10-Q 1 onto-10q_20220402.htm 10-Q onto-10q_20220402.htm
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Table of Contents

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

OR

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.

 

 


 

Table of Contents

 

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

 


 

Table of Contents

 

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.

1


 

Table of Contents

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.

 


2


 

Table of Contents

 

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 31st. 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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Table of Contents

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