What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-08-10 compared with 2023-05-04 · 138 added, 127 removed, 546 unchanged (33% of the section changed)

4 unchanged sentences

Three Months Ended

Six Months Ended

Cost of revenue

16 unchanged sentences

Three Months Ended

Other comprehensive income (loss), net of tax:

Change in net unrealized losses on

Six Months Ended

Other comprehensive loss, net of tax:

Change in net unrealized gains (losses) on

available-for-sale marketable securities

Change in currency translation adjustments

Total other comprehensive income (loss), net of tax

Total other comprehensive loss, net of tax

Total comprehensive income

34 unchanged sentences

(In thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities:

11 unchanged sentences

Purchases of property, plant and equipment

Net cash and cash equivalents provided by (used in) investing activities

Net cash and cash equivalents used in investing activities

Cash flows from financing activities:

24 unchanged sentences

Balance at April 1, 2023

Share-based compensation

Issuance of shares through share-

based compensation plans, net

Share-based compensation plan

Currency translation

Unrealized loss on investments

Balance at July 1, 2023

Comprehensive

8 unchanged sentences

Balance at April 2, 2022

Share-based compensation

Issuance of shares through share-

based compensation plans, net

Share-based compensation plan

Currency translation

Unrealized gain on investments

Balance at July 2, 2022

The accompanying notes are an integral part of these financial statements.

12 unchanged sentences

Actual amounts could differ materially from reported amounts.

The interim results for the three months ended April 1, 2023 are not necessarily indicative of results to be expected for the entire year or any future periods.

The interim results for the three and six months ended July 1, 2023 are not necessarily indicative of results to be expected for the entire year or any future periods.

This interim financial information should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”) filed with the Securities and Exchange Commission (“SEC”) on February 24, 2023.

2 unchanged sentences

Our fiscal year ending December 30, 2023 (“fiscal year 2023”) is a 52-week fiscal year.

The first quarter of the Company’s fiscal year 2023 ended on April 1, 2023, the second quarter ends on July 1, 2023 and the third quarter ends on September 30, 2023.

The first quarter of the Company’s fiscal year 2023 ended on April 1, 2023, the second quarter ended on July 1, 2023 and the third quarter ends on September 30, 2023.

Our fiscal year ended December 31, 2022 was a 52-week fiscal year.

The first quarter of the fiscal year ended December 31, 2022 ended on April 2, 2022.

The second quarter of the fiscal year ended December 31, 2022 ended on July 2, 2022.

Use of Estimates

8 unchanged sentences

Adoption of Accounting Standards

There have been no recent accounting pronouncements or changes in accounting pronouncements during the three months ended April 1, 2023, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, that are of significance, or potential significance to the Company.

There have been no recent accounting pronouncements or changes in accounting pronouncements during the three and six months ended July 1, 2023, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, that are of significance, or potential significance to the Company.

Fair Value Measurements

10 unchanged sentences

A financial asset’s or liability’s fair value measurement classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following tables provide the assets and liabilities carried at fair value measured on a recurring basis at April 1, 2023 and December 31, 2022:

The following tables provide the assets and liabilities carried at fair value measured on a recurring basis at July 1, 2023 and December 31, 2022:

Fair Value Measurements Using

5 unchanged sentences

Unobservable Inputs

April 1, 2023

Available-for-sale debt securities:

Municipal notes and bonds

Government notes and bonds

Asset-backed securities

3 unchanged sentences

Foreign currency forward contracts

Total liabilities

December 31, 2022

Available-for-sale debt securities:

Municipal notes and bonds

Government notes and bonds

Asset-backed securities

6 unchanged sentences

The foreign currency forward contracts are primarily measured based on the foreign currency spot and forward rates quoted by the banks or foreign currency dealers.

Investment prices are obtained from third party pricing providers, which

model prices utilizing the above observable inputs, for each asset class.

Investment prices are obtained from third party pricing providers, which model prices utilizing the above observable inputs, for each asset class.

Level 3 investments consisted of contingent consideration related to an acquisition for which the Company uses revenue projections to value this liability.

1 unchanged sentence

Marketable Securities

At April 1, 2023 and December 31, 2022, marketable securities are categorized as follows:

At July 1, 2023 and December 31, 2022, marketable securities are categorized as follows:

Amortized Cost

1 unchanged sentence

Gross Unrealized Holding Losses

April 1, 2023

Municipal notes and bonds

Government notes and bonds

Asset-backed securities

4 unchanged sentences

December 31, 2022

Municipal notes and bonds

Government notes and bonds

Asset-backed securities

3 unchanged sentences

Total marketable securities

The amortized cost and estimated fair value of marketable securities classified by the maturity date listed on the security, regardless of the Condensed Consolidated Balance Sheets classification, is as follows at April 1, 2023 and December 31, 2022:

April 1, 2023

December 31, 2022

9 unchanged sentences

Gross realized gains and losses on available-for-sale securities are included in “Other expense, net”

on the Condensed Consolidated Statements of Operations and were not material during the three months ended April 1, 2023 and December 31, 2022.

on the Condensed Consolidated Statements of Operations and were not material during the three and six months ended July 1, 2023 and July 2, 2022.

