What changed in this filing

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Item 1. Financial Statements

2023-11-13 compared with 2023-08-10 · 165 added, 109 removed, 575 unchanged (32% of the section changed)

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cost of revenue

16 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Other comprehensive loss, net of tax:

8 unchanged sentences

(In thousands)

September 30,

Current Assets:

29 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows from operating activities:

3 unchanged sentences

Share-based compensation

Write-off of acquired in-process research and development

Provision for inventory valuation

5 unchanged sentences

Proceeds from maturities and sales of marketable securities

Acquisitions, net of cash acquired

Purchases of property, plant and equipment

27 unchanged sentences

Share-based compensation

Issuance of shares through share-

based compensation plans, net

Issuance of shares through

share-based compensation

Share-based compensation plan

2 unchanged sentences

Balance at July 1, 2023

Share-based compensation

Issuance of shares through

share-based compensation

Share-based compensation plan

Currency translation

Unrealized gain on investments

Balance at September 30, 2023

Comprehensive

9 unchanged sentences

Share-based compensation

Issuance of shares through share-

based compensation plans, net

Issuance of shares through

share-based compensation

Share-based compensation plan

2 unchanged sentences

Balance at July 2, 2022

Share-based compensation

Issuance of shares through

share-based compensation

Purchases and retirement of common stock

Share-based compensation plan

Currency translation

Unrealized loss on investments

Balance at October 1, 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 and six months ended July 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 nine months ended September 30, 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 ended 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 ended on September 30, 2023.

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

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

The third quarter of the fiscal year ended December 31, 2022 ended on October 1, 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 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.

There have been no recent accounting pronouncements or changes in accounting pronouncements during the three and nine months ended September 30, 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 July 1, 2023 and December 31, 2022:

The following tables provide the assets and liabilities carried at fair value measured on a recurring basis at September 30, 2023 and December 31, 2022:

Fair Value Measurements Using

5 unchanged sentences

Unobservable Inputs

September 30, 2023

Available-for-sale debt securities:

17 unchanged sentences

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.

See Note 3 for additional discussion regarding the fair value of the Company’s marketable securities.

Marketable Securities

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

At September 30, 2023 and December 31, 2022, marketable securities are categorized as follows:

Amortized Cost

1 unchanged sentence

Gross Unrealized Holding Losses

September 30, 2023

Government notes and bonds

11 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 July 1, 2023 and December 31, 2022:

September 30, 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 and six months ended July 1, 2023 and July 2, 2022.

on the Condensed Consolidated Statements of Operations and were not material during the three and nine months ended September 30, 2023 and October 1, 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 July 1, 2023 and December 31, 2022 are temporary in nature.

The Company has determined that the gross unrealized losses on its marketable securities at September 30, 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 July 1, 2023 and December 31, 2022:

In Unrealized Loss Position For

4 unchanged sentences

Gross Unrealized Losses

September 30, 2023

Government notes and bonds

12 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 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.

At September 30, 2023, these contracts were denominated in euro, Chinese renminbi, Japanese yen, Korean won, Singapore dollar, and Taiwanese dollar.

At December 31, 2022, these contracts were denominated in euro, Japanese yen, Korean won, Singapore dollar, Taiwanese dollar, and Chinese renminbi.

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 July 1, 2023 and December 31, 2022 were as follows:

dollar forward contracts and related fair values as of September 30, 2023 and December 31, 2022 were as follows:

September 30, 2023

December 31, 2022

3 unchanged sentences

Intangible Assets

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

Purchased intangible assets as of September 30, 2023 and December 31, 2022 are as follows:

Gross Carrying Amount

Accumulated Amortization

September 30, 2023

Finite-lived intangibles:

14 unchanged sentences

Inventories, net are comprised of the following:

September 30, 2023

December 31, 2022

4 unchanged sentences

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

September 30, 2023

December 31, 2022

7 unchanged sentences

Other assets are comprised of the following:

September 30, 2023

December 31, 2022

3 unchanged sentences

Accrued liabilities are comprised of the following:

September 30, 2023

December 31, 2022

3 unchanged sentences

Other current liabilities are comprised of the following:

September 30, 2023

December 31, 2022

6 unchanged sentences

Other non-current liabilities are comprised of the following:

September 30, 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 $ 8,061 of receivables during the six months ended July 1, 2023.

The Company sold $ 20,639 of receivables during the nine months ended September 30, 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 July 1, 2023.

There were no amounts due from such third-party financial institutions at September 30, 2023.

Intellectual Property Indemnification Obligations

11 unchanged sentences

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

Six Months Ended

Nine Months Ended

September 30,

Balance, beginning of the period

28 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 July 1, 2023 was approximately $ 100.0 million with an available interest rate of 6.8 %.

The available line of credit as of September 30, 2023 was approximately $ 100.0 million with an available interest rate of 7.0 %.

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

Nine Months Ended

September 30,

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 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”

As of September 30, 2023 and December 31, 2022, the Company carried a long-term deferred revenue balance of $ 3,899 and $ 2,852 , respectively, in “Other non-current liabilities”

on the Condensed Consolidated Balance Sheets.

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

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 six months ended July 1, 2023 is as follows:

A summary of the Company’s restricted stock unit activity with respect to the nine months ended September 30, 2023 is as follows:

Number of Shares

2 unchanged sentences

Nonvested at December 31, 2022

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.

Nonvested at September 30, 2023

Of the 608 nonvested shares outstanding at September 30, 2023, 515 are service-based RSUs and 93 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 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.

As of September 30, 2023 and December 31 2022, there was $ 32,572 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 September 30, 2023 and December 31, 2022, respectively.

Other Expense, Net

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Foreign currency exchange losses, net

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Income before income taxes

1 unchanged sentence

Effective tax rate

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.

The income tax provision for the three and nine months ended September 30, 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 nine months ended September 30, 2023 and October 1, 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 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.

The decrease in the Company’s income tax provision for the three and nine months ended September 30, 2023 as compared to the three and nine months ended October 1, 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 $ 11,772 at July 1, 2023 and December 31, 2022.

The Company has a recorded valuation allowance against a certain portion of its deferred tax assets of $ 11,772 at September 30, 2023 and December 31, 2022.

Earnings Per Share

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

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 July 1, 2023, as well as the activity for the six months ended July 1, 2023, were as follows:

The components of accumulated other comprehensive loss, net of tax, at September 30, 2023, as well as the activity for the nine months ended September 30, 2023, were as follows:

Foreign currency

6 unchanged sentences

Reclassifications

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.

Balance at September 30, 2023

For the nine months ended September 30, 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 $ 407.

Segment Reporting and Geographic Information

7 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Systems and software

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Revenue from third parties:

3 unchanged sentences

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

Six Months Ended

Nine Months Ended

September 30,

Samsung Semiconductor

1 unchanged sentence

SK Hynix Inc.

Yangtze Memory Technologies Co.

Share Repurchase Authorization

1 unchanged sentence

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

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.

During the three and nine month periods ended September 30, 2023, the Company repurchased 0 and 46 shares of its common stock, respectively.

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 September 30, 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 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.

During the three and nine months ended September 30, 2023, restructuring costs of $ 0 and $ 3,226 were recorded in operating expenses 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 nine-month period.

The Company anticipates recording additional restructuring charges in its fourth fiscal quarter of 2023.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15 unchanged sentences

the effects of political, economic, legal, and regulatory changes or conflicts on our global operations;

the effects of natural disasters or public health emergencies, such as the current COVID-19 pandemic, on the global economy and on our customers, suppliers, employees, and business;

the effects of natural disasters or public health emergencies, such as COVID-19, on the global economy and on our customers, suppliers, employees, and business;

our dependence on certain significant customers and anticipated trends and developments in and management plans for our business and the markets in which we operate;

33 unchanged sentences

in the 2022 Form 10-K.

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.

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

Executive Summary

14 unchanged sentences

Three Months Ended

September 30,

Gross profit as a percent of revenue

1 unchanged sentence

Diluted earnings per share

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 the fiscal quarter ended September 30, 2023 (the “September 2023 quarter”), revenue increased 9% compared to the fiscal quarter ended July 1, 2023 (the “July 2023 quarter”), primarily due to an increase in sales to memory customers in specialty device and advanced packaging applications, partially offset by a decrease in sales to foundry customers in advanced nodes applications.

Gross profit as a percentage of revenue in the September 2023 quarter compared to the July 2023 quarter was primarily due to product mix.

Operating expenses in the September 2023 quarter decreased by 4% compared to the July 2023 quarter primarily due to cost containment initiatives implemented earlier in the year.

Our cash, cash equivalents and marketable securities balance increased to $629.7 million as of September 30, 2023 compared to $547.8 million as of December 31, 2022.

This increase was primarily the result of $110.4 million of cash generated from operating activities, partially offset by cash used for capital expenditures of $20.1 million and $10.4 million for tax payments

related to net share settlement of employee stock-based compensation plans.

Employee headcount as of September 30, 2023 was approximately 1,516.

We experienced supply chain constraints and inflationary pressures in 2022 and the first nine months of 2023, and although there have been improvements in supply chain performance, we expect some supply chain shortages as well as inflationary cost pressures to persist for the remainder of fiscal 2023 and into fiscal 2024.

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 half of fiscal 2023 compared to the same period last year.

However, the new export controls have resulted in lower net sales in China for the first nine months 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 and Six Months Ended July 1, 2023 and July 2, 2022

Results of Operations for the Three and Nine Months Ended September 30, 2023 and October 1, 2022

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

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%

Our revenue of $207.2 million decreased 18.5% for the three months ended September 30, 2023 as compared to the same period in 2022, in which revenue totaled $254.3 million.

For the nine-month periods ended September 30, 2023 and October 1, 2022, our revenue totaled $597.0 million and $751.9 million, respectively, representing a year-over-year decrease of 20.6%

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

Nine Months Ended

September 30,

Systems and software

Total revenue

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.

Total systems and software revenue decreased $46.7 million and $150.7 million for the three and nine months ended September 30, 2023, respectively, as compared to the three and nine months ended October 1, 2022.

These decreases were primarily due to a decrease in shipments of our metrology product lines to customers in advanced nodes applications.

This decline was partially offset by an increase in shipments of out inspection and lithography product lines to customers in specialty devices and advanced packaging applications.

The decrease in total parts and services revenue for the three and nine months ended September 30, 2023, as compared to the three and nine months ended October 1, 2022, was primarily due to lower factory utilization by several of our customers resulting in a decline in their spare parts requirements.

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

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

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.

The decrease in gross profit as a percentage of revenue for the three month period ended September 30, 2023 as compared to the three month period ended October 1, 2022 was primarily due to product mix and higher production costs.

The decrease in gross profit as a percentage of revenue for the nine month period ended September 30, 2023 as compared to the nine month period

ended October 1, 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 $27.0 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.

Our research and development expenses were $26.1 million and $80.4 million for the three and nine month periods ended September 30, 2023, respectively, as compared to $32.2 million and $84.1 million for the three and nine month periods ended October 1, 2022, respectively.

The decrease in research and development expenses of $6.1 million for the three month period ended September 30, 2023, as compared to the three month period ended October 1, 2022, was primarily due to a decrease in acquisition costs of $4.6 million for the write-off of acquired in-process research and developments expenses and a decrease in compensation costs of $1.3 million on lower headcount.

The decrease in research and development expenses of $3.7 million for the nine month period ended September 30, 2023, as compared to the nine month period ended October 1, 2022, was primarily due to a decrease in acquisition costs of $4.6 million for the write-off of acquired in-process research and developments expenses, partially offset by increases in depreciation expenses of $0.3 million and travel expenses of $0.3 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 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.

Our sales and marketing expenses were $14.8 million and $46.4 million for the three and nine month periods ended September 30, 2023, respectively, compared to $16.8 million and $49.3 million for the three and nine month periods ended October 1, 2022, respectively.

The decrease in sales and marketing expenses of $2.0 million for the three month period ended September 30, 2023, as compared to the three month period ended October 1, 2022, was primarily due to decreases in compensations costs of $0.8 million on lower headcount, outside service expenses of $0.2 million and travel expenses of $0.2 million.

The decrease in sales and marketing expenses of $2.9 million for the nine month period ended September 30, 2023, as compared to the nine month period ended October 1, 2022, was primarily due to decreases in compensation costs of $1.8 million on lower headcount, outside service expenses of $0.7 million and depreciation expense of $0.6 million, partially offset by an increase in travel expenses of $0.6 million.

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 $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.

Our general and administrative expenses were $18.1 million and $56.1 million for the three and nine month periods ended September 30, 2023, respectively, as compared to $16.8 million and $51.6 million for the three and nine month periods ended October 1, 2022, respectively.

The increase in general and administrative expenses of $1.3 million for the three month period ended September 30, 2023, as compared to the three month period ended October 1, 2022, was primarily due to increases in compensation costs of $0.6 million on higher headcount and depreciation expenses of $0.6 million.

The increase in general and administrative expenses of $4.5 million for the nine month period ended September 30, 2023, as compared to the nine month period ended October 1, 2022, was primarily due to restructuring charges of $3.2 million for employee severance costs during the 2023 period, increases in facilities expenses of $1.7 million, and depreciation expenses of $1.4 million, partially offset by decreases in outside services expenses of $1.4 million.

Amortization of Identifiable Intangible Assets .

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.

It was $13.8 million for the three month periods ended September 30, 2023 and October 1, 2022.

For the nine month periods ended September 30, 2023 and October 1, 2022 amortization of identifiable intangible assets was $41.5 million.

Interest income, net .

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.

Net interest income was $5.7 million and $13.9 million for the three and nine month periods ended September 30, 2023, respectively, as compared to $1.5 million and $2.6 million for the three and nine month periods ended

October 1, 2022, respectively.

The increases in net interest income for both the three and nine month periods ended September 30, 2023, as compared to the three and nine month periods ended October 1, 2022, were due to higher cash and marketable securities balances and higher interest rates during the 2023 period.

Other expense, net .

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.

Other expense, net was $1.0 million and $3.0 million for the three and nine month periods ended September 30, 2023, respectively, as compared to $1.0 million and $2.0 million for the three and nine month periods ended October 1, 2022, respectively.

The increase in other expense, net of $1.0 million for the nine month periods ended September 30, 2023, as compared to the nine month periods ended October 1, 2022, was primarily due to higher foreign exchange losses of $1.0 million.

Income Taxes .

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.

We recorded an income tax provision of $2.8 million and $7.9 million for the three and nine month periods ended September 30, 2023, respectively, as compared to $7.6 million and $18.9 million for the three and nine month periods ended October 1, 2022, respectively.

Our effective tax rate of 7% and 8% for the three and nine month periods ended September 30, 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 13% and 11% for the three and nine month periods ended October 1, 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.

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Liquidity and Capital Resources

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 September 30, 2023, we had $629.7 million of cash, cash equivalents and marketable securities and $1,085.4 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 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.

Net cash and cash equivalents provided by operating activities for the nine months ended September 30, 2023 and October 1, 2022 were $110.4 million and $87.2 million, respectively.

The net cash and cash equivalents provided by operating activities during the nine months ended September 30, 2023 resulted primarily from net income, adjusted to exclude the effect of non-cash operating charges, of $149.2 million, partially offset by a decrease in cash provided from operating assets and liabilities of $38.8 million, primarily due to a $33.5 million increase in prepaid expenses and other assets, a $31.4 million increase in inventories, and a $10.1 million decrease in accounts payable, partially offset by a $26.3 million decrease in accounts receivable, a $7.0 million increase in accrued and other liabilities, and a $2.9 million increase in net payable for income taxes.

The net cash and cash equivalents provided by operating activities during the nine months ended October 1, 2022 resulted primarily from net income, adjusted to exclude the effect of non-cash operating charges of $214.2 million, partially offset by a decrease in cash provided from operating assets and liabilities of $127.0 million, primarily due to a $76.5 million increase in inventories, a $60.4 million increase in accounts receivable, a $16.9 million increase in prepaid expenses and other assets, and a $4.1 million increase in net payable for income taxes, partially offset by a $10.7 million increase in accounts payable, and a $20.2 million increase in accrued and other liabilities.

Net cash and cash equivalents used in investing activities for the nine months ended September 30, 2023 and October 1, 2022 were $66.3 million and $29.2 million, respectively.

During the nine months ended September 30, 2023, net cash and cash equivalents used in investing activities included purchases of marketable securities of $360.3 million and capital expenditures of $20.1 million, partially offset by proceeds from sales of marketable securities of $314.1 million.

During the nine months ended October 1, 2022, net cash and cash equivalents used in investing activities included purchases of marketable securities of $289.5 million, capital expenditures of $9.8 million and purchase of intangible assets of $4.6 million, partially offset by proceeds from sales of marketable securities of $274.6 million.

Net cash and cash equivalents used in financing activities for the nine months ended September 30, 2023 and October 1, 2022 were $9.1 million and $17.9 million, respectively.

During the nine months ended September 30, 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 $10.4 million, repurchases of common stock of $3.2 million and payments related to contingent consideration for acquired business of $0.8 million, partially offset by proceeds from sales of shares through share-based compensation plans of $5.3 million.

During the nine months ended October 1, 2022, financing activities used cash primarily for repurchases of common stock of $11.5 million, tax payments related to shares withheld to satisfy employee tax obligations in connection with the vesting of awards under share-based compensation plans of $8.6 million and payments related to 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 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.

During the three and nine months ended September 30, 2023, we repurchased 0 and 46 thousand shares of common stock, respectively, under this repurchase authorization and those shares were subsequently retired.

As of September 30, 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 July 1, 2023, the available line of credit was approximately $100.0 million with an available interest rate of 6.8%.

As of September 30, 2023, the available line of credit was approximately $100.0 million with an available interest rate of 7.0%.

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

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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