Business context and reporting period
Onto Innovation designs and sells process-control inspection, metrology, lithography and software systems for semiconductor and advanced-packaging manufacturers. This filing reports the quarter ended March 28, 2020, compared with the quarter ended March 31, 2019, and was filed May 5, 2020. The request metadata says 2018 Q1, but the filing itself is for 2020 Q1.
Onto completed its Rudolph Technologies–Nanometrics merger in October 2019. The merger is accounted for as a reverse acquisition, with Rudolph as the accounting acquirer; 2019 comparative results therefore reflect Rudolph alone, while 2020 results include both businesses. This makes year-over-year comparisons substantially affected by the merger. The company also changed to a 52–53-week fiscal year ending on the Saturday closest to December 31; fiscal 2020 is expected to end December 26.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $139.9 million | $60.9 million |
| Gross profit / margin | $62.6 million / 44.8% | $32.0 million / 52.6% |
| Operating income (loss) | ($5.2) million | $7.6 million |
| Net income (loss) | ($4.4) million | $7.6 million |
| Diluted earnings (loss) per share | ($0.09) | $0.30 |
| Cash from operating activities | $8.9 million | ($1.6) million |
| Capital expenditures | $1.0 million | $1.3 million |
Revenue rose 129.8%, primarily because the 2020 quarter included legacy Nanometrics. Gross margin fell 7.8 percentage points, largely due to a $9.9 million charge for acquired inventory marked up to fair value. Operating expenses increased to $67.9 million from $24.4 million, including higher acquired-intangible amortization ($13.7 million versus $0.4 million) and expenses from the combined company.
At March 28, cash and cash equivalents were $101.3 million and marketable securities were $190.6 million, totaling $291.9 million; working capital was $534.2 million. Total current assets were $628.5 million and current liabilities $94.3 million. The balance sheet reports no outstanding borrowings. An unused, securities-secured credit line provided approximately $71.1 million of availability at a stated 1.8% rate. Cash declined $29.4 million during the quarter, including $33.6 million used for share repurchases.
Material changes, outlook and risks
- Systems and software generated $114.3 million, or 82% of revenue; parts generated $13.6 million and services $12.0 million. Two customers represented 17.5% and 17.0% of quarterly revenue, respectively.
- The company repurchased 1.25 million shares for $33.6 million under its authorization; $46.4 million remained available at quarter-end.
- Management said that, as of May 5, COVID-19 had disrupted how the company operated but had not materially adversely affected operations or caused significant direct financial impact. The future effect remained uncertain. Risks cited include lower customer demand, supply-chain disruption, operating delays and costs, and reduced availability of credit or external capital.
- Management expected available cash, marketable securities and credit availability to cover anticipated cash needs for the next 12 months. The filing gives no specific revenue or earnings guidance.
- The company settled its relationship under a convertible-note agreement with Simax: it reserved an additional $2.152 million against $5.0 million outstanding, and the agreed $2.848 million settlement was paid in April 2020.
- An intellectual-property and contract dispute with Optical Solutions, Inc. remained pending; trial was set for May 16, 2022. The company did not expect a material financial impact. The filing also describes customary customer IP indemnities for which a maximum exposure could not be reasonably estimated; no liability was accrued.
- Integration of the merger and a new domestic ERP system were ongoing. Management reported disclosure controls effective at a reasonable-assurance level, while excluding legacy Nanometrics from the controls evaluation under SEC guidance.
Important facts for investors to verify
- Separate acquired-company contributions from underlying growth when assessing the 129.8% revenue increase and comparing expenses and margins.
- Track whether gross margin recovers after the one-time acquired-inventory charge and how merger-related amortization affects reported earnings.
- Monitor COVID-19 effects on semiconductor customer orders, customer concentration, supply-chain capacity and the value of securities supporting the credit line.
- Confirm the Simax settlement receipt and monitor the Optical Solutions litigation and other contingent exposures.
- Assess ongoing share repurchases against liquidity needs, integration costs and management’s 12-month cash-sufficiency outlook.