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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended March 31, 2013

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 No. 000-51072

 

 

CASCADE MICROTECH, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Oregon   93-0856709

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

9100 S.W. Gemini Drive

Beaverton, Oregon

  97008
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (503) 601-1000

 

 

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer.   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   x

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

The number of shares of common stock outstanding as of May 2, 2013 was 14,294,287.

 

 

 


Table of Contents

CASCADE MICROTECH, INC.

INDEX TO FORM 10-Q

 

     Page  

PART I - FINANCIAL INFORMATION

  
Item 1.    Financial Statements      2   
   Condensed Consolidated Balance Sheets (unaudited) - March 31, 2013 and December 31, 2012      2   
   Condensed Consolidated Statements of Operations (unaudited) - Three Months Ended March 31, 2013 and 2012      3   
   Condensed Consolidated Statements of Comprehensive Income (unaudited) - Three Months Ended March 31, 2013 and 2012      4   
   Condensed Consolidated Statements of Cash Flows (unaudited) - Three Months Ended March 31, 2013 and 2012      5   
   Notes to Condensed Consolidated Financial Statements (unaudited)      6   
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations      10   
Item 3.    Quantitative and Qualitative Disclosures About Market Risk      16   
Item 4.    Controls and Procedures      16   

PART II - OTHER INFORMATION

  
Item 1A.    Risk Factors      17   
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      17   
Item 6.    Exhibits      17   
Signatures      18   

 

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Table of Contents

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

Cascade Microtech, Inc.

Condensed Consolidated Balance Sheets

(Unaudited, In thousands)

 

     March 31,
2013
    December 31,
2012
 

Assets

    

Current Assets:

    

Cash and cash equivalents

   $ 18,588      $ 17,927   

Short-term marketable securities

     5,291        5,322   

Restricted cash

     1,038        1,069   

Accounts receivable, net of allowances of $338 and $345

     21,147        21,087   

Inventories

     23,472        24,277   

Prepaid expenses and other

     2,180        2,503   
  

 

 

   

 

 

 

Total Current Assets

     71,716        72,185   

Fixed assets, net of accumulated depreciation of $25,487 and $24,575

     7,821        8,271   

Goodwill

     961        990   

Purchased intangible assets, net of accumulated amortization of $4,144 and $3,986

     1,452        1,610   

Other assets, net of accumulated amortization of $4,143 and $4,064

     2,066        2,224   
  

 

 

   

 

 

 

Total Assets

   $ 84,016      $ 85,280   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

    

Current Liabilities:

    

Accounts payable

   $ 7,264      $ 5,900   

Deferred revenue

     2,387        3,526   

Accrued liabilities

     5,098        6,640   
  

 

 

   

 

 

 

Total Current Liabilities

     14,749        16,066   

Deferred revenue

     433        356   

Other long-term liabilities

     2,443        2,940   
  

 

 

   

 

 

 

Total Liabilities

     17,625        19,362   

Shareholders’ Equity:

    

Common stock, $0.01 par value. Authorized 100,000 shares; issued and outstanding: 14,244 and 14,199

     142        142   

Additional paid-in capital

     91,145        90,897   

Accumulated other comprehensive loss

     (1,238     (716

Accumulated deficit

     (23,658     (24,405
  

 

 

   

 

 

 

Total Shareholders’ Equity

     66,391        65,918   
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 84,016      $ 85,280   
  

 

 

   

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

Cascade Microtech, Inc.

Condensed Consolidated Statements of Operations

(Unaudited, In thousands, except per share amounts)

 

     For the Three Months Ended March 31,  
     2013     2012  

Revenue

   $ 27,471      $ 27,543   

Cost of sales

     15,928        15,592   
  

 

 

   

 

 

 

Gross profit

     11,543        11,951   

Operating expenses:

    

Research and development

     2,456        2,779   

Selling, general and administrative

     8,046        7,911   
  

 

 

   

 

 

 

Total operating expenses

     10,502        10,690   
  

 

 

   

 

 

 

Income from operations

     1,041        1,261   

Other income (expense):

    

Interest income, net

     20        10   

Other, net

     (244     (407
  

 

 

   

 

 

 

Total other income (expense), net

     (224     (397
  

 

 

   

 

 

 

Income before income taxes

     817        864   

Income tax expense

     70        124   
  

 

 

   

 

 

 

Net income

   $ 747      $ 740   
  

 

 

   

 

 

 

Basic net income per share

   $ 0.05      $ 0.05   
  

 

 

   

 

 

 

Diluted net income per share

   $ 0.05      $ 0.05   
  

 

 

   

 

 

 

Shares used in per share calculations:

    

Basic

     14,227        14,188   
  

 

 

