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Published: 2022-11-01 16:01:59 ET
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 Form 10-Q
 
(Mark one)
☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 24, 2022
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: 000-50307
 
FormFactor, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3711155
(State or other jurisdiction of
incorporation or organization)		 (I.R.S. Employer
Identification No.)
 
7005 Southfront Road, Livermore, California 94551
(Address of principal executive offices, including zip code)
 
(925) 290-4000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section12(b) of the Act:
Title of each classTrading Symbol(s) Name of each exchange on which registered
Common stock, $0.001 par valueFORM Nasdaq Global Market
 ______________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes ☒  No ☐
 
Indicate by check mark whether the registrant submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of the Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer☒Accelerated Filer☐Non-accelerated Filer☐
Smaller Reporting Company☐Emerging Growth Company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐   

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

As of October 27, 2022, 77,025,103 shares of the registrant’s common stock, par value $0.001 per share, were outstanding.




FORMFACTOR, INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 24, 2022
INDEX
 
   
 
   
 
   
  
 
  
 
  
  
  
  
  
  
 

2

PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
FORMFACTOR, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
 September 24,
2022		December 25,
2021
ASSETS 
Current assets:  
Cash and cash equivalents$120,602 $151,010 
Marketable securities130,991 125,055 
Accounts receivable, net of allowance for credit losses of $190 and $195
110,497 115,541 
Inventories, net132,029 111,548 
Restricted cash1,263 2,233 
Prepaid expenses and other current assets20,932 18,652 
Total current assets516,314 524,039 
Restricted cash1,840 2,099 
Operating lease, right-of-use-assets31,508 35,210 
Property, plant and equipment, net of accumulated depreciation163,384 146,555 
Goodwill209,105 212,299 
Intangibles, net28,208 36,342 
Deferred tax assets67,775 61,995 
Other assets4,229 1,981 
Total assets$1,022,363 $1,020,520 
LIABILITIES AND STOCKHOLDERS’ EQUITY 
Current liabilities: 
Accounts payable$75,021 $57,862 
Accrued liabilities46,328 50,836 
Current portion of term loans, net of unamortized issuance costs2,734 8,931 
Deferred revenue31,974 23,224 
Operating lease liabilities7,699 7,901 
Total current liabilities163,756 148,754 
Term loans, less current portion, net of unamortized issuance costs14,653 15,434 
Deferred tax liabilities2,232 3,623 
Long-term operating lease liabilities27,858 31,009 
Other liabilities5,562 5,920 
Total liabilities214,061 204,740 
 
Stockholders’ equity: 
Common stock, $0.001 par value:
 
250,000,000 shares authorized; 77,265,099 and 78,240,506 shares issued and outstanding
77 78 
Additional paid-in capital843,453 898,945 
Accumulated other comprehensive loss(17,899)(1,449)
Accumulated deficit(17,329)(81,794)
Total stockholders’ equity808,302 815,780 
Total liabilities and stockholders’ equity$1,022,363 $1,020,520 
 
The accompanying notes are an integral part of these condensed consolidated financial statements. 
3

FORMFACTOR, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 Three Months EndedNine Months Ended
 September 24,
2022		September 25,
2021		September 24,
2022		September 25,
2021
Revenues$180,869 $189,964 $581,950 $564,676 
Cost of revenues118,656 109,745 331,144 331,468 
Gross profit62,213 80,219 250,806 233,208 
Operating expenses:    
Research and development26,549 26,026 82,000 75,526 
Selling, general and administrative31,637 30,940 97,949 91,434 
Total operating expenses58,186 56,966 179,949 166,960 
Operating income4,027 23,253 70,857 66,248 
Interest income709 121 1,147 463 
Interest expense(152)(151)(463)(447)
Other income, net1,041 58 1,784 36 
Income before income taxes5,625 23,281 73,325 66,300 
Provision for income taxes1,274 2,784 8,860 8,273 
Net income$4,351 $20,497 $64,465 $58,027 
Net income per share: 
Basic $0.06 $0.26 $0.83 $0.75 
Diluted$0.06 $0.26 $0.82 $0.73 
Weighted-average number of shares used in per share calculations:   
Basic 77,245 77,869 77,796 77,643 
Diluted77,688 79,029 78,492 79,190 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4

FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three Months EndedNine Months Ended
September 24,
2022		September 25,
2021		September 24,
2022		September 25,
2021
Net income $4,351 $20,497 $64,465 $58,027 
Other comprehensive loss, net of tax:
Translation adjustments(7,348)(1,511)(13,902)(3,258)
Unrealized losses on available-for-sale marketable securities(674)(62)(2,425)(290)
Unrealized losses on derivative instruments(881)(323)(123)(638)
Other comprehensive loss, net of tax:(8,903)(1,896)(16,450)(4,186)
Comprehensive income (loss)$(4,552)$18,601 $48,015 $53,841 

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

5

FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except shares)
(Unaudited)
 Shares of
Common
Stock		Common
Stock		Additional
Paid-in
Capital		Accumulated
Other
Comprehensive
 Income (Loss)		Accumulated
Deficit		Total
Nine Months Ended September 24, 2022
Balances, December 25, 202178,240,506 $78 $898,945 $(1,449)$(81,794)$815,780 
Issuance of common stock under the Employee Stock Purchase Plan316,861 — 10,457 — — 10,457 
Issuance of common stock pursuant to exercise of options6,000 — 42 — — 42 
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax713,554 1 (15,564)— — (15,563)
Purchase and retirement of common stock through repurchase program(2,011,822)(2)(73,476)— — (73,478)
Stock-based compensation— — 23,049 — — 23,049 
Other comprehensive loss— — — (16,450)— (16,450)
Net income— — — — 64,465 64,465 
Balances, September 24, 202277,265,099 $77 $843,453 $(17,899)$(17,329)$808,302 
Three Months Ended September 24, 2022
Balances, June 25, 202277,194,733 $77 $860,584 $(8,996)$(21,680)$829,985 
Issuance of common stock under the Employee Stock Purchase Plan159,219 — 4,812 — — 4,812 
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax479,478 1 (11,321)— — (11,320)
Purchase and retirement of common stock through repurchase program(568,331)(1)(19,149)— — (19,150)
Stock-based compensation— — 8,527 — — 8,527 
Other comprehensive loss— — — (8,903)— (8,903)
Net income— — — — 4,351 4,351 
Balances, September 24, 202277,265,099 $77 $843,453 $(17,899)$(17,329)$808,302 

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



6


FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except shares)
(Unaudited)
Shares of
Common
Stock		Common
Stock		Additional
Paid-in
Capital		Accumulated
Other
Comprehensive
 Income (Loss)		Accumulated
Deficit		Total
Nine Months Ended September 25, 2021
Balances, December 26, 202077,437,997 $78 $903,838 $5,886 $(165,718)$744,084 
Issuance of common stock under the Employee Stock Purchase Plan378,584 — 9,809 — — 9,809 
Issuance of common stock pursuant to exercise of options100,000 — 844 — — 844 
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax910,838 1 (19,602)— — (19,601)
Purchase and retirement of common stock through repurchase program(620,200)(1)(23,950)— — (23,951)
Stock-based compensation— — 21,364 — — 21,364 
Other comprehensive loss— — — (4,186)— (4,186)
Net income— — — — 58,027 58,027 
Balances, September 25, 202178,207,219 $78 $892,303 $1,700 $(107,691)$786,390 
Three Months Ended September 25, 2021
Balances, June 26, 202177,454,800 $77 $894,062 $3,596 $(128,188)$769,547 
Issuance of common stock under the Employee Stock Purchase Plan149,800 — 4,744 — — 4,744 
Issuance of common stock pursuant to vesting of restricted stock units, net of stock withheld for tax602,619 1 (14,341)— — (14,340)
Stock-based compensation— — 7,838 — — 7,838 
Other comprehensive income— — — (1,896)— (1,896)
Net income— — — — 20,497 20,497 
Balances, September 25, 202178,207,219 $78 $892,303 $1,700 $(107,691)$786,390 

