The increase in gross margin from the third quarter of 2023 to the third quarter of 2024 was primarily due to lower excess and obsolete inventory expense (+120bps), lower severance costs associated with our global reduction-in-force programs (+40bps), partially offset by unfavorable sales mix and higher fixed factory overhead costs (-20bps).
The decrease in gross margin from the nine months ended September 29, 2023 to the nine months ended September 27, 2024 was primarily due to unfavorable sales mix, increased fixed factory overhead costs (-40bps), and increased excess and obsolete inventory expense (-10bps), partially offset by lower severance costs associated with our global reduction-in-force programs (+20bps).
Research and development
Three Months Ended
Change
Nine Months Ended
Change
September 27, 2024
September 29, 2023
Amount
%
September 27, 2024
September 29, 2023
Amount
%
(dollars in thousands)
Research and development
$
5,872
$
5,188
$
684
13.2
%
$
17,168
$
14,689
$
2,479
16.9
%
The increase in research and development expenses from the third quarter of 2023 to the third quarter of 2024 was primarily due to increased material and service costs from our new product development programs of $0.5 million and increased employee-related expenses of $0.2 million, inclusive of share-based compensation expense.
The increase from the nine months ended September 29, 2023 to the nine months ended September 27, 2024 was primarily due to increased material and service costs from our new product development programs of $1.7 million and increased employee-related expenses of $0.8 million, inclusive of share-based compensation expense.
Selling, general, and administrative
Three Months Ended
Change
Nine Months Ended
Change
September 27, 2024
September 29, 2023
Amount
%
September 27, 2024
September 29, 2023
Amount
%
(dollars in thousands)
Selling, general, and administrative
$
20,227
$
20,066
$
161
0.8
%
$
59,253
$
59,733
$
(480)
(0.8)
%
Overall, our selling, general, and administrative expenses remained approximately unchanged from the third quarter of 2023 to the third quarter of 2024.
The decrease in selling, general, and administrative expense from the nine months ended September 29, 2023 to the nine months ended September 27, 2024 was primarily due to reduced share-based compensation expense of $2.0 million, partially offset by $0.8 million in transaction-related costs from our acquisitions pipeline and $0.5 million in costs from exiting and consolidating one of our U.S.-based manufacturing facilities incurred during the nine months ended September 27, 2024 only.
18
Amortization of intangible assets
Three Months Ended
Change
Nine Months Ended
Change
September 27, 2024
September 29, 2023
Amount
%
September 27, 2024
September 29, 2023
Amount
%
(dollars in thousands)
Amortization of intangible assets
$
2,077
$
3,639
$
(1,562)
(42.9)
%
$
6,309
$
11,565
$
(5,256)
(45.4)
%
The decrease in amortization expense from the three and nine months ended September 29, 2023 to the three and nine months ended September 27, 2024 was due to certain intangible assets becoming fully amortized in the second half of 2023.
Interest expense, net
Three Months Ended
Change
Nine Months Ended
Change
September 27, 2024
September 29, 2023
Amount
%
September 27, 2024
September 29, 2023
Amount
%
(dollars in thousands)
Interest expense, net
$
1,638
$
5,136
$
(3,498)
(68.1)
%
$
7,592
$
14,716
$
(7,124)
(48.4)
%
Weighted average borrowings outstanding
$
131,250
$
292,630
$
(161,380)
(55.1)
%
$
169,430
$
298,553
$
(129,123)
(43.2)
%
Weighted average borrowing rate
7.23
%
7.06
%
+17 bps
7.43
%
6.60
%
+83 bps
The decrease in interest expense, net from the three and nine months ended September 29, 2023 to the three and nine months ended September 27, 2024 was primarily due to decreases in the weighted average amounts borrowed, partially offset by an increase in our weighted average borrowing rate.
