For the ~~quarterly period ended June 29, 2019~~Quarterly Period Ended March 28, 2020

Registrant’s telephone number, including area code: ~~(408) 545-6000~~(978) 253-6200

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the ~~registrant~~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~~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 (§ ~~232.405 of this chapter)~~ 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”,~~filer,” “accelerated ~~filer”,~~filer,” “smaller reporting ~~company”,~~company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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~~Act. ☐

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

AsThe number of ~~July 26, 2019, there were 24,828,384~~outstanding shares of ~~common stock, $0.001 par value, issued and outstanding.~~

June 29, 2019

December 29, 2018

ASSETS

Current assets:

Cash and cash equivalents

$
94,035

$
110,951

Marketable securities

50,947

40,841

Accounts receivable, net of allowances of $209 and $170, respectively

51,602

50,854

Inventories

66,630

61,915

Inventories-delivered systems

1,010

180

Prepaid expenses and other

7,955

6,140

Total current assets

272,179

270,881

Property, plant and equipment, net

52,779

47,900

Operating lease - right of use assets, net

10,767

—

Goodwill

26,310

26,372

Intangible assets, net

25,811

27,326

Deferred income tax assets

2,807

2,569

Other assets

446

582

Total assets

$
391,099

$
375,630

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$
19,459

$
16,540

Accrued payroll and related expenses

10,361

21,658

Deferred revenue

9,865

8,990

Operating lease liabilities

2,845

—

Other current liabilities

7,308

9,421

Income taxes payable

1,117

3,164

Total current liabilities

50,955

59,773

Deferred revenue

1,616

1,753

Income taxes payable

1,150

871

Deferred tax liabilities

163

162

Operating lease liabilities

8,017

—

Other long-term liabilities

218

219

Total liabilities

62,119

62,778

Commitments and contingencies (Note 11)

Stockholders’ equity:

Preferred stock, $0.001 par value; 3,000,000 shares authorized;
no shares issued or outstanding

—

—

Common stock, $0.001 par value, 47,000,000 shares authorized: 24,828,384 and 24,372,193, respectively, issued and outstanding

25

24

Additional paid-in capital

256,503

247,983

Retained earnings

74,305

67,402

Accumulated other comprehensive loss

(1,853
)

(2,557
)
Total stockholders’ equity

328,980

312,852

Total liabilities and stockholders’ equity

$
391,099

$
375,630

Three Months Ended

Six Months Ended

June 29, 2019

June 30, 2018

June 29, 2019

June 30, 2018

Net revenues:

Products

$
52,541

$
76,704

$
106,396

$
147,723

Service

15,079

11,900

28,324

23,194

Total net revenues

67,620

88,604

134,720

170,917

Costs of net revenues:

Cost of products

24,294

31,235

50,193

59,828

Cost of service

7,683

6,443

14,631

12,597

Amortization of intangible assets

471

35

936

70

Total costs of net revenues

32,448

37,713

65,760

72,495

Gross profit

��
35,172

50,891

68,960

98,422

Operating expenses:

Research and development

14,098

12,491

27,085

22,693

Selling

8,244

10,151

17,526

19,175

General and administrative

7,885

7,465

15,790

15,206

Merger expenses

907

-

907

-

Amortization of intangible assets

289

-

578

-

Total operating expenses

31,423

30,107

61,886

57,074

Income from operations

3,749

20,784

7,074

41,348

Other income (expense):

Interest expense, net

(15
)

(48
)

(106
)

(141
)
Other income (expense), net

828

(166
)

1,098

186

Total other income (expense), net

813

(214
)

992

45

Income before income taxes

4,562

20,570

8,066

41,393

Provision for income taxes

632

2,895

1,163

7,337

Net income

$
3,930

$
17,675

$
6,903

$
34,056

Net income per share:

Basic

$
0.16

$
0.74

$
0.28

$
1.42

Diluted

$
0.16

$
0.72

$
0.28

$
1.39

Weighted average shares used in per share calculation:

Basic

24,525

23,953

24,530

24,008

Diluted

24,843

24,442

24,850

24,488

	Three Months Ended
	March 28,			March 31,
	2020			2019
Revenue	$	139,928		$	60,892
Cost of revenue		77,297			28,873
Gross profit		62,631			32,019
Operating expenses:
Research and development		20,927			10,540
Sales and marketing		13,071			4,726
General and administrative		20,147			8,758
Amortization		13,732			387
Total operating expenses		67,877			24,411
Operating (loss) income		(5,246	)		7,608
Interest income, net		1,210			806
Other income, net		32			381
(Loss) income before provision for income taxes		(4,004	)		8,795
Provision for income taxes		400			1,219
Net (loss) income	$	(4,404	)	$	7,576
(Loss) earnings per share:
Basic	$	(0.09	)	$	0.30
Diluted	$	(0.09	)	$	0.30
Weighted average shares outstanding:
Basic		50,121			24,863
Diluted		50,121			25,144

Three Months Ended

Six Months Ended

June 29, 2019

June 30, 2018

June 29, 2019

June 30, 2018

Net income

$
3,930

$
17,675

$
6,903

$
34,056

Other comprehensive income:

Change in foreign currency translation adjustment

(42
)

(2,555
)

602

(568
)
Net change in unrealized gains (losses) on available-for-sale investments

44

52

102

(37
)
Other comprehensive income

2

(2,503
)

704

(605
)
Comprehensive income

$
3,932

$
15,172

$
7,607

$
33,451

	Three Months Ended
	March 28,			March 31,
	2020			2019
Net (loss) income	$	(4,404	)	$	7,576
Other comprehensive (loss), net of tax:
Change in net unrealized (losses) gains on available-for-sale marketable securities		(526	)		95
Change in currency translation adjustments		(2,231	)		(518	)
Other comprehensive (loss)		(2,757	)		(423	)
Total comprehensive (loss) income	$	(7,161	)	$	7,153

	March 28, 2020			December 31, 2019
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	101,320		$	130,673
Marketable securities		190,629			189,563
Accounts receivable, less allowance of $1,398 and $1,247		149,229			123,656
Inventories, net		160,543			176,134
Prepaid expenses and other current assets		26,798			21,638
Total current assets		628,519			641,664
Property, plant and equipment, net		96,973			98,420
Goodwill		307,626			307,148
Identifiable intangible assets, net		358,222			371,953
Deferred income taxes		1,397			1,456
Other assets		23,650			27,939
Total assets	$	1,416,387		$	1,448,580
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	32,205		$	27,738
Accrued liabilities		29,395			26,204
Deferred revenue		15,570			12,629
Other current liabilities		17,158			19,172
Total current liabilities		94,328			85,743
Deferred and other tax liabilities		66,263			67,040
Other non-current liabilities		29,991			31,771
Total liabilities		190,582			184,554
Commitments and contingencies
Stockholders’ equity:
Common stock		49			50
Additional paid-in capital		1,238,378			1,269,437
Accumulated other comprehensive loss		(3,355	)		(598	)
Accumulated deficit		(9,267	)		(4,863	)
Total stockholders’ equity		1,225,805			1,264,026
Total liabilities and stockholders’ equity	$	1,416,387		$	1,448,580

	Three Months Ended
	March 28,			March 31,
	2020			2019
Cash flows from operating activities:
Net (loss) income	$	(4,404	)	$	7,576
Adjustments to reconcile net income to net cash and cash equivalents provided by (used in) operating activities:
Amortization of intangibles		13,732			387
Depreciation		3,103			1,254
Share-based compensation		3,955			2,163
Acquired inventory step-up amortization		9,898			—
Provision for doubtful accounts and inventory valuation		928			1,028
Other, net		(144	)		(381	)
Changes in operating assets and liabilities		(18,170	)		(13,593	)
Net cash and cash equivalents provided by (used in) operating activities		8,898			(1,566	)
Cash flows from investing activities:
Purchases of marketable securities		(76,460	)		(22,142	)
Proceeds from sales of marketable securities		74,857			14,295
Purchases of property, plant and equipment		(997	)		(1,320	)
Net cash and cash equivalents used in investing activities		(2,600	)		(9,167	)
Cash flows from financing activities:
Purchase of common stock		(33,614	)		(744	)
Tax payments related to shares withheld for share-based compensation plans		(1,565	)		(598	)
Issuance of shares through share-based compensation plans		164			—
Net cash and cash equivalents used in financing activities		(35,015	)		(1,342	)
Effect of exchange rate changes on cash and cash equivalents		(636	)		(145	)
Net decrease in cash and cash equivalents		(29,353	)		(12,220	)
Cash and cash equivalents at beginning of period		130,673			112,388
Cash and cash equivalents at end of period	$	101,320		$	100,168

Supplemental disclosure of cash flow information:
Income taxes paid	$	588		$	114

Common Stock

Additional
Paid-In

Retained

Accumulated
Other
Comprehensive

Total
Stockholders’

Three Months Ended June 29, 2019

Shares

Amount

Capital

Earnings

Loss

Equity

Balance as of March 30, 2019

24,534,582

$
25

$
251,841

$
70,375

$
(1,855
)
$
320,386

Net income

—

—

—

3,930

—

3,930

Foreign currency translation adjustments

—

—

—

—

(42
)

(42
)
Unrealized gain on investments, net of tax

—

—

—

—

44

44

Issuance of common stock under stock-based compensation plans, net of taxes paid

293,802

—

1,462

—

—

1,462

Stock-based compensation expense

—

—

3,200

—

—

3,200

Balance as of June 29, 2019

24,828,384

$
25

$
256,503

$
74,305

$
(1,853
)
$
328,980

Common Stock

Additional
Paid-In

Retained

Accumulated
Other
Comprehensive

Total
Stockholders’

Three Months Ended June 30, 2018

Shares

Amount

Capital

Earnings

Loss

Equity

Balance as of March 31, 2018

23,890,563

$
24

$
234,793

$
26,136

$
(226
)
$
260,727

Net income

—

—

—

17,675

—

17,675

Foreign currency translation adjustments

—

—

—

—

(2,555
)

(2,555
)
Unrealized gain on investments, net of tax

—

—

—

—

52

52

Issuance of common stock under stock-based compensation plans, net of taxes paid

175,805

—

(94
)

—

—

(94
)
Stock-based compensation expense

—

—

2,679

—

—

2,679

Balance as of June 30, 2018

24,066,368

$
24

$
237,378

$
43,811

$
(2,729
)
$
278,484

	Common Stock						Additional Paid-in			Accumulated Other Comprehensive			Accumulated
	Shares			Amount			Capital			Loss			Deficit			Total
Balance at December 31, 2019		50,184		$	50		$	1,269,437		$	(598	)	$	(4,863	)	$	1,264,026
Issuance of shares through share-based compensation plans, net		240			—			164			—			—			164
Repurchase of common stock		(1,250	)		(1	)		(33,613	)		—			—			(33,614	)
Net loss		—			—			—			—			(4,404	)		(4,404	)
Share-based compensation		—			—			3,955			—			—			3,955
Share-based compensation plan withholdings		(42	)		—			(1,565	)		—			—			(1,565	)
Currency translation		—			—			—			(2,231	)		—			(2,231	)
Unrealized loss on investments		—			—			—			(526	)		—			(526	)
Balance at March 28, 2020		49,132		$	49		$	1,238,378		$	(3,355	)	$	(9,267	)	$	1,225,805

Common Stock

Additional
Paid-In

Retained

Accumulated
Other
Comprehensive

Total
Stockholders’

Six Months Ended June 29, 2019

Shares

Amount

Capital

Earnings

Loss

Equity

Balance as of December 29, 2018

24,372,193

$
24

$
247,983

$
67,402

$
(2,557
)
$
312,852

Net income

—

—

—

6,903

—

6,903

Foreign currency translation adjustments

—

—

—

—

602

602

Unrealized gain on investments, net of tax

—

—

—

—

102

102

Issuance of common stock under stock-based compensation plans, net of taxes paid

456,191

1

2,206

—

—

2,207

Stock-based compensation expense

—

—

6,314

—

—

6,314

Balance as of June 29, 2019

24,828,384

$
25

$
256,503

$
74,305

$
(1,853
)
$
328,980

Common Stock

Additional
Paid-In

Retained

Accumulated
Other
Comprehensive

Total
Stockholders’

Six Months Ended June 30, 2018

Shares

Amount

Capital

Earnings

Loss

Equity

Balance as of December 30, 2017

24,628,722

$
26

$
255,368

$
9,113

$
(2,124
)
$
262,383

Net income

—

—

—

34,056

—

34,056

Adjustment due to adoption of ASU 2014-09 Revenue from Contracts with Customers, net of tax

—

—

—

642

—

642

Foreign currency translation adjustments

—

—

—

—

(568
)

(568
)
Unrealized loss on investments, net of tax

—

—

—

—

(37
)

(37
)
Issuance of common stock under stock-based compensation plans, net of taxes paid

333,833

(2
)

(20
)

—

—

(22
)
Stock-based compensation expense

—

—

5,017

—

—

5,017

Repurchases and retirement of common stock under share repurchase plans

(896,187
)

—

(22,987
)

—

—

(22,987
)
Balance as of June 30, 2018

24,066,368

$
24

$
237,378

$
43,811

$
(2,729
)
$
278,484

	Common Stock					Additional Paid-in			Accumulated Other Comprehensive			Retained Earnings (Accumulated
	Shares			Amount		Capital			Loss			Deficit)			Total
Balance at December 31, 2018		24,855		$	31	$	369,893		$	(1,263	)	$	(6,773	)	$	361,888
Issuance of shares through share-based compensation plans, net		83			—		—			—			—			—
Repurchase of common stock		(30	)		—		(744	)		—			—			(744	)
Net income		—			—		—			—			7,576			7,576
Share-based compensation		—			—		2,163			—			—			2,163
Share-based compensation plan withholdings		(22	)		—		(598	)		—			—			(598	)
Currency translation		—			—		—			(518	)		—			(518	)
Unrealized gain on investments		—			—		—			95			—			95
Balance at March 31, 2019		24,886		$	31	$	370,714		$	(1,686	)	$	803		$	369,862

Six Months Ended

June 29, 2019

June 30, 2018

Cash flows from operating activities:

Net income
$
6,903

$
34,056

Reconciliation of net income to net cash from operating activities:

Depreciation and amortization

5,061

3,326

Stock-based compensation

6,314

5,017

Disposal of fixed assets

(861
)

51

Inventory write-down

2,922

269

Deferred income taxes

—

4,320

Changes in assets and liabilities:

Accounts receivable

473

7,193

Inventories

(8,290
)

(1,722
)
Inventories-delivered systems

(830
)

(322
)
Prepaid expenses and other

(1,974
)

(3,422
)
Operating lease - right of use assets

1,077

—

Accounts payable, accrued and other liabilities

(10,941
)

7,204

Deferred revenue

738

2,464

Operating lease liabilities

(888
)

—

Income taxes payable

(2,007
)

537

Net cash provided by (used in) operating activities

(2,303
)

58,971

Cash flows from investing activities:

Payments to acquire certain assets

—

(2,000
)
Sales of marketable securities

1,627

18,507

Maturities of marketable securities

24,700

17,345

Purchases of marketable securities

(36,093
)

(16,320
)
Purchases of property, plant and equipment

(8,314
)

(1,761
)
Proceeds from sale of property, plant and equipment

896

—

Net cash provided by (used in) investing activities

(17,184
)

15,771

Cash flows from financing activities:

Proceeds from sale of shares under employee stock option plans and purchase plan

4,535

2,709

Taxes paid on net issuance of stock awards

(2,328
)

(2,731
)
Repurchases of common stock under share repurchase plans

—

(22,987
)
Net cash provided by (used in) financing activities

2,207

(23,009
)
Effect of exchange rate changes on cash and cash equivalents

364

(431
)
Net increase (decrease) in cash and cash equivalents

(16,916
)

51,302

Cash and cash equivalents, beginning of period

110,951

34,899

Cash and cash equivalents, end of period
$
94,035

$
86,201

Supplemental disclosure of non-cash investing activities:

Transfers between inventory and property, plant and equipment, net
$
755

$
73

Unpaid property, plant and equipment

662

555

~~Note~~NOTE 1. ~~Nature of Business,~~ Basis of Presentation ~~and Significant Accounting Policies~~

~~Description of Business~~ – Nanometrics Incorporated (“Nanometrics” or the “Company”) and its wholly-owned subsidiaries provide advanced, high-performance process control metrology and inspection systems used primarily in the fabrication of semiconductors and other solid-state devices as well as industrial and scientific applications. Nanometrics' metrology systems precisely measure a wide range of film types deposited on substrates during manufacturing to control manufacturing processes and increase production yields in the fabrication of integrated circuits. The Company’s optical critical dimension (“OCD”) technology is a patented critical dimension measurement technology that is used to precisely determine the dimensions on the semiconductor wafer that directly control the resulting performance of the integrated circuit devices. The thin film metrology systems use a broad spectrum of wavelengths, high-sensitivity optics, proprietary software, and patented technology to measure the thickness and uniformity of films deposited on silicon and other substrates as well as their chemical composition. The overlay metrology systems are used to measure the overlay accuracy of successive layers of semiconductor patterns on wafers in the photolithography process. Nanometrics' inspection systems are used to find defects on patterned and unpatterned wafers at nearly every stage of the semiconductor production flow. The corporate headquarters of Nanometrics is in Milpitas, California.

~~Basis of Presentation~~ – The accompanying ~~condensed consolidated financial statements (“financial statements”)~~interim unaudited Condensed Consolidated Financial Statements have been prepared ~~on a consistent basis with~~by Onto Innovations Inc. (the “Company” or “Onto”) and in the ~~audited consolidated financial statements as~~opinion of ~~December 29, 2018 and include~~management reflect all adjustments, consisting of normal recurring ~~adjustments~~accruals, necessary ~~to fairly state the information set forth therein. All significant intercompany accounts and transactions have been eliminated in consolidation.~~

~~The financial statements have been prepared in accordance with the regulations of the United States Securities and Exchange Commission (“SEC”)~~ for ~~interim periods in accordance with S-X Article 10, and, therefore, omit certain information and footnote disclosure necessary to present the statements~~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 ~~operating~~interim results for ~~interim periods~~the three months ended March 28, 2020 are not necessarily indicative of ~~the operating~~ results ~~that may~~to be expected for the entire ~~year. These~~year or any future periods. This interim financial ~~statements~~information should be read in conjunction with the ~~audited consolidated~~ financial statements and the notes thereto ~~for the fiscal year ended December 29, 2018, which were~~ included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (“2019 Form 10-K”) filed with the ~~SEC~~Securities and Exchange Commission (“SEC”) on February 25, ~~2019.~~2020. The accompanying Condensed Consolidated Balance Sheet at December 31, 2019 has been derived from the audited consolidated financial statements included in the 2019 Form 10-K.

As further discussed in Note 2 of Notes to the Condensed Consolidated Financial Statements, Rudolph Technologies, Inc. (“Rudolph”) and Nanometrics Incorporated (“Nanometrics”) completed a merger effective October 25, 2019 (the “Merger”). Upon consummation of the Merger, the combined company was renamed Onto Innovation. The Merger was accounted for as a reverse acquisition where Rudolph was the accounting acquirer and Nanometrics was the legal acquirer in accordance with Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations” (“ASC 805”). Accordingly, Rudolph’s historical results of operations replaced the Nanometrics historical results of operations for all periods prior to the merger. Specifically, the accompanying Condensed Consolidated Financial Statements for all periods prior to the Merger are those of Rudolph and for the period after the Merger, also include Nanometrics. The Condensed Consolidated Financial Statements reflect the assets and liabilities of Rudolph at historical cost basis and the assets and liabilities of Nanometrics are reflected at fair value under the acquisition method. While Rudolph applied the acquisition method of accounting to Nanometrics, the legal capital in the current and prior periods has been retroactively adjusted to reflect the legal capital of Nanometrics. Accordingly, earnings per share has been retroactively restated for periods prior to the merger date.

On February 28, 2020, the Board of Directors of Onto Innovation Inc. (the “Company”) determined it is in the best interests of the Company ~~uses~~to change its fiscal year end from December 31 to a ~~52/53~~52-53 week fiscal year ending on the ~~last~~ Saturday ofclosest to December 31. The change is intended to align the ~~calendar year. All references to the quarter refer to Nanometrics’~~Company’s fiscal ~~quarter. The fiscal quarters reported herein are 13 week periods.~~

~~Use of Estimates~~ ~~– The preparation of financial statements in conformity~~periods more closely with ~~U.S. GAAP requires management to make estimates~~industry peers and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ materially from those estimates. Estimates are used for, but not limited to, revenue recognition, the provision for doubtful accounts, the provision for excess, obsolete, or slow-moving inventories, valuation of intangible and long-lived assets, warranty accruals, income taxes, valuation of stock-based compensation, and contingencies.

~~Except for the change below, the Company has consistently applied its accounting policies to all periods presented in these financial statements.~~

~~Leases~~ -improve comparability. The Company ~~adopted~~made the ~~new accounting standard Topic 842,~~ ~~Leases~~ ~~and all related amendments, as of December 30, 2018, the first day of its 2019~~ fiscal year ~~by electing to use~~change on a prospective basis and has not adjusted operating results for prior periods. The change affects the additional optional transition method permitted under the Topic of applying the new leases standard at the adoption date for all then-active leases and prospectively to leasing arrangements entered after the adoption date. The Company’s reporting for the comparative period presented in the financial statements continues to follow prior ~~U.S. GAAP.~~

~~The main impact of Topic 842 was to increase the transparency and~~year comparability of the Company’s fiscal quarters in 2020 and will result in shifts in the quarterly periods, which will not have a material impact on quarterly financial ~~statements by requiring~~results. The first fiscal quarter of 2020 began on January 1, 2020 and ended March 28, 2020 and is referred to throughout this report as the ~~recognition~~“three months ended March 28, 2020” or the “first quarter of ~~right of use assets (“ROU assets”) and lease liabilities~~2020.” The registrant’s current fiscal year will end on December 26, 2020.

Reclassifications. In conjunction with the ~~Company’s balance sheet for leases classified as operating leases under which~~Merger, the Company ~~is lessee. Under~~assessed the ~~Topic, disclosures are required~~need to ~~meet the objective of enabling users of the Company’s~~realign its financial ~~statements~~statement presentation and certain income statement classifications were adjusted with prior periods reclassified to ~~assess the amount, timing, and uncertainty of cash flows arising from such leases.~~

conform with current period presentation. The Company elected all available practical expedients, adopted an accounting policy to not recognize lease liabilities or ROU assets for short-term leases, and implemented internal controls and system functionality to enable the preparation of financial information upon adoption of Topic 842.

~~The Company has identified all its leases~~changes made were as operating leases, which primarily comprised leases for office space, data centers, colocation agreements, ISP services, logistics arrangements, equipment rental, and others. The Company’s lease accounting policy can be summarized into 4 categories, namely (1) identifying the lease, (2) classifying the lease, (3) measuring the lease, and (4) accounting for the lease.

~~Identifying the lease –~~ The Company evaluates each service contract upon inception to determine whether it is, or contains, a lease. Such determination is made by applying judgment in evaluating each service contract within the context of the 5-step decision making process under Topic 842. The key concepts of the 5-step decision making process that the Company must evaluate can be summarized as: (1) is there an identified physical asset, (2) does the Company have the right to substantially all the economic benefits from the asset throughout the contract period, (3) does the Company control how and for what purpose the asset is used, (4) does the Company operate the asset, and (5) did the Company design the asset in a way that predetermines how it will be used.

For the service contract to be identified as a lease there must be an underlying physical asset (step 1) that the Company can obtain substantially all the economic benefits from (step 2) by exercising control over (step 3) throughout the lease term. The Company has been able to identify which of its contracts are leases through its evaluations of steps 1, 2, and 3.