The accompanying notes are an integral part of these condensed consolidated financial statements.
7

FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Nine Months Ended
 September 24,
2022		September 25,
2021
Cash flows from operating activities:  
Net income $64,465 $58,027 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation21,189 19,256 
Amortization7,056 16,362 
Reduction in the carrying amount of right-of-use assets5,900 5,412 
Stock-based compensation expense21,873 21,585 
Deferred income tax benefit(6,881)(873)
Provision for excess and obsolete inventories16,078 11,621 
Non-cash restructuring charges710 1,592 
Gain on contingent consideration— (95)
Other adjustments to reconcile net income to net cash provided by operating activities3,356 2,500 
Changes in assets and liabilities:
Accounts receivable1,654 1,157 
Inventories(33,023)(30,335)
Prepaid expenses and other current assets(2,016)3,631 
Other assets(117)(333)
Accounts payable17,613 1,488 
Accrued liabilities(5,035)(6,951)
Other liabilities276 47 
Deferred revenues3,776 2,000 
Operating lease liabilities(5,826)(5,654)
Net cash provided by operating activities111,048 100,437 
Cash flows from investing activities:  
Acquisition of property, plant and equipment(39,024)(51,353)
Acquisition of business(3,350)— 
Purchases of marketable securities(80,249)(114,898)
Purchase of promissory note receivable(1,000)— 
Proceeds from maturities and sales of marketable securities71,610 71,275 
Net cash used in investing activities(52,013)(94,976)
Cash flows from financing activities:  
Proceeds from issuances of common stock10,499 10,647 
Purchase of common stock through stock repurchase program(73,478)(23,951)
Tax withholdings related to net share settlements of equity awards(15,564)(12,643)
Payment of contingent consideration— (3,873)
Principal repayments on term loans(6,421)(7,049)
Net cash used in financing activities(84,964)(36,869)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(5,708)(2,216)
Net decrease in cash, cash equivalents and restricted cash(31,637)(33,624)
Cash, cash equivalents and restricted cash, beginning of period155,342 191,098 
Cash, cash equivalents and restricted cash, end of period$123,705 $157,474 

The accompanying notes are an integral part of these condensed consolidated financial statements.
8


FORMFACTOR, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 24,
2022		September 25,
2021
Non-cash investing and financing activities:
Increase in accounts payable and accrued liabilities related to property, plant and equipment purchases$341 $4,684 
Increase in accrued liabilities related to tax withholdings related to net share settlements of equity awards— 6,952 
Operating lease, right-of-use assets obtained in exchange for lease obligations3,457 11,699 
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net$9,911 $6,795 
Cash paid for interest455 496 
Operating cash outflows from operating leases6,670 6,553 
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents$120,602 $153,781 
Restricted cash, current1,263 2,019 
Restricted cash, non-current1,840 1,674 
Total cash, cash equivalents and restricted cash$123,705 $157,474 

The accompanying notes are an integral part of these condensed consolidated financial statements.
9

FORMFACTOR, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Note 1 — Basis of Presentation and New Accounting Pronouncements
 
Basis of Presentation
The accompanying condensed consolidated financial information of FormFactor, Inc. is unaudited and has been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). However, such information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements and the notes thereto included in our 2021 Annual Report on Form 10-K filed with the SEC on February 18, 2022. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.
 
Fiscal Year 
We operate on a 52/53 week fiscal year, whereby the fiscal year ends on the last Saturday of December. Fiscal 2022 and 2021 contain 53 weeks and 52 weeks, respectively, and the nine months ended September 24, 2022 and September 25, 2021 each contained 39 weeks. Fiscal 2022 will end on December 31, 2022.

Significant Accounting Policies
Our significant accounting policies have not changed during the nine months ended September 24, 2022 from those disclosed in our Annual Report on Form 10-K for the year ended December 25, 2021.

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

New Accounting Pronouncements
ASU 2021-08
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification 606, “Revenue from Contracts with Customers,” as if it had originated the contracts. The Company elected to early adopt on a prospective basis during the second quarter of fiscal 2022. The adoption did not have a material effect on the Company's Consolidated Financial Statements.

Note 2 — Concentration of Credit and Other Risks

Each of the following customers accounted for 10% or more of our revenues for the periods indicated:
Three Months EndedNine Months Ended
September 24,
2022		September 25,
2021		September 24,
2022		September 25,
2021
Intel Corporation17.0 %20.8 %19.7 %21.7 %
SK Hynix Inc.10.7 ***
Samsung Electronics., LTD.*12.9 %*10.5 %
27.7 %33.7 %19.7 %32.2 %

At September 24, 2022, one customer accounted for 18.1% of gross accounts receivable. At December 25, 2021, one customer accounted for 13.8% of gross accounts receivable.

Note 3 — Inventories, net

Inventories are stated at the lower of cost (principally standard cost, which approximates actual cost on a first in, first out basis) or net realizable value.
 
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Inventories, net, consisted of the following (in thousands):
September 24,
2022		December 25,
2021
Raw materials$61,312 $57,673 
Work-in-progress48,439 35,935 
Finished goods22,278 17,940 
$132,029 $111,548 

Note 4 — Acquisition

Woburn Acquisition
On June 9, 2022, we acquired the assets of the dilution refrigerator product line of American ULT Cryogenics, formerly d/b/a JanisULT (“Woburn”), for total consideration of $3.4 million. This acquisition adds cryogen-free dilution refrigerators capable of cooling to sub-10 millikelvin to our product portfolio, which is required for operation of superconducting quantum computers.

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. The fair values assigned to assets acquired and liabilities assumed were based on management’s assumptions as of the reporting date. Goodwill represents the excess of purchase price over the fair value assigned to the assets acquired and liabilities assumed and is allocated to the HPD reporting unit within the Systems reportable segment. The identified intangible asset, developed technology, has a useful life of three years.

Our purchase accounting remains open as of the reporting date, with the purchase price preliminarily allocated to acquired assets and liabilities assumed that are subject to change as more information becomes available. The primary areas of the purchase price allocation that are not yet finalized relate to the valuation of inventories, developed technology intangible asset, and residual goodwill. The preliminary fair value of assets acquired, including goodwill and intangibles, and liabilities assumed for the purchase as follows (in thousands):
Amount
Accounts receivable$178 
Inventories7,041 
Property, plant and equipment479 
Prepaid expenses and other current assets117 
Other assets28 
Tangible assets acquired7,843 
Deferred revenue(5,513)
Accounts payable and accrued liabilities(30)
Total tangible assets acquired and liabilities assumed2,300 
Developed technology intangible asset500 
Goodwill550 
Net assets acquired$3,350 

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Note 5 — Goodwill and Intangible Assets

Goodwill by reportable segment was as follows (in thousands):
Probe CardsSystemsTotal
Goodwill, as of December 26, 2020$178,072 $34,689 $212,761 
Addition - Baldwin Park Acquisition352 — 352 
Addition - HPD Acquisition— 1,254 1,254 
Foreign currency translation— (2,068)(2,068)
Goodwill, as of December 25, 2021178,424 33,875 212,299 
Addition - Woburn Acquisition— 550 550 
Foreign currency translation— (3,744)(3,744)
Goodwill, as of June 25, 2022$178,424 $30,681 $209,105 

We have not recorded goodwill impairments for the nine months ended September 24, 2022.

Intangible assets were as follows (in thousands):
September 24, 2022December 25, 2021
Intangible Assets GrossAccumulated
Amortization		NetGrossAccumulated
Amortization		Net
Existing developed technologies $169,246 $148,916 $20,330 $172,259 $148,784 $23,475 
Customer relationships50,316 43,094 7,222 51,270 39,254 12,016 
Trade name7,835 7,579 256 8,054 7,603 451 
Backlog— — — 1,896 1,896 — 
In-process research and development400 — 400 400 — 400 
$227,797 $199,589 $28,208 $233,879 $197,537 $36,342 

Amortization expense was included in our Condensed Consolidated Statements of Income as follows (in thousands):
 Three Months EndedNine Months Ended
 September 24,
2022		September 25,
2021		September 24,
2022		September 25,
2021
Cost of revenues$824 $858 $2,420 $11,453 
Selling, general and administrative1,530 1,604 4,636 4,909 
$2,354 $2,462 $7,056 $16,362 

The estimated future amortization of definite-lived intangible assets, excluding in-process research and development, is as follows (in thousands):
Fiscal YearAmount
Remainder of 2022$2,307 
20236,944 
20244,393 
20254,062 
20263,011 
Thereafter7,091 
$27,808 

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Note 6 — Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):
September 24,
2022		December 25,
2021
Accrued compensation and benefits$23,398 $29,706 
Accrued income and other taxes11,835 8,086 
Accrued warranty3,806 2,805 
Employee stock purchase plan contributions withheld1,979 4,693 
Accrued restructuring charges— 2,478 
Other accrued expenses5,310 3,068 
$46,328 $50,836 

Note 7 — Restructuring Charges

On September 25, 2021, we adopted restructuring plans to improve our business effectiveness and streamline our operations by consolidating certain manufacturing facilities for both the Probe Cards segment and the Systems segment. This included plans to consolidate or relocate certain leased locations in the United States to other locations in the United States, Germany and Asia. As a result of these changes to certain work locations, we have incurred personnel-related costs to sever, relocate, or retain select employees. Additionally, this included plans to adjust capacity for certain product offerings, which resulted in contract termination costs and receipt of inventories ultimately deemed to be impaired to satisfy contract obligations. We expect the actions defined under these plans will be largely completed by the end of December 2022, except facilities charges which may extend beyond that time.

These plans are expected to result in FormFactor recording restructuring and other charges in the aggregate amount of approximately $10.5 million to $12.6 million, estimated to be comprised primarily of $1.0 million to $1.2 million of severance and employee-related costs, $1.5 million to $1.9 million in contract and lease termination costs, $7.5 million to $8.5 million in inventory impairments, and $0.5 million to $1.0 million of cost related to impairment of leasehold improvements, facility exits, and other costs. Approximately $8.7 million to $9.7 million is expected within the Probe Cards segment and $1.8 million to $2.9 million is expected within the Systems segments.

The Company has recognized restructuring and other charges to date in the aggregate amount of $11.2 million, comprised of $1.2 million of severance and employee-related costs, $1.5 million in contract and lease termination costs, $8.0 million in inventory impairments, and $0.6 million of cost related to impairment of leasehold improvements, facility exits and other costs.

During the three months ended September 24, 2022 we reassessed the estimate for excess inventory received to satisfy our contract obligations from our adjustment of certain product offerings. As a result of receiving additional clarity regarding future customer demand, we recorded an additional $5.9 million inventory impairment not included in our original estimate of restructuring charges.

13

Restructuring charges by reportable segment included in our Condensed Consolidated Statements of Income were as follows (in thousands):
Three Months Ended
September 24, 2022September 25, 2021
Probe CardsSystemsTotalProbe CardsSystemsTotal
Cost of revenues$5,928 $132 $6,060 $4,070 $252 $4,322 
Research and development38 29 67 — 289 289 
Selling, general and administrative— 47 47 — 22 22 
$5,966 $208 $6,174 $4,070 $563 $4,633 
Nine Months Ended
September 24, 2022September 25, 2021
Probe CardsSystemsTotalProbe CardsSystemsTotal
Cost of revenues$6,194 $459 $6,653 $4,070 $420 $4,490 
Research and development38 228 266 — 694 694 
Selling, general and administrative3 146 149 — 83 83 
$6,235 $833 $7,068 $4,070 $1,197 $5,267 

Changes to the restructuring accrual in the nine months ended September 24, 2022 were as follows (in thousands):
Employee Severance
and Benefits		Inventory
Impairments		Property and Equipment Impairments and Move CostsContract
 Termination Costs		Total
December 25, 2021$1,028 $— $— $1,450 $2,478 
Restructuring charges152 6,580 292 44 7,068 
Cash payments(1,180)(31)(228)(1,494)(2,933)
Non-cash settlement— (6,549)(64)— (6,613)
September 24, 2022$— $— $— $— $— 

Note 8 — Fair Value and Derivative Instruments

Whenever possible, the fair values of our financial assets and liabilities are determined using quoted market prices of identical securities or quoted market prices of similar securities from active markets. The three levels of inputs that may be used to measure fair value are as follows:
•Level 1 valuations are obtained from real-time quotes for transactions in active exchange markets involving identical securities;
•Level 2 valuations utilize significant observable inputs, such as quoted prices for similar assets or liabilities, quoted prices near the reporting date in markets that are less active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
•Level 3 valuations utilize unobservable inputs to the valuation methodology and include our own data about assumptions market participants would use in pricing the asset or liability based on the best information available under the circumstances.

We did not have any transfers of assets or liabilities measured at fair value on a recurring basis to or from Level 1, Level 2 or Level 3 during the three and nine months ended September 24, 2022 or the year ended December 25, 2021.

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

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

14

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 24, 2022Level 1Level 2Level 3Total
Assets:
Cash equivalents:
Money market funds$27,581 $— $— $27,581 
Commercial paper— 1,398 — 1,398 
Corporate bonds— 2,995 — 2,995 
27,581 4,393 — 31,974 
Marketable securities:
 Corporate bonds— 69,548 — 69,548 
 U.S. treasuries32,820 — — 32,820 
 Commercial paper— 16,881 — 16,881 
 U.S. agency securities— 11,041 — 11,041 
 Certificates of deposit— 701 — 701 
32,820 98,171 — 130,991 
Promissory note receivable— — 1,019 1,019 
Interest rate swap derivative contracts— 2,420 — 2,420 
Total assets$60,401 $104,984 $1,019 $166,404 
Liabilities:
Foreign exchange derivative contracts$— $(2,457)$— $(2,457)

December 25, 2021Level 1Level 2Level 3Total
Assets:
Cash equivalents:
Money market funds$9,526 $— $— $9,526 
U.S. agency securities— 5,556 — 5,556 
U.S. treasuries2,500 — — 2,500 
Commercial paper— 1,000 — 1,000 
12,026 6,556 — 18,582 
Marketable securities:
Corporate bonds— 52,709 — 52,709 
U.S. treasuries38,985 — — 38,985 
Commercial paper— 32,162 — 32,162 
Certificates of deposit— 1,199 — 1,199 
38,985 86,070 — 125,055 
Interest rate swap derivative contracts— 629 — 629 
Total assets$51,011 $93,255 $— $144,266 
Liabilities:
Foreign exchange derivative contracts$— $(489)$— $(489)
Interest rate swap derivative contracts— (55)— (55)
Total liabilities$— $(544)$— $(544)
 
Cash Equivalents
The fair value of our cash equivalents is determined based on quoted market prices for similar or identical securities.

Marketable Securities
We classify our marketable securities as available-for-sale and value them utilizing a market approach. Our investments are priced by pricing vendors who provide observable inputs for their pricing without applying significant judgment. Broker pricing is used mainly when a quoted price is not available, the investment is not priced by our pricing vendors or when a broker price
15

is more reflective of fair value. Our broker-priced investments are categorized as Level 2 investments because fair value is based on similar assets without applying significant judgments. In addition, all investments have a sufficient trading volume to demonstrate that the fair value is appropriate.

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

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

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

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

The fair value of our foreign exchange derivative contracts was determined based on current foreign currency exchange rates and forward points. All of our foreign exchange derivative contracts outstanding at September 24, 2022 will mature by the third quarter of fiscal 2023.

