Kulicke & Soffa(KLIC) - 2023 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the company's unaudited financial information, including statements, management's analysis, and market risks Item 1. FINANCIAL STATEMENTS (Unaudited) Presents the company's unaudited consolidated condensed financial statements and detailed notes on accounting policies and key financial components - The interim financial statements are unaudited and include normal recurring adjustments, but not all disclosures typically found in annual GAAP statements[25] - The company's business involves designing, manufacturing, and selling capital equipment and tools for semiconductor device assembly, with operating results highly dependent on the volatile semiconductor industry[27] - Management evaluates estimates for various financial items, acknowledging potential impacts from the COVID-19 pandemic and macroeconomic headwinds, though no material impact was noted for the quarter ended April 1, 2023[28][29] Consolidated Condensed Balance Sheets Provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific dates | Metric | April 1, 2023 (in thousands) | October 1, 2022 (in thousands) | Change (in thousands) | | :--------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | | Total Assets | $1,524,042 | $1,588,599 | $(64,557) | | Cash and cash equivalents | $389,102 | $555,537 | $(166,435) | | Short-term investments | $345,000 | $220,000 | $125,000 | | Accounts and other receivable, net | $169,140 | $309,323 | $(140,183) | | Inventories, net | $224,159 | $184,986 | $39,173 | | Total Liabilities | $340,345 | $393,949 | $(53,604) | | Total Shareholders' Equity | $1,183,697 | $1,194,650 | $(10,953) | Consolidated Condensed Statements of Operations Details the company's financial performance over specific periods, including revenue, gross profit, and net income | Metric (in thousands) | 3 Months Ended April 1, 2023 | 3 Months Ended April 2, 2022 | YoY Change (%) | 6 Months Ended April 1, 2023 | 6 Months Ended April 2, 2022 | YoY Change (%) | | :-------------------- | :----------------------------- | :----------------------------- | :------------- | :----------------------------- | :----------------------------- | :------------- | | Net revenue | $173,021 | $384,282 | (55.0)% | $349,254 | $845,170 | (58.7)% | | Gross profit | $84,092 | $201,710 | (58.3)% | $172,798 | $424,948 | (59.3)% | | Income from operations | $12,629 | $129,341 | (90.2)% | $24,451 | $280,451 | (91.3)% | | Net income | $15,041 | $116,001 | (87.0)% | $29,630 | $249,607 | (88.1)% | | Basic EPS | $0.27 | $1.89 | (85.7)% | $0.52 | $4.03 | (87.1)% | | Diluted EPS | $0.26 | $1.86 | (86.0)% | $0.51 | $3.97 | (87.1)% | | Interest income | $8,000 | $470 | 1602.1% | $14,559 | $941 | 1447.2% | Consolidated Condensed Statements of Comprehensive Income Presents net income and other comprehensive income items, reflecting changes in equity not from owner transactions | Metric (in thousands) | 3 Months Ended April 1, 2023 | 3 Months Ended April 2, 2022 | 6 Months Ended April 1, 2023 | 6 Months Ended April 2, 2022 | | :------------------------------------ | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net income | $15,041 | $116,001 | $29,630 | $249,607 | | Foreign currency translation adjustment | $1,654 | $(4,351) | $15,973 | $(6,016) | | Net increase/(decrease) from derivatives | $159 | $(56) | $3,532 | $688 | | Total other comprehensive income/(loss) | $1,804 | $(4,358) | $19,449 | $(5,347) | | Comprehensive income | $16,845 | $111,643 | $49,079 | $244,260 | Consolidated Condensed Statements of Changes in Shareholders' Equity Outlines changes in shareholders' equity, including net income, stock repurchases, and dividends, over specific periods | Metric (in thousands) | October 1, 2022 | April 1, 2023 | Change | | :------------------------------------ | :-------------- | :------------ | :------- | | Total Shareholders' Equity | $1,194,650 | $1,183,697 | $(10,953) | | Repurchase of common stock (6 months) | N/A | $(50,372) | N/A | | Cash dividend declared (6 months) | N/A | $(21,560) | N/A | | Net income (6 months) | N/A | $29,630 | N/A | | Other comprehensive income (6 months) | N/A | $19,449 | N/A | Consolidated Condensed Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities over specific periods | Cash Flow Activity (in thousands) | 6 Months Ended April 1, 2023 | 6 Months Ended April 2, 2022 | YoY Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :--------- | | Net cash provided by operating activities | $86,936 | $169,009 | $(82,073) | | Net cash (used in)/provided by investing activities | $(186,197) | $141,461 | $(327,658) | | Net cash used in financing activities | $(72,911) | $(211,064) | $138,153 | | Changes in cash and cash equivalents | $(166,435) | $97,665 | $(264,100) | | Cash and cash equivalents at end of period | $389,102 | $460,453 | $(71,351) | Notes to Consolidated Condensed Financial Statements Provides detailed explanations and disclosures supporting the consolidated condensed financial statements NOTE 1. BASIS OF PRESENTATION Outlines the basis for preparing unaudited financial statements, fiscal year, business nature, and management estimates - The company adopted ASU 2021-08 on Business Combinations in fiscal year 2023, which did not have a material impact on its financial statements[33] NOTE 2. BALANCE SHEET COMPONENTS Details the composition and changes of significant balance sheet accounts like investments, inventories, and accrued expenses | Balance Sheet Component (in thousands) | April 1, 2023 | October 1, 2022 | | :------------------------------------- | :------------ | :-------------- | | Short-term investments | $345,000 | $220,000 | | Inventories, net | $224,159 | $184,986 | | Property, plant and equipment, net | $110,680 | $80,908 | | Accrued expenses and other current liabilities | $112,301 | $134,541 | NOTE 3. BUSINESS COMBINATION Details the $38.1 million acquisition of AJA, expanding into micro-dispensing equipment, with preliminary fair value allocation - Acquired Advanced Jet Automation Co., Ltd. (AJA) for $38.1 million in cash on February 22, 2023, to expand into high-precision micro-dispensing equipment for mini and micro LED markets[40][41][42] Acquired Assets and Liabilities | Acquired Assets and Liabilities (in thousands) | February 22, 2023 | | :--------------------------------------------- | :---------------- | | Cash and cash equivalents | $1,238 | | Goodwill | $27,975 | | Intangible assets | $7,768 | | Total purchase price | $38,119 | - The acquisition contributed a net loss of $0.4 million and acquisition-related expenses of $0.3 million for the three months ended April 1, 2023, with no material impact on consolidated revenue or net income[50][51] NOTE 4. GOODWILL AND INTANGIBLE ASSETS Goodwill increased to $98.89 million due to the AJA acquisition, with no impairment identified; intangible assets also rose Goodwill | Goodwill (in thousands) | October 1, 2022 | April 1, 2023 | Change | | :---------------------- | :-------------- | :------------ | :------- | | Total Goodwill | $68,096 | $98,893 | $30,797 | | Acquired in business combination | — | $27,975 | $27,975 | Net Intangible Assets | Net Intangible Assets (in thousands) | April 1, 2023 | October 1, 2022 | | :----------------------------------- | :------------ | :-------------- | | Net developed technology | $35,070 | $30,381 | | Net customer relationships | $2,108 | $0 | | Net in-process research and development | $459 | $0 | | Total net intangible assets | $39,892 | $31,939 | Estimated Annual Amortization Expense | Estimated Annual Amortization Expense (in thousands) | | :----------------------------------- | | Remaining fiscal 2023 | $3,567 | | Fiscal 2024 | $6,963 | | Fiscal 2025 | $6,799 | | Fiscal 2026 | $6,799 | | Fiscal 2027 | $6,095 | | Thereafter | $9,669 | | Total amortization expense | $39,892 | NOTE 5. CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS Total cash, cash equivalents, and short-term investments decreased to $734.1 million, reflecting a shift in asset allocation | Metric (in thousands) | April 1, 2023 | October 1, 2022 | Change | | :------------------------------------ | :------------ | :-------------- | :------- | | Cash and cash equivalents | $389,102 | $555,537 | $(166,435) | | Short-term investments | $345,000 | $220,000 | $125,000 | | Total cash, cash equivalents and short-term investments | $734,102 | $775,537 | $(41,435) | NOTE 6. EQUITY INVESTMENTS Non-marketable equity securities remained stable, increasing slightly to $5.433 million as of April 1, 2023 | Equity Investments (in thousands) | April 1, 2023 | October 1, 2022 | | :-------------------------------- | :------------ | :-------------- | | Non-marketable equity securities | $5,433 | $5,397 | NOTE 7. FAIR VALUE MEASUREMENTS Describes the company's three-level fair value measurement hierarchy for financial assets and liabilities, with no level transfers - The company uses a three-level hierarchy for fair value measurements (Level 1 for quoted prices, Level 2 for observable inputs, Level 3 for unobservable inputs)[68] - No transfers between fair value measurement levels occurred during the three and six months ended April 1, 2023[69] NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS The company uses foreign exchange forward contracts to hedge foreign currency exposure, with derivative assets at $1.298 million - The company uses foreign exchange forward contracts to hedge foreign currency exposure from operating