~~Classifying the lease –~~ Once the Company identifies a lease, it then applies judgment in evaluating the contract to determine how the lease should be classified. If any of the following criteria have been met the lease is classified as a financing lease, otherwise it is classified as an operating lease.follows:

The ~~Company has not entered into any contracts that transfer ownership~~impact of the ~~underlying identified asset~~COVID-19 pandemic continues to unfold. The extent of the pandemic’s effect on the Company’s operational and financial performance will depend in large part on future developments, which cannot be predicted with confidence at this time. Future developments include the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, the impact on governmental programs and budgets, the development of treatments or vaccines, and the

resumption of widespread economic activity. Due to the ~~Company by the end~~inherent uncertainty of the ~~lease term~~unprecedented and there are only a small number of individually insignificant leases that contain a purchase option, none of which the Company intends to exercise. The Company has evaluated its contracts under these criteria and has determined that all such contracts are operating leases.

The Company does not reassess the lease classification after the commencement date unless (a) the contract is modified, and the modification is not accounted for as a separate contract, (b) there is a change in the lease term, or (c) there is a change in the assessment of whetherrapidly evolving situation, the Company is ~~reasonably certain~~unable to ~~exercise an option to purchase~~predict with any confidence the ~~underlying asset.~~likely impact of the COVID-19 pandemic on its future operations.

Effective January 1, 2020, the Company ~~to record a ROU Asset and a lease liability at the lease commencement date for all leases. The Company does this by measuring and recording a lease liability equal~~adopted Accounting Standards Update (“ASU”) No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the present value of all remaining lease payments. The Company applies judgment in estimating the remaining lease term. For its offices, data centers, colocation agreements, ISP services and logistics it assesses the current lifeDisclosure Requirements for Fair Value Measurement.” This ASU is part of the ~~lease, defined renewal periods in~~Financial Account Standard Board’s (“FASB”) larger disclosure framework project intended to improve the contract (if any), the strategic plan for maintaining (or replacing) the asset among other factors in determining the future lease term when measuring the lease. While implementing Topic 842, the Company noted that none of its leases contained residual value guarantees, variable lease payments or any restrictions or covenants imposed by the lessors, outside of standard restrictions on subletting office space.

Under Topic 842, if the interest rate implicit in the lease is or can be known, the Company is required to use such rate. The rate implicit in the lease is not known for any of the Company’s leases, so the Company bases its interest rate on its incremental borrowing rate, using significant judgment to adjust its incremental borrowing rate to align with the term of the lease and the incremental borrowing rates in the countries in which the Company operates.

Once the Company has calculated the initial lease liability, it uses such measurement as the starting point for determining the ROU asset value. Any lease payments made to the lessor at or before the lease commencement date (for which the underlying service period has not expired) are added to the value of the initial lease liability along with any initial direct costs (such as broker’s commissions) incurred by the Company to arrive at the initial ROU asset value.

The Company initially measures the lease as of the lease commencement date, and except as noted below, it does not remeasure the lease. The Company applies significant judgment in considering all relevant factors that create an economic benefit (e.g.; contract-based, asset-based, entity-based, and market-based, among others) as of the commencement date in determining the initial lease term and future lease payments. For example, the Company exercises judgment in determining whether renewal periods will be exercised during the initial measurement process. If the Company believes it will exercise the renewal option, and the lease payments associated with the renewal periods are known or calculable, such renewal lease payments would be included in the initial measurement of the lease liability. Otherwise, even if the Company believes that it will exercise the renewal period, if the renewal payments are unknown or not calculable, they would not be included until they became known or calculable at which time the Company would remeasure the remaining lease payments similar to a lease modification.

At the implementation date, the Company measured its initial lease liability as $11.5 million for all leases in effect at such date. The Company determined it had made $0.1 million of lease payments to lessors at or before the implementation date for which the underlying service period had not expired; consequently, the Company initially recognized $11.6 million as a right to use asset at the implementation date. During the three and six-month periods ended June 29, 2019, the Company recognized $0.0 million and $0.7 million of lease liabilities and right of use assets related to contracts entered into during the respective period.

Generally, the Company does not reassess lease terms or purchase options, nor does it remeasure lease payments unless certain circumstances occur. The Company reassesses the lease term or its option to purchase the underlying asset only if and at the point in time that (a) there is a significant event of change in circumstances within the Company’s control that directly impacts the lease, (b) an event occurs that is written into the lease that obliges the Company to exercise an option, (c) the Company elects to exercise an option that it did not previously determine it was going to exercise, or (d) the Company decides to not exercise an option that it previously had determined it was going to exercise. The Company remeasures the lease payments if and at the point in time that (a) the lease is modified and the modification is not accounted for as a separate contract, (b) a contingency is resolved that causes variable lease payments to meet the definition of fixed lease payments, (c) the lease term changes, (d) the Company changes its assessment as to whether it will exercise an option to purchase the leased asset, or (e) there is a change in amounts probable of being owed under a residual guarantee value clause.

~~Accounting for the lease –~~ ~~Topic 842 requires the Company to recognize a ROU asset and a lease liability, initially measured as set forth above, for each of its operating leases in its statement~~effectiveness of financial ~~position. At adoption of Topic 842, any difference in the initial measurement of the ROU asset and the lease liability was charged~~statement footnote disclosure. ASU No. 2018-13 modifies required fair value disclosures related primarily to opening retained earnings as a cumulative effect adjustment; however, no such adjustment was recorded by the Company as the initial measurement resulted in no such difference. Topic 842 also requires the Company to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a straight-line basis in the statement of operations. The Company uses the effective interest rate method to accrete interest on the lease liability.

~~The components of lease expense for the three and six months ended June 29, 2019 were as follows (in thousands):~~

~~Other information related to leases as of and for the six months ended June 29, 2019 was as follows (in thousands, except as indicated):~~

The following table presents a maturity analysis of the Company’s leases (all of which are operating leases), showing the undiscounted annual cash flows for each of the periods presented with a reconciliation to the operating lease liabilities recognized in the Statement of Financial Position as of June 29, 2019 (in thousands):

~~Future minimum lease payments as of December 29, 2018 for the leases then in effect, as reported under previous guidance, was as follows (in thousands):~~

In June 2018, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update which simplifies the accounting for nonemployee share-based payment transactions. The accounting for share-based payments to nonemployees and employees will be substantially aligned because of this update. The standardLevel 3 investments. This ASU is effective for ~~public companies for fiscal years beginning after December 15, 2018, including interim~~annual periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The adoption of this guidance did not have a significant impact on the Company’s consolidated results of operations or consolidated statement of cash flows.

In February 2018, the FASB issued an accounting standard update that allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (“TCJA”). This accounting standard update eliminates the stranded tax effects from the TCJA and improves the usefulness of information reported to users of the Company’s financial statements. This standard is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of this guidance did not have a significant impact on the Company’s financial statements as an election was not made to reclassify such income tax effects from accumulated other comprehensive income to retained earnings.

In August 2018, the FASB issued an accounting standard update to provide additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019 and interim periods within those ~~fiscal years. Early~~annual periods. The adoption ~~is permitted. The amendments in this update should be applied retrospectively or prospectively to all implementation costs incurred after~~of ASU No. 2018-13 did not have a material impact on the ~~date of adoption. The Company is currently evaluating the effect of this update on its~~Company’s consolidated financial ~~condition and~~position, results of ~~operations.~~operations, and cash flows.

~~In August 2018,~~Effective January 1, 2020, the ~~FASB issued an~~Company adopted ASU No. 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.” This ASU amends the scope of modification accounting ~~standard update which improves~~for share-based payment arrangements and provides guidance on the ~~effectiveness~~types of ~~fair value measurement disclosures in the notes~~changes to the ~~financial statements.~~terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Accounting Standards Codification (“ASC”) 718. The ~~update~~ASU is effective for the fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. The adoption of ASU No. 2017-09 did not have a material impact on the Company’s consolidated financial position, results of operations, and cash flows.

Effective January 1, 2020, the Company adopted ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which represents a credit loss standard that changes the impairment model for most financial assets and certain other financial instruments. Specifically, this guidance requires entities to utilize a new “expected loss” model as it relates to trade receivables, notes receivable and other commitments to extend credit held by a reporting entity. In addition, entities are required to recognize an allowance for estimated credit losses on available-for-sale debt securities, regardless of the length of time that a security has been in an unrealized loss position. This guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those ~~fiscal years. Certain amendments within the update should be applied prospectively for only the most recent interim or~~ annual ~~period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all~~reporting periods, ~~presented upon their effective date. Early~~with early adoption is permitted. ~~Entities are permitted to early adopt any removed or modified disclosures upon issuance of this update and delay adoption of the additional disclosures until their effective date.~~ The adoption of ~~this guidance is~~ASU No. 2016-13 did not ~~expected to~~ have a ~~significant impact on the Company’s consolidated results of operations or consolidated statement of cash flows.~~

In January 2017, the FASB issued an accounting standard update which simplifies the subsequent measurement of goodwill and removes step 2 from the goodwill impairment test. Instead, an entity should record an impairment charge based on excess of a reporting unit’s carrying amount over its fair value. The standard is effective for public companies for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this guidance is not expected to have a significantmaterial impact on the Company’s consolidated financial ~~condition and~~position, results of ~~operations.~~operations, and cash flows.

In ~~June 2016,~~December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an ~~accounting standard update which requires measurement~~interim period and ~~timely~~the recognition of ~~expected credit losses~~deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill and allocating consolidated income taxes to separate financial ~~assets. The update~~statements of entities not subject to income tax. ASU No. 2019-12 is effective for fiscal years beginning after December 15, ~~2019, including interim~~2020, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods ~~within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The standard is to be~~presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the ~~first reporting period in which the guidance is effective.~~fiscal year of adoption. The Company is currently evaluating the ~~effect~~impact of this ~~update~~new standard on its consolidated financial ~~condition and~~position, results of ~~operations.~~operations, and cash flows.

On November 15, 2018, the Company completed the acquisition of 4D Technology Corporation (“4D”), an Arizona-based supplier of high-performance interferometric measurement inspection systems, for $42.5 million.

~~4D’s Dynamic Interferometry® solutions are used in~~Recently issued accounting guidance not discussed above is not applicable or is not expected to have a variety of industries to provide accurate shape and surface measurement data, which provides feedback to customers of optical quality, machine finish, and surface defectivity, to improve manufacturing yield and performance. The addition of 4D’s technology added new technologymaterial impact to the Company’s ~~portfolio, expanded its served markets with new applications in the scientific research, aerospace, industrial~~consolidated financial position, results of operations, and ~~optics manufacturing markets.~~cash flows.

Rudolph and Nanometrics completed the ~~three-month period ended June 29, 2019,~~Merger effective October 25, 2019. The Company accounted for the Merger as a reverse acquisition, using the acquisition method of accounting in accordance with generally accepted accounting principles, with Rudolph being treated as the accounting acquiring entity. The acquired assets and liabilities of Nanometrics were recorded at their respective fair values including an ~~immaterial~~amount for goodwill, which represents the purchase price ~~adjustment was recorded resulting~~paid in ~~an immaterial decrease~~excess of the fair value of the net tangible and intangible assets acquired and liabilities assumed, and is attributable primarily to ~~Goodwill for~~expected synergies, economies of scale and the ~~4D acquisition in 2018.~~ assembled workforce of Nanometrics.

The following table ~~presents~~summarizes the preliminary allocation of the total purchase ~~price allocation~~consideration to the initial estimated fair values of the assets acquired and liabilities assumed as of ~~November 15, 2018 (in thousands):~~October 25, 2019, as well as adjustments aggregating $478 to other non-current liabilities during the three months ended March 28, 2020:

Purchase Price Allocation
November 15, 2018

Cash and cash equivalents
$
1,414

Accounts receivable, net

4,156

Inventories

4,563

Prepaid and other current assets

104

Property and equipment

145

Accounts payable

(702
)
Accrued liabilities

(760
)
Deferred revenue

(197
)
Deferred tax liabilities

(5,408
)
Total assets acquired/liabilities assumed

3,315

Developed technology

15,500

In-process research and development

1,400

Customer relationships

4,600

Order backlog

500

Trade name

1,500

Total identified intangible assets

23,500

Total identifiable net assets

26,815

Goodwill

15,700

Total purchase consideration
$
42,515

Cash and cash equivalents	$	43,882
Marketable securities		94,389
Account receivables		49,917
Inventories		98,478
Prepaid expenses and other current assets		7,734
Property, plant and equipment		77,451
Operating lease right-of-use assets		9,658
Identifiable intangible assets		374,900
Deferred income taxes		1,352
Other assets		850
Total assets acquired		758,611
Accounts payable		(23,361	)
Payroll and related expenses		(20,290	)
Deferred revenue		(5,931	)
Other current liabilities		(10,739	)
Income taxes payable		(2,699	)
Other non-current liabilities		(90,591	)
Net assets acquired		605,000
Goodwill		285,131
Total purchase consideration	$	890,131

The Company ~~disaggregates its revenue from contracts with customers by geographic location. See Note 15~~applies a three-level valuation hierarchy for ~~further information.~~

During the three and six months ended June 29, 2019 the Company recognized $1.7 million and $3.2 million of revenue related to amounts that had been reported as contract liabilities at December 29, 2018. Net contract liabilities at June 29, 2019 decreased by $1.5 million from December 29, 2018. The Company classifies its contract liabilities as deferred revenue on its condensed consolidated balance sheet.

~~Most of the Company’s remaining performance obligations on contracts with customers are expected to be recognized as revenue within the next six to twelve months.~~

~~The Company determines the fair values of its financial instruments based on the~~ fair value ~~hierarchy established in FASB Accounting Standards Codification (“ASC”) 820,~~ ~~Fair Value Measurement~~, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The classification of a financial asset or liability within the hierarchy is based upon the lowest level input that is significant to the fair value measurement. The fair valuemeasurements. This hierarchy prioritizes the inputs into ~~the following~~ three ~~levels that may be used to measure fair value:~~

broad levels. Level 1 ~~— Quoted~~ inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 ~~— Inputs other than Level 1 that~~ inputs are ~~observable, either directly or indirectly, such as~~ 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 ~~financial instrument.~~

asset or liability. Level 3 ~~— Unobservable~~ 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 ~~are supported by little or no market activity and are~~is significant to the fair value measurement.

future cash flows, which reflects the Company’s estimate of debt with similar terms in the current credit markets. As there is currently minimal activity in such markets, the actual rate could be materially different.

Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard assumes that the transaction to sell the asset or transfer the liability occurs in the principal or most advantageous market for the asset or liability and establishes that the fair value of an asset or liability shall be determined based on the assumptions that market participants would use in pricing the asset or liability.

The following tables ~~present~~provide the ~~Company’s~~ assets and liabilities carried at fair value measured on a recurring basis at March 28, 2020 and December 31, 2019:

			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)
March 28, 2020
Assets:
Available-for-sale debt securities:
Municipal notes and bonds	$	70,785	$	—	$	70,785	$	—
Asset-backed securities		12,159		—		12,159		—
Certificates of deposit		32,905		—		32,905		—
Commercial paper		42,446		—		42,446		—
Corporate bonds		32,334		—		32,334		—
Foreign currency forward contracts		283		—		283		—
Total assets	$	190,912	$	—	$	190,912	$	—
Liabilities:
Contingent consideration - acquisitions	$	569	$	—	$	—	$	569
Total liabilities	$	569	$	—	$	—	$	569

December 31, 2019
Assets:
Available-for-sale debt securities:
Municipal notes and bonds	$	81,108	$	—	$	81,108	$	—
Asset-backed securities		10,779		—		10,779		—
Certificates of deposit		30,507		—		30,507		—
Commercial paper		30,708		—		30,708		—
Corporate bonds		36,461		—		36,461		—
Foreign currency forward contracts		120		—		120		—
Total assets	$	189,683	$	—	$	189,683	$	—
Liabilities:
Contingent consideration - acquisitions	$	569	$	—	$	—	$	569
Total liabilities	$	569	$	—	$	—	$	569

The Company’s 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 liabilities consisted of contingent consideration related to an acquisition for which the Company uses a discounted cash flow model to value these liabilities. The Level 3 assumptions used in the discounted cash flow model for the contingent consideration included projected revenue, timing of cash flows and estimates of discount rates of 0.0% and 9.2% for the three months ended March 28, 2020 and March 31, 2019, respectively. A significant decrease in the projected revenue or increase in discount rates could result in a significantly lower fair value measurement for the contingent consideration.

This table presents a reconciliation of all liabilities measured at ~~estimated~~ fair value on a recurring basis ~~excluding accrued interest components, categorized in accordance with~~using significant unobservable inputs (Level 3) for the three months ended March 28, 2020:

See Note 4 for additional discussion regarding the fair value ~~hierarchy (in thousands), as~~ of the ~~following dates:~~Company’s marketable securities.

June 29, 2019

December 29, 2018

Fair Value Measurements
Using Input Types

Fair Value Measurements
Using Input Types

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Assets:

Cash equivalents:

Money market funds

$
10,964

$
—

$
—

$
10,964

$
113

$
—

$
—

$
113

Commercial paper

—

24,937

—

24,937

—

1,993

—

1,993

Certificates of deposit

—

2,000

—

2,000

—

—

—

—

Total cash equivalents

$
10,964

$
26,937

$
—

$
37,901

$
113

$
1,993

$
—

$
2,106

Marketable securities:

Certificates of deposits

$
—

$
13,013

$
—

$
13,013

$
—

$
9,497

$
—

$
9,497

Commercial paper

—

14,066

—

14,066

—

7,932

—

7,932

Corporate debt securities

—

15,301

—

15,301

—

15,730

—

15,730

Asset-backed Securities

—

8,567

—

8,567

—

7,682

—

7,682

Total marketable securities

$
—

$
50,947

$
—

$
50,947

$
—

$
40,841

$
—

$
40,841

Total⁽¹⁾

$
10,964

$
77,884

$
—

$
88,848

$
113

$
42,834

$
—

$
42,947

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates fair ~~values~~value because of the ~~marketable securities that are classified as Level 1 in the table above were derived from quoted market prices for identical assets or liabilities in active markets that the Company can access.~~short-term maturity of these instruments. The estimated fair value of ~~marketable securities that are classified as Level 2 in~~these obligations is based, primarily, on a market approach, comparing the ~~table above were derived from non-binding~~Company’s interest rates to those rates the Company believes it would reasonably receive upon re-entry into the market. Judgment is required to estimate the fair value using available market consensus prices that were corroborated by observable market data, quoted market prices for similar instruments, or pricing models, such as discounted cash flow techniques with all significant inputs derived from or corroborated by observable market data. There were no transfers of instruments between Level 1, Level 2information and ~~Level 3 during the financial periods presented.~~appropriate valuation methods.

The Company ~~uses foreign currency exchange forward contracts~~has evaluated its investment policies and determined that all of its marketable securities, which are comprised of debt securities, are to ~~mitigate variability in gains and losses generated from the re-measurement of certain monetary assets and liabilities denominated in foreign currencies. These derivatives~~be classified as available-for-sale. The Company’s available-for-sale debt securities are carried at fair value, with ~~changes recorded~~the unrealized gains and losses reported in Stockholders’ equity under the caption “Accumulated other income (expense), net in the condensed consolidated statements of operations. Changes in the fair value of these derivatives are largely offset by re-measurement of the underlying assets and liabilities. The derivatives have maturities of approximately 30 days.

The settlement result of forward foreign currency contracts included in the three and six months ended June 29, 2019 was a loss of $0.5 million and a loss of $0.7 million, respectively, and for the three and six months ended June 30, 2018 was a loss of $0.7 million and a loss of $1.7 million, respectively.

~~The following table presents the notional amounts and fair values of the Company’s outstanding derivative instruments in U.S. Dollar equivalent as of the following dates (in millions):~~

~~The following tables present cash, cash equivalents, and available-for-sale investments as of the following dates (in thousands):~~

June 29, 2019

December 29, 2018

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Market
Value

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Market
Value

Cash
$
56,134

$
—

$
—

$
56,134

$
108,845

$
—

$
—

$
108,845

Cash equivalents:

Money market funds

10,964

—

—

10,964

113

—

—

113

Commercial paper

24,937

—

—

24,937

1,993

—

—

1,993

Certificates of deposit

2,000

—

—

2,000

—

—

—

—

Marketable securities:

Certificates of deposit

13,003

10

—

13,013

9,500

—

(3
)

9,497

Commercial paper

14,063

3

—

14,066

7,933

—

(1
)

7,932

Corporate debt securities

15,281

20

—

15,301

15,788

—

(58
)

15,730

Asset-backed securities

8,550

17

—

8,567

7,706

—

(24
)

7,682

Total cash, cash equivalents, and marketable securities
$
144,932

$
50

$
—

$
144,982

$
151,878

$
—

$
(86
)

$
151,792

Available-for-sale marketable securities, readily convertible to cash, with maturity dates of 90 days or less are classified as cash equivalents, while those with maturity dates greater than 90 days are classified as marketable securities within short-term assets. All marketable securities as of June 29, 2019 and December 29, 2018, were available-for-sale and reported at fair value based on the estimated or quoted market prices as of the balance sheet date.

comprehensive loss.” Realized gains and losses on ~~sale~~available-for-sale securities are included in “Other income, net” on the Condensed Consolidated Statements of Operations. The Company records other-than-temporary impairment charges for its available-for-sale debt securities when it intends to sell the securities, it is more-likely-than not that it will be required to sell the securities before a recovery, or when it does not expect to recover the entire amortized cost basis of the securities. The cost of securities ~~are recorded in other income (expense), net, in~~sold is based on the ~~Company’s condensed consolidated statement of operations. For the three and six months ended June 29, 2019 and June 30, 2018, net realized gains and losses were not material.~~specific identification method.

~~Unrealized gains or losses, net of tax effect, are recorded in accumulated other comprehensive income (loss) within stockholders’ equity. Both~~The Company has determined that the gross unrealized ~~gains~~losses on its marketable securities at March 28, 2020 and December 31, 2019 are temporary in nature. The Company reviews its investment portfolio to identify and evaluate marketable securities that have indications of possible impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, credit quality and the Company’s ability and intent to hold the securities for a period of time sufficient to allow for any anticipated recovery in market value.

At March 28, 2020 and December 31, 2019, marketable securities are categorized as follows:

	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Fair Value
March 28, 2020
Municipal notes and bonds	$	70,499	$	296	$	10	$	70,785
Asset-backed securities		12,216		2		59		12,159
Certificates of deposit		33,154		13		262		32,905
Commercial paper		42,511		1		66		42,446
Corporate bonds		32,507		6		179		32,334
Total marketable securities	$	190,887	$	318	$	576	$	190,629
December 31, 2019
Municipal notes and bonds	$	80,926	$	188	$	6	$	81,108
Asset-backed securities		10,767		12		—		10,779
Certificates of deposit		30,500		7		—		30,507
Commercial paper		30,707		1		—		30,708
Corporate bonds		36,409		52		—		36,461
Total marketable securities	$	189,309	$	260	$	6	$	189,563

The amortized cost and estimated fair value of marketable securities classified by the maturity date listed on the security, regardless of the Condensed Consolidated Balance Sheets classification, is as follows at March 28, 2020 and December 31, 2019:

The following table summarizes the estimated fair value and gross unrealized holding losses ~~for the three and six months ended June 29, 2019 and June 30, 2018 were not material, and no~~of marketable securities, ~~had other than temporary impairment.~~aggregated by investment instrument and period of time in an unrealized loss position, at March 28, 2020 and December 31, 2019:

~~All marketable securities as of June 29, 2019 and December 29, 2018 had maturity dates of less than 33 months.~~

	In Unrealized Loss Position For Less Than 12 Months				In Unrealized Loss Position For Greater Than 12 Months
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
March 28, 2020
Municipal notes and bonds	$	5,086	$	10	$	—	$	—
Asset-backed securities		10,978		59		—		—
Certificates of deposit		23,841		262		—		—
Commercial paper		22,457		66		—		—
Corporate bonds		25,458		179		—		—
Total	$	87,820	$	576	$	—	$	—
December 31, 2019
Municipal notes and bonds	$	14,166	$	6	$	—	$	—
Total	$	14,166	$	6	$	—	$	—

See Note 3 for additional discussion regarding the fair value of the Company’s marketable securities.

