ONTO INNOVATION INC. [ONTO] Filings

10-Q 1 onto-10q_20220402.htm 10-Q onto-10q_20220402.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended April 2, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-39110

ONTO INNOVATION INC.

(Exact name of registrant as specified in its charter)

Delaware

94-2276314

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

16 Jonspin Road, Wilmington, Massachusetts 01887

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (978) 253-6200

Securities registered pursuant to Section 12(b) of the Act


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.001 par value per share	ONTO	New York Stock Exchange (NYSE)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of outstanding shares of the Registrant’s Common Stock on April 19, 2022 was 49,556,669.

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TABLE OF CONTENTS


Item No.		Page
	PART I FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Statements of Operations for the three months ended April 2, 2022 and March 27, 2021	1
	Condensed Consolidated Statements of Comprehensive Income for the three months ended April 2, 2022 and March 27, 2021	2
	Condensed Consolidated Balance Sheets at April 2, 2022 and January 1, 2022	3
	Condensed Consolidated Statements of Cash Flows for the three months ended April 2, 2022 and March 27, 2021	4
	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended April 2, 2022 and March 27, 2021	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23
Item 4.	Controls and Procedures	23

	PART II OTHER INFORMATION

Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults Upon Senior Securities	39
Item 4.	Mine Safety Disclosures	39
Item 5.	Other Information	39
Item 6.	Exhibits	40

Signatures

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PART I FINANCIAL INFORMATION

Item 1. Financial Statements

ONTO INNOVATION INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended
	April 2,			March 27,
	2022			2021
Revenue	$	241,350		$	169,279
Cost of revenue		110,327			78,810
Gross profit		131,023			90,469
Operating expenses:
Research and development		26,341			21,964
Sales and marketing		15,632			13,104
General and administrative		16,487			15,559
Amortization		13,819			12,357
Total operating expenses		72,279			62,984
Operating income		58,744			27,485
Interest income, net		377			361
Other expense, net		(204	)		(1,244	)
Income before provision for income taxes		58,917			26,602
Provision for income taxes		5,587			2,489
Net income	$	53,330		$	24,113
Earnings per share:
Basic	$	1.08		$	0.49
Diluted	$	1.07		$	0.49
Weighted average shares outstanding:
Basic		49,437			49,000
Diluted		49,915			49,572

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

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ONTO INNOVATION INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended
	April 2,			March 27,
	2022			2021
Net income	$	53,330		$	24,113
Other comprehensive loss, net of tax:
Change in net unrealized losses on available-for-sale marketable securities		(3,001	)		(131	)
Change in currency translation adjustments		(3,612	)		(1,899	)
Total other comprehensive loss, net of tax		(6,613	)		(2,030	)
Total comprehensive income	$	46,717		$	22,083

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

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ONTO INNOVATION INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

	April 2, 2022			January 2, 2022
ASSETS
Current Assets:
Cash and cash equivalents	$	172,463		$	169,602
Marketable securities		369,448			341,741
Accounts receivable, less allowance of $1,526 and $1,303		206,695			177,205
Inventories, net		263,008			243,108
Prepaid expenses and other current assets		20,628			16,433
Total current assets		1,032,242			948,089
Property, plant and equipment, net		81,689			82,094
Goodwill		315,811			315,811
Identifiable intangible assets, net		263,512			277,281
Deferred income taxes		4,669			4,822
Other assets		24,484			21,716
Total assets	$	1,722,407		$	1,649,813
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	70,757		$	53,345
Accrued liabilities		37,741			43,042
Deferred revenue		36,462			29,979
Other current liabilities		39,719			28,160
Total current liabilities		184,679			154,526
Deferred income taxes		33,396			40,281
Other non-current liabilities		32,011			28,951
Total liabilities		250,086			223,758
Commitments and contingencies
Stockholders’ equity:
Common stock		49			49
Additional paid-in capital		1,255,728			1,256,179
Accumulated other comprehensive (loss) income		(5,297	)		1,316
Retained earnings		221,841			168,511
Total stockholders’ equity		1,472,321			1,426,055
Total liabilities and stockholders’ equity	$	1,722,407		$	1,649,813