expenses, primarily in Singapore, with instruments generally maturing within twelve months[72][74] Derivative Instruments | Derivative Instruments (in thousands) | April 1, 2023 | October 1, 2022 | | :------------------------------------ | :------------ | :-------------- | | Notional Amount | $59,947 | $57,570 | | Fair Value Asset (Liability) | $1,298 | $(2,234) | Net Gain/(Loss) from Derivatives | Net Gain/(Loss) from Derivatives (in thousands) | 3 Months Ended April 1, 2023 | 3 Months Ended April 2, 2022 | 6 Months Ended April 1, 2023 | 6 Months Ended April 2, 2022 | | :---------------------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Recognized in OCI, net of tax | $737 | $(143) | $3,830 | $65 | | Reclassified from OCI into income, net of tax | $578 | $(87) | $298 | $(623) | NOTE 9. LEASES Details operating and finance lease agreements, with increased operating lease expense and a weighted-average term of 7.8 years - The company has non-cancellable operating and finance lease agreements for various assets, with lease terms including extension options from one to 20 years[78] Lease Expense | Lease Expense (in thousands) | 3 Months Ended April 1, 2023 | 3 Months Ended April 2, 2022 | 6 Months Ended April 1, 2023 | 6 Months Ended April 2, 2022 | | :--------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Operating lease expense | $2,683 | $1,990 | $5,273 | $4,044 | Operating Lease Metrics | Operating Lease Metrics | April 1, 2023 | October 1, 2022 | | :---------------------- | :------------ | :-------------- | | Weighted-average remaining lease term (years) | 7.8 | 8.0 | | Weighted-average discount rate | 5.9% | 5.8% | NOTE 10. DEBT AND OTHER OBLIGATIONS Details a $5.0 million Citibank credit facility with $3.2 million outstanding and a $150.0 million MUFG Bank overdraft facility - The company has a $5.0 million credit facility with Citibank ($3.2 million outstanding as of April 1, 2023) and an unsecured $150.0 million overdraft facility with MUFG Bank (no outstanding amounts as of April 1, 2023)[84][85] NOTE 11. SHAREHOLDERS' EQUITY AND EMPLOYEE BENEFIT PLANS Details 401(k) contributions, $50.4 million in share repurchases, $0.19 quarterly dividends, and changes in accumulated other comprehensive loss 401(k) Contributions | 401(k) Contributions (in thousands) | 3 Months Ended April 1, 2023 | 3 Months Ended April 2, 2022 | 6 Months Ended April 1, 2023 | 6 Months Ended April 2, 2022 | | :---------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Cash | $540 | $496 | $1,014 | $1,004 | - The company repurchased approximately 1.156 million shares for $50.4 million during the six months ended April 1, 2023, under its $800 million share repurchase program, with $198.8 million remaining authorization[87][89] - Quarterly dividends of $0.19 per share were declared, totaling $20.5 million for the six months ended April 1, 2023[90] Accumulated Other Comprehensive Loss | Accumulated Other Comprehensive Loss (in thousands) | April 1, 2023 | October 1, 2022 | | :-------------------------------------------------- | :------------ | :-------------- | | Loss from foreign currency translation adjustments | $(13,881) | $(29,854) | | Unrealized gain/(loss) on hedging | $1,298 | $(2,234) | | Total Accumulated other comprehensive loss | $(13,451) | $(32,900) | Equity-Based Compensation Expense | Equity-Based Compensation Expense (in thousands) | 3 Months Ended April 1, 2023 | 3 Months Ended April 2, 2022 | 6 Months Ended April 1, 2023 | 6 Months Ended April 2, 2022 | | :--------------------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Total equity-based compensation expense | $5,379 | $4,696 | $11,900 | $10,008 | NOTE 12. REVENUE AND CONTRACT BALANCES Explains revenue recognition from product sales, with contract assets increasing to $29.21 million and liabilities decreasing - Revenue is recognized when performance obligations are satisfied, mainly from product sales, with service revenue recognized over time[96] Contract Balances | Contract Balances (in thousands) | 6 Months Ended April 1, 2023 | 6 Months Ended April 2, 2022 | | :------------------------------- | :----------------------------- | :----------------------------- | | Contract assets, end of period | $29,210 | $26,721 | | Contract liabilities, end of period | $6,556 | $17,300 | NOTE 13. EARNINGS PER SHARE Basic EPS was $0.27 and $0.52 for the three and six months, significantly lower, with anti-dilutive PSUs excluded EPS | EPS (in thousands, except per share data) | 3 Months Ended April 1, 2023 | 3 Months Ended April 2, 2022 | 6 Months Ended April 1, 2023 | 6 Months Ended April 2, 2022 | | :---------------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net income | $15,041 | $116,001 | $29,630 | $249,607 | | Basic EPS | $0.27 | $1.89 | $0.52 | $4.03 | | Diluted EPS | $0.26 | $1.86 | $0.51 | $3.97 | | Weighted average shares outstanding - Basic | 56,684 | 61,482 | 56,868 | 61,934 | | Weighted average shares outstanding - Diluted | 57,577 | 62,435 | 57,739 | 62,907 | - Relative TSR PSUs and Growth PSUs were excluded from diluted EPS calculation as their effect would have been anti-dilutive[105] NOTE 14. INCOME TAXES Provision for income taxes decreased, but the effective tax rate rose to 27.0% due to R&D capitalization to GILTI Income Taxes | Income Taxes (in thousands) | 3 Months Ended April 1, 2023 | 3 Months Ended April 2, 2022 | 6 Months Ended April 1, 2023 | 6 Months Ended April 2, 2022 | | :-------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Provision for income taxes | $5,556 | $13,713 | $9,314 | $31,648 | | Effective tax rate | 27.0% | 10.6% | 23.9% | 11.3% | - The increase in effective tax rate is primarily due to the impact of mandatory capitalization of R&D expenditures to GILTI[107] NOTE 15. SEGMENT INFORMATION Details performance of Capital Equipment and APS segments, both experiencing significant revenue and income declines - The company operates two reportable segments: Capital Equipment and Aftermarket Products and Services (APS)[109] Segment Performance | Segment Performance (in thousands) | 3 Months Ended April 1, 2023 | 3 Months Ended April 2, 2022 | 6 Months Ended April 1, 2023 | 6 Months Ended April 2, 2022 | | :--------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net Revenue: | | | | | | Capital Equipment | $133,727 | $333,909 | $269,099 | $742,437 | | APS | $39,294 | $50,373 | $80,155 | $102,733 | | Total Net Revenue | $173,021 | $384,282 | $349,254 | $845,170 | | Income from Operations: | | | | | | Capital Equipment | $3,318 | $111,200 | $7,190 | $243,219 | | APS | $9,311 | $18,141 | $17,261 | $37,232 | | Total Income from Operations | $12,629 | $129,341 | $24,451 | $280,451 | Capital Equipment Revenue by End Market | Capital Equipment Revenue by End Market (in thousands) | 3 Months Ended April 1, 2023 | 3 Months Ended April 2, 2022 | 6 Months Ended April 1, 2023 | 6 Months Ended April 2, 2022 | | :----------------------------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | General Semiconductor | $71,064 | $198,694 | $139,436 | $447,217 | | Automotive & Industrial | $51,455 | $58,700 | $104,635 | $109,348 | | LED | $5,894 | $42,036 | $15,087 | $108,191 | | Memory | $5,314 | $34,479 | $9,941 | $77,681 | NOTE 16. COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS Details warranty reserve of $10.468 million, $233.697 million in purchase obligations, and key customer concentrations Warranty Reserve Activity | Warranty Reserve Activity (in thousands) | 3 Months Ended April 1, 2023 | 3 Months Ended April 2, 2022 | 6 Months Ended April 1, 2023 | 6 Months Ended April 2, 2022 | | :------------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Reserve for warranty, beginning of period | $11,421 | $17,110 | $13,443 | $16,961 | | Provision for warranty | $2,882 | $2,191 | $4,982 | $6,159 | | Utilization of reserve | $(3,835) | $(3,783) | $(7,957) | $(7,602) | | Reserve for warranty, end of period | $10,468 | $15,518 | $10,468 | $15,518 | Obligations Not Reflected on Balance Sheet | Obligations Not Reflected on Balance Sheet (in thousands) | Total | 2023 | 2024 | | :---------------------------------------- | :------ | :----- | :----- | | Inventory purchase obligation | $233,697 | $54,215 | $179,482 | - The company has an unfunded capital commitment of approximately $9.6 million related to a private equity fund investment[118] Significant Customer Concentrations | Significant Customer Concentrations | 6 Months Ended April 1, 2023 (Net Revenue) | April 1, 2023 (Accounts Receivable) | | :---------------------------------- | :------------------------------------------- | :---------------------------------- | | First Technology China Ltd. | 11.9% | * (less than 10%) | | Intel Corporation | * (less than 10%) | 14.6% | Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's analysis of financial performance, condition, and outlook, highlighting revenue declines and strategic initiatives - The company specializes in semiconductor and electronics assembly solutions, serving markets like advanced display, automotive, communications, and consumer electronics[125] - The semiconductor industry is highly volatile, driven by cyclical, seasonal, and macroeconomic factors, with long-term growth expected despite short-term downturns[130] - Approximately 90.8% of net revenue for the six months ended April 1, 2023, was from shipments to customer locations outside the U.S., primarily in the Asia/Pacific region, with 32.5% to customers headquartered in China[132] - The company