UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 27, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __ to __

 

Commission File Number: 001‑37961

 

ICHOR HOLDINGS, LTD.

(Exact Name of Registrant as Specified in its Charter)

 

 

Cayman Islands

Not Applicable

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

3185 Laurelview Ct.

Fremont, CA

94538

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (510) 897‑5200

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Ordinary Shares, par value $0.0001

ICHR

The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non‑accelerated filer

 

  

Small reporting company

 

 

Emerging Growth Company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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

As of May 1, 2020, the registrant had 22,808,456 ordinary shares, $0.0001 par value per share, outstanding.

 


TABLE OF CONTENTS

 

PART I

 

 

ITEM 1.

FINANCIAL STATEMENTS (UNAUDITED)

1

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

12

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

18

ITEM 4.

CONTROLS AND PROCEDURES

18

 

 

 

PART II

 

 

ITEM 1.

LEGAL PROCEEDINGS

19

ITEM 1A.

RISK FACTORS

19

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

20

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

20

ITEM 4.

MINE SAFETY DISCLOSURES

20

ITEM 5.

OTHER INFORMATION

20

ITEM 6.

EXHIBITS

20

 

 

SIGNATURES

21

 

 

 


PART I

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

ICHOR HOLDINGS, LTD.

Consolidated Balance Sheets

(dollars in thousands, except per share amounts)

 

 

 

March 27,

2020

 

 

December 27,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

41,583

 

 

$

60,612

 

Accounts receivable, net

 

 

87,573

 

 

 

84,849

 

Inventories, net

 

 

143,721

 

 

 

127,037

 

Prepaid expenses and other current assets

 

 

6,868

 

 

 

4,449

 

Total current assets

 

 

279,745

 

 

 

276,947

 

Property and equipment, net

 

 

44,486

 

 

 

44,541

 

Operating lease right-of-use assets

 

 

12,985

 

 

 

14,198

 

Other noncurrent assets

 

 

1,084

 

 

 

1,094

 

Deferred tax assets, net

 

 

4,016

 

 

 

4,738

 

Intangible assets, net

 

 

48,693

 

 

 

52,027

 

Goodwill

 

 

173,010

 

 

 

173,010

 

Total assets

 

$

564,019

 

 

$

566,555

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

119,076

 

 

$

131,578

 

Accrued liabilities

 

 

12,071

 

 

 

12,814

 

Other current liabilities

 

 

6,108

 

 

 

5,233

 

Current portion of long-term debt

 

 

8,750

 

 

 

8,750

 

Current portion of lease liabilities

 

 

5,432

 

 

 

5,492

 

Total current liabilities

 

 

151,437

 

 

 

163,867

 

Long-term debt, less current portion, net

 

 

172,359

 

 

 

169,304

 

Lease liabilities, less current portion

 

 

7,962

 

 

 

9,081

 

Deferred tax liabilities

 

 

210

 

 

 

210

 

Other non-current liabilities

 

 

2,531

 

 

 

2,677

 

Total liabilities

 

 

334,499

 

 

 

345,139

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred shares ($0.0001 par value; 20,000,000 shares authorized; zero shares issued and outstanding)

 

 

 

 

 

 

Ordinary shares ($0.0001 par value; 200,000,000 shares authorized; 22,806,679 and 22,618,708 shares outstanding, respectively; 27,244,118 and 27,056,147 shares issued, respectively)

 

 

2

 

 

 

2

 

Additional paid in capital

 

 

247,023

 

 

 

242,318

 

Treasury shares at cost (4,437,439 and 4,437,439 shares, respectively)

 

 

(91,578

)

 

 

(91,578

)

Retained earnings

 

 

74,073

 

 

 

70,674

 

Total shareholders’ equity

 

 

229,520

 

 

 

221,416

 

Total liabilities and shareholders’ equity

 

$

564,019

 

 

$

566,555

 

 

See accompanying notes.

1


ICHOR HOLDINGS, LTD.