The Company records credit losses for its available-for-sale debt securities when it intends to sell the securities, it is more-likely-than not that it will be required to sell the securities before a recovery, or when it does not expect to recover the entire amortized cost basis of the securities.

The cost of securities sold is based on the specific identification method.

The Company has determined that the gross unrealized losses on its marketable securities at April 1, 2023 and December 31, 2022 are temporary in nature.

The Company has determined that the gross unrealized losses on its marketable securities at July 1, 2023 and December 31, 2022 are temporary in nature.

The Company regularly reviews its investment portfolio to identify and evaluate marketable securities that have indications of possible impairment from credit losses or other factors.

Factors considered in determining whether an unrealized loss is considered to be a credit loss include the length of time and extent to which fair value has been less than the cost basis, credit quality and the Company’s ability and intent to hold the securities for a period of time sufficient to allow for any anticipated recovery in market value.

The following table summarizes the estimated fair value and gross unrealized holding losses of marketable securities, aggregated by investment instrument and period of time in an unrealized loss position, at April 1, 2023 and December 31, 2022:

In Unrealized Loss Position For

4 unchanged sentences

Gross Unrealized Losses

April 1, 2023

Municipal notes and bonds

Government notes and bonds

Asset-backed securities

3 unchanged sentences

December 31, 2022

Municipal notes and bonds

Government notes and bonds

Asset-backed securities

5 unchanged sentences

The Company, when it considers it to be appropriate, enters into forward contracts to hedge the economic exposures arising from foreign currency denominated transactions.

At April 1, 2023 and December 31, 2022, these contracts included the future sale of euro, Israeli shekel, Japanese yen, Korean won, Singapore dollar, Taiwanese dollar, and Chinese renminbi to purchase U.S.

At July 1, 2023, these contracts included the future sale of euro, Japanese yen, Korean won, Singapore dollar, and Taiwanese dollar to purchase U.S.

At December 31, 2022, these contracts included the future sale of euro, Japanese yen, Korean won, Singapore dollar, Taiwanese dollar, and Chinese renminbi to purchase U.S.

Foreign currency forward contracts are not designated as hedges for accounting purposes, and therefore, the change in fair value is recorded in “Other expense, net,”

2 unchanged sentences

The dollar equivalent of the U.S.

dollar forward contracts and related fair values as of April 1, 2023 and December 31, 2022 were as follows:

April 1, 2023

dollar forward contracts and related fair values as of July 1, 2023 and December 31, 2022 were as follows:

December 31, 2022

Notional amount

Fair value of liability

Fair value of asset (liability)

Purchased Intangible Assets

Intangible Assets

Purchased intangible assets as of April 1, 2023 and December 31, 2022 are as follows:

Purchased intangible assets as of July 1, 2023 and December 31, 2022 are as follows:

Gross Carrying Amount

Accumulated Amortization

April 1, 2023

Finite-lived intangibles:

14 unchanged sentences

Inventories, net are comprised of the following:

April 1, 2023

December 31, 2022

4 unchanged sentences

Property, plant and equipment, net is comprised of the following:

April 1, 2023

December 31, 2022

7 unchanged sentences

Other assets are comprised of the following:

April 1, 2023

December 31, 2022

3 unchanged sentences

Accrued liabilities are comprised of the following:

April 1, 2023

December 31, 2022

3 unchanged sentences

Other current liabilities are comprised of the following:

April 1, 2023

December 31, 2022

6 unchanged sentences

Other non-current liabilities are comprised of the following:

April 1, 2023

December 31, 2022

5 unchanged sentences

The Company maintains arrangements under which eligible accounts receivable in Japan are sold without recourse to unrelated third-party financial institutions.

The Company sold $ 4,297 of receivables during the three months ended April 1, 2023.

The Company sold $ 8,061 of receivables during the six months ended July 1, 2023.

These receivables were not included in the Condensed Consolidated Balance Sheets as the criteria for sale treatment had been met.

There were no material gains or losses on the sale of such receivables.

There were no amounts due from such third-party financial institutions at April 1, 2023.

There were no amounts due from such third-party financial institutions at July 1, 2023.

Intellectual Property Indemnification Obligations

11 unchanged sentences

Changes in the Company’s warranty reserves are as follows:

Three Months Ended

Six Months Ended

Balance, beginning of the period

21 unchanged sentences

Discovery is now closed.

On March 1, 2023, the Company filed a motion for summary judgment, and the hearing on that motion is scheduled for June 29, 2023.

On March 1, 2023, the Company filed a motion for summary judgment, and the hearing on that motion took place on June 29, 2023.

On August 3, 2023, the Northern District of California denied the Company’s motion for summary judgment.

The trial date is set for December 4, 2023.

3 unchanged sentences

The Company is permitted to borrow up to 70 % of the value of eligible securities held at the time the line of credit is accessed.

The available line of credit as of April 1, 2023 was approximately $ 100.0 million with an available interest rate of 6.5 %.