maintains a strong balance sheet with $734.1 million in cash, cash equivalents, and short-term investments as of April 1, 2023, to support product development and non-organic opportunities[138] Forward-Looking Statements Cautionary note on forward-looking statements, emphasizing risks from macroeconomic factors, supply chain, and geopolitical tensions - Forward-looking statements are subject to risks and uncertainties, including inflationary pressures, interest rate adjustments, falling consumer sentiment, the Ukraine/Russia conflict, COVID-19 impacts, and supply chain disruptions[121][124] OVERVIEW Overview of the company's business in semiconductor and electronic device assembly, operating through Capital Equipment and APS segments - The company's Capital Equipment segment manufactures and sells ball bonders, wafer level bonders, wedge bonders, advanced packaging tools, high precision dispense systems, mini and micro LED transfer solutions, and hybrid and electronic assembly solutions[129] - The APS segment manufactures and sells tools for semiconductor packaging, spare parts, equipment repair, maintenance, servicing, training, refurbishment, and upgrades[129] Business Environment Discusses the volatile semiconductor industry, long-term growth drivers, and revenue concentration in Asia/Pacific, especially China - The semiconductor business environment is highly volatile, driven by internal dynamics (cyclical and seasonal) and macroeconomic forces, with long-term growth expected[130] - Approximately 92.5% of net revenue for the three months ended April 1, 2023, was from shipments to customer locations outside the U.S., primarily in the Asia/Pacific region[131] - Shipments to customers headquartered in China accounted for 32.1% and 32.5% of net revenue for the three and six months ended April 1, 2023, respectively, and are subject to heightened geopolitical risks[131][132][133] Key Events in Fiscal 2023 to Date Highlights the AJA acquisition, macroeconomic headwinds causing inventory buildup, and improving but dynamic COVID-19 impacts - The company completed the acquisition of Advanced Jet Automation Co., Ltd. (AJA) on February 22, 2023, to expand its high-precision micro-dispensing equipment and solutions portfolio[139] - Macroeconomic conditions, including inflationary pressures and declining consumer sentiment, have led to significant inventory buildup in the semiconductor industry and reduced order rates for the company's products[142][143] - The COVID-19 pandemic's effects are generally improving but remain dynamic, with ongoing uncertainties regarding potential resurgences and new variants[145] RESULTS OF OPERATIONS Reports substantial declines in net revenue, gross profit, and income from operations due to lower sales volumes | Metric (in thousands) | 3 Months Ended April 1, 2023 | 3 Months Ended April 2, 2022 | YoY Change (%) | 6 Months Ended April 1, 2023 | 6 Months Ended April 2, 2022 | YoY Change (%) | | :-------------------- | :----------------------------- | :----------------------------- | :------------- | :----------------------------- | :----------------------------- | :------------- | | Net revenue | $173,021 | $384,282 | (55.0)% | $349,254 | $845,170 | (58.7)% | | Gross profit | $84,092 | $201,710 | (58.3)% | $172,798 | $424,948 | (59.3)% | | Income from operations | $12,629 | $129,341 | (90.2)% | $24,451 | $280,451 | (91.3)% | Net Revenue Net revenue decreased by 55.0% and 58.7% due to lower sales volumes in Capital Equipment and APS segments | Net Revenue (in thousands) | 3 Months Ended April 1, 2023 | 3 Months Ended April 2, 2022 | YoY Change (%) | 6 Months Ended April 1, 2023 | 6 Months Ended April 2, 2022 | YoY Change (%) | | :------------------------- | :----------------------------- | :----------------------------- | :------------- | :----------------------------- | :----------------------------- | :------------- | | Capital Equipment | $133,727 | $333,909 | (60.0)% | $269,099 | $742,437 | (63.8)% | | APS | $39,294 | $50,373 | (22.0)% | $80,155 | $102,733 | (22.0)% | | Total Net Revenue | $173,021 | $384,282 | (55.0)% | $349,254 | $845,170 | (58.7)% | - The decrease in Capital Equipment net revenue was due to lower customer purchases in general semiconductor, LED, and memory markets, exacerbated by high semiconductor supply chain inventories[149] - The decrease in APS net revenue was due to lower customer purchases in spares and services, and a slight decrease in bonding tools, also impacted by low equipment utilization and high inventories[150] Gross Profit Margin Total gross profit margin decreased to 48.6% and 49.5% due to lower sales volumes and unfavorable product mix | Gross Profit Margin | 3 Months Ended April 1, 2023 | 3 Months Ended April 2, 