ICHOR HOLDINGS, LTD. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes included elsewhere in this report. The following discussion contains forward-looking statements based upon our current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report, particularly in the section entitled Item 1A - Risk Factors. For a comparison of our financial condition, results of operations, and cash flows for 2021 to 2020, refer to Part II, Item 7 in our 2021 Annual Report on Form 10K, which was filed with theSecurities and Exchange Commission onFebruary 28, 2022 .
Overview
We are a leader in the design, engineering, and manufacturing of critical fluid delivery subsystems and components for semiconductor capital equipment. Our primary product offerings include gas and chemical delivery systems and subsystems, collectively known as fluid delivery systems and subsystems, which are key elements of the process tools used in the manufacturing of semiconductor devices. Our gas delivery subsystems deliver, monitor, and control precise quantities of the specialized gases used in semiconductor manufacturing processes such as etch and deposition. Our chemical delivery systems and subsystems precisely blend and dispense the reactive liquid chemistries used in semiconductor manufacturing processes such as chemical-mechanical planarization, electroplating, and cleaning. We also provide precision-machined components, weldments, ebeam and laser-welded components, precision vacuum and hydrogen brazing and surface treatment technologies, and other proprietary products. This vertically integrated portion of our business is primarily focused on metal and plastic parts that are used in gas and chemical systems, respectively. Fluid delivery subsystems ensure accurate measurement and uniform delivery of specialty gases and chemicals at critical steps in the semiconductor manufacturing processes. Any malfunction or material degradation in fluid delivery reduces yields and increases the likelihood of manufacturing defects in these processes. Most OEMs outsource all or a portion of the design, engineering, and manufacturing of their gas delivery subsystems to a few specialized suppliers, including us. Additionally, many OEMs are outsourcing the design, engineering, and manufacturing of their chemical delivery subsystems due to the increased fluid expertise required to manufacture these subsystems. Outsourcing these subsystems has allowed OEMs to leverage the suppliers' highly specialized engineering, design, and production skills while focusing their internal resources on their own value-added processes. We believe that this outsourcing trend has enabled OEMs to reduce their costs and development time, as well as provide growth opportunities for specialized subsystems suppliers like us.
We have a global footprint with production facilities in
The following table summarizes key financial information for the periods
indicated. Amounts are presented in accordance with GAAP unless explicitly
identified as being a non-GAAP metric. For a description of our non-GAAP metrics
and reconciliations to the most comparable GAAP metrics, please refer to Item 7
- Management's Discussion and Analysis of Financial Condition and Results of
Operations - Non-GAAP Financial Results within this Annual Report.
Year Ended
December 30, December 31,
2022 2021
(dollars in thousands, except per share amounts)
Net sales $ 1,280,069 $ 1,096,917
Gross margin 16.6 % 16.2 %
Gross margin, non-GAAP 17.0 % 16.7 %
Operating margin 6.7 % 7.4 %
Operating margin, non-GAAP 9.8 % 10.7 %
Net income $ 72,804 $ 70,899
Net income, non-GAAP $ 104,863 $ 97,698
Diluted EPS $ 2.51 $ 2.45
Diluted EPS, non-GAAP $ 3.62 $ 3.37
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Key Factors Affecting Our Business
Investment in Semiconductor Manufacturing Equipment
The design and manufacturing of semiconductor devices is constantly evolving and becoming more complex in order to achieve greater performance and efficiency. To keep pace with these changes, OEMs need to refine their existing products and invest in developing new products. In addition, semiconductor device manufacturers will continue to invest in new wafer fabrication equipment to expand their production capacity and to support new manufacturing processes.
Outsourcing of Subsystems by Semiconductor OEMs
Faced with increasing manufacturing complexities, more complex subsystems, shorter product lead times, shorter industry spend cycles, and significant capital requirements, outsourcing of subsystems and components by OEMs has continued to grow. In the past two decades, OEMs have outsourced most of their gas delivery systems to suppliers such as us. OEMs have also started to outsource their chemical delivery systems in recent years. Our results will be affected by the degree to which outsourcing of these fluid delivery systems by OEMs continues to grow.
Cyclicality of Semiconductor Capital Equipment Industry
Our business is subject to the cyclicality of the capital expenditures of the semiconductor industry, which drives cyclicality in the semiconductor capital equipment industry in which we operate. In 2022, we derived over 90% of our sales from the semiconductor capital equipment industry. Demand for semiconductor capital equipment can fluctuate significantly based on changes in regulatory intervention and general economic conditions, including consumer spending, demand for semiconductor products, pricing, and other factors. In the past, these fluctuations have resulted in significant variations in the levels of spending within the semiconductor capital equipment industry, and as a result, our results of operations. The cyclicality of the semiconductor industry will continue to impact our results of operations in the future.
Customer Concentration
The number of capital equipment manufacturers for the semiconductor device industry is significantly consolidated, resulting in a small number of large manufacturers. Our customers are a significant component of this consolidation, resulting in our sales being concentrated in a few customers. In 2022, our top two customers were Lam Research and Applied Material, accounting for a combined 79% of sales. Our customers often require reduced prices or other pricing, quality, or delivery commitments as a condition to their purchasing from us in any given period or increasing their purchase volume, which can, among other things, result in reduced gross margins in order to maintain or expand our market share. Although we do not have any long-term contracts that require customers to place orders with us, Lam Research and Applied Materials have been our customers for over a decade.
Acquisitions
InNovember 2021 , we acquired IMG, aCalifornia -based leader in precision machining and specialty joining and plating, for approximately$270.0 million . Between 2017 and 2020, we engaged in four separate business combinations for a combined investment of approximately$200.0 million . These acquisitions continue to have a significant impact on our financial position and results of operations. We intend to continue to evaluate opportunistic acquisitions to supplement our organic growth, and any such acquisitions could have a material impact on our business and results of operations.
Macroeconomic Conditions
We participated in the continuation of unprecedented demand for semiconductor capital equipment in 2022, driven by increased secular demand for semiconductors, as well as the ever-increasing levels of complexity in the manufacturing thereof. Macroeconomic factors have, however, created, and may continue to create, volatility and uncertainty in our industry, including persistent levels of high inflation, higher interest rates, foreign currency rate fluctuations, and supply chain challenges. Additionally, increased controls around exporting goods and services toChina may impact the overall size of the semiconductor capital equipment industry going forward, and the conflict inUkraine has given rise to potential global security issues that may adversely affect international business and economic conditions as well as economic sanctions imposed by the international community that have impacted the global economy. Regarding the COVID19 pandemic, although our factories and operations are currently not directly affected by any restrictions, measures, or shutdowns, increases in positive case rates may change the extent to which our business becomes adversely impacted by such restrictions, measures, or shutdowns on a go-forward basis. While these challenging macroeconomic conditions may impact business and customers in the near-term, we believe secular demand for semiconductors, both in quantity and performance, and constant technological innovation will drive long-term, sustainable growth in the semiconductor capital equipment industry. 29 --------------------------------------------------------------------------------
Components of Our Results of Operations
The following discussion sets forth certain components of our statements of operations as well as significant factors that impact those items.
Sales
We generate sales primarily from the design, manufacture, and sale of subsystems and components primarily for semiconductor capital equipment. Sales are recognized when control of promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Our shipping terms are generally "shipping point." Accordingly, control transfers, and sales are recognized, at the point-in-time of shipment.
Cost of Sales and Gross Profit
Cost of sales consists primarily of purchased materials, direct labor, indirect labor, factory overhead cost, and depreciation expense for our manufacturing facilities and equipment. Our business has a highly variable cost structure with low fixed overhead as a percentage of cost of sales. In addition, our existing global manufacturing plant capacity is scalable, and we are able to adjust to increased customer demand for our products without significant additional capital investment. We operate our business in this manner to avoid having excessive fixed costs during a cyclical downturn while retaining flexibility to expand our production volumes during periods of growth. However, this approach results in a smaller increase in gross margin as a percentage of sales in times of increased demand. Since the gross margin on each of our products differs, our overall gross margin as a percentage of our sales changes based on the mix of products we sell in any period. Operating Expenses Our operating expenses primarily include research and development and sales, general, and administrative expenses. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, and share-based compensation. Operating expenses also include overhead costs for facilities, IT, and depreciation. In addition, our operating expenses include amortization expense of acquired intangible assets and certain non-recurring costs, including facility shutdown costs and executive transition-related costs. Research and development - Research and development expense consists primarily of activities related to product design and other development activities, new component testing and evaluation, and test equipment and fixture development. We expect research and development expense will continue to increase in absolute dollars due to continued development of our own intellectual property and product offerings for existing and new customer markets and increases in our customers' demand for new product designs. Selling, general, and administrative - Selling expense consists primarily of salaries and commissions paid to our sales and sales support employees and other costs related to the sales of our products. General and administrative expense consists primarily of salaries and overhead associated with our administrative staff, professional fees, and depreciation and other allocated facility related costs. We expect selling expenses to increase in absolute dollars as we continue to invest in expanding our markets and as we expand our international operations. We expect general and administrative expenses to also increase in absolute dollars due to an increase in employee-related costs, regulatory compliance, and accounting expenses.
Amortization of intangibles - Amortization of intangible assets is related to our finite-lived intangible assets and is computed using the straight-line method over the estimated economic life of the asset.
Interest Expense
Interest expense consists of interest on our outstanding debt under our credit facilities, including amortization of debt issuance costs, and any other indebtedness we may incur in the future. Borrowings under our credit facilities are generally subject to variable interest rates, which fluctuate depending on macroeconomic factors and can result in increased interest expense in periods of rising interest rates. Other Expense (Income), Net The functional currency of our international operations is theU.S. dollar. Transactions denominated in currencies other than the functional currency generate foreign exchange gains and losses that are included in other expense (income), net on the accompanying consolidated statements of operations. Substantially all of our sales contracts, and most of our agreements with third-party suppliers, provide for pricing and payment inU.S. dollars. Accordingly, these transactions are not subject to material exchange rate fluctuations. 30 --------------------------------------------------------------------------------
Income Tax Expense
Income tax expense consists primarily of taxes on our taxable income related to our domestic and foreign operations, offset by the benefit of our tax holiday inSingapore , which was extended through 2026. In 2022, the tax benefit resulting from ourSingapore tax holiday, compared to theSingapore statutory tax rate, was approximately$11.7 million . Income tax is also impacted by certain withholding taxes, stock option and restricted share unit ("RSU") activity, and credit generation. Critical Accounting Estimates Our consolidated financial statements have been prepared in accordance withU.S. generally accepted accounting principles. 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 described below.
Inventory Valuation
Inventories are stated at the lower of cost or net realizable value. The majority of our inventories are valued on a standard cost basis, which approximates actual costs on a first-in, first-out basis. The remainder of our inventories are valued on an average cost basis, which approximates actual costs on a first-in, first-out basis. Quarterly, we assess the value of our inventory and periodically write it down for excess quantities or obsolescence to its estimated net realizable value. This assessment is based on estimated future consumption compared to inventory quantities on-hand. The estimate for future consumption is based on how assumptions of historical consumption, recency of purchases, backlog, and other factors indicate future consumption. Once the value of inventory is adjusted, the original cost of our inventory, less the write-down, represents its new cost basis. During 2022, 2021, and 2020, we wrote down inventory determined to be excessive or obsolete by$5.0 million ,$1.9 million , and$4.6 million , respectively. We believe the accounting estimate related to excess and obsolete inventory is a critical accounting estimate because it requires us to make assumptions about future inventory consumption and recoverability of cost, which can be uncertain. Changes in these estimates can have a material impact on our financial statements.
Results of Operations
The following table sets forth our results of operations for the periods presented. The period-to-period comparison of results is not necessarily indicative of results for future periods.
Year Ended
December 30, December 31,
2022 2021
(in thousands)
Net sales $ 1,280,069 $ 1,096,917
Cost of sales 1,068,205 919,437
Gross profit 211,864 177,480
Operating expenses:
Research and development 19,564 15,691
Selling, general, and administrative 88,572 65,857
Amortization of intangible assets 17,905 14,918
Total operating expenses 126,041 96,466
Operating income 85,823 81,014
Interest expense, net 11,056 6,451
Other expense (income), net (563 ) 807
Income before income taxes 75,330 73,756
Income tax expense 2,526 2,857
Net income $ 72,804 $ 70,899
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The following table sets forth our results of operations as a percentage of our total sales for the periods presented.
Year Ended
December 30, December 31,
2022 2021
Net sales 100.0 100.0
Cost of sales 83.4 83.8
Gross profit 16.6 16.2
Operating expenses:
Research and development 1.5 1.4
Selling, general, and administrative 6.9 6.0
Amortization of intangible assets 1.4 1.4
Total operating expenses 9.8 8.8
Operating income 6.7 7.4
Interest expense, net 0.9 0.6
Other expense (income), net 0.0 0.1
Income before income taxes 5.9 6.7
Income tax expense 0.2 0.3
Net income 5.7 6.5
Comparison of 2022 and 2021
Net Sales
Year Ended Change
December 30, December 31,
2022 2021 Amount %
(dollars in thousands)
Net sales $ 1,280,069 $ 1,096,917 $ 183,152 16.7 %
The increase in net sales from 2021 to 2022 was primarily due to strong demand
from our customers as a result of continued growth in the global wafer
fabrication equipment market throughout much of 2022, as well as incremental
sales from our acquisition of IMG in November 2021 .
Net sales to
Net sales to international customers increased by
Cost of Sales and Gross Profit
Year Ended Change
December 30, December 31,
2022 2021 Amount %
(dollars in thousands)
Cost of sales $ 1,068,205 $ 919,437 $ 148,768 16.2 %
Gross profit $ 211,864 $ 177,480 $ 34,384 19.4 %
Gross margin 16.6 % 16.2 % + 40 bps
The increase in the gross amounts of cost of sales and gross profit from 2021 to
2022 was primarily due to the factors mentioned in the commentary above under
the above heading, Net Sales .
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The 40 basis point increase in gross margin from 2021 to 2022 was primarily due
to increased factory utilization and operating leverage, as well as accretive
margins from our acquisition of IMG in November 2021 , partially offset by
increased materials, logistics, and labor costs observed throughout 2022. These
cost increases were primarily due to investments in our capacity to service
customer demand, inflationary macroeconomic conditions that put pressure on the
cost of labor, materials and factory costs, and the impacts of certain supply
chain challenges on logistics costs and factory efficiency.
Research and Development
Year Ended Change
December 30, December 31,
2022 2021 Amount %
(dollars in thousands)
Research and development $ 19,564 $ 15,691 $ 3,873 24.7 %
The increase in research and development expenses from 2021 to 2022 was
primarily due to increased employee-related expense of $2.6 million , inclusive
of increased share-based compensation expense of $0.3 million , as we expand our
engineering team to design and engineer next generation, high performance
solutions for our customers, as well as increased program costs, including
consulting, travel, materials, and fixtures costs, related to the development of
our new products.
Selling, General, and Administrative
Year Ended Change
December 30, December 31,
2022 2021 Amount %
(dollars in thousands)
Selling, general, and administrative
The increase in selling, general, and administrative expense from 2021 to 2022 was primarily due to (1) incremental costs from our acquisition of IMG inNovember 2021 of$11.6 million , primarily consisting of employee-related expenses; (2) increased employee-related expenses (excluding IMG) of$5.5 million , which includes$1.4 million in increased share-based compensation expense; (3) loss accruals recorded in the first and third quarters of 2022 relating to expected settlements of employment-related legal matters totaling$4.1 million ; (4) increased consulting and professional fees of$2.1 million ; (5) increased depreciation expense and amortization of capitalized cloud-computing implementation costs of$1.1 million ; (6) increased IT, software, and related services costs of$0.7 million ; (7) increased travel costs of$0.6 million ; and (8) increased occupancy-related costs of$0.5 million ; partially offset by (9) reduced transaction costs associated with our acquisition of IMG of$4.1 million .
Amortization of Intangible Assets
Year Ended Change
December 30, December 31,
2022 2021 Amount %
(dollars in thousands)
Amortization of intangibles assets
The increase in amortization expense from 2021 to 2022 was primarily due to
incremental amortization expense from intangible assets acquired in connection
with our acquisition of IMG, partially offset by reduced amortization expense
from certain intangible assets becoming fully amortized in the fourth quarter of
2021 and the first quarter of 2022.
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Interest Expense, Net
Year Ended Change
December 30, December 31,
2022 2021 Amount %
(dollars in thousands)
Interest expense, net $ 11,056 $ 6,451 $ 4,605 71.4 %
Weighted average borrowings outstanding
62.0 %
Weighted average borrowing rate 3.37 % 2.74 % + 63 bps
The increase in interest expense, net from 2021 to 2022 was due to a
Our average amount borrowed was primarily the result of drawing$130.0 million on our revolving credit facility inNovember 2021 to partially fund our acquisition of IMG. The year-over-year increase in our weighted average borrowing rate was primarily due to higher overall prevailing short-term borrowing rates in the second half of 2022 compared to 2021, partially offset by a lower overall applicable margin following the amendment and restatement of our credit agreement inOctober 2021 . Other Expense (Income), Net Year Ended Change December 30, December 31, 2022 2021 Amount % (dollars in thousands) Other expense (income), net $ (563 ) $ 807$ (1,370 ) n/m The change in other expense (income), net from 2021 to 2022 was primarily due to currency exchange rate fluctuations during the year, reflecting an overall strengtheningU.S. dollar against local currency payables of our foreign operations. Income Tax Expense Year Ended Change December 30, December 31, 2022 2021 Amount % (dollars in thousands) Income tax expense$ 2,526 $ 2,857 $ (331 ) -11.6 % Income before income taxes$ 75,330 $ 73,756 $ 1,574 2.1 % Effective income tax rate 3.4 % 3.9 % - 50 bps The decrease in income tax expense from 2021 to 2022 was primarily due to decreased taxable income in theU.S. , partially offset by reduced benefits from share-based compensation activity. The reduction in benefits from share-based compensation activity was primarily due to RSU awards vesting in 2022 at lower fair values relative to their grant-date fair values compared to 2021, in which RSU awards vested at higher fair values relative to their grant-date fair values. 34 --------------------------------------------------------------------------------
Non-GAAP Financial Results
Management uses these 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. Non-GAAP gross profit, operating income, and net income are defined
as: gross profit, operating income, or net income, 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 acquisition-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, and net income; and (2) the tax impacts associated with these
non-GAAP adjustments, as well as non-recurring discrete tax items. Non-GAAP
diluted 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.
The following table presents our unaudited nonGAAP gross profit and non-GAAP
gross margin and a reconciliation from gross profit, the most comparable GAAP
measure, for the periods indicated:
Year Ended
December 30, December 31,
2022 2021
(dollars in thousands)
U.S. GAAP gross profit $ 211,864 $ 177,480
Non-GAAP adjustments:
Share-based compensation 2,056 1,384
Facility shutdown costs (1) - 2,611
Fair value adjustment to inventory from acquisitions (2) 2,492 1,652
Other (3) 933 106
Non-GAAP gross profit $ 217,345 $ 183,233
U.S. GAAP gross margin 16.6 % 16.2 %
Non-GAAP gross margin 17.0 % 16.7 %
(1) During the second quarter of 2020, we announced the closure of our
manufacturing facility in Union City, California , which we completed in
2021. Included in this amount are costs and charges directly related to the
facility closure.
(2) As part of the purchase price allocations of our acquisitions of IMG in
November 2021 and a precision machining operation in Mexico ina fair value step-up. These amounts represent the release of the step-up to
cost of sales as acquired-inventories were sold.
(3) Included in this amount for 2022 are severance costs associated with our
global reduction-in-force program that began near the end of 2022.
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The following table presents our unaudited nonGAAP operating income and non-GAAP operating margin and a reconciliation from operating income, the most comparable GAAP measure, for the periods indicated:
Year Ended
December 30, December 31,
2022 2021
(dollars in thousands)
U.S. GAAP operating income $ 85,823 $ 81,014
Non-GAAP adjustments:
Amortization of intangible assets 17,905 14,918
Share-based compensation 13,924 11,473
Facility shutdown costs (1) - 2,996
Settlement loss (2) 4,146 -
Fair value adjustment to inventory from acquisitions (3) 2,492 1,652
Acquisition costs (4) 296 4,386
Other (5) 1,144 498
Non-GAAP operating income $ 125,730 $ 116,937
U.S. GAAP operating margin 6.7 % 7.4 %
Non-GAAP operating margin 9.8 % 10.7 %
(1) During the second quarter of 2020, we announced the closure of our
manufacturing facility in Union City, California , which we completed in
2021. Included in this amount are costs and charges directly related to the
facility closure.
(2) During the first and third quarters of 2022, we recorded loss accruals of
$3.1 million and $1.0 million , respectively, relating to expectedsettlements of employment-related legal matters. We expect the settlements
to be finalized and paid within 12 months.
(3) As part of the purchase price allocations of our acquisitions of IMG in
November 2021 and a precision machining operation in Mexico ina fair value step-up. These amounts represent the release of the step-up to
cost of sales as acquired-inventories were sold.
(4) Included in this amount are transaction-related costs incurred in connection
with our acquisition of IMG in November 2021 .
(5) Included in this amount for 2022 are severance costs associated with ourglobal reduction-in-force program that began near the end of 2022. Included
in this amount for 2021 are primarily non-capitalized costs incurred in
connection with our implementation of a new ERP system and our
implementation of a Sarbanes-Oxley compliance program.
The following table presents our unaudited nonGAAP net income and non-GAAP diluted EPS and a reconciliation from net income, the most comparable GAAP measure, for the periods indicated:
Year Ended
December 30, December 31,
2022 2021
(dollars in thousands, except per share
amounts)
U.S. GAAP net income $ 72,804 $ 70,899
Non-GAAP adjustments:
Amortization of intangible assets 17,905 14,918
Share-based compensation 13,924 11,473
Facility shutdown costs (1) - 2,996
Settlement loss (2) 4,146 -
Fair value adjustment to inventory from acquisitions (3) 2,492 1,652
Acquisition costs (4) 296 4,386
Other (5) 1,144 498
Loss on extinguishment of debt (6) - 737
Tax adjustments related to non-GAAP adjustments (7) (7,848 ) (9,861 )
Non-GAAP net income $ 104,863 $ 97,698
U.S. GAAP diluted EPS $ 2.51 $ 2.45
Non-GAAP diluted EPS $ 3.62 $ 3.37
Shares used to compute diluted EPS 28,963,031 28,979,352
36--------------------------------------------------------------------------------
(1) During the second quarter of 2020, we announced the closure of our
manufacturing facility in
2021. Included in this amount are costs and charges directly related to the
facility closure.
(2) During the first and third quarters of 2022, we recorded loss accruals of
settlements of employment-related legal matters. We expect the settlements
to be finalized and paid within 12 months.
(3) As part of the purchase price allocations of our acquisitions of IMG in
November 2021 and a precision machining operation in Mexico ina fair value step-up. These amounts represent the release of the step-up to
cost of sales as acquired-inventories were sold.
(4) Included in this amount are transaction-related costs incurred in
connection with our acquisition of IMG in November 2021 .
(5) Included in this amount for 2022 are severance costs associated with ourglobal reduction-in-force program that began near the end of 2022. Included
in this amount for 2021 are primarily non-capitalized costs incurred in
connection with our implementation of a new ERP system and our
implementation of a Sarbanes-Oxley compliance program.
(6) In
Pursuant to ASC 470, a portion of the refinance was treated as an
extinguishment, resulting in a $0.7 million write-off of existing
capitalized deferred issuance costs.
(7) Adjusts U.S. GAAP income tax expense for impact of our non-GAAP
adjustments.
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 and capital expenditures, and (v) payment of income taxes. We have no significant long-term purchase commitments related to procuring raw materials inventory. Our ability to fund these requirements will depend, in part, on our future cash flows, which are determined by our future operating performance 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.
37
--------------------------------------------------------------------------------Summary of Cash Flows
We ended 2022 with cash and cash equivalents of$86.5 million , an increase of$11.0 million from 2021, which was primarily due to cash provided by operating activities of$31.5 million and net proceeds from our credit facilities of$7.5 million , partially offset by capital expenditures of$29.4 million .
The following table sets forth a summary of operating, investing, and financing activities for the periods presented:
Year Ended
December 30 ,
2022 2021 2020
(in thousands)
Cash provided by operating activities$ 31,453 $ 15,272 $ 38,259 Cash used in investing activities (28,933 ) (289,585 ) (14,597 ) Cash provided by financing activities 8,455 96,909 168,625 Net increase (decrease) in cash$ 10,975 $
(177,404 )
Our cash provided by operating activities of$31.5 million during the year endedDecember 30, 2022 consisted of net income of$72.8 million and net non-cash charges of$46.3 million , which consisted primarily of depreciation and amortization of$35.1 million and share-based compensation expense of$13.9 million , partially offset by an increase in our net operating assets and liabilities of$87.6 million . The increase in our net operating assets and liabilities was primarily due to a decrease in accounts payable of$50.2 million and an increase in inventories of$47.5 million , partially offset by a decrease in accounts receivable of$6.7 million .
Cash used in investing activities during 2022 primarily consisted of capital
expenditures of
Cash provided by financing activities during 2022 consisted of net proceeds from
our credit facilities of
Recent Accounting Pronouncements
From time to time, theFinancial Accounting Standards Board ("FASB") or other standards setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our Consolidated Financial Statements upon adoption. To understand the impact of recently issued guidance, whether adopted or to be adopted, please review the information provided in Note 1 - Organization and Summary of Significant Accounting Policies of our consolidated financial statements in Part IV, Item 15 of this report.
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