The available line of credit as of July 1, 2023 was approximately $ 100.0 million with an available interest rate of 6.8 %.

The credit agreement is available to the Company until such time that either party terminates the arrangement at their discretion.

2 unchanged sentences

Three Months Ended

Six Months Ended

Point-in-time

4 unchanged sentences

For contracts that have a duration of one year or less, these amounts are recorded as current deferred revenue in the Condensed Consolidated Balance Sheets.

As of April 1, 2023 and December 31, 2022, the Company carried a long-term deferred revenue balance of $ 2,681 and $ 2,852 , respectively, in “Other non-current liabilities”

As of July 1, 2023 and December 31, 2022, the Company carried a long-term deferred revenue balance of $ 3,189 and $ 2,852 , respectively, in “Other non-current liabilities”

on the Condensed Consolidated Balance Sheets.

1 unchanged sentence

Three Months Ended

Six Months Ended

Balance, beginning of the period

4 unchanged sentences

Restricted Stock Unit Activity

A summary of the Company’s restricted stock unit activity with respect to the three months ended April 1, 2023 is as follows:

A summary of the Company’s restricted stock unit activity with respect to the six months ended July 1, 2023 is as follows:

Number of Shares

2 unchanged sentences

Nonvested at December 31, 2022

Nonvested at April 1, 2023

Of the 669 nonvested shares outstanding at April 1, 2023, 566 are service-based RSUs and 103 are market-based PRSUs.

Nonvested at July 1, 2023

Of the 638 nonvested shares outstanding at July 1, 2023, 540 are service-based RSUs and 98 are market-based PRSUs.

The fair value of the Company’s service-based RSUs was calculated based on the fair market value of the Company’s stock at the date of grant.

The fair value of the Company’s market-based PRSUs granted during fiscal years 2023 and 2022 was calculated using a Monte Carlo simulation model at the date of the grant, resulting in a weighted average grant-date fair value per share of $ 100.79 and $ 85.49 , respectively.

As of April 1, 2023 and December 31 2022, there was $ 31,644 and $ 28,653 of total unrecognized compensation cost related to restricted stock units granted under the Company’s stock plans, respectively.

That cost is expected to be recognized over a weighted average period of 1.6 years and 1.5 years for April 1, 2023 and December 31, 2022, respectively.

As of July 1, 2023 and December 31 2022, there was $ 38,787 and $ 28,653 of total unrecognized compensation cost related to restricted stock units granted under the Company’s stock plans, respectively.

That cost is expected to be recognized over a weighted average period of 1.8 years and 1.5 years for July 1, 2023 and December 31, 2022, respectively.

Other Expense, Net

1 unchanged sentence

Three Months Ended

Six Months Ended

Foreign currency exchange losses, net

2 unchanged sentences

Three Months Ended

Six Months Ended

Income before income taxes

1 unchanged sentence

Effective tax rate

The income tax provision for the three months ended April 1, 2023 was computed based on the Company’s annual forecast of profit by jurisdiction and forecasted effective tax rate for the year.

The income tax provision for the three months ended April 1, 2023 and April 2, 2022 reflected the impact of a change in U.S.

The income tax provision for the three and six months ended July 1, 2023 was computed based on the Company’s annual forecast of profit by jurisdiction and forecasted effective tax rate for the year.

The income tax provision for the six months ended July 1, 2023 and July 2, 2022 reflected the impact of a change in U.S.

tax law effective January 1, 2022, which requires the capitalization and amortization of research and development expenditures incurred after December 31, 2021.

The decrease in the Company’s income tax provision for the three months ended April 1, 2023 as compared to the three months ended April 2, 2022 was primarily due to a decrease in quarterly earnings and an increase in the federal research and development tax credit,

offset by a decrease in the Foreign Derived Intangible Income (“FDII”) deduction.

The Company’s recorded effective tax rate for the periods presented is less than the U.S.

The decrease in the Company’s income tax provision for the three and six months ended July 1, 2023 as compared to the three and six months ended July 2, 2022 was primarily due to a decrease in quarterly and year-to-date earnings and an increase in the federal research and development tax credit, offset by a decrease in the Foreign Derived Intangible Income (“FDII”) deduction.

The Company’s

recorded effective tax rate for the periods presented is less than the U.S.

statutory rate primarily due to projected FDII deductions, federal research and development tax credits, and excess tax benefits associated with equity compensation.

5 unchanged sentences

The Company continues to monitor available evidence and may reverse some or all of its remaining valuation allowance in future periods, if appropriate.

The Company has a recorded valuation allowance against a certain portion of its deferred tax assets of $ 11,473 and $ 11,772 for the quarter ending April 1, 2023 and December 31, 2022, respectively.

The Company has a recorded valuation allowance against a certain portion of its deferred tax assets of $ 11,772 at July 1, 2023 and December 31, 2022.