Other expense, net
Three Months Ended
Change
Nine Months Ended
Change
September 27, 2024
September 29, 2023
Amount
%
September 27, 2024
September 29, 2023
Amount
%
(dollars in thousands)
Other expense, net
$
587
$
29
$
558
1924.1
%
$
876
$
913
$
(37)
(4.1)
%
The change in other expense, net from the three and nine months ended September 29, 2023 to the three and nine months ended September 27, 2024 was primarily due to currency exchange rate fluctuations during the periods related to our local currency payables of our foreign operations.
19
Income tax expense
Three Months Ended
Change
Nine Months Ended
Change
September 27, 2024
September 29, 2023
Amount
%
September 27, 2024
September 29, 2023
Amount
%
(dollars in thousands)
Income tax expense
$
166
$
436
$
(270)
(61.9)
%
$
2,021
$
12,521
$
(10,500)
(83.9)
%
Loss before income taxes
$
(2,610)
$
(9,989)
$
7,379
(73.9)
%
$
(14,856)
$
(18,565)
$
3,709
(20.0)
%
Effective income tax rate
-6.4
%
-4.4
%
-200 bps
-13.6
%
-67.4
%
+5,380 bps
The decrease in income tax expense from the third quarter of 2023 to the third quarter of 2024 was primarily due to decreased foreign taxable income.
The decrease in income tax expense from the nine months ended September 29, 2023 to the nine months ended September 27, 2024 was primarily due to recording a valuation allowance against our U.S. federal and state deferred tax assets in the second quarter of 2023, resulting in an $11.1 million charge to income tax expense. Because we have a valuation allowance recorded against our U.S. state and federal deferred income taxes, we did not record tax benefits from our U.S. taxable losses during the nine months ended September 27, 2024.
Non‑GAAP Financial Results
Management uses certain non-GAAP metrics to evaluate our operating and financial results. We believe the presentation of non-GAAP results is useful to investors for analyzing business trends and comparing performance to prior periods, along with enhancing investors’ ability to view our results from management’s perspective. All non-GAAP adjustments are presented on a gross basis. Non-GAAP gross profit, operating income, and net income (loss) are defined as: gross profit, operating income (loss), or net income (loss), respectively, excluding (1) amortization of intangible assets, share-based compensation expense, and discrete or infrequent charges and gains that are outside of normal business operations, including transaction-related costs, contract and legal settlement gains and losses, facility shutdown costs, and severance costs associated with reduction-in-force programs, to the extent they are present in gross profit, operating income (loss), and net income (loss), respectively; and (2) with respect to non-GAAP net income (loss), the tax impacts associated with these non-GAAP adjustments, as well as non-recurring discrete tax items, including deferred tax asset valuation allowance charges. All non-GAAP adjustments are presented on a gross basis; the related income tax effects, including current and deferred income tax expense, are included in the adjustment line under the heading "Tax adjustments related to non-GAAP adjustments". Non-GAAP diluted earnings per share ("EPS") is defined as non-GAAP net income divided by weighted average diluted ordinary shares outstanding during the period. Non-GAAP gross margin and non-GAAP operating margin are defined as non-GAAP gross profit and non-GAAP operating income, respectively, divided by net sales.
Non-GAAP results have limitations as an analytical tool, and you should not consider them in isolation or as a substitute for our results reported under GAAP. Other companies may calculate non-GAAP results differently or may use other measures to evaluate their performance, both of which could reduce the usefulness of our non-GAAP results as a tool for comparison.
Because of these limitations, you should consider non-GAAP results alongside other financial performance measures and results presented in accordance with GAAP. In addition, in evaluating non-GAAP results, you should be aware that in the future we will incur expenses such as those that are the subject of adjustments in deriving non-GAAP results and you should not infer from our presentation of non-GAAP results that our future results will not be affected by these expenses or other discrete or infrequent charges and gains that are outside of normal business operations.
20
The following table presents our unaudited non‑GAAP gross profit and non-GAAP gross margin and a reconciliation from GAAP gross profit, the most comparable GAAP measure, for the periods indicated:
Three Months Ended
Nine Months Ended
September 27, 2024
September 29, 2023
September 27, 2024
September 29, 2023
(dollars in thousands)
U.S. GAAP gross profit
$
27,791
$
24,069
$
76,342
$
83,051
Non-GAAP adjustments:
Share-based compensation
955
840
2,448
2,352
Other (1)
—
774
908
2,061
Non-GAAP gross profit
$
28,746
$
25,683
$
79,698
$
87,464
U.S. GAAP gross margin
13.2
%
12.2
%
12.4
%
13.7
%
Non-GAAP gross margin
13.6
%
13.1
%
12.9
%
14.4
%
(1)Represents severance costs associated with our global reduction-in-force programs.
The following table presents our unaudited non‑GAAP operating income and non-GAAP operating margin and a reconciliation from GAAP operating income (loss), the most comparable GAAP measure, for the periods indicated:
Three Months Ended
Nine Months Ended
September 27, 2024
September 29, 2023
September 27, 2024
September 29, 2023
(dollars in thousands)
U.S. GAAP operating income (loss)
$
(385)
$
(4,824)
$
(6,388)
$
(2,936)
Non-GAAP adjustments:
Amortization of intangible assets
2,077
3,639
6,309
11,565
Share-based compensation
4,672
4,752
10,985
12,666
Transaction-related costs (1)
—
—
785
—
Other (2)
—
793
1,600
2,117
Non-GAAP operating income
$
6,364
$
4,360
$
13,291
$
23,412
U.S. GAAP operating margin
(0.2)
%
(2.5)
%
(1.0)
%
(0.5)
%
Non-GAAP operating margin
3.0
%
2.2
%
2.2
%
3.9
%
(1)Represents transaction-related costs incurred in connection with our acquisitions pipeline.
(2)Represents severance costs associated with our global reduction-in-force programs. Additionally, for the nine months ended September 27, 2024, this amount includes $0.5 million of costs incurred in connection with exiting and consolidating one of our U.S.-based manufacturing facilities.
21
The following table presents our unaudited non‑GAAP net income (loss) and non-GAAP diluted EPS and a reconciliation from GAAP net loss, the most comparable GAAP measure, for the periods indicated. All non-GAAP adjustments are presented on a gross basis; the related income tax effects, including current and deferred income tax expense, are included in the adjustment line under the heading "Tax adjustments related to non-GAAP adjustments".
Three Months Ended
Nine Months Ended
September 27, 2024
September 29, 2023
September 27, 2024
September 29, 2023
(dollars in thousands, except per share amounts)
U.S. GAAP net loss
$
(2,776)
$
(10,425)
$
(16,877)
$
(31,086)
Non-GAAP adjustments:
Amortization of intangible assets
2,077
3,639
6,309
11,565
Share-based compensation
4,672
4,752
10,985
12,666
Transaction-related costs (1)
—
—
785
—
Other (2)
—
793
1,600
2,117
Tax adjustments related to non-GAAP adjustments (3)
47
3,338
325
7,576
Tax expense from valuation allowance (4)
—
—
—
11,094
Non-GAAP net income (loss)
$
4,020
$
2,097
$
3,127
$
13,932
U.S. GAAP diluted EPS
$
(0.08)
$
(0.36)
$
(0.52)
$
(1.07)
Non-GAAP diluted EPS
$
0.12
$
0.07
$
0.10
$
0.47
Shares used to compute non-GAAP diluted EPS
33,986,269
29,733,904
32,851,091
29,507,060
(1)Represents transaction-related costs incurred in connection with our acquisitions pipeline.
(2)Represents severance costs associated with our global reduction-in-force programs. Additionally, for the nine months ended September 27, 2024, this amount includes $0.5 million of costs incurred in connection with exiting and consolidating one of our U.S.-based manufacturing facilities.
(3)Adjusts GAAP income tax expense for the impact of our non-GAAP adjustments, which are presented on a gross basis. During the second quarter of 2023, we recorded a valuation allowance against our U.S. federal and state deferred tax assets on a GAAP basis. In the first quarter of 2024, we determined that the valuation allowance should be recognized against our U.S. federal and state deferred tax assets on a non-GAAP basis as we were not in a three-year cumulative U.S. income position on a non-GAAP basis. Accordingly, from the first quarter of 2024 and forward, tax expense on a GAAP and non-GAAP basis reflects a valuation allowance against our U.S. federal and state deferred tax assets.
(4)During the second quarter of 2023, we recorded a valuation allowance of $11.1 million against our U.S. federal and state deferred tax assets. The valuation allowance was recorded based on an assessment of available positive and negative evidence, including an estimate of being in a three-year cumulative loss position in the U.S. by the end of 2023, projections of future taxable income, and other quantitative and qualitative information.
22
Liquidity and Capital Resources
The following section discusses our liquidity and capital resources, including our primary sources of liquidity and our material cash requirements. Our cash and cash equivalents are maintained in highly liquid and accessible accounts with no significant restrictions.
Material Cash Requirements
Our primary liquidity requirements arise from: (i) working capital requirements, including procurement of raw materials inventory for use in our factories and employee-related costs, (ii) business acquisitions, (iii) interest and principal payments under our credit facilities, (iv) research and development investments, (v) capital expenditures, and (vi) payment of income taxes. We have no significant long-term purchase commitments related to procuring raw materials inventory. Our ability to fund these material cash requirements will depend, in part, on our future cash flows, which are determined by our future operating performance, and our continued access to the capital markets and are therefore subject to prevailing global macroeconomic conditions and financial, business, and other factors, some of which are beyond our control.
We believe that our cash and cash equivalents, the amounts available under our credit facilities, and our operating cash flow will be sufficient to fund our business and our current obligations for at least the next 12 months and beyond.
Sources and Conditions of Liquidity
Our ongoing sources of liquidity to fund our material cash requirements are primarily derived from: (i) sales to our customers and the related changes in our net operating assets and liabilities and (ii) proceeds from our credit facilities and equity offerings, when applicable. Our credit facilities are comprised of a $150.0 million term loan facility and a $250.0 million revolving credit facility, of which $250.0 million remained available to draw on as of September 27, 2024.
Summary of Cash Flows
We ended the third quarter of 2024 with cash and cash equivalents of $116.4 million, an increase of $36.5 million from the prior year ended December 29, 2023. The increase was primarily due to net proceeds of $136.7 million from our issuance of 3.8 million ordinary shares in March 2024 in connection with an underwritten public offering and net cash provided by operating activities of $30.4 million, partially offset by net payments on credit facilities of $118.8 million and capital expenditures of $13.2 million.
The following table sets forth a summary of operating, investing, and financing activities for the periods presented:
Nine Months Ended
September 27, 2024
September 29, 2023
(in thousands)
Cash provided by operating activities
$
30,368
$
20,058
Cash used in investing activities
(13,238)
(13,239)
Cash provided by (used in) financing activities
19,362
(17,356)
Net increase (decrease) in cash
$
36,492
$
(10,537)
Our cash provided by operating activities of $30.4 million for the nine months ended September 27, 2024 consisted of net non-cash charges of $33.9 million, consisting primarily of depreciation and amortization of $22.8 million and share-based compensation expense of $11.0 million, and a decrease in our net operating assets and liabilities of $13.4 million, partially offset by net loss of $16.9 million.
The decrease in our net operating assets and liabilities of $13.4 million during the nine months ended September 27, 2024 was primarily due to an increase in accounts payable of $22.7 million and a decrease in inventories of $6.5 million, partially offset by an increase in accounts receivable of $17.4 million.
23
Compared to the nine months ended September 29, 2023, higher cash provided by operating activities of $10.3 million in the nine months ended September 27, 2024 was primarily due to $10.7 million in favorable changes in the balances of our working capital accounts.
Cash used in investing activities during the nine months ended September 27, 2024 and September 29, 2023 consisted of capital expenditures.
Cash provided by financing activities during the nine months ended September 27, 2024 consisted of net proceeds of $136.7 million from our issuance of 3.8 million ordinary shares in March 2024 in connection with an underwritten public offering and net proceeds from share-based compensation activity of $1.4 million, partially offset by net payment on our credit facilities of $118.8 million. Cash used in financing activities during the nine months ended September 29, 2023 consisted of net payments on our credit facilities of $20.6 million, partially offset by net proceeds from share-based compensation activity of $3.3 million.
Critical Accounting Estimates
Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, sales, expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.
The critical accounting policies requiring estimates, assumptions, and judgments that we believe have the most significant impact on our consolidated financial statements are identified and described in our annual consolidated financial statements and the notes included in our 2023 Annual Report on Form 10‑K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Risk
Substantially all of our sales arrangement with customers, and the significant majority of our arrangements with third-party suppliers, provide for pricing and payment in U.S. dollars and, therefore, are not subject to material exchange rate fluctuations. As a result, we do not expect foreign currency exchange rate fluctuations to have a material effect on our results of operations. However, increases in the value of the U.S. dollar relative to other currencies would make our products more expensive relative to competing products priced in such other currencies, which could negatively impact our ability to compete. Conversely, decreases in the value of the U.S. dollar relative to other currencies could result in our foreign suppliers raising their prices in order to continue doing business with us.
We have certain operating expenses that are denominated in currencies of the countries in which our operations are located and may be subject to fluctuations due to foreign currency exchange rates, particularly the Singapore dollar, Malaysian ringgit, British pound, euro, Korean won, and Mexican peso. Fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our statement of operations. To date, foreign currency transaction gains and losses have not been material to our financial statements, and we have not engaged in any foreign currency hedging transactions.
Interest Rate Risk
We had total indebtedness of $131.3 million as of September 27, 2024, exclusive of $1.0 million in debt issuance costs, of which $7.5 million was due within 12 months. We do not enter into investments for trading or speculative purposes and have not used derivative financial instruments to manage our interest rate risk exposure. We have not been, nor do we anticipate being exposed to, material risks due to changes in interest rates. As of September 27, 2024, the interest rate on our outstanding debt is based on BSBY, plus an applicable rate depending on our leverage ratio. A hypothetical 100 basis point change in the interest rate on our outstanding debt would have resulted in a $0.3 million change to interest expense during the quarter, or $1.3 million on an annualized basis.
24
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer (the "certifying officers"), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a‑15(e) and 15d‑15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act”)) as of the end of the period covered by this report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on this evaluation, our certifying officers concluded that our disclosure controls and procedures were effective as of September 27, 2024.
Limitations on Effectiveness of Controls and Procedures
A company’s internal control over financial reporting is a process designed by, or under the supervision of, a company’s principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate. If we cannot provide reliable financial information, our business, operating results, and share price could be negatively impacted.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are currently not a party to any material pending or threatened litigation.
ITEM 1A. RISK FACTORS
This quarterly report should be read in conjunction with the risk factors included in our 2023 Annual Report on Form 10‑K. These risk factors do not identify all risks that we face – our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
25
ITEM 5. OTHER INFORMATION
Insider Trading Arrangements
On September 5, 2024, Thomas Rohrs, Chairman of our Board of Directors, entered into a 10b5-1 trading arrangement intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) promulgated under the Exchange Act. The trading arrangement provides for the potential sale of an aggregate of up to 78,128 of our ordinary shares issuable upon the exercise of option awards granted to Mr. Rohrs under our 2016 Omnibus Incentive Plan. The trading arrangement will expire on February 14, 2025, and may be terminated earlier in the limited circumstances defined in the trading arrangement.
Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101)
*Filed herewith.
**Furnished herewith and not filed.
27
SIGNATURES
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.