   

 

 

 

Diluted

     14,599        14,301   
  

 

 

   

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

Cascade Microtech, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited, In thousands)

 

     For the Three Months Ended March 31,  
     2013     2012  

Net income

   $ 747      $ 740   

Unrealized holding gains (losses)

     —          (1

Change in cumulative translation adjustment

     (522     497   
  

 

 

   

 

 

 

Comprehensive income

   $ 225      $ 1,236   
  

 

 

   

 

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

Cascade Microtech, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, In thousands)

 

     For the Three Months Ended March 31,  
     2013     2012  

Cash flows from operating activities:

    

Net income

   $ 747      $ 740   

Adjustments to reconcile net income to net cash flows provided by operating activities:

    

Depreciation and amortization

     1,200        1,192   

Stock-based compensation

     334        377   

Loss on write-down or disposal of long-lived assets

     1        56   

Deferred income taxes

     30        20   

(Increase) decrease in:

    

Accounts receivable, net

     (63     4,409   

Inventories

     483        (1,401

Prepaid expenses and other

     344        (368

Increase (decrease) in:

    

Accounts payable

     1,441        450   

Deferred revenue

     (1,050     (1,031

Accrued and other long-term liabilities

     (2,008     4   
  

 

 

   

 

 

 

Net cash provided by operating activities

     1,459        4,448   

Cash flows from investing activities:

    

Purchase of marketable securities

     (3,405     (3,404

Proceeds from sale of marketable securities

     3,436        1,405   

Purchase of fixed assets

     (559     (82

Proceeds from sale of fixed assets

     13        —     

(Increase) decrease in restricted cash

     —          412   
  

 

 

   

 

 

 

Net cash used in investing activities

     (515     (1,669

Cash flows from financing activities:

    

Principal payments on capital lease obligations

     (1     (5

Witholding taxes paid on net settlement of vested restricted stock units

     (141     (72

Proceeds from issuances of common stock

     113        22   

Cash paid for repurchase of common stock

     (58     (97
  

 

 

   

 

 

 

Net cash used in financing activities

     (87     (152

Effect of exchange rate changes on cash and cash equivalents

     (196     177   
  

 

 

   

 

 

 

Increase in cash and cash equivalents

     661        2,804   

Cash and cash equivalents:

    

Beginning of period

     17,927        10,656   
  

 

 

   

 

 

 

End of period

   $ 18,588      $ 13,460   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Taxes paid for income taxes, net

   $ 246      $ —     

See accompanying Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

CASCADE MICROTECH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

The condensed consolidated financial information included herein has been prepared by Cascade Microtech, Inc. without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). However, such information reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods. The financial information as of December 31, 2012 is derived from our 2012 Annual Report on Form 10-K. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our 2012 Annual Report on Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

Note 2. Inventories

Inventories are stated at the lower of standard cost, which approximates cost computed on a first-in, first-out basis, or market, and include materials, labor and manufacturing overhead. Demonstration goods, which are included as a component of finished goods, represent inventory that is used for customer demonstration purposes. This inventory is typically sold after 12 to 18 months. We analyze the carrying value of our inventory quarterly, considering a combination of factors including, but not limited to, the following: forecasted sales or usage, historical usage rates, estimated service period, product end-of-life dates, estimated current and future market values, service inventory requirements and new product introductions. We estimate market value based on factors including, but not limited to, replacement cost and estimated resale value. Inventory reserve charges totaled $0.4 million and $0.5 million, respectively, in the first quarter of 2013 and 2012. Inventory reserve charges are recorded quarterly as a component of cost of sales and establish a new cost basis for the inventory.

Inventories consisted of the following (in thousands):

 

     March 31,
2013
     December 31
2012
 
Raw materials    $ 14,924       $ 14,783   
Work-in-process      2,301         2,684   
Finished goods      6,247         6,810   
  

 

 

    

 

 

 
   $ 23,472       $ 24,277   
  

 

 

    

 

 

 

Note 3. Net Income Per Share

The following table reconciles the shares used in calculating basic net income per share and diluted net income per share (in thousands):

 

Three Months Ended March 31,

   2013      2012  

Shares used to calculate basic net income per share

     14,227         14,188   

Dilutive effect of outstanding stock options and restricted stock units (“RSUs”)

     372         113   
  

 

 

    

 

 

 

Shares used to calculate diluted net income per share

     14,599         14,301   
  

 

 

    

 

 

 

Securities not considered as they would have been antidilutive

     1,239         1,377   
  

 

 

    

 

 

 

Note 4. Product Warranty

We estimate a liability for costs to repair or replace products under warranty for periods ranging from 90 days to one year when the related product revenue is recognized. The liability for product warranties is calculated as a percentage of sales. The percentage is based on historical product repair costs. The liability for product warranties is included in Accrued liabilities on our Condensed Consolidated Balance Sheets.