2022 | Basis Point Change | 6 Months Ended April 1, 2023 | 6 Months Ended April 2, 2022 | Basis Point Change | | :------------------ | :----------------------------- | :----------------------------- | :----------------- | :----------------------------- | :----------------------------- | :----------------- | | Capital Equipment | 46.0% | 51.2% | (520) | 47.4% | 48.8% | (140) | | APS | 57.6% | 61.2% | (360) | 56.4% | 60.8% | (440) | | Total gross profit margin | 48.6% | 52.5% | (390) | 49.5% | 50.3% | (80) | - Capital Equipment gross profit margin decreased due to lower sales volume, macroeconomic uncertainties, high semiconductor supply chain inventories, and less favorable product mix[152] - APS gross profit margin decreased due to less favorable product mix among spares, services, and bonding tools, and lower average selling prices of bonding tools[153] Operating Expenses Total operating expenses remained stable for three months but increased by 2.7% for six months, driven by SG&A | Operating Expenses (in thousands) | 3 Months Ended April 1, 2023 | 3 Months Ended April 2, 2022 | YoY Change (%) | 6 Months Ended April 1, 2023 | 6 Months Ended April 2, 2022 | YoY Change (%) | | :-------------------------------- | :----------------------------- | :----------------------------- | :------------- | :----------------------------- | :----------------------------- | :------------- | | Selling, general & administrative | $35,464 | $35,088 | 1.1% | $77,840 | $74,047 | 5.1% | | Research & development | $35,999 | $37,281 | (3.4)% | $70,507 | $70,450 | 0.1% | | Total Operating Expenses | $71,463 | $72,369 | (1.3)% | $148,347 | $144,497 | 2.7% | - SG&A expenses increased for the three months due to higher staff costs and lower wage incentives, and for six months due to unfavorable foreign exchange variance, professional services, severance, and facilities startup expenses, partially offset by lower sales commissions[156][157] - R&D expenses decreased for the three months due to lower engineering services, prototype materials, toolings, and freight[158] Income from Operations Income from operations plummeted by 90.2% and 91.3% due to significant declines in net revenue and gross profit | Income from Operations (in thousands) | 3 Months Ended April 1, 2023 | 3 Months Ended April 2, 2022 | YoY Change (%) | 6 Months Ended April 1, 2023 | 6 Months Ended April 2, 2022 | YoY Change (%) | | :------------------------------------ | :----------------------------- | :----------------------------- | :------------- | :----------------------------- | :----------------------------- | :------------- | | Capital Equipment | $3,318 | $111,200 | (97.0)% | $7,190 | $243,219 | (97.0)% | | APS | $9,311 | $18,141 | (48.7)% | $17,261 | $37,232 | (53.6)% | | Total Income from Operations | $12,629 | $129,341 | (90.2)% | $24,451 | $280,451 | (91.3)% | - The decrease in income from operations for both segments was primarily due to changes in revenue and operating expenses[160] Interest Income and Expense Interest income dramatically increased by over 1,600% due to higher short-term investment balances and interest rates | Interest (in thousands) | 3 Months Ended April 1, 2023 | 3 Months Ended April 2, 2022 | YoY Change (%) | 6 Months Ended April 1, 2023 | 6 Months Ended April 2, 2022 | YoY Change (%) | | :---------------------- | :----------------------------- | :----------------------------- | :------------- | :----------------------------- | :----------------------------- | :------------- | | Interest income | $8,000 | $470 | 1602.1% | $14,559 | $941 | 1447.2% | | Interest expense | $(32) | $(97) | (67.0)% | $(66) | $(137) | (51.8)% | - Interest income increased primarily due to a higher average balance in short-term investments and higher weighted average interest rates[162] Provision for Income Taxes Provision for income taxes decreased, but the effective tax rate rose to 27.0% due to R&D capitalization to GILTI | Income Taxes (in thousands) | 3 Months Ended April 1, 2023 | 3 Months Ended April 2, 2022 | YoY Change (%) | 6 Months Ended April 1, 2023 | 6 Months Ended April 2, 2022 | YoY Change (%) | | :-------------------------- | :----------------------------- | :----------------------------- | :------------- | :----------------------------- | :----------------------------- | :------------- | | Provision for income taxes | $5,556 | $13,713 | (59.5)% | $9,314 | $31,648 | (70.6)% | | Effective tax rate | 27.0% | 10.6% | 16.4% pts | 23.9% | 11.3% | 12.6% pts | - The increase in effective tax rate is primarily related to the impact of mandatory capitalization of R&D expenditures to GILTI[163] LIQUIDITY AND CAPITAL RESOURCES Total cash and investments decreased to $734.1 million; operating cash flow declined, with funding