The following table provides information about our foreign currency forward contracts outstanding as of September 24, 2022 (in thousands):
CurrencyContract PositionContract Amount
(Local Currency)		Contract Amount
(U.S. Dollars)
Euro DollarBuy(29,215)$(31,087)
Japanese YenSell2,145,851 14,995 
Korean WonBuy(847,855)(603)
Taiwan DollarSell27,157 857 
Total USD notional amount of outstanding foreign exchange contracts$(15,838)

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

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
We measure and report our non-financial assets such as Property, plant and equipment, Goodwill and Intangible assets at fair value on a non-recurring basis if we determine these assets to be impaired or in the period when we make a business acquisition. Other than as discussed in Note 4, Acquisition, and Note 7, Restructuring Charges, there were no assets or liabilities measured at fair value on a nonrecurring basis during the three and nine months ended September 24, 2022 or September 25, 2021.
16


Note 9 — Warranty
We offer warranties on certain products and record a liability for the estimated future costs associated with warranty claims at the time revenue is recognized. The warranty liability is based upon historical experience and our estimate of the level of future costs. While we engage in product quality programs and processes, our warranty obligation is affected by product failure rates, material usage and service delivery costs. We regularly monitor product returns for warranty and maintain a reserve for the related expenses based upon our historical experience and any specifically identified failures. As we sell new products to our customers, we must exercise considerable judgment in estimating the expected failure rates. This estimating process is based on historical experience of similar products, as well as various other assumptions that we believe to be reasonable under the circumstances. We provide for the estimated cost of product warranties at the time revenue is recognized as a component of Cost of revenues in our Condensed Consolidated Statement of Income.

Changes in our warranty liability were as follows (in thousands):
Nine Months Ended
September 24,
2022		September 25,
2021
Balance at beginning of period$2,805 $3,918 
Accruals5,653 4,688 
Settlements(4,652)(5,803)
Balance at end of period$3,806 $2,803 

Note 10 — Property, Plant and Equipment, net

Property, plant and equipment, net consisted of the following (in thousands):
September 24,
2022		December 25,
2021
Land$4,751 $4,751 
Building and building improvements44,447 41,722 
Machinery and equipment 267,612 252,632 
Computer equipment and software45,533 44,667 
Furniture and fixtures 7,375 7,293 
Leasehold improvements 83,682 82,266 
Sub-total 453,400 433,331 
Less: Accumulated depreciation and amortization (327,884)(312,700)
Net, property, plant and equipment 125,516 120,631 
Construction-in-process37,868 25,924 
Total$163,384 $146,555 

Note 11 — Stockholders’ Equity and Stock-Based Compensation

Common Stock Repurchase Programs
On October 26, 2020, our Board of Directors authorized a two-year program to repurchase up to $50 million of outstanding common stock to offset potential dilution from issuances of common stock under our stock-based compensation programs. During fiscal 2021 we repurchased and retired 622,400 shares of common stock for $24.0 million. During the nine months ended September 24, 2022, we repurchased and retired 676,408 shares of common stock for $26.0 million, utilizing the remaining funds available for repurchase.

On May 20, 2022, our Board of Directors authorized an additional program to repurchase up to $75 million of outstanding common stock, also with the primary purpose to offset potential dilution from issuances of common stock under our stock-based compensation programs. The share repurchase program will expire on May 20, 2024. During the nine months ended September 24, 2022, we repurchased and retired 1,335,414 shares of common stock for $47.5 million under the program. As of September 24, 2022, $27.5 million remained available for future repurchases.

17

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:
UnitsWeighted Average Grant Date Fair Value
RSUs at December 25, 20212,166,934 $28.63 
Awards granted1,338,278 34.95 
Awards vested(1,133,782)22.45 
Awards forfeited(66,279)31.07 
RSUs at September 24, 20222,305,151 35.27 

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 1, 2022, we granted 204,903 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, 2022 - June 30, 2025, relative to the TSR of the companies identified as being part of the S&P Semiconductors Select Industry Index (FormFactor peer companies) as of the grant date.

Of the 273,000 PRSUs granted in fiscal 2019, 36,000 shares were forfeited, resulting in 237,000 shares vesting in 2022. These shares achieved 147% TSR performance, which resulted in an additional 110,605 shares issued in fiscal 2022 related to the fiscal 2019 PRSU grant.

PRSUs are included as part of the RSU activity above.

Employee Stock Purchase Plan
Information related to activity under our Employee Stock Purchase Plan (“ESPP”) was as follows:
 Nine Months Ended
 September 24, 2022
Shares issued316,861 
Weighted average per share purchase price$33.00 
Weighted average per share discount from the fair value of our common stock on the date of issuance$(6.13)

Stock-Based Compensation
Stock-based compensation was included in our Condensed Consolidated Statements of Income as follows (in thousands):
Three Months EndedNine Months Ended
September 24,
2022		September 25,
2021		September 24,
2022		September 25,
2021
Cost of revenues$1,022 $1,392 $2,834 $3,806 
Research and development2,027 2,010 5,708 5,362 
Selling, general and administrative4,946 4,518 13,331 12,417 
Total stock-based compensation$7,995 $7,920 $21,873 $21,585 
 
18

Unrecognized Compensation Costs
At September 24, 2022, the unrecognized stock-based compensation was as follows (dollars in thousands): 
Unrecognized ExpenseAverage Expected Recognition Period in Years
Restricted stock units$54,872 2.31
Performance restricted stock units14,239 2.25
Employee stock purchase plan1,694 0.36
Total unrecognized stock-based compensation expense$70,805 2.25

Note 12 — Net Income per Share

The following table reconciles the shares used in calculating basic net income per share and diluted net income per share (in thousands):
Three Months EndedNine Months Ended
September 24,
2022		September 25,
2021		September 24,
2022		September 25,
2021
Weighted-average shares used in computing basic net income per share77,245 77,869 77,796 77,643 
Add potentially dilutive securities443 1,160 696 1,547 
Weighted-average shares used in computing diluted net income per share77,688 79,029 78,492 79,190 
Securities not included as they would have been antidilutive897 121 266 109 

Note 13 — Commitments and Contingencies

Leases
See Note 14, Leases.

Contractual Obligations and Commitments
Our contractual obligations and commitments have not materially changed as of September 24, 2022 from those disclosed in our Annual Report on Form 10-K for the year ended December 25, 2021.

Legal Matters
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. As of September 24, 2022, and as of the filing of this Quarterly Report on Form 10-Q, we were not involved in any material legal proceedings.

Note 14 — Leases

We lease real estate space under non-cancelable operating lease agreements for commercial and industrial space, as well as for a portion of our corporate headquarters located in Livermore, California. Our leases have remaining terms of 1 to 6 years, and some leases include options to extend up to 20 years. We also have operating leases for automobiles with remaining lease terms of 1 to 3 years. We did not include any of our renewal options in our lease terms for calculating our lease liability as the renewal options allow us to maintain operational flexibility and we are not reasonably certain we will exercise these options at this time. The weighted-average remaining lease term for our operating leases was 5 years as of September 24, 2022 and the weighted-average discount rate was 3.75%.

19

The components of lease expense were as follows (in thousands):
Three Months EndedNine Months Ended
September 24,
2022		September 25,
2021		September 24,
2022		September 25,
2021
Lease expense:
Operating lease expense$2,118 $2,167 $6,522 $6,338 
Short-term lease expense135 51 251 133 
Variable lease expense590 461 1,725 1,424 
$2,843 $2,679 $8,498 $7,895 


Future minimum payments under our non-cancelable operating leases were as follows as of September 24, 2022 (in thousands):
Fiscal YearAmount
Remainder of 2022$4,275 
20237,545 
20247,236 
20257,170 
20266,450 
Thereafter9,042 
  Total minimum lease payments41,718 
Less: interest(6,161)
  Present value of net minimum lease payments35,557 
Less: current portion(7,699)
  Total long-term operating lease liabilities$27,858 

Note 15 — Revenue

Transaction price allocated to the remaining performance obligations: On September 24, 2022, we had $8.3 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 40.0% of our remaining performance obligations as revenue in the remainder of fiscal 2022, approximately 49.8% in fiscal 2023, and approximately 10.2% in fiscal 2024 and thereafter. The foregoing excludes the value of other remaining performance obligations as they have original durations of one year or less, and also excludes information about variable consideration allocated entirely to a wholly unsatisfied performance obligation.

Contract balances: The timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable is recorded at the invoiced amount, net of an allowance for credit losses. A receivable is recognized in the period we deliver goods or provide services or when our right to consideration is unconditional. A contract asset is recorded when we have performed under the contract but our right to consideration is conditional on something other than the passage of time. Contract assets as of September 24, 2022 and December 25, 2021 were $3.0 million and $0.9 million, respectively, and are reported on the Condensed Consolidated Balance Sheets as a component of Prepaid expenses and other current assets.

Contract liabilities include payments received and payments due in advance of performance under a contract and are satisfied as the associated revenue is recognized. Contract liabilities are reported on the Condensed Consolidated Balance Sheets at the end of each reporting period as a component of Deferred revenue and Other liabilities. Contract liabilities as of September 24, 2022 and December 25, 2021 were $33.1 million and $24.2 million, respectively. During the nine months ended September 24, 2022, we recognized $19.0 million of revenue that was included in contract liabilities as of December 25, 2021.

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

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

20

Note 16 — Operating Segments and Enterprise-Wide Information

Our chief operating decision maker (“CODM”) is our Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire company. We operate in two reportable segments consisting 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 24, 2022September 25, 2021
Probe CardsSystemsCorporate and OtherTotalProbe CardsSystemsCorporate and OtherTotal
Revenues$139,365 $41,504 $— $180,869 $154,850 $35,114 $— $189,964 
Gross profit 48,252 22,284 (8,323)62,213 69,868 17,553 (7,202)80,219 
Gross margin34.6 %53.7 %34.4 %45.1 %50.0 %42.2 %
Nine Months Ended
September 24, 2022September 25, 2021
Probe CardsSystemsCorporate and OtherTotalProbe CardsSystemsCorporate and OtherTotal
Revenues$467,056 $114,894 $— $581,950 $467,389 $97,287 $— $564,676 
Gross profit 203,874 59,967 (13,035)250,806 206,783 48,059 (21,634)233,208 
Gross margin43.7 %52.2 %43.1 %44.2 %49.4 %41.3 %

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 24, 2022September 25, 2021
Probe CardsSystemsTotalProbe CardsSystemsTotal
Market:
Foundry & Logic$90,605 $— $90,605 $104,640 $— $104,640 
DRAM34,922 — 34,922 39,816 — 39,816 
Flash13,838 — 13,838 10,394 — 10,394 
Systems— 41,504 41,504 — 35,114 35,114 
Total$139,365 $41,504 $180,869 $154,850 $35,114 $189,964 
Timing of revenue recognition:
Products transferred at a point in time$138,602 $37,842 $176,444 $154,217 $33,564 $187,781 
Products and services transferred over time763 3,662 4,425 633 1,550 2,183 
Total$139,365 $41,504 $180,869 $154,850 $35,114 $189,964 
Geographical region:
United States$25,909 $12,180 $38,089 $18,530 $6,938 $25,468 
Taiwan32,227 4,611 36,838 34,100 7,474 41,574 
China27,973 8,755 36,728 46,011 5,036 51,047 
South Korea28,118 819 28,937 27,895 1,077 28,972 
Europe3,682 8,116 11,798 3,595 6,891 10,486 
Singapore7,983 2,374 10,357 6,841 711 7,552 
Japan4,533 3,159 7,692 5,767 4,961 10,728 
Malaysia6,272 237 6,509 11,353 280 11,633 
Rest of the world2,668 1,253 3,921 758 1,746 2,504 
Total$139,365 $41,504 $180,869 $154,850 $35,114 $189,964 
21

Nine Months Ended
September 24, 2022September 25, 2021
Probe CardsSystemsTotalProbe CardsSystemsTotal
Market:
Foundry & Logic$327,106 $— $327,106 $321,776 $— $321,776 
DRAM106,202 — 106,202 115,802 — 115,802 
Flash33,748 — 33,748 29,811 — 29,811 
Systems— 114,894 114,894 — 97,287 97,287 
Total$467,056 $114,894 $581,950 $467,389 $97,287 $564,676 
Timing of revenue recognition:
Products transferred at a point in time$464,139 $106,339 $570,478 $465,822 $89,119 $554,941 
Products and services transferred over time2,917 8,555 11,472 1,567 8,168 9,735 
Total$467,056 $114,894 $581,950 $467,389 $97,287 $564,676 
Geographical region:
Taiwan$119,937 $19,990 $139,927 $125,571 $13,467 $139,038 
China101,342 23,520 124,862 107,838 17,661 125,499 
United States67,424 27,554 94,978 64,012 23,592 87,604 
South Korea80,417 4,776 85,193 81,322 2,912 84,234 
Malaysia43,946 1,006 44,952 34,275 483 34,758 
Singapore23,398 4,963 28,361 23,070 3,002 26,072 
Europe9,888 18,396 28,284 12,894 19,601 32,495 
Japan16,034 10,977 27,011 14,493 13,260 27,753 
Rest of the world4,670 3,712 8,382 3,914 3,309 7,223 
Total$467,056 $114,894 $581,950 $467,389 $97,287 $564,676 
Note 17 — Subsequent Events

On October 25, 2022, we adopted a restructuring plan to align our cost structure with reduced demand levels within the Probe Cards segment by streamlining and improving the efficiency and business effectiveness of our operations. The plan includes lowering headcount by approximately 13% of our workforce, which is expected to result in recognizing restructuring charges of approximately $6.6 million in cash, consisting of severance and employee-related costs. We expect the actions defined under this plan will be largely completed by the end of the fourth quarter of fiscal 2022. Upon completion, this action is expected to reduce our cost structure by approximately $25 to $30 million on an annualized basis.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Cautionary Statement Regarding Forward-Looking Statements
 
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933, which are subject to risks and uncertainties. The forward-looking statements include statements concerning, among other things, our business strategy, financial and operating results, gross margins, liquidity and capital expenditure requirements and impact of accounting standards. In some cases, you can identify these statements by forward-looking words, such as “may,” “might,” “will,” “could,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend” and “continue,” the negative or plural of these words and other comparable terminology.

The forward-looking statements are only predictions based on our current expectations and our projections about future events. All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q. You should not place undue reliance on these forward-looking statements. We have no obligation to update any of these statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these statements, including risks related to general market trends, the benefits of acquisitions and investments, our supply chain, uncertainties related to COVID-19 and other global, regional or national public health-related crises and the impact of our responses to them, the interpretation and impacts of changes in export controls and other trade barriers, military conflicts, political volatility and similar factors, our ability to execute our business strategy and other risks discussed in the section titled “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the
22

year ended December 25, 2021 and in this Quarterly Report on Form 10-Q. You should carefully consider the numerous risks and uncertainties described under these sections.
 
The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the accompanying notes contained in this Quarterly Report on Form 10-Q. Unless expressly stated or the context otherwise requires, the terms “we,” “our,” “us” and “FormFactor” refer to FormFactor, Inc. and its subsidiaries.

Overview

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

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

We generated net income of $64.5 million in the first nine months of fiscal 2022 as compared to $58.0 million in the first nine months of fiscal 2021. The increase in net income was primarily due to increased revenue with improved gross margins from a reduction in the amortization of intangibles due to significant intangibles becoming fully amortized, partially offset by higher operating expenses. The first half of fiscal 2022 was strong, realizing $60.1 million of the $64.5 million net income in the first nine months of fiscal 2022 with $401.1 million in revenue and 47.0% gross margins. For the third quarter of fiscal 2022, we generated net income of $4.4 million with $180.9 million in revenue and 34.4% gross margins, which was a significant decline in results after a strong first half.

In October 2022, the United States government imposed new controls, including expanded export license requirements that significantly impact trade with China for advanced U.S. semiconductor technology sold in China. The impact of this on our business is still being evaluated and updated guidance is being provided by the U.S. Government on an ongoing basis and subject to change. We expect these regulatory conditions, on top of the slowing business environment seen in the third quarter of fiscal 2022, to negatively impact our financial results over the next few quarters. Given the rapidly evolving situation, the impacts beyond that time frame are uncertain.

