What changed in this filing

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Item 1. Financial Statements

2021-04-29 compared with 2020-11-02 · 131 added, 296 removed, 378 unchanged (53% of the section changed)

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 26,

September 30,

September 26,

September 30,

Cost of revenue

4 unchanged sentences

Total operating expenses

Operating income

Operating income (loss)

Interest income, net

Other (expense) income, net

Income before provision for income taxes

Income (loss) before provision for income taxes

Provision for income taxes

Earnings per share:

Net income (loss)

Earnings (loss) per share:

Weighted average shares outstanding:

1 unchanged sentence

ONTO INNOVATION INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

Three Months Ended

Nine Months Ended

September 26,

September 30,

September 26,

September 30,

Other comprehensive income (loss), net of tax:

Change in net unrealized (losses) gains on

Net income (loss)

Other comprehensive loss, net of tax:

Change in net unrealized losses on

available-for-sale marketable securities

Change in currency translation adjustments

Total other comprehensive income (loss), net of tax

Total comprehensive income

Total other comprehensive loss, net of tax

Total comprehensive income (loss)

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

2 unchanged sentences

(In thousands)

September 26,

Current Assets:

21 unchanged sentences

Additional paid-in capital

Accumulated other comprehensive income (loss)

Retained earnings (accumulated deficit)

Accumulated other comprehensive income

Retained earnings

Total stockholders’ equity

4 unchanged sentences

(In thousands)

Nine Months Ended

September 26,

September 30,

Three Months Ended

Cash flows from operating activities:

Net income (loss)

Adjustments to reconcile net income to net cash and cash equivalents provided by

1 unchanged sentence

Amortization of intangibles

Foreign currency exchange loss (gain)

Share-based compensation

Acquired inventory step-up amortization

Provision for doubtful accounts and inventory valuation

Changes in operating assets and liabilities

Provision for inventory valuation

Changes in operating assets and liabilities, net of effects of business acquired

Net cash and cash equivalents provided by operating activities

2 unchanged sentences

Proceeds from sales of marketable securities

Cash received from convertible note receivable

Purchase of business, net of cash acquired

Purchases of property, plant and equipment

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

Net cash and cash equivalents used in investing activities

Cash flows from financing activities:

1 unchanged sentence

Tax payments related to shares withheld for share-based compensation plans

Payment of contingent consideration for acquired business

Issuance of shares through share-based compensation plans

Net cash and cash equivalents used in financing activities

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

Effect of exchange rate changes on cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

1 unchanged sentence

Supplemental disclosure of cash flow information:

Income taxes paid (refunded)

Income taxes paid

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

4 unchanged sentences

Comprehensive

Retained Earnings (Accumulated

Income (Loss)

Balance at December 26, 2020

Issuance of shares through share-based

compensation plans, net

Repurchase of common stock

Share-based compensation

Share-based compensation plan

Currency translation

Unrealized loss on investments

Balance at March 28, 2020

Issuance of shares through share-based

compensation plans, net

Repurchase of common stock

Share-based compensation

Share-based compensation plan

Currency translation

Unrealized gain on investments

Balance at June 27, 2020

Issuance of shares through share-based

compensation plans, net

Share-based compensation

compensation plans

Share-based compensation plan

1 unchanged sentence

Unrealized loss on investments

Balance at September 26, 2020

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

ONTO INNOVATION INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

(In thousands)

Balance at March 27, 2021

Additional Paid-in

Comprehensive

Retained Earnings (Accumulated

Balance at December 31, 2019

Issuance of shares through share-based

compensation plans, net

Repurchase of common stock

Share-based compensation

Share-based compensation plan

Currency translation

Unrealized gain on investments

Balance at March 31, 2019

Issuance of shares through share-based

compensation plans, net

Share-based compensation

Share-based compensation plan

Currency translation

Unrealized gain on investments

Balance at June 30, 2019

Issuance of shares through share-based

compensation plans, net

Share-based compensation

compensation plans

Share-based compensation plan

Currency translation

Balance at September 30, 2019

Unrealized loss on investments

Balance at March 28, 2020

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

3 unchanged sentences

Basis of Presentation

The Company operates on a 52- or 53-week fiscal year ending on the Saturday closest to December 31 st .

Our fiscal year ending January 1, 2022 (“fiscal year 2021”) is a 53-week fiscal year.

The first quarter of the Company’s fiscal year 2021 ended on March 27, 2021 (“first quarter 2021”), the second quarter ends on June 26, 2021 and the third quarter ends on September 25, 2021.

Our fiscal year ended December 26, 2020 (“fiscal year 2020”) was a 52-week fiscal year.

The accompanying interim unaudited Condensed Consolidated Financial Statements have been prepared by Onto Innovation Inc., together with its consolidated subsidiaries, unless otherwise specified or suggested by the context, (the “Company,” or “Onto Innovation”, “we”, “our”, or “us”) and in the opinion of management reflect all adjustments, consisting of normal recurring accruals, necessary for their fair presentation in accordance with accounting principles generally accepted in the United States of America (“U.S.

1 unchanged sentence

Actual amounts could differ materially from reported amounts.

The interim results for the three and nine months ended September 26, 2020 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, 2019 (“2019 Form 10-K”) filed with the Securities and Exchange Commission (“SEC”) on February 25, 2020.

The interim results for the three months ended March 27, 2021 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 26, 2020 (the “2020 Form 10-K”) filed with the Securities and Exchange Commission (“SEC”) on February 19, 2021.

The accompanying Condensed Consolidated Balance Sheet at December 26, 2020 has been derived from the audited consolidated financial statements included in the 2020 Form 10-K.

As further discussed in Note 2 of the Notes to the Condensed Consolidated Financial Statements, Rudolph Technologies, Inc.

(“Rudolph”) and Nanometrics Incorporated (“Nanometrics”) completed a merger effective October 25, 2019 (the “Merger”).

Upon consummation of the Merger, the combined company was renamed Onto Innovation Inc.

The Merger was accounted for as a reverse acquisition where Rudolph was the accounting acquirer and Nanometrics was the legal acquirer in accordance with Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations”.

Accordingly, Rudolph’s historical results of operations replaced the Nanometrics historical results of operations for all periods prior to the Merger.

Specifically, the accompanying Condensed Consolidated Financial Statements for all periods prior to the Merger are those of Rudolph and for the period after the Merger, also include Nanometrics.

The Condensed Consolidated Financial Statements reflect the assets and liabilities of Rudolph at historical cost basis and the assets and liabilities of Nanometrics are reflected at fair value under the acquisition method.

While Rudolph applied the acquisition method of accounting to Nanometrics, the legal capital in the current and prior periods has been retroactively adjusted to reflect the legal capital of Nanometrics.

Accordingly, earnings per share has been retroactively restated for periods prior to the merger date.

On February 28, 2020, the Company’s Board of Directors determined it is in the best interests of the Company to change its fiscal year end from December 31 to a 52-53 week fiscal year ending on the Saturday closest to December 31.

The change is intended to align the Company’s fiscal periods more closely with industry peers and improve comparability.

The Company made the fiscal year change on a prospective basis and has not adjusted operating results for prior periods.

The change affects the prior year comparability of the Company’s fiscal quarters in 2020 and results in shifts in the quarterly periods, which has not had, and is not expected to have, a material impact on quarterly financial results.

The third fiscal quarter of 2020 began on June 28, 2020 and ended September 26, 2020 and is referred to throughout this Quarterly Report on Form 10-Q as the “three months ended September 26, 2020” or the “third quarter of 2020.” The Company’s current fiscal year will end on December 26, 2020.

Reclassifications

In conjunction with the Merger, the Company assessed the need to realign its financial statement presentation and certain income statement classifications were adjusted with prior periods reclassified to conform with current period presentation.

The changes made were as follows:

Amounts related to sales and marketing are now presented on a separate line on the Condensed Consolidated Statements of Operations and were previously reported under the caption “Selling, general and administrative.”

Amounts related to applications engineering are now presented under the caption, “Sales and marketing” on the Condensed Consolidated Statements of Operations and were previously reported under the caption “Research and development.”

Use of Estimates

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the

date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

Significant estimates made by management that are evaluated on an ongoing basis include the allowances for doubtful accounts and convertible notes receivable, excess and obsolete inventory, fair value of assets acquired and liabilities assumed in a business combination, recoverability and useful lives of property, plant and equipment and identifiable intangible assets, recoverabilit y of goodwill, recoverability of deferred tax assets, liabilities for product warranty, contingencies, including litigation reserves, share-based payments and liabilities for tax uncertainties.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

Significant estimates made by management that are evaluated on an ongoing basis include the allowances for credit losses, excess and obsolete inventory, fair value of assets acquired and liabilities assumed in a business combination, recoverability and useful lives of property, plant and equipment and identifiable intangible assets, recoverability of goodwill, recoverability of deferred tax assets, liabilities for product warranty and contingencies, including litigation reserves, share-based payments and liabilities for tax uncertainties.

Actual results could differ from those estimates.

These estimates and assumptions are based on historical experience and on various other factors which the Company believes to be reasonable under the circumstances.

The Company may engage third-party valuation specialists to assist with estimates related to the valuation of financial instruments, assets and stock awards associated with various contractual arrangements.

The Company may engage third-party valuation specialists to assist with estimates related to the valuation of financial instruments, fair value of assets acquired and liabilities assumed in a business combination and stock awards.

Such estimates often require the selection of appropriate valuation methodologies and significant judgment.

Actual results could differ from these estimates under different assumptions or circumstances and such differences could be material.

The Company also assessed the impacts of COVID-19 on the above accounting matters as of September 26, 2020 and through the date of this report.

While there was not a material impact as of and for the quarter ended September 26, 2020, future actual magnitude and duration of COVID-19, as well as other associated factors, could result in material negative impacts to its condensed consolidated financial statements in future reporting periods.

The Company also assessed the impacts of COVID-19 on the above accounting matters as of March 27, 2021 and through the date of this report.

While there was not a material impact as of and for the quarter ended March 27, 2021, future actual magnitude and duration of the COVID-19 pandemic, as well as other associated factors, could result in material negative impacts to the Company’s condensed consolidated financial statements in future reporting periods.

Recent Accounting Pronouncements

Recently Adopted

Effective January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No.

2018-13, “Fair Value Measurement (Topic 820):

Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” This ASU is part of the Financial Accounting Standard Board’s (“FASB”) larger disclosure framework project intended to improve the effectiveness of financial statement footnote disclosure.

2018-13 modifies required fair value disclosures related primarily to Level 3 investments.

This ASU is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods.

The adoption of ASU No.

2018-13 did not have a material impact on the Company’s consolidated financial position, results of operations, and cash flows.

Effective January 1, 2020, the Company adopted ASU No.

2017-09, “Compensation - Stock Compensation (Topic 718):

Scope of Modification Accounting.” This ASU amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Accounting Standards Codification (“ASC”) 718.

The ASU is effective for the fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years.

The adoption of ASU No.

2017-09 did not have a material impact on the Company’s consolidated financial position, results of operations, and cash flows.

Effective January 1, 2020, the Company adopted ASU No.

2016-13, “Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments,” which represents a credit loss standard that changes the impairment model for most financial assets and certain other financial instruments.

Specifically, this guidance requires entities to utilize a new “expected loss” model as it relates to trade receivables, notes receivable and other commitments to extend credit held by a reporting entity .

In addition, entities are required to recognize an allowance for estimated credit losses on available-for-sale debt securities, regardless of the length of time that a security has been in an unrealized loss position.

This guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual reporting periods, with early adoption permitted.

The adoption of ASU No.

2016-13 did not have a material impact on the Company’s consolidated financial position, results of operations, and cash flows.

Recently Issued

In December 2019, the FASB issued ASU No.

Effective December 27, 2020, the Company adopted Accounting Standards Update (“ASU”) No.

2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.” This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill and allocating consolidated income taxes to separate financial statements of entities not subject to income tax.

2019-12 is effective for fiscal years beginning after December 15, 2020, with early adoption permitted.

Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption.

The Company is currently evaluating the impact of this new standard on its consolidated financial position, results of operations, and cash flows.

Recently issued accounting guidance not discussed above is not applicable or is not expected to have a material impact to the Company’s c onsolidated financial position, results of operations, and cash flows.

Simplifying the Accounting for Income Taxes.” This standard simplified the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

The new guidance also simplified aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarified the accounting for transactions that resulted in a step-up in the tax basis of goodwill and allocating consolidated income taxes to separate financial statements of entities not subject to income tax.

The adoption of ASU No.

2019-12 did not have a significant impact on the Company’s consolidated financial position, results of operations, and cash flows.

Business Combination

Rudolph and Nanometrics completed the Merger effective October 25, 2019.

The Company accounted for the Merger as a reverse acquisition, using the acquisition method of accounting in accordance with U.S.

GAAP, with Rudolph being treated as the accounting acquiring entity.

The acquired assets and liabilities of Nanometrics were recorded at their respective fair values including an amount for goodwill, which represents the purchase price paid in excess of the fair value of the net tangible and intangible assets acquired and liabilities assumed, and is attributable primarily to expected synergies, economies of scale and the assembled workforce of Nanometrics.

The following table summarizes the preliminary allocation of the total purchase consideration to the initial estimated fair values of the assets acquired and liabilities assumed as of October 25, 2019, as well as adjustments aggregating $ 0 and $ 478 to other non-current liabilities during the three and nine months ended September 26, 2020:

Inspectrology, LLC

On December 31, 2020 , the Company acquired Inspectrology, LLC (“Inspectrology”), a leading supplier of overlay metrology for controlling lithography and etch processes in the compound semiconductor market for $ 27,015 in cash and a potential earnout of $ 10,000 , subject to achievement of certain revenue targets earned for fiscal 2021 and 2022.

Certain payments, including the earnout, are subject to the principals remaining with the Company for a period of one to three years

The following table summarizes the preliminary fair values of assets acquired and liabilities assumed at the date of acquisition:

Cash and cash equivalents

Marketable securities

Account receivables

1 unchanged sentence

Property, plant and equipment

Operating lease right-of-use assets

Identifiable intangible assets

Deferred income taxes

Total assets acquired

3 unchanged sentences

Other current liabilities

Income taxes payable

Other non-current liabilities

Net assets acquired

12 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 September 26, 2020 and December 31, 2019:

The following tables provide the assets and liabilities carried at fair value measured on a recurring basis at March 27, 2021 and December 26, 2020:

Fair Value Measurements Using

5 unchanged sentences

Unobservable Inputs

September 26, 2020

March 27, 2021

Available-for-sale debt securities:

4 unchanged sentences

Corporate bonds

Contingent consideration - acquisitions

Foreign currency forward contracts

8 unchanged sentences

Foreign currency forward contracts

Contingent consideration - acquisitions

Total liabilities

2 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 liabilities consisted of contingent consideration related to an acquisition for which the Company uses a discounted cash flow model to value these liabilities.

The Level 3 assumptions used in the discounted cash flow model for the contingent consideration included projected revenue, timing of cash flows and estimates of discount rates.

This table presents a reconciliation of the Contingent consideration - acquisitions liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 26, 2020:

Fair Value Measurements Using

Significant Unobservable Inputs

Balance at December 31, 2019

Transfer into (out of) Level 3

Balance at September 26, 2020

See Note 4 for additional discussion regarding the fair value of the Company’s marketable securities.

Marketable Securities

The Company has evaluated its investment policies and determined that all of its marketable securities, which are comprised of debt securities, are to be classified as available-for-sale.

The Company’s available-for-sale debt securities are carried at fair value, with the unrealized gains and losses reported in Stockholders’ equity under the caption “Accumulated other comprehensive loss.” Realized gains and losses on available-for-sale securities are included in “Other (expense) income, net” on the Condensed Consolidated Statements of Operations.

The Company records other-than-temporary impairment charges 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 September 26, 2020 and December 31, 2019 are temporary in nature.

The Company reviews its investment portfolio to identify and evaluate marketable securities that have indications of possible impairment.

Factors considered in determining whether a loss is other-than-temporary 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.

At September 26, 2020 and December 31, 2019, marketable securities are categorized as follows:

At March 27, 2021 and December 26, 2020, marketable securities are categorized as follows:

Amortized Cost

1 unchanged sentence

Gross Unrealized Holding Losses

September 26, 2020

March 27, 2021

Municipal 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 September 26, 2020 and December 31, 2019:

September 26, 2020

March 27, 2021

December 26, 2020

6 unchanged sentences

Total marketable securities

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 September 26, 2020 and December 31, 2019:

In Unrealized Loss Position For

4 unchanged sentences

Gross Unrealized Losses

September 26, 2020

March 27, 2021

Municipal notes and bonds

3 unchanged sentences

Municipal notes and bonds

Commercial paper

Corporate bonds

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

1 unchanged sentence

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 September 26, 2020 and December 31, 2019, these contracts included the future sale of British Pound, European Euro, Israeli Shekel, Japanese Yen, Korean Won, Singapore Dollar, Taiwanese Dollar, and Chinese Yuan Renminbi to purchase U.S.

At March 27, 2021 and December 26, 2020, these contracts included the future sale of British pound sterling, euro, Israeli shekel, Japanese yen, Korean won, Singapore dollar, Taiwanese dollar, and Chinese renminbi to purchase U.S.

Foreign currency forward contracts are not designated as hedges for accounting purposes and therefore, the change in fair value is recorded in “Other (expense) income, net,” in the Condensed Consolidated Statements of Operations.

1 unchanged sentence

The dollar equivalent of the U.S.

dollar forward contracts and related fair values as of September 26, 2020 and December 31, 2019 were as follows:

September 26,

dollar forward contracts and related fair values as of March 27, 2021 and December 26, 2020 were as follows:

Notional amount

Fair value of (liability) asset

Purchased Intangible Assets

Fair value of liability

Goodwill and Purchased Intangible Assets

The changes in the carrying amount of goodwill are as follows:

Balance at December 26, 2020

Goodwill adjustments (Note 2)

Balance at September 26, 2020

Purchased intangible assets as of September 26, 2020 and December 31, 2019 are as follows:

Goodwill acquired during the period (Note 2)

Balance at March 27, 2021

Intangible Assets

Purchased intangible assets as of March 27, 2021 and December 26, 2020 are as follows:

Gross Carrying Amount

Accumulated Amortization

September 26, 2020

March 27, 2021

Finite-lived intangibles:

13 unchanged sentences

Total identifiable intangible assets

Intangible assets amortization expenses for the three and nine months ended September 26, 2020 were $ 13,646 and $ 41,081 , respectively.

For the three and nine month periods ended September 30, 2019, intangible assets amortization expenses were $ 387 and $ 1,161 , respectively.

Assuming no change in the gross carrying value of identifiable intangible assets and estimated lives, estimated amortization expenses for the remainder of fiscal 2020 are $ 12,663 , and for each of the next five fiscal years estimated amortization expenses are $ 48,014 for 2021, $ 47,615 for 2022, $ 47,140 for 2023, $ 41,455 for 2024, and $ 24,905 for 2025.

Convertible Notes Receivable

On May 31, 2018, the Company entered into a convertible note agreement with Simax Precision Technologies Limited (“the borrower”), which allowed the borrower to borrow up to $ 15,000 from the Company in multiple promissory notes with an interest rate of 4.25 % per annum payable on a semi-annual basis.

The Company expected to be a supplier of lithography modules to Simax, which is used in the manufacture, sale and service of lithography systems.

At December 31, 2019, the Company had $ 3,000 , net of allowance, in outstanding convertible notes receivable with the borrower.

The Company and the borrower entered into a settlement agreement to end their relationship as it pertains to this convertible note agreement.

The Company agreed to the settlement amount of $ 2,848 , which was paid to the Company in April 2020.

Assuming no change in the gross carrying value of identifiable intangible assets and estimated lives, future estimated amortization expenses are:

Expected Amortization

2021 (remainder)

Balance Sheet Details

Inventories, net are comprised of the following:

September 26, 2020

March 27, 2021

December 26, 2020

4 unchanged sentences

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

September 26, 2020

March 27, 2021

December 26, 2020

Land and building

Machinery and equipment

Furniture and fixtures

Land and building

Computer equipment and software

Leasehold improvements

Furniture and fixtures

Accumulated depreciation

1 unchanged sentence

Other assets is comprised of the following:

September 26, 2020

March 27, 2021

December 26, 2020

Convertible notes receivable, net of allowance of $ 2,000 at December 31,

Operating lease right-of-use assets

2 unchanged sentences

Accrued liabilities is comprised of the following:

September 26, 2020

March 27, 2021

December 26, 2020

3 unchanged sentences

Other current liabilities is comprised of the following:

September 26, 2020

March 27, 2021

December 26, 2020

Contingent consideration - acquisitions

Income tax payable

Current operating lease obligations

Customer deposits

Current operating lease obligations

Income tax payable

Accrued professional fees

2 unchanged sentences

Other non-current liabilities is comprised of the following:

September 26, 2020

March 27, 2021

December 26, 2020

Unrecognized tax benefits (including interest)

Non-current operating lease obligations

Unrecognized tax benefits (including interest)

Deferred revenue

2 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 $ 7,738 of receivables during the three months ended September 26, 2020.

The Company sold $ 2,670 of receivables during the three months ended March 27, 2021.

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 September 26, 2020.

There were no amounts due from such third-party financial institutions at March 27, 2021.

Intellectual Property Indemnification Obligations

10 unchanged sentences

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

Nine Months Ended

September 26,

September 30,

Three Months Ended

Balance, beginning of the period

Warranty liability assumed in acquisition

Balance, end of the period

9 unchanged sentences

(“OSI”), alleges claims arising from a purported exclusive purchase contract between OSI and Nanometrics pertaining to certain products.

The relief sought is the award of damages in an amount to be proven at trial, attorney’s fees and cost as well as other relief the court deems just and proper.

On September 18, 2017, Nanometrics removed the action to the United States District Court for the District of New Hampshire (the “District of New Hampshire”).

1 unchanged sentence

On December 20, 2017, Nanometrics filed its complaint against OSI in the California Superior Court for the County of Santa Clara alleging claims arising from OSI’s breach of certain purchase orders.

The relief sought is the award of damages in an amount to be proven at trial including pre- and post-judgment interest, punitive damages, restitution for benefits unjustly received by OSI, attorney’s fees and cost as well as other relief the court deems just and proper.

Nanometrics’ complaint was later removed by OSI to the Northern District of California.

10 unchanged sentences

Thereafter, the Company’s second motion to dismiss was heard on November 14, 2019.

On November 26, 2019, the

Northern District of California granted the Company’s motion to dismiss with leave to amend.

On November 26, 2019, the Northern District of California granted the Company’s motion to dismiss with leave to amend.

OSI filed a Third Amended Complaint on January 21, 2020.

On Ma rch 2, 2020, the Company filed a motion to dismiss OSI’s Third Amended Complaint and a hearing on the motion was held on June 11, 2020.

On June 23, 2020, the Northern District of California granted the Company’s motion to dismiss with prejudice with regar d to two claims asserted by OSI and dismissed two other claims asserted by OSI with leave to amend.

On March 2, 2020, the Company filed a motion to dismiss OSI’s Third Amended Complaint and a hearing on the motion was held on June 11, 2020.

On June 23, 2020, the Northern District of California granted the Company’s motion to dismiss with prejudice with regard to two claims asserted by OSI and dismissed two other claims asserted by OSI with leave to amend.

Thereafter, on July 7, 2020, OSI filed a Fourth Amended Complaint.

On August 14, 2020, the Company filed a motion to dismiss with regard to one of the two remaining claims.

A hearing on this motion has not been set to date.

Trial has been set for May 16, 2022.

On December 1, 2020, the Northern District of California denied this final motion to dismiss and as a result the Company filed its Answer in this matter on December 22, 2020.

This matter is currently in discovery.

The Northern District of California granted a joint stipulation that discovery cutoff is September 3, 2022 and the trial date is set for December 4, 2023.

At this time, the loss contingency in this matter is remote and the Company does not anticipate the outcome of the matter to have a material impact on its financial position, results of operations, or cash flows.

2 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 September 26, 2020 was approximately $ 71.2 million with an available interest rate of 1.8 %.

The available line of credit as of March 27, 2021 was approximately $ 82.0 million with an available interest rate of 1.8 %.

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

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 26,

September 30,

September 26,

September 30,

Point-in-time

6 unchanged sentences

Three Months Ended

Nine Months Ended

September 26,

September 30,

September 26,

September 30,

Balance, beginning of the period

Deferred revenue assumed in acquisition

Deferral of revenue

3 unchanged sentences

Restricted Stock Unit Activity

A summary of the Company’s restricted stock unit activity with respect to the nine months ended September 26, 2020 is as follows:

A summary of the Company’s restricted stock unit activity with respect to the three months ended March 27, 2021 is as follows:

Number of Shares

2 unchanged sentences

Nonvested at December 26, 2020

Nonvested at September 26, 2020

As of September 26, 2020 and December 31, 2019, there was $ 23,128 and $ 22,230 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 1.9 years for both of the respective periods.

Nonvested at March 27, 2021

As of March 27, 2021 and December 26, 2020, there was $ 21,789 and $ 19,135 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 1.7 years for March 27, 2021 and December 26, 2020, respectively.

Other (Expense) Income, Net

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Three Months Ended

Nine Months Ended

September 26,

September 30,

September 26,

September 30,

Foreign currency exchange gains (losses), net

Foreign currency exchange losses, net

Total other (expense) income, net

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Three Months Ended

Nine Months Ended

September 26,

September 30,

September 26,

September 30,

Income before income taxes

Income (loss) before income taxes

Provision for income taxes

Effective tax rate

The income tax provision for the nine months ended September 26, 2020 was computed based on the Company’s annual forecast of profit by jurisdiction and forecasted effective tax rate for the year.

The changes in the Company’s effective tax rate for the three and nine months ended September 26, 2020 as compared to the three and nine months ended September 30, 2019 are primarily due to (i) changes in forecasted earnings, (ii) computed research and development credits on forecasted earnings levels, (iii) the Foreign Derived Intangible Income (“FDII”) deduction on forecasted earnings levels, and (iv) 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 the Company’s 2019 foreign income tax returns.

The income tax provision for the three months ended March 27, 2021 was computed based on the Company’s annual forecast of profit by jurisdiction and forecasted effective tax rate for the year.

The increase in the Company’s effective tax rate for the three months ended March 27, 2021 as compared to the three months ended March 28, 2020 is primarily due to (i) an increase in quarterly earnings, offset by an increase in the Foreign Derived Intangible Income (“FDII”) deduction and (ii) an increase in the excess tax benefit associated with equity compensation.

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

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Therefore, the Company continues to provide a valuation allowance against certain deferred tax assets.

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

The Company has a recorded valuation allowance against certain of its deferred tax assets of $ 14,150 and $ 14,160 as of September 26, 2020 and December 31, 2019 , respectively.

On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security Act” (the “CARES Act”) was enacted.

The CARES Act includes provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

These changes did not have a material impact on the Company’s consolidated financial position, results of operations, and cash flows.

Earnings Per Share

Basic earnings per share is calculated using the weighted average number of shares of common stock outstanding during the period.

Diluted earnings per share is computed in the same manner and also gives effect to all dilutive common stock equivalent shares outstanding during the period.

Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive.

In accordance with U.S.

GAAP, these shares were not included in calculating diluted earnings per share.

The following table sets forth the weighted average number of restricted stock units that have been excluded from the calculation of diluted earnings per share as their effect would have been anti-dilutive:

Three Months Ended

Nine Months Ended

September 26,

September 30,

September 26,

September 30,

Restricted stock units

The Company’s basic and diluted earnings per share amounts are as follows:

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

The Company has a recorded valuation allowance against certain of its deferred tax assets of $ 14,249 and $ 14,238 as of March 27, 2021 and December 26, 2020, respectively.

Earnings (Loss) Per Share

Basic earnings (loss) per share is calculated using the weighted average number of shares of common stock outstanding during the period.

Restricted stock units, employee stock purchase grants and stock options are included in the calculation of diluted earnings per share, except when their effect would be anti-dilutive.

The Company’s basic and diluted earnings (loss) per share amounts are as follows:

Three Months Ended

Nine Months Ended

September 26,

September 30,

September 26,

September 30,

Basic earnings per share - weighted average shares

Net income (loss)

Basic earnings (loss) per share - weighted average shares

Effect of potential dilutive securities:

Employee stock options, employee stock purchase grants and restricted stock units - dilutive shares

Diluted earnings per share - weighted average shares

Earnings per share:

Employee stock options, employee stock purchase grants and

restricted stock units - dilutive shares

Diluted earnings (loss) per share - weighted average shares

Earnings (loss) per share:

Accumulated Other Comprehensive (Income) Loss

The components of accumulated other comprehensive income (loss), net of tax at September 26, 2020, as well as the activity for the nine months ended September 26, 2020, were as follows:

Accumulated Foreign Currency

Accumulated Net Unrealized Gain

The components of accumulated other comprehensive (income) loss, net of tax at March 27, 2021, as well as the activity for the three months ended March 27, 2021, were as follows:

Foreign currency

Net unrealized (gains) losses on

available-for-sale marketable

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Balance at December 26, 2020

Net current period other comprehensive gain

Net current period other comprehensive loss

Reclassifications

Balance at September 26, 2020

Balance at March 27, 2021

Segment Reporting and Geographic Information

The Company is engaged in the design, development, manufacture and support of high-performance control metrology, defect inspection, lithography and data analysis systems used by microelectronics device manufacturers.

The Company and its subsidiaries currently operate in a single operating segment:

the design, development, manufacture and support of high-performance process control defect inspection and metrology, advanced packaging lithography and process control software systems used by microelectronics device manufacturers.

the design, development, manufacture and support of high-performance process control defect inspection and metrology, lithography and process control software systems used by microelectronics device manufacturers.

Therefore, the Company has one reportable segment.

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Three Months Ended

Nine Months Ended

September 26,

September 30,

September 26,

September 30,

Systems and software

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Three Months Ended

Nine Months Ended

September 26,

September 30,

September 26,

September 30,

Revenue from third parties:

United States

Southeast Asia

Total revenue

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

Nine Months Ended

September 26,

September 30,

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

Three Months Ended

Samsung Semiconductor

Taiwan Semiconductor Manufacturing Co.

SK Hynix Inc.

^ The customer accounted for less than 10% of total revenue during the period.

Share Repurchase Authorization

Following the Merger, the Company assumed the share repurchase authorization previously approved by the former Nanometrics Board of Directors.

This share repurchase authorization allows for the Company to purchase up to $ 80,000 worth of shares of its common stock.

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

Share repurchases during the nine months ended September 26, 2020 were made under this repurchase authorization and at September 26, 2020, there was $ 28,000 available for future share repurchases.

During the nine months ended September 30, 2019, share repurchases were made under a legacy Rudolph share repurchase authorization which was terminated on October 25, 2019 due to closing of the Merger.

See Note 2 for additional information regarding the Merger.

In November 2020, the Onto Innovation Board of Directors approved a new share repurchase authorization, which allows the Company to repurchase up to $ 100,000 worth of shares of its common stock.

This share repurchase authorization replaced the remaining balance of $ 28,000 from the prior share repurchase authorization.

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

At March 27, 2021, there was $ 100,000 available for future share repurchases under this share repurchase authorization.

The following table summarizes the Company’s share repurchases for the periods indicated:

Three Months Ended

Nine Months Ended

September 26,

September 30,

September 26,

September 30,

Shares of common stock repurchased

2 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements