Published: 2021-11-02 00:00:00 ET

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Basis of Presentation

The accompanying condensed consolidated financial information of FormFactor, Inc. is unaudited and has been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). However, such information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the notes thereto included in our 2020 Annual Report on Form 10-K filed with the SEC on February 22, 2021. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

 

Fiscal Year 

We operate on a 52/53 week fiscal year, whereby the fiscal year ends on the last Saturday of December. Fiscal 2021 and 2020 each contain 52 weeks and the nine months ended September 25, 2021 and September 26, 2020 each contained 39 weeks. Fiscal 2021 will end on December 25, 2021.

Significant Accounting Policies

Our significant accounting policies have not changed during the nine months ended September 25, 2021 from those disclosed in our Annual Report on Form 10-K for the year ended December 26, 2020.

New Accounting Pronouncements

ASU 2019-12

In December 2019, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Income Taxes (Topic 740),” which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. We adopted ASU 2019-12 on a prospective basis on December 27, 2020, the first day of fiscal 2021. The adoption did not have a material effect on our consolidated financial position, results of operations or cash flows.

ASU 2020-04

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

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

			Three Months Ended												Nine Months Ended
			September 25, 2021						September 26, 2020						September 25, 2021						September 26, 2020
Intel Corporation			20.8		%				25.6		%				21.7		%				32.4		%
Samsung Electronics., LTD.			12.9		%				10.6		%				10.5		%				*
Taiwan Semiconductor Manufacturing Co., LTD.			*						10.6		%				*						*
Micron Technology, Inc.			*						10.1		%				*						*
			33.7		%				56.9		%				32.2		%				32.4		%

*Represents less than 10% of total revenues.

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

 

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

			September 25, 2021						December 26, 2020
Raw materials			$	55,352					$	48,122
Work-in-progress			41,638						30,806
Finished goods			18,114						20,301
			$	115,104					$	99,229

High Precision Devices, Inc. Acquisition

On October 19, 2020, we acquired HPD for total consideration of $16.9 million, net of cash acquired of $1.7 million, which included an adjustment for changes in working capital. The acquisition was accounted for using the acquisition method of accounting. The acquisition price was allocated to the tangible and identified intangible assets acquired and liabilities assumed as of the closing date of the acquisition based upon their respective fair values, including an amount for goodwill representing the difference between the acquisition consideration and the fair value of the identifiable net assets. The fair values assigned to the assets acquired and liabilities assumed were based on management’s assumptions as of the acquisition date. We subsequently made certain immaterial adjustments within the measurement period to the acquisition price allocation as a result of finalization of our valuation of identifiable assets and liabilities. See Note 5, Goodwill and Intangible Assets, for the changes

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in identified intangible values and goodwill. The final allocation of the assets acquired, including goodwill and intangibles, and liabilities assumed for the purchase is as follows (in thousands):

						Amount
Cash and cash equivalents						$	1,680
Accounts receivable						1,017
Inventories						3,047
Property, plant and equipment						669
Operating lease, right of use assets						2,554
Prepaid expenses and other current assets						916
Tangible assets acquired						9,883
Deferred revenue						(2,529)
Accounts payable and accrued liabilities						(1,268)
Operating lease liabilities						(2,554)
Deferred tax liabilities						(2,400)
Total tangible assets acquired and liabilities assumed						1,132
Intangible assets						11,520
Goodwill						5,908
Net Assets Acquired						$	18,560

The intangible assets as of the acquisition included (in thousands):

						Amount						Weighted Average Useful Life (in years)
Developed technologies						$	7,500					10.0
Customer relationships						3,600						5.0
Order backlog						200						0.5
Trade names						220						5.0
Total intangible assets						$	11,520					8.2

Baldwin Park Acquisition

On July 30, 2020, we acquired the probe card assets of Advantest Corporation for total consideration of $35.0 million. The acquisition was accounted for using the acquisition method of accounting. The acquisition price was allocated to the tangible and identified intangible assets acquired and liabilities assumed as of the closing date of the acquisition based upon their respective fair values including an amount for goodwill representing the difference between the acquisition consideration and the fair value of the identifiable net assets. The fair values assigned to assets acquired and liabilities assumed were based on management's assumptions as of the acquisition date. We subsequently made certain immaterial adjustments within the measurement period to the acquisition price allocation as a result of finalization of our valuation of identifiable assets and liabilities. See Note 5, Goodwill and Intangible Assets, for the changes in identified intangible values and goodwill. The final

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allocation of the assets acquired, including goodwill and intangibles, and liabilities assumed for the purchase as follows (in thousands):

						Amount
Accounts receivable						$	4,365
Inventories						2,727
Property, plant and equipment						9,053
Operating lease, right of use assets						519
Prepaid expenses and other current assets						56
Tangible assets acquired						16,720
Accounts payable and accrued liabilities						(743)
Operating lease liabilities						(519)
Total tangible assets acquired and liabilities assumed						15,458
Intangible assets						13,600
Goodwill						5,942
Net assets acquired						$	35,000

The intangible assets as of the acquisition date included (in thousands):

						Amount						Weighted Average Useful Life (in years)
Developed technologies						$	8,800					10.0
Customer relationships						4,400						3.0
In-process research and development						400						N/A
Total intangible assets						$	13,600					7.7

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

						Probe Cards						Systems						Total
Goodwill, gross, as of December 28, 2019						$	172,482					$	26,714					$	199,196
Addition - FRT GmbH Acquisition						—						975						975
Addition - Baldwin Park Acquisition						5,590						—						5,590
Addition - HPD Acquisition						—						4,654						4,654
Foreign currency translation						—						2,346						2,346
Goodwill, gross, as of December 26, 2020						178,072						34,689						212,761
Addition - Baldwin Park Acquisition						352						—						352
Addition - HPD Acquisition						—						1,254						1,254
Foreign currency translation						—						(1,074)						(1,074)
Goodwill, gross, as of September 25, 2021						$	178,424					$	34,869					$	213,293

We have not recorded goodwill impairments for the nine months ended September 25, 2021.

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Intangible assets were as follows (in thousands):

						September 25, 2021																		December 26, 2020
Intangible Assets						Gross						Accumulated Amortization						Net						Gross						Accumulated Amortization						Net
Developed technologies						$	173,160					$	148,518					$	24,642					$	176,265					$	137,754					$	38,511
Customer relationships						51,514						37,885						13,629						52,488						33,378						19,110
Trade names						8,110						7,586						524						8,162						7,363						799
Order backlog						1,958						1,958						—						2,227						1,900						327
In-process research and development						400						—						400						400						—						400
						$	235,142					$	195,947					$	39,195					$	239,542					$	180,395					$	59,147

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

			Three Months Ended												Nine Months Ended
			September 25, 2021						September 26, 2020						September 25, 2021						September 26, 2020
Cost of revenues			$	858					$	4,985					$	11,453					$	15,661
Selling, general and administrative			1,604						1,547						4,909						4,588
			$	2,462					$	6,532					$	16,362					$	20,249

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

Fiscal Year						Amount
Remainder of 2021						$	2,401
2022						9,592
2023						7,224
2024						4,611
2025						4,351
Thereafter						10,616
						$	38,795

Accrued liabilities consisted of the following (in thousands):

			September 25, 2021						December 26, 2020
Accrued compensation and benefits			$	37,913					$	33,110
Accrued income and other taxes			5,466						6,976
Accrued warranty			2,803						3,918
Employee stock purchase plan contributions withheld			1,924						4,240
Accrued contingent consideration			—						4,012
Accrued restructuring charges			3,675						—
Other accrued expenses			2,844						3,086
			$	54,625					$	55,342

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On September 25, 2021, we adopted restructuring plans to improve our business effectiveness and streamline our operations by consolidating certain manufacturing facilities for both the Probe Cards segment and the Systems segment. This includes plans to consolidate or relocate certain leased locations in the United States to other locations in the United States, Germany and Asia. As a result of these changes to certain work locations, we have incurred, and expect to incur, personnel related costs to sever, relocate, or retain select employees. Additionally, we are undertaking actions to adjust capacity for certain product offerings. As a result of these adjustments, contract termination costs include charges to satisfy contract obligations. The liability was recognized using our best estimate and it is reasonably possible that the final amount will differ from the amount estimated in the near term. We expect the actions defined under these plans will be largely completed by the end of December 2022, except facilities charges which may extend beyond that time.

This plan is expected to result in FormFactor recording restructuring and other charges in the aggregate amount of approximately $8.0 million to $10.5 million, estimated to be comprised primarily of $1.0 million to $2.0 million of severance and employee-related costs, $3.5 million to 4.5 million in contract and lease termination costs, $1.0 million to $1.5 million in inventory impairments, and $2.0 million to $2.5 million of cost related to impairment of leasehold improvements, facility exits, and other costs. Approximately $5.0 million to $6.0 million and $3.0 million to $4.5 million is expected within the Probe Cards segment and Systems segment, respectively.

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

			Three Months Ended																		Nine Months Ended
			September 25, 2021																		September 25, 2021
			Probe Cards						Systems						Total						Probe Cards						Systems						Total
Cost of revenues			$	4,070					$	252					$	4,322					$	4,070					$	420					$	4,490
Research and development			—						289						289						—						694						694
Selling, general and administrative			—						22						22						—						83						83
			$	4,070					$	563					$	4,633					$	4,070					$	1,197					$	5,267

Changes to the restructuring accrual in the nine months ended September 25, 2021 were as follows (in thousands):

			Employee Severance and Benefits						Inventory Impairments						Property and Equipment Impairments						Contract Termination Costs												Total
December 26, 2020			$	—					$	—					$	—					$	—											$	—
Restructuring charges			875						1,322						270						2,800												5,267
Non-cash settlement			—						(1,322)						(270)						—												(1,592)
September 25, 2021			$	875					$	—					$	—					$	2,800											$	3,675

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

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

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

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

We did not have any transfers of assets or liabilities measured at fair value on a recurring basis to or from Level 1, Level 2 or Level 3 during the three and nine months ended September 25, 2021 or the year ended December 26, 2020.

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

No changes were made to our valuation techniques during the first nine months of fiscal 2021.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

September 25, 2021						Level 1						Level 2						Level 3						Total
Assets:
Cash equivalents:
Money market funds						$	12,621					$	—					$	—					$	12,621
U.S. treasuries						5,300						—						—						5,300
						17,921						—						—						17,921
Marketable securities:
U.S. treasuries						37,135						—						—						37,135
Certificates of deposit						—						723						—						723
U.S. agency securities						—						575						—						575
Corporate bonds						—						27,336						—						27,336
Commercial paper						—						45,129						—						45,129
						37,135						73,763						—						110,898
Interest rate swap derivative contracts						—						548						—						548
Total assets						$	55,056					$	74,311					$	—					$	129,367
Liabilities:
Foreign exchange derivative contracts (Designated)						$	—					$	(258)					$	—					$	(258)
Interest rate swap derivative contracts						—						(100)						—						(100)
Total liabilities						$	—					$	(358)					$	—					$	(358)

December 26, 2020						Level 1						Level 2						Level 3						Total
Assets:
Cash equivalents:
Money market funds						$	43,019					$	—					$	—					$	43,019
Marketable securities:
U.S. treasuries						40,726						—						—						40,726
Certificates of deposit						—						2,179						—						2,179
U.S. agency securities						—						575						—						575
Corporate bonds						—						24,330						—						24,330
						40,726						27,084						—						67,810
Foreign exchange derivative contracts						—						1,057						—						1,057
Interest rate swap derivative contracts						—						57						—						57
Total assets						$	83,745					$	28,198					$	—					$	111,943
Liabilities:
Interest rate swap derivative contracts						$	—					$	(87)					$	—					$	(87)
Contingent consideration						—						—						(4,012)						(4,012)
Total liabilities						$	—					$	(87)					$	(4,012)					$	(4,099)

 

Cash Equivalents

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

Marketable Securities

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

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

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

Contingent Consideration

Contingent consideration, arising from the acquisition of FRT GmbH, was a cash amount equal to 1.5x EBIT as defined in the purchase agreement, up to a maximum of €10.3 million, payable subject to the performance of the acquired business in calendar 2020. We estimated the fair value of contingent consideration using a probability weighted approach. Key assumptions in determining the fair value of contingent consideration included estimating EBIT levels that we believed as of the acquisition date were likely to be achieved during the performance period and discounting at an appropriate discount rate. We settled our contingent consideration in the second quarter of fiscal 2021 for $3.9 million, resulting in a $0.1 million credit to Selling, general and administrative expense with the remaining change from December 26, 2020 resulting from foreign currency translation.

Interest Rate Swaps

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

Foreign Exchange Derivative Contracts

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

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

The fair value of our foreign exchange derivative contracts was determined based on current foreign currency exchange rates and forward points. All of our foreign exchange derivative contracts outstanding at September 25, 2021 will mature by the third quarter of fiscal 2022.

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The following table provides information about our foreign currency forward contracts outstanding as of September 25, 2021 (in thousands):

Currency						Contract Position						Contract Amount (Local Currency)						Contract Amount (U.S. Dollars)
Euro Dollar						Buy						(11,900)						$	(14,245)
Euro Dollar						Sell						2,520						2,953
Japanese Yen						Sell						1,992,865						17,994
Korean Won						Buy						(2,513,139)						(2,138)
Taiwan Dollar						Sell						7,440						269
Total USD notional amount of outstanding foreign exchange contracts																		$	4,833

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

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

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

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

			Nine Months Ended
			September 25, 2021						September 26, 2020
Balance at beginning of period			$	3,918					$	1,942
Accruals			4,688						2,771
Settlements			(5,803)						(2,838)
Balance at end of period			$	2,803					$	1,875

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

			September 25, 2021						December 26, 2020
Land			$	4,751					$	4,751
Machinery and equipment			243,729						226,185
Computer equipment and software			44,241						36,361
Furniture and fixtures			6,930						6,894
Leasehold improvements			82,072						79,144
Sub-total			381,723						353,335
Less: Accumulated depreciation and amortization			(309,592)						(294,468)
Net, property, plant and equipment			72,131						58,867
Construction-in-process			67,967						45,236
Total			$	140,098					$	104,103

Common Stock Repurchase Program

On October 26, 2020, our Board of Directors authorized a program to repurchase up to $50 million of outstanding common stock to offset potential dilution from issuances of common stock under our stock-based compensation plans. The share repurchase program will expire on October 28, 2022. During the nine months ended September 25, 2021, we repurchased and retired 620,200 shares of common stock for $24.0 million and, as of September 25, 2021, $26.0 million remained available for future repurchases.

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

Restricted Stock Units

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

			Units						Weighted Average Grant Date Fair Value
RSUs at December 26, 2020			2,840,922						$	19.80
Awards granted			1,030,085						36.09
Awards vested			(1,457,554)						16.95
Awards forfeited			(38,128)						23.82
RSUs at September 25, 2021			2,375,325						28.55

Performance Restricted Stock Units

We may grant Performance RSUs (“PRSUs”) to certain executives, which vest based upon us achieving certain market performance criteria.

On August 2, 2021, we granted 197,128 PRSUs to certain senior executives for a total grant date fair value of $8.6 million, which will be recognized ratably over the requisite service period. The performance criteria are based on Total Shareholder Returns ("TSR") for the period of July 1, 2021 - June 30, 2024, relative to the TSR of the companies identified as being part of the S&P semiconductor Select Industry Index (FormFactor peer companies) as of the grant date.

All 318,100 PRSUs granted in fiscal 2018 vested during the nine months ended September 25, 2021. These shares achieved TSR performance that resulted in an additional 124,600 shares issued during the nine months ended September 25, 2021 related to the 2018 PRSU grant.

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There were no other PRSUs granted during the nine months ended September 25, 2021. PRSUs are included as part of the RSU activity above.

Stock Options

Stock option activity under our equity incentive plan was as follows:

						Options Outstanding						Weighted Average Exercise Price						Weighted Average Remaining Contractual Life in Years						Aggregate Intrinsic Value (in thousands)
Outstanding at December 26, 2020						106,000						$	8.35
Options exercised						(100,000)						8.44
Outstanding at September 25, 2021						6,000						$	6.93					0.86						$	201
Vested and expected to vest at September 25, 2021						6,000						$	6.93					0.86						$	201
Exercisable at September 25, 2021						6,000						$	6.93					0.86						$	201

Employee Stock Purchase Plan

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

						Nine Months Ended
						September 25, 2021
Shares issued						378,584
Weighted average per share purchase price						$	25.91
Weighted average per share discount from the fair value of our common stock on the date of issuance						$	(13.53)

Stock-Based Compensation

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

			Three Months Ended												Nine Months Ended
			September 25, 2021						September 26, 2020						September 25, 2021						September 26, 2020
Cost of revenues			$	1,392					$	962					$	3,806					$	2,800
Research and development			2,010						1,326						5,362						4,154
Selling, general and administrative			4,518						3,221						12,417						9,820
Total stock-based compensation			$	7,920					$	5,509					$	21,585					$	16,774

 

Unrecognized Compensation Costs

At September 25, 2021, the unrecognized stock-based compensation was as follows (dollars in thousands): 

			Unrecognized Expense						Average Expected Recognition Period in Years
Restricted stock units			$	43,364					2.33
Performance restricted stock units			13,523						2.28
Employee stock purchase plan			1,806						0.36
Total unrecognized stock-based compensation expense			$	58,693					2.26

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

			Three Months Ended												Nine Months Ended
			September 25, 2021						September 26, 2020						September 25, 2021						September 26, 2020
Weighted-average shares used in computing basic net income per share			77,869						77,029						77,643						76,436
Add potentially dilutive securities			1,160						1,780						1,547						2,098
Weighted-average shares used in computing diluted net income per share			79,029						78,809						79,190						78,534
Securities not included as they would have been antidilutive			121						264						109						354

Leases

See Note 14, Leases.

Contractual Obligations and Commitments

Our contractual obligations and commitments have not materially changed as of September 25, 2021 from those disclosed in our Annual Report on Form 10-K for the year ended December 26, 2020.

Legal Matters

We lease real estate space under non-cancelable operating lease agreements for commercial and industrial space, as well as for our corporate headquarters located in Livermore, California. Our leases have remaining terms of 1 to 7 years, and some leases include options to extend up to 20 years. We also have operating leases for automobiles with remaining lease terms of 1 to 4 years. We did not include any of our renewal options in our lease terms for calculating our lease liability as the renewal options allow us to maintain operational flexibility and we are not reasonably certain we will exercise these options at this time. The weighted-average remaining lease term for our operating leases was 6 years as of September 25, 2021 and the weighted-average discount rate was 3.72%.

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

			Three Months Ended												Nine Months Ended
			September 25, 2021						September 26, 2020						September 25, 2021						September 26, 2020
Lease expense:
Operating lease expense			$	2,167					$	1,818					$	6,338					$	5,536
Short-term lease expense			51						32						133						94
Variable lease expense			461						372						1,424						1,159
			$	2,679					$	2,222					$	7,895					$	6,789

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Future minimum payments under our non-cancelable operating leases were as follows as of September 25, 2021 (in thousands):

Fiscal Year						Amount
Remainder of 2021						$	2,116
2022						8,536
2023						7,167
2024						6,744
2025						6,726
Thereafter						14,815
Total minimum lease payments						46,104
Less: interest						(5,741)
Present value of net minimum lease payments						40,363
Less: current portion						(7,962)
Total long-term operating lease liabilities						$	32,401

Transaction price allocated to the remaining performance obligations: On September 25, 2021, we had $10.0 million of remaining performance obligations, which were comprised of deferred service contracts and extended warranty contracts and contracts with overtime revenue recognition that are not yet delivered. We expect to recognize approximately 27.9% of our remaining performance obligations as revenue in the remainder of fiscal 2021, approximately 55.8% in fiscal 2022, and approximately 16.3% in fiscal 2023 and thereafter. The foregoing excludes the value of other remaining performance obligations as they have original durations of one year or less, and also excludes information about variable consideration allocated entirely to a wholly unsatisfied performance obligation.

Contract balances: The timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable is recorded at the invoiced amount, net of an allowance for doubtful accounts. A receivable is recognized in the period we deliver goods or provide services or when our right to consideration is unconditional. A contract asset is recorded when we have performed under the contract but our right to consideration is conditional on something other than the passage of time. Contract assets as of September 25, 2021 and December 26, 2020 were $2.4 million and $3.7 million, respectively, and are reported on the Condensed Consolidated Balance Sheets as a component of Prepaid expenses and other current assets.

Contract liabilities include payments received in advance of performance under a contract and are satisfied as the associated revenue is recognized. Contract liabilities are reported on the Condensed Consolidated Balance Sheets at the end of each reporting period as a component of Deferred revenue and Other liabilities. Contract liabilities as of September 25, 2021 and December 26, 2020 were $24.3 million and $22.2 million, respectively. During the nine months ended September 25, 2021, we recognized $15.0 million of revenue, that was included in contract liabilities as of December 26, 2020.

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

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

			Three Months Ended
			September 25, 2021																								September 26, 2020
			Probe Cards						Systems						Corporate and Other						Total						Probe Cards						Systems						Corporate and Other						Total
Revenues			$	154,850					$	35,114					$	—					$	189,964					$	150,773					$	27,223					$	—					$	177,996
Gross profit			$	69,868					$	17,553					$	(7,202)					$	80,219					$	69,641					$	13,565					$	(6,457)					$	76,749
Gross margin			45.1		%				50.0		%										42.2		%				46.2		%				49.8		%										43.1		%
			Nine Months Ended
			September 25, 2021																								September 26, 2020
			Probe Cards						Systems						Corporate and Other						Total						Probe Cards						Systems						Corporate and Other						Total
Revenues			$	467,389					$	97,287					$	—					$	564,676					$	419,272					$	77,301					$	—					$	496,573
Gross profit			$	206,783					$	48,059					$	(21,634)					$	233,208					$	191,907					$	37,618					$	(19,219)					$	210,306
Gross margin			44.2		%				49.4		%										41.3		%				45.8		%				48.7		%										42.4		%

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

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

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

			Three Months Ended
			September 25, 2021																		September 26, 2020
			Probe Cards						Systems						Total						Probe Cards						Systems						Total
Market:
Foundry & Logic			$	104,640					$	—					$	104,640					$	108,411					$	—					$	108,411
DRAM			39,816						—						39,816						31,379						—						31,379
Flash			10,394						—						10,394						10,983						—						10,983
Systems			—						35,114						35,114						—						27,223						27,223
Total			$	154,850					$	35,114					$	189,964					$	150,773					$	27,223					$	177,996
Timing of revenue recognition:
Products transferred at a point in time			$	154,217					$	33,564					$	187,781					$	150,252					$	25,987					$	176,239
Products and services transferred over time			633						1,550						2,183						521						1,236						1,757
Total			$	154,850					$	35,114					$	189,964					$	150,773					$	27,223					$	177,996
Geographical region:
China			$	46,011					$	5,036					$	51,047					$	24,851					$	3,695					$	28,546
Taiwan			34,100						7,474						41,574						33,351						3,584						36,935
South Korea			27,895						1,077						28,972						28,337						1,234						29,571
United States			18,530						6,938						25,468						31,596						4,732						36,328
Asia-Pacific1			18,566						1,315						19,881						5,505						3,449						8,954
Japan			5,767						4,961						10,728						12,288						4,857						17,145
Europe			3,595						6,891						10,486						11,679						5,300						16,979
Rest of the world			386						1,422						1,808						3,166						372						3,538
Total			$	154,850					$	35,114					$	189,964					$	150,773					$	27,223					$	177,996

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			Nine Months Ended
			September 25, 2021																		September 26, 2020
			Probe Cards						Systems						Total						Probe Cards						Systems						Total
Market:
Foundry & Logic			$	321,776					$	—					$	321,776					$	323,503					$	—					$	323,503
DRAM			115,802						—						115,802						75,127						—						75,127
Flash			29,811						—						29,811						20,642						—						20,642
Systems			—						97,287						97,287						—						77,301						77,301
Total			$	467,389					$	97,287					$	564,676					$	419,272					$	77,301					$	496,573
Timing of revenue recognition:
Products transferred at a point in time			$	465,822					$	89,119					$	554,941					$	417,529					$	73,393					$	490,922
Products and services transferred over time			1,567						8,168						9,735						1,743						3,908						5,651
Total			$	467,389					$	97,287					$	564,676					$	419,272					$	77,301					$	496,573
Geographical region:
Taiwan			$	125,571					$	13,467					$	139,038					$	93,596					$	8,290					$	101,886
China			107,838						17,661						125,499						107,756						13,190						120,946
United States			64,012						23,592						87,604						79,575						16,790						96,365
South Korea			81,322						2,912						84,234						56,278						2,494						58,772
Asia-Pacific1			59,013						4,114						63,127						14,307						9,010						23,317
Europe			12,894						19,601						32,495						36,656						15,498						52,154
Japan			14,493						13,260						27,753						24,502						11,072						35,574
Rest of the world			2,246						2,680						4,926						6,602						957						7,559
Total			$	467,389					$	97,287					$	564,676					$	419,272					$	77,301					$	496,573

1 Asia-Pacific includes all countries in the region except China, Japan, South Korea, and Taiwan, which are disclosed separately.

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