What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-04-29 compared with 2020-11-02 · 97 added, 102 removed, 101 unchanged (66% 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, 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.

(referred to in this Form 10-Q, together with its consolidated subsidiaries, unless otherwise specified or suggested by the context, as the “Company,” “Onto Innovation,” “we,” “our” or “us”) may be considered “forward-looking statements,” including, but not limited to, 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.

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Actual results may differ materially from those included in such forward-looking statements for a number of reasons including, but not limited to, the following:

effects of the COVID-19 pandemic and the measures being taken to limit the spread of COVID-19, including impact on demand for our products, reductions in production levels, R&D activities, and qualification activities with our customers, increased costs, disruptions to our supply chain and a decrease in availability under our credit agreement;

effects of the COVID-19 pandemic and the measures being taken to limit the spread of COVID-19, including impact on demand for our products, reduction in production levels, R&D activities, and qualification activities with our customers, increased costs, disruptions to our supply chain and a decrease in availability under our credit agreement;

the severity of newly identified strains of COVID-19 and the timing, availability and efficacy of vaccines for COVID-19;

variations in the level of orders which can be affected by general economic conditions;

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the delivery performance of sole source vendors;

the shortage of semiconductor chips or other key components;

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 op portunities 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 opportunities 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 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 integration of the Rudolph and Nanometrics businesses;

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

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

the ability to successfully complete the integration of the businesses of Rudolph Technologies, Inc.

(“Rudolph”) and Nanometrics Incorporated (“Nanometrics”) within the expected time frame and to maintain the anticipated synergies and value-creation contemplated by the merger of Rudolph and Nanometrics (the “2019 Merger”);

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

the response of business partners and retention as a result of the 2019 Merger;

the diversion of management time in connection with the integration;

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.

the “Risk Factors” set forth in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 26, 2020 (the “2020 Form 10-K”) and in Part II, Item 1A of this Form 10-Q.

You should carefully review the cautionary statements and “Risk Factors” contained in the 2020 Form 10-K and in this Form 10-Q.

You should also review any additional disclosures and cautionary statements and “Risk Factors” we include from time to time in our Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings we make with the Securities and Exchange Commission (the “SEC”).

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 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.

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

Critical Accounting Policies

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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 the ir devices.

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 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.

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.

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

Net income (loss)

Diluted earnings (loss) per share

In the March 2021 quarter, revenue increased 9% compared to the December 2020 quarter, primarily due to an increase in sales to foundry customers for advanced nodes applications .

The increase in gross margin as a percentage of revenue in the March 2021 quarter compared to the December 2020 quarter was primarily driven by lower charges for excess and obsolete inventory related to an older product line.

The increase in operating expenses in the March 2021 quarter compared to the December 2020 quarter was mainly driven by the Inspectrology, LLC (“Inspectrology”) acquisition and an increase in employee-related expenses.

Our cash, cash equivalents and marketable securities balance increased to $392.9 million at the end of the March 2021 quarter compared to $373.7 million at the end of the December 2020 quarter.

This increase was primarily the result of $51.0 million of cash generated from operating activities.

This source of cash was partially offset by net cash used to purchase Inspectrology of $26.8 million and $3.9 million of capital expenditures.

Employee headcount as of March 27, 2021 was approximately 1,273.

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.

The United States Department of Commerce has added certain China-based entities to the U.S.

Entity List, restricting our ability to provide products and services to such entities without an export license.

In addition, the U.S.

Department of Commerce has imposed new export licensing requirements related to China-based customers engaged in military end uses, as well as requiring that an export license be obtained for the purchase and use of certain semiconductor capital equipment based on U.S.

As of March 27, 2021, we currently have purchase orders of approximately $25 million from customers in China which are affected by these restrictions.

We have filed for licenses with the US government and are waiting for a response to ship these orders.

In addition, companies in China are being considered as potential military suppliers and these new additions may have a material impact to our sales in China.

We continue to monitor the trade related actions governments may take during 2021.

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.

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

As of April 29, 2021, 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.

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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.

Future developments include the duration, scope and severity of the pandemic, the severity of newly identified strains of COVID-19, 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, administration and efficacy of treatments and 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 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

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 and Part I, Item 1A – Risk Factors of our 2020 Form 10-K.

Results of Operations for the Three Months Ended March 27, 2021 and March 28, 2020

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

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:

Our revenue of $169.3 million increased 21.0% for the three months ended March 27, 2021 as compared to the three months ended March 28, 2020, in which revenue totaled $139.9 million.

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

Three Months Ended

Nine Months Ended

September 26,

September 30,

September 26,

September 30,

Systems and software

Total revenue

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.

Total systems and software revenue increased $27.2 million for the three months ended March 27, 2021 as compared to the three months ended March 28, 2020 primarily due to an increase of units shipped in our metrology and inspection product lines.

The year-over-year increase in parts and services revenue in absolute dollars from the three months ended March 28, 2020 to the three months ended March 27, 2021 was primarily due to servicing a larger installed base.

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

Gross Profit.

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 $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.

Our gross profit has been and will continue to be affected by a variety of factors, including inventory step-up from purchase accounting, 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 $90.5 million and $62.6 million for the three months ended March 27, 2021 and March 28, 2020, respectively.

Our gross profit represented 53.4% and 44.8% of our revenue for the three months ended March 27, 2021 and March 28, 2020, respectively.

The increase in gross profit as a percentage of revenue for the three months ended March 27, 2021, as compared to the three months ended March 28, 2020, is primarily due to charges to cost of goods sold of $9.9 million in the 2020 period for the sale of inventory written-up to fair value upon the 2019 Merger and strengthening product margins across several product lines.

Operating Expenses.

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Research and Development .

The process control defect inspection and metrology, advanced packaging lithography, and data analysis systems and software market is characterized by continuous technological development and product innovations.

We believe that the rapid and ongoing development of new products and enhancements of existing products, including the transition to copper and low-k dielectrics, wafer level packaging, the continuous shrinkage in critical dimensions, and the evolution of ultra-thin gate process control is critical to our success.

We believe that it is critical to continue to make substantial investments in research and development to ensure the availability of innovative technology that meets the current and projected requirements of our customers’ most advanced designs.

We have maintained and intend to continue our commitment to investing in research and development in order to continue to offer new products and technologies.

Accordingly, we devote a significant portion of our technical, management and financial resources to research and development programs.

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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 $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.

Our research and development expenses were $22.0 million and $20.9 million for the three months ended March 27, 2021 and March 28, 2020, respectively.

The year-over-year dollar increase for the three month period ended March 27, 2021 as compared to the three month period ended March 28, 2020 was primarily due to an increase in new product initiatives.

Sales and Marketing .

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 $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.

There was no change in our sales and marketing expenses which totaled $13.1 million for both the three months ended March 27, 2021 and March 28, 2020.

General and Administrative .

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.

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

Our general and administrative expenses were $15.6 million and $20.1 million for the three months ended March 27, 2021 and March 28, 2020, respectively.

The year-over-year dollar decrease in general and administrative expenses for the three month period ended March 27, 2021 as compared to the three month period ended March 28, 2020 was primarily due to higher compensation expense in the 2020 period related to restructuring charges as a result of the merger of Rudolph with Nanometrics.

Amortization of Identifiable Intangible Assets .

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 .

Amortization of identifiable intangible assets was $12.4 million and $13.7 million for the three months ended March 27, 2021 and March 28, 2020, respectively.

The year-over-year decrease in amortization expense for the three month period ended March 27, 2021 as compared to the three month period ended March 28, 2020 was due to certain intangible assets becoming fully amortized during this period, partially offset by amortization for the business acquired in fiscal 2021.

Interest income, net .

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.

Net interest income was $0.4 million and $1.2 million for the three months ended March 27, 2021 and March 28, 2020, respectively.

The decrease in net interest income for the three months ended March 27, 2021 as compared to the three months ended March 28, 2020 was due to lower interest rates during the 2021 period.

Other (expense) income, net .

Net other (expense) income was ($1.2) million and $0.0 million for the three months ended March 27, 2021 and March 28, 2020, respectively.

The increase in other expense for the three months ended March 27, 2021 as compared to the three months ended March 28, 2020 was due to foreign exchange losses during the 2021 period.

Income Taxes .

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.

We recorded an income tax provision of $2.5 million and $0.4 million for the three months ended March 27, 2021 and March 28, 2020 respectively.

Our effective tax rate of 9% differs from the statutory rate of 21% for the three months ended March 27, 2021 primarily due to (i) research and development tax credits, (ii) the deduction related to foreign derived intangible income (FDII), and (iii) excess tax benefits associated with equity compensation.

Our effective tax rate of (10%) differs from the statutory rate of 21% for the three months ended March 28, 2020, primarily due to (i) changes in mix of forecasted earnings by jurisdiction, (ii) computed research and development credits on forecasted earning levels, and (iii) a one-time provision for additional withholding tax related to a dividend distribution from the Company’s Korea subsidiary

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.

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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 assessing the need for a valuation allowance.

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.

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

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.

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 our consolidated financial position, results of operations, and cash flows.

Liquidity and Capital Resources

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

At March 27, 2021, we had $392.9 million of cash, cash equivalents and marketable securities and $628.4 million in working capital.

At December 26, 2020, we had $373.7 million of cash, cash equivalents and marketable securities and $611.6 million in working capital.

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.

Net cash and cash equivalents provided by operating activities for the three months ended March 27, 2021 and March 26, 2020 was $51.0 million and $8.9 million, respectively.

The net cash and cash equivalents provided by operating activities during the three months ended March 27, 2021 resulted primarily from net income, adjusted to exclude the effect of non-cash operating charges, of $49.7 million and an increase in cash provided from operating assets and liabilities of $1.3 million.

The net cash and cash equivalents provided by operating activities during the three months ended March 28, 2020 resulted primarily from net loss, adjusted to exclude the effect of non-cash operating charges of $27.1 million, partially offset by a decrease in cash provided from operating assets and liabilities of $18.2 million.

Net cash and cash equivalents used in investing activities for the three months ended March 27, 2021 and March 26, 2020 was $60.3 million and $2.6 million, respectively.

During the three months ended March 27, 2021, net cash used in investing activities included purchases of marketable securities of $83.7 million, purchase of a business of $26.8 million and capital expenditures of $3.9 million, partially offset by proceeds from sales of marketable securities of $54.0 million.

During the three months ended March 26, 2020, net cash used in investing activities included purchases of marketable securities of $76.5 million and capital expenditures of $1.0 million, partially offset by proceeds from sales of marketable securities of $74.9 million.

Net cash provided by financing activities was $0.6 million and net cash used in financing activities was $35.0 for the three months ended March 27, 2021 and March 26, 2020, respectively.

During the three months ended March 27, 2021, financing activities provided cash from proceeds from sales of shares through share-based compensation plans of $3.0 million, partially offset by tax payments related to shares withheld for share-based compensation plans of $2.5 million.

During the three months ended March 28, 2020, financing activities used cash for the purchase of shares of our common stock under a share repurchase authorization of $33.6 million and tax payments related to shares withheld for share-based compensation plans of $1.6 million, partially offset by proceeds from sales of shares through share-based compensation plans of $0.2 million.

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

We may fund all of or a portion of the price of these investments or acquisitions in cash, stock, or a combination of cash and stock.

Following the Merger, we assumed the share repurchase authorization approved on March 14, 2019 by the former Nanometrics Board of Directors.

This share repurchase authorization allows us to purchase up to $80.0 million worth of shares of our common stock.

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

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 .

On December 31, 2020, the Company acquired 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 the achievement of certain revenue targets earned for fiscal 2021 and 2022.

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

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

At March 27, 2021, there was $100,000 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 September 26, 2020, the available line of credit was approximately $71.2 million with an available interest rate of 1.8%.

As of March 27, 2021, the available line of credit was approximately $82.0 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.

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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.

In addition, a lthough the ultimate impact of the 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 expenditures and other cash needs for the next 12 months following the filing of this Form 10-Q.

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

Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in market risk from the information presented in Part II, Item 7A.

“Quantitative and Qualitative Disclosures About Market Risk,” in the 2020 Annual Report on Form 10-K.

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