Consolidated Statements of Operations

(dollars in thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

 

March 27,

2020

 

 

March 29,

2019

 

Net sales

 

$

220,028

 

 

$

137,831

 

Cost of sales

 

 

191,254

 

 

 

117,608

 

Gross profit

 

 

28,774

 

 

 

20,223

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

3,322

 

 

 

2,391

 

Selling, general, and administrative

 

 

16,618

 

 

 

11,758

 

Amortization of intangible assets

 

 

3,334

 

 

 

3,137

 

Total operating expenses

 

 

23,274

 

 

 

17,286

 

Operating income

 

 

5,500

 

 

 

2,937

 

Interest expense

 

 

2,374

 

 

 

2,768

 

Other expense (income), net

 

 

(31

)

 

 

24

 

Income before income taxes

 

 

3,157

 

 

 

145

 

Income tax benefit

 

 

(242

)

 

 

(1,373

)

Net income

 

 

3,399

 

 

 

1,518

 

Net income per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.15

 

 

$

0.07

 

Diluted

 

$

0.15

 

 

$

0.07

 

Shares used to compute net income per share:

 

 

 

 

 

 

 

 

Basic

 

 

22,737,163

 

 

 

22,269,827

 

Diluted

 

 

23,181,127

 

 

 

22,536,209

 

See accompanying notes.

2


ICHOR HOLDINGS, LTD.

Consolidated Statements of Shareholders’ Equity

(dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Treasury

 

 

 

 

 

 

Total

 

For the three months ending March 27, 2020

 

Ordinary Shares

 

 

Paid-In

 

 

Shares

 

 

Retained

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Earnings

 

 

Equity

 

Balance at December 27, 2019

 

 

22,618,708

 

 

$

2

 

 

$

242,318

 

 

 

4,437,439

 

 

$

(91,578

)

 

$

70,674

 

 

$

221,416

 

Ordinary shares issued from exercise of stock options

 

 

113,539

 

 

 

 

 

 

2,483

 

 

 

 

 

 

 

 

 

 

 

 

2,483

 

Ordinary shares issued from vesting of restricted share units

 

 

57,912

 

 

 

 

 

 

(993

)

 

 

 

 

 

 

 

 

 

 

 

(993

)

Ordinary shares issued from employee share purchase plan

 

 

16,520

 

 

 

 

 

 

350

 

 

 

 

 

 

 

 

 

 

 

 

350

 

Share-based compensation expense

 

 

 

 

 

 

 

 

2,865

 

 

 

 

 

 

 

 

 

 

 

 

2,865

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,399

 

 

 

3,399

 

Balance at March 27, 2020

 

 

22,806,679

 

 

$

2

 

 

$

247,023

 

 

 

4,437,439

 

 

$

(91,578

)

 

$

74,073

 

 

$

229,520

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Treasury

 

 

 

 

 

 

Total

 

For the three months ending March 29, 2019

 

Ordinary Shares

 

 

Paid-In

 

 

Shares

 

 

Retained

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Earnings

 

 

Equity

 

Balance at December 28, 2018

 

 

22,234,508

 

 

$

2

 

 

$

228,358

 

 

 

4,339,529

 

 

$

(89,979

)

 

$

59,945

 

 

$

198,326

 

Ordinary shares issued from exercise of stock options

 

 

186,915

 

 

 

 

 

 

1,904

 

 

 

 

 

 

 

 

 

 

 

 

1,904

 

Ordinary shares issued from vesting of restricted share units

 

 

24,115

 

 

 

 

 

 

(111

)

 

 

 

 

 

 

 

 

 

 

 

(111

)

Ordinary shares issued from employee share purchase plan

 

 

22,501

 

 

 

 

 

 

312

 

 

 

 

 

 

 

 

 

 

 

 

312

 

Repurchase of ordinary shares

 

 

(97,910

)

 

 

 

 

 

 

 

 

97,910

 

 

 

(1,599

)

 

 

 

 

 

(1,599

)

Share-based compensation expense

 

 

 

 

 

 

 

 

1,330

 

 

 

 

 

 

 

 

 

 

 

 

1,330

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,518

 

 

 

1,518

 

Balance at March 29, 2019

 

 

22,370,129

 

 

$

2

 

 

$

231,793

 

 

 

4,437,439

 

 

$

(91,578

)

 

$

61,463

 

 

$

201,680

 

 

See accompanying notes.

3


ICHOR HOLDINGS, LTD.

Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Three Months Ended

 

 

 

March 27,

2020

 

 

March 29,

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

3,399

 

 

$

1,518

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

5,737

 

 

 

5,210

 

Share-based compensation

 

 

2,865

 

 

 

1,330

 

Deferred income taxes

 

 

722

 

 

 

3

 

Amortization of debt issuance costs

 

 

243

 

 

 

212

 

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(2,724

)

 

 

(13,610

)

Inventories, net

 

 

(16,684

)

 

 

6,935

 

Prepaid expenses and other assets

 

 

(868

)

 

 

1,357

 

Accounts payable

 

 

(12,380

)

 

 

895

 

Accrued liabilities

 

 

(568

)

 

 

(1,994

)

Other liabilities

 

 

(778

)

 

 

(2,279

)

Net cash used in operating activities

 

 

(21,036

)

 

 

(423

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(2,470

)

 

 

(4,782

)

Net cash used in investing activities

 

 

(2,470

)

 

 

(4,782

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Issuance of ordinary shares under share-based compensation plans

 

 

2,658

 

 

 

2,067

 

Employees' taxes paid upon vesting of restricted share units

 

 

(993

)

 

 

(111

)

Repurchase of ordinary shares

 

 

 

 

 

(1,599

)

Borrowings on revolving credit facility

 

 

5,000

 

 

 

5,000

 

Repayments on revolving credit facility

 

 

 

 

 

(8,000

)

Repayments on term loan

 

 

(2,188

)

 

 

(4,375

)

Net cash provided by (used in) financing activities

 

 

4,477

 

 

 

(7,018

)

Net decrease in cash

 

 

(19,029

)

 

 

(12,223

)

Cash at beginning of period

 

 

60,612

 

 

 

43,834

 

Cash at end of period

 

$

41,583

 

 

$

31,611

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

2,136

 

 

$

3,255

 

Cash paid during the period for taxes, net of refunds

 

$

34

 

 

$

107

 

Supplemental disclosures of non-cash activities:

 

 

 

 

 

 

 

 

Capital expenditures included in accounts payable

 

$

652

 

 

$

958

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

$

328

 

 

$

 

See accompanying notes.

 

 

4


 

ICHOR HOLDINGS, LTD.

Notes to Consolidated Financial Statements (Unaudited)

(dollar figures in tables in thousands, except per share amounts)

Note 1 – Basis of Presentation and Selected Significant Accounting Policies

Basis of Presentation

These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”). All intercompany balances and transactions have been eliminated upon consolidation. All dollar figures presented in tables in the notes to consolidated financial statements are in thousands, except per share amounts.

Year End

We use a 52- or 53-week fiscal year ending on the last Friday in December. The three months ended March 27, 2020 and March 29, 2019 were both 13 weeks. References to the first quarter of 2020 and 2019 refer to the three-month periods then ended. References to fiscal year 2020 refer to our fiscal year ending December 25, 2020.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods presented. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results could differ from the estimates made by management. Significant estimates include the fair value of assets and liabilities acquired in acquisitions, estimated useful lives for long‑lived assets, allowance for doubtful accounts, inventory valuation, uncertain tax positions, fair value assigned to stock options granted, and impairment analysis for both definite‑lived intangible assets and goodwill.

Revenue Recognition

We recognize revenue 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. This amount is recorded as net sales in our consolidated statements of operations.

Transaction price – In most of our contracts, prices are generally determined by a customer-issued purchase order and generally remain fixed over the duration of the contract. Certain contracts contain variable consideration, including early-payment discounts and rebates. When a contract includes variable consideration, we evaluate the estimate of the variable consideration to determine whether the estimate needs to be constrained; therefore, we include the variable consideration in the transaction price only to the extent that it is probable that a significant reversal will not occur. Variable consideration estimates are updated at each reporting date. Historically, we have not incurred significant costs to obtain a contract. All amounts billed to a customer relating to shipping and handling are classified as net sales, while all costs incurred by us for shipping and handling are classified as cost of sales.