Earnings Per Share

3 unchanged sentences

Three Months Ended

Six Months Ended

Basic earnings per share - weighted average shares

5 unchanged sentences

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss, net of tax, at April 1, 2023, as well as the activity for the three months ended April 1, 2023, were as follows:

The components of accumulated other comprehensive loss, net of tax, at July 1, 2023, as well as the activity for the six months ended July 1, 2023, were as follows:

Foreign currency

6 unchanged sentences

Reclassifications

Balance at April 1, 2023

For the three months ended April 1, 2023, tax effects on net income of amounts recorded in other comprehensive loss for net unrealized gains on available-for-sale marketable securities and foreign currency translation adjustments was $ 298.

Balance at July 1, 2023

For the six months ended July 1, 2023, tax effects on net income of amounts recorded in other comprehensive loss for net unrealized gains on available-for-sale marketable securities and foreign currency translation adjustments was $ 264.

Segment Reporting and Geographic Information

7 unchanged sentences

Three Months Ended

Six Months Ended

Systems and software

4 unchanged sentences

Three Months Ended

Six Months Ended

Revenue from third parties:

3 unchanged sentences

The following customers accounted for 10% or more of total revenue for the indicated periods:

Three Months Ended

Six Months Ended

Samsung Semiconductor

4 unchanged sentences

Repurchases may be made through both public market and private transactions from time to time with shares purchased being subsequently retired.

During the three month period ended April 1, 2023, the Company purchased and retired 46 shares of its common stock.

The amount paid to repurchase the shares in excess of par value, including transaction costs, is recorded directly as a decrease to additional paid-in capital and retained earnings.

At April 1, 2023, there was $ 31,577 available for future share repurchases under this share repurchase authorization.

During the three and six month periods ended July 1, 2023, the Company repurchased 0 and 46 shares of its common stock, respectively.

The amount paid to repurchase the shares in excess of par value, including transaction costs, is recorded directly as a decrease to additional paid-in capital and accumulated earnings.

At July 1, 2023, there was $ 31,577 available for future share repurchases under this share repurchase authorization.

Restructuring

The Company initiated a restructuring plan to streamline operations and align the Company's cost structure with its business outlook for 2023.

During the three months ended April 1, 2023, restructuring cost of $ 2,034 were recorded in operating expense for employee severance and $ 2,279 was recorded in cost of goods sold for inventory write-downs.

All employee severance costs were paid during the quarter.

The Company initiated a restructuring plan to streamline operations and align the Company’s cost structure with its business outlook for 2023.

During the three and six months ended July 1, 2023, restructuring costs of $ 1,192 and $ 3,226 were recorded in operating expense for employee severance and $ 0 and $ 2,279 were recorded in cost of goods sold for inventory write-downs.

All employee severance costs were paid during the six-month period.

The Company anticipates that these activities will continue into subsequent quarters of 2023 and anticipates recording additional restructuring charges.

40 unchanged sentences

Forward-looking statements reflect our position as of the date of this Form 10-Q and we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Critical Accounting Policies and Estimates

Critical Accounting Estimates

The preparation of condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States (“U.S.

GAAP”) requires management to make judgments, assumptions and estimates that affect the amounts reported.

Certain of these significant accounting policies are considered to be critical accounting policies, as defined below.

A critical accounting policy is defined as one that is both material to the presentation of our condensed consolidated financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition or results of operations.

Specifically, these policies have the following attributes:

(1) we are required to make judgments and assumptions about matters that are highly uncertain at the time of the estimate;

and (2) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, could have a material effect on our financial position and results of operations.

Estimates and assumptions about future events and their effects cannot be determined with certainty.

4 unchanged sentences

and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, we believe that our condensed consolidated financial statements are fairly stated in accordance with U.S.

GAAP and provide a fair presentation of our financial position and results of operations.

There have been no material changes in our critical accounting policies and estimates from the information presented in Part II, Item 7.

There have been no material changes in our critical accounting estimates from the information presented in Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations,”

in the 2022 Form 10-K.

For more information, please see our critical accounting policies and estimates as previously disclosed in our 2022 Form 10-K and recent accounting pronouncements discussed in Note 1 to the Condensed Consolidated Financial Statements.

For more information, please see our critical accounting estimates as previously disclosed in our 2022 Form 10-K and recent accounting pronouncements discussed in Note 1 to the Condensed Consolidated Financial Statements.

Executive Summary

17 unchanged sentences

Diluted earnings per share

In the fiscal quarter ended April 1, 2023 (the “April 2023 quarter”), revenue decreased 21% compared to the fiscal quarter ended December 31, 2022 (the “December 2022 quarter”), primarily due to a decline in sales to memory customers in advanced nodes applications, and foundry and power customers in specialty device and advanced packaging applications.

Gross profit as a percentage of revenue in the April 2023 quarter compared to the December 2022 quarter decreased primarily due to a decrease in revenue volume, partially offset by a favorable product mix.

Operating expenses in the April 2023 quarter compared to the December 2022 quarter were relatively flat primarily due to lower travel and project expenses, offset by restructuring charges related to employee severance.

In the first quarter of 2023, customer demand weakened due to a reduction in wafer fabrication equipment spending.

As a result, we initiated a restructuring plan that included workforce reductions and the write-down of inventory for older product lines.

We incurred a charge of $2.0 million for employee severance costs and $2.3 million for inventory write-downs of older product lines.

We anticipate that these activities will continue into subsequent quarters of 2023 and anticipate recording additional restructuring charges.

Our cash, cash equivalents and marketable securities balance increased to $583.5 million as of April 1, 2023 compared to $547.8 million as of December 31, 2022.

This increase was primarily the result of $50.1 million of cash generated from operating activities.

This source of cash was partially offset by cash of $3.2 million used for purchases of our common stock, $7.9 million used for capital expenditures and $6.3 million used for tax payments related to shares withheld to satisfy employee tax obligations in connection with the vesting of awards under share-based compensation plans.

Employee headcount as of April 1, 2023 was approximately 1,580.

We experienced supply chain constraints and inflationary pressures in 2022, and although there have been improvements in supply chain performance, we expect supply chain shortages as well as inflationary cost pressures to persist throughout fiscal 2023.

In the fiscal quarter ended July 1, 2023 (the “July 2023 quarter”), revenue decreased 4% compared to the fiscal quarter ended April 1, 2023 (the “April 2023 quarter”), primarily due to a decline in sales to foundry and memory customers in advanced nodes applications, partially offset by an increase in sales to power customers in specialty device and advanced packaging applications.

Gross profit as a percentage of revenue in the July 2023 quarter compared to the April 2023 quarter was relatively flat primarily due to reduced volume offset by product mix.

Operating expenses in the July 2023 quarter compared to the April 2023 quarter were slightly lower primarily due to lower restructuring charges related to employee severance.

Customer demand further weakened due to a reduction in wafer fabrication equipment spending in the July 2023 quarter.

As a result, we continued with the restructuring plan initiated in the April 2023 quarter.

We incurred $1.2 million for employee severance costs due to additional workforce reductions in the July 2023 quarter.

Our cash, cash equivalents and marketable securities balance increased to $609.6 million as of July 1, 2023 compared to $547.8 million as of December 31, 2022.

This increase was primarily the result of $81.8 million of cash generated from operating activities and $5.3 million of cash from sales of shares through share-based compensation plans for the first half of 2023.

These sources of cash were partially offset by cash used for the purchase of our common stock of $3.2 million, cash used for capital expenditures of $12.5 million and $10.0 million of cash used for tax payments related to shares withheld to satisfy employee tax obligations in connection with the vesting of awards under share-based compensation plans.

Employee headcount as of July 1, 2023 was approximately 1,533.

We experienced supply chain constraints and inflationary pressures in 2022 and the first six months of 2023, and although there have been improvements in supply chain performance, we expect supply chain shortages as well as inflationary cost pressures to persist throughout fiscal 2023.

In 2022, the United States government implemented additional export regulations for U.S.

1 unchanged sentence

We have applied for export licenses to continue doing business with our customers that are affected by the new export rules.

However, the new export controls have resulted in lower net sales in China for the first quarter of fiscal 2023 compared to the same period last year.

For a discussion of the risks related to the our business and operations, see Part II, Item 1A –

However, the new export controls have resulted in lower net sales in China for the first half of fiscal 2023 compared to the same period last year.

For a discussion of the risks related to our business and operations, see Part II, Item 1A –

Risk Factors of this Form 10-Q.

Results of Operations for the Three Months Ended April 1, 2023 and April 2, 2022

Results of Operations for the Three and Six Months Ended July 1, 2023 and July 2, 2022

Our revenue is primarily derived from the sale of our systems, software licensing, services and spare parts.

Our revenue of $199.2 million decreased 17.5% for the three months ended April 1, 2023 as compared to three months ended April 2, 2022, in which revenue totaled $241.3 million.

Our revenue of $190.7 million decreased 25.6% for the three months ended July 1, 2023 as compared to the same period in 2022, in which revenue totaled $256.3 million.

For the six-month periods ended July 1, 2023 and July 2, 2022, our revenue totaled $389.8 million and $497.7 million, respectively, representing a year-over-year decrease of 21.7%

The following table lists, for the periods indicated, the different sources of our revenue in dollars (thousands) and as percentages of our total revenue:

Three Months Ended

Six Months Ended

Systems and software

Total revenue

Total systems and software revenue decreased $42.6 million for the three months ended April 1, 2023, as compared to the three months ended April 2, 2022, primarily due to decreases of units shipped in our metrology, inspection and lithography product lines.

The increase in parts and services revenue for the three months ended April 1, 2023, as compared to the three months ended April 2, 2022, was primarily due to servicing a larger installed base.

Total systems and software revenue decreased $61.4 million and $104.0 million for the three and six months ended July 1, 2023, respectively, as compared to the three and six months ended July 2, 2022.

These decreases were primarily due to lower numbers of units shipped in our metrology, inspection and lithography product lines.

The decrease in total parts and services revenue for the three and six months ended July 1, 2023, as compared to the three and six months ended July 2, 2022, was primarily due to lower factory utilization by several of our customers resulting in a decline in their spare parts usage.

Parts and services revenue is generated from part sales, maintenance service contracts, and system upgrades, as well as time and material billable service calls.

1 unchanged sentence

Our gross profit has been and will likely continue to be affected by a variety of factors, including manufacturing efficiencies, provision for excess and obsolete inventory, pricing by competitors or suppliers, new product introductions, production volume, customization and reconfiguration of systems, international and domestic sales mix, system and software product mix and parts and service margins.

Our gross profit was $105.0 million and $131.0 million for the three months ended April 1, 2023 and April 2, 2022, respectively.

Our gross profit represented 52.7% and 54.3% of our revenue for the three months ended April 1, 2023 and April 2, 2022, respectively.

The decrease in gross profit as a percentage of revenue for the three months ended April 1, 2023 as compared to the three months ended April 2, 2022 was primarily due to lower sales volume and charges related to excess and obsolete inventory for older product lines.

Three Months Ended

Six Months Ended

Gross profit as a percentage of revenue

The increase in gross profit as a percentage of revenue for the three month period ended July 1, 2023 as compared to the three month period ended July 2, 2022 was primarily due to product mix and lower production costs.

The decrease in gross profit as a percentage of revenue for the six month period ended July 1, 2023 as compared to the six month period ended July 2, 2022 was primarily due to an increase of $1.9 million related to excess and obsolete inventory for older product lines.

Operating Expenses.

7 unchanged sentences

They also include consulting fees, the cost of related supplies and legal costs to defend our patents.

Our research and development expenses were $27.2 million and $26.3 million for the three months ended April 1, 2023 and April 2, 2022, respectively.

The increases in research and development expenses for the three months ended April 1, 2023, as compared to the three months ended April 2, 2022, were primarily due to increased compensation costs and material expenses for new product initiatives, partially offset by decreased outside service expenses.

Our research and development expenses were $27.0 million and $54.3 million for the three and six month periods ended July 1, 2023, respectively, as compared to $25.6 million and $52.0 million for the three and six month periods ended July 2, 2022, respectively.

The increase in research and development expenses of $1.4 million for the three month period ended July 1, 2023, as compared to the three month period ended July 2, 2022, was primarily due to increased compensation costs of $1.1 million, a $0.2 million increase for travel expenses and material expenses for new product initiatives of $0.1 million.

The increase in research and development expenses of $2.3 million for the six month period ended July 1, 2023, as compared to the six month period ended July 2, 2022, was primarily due to increased compensation costs of $2.2 million.

Sales and Marketing .

Sales and marketing expenses are primarily comprised of salaries, commissions and related costs for sales and marketing personnel, as well as other non-personnel related expenses.

Our sales and marketing expenses of $15.6 million remained flat for the three months ended April 1, 2023 as compared to the three months ended April 2, 2022.

Our sales and marketing expenses were $16.0 million and $31.7 million for the three and six month periods ended July 1, 2023, respectively, compared to $16.9 million and $32.5 million for the three and six month periods ended July 2, 2022, respectively.

The decrease in sales and marketing expenses of $0.9 million for the three month period ended July 1, 2023, as compared to the three month period ended July 2, 2022, was primarily due to a $0.3 million decrease in depreciation expense and a $0.3 million decrease in outside services expense.

The decrease in sales and marketing expenses of $0.8 million for the six month period ended July 1, 2023, as compared to the six month period ended July 2, 2022, was primarily due to a $0.6 million decrease in outside services expense and a $0.3 million decrease in depreciation expense.

General and Administrative .

General and administrative expenses are primarily comprised of salaries and related costs for corporate and administrative personnel, as well as other non-personnel related expenses.

Our general and administrative expenses were $19.2 million and $16.5 million for the three months ended April 1, 2023 and April 2, 2022, respectively.

The increases in general and administrative expenses for the three months ended April 1, 2023, as compared to the three months ended April 2, 2022, were primarily due to restructuring charges for employee severance costs and increased merger and acquisition related expenses.

Our general and administrative expenses were $18.8 million and $38.0 million for the three and six month periods ended July 1, 2023, respectively, as compared to $18.3 million and $34.8 million for the three and six month periods ended July 2, 2022, respectively.

The increase in general and administrative expenses of $0.5 million for the three month period ended July 1, 2023, as compared to the three month period ended July 2, 2022, was primarily due to restructuring charges of $1.2 million in the 2023 period, partially offset by lower litigation expenses of $0.9 million.

The increase in general and administrative expenses of $3.2 million for the six month period ended July 1, 2023, as compared to the six month period ended July 2, 2022, was primarily due to restructuring charges of $3.2 million for employee severance costs during the 2023 period.

Amortization of Identifiable Intangible Assets .

Amortization of identifiable intangible assets remained consistent period over period and was $13.8 million for both the three months ended April 1, 2023 and April 2, 2022.

Amortization of identifiable intangible assets remained unchanged period over period.

It was $13.8 million and $27.6 million for the three and six month periods ended July 1, 2023 as well as, the three and six month periods ended July 2, 2022, respectively.

Interest income, net .

Net interest income was $3.4 million and $0.4 million for the three months ended April 1, 2023 and April 2, 2022, respectively.

