		Three Months Ended March 27, 2021																Six Months Ended June 25, 2022
Balances, December 26, 2020		77,437,997		$	78	—	$	—	$	903,838	$	5,886	$	(165,718)	$	744,084
Balances, December 25, 2021																	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	228,784		—		—	—		5,065		—		—		5,065		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	50,000		—		—	—		422		—		—		422		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	41,749		—		—	—		(1,141)		—		—		(1,141)		Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax	234,076	—		(4,243)		—		—		(4,243)
Purchase of common stock through repurchase program		—		—		(136,402)	(5,738)		—		—		—		(5,738)
Purchase and retirement of common stock through repurchase program																	Purchase and retirement of common stock through repurchase program	(1,443,491)	(1)		(54,327)		—		—		(54,328)
Stock-based compensation	Stock-based compensation	—		—		—	—		6,952		—		—		6,952		Stock-based compensation	—	—		14,522		—		—		14,522
Other comprehensive income		—		—		—	—		—		(2,736)		—		(2,736)
Other comprehensive loss																	Other comprehensive loss	—	—		—		(7,547)		—		(7,547)
Net income	Net income	—		—		—	—		—		—		19,625		19,625		Net income	—	—		—		—		60,114		60,114
Balances, March 27, 2021		77,758,530		$	78	(136,402)	$	(5,738)	$	915,136	$	3,150	$	(146,093)	$	766,533
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

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~~STOCKHOLDERS' EQUITY

(In ~~thousands)~~thousands, except shares)

(Unaudited)
Three Months Ended
March 26,
2022 March 27,
2021
Cash flows from operating activities:
Net income $ 29,872 $ 19,625
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 6,960 6,130
Amortization 2,369 6,805
Reduction in the carrying amount of right-of-use assets 2,492 1,811
Stock-based compensation expense 7,520 7,077
Provision for excess and obsolete inventories 2,501 3,394
Non-cash restructuring charges 150 —
Other adjustments to reconcile net income to net cash provided by operating activities 32 2,140
Changes in assets and liabilities:
Accounts receivable 966 3,576
Inventories (17,080) (9,911)
Prepaid expenses and other current assets (144) 3,011
Other assets (73) (50)
Accounts payable 10,150 5,722
Accrued liabilities (3,120) (12,732)
Other liabilities 87 114
Deferred revenues 3,908 (2,411)
Operating lease liabilities (2,435) (1,945)
Net cash provided by operating activities 44,155 32,356
Cash flows from investing activities:
Acquisition of property, plant and equipment (15,606) (13,470)
Purchases of marketable securities (23,462) (41,062)
Proceeds from maturities and sales of marketable securities 17,990 14,610
Net cash used in investing activities (21,078) (39,922)
Cash flows from financing activities:
Proceeds from issuances of common stock 5,687 5,487
Purchase of common stock through stock repurchase program (9,397) (5,738)
Tax withholdings related to net share settlements of equity awards (72) (1,141)
Principal repayments on term loans (2,234) (2,376)
Net cash used in financing activities (6,016) (3,768)
Effect of exchange rate changes on cash, cash equivalents and restricted cash (1,142) (1,456)
Net increase (decrease) in cash, cash equivalents and restricted cash 15,919 (12,790)
Cash, cash equivalents and restricted cash, beginning of period 155,342 191,098
Cash, cash equivalents and restricted cash, end of period $ 171,261 $ 178,308


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

	Six Months Ended June 26, 2021
Balances, December 26, 2020	77,437,997	$	78	—	$	—	$	903,838	$	5,886	$	(165,718)	$	744,084
Issuance of common stock under the Employee Stock Purchase Plan	228,784	—		—	—		5,065		—		—		5,065
Issuance of common stock pursuant to exercise of options	100,000	—		—	—		844		—		—		844
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax	308,219	—		—	—		(5,261)		—		—		(5,261)
Purchase and retirement of common stock through repurchase program	(620,200)	(1)		—	—		(23,950)		—		—		(23,951)
Stock-based compensation	—	—		—	—		13,526		—		—		13,526
Other comprehensive loss	—	—		—	—		—		(2,290)		—		(2,290)
Net income	—	—		—	—		—		—		37,530		37,530
Balances, June 26, 2021	77,454,800	$	77	—	$	—	$	894,062	$	3,596	$	(128,188)	$	769,547

	Three Months Ended June 26, 2021
Balances, March 27, 2021	77,758,530	$	78	(136,402)	$	(5,738)	$	915,136	$	3,150	$	(146,093)	$	766,533

Issuance of common stock pursuant to exercise of options	50,000	—		—	—		422		—		—		422
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax	266,470	—		—	—		(4,120)		—		—		(4,120)
Purchase and retirement of common stock through repurchase program	(620,200)	(1)		136,402	5,738		(23,950)		—		—		(18,213)
Stock-based compensation	—	—		—	—		6,574		—		—		6,574
Other comprehensive income	—	—		—	—		—		446		—		446
Net income	—	—		—	—		—		—		17,905		17,905
Balances, June 26, 2021	77,454,800	$	77	—	$	—	$	894,062	$	3,596	$	(128,188)	$	769,547

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

FORMFACTOR, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended
	June 25, 2022		June 26, 2021
Cash flows from operating activities:
Net income	$	60,114	$	37,530
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	14,146		12,678
Amortization	4,702		13,900
Reduction in the carrying amount of right-of-use assets	4,414		3,652
Stock-based compensation expense	13,878		13,665

Provision for excess and obsolete inventories	4,726		6,898
Non-cash restructuring charges	710		—
Gain on contingent consideration	—		(95)
Other adjustments to reconcile net income to net cash provided by operating activities	(567)		1,211
Changes in assets and liabilities:
Accounts receivable	5,530		(1,194)
Inventories	(32,268)		(20,388)
Prepaid expenses and other current assets	1,295		3,179
Other assets	(40)		(344)
Accounts payable	7,521		(2,028)
Accrued liabilities	4,102		(235)
Other liabilities	73		184
Deferred revenues	2,727		1,522
Operating lease liabilities	(4,262)		(3,980)
Net cash provided by operating activities	86,801		66,155
Cash flows from investing activities:
Acquisition of property, plant and equipment	(30,116)		(31,322)
Acquisition of business	(3,121)		—
Purchases of marketable securities	(52,344)		(71,186)
Purchase of promissory note receivable	(1,000)		—
Proceeds from maturities and sales of marketable securities	45,470		42,695
Net cash used in investing activities	(41,111)		(59,813)
Cash flows from financing activities:
Proceeds from issuances of common stock	5,687		5,909
Purchase of common stock through stock repurchase program	(54,328)		(23,951)
Tax withholdings related to net share settlements of equity awards	(4,243)		(5,261)
Payment of contingent consideration	—		(3,873)

Principal repayments on term loans	(4,379)		(4,740)

Net cash used in financing activities	(57,263)		(31,916)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(3,470)		(1,558)
Net decrease in cash, cash equivalents and restricted cash	(15,043)		(27,132)
Cash, cash equivalents and restricted cash, beginning of period	155,342		191,098
Cash, cash equivalents and restricted cash, end of period	$	140,299	$	163,966

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
		March 26, 2022		March 27, 2021			June 25, 2022		June 26, 2021
Non-cash investing and financing activities:	Non-cash investing and financing activities:					Non-cash investing and financing activities:
Increase (decrease) in accounts payable and accrued liabilities related to property, plant and equipment purchases	Increase (decrease) in accounts payable and accrued liabilities related to property, plant and equipment purchases	$	(2,524)	$	1,087	Increase (decrease) in accounts payable and accrued liabilities related to property, plant and equipment purchases	$	(4,165)	$	2,906

Operating lease, right-of-use assets obtained in exchange for lease obligations	Operating lease, right-of-use assets obtained in exchange for lease obligations	3,359		8,572		Operating lease, right-of-use assets obtained in exchange for lease obligations	3,438		11,629

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	$	890	$	1,034	Cash paid for income taxes, net	$	6,473	$	4,559
Cash paid for interest	Cash paid for interest	163		173		Cash paid for interest	294		339
Operating cash outflows from operating leases	Operating cash outflows from operating leases	2,094		2,201		Operating cash outflows from operating leases	4,379		4,352

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	$	167,182	$	173,616	Cash and cash equivalents	$	136,395	$	160,273
Restricted cash, current	Restricted cash, current	2,026		2,798		Restricted cash, current	2,102		1,857
Restricted cash, non-current	Restricted cash, non-current	2,053		1,894		Restricted cash, non-current	1,802		1,836
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	171,261	$	178,308	Total cash, cash equivalents and restricted cash	$	140,299	$	163,966

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 New Accounting Pronouncements

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 2021 Annual Report on Form 10-K filed with the SEC on February 18, 2022. 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 2022 and 2021 contain 53 weeks and 52 weeks, respectively, and the ~~three~~six months ended ~~March 26,~~June 25, 2022 and ~~March 27,~~June 26, 2021 each contained 1326 weeks. Fiscal 2022 will end on December 31, 2022.

Significant Accounting Policies

Our significant accounting policies have not changed during the ~~three~~six months ended ~~March 26,~~June 25, 2022 from those disclosed in our Annual Report on Form 10-K for the year ended December 25, 2021.

Reclassifications

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

New Accounting Pronouncements

ASU 2020-04

In March 2020, the FASB issued ASU 2020-04, “Referenced 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 generally accepted accounting principles 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 January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848),” which permits entities to apply optional expedients in Topic 848 to derivative instruments modified because of discounting transition resulting from reference rate reform. ASU 2020-04 became effective upon issuance and may be applied prospectively to contract modifications made on or before December 31, 2022. ASU 2021-01 became effective upon issuance and may be applied on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 or prospectively for contract modifications made on or before December 31, 2022. The Company has not yet applied the relief afforded by these standard amendments and is currently assessing contracts that will require modification due to reference rate reform to which these standard amendments may be applied.

ASU 2021-08

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification 606, ~~Revenue~~“Revenue from Contracts with Customers,” as if it had originated the contracts. ~~This approach differs from~~The Company elected to early adopt on a prospective basis during the ~~current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. This guidance is effective for~~second quarter of fiscal ~~years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted.~~2022. The adoption ~~impact of the new standard will depend~~did not have a material effect on the ~~magnitude of future acquisitions. The standard will not impact acquired contract assets or liabilities from business combinations occurring prior to the adoption date.~~Company's Consolidated Financial Statements.

910

Note 2 — Concentration of Credit and Other Risks

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


		Three Months Ended				Three Months Ended				Six Months Ended
		March 26, 2022		March 27, 2021				June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Intel Corporation	Intel Corporation	20.8	%	28.1	%		Intel Corporation	20.9	%	16.2	%	20.9	%	22.1	%

Samsung Electronics., LTD.							Samsung Electronics., LTD.	*		14.7	%	*		*
Taiwan Semiconductor Manufacturing Co., LTD.	Taiwan Semiconductor Manufacturing Co., LTD.	10.7	%	11.5	%		Taiwan Semiconductor Manufacturing Co., LTD.	*		11.0	%	*		11.2	%

		31.5	%	39.6	%			20.9	%	41.9	%	20.9	%	33.3	%

At ~~March 26,~~June 25, 2022, one customer accounted for ~~22.8%~~20.0% of gross accounts receivable. At December 25, 2021, one customer accounted for 13.8% of gross accounts receivable.

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):


		March 26, 2022		December 25, 2021			June 25, 2022		December 25, 2021
Raw materials	Raw materials	$	60,976	$	57,673	Raw materials	$	68,247	$	57,673
Work-in-progress	Work-in-progress	41,875		35,935		Work-in-progress	52,619		35,935
Finished goods	Finished goods	22,739		17,940		Finished goods	22,609		17,940
		$	125,590	$	111,548		$	143,475	$	111,548

Note 4— Acquisition

Woburn Acquisition

On June 9, 2022, we acquired the assets of the dilution refrigerator product line of American ULT Cryogenics, formerly d/b/a JanisULT (“Woburn”), for total consideration of $3.1 million. This acquisition adds cryogen-free dilution refrigerators capable of cooling to sub-10 millikelvin to our product portfolio, which is required for operation of superconducting quantum computers.

As of the reporting date, we have not completed the valuation of assets acquired and liabilities assumed. Upon the completion of purchase accounting, we expect certain amounts provisionally recorded as goodwill will be ultimately allocated to developed technologies, but at this time we do not have an estimate of the allocation of value between amortizing and non-amortizing intangible assets. We do expect that some amount of intangible assets provisionally recorded as goodwill will ultimately be allocated to an amortizing intangible asset. At the time such amount is estimable, we will record any amortization required between the acquisition date and the date at which the amounts become estimable. While we do not yet have a reasonable basis on which to record any such amortization, the impact to the financial statements as a whole is not expected to be material assuming typical lives of these assets and ranges of potential allocation of value.

The amounts presented below represent provisional amounts of assets acquired and liabilities assumed, which are recorded based on the best information available, and are subject to revision as the fair value of the associated assets acquired and

liabilities assumed are finalized. The total estimated purchase price has been provisionally allocated to the underlying assets acquired and liabilities assumed, as follows (in thousands):


	Amount
Accounts receivable	$	178
Inventories	6,064
Property, plant and equipment	479
Prepaid expenses and other current assets	117
Other assets	28
Tangible assets acquired	6,866
Deferred revenue	(5,513)
Accounts payable and accrued liabilities	(30)
Total tangible assets acquired and liabilities assumed	1,323

Goodwill	1,798
Net Assets Acquired	$	3,121

Note 5 — 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 26, 2020	Goodwill, as of December 26, 2020	$	178,072	$	34,689	$	212,761	Goodwill, as of December 26, 2020	$	178,072	$	34,689	$	212,761

Addition - Baldwin Park Acquisition	Addition - Baldwin Park Acquisition	352		—		352		Addition - Baldwin Park Acquisition	352		—		352
Addition - HPD Acquisition	Addition - HPD Acquisition	—		1,254		1,254		Addition - HPD Acquisition	—		1,254		1,254
Foreign currency translation	Foreign currency translation	—		(2,068)		(2,068)		Foreign currency translation	—		(2,068)		(2,068)
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	—		1,798		1,798
Foreign currency translation	Foreign currency translation	—		(746)		(746)		Foreign currency translation	—		(1,740)		(1,740)
Goodwill, as of March 26, 2022		$	178,424	$	33,129	$	211,553
Goodwill, as of June 25, 2022								Goodwill, as of June 25, 2022	$	178,424	$	33,933	$	212,357

We have not recorded goodwill impairments for the ~~three~~six months ended ~~March 26,~~June 25, 2022.

Intangible assets were as follows (in thousands):


		March 26, 2022						December 25, 2021							June 25, 2022						December 25, 2021
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	$	171,560	$	149,149	$	22,411	$	172,259	$	148,784	$	23,475	Existing developed technologies	$	170,627	$	149,338	$	21,289	$	172,259	$	148,784	$	23,475
Customer relationships	Customer relationships	51,080		40,638		10,442		51,270		39,254		12,016		Customer relationships	50,827		41,966		8,861		51,270		39,254		12,016
Trade name	Trade name	8,010		7,625		385		8,054		7,603		451		Trade name	7,952		7,630		322		8,054		7,603		451
Backlog	Backlog	—		—		—		1,896		1,896		—		Backlog	—		—		—		1,896		1,896		—
In-process research and development	In-process research and development	400		—		400		400		—		400		In-process research and development	400		—		400		400		—		400
		$	231,050	$	197,412	$	33,638	$	233,879	$	197,537	$	36,342		$	229,806	$	198,934	$	30,872	$	233,879	$	197,537	$	36,342

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


		Three Months Ended				Three Months Ended				Six Months Ended
		March 26, 2022		March 27, 2021				June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Cost of revenues	Cost of revenues	$	808	$	5,090		Cost of revenues	$	788	$	5,505	$	1,596	$	10,595
Selling, general and administrative	Selling, general and administrative	1,561		1,715			Selling, general and administrative	1,545		1,590		3,106		3,305
		$	2,369	$	6,805			$	2,333	$	7,095	$	4,702	$	13,900

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 2022	Remainder of 2022	$	7,056	Remainder of 2022	$	4,650
2023	2023	7,062		2023	6,968
2024	2024	4,472		2024	4,390
2025	2025	4,219		2025	4,142
2026	2026	3,195		2026	3,134
Thereafter	Thereafter	7,234		Thereafter	7,188
		$	33,238		$	30,472

Note 56 — Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):


		March 26, 2022		December 25, 2021			June 25, 2022		December 25, 2021
Accrued compensation and benefits	Accrued compensation and benefits	$	28,321	$	29,706	Accrued compensation and benefits	$	32,001	$	29,706
Accrued income and other taxes	Accrued income and other taxes	10,276		8,086		Accrued income and other taxes	9,468		8,086
Accrued warranty	Accrued warranty	2,775		2,805		Accrued warranty	3,978		2,805
Employee stock purchase plan contributions withheld	Employee stock purchase plan contributions withheld	2,027		4,693		Employee stock purchase plan contributions withheld	4,789		4,693
Accrued restructuring charges	Accrued restructuring charges	890		2,478		Accrued restructuring charges	592		2,478
Other accrued expenses	Other accrued expenses	3,149		3,068		Other accrued expenses	4,007		3,068
		$	47,438	$	50,836		$	54,835	$	50,836

Note 67 — Restructuring Charges

On September 25, 2021, we adopted 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 ~~includes~~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, and expect to incur, personnel related costs to sever, relocate, or retain select employees. Additionally, ~~we are undertaking actions~~this included plans to adjust capacity for certain product ~~offerings. As a result of these adjustments,~~offerings, which resulted in contract termination costs ~~include charges~~ to satisfy contract obligations. ~~The liability was recognized using our best estimate and it is reasonably possible that the final amount will differ from the amount estimated in the near term.~~ We expect the actions defined under these plans will be largely completed by the end of December 2022, except facilities charges which may extend beyond that time.

These plans are expected to result in FormFactor recording restructuring and other charges in the aggregate amount of approximately ~~$6.0~~$5.0 million to ~~$9.0~~$8.5 million, estimated to be comprised primarily of $1.0 million to $2.0 million of severance and employee-related costs, ~~$2.0~~$1.5 million to ~~3.0~~$2.5 million in contract and lease termination costs, ~~$1.0~~$2.0 million to ~~$1.5~~$3.0 million in inventory impairments, and ~~$2.0~~$0.5 million to ~~$2.5~~$1.0 million of cost related to impairment of leasehold improvements, facility exits, and other costs. Approximately ~~$3.0 million to $4.5 million and $3.0~~$2.5 million to $4.5 million is expected within each of the Probe Cards ~~segment~~ and Systems ~~segment,~~segments, respectively.

The Company has recognized to date restructuring and other charges in the aggregate amount of ~~$4.4~~$5.0 million, comprised of $1.2 million of severance and employee-related costs, $1.5 million in contract and lease termination costs, ~~$1.5~~$2.0 million in inventory impairments, and $0.3 million of cost related to impairment of leasehold improvements, facility exits and other costs.

1113

Restructuring charges by reportable segment included in our Condensed Consolidated Statements of Income were as follows (in thousands):


		Three Months Ended						Three Months Ended				Six Months Ended
		March 26, 2022						June 25, 2022				June 25, 2022
		Probe Cards		Systems		Total				Probe Cards		Systems		Total		Probe Cards		Systems		Total
Cost of revenues	Cost of revenues	$	39	$	100	$	139		Cost of revenues	$	227	$	227	$	454	$	266	$	327	$	593
Research and development	Research and development	—		146		146			Research and development	—		53		53		—		199		199
Selling, general and administrative	Selling, general and administrative	3		25		28			Selling, general and administrative	—		74		74		3		99		102
		$	42	$	271	$	313			$	227	$	354	$	581	$	269	$	625	$	894

Changes to the restructuring accrual in the ~~three~~six months ended ~~March 26,~~June 25, 2022 were as follows (in thousands):


		Employee Severance and Benefits		Inventory Impairments		Contract Termination Costs		Total			Employee Severance and Benefits		Inventory Impairments		Contract Termination Costs		Total
December 25, 2021	December 25, 2021	$	1,028	$	—	$	1,450	$	2,478	December 25, 2021	$	1,028	$	—	$	1,450	$	2,478
Restructuring charges	Restructuring charges	163		150		—		313		Restructuring charges	185		646		—		894
Cash payments	Cash payments	(301)		—		(1,450)		(1,751)		Cash payments	(621)		—		(1,450)		(2,071)

Non-cash settlement	Non-cash settlement	—		(150)		—		(150)		Non-cash settlement	—		(646)		—		(709)
March 26, 2022		$	890	$	—	$	—	$	890
June 25, 2022										June 25, 2022	$	592	$	—	$	—	$	592

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 ~~March 26,~~June 25, 2022 or the year ended December 25, 2021.

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

No changes were made to our valuation techniques during the first ~~three~~six months of fiscal 2022.

1214

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):


March 26, 2022		Level 1		Level 2		Total
June 25, 2022								June 25, 2022	Level 1		Level 2		Level 3		Total
Assets:	Assets:							Assets:
Cash equivalents:	Cash equivalents:							Cash equivalents:
Money market funds	Money market funds	$	25,172	$	—	$	25,172	Money market funds	$	39,228	$	—	$	—	$	39,228
Commercial paper	Commercial paper	—		7,132		7,132		Commercial paper	—		3,393		—		3,393
U.S. agency securities								U.S. agency securities	—		2,558		—		2,558
U.S. treasuries	U.S. treasuries	6,000		—		6,000		U.S. treasuries	1,995		—		—		1,995
		31,172		7,132		38,304			41,223		5,951		—		47,174
Marketable securities:	Marketable securities:							Marketable securities:
Corporate bonds								Corporate bonds	—		64,930		—		64,930
U.S. treasuries	U.S. treasuries	40,039		—		40,039		U.S. treasuries	35,894		—		—		35,894
Commercial paper								Commercial paper	—		22,480		—		22,480
U.S. agency securities								U.S. agency securities	—		5,912		—		5,912
Certificates of deposit	Certificates of deposit	—		951		951		Certificates of deposit	—		703		—		703
U.S. agency securities		—		1,939		1,939
Corporate bonds		—		58,318		58,318
Commercial paper		—		27,927		27,927
		40,039		89,135		129,174			35,894		94,025		—		129,919

Promissory note receivable								Promissory note receivable	—		—		1,007		1,007
Interest rate swap derivative contracts	Interest rate swap derivative contracts	—		1,537		1,537		Interest rate swap derivative contracts	—		1,990		—		1,990
Total assets	Total assets	$	71,211	$	97,804	$	169,015	Total assets	$	77,117	$	101,966	$	1,007	$	180,090
Liabilities:	Liabilities:							Liabilities:
Foreign exchange derivative contracts	Foreign exchange derivative contracts	$	—	$	(577)	$	(577)	Foreign exchange derivative contracts	$	—	$	(1,146)	$	—	$	(1,146)


December 25, 2021	December 25, 2021	Level 1		Level 2		Total		December 25, 2021	Level 1		Level 2		Level 3		Total
Assets:	Assets:							Assets:
Cash equivalents:	Cash equivalents:							Cash equivalents:
Money market funds	Money market funds	$	9,526	$	—	$	9,526	Money market funds	$	9,526	$	—	$	—	$	9,526
U.S. agency securities								U.S. agency securities	—		5,556		—		5,556
U.S. treasuries	U.S. treasuries	2,500		—		2,500		U.S. treasuries	2,500		—		—		2,500
Commercial paper	Commercial paper	—		1,000		1,000		Commercial paper	—		1,000		—		1,000
U.S. agency securities		—		5,556		5,556
		12,026		6,556		18,582			12,026		6,556		—		18,582
Marketable securities:	Marketable securities:							Marketable securities:
Corporate bonds								Corporate bonds	—		52,709		—		52,709
U.S. treasuries	U.S. treasuries	38,985		—		38,985		U.S. treasuries	38,985		—		—		38,985

Commercial paper								Commercial paper	—		32,162		—		32,162
Certificates of deposit	Certificates of deposit	—		1,199		1,199		Certificates of deposit	—		1,199		—		1,199

Corporate bonds		—		52,709		52,709
Commercial paper		—		32,162		32,162
		38,985		86,070		125,055			38,985		86,070		—		125,055

Interest rate swap derivative contracts	Interest rate swap derivative contracts	—		629		629		Interest rate swap derivative contracts	—		629		—		629
Total assets	Total assets	$	51,011	$	93,255	$	144,266	Total assets	$	51,011	$	93,255	$	—	$	144,266
Liabilities:	Liabilities:							Liabilities:
Foreign exchange derivative contracts	Foreign exchange derivative contracts	$	—	$	(489)	$	(489)	Foreign exchange derivative contracts	$	—	$	(489)	$	—	$	(489)
Interest rate swap derivative contracts	Interest rate swap derivative contracts	—		(55)		(55)		Interest rate swap derivative contracts	—		(55)		—		(55)
Total liabilities	Total liabilities	$	—	$	(544)	$	(544)	Total liabilities	$	—	$	(544)	$	—	$	(544)

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

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 ~~income~~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 (expense), 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 ~~March 26,~~June 25, 2022 will mature by the ~~first~~second quarter of fiscal 2023.

The following table provides information about our foreign currency forward contracts outstanding as of ~~March 26,~~June 25, 2022 (in thousands):


Currency	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	Euro Dollar	Buy	(9,967)	$	(11,617)	Euro Dollar	Buy	(21,445)	$	(24,117)
Euro Dollar		Sell	2,065	2,269

Japanese Yen	Japanese Yen	Sell	2,334,287	19,127		Japanese Yen	Sell	2,247,411	16,633
Korean Won	Korean Won	Buy	(1,281,414)	(1,052)		Korean Won	Buy	(1,010,988)	(779)
Taiwan Dollar	Taiwan Dollar	Sell	27,806	972		Taiwan Dollar	Sell	28,890	974

Total USD notional amount of outstanding foreign exchange contracts	Total USD notional amount of outstanding foreign exchange contracts			$	9,699	Total USD notional amount of outstanding foreign exchange contracts			$	(7,289)

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

acquisition. Other than as discussed in Note 6,4, Acquisition, and Note 7, Restructuring Charges, there were no assets or liabilities measured at fair value on a nonrecurring basis during the three and six months ended ~~March 26,~~June 25, 2022 or ~~March 27,~~June 26, 2021.

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
		March 26, 2022		March 27, 2021			June 25, 2022		June 26, 2021
Balance at beginning of period	Balance at beginning of period	$	2,805	$	3,918	Balance at beginning of period	$	2,805	$	3,918
Accruals	Accruals	1,214		1,374		Accruals	3,846		3,472
Settlements	Settlements	(1,244)		(1,573)		Settlements	(2,673)		(3,132)
Balance at end of period	Balance at end of period	$	2,775	$	3,719	Balance at end of period	$	3,978	$	4,258

Note 910 — Property, Plant and Equipment, net

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


		March 26, 2022		December 25, 2021			June 25, 2022		December 25, 2021
Land	Land	$	4,751	$	4,751	Land	$	4,751	$	4,751
Building and building improvements	Building and building improvements	44,123		41,722		Building and building improvements	44,429		41,722
Machinery and equipment	Machinery and equipment	258,783		252,632		Machinery and equipment	263,851		252,632
Computer equipment and software	Computer equipment and software	45,200		44,667		Computer equipment and software	45,727		44,667
Furniture and fixtures	Furniture and fixtures	7,367		7,293		Furniture and fixtures	7,434		7,293
Leasehold improvements	Leasehold improvements	83,707		82,266		Leasehold improvements	83,127		82,266
Sub-total	Sub-total	443,931		433,331		Sub-total	449,319		433,331
Less: Accumulated depreciation and amortization	Less: Accumulated depreciation and amortization	(318,726)		(312,700)		Less: Accumulated depreciation and amortization	(323,779)		(312,700)
Net, property, plant and equipment	Net, property, plant and equipment	125,205		120,631		Net, property, plant and equipment	125,540		120,631
Construction-in-process	Construction-in-process	26,974		25,924		Construction-in-process	32,274		25,924
Total	Total	$	152,179	$	146,555	Total	$	157,814	$	146,555

Note 1011 — Stockholders’ Equity and Stock-Based Compensation

Common Stock Repurchase ~~Program~~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 ~~plans. The share repurchase program will expire on October 28, 2022. During the three months ended March 26, 2022, we repurchased and retired 240,548 shares of common stock for $9.4 million.~~programs. During fiscal 2021 we repurchased and retired 622,400 shares of common stock for $24.0 million. During the six months ended June 25, 2022, we repurchased and retired 676,408 shares of common stock for $26.0 million, utilizing the remaining funds available for repurchase.

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 months ended June 25, 2022, we repurchased and retired 767,083 shares of common stock for $28.4 million under the program. As of ~~March 26,~~June 25, 2022, ~~$16.6~~$46.6 million remained available for future repurchases.

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 25, 2021	RSUs at December 25, 2021	2,166,934	$	28.63	RSUs at December 25, 2021	2,166,934	$	28.63
Awards granted	Awards granted	12,450	40.94		Awards granted	63,697	41.25
Awards vested	Awards vested	(4,255)	36.70		Awards vested	(338,825)	16.73
Awards forfeited	Awards forfeited	(19,511)	28.18		Awards forfeited	(51,941)	30.23
RSUs at March 26, 2022		2,155,618	28.69
RSUs at June 25, 2022					RSUs at June 25, 2022	1,839,865	31.22

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 PRSUs granted during the ~~three~~six months ended ~~March 26,~~June 25, 2022. 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
	~~March 26,~~June 25, 2022
Shares issued	157,642
Weighted average per share purchase price	$	35.81
Weighted average per share discount from the fair value of our common stock on the date of issuance	$	(6.93)

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
		March 26, 2022		March 27, 2021				June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Cost of revenues	Cost of revenues	$	1,078	$	1,335		Cost of revenues	$	734	$	1,079	$	1,812	$	2,414
Research and development	Research and development	1,986		1,689			Research and development	1,695		1,663		3,681		3,352
Selling, general and administrative	Selling, general and administrative	4,456		4,053			Selling, general and administrative	3,929		3,846		8,385		7,899
Total stock-based compensation	Total stock-based compensation	$	7,520	$	7,077		Total stock-based compensation	$	6,358	$	6,588	$	13,878	$	13,665

Unrecognized Compensation Costs

At ~~March 26,~~June 25, 2022, 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	$	31,005	2.00	Restricted stock units	$	27,430	1.80
Performance restricted stock units	Performance restricted stock units	8,652		1.90	Performance restricted stock units	7,202		1.74
Employee stock purchase plan	Employee stock purchase plan	1,140		0.86	Employee stock purchase plan	285		0.61
Total unrecognized stock-based compensation expense	Total unrecognized stock-based compensation expense	$	40,797	1.95	Total unrecognized stock-based compensation expense	$	34,917	1.77

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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
		March 26, 2022	March 27, 2021			June 25, 2022	June 26, 2021	June 25, 2022	June 26, 2021

Weighted-average shares used in computing basic net income per share	Weighted-average shares used in computing basic net income per share	78,246	77,598		Weighted-average shares used in computing basic net income per share	77,897	77,463	78,071	77,530
Add potentially dilutive securities	Add potentially dilutive securities	1,222	2,390		Add potentially dilutive securities	1,313	2,003	1,352	2,091
Weighted-average shares used in computing diluted net income per share	Weighted-average shares used in computing diluted net income per share	79,468	79,988		Weighted-average shares used in computing diluted net income per share	79,210	79,466	79,423	79,621

Securities not included as they would have been antidilutive	Securities not included as they would have been antidilutive	—	3		Securities not included as they would have been antidilutive	23	128	—	118

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 ~~March 26,~~June 25, 2022 from those disclosed in our Annual Report on Form 10-K for the year ended December 25, 2021.

Legal Matters

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. As of ~~March 26,~~June 25, 2022, and as of the filing of this Quarterly Report on Form 10-Q, we were not involved in any material legal proceedings.

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 7 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 to 3 years. 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 6 years as of ~~March 26,~~June 25, 2022 and the weighted-average discount rate was ~~3.67%~~3.69%.

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


		Three Months Ended				Three Months Ended				Six Months Ended
		March 26, 2022		March 27, 2021				June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Lease expense:	Lease expense:						Lease expense:
Operating lease expense	Operating lease expense	$	2,221	$	2,123		Operating lease expense	$	2,183	$	2,048	$	4,404	$	4,171
Short-term lease expense	Short-term lease expense	40		37			Short-term lease expense	76		45		116		82
Variable lease expense	Variable lease expense	458		537			Variable lease expense	677		426		1,135		963
		$	2,719	$	2,697			$	2,936	$	2,519	$	5,655	$	5,216

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Future minimum payments under our non-cancelable operating leases were as follows as of ~~March 26,~~June 25, 2022 (in thousands):


Fiscal Year	Fiscal Year	Amount		Fiscal Year	Amount
Remainder of 2022	Remainder of 2022	$	6,589	Remainder of 2022	$	4,319
2023	2023	7,680		2023	7,564
2024	2024	7,317		2024	7,224
2025	2025	7,270		2025	7,187
2026	2026	6,532		2026	6,505
Thereafter	Thereafter	9,195		Thereafter	9,143
Total minimum lease payments	Total minimum lease payments	44,583		Total minimum lease payments	41,942
Less: interest	Less: interest	(5,168)		Less: interest	(4,588)
Present value of net minimum lease payments	Present value of net minimum lease payments	39,415		Present value of net minimum lease payments	37,354
Less: current portion	Less: current portion	(8,049)		Less: current portion	(7,843)
Total long-term operating lease liabilities	Total long-term operating lease liabilities	$	31,366	Total long-term operating lease liabilities	$	29,511

Note 1415 — Revenue

Transaction price allocated to the remaining performance obligations: On ~~March 26,~~June 25, 2022, we had ~~$7.7~~$9.7 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 ~~75.6%~~66.9% of our remaining performance obligations as revenue in the remainder of fiscal 2022, approximately ~~18.4%~~27.7% in fiscal 2023, and approximately ~~6.0%~~5.4% in fiscal 2024 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 ~~March 26,~~June 25, 2022 and December 25, 2021 were ~~$0.9~~$2.0 million and $0.9 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 ~~March 26,~~June 25, 2022 and December 25, 2021 were ~~$28.0~~$32.2 million and $24.2 million, respectively. During the ~~three~~six months ended ~~March 26,~~June 25, 2022, we recognized ~~$11.0~~$16.5 million of revenue that was included in contract liabilities as of December 25, 2021.

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 2 reportable segments consisting

1820

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
		March 26, 2022													March 27, 2021													June 25, 2022											June 26, 2021
		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	$	159,983			$	37,191			$	—	$	197,174		$	158,898		$	27,738			$	—	$	186,636		Revenues	$	167,708		$	36,199		$	—	$	203,907		$	153,641		$	34,435		$	—	$	188,076
Gross profit	Gross profit	77,202				19,407				(2,385)		94,224			70,315			13,599				(7,208)		76,706			Gross profit	78,420			18,276			(2,327)		94,369			66,600			16,907			(7,224)		76,283
Gross margin	Gross margin	48.3		%		52.2		%		0		47.8		%	44.3		%	49.0		%		0		41.1		%	Gross margin	46.8		%	50.5		%	0		46.3		%	43.3		%	49.1		%	0		40.6		%

					Six Months Ended
									June 25, 2022												June 26, 2021
																												Probe Cards			Systems			Corporate and Other		Total			Probe Cards			Systems			Corporate and Other		Total

Revenues																											Revenues	$	327,691		$	73,390		$	—	$	401,081		$	312,539		$	62,173		$	—	$	374,712
Gross profit																											Gross profit	$	155,622		$	37,683		$	(4,712)	$	188,593		$	136,915		$	30,506		$	(14,432)	$	152,989
Gross margin																											Gross margin	47.5		%	51.3		%	0		47.0		%	43.8		%	49.1		%	0		40.8		%

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
		March 26, 2022						March 27, 2021							June 25, 2022						June 26, 2021
		Probe Cards		Systems		Total		Probe Cards		Systems		Total			Probe Cards		Systems		Total		Probe Cards		Systems		Total
Market:	Market:													Market:
Foundry & Logic	Foundry & Logic	$	114,121	$	—	$	114,121	$	113,410	$	—	$	113,410	Foundry & Logic	$	122,380	$	—	$	122,380	$	103,726	$	—	$	103,726
DRAM	DRAM	34,437		—		34,437		33,898		—		33,898		DRAM	36,843		—		36,843		42,088		—		42,088
Flash	Flash	11,425		—		11,425		11,590		—		11,590		Flash	8,485		—		8,485		7,827		—		7,827
Systems	Systems	—		37,191		37,191		—		27,738		27,738		Systems	—		36,199		36,199		—		34,435		34,435
Total	Total	$	159,983	$	37,191	$	197,174	$	158,898	$	27,738	$	186,636	Total	$	167,708	$	36,199	$	203,907	$	153,641	$	34,435	$	188,076
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	$	158,836	$	35,416	$	194,252	$	158,476	$	24,671	$	183,147	Products transferred at a point in time	$	166,701	$	33,081	$	199,782	$	153,129	$	30,884	$	184,013
Products and services transferred over time	Products and services transferred over time	1,147		1,775		2,922		422		3,067		3,489		Products and services transferred over time	1,007		3,118		4,125		512		3,551		4,063
Total	Total	$	159,983	$	37,191	$	197,174	$	158,898	$	27,738	$	186,636	Total	$	167,708	$	36,199	$	203,907	$	153,641	$	34,435	$	188,076
Geographical region:	Geographical region:													Geographical region:
Taiwan	Taiwan	$	42,522	$	10,547	$	53,069	$	44,734	$	846	$	45,580	Taiwan	$	45,188	$	4,832	$	50,020	$	46,737	$	5,147	$	51,884
China	China	32,791		5,608		38,399		37,831		4,794		42,625		China	40,578		9,157		49,735		23,996		7,831		31,827
United States														United States	21,539		9,703		31,242		24,174		8,476		32,650
South Korea	South Korea	24,881		2,620		27,501		18,001		1,084		19,085		South Korea	27,418		1,337		28,755		35,426		751		36,177
Malaysia	Malaysia	21,517		682		22,199		19,888		42		19,930		Malaysia	16,157		87		16,244		3,034		161		3,195
United States		19,976		5,671		25,647		21,308		8,178		29,486
Singapore		10,284		612		10,896		7,627		931		8,558
Japan	Japan	4,785		4,597		9,382		5,249		4,072		9,321		Japan	6,716		3,221		9,937		3,477		4,227		7,704
Europe	Europe	2,382		6,013		8,395		2,833		7,166		9,999		Europe	3,824		4,267		8,091		6,466		5,544		12,010
Singapore														Singapore	5,131		1,977		7,108		8,602		1,360		9,962
Rest of the world	Rest of the world	845		841		1,686		1,427		625		2,052		Rest of the world	1,157		1,618		2,775		1,729		938		2,667
Total	Total	$	159,983	$	37,191	$	197,174	$	158,898	$	27,738	$	186,636	Total	$	167,708	$	36,199	$	203,907	$	153,641	$	34,435	$	188,076


	Six Months Ended
	June 25, 2022						June 26, 2021
	Probe Cards		Systems		Total		Probe Cards		Systems		Total
Market:
Foundry & Logic	$	236,501	$	—	$	236,501	$	217,136	$	—	$	217,136
DRAM	71,280		—		71,280		75,986		—		75,986
Flash	19,910		—		19,910		19,417		—		19,417
Systems	—		73,390		73,390		—		62,173		62,173
Total	$	327,691	$	73,390	$	401,081	$	312,539	$	62,173	$	374,712
Timing of revenue recognition:
Products transferred at a point in time	$	325,537	$	68,497	$	394,034	$	311,605	$	55,555	$	367,160
Products and services transferred over time	2,154		4,893		7,047		934		6,618		7,552
Total	$	327,691	$	73,390	$	401,081	$	312,539	$	62,173	$	374,712
Geographical region:
Taiwan	$	87,710	$	15,379	$	103,089	$	91,471	$	5,993	$	97,464
China	73,369		14,765		88,134		61,827		12,625		74,452
United States	41,515		15,374		56,889		45,482		16,654		62,136
South Korea	52,299		3,957		56,256		53,427		1,835		55,262
Malaysia	37,674		769		38,443		22,922		203		23,125
Japan	11,501		7,818		19,319		8,726		8,299		17,025
Singapore	15,415		2,589		18,004		16,229		2,291		18,520
Europe	6,206		10,280		16,486		9,299		12,710		22,009
Rest of the world	2,002		2,459		4,461		3,156		1,563		4,719
Total	$	327,691	$	73,390	$	401,081	$	312,539	$	62,173	$	374,712

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 the impact of our responses to it, the interpretation and impacts of changes in export controls and other trade barriers, military conflicts, political volatility and similar factors, ~~(including developments related to Ukraine and Russia),~~ 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 25, 2021 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 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 ~~$29.9~~$60.1 million in the first ~~three~~six months of fiscal 2022 as compared to ~~$19.6~~$37.5 million in the first ~~three~~six months of fiscal 2021. The increase in net income was primarily due to increased revenue with improved gross margins from a change in product mix and a reduction in the amortization of intangibles from significant intangibles becoming fully amortized, partially offset by higher operating expenses.

Impact of COVID-19

The COVID-19 pandemic continues to cause serious illness and death in many of the regions that we, our customers and our suppliers operate. The COVID-19 pandemic has resulted in significant governmental actions designed to control the spread of the virus, including the imposition of safety requirements and other orders in locations where we have manufacturing and other activities.

We continue to operate our manufacturing sites at production levels greater than those prior to the pandemic, albeit subject to certain safety and related constraints. Our other operations are continuing with substantial work-from-home activities.

If the provisions of governmental health orders or other safety requirements applicable to us or our customers or suppliers become more restrictive for an extended period of time, or if we have repeated occurrences of COVID-19 in any of our facilities, we may experience disruptions or delays in manufacturing, product design, product development, customer support, manufacturing and sales, and an overall loss of productivity and efficiency.

While the disruptions in our operations, supply chain and customer demand as a result of the COVID-19 pandemic have been somewhat limited, we continue to see impacts on elements in the supply chain and believe that the COVID-19 pandemic represents a sustained threat that may give rise to a variety of more significant adverse impacts on our business and financial results. The semiconductor industry is experiencing various supply constraints due to the pandemic. While we are working with our global supply chain partners to mitigate this risk, the duration and extent of the supply chain disruptions remain uncertain. For a further description of the uncertainties and business risks associated with the COVID-19 pandemic, see the risk factors discussed in our Annual Report on Form 10-K for the year ended December 25, 2021.

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 2021 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 ~~March 26,~~June 25, 2022, 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 25, 2021, which was filed with the Securities and Exchange Commission on February 18, 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
		March 26, 2022		March 27, 2021				June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Revenues	Revenues	100.0	%	100.0	%		Revenues	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenues	Cost of revenues	52.2		58.9			Cost of revenues	53.7		59.4		53.0		59.2
Gross profit	Gross profit	47.8		41.1			Gross profit	46.3		40.6		47.0		40.8
Operating expenses:	Operating expenses:						Operating expenses:
Research and development	Research and development	13.8		12.9			Research and development	13.9		13.5		13.8		13.2
Selling, general and administrative	Selling, general and administrative	16.7		16.1			Selling, general and administrative	16.4		16.2		16.5		16.1

Total operating expenses	Total operating expenses	30.5		29.0			Total operating expenses	30.3		29.7		30.3		29.3
Operating income	Operating income	17.3		12.1			Operating income	16.0		10.9		16.7		11.5
Interest income	Interest income	0.1		0.1			Interest income	0.1		0.1		0.1		0.1
Interest expense	Interest expense	(0.1)		(0.1)			Interest expense	(0.1)		(0.1)		(0.1)		(0.1)
Other income, net		0.1		0.1
Other income (expense), net							Other income (expense), net	0.3		(0.1)		0.2		—
Income before income taxes	Income before income taxes	17.4		12.2			Income before income taxes	16.3		10.8		16.9		11.5
Provision for income taxes	Provision for income taxes	2.2		1.7			Provision for income taxes	1.5		1.2		1.9		1.5
Net income	Net income	15.2	%	10.5	%		Net income	14.8	%	9.6	%	15.0	%	10.0	%

Revenues by Segment and Market
Three Months Ended
March 26,
2022 March 27,
2021
(In thousands)
Probe Cards $ 159,983 $ 158,898
Systems 37,191 27,738
$ 197,174 $ 186,636

Three Months Ended
March 26,
2022 % of Revenues March 27,
2021 % of Revenues $ Change % Change
(Dollars in thousands)
Probe Cards Markets:
Foundry & Logic $ 114,121 57.8 % $ 113,410 60.7 % $ 711 0.6 %
DRAM 34,437 17.5 33,898 18.2 539 1.6
Flash 11,425 5.8 11,590 6.2 (165) (1.4)
Systems Market:
Systems 37,191 18.9 27,738 14.9 9,453 34.1
Total revenues $ 197,174 100.0 % $ 186,636 100.0 % $ 10,538 5.6 %


	Three Months Ended				Six Months Ended
	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021

	(In thousands)
Probe Cards	$	167,708	$	153,641	$	327,691	$	312,539
Systems	36,199		34,435		73,390		62,173
	$	203,907	$	188,076	$	401,081	$	374,712

2124

~~Our Probe Cards markets~~


	Three Months Ended
	June 25, 2022		% of Revenues		June 26, 2021		% of Revenues		$ Change		% Change

	(Dollars in thousands)
Probe Cards Markets:
Foundry & Logic	$	122,380	60.0	%	$	103,726	55.1	%	$	18,654	18.0	%
DRAM	36,843		18.0		42,088		22.4		(5,245)		(12.5)
Flash	8,485		4.2		7,827		4.2		658		8.4
Systems Market:
Systems	36,199		17.8		34,435		18.3		1,764		5.1
Total revenues	$	203,907	100.0	%	$	188,076	100.0	%	$	15,831	8.4	%

	Six Months Ended
	June 25, 2022		% of Revenues		June 26, 2021		% of Revenues		$ Change		% Change

	(Dollars in thousands)
Probe Cards Markets:
Foundry & Logic	$	236,501	58.9	%	$	217,136	57.9	%	$	19,365	8.9	%
DRAM	71,280		17.8		75,986		20.3		(4,706)		(6.2)
Flash	19,910		5.0		19,417		5.2		493		2.5
Systems Market:
Systems	73,390		18.3		62,173		16.6		11,217		18.0
Total revenues	$	401,081	100.0	%	$	374,712	100.0	%	$	26,369	7.0	%

The increase in Foundry & Logic product revenue for the three and six months ended ~~March 26,~~June 25, 2022, ~~improved slightly in total~~ compared to the three and six months ended ~~March 27,~~June 26, 2021, ~~despite a decline within our top two customers~~was driven principally by the increased demand and increased unit sales to other large semiconductor foundries and integrated device manufacturers.

The decrease in ~~these periods. Our ability~~DRAM product revenue for the three and six months ended June 25, 2022, compared to ~~maintain~~the three and ~~grow our revenues, despite~~six months ended June 26, 2021, was driven by decreased design wins and customer demand.

The increase in Flash product ~~mix changes between our top customers, is~~revenue for the ~~result of our long-term~~three and six months ended June 25, 2022, compared to the three and six months ended June 26, 2021, was driven by increased customer ~~and market diversification initiatives.~~demand.

The increase in Systems market revenue for the three and six months ended ~~March 26,~~June 25, 2022, compared to the three and six months ended ~~March 27,~~June 26, 2021, was driven by both increased sales of metrology systems and our 200 and 300 millimeter probe stations.

Revenues by Geographic Region


		Three Months Ended									Three Months Ended				Six Months Ended
		March 26, 2022		% of Revenue		March 27, 2021		% of Revenue					June 25, 2022		% of Revenue		June 26, 2021		% of Revenue		June 25, 2022		% of Revenue		June 26, 2021		% of Revenue

		(Dollars in thousands)								(Dollars in thousands)
Taiwan	Taiwan	$	53,069	26.9	%	$	45,580	24.4	%			Taiwan	$	50,020	24.5	%	$	51,884	27.6	%	$	103,089	25.7	%	$	97,464	26.0	%
China	China	38,399		19.5		42,625		22.8				China	49,735		24.4		31,827		16.9		88,134		22.0		74,452		19.9
United States												United States	31,242		15.3		32,650		17.4		56,889		14.2		62,136		16.6
South Korea	South Korea	27,501		13.9		19,085		10.2				South Korea	28,755		14.1		36,177		19.2		56,256		14.0		55,262		14.7
United States		25,647		13.0		29,486		15.8
Malaysia	Malaysia	22,199		11.3		19,930		10.7				Malaysia	16,244		8.0		3,195		1.7		38,443		9.6		23,125		6.2
Singapore		10,896		5.5		8,558		4.6
Japan	Japan	9,382		4.8		9,321		5.0				Japan	9,937		4.9		7,704		4.1		19,319		4.8		17,025		4.5
Europe	Europe	8,395		4.3		9,999		5.4				Europe	8,091		4.0		12,010		6.4		16,486		4.1		22,009		5.9
Singapore												Singapore	7,108		3.5		9,962		5.3		18,004		4.5		18,520		4.9
Rest of the world	Rest of the world	1,686		0.8		2,052		1.1				Rest of the world	2,775		1.3		2,667		1.4		4,461		1.1		4,719		1.3
Total revenues	Total revenues	$	197,174	100.0	%	$	186,636	100.0	%			Total revenues	$	203,907	100.0	%	$	188,076	100.0	%	$	401,081	100.0	%	$	374,712	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 ~~March 26,~~June 25, 2022, compared to the three and six months ended ~~March 27,~~June 26, 2021, 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 China and Malaysia were driven principally by a single large U.S.-based company with operations in China and Malaysia. Further increases in China were driven by increased demand from a large Chinese DRAM integrated device manufacturer.

Cost of Revenues and Gross Margins

Cost of revenues consists primarily of manufacturing materials, compensation and benefits, shipping and handling costs, manufacturing-related overhead 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
		March 26, 2022				March 27, 2021			$ Change		% Change			June 25, 2022			June 26, 2021			$ Change		% Change
Gross profit	Gross profit	$	94,224			$	76,706		$	17,518	22.8	%	Gross profit	$	94,369		$	76,283		$	18,086	23.7	%
Gross margin	Gross margin	47.8		%		41.1		%					Gross margin	46.3		%	40.6		%

					Six Months Ended
														June 25, 2022			June 26, 2021			$ Change		% Change

Gross profit													Gross profit	$	188,593		$	152,989		$	35,604	23.3	%
Gross margin													Gross margin	47.0		%	40.8		%

2226

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


		Three Months Ended																										Three Months Ended
		March 26, 2022													March 27, 2021													June 25, 2022											June 26, 2021
		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	$	77,202			$	19,407			$	(2,385)	$	94,224		$	70,315		$	13,599			$	(7,208)	$	76,706		Gross profit	$	78,420		$	18,276		$	(2,327)	$	94,369		$	66,600		$	16,907		$	(7,224)	$	76,283
Gross margin	Gross margin	48.3		%		52.2		%				47.8		%	44.3		%	49.0		%				41.1		%	Gross margin	46.8		%	50.5		%			46.3		%	43.3		%	49.1		%			40.6		%

					Six Months Ended
									June 25, 2022												June 26, 2021
																												Probe Cards			Systems			Corporate and Other		Total			Probe Cards			Systems			Corporate and Other		Total

Gross profit																											Gross profit	$155,622			$	37,683		$	(4,712)	$	188,593		$136,915			$	30,506		$	(14,432)	$	152,989
Gross margin																											Gross margin	47.5		%	51.3		%			47.0		%	43.8		%	49.1		%			40.8		%

Probe Cards

For the three and six months ended ~~March 26,~~June 25, 2022, gross margins increased compared to the three and six months ended ~~March 27,~~June 26, 2021, primarily due to higher revenues and improved standard margins ~~due~~related to ~~change in~~favorable product mix, ~~favorable absorption of costs on higher production volumes, and favorable capitalization,~~ partially offset by higher net manufacturing spending driven by higher material and labor costs, ~~from fluctuations in commodity costs.~~and — for the three month periods — unfavorable absorption of costs despite higher production volumes.

Systems

For the three and six months ended ~~March 26,~~June 25, 2022, gross margins increased compared to the three and six months ended ~~March 27,~~June 26, 2021, primarily as a result of favorable product mix ~~largely related to~~primarily driven by increased sales of metrology ~~systems~~tools at favorable margins, and improved leverage on fixed costs at these higher volumes.

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. The reduction in Corporate and Other for the three and six months ended ~~March 26,~~June 25, 2022 compared to the three and six months ended ~~March 27,~~June 26, 2021 is primarily due to a reduction in the amortization of intangibles resulting from significant intangibles becoming fully ~~amortized.~~amortized, partially offset by increased share-based compensation driven by increases in headcount to support our growth.

Overall

Gross profit and gross margins fluctuate with revenue levels, product mix, selling prices, factory loading and material costs. For the three and six months ended ~~March 26,~~June 25, 2022, compared to the three and six months ended ~~March 27,~~June 26, 2021, gross profit and gross margins have increased on ~~greater~~higher revenue levels, a favorable product mix, and less amortization of intangibles.

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

Three Months Ended
March 26,
2022 March 27,
2021
Stock-based compensation $ 1,078 $ 1,335


	Three Months Ended				Six Months Ended
	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Stock-based compensation	$	734	$	1,079	$	1,812	$	2,414

Research and Development


		Three Months Ended												Three Months Ended
		March 26, 2022				March 27, 2021			$ Change		% Change			June 25, 2022			June 26, 2021			$ Change		% Change

		(Dollars in thousands)												(Dollars in thousands)
Research and development	Research and development	$	27,134			$	24,046		$	3,088	12.8	%	Research and development	$	28,317		$	25,454		$	2,863	11.2	%
% of revenues	% of revenues	13.8		%		12.9		%					% of revenues	13.9		%	13.5		%

					Six Months Ended
														June 25, 2022			June 26, 2021			$ Change		% Change

					(Dollars in thousands)

Research and development													Research and development	$	55,451		$	49,500		$	5,951	12.0	%
% of revenues													% of revenues	13.8		%	13.2		%

The increase in research and development expenses in the three and six months ended ~~March 26,~~June 25, 2022 when compared to the corresponding period in the prior year was primarily driven by an increase in headcount to support ~~current operating levels.~~our continued investment in technology leadership. Increased general operational costs, annual salary adjustments, project material costs, and stock-based compensation also contributed to the increase.

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


	~~Three Months Ended March 26, 2022 compared to Three Months Ended March 27, 2021~~
~~Employee compensation costs~~	$	~~1,606~~
~~Other general operations~~	~~967~~

~~Stock-based compensation~~	~~297~~

~~Project material costs~~	~~218~~
	$	~~3,088~~


	Three Months Ended June 25, 2022 compared to Three Months Ended June 26, 2021		Six Months Ended June 25, 2022 compared to Six Months Ended June 26, 2021
Employee compensation costs	$	1,006	$	2,612
Other general operations	1,421		2,387

Stock-based compensation	32		329

Project material costs	404		623
	$	2,863	$	5,951

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

Three Months Ended
March 26,
2022 March 27,
2021
Stock-based compensation $ 1,986 $ 1,689


	Three Months Ended				Six Months Ended
	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Stock-based compensation	$	1,695	$	1,663	$	3,681	$	3,352

Selling, General and Administrative


		Three Months Ended												Three Months Ended
		March 26, 2022				March 27, 2021			$ Change		% Change			June 25, 2022			June 26, 2021			$ Change		% Change

		(Dollars in thousands)												(Dollars in thousands)
Selling, general and administrative	Selling, general and administrative	$	32,906			$	30,015		$	2,891	9.6	%	Selling, general and administrative	$	33,406		$	30,479		$	2,927	9.6	%
% of revenues	% of revenues	16.7		%		16.1		%					% of revenues	16.4		%	16.2		%

					Six Months Ended
														June 25, 2022			June 26, 2021			$ Change		% Change

					(Dollars in thousands)

Selling, general and administrative													Selling, general and administrative	$	66,312		$	60,494		$	5,818	9.6	%
% of revenues													% of revenues	16.5		%	16.1		%

The increase in selling, general and administrative expenses in the three and six months ended ~~March 26,~~June 25, 2022 when compared to the corresponding period in the prior year was primarily driven by increased headcount, annual salary adjustments, increased travel related costs as restrictions related to COVID-19 relaxed, and higher stock-based compensation. We expect travel costs to continue to return to previous levels assuming travel restrictions continue to ease. These increases were partially offset by lower amortization of intangibles.

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


	~~Three Months Ended March 26, 2022 compared to Three Months Ended March 27, 2021~~
~~Employee compensation costs~~	$	~~1,385~~

~~General operating expenses~~	~~602~~
~~Travel related costs~~	~~656~~
~~Stock-based compensation~~	~~403~~

~~Amortization of intangibles~~	~~(155)~~
	$	~~2,891~~


	Three Months Ended June 25, 2022 compared to Three Months Ended June 26, 2021		Six Months Ended June 25, 2022 compared to Six Months Ended June 26, 2021
Employee compensation costs	$	1,249	$	2,632

General operating expenses	831		1,465
Travel related costs	809		1,436
Stock-based compensation	83		486

Amortization of intangibles	(45)		(201)
	$	2,927	$	5,818

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

Three Months Ended
March 26,
2022 March 27,
2021
Stock-based compensation $ 4,456 $ 4,053


	Three Months Ended				Six Months Ended
	June 25, 2022		June 26, 2021		June 25, 2022		June 26, 2021
Stock-based compensation	$	3,929	$	3,846	$	8,385	$	7,899

Interest Income and Interest Expense

Interest income is earned on our cash, cash equivalents, restricted cash and marketable securities. The ~~decrease~~increase in interest income for the three and six months ended ~~March 26,~~June 25, 2022 compared with the corresponding period of the prior year was attributable to ~~lower~~a slight increase in investment yields due to the ~~low~~higher interest rate environment ~~despite~~on higher invested balances.

Interest expense primarily includes interest on our term loans, interest rate swap derivative contracts, and term loan issuance costs amortization charges. The interest expense for the three and six months ended ~~March 26,~~June 25, 2022 compared to the same period of the prior year ~~increased slightly primarily~~remained consistent despite a lower outstanding debt due to increased average interest rates on the outstanding debt.

Other Income (Expense), Net

Other income (expense), net, primarily includes the effects of foreign currency impact and various other gains and losses.

Provision for Income Taxes


		Three Months Ended							Three Months Ended					Six Months Ended
		March 26, 2022			March 27, 2021						June 25, 2022			June 26, 2021			June 25, 2022			June 26, 2021

		(In thousands, except percentages)						(In thousands, except percentages)
Provision for income taxes	Provision for income taxes	$	4,450		$	3,206				Provision for income taxes	$	3,136		$	2,283		$	7,586		$	5,489
Effective tax rate	Effective tax rate	13.0		%	14.0		%			Effective tax rate	9.4		%	11.3		%	11.2		%	12.8		%

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 our previous net operating loss carryforwards, and expect the FDII deduction and corresponding benefit to be available, resulting in a decrease from the U.S. statutory rate ~~and included in our worldwide effective tax rate~~ for the year ending December 31, 2022.

The decrease in the effective tax rate in the three months ended ~~March 26,~~June 25, 2022 when compared to the corresponding period in the prior year was primarily driven by an increased tax deduction from ~~foreign derived intangible income, offset by a reduction in stock-based compensation tax benefits.~~FDII.

As of January 1, 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and experimental expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years in the U.S. and fifteen years in foreign jurisdictions. 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. If this provision is not deferred, modified, or repealed with retroactive effect to January 1, 2022, we expect our cash taxes to slowly increase over the next few years until we have fully utilized our Federal research and development credits to offset our Federal tax liability to the extent allowed by law.

Liquidity and Capital Resources

Capital Resources

Our working capital was ~~$401.5~~$377.5 million at ~~March 26,~~June 25, 2022, compared to $375.3 million at December 25, 2021.

Cash and cash equivalents primarily consist of deposits held at banks, money market funds, U.S. treasuries and commercial paper. Marketable securities primarily consist of U.S. treasuries, corporate bonds, and commercial paper. 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 ~~$296.4~~$266.3 million at ~~March 26,~~June 25, 2022, compared to $276.1 million at December 25, 2021. 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.

If we are unsuccessful in maintaining or growing our revenues, maintaining or reducing our cost structure (in response to a potential reduction in demand due to an industry downturn, COVID-19, ~~developments related to Ukraine and Russia,~~ or other event), 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
		March 26, 2022		March 27, 2021			June 25, 2022		June 26, 2021

		(In thousands)					(In thousands)
Net cash provided by operating activities	Net cash provided by operating activities	$	44,155	$	32,356	Net cash provided by operating activities	$	86,801	$	66,155
Net cash used in investing activities	Net cash used in investing activities	$	(21,078)	$	(39,922)	Net cash used in investing activities	$	(41,111)	$	(59,813)
Net cash used in financing activities	Net cash used in financing activities	$	(6,016)	$	(3,768)	Net cash used in financing activities	$	(57,263)	$	(31,916)

Operating Activities

Net cash provided by operating activities for the ~~three~~six months ended ~~March 26,~~June 25, 2022 was primarily attributable to net income of ~~$29.9~~$60.1 million and net non-cash expenses of ~~$22.0~~$42.0 million, which includes depreciation, amortization, stock-based compensation, and the provision for excess and obsolete inventories. These inflows were partially offset by net changes in working capital of ~~$7.7~~$15.3 million, primarily related to cash paid for inventories of ~~$17.1~~$32.3 million, partially offset by cash provided by an increase in accounts payable of $7.5 million, an increase in accrued liabilities for ~~$10.2~~$4.1 million, and a reduction in accounts receivable of $5.5 million.

Investing Activities

Net cash used in investing activities for the ~~three~~six months ended ~~March 26,~~June 25, 2022 was primarily related to ~~$15.6~~$30.1 million property, plant and equipment ~~acquisitions and $5.5~~purchases, $6.9 million net cash used to purchase marketable ~~securities.~~securities, and $3.1 million for acquisition of a business.

Financing Activities

Net cash used in financing activities for the ~~three~~six months ended ~~March 26,~~June 25, 2022 primarily related to ~~$9.4~~$54.3 million used to purchase common stock under our stock repurchase ~~program and $2.2~~programs, $4.4 million of principal payments made towards the repayment of our term loans, and $4.2 million related to tax withholdings associated with the net share settlements of our equity awards, partially offset by $5.7 million of proceeds received from issuances of common stock under our employee stock purchase ~~plan and stock option plans.~~plan.

Debt

FRT Term Loan

On October 25, 2019, we entered into a $23.4 million three-year credit facility loan agreement (the “FRT Term Loan”), to fund the acquisition of FRT GmbH, which we acquired on October 9, 2019.

The FRT Term Loan bears interest at a rate equal to the Euro Interbank Offered Rate (“EURIBOR”) plus 1.75% per annum and will be repaid in quarterly installments of approximately ~~$2.0~~$1.8 million plus interest. The interest rate at ~~March 26,~~June 25, 2022 was ~~1.20%~~1.29%. As of ~~March 26,~~June 25, 2022, the balance outstanding pursuant to the FRT term loan was ~~$5.8~~$3.7 million. The FRT Term Loan is expected to be fully paid as of October 25, 2022.

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.

The Building Term Loan bears interest at a rate equal to the applicable LIBOR rate plus 1.75% per annum. Interest payments are payable in monthly installments over a fifteen-year period. The interest rate at ~~March 26,~~June 25, 2022 was ~~1.98%~~2.81%. As of ~~March 26,~~June 25, 2022, the balance outstanding pursuant to the Building Term Loan was ~~$16.3~~$16.0 million.

On March 17, 2020, we entered into a forward starting interest rate swap agreement to hedge the interest payments 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 interest rate ~~interest at~~of one-month LIBOR plus 1.75% into a fixed interest rate ~~interest at~~of 2.75%. As of ~~March 26,~~June 25, 2022, the notional amount of the loan that is subject to this interest rate swap is ~~$16.3~~$16.0 million.

Stock Repurchase ~~Program~~Programs

InOn October 26, 2020, our Board of Directors authorized a two-year program to repurchase up to ~~$50.0~~$50 million of outstanding common stock to offset potential dilution from issuances of common stock under our stock-based compensation ~~plans. The share repurchase program will expire on October 28, 2022.~~programs. During ~~the three months ended March 26, 2022, we repurchased 240,548 shares of common stock for $9.4 million. During~~fiscal 2021 we repurchased and retired 622,400 shares of common stock for $24.0 million. During the six months ended June 25, 2022, we repurchased and retired 676,408 shares of common stock for $26.0 million, utilizing the remaining funds available for repurchase.

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 months ended June 25, 2022, we repurchased and retired 767,083 shares of common stock for $28.4 million under this program. As of ~~March 26,~~June 25, 2022, ~~$16.6~~$46.6 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 ~~March 26,~~June 25, 2022:


		Payments Due In Fiscal Year															Payments Due In Fiscal Year
		Remainder 2022		2023		2024		2025		2026		Thereafter		Total			Remainder 2022		2023		2024		2025		2026		Thereafter		Total
Operating leases	Operating leases	$	6,589	$	7,680	$	7,317	$	7,270	$	6,532	$	9,195	$	44,583	Operating leases	$	4,319	$	7,564	$	7,224	$	7,187	$	6,505	$	9,143	$	41,942
Term loans - principal payments	Term loans - principal payments	6,535		1,050		1,080		1,111		1,142		11,116		22,034		Term loans - principal payments	4,208		1,050		1,080		1,111		1,142		11,116		19,707
Term loans - interest payments (1)	Term loans - interest payments (1)	276		302		282		258		236		996		2,350		Term loans - interest payments (1)	244		428		400		366		335		1,415		3,188
Total	Total	$	13,400	$	9,032	$	8,679	$	8,639	$	7,910	$	21,307	$	68,967	Total	$	8,771	$	9,042	$	8,704	$	8,664	$	7,982	$	21,674	$	64,837

(1) Represents our minimum interest payment commitments at ~~1.98%~~2.81% per annum for the Building Term Loan and ~~1.20%~~1.29% per annum for the FRT Term Loan. This also 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 ~~March 26,~~June 25, 2022, we were not involved in any such off-balance sheet arrangements.

Recent Accounting Pronouncements

See Note 1, Basis of Presentation and New Accounting Pronouncements, of Notes to Condensed Consolidated Financial Statements.

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 25, 2021. Our exposure to market risk has not changed materially since December 25, 2021.

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 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 ~~March 26,~~June 25, 2022 to the risk factors discussed in our Annual Report on Form 10-K for the year ended December 25, 2021. 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 25, 2021 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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Repurchase of Common Stock

The following table summarizes our repurchases of outstanding common stock for the three months ended ~~March 26,~~June 25, 2022:

Period (fiscal months) Total Number of Shares Purchased Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)
Maximum Amount that May Yet Be Purchased Under the Plans or Programs
December 26, 2021 - January 22, 2022 — $ — — $ 25,962,818
January 23, 2022 - February 19, 2022 98,000 39.94 98,000 22,049,181
February 20, 2022 - March 26, 2022 142,548 38.47 142,548 16,565,655
240,548 $ 39.07 240,548


Period (fiscal months)	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)	Maximum Amount that May Yet Be Purchased Under the Plans or Programs
March 27, 2022 - April 23, 2022	76,052	$	35.93	76,052	$	13,833,084
April 24, 2022 - May 21, 2022	242,975	37.49		242,975	4,723,942
May 22, 2022 - June 25, 2022	883,916	37.43		883,916	46,634,889
	1,202,943	$	37.35	1,202,943

1 In ~~October 2020,~~May, our Board of Directors authorized a program to repurchase up to ~~$50.0~~$75.0 million of outstanding common stock to offset potential dilution from issuances of our common stock under our employee stock purchase plan and equity incentive plan. This authorization is in addition to the program authorized to repurchase up to $50.0 million of outstanding common stock that expires October 28, 2022. Under the authorized stock repurchase ~~program,~~programs, we may repurchase shares from time to time on the open market. The pace of repurchase activity will depend on levels of cash generation, current stock price and other factors. The ~~program~~programs may be modified or discontinued at any time. ~~The~~This new share repurchase program will expire ~~on October 28, 2022.~~May 20, 2024.

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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

Exhibit

Incorporated by Reference

Filed

Number

Exhibit Description

Form

Date

Number

Herewith

Number

Exhibit Description

Form

Date

Number

Herewith

3.1

Amended and Restated Certificate of Incorporation of the Registrant as filed with the Delaware Secretary of State on June 17, 2003

S-1

October 20, 2003

3.01

3.1

Certificate of Amendment of Amended and Restated Certificate of Incorporation of FormFactor, Inc.

8-K

June 3, 2022

3.01

3.2

Amended and Restated Bylaws of the Registrant

8-K

July 22, 2016

3.2

Restated Certificate of Incorporation of FormFactor, Inc.

8-K

June 3, 2022

3.02

3.3

Amended and Restated By-laws of FormFactor, Inc.

8-K

June 3, 2022

3.03

10.1

First Amendment to FormFactor, Inc. Employee Stock Purchase Plan

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

31.01

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

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

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 March 26, 2022, 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

The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 25, 2022, 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.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation 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 March 26, 2022, formatted in Inline XBRL (included as Exhibit 101)

104

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 25, 2022, 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 3,~~August 2, 2022	By:	/s/ SHAI SHAHAR

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

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