from cash and credit facilities Cash, Cash Equivalents, and Short-Term Investments | Cash, Cash Equivalents, and Short-Term Investments (in thousands) | April 1, 2023 | October 1, 2022 | Change | | :---------------------------------------------------------------- | :------------ | :-------------- | :------- | | Cash and cash equivalents | $389,102 | $555,537 | $(166,435) | | Short-term investments | $345,000 | $220,000 | $125,000 | | Total | $734,102 | $775,537 | $(41,435) | | Percentage of total assets | 48.2% | 48.8% | (0.6)% pts | Cash Flow Summary | Cash Flow Summary (in thousands) | 6 Months Ended April 1, 2023 | 6 Months Ended April 2, 2022 | | :------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $86,936 | $169,009 | | Net cash (used in)/provided by investing activities | $(186,197) | $141,461 | | Net cash used in financing activities | $(72,911) | $(211,064) | | Changes in cash and cash equivalents | $(166,435) | $97,665 | Cash Flow Summary Operating cash flow decreased to $86.9 million, investing activities used $186.2 million, and financing used $72.9 million - Net cash provided by operating activities was $86.9 million, driven by net income and a favorable change in operating assets and liabilities, including a decrease in accounts receivable and an increase in inventories[167][168] - Net cash used in investing activities was $186.2 million, primarily due to $125.0 million in net short-term investment purchases, $36.9 million for the AJA acquisition, and $24.5 million in capital expenditures[169] - Net cash used in financing activities was $72.9 million, mainly for $52.0 million in common stock repurchases and $20.5 million in dividend payments[169] Fiscal 2023 Liquidity and Capital Resource Outlook Projects fiscal 2023 capital expenditures between $53.0 million and $57.0 million, funded by cash and credit facilities - Fiscal 2023 capital expenditures are projected to be between $53.0 million and $57.0 million, with $33.0 million already incurred by the second quarter[173] - Approximately $553.6 million of cash, cash equivalents, and short-term investments were held by foreign subsidiaries as of April 1, 2023, with a large portion expected to be available for U.S. use without additional income tax[174] - The company believes its existing cash, investments, and credit facilities will be sufficient to meet liquidity and capital requirements for at least the next twelve months and beyond, despite ongoing macroeconomic and geopolitical uncertainties[176] Share Repurchase Program Details the $800 million share repurchase program, with $50.4 million repurchased and $198.8 million remaining - The company's Board of Directors authorized an $800 million share repurchase program, extended through August 1, 2025[178] - During the six months ended April 1, 2023, the company repurchased approximately 1.156 million shares for $50.4 million[178] - As of April 1, 2023, approximately $198.8 million remained authorized under the share repurchase program[179] Dividends Quarterly dividend of $0.19 per share declared, totaling $20.5 million paid for the six months - A quarterly dividend of $0.19 per share was declared on November 16, 2022[180] - Total dividends paid for the six months ended April 1, 2023, were $20.5 million[180] Other Obligations and Contingent Payments Details $36.2 million in deferred tax liabilities, $233.7 million in inventory purchase obligations, and other contractual payments - As of April 1, 2023, the company had deferred tax liabilities of $36.2 million and unrecognized tax benefits of $17.5 million[182] Contractual Obligations | Contractual Obligations (in thousands) | Total | Less than 1 year | 1 - 3 years | | :------------------------------------- | :------ | :--------------- | :---------- | | Inventory purchase obligations | $233,697 | $54,215 | $179,482 | | U.S. one-time transition tax payable | $47,686 | $12,606 | $35,080 | | Total | $281,383 | $66,821 | $214,562 | Credit facilities Maintains an unsecured $150.0 million overdraft facility with MUFG Bank, with no outstanding amounts - The company has an unsecured overdraft facility of up to $150.0 million with MUFG Bank, with no outstanding amounts as of April 1, 2023[185] - The facility includes customary non-financial covenants, such as restrictions on asset sales, subsidiary ownership, and encumbrances, and typical events of default[185] Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Discusses exposure to interest rate risk from investments and foreign currency risk from international operations, using hedging - The company is exposed to interest rate risk from short-term investments in highly rated debt instruments, with an average life to maturity target of less than 18 months[187] - International operations expose the company to foreign currency exchange rate changes, particularly for operating expenses denominated in local currencies like Singapore[188] Interest Rate Risk Manages interest rate risk on short-term investments by targeting an average life to maturity of less than 18 months - The company targets an average life to maturity of less than 18 months for its short-term investments to limit exposure to interest rate changes[187] Foreign Currency Risk International operations expose the company to foreign currency risk, with a 10.0% fluctuation potentially impacting results by $4.0 million to $5.0 million - A 10.0% fluctuation in foreign currency could impact the company's financial position, results of operations, or cash flows by $4.0 million to $5.0 million[189] - The company uses foreign exchange forward contracts, generally maturing within twelve months, to hedge a portion of its forecasted foreign currency-denominated expenses[190] Item 4. CONTROLS AND PROCEDURES Management concluded disclosure controls were effective; acquired AJA will be excluded from internal control assessment - Management concluded that disclosure controls and procedures were effective as of April 1, 2023[192] - The recently acquired AJA will be excluded from the assessment of internal control over financial reporting for the fiscal year ending September 30, 2023, per SEC guidance[194] Evaluation of Disclosure Controls and Procedures CEO and CFO concluded disclosure controls and procedures were effective as of April 1, 2023, for timely reporting - The CEO and CFO concluded that disclosure controls and procedures were effective as of April 1, 2023, ensuring timely and accurate reporting[192] Changes in Internal Control Over Financial Reporting No material changes to internal control over financial reporting; acquired AJA excluded from current fiscal year assessment - No material changes to internal control over financial reporting were identified during the three months ended April 1, 2023[195] - The acquired AJA business will be excluded from the assessment of internal control over financial reporting for the fiscal year ending September 30, 2023[194] PART II - OTHER INFORMATION This section includes legal proceedings, risk factors, equity sales, and other required disclosures Item 1. LEGAL PROCEEDINGS The company is involved in routine litigation, not expecting a material adverse effect on its business or financial condition - The company is party to ordinary, routine litigation incidental to its business[197] - Management does not believe resolution of any currently pending matters will have a material adverse effect on its business, financial condition, or operating results[197] Item 1A. RISK FACTORS No material changes to the risk factors previously discussed in the company's 2022 Annual Report on Form 10-K - No material changes to risk factors from the 2022 Annual Report on Form 10-K were identified[198] Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The company repurchased 102 thousand shares under its $800 million share repurchase program, with $198.8 million remaining | Period | Total Number of Shares Purchased (thousands) | Average Price Paid Per Share | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Program (millions) | | :-------------------------------- | :------------------------------------------- | :--------------------------- | :-------------------------------------------------------------------------------------- | | January 1, 2023 to January 28, 2023 | 66 | $47.01 | $200.7 | | January 29, 2023 to March 4, 2023 | 14 | $53.19 | $199.9 | | March 5, 2023 to April 1, 2023 | 22 | $52.14 | $198.8 | | For the three months ended April 1, 2023 | 102 | N/A | N/A | - The share repurchase program has an $800 million authorization, extended through August 1, 2025[199] Item 3. DEFAULTS UPON SENIOR SECURITIES No defaults upon senior securities were reported - No defaults upon senior securities were reported[200] Item 4. MINE SAFETY DISCLOSURES No mine safety disclosures were reported - No mine safety disclosures were reported[201] Item 5. OTHER INFORMATION No other information was reported - No other information was reported[202] Item 6. EXHIBITS Lists exhibits filed with Form 10-Q, including corporate documents and certifications from CEO and CFO - Exhibits include the company's Amended and Restated Articles of Incorporation and By-Laws, certifications from the CEO and CFO (pursuant to Sarbanes-Oxley Act), and Inline XBRL documents[203] SIGNATURES The report was signed on May 4, 2023, by Lester Wong, Executive Vice President and Chief Financial Officer - The report was signed by Lester Wong, Executive Vice President and Chief Financial Officer, on May 4, 2023[207]