Significant Accounting Policies and the Use of Estimates

Management’s Discussion and Analysis and Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements in our 2021 Annual Report on Form 10-K describe the significant accounting estimates and significant accounting policies used in preparation of the Consolidated Financial Statements. Actual results in these areas could differ from management’s estimates. During the nine months ended September 24, 2022, there were no significant changes in our significant accounting policies or estimates from those reported in our Annual Report on Form 10-K for the year ended December 25, 2021, which was filed with the Securities and Exchange Commission on February 18, 2022.

23

Results of Operations
 
The following table sets forth our operating results as a percentage of revenues for the periods indicated:
 Three Months EndedNine Months Ended
 September 24,
2022		September 25,
2021		September 24,
2022		September 25,
2021
Revenues100.0 %100.0 %100.0 %100.0 %
Cost of revenues65.6 57.8 56.9 58.7 
Gross profit34.4 42.2 43.1 41.3 
Operating expenses:    
Research and development14.7 13.7 14.1 13.4 
Selling, general and administrative17.5 16.3 16.8 16.2 
Total operating expenses32.2 30.0 30.9 29.6 
Operating income2.2 12.2 12.2 11.7 
Interest income0.4 0.1 0.2 0.1 
Interest expense(0.1)(0.1)(0.1)(0.1)
Other income, net0.6 0.1 0.3 — 
Income before income taxes3.1 12.3 12.6 11.7 
Provision for income taxes0.7 1.5 1.5 1.4 
Net income2.4 %10.8 %11.1 %10.3 %

Revenues by Segment and Market
 Three Months EndedNine Months Ended
 September 24,
2022		September 25,
2021		September 24,
2022		September 25,
2021
 (In thousands)
Probe Cards$139,365 $154,850 $467,056 $467,389 
Systems41,504 35,114 114,894 97,287 
$180,869 $189,964 $581,950 $564,676 

24

Three Months Ended
September 24,
2022		% of RevenuesSeptember 25,
2021		% of Revenues$ Change% Change
(Dollars in thousands)
Probe Cards Markets:
Foundry & Logic$90,605 50.1 %$104,640 55.1 %$(14,035)(13.4)%
DRAM34,922 19.3 39,816 20.9 (4,894)(12.3)
Flash13,838 7.7 10,394 5.5 3,444 33.1 
Systems Market:
Systems41,504 22.9 35,114 18.5 6,390 18.2 
Total revenues$180,869 100.0 %$189,964 100.0 %$(9,095)(4.8)%
Nine Months Ended
September 24,
2022		% of RevenuesSeptember 25,
2021		% of Revenues$ Change% Change
(Dollars in thousands)
Probe Cards Markets:
Foundry & Logic$327,106 56.3 %$321,776 57.0 %$5,330 1.7 %
DRAM106,202 18.2 115,802 20.5 (9,600)(8.3)
Flash33,748 5.8 29,811 5.3 3,937 13.2 
Systems Market:
Systems114,894 19.7 97,287 17.2 17,607 18.1 
Total revenues$581,950 100.0 %$564,676 100.0 %$17,274 3.1 %

Foundry & Logic
The decrease in Foundry & Logic product revenue for the three months ended September 24, 2022, compared to the three months ended September 25, 2021, was driven principally by softening demand for the second half of fiscal 2022 causing decreased unit sales to integrated device manufacturers, offset slightly by increased demand at large semiconductor foundries.

Foundry & Logic product revenue increased slightly for the nine months ended September 24, 2022, compared to the nine months ended September 25, 2021. Although a slight increase year-over-year, demand has weakened from the slowdown in the semiconductor industry for the second half of fiscal 2022, and as previously described within the Overview.

DRAM
The decrease in DRAM product revenue for the three and nine months ended September 24, 2022, compared to the three and nine months ended September 25, 2021, was driven by decreased design wins and customer demand.

Flash
The increase in Flash product revenue for the three and nine months ended September 24, 2022, compared to the three and nine months ended September 25, 2021, was driven by increased customer demand.

Systems
The increase in Systems market revenue for the three months ended September 24, 2022, compared to the three months ended September 25, 2021, was driven by increased sales of our 200 and 300 millimeter probe stations and cryogenic systems.

The increase in Systems market revenue for the nine months ended September 24, 2022, compared to the nine months ended September 25, 2021, was driven by increased sales of our 200 and 300 millimeter probe stations and metrology systems.

25

Revenues by Geographic Region
Three Months EndedNine Months Ended
September 24,
2022		% of
Revenue		September 25,
2021		% of
Revenue		September 24,
2022		% of
Revenue		September 25,
2021		% of
Revenue
 (Dollars in thousands)
Taiwan$36,838 20.4 %$41,574 21.9 %$139,927 24.0 %$139,038 24.6 %
China36,728 20.3 51,047 26.8 124,862 21.5 125,499 22.2 
United States38,089 21.1 25,468 13.4 94,978 16.3 87,604 15.5 
South Korea28,937 16.0 28,972 15.3 85,193 14.6 84,234 14.9 
Malaysia6,509 3.6 11,633 6.1 44,952 7.7 34,758 6.2 
Singapore10,357 5.7 7,552 4.0 28,361 4.9 26,072 4.6 
Europe11,798 6.5 10,486 5.5 28,284 4.9 32,495 5.8 
Japan7,692 4.3 10,728 5.6 27,011 4.6 27,753 4.9 
Rest of the world3,921 2.1 2,504 1.4 8,382 1.5 7,223 1.3 
Total revenues$180,869 100.0 %$189,964 100.0 %$581,950 100.0 %$564,676 100.0 %

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

Changes in revenue by geographic region for the three and nine months ended September 24, 2022, compared to the three and nine months ended September 25, 2021, were primarily attributable to changes in customer demand, shifts in customer regional manufacturing strategies, particularly with our large multinational customers, and product sales mix. More specifically, the increase in revenues for the United States, and decreases in revenues for China and Malaysia were driven principally by a single large U.S.-based company with operations in these regions. The decrease in China mentioned previously was partially offset by increased demand from a large Chinese DRAM integrated device manufacturer.

Cost of Revenues and Gross Margins

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

Our gross profit and gross margin were as follows (dollars in thousands):
 Three Months Ended
 September 24,
2022		September 25,
2021		$ Change% Change
Gross profit$62,213 $80,219 $(18,006)(22.4)%
Gross margin34.4 %42.2 %
Nine Months Ended
September 24,
2022		September 25,
2021		$ Change% Change
Gross profit$250,806 $233,208 $17,598 7.5 %
Gross margin43.1 %41.3 %

26

Our gross profit and gross margin by segment were as follows (dollars in thousands):
Three Months Ended
September 24, 2022September 25, 2021
Probe CardsSystemsCorporate and OtherTotalProbe CardsSystemsCorporate and OtherTotal
Gross profit $48,252 $22,284 $(8,323)$62,213 $69,868 $17,553 $(7,202)$80,219 
Gross margin34.6 %53.7 %34.4 %45.1 %50.0 %42.2 %
Nine Months Ended
September 24, 2022September 25, 2021
Probe CardsSystemsCorporate and OtherTotalProbe CardsSystemsCorporate and OtherTotal
Gross profit$203,874 $59,967 $(13,035)$250,806 $206,783 $48,059 $(21,634)$233,208 
Gross margin43.7 %52.2 %43.1 %44.2 %49.4 %41.3 %

Probe Cards
For the three months ended September 24, 2022, gross margins decreased compared to the three months ended September 25, 2021, primarily due to greater inventory excess and obsolescence reserves, higher net manufacturing spending driven by higher labor and overhead costs, and lower standard margins related to a less favorable product mix. For the nine months ended September 24, 2022, gross margins decreased compared to the nine months ended September 25, 2021, primarily due to higher net manufacturing spending driven by higher labor and overhead costs, partially offset by improved standard margins related to a more favorable product mix.

Systems
For the three and nine months ended September 24, 2022, gross margins increased compared to the three and nine months ended September 25, 2021, primarily as a result of a more favorable product mix and improved leverage on fixed costs at higher revenues.

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

The increase in Corporate and Other for the three months ended September 24, 2022 compared to the three months ended September 25, 2021 is primarily due to increased restructuring charges arising from a change in estimate of excess and obsolete inventories related to our third quarter of fiscal 2021 plan to adjust capacity for certain product offerings, partially offset by a reduction in the amortization of intangibles resulting from significant intangibles becoming fully amortized.

The decrease in Corporate and Other for the nine months ended September 24, 2022 compared to the nine months ended September 25, 2021 is primarily due to a reduction in the amortization of intangibles resulting from significant intangibles becoming fully amortized, partially offset by increased restructuring charges in the third quarter of fiscal 2022 arising from a change in estimate of excess and obsolete inventories related to our fiscal 2021 plan to adjust capacity for certain product offerings.

Overall
Gross profit and gross margins fluctuate with revenue levels, product mix, selling prices, factory loading, labor costs, and material costs. For the three months ended September 24, 2022, compared to the three months ended September 25, 2021, gross profit and gross margins have decreased on lower revenue levels, a less favorable Probe Cards segment product mix, increased labor, overhead, and inventory excess and obsolescence reserves, and less amortization of intangibles. For the nine months ended September 24, 2022, compared to the nine months ended September 25, 2021, gross profit and gross margins have increased on higher revenue levels, improved product mix, and less amortization of intangibles, partially offset by higher labor and overhead costs.

27

Cost of revenues included stock-based compensation expense as follows (in thousands):
Three Months EndedNine Months Ended
September 24,
2022		September 25,
2021		September 24,
2022		September 25,
2021
Stock-based compensation$1,022 $1,392 $2,834 $3,806 

Research and Development
Three Months Ended
September 24,
2022		September 25,
2021		$ Change% Change
(Dollars in thousands)
Research and development$26,549 $26,026 $523 2.0 %
% of revenues14.7 %13.7 %
Nine Months Ended
September 24,
2022		September 25,
2021		$ Change% Change
(Dollars in thousands)
Research and development$82,000 $75,526 $6,474 8.6 %
% of revenues14.1 %13.4 %

Research and development expenses in the three months ended September 24, 2022 increased slightly when compared to the corresponding period in the prior year primarily due to an increase in headcount, which increased allocated costs within Other general operations. This increase was partially offset by a net decrease in employee compensation due to a decrease in performance based compensation, net of an increase in employee compensation due to annual salary adjustments. For the nine months ended September 24, 2022 when compared to the corresponding period in the prior year there was an increase in research and development expenses primarily driven by an increase in headcount which is to support our continued investment in technology leadership. Increased general operational costs, annual salary adjustments, project material costs, and stock-based compensation also contributed to the increase.

A detail of the changes is as follows (in thousands):
Three Months Ended September 24, 2022 compared to Three Months Ended September 25, 2021Nine Months Ended September 24, 2022 compared to Nine Months Ended September 25, 2021
Other general operations$1,700 $4,168 
Project material costs249 850 
Depreciation70 (9)
Stock-based compensation17 346 
Restructuring charges(222)(428)
Employee compensation costs(1,291)1,547 
$523 $6,474 

Research and development included stock-based compensation expense as follows (in thousands):
Three Months EndedNine Months Ended
September 24,
2022		September 25,
2021		September 24,
2022		September 25,
2021
Stock-based compensation$2,027 $2,010 $5,708 $5,362 

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Selling, General and Administrative
Three Months Ended
September 24,
2022		September 25,
2021		$ Change% Change
(Dollars in thousands)
Selling, general and administrative$31,637 $30,940 $697 2.3 %
% of revenues17.5 %16.3 %
Nine Months Ended
September 24,
2022		September 25,
2021		$ Change% Change
(Dollars in thousands)
Selling, general and administrative$97,949 $91,434 $6,515 7.1 %
% of revenues16.8 %16.2 %

Selling, general and administrative expenses increased in the three and nine months ended September 24, 2022 when compared to the corresponding period in the prior year, primarily driven by increased headcount, annual salary adjustments, increased travel related costs as restrictions related to COVID-19 relaxed, and higher stock-based compensation. Furthermore, the increase for the three months ended September 24, 2022 when compared to the corresponding period in the prior year was partially offset by lower performance based compensation.

A detail of the changes is as follows (in thousands):
Three Months Ended September 24, 2022 compared to Three Months Ended September 25, 2021Nine Months Ended September 24, 2022 compared to Nine Months Ended September 25, 2021
Travel related costs$583 $2,257 
General operating expenses576 2,046 
Stock-based compensation428 914 
Restructure 25 66 
Consulting fees19 (319)
Amortization of intangibles(73)(273)
Employee compensation costs(861)1,824 
$697 $6,515 

Selling, general and administrative included stock-based compensation expense as follows (in thousands):
Three Months EndedNine Months Ended
September 24,
2022		September 25,
2021		September 24,
2022		September 25,
2021
Stock-based compensation$4,946 $4,518 $13,331 $12,417 

Interest Income and Interest Expense
Interest income is earned on our cash, cash equivalents, restricted cash and marketable securities. The increase in interest income for the three and nine months ended September 24, 2022 compared with the corresponding period of the prior year was attributable to an increase in investment yields due to the higher interest rate environment.

Interest expense primarily includes interest on our term loans, interest rate swap derivative contracts, and term loan issuance costs amortization charges. The interest expense for the three and nine months ended September 24, 2022 compared to the same period of the prior year remained consistent despite a lower outstanding debt due to increased average interest rates on the outstanding debt.

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

Provision for Income Taxes
 Three Months EndedNine Months Ended
 September 24,
2022		September 25,
2021		September 24,
2022		September 25,
2021
 (In thousands, except percentages)
Provision for income taxes$1,274 $2,784 $8,860 $8,273 
Effective tax rate22.6 %12.0 %12.1 %12.5 %

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

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

The increase in the effective tax rate in the three months ended September 24, 2022 when compared to the corresponding period in the prior year was primarily driven by a change within the third quarter of fiscal 2022 to the estimated annual taxable income, including by jurisdiction, and lower discrete benefits from stock-based compensation.

As of January 1, 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and experimental expenditures immediately in the year incurred and requires taxpayers to amortize such expenditures over five years in the U.S. and fifteen years in foreign jurisdictions. While it is possible that Congress may defer, modify, or repeal this provision, potentially with retroactive effect, we have no assurance that this provision will be deferred, modified, or repealed. If this provision is not deferred, modified, or repealed with retroactive effect to January 1, 2022, we expect our cash taxes to slowly increase over the next few years until we have fully utilized our Federal research and development credits to offset our Federal tax liability to the extent allowed by law.


Liquidity and Capital Resources

Capital Resources
Our working capital was $352.6 million at September 24, 2022, compared to $375.3 million at December 25, 2021.

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

Our cash, cash equivalents and marketable securities totaled approximately $251.6 million at September 24, 2022, compared to $276.1 million at December 25, 2021. Based on our historical results of operations, we expect that our cash, cash equivalents, and marketable securities on hand, and the cash we expect to generate from operations, will be sufficient to fund our short-term and long-term liquidity requirements primarily arising from: research and development, capital expenditures, working capital, outstanding commitments, and other liquidity requirements associated with existing operations. However, we cannot be certain that our cash, cash equivalents, and marketable securities on hand, and cash generated from operations, will be available in the future to fund all of our capital and operating requirements. In addition, any future strategic investments and significant acquisitions may require additional cash and capital resources. To the extent necessary, we may consider entering into short and long-term debt obligations, raising cash through a stock issuance, or obtaining new financing facilities, which may not be available on terms favorable to us. If we are unable to obtain sufficient cash or capital to meet our needs on a timely basis and on favorable terms, our business and operations could be materially and adversely affected.

