What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-04-29 · 66 added, 58 removed, 140 unchanged (47% of the section changed)

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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;

the severity, including the virulence and transmissibility, of newly identified strains of COVID-19, the timing, availability, efficacy and public utilization of vaccines for COVID-19;

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

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the diversion of management time in connection with the integration;

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.

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”), in Part II, Item 1A of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 27, 2021 (the “Q1 2021Form 10-Q”) 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, the Q1 2021 Form 10-Q and 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”).

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Total operating expenses

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.

Diluted earnings per share

In the fiscal quarter ended June 26, 2021 (the “June 2021 quarter”), revenue increased 14.2% compared to the fiscal quarter ended March 27, 2021 (the “March 2021 quarter”), primarily due to an increase in sales in our specialty device markets, mainly from our RF and Power customers, partially offset by a decline in sales in our advanced nodes markets .

The increase in gross margin as a percentage of revenue in the June 2021 quarter compared to the March 2021 quarter was primarily driven by shift in sales to products with slightly higher margins.

The increase in operating expenses in the June 2021 quarter compared to the March 2021 quarter was mainly an increase in employee-related expenses.

Our cash, cash equivalents and marketable securities balance increased to $410.8 million at the end of the June 2021 quarter compared to $373.7 million at the end of the fiscal quarter ended December 26, 2020.

This increase was primarily the result of $76.4 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.

This source of cash was partially offset by net cash of $26.8 million used for the purchase of Inspectrology and $9.6 million used for capital expenditures.

Employee headcount as of June 26, 2021 was approximately 1,294.

Trade Restriction and Emerging Regulation.

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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.

Department of Commerce has imposed new export licensing requirements related to China-based customers alleged to engage 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 June 26, 2021, we currently have purchase orders of approximately $7.3 million from customers in China which are affected by these restrictions.

We have filed for licenses with the U.S.

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.

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Impact of the COVID-19 Pandemic on Our Business .

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.

Events surrounding the ongoing COVID-19 pandemic initially resulted in a reduction in economic activity across the globe, and the timing and extent of the ongoing economic recovery remains uncertain.

As a result, we have experienced volatility in the markets that our products are sold into, driven by the move to a stay-at-home economy and fluctuations in consumer and business spending, which has affected demand for certain of our products.

The ultimate extent to which COVID-19 will impact our business depends on future developments, which are highly uncertain and very difficult to predict, including the effectiveness and utilization of vaccines for COVID-19 and its variants, new information that may emerge concerning the severity of COVID-19 and its variants, and actions to contain or limit their spread.

As of August 5, 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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Our operations at these offices are subject to various governmental directives and, as a result thereof, we have instituted a work-from-home policy for these employees to the extent practical.

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

distancing between persons.

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

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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 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.

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, efficacy and public utilization 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 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

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 Q1 2021 Form 10-Q and Part I, Item 1A – Risk Factors of our 2020 Form 10-K.

Results of Operations for the Three and Six Months Ended June 26, 2021 and June 27, 2020

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

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.

Our revenue of $193.4 million increased 43.3% for the three months ended June 26, 2021 as compared to the same period in 2020, in which revenue totaled $134.9 million.

For the six month periods ended June 26, 2021 and June 27, 2020, our revenue totaled $362.7 million and $274.9 million, respectively, representing a year-over-year increase of 31.9%.

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

Three Months Ended

Six Months Ended

Systems and software

Total revenue

Total systems and software revenue 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.

Total systems and software revenue increased $81.1 million for the six months ended June 26, 2021 as compared to the six months ended June 27, 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 six months ended June 27, 2020 to the six months ended June 26, 2021 was primarily due to servicing a larger installed base.

Parts and services revenue is generated from part sales, maintenance service contracts, and 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 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.

Our gross profit was $105.5 million and

$195.9 million for the three and six months ended June 26, 2021 , respectively, as compared to $71.6 million and $134.2 million for the three and six months ended June 27, 2020, respectively.

Our gross profit represented 54.5% and 54.0% of our revenue for the three and six months ended June 26, 2021 , respectively, and 53.0% and 48.8% for the three and six months ended June 27, 2020, respectively.

The increase in gross profit as a percentage of revenue for the six months ended June 26, 2021 , as compared to the six months ended June 27, 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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They also include consulting fees, the cost of related supplies and legal costs to defend our patents.

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.

Our research and development expenses were $25.5 million and $47.5 million for the three and six months ended June 26, 2021, respectively, as compared to $22.2 million and $43.1 million for the three and six months ended June 27, 2020, respectively.

The year-over-year dollar increase for the six month period ended June 26, 2021 as compared to the six month period ended June 27, 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.

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.

Our sales and marketing expenses were $15.4 million and $28.5 million for the three and six months ended June 26, 2021, respectively, as compared to $11.9 million and $24.9 million for the three and six months ended June 27, 2020, respectively.

The year-over-year increase in sales and marketing expenses for the six month period ended June 26, 2021 as compared to the six month period ended June 27, 2020 was primarily due to increased variable compensation plan costs.

General and Administrative .

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.

Our general and administrative expenses were $16.3 million and $31.8 million for the three and six months ended June 26, 2021, respectively, as compared to $15.9 million and $36.1 million for the three and six months ended June 27, 2020, respectively.

The year-over-year dollar decrease in general and administrative expenses for the six month period ended June 26, 2021 as compared to the six month period ended June 27, 2020 was primarily due to higher compensation expense in the 2020 period related to restructuring charges as a result of the 2019 Merger.

Amortization of Identifiable Intangible Assets .

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.

Amortization of identifiable intangible assets was $12.3 million and $24.7 million for the three and six months ended June 26, 2021, respectively, as compared to $13.7 million and $27.4 million for the same periods in 2020.

The year-over-year decrease in amortization expense for the six month period ended June 26, 2021 as compared to the six month period ended June 27, 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 $0.4 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.

Net interest income was $0.3 million and $0.7 million for the three and six months ended June 26, 2021, respectively, as compared to $0.7 million and $1.9 million for the same periods in 2020.

The decrease in net interest income for the six months ended June 26, 2021 as compared to the six months ended June 27, 2020 was due to lower interest rates during the 2021 period.

Other expense, net .

Net other expense was $0.3 million and $1.5 million for the three and six months ended June 26, 2021, as compared to $1.2 million for both the three and six months ended June 27, 2020.

The increase in other expense, net for the six months ended June 26, 2021 as compared to the six months ended June 27, 2020 was primarily due to higher foreign exchange losses during the 2021 period.

Income Taxes .

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

We recorded an income tax provision of $0.9 million and $3.4 million for the three and six months ended June 26, 2021, respectively, as compared to income tax benefit of $6 thousand and income tax provision of $0.4 million for the same period in 2020.

Our effective tax rate of 5.4% differs from the statutory rate of 21% for the six months ended June 26, 2021 primarily due to (i) research and development tax credits, (ii) the deduction related to foreign derived intangible income (FDII), (iii) excess tax benefits associated with equity compensation, and (iv) a release of reserves due to expiration of the

applicable statute of limitations.

Our effective tax rate of 12% differs from the statutory rate of 21% for the six months ended June 27, 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

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

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

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Liquidity and Capital Resources

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

At June 26, 2021, we had $410.8 million of cash, cash equivalents and marketable securities and $678.5 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.

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.

Net cash and cash equivalents provided by operating activities for the six months ended June 26, 2021 and June 27, 2020 were $76.4 million and $46.9 million, respectively.

The net cash and cash equivalents provided by operating activities during the six months ended June 26, 2021 resulted primarily from net income, adjusted to exclude the effect of non-cash operating charges, of $108.1 million, partially offset by a decrease in cash provided from operating assets and liabilities of $31.7 million.

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

Net cash and cash equivalents used in investing activities for the six months ended June 26, 2021 was $76.4 million, while during the six months ended June 27, 2020 investing activities provided $7.3 million.

During the six months ended June 26, 2021, net cash and cash equivalents used in investing activities included purchases of marketable securities of $142.1 million, purchase of a business of $26.8 million and capital expenditures of $9.6 million, partially offset by proceeds from sales of marketable securities of $102.0 million.

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

Net cash and cash equivalents used in financing activities were $3.3 million and $55.5 million for the six months ended June 26, 2021 and June 27, 2020, respectively.

During the six months ended June 26, 2021, financing activities used cash for tax payments related to shares withheld for share-based compensation plans of $3.2 million.

This use of cash was primarily offset by proceeds from sales of shares through share-based compensation plans of $6.5 million.

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

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

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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.

At June 26, 2021, there was $100 million available for future share repurchases.

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

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

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

As of June 26, 2021, the available line of credit was approximately $99.4 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 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 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.

“Quantitative and Qualitative Disclosures About Market Risk,” in the 2020 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