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

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ONTO INNOVATION INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended
	April 2,			March 27,
	2022			2021
Cash flows from operating activities:
Net income	$	53,330		$	24,113
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Amortization of intangibles		13,819			12,357
Depreciation		2,366			3,618
Share-based compensation		4,832			4,890
Acquired inventory step-up amortization		—			252
Provision for inventory valuation		2,115			2,267
Deferred income taxes		(6,848	)		460
Other, net		1,226			1,713
Changes in operating assets and liabilities, net of effects of business acquired		(25,384	)		1,329
Net cash and cash equivalents provided by operating activities		45,456			50,999
Cash flows from investing activities:
Purchases of marketable securities		(97,490	)		(83,652	)
Proceeds from maturities and sales of marketable securities		66,684			53,973
Purchase of business, net of cash acquired		—			(26,795	)
Purchases of property, plant and equipment		(2,494	)		(3,875	)
Net cash and cash equivalents used in investing activities		(33,300	)		(60,349	)
Cash flows from financing activities:
Tax payments related to shares withheld for share-based compensation plans		(5,289	)		(2,492	)
Payment of contingent consideration for acquired business		(2,287	)		—
Issuance of shares through share-based compensation plans		6			3,085
Net cash and cash equivalents used in financing activities		(7,570	)		593
Effect of exchange rate changes on cash and cash equivalents		(1,725	)		(1,513	)
Net increase (decrease) in cash and cash equivalents		2,861			(10,270	)
Cash and cash equivalents at beginning of period		169,602			136,720
Cash and cash equivalents at end of period	$	172,463		$	126,450

Supplemental disclosure of cash flow information:
Income taxes paid (net of refunds)	$	1,331		$	1,799

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

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ONTO INNOVATION INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

	Common Stock					Additional Paid-in			Accumulated Other Comprehensive			Retained
	Shares			Amount		Capital			Loss			Earnings		Total
Balance at January 1, 2022		49,300		$	49	$	1,256,179		$	1,316		$	168,511	$	1,426,055
Net income		—			—		—			—			53,330		53,330
Share-based compensation		—			—		4,832			—			—		4,832
Issuance of shares through share-based compensation plans		184			—		6			—			—		6
Share-based compensation plan withholdings		(46	)		—		(5,289	)		—			—		(5,289	)
Currency translation		—			—		—			(3,612	)		—		(3,612	)
Unrealized loss on investments		—			—		—			(3,001	)		—		(3,001	)
Balance at April 2, 2022		49,438		$	49	$	1,255,728		$	(5,297	)	$	221,841	$	1,472,321

	Common Stock					Additional Paid-in			Accumulated Other Comprehensive			Retained
	Shares			Amount		Capital			Income			Earnings		Total
Balance at December 26, 2020		48,758		$	49	$	1,233,967		$	4,568		$	26,162	$	1,264,746
Net income		—			—		—			—			24,113		24,113
Share-based compensation		—			—		4,890			—			—		4,890
Issuance of shares through share-based compensation plans		240			—		3,085			—			—		3,085
Share-based compensation plan withholdings		(41	)		—		(2,492	)		—			—		(2,492	)
Currency translation		—			—		—			(1,899	)		—		(1,899	)
Unrealized loss on investments		—			—		—			(131	)		—		(131	)
Balance at March 27, 2021		48,957		$	49	$	1,239,450		$	2,538		$	50,275	$	1,292,312

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

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ONTO INNOVATION INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

(Unaudited)

NOTE 1. Basis of Presentation

The Company operates on a 52- or 53-week fiscal year ending on the Saturday closest to December 31^st. Our fiscal year ending December 31, 2022 (“fiscal year 2022”) is a 52-week fiscal year. The first quarter of the Company’s fiscal year 2022 ended on April 2, 2022, the second quarter ends on July 1, 2022 and the third quarter ends on October 1, 2022. Our fiscal year ended January 1, 2022 was a 53-week fiscal year.

The accompanying interim unaudited Condensed Consolidated Financial Statements have been prepared by Onto Innovation Inc. (together with its consolidated subsidiaries, unless otherwise specified or suggested by the context, the “Company,” or “Onto Innovation,” “we,” “our” or “us”) and in the opinion of management reflect all adjustments, consisting of normal recurring accruals, necessary for their fair presentation in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Preparing financial statements requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual amounts could differ materially from reported amounts. The interim results for the three months ended April 2, 2022 are not necessarily indicative of results to be expected for the entire year or any future periods. This interim financial information should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended January 1, 2022 (the “2021 Form 10-K”) filed with the Securities and Exchange Commission (“SEC”) on February 25, 2022. The accompanying Condensed Consolidated Balance Sheet at January 1, 2022 has been derived from the audited consolidated financial statements included in the 2021 Form 10-K.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates made by management include the allowance for credit losses, excess and obsolete inventory, fair value of assets acquired and liabilities assumed in a business combination, recoverability and useful lives of property, plant and equipment and identifiable intangible assets, recoverability of goodwill, recoverability of deferred tax assets, liabilities for product warranty, contingencies, including litigation reserves and share-based payments and liabilities for tax uncertainties. Actual results could differ from those estimates.

These estimates and assumptions are based on historical experience and on various other factors which the Company believes to be reasonable under the circumstances. The Company may engage third-party valuation specialists to assist with estimates related to the valuation of financial instruments, assets and stock awards associated with various contractual arrangements. Such estimates often require the selection of appropriate valuation methodologies and significant judgment. Actual results could differ from these estimates under different assumptions or circumstances and such differences could be material.

Adoption of Accounting Standards

There have been no recent accounting pronouncements or changes in accounting pronouncements during the three months ended April 2, 2022, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2022, that are of significance, or potential significance to the Company.

NOTE 2. Business Combination

Inspectrology, LLC

During the first quarter of 2021, the Company acquired Inspectrology, LLC (“Inspectrology”), a supplier of overlay metrology for controlling lithography and etch processes in the compound semiconductor market for $24,015 in cash and an earnout subject to achievement of certain revenue targets earned for fiscal year 2021 and fiscal year 2022. As of January 1, 2022, $2,287 of the earnout has been achieved and was recorded in operating expenses.

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There is potential earnout for up to an additional payment of $5,000 based on fiscal 2022 results. As of April 2, 2022, the Company has accrued $1,873 for the potential earnout. Certain payments, including the earnout, are subject to the principals remaining with the Company for a period of one to three years.

NOTE 3. Fair Value Measurements

Fair Value of Financial Instruments

The Company has evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts. The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates fair value because of the short-term maturity of these instruments.

Fair Value Hierarchy

The Company applies a three-level valuation hierarchy for fair value measurements. This hierarchy prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability. Level 3 inputs are unobservable inputs based on management’s assumptions used to measure assets and liabilities at fair value. A financial asset’s or liability’s fair value measurement classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following tables provide the assets and liabilities carried at fair value measured on a recurring basis at April 2, 2022 and January 1, 2022:

			Fair Value Measurements Using
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
April 2, 2022
Assets:
Available-for-sale debt securities:
Municipal notes and bonds	$	187,723	$	—	$	187,723	$	—
Asset-backed securities		2,188		—		2,188		—
Certificates of deposit		25,223		—		25,223		—
Commercial paper		79,966		—		79,966		—
Corporate bonds		74,348		—		74,348		—
Total assets	$	369,448	$	—	$	369,448	$	—
Liabilities:
Foreign currency forward contracts	$	109	$	—	$	109	$	—
Contingent consideration - acquisitions		1,873		—		—		1,873
Total liabilities	$	1,982	$	—	$	109	$	1,873

January 1, 2022
Assets:
Available-for-sale debt securities:
Municipal notes and bonds	$	170,980	$	—	$	170,980	$	—
Asset-backed securities		2,009		—		2,009		—
Certificates of deposit		33,192		—		33,192		—
Commercial paper		73,113		—		73,113		—
Corporate bonds		62,447		—		62,447		—
Total assets	$	341,741	$	—	$	341,741	$	—
Liabilities:
Foreign currency forward contracts	$	26	$	—	$	26	$	—
Total liabilities	$	26	$	—	$	26	$	—

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Available-for-sale debt securities classified as Level 2 are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. The foreign currency forward contracts are primarily measured based on the foreign currency spot and forward rates quoted by the banks or foreign currency dealers. Investment prices are obtained from third party pricing providers, which model prices utilizing the above observable inputs, for each asset class. Level 3 investments consisted of contingent consideration related to an acquisition for which the Company uses revenue projections to value this liability.

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

NOTE 4. Marketable Securities

At April 2, 2022 and January 1, 2022, marketable securities are categorized as follows:

	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Fair Value
April 2, 2022
Municipal notes and bonds	$	189,742	$	—	$	2,019	$	187,723
Asset-backed securities		2,201		—		13