Michael Plisinski, chief executive officer of Onto Innovation commented, “The extraordinary challenges of integrating two similar sized companies while simultaneously operating under the constraints of a global pandemic underscored the strength of the Onto Innovation team. Together, we released six new products and expanded our growth opportunities in new markets for advanced packaging and image sensors as well as in the advanced nodes for logic, DRAM, and 3D-NAND. The strong revenue growth in the fourth quarter was a combination of market strength in memory and RF communications in support of the initial 5G handset ramp as well as the acceptance of several of our new product releases.”

Plisinski concluded, “In addition to expanding our market opportunities, we are deepening our customer partnerships across the value chain by working collaboratively on identifying future challenges and potential solutions. This is expanding our view of the horizon and illuminating exciting possibilities for our team. Our guidance for the first quarter reflects our confidence for what is ahead. Secular demand for 5G enabled handsets and base stations continues to increase. High performance computing engines for AI and data center applications also remain strong and are driving demand for DRAM. The electronics industry is profoundly changing the world in which we live. We are excited to do our part to ensure it’s a better planet. Our activities began as we developed our first corporate responsibility report and created our corporate environmental goals. This year gave us many examples of how critical this is for our society and the environment and we look forward to contributing to this effort.”

Fourth Quarter 2020 and Full Year GAAP Financial Results

• Fourth quarter revenue totaled $155.1 million, an increase of 23% compared with $126.5 million for the third quarter of 2020. For the full year, revenue totaled $556.5 million compared to $305.9 million in the prior year.
• Gross profit margin was 49% of revenue in the fourth quarter of 2020, compared to 54% in the third quarter of 2020. Fourth quarter gross margin was negatively impacted by an inventory reserve for a discontinued product line. For the full year 2020, gross profit margin was 50% compared to 44% in the prior year.
• Operating expenses for the fourth quarter of 2020 totaled $60.6 million, an increase of $1.0 million compared to $59.6 million in the third quarter of 2020. For the full year, operating expenses were $251.8 million compared to $140.1 million in the prior year.
• The income tax provision was a benefit of $5.4 million for the fourth quarter of 2020 compared to $836 thousand of expense in the 2020 third quarter. The fourth quarter benefit was primarily due to the conclusion of an IRS audit covering the years 2016 to 2018 and a net operating loss carryback claim to tax years with higher statutory tax rates.
• GAAP net income for the fourth quarter of 2020 was $19.9 million, or $0.40 per diluted share, compared with $8.1 million, or $0.16 per diluted share, for the 2020 third quarter. For the full year, net income was $31.0 million, or $0.63 per diluted share compared to net income of $1.9 million, or $0.06 per diluted share in the prior year.

Fourth Quarter 2020 and Full Year Non-GAAP Financial Results

• Fourth quarter 2020 non-GAAP net income was $35.6 million, or $0.72 per diluted share, and was above the high end of previous guidance, compared to non-GAAP net income of $19.6 million, or $0.40 per diluted share in the third quarter 2020. For the full year, non-GAAP net income was $95.7 million, or $1.93 per diluted share compared to $41.8 million, or $1.39 per diluted share in the prior period.
• Non-GAAP results exclude merger-related expenses, restructuring costs and the amortization of intangible assets as detailed in the accompanying tables.

Balance Sheet

• As of December 26, 2020, cash and marketable securities increased $53.5 million for the year, net of $52 million of stock repurchases in 2020, and ended at $373.7 million.
• Working capital increased $32.1 million from the 2020 third quarter and ended the year at $611.6 million.
• Accounts receivable totaled $149.3 million as of the end of the year and inventory ended the year at $191.2 million.

Outlook

The Company is currently anticipating revenue for the first quarter 2021 to be in the range of $155 million to $169 million. This guidance assumes that the safety protocols in place continue to limit the impact of COVID-19 on our factories and our suppliers. The upper end of this guidance is predicated on the approval of the Company’s application for a license to deliver an ordered product that was recently restricted from shipping to China. Within this revenue range the Company is expecting GAAP net income per diluted share to be in the range of $0.35 to $0.49 and non-GAAP net income per diluted share to be in the range of $0.62 to $0.76.

Webcast & Conference Call Details

Onto Innovation will host a conference call at 4:30 p.m. Eastern Time today, February 4, 2021, to discuss its fourth quarter and full year 2020 financial results in greater detail. To participate in the call, please dial (800) 437-2398 or International: +1 (929) 477-0577 and reference conference ID 109830 at least five (5) minutes prior to the scheduled start time. A live webcast will also be available at www.ontoinnovation.com.

To listen to the live webcast, please go to the website at least fifteen (15) minutes early to register, download and install any necessary audio software. There will be a replay of the conference call available from 7:30 p.m. ET on February 4 until 7:30 p.m. ET on February 11, 2021. To access the replay, please dial (888) 203-1112 and conference ID 109830 at any time during that period. A replay will also be available at www.ontoinnovation.com.

Discussion of Non-GAAP Financial Measures

The Company has provided in this release non-GAAP financial measures, including non-GAAP net income and non-GAAP EPS, which exclude amortization of acquisition-related intangible assets, certain acquisition-related expenses and benefits, and restructuring costs. Non-GAAP net income and non-GAAP EPS can also exclude certain other gains and losses that are either isolated or cannot be expected to occur again with any predictability, tax provisions/benefits related to the previous items, and significant discrete tax events. We exclude the above items because they are outside of our normal operations and/or, in certain cases, are difficult to forecast accurately for future periods.

We utilize several different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of our business, in making operating decisions, forecasting and planning for future periods, and determining payments under compensation programs. We consider the use of the non-GAAP measures to be helpful in assessing the performance of the ongoing operation of our business. We believe that disclosing non-GAAP financial measures provides useful supplemental data that, while not a substitute for financial measures prepared in accordance with GAAP, allows for greater transparency in the review of our financial and operational performance. We also believe that disclosing non-GAAP financial measures provides useful information to investors and others in understanding and evaluating our operating results and future prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies. More specifically, management adjusts for the excluded items for the following reasons:

Amortization of purchased intangible assets: we do not acquire businesses and assets on a predictable cycle. The amount of purchase price allocated to the purchased intangible assets and the term of amortization can vary significantly and are unique to each acquisition or purchase. We believe that excluding amortization of purchased intangible assets allows the users of our financial statements to better review and understand the historic and current results of our operations, and also facilitates comparisons to peer companies.

Merger or acquisition related expenses and benefits: we incur expenses or benefits with respect to certain items associated with our mergers and acquisitions, such as transaction and integration costs, change in control payments, adjustments to the fair value of assets, etc. We exclude such expenses or benefits as they are related to acquisitions and have no direct correlation to the operation of our on-going business.