# Ultra Clean Holdings, Inc.: Form 10-Q for the period ended Jun 28, 2024

- Company: [Ultra Clean Holdings, Inc.](/companies/uctt.md) (CIK 1275014)
- Form: 10-Q
- Filed: 2024-07-26
- Accepted by EDGAR: Jul 26, 2024, 16:12 ET
- Period: 2024-06-28
- Accession: 0001628280-24-033152
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1275014/000162828024033152/uctt-20240628.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1275014/000162828024033152/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-06-28.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-03-30 to 2024-06-28 | $516.1m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 6 months, 2023-12-30 to 2024-06-28 | $993.9m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2024-03-30 to 2024-06-28 | $427.6m | us-gaap:CostOfRevenue |
| Cost of revenue | 6 months, 2023-12-30 to 2024-06-28 | $822.8m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2024-03-30 to 2024-06-28 | $88.5m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2023-12-30 to 2024-06-28 | $171.1m | us-gaap:GrossProfit |
| Research and development | 3 months, 2024-03-30 to 2024-06-28 | $7.1m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2023-12-30 to 2024-06-28 | $14.1m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2024-03-30 to 2024-06-28 | $22.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2023-12-30 to 2024-06-28 | $40.2m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-03-30 to 2024-06-28 | $11.7m | us-gaap:InterestExpenseNonoperating |
| Interest expense | 6 months, 2023-12-30 to 2024-06-28 | $23.9m | us-gaap:InterestExpenseNonoperating |
| Income tax | 3 months, 2024-03-30 to 2024-06-28 | $8.5m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-12-30 to 2024-06-28 | $18.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-03-30 to 2024-06-28 | $19.1m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2023-12-30 to 2024-06-28 | $9.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-03-30 to 2024-06-28 | $0.42 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-12-30 to 2024-06-28 | $0.21 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-03-30 to 2024-06-28 | $0.43 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-12-30 to 2024-06-28 | $0.22 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-03-30 to 2024-06-28 | 45,400,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-12-30 to 2024-06-28 | 45,300,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-12-30 to 2024-06-28 | $33.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-12-30 to 2024-06-28 | $31.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 6 months, 2023-12-30 to 2024-06-28 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-06-28 | $319.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-06-28 | $960.8m | us-gaap:AssetsCurrent |
| Total assets | at 2024-06-28 | $1.93bn | us-gaap:Assets |
| Current liabilities | at 2024-06-28 | $351.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-06-28 | $1.02bn | us-gaap:Liabilities |
| Shareholders' equity | at 2024-06-28 | $852.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 26,526 characters.

*You should read the following discussion of our financial condition and results of operations in conjunction with the Condensed Consolidated Financial Statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K filed with the SEC on March 6, 2024. This Quarterly Report on Form 10-Q contains “forward-looking statements” that involve substantial risks and uncertainties. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, including, but not limited to, statements regarding our expectations, beliefs, intentions, strategies, future operations, future financial position, future revenue, projected expenses, gross margins and plans and objectives of management. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “project,” “will,” “would,” “should,” “could,” “can,” “predict,” “potential,” “continue,” “objective,” or the negative of these terms, and similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. These forward-looking statements reflect our current views about future events and involve known risks, uncertainties and other factors that may cause our actual results, performance or achievement to be materially different from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K filed with the SEC on March 6, 2024. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.*

### Overview

Ultra Clean Holdings, Inc., (“UCT”, the “Company” or “We”) is a leading developer and supplier of critical subsystems, components, parts, and ultra-high purity cleaning and analytical services primarily for the semiconductor industry. UCT offers its customers an integrated outsourced solution for major subassemblies, improved design-to-delivery cycle times, design for manufacturability, prototyping and part and component manufacturing, as well as tool chamber parts cleaning and coating, and micro-contamination analytical services. We report results for two segments: Products and Services. Our Products segment primarily designs, engineers and manufactures production tools, components and parts, and modules and subsystems for the semiconductor and display capital equipment markets. Products include chemical delivery modules, frame assemblies, gas delivery systems, fluid delivery systems, precision robotics, process modules as well as other high-level assemblies. Our Services segment provides ultra-high purity parts cleaning, process tool part recoating, surface encapsulation and high sensitivity micro contamination analysis primarily for the semiconductor device makers and wafer fabrication equipment (“WFE”) markets.

We ship a majority of our products and provide most of our services to U.S. registered customers with locations both in and outside the U.S. In addition to U.S. manufacturing and service operations, we manufacture products and provide parts cleaning and other related services in our Asia Pacific, Europe and Middle East (“EMEA”) facilities to support local and U.S. based customers. We conduct our operating activities primarily through our subsidiaries.

Over the long term, we believe the semiconductor market we serve will continue to grow due to multi-year industry demand from a broad range of drivers, such as new processor architectures that enable higher performance servers necessary for cloud, artificial intelligence (“AI”) and machine learning applications. We also believe that semiconductor original equipment manufacturers (“OEM”) are increasingly relying on partners like UCT to fulfill their expanding capacity requirements. Additionally, our Services business is benefiting as device manufacturers rely on precision cleaning and coating to achieve ever more advanced devices.

### Critical Accounting Estimates

Our Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure at the date of our Condensed Consolidated Financial Statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to inventories, income taxes, business combinations, contingent earn-out liabilities and goodwill, intangible assets and long-lived assets. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis of our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. We consider certain accounting policies related to revenue recognition, inventory valuation, accounting for income taxes, business combinations, valuation of goodwill, intangible assets and long-lived assets to be critical policies due to the estimates and judgments involved in each.

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There have been no significant changes to our critical accounting policies, significant judgments and estimates disclosed in our Annual Report on Form 10-K subsequent to December 29, 2023. For further information on our critical and other significant accounting policies and estimates, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 29, 2023, as filed with the SEC.

### Results of Operations

### Fiscal Year

Our fiscal year is the 52- or 53-week period ending on the Friday nearest December 31. Fiscal year 2024 is a 52-week period ending December 27, 2024 and fiscal year 2023 was a 52-week ended December 29, 2023. The fiscal quarters ended June 28, 2024 and June 30, 2023 were both 13-week periods.

### Discussion of Results of Operations for the Three and Six months ended June 28, 2024 compared to the Three and Six months ended June 30, 2023

### Revenues

| Revenues by Segment (Dollars in millions) | Three Months Ended June 28, 2024 | June 30, 2023 | Percent Change | Six Months Ended June 28, 2024 | June 30, 2023 | Percent Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Products | $452.7 | $362.5 | 24.9% | $871.2 | $731.1 | 19.2% |
| Services | 63.4 | 59.0 | 7.5% | 122.7 | 123.7 | (0.8)% |
| Total revenues | $516.1 | $421.5 | 22.4% | $993.9 | $854.8 | 16.3% |
| Products as a percentage of total revenues | 87.7% | 86.0% |  | 87.7% | 85.5% |  |
| Services as a percentage of total revenues | 12.3% | 14.0% |  | 12.3% | 14.5% |  |

For the three and six months ended June 28, 2024, Products revenues increased compared to the same periods in the prior year. The increase in Products revenues was primarily due to an increase in customer demand, along with an overall market improvement in the semiconductor industry and in part due to the acquisition of HIS in October 2023.

Services revenues increased $4.4 million from the three months ended June 30, 2023 to the three months ended June 28, 2024 primarily due to increase in demand across its customer base. Services revenues decreased $1.0 million from the six months ended June 30, 2023 to the six months ended June 28, 2024 primarily due to lower memory demand.

| Revenues by Geography (Dollars in millions) | Three Months Ended June 28, 2024 | June 30, 2023 | Percent Change | Six Months Ended June 28, 2024 | June 30, 2023 | Percent Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| United States | $146.2 | $134.1 | 9.0% | $287.1 | $267.9 | 7.2% |
| International | 369.9 | 287.4 | 28.7% | 706.8 | 586.9 | 20.4% |
| Total revenues | $516.1 | $421.5 | 22.4% | $993.9 | $854.8 | 16.3% |
| United States as a percentage of total revenues | 28.3% | 31.8% |  | 28.9% | 31.3% |  |
| International as a percentage of total revenues | 71.7% | 68.2% |  | 71.1% | 68.7% |  |

Revenues by geographic area are categorized based on the customer’s location to which the products were shipped or services were performed.

For the three and six months ended June 28, 2024, U.S. revenues increased compared to the same periods in the prior year, primarily as the result of the October 2023 acquisition of HIS, whose customers are primarily U.S. based.

International revenues increased in the three and six months ended June 28, 2024 compared to the same periods in the prior year primarily as a result of market improvement driving higher customer demand.

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### Cost of Revenues

| Cost of revenues by Segment (Dollars in millions) | Three Months Ended June 28, 2024 | June 30, 2023 | Percent Change | Six Months Ended June 28, 2024 | June 30, 2023 | Percent Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Products | $383.9 | $311.1 | 23.4% | $738.0 | $626.2 | 17.9% |
| Services | 43.7 | 42.3 | 3.3% | 84.8 | 87.5 | (3.1)% |
| Total Cost of revenues | $427.6 | $353.4 | 21.0% | $822.8 | $713.7 | 15.3% |
| Products cost as a percentage of total Products revenues | 84.8% | 85.8% |  | 84.7% | 85.7% |  |
| Services cost as a percentage of total Services revenues | 68.9% | 71.7% |  | 69.1% | 70.7% |  |

Cost of Products revenues consists of purchased materials, direct labor and manufacturing overhead. Cost of Products revenues increased $72.8 million and $111.8 million for the three and six months ended June 28, 2024 compared to the same periods in the prior year. The increase was due to higher sales volumes driving increased material costs of $63.6 million and $101.9 million for the three and six months ended June 28, 2024, respectively.

Cost of Services revenues consists of direct labor, overhead and materials (such as chemicals, gases and consumables). Cost of Services revenues increased $1.4 million for the three months ended June 28, 2024 compared to the same period in the prior year driven by higher volumes of service orders, resulting in increased overhead costs of $1.4 million. Cost of Services revenues decreased $2.7 million for the six months ended June 28, 2024 compared to the same period in the prior year driven by lower volumes of service orders resulting in decreased labor related costs of $3.7 million.

### Gross Margin

| Gross Profit by Segment (Dollars in millions) | Three Months Ended June 28, 2024 | June 30, 2023 | Percent Change | Six Months Ended June 28, 2024 | June 30, 2023 | Percent Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Products | $68.8 | $51.4 | 33.9% | $133.2 | $104.9 | 27.0% |
| Services | 19.7 | 16.7 | 18.0% | 37.9 | 36.2 | 4.7% |
| Gross profit | $88.5 | $68.1 | 30.0% | $171.1 | $141.1 | 21.3% |
| **Gross Margin by Segment** |  |  |  |  |  |  |
| Products | 15.2% | 14.2% |  | 15.3% | 14.3% |  |
| Services | 31.1% | 28.3% |  | 30.9% | 29.3% |  |
| Total Company | 17.1% | 16.2% |  | 17.2% | 16.5% |  |

Gross profit and gross margins fluctuate with revenue levels, product mix, material costs, and labor costs.

Products gross profit and gross margin increased for the three and six months ended June 28, 2024 compared to the same periods in the prior year primarily due to higher revenue levels, product shift and volume shift from higher to lower cost regions.

Services gross profit increased for the three and six months ended June 28, 2024 compared to the same periods in the prior year primarily due to higher revenue levels.

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### Operating Margin

| Operating Profit by Segment (Dollars in millions) | Three Months Ended June 28, 2024 | June 30, 2023 | Percent Change | Six Months Ended June 28, 2024 | June 30, 2023 | Percent Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Products | $18.8 | $10.8 | 74.1% | $33.5 | $19.5 | 71.8% |
| Services | 4.1 | 1.8 | 127.8% | 6.7 | 5.5 | 21.8% |
| Operating profit | $22.9 | $12.6 | 81.7% | $40.2 | $25.0 | 60.8% |
| **Operating Margin by Segment** |  |  |  |  |  |  |
| Products | 4.2% | 3.0% |  | 3.8% | 2.7% |  |
| Services | 6.5% | 3.1% |  | 5.5% | 4.4% |  |
| Total Company | 4.4% | 3.0% |  | 4.0% | 2.9% |  |

Operating profit and operating margin of Products increased for the three and six months period ended June 28, 2024 compared to the same periods in the prior year primarily due to increases in business volumes and customer demand partially offset by an increase in share-based compensation expense and by an increase in the amortization of intangibles in conjunction with the acquisition of HIS.

Operating profit and operating margin of Services increased for the three and six months period ended June 28, 2024 compared to the same periods in the prior year primarily due to the higher gross profit resulting from increased customer demand.

### Research and Development

*(Dollars in millions)*

|  | Three Months Ended June 28, 2024 | June 30, 2023 | Percent Change | Six Months Ended June 28, 2024 | June 30, 2023 | Percent Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Research and development | $7.1 | $7.2 | (1.4)% | $14.1 | $14.3 | (1.4)% |
| Research and development as a percentage of total revenues | 1.4% | 1.7% |  | 1.4% | 1.7% |  |

Research and development expenses were consistent in the three and six months ended June 28, 2024 compared to the same periods in the prior year.

### Sales and Marketing

*(Dollars in millions)*

|  | Three Months Ended June 28, 2024 | June 30, 2023 | Percent Change | Six Months Ended June 28, 2024 | June 30, 2023 | Percent Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Sales and marketing | $14.8 | $12.7 | 16.5% | $28.5 | $25.8 | 10.5% |
| Sales and marketing as a percentage of total revenues | 2.9% | 3.0% |  | 2.9% | 3.0% |  |

Sales and marketing expenses increased for the three and six months period ended June 28, 2024 compared to the same periods in the prior year primarily due to the increase in employee related expenses.

### General and Administrative

*(Dollars in millions)*

|  | Three Months Ended June 28, 2024 | June 30, 2023 | Percent Change | Six Months Ended June 28, 2024 | June 30, 2023 | Percent Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| General and administrative | $43.7 | $35.6 | 22.8% | $88.3 | $76.0 | 16.2% |
| General and administrative as a percentage of total revenues | 8.5% | 8.4% |  | 8.9% | 8.9% |  |

General and administrative expenses increased $8.1 million and $12.3 million in the three and six months ended June 28, 2024 compared to the same periods in the prior year primarily driven by increases in amortization of intangible assets acquired through business combinations and in share-based compensation expense in addition to a combination of other factors, none of which were individually significant.

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### Interest and Other Expense, net

*(Dollars in millions)*

|  | Three Months Ended June 28, 2024 | June 30, 2023 | Percent Change | Six Months Ended June 28, 2024 | June 30, 2023 | Percent Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest income | $1.4 | $0.8 | 75.0% | $2.8 | $1.3 | 115.4% |
| Interest expense | $(11.7) | $(11.8) | (0.8)% | $(23.9) | $(23.6) | 1.3% |
| Other income (expense), net | $17.4 | $(1.5) | (1260.0)% | $13.5 | $1.3 | 938.5% |

Interest income increased $0.6 million and $1.5 million in the three and six months ended June 28, 2024 compared to the same periods in the prior year primarily due to higher interest income earned on cash and cash equivalent balances attributed to higher interest rates in the current period.

Interest expense was consistent in the three and six months ended June 28, 2024 compared to the same periods in the prior year.

Other income (expense), net, increased $18.9 million in the three months ended June 28, 2024 compared to the same period in the prior year primarily due to the gain from the change in the fair value of contingent earn-out of $24.1 million offset partially by the $3.6 million of debt financing costs incurred in conjunction with the amended credit agreement. Other income (expense), net, increased $12.2 million in the six months ended June 28, 2024 compared to the same period in the prior year primarily due to the gain from the change in the fair value of contingent earn-out of $22.8 million offset partially by the $3.6 million of debt financing costs and by the $7.5 million unfavorable foreign exchange transactions and remeasurements.

### Provision for Income Taxes

*(Dollars in millions)*

|  | Three Months Ended June 28, 2024 | June 30, 2023 | Percent Change | Six Months Ended June 28, 2024 | June 30, 2023 | Percent Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Provision for income taxes | $8.5 | $8.3 | 2.4% | $18.4 | $11.8 | 55.9% |
| Effective tax rate | 28.3% | 8300.0% |  | 56.4% | 295.0% |  |

The decrease in the effective tax rate for the three and six months ended June 28, 2024 compared to the same periods in the prior year is primarily attributable to changes in the geographic mix of worldwide earnings and financial results in jurisdictions which are taxed at different rates and the impact of losses in jurisdictions with full valuation allowances on deferred tax assets.

Company management continuously evaluates the need for a valuation allowance on its deferred tax assets and, as of June 28, 2024, concluded that a full valuation allowance on its U.S. federal, state and certain of its foreign deferred tax assets remained appropriate.

### Liquidity and Capital Resources

#### Cash and cash Equivalents

The following table summarizes our cash and cash equivalents:

*(In millions)*

|  | June 28, 2024 | December 29, 2023 | Increase |
| --- | ---: | ---: | ---: |
| Total cash and cash equivalents | $319.5 | $307.0 | $12.5 |

The following table summarizes the Condensed Consolidated Statements of Cash Flow information:

*(In millions)*

|  | Six Months Ended June 28, 2024 | June 30, 2023 |
| --- | ---: | ---: |
| Operating activities | $33.0 | $64.4 |
| Investing activities | (30.9) | (46.5) |
| Financing activities | 12.5 | (56.9) |
| Effects of exchange rate changes on cash and cash equivalents | (2.1) | 1.0 |
| Net increase (decrease) in cash and cash equivalents | $12.5 | $(38.0) |

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Our primary cash inflows and outflows were as follows:

- For the six months ended June 28, 2024, we generated cash from operating activities of $33.0 million compared to $64.4 million for the six months ended June 30, 2023. The $31.4 million decrease in net cash provided by operating activities was driven by a $43.3 million unfavorable change in net working capital and by a $10.1 million decrease in non-cash items included in net income offset in part by an increase in net income of $22.0 million.
- The major contributors in net changes in operating assets and liabilities for the six months ended June 28, 2024 were as follows:
- Accounts receivable increased $26.1 million primarily due to the timing of shipments and collections and $25.4 million increase in inventories due to increased production levels.
- Accounts payable increased $41.4 million, income taxes payable increased $1.4 million, and accrued compensation and related benefits increased $1.5 million, primarily due to the timing of payments.
- Net cash used in investing activities during the six months ended June 28, 2024 and June 30, 2023 consisted primarily of $31.0 million and $47.0 million purchases of property, plant and equipment, respectively.
- During the six months ended June 28, 2024, the cash provided in financing activities was $12.5 million compared to cash used in financing activities of $56.9 million in the six months ended June 30, 2023. The $69.4 million increase in net cash provided by financing activities is due to the $23.5 million net cash proceeds from the amended credit agreement, a decrease of $23.8 million in principal payments on bank borrowings, and a $23.7 million decrease in share repurchases offset partially by the additional $2.5 million payment of debt issuance costs.

We believe we have sufficient capital to fund our working capital needs, satisfy our debt obligations, maintain our existing capital equipment, purchase new capital equipment and make strategic acquisitions from time to time. As of June 28, 2024, we had cash and cash equivalents of $319.5 million compared to $307.0 million as of December 29, 2023. Our cash and cash equivalents, cash generated from operations, and amounts available under our revolving line of credit described below were our principal sources of liquidity as of June 28, 2024.

Fluid Solutions has an existing factoring arrangement with a financial institution in which a portion of its accounts receivable are sold on a non-recourse basis. As of June 28, 2024, Fluid Solutions factored $6.9 million under this arrangement.

We anticipate that our existing cash and cash equivalents balance and operating cash flow will be sufficient to service our indebtedness and meet our working capital requirements and technology development projects for at least the next twelve months. The adequacy of these resources to meet our liquidity needs beyond that period will depend on our growth, the size and number of any acquisitions, the state of the worldwide economy, our ability to meet our financial covenants with our credit facility, the cyclical expansion or contraction of the semiconductor capital equipment industry and the other industries we serve and capital expenditures required to meet possible increased demand for our products.

In order to expand our business or acquire additional complementary businesses or technologies, we may need to raise additional funds through equity or debt financing. If required, additional financing may not be available on terms that are favorable to us, if at all. If we raise additional funds through the issuance of equity or convertible debt securities, our stockholders’ equity interest will be diluted and these securities might have rights, preferences and privileges senior to those of our current stockholders. We may also require the consent of our new lenders to raise additional funds through equity or debt financing. No assurance can be given that additional financing will be available or that, if available, such financing can be obtained on terms favorable to our stockholders and us.

As of June 28, 2024, we have cash of approximately $244.0 million in our foreign subsidiaries. It is not practicable to determine the tax liability that might be incurred if the undistributed earnings of these foreign subsidiaries were to be distributed. For undistributed earnings of foreign subsidiaries which are not considered indefinitely reinvested, deferred taxes have been accrued.

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#### Borrowing Arrangements

The following table summarizes our borrowings:

*(Dollars in millions)*

|  | June 28, 2024 Amount | Weighted- Average Interest Rate |
| --- | ---: | ---: |
| U.S. Term Loan | $496.9 | 9.0% |
| Fluid Solutions Debt Facilities | 6.0 | 7.7% |
| Debt issuance costs | (8.3) |  |
|  | $494.6 |  |

At June 28, 2024, the Company had an outstanding amount under the Term Loan of $496.9 million, gross of unamortized debt issuance costs of $8.3 million. As of June 28, 2024, the interest rate on the outstanding Term Loan was 9.0%.

As of June 28, 2024, the Company had $146.1 million, net of $3.9 million of outstanding letters of credit, available under this revolving credit facility. As of June 28, 2024, the Company was in compliance with the financial covenants contained within the Amended Credit Agreement.

The Company has a credit agreement with a local bank in the Czech Republic that provides for a revolving credit facility in the aggregate of up to 7.0 million euros (approximately 7.5 million). As of June 28, 2024, no debt was outstanding under this revolving credit facility.

Fluid Solutions has credit facilities with various financial institutions in Israel that provides borrowings of up to $11.0 million. As of June 28, 2024, Fluid Solutions had $6.0 million of outstanding debt with average interest rate ranges from 7.5% to 7.8%.

As of June 28, 2024, the Company’s total bank debt was $494.6 million, net of unamortized debt issuance costs of $8.3 million. As of June 28, 2024, the Company had $146.1 million, $5.0 million and $7.5 million available to draw from our credit facilities in the U.S., Israel and Czech Republic, respectively.

See Note 6 - Borrowing Arrangements, of our Condensed Consolidated Financial Statements, included in Part 1 of this Form-10Q for additional information.

### Capital Expenditures

Capital expenditures were $31.0 million during the six months ended June 28, 2024 and were primarily attributable to the capital invested in our manufacturing facilities worldwide. The Company’s anticipated capital expenditures for the remainder of 2024 are expected to be financed primarily from our cash flow generated from operations and cash on hand.

### Contractual Obligations

The Company had commitments to various third parties to purchase inventories totaling approximately $497.8 million as of June 28, 2024.

In conjunction with the sale of our products in the ordinary course of business, we provide standard indemnification against certain liabilities to our customers, which may include claims of losses by their own customers resulting out of property damages, bodily injuries or deaths, or infringement of intellectual property rights by our products. Our potential liability arising out of intellectual property infringement claims by any third party is generally uncapped. As of June 28, 2024, we have not incurred any significant costs to defend lawsuits or settle claims related to these indemnification arrangements. As a result, we believe the estimated fair value of these arrangements is minimal.

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## Market risk

As filed, 382 characters.

There were no significant changes to our quantitative and qualitative disclosures about market risk during the period covered by this report. Refer to Part II, Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” included in our Annual Report on Form 10-K for our fiscal year ended December 29, 2023, for a more complete discussion of the market risks we encounter.

## Controls and procedures

As filed, 8,441 characters.

### Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Exchange Act. Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon this evaluation, our chief executive officer and our chief financial officer concluded the disclosure controls and procedures were not effective as of June 28, 2024, the end of the period covered by this Quarterly Report on Form 10-Q, due to material weaknesses in internal control over financial reporting described below.

### Material Weaknesses in Internal Control Over Financial Reporting

As previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 29, 2023, the Company identified the following material weaknesses in our internal control over financial reporting that continue to exist as of June 28, 2024.

The Company did not design and maintain effective controls relating to the: (i) sufficiency of processes related to identifying and analyzing risks to the achievement of objectives across the entity, (ii) sufficiency of competent personnel to analyze risks of material misstatement and develop internal control activities to support the achievement of the Company’s internal control objectives; and (iii) monitoring of performance of control activities in accordance with established policies in a timely manner.

These material weaknesses contributed to the following additional material weaknesses:

(a) The Company did not design and maintain effective information technology (“IT”) general controls for certain information systems that are relevant to the preparation of its consolidated financial statements. Specifically, for certain of the Fluid Solutions operating subsidiaries in the Products segment which have not been migrated to the Company’s primary ERP system, the Company did not design and maintain (a) program change management controls to ensure that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately, and (b) user access controls to ensure appropriate segregation of duties that adequately restrict user and privileged access to our financial applications and data to appropriate company personnel. Business process controls that are dependent on information and data produced by systems affected by the deficiencies in IT general controls were deemed ineffective because they could have been adversely impacted.

(b) The Company did not design and maintain effective application controls over certain information technology systems that are relevant to the preparation of its consolidated financial statements. Specifically, for certain other international operating subsidiaries in the Products segment which have not been migrated to the Company’s primary ERP system, the Company did not design and maintain effective IT application controls or business process controls including, but not limited to appropriate segregation of duties. The business process controls were deemed ineffective because they could have allowed for certain personnel to have incompatible duties allowing for the creation, review, and processing of certain transactions without independent review and authorization which affects substantially all financial statement account balances and disclosures within such subsidiaries;

(c) The Company did not design and maintain effective controls to determine the valuation of inventories, including the write down of inventory to its estimated market value less costs to sell and the validation and approval of inventory costing;

(d) The Company did not design effective controls necessary to validate the accuracy of certain data used within the operation of controls which affects substantially all financial statement account balances and disclosures; and

(e) The Company did not design and maintain effective controls related to the review of cash flow forecasts used in the valuation of certain assets and liabilities acquired in a business combination. Specifically, the control activities related to

\- 31 - the review of the inputs and assumptions utilized to develop the cash flow forecasts used in the valuation of acquired intangible assets and contingent earn-out liabilities were not designed at an appropriate level of precision.

The material weaknesses described above did not result in any changes to previously released annual or interim financial results. However, these material weaknesses could result in misstatements of our consolidated financial statements that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. Based on additional procedures and post-closing review, management concluded that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented, in conformity with accounting principles generally accepted in the United States.

### Remediation Plan

Management has been executing and remains committed to implementing measures designed to ensure that control deficiencies contributing to the material weaknesses are remediated, such that these controls are designed, implemented, and operating effectively. The following remediation actions are currently being implemented and are in progress:

- engaging an external advisor to assist with evaluating and documenting the design and operating effectiveness of internal controls and assist with the remediation of deficiencies, as necessary;
- hiring additional personnel to identify and analyze risks of material misstatement, develop internal control activities to support the achievement of the Company’s internal control objectives, and monitor the effective performance of those control objectives;
- designing and implementing effective controls for certain operating subsidiaries not yet migrated to our primary ERP system, including controls over program changes and user access including segregation of duties;
- designing and implementing effective controls over valuation of inventories and inventories costing;
- designing and implementing effective controls over data used within the operation of controls; and
- designing and implementing effective controls over the review of cash flow forecasts utilized in the valuation of acquired intangible assets and contingent earn-out liabilities in a business combination to ensure the accuracy of inputs and assumptions applied in the forecasting process.

As we continue to evaluate and work to improve our internal control over financial reporting, we may decide to take additional measures to address the material weaknesses or modify the remediation plans described above. We believe that these actions will remediate the material weaknesses, however the material weaknesses will not be considered remediated until the applicable controls have operated for a sufficient period of time, and management has concluded, through testing, that these controls are designed and operating effectively. While Management believes that the aforementioned plans will remediate the material weaknesses, there is no assurance on the exact timing of the completion of the remediation. As the remediation plans continue to be implemented, management may be required to take additional measures or modify the plan elements.

### Changes in Internal Control Over Financial Reporting

There were no changes in internal control over financial reporting during the fiscal second quarter ended June 28, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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## Risk factors

As filed, 204 characters.

There were no material changes during the period covered in this report to the risk factors previously disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 29, 2023.

Filed Jul 26, 2024.
Source: SEC EDGAR, the filing index for accession 0001628280-24-033152. Last ingested by Listed: Oct 27, 2026, 16:08 ET. No prices; not investment advice.