The increase in net interest income for the three months ended April 1, 2023, as compared to the three months ended April 2, 2022, was due to higher average marketable securities balances and interest rates during the 2023 period.

Net interest income was $4.8 million and $8.2 million for the three and six month periods ended July 1, 2023, respectively, as compared to $0.7 million and $1.0 million for the three and six month periods ended July 2, 2022, respectively.

The increases in net interest income for both the three and six month periods ended July 1, 2023, as compared to the three and six month periods ended July 2, 2022, were due to higher cash and marketable securities balances and higher interest rates during the 2023 period.

Other expense, net .

Net other expense was $0.3 million and $0.2 million for the three months ended April 1, 2023 and April 2, 2022, respectively.

The increase in other expense, net for the three months ended April 1, 2023, as compared to the three months ended April 2, 2022, was primarily due to higher foreign exchange losses during the 2023 period.

Other expense, net was $1.7 million and $2.0 million for the three and six month periods ended July 1, 2023, respectively, as compared to $0.9 million and $1.1 million for the three and six month periods ended July 2, 2022, respectively.

The increase in other expense, net of $0.9 million for the six month periods ended July 1, 2023, as compared to the six month periods ended July 2, 2022, was primarily due to higher foreign exchange losses of $1.1 million.

Income Taxes .

We recorded an income tax provision of $3.1 million and $5.6 million for the three months ended April 1, 2023 and April 2, 2022, respectively.

Our effective tax rate of 10% for the three months ended April 1, 2023, differs from the statutory rate of 21%, primarily due to (i) research and development tax credits, (ii) the deduction related to foreign derived intangible income (“FDII”), and (iii) excess tax benefits associated with equity compensation.

Our effective tax rate of 9% for the three months ended April 2, 2022, differs from the statutory rate of 21%, primarily due to (i) foreign and research and development tax credits, (ii) the deduction related to FDII, and (iii) excess tax benefits associated with equity compensation.

We recorded an income tax provision of $2.0 million and $5.1 million for the three and six month periods ended July 1, 2023, respectively, as compared to $5.7 million and $11.3 million for the three and six month periods ended July 2, 2022, respectively.

Our effective tax rate of 7% and 8% for the three and six month periods ended July 1, 2023, differs from the statutory rate of 21%, primarily due to (i) research and development tax credits, (ii) the deduction related to foreign derived intangible income (“FDII”), and (iii) excess tax benefits associated with equity compensation.

Our effective tax rate of 10% for both the three and six month periods ended July 2, 2022, differed from the statutory rate of 21%, primarily due to (i) research and development tax credits, (ii) the deduction related to FDII, and (iii) excess tax benefits associated with equity compensation.

Our future effective income tax rate depends on various factors, such as possible changes in tax legislation, the geographic composition of our pre-tax income, the amount of our pre-tax income as business activities fluctuate, non-deductible expenses incurred in connection with business combinations, and research and development tax credits as a percentage of aggregate pre-tax income.

6 unchanged sentences

Liquidity and Capital Resources

At April 1, 2023, we had $583.5 million of cash, cash equivalents and marketable securities and $1,006.7 million in working capital.

At July 1, 2023, we had $609.6 million of cash, cash equivalents and marketable securities and $1,046.1 million in working capital.

At December 31, 2022, we had $547.8 million of cash, cash equivalents and marketable securities and $974.3 million in working capital.

Net cash and cash equivalents provided by operating activities for the three months ended April 1, 2023 and April 2, 2022 were $50.1 million and $45.5 million, respectively.

The net cash and cash equivalents provided by operating activities during the three months ended April 1, 2023 resulted primarily from net income, adjusted to exclude the effect of non-cash operating charges, of $51.1 million, partially offset by a decrease in cash provided from operating assets and liabilities of $1.0 million, primarily due to an increase in inventories and a decrease in accrued liabilities, offset by a decrease in accounts receivable.

The net cash and cash equivalents provided by operating activities during the three months ended April 2, 2022 resulted primarily from net income, adjusted to exclude the effect of non-cash operating charges, of $70.8 million, partially offset by a decrease in cash provided from operating assets and liabilities of $25.4 million, primarily due to increases in inventories and accounts receivable.

Net cash and cash equivalents provided by investing activities for the three months ended April 1, 2023 was $13.2 million.

For the three months ended April 2, 2022, investing activities used net cash and cash equivalents of $33.3 million.

During the three months ended April 1, 2023, net cash and cash equivalents provided by investing activities included proceeds from maturities and sales of marketable securities of $109.7 million, partially offset by purchases of marketable securities of $88.6 million and capital expenditures of $7.9 million.

During the three months ended April 2, 2022, net cash and cash equivalents used in investing activities included purchases of marketable securities of $97.5 million and capital expenditures of $2.5 million, partially offset by proceeds from maturities and sales of marketable securities of $66.7 million.

Net cash and cash equivalents used in financing activities for the three months ended April 1, 2023 and April 2, 2022 were $9.5 million and $7.6 million, respectively.

