UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 SeptemberMarch 27, 20192020
OR
☐ | 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: 001‑37961
ICHOR HOLDINGS, LTD.
(Exact Name of Registrant as Specified in its Charter)
Cayman Islands | Not Applicable |
( State or other jurisdiction of incorporation or organization) | (I.R.S. Employer |
3185 Laurelview Ct. Fremont, CA | 94538 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (510) 897‑5200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Ordinary Shares, par value $0.0001 | ICHR | The NASDAQ Stock Market LLC |
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 has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of 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.
Large accelerated filer |
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| Accelerated filer |
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Non‑accelerated filer |
| ☐ |
| Small reporting company |
| ☐ |
Emerging Growth Company |
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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 ☒
Securities registered pursuant to Section 12(b) of the Act:
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As of NovemberMay 1, 2019,2020, the registrant had 22,494,76322,808,456 ordinary shares, $0.0001 par value per share, outstanding.
PART I |
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ITEM 1. | 1 | |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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ITEM 3. |
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ITEM 4. |
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PART II |
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ITEM 1. |
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ITEM 1A. |
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ITEM 2. |
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ITEM 3. |
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ITEM 4. |
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ITEM 5. |
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ITEM 6. |
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ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ICHOR HOLDINGS, LTD.
(dollars in thousands, except per share amounts)
|
| September 27, 2019 |
|
| December 28, 2018 |
|
| March 27, 2020 |
|
| December 27, 2019 |
| ||||
Assets |
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|
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|
|
|
|
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Current assets: |
|
|
|
|
|
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|
|
|
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|
|
|
|
|
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Cash |
| $ | 30,175 |
|
| $ | 43,834 |
|
| $ | 41,583 |
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| $ | 60,612 |
|
Accounts receivable, net |
|
| 77,140 |
|
|
| 40,287 |
|
|
| 87,573 |
|
|
| 84,849 |
|
Inventories, net |
|
| 105,822 |
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|
| 121,106 |
|
|
| 143,721 |
|
|
| 127,037 |
|
Prepaid expenses and other current assets |
|
| 5,085 |
|
|
| 6,348 |
|
|
| 6,868 |
|
|
| 4,449 |
|
Total current assets |
|
| 218,222 |
|
|
| 211,575 |
|
|
| 279,745 |
|
|
| 276,947 |
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Property and equipment, net |
|
| 43,056 |
|
|
| 41,740 |
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|
| 44,486 |
|
|
| 44,541 |
|
Operating lease right-of-use assets |
|
| 14,913 |
|
|
| — |
|
|
| 12,985 |
|
|
| 14,198 |
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Other noncurrent assets |
|
| 935 |
|
|
| 906 |
|
|
| 1,084 |
|
|
| 1,094 |
|
Deferred tax assets, net |
|
| 1,363 |
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|
| 1,363 |
|
|
| 4,016 |
|
|
| 4,738 |
|
Intangible assets, net |
|
| 55,367 |
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|
| 56,895 |
|
|
| 48,693 |
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|
| 52,027 |
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Goodwill |
|
| 173,010 |
|
|
| 173,010 |
|
|
| 173,010 |
|
|
| 173,010 |
|
Total assets |
| $ | 506,866 |
|
| $ | 485,489 |
|
| $ | 564,019 |
|
| $ | 566,555 |
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Liabilities and Shareholders’ Equity |
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Current liabilities: |
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Accounts payable |
| $ | 86,963 |
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| $ | 64,300 |
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| $ | 119,076 |
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| $ | 131,578 |
|
Accrued liabilities |
|
| 10,123 |
|
|
| 9,556 |
|
|
| 12,071 |
|
|
| 12,814 |
|
Other current liabilities |
|
| 3,875 |
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|
| 5,148 |
|
|
| 6,108 |
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|
| 5,233 |
|
Current portion of long-term debt |
|
| 8,750 |
|
|
| 8,750 |
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|
| 8,750 |
|
|
| 8,750 |
|
Current portion of lease liabilities |
|
| 5,291 |
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|
| — |
|
|
| 5,432 |
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|
| 5,492 |
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Total current liabilities |
|
| 115,002 |
|
|
| 87,754 |
|
|
| 151,437 |
|
|
| 163,867 |
|
Long-term debt, less current portion, net |
|
| 169,250 |
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|
| 192,117 |
|
|
| 172,359 |
|
|
| 169,304 |
|
Lease liabilities, less current portion |
|
| 10,020 |
|
|
| — |
|
|
| 7,962 |
|
|
| 9,081 |
|
Deferred tax liabilities |
|
| 3,097 |
|
|
| 3,966 |
|
|
| 210 |
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|
| 210 |
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Other non-current liabilities |
|
| 2,307 |
|
|
| 3,326 |
|
|
| 2,531 |
|
|
| 2,677 |
|
Total liabilities |
|
| 299,676 |
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|
| 287,163 |
|
|
| 334,499 |
|
|
| 345,139 |
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Shareholders’ equity: |
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Preferred shares ($0.0001 par value; 20,000,000 shares authorized; zero shares issued and outstanding) |
|
| — |
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|
| — |
|
|
| — |
|
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| — |
|
Ordinary shares ($0.0001 par value; 200,000,000 shares authorized; 22,482,403 and 22,234,508 shares outstanding, respectively; 26,919,842 and 26,574,037 shares issued, respectively) |
|
| 2 |
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|
| 2 |
| ||||||||
Ordinary shares ($0.0001 par value; 200,000,000 shares authorized; 22,806,679 and 22,618,708 shares outstanding, respectively; 27,244,118 and 27,056,147 shares issued, respectively) |
|
| 2 |
|
|
| 2 |
| ||||||||
Additional paid in capital |
|
| 236,044 |
|
|
| 228,358 |
|
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| 247,023 |
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| 242,318 |
|
Treasury shares at cost (4,437,439 and 4,339,529 shares, respectively) |
|
| (91,578 | ) |
|
| (89,979 | ) | ||||||||
Treasury shares at cost (4,437,439 and 4,437,439 shares, respectively) |
|
| (91,578 | ) |
|
| (91,578 | ) | ||||||||
Retained earnings |
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| 62,722 |
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| 59,945 |
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| 74,073 |
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| 70,674 |
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Total shareholders’ equity |
|
| 207,190 |
|
|
| 198,326 |
|
|
| 229,520 |
|
|
| 221,416 |
|
Total liabilities and shareholders’ equity |
| $ | 506,866 |
|
| $ | 485,489 |
|
| $ | 564,019 |
|
| $ | 566,555 |
|
See accompanying notes.
1
Consolidated Statements of Operations
(dollars in thousands, except per share amounts)
| Three Months Ended |
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| Nine Months Ended |
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| Three Months Ended |
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|
| September 27, 2019 |
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| September 28, 2018 |
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| September 27, 2019 |
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| September 28, 2018 |
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| March 27, 2020 |
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| March 29, 2019 |
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Net sales |
| $ | 154,456 |
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| $ | 175,207 |
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| $ | 431,482 |
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| $ | 682,209 |
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| $ | 220,028 |
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| $ | 137,831 |
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Cost of sales |
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| 133,763 |
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| 146,993 |
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| 371,033 |
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| 567,521 |
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| 191,254 |
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|
| 117,608 |
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Gross profit |
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| 20,693 |
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| 28,214 |
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| 60,449 |
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| 114,688 |
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| 28,774 |
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|
| 20,223 |
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Operating expenses: |
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Research and development |
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| 2,987 |
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| 2,123 |
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| 8,012 |
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|
| 7,152 |
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| 3,322 |
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|
| 2,391 |
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Selling, general, and administrative |
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| 11,048 |
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| 10,658 |
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| 33,491 |
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| 38,016 |
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|
| 16,618 |
|
|
| 11,758 |
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Amortization of intangible assets |
|
| 3,336 |
|
|
| 3,885 |
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|
| 9,675 |
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|
| 11,536 |
|
|
| 3,334 |
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|
| 3,137 |
|
Total operating expenses |
|
| 17,371 |
|
|
| 16,666 |
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|
| 51,178 |
|
|
| 56,704 |
|
|
| 23,274 |
|
|
| 17,286 |
|
Operating income |
|
| 3,322 |
|
|
| 11,548 |
|
|
| 9,271 |
|
|
| 57,984 |
|
|
| 5,500 |
|
|
| 2,937 |
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Interest expense |
|
| 2,663 |
|
|
| 2,553 |
|
|
| 8,193 |
|
|
| 7,360 |
|
|
| 2,374 |
|
|
| 2,768 |
|
Other income, net |
|
| (43 | ) |
|
| (84 | ) |
|
| (12 | ) |
|
| (60 | ) | ||||||||
Other expense (income), net |
|
| (31 | ) |
|
| 24 |
| ||||||||||||||||
Income before income taxes |
|
| 702 |
|
|
| 9,079 |
|
|
| 1,090 |
|
|
| 50,684 |
|
|
| 3,157 |
|
|
| 145 |
|
Income tax benefit |
|
| (221 | ) |
|
| (558 | ) |
|
| (1,687 | ) |
|
| (3,714 | ) |
|
| (242 | ) |
|
| (1,373 | ) |
Net income |
| $ | 923 |
|
| $ | 9,637 |
|
|
| 2,777 | �� |
|
| 54,398 |
|
|
| 3,399 |
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|
| 1,518 |
|
Net income per share: |
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Basic |
| $ | 0.04 |
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| $ | 0.40 |
|
| $ | 0.12 |
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| $ | 2.15 |
|
| $ | 0.15 |
|
| $ | 0.07 |
|
Diluted |
| $ | 0.04 |
|
| $ | 0.39 |
|
| $ | 0.12 |
|
| $ | 2.11 |
|
| $ | 0.15 |
|
| $ | 0.07 |
|
Shares used to compute net income per share: |
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Basic |
|
| 22,454,408 |
|
|
| 24,352,995 |
|
|
| 22,373,181 |
|
|
| 25,352,489 |
|
|
| 22,737,163 |
|
|
| 22,269,827 |
|
Diluted |
|
| 22,718,882 |
|
|
| 24,674,912 |
|
|
| 22,629,855 |
|
|
| 25,840,494 |
|
|
| 23,181,127 |
|
|
| 22,536,209 |
|
See accompanying notes.
2
Consolidated Statements of Shareholders’ Equity
(dollars in thousands)
|
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| Additional |
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| Treasury |
|
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|
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| Total |
|
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|
|
|
|
|
|
|
| Additional |
|
| Treasury |
|
|
|
|
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| Total |
| ||||||||||||||
For the three months ending September 27, 2019 |
| Ordinary Shares |
|
| Paid-In |
|
| Shares |
|
| Retained |
|
| Shareholders' |
| |||||||||||||||||||||||||||||||||||||||||
For the three months ending March 27, 2020 |
| Ordinary Shares |
|
| Paid-In |
|
| Shares |
|
| Retained |
|
| Shareholders' |
| |||||||||||||||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Shares |
|
| Amount |
|
| Earnings |
|
| Equity |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Shares |
|
| Amount |
|
| Earnings |
|
| Equity |
| ||||||||||||||
Balance at June 28, 2019 |
|
| 22,414,089 |
|
| $ | 2 |
|
| $ | 233,508 |
|
|
| 4,437,439 |
|
| $ | (91,578 | ) |
| $ | 61,799 |
|
| $ | 203,731 |
| ||||||||||||||||||||||||||||
Balance at December 27, 2019 |
|
| 22,618,708 |
|
| $ | 2 |
|
| $ | 242,318 |
|
|
| 4,437,439 |
|
| $ | (91,578 | ) |
| $ | 70,674 |
|
| $ | 221,416 |
| ||||||||||||||||||||||||||||
Ordinary shares issued from exercise of stock options |
|
| 33,421 |
|
|
| — |
|
|
| 433 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 433 |
|
|
| 113,539 |
|
|
| — |
|
|
| 2,483 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,483 |
|
Ordinary shares issued from vesting of restricted share units |
|
| 9,749 |
|
|
| — |
|
|
| (48 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (48 | ) |
|
| 57,912 |
|
|
| — |
|
|
| (993 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (993 | ) |
Ordinary shares issued from employee share purchase plan |
|
| 25,144 |
|
|
| — |
|
|
| 359 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 359 |
|
|
| 16,520 |
|
|
| — |
|
|
| 350 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 350 |
|
Repurchase of ordinary shares |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||||||
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| 1,792 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,792 |
|
|
| — |
|
|
| — |
|
|
| 2,865 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,865 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 923 |
|
|
| 923 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,399 |
|
|
| 3,399 |
|
Balance at September 27, 2019 |
|
| 22,482,403 |
|
| $ | 2 |
|
| $ | 236,044 |
|
|
| 4,437,439 |
|
| $ | (91,578 | ) |
| $ | 62,722 |
|
| $ | 207,190 |
| ||||||||||||||||||||||||||||
Balance at March 27, 2020 |
|
| 22,806,679 |
|
| $ | 2 |
|
| $ | 247,023 |
|
|
| 4,437,439 |
|
| $ | (91,578 | ) |
| $ | 74,073 |
|
| $ | 229,520 |
|
|
|
|
|
|
|
|
|
|
| Additional |
|
| Treasury |
|
|
|
|
|
| Total |
|
|
|
|
|
|
|
|
|
| Additional |
|
| Treasury |
|
|
|
|
|
| Total |
| ||||||||||||||
For the nine months ending September 27, 2019 |
| Ordinary Shares |
|
| Paid-In |
|
| Shares |
|
| Retained |
|
| Shareholders' |
| |||||||||||||||||||||||||||||||||||||||||
For the three months ending March 29, 2019 |
| Ordinary Shares |
|
| Paid-In |
|
| Shares |
|
| Retained |
|
| Shareholders' |
| |||||||||||||||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Shares |
|
| Amount |
|
| Earnings |
|
| Equity |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Shares |
|
| Amount |
|
| Earnings |
|
| Equity |
| ||||||||||||||
Balance at December 28, 2018 |
|
| 22,234,508 |
|
| $ | 2 |
|
| $ | 228,358 |
|
|
| 4,339,529 |
|
| $ | (89,979 | ) |
| $ | 59,945 |
|
| $ | 198,326 |
|
|
| 22,234,508 |
|
| $ | 2 |
|
| $ | 228,358 |
|
|
| 4,339,529 |
|
| $ | (89,979 | ) |
| $ | 59,945 |
|
| $ | 198,326 |
|
Ordinary shares issued from exercise of stock options |
|
| 238,121 |
|
|
| — |
|
|
| 2,640 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,640 |
|
|
| 186,915 |
|
|
| — |
|
|
| 1,904 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,904 |
|
Ordinary shares issued from vesting of restricted share units |
|
| 60,039 |
|
|
| — |
|
|
| (222 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (222 | ) |
|
| 24,115 |
|
|
| — |
|
|
| (111 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (111 | ) |
Ordinary shares issued from employee share purchase plan |
|
| 47,645 |
|
|
| — |
|
|
| 671 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 671 |
|
|
| 22,501 |
|
|
| — |
|
|
| 312 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 312 |
|
Repurchase of ordinary shares |
|
| (97,910 | ) |
|
| — |
|
|
| — |
|
|
| 97,910 |
|
|
| (1,599 | ) |
|
| — |
|
|
| (1,599 | ) |
|
| (97,910 | ) |
|
| — |
|
|
| — |
|
|
| 97,910 |
|
|
| (1,599 | ) |
|
| — |
|
|
| (1,599 | ) |
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| 4,597 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,597 |
|
|
| — |
|
|
| — |
|
|
| 1,330 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,330 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,777 |
|
|
| 2,777 |
|
|
| — |
| �� |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,518 |
|
|
| 1,518 |
|
Balance at September 27, 2019 |
|
| 22,482,403 |
|
| $ | 2 |
|
| $ | 236,044 |
|
|
| 4,437,439 |
|
| $ | (91,578 | ) |
| $ | 62,722 |
|
| $ | 207,190 |
| ||||||||||||||||||||||||||||
Balance at March 29, 2019 |
|
| 22,370,129 |
|
| $ | 2 |
|
| $ | 231,793 |
|
|
| 4,437,439 |
|
| $ | (91,578 | ) |
| $ | 61,463 |
|
| $ | 201,680 |
|
See accompanying notes.
3
Consolidated Statements of Shareholders’ Equity (continued)
(dollars in thousands)
|
|
|
|
|
|
|
|
|
| Additional |
|
| Treasury |
|
|
|
|
|
| Total |
| |||||||
For the three months ending September 28, 2018 |
| Ordinary Shares |
|
| Paid-In |
|
| Shares |
|
| Retained |
|
| Shareholders' |
| |||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Shares |
|
| Amount |
|
| Earnings |
|
| Equity |
| |||||||
Balance at June 29, 2018 |
|
| 25,268,836 |
|
| $ | 3 |
|
| $ | 225,363 |
|
|
| 1,257,605 |
|
| $ | (29,970 | ) |
| $ | 46,823 |
|
| $ | 242,219 |
|
Ordinary shares issued from exercise of stock options |
|
| 10,930 |
|
|
| — |
|
|
| 151 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 151 |
|
Ordinary shares issued from vesting of restricted share units |
|
| 7,246 |
|
|
| — |
|
|
| (43 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (43 | ) |
Ordinary shares issued from employee share purchase plan |
|
| 18,596 |
|
|
| — |
|
|
| 337 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 337 |
|
Repurchase of ordinary shares |
|
| (1,424,359 | ) |
|
| (1 | ) |
|
| — |
|
|
| 1,424,359 |
|
|
| (30,347 | ) |
|
| — |
|
|
| (30,348 | ) |
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| 1,271 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,271 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,637 |
|
|
| 9,637 |
|
Balance at September 28, 2018 |
|
| 23,881,249 |
|
| $ | 2 |
|
| $ | 227,079 |
|
|
| 2,681,964 |
|
| $ | (60,317 | ) |
| $ | 56,460 |
|
| $ | 223,224 |
|
|
|
|
|
|
|
|
|
|
| Additional |
|
| Treasury |
|
|
|
|
|
| Total |
| |||||||
For the nine months ending September 28, 2018 |
| Ordinary Shares |
|
| Paid-In |
|
| Shares |
|
| Retained |
|
| Shareholders' |
| |||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Shares |
|
| Amount |
|
| Earnings |
|
| Equity |
| |||||||
Balance at December 29, 2017 |
|
| 25,892,162 |
|
| $ | 3 |
|
| $ | 214,697 |
|
|
| — |
|
| $ | — |
|
| $ | 2,062 |
|
| $ | 216,762 |
|
Ordinary shares issued from exercise of stock options |
|
| 573,162 |
|
|
| — |
|
|
| 5,661 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,661 |
|
Ordinary shares issued from vesting of restricted share units |
|
| 68,512 |
|
|
| — |
|
|
| (70 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (70 | ) |
Ordinary shares issued from employee share purchase plan |
|
| 29,377 |
|
|
| — |
|
|
| 514 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 514 |
|
Repurchase of ordinary shares |
|
| (2,681,964 | ) |
|
| (1 | ) |
|
| — |
|
|
| 2,681,964 |
|
|
| (60,317 | ) |
|
| — |
|
|
| (60,318 | ) |
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| 6,277 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,277 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 54,398 |
|
|
| 54,398 |
|
Balance at September 28, 2018 |
|
| 23,881,249 |
|
| $ | 2 |
|
| $ | 227,079 |
|
|
| 2,681,964 |
|
| $ | (60,317 | ) |
| $ | 56,460 |
|
| $ | 223,224 |
|
See accompanying notes.
4
Consolidated Statements of Cash Flows
(in thousands)
|
| Nine Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| March 27, 2020 |
|
| March 29, 2019 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 2,777 |
|
| $ | 54,398 |
|
| $ | 3,399 |
|
| $ | 1,518 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
| ||||||||
Adjustments to reconcile net income to net cash used in operating activities: |
|
|
|
|
|
|
|
| ||||||||
Depreciation and amortization |
|
| 15,957 |
|
|
| 17,405 |
|
|
| 5,737 |
|
|
| 5,210 |
|
Share-based compensation |
|
| 4,597 |
|
|
| 6,277 |
|
|
| 2,865 |
|
|
| 1,330 |
|
Deferred income taxes |
|
| (869 | ) |
|
| (6,246 | ) |
|
| 722 |
|
|
| 3 |
|
Amortization of debt issuance costs |
|
| 696 |
|
|
| 731 |
|
|
| 243 |
|
|
| 212 |
|
Changes in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
| (36,853 | ) |
|
| (14,646 | ) |
|
| (2,724 | ) |
|
| (13,610 | ) |
Inventories, net |
|
| 15,284 |
|
|
| 22,569 |
|
|
| (16,684 | ) |
|
| 6,935 |
|
Prepaid expenses and other assets |
|
| 3,492 |
|
|
| 1,336 |
|
|
| (868 | ) |
|
| 1,357 |
|
Accounts payable |
|
| 23,413 |
|
|
| (48,104 | ) |
|
| (12,380 | ) |
|
| 895 |
|
Accrued liabilities |
|
| 661 |
|
|
| (3,711 | ) |
|
| (568 | ) |
|
| (1,994 | ) |
Other liabilities |
|
| (4,152 | ) |
|
| (2,639 | ) |
|
| (778 | ) |
|
| (2,279 | ) |
Net cash provided by operating activities |
|
| 25,003 |
|
|
| 27,370 |
| ||||||||
Net cash used in operating activities |
|
| (21,036 | ) |
|
| (423 | ) | ||||||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (8,348 | ) |
|
| (11,385 | ) |
|
| (2,470 | ) |
|
| (4,782 | ) |
Cash paid for acquisitions, net of cash acquired |
|
| — |
|
|
| (1,443 | ) | ||||||||
Cash paid for intangible assets |
|
| (8,147 | ) |
|
| — |
| ||||||||
Net cash used in investing activities |
|
| (16,495 | ) |
|
| (12,828 | ) |
|
| (2,470 | ) |
|
| (4,782 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of ordinary shares under share-based compensation plans |
|
| 3,217 |
|
|
| 6,215 |
|
|
| 2,658 |
|
|
| 2,067 |
|
Employees' taxes paid upon vesting of restricted share units |
|
| (222 | ) |
|
| (70 | ) |
|
| (993 | ) |
|
| (111 | ) |
Repurchase of ordinary shares |
|
| (1,599 | ) |
|
| (60,318 | ) |
|
| — |
|
|
| (1,599 | ) |
Debt issuance and modification costs |
|
| — |
|
|
| (2,092 | ) | ||||||||
Borrowings on revolving credit facility |
|
| 5,000 |
|
|
| 17,162 |
|
|
| 5,000 |
|
|
| 5,000 |
|
Repayments on revolving credit facility |
|
| (22,000 | ) |
|
| (5,000 | ) |
|
| — |
|
|
| (8,000 | ) |
Repayments on term loan |
|
| (6,563 | ) |
|
| (6,722 | ) |
|
| (2,188 | ) |
|
| (4,375 | ) |
Net cash used in financing activities |
|
| (22,167 | ) |
|
| (50,825 | ) | ||||||||
Net cash provided by (used in) financing activities |
|
| 4,477 |
|
|
| (7,018 | ) | ||||||||
Net decrease in cash |
|
| (13,659 | ) |
|
| (36,283 | ) |
|
| (19,029 | ) |
|
| (12,223 | ) |
Cash at beginning of year |
|
| 43,834 |
|
|
| 69,304 |
| ||||||||
Cash at end of quarter |
| $ | 30,175 |
|
| $ | 33,021 |
| ||||||||
Cash at beginning of period |
|
| 60,612 |
|
|
| 43,834 |
| ||||||||
Cash at end of period |
| $ | 41,583 |
|
| $ | 31,611 |
| ||||||||
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest |
| $ | 6,115 |
|
| $ | 5,987 |
|
| $ | 2,136 |
|
| $ | 3,255 |
|
Cash paid during the period for taxes |
| $ | 1,961 |
|
| $ | 2,166 |
| ||||||||
Cash paid during the period for taxes, net of refunds |
| $ | 34 |
|
| $ | 107 |
| ||||||||
Supplemental disclosures of non-cash activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures included in accounts payable |
| $ | 712 |
|
| $ | 790 |
|
| $ | 652 |
|
| $ | 958 |
|
Right-of-use assets obtained in exchange for new operating lease liabilities |
| $ | 328 |
|
| $ | — |
|
See accompanying notes.