If we are unsuccessful in maintaining or growing our revenues, maintaining or reducing our cost structure, or increasing our available cash through debt or equity financings, our cash, cash equivalents and marketable securities may decline.
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We utilize a variety of tax planning and financing strategies to manage our worldwide cash and deploy funds to locations where needed. As part of these strategies, we indefinitely reinvest a portion of our foreign earnings. Should we require additional capital in the United States, we may elect to repatriate indefinitely-reinvested foreign funds or raise capital in the United States.

Cash Flows
The following table sets forth our net cash flows from operating, investing and financing activities:
Nine Months Ended
September 24,
2022		September 25,
2021
(In thousands)
Net cash provided by operating activities$111,048 $100,437 
Net cash used in investing activities$(52,013)$(94,976)
Net cash used in financing activities$(84,964)$(36,869)

Operating Activities 
Net cash provided by operating activities for the nine months ended September 24, 2022 was primarily attributable to net income of $64.5 million and net non-cash expenses of $69.3 million, which includes depreciation, amortization, stock-based compensation, and the provision for excess and obsolete inventories. This was partially offset by an increase in net working capital of $22.7 million, primarily related to cash paid for inventories of $33.0 million and a decrease in accrued liabilities for $5.0 million, partially offset by cash provided by an increase in accounts payable of $17.6 million.

Investing Activities
Net cash used in investing activities for the nine months ended September 24, 2022 was primarily related to $39.0 million property, plant and equipment purchases, $8.6 million of net cash used to purchase marketable securities, and $3.4 million used for acquisition of a business.

Financing Activities
Net cash used in financing activities for the nine months ended September 24, 2022 primarily related to $73.5 million used to purchase common stock under our stock repurchase programs, $6.4 million of principal payments made towards the repayment of our term loans, and $15.6 million related to tax withholdings associated with the net share settlements of our equity awards, partially offset by $10.5 million of proceeds received from issuances of common stock under our employee stock purchase plan.

Debt

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

The FRT Term Loan bears interest at a rate equal to the Euro Interbank Offered Rate (“EURIBOR”) plus 1.75% per annum and will be repaid in quarterly installments of approximately $1.8 million plus interest. The interest rate at September 24, 2022 was 1.90%. As of September 24, 2022, the balance outstanding pursuant to the FRT term loan was $1.7 million. The FRT Term Loan was fully paid as of October 25, 2022.

Building Term Loan
On June 22, 2020, we entered into an $18.0 million 15-year credit facility loan agreement (the “Building Term Loan”). The proceeds of the Building Term Loan were used to finance the purchase of a building adjacent to our leased facilities in Livermore, California.

The Building Term Loan bears interest at a rate equal to the applicable LIBOR rate plus 1.75% per annum. Interest payments are payable in monthly installments over a fifteen-year period. The interest rate at September 24, 2022 was 4.31%. As of September 24, 2022, the balance outstanding pursuant to the Building Term Loan was $15.8 million.

On March 17, 2020, we entered into a forward starting interest rate swap agreement to hedge the interest payments on the Building Term Loan for the notional amount of $18.0 million, and an amortization period that matches the debt. As future levels of LIBOR over the life of the loan are uncertain, we entered into this interest-rate swap agreement to hedge the exposure in interest rate risks associated with movement in LIBOR rates. By entering into the agreement, we converted a floating interest
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rate of one-month LIBOR plus 1.75% into a fixed interest rate of 2.75%. As of September 24, 2022, the notional amount of the loan that is subject to this interest rate swap is $15.8 million.

Stock Repurchase Programs

On October 26, 2020, our Board of Directors authorized a two-year program to repurchase up to $50 million of outstanding common stock to offset potential dilution from issuances of common stock under our stock-based compensation programs. During fiscal 2021 we repurchased and retired 622,400 shares of common stock for $24.0 million. During the nine months ended September 24, 2022, we repurchased and retired 676,408 shares of common stock for $26.0 million, utilizing the remaining funds available for repurchase.

On May 20, 2022, our Board of Directors authorized an additional program to repurchase up to $75 million of outstanding common stock, also with the primary purpose of offsetting potential dilution from issuances of common stock under our stock-based compensation programs. The share repurchase program will expire on May 20, 2024. During the nine months ended September 24, 2022, we repurchased and retired 1,335,414 shares of common stock for $47.5 million under this program. As of September 24, 2022, $27.5 million remained available for future repurchases.

Contractual Obligations and Commitments

The following table summarizes our significant contractual commitments to make future payments in cash under contractual obligations as of September 24, 2022:
Payments Due In Fiscal Year
Remainder
 2022		2023202420252026ThereafterTotal
Operating leases$4,275 $7,545 $7,236 $7,170 $6,450 $9,042 $41,718 
Term loans - principal payments1,953 1,050 1,080 1,111 1,142 11,116 17,452 
Term loans - interest payments (1)
179 657 614 561 513 2,170 4,694 
Total$6,407 $9,252 $8,930 $8,842 $8,105 $22,328 $63,864 

(1) Represents our minimum interest payment commitments at 4.31% per annum for the Building Term Loan and 1.90% per annum for the FRT Term Loan. This excludes any amounts related to our interest rate swap.

Off-Balance Sheet Arrangements
 
Historically, we have not participated in transactions that have generated relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of September 24, 2022, we were not involved in any such off-balance sheet arrangements.

Recent Accounting Pronouncements

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk
 
For financial market risks related to changes in interest rates and foreign currency exchange rates, reference is made to Item 7A “Quantitative and Qualitative Disclosures about Market Risk” contained in Part II of our Annual Report on Form 10-K for the fiscal year ended December 25, 2021. Our exposure to market risk has not changed materially since December 25, 2021.

Item 4. Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
Based on our management’s evaluation (with the participation of our principal executive officer and principal financial officer), as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded
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that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

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

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

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

PART II - OTHER INFORMATION
 
Item 1A. Risk Factors

There have been no material changes during the nine months ended September 24, 2022 to the risk factors discussed in our Annual Report on Form 10-K for the year ended December 25, 2021. If any of the identified risks actually occur, our business, financial condition and results of operations could suffer. The trading price of our common stock could decline and you may lose all or part of your investment in our common stock. The risks and uncertainties described in our Annual Report on Form 10-K for the year ended December 25, 2021 are not the only ones we face. Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our business operations.

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

Repurchase of Common Stock

The following table summarizes our repurchases of outstanding common stock for the three months ended September 24, 2022:
Period (fiscal months)Total Number of Shares PurchasedAverage Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1)
Maximum Amount that May Yet Be Purchased Under the Plans or Programs
June 26, 2022 - July 23, 2022256,084 $36.48 256,084 $37,292,828 
July 24, 2022 - August 20, 202234,172 33.16 34,172 36,159,555 
August 21, 2022 - September 24, 2022278,075 31.20 278,075 27,484,925 
568,331 $33.70 568,331 

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

Item 6. Exhibits

The following exhibits are filed herewith and this list constitutes the exhibit index.
Exhibit Incorporated by Reference Filed
NumberExhibit DescriptionFormDate Number Herewith
3.18-KJune 3, 20223.01
3.28-KJune 3, 20223.02
3.38-KJune 3, 20223.03
31.01     X
31.02     X
32.01     *
101
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 24, 2022, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags
X
101.INSXBRL Instance Document     X
101.SCHXBRL Taxonomy Extension Schema Document     X
101.CALXBRL Taxonomy Extension Calculation Linkbase Document     X
101.DEFXBRL Taxonomy Extension Definition Linkbase Document     X
101.LABXBRL Taxonomy Extension Label Linkbase Document     X
101.PREXBRL Taxonomy Extension Presentation Linkbase Document     X
104
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 24, 2022, formatted in Inline XBRL (included as Exhibit 101)
X
 ______________________________________
*    This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

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SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 FormFactor, Inc.
   
Date:November 1, 2022By:/s/ SHAI SHAHAR
   
  Shai Shahar
  Chief Financial Officer
  (Duly Authorized Officer, Principal Financial Officer, and Principal Accounting Officer)

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