During the three months ended April 1, 2023, financing activities used cash primarily for tax payments related to shares withheld to satisfy employee tax obligations in connection with the vesting of awards under share-based compensation plans of $6.3 million and repurchases of common stock of $3.2 million.

During the three months ended April 2, 2022, financing activities used cash to primarily pay taxes related to shares withheld for share-based compensation plans of $5.3 million and pay contingent consideration for acquired business of $2.3 million, partially offset by proceeds from sales of shares through share-based compensation plans of $6.0 thousand.

Net cash and cash equivalents provided by operating activities for the six months ended July 1, 2023 and July 2, 2022 were $81.8 million and $55.4 million, respectively.

The net cash and cash equivalents provided by operating activities during the six months ended July 1, 2023 resulted primarily from net income, adjusted to exclude the effect of non-cash operating charges, of $98.8 million, partially offset by a decrease in cash provided from operating assets and liabilities of $17.0 million, primarily due to a $37.1 million increase in inventories, a $17.3 million increase in prepaid expenses and other assets, a $4.9 million decrease in accounts payable and a $10.7 million decrease in accrued and other liabilities, partially offset by a $51.1 million decrease in accounts receivable and a $1.9 million increase in net payable for income taxes.

The net cash and cash equivalents provided by operating activities during the six months ended July 2, 2022 resulted primarily from net income, adjusted to exclude the effect of non-cash operating charges of $143.0 million, partially offset by a decrease in cash provided from operating assets and liabilities of $87.6 million, primarily due to a $57.9 million increase in accounts receivable, a $44.4 million increase in inventories, a $15.6 million increase in prepaid expenses and other assets and a $4.4 million decrease in income taxes payable, partially offset by a $18.8 million increase in accounts payable and a $15.9 million increase in accrued and other liabilities.

Net cash and cash equivalents used in investing activities for the six months ended July 1, 2023 and July 2, 2022 were $22.9 million and $33.2 million, respectively.

During the six months ended July 1, 2023, net cash and cash equivalents used in investing activities included purchases of marketable securities of $209.2 million and capital expenditures of $12.4 million, partially offset by proceeds from sales of marketable securities of $198.7 million.

During the six months ended July 2, 2022, net cash and cash equivalents used in investing activities included purchases of marketable securities of $174.7 million and capital expenditures of $6.9 million, partially offset by proceeds from sales of marketable securities of $148.4 million.

Net cash and cash equivalents used in financing activities for the six months ended July 1, 2023 and July 2, 2022 were $8.2 million and $6.1 million, respectively.

During the six months ended July 1, 2023, financing activities used cash primarily for tax payments related to shares withheld to satisfy employee tax obligations in connection with the vesting of awards under share-based compensation plans of $10.0 million and repurchases of common stock of $3.2 million and pay contingent consideration for acquired business of $0.3 million, partially offset by proceeds from sales of shares through share-based compensation plans of $5.3 million.

During the six months ended July 2, 2022, financing activities used cash to primarily pay taxes related to shares withheld for share-based compensation plans of $8.3 million and pay contingent consideration for acquired business of $2.3 million, partially offset by proceeds from sales of shares through share-based compensation plans of $4.5 million.

In November 2020, the Onto Innovation Board of Directors approved a share repurchase authorization, which allows the Company to repurchase up to $100 million worth of shares of its common stock.

Repurchases may be made through both public market and private transactions from time to time with shares purchased being subsequently retired.

During the three months ended April 1, 2023, we repurchased 46 thousand shares of common stock under this repurchase authorization and those shares were subsequently retired.

As of April 1, 2023, there was $31.6 million available for future share repurchases under this share repurchase authorization.

During the three and six months ended July 1, 2023, we repurchased 0 and 46 thousand shares of common stock, respectively, under this repurchase authorization and those shares were subsequently retired.

As of July 1, 2023, there was $31.6 million available for future share repurchases under this share repurchase authorization.

We have a credit agreement with a bank that provides for a line of credit that is secured by the marketable securities we have with the bank.

We are permitted to borrow up to 70% of the value of eligible securities held at the time the line of credit is accessed.

As of April 1, 2023, the available line of credit was approximately $100.0 million with an available interest rate of 6.5%.

As of July 1, 2023, the available line of credit was approximately $100.0 million with an available interest rate of 6.8%.

The credit agreement is available to us until such time that either party terminates the arrangement at its discretion.

3 unchanged sentences

Thereafter, if cash generated from operations and financing activities is insufficient to satisfy our working capital requirements, we may seek additional funding through bank borrowings, sales of securities or other means.

However, the ongoing impacts of the COVID-19 pandemic have in the past caused disruption in the capital markets and were they to do the same in the future, may have an impact on our ability to access such additional funding.

In addition, a reduction in or volatility with respect to our stock price or a general market downturn could materially impact our ability to sell securities on favorable terms or at all.

A reduction in or volatility with respect to our stock price or a general market downturn could materially impact our ability to sell securities on favorable terms or at all.

There can be no assurance that we will be able to raise any such capital on terms acceptable to us or at all.

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements