What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-02 compared with 2020-08-04 · 116 added, 87 removed, 87 unchanged (70% of the section changed)

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Certain statements in this Quarterly Report on Form 10-Q (this “Form 10-Q”) of Onto Innovation Inc.

(referred to in this Form 10-Q as the “Company,” or “Onto,” “we,” “our” or “us”) are forward-looking statements, including those concerning anticipated effects of, and future actions to be taken in response to, the COVID-19 pandemic, our business momentum and future growth, acceptance of our products and services, our ability to deliver both products and services consistent with our customers’ demands and expectations and to strengthen our market position, our expectations of the semiconductor market outlook, future revenue, gross profits, research and development and engineering expenses, selling, general and administrative expenses, product introductions, technology development, manufacturing practices, cash requirements, our dependence on

cert ain significant customers and anticipated trends and developments in and management plans for our business and the markets in which we operate, our anticipated revenue as a result of acquisitions, and our ability to be successful in managing our cost struc ture and cash expenditures and results of litigation.

The statements contained in this Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of t he Securities Exchange Act of 1934, as amended (the “Exchange Act”), and within the meaning of the Private Securities Litigation Reform Act of 1995.

(referred to in this Form 10-Q, together with its consolidated subsidiaries, unless otherwise specified or suggested by the context, as the “Company,” or “Onto Innovation,” “we,” “our” or “us”) are forward-looking statements, including those concerning anticipated effects of, and future actions to be taken in response to, the COVID-19 pandemic, our business momentum and future growth, acceptance of our products and services, our ability to deliver both products and services consistent with our customers’ demands and expectations and to strengthen our market position, our expectations of the semiconductor market outlook, future revenue, gross profits, research and development and engineering expenses, selling, general and administrative expenses, product introductions, technology development, manufacturing practices, cash requirements, 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, our anticipated revenue as a result of acquisitions, and our ability to be successful in managing our cost structure and cash expenditures and results of litigation.

The statements contained in this Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements may be identified by words such as, but not limited to, “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “plan,” “should,” “may,” “could,” “will,” “would,” “forecast,” “project” and words or phrases of similar meaning, as they relate to our management or us.

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the timing of future product releases;

failure to respond adequately to either changes in technology or customer preferences;

failure to respond adequately to either

changes in technology or customer preferences;

changes in pricing by us or our competitors;

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changes in budgeted costs;

our ability to leverage our resources to improve our position in our core markets, to weather difficult economic environments, to open new market opportunities and to target high-margin markets;

our ability to leverage our resources to improve our position in our core markets, to weather difficult economic environments, to open new market op portunities and to target high-margin markets;

the strength/weakness of the back-end and/or front-end semiconductor market segments;

the imposition of tariffs or trade restrictions and costs, burdens and restrictions associated with other governmental actions;

the imposition of tariffs or trade restrictions and costs, burdens and restrictions associated with other governmental acti ons;

the ability to successfully integrate the businesses of Rudolph Technologies, Inc.

(“Rudolph”) and Nanometrics Incorporated (“Nanometrics”)promptly and effectively and to achieve the anticipated synergies and value-creation contemplated by the merger of Rudolph and Nanometrics consummated on October 25, 2019 (the “Merger”) within the expected time frame;

unanticipated difficulties or expenditures relating to the Merger and integration of the Rudolph and Nanometrics businesses;

the response of business partners and retention as a result of the Merger;

unanticipated difficulties or expenditures relating to the integration of the Rudolph and Nanometrics businesses;

the response of business partners an d retention as a result of the Merger;

the diversion of management time in connection with the integration;

an increased litigation risk arising from the Merger and the outcome of any such litigation;

and the “Risk Factors” set forth in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”) and in Part II, Item 1A of this Form 10-Q.

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The forward-looking statements reflect our position as of the date that they are made, 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.

On October 25, 2019, the merger of Nanometrics with Rudolph was consummated and resulted in the combined company, which was renamed as Onto Innovation Inc.

Onto accounts for the Merger as a reverse acquisition using the acquisition method of accounting in accordance with generally accepted accounting principles, with Rudolph being treated as the acquiring entity for accounting purposes.

On October 25, 2019, the Merger of Nanometrics with Rudolph was consummated and resulted in the combined company, which was renamed Onto Innovation Inc.

The Company accounts for the Merger as a reverse acquisition using the acquisition method of accounting in accordance with generally accepted accounting principles, with Rudolph being treated as the acquiring entity for accounting purposes.

Because Rudolph is treated as the accounting acquirer in the Merger, the financial statements filed with this Form 10-Q include the financial results of Rudolph for all periods presented and the financial results of the former Nanometrics for the periods on or after October 26, 2019.

As used in this Form 10-Q, the terms “Onto,” the “Company,” “we,” “us” or “our” refer to Onto Innovation Inc.

and its consolidated subsidiaries, unless otherwise specified or suggested by the context.

Impact of COVID-19 on our Business

The spread of COVID-19 during the first quarter of 2020 has caused an economic downturn on a global scale, as well as significant volatility in the financial markets.

In March 2020, the World Health Organization declared the outbreak of the COVID-19 pandemic.

As of August 5, 2020, our operations have been impacted by our pandemic response, as described below, and the global nature of our workforce and our operations, but we have not experienced significant financial impact directly related to the pandemic.

We have prioritized the health and safety of our employees and customers in our pandemic response.

As governmental authorities implement restrictions on commercial operations, we have continued to ensure compliance with these directives while also maintaining business continuity for our essential operations.

We have a global workforce.

manufacturing is conducted solely in the U.S., we maintain offices in the United States, South Korea, Japan, Taiwan, China, Singapore and Europe.

Our operation s at these offices are subject to various governmental directives and, as a result thereof, we have instituted a work-from-home policy for these employees to the extent practical.

Where our essential employees are required to continue to report to work to perform their responsibilities, we have implemented staggered shifts or otherwise adjusted work schedules to maximize our operating capacity while adhering to applicable restrictions, including recommended distancing between persons.

We have also provide d our essential employees with appropriate protective equipment and have enhanced and increased cleanings at our facilities.

At this time, we have not experienced any reduction in productivity, though we have incurred certain costs related to the implement ation of these policies and practices.

We may take further actions that we determine to be in the best interests of our employees or as may be required by federal, state, or local authorities.

We cannot at this time predict the impact that the COVID-19 pandemic will have on our financial condition and operations, although we are continuing to monitor our supply chain and orders from customers for COVID-19-related changes.

Disruptions to our supply chain in connection with the sourcing of materials, equipment and engineering support, and services from geographic areas that have been impacted by COVID-19 may pose risks to our business, results of operations and financial condition.

In this time of uncertainty as a result of the COVID-19 pandemic, we are continuing to serve our customers while taking every precaution to provide a safe work environment for our employees and customers.

To date the COVID-19 pandemic has disrupted the way that we conduct business, but has not had a material adverse impact on our operations.

However, the extent of the pandemic’s effect on our operational and financial performance will depend in large part on future developments, which cannot be predicted with confidence at this time.

Future developments include the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, such as the extent of restrictions on gatherings and travel, the impact on governmental programs and budgets, the development of treatments or vaccines, and the resumption of widespread economic activity.

Trade tensions between the United States and China may escalate as a result of COVID-19 or otherwise and could result in the imposition of additional tariffs, trade restrictions or policy changes, any of which could increase costs of our product components and pricing of, and consumer demand for, our products, which could have a negative effect on our results of operations.

Although the inherent uncertainty of the unprecedented and rapidly evolving crisis makes it difficult to predict with any confidence the likely impact on our future operations, the COVID-19 pandemic could have a material adverse impact on our consolidated business, results of operations and financial condition.

For a discussion of certain risks related to COVID-19 and the international nature of our business and our operations, see Part II, Item 1A – Risk Factors of this Form 10-Q, Part II, Item 1A – Risk Factors of our Q1 2020 Form 10-Q and Part I, Item 1A of our 2019 Form 10-K..

Critical Accounting Policies

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For more information, please see our critical accounting policies as previously disclosed in our 2019 Form 10-K and recent accounting pronouncements discussed in Note 1 to the Condensed Consolidated Financial Statements.

Executive Summary

We are a worldwide leader in the design, development, manufacture and support of process control tools that perform macro-defect inspection and metrology, lithography systems, and process control analytical software used by semiconductor and advanced packaging device manufacturers.

We deliver comprehensive solutions throughout the semiconductor fabrication process with our families of proprietary products that provide critical yield-enhancing information, enabling microelectronic device manufacturers to drive down costs and time to market of their devices.

We provide process and yield management solutions used in both wafer processing facilities, often referred to as “front-end” and device packaging and test facilities, or “back-end” manufacturing, through a portfolio of standalone systems for macro-defect inspection, lithography, probe card test and analysis, and transparent and opaque thin film measurements.

All of our systems feature sophisticated software and production-worthy automation.

In addition, our advanced process control software portfolio includes powerful solutions for standalone tools, groups of tools, or factory-wide suites to enhance productivity and achieve significant cost savings.

Our systems are backed by worldwide customer service and applications support.

Historically, a significant portion of our revenue in each quarter and year has been derived from sales to relatively few customers, and we expect this trend to continue.

For the six months ended June 27, 2020 and for the years ended December 31, 2019, 2018 and 2017, aggregate sales to customers that individually represented at least five percent of our revenue accounted for 55.1%, 42.7%, 18.3%, and 27.2% of our revenue, respectively.

Results of Operations for the Three and Six Months Ended June 27, 2020 and June 30, 2019

We deliver comprehensive solutions throughout the semiconductor fabrication

process with our families of proprietary products that provide critical yield-enhancing information, enabling microelectronic device manufacturers to drive down costs and time to market of the ir devices.

We provide process and yield management solutions used in both wafer processing facilities, often referred to as “front-end,” and in device packaging and test facilities, commonly referred to as “back-end” manufacturing.

Our advanced process co ntrol software portfolio includes powerful solutions for standalone tools, groups of tools, or factory-wide suites to enhance productivity and achieve significant cost savings.

In the first nine months of 2020, we completed integration activities and launched four new metrology systems into the marketplace.

These new products were introduced as logic and foundry customers were increasing their capacity while following aggressive plans to transition their manufacturing to smaller nodes.

Customer interactions centered around satisfying the immediate demand for logic devices with our existing product portfolio, while partnering with R&D groups to prepare for the process controls needed for the next generation of semiconductors that will require the latest systems from us.

Our strong engineering teams have, and will continue to, deliver new products to our customers, followed by our field engineers providing customer support, while simultaneously achieving and surpassing our cost synergy targets that were established at the onset of our Merger.

The following table summarizes certain key financial information for the periods indicated below (in thousands, except per share and percent data):

Three Months Ended

September 26,

September 30,

Gross profit as a percent of revenue

Total operating expenses

Diluted earnings per share

(1) The results for September include the results for Rudolph Technologies only.

In the September 2020 quarter, revenue decreased 6.3% compared to the June 2020 quarter, primarily due to the timing in spending by two of our top metrology customers in the September 2020 quarter after significant equipment purchases in the first half of the year.

The increase in gross margin as a percentage of revenue in the September 2020 quarter compared to the June 2020 quarter was primarily driven by strengthening product margins across several product lines and record service revenues in the September 2020 quarter.

In addition, lower merger related expenses in the September 2020 quarter contributed to the margin improvement.

The decrease in operating expenses in the September 2020 quarter compared to the June 2020 quarter was mainly driven by a decrease in employee-related expenses resulting from employees taking Paid Time Off (PTO) during the September 2020 quarter as employees began taking vacations, which in previous quarters were low due to COVID-19.

In addition, we completed a milestone in a contracted R&D project, which lowered expenses in the quarter.

Finally, we continue to control our headcount as we focus on identifying additional synergies from the Merger.

Our cash, cash equivalents and marketable securities balance increased to $340.4 million at the end of the September 2020 quarter compared to $320.2 million at the end of the December 2019 quarter.

This increase was primarily the result of $72.9 million of cash generated from operating activities and $2.8 million of cash received from convertible notes.

These sources of cash were partially offset by $52.7 million of share repurchases, including net share settlement on employee stock-based compensation;

and $3.4 million of capital expenditures.

Employee headcount as of September 26, 2020 was approximately 1,250.

Key Events in Fiscal 2020

Trade Restriction and Emerging Regulation.

On April 28, 2020, the U.S.

Department of Commerce’s Bureau of Industry and Security (“BIS”) issued new rules that require increased investigation of our customers’ end users in China.

Further, on May 15, 2020, BIS announced new Export Administration Regulations (“EAR”) specifically applicable to Huawei Technologies Co., Ltd.

and its affiliates.

We have assessed the potential impact of the new BIS rules and EAR, and do not believe that they will have a material direct impact on our business, financial condition or results of operations, however

additional companies in China are being considered as potential military suppliers and these new additions may have a mater ial impact to our sales in China.

Impact of the COVID-19 Pandemic on Our Business .

The spread of the COVID-19 during 2020 has caused an economic downturn on a global scale, as well as significant volatility in the financial markets.

As of November 2, 2020, our operations have been impacted by our pandemic response, as described below, and the global nature of our workforce and our operations, but we have not experienced significant financial impact directly related to the pandemic.

We have prioritized the health and safety of our employees and customers in our pandemic response.

We have a global workforce.

Although our manufacturing is conducted solely in the U.S., we maintain offices in the United States, South Korea, Japan, Taiwan, China, Singapore and Europe.

Our operations at these offices are subject to various governmental directives and, as a result thereof, we have instituted a work-from-home policy for these employees to the extent practical.

We have also provided our essential employees with appropriate protective equipment and have enhanced and increased cleanings at our facilities.

At this time, we have not experienced any reduction in productivity, though we have incurred certain costs related to the implementation of these policies and practices.

We may take further actions that we determine to be in the best interests of our employees or as may be required by federal, state, or local authorities.

To date the COVID-19 pandemic has disrupted the way that we conduct business, but has not had a material adverse impact on our operations.

However, the extent of the pandemic’s effect on our operational and financial performance will depend in large part on future developments, which cannot be predicted with confidence at this time.

For a discussion of certain risks related to the international nature of our business and our operations and the COVID-19 pandemic, see Part II, Item 1A – Risk Factors of this Form 10-Q, Part II, Item 1A – Risk Factors of our Form 10-Q for the fiscal quarters ended March 28 and June 27, 2020 and Part I, Item 1A of our 2019 Form 10-K.

Results of Operations for the Three and Nine Months Ended September 26, 2020 and September 30, 2019

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

Our revenue of $134.9 million increased 119.4% for the three months ended June 27, 2020 as compared to the same period in 2019, in which revenue totaled $61.5 million.

For the six month periods ended June 30, 2020 and 2019, our revenue totaled $274.9 million and $122.4 million, respectively, representing a year-over-year increase of 124.6%.

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

Our revenue of $126.5 million increased 101.0% for the three months ended September 26, 2020 as compared to the three months ended September 30, 2019, in which revenue totaled $62.9 million.

For the nine month periods ended September 26, 2020 and September 30, 2019, our revenue totaled $401.4 million and $185.3 million, respectively, representing a year-over-year increase of 116.6%.

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

Three Months Ended

Six Months Ended

Nine Months Ended

September 26,

September 30,

September 26,

September 30,

Systems and software

Total revenue

Total systems and software revenue increased $121.2 million for the six months ended June 27, 2020 as compared to the six months ended June 30, 2019 primarily due to the inclusion of revenue from legacy Nanometrics for the first half of 2020.

The year-over-year change in systems revenue was primarily due to the inclusion of $116.4 million of revenue from legacy Nanometrics for the period.

The year-over-year increase in parts and services revenue in absolute dollars from the six months ended June 30, 2019 to the six months ended June 27, 2020 was primarily due to the inclusion of $31.1 million of parts and service revenue from legacy Nanometrics for the period.

Total systems and software revenue increased $166.9 million for the nine months ended September 26, 2020 as compared to the nine months ended September 30, 2019 primarily due to the inclusion of revenue from legacy Nanometrics for the first three quarters of 2020.

The year-over-year change in systems revenue was primarily due to the inclusion of $155.6 million of revenue from legacy Nanometrics for the period and an increase in legacy Rudolph systems and software of $11.3 million.

The year-over-year increase in parts and services revenue in absolute dollars from the nine months ended September 30, 2019 to the nine months ended September 26, 2020 was primarily due to the inclusion of $47.4 million of parts and service revenue from legacy Nanometrics for the period and an increase in legacy Rudolph parts and services of $1.8 million.

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

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Our gross profit has been and will 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 $71.6 million and $134.2 million for the three and six months ended June 27, 2020, respectively, as compared to $31.9 million and $63.9 million for the three and six months ended June 30, 2019, respectively.

Our gross profit represented 53.0% and 48.8% of our revenue for the three and six months ended June 27, 2020, respectively, and 51.9% and 52.2% for the three and six months ended June 30, 2019, respectively.

The decrease in gross profit as a percentage of revenue for the six months ended June 27, 2020, as compared to the six months ended June 30, 2019, is primarily due charges to cost of goods sold of $10.2 million for the sale of inventory written-up to fair value upon the Merger.

Our gross profit was $68.9 million and $203.1 million for the three and nine months ended September 26, 2020, respectively, as compared to $31.5 million and $95.4 million for the three and nine months ended September 30, 2019, respectively.

Our gross profit represented 54.5% and 50.6% of our revenue for the three and nine months ended September 26, 2020, respectively, and 50.1% and 51.5% for the three and nine months ended September 30, 2019, respectively.

The decrease in gross profit as a percentage of revenue for the nine months ended September 26, 2020, as compared to the nine months ended September 30, 2019, is primarily due charges to cost of goods sold of $10.2 million for the sale of inventory written-up to fair value upon the Merger.

Operating Expenses.

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

Our research and development expenses were $22.2 million and $43.1 million for the three and six months ended June 27, 2020, respectively, as compared to $10.7 million and $21.2 million for the three and six months ended June 30, 2019, respectively.

The year-over-year dollar increase from the 2019 period to the 2020 period was primarily due to the inclusion in the 2020 period of $23.1 million in research and development expense of legacy Nanometrics resulting from the Merger.

Our research and development expenses were $19.7 million and $62.8 million for the three and nine months ended September 26, 2020, respectively, as compared to $10.5 million and $31.7 million for the three and nine months ended September 30, 2019, respectively.

The year-over-year dollar increase for the nine month period ended September 26, 2020 as compared to the nine month period ended September 30, 2019 was primarily due to the inclusion in the 2020 period of $33.0 million in research and development expense of legacy Nanometrics resulting from the Merger.

We continue to maintain our commitment to investing in new product development and enhancement to existing products.

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

Our sales and marketing expenses were $11.9 million and $24.9 million for the three and six months ended June 27, 2020, respectively, as compared to $5.8 million and $10.5 million for the three and six months ended June 30, 2019, respectively.

The year-over-year dollar increase in sales and marketing expenses from the 2019 period to the 2020 period was primarily due to the inclusion in the 2020 period of $16.0 million in sales and marketing expenses of legacy Nanometrics resulting from the Merger.

Our sales and marketing expenses were $11.9 million and $36.9 million for the three and nine months ended September 26, 2020, respectively, as compared to $5.1 million and $15.6 million for the three and nine months ended September 30, 2019, respectively.

The year-over-year dollar increase in sales and marketing expenses for the nine month period ended September 26, 2020 as compared to the nine month period ended September 30, 2019 was primarily due to the inclusion in the 2020 period of $23.7 million in sales and marketing expenses of legacy Nanometrics resulting from the Merger.

General and Administrative .

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

Our general and administrative expenses were $15.9 million and $36.1 million for the three and six months ended June 27, 2020, respectively, as compared to $9.6 million and $18.4 million for the three and six months ended June 30, 2019, respectively.

The year-over-year dollar increase in general and administrative expenses from the 2019 period to the 2020 period was primarily due to the inclusion in the 2020 period of $17.9 million in general and administrative expenses of legacy Nanometrics resulting from the Merger.

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

Our general and administrative expenses were $14.4 million and $50.4 million for the three and nine months ended September 26, 2020, respectively, as compared to $10.3 million and $28.7 million for t he three and nine months ended September 30, 2019, respectively.

The year-over-year dollar increase in general and administrative expenses for the nine month period ended September 26, 2020 as compared to the nine month period ended September 30, 2019 was primarily due to the inclusion in the 2020 period of $24.6 million in general and administrative expenses of legacy Nanometrics resulting from the Merger.

Amortization of Identifiable Intangible Assets .

Amortization of identifiable intangible assets was $13.7 million and $27.4 million for the three and six months ended June 27, 2020, respectively, as compared to $0.4 million and $0.8 million for the same periods in 2019.

The year-over-year increase in amortization expense from the 2019 period to the 2020 period was due to additional amortization recorded in the 2020 period associated with additional purchased intangible assets recorded as a result of the Merger .

Amortization of identifiable intangible assets was $13.6 million and $41.1 million for the three and nine months ended September 26, 2020, respectively, as compared to $0.4 million and $1.2 million for the same periods in 2019.

The year-over-year increase in amortization expense for the nine month period ended September 26, 2020 as compared to the nine month period ended September 30, 2019 was due to additional amortization recorded in the 2020 period associated with purchased intangible assets recorded as a result of the Merger .

Interest income, net .

Net interest income was $0.7 million and $1.9 million for the three and six months ended June 27, 2020, respectively, as compared to $0.9 million and $1.7 million for the same periods in 2019.

The decrease in interest income for the three months ended June 27, 2020 as compared to the three months ended June 30, 2020 was primarily due to lower interest rates in the 2020 period.

The increase in net interest income for the six months ended June 27, 2020 as compared to the six months ended June 30, 2019 was due to interest earned on our marketable securities and additional interest income on a higher marketable securities balance following the Merger.

Net interest income was $0.5 million and $2.4 million for the three and nine months ended September 26, 2020, respectively, as compared to $1.0 million and $2.7 million for the same periods in 2019.

The decrease in net interest income for the three and nine months ended September 26, 2020 as compared to the three and nine months ended September 30, 2019 was due to lower interest rates during the 2020 period, partially offset by additional interest income on a higher marketable securities balance following the Merger.

Income Taxes .

We recorded an income tax benefit of $6 thousand and income tax provision of $0.4 million for the three and six months ended June 27, 2020 respectively, as compared to income tax provision of $0.6 million and $1.8 million for the same periods in 2019.

Our effective tax rate of 12% differs from the statutory rate of 21% for the six months ended June 27, 2020 primarily due to computed research and development credits on forecasted earning levels, the deduction related to foreign derived intangible income (FDII), as well as a one-time provision for additional withholding tax related to a dividend distribution from the Company’s Korea subsidiary, offset by a one-time benefit related to the filings of our 2019 foreign income tax returns.

Our effective tax rate of (0.1%) differs from the statutory rate of 21% for the three months ended June 27, 2020 primarily due to computed research and development credits on forecasted earning levels, the deduction related to foreign derived intangible income (FDII), as well as a one-time benefit related to the filings of our 2019 foreign income tax returns.

We recorded an income tax provision of $0.8 million and $1.2 million for the three and nine months ended September 26, 2020 respectively, as compared to income tax provision of $0.3 million and $2.2 million for the three and nine months ended September 30, 2019.

Our effective tax rate of 10% differs from the statutory rate of 21% for the nine months ended September 26, 2020 primarily due to computed research and development credits on forecasted earning levels, the deduction related to foreign derived intangible income (FDII), as well as a one-time provision for additional withholding tax related to a dividend distribution from the Company’s Korea subsidiary, offset by a one-time benefit related to the filings of our 2019 foreign income tax returns.

Our effective tax rate of 9% differs from the statutory rate of 21% for the three months ended September 26, 2020 primarily due to computed research and development credits on forecasted earning levels, the deduction related to foreign derived intangible income (FDII), as well as a one-time benefit related to the filings of our 2019 foreign income tax returns.

Our future effective income tax rate depends on various factors, such as possible further 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.

We currently have a partial valuation allowance recorded for certain foreign a nd state loss and credit carryforwards where the realizability of such deferred tax assets is substantially in doubt.

Each quarter we assess the likelihood that we will be able to recover our deferred tax assets primarily relating to state research and de velopment credits.

We consider available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in ass essing the need for a valuation allowance.

We currently have a partial valuation allowance recorded for certain foreign and state loss and credit carryforwards where the realizability of such deferred tax assets is substantially in doubt.

Each quarter we assess the likelihood that we will be able to recover our deferred tax assets primarily relating to state research and development credits.

As a result of our analysis, we concluded that it is more likely than not that a portion of our net deferred tax assets will not be realized.

Therefore, we continue to provide a valuation allowance against certa in net deferred tax assets.

Therefore, we continue to provide a valuation allowance against certain net deferred tax assets.

We continue to monitor available evidence and may reverse some or all of the valuation allowance in future periods, if appropriate.

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Liquidity and Capital Resources

At June 27, 2020, we had $312.1 million of cash, cash equivalents and marketable securities and $546.2 million in working capital.

At September 26, 2020, we had $340.4 million of cash, cash equivalents and marketable securities and $579.5 million in working capital.

At December 31, 2019, we had $320.2 million of cash, cash equivalents and marketable securities and $555.9 million in working capital.

Operating activities provided $46.9 million in net cash and cash equivalents for the six months ended June 27, 2020.

The net cash and cash equivalents provided by operating activities during the six months ended June 27, 2020 resulted primarily from net income, adjusted to exclude the effect of non-cash operating charges, of $59.8 million, partially offset by a decrease in cash provided from operating assets and liabilities of $12.9 million.

Operating activities provided $9.8 million in net cash and cash equivalents for the six months ended June 30, 2019.

The net cash and cash equivalents provided by operating activities during the six months ended June 30, 2019 resulted primarily from net income, adjusted to exclude the effect of non-cash operating charges of $20.9 million, partially offset by a decrease in cash provided from operating assets and liabilities of $11.1 million.

Investing activities provided net cash and cash equivalents of $7.3 million during the six months ended June 27, 2020 through proceeds from sales of marketable securities of $147.5 million and cash received from convertible note receivable of $2.8 million, partially offset by purchases of marketable securities of $140.4 million and capital expenditures of $2.6 million.

Net cash and cash equivalents of $7.7 million were used in investing activities during the six months ended June 30, 2019 primarily for the purchases of marketable securities of $38.2 million and capital expenditures of $2.7 million, offset by proceeds from sales of marketable securities of $33.2 million.

Net cash and cash equivalents used in financing activities during the six months ended June 27, 2020 of $55.5 million resulted from the purchase of shares of our common stock under a share repurchase authorizations of $52.0 million, tax payments related to shares withheld for share-based compensation plans of $3.3 million and payment of contingent consideration for acquired business of $0.4 million, partially offset by proceeds from sales of shares through share-based compensation plans of $0.2 million.

For the six months ended June 30, 2019, financing activities used $2.5 million, which resulted from payment of contingent consideration for acquired business of $1.1 million, the purchase of shares of our common stock under Rudolph’s previous share repurchase authorizations of $0.7 million and tax payments related to shares withheld for share-based compensation plans of $0.7 million, partially offset by proceeds from sales of shares through share based compensation plans of $0.2 million.

Operating activities provided $72.9 million in net cash and cash equivalents for the nine months ended September 26, 2020.

The net cash and cash equivalents provided by operating activities during the nine months ended September 26, 2020 resulted primarily from net income, adjusted to exclude the effect of non-cash operating charges, of $91.2 million, partially

offset by a decrease in cash provided from operating assets and liabilities of $18.3 million.

Operating activities provided $24.9 million in net cash and cash equivalents for the nine months ended September 30, 2019.

The net cash and cash equivalents provided by oper ating activities during the nine months ended September 30, 2019 resulted primarily from net income, adjusted to exclude the effect of non-cash operating charges of $31.0 million, partially offset by a decrease in cash provided from operating assets and li abilities of $6.1 million.

Investing activities used net cash and cash equivalents of $49.7 million during the nine months ended September 26, 2020 resulting from purchases of marketable securities of $250.9 million and capital expenditures of $3.4 million, partially offset by proceeds from sales of marketable securities of $201.8 million and cash received from convertible note receivable of $2.8 million.

Net cash and cash equivalents of $5.1 million were provided by investing activities during the nine months ended September 30, 2019 through proceeds from sales of marketable securities of $62.2 million, partially offset by purchases of marketable securities of $52.9 million and capital expenditures of $4.2 million.

Net cash and cash equivalents used in financing activities during the nine months ended September 26, 2020 of $53.1 million resulted from the purchase of shares of our common stock under a share repurchase authorizations of $52.0 million, tax payments related to shares withheld for share-based compensation plans of $3.5 million and payment of contingent consideration for acquired business of $0.4 million, partially offset by proceeds from sales of shares through share-based compensation plans of $2.8 million.

For the nine months ended September 30, 2019, financing activities used $2.3 million resulting from the payment of contingent consideration for an acquired business of $1.1 million, the purchase of shares of our common stock under share repurchase authorizations of $0.7 million and tax payments related to shares withheld for share-based compensation plans of $0.8 million, partially offset by proceeds from sales of shares through share-based compensation plans of $0.3 million.

From time to time, we evaluate whether to acquire new or complementary businesses, products and/or technologies.

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Under the terms of this share repurchase authorization, shares may be repurchased through open market or privately negotiated transactions.

During the three and six months ended June 27, 2020, we repurchased 0.6 million and 1.9 million shares of common stock under this repurchase authorization and those shares were subsequently retired.

At June 27, 2020, there was $28.0 million available for future share repurchases .

During the nine months ended September 26, 2020, we repurchased 1.9 million shares of common stock under this repurchase authorization and those shares were subsequently retired.

At September 26, 2020, there was $28.0 million available for future share repurchases .

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 June 27, 2020, the available line of credit was approximately $75.6 million with an available interest rate of 1.8%.

As of September 26, 2020, the available line of credit was approximately $71.2 million with an available interest rate of 1.8%.

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

To date, we have not utilized the line of credit.

Our future capital requirements will depend on many factors, including the timing and amount of our revenue and our investment decisions, which will affect our abil ity to generate additional cash.

Our future capital requirements will depend on many factors, including the timing and amount of our revenue and our investment decisions, which will affect our ability to generate additional cash.

In addition, a lthough the ultimate impact of the recent COVID-19 pandemic on our future results remains uncertain, we believe our business model and our current cash reserves leave us well-positioned to manage our business through this crisis as it continues to unfold.

We expect that our existing cash, cash equivalents, marketable securities and availability under our line of credit will be sufficient to meet our anticipated cash requirements for working capital, capital exp enditures and other cash needs for the next 12 months following the filing of this Form 10-Q.

We expect that our existing cash, cash equivalents, marketable securities and availability under our line of credit will be sufficient to meet our anticipated cash requirements for working capital, capital expenditures and other cash needs for the next 12 months following the filing of this Form 10-Q.

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.

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Our borrowing capacity under our existing line of credit is tied to the value of eligible securities held at the time of borrowing, which may be negatively impacted by market conditions due to COVID-19 and government responses thereto.

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

In addition, a reduction in or volatility with respect to our stock price or the 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.

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 2. Management’s Discussion and Analysis