 

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Table of Contents

Product warranty activity was as follows (in thousands):

 

Three Months Ended March 31,

   2013     2012  

Warranty accrual, beginning of period

   $ 716      $ 729   

Reductions for warranty charges

     (366     (271

Additions to warranty reserve

     327        338   
  

 

 

   

 

 

 

Warranty accrual, end of period

   $ 677      $ 796   
  

 

 

   

 

 

 

Note 5. Goodwill and Purchased Intangible Assets

Goodwill

The change in goodwill was as follows (in thousands):

 

     Three Months
Ended
March 31, 2013
    Year Ended
December 31,
2012
 

Balance, beginning of period

   $ 990      $ 971   

Effect of exchange rate changes

     (29     19   
  

 

 

   

 

 

 

Balance, end of period

   $ 961      $ 990   
  

 

 

   

 

 

 

Purchased Intangible Assets

Purchased intangible assets, net included the following (in thousands):

 

     March 31,
2013
    December 31,
2012
 

Customer relationships

   $ 3,265      $ 3,265   

Other

     2,331        2,331   
  

 

 

   

 

 

 
     5,596        5,596   

Less accumulated amortization

     (4,144     (3,986
  

 

 

   

 

 

 
   $ 1,452      $ 1,610   
  

 

 

   

 

 

 

Purchased intangible asset amortization totaled $0.2 million in the first quarter of 2013 and 2012.

The estimated amortization of purchased intangible assets is as follows over the next five years and thereafter (in thousands):

 

Remainder of 2013

   $ 416   

2014

     378   

2015

     288   

2016

     87   

2017

     69   

Thereafter

     214   
  

 

 

 
   $ 1,452   
  

 

 

 

Note 6. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

     March 31,
2013
     December 31,
2012
 

Accrued compensation and benefits

   $ 1,756       $ 2,750   

Accrued taxes

     350         800   

Accrued warranty

     677         716   

Accrued commissions

     319         374   

Accrued restructuring costs

     1,092         1,144   

Other

     904         856   
  

 

 

    

 

 

 
   $ 5,098       $ 6,640   
  

 

 

    

 

 

 

 

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Note 7. Stock-Based Compensation and Stock-Based Plans

Stock-based compensation was included in our Condensed Consolidated Statements of Operations as follows (in thousands):

 

Three Months Ended March 31,

   2013      2012  

Cost of sales

   $ 51       $ 46   

Research and development

     53         73   

Selling, general and administrative

     230         258   
  

 

 

    

 

 

 
   $ 334       $ 377   
  

 

 

    

 

 

 

Stock Incentive Plans

Stock option activity for the first three months of 2013 was as follows:

 

     Options
Outstanding
    Weighted
Average
Exercise Price
 

Outstanding at December 31, 2012

     1,128,077      $ 5.77   

Granted

     85,000        7.53   

Exercised

     (25,679     4.31   

Forfeited

     —          —     
  

 

 

   

Outstanding at March 31, 2013

     1,187,398        5.92   
  

 

 

   

RSU activity for the first three months of 2013 was as follows:

 

     Restricted
Stock

Units
    Weighted
Average

Grant  Date
Per Share
Fair Value
 

Outstanding at December 31, 2012

     350,655      $ 4.91   

Granted

     121,875        7.41   

Vested

     (47,770     5.43   

Forfeited

     (1,500     5.40   
  

 

 

   

Outstanding at March 31, 2013

     423,260        5.57   
  

 

 

   

Of the options and RSUs granted during the first quarter of 2013, 85,000 options and 19,000 RSUs were granted to our Chief Executive Officer.

As of March 31, 2013, total unrecognized stock-based compensation related to outstanding, but unvested, options and RSUs was $3.2 million, which will be recognized over the weighted average remaining vesting period of 2.8 years.

Employee Stock Purchase Plan

In January 2013, pursuant to the terms of our 2004 Employee Stock Purchase Plan (“ESPP”), and upon approval by our board of directors, the number of shares of our common stock available for purchase under the 2004 ESPP was increased from 850,000 to 950,000. There were no purchases of stock in the first quarter of 2013 under the ESPP.

Note 8. Stock Repurchase Plan

In November 2012, our board of directors authorized a stock repurchase program under which up to $2.0 million of our common stock could be repurchased from time to time in the open market or in privately negotiated transactions. In the first quarter of 2013, we repurchased $58,000, or 9,800 shares, of our common stock at a weighted-average price of $5.87 per share. As of March 31, 2013, $1.6 million remained available for repurchase under this program.