~~Note 7. Accounts Receivable~~NOTE 5. Derivative Instruments and Hedging Activities

The Company, ~~maintains arrangements under which eligible accounts receivable~~when it considers it to be appropriate, enters into forward contracts to hedge the economic exposures arising from foreign currency denominated transactions. At March 28, 2020 and December 31, 2019, these contracts included the future sale of Japanese Yen, Korean Won, Taiwanese dollar and Chinese Yuan Renminbi to purchase U.S. dollars. Foreign currency forward contracts are not designated as hedges for accounting purposes and therefore, the change in ~~Japan are sold without recourse to unrelated third-party financial institutions. These receivables were not included~~fair value is recorded in general and administrative expenses in the ~~condensed consolidated balance sheets as the criteria for sale treatment had been met.~~Condensed Consolidated Statements of Operations. The Company ~~pays administrative fees as well as interest, which ranged 0.63% to 1.68% during~~records its forward contracts at fair value in either prepaid expenses and other current assets or other current liabilities in the ~~six months ended June 29, 2019, based on the anticipated length of time between the date the sale is consummated, and the expected collection date~~Condensed Consolidated Balance Sheets.

The dollar equivalent of the ~~receivables sold.~~U.S. dollar forward contracts and related fair values as of March 28, 2020 and December 31, 2019 were as follows:

~~The Company sold $2.1~~ ~~million~~Purchased intangible assets as of March 28, 2020 and ~~$11.6 million of receivables during~~December 31, 2019 are as follows:

	Gross Carrying Amount		Accumulated Amortization		Net
March 28, 2020
Finite-lived intangibles:
Developed technology	$	326,726	$	78,636	$	248,090
Customer and distributor relationships		69,261		13,739		55,522
Trademarks and trade names		12,461		4,451		8,010
Total finite-lived intangible assets		408,448		96,826		311,622
In-process research and development		46,600		—		46,600
Total identifiable intangible assets	$	455,048	$	96,826	$	358,222
December 31, 2019
Finite-lived intangibles:
Developed technology	$	326,726	$	67,861	$	258,865
Customer and distributor relationships		69,261		11,078		58,183
Trademarks and trade names		12,461		4,156		8,305
Total finite-lived intangible assets		408,448		83,095		325,353
In-process research and development		46,600		—		46,600
Total identifiable intangible assets	$	455,048	$	83,095	$	371,953

Intangible assets amortization expenses for the three months ended ~~June 29,~~March 28, 2020 and March 31, 2019 were $13,732 and ~~June 30,~~$387, respectively. Assuming no change in the gross carrying value of identifiable intangible assets and estimated lives, estimated amortization expenses for the remainder of fiscal 2020 are $40,009, and for each of the next five fiscal years estimated amortization expenses are $48,009 for 2021, $47,610 for 2022, $47,135 for 2023, $41,450 for 2024, and $24,900 for 2025.

On May 31, 2018, ~~respectively,~~the Company entered into a convertible note agreement with Simax Precision Technologies Limited (“the borrower”), which allowed them to borrow up to $15,000 in multiple promissory notes with an interest rate of 4.25% per annum payable on a semi-annual basis. The Company expected to be a supplier of lithography modules to Simax, which is used in the manufacture, sale and ~~$14.2 million~~service of lithography systems.

During the first quarter of 2020, the Company and ~~$33.5 million~~the borrower entered into a settlement agreement to end their relationship as it pertains to this convertible note agreement. At the time of ~~receivables during~~ the ~~six months ended June 29, 2019~~settlement, the Company had $5,000 in outstanding convertible notes receivable with the borrower and ~~June 30, 2018, respectively. There were no amounts due from such third-party financial institutions at June 29, 2019 and December 29, 2018.~~

~~The following tables provide details~~the settlement amount of ~~selected financial statement components~~$2,848 was agreed to by both parties. Therefore, the Company increased its reserve against the convertible notes receivable to $2,152 as of March 28, 2020. The settlement was subsequently paid in April 2020.

Inventories, net are comprised of the ~~following dates (in thousands):~~following:

At

June 29, 2019

December 29, 2018

Inventories:

Raw materials and sub-assemblies

$
35,880

$
31,434

Work in process

21,061

22,383

Finished goods

9,689

8,098

Inventories

66,630

61,915

Inventories-delivered systems

1,010

180

Total inventories

$
67,640

$
62,095

Property, plant and equipment, net:⁽¹⁾

Land

$
15,570

$
15,571

Machinery and equipment

37,608

39,898

Building and improvements

26,344

21,354

Software

10,377

10,116

Furniture and fixtures

2,471

2,551

Leasehold improvements

1,774

-

Capital in progress

4,505

6,027

Total property, plant and equipment, gross

98,649

95,517

Accumulated depreciation and amortization

(45,870
)

(47,617
)
Total property, plant and equipment, net

$
52,779

$
47,900

⁽¹⁾Depreciation and amortization expense of property, plant and equipment was $1.9 million and $1.6 million for the three months ended June 29, 2019 and June 30, 2018, respectively, and $3.5 million and $3.3 million for the six months ended June 29, 2019 and June 30, 2018, respectively.

Other Current Liabilities:

Accrued warranty

$
3,755

$
4,379

Accrued taxes

965

1,738

Customer deposits

388

293

Accrued professional services

625

448

Third party commissions

249

1,382

Other

1,326

1,181

Total other current liabilities

$
7,308

$
9,421

	March 28, 2020		December 31, 2019
Materials	$	110,392	$	108,492
Work-in-process		26,988		42,694
Finished goods		23,163		24,948
Total inventories, net	$	160,543	$	176,134

Other assets is comprised of ~~Accumulated Other Comprehensive Income (Loss)~~the following:

The items above, except for unrealized income (loss) on investment, did not impact the Company’s income tax provision. The amounts reclassified from each component of accumulated other comprehensive income (loss) into income statement line items were insignificant.

~~Goodwill~~Accrued liabilities is recorded at cost and tested for potential impairment at least annually. Goodwill was $26.3 million as of June 29, 2019 and $26.4 million as of December 29, 2018. During the three-month period ended June 29, 2019 an immaterial purchase price adjustment was recorded resulting in an immaterial decrease to Goodwill for the 4D acquisition in 2018.

~~Intangible assets are recorded at cost, less accumulated amortization. Certain~~comprised of the Company’s intangible assets are denominated in foreign currencies. The aggregate $68,000 increase in the adjusted cost basis of the Company’s intangible assets as of June 29, 2019, as compared with December 29, 2018, was due to foreign currency movements. Such foreign currency movements also increased the June 29, 2019 balance of accumulated amortization of intangible assets by $68,000 as compared with December 29, 2018. During the three months ended June 29, 2019 the Company reclassified $0.5 million of in-process research and development to developed technology as the underlying technology was complete and incorporated into certain products sold. Intangible assets as of June 29, 2019 and December 29, 2018 consisted of the following (in thousands):following:

The Company generally sells its products with a 12 months repair or replacement warranty from the date of acceptance or shipment date. The Company accrues estimated future warranty costs based upon the historical relationship of warranty costs to the cost of products sold. The estimated future warranty obligations related to product sales are recorded in the period in which the related revenue is recognized. The estimated future warranty obligations are affected by the warranty periods, sales volumes, product failure rates, material usage, and labor and replacement costs incurred in correcting a product failure. If actual product failure rates, material usage, labor or replacement costs were to differ from the Company’s estimates, revisions to the estimated warranty obligations would be required. For new product introductions where limited or no historical information exists, the Company may use warranty information from other previous product introductions to guide it in estimating its warranty accrual.

~~Components of the warranty accrual, which were included in the accompanying condensed consolidated balance sheets with other current liabilities, were as follows (in thousands):~~

~~Merger – Rudolph Technologies, Inc.~~ ~~– On June 23, 2019, the~~Factoring

The Company entered into an Agreement and Plan of Merger (“Merger”) with Rudolph Technologies, Inc. (“Rudolph”) and PV Equipment Inc., a wholly-owned subsidiary of the Company. Consummation of the merger is subjectmaintains arrangements under which eligible accounts receivable in Japan are sold without recourse to certain closing conditions including regulatory approvals and shareholder approval from both the Company’s shareholders and those of Rudolph. Under the terms and subject to the conditions set forth in the Merger, at the effective time of the Merger, each outstanding share of common stock, par value $0.001 per share, of Rudolph will be converted into 0.8042 shares of common stock, par value $0.001, of the Company. At the effective time of the Merger, Rudolph’s common stockholders will own approximately 50%, and the Company’s common stockholders will own approximately 50%, of the outstanding shares of common stock of the combined company on a fully diluted basis. The Agreement and Plan of Merger, as well as other related documentsunrelated third-party financial institutions. These receivables were not included in the ~~Company’s Current Report~~condensed consolidated balance sheets as the criteria for sale treatment had been met. The Company sold $3,777 of ~~Form 8-K filed with~~receivables during the ~~SEC~~three months ended March 28, 2020. There were no material gains or losses on ~~June 24, 2019.~~the sale of such receivables. There were 0 amounts due from such third-party financial institutions at March 28, 2020.

The Company ~~will, from time to time,~~has entered into agreements with customers that include limited intellectual property indemnification obligations that are customary in the ~~normal course~~industry. These guarantees generally require the Company to compensate the other party for certain damages and costs incurred as a result of ~~business, agree to indemnify certain customers, vendors or others against third party claims that the Company’s products, when used for their intended purpose(s), or the Company’s~~third-party intellectual property ~~infringe~~claims arising from these transactions. The nature of the intellectual property ~~rights~~indemnification obligations prevents the Company from making a reasonable estimate of ~~such third parties or other claims made against parties with whom it enters into contractual relationships. It is not possible to determine~~ the maximum potential amount ~~of liability under these indemnification obligations due~~it could be required to ~~the limited history of prior indemnification claims and the unique facts and circumstances that are likely~~pay to ~~be involved in each particular claim.~~its customers. Historically, the Company has not made any indemnification payments under ~~these obligations~~such agreements, and ~~believes that the estimated fair value of these agreements is immaterial. Accordingly, no liabilities have~~0 amount has been ~~recorded for these obligations~~accrued in the accompanying ~~condensed~~ consolidated ~~balance sheets~~financial statements with respect to these indemnification guarantees.

The Company generally provides a warranty on its products for a period of 12 to 14 months against defects in material and workmanship. The Company estimates the costs that may be incurred during the warranty period and records a liability in the amount of such costs at the time revenue is recognized. The Company’s estimate is based primarily on historical experience. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Settlements of ~~June 29, 2019~~warranty reserves are generally associated with sales that occurred during the 12 to 14 months prior to the year-end and ~~December 29, 2018.~~warranty accruals are related to sales during the same year.

Warranty reserves are reported in the Condensed Consolidated Balance Sheets under the caption “Accrued liabilities.”

From time to time, the Company is subject to ~~various~~ legal proceedings orand claims ~~arising~~ in the ordinary course of business. The following reflects an overview of the material activities with regard to these matters.

Optical Solutions Inc. v. Nanometrics Incorporated (Case No. 18-cv-00417-BLF): On August 2, 2017, ~~the Company~~Nanometrics was named as defendant in a complaint filed in New Hampshire Superior Court ~~(“Complaint”~~(the “Complaint”). The Complaint, brought by Optical Solutions, Inc. (“OSI”), alleges claims arising from a purported exclusive purchase contract between OSI and ~~the Company~~Nanometrics pertaining to certain product. On September 18, 2017, ~~the Company~~Nanometrics removed the action to the United States District Court for the District of New Hampshire. On September 25, 2017, ~~the Company~~Nanometrics moved to transfer the Complaint to the District Court for the Northern District of ~~California.~~California (the “Court”). On December 20, 2017, ~~the Company~~Nanometrics filed its complaint against OSI in the California Superior Court for the County of Santa Clara alleging claims arising from OSI’s breach of certain purchase orders. ~~The Company’s~~Nanometrics’ complaint was later removed by OSI to the Northern District of California. On May 29, 2018, the District Court of New Hampshire issued an order granting ~~the Company’s~~Nanometrics’ motion to transfer ~~OSI’s~~the Complaint to the Northern District of California and denying ~~the Company’s~~Nanometrics’ motion to dismiss the Complaint without prejudice. On June 14, 2018, ~~OSI’s~~the Complaint was consolidated with ~~the Company’s~~Nanometrics’ complaint against OSI. On August 9, 2018, OSI filed an Amended Complaint. On September 19, 2018, ~~the Company~~Nanometrics filed a motion to dismiss OSI’s Amended Complaint for failure to state a claim. ~~The Company’s~~Nanometrics’ motion to dismiss was heard on February 28, 2019. On March 5, 2019, the Court granted ~~the Company’s motion~~Nanometrics’ Motion to ~~dismiss~~Dismiss with leave to amend.

OSI filed a Second Amended Complaint on March 29, 2019. ~~The Company~~Nanometrics filed a motion to dismiss ~~the~~OSI’s Second Amended Complaint on May 31, 2019. ~~A hearing on~~In October 2019, Nanometrics was renamed Onto Innovation Inc. as a result of the Merger. Thereafter, the Company’s second motion to dismiss was heard on November 14, 2019. On November 26, 2019, the ~~Second~~Court granted the Company’s Motion to dismiss with leave to amend. OSI filed a Third Amended Complaint ~~is scheduled for November 14, 2019.~~on January 21, 2020. On March 2, 2020, the Company filed a motion to dismiss OSI’s Third Amended Complaint. Trial has been set for May 16, 2022. At this time, the Company does not anticipate the outcome of this matter to have a material impact on its financial position, results of operations, or cash flows.

The Company has a credit agreement with a bank that provides for a line of credit which is secured by the marketable securities the Company has with the bank. The Company is permitted to borrow up to 70% of the value of eligible securities held at the time the line of credit is accessed. The available line of credit as of March 28, 2020 was approximately $71.1 million with an available interest rate of 1.8%. The credit agreement is available to the Company until such time that either party terminates the arrangement at their discretion. The Company has not utilized the line of credit to date.

The following table represents a disaggregation of revenue by timing of revenue:

See Note 16 of the Notes to the Condensed Consolidated Financial Statements for additional discussion of the Company’s disaggregated revenue in detail.

The Company records contract liabilities when the customer has been billed in advance of the Company completing its performance obligations. These amounts are recorded as deferred revenue in the Condensed Consolidated Balance Sheets.

A summary of the Company’s restricted stock unit activity with respect to the three months ended March 28, 2020 is as follows:

As of March 28, 2020 and December 31, 2019, there was $22,111 and $22,230 of total unrecognized compensation cost related to restricted stock units granted under the Company’s stock plans, respectively. That cost is expected to be recognized over a weighted average period of 1.9 years for each of the respective periods.

The income tax provision for the three months ended March 28, 2020 was computed based on the Company’s annual forecast of profit by jurisdiction and forecasted effective tax rate for the year. The changes in the Company’s effective tax rate for the three months ended March 28, 2020 as compared to the three months ended March 31, 2019 are primarily due to (i) changes in the mix of forecasted earnings by jurisdictions, (ii) computed research and development credits on forecasted earnings levels, and (iii) a one-time provision for additional withholding tax related to a dividend distribution from the Company’s Korea subsidiary. The Company’s recorded effective tax rate is less than the U.S. statutory rate primarily due to projected Foreign Derived Intangible Income Deductions and federal research and development tax credits.

The Company currently has a partial valuation allowance recorded against certain foreign and state net operating loss ~~when~~and credit carryforwards where the realizability of such deferred tax assets is substantially in doubt. Each quarter, the Company assesses the likelihood that it ~~believes~~will be able to recover its deferred tax assets. The Company considers available evidence, both positive and negative, including forecasted earnings in assessing its need for a valuation allowance. As a result of the Company’s analysis, it concluded that it is ~~both probable~~more likely than not that a ~~loss has been incurred and the amount can~~portion of its deferred tax assets will not be ~~reasonably estimated. Based on current information,~~realized. Therefore, the Company ~~believes it does not have any probable~~continues to provide a valuation allowance against certain deferred tax assets. The Company continues to monitor available evidence and ~~reasonably estimable losses related~~may reverse some or all of the remaining valuation allowance in future periods, if appropriate. The Company has a recorded valuation allowance against certain of its deferred tax assets of $14,116 and $14,160 as of March 28, 2020 and December 31, 2019, respectively.

On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security Act” (the “CARES Act”) was enacted. The CARES Act includes provisions relating to ~~any current legal proceedings~~refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and ~~claims. Although it~~technical corrections to tax depreciation methods for qualified improvement property. The Company is ~~difficult to predict~~currently analyzing the ~~outcome of legal proceedings, the Company believes that any liability that may ultimately arise from the resolution~~impact of these ~~ordinary course matters will~~changes and therefore an estimate of the impact to income taxes is not ~~have a material adverse effect on the business, financial condition and results of operations.~~yet available.

~~The Company presents both basic and diluted net income~~Basic earnings (loss) per share onis calculated using the face of its condensed consolidated statements of operations. Basic net income per share excludes the effect of potentially dilutive shares and is computed by dividing net income by the weighted-averageweighted average number of shares of common stock outstanding ~~for~~during the period. Diluted ~~net income~~earnings per share is computed ~~using~~in the ~~weighted-average number of shares of~~same manner and also gives effect to all dilutive common stock equivalent shares outstanding ~~for~~during the ~~period plus~~period. Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive. In accordance with U.S. GAAP, these shares were not included in calculating diluted earnings per share. For the three months ended March 28, 2020, all ~~dilutive securities representing potential shares~~weighted average outstanding stock options and restricted stock units totaling 1,087, were excluded from the computation of ~~common~~diluted loss per share because the effect in the period

would be anti-dilutive. For the three months ended March 31, 2019, the weighted average number of restricted stock ~~outstanding during~~units excluded from the ~~period.~~computation of diluted earnings per share were 167.

~~A reconciliation of the share denominator of the~~The Company’s basic and diluted ~~net income~~earnings per share ~~computations for three and six months ended June 29, 2019 and June 30, 2018 is as follows (in thousands):~~

The fair value of each option and ESPP award is estimated on the grant date using the Black-Scholes valuation model and the assumptions noted in the following table. The expected lives of options granted were calculated using the simplified method allowed by the Staff Accounting Bulletin No. 107, ~~Share-Based Payment~~. The risk-free rates were based on the U.S Treasury rates in effect during the corresponding period of grant. The expected volatility was based on the historical volatility of the Company’s stock price. The dividend yield reflects that the Company has not paid any cash dividends since inception and does not intend to pay any cash dividends in the foreseeable future.

~~No stock options were awarded during the six months ended June 29, 2019 and June 30, 2018.~~

~~A summary of activity of stock options during the six months ended June 29, 2019 is~~amounts are as follows:

Number of
Shares
Outstanding
(Options)

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term (Years)

Aggregate
Intrinsic
Value
(in Thousands)

Options

Outstanding at December 29, 2018

83,394

$
15.80

1.19

$
988

Exercised

(70,100
)

15.72

Cancelled

—

—

Outstanding at June 29, 2019

13,294

16.19

1.05

246

Exercisable at June 29, 2019

13,294

$
16.19

1.05

$
246

	Three Months Ended
	March 28,			March 31,
	2020			2019
Numerator:
Net (loss) income	$	(4,404	)	$	7,576
Denominator:
Basic (loss) earnings per share - weighted average shares outstanding		50,121			24,863
Effect of potential dilutive securities:
Employee stock options and restricted stock units - dilutive shares		—			281
Diluted (loss) earnings per share - weighted average shares outstanding		50,121			25,144
(Loss) earnings per share:
Basic	$	(0.09	)	$	0.30
Diluted	$	(0.09	)	$	0.30

The aggregate intrinsic value in the above table represents the total pretax intrinsic value, based on the Company’s closing stock price of $34.71 and $27.65 as of June 29, 2019 and December 28, 2018, respectively, the last trading day of each period, which would have been received by the option holders had all option holders exercised their options as of such date.

~~Time-based RSUs are valued using the market value of the Company’s common stock on the date of grant, assuming no expectation of dividends paid.~~

~~A summary of activity for RSUs during the six months ended June 29, 2019 is as follows:~~

In addition to granting RSUs that vest on the passage of time only, the Company granted PSUs to certain executives. The PSUs vest in three tranches over one, two and three years based on the relative performance of the Company’s stock during those periods, compared to a peer group over the same period. If target stock price performance is achieved, 66.7% of the shares of the Company’s stock subject to the PSUs will vest and up to a maximum of 100% of the shares subject to the PSUs will vest if the maximum stock price performance is achieved for each tranche.

~~A summary of activity for PSUs for the six months ended June 29, 2019 is as follows:~~

The ~~preceding table reflects the maximum awards that can be achieved upon full vesting.~~

~~On the date~~accumulated other comprehensive loss, net of ~~grant, the Company estimated the fair value of PSUs using a Monte Carlo simulation model. The assumptions for the valuation of PSUs are summarized as follows:~~

Stock-based compensation expense for all share-based payment awards made to the Company’s employees and directors pursuant to the employee stock option and employee stock purchase plans by function were as follows (in thousands):

~~The Company accounts for income taxes under the provisions of ASC 740, Accounting for Income Taxes. The Company adjusts its effective~~ tax rate each quarter to be consistent with the estimated annual effective tax rate. The Company also records the tax effect of unusual or infrequently occurring discrete items, including changes in judgment about valuation allowances and effects of changes in tax laws or tax rates, in the interim period in which they occur. The Company's effective tax rate reflects the impact of a portion of its earnings being taxed in foreign jurisdictionsat March 28, 2020, as well as ~~a valuation allowance maintained on certain deferred tax assets.~~

~~The 2017 Tax Act created a new requirement that global intangible low-taxed income (“GILTI”) earned by controlled foreign corporations (“CFCs”) must be included currently in~~ the gross income of the CFCs’ U.S. shareholder. Under U.S. GAAP, the Company was allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). The Company’s selection of an accounting policy in 2018 with respect to the GILTI tax rules was to treat GILTI tax as a current period expense under the period cost method.

~~The decrease in the tax provision for 2019 from 2018 was primarily related to the Company’s decreased profitability~~activity for the three months ended ~~June 29, 2019 and the six months ended June 29, 2019,~~March 28, 2020, were as ~~well as less U.S. tax required on foreign earnings under the Tax Cuts and Jobs Act (“TCJA”).~~follows:

The Company continues to maintain a valuation allowance against its California and Switzerland deferred tax assets and recorded a valuation allowance against its U.K. deferred tax assets as of June 29, 2019 as a result of uncertainties regarding the realization of the assets due to cumulative losses and uncertainty of future taxable income. The Company will continue to assess the realizability of the deferred tax assets in each of the applicable jurisdictions and maintain the valuation allowances until sufficient positive evidence exists to support a reversal. In the event the Company determines that the deferred tax assets are realizable, an adjustment to the valuation allowance will be reflected in the tax provision for the period such determination is made.

The Company is subject to taxation in the U.S. and various states including California, and foreign jurisdictions including Korea, Japan, Taiwan, China, Singapore, Germany, U.K., Ireland, France, and Israel. Due to tax attribute carry-forwards, the Company is subject to examination for tax years 2003 forward for U.S. tax purposes. The Company is also subject to examination in various states for tax years 2002 forward. The Company is subject to examination for tax years 2011 forward for various foreign jurisdictions.

The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. The total amount of penalties and interest were not material as of June 29, 2019 and December 29, 2018. During the next twelve months, the Company anticipates increases in its unrecognized tax benefits of approximately $1.2 million.

~~Note 15.~~NOTE 16. Segment ~~Geographic, Product~~Reporting and ~~Significant Customer~~Geographic Information

The Company ~~has one~~and its subsidiaries currently operate in a single operating ~~segment, which is~~segment: the ~~sale,~~ design, development, manufacture ~~marketing~~ and support of ~~optical critical dimension~~high-performance process control defect inspection and ~~thin film systems.~~ metrology, advanced packaging lithography and process control software systems used by microelectronics device manufacturers. Therefore, the Company has 1 reportable segment. The Company’s chief operating decision maker is the Chief Executive Officer (the “CEO”). The CEO allocates resources and assesses performance of the business and other activities at the reportable segment level.

The following ~~tables summarize total net revenues and long-lived assets (excluding intangible assets) attributed to significant countries (in thousands):~~table lists the different sources of revenue:

Three Months Ended

Six Months Ended

June 29, 2019

June 30, 2018

June 29, 2019

June 30, 2018

Total net revenues:

United States

$
9,170

$
7,392

$
26,044

$
14,130

China

25,873

28,333

40,233

36,375

South Korea

13,070

30,980

27,038

68,798

Singapore

8,723

2,380

10,274

14,535

Japan

4,214

15,017

8,531

28,396

Taiwan

3,650

1,974

14,939

3,034

Other

2,920

2,528

7,661

5,649

Total net revenues

$
67,620

$
88,604

$
134,720

$
170,917

	Three Months Ended
	March 28,				March 31,
	2020				2019
Systems and software		114,330	82	%		49,809	82	%
Parts		13,575	10	%		8,077	13	%
Services		12,023	8	%		3,006	5	%
Total revenue	$	139,928	100	%	$	60,892	100	%

The Company’s significant operations outside the United States include sales, service and application offices in Asia and Europe. For geographical revenue reporting, revenue is attributed to the geographic location to which the product is shipped. Revenue by geographic region is as follows:

~~With respect to customer concentration, Micron Technology, Inc., SK hynix, and Yangtze Memory Technologies Co. Ltd. each~~The following customers accounted for more than 10% of total ~~sales~~revenue for the indicated periods:

Following the Merger, the Company assumed the share repurchase authorization previously approved by the former Nanometrics Board of Directors. This share repurchase authorization allows for the Company to purchase up to $80,000 worth of shares of its common stock. Under the terms of this share repurchase authorization, shares may be repurchased through open market or privately negotiated transactions. Share repurchases during the three months ended ~~June 29, 2019,~~March 28, 2020 were made under this repurchase authorization and ~~Intel Corporation, SK hynix, and Taiwan Semiconductor Manufacturing Company Limited each accounted~~at March 28, 2020, there was $46,385 available for more than 10% of total sales for the six months ended June 29, 2019. Intel Corporation, Samsung Electronics Co. Ltd., Toshiba Memory Corporation, and Yangtze Memory Technologies Co. Ltd. each accounted for more than 10% of total sales forfuture share repurchases. During the three months ended ~~June 30, 2018. Intel Corporation, Micron Technology, Inc., Samsung Electronics Co. Ltd., SK hynix, Toshiba Memory Corporation, and Yangtze Memory Technologies Co. Ltd. each accounted~~March 31, 2019, share repurchases were made under a legacy Rudolph share repurchase authorization which was terminated on October 25, 2019 due to closing of the Merger. See Note 2 for ~~more than 10% of total sales~~additional information regarding the Merger.

The following table summarizes the Company’s share repurchases for the ~~six months ended June 30, 2018.~~periods indicated:

With respect to accounts receivable concentration, Micron Technology, Inc., SK hynix, and Yangtze Memory Technologies Co. Ltd. each accounted for more than 10% of total accounts receivable as of June 29, 2019. SK hynix and Toshiba Memory Corporation each accounted for more than 10% of total accounts receivable as of December 29, 2018.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements in this Quarterly Report on Form 10-Q ~~contains~~of Onto Innovation are forward-looking statements, ~~that involve risks~~including those concerning anticipated effects of, and ~~uncertainties.~~future actions to be taken in response to, the COVID-19 pandemic, our business momentum and future growth, acceptance of our products and services, our ability to deliver both products and services consistent with our customers’ demands and expectations and to strengthen our market position, our expectations of the semiconductor market outlook, future revenue, gross profits, research and development and engineering expenses, selling, general and administrative expenses, product introductions, technology development, manufacturing practices, cash requirements, our dependence on certain significant customers and anticipated trends and developments in and management plans for our business and the markets in which we operate, our anticipated revenue as a result of acquisitions, and our ability to be successful in managing our cost structure and cash expenditures and results of litigation. The statements contained in this ~~document~~Quarterly Report on

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, ~~including, without limitation,~~as amended (the “Exchange Act”), and within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements regarding future periods, financial results, revenues, margins, growth, customers, tax rates, product performance, and the impact of accounting rules on our business and the future implications of our statements regarding goals, strategy, and similar terms. We may ~~identify these statements~~be identified by ~~the use of~~ words such as, but not limited to, “anticipate,” “believe,” “continue,” ~~“could,~~“estimate,” “expect,” “intend,” “plan,” “should,” “may,” ~~“might,” “project,~~“could,” “will,” “would,” “forecast,” “project” and ~~other~~words or phrases of similar ~~expressions. All~~meaning, as they relate to our management or us.

The forward-looking statements ~~included in this document~~contained herein reflect our expectations with respect to future events and are ~~based on information available~~subject to ~~us on the date hereof,~~certain risks, uncertainties and ~~we assume no obligation to update any such forward-looking statements, except as~~assumptions. Actual results may ~~otherwise be required by law.~~

~~Our actual results could~~ differ materially from those ~~anticipated~~included in ~~these~~such forward-looking statements for a number of reasons including, but not limited to, the following: effects of the COVID-19 pandemic and the measures being taken to limit the spread of COVID-19, including impact on demand for our products, reductions in production levels, R&D activities, and qualification activities with our customers, increased costs, disruptions to our supply chain and a decrease in availability under our credit agreement; 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 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 integrate the businesses of Rudolph and Nanometrics promptly and effectively and to achieve the anticipated synergies and value-creation contemplated by the Merger within the expected time frame; unanticipated difficulties or expenditures relating to the Merger and integration of the Rudolph and Nanometrics businesses; the response of business partners and retention as a result of ~~certain risks, uncertainties~~the Merger; the diversion of management time in connection with the integration; the effect of litigation related to the Merger; and ~~changes~~the “Risk Factors” set forth in ~~circumstances, many of which may be difficult to predict or beyond our control, including those factors referenced in this document, including in Part II,~~ Item 1A ~~Risk Factors below, and in Part I, Item 1A, Risk Factors, in our~~of the Company’s Annual Report on Form 10-K for the ~~fiscal~~ year ended December ~~29, 2018, filed~~31, 2019 (the “2019 Form 10-K”) and in Part II, Item 1A of this Quarterly Report on Form 10-Q. You should carefully review the cautionary statements and “Risk Factors” contained in the 2019 Form 10-K and in this report. 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 ~~(“SEC”~~(the “SEC”) ~~on February~~. The forward-looking statements reflect our position as of the date of this report and we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

On October 25, 2019, ~~(our “Annual Report”~~Onto Innovation Inc. (the “Company” or “Onto Innovation,” formerly known as Nanometrics Incorporated (“Nanometrics”)) consummated its previously announced merger (the “Merger”) with Rudolph Technologies, Inc. (“Rudolph”). ~~In particular, our~~Onto Innovation accounts for the Merger as a reverse acquisition using the acquisition method of accounting in accordance with generally accepted accounting principles, with Rudolph being treated as the acquiring entity for accounting purposes. Because Rudolph is treated as the accounting acquirer in the Merger, the financial statements filed with this Quarterly Report on Form 10-Q include the financial results ~~could vary significantly based on: changes in customer~~of Rudolph for all periods presented and industry spending; rate and extent of changes in product mix; adoption of new products; timing of orders, shipments, and acceptance of products; our ability to secure volume supply agreements; uncertainties related to our acquisition of ~~4D Technology Corporation;~~ ~~and general economic conditions. In evaluating our business, investors should carefully consider these factors in addition to any other risks and uncertainties set forth elsewhere. The occurrence~~the financial results of the ~~events described in~~former Nanometrics for the ~~risk factors of our Annual Report and risk factors elsewhere~~periods on or after October 26, 2019. As used in this report, unless the context suggests otherwise, the terms “we,” “us” or “our” refer to (i) Rudolph and its consolidated subsidiaries for periods through October 25, 2019 and (ii) Onto Innovation and its consolidated subsidiaries for periods on or after October 26, 2019. The terms the “Company” and “Onto Innovation” refer to the combined company following the consummation of the Merger.

The spread of COVID-19 during the first quarter of 2020 has caused an economic downturn on a global scale, as well as ~~other risks~~significant volatility in the financial markets. In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. As of May 5, 2020, our operations have been impacted by our pandemic response, as described below, and ~~uncertainties~~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. As governmental authorities implement restrictions on commercial operations, we have continued to ensure compliance with these directives while also maintaining business continuity for our essential operations. 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. Our operations at these offices are subject to various governmental directives and, as a result thereof, we have instituted a work-from-home policy for these employees to the extent practical. Where our essential employees are required to continue to report to work to perform their responsibilities, we have implemented staggered shifts or otherwise adjusted work schedules to maximize our operating capacity while adhering to applicable restrictions, including recommending distancing between persons. We have

also provided our essential employees with appropriate protective equipment and have enhanced and increased cleanings at our facilities. 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. We may take further actions that we determine to be in the best interests of our employees or as may be required by federal, state, or local authorities.

We cannot at this time predict the impact that the COVID-19 pandemic will have on our financial condition and operations, although we are continuing to monitor our supply chain and orders from customers for COVID-19-related changes. 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.

To date the coronavirus pandemic has disrupted the way that we conduct business, but has not had a material adverse impact on our operations. However, the extent of the pandemic’s effect on our operational and financial performance will depend in large part on future developments, which cannot be predicted with confidence at this time. Future developments include the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, such as the extent of restrictions on gatherings and travel, the impact on governmental programs and budgets, the development of treatments or vaccines, and the resumption of widespread economic activity. 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 ~~materially and adversely affect~~have a material adverse impact on our consolidated business, ~~operating~~ results of operations and financial condition. ~~While management believes that the~~For a discussion ~~and analysis in~~of certain COVID-19-related risks, see Part II, Item 1A – Risk Factors of this ~~report is adequate for a fair presentation~~Form 10-Q.

The preparation of ~~the information presented, we recommend that you read this discussion and analysis in conjunction with (i) our audited~~condensed consolidated financial statements and ~~notes thereto for the fiscal year ended December 29, 2018, which were included~~related disclosures in ~~our Annual Report, (ii) the section captioned “Risk Factors” in this Quarterly Report and our Annual Report, and (iii) our other filings~~conformity with ~~the SEC.~~

Together with our subsidiaries, we are an innovator in the field of optical metrology systems, optical inspection systems and advanced analytics for semiconductor manufacturing and other industries. Our systems and solutions are designed to precisely monitor optical critical dimensions, film thickness, and other parameters that are necessary to control the manufacturing process, identify defects, and detect manufacturing equipment anomalies that can affect production yields and device performance.

Principal factors that impact our revenue growth include capital expenditures by manufacturers of semiconductors to increase capacity and to enable their development of new technologies, and our ability to improve market share. The increasing complexity of the manufacturing processes for semiconductors is an important factor in the demand for our innovative metrology systems. Our strategy is to continue to innovate organically as well as to evaluate strategic acquisitions to address business challenges and opportunities.

In June 2019 we announced that we had entered into an Agreement and Plan of Merger with Rudolph Technologies, Inc. and PV Equipment Inc., a wholly-owned subsidiary of ours. The Agreement and Plan of Merger, as well as other related documents were included in the Current Report on Form 8-K that we filed with the SEC on June 24, 2019.

In November of 2018 we acquired 4D Technology Corporation (“4D”), based in Tucson Arizona. The 4D business unit offers a line of interferometry systems for the measurement and inspection of high precision surfaces. 4D’s solutions are used primarily in the manufacture of advanced aerospace and industrial systems as well as for scientific research and semiconductor applications.

We derive our revenues primarily from product sales but also from customer service and system upgrades for the installed base of our products. For the six months ended June 29, 2019, we derived 79% of our total net revenues from product, upgrade and software sales, and 21% of our total net revenues from services.

We offer a diverse line of systems to address the broad range of process control requirements of the semiconductor device and industrial manufacturing markets. In addition, we believe that our product development and engineering expertise and strategic acquisitions will enable us to develop and offer advanced process control solutions that, in the future, should address industry advancement and trends.

~~Our automated systems primarily consist of fully automated metrology systems that are employed in semiconductor production environments. The Atlas~~^® ~~family of products represent our line of high-performance metrology systems providing optical critical dimension (“OCD”~~^®) technology, thin film metrology and wafer stress metrology for transistor and interconnect metrology applications. The thin film and OCD technology is supported by our NanoCD suite of solutions including our NanoDiffract® software, SpectraProbe™ software and NanoGen™ scalable computing engine that enables visualization, modeling, and analysis of complex structures.

Our integrated metrology (“IM”) systems are installed directly onto wafer processing equipment to provide near real-time measurements for improved process control and maximum throughput. Our IM systems are sold directly to end user customers. The IMPULSE family of products include the latest technology for OCD, and thin film metrology, and have been successfully qualified on numerous independent Wafer Fabrication Equipment Suppliers’ platforms. Our NanoCD suite of solutions is sold in conjunction with our IMPULSE systems.

NanoDiffract® is a modeling, visualization and analysis software that takes signals from the metrology systems, providing critical dimension, thickness, and optical properties from in-line measurements. The software has an intuitive three-dimensional modeling interface to provide visualization of today’s advanced and complex semiconductor devices. There are proprietary fitting algorithms in NanoDiffract that enable very accurate and very fast calculations for signal processing for high fidelity model-based measurements. SpectraProbe is a model-less fitting engine that enables fast time to solution for in-line excursion detection and control. SpectraProbe complements the high-fidelity modeling of NanoDiffract with a simple machine learning interface for rapid recipe deployment. The software is supported by NanoGen, an enterprise scale computing hardware system that is deployed to run the computing intensive analysis software. NanoGen utilizes commercial server chips and networking architecture and is optimized to support the workload of NanoDiffract and SpectraProbe analysis.

Our materials characterization products include systems that are used to monitor the physical, optical, electrical and material characteristics of discrete electronic industry, opto-electronic, HB-LED (high brightness LEDs), solar PV (solar photovoltaics), compound semiconductor, strained silicon and silicon-on-insulator (“SOI”) devices, including composition, crystal structure, layer thickness, dopant concentration, contamination and electron mobility.

We have a broad portfolio of products for materials characterization including photoluminescence mapping and Fourier-Transform Infrared (“FTIR”) spectroscope in automated and manual systems for substrate quality and epitaxial thickness metrology. The NanoSpec^® ~~line supports thin film measurement across all applications in both low volume production and research applications.~~

In November of 2018 we acquired 4D Technology Corporation, based in Tucson Arizona. The 4D business unit offers a line of interferometry systems for the measurement and inspection of high precision surfaces. End markets include high precision optics surfaces and components, aerospace and defense components, and unique research and scientific instrumentation that requires the unique high-speed results of the 4D systems.

We are continually working to strengthen our competitive position by developing new technologies and products in our market segment. We have expanded our product offerings to address growing applications within the semiconductor manufacturing and adjacent industries. In pursuit of our goals, we have:

The semiconductor equipment industry is characterized by new manufacturing processes (node) coming to market every two to three years. At every new node in the semiconductor industry, our customers drive the need for metrology as a major component of device manufacturing. These trends include:

~~The preparation of our financial statements conforms to~~ accounting principles generally accepted in the United States ~~of America, which~~(“U.S. GAAP”) requires management to make judgments, assumptions and estimates ~~and judgments in applying our~~that affect the amounts reported. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below.

A critical accounting policy is defined as one that is both material to the presentation of our condensed consolidated financial statements and requires management to make difficult, subjective or complex judgments that could have ~~an important impact~~a material effect on our ~~reported amounts~~financial condition or results of ~~assets, liabilities, revenue, expenses~~operations. Specifically, these policies have the following attributes: (1) we are required to make judgments and ~~related disclosures~~assumptions about matters that are highly uncertain at the ~~date~~time of the estimate; and (2) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, could have a material effect on our financial ~~statements. On an ongoing basis, management evaluates its~~position and results of operations.

Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates ~~including those related to bad debts, inventory valuations, warranty obligations, impairment and income taxes. Management bases its estimates and judgments~~ on historical experience and on various other ~~factors that are~~assumptions believed to be applicable and reasonable under the ~~circumstances,~~circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. In addition, management is periodically faced with uncertainties, the ~~results~~outcomes of which ~~form the basis for making judgments about the carrying values of assets and liabilities that~~ are not ~~readily apparent from other sources. Actual results may differ from management’s estimates.~~

~~Except~~within our control and will not be known for ~~the changes noted below, there were no significant changes~~prolonged periods of time. Certain of these uncertainties are discussed in our ~~critical accounting policies during~~2019 Form 10-K in the ~~six months ended June 29, 2019. Please refer to Item 7,~~Items entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations,~~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 ~~Annual Report on Form 10-K filed with the SEC on February 25, 2019 for a complete discussion~~financial position and results of operations.

For more information, please see our critical accounting ~~policies.~~policies as previously disclosed in our 2019 Form 10-K.

We ~~adopted the new accounting standard ASC 842 and related amendments~~are a worldwide leader in the ~~first quarter~~design, development, manufacture and support of ~~fiscal 2019 using~~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 ~~alternative optional transition method. As such, we recognized the cumulative effect~~semiconductor fabrication process with our families of ~~initially applying the new lease standard~~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 ~~an adjustment~~“front-end” and device packaging and test facilities, or “back-end” manufacturing, through a portfolio of standalone systems for macro-defect inspection, lithography, probe card test and analysis, and transparent and opaque thin film measurements. All of our systems feature sophisticated software and production-worthy automation. In addition, our advanced process control software portfolio includes powerful solutions for standalone tools, groups of tools, or factory-wide suites to ~~the opening balance~~enhance productivity and achieve significant cost savings. Our systems are backed by worldwide customer service and applications support.

~~See Note 2~~Historically, a significant portion of ~~the Unaudited Condensed Consolidated Financial Statements for a description of recent accounting pronouncements, including the respective dates of adoption~~our revenue in each quarter and ~~effects or anticipated effects on our results of operations~~year has been derived from sales to relatively few customers, and ~~financial condition.~~

~~Our net revenues comprised the following (in thousands, except percentages):~~

Capital spending by our customers is dependent on the timing of new semiconductor fabrication plants, capacity expansion within existing plants, and the adoption of modern technology for current and future manufacturing needs. Results may vary significantly based on changes in any of these factors.we expect this trend to continue. For the three months ended June 29, 2019, total net revenues decreased by $21.0 million relative to the comparable period in fiscal 2018. The decrease comprised a $24.2 million decrease in product revenue, which was partially offset by a $3.2 million increase in service revenue compared to the same prior year period. For the six months ended June 29, 2019, total net revenues decreased by $36.2 relative to the comparable period in fiscal 2018. The decrease comprised a $41.3 million decrease in product revenue, which was partially offset by a $5.1 million increase in service revenue compared to the same prior year period. Product revenue decreased for both the threeMarch 28, 2020 and six-month periods ended June 29, 2019, compared to the respective same prior year period, mainly as a result of lower demand in the overall wafer fab equipment market. Service revenue increased for both the three and six-month periods ended June 29, 2019, compared to the respective same prior year period, mainly as a result of higher installed base and sales of refurbished systems.

A significant portion of the world’s semiconductor manufacturing capacity is in Asia. We generated 82% and 75% of our revenues in Asia in the three and six months ended June 29, 2019, respectively, compared to 89% and 88% for the ~~three~~years ended December 31, 2019, 2018 and six months ended June 30, 2018. Due to a slowdown in the memory demand, there were fewer fab expansions in Korea and Japan when compared to 2018, which was partially offset by expansion in the foundry business in Taiwan. Although2017, aggregate sales to customers ~~within individual countries of~~ that ~~region will vary from time to time, we expect that a substantial portion~~individually represented at least five percent of our ~~revenues will continue to be generated in Asia.~~revenue accounted for 54.9%, 42.7%, 18.3%, and 27.2% of our revenue, respectively.

~~Gross margin~~Results of Operations for the Three Months Ended March 28, 2020 and March 31, 2019

~~The calculation~~revenue is primarily derived from the sale of ~~products gross margin includes both cost of products and amortization of intangibles.~~

The gross margin on product revenue decreased to 52.9% in the three months ended June 29, 2019 from 59.2% in the three months ended June 30, 2018. The decrease was primarily due to an unfavorable product and customer mix, lower factory utilization and an increase in amortization of intangibles of $0.5 million. The gross margin on product revenue decreased to 51.9% in the six months ended June 29, 2019 from 59.5% in the six months ended June 30, 2018. The decrease was primarily due to an unfavorable product and customer mix, lower factory utilization, an increase in amortization of intangibles of $1.0 million and acquisition-related adjustments of $1.3 million.

~~The gross margin on~~our systems, services, revenue increased to 49.0% in the three months ended June 29, 2019 from 45.9% in the three months ended June 30, 2018, and it increased to 48.3% in the six months ended June 29, 2019 from 45.7% in the six months ended June 30, 2018. These increases were due to higher labor utilization rates, and higher revenue from spare parts and ~~refurbishment tools with higher margins.~~

software licensing. Our ~~operating expenses comprised the following categories (in thousands, except percentages):~~

Three Months Ended

Six Months Ended

June 29, 2019

June 30, 2018

Change

June 29, 2019

June 30, 2018

Change

Research and development
$
14,098

$
12,491

$
1,607

12.9
%

$
27,085

$
22,693

$
4,392

19.4
%
Selling

8,244

10,151

(1,907
)

-18.8
%

17,526

19,175

(1,649
)

-8.6
%
General and administrative

7,885

7,465

420

5.6
%

15,790

15,206

584

3.8
%
Merger expenses

907

-

907

na

907

-

907

na

Amortization of intangible assets

289

—

289

na

578

-

578

na

Total operating expenses
$
31,423

$
30,107

$
1,316

4.4
%

$
61,886

$
57,074

$
4,812

8.4
%

~~Investments in research and development personnel and associated projects are part~~revenue of our strategy to ensure our products remain competitive and meet customers’ needs. For the three months ended June 29, 2019, research and development costs increased by $1.6 million, or 12.9%, compared to the same period in 2018. The increase was driven by additional headcount, new product development initiatives and costs resulting from the acquisition of 4D subsequent to the same period in 2018. For the six months ended June 29, 2019, research and development costs increased by $4.4 million, or 19.4%, compared to the same period in 2018. The increase was driven by additional headcount, new product development initiatives and costs resulting from the acquisition of 4D subsequent to the same period in 2018, which were partially offset by lower variable compensation costs.

Selling expenses for the three months ended June 29, 2019 decreased by $1.9 million, or 18.8%, compared to the same period in 2018. The decrease was driven by lower variable compensation costs and lower sales commission expenses, resulting from lower sales and profitability in 2019, which were partially offset by additional headcount and costs resulting from the acquisition of 4D subsequent to the same period in 2018. Selling expenses for the six months ended June 29, 2019 decreased by $1.6 million, or 8.6%, compared to the same period in 2018. The decrease was driven by lower variable compensation costs and lower sales commission expenses, resulting from lower sales and profitability in 2019, which were partially offset by additional headcount and costs resulting from the acquisition of 4D subsequent to the same period in 2018.

General and administrative expenses increased by $0.4 million, or 5.6%, in the three months ended June 29, 2019 compared to the same period in 2018. The increase was primarily due to additional headcount, higher facility lease expenses, IT infrastructure costs and costs resulting from the acquisition of 4D subsequent to the same period in 2018, which were partially offset by lower variable compensation costs, resulting from lower profitability and lower severance costs. General and administrative expenses increased by $0.6 million, or 3.8%, in the six months ended June 29, 2019 compared to the same period in 2018. The increase was primarily due to additional headcount, severance costs, higher facility lease expenses, IT infrastructure costs, and higher audit fees, compared to the same period in 2018, which were partially offset by lower variable compensation costs resulting from lower profitability.

During the three months ended June 29, 2019, we incurred $0.9 million of costs associated with the Agreement and Plan of Merger with Rudolph Technologies, Inc. and PV Equipment as disclosed in our Current Report on Form 8-K that we filed with the SEC on June 24, 2019 (See Note 11 to the Consolidated Financial Statements).

Amortization of intangible assets was $0.3 million and $0.6 million for the three and six months ended June 29, 2019, respectively, reflecting amortization expense resulting from the acquisition of 4D subsequent to the same periods in 2018.

~~Our other income (expense), net, consisted of the following items (in thousands):~~

Three Months Ended

Six Months Ended

June 29, 2019

June 30, 2018

Change

June 29, 2019

June 30, 2018

Change

Interest expense, net
$
(15
)

$
(48
)

$
33

-68.8
%

$
(106
)

$
(141
)

$
35

-24.8
%
Net gains on investments

478

314

164

52.2
%

788

583

205

35.2
%
Other gains (losses), net

350

(480
)

830

-172.9
%

310

(397
)

707

-178.1
%
Other income (expense), net

828

(166
)

994

-598.8
%

1,098

186

912

490.3
%
Total other income (expense), net
$
813

$
(214
)

$
1,027

-479.9
%

$
992

$
45

$
947

2104.4
%

Other income (expense), net, increased by $1.0 million in the three and six months ended June 29, 2019 relative to the comparable periods in 2018 principally due to a $0.9 million gain on the sale of a condominium and higher investment income, which were partially offset by unfavorable foreign exchange net gains and losses. As part of our facilities strategy, we determined that we would no longer house traveling employees in owned condominiums and have divested all such assets.

~~We recorded a tax provision of $0.6 million and $2.9~~$139.9 million for the three months ended ~~June 29,~~March 28, 2020 increased 129.8% as compared to the three months ended March 31, 2019, ~~and June 30, 2018, respectively, and $1.2 million and $7.3 million~~in which revenue totaled $60.9 million.

The following table lists, for the ~~six months ended June 29, 2019~~periods indicated, the different sources of our revenue in dollars (thousands) and ~~June 30, 2018, respectively. The decrease in the tax provision for 2019 from 2018 was primarily related to~~as percentages of our ~~decreased profitability~~total revenue:

Total systems and software revenue increased $64.5 million for the three months ended ~~June 29, 2019, and~~March 28, 2020 as compared to the ~~six~~three months ended ~~June 29,~~March 31, 2019 primarily due to the inclusion of revenue from legacy Nanometrics for the first quarter of 2020. The year-over-year change in systems revenue was primarily due to the inclusion of $58.7 million of revenue from legacy Nanometrics for the period. The year-over-year increase in parts and services revenue in absolute dollars from the three months ended March 31, 2019 to the three months ended March 28, 2020 was primarily due to the inclusion of $15.9 million of parts and service revenue from legacy Nanometrics for the period. Parts and services revenue is generated from part sales, maintenance service contracts, system upgrades, as well as ~~less U.S. tax required on foreign earnings under the Tax Credit~~time and ~~Jobs Act (“TCJA”).~~material billable service calls.

Gross Profit.Our gross profit has been and will continue to be affected by a variety of factors, including manufacturing efficiencies, provision for ~~income taxes~~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 $62.6 million for the three months ended ~~June 29, 2019 of $0.6~~March 28, 2020, as compared to $32.0 million ~~reflects an effective tax rate of 13.9%. The tax rate~~ for the three months ended ~~June 29,~~March 31, 2019. Our gross profit represented 44.8% of our revenue for the three months ended March 28, 2020 and 52.6% for the three months ended March 31, 2019. The decrease in gross profit as a percentage of revenue for the three months ended March 28, 2020, as compared to the three months ended March 31, 2019, ~~differs~~is primarily due charges to cost of goods sold of $9.9 million for the sale of inventory written-up to fair value upon the Merger.

Interest income (expense), net. Net interest income was $1.2 million for the three months ended March 28, 2020, as compared to $0.8 million for the three months ended March 31, 2019. The increase in net interest income from the ~~Federal statutory rate of 21.0% primarily~~2019 period to the 2020 period was due to ~~foreign~~interest earned on our marketable securities and additional interest income on a higher marketable securities balance following the Merger.

Income Taxes. We recorded an income tax ~~credits, R&D tax credits,~~provision of $0.4 million and tax benefits associated with the settlement of equity options/awards, partially offset by foreign income being subject to tax at higher rates, state income taxes, and non-deductible equity compensation.

~~Our provision for income taxes~~$1.2 million for the ~~six~~three months ended ~~June 29,~~March 28, 2020 and March 31, 2019, ~~of $1.2 million reflects an~~respectively. Our effective tax rate of ~~14.4%. The tax rate for the six months ended June 29, 2019~~(10%) differs from the ~~Federal~~ statutory rate of ~~21.0%~~21% for the three months ended March 28, 2020 primarily due to ~~foreign~~(i) changes in mix of forecasted earnings by jurisdiction, (ii) computed research and development credits on forecasted earning levels, and (iii) a one-time provision for additional withholding tax related to a dividend distribution from the Company’s Korea subsidiary.

Our future effective income tax rate depends on various factors, such as possible further tax legislation, the geographic composition of our pre-tax income, the amount of our pre-tax income as business activities fluctuate, non-deductible expenses incurred in connection with business combinations, and research and development tax credits ~~R&D~~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 ~~credits,~~assets is substantially in doubt. Each quarter we assess the likelihood that we will be able to recover our deferred tax assets primarily relating to state research and ~~tax benefits~~development credits. We consider available evidence, both positive and negative, including historical levels of income, expectations and risks associated with ~~the settlement~~estimates of ~~equity options/awards, partially offset by foreign income being subject to tax at higher rates, state income taxes, and non-deductible equity compensation.~~

The TCJA created a new requirement that global intangible low-taxed income (“GILTI”) earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFCs’ U.S. shareholder. Under U.S. GAAP, we were allowed to make an accounting policy choice of either (1) treating taxes due on future ~~U.S. inclusions in~~ taxable income ~~related to GILTI as~~and ongoing prudent and feasible tax planning strategies in assessing the need for a ~~current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into~~valuation allowance. As a ~~company’s measurement~~result of ~~its~~our analysis, we concluded that it is more likely than not that a portion of our net deferred ~~taxes (the “deferred method”). Our selection of an accounting policy in 2018 with respect to the GILTI~~ tax ~~rules was to treat GILTI tax as a current period expense under the period cost method.~~

~~As of June 29, 2019,~~assets will not be realized. Therefore, we continue to ~~maintain~~provide a valuation allowance against ~~our California and Switzerland~~certain net deferred tax assets and recorded a valuation allowance against our U.K. deferred tax assets as of June 29, 2019 as a result of uncertainties regarding the realization of the assets due to cumulative losses and uncertainty of future taxable income.assets. We ~~will~~ continue to ~~assess the realizability~~monitor available evidence and may reverse some or all of the deferred tax assets in each of the applicable jurisdictions and maintain the valuation allowances until sufficient positive evidence exists to support a reversal. In the event we determine that the deferred tax assets are realizable, an adjustment to the valuation allowance ~~will be reflected~~ in future periods, if appropriate.

On March 27, 2020, the “Coronavirus Aid, Relief and Economic Security Act” (the “CARES Act”) was enacted. The CARES Act includes provisions relating to refundable payroll tax ~~provision~~credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for ~~the period such determination is made.~~

qualified improvement property. We are ~~subject~~currently analyzing the impact of these changes and therefore an estimate of the impact to taxation in the U.S. and various states including California, and foreign jurisdictions including Korea, Japan, Taiwan, China, Singapore, U.K., Ireland, Germany, France, and Israel. Due to tax attribute carry-forwards, we are subject to examination for tax years 2003 forward for U.S. tax purposes. We are also subject to examination in various states for tax years 2002 forward. We are subject to examination for tax years 2011 forward for various foreign jurisdictions.

~~We accrue interest and penalties related to unrecognized tax benefits in our provision for~~ income ~~taxes. The total amount of penalties and interest were~~taxes is not ~~material as of June 29, 2019 and December 29, 2018. During the next twelve months, we anticipate increases in our unrecognized tax benefits of approximately $1.2 million.~~yet available.

~~Our principal sources~~At March 28, 2020, we had $291.9 million of ~~liquidity are~~ cash, ~~and~~ cash equivalents and marketable securities and ~~cash flow generated from our operations. Our liquidity is affected by many factors, including those that relate to our specific operations and those that relate to the uncertainties~~$534.2 million in working capital. At December 31, 2019, we had $320.2 million of global and regional economies and the sectors of the semiconductor industry in which we operate in. Although our cash requirements will fluctuate based on the timing and extent of these factors, we believe our existing cash, cash equivalents and marketable securities ~~combined with~~and $555.9 million in working capital.

Operating activities provided $8.9 million in net cash ~~currently projected to be generated from our operations, will be sufficient to satisfy our working capital needs, capital asset purchases, outstanding commitments~~ and ~~other liquidity requirements associated with our existing operations over the next twelve months.~~

~~The following tables present selected financial information and statistics as of June 29, 2019 and December 29, 2018 and~~cash equivalents for the ~~six~~three months ended ~~June 29, 2019 and June 30, 2018 (in thousands):~~

Cash, cash equivalents and marketable securities totaled $145.0 million at June 29, 2019, which reflects a decrease of $6.8 million from December 29, 2018. Of our total cash, cash equivalents and marketable securities at June 29, 2019, approximately $17.0 million was held by foreign subsidiaries, a portion of which would have to be repatriated to the United States. We continuously evaluate if there is a need to repatriate these funds. We believe our existing cash, cash equivalents and marketable securities will be sufficient to satisfy our working capital needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with our existing operations over at least the next twelve months. Working capital was $221.2 million at June 29, 2019, which reflects an increase of $10.1 million when compared to $211.1 million at December 29, 2018.

Cash used in operating activities during the six months ended June 29, 2019 was $2.4 million, consisting primarily of net income of $6.9 million, adjusted for non-cash items of $13.4 million, and $22.7 million of net cash outflows related to changes in operating assets and liabilities. We expect that cash provided by operating activities may fluctuate in future periods due to several factors, including variations in our operating results, accounts receivable collections performance, inventory and supply chain management, vendor payment initiatives, tax benefits or charges from stock-based compensation, and the timing and amount of compensation and other payments. The non-cash items of $13.4 million related to depreciation, amortization, inventory reserves, stock-based compensation and the disposal of fixed assets.March 28, 2020. The net cash ~~outflows related to the use of operating assets~~ and liabilities was primarily due to the timing of payments of variable compensation to employees, timing of tax payments and higher inventory purchases to prepare for increased revenue in the second half of 2019. These payments have been partially offset by improvements in payment terms from some vendors, resulting in higher days payables outstanding.

~~Cash~~cash equivalents provided by operating activities during the ~~six~~three months ended ~~June 30, 2018 was $59.0~~March 28, 2020 resulted primarily from net loss, adjusted to exclude the effect of non-cash operating charges, of $27.1 million, ~~consisting primarily of net income of $34.1 million, adjusted for non-cash items of $13.0 million, and $11.9 million of net~~partially offset by a decrease in cash ~~inflows related to changes in~~provided from operating assets and ~~liabilities.~~liabilities of $18.2 million. Operating activities used $1.6 million in net cash and cash equivalents for the three months ended March 31, 2019. The ~~changes~~net cash and cash equivalents used by operating activities during the three months ended March 31, 2019 resulted primarily from a decrease in cash used in operating assets and liabilities ~~were generally driven~~of $13.6 million, offset by net income, adjusted to exclude the ~~timing~~effect of ~~our customer payments for accounts receivable~~non-cash operating charges, of $12.0 million.

Investing activities used net cash and ~~vendor payments for accounts payable.~~cash equivalents of $2.6 million during the three months ended March 28, 2020 through purchases of marketable securities of $76.5 million and capital expenditures of $1.0 million, partially offset by proceeds

~~Cash~~from sales of marketable securities of $74.9 million. Net cash and cash equivalents of $9.2 million were used in investing activities ~~of $17.1 million~~ during the ~~six~~three months ended ~~June 29,~~March 31, 2019 ~~consisted~~ primarily ~~of $9.8 million of net~~for the purchases of marketable securities of $22.1 million and ~~payments for acquisition~~capital expenditures of ~~property, plant and equipment of $8.3 million.~~

~~Cash provided~~$1.3 million, offset by ~~investing activities of $15.8 million during the six months ended June 30, 2018 consisted primarily of net~~proceeds from sales ~~and maturities~~ of marketable securities of ~~$19.6 million, offset in part by payments for acquisition of property, plant~~$14.3 million.

Cash provided by financing activities of $2.2 million during the six months ended June 29, 2019 consisted primarily of proceeds from the issuance of common stock under employee stock purchase program of $4.5 million, partially offset by payments of $2.3 million for taxes on net issuance of stock awards.

~~Cash~~cash equivalents used in financing activities ~~of $23.0 million~~ during the ~~six~~three months ended ~~June 30, 2018 consisted primarily~~March 28, 2020 of ~~$23.0~~$35.0 million resulted from the purchase of shares of our common stock ~~repurchases~~under a share repurchase authorizations of $33.6 million and tax payments related to shares withheld for share-based compensation plans of ~~$2.7~~$1.6 million, ~~for taxes on net issuance of stock awards,~~ partially offset by proceeds from sales of shares through share-based compensation plans of $0.2 million. For the ~~issuance~~three months ended March 31, 2019, financing activities used $1.3 million, which resulted from the purchase of shares of our common stock ~~from~~under Rudolph’s previous share repurchase authorizations of $0.7 million and tax payments related to shares withheld for share-based compensation plans of $0.6 million.

From time to time, we evaluate whether to acquire new or complementary businesses, products and/or technologies. We may fund all of or a portion of the ~~employee~~price of these investments or acquisitions in cash, stock, ~~purchase program~~or a combination of cash and stock.

OnMerger, we assumed the share repurchase authorization approved on March 14, 2019 ~~our~~by the former Nanometrics Board of ~~Directors authorized the~~Directors. This share repurchase ofauthorization allows us to purchase up to $80.0 million worth of shares of our common stock. ~~This plan is referred to as the Stock Repurchase Plan.~~ Under the terms of ~~the Stock Repurchase Plan~~this share repurchase authorization, shares may be repurchased through open market or privately negotiated transactions. ~~During the six months ended June 29, 2019 no shares were repurchased under the Stock Repurchase Plan.~~

During the three months ended March ~~31, 2018, the Stock Repurchase Plan for $50.0 million that was authorized on November 15, 2017 was completed and~~28, 2020, we repurchased ~~896,187~~1.3 million shares ~~at an average purchase price~~ of ~~$25.65 per~~common stock under this repurchase authorization and those shares were subsequently retired. At March 28, 2020, there was $46.4 million available for future share repurchases.

We have a credit agreement with a bank that provides for a ~~total~~line of ~~$23.0 million.~~

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 ~~June 29, 2019,~~March 28, 2020, the available line of credit was approximately $71.1 million with an available interest rate of 1.8%. The credit agreement is available to us until such time that either party terminates the arrangement at its discretion. To date, we ~~had no off-balance sheet arrangements or obligations.~~have not utilized the line of credit.

~~There have been no material changes outside~~Our future capital requirements will depend on many factors, including the ~~ordinary course~~timing and amount of our revenue and our investment decisions, which will affect our ability to generate additional cash. In addition, although there is uncertainty related to the anticipated impact of the recent COVID-19 outbreak on our future results, we believe our business ~~from those reported in~~model and our ~~Annual Report on Form 10-K~~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 ~~fiscal year ended December 29, 2018, filed with~~next 12 months following the ~~SEC on February 25, 2019.~~

~~Our exposure~~filing of this Form 10-Q. Thereafter, if cash generated from operations and financing activities is insufficient to ~~market risk does not differ materially from that discussed in~~satisfy our ~~Annual Report on Form 10-K for the fiscal year ended December 29, 2018, filed with the SEC on February 25, 2019. However,~~working capital requirements, we ~~cannot give any assurance as~~may seek additional funding through bank borrowings, sales of securities or other means. Market conditions due to the ~~effect~~COVID-19 pandemic may have an impact on our ability to access such additional funding. 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. 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. There can be no assurance that ~~future~~we will be able to raise any such capital on terms acceptable to us or at all.

We are exposed to changes in interest rates and market liquidity including our investments in certain available-for-sale securities. Our available-for-sale securities consist of fixed and variable rate income investments, such as municipal notes, municipal bonds and corporate bonds. We continually monitor our exposure to changes in interest rates, market liquidity and credit ratings of issuers for our available-for-sale securities. It is possible that we are at risk if interest rates, market liquidity or ~~foreign currency~~credit ratings of issuers change in an unfavorable direction. The magnitude of any gain or loss will be a function of the difference between the fixed or variable rate of the financial instrument and the market rate, and our financial condition and results of operations could be materially affected. Based on a sensitivity analysis performed on our financial investments held as of March 28, 2020, an immediate adverse change of 10% in interest rates ~~will~~(e.g. 3.00% to 3.30%) would result in a decrease of $0.8 million in the fair value of our available-for-sale debt securities and would not have a material impact on our consolidated ~~balance sheet,~~financial position, results of operations or cash flows.

Our exposure to foreign currency exchange rate fluctuations arises in part from intercompany balances in which costs are charged between our U.S. headquarters and our foreign subsidiaries. On our consolidated balance sheet these intercompany balances are eliminated and thus no consolidated balances are associated with these intercompany balances; however, since each foreign entity's functional currency is generally its respective local currency, there is exposure to foreign exchange risk on a consolidated basis for transactions not denominated in each foreign entity’s functional currencies. Intercompany balances are denominated primarily in U.S. dollars and, to a lesser extent, other local currencies.

To manage the level of exposure to the risk of foreign currency exchange rate fluctuations, we enter into foreign currency forward exchange contracts to protect against a portion of our currency exchange risks associated with existing assets and liabilities. While a substantial portion of our systems and software sales are denominated in U.S. dollars and have relatively little

exposure to foreign currency exchange risk with respect to these sales, substantially all of our sales in Japan are denominated in Japanese yen. A foreign currency forward exchange contract acts as a hedge by increasing in value when underlying assets decrease in value or underlying liabilities increase in value due to changes in foreign exchange rates. Conversely, a foreign currency forward exchange contract decreases in value when underlying assets increase in value or underlying liabilities decrease in value due to changes in foreign exchange rates. These forward contracts are not designated as accounting hedges, so the unrealized gains and losses are recognized under the caption “Other income, net,” in ~~other income (expense), net,~~the Condensed Consolidated Statements of Operations for each reporting period in advance of the actual foreign currency cash flows with the fair value of these forward contracts being recorded ~~as accrued liabilities~~under the caption “Other current liabilities” or “Prepaids and other current ~~assets.~~

assets” on the Condensed Consolidated Balance Sheets. As of March 28, 2020, we had nineteen outstanding forward contracts with a total notional contract value of $29.0 million. We do not use ~~forward contracts~~derivative financial instruments for trading or speculative purposes.

The Company has branch sales and service offices or subsidiaries in Korea, Japan, China, Taiwan, Singapore and in several countries in Europe. Our ~~forward contracts generally have maturities of 30 days or less. We enter into~~international subsidiaries and branches operate primarily using local functional currencies. Our exposure to foreign currency ~~forward~~ exchange ~~contracts based on estimated future asset~~rate fluctuations arise from intercompany balances between our U.S. headquarters and ~~liability exposures, and the effectiveness~~that of our ~~hedging program depends~~foreign owned entities. Our intercompany balances are denominated in U.S. dollars. Since each foreign entity’s functional currency is generally denominated in its local currency, there is exposure to foreign exchange risk when the foreign entity’s intercompany balance is remeasured at a reporting date resulting in transaction gains or losses. The intercompany balance exposed to foreign currency risk, as of March 28, 2020 was approximately $34.5 million. A hypothetical change of 10% in the relative value of the U.S. dollar versus local functional currencies could result in approximately $0.1 million in foreign currency exchange losses / (gains) which would be recorded as non-operating expense under the caption “Other income (expense), net” in our Condensed Consolidated Statements of Operations. We cannot accurately predict future exchange rates or the overall impact of future exchange rate fluctuations on our ability to estimate these future asset and liability exposures. Recognized gains and losses with respect to our current hedging activities will ultimately depend on how accurately we are able to match the amount of foreign currency forward exchange contracts with actual underlying asset and liability exposures.

We actively monitor our foreign currency risks, but there is no guarantee that our foreign currency hedging activities will substantially offset the impact of fluctuations in currency exchange rates on ourbusiness, results of operations ~~cash flows~~ and consolidated financial ~~position. See “Note 5, Fair Value Measurement and Disclosures” in the Notes to Consolidated Financial Statements for more information regarding our derivatives and hedging activities.~~condition.

Our exposure to market risk resulting from changes in interest rates relates primarily to our investment portfolio. As of June 29, 2019 and December 29, 2018, we held $50.9 million and $40.8 million, respectively, in marketable securities. The fair value of our marketable securities could be adversely impacted due to a rise in interest rates. Assuming a hypothetical immediate and consistent increase in interest rates by 100 basis points from levels as of June 29, 2019, the fair value of our marketable securities would have declined by $0.2 million, as compared to $0.2 million as of December 29, 2018. Securities with longer maturities are subject to a greater interest rate risk than those with shorter maturities and as of June 29, 2019 and December 29, 2018, the average duration of our portfolio was less than three months and nine months, respectively. We do not hold securities for trading purposes.

Our management evaluated, with the participation of our Chief Executive Officer (“CEO”), and our Vice President, Finance (who is our Principal Financial and Accounting Officer (“PFO”)), the effectiveness of ourWe maintain disclosure controls and procedures ~~as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on the evaluation, our CEO and PFO concluded~~ that ~~as of June 29, 2019, our disclosure controls and procedures were effective~~are designed to ensure that information we are required to disclose in reports that we file or submit under the ~~Securities~~ Exchange Act ~~of 1934 were (i)~~is recorded, processed, summarized and reported within the time ~~periods~~period specified in SEC rules and ~~forms~~forms. These controls and ~~(ii)~~procedures are also designed to ensure that such information is accumulated and ~~reported~~communicated to our management, including our Chief ~~Executive~~Financial Officer (the “CEO”) and ~~Principal~~the Chief Financial Officer (the “CFO”), as appropriate, to allow timely ~~discussions~~decisions regarding required ~~disclosures.~~disclosure. In designing and evaluating disclosure controls and procedures, we have recognized that any control and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Management is required to exercise judgment in evaluating its controls and procedures.

The evaluation of our disclosure controls and procedures included a review of the controls’ objectives and design, our implementation of the controls and the effect of the controls on the information generated for use in ~~Internal Control over Financial Reporting~~

~~During~~this Form 10-Q. In the ~~quarter ended June 29, 2019, there~~course of the evaluation, we sought to identify data errors, control problems or acts of fraud and confirm that appropriate corrective actions, if any, including process improvements, were ~~no changes~~being undertaken. This type of evaluation is performed on a quarterly basis so that the conclusions of management, including the CEO and CFO, concerning the effectiveness of the controls can be reported in our Quarterly Reports on Form 10-Q and in our Annual Reports on Form 10-K. Many of the components of our disclosure controls and procedures are also evaluated on an ongoing basis by other personnel in our accounting, finance, internal ~~controls over financial reporting that have materially affected, or~~audit and legal functions. The overall goals of these various evaluation activities are ~~reasonably likely~~ to ~~materially affect, our internal control over financial reporting.~~

~~Our management, including our CEO and PFO, has designed~~monitor our disclosure controls and procedures and ~~our internal control over financial reporting~~ to provide reasonable assurances that the controls’ objectives will be met. However, management does not expect that disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud.modify them on an ongoing basis as necessary. A control system ~~no matter how well designed and operated,~~ can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. ~~The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because~~Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that ~~misstatements due to error or fraud will not occur or that~~ all control issues and instances of fraud, if any, ~~within Nanometrics~~ have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any system’s design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of a system’s control effectiveness into future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

In accordance with the SEC’s published guidance, because the merger with Nanometrics closed in the fourth quarter of the year ended December 31, 2019, management excluded Nanometrics from its evaluation of disclosure controls and procedures as of March 28, 2020. Legacy Nanometrics constituted 26% of total assets as of March 28, 2020 and 53% of revenue for the three months then ended.

As of March 28, 2020, an evaluation of our disclosure controls and procedures was carried out under the supervision and with the participation of our management, including the CEO and CFO. Based on this evaluation, the CEO and CFO have

~~Index~~concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this Form 10-Q.

In October 2019, we completed the merger with Nanometrics which operated under its own set of systems and internal controls. During the three months ended March 28, 2020, we continue to integrate Nanometrics into our financial reporting processes and procedures and internal control over financial reporting and we expect the integration to continue throughout the remainder of 2020. In addition, in January 2020, we implemented a new enterprise resource planning (“ERP”) system in our domestic legacy Rudolph business to provide better support for our changing business needs and plans for future growth. As a result of this implementation, we modified certain existing internal controls over financial reporting and implemented certain new controls relating to the ERP system.We will continue to evaluate the design and operating effectiveness of our internal controls during subsequent periods.

Other than noted above, there have been no additional changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the Company’s quarter ended March 28, 2020 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting due to the fact that most of our employees responsible for financial reporting are working remotely during the COVID-19 pandemic. We are continually monitoring and assessing the impact of the COVID-19 pandemic on our internal controls to minimize the impact to their design and operating effectiveness.

~~The information set forth under Note 11. Commitments and Contingencies~~Item 1. Legal Proceedings

For a description of ~~Notes~~our material pending legal proceedings refer to ~~Consolidated Financial Statements in~~ Part I, Item ~~1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.~~

~~Investing~~3, “Legal Proceedings” in our ~~securities involves a high degree of risk. In assessing these risks, you should carefully consider~~2019 Form 10-K and Note 10 to the ~~information included in this report, including our~~audited consolidated financial statements ~~and~~filed therewith, as updated in Note 9 to the ~~related notes thereto. You should carefully review and consider all of the risk factors set forth in Part l, “Item~~accompanying unaudited condensed consolidated financial statements.

Item 1A. Risk ~~Factors” in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018, filed with the SEC on February 25, 2019.~~Factors

The risks and uncertainties described ~~in our Annual Report on Form 10-K~~below are not the only ones we face. ~~Additional~~If any of the following risks actually occurs, our business, financial condition or results of operations could be materially adversely affected. Many of the risks and uncertainties ~~that are not currently known~~described below may be exacerbated by the COVID-19 pandemic and any worsening of the global business and economic environment as a result.

Risks Related to ~~us or that we currently believe are immaterial may also impair~~Our Business

The effects of the COVID-19 pandemic could adversely affect our business, ~~operations.~~ results of operations, and financial condition.

The effects of a public health crisis caused by the COVID-19 pandemic and the measures being taken to limit the spread of COVID-19 are uncertain and difficult to predict, but pose the following risks to our business, results of operations and financial condition:

The resumption of normal business operations after such interruptions may be delayed or constrained by lingering effects of COVID-19 on our suppliers, third-party service providers, and/or customers. These effects, alone or taken together, could have a material adverse effect on our business, results of operations, legal exposure, or financial condition. A sustained or prolonged outbreak could exacerbate the adverse impact of such measures.

Our ~~business,~~operating results have varied and will likely continue to vary significantly from quarter to quarter in the future, causing volatility in our stock price.

Our quarterly operating results have varied in the past and will likely continue to vary significantly from quarter to quarter in the future, causing volatility in our stock price. Some of the factors that may influence our operating results and ~~financial conditions could be materially harmed by any~~subject our stock to extreme price and volume fluctuations include:

In light of these ~~risks. The trading~~factors and the cyclical nature of the semiconductor industry, we expect to continue to experience significant fluctuations in quarterly and annual operating results. Moreover, many of our expenses are fixed in the short-term which, together with the need for continued investment in research and development, marketing and customer support, limits our ability to reduce expenses quickly. As a result, declines in net sales could harm our business and the price of our common stock could substantially decline.

Our largest customers account for a substantial portion of our revenue, and our revenue and cash flows could decline considerably if one or more of these customers were to purchase significantly fewer of our systems or delay or cancel a large order.

Sales to end user customers that individually represent at least five percent of our revenue typically account for, in the aggregate, a considerable amount of our revenue. We operate in the highly concentrated, capital-intensive semiconductor device manufacturing industry. Historically, a substantial portion of our revenue in each quarter and year has been derived from sales to

relatively few customers, and this trend is expected to continue. If any of our key customers were to purchase significantly fewer of our systems in the future, or if they delay or cancel a large order, our revenue and cash flows could meaningfully decline. We expect that we will continue to depend on a small number of large customers for a sizable portion of our revenue. In addition, as large semiconductor device manufacturers seek to establish closer relationships with their suppliers, we expect that our customer base will become even more concentrated.

Our customers include some companies that may, from time to time, encounter financial difficulties. If a customer’s financial difficulties become severe, the customer may be unwilling or unable to pay our invoices in the ordinary course of business, which could adversely affect collections of both our accounts receivable balance and unbilled services. The bankruptcy of a customer with a substantial account balance owed to us could have a material adverse effect on our financial condition and results of operations. In addition, if a customer declares bankruptcy after paying us certain invoices, a court may determine that we are not properly entitled to that payment and may require repayment of some or all of the amount we received, which could adversely affect our financial condition and results of operations.

Variations in the amount of time it takes for us to sell our systems may cause fluctuations in our operating results, which could cause our stock price to decline.

Variations in the length of our sales cycles could cause our revenue and cash flows, and consequently, our business, financial condition, operating results and cash flows to fluctuate widely from period to period. This variation could cause our stock price to decline. Our customers generally take a long time to evaluate our inspection and/or film metrology systems and many people are involved in the evaluation process. We expend significant resources educating and providing information to our prospective customers regarding the uses and benefits of our systems in the semiconductor fabrication process. The length of time it takes for us to make a sale depends upon many factors, including, but not limited to:

Because of the number of factors influencing the sales process, the period between our initial contact with a customer and the time when we recognize revenue from that customer and receive payment, if ever, varies widely in length. Our sales cycles, including the time it takes for us to build a product to customer specifications after receiving an order to the time we recognize revenue, typically range from three to twenty-four months. Sometimes our sales cycles can be much longer, particularly with customers in Asia. During these cycles, we commit substantial resources to our sales efforts in advance of receiving any revenue, and we may never receive any revenue from a customer despite our sales efforts. If we do make a sale, our customers often purchase only one of our systems, the performance of which they then evaluate for a lengthy period before purchasing any more of our systems. The number of additional products a customer purchases, if any, depends on many factors, including the customer’s capacity requirements. The period between a customer’s initial purchase and any subsequent purchases can vary from three months to a year or longer, and variations in the length of this period could cause further fluctuations in our operating results and, possibly, in our stock price.

We are subject to order and shipment uncertainties. Our profitability will decline if we fail to accurately forecast customer demand when managing inventory.

We typically plan production and inventory levels based on internal forecasts of customer demand, which can be highly unpredictable and can fluctuate substantially, which could lead to excess inventory write-downs and resulting negative impacts on gross margin and net income. We have limited visibility into our customers’ inventories, future customer demand and the product mix that our customers will require, which could adversely affect our production forecasts and operating margins. In addition, innovation in our industry could render significant portions of our inventory obsolete. If we overestimate our customers’ requirements, we may have excess inventory, which could lead to obsolete inventory and unexpected costs. Conversely, if we underestimate our customers’ requirements, we may have inadequate inventory, which could lead to foregone revenue opportunities, loss of potential market share and damage to customer relationships as product deliveries may not be made on a timely basis, disrupting our customers’ production schedules. In response to anticipated long lead times to obtain inventory and materials from outside suppliers and foundries, we periodically order materials in advance of customer demand. This advance ordering has in the past and may in the future result in excess inventory levels or unanticipated inventory write-downs if expected orders fail to materialize, or other factors make our products less saleable. In addition, any significant future cancellation or deferral of product orders could adversely affect our revenue and margins, increase inventory write-downs due to obsolete inventory, and adversely affect our operating results and stock price.

Most of our revenue has been derived from customers outside of the United States, subjecting us to operational, financial and political risks, such as unexpected changes in regulatory requirements, tariffs, political and economic instability, outbreaks of hostilities, natural disasters, climate change and difficulties in managing foreign sales representatives and foreign branch operations, as well as risks associated with foreign currency fluctuations.

Due to the significant level of our international sales, we are subject to a number of material risks, including:

Compliance with foreign laws. Our business is subject to risks inherent in doing business internationally, including compliance with, inconsistencies among, and unexpected changes in, a wide variety of foreign laws and regulatory environments with which we are not familiar, including, among other issues, with respect to employees, protection of our intellectual property, and a wide variety of operational regulations and trade and export controls under domestic, foreign, and international law.

Unexpected changes in regulatory requirements including tariffs and other market barriers. The semiconductor device industry is a high-visibility industry in many of the European and Asian countries in which we sell our products. Because the governments of these countries have provided extensive financial support to our semiconductor device manufacturing customers in these countries, we believe that our customers could be disproportionately affected by any trade embargoes, excise taxes, tariffs or other restrictions imposed by their governments on trade with United States companies such as ourselves, particularly with respect to the ongoing trade negotiations between the United States and China. As of January 2020, trade delegations from the United States and China reached partial agreement over tariffs on certain products, but if the United States and China do not continue negotiations and reach agreement on a trade policy, tariffs imposed by China may result in lower sales to customers in China as the costs of our products become more expensive to such customers. In addition, tariffs imposed by the United States will increase the cost of raw materials that we import from China. Any restrictions of these types could result in a reduction in our sales to customers in these countries. In addition, given the relatively fluid regulatory environment in China, there could be additional tax or other regulatory changes in the future. Such actions in the future, as well as other changes in Chinese laws and regulations, including actions in furtherance of China’s stated policy of reducing its dependence on foreign semiconductor manufacturers, could increase the cost of doing business in China, foster the emergence of Chinese-based competitors, decrease the demand for our customers’ products in China, or reduce the supply of critical materials for our customers’ products, which could have a material adverse effect on our business and results of operations.

Political and economic instability. We are subject to various global risks related to political and economic instabilities in countries in which we derive sales. If terrorist activities, armed conflict, civil or military unrest or political instability occurs outside of the U.S., these events may result in reduced demand for our products. There is considerable political instability in Taiwan related to its disputes with China and in South Korea related to its disputes with North Korea. In addition, several Asian countries, particularly Japan, have experienced significant economic instability. An outbreak of hostilities or other political upheaval in China, Taiwan or South Korea, or an economic downturn in Japan or other countries, would likely harm the operations of our customers in these countries. The effect of these types of events on our revenue and cash flows could be material because we derive substantial revenue from sales to semiconductor device foundries in Taiwan such as Taiwan Semiconductor Manufacturing Company Ltd., from memory chip manufacturers in South Korea such as Samsung Electronics Co., Ltd., and from semiconductor device manufacturers in Japan such as Toshiba Corporation.

Natural disasters and climate change. Natural disasters, changes in climate and geo-political events could materially adversely affect our worldwide operations (or those of our business partners). The occurrence of one or more natural disasters such as hurricanes, tropical storms, fires, cyclones, earthquakes, tsunamis, flooding, typhoons, volcanic eruptions and weather conditions such as major or extended winter storms, droughts and tornadoes, whether as a result of climate change or otherwise, may disrupt manufacturing or other operations. For example, our Milpitas operations are located near major earthquake fault lines in California. There may also be conflict or uncertainty in the countries in which we operate, including public health issues (for example, an outbreak of a contagious disease such as COVID-19, avian influenza, measles or Ebola), safety issues, natural disasters, fire, disruptions of service from utilities, nuclear power plant accidents or general economic or political unrest, including war, civil unrest or terrorist attacks.

Difficulties in staffing and managing foreign branch operations. During periods of tension between the governments of the United States and certain other countries, it is often difficult for United States companies such as us to staff and manage operations in such countries. Language and other cultural differences may also inhibit our sales and marketing efforts and create internal communication problems among our U.S. and foreign research and development teams, increasing the difficulty of managing multiple remote locations performing various development, quality assurance, and yield ramp analysis projects.

Currency fluctuations as compared to the U.S. Dollar. A substantial portion of our international sales are denominated in U.S. dollars. As a result, if the dollar rises in value in relation to foreign currencies, our systems will become more expensive to customers outside the United States and less competitive with systems produced by competitors outside the United States. These conditions could negatively impact our international sales. Foreign sales also expose us to collection risk in the event it becomes more expensive for our foreign customers to convert their local currencies into U.S. dollars. Additionally, in the event a larger portion of our revenue becomes denominated in foreign currencies, we would be subject to a potentially significant exchange rate risk.

FCPA and Other Anti-Corruption Laws. We are subject to the Foreign Corrupt Practices Act of 1977 ("FCPA"), and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute, for the purpose of obtaining or retaining business. Also, similar worldwide anti-bribery laws, such as the U.K. Bribery Act and Chinese anti-corruption laws, generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Some of our distribution partners are located in parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. The policies and procedures we have implemented to discourage these practices by our employees, our existing safeguards and any future improvements may prove to be less than effective, and our employees, consultants, sales agents or distributors may engage in conduct for which we might be held responsible. Violations of the FCPA or international anti-corruption laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the U.S. government may seek to hold us liable for successor liability FCPA violations committed by companies in which we invest or that we acquire. We cannot assure you that our internal control policies and procedures will protect us from reckless or negligent acts committed by our employees, distributors, partners, consultants or agents.

If we deliver systems with defects, our credibility will be harmed and the sales and market acceptance of our systems will decrease.

Our systems are complex and have occasionally contained errors, defects and bugs when introduced. Defects may be created during probing, bumping, dicing or general handling, and can have a major impact on device and process quality. When this occurs, our credibility and the market acceptance and sales of our systems could be harmed. Further, if our systems contain errors, defects or bugs, computer viruses or malicious code as a result of cyber-attacks to our computer networks, we may be required to expend significant capital and resources to alleviate these problems. Defects could also lead to product liability as a result of product liability lawsuits against us or against our customers. We have agreed to indemnify our customers under certain circumstances against liability arising from defects in our systems. Our product liability insurance policy currently provides $2.0 million of aggregate coverage, with an overall umbrella limit of $14.0 million. In the event of a successful product liability claim, we could be obligated to pay damages significantly in excess of our product liability insurance limits.

If we are not successful in developing new and enhanced products for the semiconductor device manufacturing industry, we will lose sales and market share to our competitors.

We operate in an industry that is highly competitive and subject to evolving industry standards, rapid technological changes, rapid changes in consumer demands and the rapid introduction of new, higher performance systems with shorter product life cycles. To be competitive in our demanding market, we must continually design, develop and introduce in a timely manner new lithography, inspection and metrology process control systems that meet the performance and price demands of semiconductor device manufacturers. We must also continue to refine our current systems so that they remain competitive. We expect to continue to make significant investments in our research and development activities. We may experience difficulties or delays in our development efforts with respect to new systems, and we may not ultimately be successful in our product enhancement efforts to

improve and advance products or in responding effectively to technological change, as not all research and development activities result in viable commercial products. In addition, we cannot provide assurance that we will be able to develop new products for the most opportunistic new markets and applications. Any significant delay in releasing new systems could cause our products to become obsolete, adversely affect our reputation, give a competitor a first-to-market advantage or cause a competitor to achieve greater market share.

Some of our competitors have greater financial, engineering, manufacturing, research and development, marketing and customer support resources than we do. As a result, our competitors may be able to respond more quickly to new or emerging technologies or market developments by devoting greater resources to the development, promotion and sale of products, which could impair sales of our products. Moreover, there has been merger and acquisition activity among our competitors and potential competitors. These transactions by our competitors and potential competitors may provide them with a competitive advantage over us by enabling them to rapidly expand their product offerings and service capabilities to meet a broader range of customer needs. Many of our customers and potential customers in the semiconductor industry are large companies that require global support and service for their metrology systems. Some of our larger or more geographically diverse competitors might be better equipped to provide this global support and service.

In addition, our competitors may provide innovative technology that may have performance advantages over systems we currently offer or may offer in the future. They may be able to develop products comparable or superior to those that we offer or may adapt more quickly to new technologies or evolving customer requirements. In particular, while we currently are developing additional product enhancements that we believe will address future customer requirements, we may fail in a timely manner to complete the development or introduction of these additional product enhancements successfully, or these product enhancements may not achieve market acceptance or be competitive.

Further, customers that may otherwise desire to purchase our products from us and purchase other products from our competitors may nevertheless purchase competing products from our competitors rather than purchase our products due to a variety of reasons, including to gain favor or volume pricing from our competitors.

If new products developed by us do not gain general market acceptance, we will be unable to generate revenue and recover our research and development costs.

Inspection, lithography and metrology product development is inherently risky because it is difficult to foresee developments in semiconductor device manufacturing technology, coordinate technical personnel, and identify and eliminate system design flaws. Further, our products are complex and often the applications to our customers’ businesses are unique. Any new systems we introduce may not achieve or sustain a significant degree of market acceptance and sales.

We expect to spend a significant amount of time and resources developing new systems and refining our existing systems. In light of the long product development cycles inherent in our industry, these expenditures will be made well in advance of the prospect of deriving revenue from the sale of those systems. Our ability to commercially introduce and successfully market new systems are subject to a wide variety of challenges during the development cycle, including start-up bugs, design defects, and other matters that could delay introduction of these systems. In addition, since our customers are not obligated by long-term contracts to purchase our systems, our anticipated product orders may not materialize, or orders that are placed may be canceled. As a result, if we do not achieve market acceptance of new products, we may be unable to generate sufficient revenue and cash flow to recover our research and development costs and our market share, revenue, operating results or stock price would be negatively impacted.

Even if we are able to develop new products that gain market acceptance, sales of these new products could impair our ability to sell existing products.

Competition from our new systems could have a negative effect on sales of our existing systems and the prices that we could charge for these systems. We may also divert sales and marketing resources from our current systems in order to successfully launch and promote our new or next generation systems. This diversion of resources could have a further negative effect on sales of our current systems and the value of inventory.

Our integrated metrology systems are integrated with systems sold independently by Wafer Fabrication Equipment Suppliers, and a decrease in sales by these suppliers, or the development of competing systems by these suppliers, could harm our business.

We believe that sales of integrated metrology systems will continue to be an important source of our net revenues. Sales of our integrated metrology systems depend upon the ability of a small number of Wafer Fabrication Equipment Suppliers to sell semiconductor manufacturing equipment products that are compatible with our metrology systems as components. If these suppliers, such as Applied Materials, Inc., Ebara Corporation, Lam Research Corporation and Tokyo Electron, are unable to sell such products, if they choose to focus their attention on products that do not integrate our systems, or if they choose to develop competing systems, our business could suffer.

If our relationships with our large customers deteriorate, our product development activities could be adversely affected.

The success of our product development efforts depends on our ability to anticipate market trends and the price, performance and functionality requirements of semiconductor device manufacturers. In order to anticipate these trends and ensure that critical development projects proceed in a coordinated manner, we must continue to collaborate closely with our largest customers. Our relationships with these and other customers provide us with access to valuable information regarding trends in the semiconductor device industry, which enables us to better plan our product development activities. If our current relationships with our large customers are impaired, or if we are unable to develop similar collaborative relationships with important customers in the future, our product development activities could be adversely affected.

We may fail to adequately protect our intellectual property and, therefore, lose our competitive advantage.

Our future success and competitive position depend in part upon our ability to obtain and maintain proprietary technology for our principal product families, and we rely, in part, on patent and trade secret law and confidentiality agreements to protect that technology. If we fail to adequately protect our intellectual property, it will give our competitors a significant advantage. We own or have licensed a number of patents relating to our transparent and opaque thin film metrology, lithography and macro-defect inspection systems, and have filed applications for additional patents. Any of our pending patent applications may be rejected, and we may be unable to develop additional proprietary technology that is patentable in the future.

In addition, the patents that we do own or that have been issued or licensed to us may not provide us with competitive advantages and may be challenged by third parties. Further, third parties may also design around these patents. In addition to patent protection, we rely upon trade secret protection for our confidential and proprietary information and technology. We routinely enter into confidentiality agreements with our employees and other third parties. Even though these agreements are in place, there can be no assurances that trade secrets and proprietary information will not be disclosed, that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets, or that we can fully protect our trade secrets and proprietary information. Violations by others of our confidentiality agreements and the loss of employees who have specialized knowledge and expertise could harm our competitive position and cause our sales and operating results to decline as a result of increased competition. Costly and time-consuming litigation might be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection might adversely affect our ability to continue our research or bring products to market.

Protection of our intellectual property rights, or the efforts of third parties to enforce their own intellectual property rights against us, may result in costly and time-consuming litigation, substantial damages, lost product sales and/or the loss of important intellectual property rights.

We may be required to initiate litigation in order to enforce any patents issued to or licensed by us or to determine the scope or validity of a third party’s patent or other proprietary rights. Any litigation, regardless of outcome, could be expensive and time consuming and could subject us to significant liabilities or require us to re-engineer our products or obtain expensive licenses from third parties. There can be no assurance that any patents issued to or licensed by us will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide us with a competitive advantage.

In addition, our commercial success depends in part on our ability to avoid infringing or misappropriating patents or other proprietary rights owned by third parties. From time to time, we receive communications from third parties asserting that our products or systems infringe, or may infringe, on the proprietary rights of these third parties. These claims of infringement may lead to protracted and costly litigation, which could require us to pay substantial damages or have the sale of our products or systems stopped by an injunction. Infringement claims could also cause product or system delays or require us to redesign our products or systems, and these delays could result in the loss of substantial revenue. We may also be required to obtain a license from the third party or cease activities utilizing the third party’s proprietary rights. We may not be able to enter into such a license or such a license may not be available on commercially reasonable terms. Accordingly, the loss of important intellectual property rights could hinder our ability to sell our systems or to make the sale of these systems more expensive.

Our efforts to protect our intellectual property may be less effective in certain foreign countries where intellectual property rights are not as well protected as in the United States.

The laws of some foreign countries, including China, Japan, South Korea and Taiwan, where we do business, do not protect our proprietary rights to as great an extent as do the laws of the United States, and many U.S. companies have encountered substantial problems in protecting their proprietary rights against infringement abroad. For example, Taiwan is not a signatory of the Patent Cooperation Treaty, which is designed to specify rules and methods for defending intellectual property internationally. The publication of a patent in Taiwan prior to the filing of a patent in Taiwan would invalidate the ability of a company to obtain a patent in Taiwan. Similarly, in contrast to the United States where the contents of patents remain confidential during the patent

application process, in Taiwan, the contents of a patent are published upon filing, which provides competitors an advance view of the contents of a patent application prior to the establishment of patent rights. Similarly, China’s protection of intellectual property rights historically has been less stringent and robust compared to other countries such as the United States, and consequently intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other countries. Monitoring and preventing unauthorized use are also difficult and the measures we take to protect our intellectual property rights may not be adequate. Accordingly, infringement of our intellectual property rights poses a serious risk of doing business in China. Consequently, there is a risk that we may be unable to adequately protect our proprietary rights in certain foreign countries. If this occurs, it would be easier for our competitors to develop and sell competing products in these countries.

Some of our current and potential competitors have significantly greater resources than we do, and increased competition could impair sales of our products or cause us to reduce our prices.

The market for semiconductor capital equipment is highly competitive. We face substantial competition from established companies in each of the markets we serve. We principally compete with KLA Corporation, Nova Measuring Instruments, Camtek and Veeco Instruments. We compete to a lesser extent with Nikon. Each of our products also competes with products that use different metrology, inspection or lithography techniques. Some of our competitors have greater financial, engineering, manufacturing and marketing resources, broader product offerings and service capabilities and larger installed customer bases than we do. As a result, these competitors may be able to respond more quickly to new or emerging technologies or market developments by devoting greater resources to the development, promotion and sale of products, which, in turn, could impair sales of our products. Further, there may be significant merger and acquisition activity among our competitors and potential competitors, which, in turn, may provide them with a competitive advantage over us by enabling them to rapidly expand their product offerings and service capabilities to meet a broader range of customer needs.

Many of our customers and potential customers in the semiconductor device manufacturing industry are large companies that require global support and service for their semiconductor capital equipment. We believe that our global support and service infrastructure is sufficient to meet the needs of our customers and potential customers. However, some of our competitors have more extensive infrastructures than we do, which could place us at a disadvantage when competing for the business of global semiconductor device manufacturers. Many of our competitors are investing heavily in the development of new systems that will compete directly with our systems. We have, from time to time, selectively reduced prices on our systems in order to protect our market share, and competitive pressures may necessitate further price reductions. We expect our competitors in each product area to continue to improve the design and performance of their products and to introduce new products with competitive prices and performance characteristics. These product introductions would likely require us to decrease the prices of our systems and increase the level of discounts that we grant our customers. Price reductions or lost sales as a result of these competitive pressures would reduce our total revenue and could adversely impact our financial results.

Because of the high cost of switching equipment vendors in our markets, it is sometimes difficult for us to win new customers from our competitors even if our systems are superior to theirs.

We believe that once a semiconductor device manufacturer has selected one vendor’s capital equipment for a production-line application, the manufacturer generally relies upon that capital equipment and, to the extent possible, subsequent generations of the same vendor’s equipment for the life of the application. Once a vendor’s equipment has been installed in a production line application, a semiconductor device manufacturer must often make substantial technical modifications and may experience production-line downtime in order to switch to another vendor’s equipment. Accordingly, unless our systems offer performance or cost advantages that outweigh a customer’s expense of switching to our systems, it will be difficult for us to achieve significant sales to that manufacturer once it has selected another vendor’s capital equipment for an application.

We must attract and retain experienced senior executives and other key personnel with knowledge of semiconductor device manufacturing and inspection, metrology or lithography equipment and related software to help support our future growth, and competition for such personnel in our industry is high.

Our success depends, to a significant degree, upon the continued contributions of our key executive management, engineering, sales and marketing, customer support, finance and manufacturing personnel. The loss of any of these ~~risks~~key personnel through resignations, retirement or other circumstances, each of whom would be extremely difficult to replace, could harm our business and ~~investors~~operating results. Although we have employment and noncompetition agreements with key members of our senior management team, these individuals or other key employees may ~~lose all or part~~still leave us, which could have a material adverse effect on our business. We do not have key person life insurance on any of ~~their investment.~~

~~There have been no material changes~~our executives. In addition, to support our future growth, we will need to attract and retain additional qualified employees. Competition for such personnel in our ~~risk factors from those discussed~~industry is intense, and we may not be successful in attracting and retaining qualified employees.

In order to attract and retain executives and other key employees, the Company must provide a competitive compensation package, including cash and stock-based compensation. If the anticipated value of the Company’s stock-based incentive awards does not materialize so that they cease to be viewed as valuable, if the Company’s profits decrease, or if the Company’s total compensation package is not viewed as competitive, the Company’s ability to attract, retain and motivate executives and key employees could be weakened.

We obtain some of the components and subassemblies included in our ~~Annual Report~~systems from a limited group of suppliers, and the partial or complete loss of one of these suppliers could cause production delays and a substantial loss of revenue.

We obtain some of the components and subassemblies included in our systems from a limited group of suppliers and do not have long-term contracts with many of our suppliers. Our dependence on ~~Form 10-K~~limited source suppliers of components and our lack of long-term contracts with many of our suppliers expose us to several risks, including a potential inability to obtain an adequate supply of components, price increases, late deliveries and poor component quality. Disruption or termination of the supply of these components could delay shipments of our systems, damage our customer relationships and reduce our sales. From time to time in the past, we have experienced temporary difficulties in receiving shipments from our suppliers. The lead-time required for shipments of some of our components can be as long as six months. In addition, the ~~fiscal~~lead time required to qualify new suppliers for lasers and certain optics could be as long as a year, ~~ended December 29, 2018, except~~and the lead time required to qualify new suppliers of other components could be as ~~follows:~~

long as nine months. If we are unable to ~~close~~accurately predict our component needs, or if our component supply is disrupted, we may miss market opportunities by not being able to meet the ~~merger with Rudolph, it~~demand for our systems. Further, a significant increase in the price of one or more of these components or subassemblies could ~~create unforeseen,~~seriously harm our results of operations and cash flows.

Any prolonged disruption in the operations of our manufacturing facilities could have a material adverse ~~effects~~effect on our ~~business operations.~~revenue.

On ~~June 23, 2019, we entered into~~ ~~an Agreement~~We produce the majority of our systems in our manufacturing facilities located in Milpitas, California and ~~Plan of Merger, (“Merger Agreement”), with Rudolph Technologies, Inc., (“Rudolph”),~~Bloomington, Minnesota. We use contract manufacturers in China, Israel, Japan and ~~PV Equipment Inc.,~~the United States. Our manufacturing processes are highly complex and require sophisticated and costly equipment and a ~~wholly-owned subsidiary of Nanometrics,~~ ~~pursuant to which, among other matters, and subject to the satisfaction or waiver of the conditions set forth~~specially designed facility. As a result, any prolonged disruption in the ~~Merger Agreement,~~ ~~PV Equipment Inc.~~ ~~will merge with and into Rudolph, with Rudolph continuing as a wholly owned subsidiary of Nanometrics and the surviving corporation of the merger.~~

The closing of the merger is subject to closing conditions which, if not met or waived, could cause the transaction not to close. Therefore, the merger may not be completed or may not be completed as quickly as expected. If the Merger Agreement is terminated, the market priceoperations of our ~~common stock will likely decline,~~manufacturing facilities, such as those resulting from acts of war, terrorism, political instability, health epidemics, fire, earthquake, flooding or other natural disaster could seriously harm our ability to satisfy our customer order deadlines. If we ~~believe that~~cannot timely deliver our ~~market price reflects an assumption that the merger will be completed. In addition,~~systems, our ~~stock price may be adversely affected as a result of the fact that we have incurred~~results from operations and will continue to incur significant expenses related to the merger that will not be recovered if the merger is not completed. If the merger agreement is terminated under certain circumstances, we may be obligated to pay Rudolph a termination fee of $26.0 million. As a consequence of the failure of the merger to be completed, as well as of some or all of these potential effects of the termination of the Merger Agreement, our businesscash flows could be materially and adversely affected.

We may outsource select manufacturing activities to third-party service providers, which decreases our control over the performance of these functions and may result in lower quality and functionality of our products.

We may outsource product manufacturing to third-party service providers. Outsourcing reduces our control over the performance of the outsourced functions. Dependence on outsourcing may also adversely affect our ability to bring new products to market. If we do not effectively manage our outsourcing strategy or if third party service providers do not perform as anticipated, we may experience operational difficulties, increased costs, manufacturing interruptions or inefficiencies in the ~~merger with Rudolph closes,~~operation of our supply chain, any or all of which could delay our delivery of products to our customers, and materially and adversely affect our business, financial condition, and results of operations.

If our network security measures are breached and unauthorized access is obtained to a customer’s data, to our data, or to our information technology systems, we ~~will~~may incur significant legal and financial exposure and liabilities.

As part of our business, we store our data and certain data about our customers, vendors and employees in our information technology system. While we have security measures in place that are designed to protect this information and prevent data loss and other security breaches, if these measures are breached as a result of third-party action, employee error, malfeasance, break-ins or otherwise, and someone obtains unauthorized access to our customers’, vendors’ or employees’ data, we could face loss of business, regulatory investigations or court orders, our reputation could be severely damaged, we could be required to expend significant capital and other resources to alleviate the problem, as well as incur significant costs and liabilities, including due to litigation, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or regulations, and costs for remediation and other incentives offered to customers.

Cyber-attacks and other malicious internet-based activities continue to increase. In response to the COVID-19 pandemic, our expanded reliance on remote access to our information systems has further increased our exposure to potential cybersecurity breaches. As the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, third parties may attempt to fraudulently induce employees or users to disclose information to gain access to our data or our customers’ data. If any of these events occur, our or our customers’ and vendors’ information

could be accessed or disclosed improperly. Any or all of these issues could negatively affect our ability to attract new customers, cause existing customers to choose to purchase from our competitors, result in reputational damage or subject us to third-party lawsuits, regulatory fines or other action or liability, which could adversely affect our operating results.

The General Data Protection Regulation (GDPR) is a regulation in European Union (EU) law on data protection and privacy for all individuals within the EU and the European Economic Area (EEA). It also addresses the export of personal data outside the EU and EEA areas. We need to ~~integrate~~put in appropriate technical and organizational measures to implement these data protection principles. The GDPR requirements have been reviewed and are in the process of being implemented. We may also be subject to other data privacy laws in the United States and the other countries in which we operate.

Failure to adjust our ~~business with~~orders for parts and subcomponents in an accurate and timely manner in response to changing market conditions or customer acceptance of our products could adversely affect our financial position and results of operations.

Our earnings could be negatively affected and our inventory levels could materially increase if we are unable to predict our inventory needs in an accurate and timely manner and adjust our orders for parts and subcomponents in the event that ~~of Rudolph, which~~our needs increase or decrease materially due to unexpected increases or decreases in demand for our products. Any material increase in our inventories could result in an adverse effect on our financial position, while any material decrease in our ability to procure needed inventories could result in an inability to supply customer demand for our products, thus adversely affecting our revenue.

Our ability to fulfill our backlog may have an effect on our long-term ability to procure contracts and fulfill current contracts.

Our ability to fulfill our backlog may be ~~more difficult than~~limited by our ability to devote sufficient financial and human capital resources and may be limited by available material supplies. If we ~~anticipate.~~do not fulfill our backlog in a timely manner, we may experience delays in product delivery, which would postpone receipt of revenue from those delayed deliveries. Additionally, if we are consistently unable to fulfill our backlog, this may be a disincentive to customers to award large contracts to us in the future until they are comfortable that we can effectively manage our backlog.

If we do not manage our supply chain effectively, our operating results may be adversely affected.

~~Following the closing of the merger with Rudolph, we will~~We need to ~~integrate~~continually evaluate our ~~business with~~global supply chains and assess opportunities to reduce costs. We must also enhance quality, speed and flexibility to meet changing demand for our products and product mix and uncertain market conditions. Our success also depends in part on refining our cost structure and supply chains so that we have flexibility and can maintain and improve profitability. Although the ~~business of Rudolph,~~current tariff environment has not had a material adverse effect on our costs to date, further deterioration in the tariff environment, or changes in suppliers, may cause our costs to increase, which if we are not able to offset by charging higher sales prices, will cause a decline in our margins. To improve our margins on a product, we will need to establish high volume supply agreements with our vendors. We cannot be certain that we will be able to timely negotiate vendor supply agreements on improved terms and conditions, or at all. Failure to achieve the desired level of cost reductions could adversely affect our financial results. Despite our efforts to control costs and increase efficiency in our facilities, changes in demand could still cause us to realize lower operating margins and profitability.

We may choose to acquire new and complementary businesses, products or technologies instead of developing them ourselves, and we may be unable to complete these acquisitions or may not be able to successfully integrate an acquired business in a cost-effective and non-disruptive manner.

Our success depends on our ability to continually enhance and broaden our product offerings in response to changing technologies, customer demands and competitive pressures. To this end, we have, from time to time, engaged in the process of identifying, analyzing and negotiating possible acquisition transactions, and, from time to time, acquiring one or more businesses, and we expect to continue to do ~~easily~~so in the future. We may choose to acquire new and ~~quickly,~~complementary businesses, products, technologies and/or services instead of developing them ourselves. We may, however, face competition for acquisition targets from larger and more established companies with greater financial resources, making it more difficult for us to complete acquisitions. We cannot provide any assurance that we will be successful in consummating future acquisitions on favorable terms or that we will realize the benefits that we anticipate from one or more acquisitions that we consummate. Integrating any business, product, technology or service into our current operations could be expensive and time-consuming and/or disrupt our ongoing business. Further, there are numerous risks associated with acquisitions and potential acquisitions, including, but not limited to:

Our inability to consummate one or more acquisitions on favorable terms, or our failure to realize the intended benefits from one or more acquisitions, could have a material adverse effect on our business, liquidity, financial position and/or results of operations, including as a result of our incurrence of indebtedness and related interest expense and our assumption of unforeseen contingent liabilities. We might need to raise additional funds through public or private equity or debt financings to finance any acquisition. In that event, we could be forced to obtain financing on terms that are not favorable to us and, in the case of equity financing, that result in dilution to our stockholders. In addition, any impairment of goodwill or other intangible assets, amortization of intangible assets, write-down of other assets or charges resulting from the costs of acquisitions and purchase accounting could harm our business and operating results.

Over the long-term, we intend to grow our business by increasing our sales efforts and completing strategic acquisitions. To effectively manage growth, we must, among other things:

Growth of our business will likely place a significant strain on our management, financial, operational, technical, sales and administrative resources. Any failure to effectively manage our growth may cause our business to suffer and our stock price to decline.

As a global company, we are subject to taxation in the United States and various other countries. Significant judgment is required to determine and estimate worldwide tax liabilities. Our future annual and quarterly tax rates could be affected by numerous factors, including changes in the (1) applicable tax laws; (2) composition of earnings in countries with differing tax rates; or (3) recoverability of our deferred tax assets and liabilities. In addition, we are subject to regular examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. Although we believe our tax estimates are reasonable, there can be no assurance that any final determination will not be materially different from the treatment reflected in our historical income tax provisions and accruals, which could materially and adversely affect our results of operations.

The Organization for Economic Co-operation and Development (“OECD”), released guidance covering various topics, including country-by-country reporting, definitional changes to permanent establishment and Base Erosion and Profit Shifting (“BEPS”), an initiative that aims to standardize and modernize global tax policy. Depending on the final form of guidance adopted by OECD members and legislation ultimately enacted, if any, there may be significant consequences for us due to our international business activities, including, but not limited to, an increase in our tax uncertainty and adverse effects on our provision for income taxes.

Turmoil or fluctuations in the credit markets and the financial services industry may negatively impact our business, results of operations, financial condition or liquidity, and our factoring arrangements may expose us to additional risks.

In the past, global credit markets and the financial services industry have experienced a period of unprecedented turmoil and upheaval characterized by the tightening of the credit markets, the weakening of the global economy and an unprecedented level of intervention from the United States and other governments. Adverse economic conditions, such as sustained periods of economic uncertainty or a crisis in the financial markets may have a material adverse effect on our liquidity and financial condition if our ability to obtain credit from the capital financial markets, or from trade creditors was impaired. In addition, a

worsening economy or an economic crisis could also adversely impact our customers’ ability to finance the purchase of systems from us or our suppliers’ ability to provide us with product, either of which may negatively impact our business and results of operations. In addition, we enter into factoring arrangements with certain financial institutions to sell a certain portion of our trade receivables. If we were to stop entering into these factoring arrangements, our operating results, financial condition and cash flows could be adversely impacted by delays or failure to collect the trade receivables. However, by entering into these arrangements, we are exposed to additional risks. If any of these financial institutions experiences financial difficulties or is otherwise unable to honor the terms of our factoring arrangements, we may experience material financial losses due to the failure of such arrangements, which could have an adverse impact upon our operating results, financial condition and cash flows.

We are subject to various environmental laws and regulations that could impose substantial costs upon us and may harm our business, operating results and financial condition.

Some of our operations use substances regulated under various federal, state, local, and international laws governing the environment, including those relating to the storage, use, discharge, disposal, labeling, and human exposure to hazardous and toxic materials. We could incur costs, fines and civil or criminal sanctions, third-party property damage or personal injury claims, or could be required to incur substantial investigation or remediation costs, if we were to violate or become liable under environmental laws. Liability under environmental laws can be joint and several and without regard to comparative fault. Compliance with current or future environmental laws and regulations could restrict our ability to expand our facilities or require us to acquire additional expensive equipment, modify our manufacturing processes, or incur other significant expenses. We may unintentionally violate environmental laws or regulations in the future as a result of human error, equipment failure or other causes.

Combining the businesses of Rudolph and Nanometrics may be more difficult, costly or time-consuming than expected and we may fail to realize the anticipated benefits of the Merger, which may adversely affect our business results and negatively affect the value of our common stock.

The success of the Merger depends on, among other things, our ability to combine the businesses of Rudolph and Nanometrics in a manner that realizes cost savings and facilitates growth opportunities.

In addition, we must achieve the anticipated growth and cost savings without adversely affecting current revenues and investments in future growth. If we are not able to successfully achieve these objectives, the anticipated benefits of the Merger may not be realized fully, or at all, or may take longer to realize than expected.

An inability to realize the full extent of the anticipated benefits of the Merger, as well as any delays encountered in the integration process, could have an adverse effect upon our revenues, level of expenses and operating results, which may adversely affect the ~~combined~~value of our common stock.

In addition, the integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized. Actual growth and cost savings, if achieved, may be lower than what we expect and may take longer to achieve than anticipated. If we are not able to adequately address integration challenges, we may be unable to realize the anticipated benefits of the integration of Rudolph and Nanometrics.

The failure to successfully integrate the businesses and operations of Rudolph and Nanometrics in the expected time frame may adversely affect our future results.

Prior to completion of the Merger, Rudolph and Nanometrics operated independently. There can be no assurances that their businesses can be integrated successfully. It is possible that the integration process could result in the loss of key Rudolph employees or key Nanometrics employees, the loss of customers, the disruption of our ongoing businesses, inconsistencies in standards, controls, procedures and policies, unexpected integration issues, higher than expected integration costs or an overall post-completion integration process that takes longer than originally anticipated. Specifically, the following issues, among others, must be addressed in integrating the operations of Rudolph and Nanometrics in order to realize the anticipated benefits of the Merger so we perform as expected:

•combining the businesses of Rudolph and Nanometrics and meeting our capital requirements, in a manner that permits us to achieve any cost savings or revenue synergies anticipated to result from the Merger, the failure of which would result in the anticipated benefits of the Merger not being realized in the time frame currently anticipated or at all;

•harmonizing the companies’ operating practices, employee development and compensation programs, internal controls and other policies, procedures and processes;

•maintaining existing agreements with customers, distributors, providers and vendors and avoiding delays in entering into new agreements with prospective customers, distributors, providers and vendors;

•addressing possible differences in business backgrounds, corporate cultures and management philosophies;

•consolidating the companies’ administrative and information technology infrastructure;

In addition, at times the attention of certain members of management and resources may be focused on the integration of the businesses of the ~~company. For example, complications in integrating our businesses may impair our combined ability to~~ ~~meet rapid demand shifts, continue technological innovation~~two companies and ~~introduce new products to meet customers’ rapidly changing requirements, our combined ability to identify, effect and integrate acquisitions, joint ventures~~diverted from day-to-day business operations or other ~~transactions, protect~~opportunities that may have been beneficial, which may disrupt our business.

We may not be able to retain customers or suppliers, or customers or suppliers may seek to modify contractual obligations with us, which could have an adverse effect on our business and ~~enforce~~operations. Third parties may terminate or alter existing contracts or relationships with Rudolph or Nanometrics.

As a result of the Merger, we may experience impacts on relationships with customers and suppliers that may harm our ~~intellectual property~~business and results of operations. Certain customers, licensors, business partners or suppliers may seek to terminate or modify contractual obligations whether or not contractual rights ~~monitor and address the increasing complexity of certain manufacturing processes, and assess and address raw material shortages and price increases. Any failure or difficulties encountered~~were triggered as a result of ~~challenges~~the Merger. There can be no guarantee that customers and suppliers of Rudolph or Nanometrics will remain with or continue to have a relationship with us or do so on the same or similar contractual terms to those they had with Rudolph or Nanometrics prior to the Merger. If any customers or suppliers seek to terminate or modify contractual obligations or discontinue the relationship with us, then our business and results of operations may be harmed. Furthermore, we do not have long-term arrangements with many of our significant suppliers. If our suppliers were to seek to terminate or modify an arrangement with us, then we may be unable to procure necessary supplies from other suppliers in a timely and efficient manner and on acceptable terms, or at all. Any of the aforementioned disruptions could limit our ability to achieve the anticipated benefits of the Merger.

We may be exposed to increased litigation due to the Merger, which could have an adverse effect on our business and operations.

We may be exposed to increased litigation from stockholders, customers, suppliers, consumers and other third parties due to the combination of Rudolph’s business and Nanometrics’ business. Such litigation may have an adverse impact on our business and results of operations or may cause disruptions to our operations.

We may be unable to retain former Rudolph and Nanometrics personnel successfully.

The success of the Merger will depend in part on our ability to retain the talents and dedication of the professionals previously separately employed by Rudolph and Nanometrics. It is possible that these employees may decide not to remain with us. If key employees terminate their employment, or if an insufficient number of employees are retained to maintain effective operations, our business activities may be adversely affected and management’s attention may be diverted from successfully integrating Rudolph and Nanometrics to hiring suitable replacements, all of which may cause our ~~businesses~~business to suffer. In addition, we may not be able to locate suitable replacements for any key employees that leave the Company or offer employment to potential replacements on reasonable terms.

Cyclicality in the semiconductor device industry has led to substantial decreases in demand for our systems and may, from time to time, continue to do so.

Our operating results are subject to significant variation due to global economic conditions and the cyclical nature of the semiconductor device industry. Our business depends upon the capital expenditures of semiconductor device manufacturers, which, in turn, depend upon the current and anticipated market demand for semiconductors and products using semiconductors. The timing, length and severity of the up-and-down cycles in the semiconductor equipment industry are difficult to predict. In recent years, the industry has experienced significant downturns, generally in connection with declines in economic conditions. This cyclical nature of the industry in which we operate affects our ability to accurately predict future revenue and, thus, future expense levels. When cyclical fluctuations result in lower than expected revenue levels, operating results may be adversely

affected, and cost reduction measures may be necessary in order for us to remain competitive and financially sound. During a down cycle, we must be in a position to adjust our cost and expense structure to prevailing market conditions and to continue to motivate and retain our key employees. In addition, during periods of rapid growth, we must be able to increase manufacturing capacity and personnel to meet customer demand. We can provide no assurance that these objectives can be met in a timely manner in response to industry cycles. If we fail to respond to industry cycles, our business could be seriously harmed.

In addition, demand for our products is highly inelastic which means we have little ability to control product revenues created by customer demand for more capacity. The market for our products is characterized by constant and rapid technological change, price erosion, product obsolescence, evolving standards, short product life cycles and significant volatility in supply and demand. Due to the inelastic nature of demand in the semiconductor industry, we may need to take actions to reduce costs in the future, which could reduce our ability to significantly invest in research and development at levels we believe are necessary. If we are unable to effectively align our cost structure with prevailing market conditions, our business, financial condition and results of operations may be materially and adversely affected.

We may also experience supplier or customer issues as a result of adverse macroeconomic conditions. If our customers have difficulties in obtaining capital or financing, this could result in lower sales. Customers with liquidity issues could also result in an increase in bad debt expense. These conditions could also affect our ~~combined businesses,~~key suppliers, which could affect their ability to supply parts and result in delays of our customer shipments.

Our future rate of growth is highly dependent on the development and growth of the market for microelectronic device inspection, lithography and metrology equipment.

We target our products to address the needs of microelectronic device manufacturers for defect inspection, metrology and lithography. If for any reason the market for microelectronic device inspection, lithography or metrology equipment fails to grow in the long term, we may be unable to maintain current revenue levels in the short term and maintain our historical growth in the long term. Growth in the inspection market is dependent to a large extent upon microelectronic manufacturers replacing manual inspection with automated inspection technology. Growth in the metrology market is dependent to a large extent upon new chip designs and capacity expansion of microelectronic manufacturers. Growth in the lithography market is dependent on the development of cost-effective packaging with high fine pitch RDLs, ultimately migrating to multi-die, large, form-factor packages. There can be no assurance that manufacturers will undertake these actions at the rate we expect.

Provisions of our charter documents and of Delaware law could discourage potential acquisition proposals and/or delay, deter or prevent a change in control of our company.

Provisions of our certificate of incorporation and by-laws may inhibit changes in control of our company not approved by our Board of Directors. These provisions also limit the circumstances in which a premium can be paid for our common stock and in which a proxy contest for control of our board may be initiated. These provisions provide for:

We are also entitled to avail ourselves of the protections of Section 203 of the Delaware General Corporation Law, which could inhibit changes in control of the Company.

The market price of our common stock has fluctuated widely. Consequently, the current market price of our common stock may not be indicative of future market prices, and we may be unable to sustain or increase the value of an investment in our common stock. Factors affecting our stock price may include:

In addition, the stock market has experienced periods of significant price and volume fluctuations. These fluctuations have particularly affected the market prices of the securities of high technology companies like ours. Any such market fluctuations in the future could adversely affect the market price of our common stock.

There are various risks related to the legal and regulatory environments in which we perform our operations and conduct our business that may expose us to risk.

We are faced with various risks that may be associated with our compliance with existing, new, different, inconsistent or conflicting laws, regulations and rules enacted by governments and/or their regulatory agencies in the countries in which we operate as well as rules and policies implemented at our customer sites. These laws, regulations, rules and policies could relate to any of an array of issues including, but not limited to, environmental, tax, intellectual property, trade secrets, product liability, contracts, antitrust, employment, securities, import/export and unfair competition. In the event that we fail to comply with or violate U.S. or foreign laws or regulations or customer policies, we could be subject to civil or criminal claims or proceedings that may result in monetary fines, penalties or other costs against us or our employees, which may adversely affect our operating results, financial condition, customer relations and ~~prospects.~~ability to conduct our business.

In addition to our share repurchase program, we withhold common stock shares associated with net share settlements to cover tax withholding obligations upon the vesting of restricted stock unit awards and stock option exercises under the Company’s equity incentive program. During the three months ended March 28, 2020, we withheld 43 thousand shares through net share settlements. For the three months ended March 28, 2020, net share settlements cost $1.7 million. Please refer to Note 11 of the Notes to the Condensed Consolidated Financial Statements for further discussion regarding our equity incentive plan.

The following table provides details of common stock purchased during the three months ended March 28, 2020 (in thousands, except per share data):

~~The following exhibits are filed, furnished or incorporated by reference with this Quarterly Report on Form 10-Q:~~

Exhibit
No.
Description
Form
File Number
Date of First Filing
Exhibit
Number/
Appendix Reference
2
Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession

2.1
Agreement and Plan of Merger by and among Registrant, Rudolph Technologies, Inc., and PV Equipment, Inc., dated June 23, 2019
8-K
000-13470
6/24/2019
2.1
3.(i)
Certificate of Incorporation

3.1
Certificate of Incorporation of the Registrant
8-K
000-13470
10/5/2006
3.1
3.(ii)
Bylaws

3.2
Bylaws of the Registrant
-
-
-
-
4
Instruments Defining the Rights of Security Holders, Including Indentures

4.1
Reference is made to Exhibits 3.1 and 3.2
-
-
-
-
31
Rule 13a-14(a)/15d-14(a) Certifications

31.1
Certification of Pierre-Yves Lesaicherre, principal executive officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
-
-
-
-
31.2
Certification of Greg Swyt, principal financial officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
-
-
-
-
32
Section 1350 Certifications

32.1
Certification of Pierre-Yves Lesaicherre, principal executive officer of the Registrant, and Greg Swyt, principal financial officer of the Registrant pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This Certification accompanies this report and shall, not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed for purposes of §18 of the Securities Exchange Act of 1934, as amended.
-
-
-
-
101
The following financial statements, formatted in XBRL: (i) Condensed Consolidated Balance Sheets at June 29, 2019 and December 29, 2018, (ii) Condensed Consolidated Statements of Operations for the three and six months ended June 29, 2019 and June 30, 2018, (iii) Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended June 29, 2019 and June 30, 2018, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 29, 2019 and June 30, 2018, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.

101.INS
XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH
XBRL Taxonomy Extension Schema Document

101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF
XBRL Taxonomy Extension Definition Linkbase Document

101.LAB
XBRL Taxonomy Extension Label Linkbase Document

101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document

Pursuant to the requirements of the Securities Exchange Act of 1934, the ~~registrant~~Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Delaware		94-2276314
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

~~1550 Buckeye Drive~~ ~~Milpitas, California~~		~~95035~~
~~(Address of principal executive offices)~~		~~(Zip Code)~~


Title of ~~each class~~Each Class	Trading Symbol(s)	Name of ~~each exchange~~Each Exchange on ~~which registered~~Which Registered
Common Stock, $0.001 par value per share	~~NANO~~ONTO	~~The Nasdaq~~New York Stock ~~Market LLC (Nasdaq Global Select Market)~~Exchange (NYSE)


~~PART I. FINANCIAL INFORMATION~~Item No.		Page
	PART I FINANCIAL INFORMATION

Item 1.		Financial Statements (unaudited)		31

		~~Condensed Consolidated Balance Sheets at June 29, 2019 and December 29, 2018 (Unaudited)~~		3

		Condensed Consolidated Statements of Operations for the ~~Three~~three months ended March 28, 2020 and ~~Six Months Ended June 29,~~March 31, 2019 ~~and June 30, 2018 (Unaudited)~~		41

		Condensed Consolidated Statements of Comprehensive Income (Loss) for the ~~Three~~three months ended March 28, 2020 and ~~Six Months Ended June 29,~~March 31, 2019 ~~and June 30, 2018 (Unaudited)~~		52

		Condensed Consolidated ~~Statement of Stockholders’ Equity for the Three~~Balance Sheets at March 28, 2020 and ~~Six Months Ended June 29,~~December 31, 2019 ~~and June 30, 2018 (Unaudited)~~		63

		Condensed Consolidated Statements of Cash Flows for the ~~Six Months Ended June 29,~~three months ended March 28, 2020 and March 31, 2019 ~~and June 30, 2018 (Unaudited)~~		84
	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 28, 2020 and March 31, 2019			5
		Notes to Condensed Consolidated Financial Statements ~~(Unaudited)~~		9
				6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23
Item 4.	Controls and Procedures	24

	PART II OTHER INFORMATION
~~Item 3.~~		~~Quantitative and Qualitative Disclosures about Market Risk~~		32

~~Item 4.~~		~~Controls and Procedures~~		33

~~PART II. OTHER INFORMATION~~

Item 1.		Legal Proceedings		34
				25
Item 1A.		Risk Factors		3425
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.		Exhibits		35

~~Signatures~~				3640

Supplemental Cash Flows Information	Amount
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used by operating leases	$	1,582
Right of use assets recognized in exchange for operating lease liabilities		698
Imputed interest - operating leases		254
Weighted average remaining lease term - operating leases (months)		61
Weighted average discount rate - operating leases (per annum)		4.88	%

Fiscal year	Amount
2019 (remainder)	$	1,833
2020		2,949
2021		2,096
2022		1,544
2023		1,249
Thereafter		2,706
Total future minimum lease payments		12,377
Less: future interest		(1,515	)
Total	$	10,862

Reported as of June 29, 2019
Operating lease liability - short term	$	2,845
Operating lease liability - long term		8,017
Total	$	10,862


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


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

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

	June 29, 2019			December 29, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	94,035		$	110,951
Marketable securities		50,947			40,841
Accounts receivable, net of allowances of $209 and $170, respectively		51,602			50,854
Inventories		66,630			61,915
Inventories-delivered systems		1,010			180
Prepaid expenses and other		7,955			6,140
Total current assets		272,179			270,881
Property, plant and equipment, net		52,779			47,900
Operating lease - right of use assets, net		10,767		—
Goodwill		26,310			26,372
Intangible assets, net		25,811			27,326
Deferred income tax assets		2,807			2,569
Other assets		446			582
Total assets	$	391,099		$	375,630
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	19,459		$	16,540
Accrued payroll and related expenses		10,361			21,658
Deferred revenue		9,865			8,990
Operating lease liabilities		2,845		—
Other current liabilities		7,308			9,421
Income taxes payable		1,117			3,164
Total current liabilities		50,955			59,773
Deferred revenue		1,616			1,753
Income taxes payable		1,150			871
Deferred tax liabilities		163			162
Operating lease liabilities		8,017		—
Other long-term liabilities		218			219
Total liabilities		62,119			62,778
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $0.001 par value; 3,000,000 shares authorized; no shares issued or outstanding		—			—
Common stock, $0.001 par value, 47,000,000 shares authorized: 24,828,384 and 24,372,193, respectively, issued and outstanding		25			24
Additional paid-in capital		256,503			247,983
Retained earnings		74,305			67,402
Accumulated other comprehensive loss		(1,853	)		(2,557	)
Total stockholders’ equity		328,980			312,852
Total liabilities and stockholders’ equity	$	391,099		$	375,630

	Three Months Ended						Six Months Ended
	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018
Net revenues:
Products	$	52,541		$	76,704		$	106,396		$	147,723
Service		15,079			11,900			28,324			23,194
Total net revenues		67,620			88,604			134,720			170,917
Costs of net revenues:
Cost of products		24,294			31,235			50,193			59,828
Cost of service		7,683			6,443			14,631			12,597
Amortization of intangible assets		471			35			936			70
Total costs of net revenues		32,448			37,713			65,760			72,495
Gross profit	��	35,172			50,891			68,960			98,422
Operating expenses:
Research and development		14,098			12,491			27,085			22,693
Selling		8,244			10,151			17,526			19,175
General and administrative		7,885			7,465			15,790			15,206
Merger expenses		907			-			907			-
Amortization of intangible assets		289			-			578			-
Total operating expenses		31,423			30,107			61,886			57,074
Income from operations		3,749			20,784			7,074			41,348
Other income (expense):
Interest expense, net		(15	)		(48	)		(106	)		(141	)
Other income (expense), net		828			(166	)		1,098			186
Total other income (expense), net		813			(214	)		992			45
Income before income taxes		4,562			20,570			8,066			41,393
Provision for income taxes		632			2,895			1,163			7,337
Net income	$	3,930		$	17,675		$	6,903		$	34,056
Net income per share:
Basic	$	0.16		$	0.74		$	0.28		$	1.42
Diluted	$	0.16		$	0.72		$	0.28		$	1.39
Weighted average shares used in per share calculation:
Basic		24,525			23,953			24,530			24,008
Diluted		24,843			24,442			24,850			24,488

	Common Stock				Additional Paid-In			Retained		Accumulated Other Comprehensive			Total Stockholders’
Three Months Ended June 29, 2019	Shares		Amount		Capital			Earnings		Loss			Equity
Balance as of March 30, 2019		24,534,582	$	25	$	251,841		$	70,375	$	(1,855	)	$	320,386
Net income		—		—		—			3,930		—			3,930
Foreign currency translation adjustments		—		—		—			—		(42	)		(42	)
Unrealized gain on investments, net of tax		—		—		—			—		44			44
Issuance of common stock under stock-based compensation plans, net of taxes paid		293,802		—		1,462			—		—			1,462
Stock-based compensation expense		—		—		3,200			—		—			3,200
Balance as of June 29, 2019		24,828,384	$	25	$	256,503		$	74,305	$	(1,853	)	$	328,980

	Common Stock				Additional Paid-In			Retained		Accumulated Other Comprehensive			Total Stockholders’
Three Months Ended June 30, 2018	Shares		Amount		Capital			Earnings		Loss			Equity
Balance as of March 31, 2018		23,890,563	$	24	$	234,793		$	26,136	$	(226	)	$	260,727
Net income		—		—		—			17,675		—			17,675
Foreign currency translation adjustments		—		—		—			—		(2,555	)		(2,555	)
Unrealized gain on investments, net of tax		—		—		—			—		52			52
Issuance of common stock under stock-based compensation plans, net of taxes paid		175,805		—		(94	)		—		—			(94	)
Stock-based compensation expense		—		—		2,679			—		—			2,679
Balance as of June 30, 2018		24,066,368	$	24	$	237,378		$	43,811	$	(2,729	)	$	278,484

	Three Months		Six Months
	Ended		Ended
	June 29, 2019		June 29, 2019
Operating lease expense	$	924	$	1,771

	Purchase Price Allocation November 15, 2018
Cash and cash equivalents	$	1,414
Accounts receivable, net		4,156
Inventories		4,563
Prepaid and other current assets		104
Property and equipment		145
Accounts payable		(702	)
Accrued liabilities		(760	)
Deferred revenue		(197	)
Deferred tax liabilities		(5,408	)
Total assets acquired/liabilities assumed		3,315
Developed technology		15,500
In-process research and development		1,400
Customer relationships		4,600
Order backlog		500
Trade name		1,500
Total identified intangible assets		23,500
Total identifiable net assets		26,815
Goodwill		15,700
Total purchase consideration	$	42,515

	June 29, 2019		December 29, 2018
Contract assets	$	4,399	$	2,189
Contract liabilities		11,481		10,743
Net contract liabilities	$	7,082	$	8,554

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Balance at December 31, 2019	$	569
Additions		—
Payments		—
Transfer into (out of) Level 3		—
Balance at March 28, 2020	$	569

	June 29, 2019								December 29, 2018
	Fair Value Measurements Using Input Types								Fair Value Measurements Using Input Types
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	10,964	$	—	$	—	$	10,964	$	113	$	—	$	—	$	113
Commercial paper		—		24,937		—		24,937		—		1,993		—		1,993
Certificates of deposit		—		2,000		—		2,000		—		—		—		—
Total cash equivalents	$	10,964	$	26,937	$	—	$	37,901	$	113	$	1,993	$	—	$	2,106

Marketable securities:
Certificates of deposits	$	—	$	13,013	$	—	$	13,013	$	—	$	9,497	$	—	$	9,497
Commercial paper		—		14,066		—		14,066		—		7,932		—		7,932
Corporate debt securities		—		15,301		—		15,301		—		15,730		—		15,730
Asset-backed Securities		—		8,567		—		8,567		—		7,682		—		7,682
Total marketable securities	$	—	$	50,947	$	—	$	50,947	$	—	$	40,841	$	—	$	40,841
Total⁽¹⁾	$	10,964	$	77,884	$	—	$	88,848	$	113	$	42,834	$	—	$	42,947

	June 29, 2019								December 29, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Market Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Market Value
Cash	$	56,134	$	—	$	—	$	56,134	$	108,845	$	—	$	—		$	108,845
Cash equivalents:
Money market funds		10,964		—		—		10,964		113		—		—			113
Commercial paper		24,937		—		—		24,937		1,993		—		—			1,993
Certificates of deposit		2,000		—		—		2,000		—		—		—			—
Marketable securities:
Certificates of deposit		13,003		10		—		13,013		9,500		—		(3	)		9,497
Commercial paper		14,063		3		—		14,066		7,933		—		(1	)		7,932
Corporate debt securities		15,281		20		—		15,301		15,788		—		(58	)		15,730
Asset-backed securities		8,550		17		—		8,567		7,706		—		(24	)		7,682
Total cash, cash equivalents, and marketable securities	$	144,932	$	50	$	—	$	144,982	$	151,878	$	—	$	(86	)	$	151,792

Balance at December 31, 2019	$	307,148
Goodwill adjustments (Note 2)		478
Balance at March 28, 2020	$	307,626

	At
	June 29, 2019			December 29, 2018
Inventories:
Raw materials and sub-assemblies	$	35,880		$	31,434
Work in process		21,061			22,383
Finished goods		9,689			8,098
Inventories		66,630			61,915
Inventories-delivered systems		1,010			180
Total inventories	$	67,640		$	62,095

Property, plant and equipment, net:⁽¹⁾
Land	$	15,570		$	15,571
Machinery and equipment		37,608			39,898
Building and improvements		26,344			21,354
Software		10,377			10,116
Furniture and fixtures		2,471			2,551
Leasehold improvements		1,774			-
Capital in progress		4,505			6,027
Total property, plant and equipment, gross		98,649			95,517
Accumulated depreciation and amortization		(45,870	)		(47,617	)
Total property, plant and equipment, net	$	52,779		$	47,900

⁽¹⁾Depreciation and amortization expense of property, plant and equipment was $1.9 million and $1.6 million for the three months ended June 29, 2019 and June 30, 2018, respectively, and $3.5 million and $3.3 million for the six months ended June 29, 2019 and June 30, 2018, respectively.

Other Current Liabilities:
Accrued warranty	$	3,755		$	4,379
Accrued taxes		965			1,738
Customer deposits		388			293
Accrued professional services		625			448
Third party commissions		249			1,382
Other		1,326			1,181
Total other current liabilities	$	7,308		$	9,421

	March 28, 2020			December 31, 2019
Land and building	$	46,913		$	47,222
Machinery and equipment		56,475			56,504
Furniture and fixtures		4,134			3,968
Computer equipment and software		16,116			15,770
Leasehold improvements		13,171			13,069
		136,809			136,533
Accumulated depreciation		(39,836	)		(38,113	)
Total property, plant and equipment, net	$	96,973		$	98,420

	Foreign Currency Translations			Defined Benefit Pension Plans			Unrealized Income (Loss) on Investment		Accumulated Other Comprehensive Income (Loss)
Balance as of December 29, 2018	$	(2,129	)	$	(646	)	$	218	$	(2,557	)
Current period change		602			—			102		704
Balance as of June 29, 2019	$	(1,527	)	$	(646	)	$	320	$	(1,853	)

	March 28, 2020		December 31, 2019
Convertible notes receivable, net of allowance of $2,000	$	—	$	3,000
Operating lease right-of-use assets		22,382		23,588
Other		1,268		1,351
Total other assets	$	23,650	$	27,939

	June 29, 2019
	Adjusted cost		Accumulated amortization			Net carrying amount
Developed technology	$	36,512	$	(17,527	)	$	18,985
Customer relationships		6,541		(2,057	)		4,484
Trade name		1,500		(58	)		1,442
In-process research and development		900		—			900
Total	$	45,453	$	(19,642	)	$	25,811

	March 28, 2020		December 31, 2019
Unrecognized tax benefits (including interest)	$	6,520	$	6,384
Non-current operating lease obligations		18,950		19,970
Deferred revenue		2,462		2,464
Other		2,059		2,953
Total other non-current liabilities	$	29,991	$	31,771

Fiscal Years	Amounts
2019 (remainder)	$	1,376
2020		2,960
2021		2,960
2022		2,960
2023		2,960
Thereafter		11,695
Total future amortization expense	$	24,911

	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2019		1,107		$	28.89
Granted		127		$	43.13
Vested		(169	)	$	29.02
Forfeited		(60	)	$	29.12
Nonvested at March 28, 2020		1,005		$	30.58

	Three Month Ended				Six Months Ended
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Weighted average common shares outstanding used in basic net income per share calculation		24,525		23,953		24,530		24,008
Potential dilutive common stock equivalents, using treasury stock method		318		489		320		480
Weighted average shares used in diluted net income per share calculation		24,843		24,442		24,850		24,488

	Number of Shares Outstanding (Options)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in Thousands)
Options
Outstanding at December 29, 2018		83,394		$	15.80		1.19	$	988
Exercised		(70,100	)		15.72
Cancelled		—		—
Outstanding at June 29, 2019		13,294			16.19		1.05		246
Exercisable at June 29, 2019		13,294		$	16.19		1.05	$	246

Summary of activity for RSUs	Number of RSUs			Weighted Average Fair Value
Outstanding RSUs as of December 29, 2018		769,003		$	31.39
Granted		339,822			28.68
Released		(303,127	)		28.47
Cancelled		(45,576	)		32.36
Outstanding RSUs as of June 29, 2019		760,122		$	31.28

Summary of activity for PSUs	Number of PSUs			Weighted Average Fair Value
Outstanding PSUs as of December 29, 2018		112,163		$	22.37
Granted		43,429			19.09
Released		(16,066	)		25.09
Cancelled		(1,138	)		26.75
Outstanding PSUs as of June 29, 2019		138,388		$	20.99

	~~2019 Award~~		~~2018 Award~~
~~Grant Date Fair Value Per Share~~	~~$13.12-$23.75~~		~~$20.73-$25.18~~
~~Weighted-average assumptions/inputs:~~
~~Expected Dividend~~		—		—
~~Range of risk-free interest rates~~	~~2.45%~~		~~2.39%-2.63%~~
~~Range of expected volatilities for peer group~~	~~22%-63%~~		~~22%-66%~~

	Accumulated Foreign Currency Translation Adjustment		Accumulated Net Unrealized Loss on Available-For-Sale Marketable Securities		Accumulated Other Comprehensive Loss
Balance at December 31, 2019	$	564	$	34	$	598
Net current period other comprehensive loss		2,231		526		2,757
Reclassifications		—		—		—
Balance at March 28, 2020	$	2,795	$	560	$	3,355

	June 29, 2019		December 29, 2018
Long-lived tangible assets:
United States	$	51,365	$	46,325
International		1,414		1,575
Total long-lived tangible assets	$	52,779	$	47,900

	As of
	June 29, 2019		December 29, 2018
Cash, cash equivalents and marketable securities	$	144,982	$	151,792
Working capital		221,224		211,108

Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program		Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Program
January 1, 2020 - January 25, 2020		3	$	40.14		—	$	80,000
January 26, 2020 - February 22, 2020		21		39.25		—	$	80,000
February 23, 2020 - March 28, 2020		1,269		26.99		1,250	$	46,386
Three months ended March 28, 2020		1,293	$	27.22		1,250	$	46,386

¹ Includes shares withheld through net share settlements.