Notes to Consolidated Financial Statements (Unaudited)
(dollar figures in tables in thousands, except per share amounts)
Note 1 – Basis of Presentation and Selected Significant Accounting Policies
Basis of Presentation
These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”). All intercompany balances and transactions have been eliminated upon consolidation. All dollar figures presented in tables in the notes to consolidated financial statements are in thousands, except per share amounts.
Year End
We use a 5252- or 53 week53-week fiscal year ending on the last Friday in December. The three months ended SeptemberMarch 27, 20192020 and September 28, 2018March 29, 2019 were both 13 weeks. References to the thirdfirst quarter of 20192020 and 20182019 refer to the three monththree-month periods then ended. References to fiscal year 20192020 refer to our fiscal year ending December 27, 2019.25, 2020.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods presented. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results could differ from the estimates made by management. Significant estimates include the fair value of assets and liabilities acquired in acquisitions, estimated useful lives for long‑lived assets, allowance for doubtful accounts, inventory valuation, uncertain tax positions, fair value assigned to stock options granted, and impairment analysis for both definite‑lived intangible assets and goodwill.
Revenue Recognition
We recognize revenue when control of promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. This amount is recorded as net sales in our consolidated statements of operations.
Transaction price – In most of our contracts, prices are generally determined by a customer-issued purchase order and generally remain fixed over the duration of the contract. Certain contracts contain variable consideration, including early-payment discounts and rebates. When a contract includes variable consideration, we evaluate the estimate of the variable consideration to determine whether the estimate needs to be constrained; therefore, we include the variable consideration in the transaction price only to the extent that it is probable that a significant reversal will not occur. Variable consideration estimates are updated at each reporting date. Historically, we have not incurred significant costs to obtain a contract. All amounts billed to a customer relating to shipping and handling are classified as net sales, while all costs incurred by us for shipping and handling are classified as cost of sales.
Performance obligations – Substantially all of our performance obligations pertain to promised goods (“products”), which are primarily comprised of fluid delivery subsystems, weldments, and other components. Most of our contracts contain a single performance obligation and are generally completed within twelve months. Product sales are recognized at a point-in-time, generally upon delivery, as such term is defined within the contract, as that is when control of the promised good has transferred. Products are covered by a standard assurance warranty, generally extended for a period of one to two years depending on the customer, which promises that delivered products conform to contract specifications. As such, we account for such warranties under ASC 460, Guarantees, and not as a separate performance obligation.
Contract balances – Accounts receivable represents our unconditional right to receive consideration from our customers. Accounts receivable are carried at invoice price less an estimate for doubtful accounts and estimated payment discounts. Payment terms vary by customer but are generally due within 15‑60 days. Historically, we have not incurred significant payment issues with our customers. We had no significant contract assets or liabilities on our consolidated balance sheets in any of the periods presented.
We are periodically involved in legal actions and claims that arise as a result of events that occur in the normal course of operations. The ultimate resolution of these actions is not expected to have a material adverse effect on our financial position or results of operations. Subsequent to the end of the first quarter, but before these financial statements were issued, we reached a mutual settlement with the counterparty of a contract dispute and, accordingly, recorded a $1.4 million contract settlement loss to cost of sales, as the settlement provided evidence relating to a loss that existed at March 27, 2020.
Accounting Pronouncements Recently Adopted
In FebruaryJune 2016, the FASB issued ASU 2016‑02,13, LeasesFinancial Instruments–Credit Losses (Topic 842)326): Measurement of Credit Losses on Financial Instruments, which consists of a comprehensive lease accounting standard. Under. This standard changes the new standard, assets and liabilities arising from most leases will be recognizedmethodology for measuring credit losses on the balance sheet. Leases will be classified as either operating or financing,financial instruments and the lease classification will determine whether expense is recognized on a straight-line basis (operating leases) or based on an effective interest method (financing leases). The standard also contains expanded disclosure requirements regarding the amounts, timing and uncertainties of cash flows related to leasing activities.
The new standard is effective for interim and annual periods beginning after December 15, 2018. In July 2018, the FASB issued ASU 2018‑11,when such losses are recorded. Leases (Topic 842): Targeted Improvements, which provides an optional transition method allowing entities to initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We adopted and applied the lease standard as of December 29, 2018,on the first day of fiscal year 2019, using this optional transition method.
The new standard provides a numberthe first quarter of practical expedients in transition. We elected the package of practical expedients, which permits us not to reassess our prior conclusions about lease identification, lease classification, and initial direct costs. We elected to not recognize short-term leases, those with an initial term of 12 months or less, on our consolidated balance sheets.
The new standard had material effects on our consolidated financial statements. The most significant effects relate to the recognition of right-of-use (“ROU”) assets and lease liabilities on our balance sheet for our facilities operating leases2020, and the new disclosure requirements about our leasing activities. Upon adoption we recorded operating lease liabilities of $18.1 million, with an offsetting increase to operating lease ROU assets of $17.7 million in exchange for the liabilities assumed. We did not recognize a cumulative-effect adjustment to the opening balance of retained earnings, as there was no adjustment to be made as a result of our adoption and application of the standard. The standard did not have a significant impact on our consolidated statements of operations or cash flows.financial statements.
In JuneAugust 2018, the FASB issued ASU 2018‑07,15, Compensation-Stock Compensation (Topic 718)Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350‑40): Improvements to Non-Employee Share-Based PaymentCustomer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This standard is intended to reduce cost and complexity and to improve financial reportingThe new guidance clarifies the accounting for share-based payments issued to nonemployees. ASU 2018‑07 expands the scope of ASC Topic 718, which currently only includes share-based payments issued to employees, to also include share-based payments issued to nonemployees for goods and services.implementation costs in cloud computing arrangements. We adopted ASU 2018‑07the standard on December 29, 2018, the first day of fiscal year 2019, whichthe first quarter of 2020, and the adoption did not have a significant impact on our consolidated financial statements.
Note 2 – Inventories
Inventories consist of the following:
|
| September 27, 2019 |
|
| December 28, 2018 |
|
| March 27, 2020 |
|
| December 27, 2019 |
| ||||
Raw materials |
| $ | 71,218 |
|
| $ | 90,713 |
|
| $ | 94,811 |
|
| $ | 85,329 |
|
Work in process |
|
| 25,534 |
|
|
| 20,852 |
|
|
| 42,188 |
|
|
| 31,825 |
|
Finished goods |
|
| 16,996 |
|
|
| 17,233 |
|
|
| 14,244 |
|
|
| 17,700 |
|
Excess and obsolete adjustment |
|
| (7,926 | ) |
|
| (7,692 | ) |
|
| (7,522 | ) |
|
| (7,817 | ) |
Total inventories, net |
| $ | 105,822 |
|
| $ | 121,106 |
|
| $ | 143,721 |
|
| $ | 127,037 |
|
Note 3 – Property and Equipment
Property and equipment consist of the following:
|
| September 27, 2019 |
|
| December 28, 2018 |
|
| March 27, 2020 |
|
| December 27, 2019 |
| ||||
Machinery |
| $ | 30,729 |
|
| $ | 29,885 |
|
| $ | 35,449 |
|
| $ | 33,684 |
|
Leasehold improvements |
|
| 23,044 |
|
|
| 15,333 |
|
|
| 28,001 |
|
|
| 27,835 |
|
Computer software, hardware, and equipment |
|
| 5,370 |
|
|
| 4,884 |
|
|
| 5,920 |
|
|
| 5,796 |
|
Office furniture, fixtures and equipment |
|
| 1,121 |
|
|
| 1,058 |
|
|
| 1,038 |
|
|
| 1,040 |
|
Vehicles |
|
| 26 |
|
|
| 26 |
|
|
| 26 |
|
|
| 26 |
|
Construction-in-process |
|
| 8,087 |
|
|
| 9,514 |
|
|
| 4,074 |
|
|
| 3,760 |
|
|
|
| 68,377 |
|
|
| 60,700 |
|
|
| 74,508 |
|
|
| 72,141 |
|
Less accumulated depreciation |
|
| (25,321 | ) |
|
| (18,960 | ) |
|
| (30,022 | ) |
|
| (27,600 | ) |
Total property and equipment, net |
| $ | 43,056 |
|
| $ | 41,740 |
|
| $ | 44,486 |
|
| $ | 44,541 |
|
Depreciation expense was $2.2$2.4 million and $2.0$2.1 million for the thirdfirst quarter of 2020 and 2019, and 2018, respectively, and $6.3 million and $5.9 million for the nine months ended September 27, 2019 and September 28, 2018, respectively.
Definite‑lived intangible assets consist of the following:
|
| September 27, 2019 |
| March 27, 2020 | ||||||||||||||||||||||||||||||||
|
| Gross value |
|
| Accumulated amortization |
|
| Accumulated impairment charges |
|
| Carrying amount |
|
| Weighted average useful life |
| Gross value |
|
| Accumulated amortization |
|
| Accumulated impairment charges |
|
| Carrying amount |
|
| Weighted average useful life | ||||||||
Trademarks |
| $ | 9,690 |
|
| $ | (7,508 | ) |
| $ | — |
|
| $ | 2,182 |
|
| 10.0 years |
| $ | 9,690 |
|
| $ | (7,992 | ) |
| $ | — |
|
| $ | 1,698 |
|
| 10.0 years |
Customer relationships |
|
| 82,986 |
|
|
| (39,791 | ) |
|
| — |
|
|
| 43,195 |
|
| 7.8 years |
|
| 82,986 |
|
|
| (45,445 | ) |
|
| — |
|
|
| 37,541 |
|
| 7.8 years |
Developed technology |
|
| 11,047 |
|
|
| (1,057 | ) |
|
| — |
|
|
| 9,990 |
|
| 10.0 years |
|
| 11,047 |
|
|
| (1,593 | ) |
|
| — |
|
|
| 9,454 |
|
| 10.0 years |
Total intangible assets |
| $ | 103,723 |
|
| $ | (48,356 | ) |
| $ | — |
|
| $ | 55,367 |
|
|
|
| $ | 103,723 |
|
| $ | (55,030 | ) |
| $ | — |
|
| $ | 48,693 |
|
|
|
|
| December 28, 2018 |
| December 27, 2019 | ||||||||||||||||||||||||||||||||
|
| Gross value |
|
| Accumulated amortization |
|
| Accumulated impairment charges |
|
| Carrying amount |
|
| Weighted average useful life |
| Gross value |
|
| Accumulated amortization |
|
| Accumulated impairment charges |
|
| Carrying amount |
|
| Weighted average useful life | ||||||||
Trademarks |
| $ | 9,690 |
|
| $ | (6,781 | ) |
| $ | — |
|
| $ | 2,909 |
|
| 10.0 years |
| $ | 9,690 |
|
| $ | (7,750 | ) |
| $ | — |
|
| $ | 1,940 |
|
| 10.0 years |
Customer relationships |
|
| 82,986 |
|
|
| (31,308 | ) |
|
| — |
|
|
| 51,678 |
|
| 7.8 years |
|
| 82,986 |
|
|
| (42,621 | ) |
|
| — |
|
|
| 40,365 |
|
| 7.8 years |
Developed technology |
|
| 2,900 |
|
|
| (592 | ) |
|
| — |
|
|
| 2,308 |
|
| 10.0 years |
|
| 11,047 |
|
|
| (1,325 | ) |
|
| — |
|
|
| 9,722 |
|
| 10.0 years |
Total intangible assets |
| $ | 95,576 |
|
| $ | (38,681 | ) |
| $ | — |
|
| $ | 56,895 |
|
|
|
| $ | 103,723 |
|
| $ | (51,696 | ) |
| $ | — |
|
| $ | 52,027 |
|
|
|
During the second quarter of 2019, we acquired certain developed technology assets for $8.1 million, which have a weighted average useful life of 10 years.
Note 5 – Leases
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. For purposes of calculating operating lease ROU assets and operating lease liabilities, we use the non-cancellable lease term without considerationplus options to extend that we are reasonably certain to take. Lease expense for renewal options. As most of ouroperating lease payments is recognized on a straight-line basis over the lease term. Our leases generally do not provide an implicit rate,rate. As such, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
We lease facilities under various non-cancellable operating leases expiring through 2024.2025. In addition to base rental payments, we are generally responsible for our proportionate share of operating expenses, including facility maintenance, insurance, and property taxes. As these amounts are variable, they are not included in lease liabilities. As of SeptemberMarch 27, 2019,2020, we had no operating leases executed for which the rental period had not yet commenced.
The components of lease expense are as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||
|
| September 27, 2019 |
|
| September 27, 2019 |
| ||
Operating lease cost |
| $ | 1,722 |
|
| $ | 5,015 |
|
|
| Three Months Ended |
| |||||
|
| March 27, 2020 |
|
| March 29, 2019 |
| ||
Operating lease cost |
| $ | 1,320 |
|
| $ | 1,633 |
|
Supplemental cash flow information related to leases is as follows:
|
| Nine Months Ended |
|
| Three Months Ended |
| ||||||
|
| September 27, 2019 |
|
| March 27, 2020 |
|
| March 29, 2019 |
| |||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
| $ | 1,284 |
|
| $ | 1,164 |
|
Operating cash flows from operating leases |
| $ | 3,807 |
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities |
| $ | 566 |
| ||||||||
Weighted-average remaining lease term of operating leases |
| 3.3 years |
|
| 2.9 years |
|
| 3.8 years |
| |||
Weighted-average discount rate of operating leases |
| 4.5% |
|
| 4.5% |
|
| 4.5% |
|
Future minimum lease payments under non-cancelable leases as of SeptemberMarch 27, 20192020 are as follows:
2019, remaining |
| $ | 1,365 |
| ||||
2020 |
|
| 5,271 |
| ||||
2020, remaining |
| $ | 4,122 |
| ||||
2021 |
|
| 4,754 |
|
|
| 4,830 |
|
2022 |
|
| 4,062 |
|
|
| 4,058 |
|
2023 |
|
| 1,096 |
|
|
| 1,163 |
|
2024 |
|
| 192 |
| ||||
Thereafter |
|
| 118 |
|
|
| 26 |
|
Total future minimum lease payments |
|
| 16,666 |
|
|
| 14,391 |
|
Less imputed interest |
|
| (1,355 | ) |
|
| (997 | ) |
Total lease liabilities |
| $ | 15,311 |
|
| $ | 13,394 |
|
Future minimum lease payments under non-cancelable leases as of December 28, 2018, as reported under previous guidance, are as follows:
2019 |
| $ | 4,910 |
|
2020 |
|
| 4,873 |
|
2021 |
|
| 4,356 |
|
2022 |
|
| 3,820 |
|
2023 |
|
| 1,103 |
|
Thereafter |
|
| 120 |
|
Total future minimum lease payments |
|
| 19,182 |
|
Note 6 – Income Taxes
Coronavirus Aid, Relief, and Economic Security (“CARES”) Act
In response to the COVID‑19 pandemic, the CARES Act was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”). Corporate taxpayers may carryback net operating losses (“NOLs”) originating in 2018 through 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the existing limitation on taxable income of 80% by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019, or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income, plus business interest income, subject to the existing 30% limit under the 2017 Tax Act, for 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.
In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15‑year cost-recovery and 100% bonus depreciation.
With the enactment of the CARES Act, we expect to generate an additional income tax refund of approximately $0.7 million from our NOL carryback provision, resulting from the benefit from additional interest and depreciation deductions. Accordingly, we recognized a benefit of $0.2 million related to the CARES Act in our income tax provision for the first quarter of 2020.
Income tax information for the periods reported are as follows:
|
| Three Months Ended |
|
| Nine Months Ended |
|
|
| Three Months Ended |
| |||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| March 27, 2020 |
|
| March 29, 2019 |
| |||||||
Income tax benefit |
| $ | (221 | ) |
| $ | (558 | ) |
| $ | (1,687 | ) |
| $ | (3,714 | ) |
| $ | (242 | ) |
| $ | (1,373 | ) | |
Income before income taxes |
| $ | 702 |
|
| $ | 9,079 |
|
| $ | 1,090 |
|
| $ | 50,684 |
|
| $ | 3,157 |
|
| $ | 145 |
| |
Effective income tax rate |
|
| -31.5 | % |
|
| -6.1 | % |
|
| -154.8 | % |
|
| -7.3 | % |
|
| -7.7 | % |
|
| -946.9 | % |
Our effective tax rate for the thirdfirst quarter of 20192020 differs from the statutory rate due to taxes on foreign income that differ from the U.S. tax rate and return-to-provision adjustmentsthe release of the certain tax reserves related to recently filedstatute of limitation expirations and settlements, excess tax returns. benefits from share-based compensation and the impact of the CARES Act.
Our effective tax rate for the nine months ended September 27,first quarter of 2019 differs from the statutory rate due to taxes on foreign income that differ from the U.S. tax rate, the release of certain tax reserves related to statute of limitation expirations and settlements, and excess tax benefits from share-based compensation.
Our effective tax rate for the three and nine months ended September 28, 2018 differs from the statutory rate due to taxes on foreign income that differ from the U.S. tax rate, accrued withholding taxes, excess tax benefits from share-based compensation, and the release of a valuation allowance against our foreign tax credit carryforwards.
The ending balance for the unrecognized tax benefits for uncertain tax positions was approximately $1.9$2.1 million at SeptemberMarch 27, 2019.2020. The related interest and penalties were zero and $0.4 million, respectively. The uncertain tax positions that are reasonably possible to decrease in the next twelve months are insignificant.
As of SeptemberMarch 27, 2019,2020, we were not under examination by tax authorities.
Note 7 – Employee Benefit Programs
401(k) Plan
We sponsor a 401(k) plan available to employees of our U.S.‑based subsidiaries. Participants may make salary deferral contributions not to exceed 50% of a participant’s annual compensation or the maximum amount otherwise allowed by law. Eligible employees receive a discretionary matching contribution equal to 50% of a participant’s deferral, up to an annual maximum of 4% of a participant’s annual compensation. Matching contributions were $0.4$0.5 million and $0.3$0.4 million for the thirdfirst quarter of 20192020 and 2018, respectively, and $1.1 million and $1.1 million for the nine months ended September 27, 2019, and September 28, 2018, respectively.
Note 8 – Long-Term Debt
Long‑term debt consists of the following:
|
| September 27, 2019 |
|
| December 28, 2018 |
|
| March 27, 2020 |
|
| December 27, 2019 |
| ||||
Term loan |
| $ | 164,062 |
|
| $ | 170,625 |
|
| $ | 159,687 |
|
| $ | 161,875 |
|
Revolving credit facility |
|
| 17,162 |
|
|
| 34,162 |
|
|
| 24,162 |
|
|
| 19,162 |
|
Total principal amount of long-term debt |
|
| 181,224 |
|
|
| 204,787 |
|
|
| 183,849 |
|
|
| 181,037 |
|
Less unamortized debt issuance costs |
|
| (3,224 | ) |
|
| (3,920 | ) |
|
| (2,740 | ) |
|
| (2,983 | ) |
Total long-term debt, net |
|
| 178,000 |
|
|
| 200,867 |
|
|
| 181,109 |
|
|
| 178,054 |
|
Less current portion |
|
| (8,750 | ) |
|
| (8,750 | ) |
|
| (8,750 | ) |
|
| (8,750 | ) |
Total long-term debt, less current portion, net |
| $ | 169,250 |
|
| $ | 192,117 |
|
| $ | 172,359 |
|
| $ | 169,304 |
|
On February 15, 2018, we amended and restated our credit agreement, which replaced our existing credit facilities with a $175.0 million term loan and a $125.0 million revolving credit facility. The amendment reduced our borrowing rate, depending on our leverage ratio, and extended the maturity date. We incurred debt issuance costs of $2.1 million in connection with the amendment. The amendment did not meet the definition of an extinguishment and was accounted for as a debt modification.
Interest is charged at either the Base Rate or the Eurodollar rate (as such terms are defined in the credit agreement) at our option, plus an applicable margin. The Base Rate is equal to the higher of i) the Prime Rate, ii) the Federal Funds Rate plus 0.5%, or iii) the Eurodollar Rate plus 1.00%. The Eurodollar rate is equal to LIBOR. The applicable margin on Base Rate and Eurodollar Rate loans is 0.75‑1.50% and 1.75‑2.50% per annum, respectively, depending on our leverage ratio. We are also charged a commitment fee of 0.20%-0.35% on the unused portion of our revolving credit facility. Base Rate interest payments and commitment fees are due quarterly. Eurodollar interest payments are due on the last day of the applicable interest period. At SeptemberMarch 27, 2019,2020, the term loan and revolving credit facility bore interest at the Eurodollar rate option of 4.83%4.44% and 4.66%4.19%, respectively.
Term loan principal payments of $2.2 million are due on a quarterly basis. The term loan and revolving credit facility mature on February 15, 2023.
Share Repurchase Program
In February 2018, our board of directors authorized a share repurchase program up to $50.0 million under which we may repurchase our ordinary shares in the open market or through privately negotiated transactions, depending on market conditions and other factors. Ordinary shares repurchased are recorded as treasury shares using the cost method on a first-in, first-out basis. In August 2018, our board of directors authorized a $50.0 million increase to the share repurchase program.
During the nine months ended September 27, 2019, we repurchased 97,910 ordinary shares for a total cost of $1.6 million at an average price of $16.34 per share. At September 27, 2019, $8.4 million remained available to repurchase ordinary shares under the repurchase program.
Note 10 – Share‑Based Compensation
The 2016 Omnibus Incentive Plan (the “2016 Plan”) provides for grants of share‑based awards to employees, directors, and consultants. Awards may be in the form of stock options (“Options”options”), tandem and non‑tandem stock appreciation rights, restricted share awards or restricted share units (“RSUs”), performance awards, and other share‑based awards. Forfeited or expired awards are returned to the incentive plan pool for future grants. Awards generally vest over four years, 25% on the first anniversary of the date of grant and quarterly thereafter.thereafter over the remaining 3 years. Upon vesting of RSUs, employees may elect to have shares withheld to cover statutory minimum withholding taxes. Shares withheld are not reflected as an issuance of ordinary shares within our consolidated statements of shareholders’ equity, as the shares were never issued, and the associated tax payments are reflected as financing activities within our consolidated statements of cash flows.
Share‑based compensation expense across all plans for Options,options, RSUs, and employee share purchase rights was $1.8$2.9 million and $1.3 million for the thirdfirst quarter of 20192020 and 2018, respectively, and $4.6 million and $6.3 million for the nine months ended September 27, 2019, and September 28, 2018, respectively.
The following table summarizes Optionoption activity:
|
| Number of Stock Options |
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Time vesting |
|
| Performance vesting |
|
| Weighted average exercise price per share |
|
| Weighted average remaining contractual term |
| Aggregate intrinsic value (in thousands) |
| ||||
Outstanding, December 28, 2018 |
|
| 1,706,441 |
|
|
| 65,908 |
|
| $ | 18.57 |
|
|
|
|
|
|
|
Granted |
|
| 500,127 |
|
|
| — |
|
| $ | 22.47 |
|
|
|
|
|
|
|
Exercised |
|
| (238,121 | ) |
|
| — |
|
| $ | 11.09 |
|
|
|
|
|
|
|
Forfeited |
|
| (118,835 | ) |
|
| — |
|
| $ | 22.10 |
|
|
|
|
|
|
|
Expired |
|
| (65,596 | ) |
|
| — |
|
| $ | 16.84 |
|
|
|
|
|
|
|
Outstanding, September 27, 2019 |
|
| 1,784,016 |
|
|
| 65,908 |
|
| $ | 20.42 |
|
| 5.0 years |
| $ | 7,666 |
|
Exercisable, September 27, 2019 |
|
| 662,819 |
|
|
| 65,908 |
|
| $ | 17.18 |
|
| 3.7 years |
| $ | 5,376 |
|
|
| Number of Stock Options |
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Time vesting |
|
| Performance vesting |
|
| Weighted average exercise price per share |
|
| Weighted average remaining contractual term |
| Aggregate intrinsic value (in thousands) |
| ||||
Outstanding, December 27, 2019 |
|
| 1,688,938 |
|
|
| 65,908 |
|
| $ | 20.57 |
|
|
|
|
|
|
|
Granted |
|
| 37,952 |
|
|
| — |
|
| $ | 31.89 |
|
|
|
|
|
|
|
Exercised |
|
| (113,539 | ) |
|
| — |
|
| $ | 21.87 |
|
|
|
|
|
|
|
Forfeited or expired |
|
| — |
|
|
| — |
|
| $ | — |
|
|
|
|
|
|
|
Outstanding, March 27, 2020 |
|
| 1,613,351 |
|
|
| 65,908 |
|
| $ | 20.74 |
|
| 4.5 years |
| $ | 3,803 |
|
Exercisable, March 27, 2020 |
|
| 697,920 |
|
|
| 65,908 |
|
| $ | 17.49 |
|
| 3.2 years |
| $ | 3,604 |
|
Restricted Share Units
The following table summarizes RSU activity:
|
| Number of Restricted Share Units |
|
|
|
|
|
| Number of Restricted Share Units |
|
|
|
|
| ||||||||||
|
| Time vesting |
|
| Performance vesting |
|
| Weighted average grant date fair value per share |
|
| Time vesting |
|
| Performance vesting |
|
| Weighted average grant date fair value per share |
| ||||||
Unvested, December 28, 2018 |
|
| 192,300 |
|
|
| — |
|
| $ | 22.64 |
| ||||||||||||
Unvested, December 27, 2019 |
|
| 389,170 |
|
|
| 17,730 |
|
| $ | 23.03 |
| ||||||||||||
Granted |
|
| 266,237 |
|
|
| 17,730 |
|
| $ | 22.37 |
|
|
| 78,479 |
|
|
| — |
|
| $ | 32.08 |
|
Vested |
|
| (70,309 | ) |
|
| — |
|
| $ | 23.09 |
|
|
| (88,399 | ) |
|
| — |
|
| $ | 23.72 |
|
Forfeited |
|
| (6,875 | ) |
|
| — |
|
| $ | 25.41 |
|
|
| — |
|
|
| — |
|
| $ | — |
|
Unvested, September 27, 2019 |
|
| 381,353 |
|
|
| 17,730 |
|
| $ | 22.32 |
| ||||||||||||
Unvested, March 27, 2020 |
|
| 379,250 |
|
|
| 17,730 |
|
| $ | 24.67 |
|
During the second quarter of 2019, an executive was granted 17,730 performance-vesting RSUs (“PRSUs”) that cliff-vest upon the satisfaction of certain financial metrics for fiscal year 2020. The PRSUs expire if the financial metrics are not met.
The 2017 Employee Stock Purchase Plan (the “2017 ESPP”) grants employees the ability to designate a portion of their base-pay to purchase ordinary shares at a price equal to 85% of the fair market value of our ordinary shares on the first or last day of each 6 month purchase period. Purchase periods begin on January 1 or July 1 and end on June 30 or December 31, or the next business day if such date is not a business day. Shares are purchased on the last day of the purchase period.
During the nine months ended September 27, 2019, 47,645first quarter of 2020, 16,520 ordinary shares were purchased by eligible employees under the 2017 ESPP. As of SeptemberMarch 27, 2019,2020, approximately 2.4 million ordinary shares remain available for purchase under the 2017 ESPP.
Note 1110 – Segment Information
Our Chief Operating Decision Maker, the Chief Executive Officer, reviews our results of operations on a consolidated level and executive staff is structured by function rather than by product category. Therefore, we operate in one operating segment. Key resources, decisions, and assessment of performance are also analyzed on a company‑wide level.
Foreign operations are conducted primarily through our wholly owned subsidiaries in Singapore and Malaysia. Our principal markets include North America, Asia and, to a lesser degree, Europe. Sales by geographic area represent sales to unaffiliated customers.
All information on sales by geographic area is based upon the location to which the products were shipped. The following table sets forth sales by geographic area:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| March 27, 2020 |
|
| March 29, 2019 |
| ||||||
United States of America |
| $ | 77,997 |
|
| $ | 103,563 |
|
| $ | 231,529 |
|
| $ | 417,207 |
|
| $ | 120,841 |
|
| $ | 76,633 |
|
Singapore |
|
| 53,806 |
|
|
| 45,626 |
|
|
| 134,083 |
|
|
| 190,843 |
|
|
| 73,209 |
|
|
| 36,979 |
|
Europe |
|
| 13,225 |
|
|
| 17,692 |
|
|
| 38,115 |
|
|
| 46,565 |
|
|
| 14,959 |
|
|
| 15,093 |
|
Other |
|
| 9,428 |
|
|
| 8,326 |
|
|
| 27,755 |
|
|
| 27,594 |
|
|
| 11,019 |
|
|
| 9,126 |
|
Total net sales |
| $ | 154,456 |
|
| $ | 175,207 |
|
| $ | 431,482 |
|
| $ | 682,209 |
|
| $ | 220,028 |
|
| $ | 137,831 |
|
Note 1211 – Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share and a reconciliation of the numerator and denominator used in the calculation:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| March 27, 2020 |
|
| March 29, 2019 |
| ||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 923 |
|
| $ | 9,637 |
|
| $ | 2,777 |
|
| $ | 54,398 |
|
| $ | 3,399 |
|
| $ | 1,518 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average ordinary shares outstanding |
|
| 22,454,408 |
|
|
| 24,352,995 |
|
|
| 22,373,181 |
|
|
| 25,352,489 |
|
|
| 22,737,163 |
|
|
| 22,269,827 |
|
Dilutive effect of Options |
|
| 222,470 |
|
|
| 302,468 |
|
|
| 237,908 |
|
|
| 459,921 |
| ||||||||
Dilutive effect of options |
|
| 322,469 |
|
|
| 243,136 |
| ||||||||||||||||
Dilutive effect of RSUs |
|
| 40,423 |
|
|
| 18,112 |
|
|
| 18,239 |
|
|
| 27,638 |
|
|
| 119,960 |
|
|
| 19,046 |
|
Dilutive effect of ESPP |
|
| 1,581 |
|
|
| 1,337 |
|
|
| 527 |
|
|
| 446 |
|
|
| 1,535 |
|
|
| 4,200 |
|
Diluted weighted average ordinary shares outstanding |
|
| 22,718,882 |
|
|
| 24,674,912 |
|
|
| 22,629,855 |
|
|
| 25,840,494 |
|
|
| 23,181,127 |
|
|
| 22,536,209 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income: |
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | 0.04 |
|
| $ | 0.40 |
|
| $ | 0.12 |
|
| $ | 2.15 |
|
| $ | 0.15 |
|
| $ | 0.07 |
|
Diluted |
| $ | 0.04 |
|
| $ | 0.39 |
|
| $ | 0.12 |
|
| $ | 2.11 |
|
| $ | 0.15 |
|
| $ | 0.07 |
|
A combined total of 1,480,627, 1,303,905, 1,622,252approximately 720,000 and 1,218,0531,320,000 potentially dilutive Optionsoptions and RSUs were excluded from the calculation of net income per share for the thirdfirst quarter of 2019, third quarter of 2018, nine months ended September 27, 2019,2020 and September 28, 2018,2019, respectively, because including them would have been antidilutive under the treasury stock method.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes included elsewhere in this report. The following discussion contains forward‑looking statements based upon our current plans, expectations, and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward‑looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in “Risk Factors.”
Overview
We are a leader in the design, engineering and manufacturing of critical fluid delivery subsystems for semiconductor capital equipment. Our primary offerings include gas and chemical delivery subsystems, collectively known as fluid delivery subsystems, which are key elements of the process tools used in the manufacturing of semiconductor devices. Our gas delivery subsystems deliver, monitor and control precise quantities of the specialized gases used in semiconductor manufacturing processes such as etch and deposition. Our chemical delivery subsystems precisely blend and dispense the reactive liquid chemistries used in semiconductor manufacturing processes such as electroplating and cleaning. We also manufacture certain components such as weldments and precision machined components for use in fluid delivery systems for direct sales to our customers. This vertically integrated portion of our business is primarily focused on metal and plastic parts that are used in gas and chemical systems, respectively.
Fluid delivery subsystems ensure accurate measurement and uniform delivery of specialty gases and chemicals at critical steps in the semiconductor manufacturing process. Any malfunction or material degradation in fluid delivery reduces yields and increases the likelihood of manufacturing defects in these processes. Historically, semiconductor OEMs internally designed and manufactured the fluid delivery subsystems used in their process tools. Currently, most OEMs outsource the design, engineering, and manufacturing of their gas delivery subsystems to a few specialized suppliers, including us. Additionally, many OEMs are also increasingly outsourcing the design, engineering, and manufacturing of their chemical delivery subsystems due to the increased fluid expertise required to manufacture these subsystems. Outsourcing these subsystems has allowed OEMs to leverage the suppliers’ highly specialized engineering, design, and production skills while focusing their internal resources on their own value-added processes. We believe that this outsourcing trend has enabled OEMs to reduce their fixed costs and development time, as well as provided significant growth opportunities for specialized subsystems suppliers like us.
We have a global footprint with production facilities in Malaysia, Singapore, South Korea, California, Florida, Minnesota, Oregon, and Texas. Our two largest customers by revenue were Lam Research and Applied Materials for all periods presented.
The following summarizes key financial information for the periods indicated:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| March 27, 2020 |
|
| March 29, 2019 |
| ||||||
|
| (dollars in thousands) |
|
| (dollars in thousands) |
| ||||||||||||||||||
Net sales |
| $ | 154,456 |
|
| $ | 175,207 |
|
| $ | 431,482 |
|
| $ | 682,209 |
|
| $ | 220,028 |
|
| $ | 137,831 |
|
Gross profit |
| $ | 20,693 |
|
| $ | 28,214 |
|
| $ | 60,449 |
|
| $ | 114,688 |
|
| $ | 28,774 |
|
| $ | 20,223 |
|
Gross margin |
|
| 13.4 | % |
|
| 16.1 | % |
|
| 14.0 | % |
|
| 16.8 | % |
|
| 13.1 | % |
|
| 14.7 | % |
Operating expenses |
| $ | 17,371 |
|
| $ | 16,666 |
|
| $ | 51,178 |
|
| $ | 56,704 |
|
| $ | 23,274 |
|
| $ | 17,286 |
|
Operating income |
| $ | 3,322 |
|
| $ | 11,548 |
|
| $ | 9,271 |
|
| $ | 57,984 |
|
| $ | 5,500 |
|
| $ | 2,937 |
|
GAAP net income |
| $ | 923 |
|
| $ | 9,637 |
|
| $ | 2,777 |
|
| $ | 54,398 |
| ||||||||
Non-GAAP adjusted net income |
| $ | 6,748 |
|
| $ | 13,601 |
|
| $ | 17,417 |
|
| $ | 67,772 |
| ||||||||
U.S. GAAP net income |
| $ | 3,399 |
|
| $ | 1,518 |
| ||||||||||||||||
Non-GAAP net income (1) |
| $ | 12,058 |
|
| $ | 5,551 |
|
(1) | Please see “Non‑GAAP Results” within Item 2 for a reconciliation of Non‑GAAP net income to U.S. GAAP net income. |
COVID-19 Pandemic and Market Conditions Update
The COVID-19 pandemic and related economic repercussions have created, and are expected to continue to create, significant volatility, uncertainty, and turmoil in our industry. Government shutdowns and “social distancing” guidelines are, and will continue to, result in reduced factory capacity. In addition, an increase in direct costs within our factories associated with employee personal protective equipment (“PPE”), facility cleaning and layout changes, together with increases in logistics costs and employee labor costs, as well as other operating inefficiencies have resulted in, and may continue to result in, lower revenues and operating margins. The extent and duration of these impacts cannot be specifically quantified given the dynamic nature and breadth of the pandemic’s impact on our operations and that of our customers and suppliers. See “Risk Factors” in Part II, Item 1A of this Current Report on Form 10‑Q.
The following table sets forth our unaudited results of operations for the periods presented. The period‑to‑period comparison of results is not necessarily indicative of results for future periods.
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| March 27, 2020 |
|
| March 29, 2019 |
| ||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||
Consolidated Statements of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 154,456 |
|
| $ | 175,207 |
|
| $ | 431,482 |
|
| $ | 682,209 |
|
| $ | 220,028 |
|
| $ | 137,831 |
|
Cost of sales |
|
| 133,763 |
|
|
| 146,993 |
|
|
| 371,033 |
|
|
| 567,521 |
|
|
| 191,254 |
|
|
| 117,608 |
|
Gross profit |
|
| 20,693 |
|
|
| 28,214 |
|
|
| 60,449 |
|
|
| 114,688 |
|
|
| 28,774 |
|
|
| 20,223 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 2,987 |
|
|
| 2,123 |
|
|
| 8,012 |
|
|
| 7,152 |
|
|
| 3,322 |
|
|
| 2,391 |
|
Selling, general, and administrative |
|
| 11,048 |
|
|
| 10,658 |
|
|
| 33,491 |
|
|
| 38,016 |
|
|
| 16,618 |
|
|
| 11,758 |
|
Amortization of intangible assets |
|
| 3,336 |
|
|
| 3,885 |
|
|
| 9,675 |
|
|
| 11,536 |
|
|
| 3,334 |
|
|
| 3,137 |
|
Total operating expenses |
|
| 17,371 |
|
|
| 16,666 |
|
|
| 51,178 |
|
|
| 56,704 |
|
|
| 23,274 |
|
|
| 17,286 |
|
Operating income |
|
| 3,322 |
|
|
| 11,548 |
|
|
| 9,271 |
|
|
| 57,984 |
|
|
| 5,500 |
|
|
| 2,937 |
|
Interest expense |
|
| 2,663 |
|
|
| 2,553 |
|
|
| 8,193 |
|
|
| 7,360 |
|
|
| 2,374 |
|
|
| 2,768 |
|
Other income, net |
|
| (43 | ) |
|
| (84 | ) |
|
| (12 | ) |
|
| (60 | ) | ||||||||
Other expense (income), net |
|
| (31 | ) |
|
| 24 |
| ||||||||||||||||
Income before income taxes |
|
| 702 |
|
|
| 9,079 |
|
|
| 1,090 |
|
|
| 50,684 |
|
|
| 3,157 |
|
|
| 145 |
|
Income tax benefit |
|
| (221 | ) |
|
| (558 | ) |
|
| (1,687 | ) |
|
| (3,714 | ) |
|
| (242 | ) |
|
| (1,373 | ) |
Net income |
|
| 923 |
|
|
| 9,637 |
|
|
| 2,777 |
|
|
| 54,398 |
|
|
| 3,399 |
|
|
| 1,518 |
|
The following table sets forth our unaudited results of operations as a percentage of our total sales for the periods presented.
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| March 27, 2020 |
|
| March 29, 2019 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
| 100.0 |
|
|
| 100.0 |
|
|
| 100.0 |
|
|
| 100.0 |
|
|
| 100.0 |
|
|
| 100.0 |
|
Cost of sales |
|
| 86.6 |
|
|
| 83.9 |
|
|
| 86.0 |
|
|
| 83.2 |
|
|
| 86.9 |
|
|
| 85.3 |
|
Gross profit |
|
| 13.4 |
|
|
| 16.1 |
|
|
| 14.0 |
|
|
| 16.8 |
|
|
| 13.1 |
|
|
| 14.7 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 1.9 |
|
|
| 1.2 |
|
|
| 1.9 |
|
|
| 1.0 |
|
|
| 1.5 |
|
|
| 1.7 |
|
Selling, general, and administrative |
|
| 7.2 |
|
|
| 6.1 |
|
|
| 7.8 |
|
|
| 5.6 |
|
|
| 7.6 |
|
|
| 8.5 |
|
Amortization of intangible assets |
|
| 2.2 |
|
|
| 2.2 |
|
|
| 2.2 |
|
|
| 1.7 |
|
|
| 1.5 |
|
|
| 2.3 |
|
Total operating expenses |
|
| 11.2 |
|
|
| 9.5 |
|
|
| 11.9 |
|
|
| 8.3 |
|
|
| 10.6 |
|
|
| 12.5 |
|
Operating income |
|
| 2.2 |
|
|
| 6.6 |
|
|
| 2.1 |
|
|
| 8.5 |
|
|
| 2.5 |
|
|
| 2.1 |
|
Interest expense |
|
| 1.7 |
|
|
| 1.5 |
|
|
| 1.9 |
|
|
| 1.1 |
|
|
| 1.1 |
|
|
| 2.0 |
|
Other income, net |
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
| ||||||||
Other expense (income), net |
|
| 0.0 |
|
|
| 0.0 |
| ||||||||||||||||
Income before income taxes |
|
| 0.5 |
|
|
| 5.2 |
|
|
| 0.3 |
|
|
| 7.4 |
|
|
| 1.4 |
|
|
| 0.1 |
|
Income tax benefit |
|
| (0.1 | ) |
|
| (0.3 | ) |
|
| (0.4 | ) |
|
| (0.5 | ) |
|
| (0.1 | ) |
|
| (1.0 | ) |
Net income |
|
| 0.6 |
|
|
| 5.5 |
|
|
| 0.6 |
|
|
| 8.0 |
|
|
| 1.5 |
|
|
| 1.1 |
|
Comparison of the Three and Nine Months Ended SeptemberMarch 27, 20192020 and September 28, 2018March 29, 2019
Net Sales
|
| Three Months Ended |
|
| Change |
|
| Nine Months Ended |
|
| Change |
| ||||||||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| Amount |
|
| % |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| Amount |
|
| % |
| ||||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||||||||||
Net sales |
| $ | 154,456 |
|
| $ | 175,207 |
|
| $ | (20,751 | ) |
|
| -11.8 | % |
| $ | 431,482 |
|
| $ | 682,209 |
|
| $ | (250,727 | ) |
|
| -36.8 | % |
|
| Three Months Ended |
|
| Change |
| ||||||||||
|
| March 27, 2020 |
|
| March 29, 2019 |
|
| Amount |
|
| % |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
Net sales |
| $ | 220,028 |
|
| $ | 137,831 |
|
| $ | 82,197 |
|
|
| 59.6 | % |
The decreaseincrease in net sales from the three and nine months ended September 28, 2018first quarter of 2019 to the three and nine months ended September 27, 2019first quarter of 2020 was primarily due to reducedincreased demand from our customers as a result of a cyclical downturngrowth in the global wafer fabrication equipment market.market as it comes out of the recent cyclical downturn, as well as share-gains at our largest customers, partially offset by lower shipments due to factory output limitations associated with the COVID-19 pandemic (see “COVID‑19 Pandemic and Market Conditions Update” above for expanded commentary). On a geographic basis, sales in the U.S. decreasedincreased by $25.6$44.2 million to $78.0$120.8 million in the third quarter of 2019 and foreign sales increased by $4.8$38.0 million to $76.5 million. Sales in the U.S. decreased by $185.7 million to $231.5 million in the nine months ended September 27, 2019 and foreign sales decreased by $65.0 million to $200.0$99.2 million.
Cost of Sales and Gross Profit
|
| Three Months Ended |
|
| Change |
|
| Nine Months Ended |
|
| Change |
|
| Three Months Ended |
|
| Change |
| ||||||||||||||||||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| Amount |
|
| % |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| Amount |
|
| % |
|
| March 27, 2020 |
|
| March 29, 2019 |
|
| Amount |
|
| % |
| ||||||||||||
|
| (dollars in thousands) |
|
| (dollars in thousands) |
| ||||||||||||||||||||||||||||||||||||||||||
Cost of sales |
| $ | 133,763 |
|
| $ | 146,993 |
|
| $ | (13,230 | ) |
|
| -9.0 | % |
| $ | 371,033 |
|
| $ | 567,521 |
|
| $ | (196,488 | ) |
|
| -34.6 | % |
| $ | 191,254 |
|
| $ | 117,608 |
|
| $ | 73,646 |
|
|
| 62.6 | % |
Gross profit |
| $ | 20,693 |
|
| $ | 28,214 |
|
| $ | (7,521 | ) |
|
| -26.7 | % |
| $ | 60,449 |
|
| $ | 114,688 |
|
| $ | (54,239 | ) |
|
| -47.3 | % |
| $ | 28,774 |
|
| $ | 20,223 |
|
| $ | 8,551 |
|
|
| 42.3 | % |
Gross margin |
|
| 13.4 | % |
|
| 16.1 | % |
|
|
|
|
| - 270 bps |
|
|
| 14.0 | % |
|
| 16.8 | % |
|
|
|
|
| - 280 bps |
|
|
| 13.1 | % |
|
| 14.7 | % |
|
|
|
|
| - 160 bps |
|
The decreaseincrease in cost of sales and gross profit from the three and nine months ended September 28, 2018first quarter of 2019 to the three and nine months ended September 27, 2019first quarter of 2020 was primarily due to decreasedincreased sales volume.
The decrease in our gross margin from the three and nine months ended September 28, 2018first quarter of 2019 to the three and nine months ended September 27, 2019first quarter of 2020 was primarily due increased costs to customeroperate our production facilities and product mix as well as lower factory utilization.utilization in response to the COVID‑19 pandemic (see “COVID‑19 Pandemic and Market Conditions Update” above for expanded commentary). Our facilities in California and Malaysia were shutdown, pursuant to governmental orders, for durations ranging from approximately 1‑2 weeks near the end of the quarter. Additionally, during the first quarter of 2020, we reached a mutual settlement with the counterparty of a contract dispute and, accordingly, recorded a $1.4 million contract settlement loss to cost of sales. The impact of this settlement loss resulted in a 60 basis point reduction in our gross margin.
Research and Development
|
| Three Months Ended |
|
| Change |
|
| Nine Months Ended |
|
| Change |
| ||||||||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| Amount |
|
| % |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| Amount |
|
| % |
| ||||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||||||||||
Research and development |
| $ | 2,987 |
|
| $ | 2,123 |
|
| $ | 864 |
|
|
| 40.7 | % |
| $ | 8,012 |
|
| $ | 7,152 |
|
| $ | 860 |
|
|
| 12.0 | % |
|
| Three Months Ended |
|
| Change |
| ||||||||||
|
| March 27, 2020 |
|
| March 29, 2019 |
|
| Amount |
|
| % |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
Research and development |
| $ | 3,322 |
|
| $ | 2,391 |
|
| $ | 931 |
|
|
| 38.9 | % |
The increase in research and development expenses from the three and nine months ended September 28, 2018first quarter of 2019 to the three and nine months ended September 27, 2019first quarter of 2020 was primarily due to $0.7 million in increased employee-related expense resulting from increased engineering expense associatedheadcount, of which approximately $0.4 million was due to a small engineering team assumed in connection with theour purchase of developed technology assets in the second quarter of 2019.
Selling, General, and Administrative
|
| Three Months Ended |
|
| Change |
|
| Nine Months Ended |
|
| Change |
| ||||||||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| Amount |
|
| % |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| Amount |
|
| % |
| ||||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||||||||||
Selling, general, and administrative |
| $ | 11,048 |
|
| $ | 10,658 |
|
| $ | 390 |
|
|
| 3.7 | % |
| $ | 33,491 |
|
| $ | 38,016 |
|
| $ | (4,525 | ) |
|
| -11.9 | % |
|
| Three Months Ended |
|
| Change |
| ||||||||||
|
| March 27, 2020 |
|
| March 29, 2019 |
|
| Amount |
|
| % |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
Selling, general, and administrative |
| $ | 16,618 |
|
| $ | 11,758 |
|
| $ | 4,860 |
|
|
| 41.3 | % |
The increase in selling, general, and administrative expense from the third quarter of 2018 to the thirdfirst quarter of 2019 to the first quarter of 2020 was primarily due (i) $1.8 million in executive transition costs associated with the transition of our former CEO to Executive Chairman, (ii) $2.8 million in increased employee-related expense, of which $1.4 million was from increased share-based compensation expense, of(iii) $0.4 million.
The decreasemillion in selling, general,increased legal and administrative expense from professional fees, and (iv) $0.3 million in increased occupancy costs; partially offset by the nine months ended September 28, 2018 to the nine months ended September 27, 2019 was primarily due to a reduction in executive transition costs of $3.6 million from the retirementrelease of a former officer$0.7 million indemnification asset in the first quarter of 2018; reduced employee related expenses of $0.9 million resulting from headcount reductions in the second half of 2018 and the first half of 2019, and reduced legal and consulting expenses of $0.9 million, partially offset by the one-time release of a tax indemnification asset of $0.7 millionwhich was recorded in connection with our acquisition of Cal‑Weld and reduced operating supplies expensein 2017, that did not repeat in the first quarter of $0.4 million.2020.
Amortization of Intangible Assets
|
| Three Months Ended |
|
| Change |
|
| Nine Months Ended |
|
| Change |
| ||||||||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| Amount |
|
| % |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| Amount |
|
| % |
| ||||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||||||||||
Amortization of intangibles assets |
| $ | 3,336 |
|
| $ | 3,885 |
|
| $ | (549 | ) |
|
| -14.1 | % |
| $ | 9,675 |
|
| $ | 11,536 |
|
| $ | (1,861 | ) |
|
| -16.1 | % |
|
| Three Months Ended |
|
| Change |
| ||||||||||
|
| March 27, 2020 |
|
| March 29, 2019 |
|
| Amount |
|
| % |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
Amortization of intangibles assets |
| $ | 3,334 |
|
| $ | 3,137 |
|
| $ | 197 |
|
|
| 6.3 | % |
The decreaseincrease in amortization expense from the three and nine months ended September 28, 2018first quarter of 2019 to the three and nine months ended September 27, 2019first quarter of 2020 was primarily due to certain intangible assets being fully amortized as of the end of the fourth quarter of 2018, partially offset by incremental amortization expense from purchased developed technology assets during the second quarter of 2019.
Interest Expense
|
| Three Months Ended |
|
| Change |
|
| Nine Months Ended |
|
| Change |
| ||||||||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| Amount |
|
| % |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| Amount |
|
| % |
| ||||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||||||||||
Interest expense |
| $ | 2,663 |
|
| $ | 2,553 |
|
| $ | 110 |
|
|
| 4.3 | % |
| $ | 8,193 |
|
| $ | 7,360 |
|
| $ | 833 |
|
|
| 11.3 | % |
|
| Three Months Ended |
|
| Change |
| ||||||||||
|
| March 27, 2020 |
|
| March 29, 2019 |
|
| Amount |
|
| % |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
Interest expense |
| $ | 2,374 |
|
| $ | 2,768 |
|
| $ | (394 | ) |
|
| -14.2 | % |
The increasedecrease in interest expense from the thirdfirst quarter of 20182019 to the thirdfirst quarter of 20192020 was primarily due to an increasea decrease in our weighted average interest rate, from 4.56%4.77% to 4.83%4.44%, partially offset byand a $23.4 million decrease in our average amount borrowed during the quarter.
The increase in interest expense form the nine months ended September 28, 2018 to the nine months ended September 27, 2019 was primarily due to an increase in our weighted average interest rate, from 4.34% to 4.83%, and an increase in our average amount borrowed during the period.
Other Income,Expense (Income), Net
|
| Three Months Ended |
|
| Change |
|
| Nine Months Ended |
|
| Change |
| ||||||||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| Amount |
|
| % |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| Amount |
|
| % |
| ||||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||||||||||
Other income, net |
| $ | (43 | ) |
| $ | (84 | ) |
| $ | 41 |
|
|
| -48.8 | % |
| $ | (12 | ) |
| $ | (60 | ) |
| $ | 48 |
|
|
| -80.0 | % |
|
| Three Months Ended |
|
| Change | |||||||||
|
| March 27, 2020 |
|
| March 29, 2019 |
|
| Amount |
|
| % | |||
|
| (dollars in thousands) | ||||||||||||
Other expense (income), net |
| $ | (31 | ) |
| $ | 24 |
|
| $ | (55 | ) |
| n/m |
The changeschange in other income, net werewas primarily due to exchange rate fluctuations on transactions denominated in the local currencies of our foreign operations, principally the Singapore Dollar,dollar, Malaysian Ringgit,ringgit, British pound, euro, and British Pound.South Korean won.
Income Tax Benefit
|
| Three Months Ended |
|
| Change |
|
| Nine Months Ended |
|
| Change |
| ||||||||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| Amount |
|
| % |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| Amount |
|
| % |
| ||||||||
|
| (dollars in thousands) |
| |||||||||||||||||||||||||||||
Income tax benefit |
| $ | (221 | ) |
| $ | (558 | ) |
| $ | 337 |
|
|
| -60.4 | % |
| $ | (1,687 | ) |
| $ | (3,714 | ) |
| $ | 2,027 |
|
|
| -54.6 | % |
|
| Three Months Ended |
|
| Change |
| ||||||||||
|
| March 27, 2020 |
|
| March 29, 2019 |
|
| Amount |
|
| % |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
Income tax benefit |
| $ | (242 | ) |
| $ | (1,373 | ) |
| $ | 1,131 |
|
|
| -82.4 | % |
The decrease in the income tax benefit from the thirdfirst quarter of 20182019 to the thirdfirst quarter of 20192020 was primarily due to discrete tax benefits recognized in the third quarter of 2018 compared to discrete tax expenses in the third quarter of 2019 related to the tax return filings, partially offset by an increase in tax benefits recognized in the third quarter of 2019 due to higher projected U.S. losses compared to 2018.
Thea decrease in the tax benefit from the nine months ended September 28, 2018 to the nine months ended September 27, 2019 was primarily due to discrete tax benefits recognized in the second quarter of 2018 relating to the release of a valuation allowance against foreign tax credit carryforwards that did not repeat in the nine months ended September 27, 2019, partially offset by discrete tax benefits recognized in the first quarter of 2019 from the releasereleases of certain tax reserves related to statute of limitationslimitation expirations andor settlements as well as an increase in tax benefits recognized in the nine months ended September 27, 2019 due to higher projected U.S. lossesfirst quarter of 2020 compared to 2018.the first quarter of 2019.
Management uses non-GAAP adjusted net incomemetrics to evaluate our operating and financial results. We believe the presentation of non-GAAP results is useful to investors for analyzing business trends and comparing performance to prior periods, along with enhancing investors’ ability to view our results from management’s perspective. Non-GAAP adjusted net income is defined as: net income excluding (1) amortization of intangible assets, share-based compensation expense, and non-recurring expenses, including adjustments to the cost of sales,contract settlement losses; and (2) the tax impacts associated with our non-GAAP adjustments, related to those non-GAAP adjustments; and (2)as well as non-recurring discrete tax items including tax impacts from releasing a valuation allowance related to foreign tax credits to the extent they are present in gross profit, operating income, and net income.items. Non-GAAP adjusted diluted EPS is defined as non-GAAP adjusted net income divided by weighted average diluted ordinary shares outstanding during the period.
The following table presents our unaudited non‑GAAP adjusted net income and a reconciliation from net income, the most comparable GAAP measure, for the periods indicated:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| March 27, 2020 |
|
| March 29, 2019 |
| ||||||
|
| (dollars in thousands, except per share amounts) |
|
| (dollars in thousands, except per share amounts) |
| ||||||||||||||||||
Non-GAAP Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GAAP net income |
| $ | 923 |
|
| $ | 9,637 |
|
| $ | 2,777 |
|
| $ | 54,398 |
|
| $ | 3,399 |
|
| $ | 1,518 |
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets |
|
| 3,336 |
|
|
| 3,885 |
|
|
| 9,675 |
|
|
| 11,536 |
|
|
| 3,334 |
|
|
| 3,137 |
|
Share-based compensation |
|
| 1,792 |
|
|
| 1,271 |
|
|
| 4,597 |
|
|
| 6,277 |
|
|
| 2,865 |
|
|
| 1,330 |
|
Other non-recurring expense, net (1) |
|
| 476 |
|
|
| 397 |
|
|
| 2,323 |
|
|
| 2,283 |
|
|
| 2,690 |
|
|
| 1,351 |
|
Tax adjustments related to non-GAAP adjustments |
|
| 221 |
|
|
| (1,589 | ) |
|
| (1,955 | ) |
|
| (7,421 | ) | ||||||||
Tax benefit from release of valuation allowance (2) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,140 | ) | ||||||||
Fair value adjustment to inventory from acquisitions (3) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,839 |
| ||||||||
Contract settlement loss (2) |
|
| 1,386 |
|
|
| — |
| ||||||||||||||||
Tax adjustments related to non-GAAP adjustments (3) |
|
| (1,616 | ) |
|
| (1,785 | ) | ||||||||||||||||
Non-GAAP net income |
| $ | 6,748 |
|
| $ | 13,601 |
|
| $ | 17,417 |
|
| $ | 67,772 |
|
| $ | 12,058 |
|
| $ | 5,551 |
|
U.S. GAAP diluted EPS |
| $ | 0.04 |
|
| $ | 0.39 |
|
| $ | 0.12 |
|
| $ | 2.11 |
|
| $ | 0.15 |
|
| $ | 0.07 |
|
Non-GAAP diluted EPS |
| $ | 0.30 |
|
| $ | 0.55 |
|
| $ | 0.77 |
|
| $ | 2.62 |
|
| $ | 0.52 |
|
| $ | 0.25 |
|
Shares used to compute diluted EPS |
|
| 22,718,882 |
|
|
| 24,674,912 |
|
|
| 22,629,855 |
|
|
| 25,840,494 |
|
|
| 23,181,127 |
|
|
| 22,536,209 |
|
| (1) | Included in this amount for the |
Included in this amount for the thirdfirst quarter of 2018 are acquisition-related expenses, comprised primarily of expense associated with a two year retention agreement between the Company and key management personnel of IAN.
Included in this amount for the nine months ended September 27, 2019 are (i) acquisition-related expenses, comprised primarily of a charge to expense from the extinguishment of an indemnification asset related to our acquisition of Cal‑Weld in 2017 and expense associated with a two yearthe IAN retention agreement, between the Company and key management personnel of IAN, (ii) costs incurred in connection with reorganizing our key personnel and leadership, and (iii) non-capitalizable costs incurred in connection with implementingour implementation of a new ERP system.
Included in this amount for the nine months ended September 28, 2018 are (i) separation benefits for a former officer that became effective in January 2018 and (ii) acquisition-related expenses.
| (2) |
|
| (3) |
|
Non-GAAP adjusted net income hasresults have limitations as an analytical tool, and you should not consider itthem in isolation or as a substitute for net income or any of our other operating results reported under GAAP. Other companies may calculate adjusted net incomenon-GAAP results differently or may use other measures to evaluate their performance, both of which could reduce the usefulness of our adjusted net incomenon-GAAP results as a tool for comparison.
Because of these limitations, you should consider non-GAAP adjusted net incomeresults alongside other financial performance measures including net income and other financial results presented in accordance with GAAP. In addition, in evaluating non-GAAP adjusted net income,results, you should be aware that in the future we will incur expenses such as those that are the subject of adjustments in deriving adjusted net incomenon-GAAP results and you should not infer from our presentation of adjusted net incomenon-GAAP results that our future results will not be affected by these expenses or any unusual or non-recurring items.
Liquidity and Capital Resources
We ended the thirdfirst quarter of 2020 with cash of $30.2 million.$41.6 million, a decrease of $19.0 million from the end of the prior quarter. The decrease of $13.7 million from December 28, 2018 was primarily due to net payments on long-term debtcash used in operating activities of $23.6$21.0 million and capital expenditures of $8.3 million, cash paid for intangibles assets of $8.1 million, and share repurchases of $1.6$2.5 million, partially offset by cash generatednet proceeds from operationsour credit facilities of $25.0$2.8 million and net proceeds from the issuance of ordinary shares under our share-based compensation plans of $3.0$1.7 million.
WeThe various impacts of the COVID‑19 pandemic on the U.S. economy, our operations, and our industry have been significant. Nonetheless, at this time, we believe that our cash, the amounts available under our revolving credit facility, and our cash flows from operations will be sufficient to meet our anticipated cash needs for at least the next 12 months.
Cash Flow Analysis
|
| Nine Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| September 27, 2019 |
|
| September 28, 2018 |
|
| March 27, 2020 |
|
| March 29, 2019 |
| ||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||
Cash provided by operating activities |
| $ | 25,003 |
|
| $ | 27,370 |
| ||||||||
Cash used in operating activities |
| $ | (21,036 | ) |
| $ | (423 | ) | ||||||||
Cash used in investing activities |
|
| (16,495 | ) |
|
| (12,828 | ) |
|
| (2,470 | ) |
|
| (4,782 | ) |
Cash used in financing activities |
|
| (22,167 | ) |
|
| (50,825 | ) | ||||||||
Cash provided by (used in) financing activities |
|
| 4,477 |
|
|
| (7,018 | ) | ||||||||
Net decrease in cash |
| $ | (13,659 | ) |
| $ | (36,283 | ) |
| $ | (19,029 | ) |
| $ | (12,223 | ) |
Operating Activities
Our cash generated from operations of $25.0 millionused in operating activities during the first three quartersquarter of 20192020 of $21.0 million consists of net income of $2.8$3.4 million and net non-cash charges of $20.4$9.6 million, and a decreaseoffset by an increase in our net operating assets and liabilities of $1.8$34.0 million. Non-cashNet non-cash charges primarily consist of depreciation and amortization of $16.0$5.7 million and share-based compensation of $4.6$2.9 million. The decreaseincrease in our net operating assets and liabilities was primarily due to an increase in accounts payableinventories of $23.4$16.7 million, a decrease in inventoriesaccounts payable of $15.3$12.4 million, and a decrease in prepaid expenses and other assets of $3.5 million, partially offset by an increase in accounts receivable of $36.9 million and a decrease in accrued and other liabilities of $3.5$2.7 million.
Investing Activities
Our cash used in investing activities during the nine months ended September 27, 2019first quarter of $16.52020 of $2.5 million consistedconsists of capital expenditures of $8.3 million and acquired developed technology assets of $8.1 million.expenditures.
Financing Activities
Our cash used inprovided by financing activities during the nine months ended September 27, 2019first quarter of $22.22020 of $4.5 million consistedconsists of net payments on long-term debtproceeds from our credit facilities of $23.6 million and share repurchases of $1.6$2.8 million, partially offset by net proceeds from the issuance of ordinary shares under our share-based compensation plans of $3.0$1.7 million.
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles.GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.
The critical accounting policies requiring estimates, assumptions, and judgments that we believe have the most significant impact on our consolidated financial statements are identified and described in our annual consolidated financial statements and the notes included in our Annual Report on Form 10‑K for the year ended December 28, 201827, 2019 (our “Annual Report”).
ITEMITEM 3. QUANTITATIVE AND QUALITATIVEQUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Risk
Currently, substantially all of our sales and arrangements with third‑partythird-party suppliers provide for pricing and payment in U.S. dollars and, therefore, are not subject to material exchange rate fluctuations. As a result, we do not expect foreign currency exchange rate fluctuations to have a material effect on our results of operations. However, increases in the value of the U.S. dollar relative to other currencies would make our products more expensive relative to competing products priced in such other currencies, which could negatively impact our ability to compete. Conversely, decreases in the value of the U.S. dollar relative to other currencies could result in our foreign suppliers raising their prices in order to continue doing business with us.
While not currently significant, we do have certain operating expenses that are denominated in currencies of the countries in which our operations are located, and may be subject to fluctuations due to foreign currency exchange rates, particularly the Singapore dollar, Malaysian ringgit, British pound, sterling,euro, and euro.South Korean won. Fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our statementsstatement of operations. To date, foreign currency transaction gains and losses have not been material to our financial statements, and we have not engaged in any foreign currency hedging transactions.
Interest Rate Risk
We had total outstanding debtindebtedness of $181.2$183.8 million as of SeptemberMarch 27, 2019,2020, exclusive of $3.2$2.7 million in debt issuance costs, of which $8.8 million was due within 12 months. The outstanding amount of debt included elsewhere in this report is net of debt issuance costs.
We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. The interest rate on our outstanding debt is variable based on LIBOR, the Prime Rate, or the Federal Funds Rate. A hypothetical 1% change in the interest rate change on our outstanding debt would have resulted in a $0.5 million change to interest expense during the thirdfirst quarter of 2019,2020, or $1.8 million on an annualized basis.
ITEM 4. CONTROLS AND PROCEDURES
We were the target of criminal fraud by persons impersonating one of our suppliers, which resulted in the transfer of funds to unauthorized bank accounts. The fraud did not represent a breach of our information systems, as confirmed by an external forensic examination, but rather it was a targeted phishing scam. Although our internal controls were not properly designed to prevent and timely detect the transfer of funds to unauthorized accounts, a secondary control was properly designed and operated effectively, which aided in a full recovery of all funds that were transferred. Accordingly, there was no financial loss to record in our financial statements.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a‑15(b) under the Exchange Act, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act) as of the end of the period covered by this report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on this evaluation, our CEO and CFO concluded that because of a material weakness in our internal control over financial reporting, our disclosure controls and procedures were not effective as of SeptemberMarch 27, 2019.
Notwithstanding the identified material weakness described below, we did not identify any misstatements in our reported operating results or financial condition and we have determined that the financial statements and other information included in this report and other periodic filings present fairly in all material respects our financial condition, results of operations, and cash flows at and for the periods presented in accordance with U.S. GAAP.
We determined that certain internal controls required for safeguarding our cash assets were not properly designed due to insufficient specificity regarding our policies and procedures surrounding supplier banking information changes, not identifying segregation of duties, and insufficient training on exercising professional skepticism.
Remediation of the Material Weakness
We have initiated a remediation plan and have completed the following actions:
enhanced the approval process for adding or modifying supplier banking information;
increased the level of segregation of duties surrounding those who have the ability to modify supplier information, and;
increased communication of our internal controls and processes and emphasized security awareness and the importance of exercising professional skepticism
We will continue to assess whether additional control enhancements are necessary. After the remediation plan is completed and in effect for a sufficient period of time, we will perform testing to determine its operating effectiveness.2020.
Changes in Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed by, or under the supervision of, a company’s principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate. If we cannot provide reliable financial information, our business, operating results, and share price could be negatively impacted. Other than the changes associated with the remediation plan described above, thereThere have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the ninethree months ended SeptemberMarch 27, 20192020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ForWe are currently not a discussion of legal proceedings, see “Note 1 – Basis of Presentation and Selected Significant Accounting Policies, Commitments and Contingencies” in the Notesparty to Financial Statements (Unaudited) included in this report.any material pending or threatened litigation.
There have been no material changesThis quarterly report should be read in conjunction with the risk factors included in our 2019 Annual Report. The following risk factor supersedes and replaces the risk factors from those disclosedcontained in our 20182019 Annual Report exceptunder the caption entitled, “An outbreak of disease, global or localized health pandemic or epidemic or a similar public health threat, or the fear of such an event may impact economic activity, including, but not limited to demand for our products, workforce availability, and costs to manufacture our products.”
The extent to which the coronavirus (COVID-19) pandemic and measures taken in response thereto impact our business, results of operations and financial condition will continue to depend on future developments, which are highly uncertain and difficult to predict.
We are closely monitoring the outbreak of respiratory illness caused by COVID‑19. The virus has spread to many countries and has been declared by the World Health Organization to be a pandemic, resulting in action from federal, state and local governments that has significantly affected virtually all facets of the U.S. and global economies. The U.S. government has implemented enhanced screenings, quarantine requirements, and travel restrictions in connection with the COVID‑19 outbreak.
Shelter-in-place orders and other measures, including work-from-home and social distancing policies implemented to protect employees, have resulted in reduced workforce availability at product manufacturing sites, construction delays, and reduced capacity at some of our vendors and suppliers. Restrictions on our access to or operation of manufacturing facilities or on our support operations or workforce, or similar limitations for our vendors and suppliers, can impact our ability to meet customer demand and could have a material adverse effect on our financial condition and results of operations, particularly if prolonged. Similarly, current and future restrictions or disruptions of transportation, such as reduced availability of air transport, port closures, and increased border controls or closures, can also impact our ability to meet demand and could materially adversely affect us. Our customers have experienced, and may continue to experience, disruptions in their operations and supply chains, which can result in delayed, reduced, or canceled orders, or collection risks, and which may adversely affect our results of operations.
The disruption to global markets that has occurred due to the epidemic has increased uncertainty for semi-conductor demand. It is likely that the current outbreak and continued spread of COVID‑19 will cause an economic slowdown, and it is possible that it could cause a global recession. There is a significant degree of uncertainty and lack of visibility as to the extent and duration of any such slowdown or recession. Given the significant economic uncertainty and volatility created by the pandemic, it is difficult to predict the nature and extent of impacts on demand for our products. These expectations are subject to change without warning and investors are cautioned not to place undue reliance on them.
The spread of COVID‑19 has caused us to modify our business practices (including employee travel, employee work locations, cancellation of physical participation in meetings, events and conferences, and social distancing measures), and we may take further actions as may be required by government authorities or that we determine are updatingin the risk factor entitled “Inbest interests of our employees, customers, partners, vendors, and suppliers. Work-from-home and other measures introduce additional operational risks, including cybersecurity risks, and have affected the second quarterway we conduct our product development, validation, and qualification, customer support, and other activities, which could have an adverse effect on our operations. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and illness and workforce disruptions could lead to unavailability of 2017, we identified material weaknesses inkey personnel and harm our internal control overability to perform critical functions.
The extent of the impact of COVID‑19 on our operational and financial reportingperformance will depend on future developments, including, but not limited to, the duration and spread of the outbreak and related travel advisories and restrictions, all of which are highly uncertain and cannot be predicted. Preventing the effects from and responding to this market disruption if any other public health threat, related or otherwise, may further increase costs of our business and may identify additionalhave a material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results, prevent fraud or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our share price” as set forth below. These risk factors could materially and adversely affectadverse effect on our business, financial condition, and results of operations.
There are no comparable recent events that provide guidance as to the effect the spread of COVID‑19 as a global pandemic may have, and, as a result, the ultimate impact of the pandemic is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations andor the trading priceglobal economy as a whole. However, the effects could materially heighten many of our ordinary shares could decline. These risk factors do not identify allknown risks that we face – our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.
In previous periods, we identified material weaknesses in our internal control over financial reporting and, if we are unable to satisfy regulatory requirements relating to internal controls or if our internal control over financial reporting is not effective, our business and stock price could be adversely affected.
In connection with Section 404 of the Sarbanes-Oxley Act, we have identifieddescribed in the past and may, from time-to-time in the future, identify issues with“Risk Factors” section of our internal controls and deficiencies in our internal control over financial reporting. The most recent material weakness was identified by management during the quarter ended September 27, 2019 and was related to the prevention and timely detection of unauthorized cash disbursements. In the past, we have identified other material weaknesses in our internal control over financial reporting, as described in our 2018 Annual Report. If our remediation plan is not effective or if our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results, prevent fraud or file our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Share Repurchase ProgramNone.
Information related to repurchases of our ordinary shares during the nine months ended September 27, 2019 is as follows:
|
| Total Number of Shares Repurchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Program |
|
| Amount Available Under Repurchase Program (1) |
| ||||
|
| (dollars in thousands, except per share amounts) |
| |||||||||||||
Amount available at December 28, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 10,021 |
|
December 2018 |
|
| 43,500 |
|
| $ | 16.17 |
|
|
| 43,500 |
|
| $ | 9,317 |
|
January 2019 |
|
| 54,410 |
|
| $ | 16.47 |
|
|
| 54,410 |
|
| $ | 8,421 |
|
February 2019 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 8,421 |
|
March 2019 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 8,421 |
|
Quarter ended March 29, 2019 |
|
| 97,910 |
|
| $ | 16.34 |
|
|
| 97,910 |
|
| $ | 8,421 |
|
Quarter ended June 28, 2019 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 8,421 |
|
Quarter ended September 27, 2019 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 8,421 |
|
|
|
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
|
|
|
Exhibit Number |
| Description |
|
|
|
| ||
| ||
| ||
| ||
101.INS* |
| XBRL Instance Document |
101.SCH* |
| XBRL Taxonomy Extension Schema Document |
101.CAL* |
| XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* |
| XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* |
| XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* |
| XBRL Taxonomy Extension Presentation Linkbase Document |
* | Filed herewith. |
** | Furnished herewith and not filed. |
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.
|
| ICHOR HOLDINGS, LTD. | |
|
|
|
|
Date: |
| By: | /s/ |
|
|
|
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
Date: |
| By: | /s/ Larry J. Sparks |
|
|
| Larry J. Sparks |
|
|
| Chief Financial Officer (Principal Accounting and Financial Officer) |
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