 

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Note 9. Segment Reporting

The segment data below is presented in the same manner that management currently organizes the segments for assessing certain performance trends. Our Chief Operating Decision Maker monitors the revenue streams and the operating income of our Systems sales and our Probes sales. We do not track our assets on a segment level, and, accordingly, that information is not provided.

Revenue and operating income information by segment was as follows (dollars in thousands):

 

Three Months Ended March 31, 2013

   Systems     Probes     Corporate
Unallocated
    Total  

Revenue

   $ 17,700      $ 9,771      $ —        $ 27,471   

Gross profit

   $ 6,712      $ 4,831      $ —        $ 11,543   

Gross margin

     37.9     49.4     —          42.0

Income (loss) from operations

   $ 1,642      $ 2,424      $ (3,025   $ 1,041   

Three Months Ended March 31, 2012

                        

Revenue

   $ 18,226      $ 9,317      $ —        $ 27,543   

Gross profit

   $ 7,220      $ 4,731      $ —        $ 11,951   

Gross margin

     39.6     50.8     —          43.4

Income (loss) from operations

   $ 2,785      $ 1,875      $ (3,399   $ 1,261   

In preparing this financial information, certain expenses were allocated between the segments based on management estimates, while others were based on specific factors such as headcount. These factors can have a significant impact on the amount of income (loss) from operations for each segment. While we believe we have applied a reasonable methodology, assignment of other reasonable cost allocations to each segment could result in materially different segment income (loss) from operations.

No customer accounted for 10% or greater of our total revenue in the three-month periods ended March 31, 2013 or 2012.

Note 10. Fair Value Measurements

Various inputs are used in determining the fair value of our financial assets and liabilities and are summarized into three broad categories:

 

   

Level 1 – quoted prices in active markets for identical securities;

 

   

Level 2 – other significant observable inputs, including quoted prices for similar securities, interest rates, credit risk, etc.; and

 

   

Level 3 – significant unobservable inputs, including our own assumptions in determining fair value.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The disclosures related to our financial assets that are reported at fair value on a recurring basis are as follows (in thousands):

 

     March 31, 2013      December 31, 2012  
     Fair Value      Input Level      Fair Value      Input Level  

Marketable securities – corporate obligations

   $ 4,789         Level 2       $ 3,818         Level 2   

Marketable securities – corporate equities

   $ 2         Level 1       $ 2         Level 1   

Marketable securities – U.S. treasury and agency securities

   $ 500         Level 2       $ 1,502         Level 2   

Forward sale contracts for Japanese yen

   $ 956         Level 2       $ 1,385         Level 2   

Forward purchase contracts for euro

   $ 1,795         Level 2       $ 1,451         Level 2   

The fair value of our marketable securities is determined based on quoted market prices for similar or identical securities. The fair value of our forward contracts is based on quoted market prices for similar securities and is used for the purpose of determining any gain or loss on our foreign currency positions. We do not record the full value of the forward contracts on our Condensed Consolidated Balance Sheets. We record the net unrealized gain or loss in our Condensed Consolidated Balance Sheet and as a component of Other income (expense).

 

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The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short maturities.

No changes were made to our valuation techniques during the first quarter of 2013.

Note 11. Recent Accounting Guidance

ASU 2012-02

In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2012-02, “Intangibles – Goodwill and Other: Testing Indefinite-Lived Intangible Assets for Impairment,” which permits an entity to make a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset, other than goodwill, is impaired. Entities are required to test indefinite-lived intangible assets for impairment at least annually and more frequently if indicators of impairment exist. If an entity concludes, based on an evaluation of all relevant qualitative factors, that it is not more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, it is not required to perform the quantitative impairment test for that asset. Because the qualitative assessment is optional, an entity is permitted to bypass it for any indefinite-lived intangible asset in any period and apply the quantitative test. ASU 2012-02 also permits the entity to resume performing the qualitative assessment in any subsequent period. ASU 2012-02 is effective for impairment tests performed for fiscal years beginning after September 15, 2012 and early adoption is permitted. The adoption of ASU 2012-02 in January 2013 did not have any impact on our financial position, results of operations or cash flows.

ASU 2013-02

In February 2013, the FASB issued ASU No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” Under ASU 2013-02, an entity is required to provide information about the amounts reclassified out of Accumulated Other Comprehensive Income (“AOCI”) by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. The adoption of ASU 2013-02 in January 2013 did not have any impact on our financial position, results of operations or cash flows.

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact made in this Quarterly Report on Form10-Q are forward-looking including, among others, statements regarding: industry prospects; future results of operations, including estimated revenue for the quarter ending June 30, 2013; our future financial position; our expectations and beliefs regarding future revenue growth; our estimated timeline for payment of lease abandonment costs; the future capabilities and functionality of our products and services; our strategies and intentions and potential sources of funds regarding acquisitions; our accounting and tax policies and the impact of adoption of accounting guidance, if any, on our financial position, results of operations or cash flows; potential charges to write down inventory in future periods; build-up of finished goods in preparation for orders ready to ship during the remainder of 2013; our future capital requirements and fixed asset additions for 2013, including for production-related equipment, facility improvements, research and development tools, business information systems and information technology equipment; seasonality of our revenues and expected increases in revenue recognition in the last month of each quarter; and our ability to meet our cash requirements for the next 12 months and for the foreseeable future. These statements relate to future events of our future financial performance. In some cases, you can identify forward-looking statements by terminology, including “intend,” “could,” “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “future,” or “continue,” the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially

 

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from those expressed or implied such forward-looking statements. In evaluating these statements, you should specifically consider various factors, including: changes in demand for our products; changes in product mix; the timing of shipments and customer orders; constraints on supplies of components; excess or shortage of production capacity; potential failure of expected market opportunities to materialize; changes in foreign exchange rates; and other risks included in Item 1A to our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 4, 2013.

General

We design, develop, manufacture and market advanced wafer probing solutions for the electrical measurement and testing of high performance semiconductor devices. Our products enable precision on-wafer measurement of integrated circuits. Our products are typically used in the early phases of the development of semiconductor processes where the accuracy and repeatability of measurements is critical to achieving yield from advanced process nodes. We design, manufacture and assemble our products in Beaverton, Oregon and Dresden, Germany and maintain global sales, service and support centers in North America, Germany, Japan, Taiwan, China and Singapore.

We operate in two business segments: Systems and Probes. Sales of our probe stations are included in the Systems segment and sales of our analytical probes and production probe cards are included in the Probes segment.

Probe stations provide precise and accurate measurement of semiconductor electrical characteristics during device design or when optimizing the chip fabrication process. Our probe stations are highly configurable and are typically sold with various accessories, including our analytical probes, as well as accessories from third parties. In addition, we design and build custom probe stations to address the specific requirements of our customers. We also generate revenue through the sales of service contracts for our stations.

Our analytical probes are sold to serve as components of our probe stations, or less often, to serve as components of test equipment manufactured by third parties. Our production probe cards are designed and sold for high-volume production test applications, ranging from very low current parametric testing to sophisticated, high-speed radio frequency integrated circuit (“RFIC”) testing. These probe cards are used in conjunction with third party equipment from manufacturers such as Advantest, Agilent and Teradyne.

Overview

Revenue in the first quarter of 2013 was flat at $27.5 million compared to the first quarter of 2012, primarily as a result of increased revenue in our Probes segment, partially offset by lower revenue from our Systems segment. Income from continuing operations was $0.7 million in both the first quarter of 2013 and 2012.

Outlook

Based on our current backlog, projected bookings and scheduled shipments, we anticipate revenues will be in the range of $27 million to $30 million for the second quarter of 2013.

Critical Accounting Policies and the Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that have become increasingly difficult to make in the current economic environment. These estimates and assumptions 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 amount of revenue and expenses during the reporting period.

On an on-going basis we evaluate our estimates, including those related to revenue recognition, bad debts, inventory, lives and recoverability of equipment and other long-lived assets, warranty obligations, deferred income tax assets, unrecognized income tax benefits, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

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We reaffirm the critical accounting policies and estimates as reported in our Annual Report on Form 10-K for the year ended December 31, 2012, which was filed with the Securities and Exchange Commission on March 4, 2013.

Results of Operations

The following table sets forth our consolidated statement of operations data for the periods indicated as a percentage of revenue.(1)

 

     For the Three Months
Ended March 31,
 
     2013     2012  

Revenue

     100.0     100.0

Cost of sales

     58.0        56.6   
  

 

 

   

 

 

 

Gross profit

     42.0        43.4   

Operating expenses:

    

Research and development

     8.9        10.1   

Selling, general and administrative

     29.3        28.7   
  

 

 

   

 

 

 

Total operating expenses

     38.2        38.8   
  

 

 

   

 

 

 

Income from operations

     3.8        4.6   

Other income (expense), net

     (0.8     (1.4
  

 

 

   

 

 

 

Income before income taxes

     3.0        3.1   

Income tax expense

     0.3        0.5   
  

 

 

   

 

 

 

Net income

     2.7     2.7
  

 

 

   

 

 

 

 

(1) Percentages may not add due to rounding.

Revenue and operating income information by segment was as follows (dollars in thousands):

 

Three Months Ended March 31, 2013

   Systems     Probes     Corporate
Unallocated
    Total  

Revenue

   $ 17,700      $ 9,771      $ —        $ 27,471   

Gross profit

   $ 6,712      $ 4,831      $ —        $ 11,543   

Gross margin

     37.9     49.4     —          42.0

Income (loss) from operations

   $ 1,642      $ 2,424      $ (3,025   $ 1,041   

Three Months Ended March 31, 2012

                        

Revenue

   $ 18,226      $ 9,317      $ —        $ 27,543   

Gross profit

   $ 7,220      $ 4,731      $ —        $ 11,951   

Gross margin

     39.6     50.8     —          43.4

Income (loss) from operations

   $ 2,785      $ 1,875      $ (3,399   $ 1,261   

Revenue

Revenue information was as follows (dollars in thousands):

 

     Three Months Ended March 31,      Dollar
Change
    % Change  

Revenue

   2013      2012       

Systems

   $ 17,700       $ 18,226       $ (526     (2.9 )% 

Probes

     9,771         9,317         454        4.9
  

 

 

    

 

 

    

 

 

   

Total

   $ 27,471       $ 27,543       $ (72     (0.3 )% 
  

 

 

    

 

 

    

 

 

   

Systems

The decrease in Systems revenue in the first quarter of 2013 compared to the first quarter of 2012 was primarily due to a decrease in unit sales, partially offset by an increase in average selling price (“ASP”) due to product sales mix. We sold a higher number of 300mm and special application systems as a percentage of total sales in the first quarter of 2013 than in the comparable period of 2012. The increase in ASP was negatively impacted by changes in foreign currency exchange rates.

Probes

The increase in Probes revenue in the first quarter of 2013 compared to the first quarter of 2012 was primarily the result of an increase in sales volume, partially offset by a decrease in ASP due to discounts and changes in foreign currency exchange rates.

 

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Cost of Sales and Gross Margin

Cost of sales includes purchased materials, fabrication, assembly, test, installation labor, overhead, customer-specific engineering costs, warranty costs, royalties and provision for inventory valuation reserves.

Cost of sales information was as follows (dollars in thousands):

 

      Three Months Ended March 31,      Dollar
Change
    % Change  

Cost of Sales

   2013      2012       

Systems

   $ 10,988       $ 11,006       $ (18     (0.2 )% 

Probes

     4,940         4,586         354        7.7
  

 

 

    

 

 

    

 

 

   

Total

   $ 15,928       $ 15,592       $ 336        2.2
  

 

 

    

 

 

    

 

 

   

Cost of sales was affected by changes in sales as discussed above combined with the factors that caused fluctuations in our gross margin (gross profit as a percentage of revenue), as discussed below.

Gross margins were as follows:

 

      Three Months Ended March 31,  

Gross Margins

   2013     2012  

Systems

     37.9     39.6

Probes

     49.4     50.8

Overall

     42.0     43.4

Systems

The decrease in Systems gross margins in the first quarter of 2013 compared to the first quarter of 2012 was primarily due to the decrease in sales volume, which resulted in higher unallocated fixed overhead costs recorded as a period expense in cost of sales.

Probes

The decrease in Probes gross margins in the first quarter of 2013 compared to the first quarter of 2012 was primarily due to a decrease in ASP, partially offset by higher sales volume, which resulted in lower unallocated fixed overhead costs recorded as a period expense in cost of sales.

Overall

The overall decrease in gross margins in the first quarter of 2013 compared to the first quarter of 2012 was attributable to the decreases in gross margin of both operating segments, partially offset by a mix shift to a higher percentage of Probes revenue in relation to total revenue.

Research and Development

Research and development costs are expensed as incurred and include compensation and related expenses for personnel, materials, consultants and overhead.

Information regarding our research and development expense was as follows (dollars in thousands):

 

     Three Months Ended March 31,      Dollar
Change
    % Change  
     2013      2012       

Research and development

   $ 2,456       $ 2,779       $ (323     (11.6 )% 

The decrease in research and development in the first quarter of 2013 compared to the first quarter of 2012 was primarily due to a $0.2 million decrease in project related expenses and a $0.1 million increase in government grant reimbursements.

 

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Selling, General and Administrative

Selling, general and administrative, or SG&A, expense includes compensation and related expenses for personnel, travel, outside services, manufacturers’ representative commissions, purchased intangible asset amortization and overhead incurred in our sales, marketing, customer support, management, legal and other professional and administrative support functions, as well as costs to operate as a public company.

Information regarding our SG&A expense was as follows (dollars in thousands):

 

     Three Months Ended March 31,      Dollar
Change
     % Change  
     2013      2012        

Selling, general and administrative

   $ 8,046       $ 7,911       $ 135         1.7

The increase in SG&A in the first quarter of 2013 compared to the first quarter of 2012 was primarily due to a $0.3 million increase in travel, meals and entertainment expenses, partially offset by a $0.1 million decrease in amortization expense and $0.1 million decrease in severance expense.

Other Income (Expense)

Other income (expense) typically includes interest income, interest expense, gains and losses on foreign currency forward contracts and foreign currency gains and losses. Other income (expense) may also include other miscellaneous non-operating gains and losses.

Other income (expense), net was comprised of the following (in thousands):

 

     Three Months Ended March 31,  
     2013     2012  

Interest income, net

   $ 20      $ 10   

Foreign currency losses

     (441     (457

Gains on foreign currency forward contracts

     203        62   

Other

     (6     (12
  

 

 

   

 

 

 
   $ (224   $ (397
  

 

 

   

 

 

 

Interest income represents interest earned on cash and cash equivalents and investments in marketable securities.

Foreign currency gains and losses primarily result from a combination of changes in foreign currency exchange rates and the net value of monetary assets and liabilities denominated in yen, euro and other foreign currencies.

Income Taxes

Information regarding our income tax expense was as follows:

 

     Three Months Ended March 31,  
     2013     2012  

Income tax provision

   $ 70      $ 124   

Income tax provision as a percentage of income from operations

     8.6     14.4

Our income tax expense in the first quarters of 2013 and 2012 primarily related to estimated tax expense on income in foreign tax jurisdictions.

We periodically evaluate the potential realization of our deferred income tax assets and, if necessary, record a valuation allowance to reduce the net carrying value of such assets to the amount expected to be realized. We evaluated the potential realization of deferred income tax assets as of March 31, 2013 and concluded that the existing valuation allowance was required. It is at least reasonably possible that, within the next twelve months, a review of the objective evidence may indicate that a portion, or all, of our valuation allowance will no longer be appropriate. If such a determination is made, release of the valuation allowance would be recognized as an income tax benefit to continuing operations in the period in which such assessment is made and the amount recognized could be material.

 

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As of March 31, 2013, deferred tax assets totaled $10.4 million and our valuation allowance totaled $9.8 million. Net operating loss carryforwards, on a tax effected basis, totaled $3.5 million as of March 31, 2013.

Liquidity and Capital Resources

Net cash provided by operating activities in the first quarter of 2013 was $1.5 million and primarily consisted of our net income of $0.7 million, net non-cash expenses of $1.6 million and net changes in our operating assets and liabilities as described below.

Accounts receivable, net was flat at $21.1 million at both March 31, 2013 and December 31, 2012.

Inventories decreased by $0.8 million to $23.5 million at March 31, 2013, compared to $24.3 million at December 31, 2012. The decrease in inventory was primarily due to Inventory charges of $0.4 million in the first quarter of 2013 for excess and obsolete inventory and the effect of exchange rate changes on euro-denominated inventory. Shipments of inventory during the first quarter of 2013 were partially offset by purchases of raw materials in preparation for orders expected to ship during the next two quarters of 2013. If our actual results are significantly different than our current expectations for 2013, we may incur additional charges to write down inventory in future periods.

Accounts payable increased by $1.4 million to $7.3 million at March 31, 2013, compared to $5.9 million at December 31, 2012, primarily due to the timing of vendor payments and increased purchases of raw materials inventory for orders expected to ship during the first two quarters of 2013.

Deferred revenue decreased by $1.1 million to $2.8 million at March 31, 2013, compared to $3.9 million at December 31, 2012, primarily due to a decrease in customer deposits. The decrease was primarily related to a large order recognized in the first quarter of 2013 that had previously been deferred.

Accrued liabilities decreased by $1.5 million to $5.1 million at March 31, 2013, compared to $6.6 million at December 31, 2012, primarily due to decreases in accrued compensation and benefits, and decreases in accrued income taxes, sales taxes and value added tax.

Other long-term liabilities decreased by $0.5 million to $2.4 million at March 31, 2013, compared to $2.9 million at December 31, 2012, primarily due to the decrease in accrued lease abandonment costs.

Fixed asset purchases of $0.6 million in the first quarter of 2013 primarily related to production-related equipment. We anticipate fixed asset additions for all of 2013 to be approximately $3.6 million, primarily for production-related equipment, facility improvements, research and development tools, business information systems and information technology equipment.

In November 2012, our board of directors authorized a stock repurchase program under which up to $2.0 million of our common stock could be repurchased from time to time in the open market or in privately negotiated transactions. During the first quarter of 2013, a total of 9,800 shares were repurchased at an average price of $5.87 per share, for a total purchase price of $0.1 million. As of March 31, 2013, $1.6 million remained available for repurchases. This plan does not have an expiration date.

Changes in our assets and liabilities as presented on our Condensed Consolidated Statements of Cash Flows do not equal the changes in such assets and liabilities as calculated for our Condensed Consolidated Balance Sheets due to the effects of fluctuating foreign exchange rates.

We anticipate meeting our cash requirements for the next 12 months and for the foreseeable future from existing cash and cash equivalents and short-term marketable securities, which totaled $23.9 million at March 31, 2013.

We continue to evaluate opportunities for acquisition and expansion and any such transactions, if consummated, may use a portion of our cash and marketable securities or may result in the issuance by us of debt or equity securities. Issuances of debt securities would increase our leverage and interest exposure; issuances of equity securities could dilute the ownership interest of equity shareholders.

 

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Recent Accounting Guidance

See Note 11 of Notes to Condensed Consolidated Financial Statements.

Contractual Commitments

The following is a summary of our contractual commitments and obligations as of March 31, 2012 (in thousands):

 

     Payments Due By Period  

Contractual Obligation

   Total      Remainder
Of 2013
     2014 and
2015
     2016 and
2017
     2018 and
beyond
 

Operating leases

   $ 15,593       $ 2,564       $ 6,817       $ 3,441       $ 2,771   

Purchase order commitments(1)

     6,286         6,258         28         —           —     

Forward contracts

     2,751         2,751         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 24,630       $ 11,573       $ 6,845       $ 3,441       $ 2,771   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Purchase order commitments primarily represent open orders for inventory.

Seasonality

Typically, our first quarter revenues are lower than our revenues from the preceding fourth quarter. In addition, as is typical in our industry, we recognize a large percentage of our quarterly revenue in the last month of the quarter. However, our seasonality can be affected by general economic trends and it should not be expected that historical revenue patterns will continue.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our reported market risks or risk management policies since the filing of our 2012 Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 4, 2013.

 

Item 4. Controls and Procedures

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

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Limitation on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all occurrences of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of all controls must be considered relative to their costs. Control systems can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. In addition, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that the control systems will detect all control issues, including instances of fraud, if any.

PART II – OTHER INFORMATION

 

Item 1A. Risk Factors

Our Annual Report on Form 10-K for the year ended December 31, 2012 includes a detailed discussion of our risk factors. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K. Accordingly, the information in this Form 10-Q should be read in conjunction with the risk factors and information disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012, which was filed with the Securities and Exchange Commission on March 4, 2013.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Repurchases of Equity Securities

We made the following repurchases of our common stock during the first quarter of 2013:

 

     Total number
of shares
purchased
     Average
price paid
per share
     Total number of
shares purchased as
part of publicly
announced plan
     Maximum dollar
amount of shares that
may yet be  purchased
under the plan
 

January 1 to January 31

     9,800       $ 5.87         9,800       $ 1.6 million   

February 1 to February 28

     —           —           —         $ 1.6 million   

March 1 to March 31

     —           —           —         $ 1.6 million   
  

 

 

       

 

 

    

Total

     9,800       $ 5.87         9,800       $ 1.6 million   
  

 

 

       

 

 

    

These shares were repurchased pursuant to a plan approved by our board of directors in November 2012, which authorized the repurchase of up to $2.0 million of our common stock from time to time in the open market or in privately negotiated transactions. This plan does not have an expiration date.

 

Item 6. Exhibits

The following exhibits are filed herewith or incorporated by reference hereto and this list is intended to constitute the exhibit index:

 

  10.1*   Cascade Microtech, Inc. 2013 Employee Incentive Plan.
  10.2   Second Amendment to Lease dated February 25, 2013 between Cascade Microtech, Inc. and Nimbus Center LLC.
  31.1   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
  31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
  32.1   Certification of Chief Executive Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
  32.2   Certification of Chief Financial Officer pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
101.INS**   XBRL Instance Document.
101.SCH**   XBRL Taxonomy Extension Schema Document.
101.CAL**   XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF**   XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB**   XBRL Taxonomy Extension Label Linkbase Document.
101.PRE**   XBRL Taxonomy Extension Presentation Linkbase Document.
*   Management or compensatory arrangement.
**   Pursuant to Rule 406T of Regulation S-T, the Interactive data Files on Exhibit 101, submitted electronically herewith, are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: May 8, 2013     CASCADE MICROTECH, INC.
    (Registrant)
    By:  

/s/ MICHAEL D. BURGER

      Michael D. Burger
      Director, President
      and Chief Executive Officer
      (Principal Executive Officer)
    By:  

/s/ JEFF KILLIAN

      Jeff Killian
      Chief Financial Officer and Treasurer
      (Principal Financial and Accounting Officer)

 

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