Performance obligations – Substantially all of our performance obligations pertain to promised goods (“products”), which are primarily comprised of fluid delivery subsystems, weldments, and other components. Most of our contracts contain a single performance obligation and are generally completed within twelve months. Product sales are recognized at a point-in-time, generally upon delivery, as such term is defined within the contract, as that is when control of the promised good has transferred. Products are covered by a standard assurance warranty, generally extended for a period of one to two years depending on the customer, which promises that delivered products conform to contract specifications. As such, we account for such warranties under ASC 460, Guarantees, and not as a separate performance obligation.

Contract balances – Accounts receivable represents our unconditional right to receive consideration from our customers. Accounts receivable are carried at invoice price less an estimate for doubtful accounts and estimated payment discounts. Payment terms vary by customer but are generally due within 15‑60 days. Historically, we have not incurred significant payment issues with our customers. We had no significant contract assets or liabilities on our consolidated balance sheets in any of the periods presented.

5


 

Commitments and Contingencies

We are periodically involved in legal actions and claims that arise as a result of events that occur in the normal course of operations. The ultimate resolution of these actions is not expected to have a material effect on our financial position or results of operations. Subsequent to the end of the first quarter, but before these financial statements were issued, we reached a mutual settlement with the counterparty of a contract dispute and, accordingly, recorded a $1.4 million contract settlement loss to cost of sales, as the settlement provided evidence relating to a loss that existed at March 27, 2020.

Accounting Pronouncements Recently Adopted

In June 2016, the FASB issued ASU 2016‑13, Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. We adopted the standard on the first day of the first quarter of 2020, and the adoption did not have a significant impact on our financial statements.

In August 2018, the FASB issued ASU 2018‑15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350‑40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The new guidance clarifies the accounting for implementation costs in cloud computing arrangements. We adopted the standard on the first day of the first quarter of 2020, and the adoption did not have a significant impact on our financial statements.

Note 2 – Inventories

Inventories consist of the following:

 

 

 

March 27,

2020

 

 

December 27,

2019

 

Raw materials

 

$

94,811

 

 

$

85,329

 

Work in process

 

 

42,188

 

 

 

31,825

 

Finished goods

 

 

14,244

 

 

 

17,700

 

Excess and obsolete adjustment

 

 

(7,522

)

 

 

(7,817

)

Total inventories, net

 

$

143,721

 

 

$

127,037

 

 

Note 3 – Property and Equipment

Property and equipment consist of the following:

 

 

 

March 27,

2020

 

 

December 27,

2019

 

Machinery

 

$

35,449

 

 

$

33,684

 

Leasehold improvements

 

 

28,001

 

 

 

27,835

 

Computer software, hardware, and equipment

 

 

5,920

 

 

 

5,796

 

Office furniture, fixtures and equipment

 

 

1,038

 

 

 

1,040

 

Vehicles

 

 

26

 

 

 

26

 

Construction-in-process

 

 

4,074

 

 

 

3,760

 

 

 

 

74,508

 

 

 

72,141

 

Less accumulated depreciation

 

 

(30,022

)

 

 

(27,600

)

Total property and equipment, net

 

$

44,486

 

 

$

44,541

 

 

Depreciation expense was $2.4 million and $2.1 million for the first quarter of 2020 and 2019, respectively.

6


 

Note 4 – Intangible Assets

Definite‑lived intangible assets consist of the following:

 

 

 

March 27, 2020

 

 

Gross value

 

 

Accumulated

amortization

 

 

Accumulated

impairment

charges

 

 

Carrying

amount

 

 

Weighted

average

useful life

Trademarks

 

$

9,690

 

 

$

(7,992

)

 

$

 

 

$

1,698

 

 

10.0 years

Customer relationships

 

 

82,986

 

 

 

(45,445

)

 

 

 

 

 

37,541

 

 

7.8 years

Developed technology

 

 

11,047

 

 

 

(1,593

)

 

 

 

 

 

9,454

 

 

10.0 years

Total intangible assets

 

$

103,723

 

 

$

(55,030

)

 

$

 

 

$

48,693

 

 

 

 

 

 

December 27, 2019

 

 

Gross value

 

 

Accumulated

amortization

 

 

Accumulated

impairment

charges

 

 

Carrying

amount

 

 

Weighted

average

useful life

Trademarks

 

$

9,690

 

 

$

(7,750

)

 

$

 

 

$

1,940

 

 

10.0 years

Customer relationships

 

 

82,986

 

 

 

(42,621

)

 

 

 

 

 

40,365

 

 

7.8 years

Developed technology

 

 

11,047

 

 

 

(1,325

)

 

 

 

 

 

9,722

 

 

10.0 years

Total intangible assets

 

$

103,723

 

 

$

(51,696

)

 

$

 

 

$

52,027

 

 

 

 

 

Note 5 – Leases

Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. For purposes of calculating operating lease ROU assets and operating lease liabilities, we use the non-cancellable lease term plus options to extend that we are reasonably certain to take. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Our leases generally do not provide an implicit rate. As such, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

We lease facilities under various non-cancellable operating leases expiring through 2025. In addition to base rental payments, we are generally responsible for our proportionate share of operating expenses, including facility maintenance, insurance, and property taxes. As these amounts are variable, they are not included in lease liabilities. As of March 27, 2020, we had no operating leases executed for which the rental period had not yet commenced.

The components of lease expense are as follows:

 

 

 

Three Months Ended

 

 

 

March 27,

2020

 

 

March 29,

2019

 

Operating lease cost

 

$

1,320

 

 

$

1,633

 

 

Supplemental cash flow information related to leases is as follows:

 

 

 

Three Months Ended

 

 

 

March 27,

2020

 

 

March 29,

2019

 

Cash paid for amounts included in the measurement of lease liabilities:

 

$

1,284

 

 

$

1,164

 

Operating cash flows from operating leases

 

 

 

 

 

 

 

 

Weighted-average remaining lease term of operating leases

 

2.9 years

 

 

3.8 years

 

Weighted-average discount rate of operating leases

 

4.5%

 

 

4.5%

 

 

7


 

Future minimum lease payments under non-cancelable leases as of March 27, 2020 are as follows:

 

2020, remaining

 

$

4,122

 

2021

 

 

4,830

 

2022

 

 

4,058

 

2023

 

 

1,163

 

2024

 

 

192

 

Thereafter

 

 

26

 

Total future minimum lease payments

 

 

14,391

 

Less imputed interest

 

 

(997

)

Total lease liabilities

 

$

13,394

 

 

 

Note 6 – Income Taxes

Coronavirus Aid, Relief, and Economic Security (“CARES”) Act

In response to the COVID‑19 pandemic, the CARES Act was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”). Corporate taxpayers may carryback net operating losses (“NOLs”) originating in 2018 through 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the existing limitation on taxable income of 80% by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019, or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income, plus business interest income, subject to the existing 30% limit under the 2017 Tax Act, for 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.

In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15‑year cost-recovery and 100% bonus depreciation.

With the enactment of the CARES Act, we expect to generate an additional income tax refund of approximately $0.7 million from our NOL carryback provision, resulting from the benefit from additional interest and depreciation deductions. Accordingly, we recognized a benefit of $0.2 million related to the CARES Act in our income tax provision for the first quarter of 2020.

Income tax information for the periods reported are as follows:

 

 

 

 

Three Months Ended

 

 

 

 

March 27,

2020

 

 

March 29,

2019

 

Income tax benefit

 

 

$

(242

)

 

$

(1,373

)

Income before income taxes

 

 

$

3,157

 

 

$

145

 

Effective income tax rate

 

 

 

-7.7

%

 

 

-946.9

%

 

Our effective tax rate for the first quarter of 2020 differs from the statutory rate due to taxes on foreign income that differ from the U.S. tax rate and the release of the certain tax reserves related to statute of limitation expirations and settlements, excess tax benefits from share-based compensation and the impact of the CARES Act.

Our effective tax rate for the first quarter of 2019 differs from the statutory rate due to taxes on foreign income that differ from the U.S. tax rate, the release of certain tax reserves related to statute of limitation expirations and settlements, and excess tax benefits from share-based compensation.

The ending balance for the unrecognized tax benefits for uncertain tax positions was approximately $2.1 million at March 27, 2020. The related interest and penalties were zero and $0.4 million, respectively. The uncertain tax positions that are reasonably possible to decrease in the next twelve months are insignificant.

As of March 27, 2020, we were not under examination by tax authorities.

8


 

Note 7 – Employee Benefit Programs

401(k) Plan

We sponsor a 401(k) plan available to employees of our U.S.‑based subsidiaries. Participants may make salary deferral contributions not to exceed 50% of a participant’s annual compensation or the maximum amount otherwise allowed by law. Eligible employees receive a discretionary matching contribution equal to 50% of a participant’s deferral, up to an annual maximum of 4% of a participant’s annual compensation. Matching contributions were $0.5 million and $0.4 million for the first quarter of 2020 and 2019, respectively.

Note 8 – Long-Term Debt

Long‑term debt consists of the following:

 

 

 

March 27,

2020

 

 

December 27,

2019

 

Term loan

 

$

159,687

 

 

$

161,875

 

Revolving credit facility

 

 

24,162

 

 

 

19,162

 

Total principal amount of long-term debt

 

 

183,849

 

 

 

181,037

 

Less unamortized debt issuance costs

 

 

(2,740

)

 

 

(2,983

)

Total long-term debt, net

 

 

181,109

 

 

 

178,054

 

Less current portion

 

 

(8,750

)

 

 

(8,750

)

Total long-term debt, less current portion, net

 

$

172,359

 

 

$

169,304

 

 

On February 15, 2018, we amended and restated our credit agreement, which replaced our existing credit facilities with a $175.0 million term loan and a $125.0 million revolving credit facility. The amendment reduced our borrowing rate, depending on our leverage ratio, and extended the maturity date. We incurred debt issuance costs of $2.1 million in connection with the amendment. The amendment did not meet the definition of an extinguishment and was accounted for as a debt modification.

Interest is charged at either the Base Rate or the Eurodollar rate (as such terms are defined in the credit agreement) at our option, plus an applicable margin. The Base Rate is equal to the higher of i) the Prime Rate, ii) the Federal Funds Rate plus 0.5%, or iii) the Eurodollar Rate plus 1.00%. The Eurodollar rate is equal to LIBOR. The applicable margin on Base Rate and Eurodollar Rate loans is 0.75‑1.50% and 1.75‑2.50% per annum, respectively, depending on our leverage ratio. We are also charged a commitment fee of 0.20%-0.35% on the unused portion of our revolving credit facility. Base Rate interest payments and commitment fees are due quarterly. Eurodollar interest payments are due on the last day of the applicable interest period. At March 27, 2020, the term loan and revolving credit facility bore interest at the Eurodollar rate option of 4.44% and 4.19%, respectively.

Term loan principal payments of $2.2 million are due on a quarterly basis. The term loan and revolving credit facility mature on February 15, 2023.

Note 9 – Share‑Based Compensation

The 2016 Omnibus Incentive Plan (the “2016 Plan”) provides for grants of share‑based awards to employees, directors, and consultants. Awards may be in the form of stock options (“options”), tandem and non‑tandem stock appreciation rights, restricted share awards or restricted share units (“RSUs”), performance awards, and other share‑based awards. Forfeited or expired awards are returned to the incentive plan pool for future grants. Awards generally vest over four years, 25% on the first anniversary of the date of grant and quarterly thereafter over the remaining 3 years. Upon vesting of RSUs, employees may elect to have shares withheld to cover statutory minimum withholding taxes. Shares withheld are not reflected as an issuance of ordinary shares within our consolidated statements of shareholders’ equity, as the shares were never issued, and the associated tax payments are reflected as financing activities within our consolidated statements of cash flows.

Share‑based compensation expense across all plans for options, RSUs, and employee share purchase rights was $2.9 million and $1.3 million for the first quarter of 2020 and 2019, respectively.

9


 

Stock Options

The following table summarizes option activity:

 

 

 

Number of Stock Options

 

 

 

 

 

 

 

 

 

 

 

 

 

Time

vesting

 

 

Performance

vesting

 

 

Weighted average exercise price per share

 

 

Weighted average remaining contractual term

 

Aggregate intrinsic value

(in thousands)

 

Outstanding, December 27, 2019

 

 

1,688,938

 

 

 

65,908

 

 

$

20.57

 

 

 

 

 

 

 

Granted

 

 

37,952

 

 

 

 

 

$

31.89

 

 

 

 

 

 

 

Exercised

 

 

(113,539

)

 

 

 

 

$

21.87

 

 

 

 

 

 

 

Forfeited or expired

 

 

 

 

 

 

 

$

 

 

 

 

 

 

 

Outstanding, March 27, 2020

 

 

1,613,351

 

 

 

65,908

 

 

$

20.74

 

 

4.5 years

 

$

3,803

 

Exercisable, March 27, 2020

 

 

697,920

 

 

 

65,908

 

 

$

17.49

 

 

3.2 years

 

$

3,604

 

 

Restricted Share Units

The following table summarizes RSU activity:

 

 

 

Number of Restricted Share Units

 

 

 

 

 

 

 

Time

vesting

 

 

Performance

vesting

 

 

Weighted average grant date fair value per share

 

Unvested, December 27, 2019

 

 

389,170

 

 

 

17,730

 

 

$

23.03

 

Granted

 

 

78,479

 

 

 

 

 

$

32.08

 

Vested

 

 

(88,399

)

 

 

 

 

$

23.72

 

Forfeited

 

 

 

 

 

 

 

$

 

Unvested, March 27, 2020

 

 

379,250

 

 

 

17,730

 

 

$

24.67

 

 

Employee Share Purchase Plan

The 2017 Employee Stock Purchase Plan (the “2017 ESPP”) grants employees the ability to designate a portion of their base-pay to purchase ordinary shares at a price equal to 85% of the fair market value of our ordinary shares on the first or last day of each 6 month purchase period. Purchase periods begin on January 1 or July 1 and end on June 30 or December 31, or the next business day if such date is not a business day. Shares are purchased on the last day of the purchase period.

During the first quarter of 2020, 16,520 ordinary shares were purchased by eligible employees under the 2017 ESPP. As of March 27, 2020, approximately 2.4 million ordinary shares remain available for purchase under the 2017 ESPP.

Note 10 – Segment Information

Our Chief Operating Decision Maker, the Chief Executive Officer, reviews our results of operations on a consolidated level and executive staff is structured by function rather than by product category. Therefore, we operate in one operating segment. Key resources, decisions, and assessment of performance are also analyzed on a company‑wide level.

Foreign operations are conducted primarily through our wholly owned subsidiaries in Singapore and Malaysia. Our principal markets include North America, Asia and, to a lesser degree, Europe. Sales by geographic area represent sales to unaffiliated customers.

All information on sales by geographic area is based upon the location to which the products were shipped. The following table sets forth sales by geographic area:

 

 

 

Three Months Ended

 

 

 

March 27,

2020

 

 

March 29,

2019

 

United States of America

 

$

120,841

 

 

$

76,633

 

Singapore

 

 

73,209

 

 

 

36,979

 

Europe

 

 

14,959

 

 

 

15,093

 

Other

 

 

11,019

 

 

 

9,126

 

Total net sales

 

$

220,028

 

 

$

137,831

 

10


 

 

Note 11 – Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share and a reconciliation of the numerator and denominator used in the calculation:

 

 

 

Three Months Ended

 

 

 

March 27,

2020

 

 

March 29,

2019

 

Numerator:

 

 

 

 

 

 

 

 

Net income

 

$

3,399

 

 

$

1,518

 

Denominator:

 

 

 

 

 

 

 

 

Basic weighted average ordinary shares outstanding

 

 

22,737,163

 

 

 

22,269,827

 

Dilutive effect of options

 

 

322,469

 

 

 

243,136

 

Dilutive effect of RSUs

 

 

119,960

 

 

 

19,046

 

Dilutive effect of ESPP

 

 

1,535

 

 

 

4,200

 

Diluted weighted average ordinary shares outstanding

 

 

23,181,127

 

 

 

22,536,209

 

Earnings per share: