What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-03 compared with 2021-11-04 · 92 added, 126 removed, 88 unchanged (71% of the section changed)

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Forward-Looking Statements

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,” “Onto Innovation,” “we,” “our” or “us”) may be considered “forward-looking statements,” including, but not limited to, those concerning:

Certain statements in this Quarterly Report on Form 10-Q (this “Form 10-Q”), or incorporated by reference in 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,” “Onto Innovation,” “we,” “our” or “us”) may be considered “forward-looking statements” or may be based on “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,

technology development, product introduction and acceptance of our products and services;

our manufacturing practices and ability to deliver both products and services consistent with our customers’ demands and expectations and to strengthen our market position, including our ability to source components, materials, and equipment due to supply chain delays or shortages;

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,

future revenue, gross profits, research and development and engineering expenses, selling, general and administrative expenses, and 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.

Statements contained or incorporated by reference in this Form 10-Q that are not purely historical are forward-looking statements and are subject to safe harbors under Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995.

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

The forward-looking statements contained herein reflect our expectations with respect to future events and are subject to certain risks, uncertainties and assumptions.

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 including measures being taken to limit the spread of 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 which have an 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;

cybersecurity incidents could result in business disruption, theft of intellectual property, the loss of or inability to access valuable information, essential data or assets or subject us to litigation or regulatory enforcement actions associated with our obligations related to matters such as privacy and data protection;

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

seasonality and growth rates in the semiconductor manufacturing industry and in the markets served by our customers;

the global economic and political climates;

difficulties or delays in product functionality or performance;

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;

changes in pricing by us or our competitors;

our ability to manage growth;

changes in management;

risk of nonpayment of accounts receivable;

changes in budgeted costs;

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

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

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

the ability to successfully complete and/or unanticipated difficulties or expenditures in 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”);

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 2021 Form 10-Q”), in Part II, Item 1A of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 26, 2021 (the “Q2 2021 Form 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, the Q2 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”).

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

Forward-looking statements contained herein reflect our current expectations, assumptions and projections with respect to future events and are subject to certain risks, uncertainties and assumptions, such as those identified in Part II, Item 1A.

“Risk Factors” and elsewhere in this Form 10-Q.

Actual results may differ materially and adversely from those included in such forward-looking statements.

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 and Estimates

The preparation of condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States (“U.S.

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In addition, management is periodically faced with uncertainties, the outcomes of which are not within our control and will not be known for prolonged periods of time.

Certain of these uncertainties are discussed in our 2020 Form 10-K in the Items entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, we believe that our condensed consolidated financial statements are fairly stated in accordance with U.S.

GAAP and provide a fair presentation of our financial position and results of operations.

For more information, please see our critical accounting policies as previously disclosed in our 2020 Form 10-K and recent accounting pronouncements discussed in Note 1 to the Condensed Consolidated Financial Statements.

Certain of these uncertainties are discussed in our Annual Report on Form 10-K for the fiscal year ended January 1, 2022 (the “2021 Form 10-K”) filed with the Securities and Exchange Commission on February 25, 2022 in the Items entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, we believe that our condensed consolidated financial statements are fairly stated in accordance with U.S.

GAAP and provide a fair presentation of our financial position and results

of operations.

There have been no material changes in our critical accounting policies and estimates from the information presented in Part II, Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in the 2021 Form 10-K.

For more information, please see our critical accounting policies and estimates as previously disclosed in our 2021 Form 10-K and recent accounting pronouncements discussed in Note 1 to the Condensed Consolidated Financial Statements.

Executive Summary

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

We deliver comprehensive solutions throughout the semiconductor fabrication process with our family 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.

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” manufacturing, and in device packaging and test facilities, commonly referred to as “back-end” manufacturing.

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

Our principal market is semiconductor capital equipment.

Semiconductors packaged as integrated circuits, or “chips,” are used in consumer electronics, server and enterprise systems, mobile computing (including smart phones and tablets), data storage devices, and embedded automotive and control systems.

Our core focus is the measurement and control of the structure, composition, and geometry of semiconductor devices as they are fabricated on silicon wafers to improve device performance and manufacturing yields.

Our products and services are used by our customers who manufacture many types of integrated circuits for a multitude of applications, each having unique manufacturing challenges.

This includes integrated circuits to enable information processing and management (logic integrated circuits), memory storage (NAND, 3D-NAND, NOR, and DRAM), analog devices (e.g., Wi-Fi and 5G radio integrated circuits, power devices), MEMS sensor devices (accelerometers, pressure sensors, microphones), image sensors, and other end markets including components for hard disk drives, LEDs, and power management.

The semiconductor and electronics industries have also been characterized by constant technological innovation.

We believe that, over the long term, our customers will continue to invest in advanced technologies and new materials to enable smaller design rules and higher density applications that fuel demand for process control equipment.

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 25,

September 26,

Gross profit as a percent of revenue

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Diluted earnings per share

In the fiscal quarter ended September 25, 2021 (the “September 2021 quarter”), revenue increased 3.7% compared to the fiscal quarter ended June 26, 2021 (the “June 2021 quarter”), primarily due to an increase in sales to foundry customers for advanced nodes applications, partially offset by a decline in sales to memory customers.

Gross margin as a percentage of revenue in the September 2021 quarter compared to the June 2021 quarter was relatively flat primarily driven by shift in sales to products with slightly higher margins, partially offset charges for excess and obsolete inventory and higher freight costs.

The decrease in operating expenses in the September 2021 quarter compared to the June 2021 quarter was mainly driven by a decrease in employee-related expenses as a result of higher variable compensation plan costs recorded in the June 2021 quarter.

Our cash, cash equivalents and marketable securities balance increased to $461.6 million at the end of the September 2021 quarter compared to $373.7 million at the end of the fiscal quarter ended December 26, 2020.

In the fiscal quarter ended April 2, 2022 (the “April 2022 quarter”), revenue increased 7.0% compared to the fiscal quarter ended January 1, 2022 (the “January 2022 quarter”), primarily due to an increase in sales to memory customers for advanced nodes applications, partially offset by a decline in sales to specialty device advanced packaging customers.

Gross margin as a percentage of revenue in the April 2022 quarter compared to the January 2022 quarter decreased primarily due to higher freight and logistics costs in the April 2022 quarter.

Our cash, cash equivalents and marketable securities balance increased to $541.9 million at the end of the April 2022 quarter compared to $511.3 million at the end of the January 2022 quarter.

This increase was primarily the result of $43.2 million of cash generated from operating activities.

This source of cash was partially offset by net cash of $26.8 million used for the purchase of Inspectrology and $11.2 million used for capital expenditures.

Employee headcount as of September 25, 2021 was approximately 1,349.

Business Combination.

On December 31, 2020, the Company acquired Inspectrology, LLC, a leading supplier of overlay metrology for controlling lithography and etch processes in the compound semiconductor market.

The purchase consideration consisted of $27,015 in cash paid at closing and a potential earnout of $10,000, subject to achievement of certain revenue targets earned for fiscal year 2021 and fiscal year 2022.

Trade Restriction and Emerging Regulation.

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 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 September 25, 2021, we currently have purchase orders of approximately $4.9 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.

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

This source of cash was partially offset by net cash of $2.5 million used for capital expenditures.

Employee headcount as of April 2, 2022 was approximately 1,446.

Impact of the COVID-19 Pandemic on Our Business .

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.

As of May 3, 2022, our operations have been impacted by our pandemic response, as described below, given the global nature of our workforce and our operations.

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 November 4, 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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We have a global workforce.

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

Although our manufacturing facilities are in the United States, we maintain offices and have employees in the United States, South Korea, Japan, Taiwan, China, Singapore and Europe.

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

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

In addition, we have enhanced our email screening and cyber monitoring of all of our devices to further support our work from home policy.

In addition, we have enhanced our email screening and cyber monitoring of our devices to further support our work-from-home policy.

As certain countries have relaxed restrictions over the past few months, we have restarted certain activities in accordance with local guidelines.

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We have not experienced significant delays in customer deliveries, but we are impacted by the global shortage in electronic components and our supply chain is strained in some cases as the availability of materials, logistics and freight options are challenging in many jurisdictions.

Demand for our products was consistent with or exceeded our expectations for the third quarter of fiscal 2021.

Demand for our products was consistent with or exceeded our expectations for the first quarter of fiscal 2022.

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

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

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, efficacy and public utilization of treatments and vaccines, and the resumption of widespread economic activity.

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

The full 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.

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 Q1 2021 Form 10-Q, Part II, Item 1A – Risk Factors of our Q2 2021 Form 10-Q and Part I, Item 1A – Risk Factors of our 2020 Form 10-K.

Results of Operations for the Three and Nine Months Ended September 25, 2021 and September 26, 2020

Although the inherent uncertainty of the ongoing 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.

Results of Operations for the Three Months Ended April 2, 2022 and March 27, 2021

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

Our revenue of $200.6 million increased 58.6% for the three months ended September 25, 2021 as compared to the same period in 2020, in which revenue totaled $126.5 million.

For the nine-month periods ended September 25, 2021 and September 26, 2020, our revenue totaled $563.3 million and $401.4 million, respectively, representing a year-over-year increase of 40.3%.

Our revenue of $241.3 million increased 42.6% for the three months ended April 2, 2022 as compared to the same period in 2021, in which revenue totaled $169.3 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 25,

September 26,

September 25,

September 26,

Systems and software

Total revenue

Total systems and software revenue increased $154.3 million for the nine months ended September 25, 2021 as compared to the nine months ended September 26, 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 nine months ended September 26, 2020 to the nine months ended September 25, 2021 was primarily due to servicing a larger installed base.

Total systems and software revenue increased $67.9 million for the three months ended April 2, 2022 as compared to the three months ended March 27, 2021 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 April 2, 2022 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, and system upgrades, as well as time and material billable service calls.

Gross Profit.

Our gross profit has been and will likely 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 $109.4 million and $305.3 million for the three and nine months ended September 25, 2021, respectively, as compared to $68.9 million and $203.1 million for the three and nine months ended September 26, 2020, respectively.

Our gross profit represented 54.5% and 54.2% of our revenue for the three and nine months ended September 25, 2021, respectively, and 54.5% and 50.6% for the three and nine months ended September 26, 2020, respectively.

The increase in gross profit as a percentage of revenue for the nine months ended September 25, 2021, as compared to the nine months ended September 26, 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 has been and will likely continue to be affected by a variety of factors, 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 $131.0 million and $90.5 million for the three months ended April 2, 2022 and March 27, 2021, respectively.

Our gross profit represented 54.3% and 53.4% of our revenue for the three months ended April 2, 2022 and March 27, 2021, respectively.

The increase in gross profit as a percentage of revenue for the three months ended April 2, 2022, as compared to the three months ended March 27, 2021, is primarily due to an increase in sales volume and favorable changes in product mix, partially offset by higher freight and logistics costs, and higher personnel cost due to an increase in headcount to provide manufacturing capacity requirements.

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 $23.8 million and $71.3 million for the three and nine months ended September 25, 2021, respectively, as compared to $19.7 million and $62.8 million for the three and nine months ended September 26, 2020, respectively.

The year-over-year dollar increase for the nine-month period ended September 25, 2021 as compared to the nine-month period ended September 26, 2020 was primarily due to an increase in new product initiatives.

Our research and development expenses were $26.3 million and $22.0 million for the three months ended April 2, 2022 and March 27, 2021, respectively.

The year-over-year dollar increase for the three-month period ended April 2, 2022 as compared to the three-month period ended March 27, 2021 was primarily due to increased compensation costs from additional headcount, as well as annual merit and promotion increases, and increased consulting, outside service and material expenses for new product initiatives.

Sales and Marketing .

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

Our sales and marketing expenses were $12.9 million and $41.4 million for the three and nine months ended September 25, 2021, respectively, as compared to $11.9 million and $36.9 million for the three and nine months ended September 26, 2020, respectively.

The year-over-year increase in sales and marketing expenses for the nine-month period ended September 25, 2021 as compared to the nine-month period ended September 26, 2020 was primarily due to increased variable compensation plan costs.

Our sales and marketing expenses were $15.6 million and $13.1 million for the three months ended April 2, 2022 and March 27, 2021, respectively.

The year-over-year increase in sales and marketing expenses for the three-month period ended April 2, 2022 as compared to the three-month period ended March 27, 2021 was primarily due to increased compensation costs and increased travel related expenses as pandemic travel restrictions were lifted.

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 $16.5 million and $48.4 million for the three and nine months ended September 25, 2021, respectively, as compared to $14.4 million and $50.4 million for the three and nine months ended September 26, 2020, respectively.

The year-over-year dollar decrease in general and administrative expenses for the nine-month period ended September 25, 2021 as compared to the nine-month period ended September 26, 2020 was primarily

due to higher compensation expense in the 2020 period related to restructuring charges as a result of the 2019 Merger.

Our general and administrative expenses were $16.5 million and $15.6 million for the three months ended April 2, 2022 and March 27, 2021, respectively.

The year-over-year increase in general and administrative expenses for the three-month period ended April 2, 2022 as compared to the three-month period ended March 27, 2021 was primarily due to increased compensation costs and increased litigation expenses.

Amortization of Identifiable Intangible Assets .

Amortization of identifiable intangible assets was $13.0 million and $37.7 million for the three and nine months ended September 25, 2021, respectively, as compared to $13.6 million and $41.1 million, respectively, for the same periods in 2020.

The year-over-year decrease in amortization expense for the nine-month period ended September 25, 2021 as compared to the nine-month period ended September 26, 2020 was due to certain intangible assets becoming fully amortized during this period, partially offset by amortization in the 2021 period for the Inspectrology acquisition.

Amortization of identifiable intangible assets was $13.8 million and $12.4 million for the three months ended April 2, 2022 and March 27, 2021, respectively.

The year-over-year increase in amortization expense for the three-month period ended April 2, 2022 as compared to the three-month

period ended March 27, 2021 was primarily due to in-process research and development becoming classified as a finite-lived intangible asset and amortization commencing in the second half of 2021.

Interest income, net .

Net interest income was $0.2 million and $0.9 million for the three and nine months ended September 25, 2021, respectively, as compared to $0.5 million and $2.4 million, respectively, for the same periods in 2020.

The decrease in net interest income for the nine months ended September 25, 2021 as compared to the nine months ended September 26, 2020 was due to lower interest rates during the 2021 period.

Net interest income was $0.4 million for both the three months ended April 2, 2022 and March 27, 2021.

Other expense, net .

Net other expense was $0.3 million and $1.8 million, respectively, for the three and nine months ended September 25, 2021, as compared to $0.9 million and $2.1 million, respectively, for the three and nine months ended September 26, 2020.

The decrease in other expense, net for the nine months ended September 25, 2021 as compared to the nine months ended September 26, 2020 was primarily due to higher foreign exchange losses during the 2020 period.

Net other expense was $0.2 million and $1.2 million for the three months ended April 2, 2022 and March 27, 2021, respectively.

The decrease in other expense, net for the three months ended April 2, 2022 as compared to the three months ended March 27, 2021 was primarily due to lower foreign exchange losses during the 2022 period.

Income Taxes .

We recorded an income tax provision of $6.6 million and $10.0 million, respectively, for the three and nine months ended September 25, 2021 as compared to income tax provision of $0.8 million and $1.2 million, respectively, for the same periods in 2020.

Our effective tax rate of 10% differs from the statutory rate of 21% for the nine months ended September 25, 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 10% differs from the statutory rate of 21% for the nine months ended September 26, 2020, primarily due to (i) the deduction related to foreign derived intangible income (FDII), (ii) research and development tax credits, 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.

We recorded an income tax provision of $5.6 million and $2.5 million for the three months ended April 2, 2022 and March 27, 2021, respectively.

Our effective tax rate of 9% differs from the statutory rate of 21% for the three months ended April 2, 2022 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 9% differs from the statutory rate of 21% for the three months ended March 27, 2021, primarily due to (i) foreign and research and development tax credits, (ii) the deduction related to FDII, and (iii) excess tax benefits associated with equity compensation.

Our future effective income tax rate depends on various factors, such as possible changes in tax legislation, the geographic composition of our pre-tax income, the amount of our pre-tax income as business activities fluctuate, non-deductible expenses incurred in connection with business combinations, and research and development tax credits as a percentage of aggregate pre-tax income.

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

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

Beginning in 2022, the U.S.

Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminated the existing option to deduct research and development expenditures and requires taxpayers to amortize them over five years pursuant to IRC Section 174.

While the capitalization requirement has a negative impact on our cash flows, there are offsetting benefits from the enactment of this provision that we have included in our estimated annual effective tax rate.

Although Congress is considering legislation that would defer the amortization requirement to later years, we have no assurance that the provision will be repealed or otherwise modified.

If it is delayed, these effective tax rate benefits will not be realized in the current year.

Changes in our tax provisions or an increase in our tax liabilities, whether due to changes in applicable laws and regulations, the interpretation or application thereof, or a final determination of tax audits or litigation or agreements, could have a material adverse effect on our financial position, results of operations and/or cash flows.

Liquidity and Capital Resources

At September 25, 2021, we had $461.6 million of cash, cash equivalents and marketable securities and $736.9 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 nine months ended September 25, 2021 and September 26, 2020 were $126.3 million and $72.9 million, respectively.

The net cash and cash equivalents provided by operating activities during the nine months ended September 25, 2021 resulted primarily from net income, adjusted to exclude the effect of non-cash operating charges of $166.8 million, partially offset by a decrease in cash provided from operating assets and liabilities of $40.5 million, primarily due to increases in inventories and accounts receivable.

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, primarily related to increases in inventories and accounts receivable.

Net cash and cash equivalents used in investing activities for the nine months ended September 25, 2021 and September 26, 2020 were $110.9 million and $49.7 million, respectively.

During the nine months ended September 25, 2021, net cash and cash equivalents used in investing activities included purchases of marketable securities of $250.4 million, purchase of a business of $26.8 million and capital expenditures of $11.2 million, partially offset by proceeds from sales of marketable securities of $177.5 million.

During the nine months ended September 26, 2020, net cash and cash equivalents provided by investing activities included 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 used in financing activities were $0.4 million and $53.1 million for the nine months ended September 25, 2021 and September 26, 2020, respectively.

During the nine months ended September 25, 2021, financing activities used cash for tax payments related to shares withheld for share-based compensation plans of $6.8 million.

This use of cash was primarily offset by proceeds from sales of shares through share-based compensation plans of $6.4 million.

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

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

At April 2, 2022, we had $541.9 million of cash, cash equivalents and marketable securities and $847.6 million in working capital.

At January 1, 2022, we had $511.3 million of cash, cash equivalents and marketable securities and $793.6 million in working capital.

Net cash and cash equivalents provided by operating activities for the three months ended April 2, 2022 and March 27, 2021 were $45.5 million and $51.0 million, respectively.

The net cash and cash equivalents provided by operating activities during the three months ended April 2, 2022 resulted primarily from net income, adjusted to exclude the effect of non-cash operating charges of $70.8 million, partially offset by a decrease in cash provided from operating assets and liabilities of $25.4 million, primarily due to increases in inventories and accounts receivable.

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.

Net cash and cash equivalents used in investing activities for the three months ended April 2, 2022 and March 27, 2021 were $33.3 million and $60.3 million, respectively.

During the three months ended April 2, 2022, net cash and cash equivalents used in investing activities included purchases of marketable securities of $97.5 million and capital expenditures of $2.5 million, partially offset by proceeds from sales of marketable securities of $66.7 million.

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.

Net cash and cash equivalents used in financing activities for the three months ended April 2, 2022 were $7.6 million.

Financing activities provided net cash and cash equivalents during the three months ended March 27, 2021 of $0.6 million.

During the three months ended April 2, 2022, financing activities used cash to primarily pay taxes related to shares withheld for share-based compensation plans of $5.3 million and pay contingent consideration for acquired business of $2.3 million, partially offset by proceeds from sales of shares through share-based compensation plans of $0.6 million.

During the three months ended March 27, 2021, financing activities provided cash from proceeds from sales of shares through share-based compensation plans of $3.1 million, partially offset by tax payments related to shares withheld for share-based compensation plans of $2.5 million.

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

On December 31, 2020, the Company acquired Inspectrology, LLC 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.

In the first quarter of 2021, the Company acquired Inspectrology, LLC for $24.0 million in cash and an earnout subject to the achievement of certain revenue targets earned for fiscal 2021 through 2022.

The earnout achieved for fiscal 2021 was $2.3 million and was paid in the first half of fiscal 2022.

There is potential earnout for up to an additional payment of $5.0 million depending on fiscal 2022 results.

As of April 2, 2022, we have accrued $1.9 million for the potential earnout.

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

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

At September 25, 2021, there was $100 million available for future share repurchases.

At April 2, 2022, 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 September 25, 2021, the available line of credit was approximately $110.9 million with an available interest rate of 1.8%.

As of April 2, 2022, the available line of credit was approximately $128.7 million with an available interest rate of 2.0%.

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, although the ultimate impact of the COVID-19 pandemic and its effects on economic conditions and the global supply chain 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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Our borrowing capacity under our existing line of credit is tied to the value of eligible securities held at the time of borrowing, which may be negatively impacted by market conditions due to COVID-19 and government responses thereto or other factors.

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

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

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

3 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 2. Management’s Discussion and Analysis