10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended September 30, 2018

OR

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

For the transition period from          to

Commission File No. 001-36226

RUDOLPH TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Delaware	22-3531208
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

16 Jonspin Road, Wilmington, Massachusetts 01887

(Address of principal executive offices, including zip code)

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

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

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

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

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

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

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

The number of outstanding shares of the Registrant’s Common Stock on October 15, 2018 was 31,900,604.

TABLE OF CONTENTS

Item No.		Page
	PART I    FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets at September 30, 2018 and December 31, 2017	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017	4
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and 2017	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25
Item 4.	Controls and Procedures	25
	PART II    OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	27

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

RUDOLPH TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

	September 30, 2018			December 31, 2017
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	124,334		$	67,770
Marketable securities		70,005			109,589
Accounts receivable, less allowance of $956 and $460		68,512			65,283
Inventories, net		91,391			67,521
Income taxes receivable		3,253			7,220
Prepaid expenses and other current assets		8,976			4,699
Total current assets		366,471			322,082
Property, plant and equipment, net		16,763			17,342
Goodwill		22,495			22,495
Identifiable intangible assets, net		7,786			8,632
Other assets		16,395			15,371
Total assets	$	429,910		$	385,922
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	30,095		$	26,800
Deferred revenue		7,564			6,223
Other current liabilities		7,922			9,284
Total current liabilities		45,581			42,307
Other non-current liabilities		10,173			10,461
Total liabilities		55,754			52,768
Commitments and contingencies
Stockholders’ equity:
Common stock		32			32
Additional paid-in capital		390,547			386,196
Accumulated other comprehensive loss		(1,568	)		(1,205	)
Accumulated deficit		(14,855	)		(51,869	)
Total stockholders’ equity		374,156			333,154
Total liabilities and stockholders’ equity	$	429,910		$	385,922

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

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RUDOLPH TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September30,
	2018			2017			2018			2017
Revenue	$	60,432		$	66,920		$	211,004		$	195,017
Cost of revenue		28,978			31,775			95,393			92,548
Gross profit		31,454			35,145			115,611			102,469
Operating expenses:
Research and development		12,313			12,020			36,829			36,176
Selling, general and administrative		11,128			10,102			35,867			29,880
Amortization		384			506			1,147			1,516
Patent litigation income		—			(13,000	)		—			(13,000	)
Total operating expenses		23,825			9,628			73,843			54,572
Operating income		7,629			25,517			41,768			47,897
Interest income, net		(607	)		(244	)		(1,474	)		(658	)
Other expense (income), net		(132	)		98			(90	)		533
Income before income taxes		8,368			25,663			43,332			48,022
Provision for income taxes		1,181			8,294			6,318			14,309
Net income	$	7,187		$	17,369		$	37,014		$	33,713
Earnings per share:
Basic	$	0.23		$	0.55		$	1.16		$	1.07
Diluted	$	0.22		$	0.54		$	1.14		$	1.05
Weighted average shares outstanding:
Basic		31,901			31,571			31,807			31,455
Diluted		32,408			32,170			32,387			32,126

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

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RUDOLPH TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September30,
	2018			2017			2018			2017
Net income	$	7,187		$	17,369		$	37,014		$	33,713
Other comprehensive income:
Change in net unrealized gains (losses) on marketable securities, net of tax		(68	)		(2	)		62			43
Change in currency translation adjustments		(202	)		91			(425	)		1,344
Total comprehensive income	$	6,917		$	17,458		$	36,651		$	35,100

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

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RUDOLPH TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	2018			2017
Cash flows from operating activities:
Net income	$	37,014		$	33,713
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Amortization of intangibles		1,147			1,516
Depreciation		3,634			2,925
Foreign currency exchange loss		217			533
Change in fair value of contingent consideration		603			132
Share-based compensation		4,879			4,413
Provision for doubtful accounts and inventory valuation		3,105			3,019
Patent litigation income		—			(13,000	)
Changes in operating assets and liabilities		(26,160	)		9,536
Net cash and cash equivalents provided by operating activities		24,439			42,787
Cash flows from investing activities:
Purchases of marketable securities		(113,353	)		(103,224	)
Proceeds from sales of marketable securities		152,588			99,931
Cash advanced on convertible note receivable		(1,000	)		—
Purchases of property, plant and equipment		(4,127	)		(7,447	)
Net cash and cash equivalents provided by (used in) investing activities		34,108			(10,740	)
Cash flows from financing activities:
Redemption of stock warrants		—			(1,025	)
Purchase of common stock		(38	)		—
Tax payments related to shares withheld for share-based compensation plans		(980	)		(1,331	)
Payment of contingent consideration for acquired business		(1,057	)		(358	)
Issuance of shares through share-based compensation plans		490			289
Net cash and cash equivalents used in financing activities		(1,585	)		(2,425	)
Effect of exchange rate changes on cash and cash equivalents		(398	)		545
Net increase in cash and cash equivalents		56,564			30,167
Cash and cash equivalents at beginning of period		67,770			37,859
Cash and cash equivalents at end of period	$	124,334		$	68,026
Supplemental disclosure of cash flow information:
Income taxes paid	$	2,389		$	6,917

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

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RUDOLPH TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

(Unaudited)

NOTE 1. Basis of Presentation

The accompanying interim unaudited Condensed Consolidated Financial Statements have been prepared by Rudolph Technologies, Inc. (the “Company” or “Rudolph”) and in the opinion of management reflect all adjustments, consisting of normal recurring accruals, necessary for their fair presentation in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).  Preparing financial statements requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes.  Actual amounts could differ materially from reported amounts.  The interim results for the three and nine month periods ended September 30, 2018 are not necessarily indicative of results to be expected for the entire year or any future periods.  This interim financial information should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (“2017 10-K”) filed with the Securities and Exchange Commission (“SEC”) on February 16, 2018.  The accompanying Condensed Consolidated Balance Sheet at December 31, 2017 has been derived from the audited consolidated financial statements included in the 2017 10-K.

Recent Accounting Pronouncements

Recently Adopted

Effective January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2016-16, “Income Tax (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.”  This ASU, which is part of the simplification initiative of the Financial Accounting Standards Board (“FASB”), is intended to reduce the complexity of U.S. GAAP and diversity in practice related to the tax consequences of certain types of intra-entity asset transfers, particularly those involving intellectual property.  The adoption of ASU No. 2016-16 did not have any impact on the Company’s consolidated financial position, results of operations, and cash flows.

Effective January 1, 2018, the Company adopted ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This ASU provides guidance on statement of cash flows presentation for eight specific cash flow issues where diversity in practice exists.  The adoption of ASU No. 2016-15 did not have a material impact on the Company’s consolidated financial position, results of operations, and cash flows.

Effective January 1, 2018, the Company adopted ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes nearly all existing revenue recognition guidance.  The core principle of this ASU is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.As a result of the adoption of ASU No. 2014-09, the Company changed its accounting policy for revenue recognition. Refer to Note 2, “Revenue” for further information.

Recently Issued

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.”  This ASU is part of the FASB’s larger disclosure framework project intended to improve the effectiveness of financial statement footnote disclosure.  ASU 2018-13 modifies required fair value disclosures related primarily to level 3 investments.  This ASU is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods.  The adoption of ASU 2018-13 is not expected to have a material effect on the Company’s consolidated financial position, results of operations, and cash flows.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.”  This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.  An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost.  The ASU is effective for the fiscal years beginning after December 15, 2018, including interim periods within that fiscal year.  The adoption of ASU 2018-07 is not expected to have a material effect on the Company’s consolidated financial position, results of operations, and cash flows.  

In February 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.”  The new guidance allows

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companies to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act (the “2017 Tax Act”) from accumulated other comprehensive income to retained earnings.  The guidance also requires certain new disclosures regardless of a company’s election.  The standard is effective for annual periods beginning after December 15, 2018 and for interim periods within those annual periods, with earlier adoption permitted.  The adoption of ASU 2018-02 is not expected to have a material effect on the Company’s consolidated financial position, results of operations, and cash flows.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation (Topic718): Scope of Modification Accounting.”  This ASU amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the 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 ASU is effective for the fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years.  The Company is currently evaluating the effect the adoption of ASU No. 2017-09 will have on its consolidated financial position, results of operations, and cash flows, if any.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”  This ASU eliminates Step 2 from the goodwill impairment test.   Accordingly, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to the excess, limited to the total amount of goodwill allocated to the reporting unit.  The ASU is effective for the fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years.  The Company is currently evaluating the effect the adoption of ASU No. 2017-04 will have on its consolidated financial position, results of operations, and cash flows, if any.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326),” which introduces new guidance for the accounting for credit losses on instruments within its scope.  Given the breadth of that scope, the new ASU will impact both financial services and non-financial services entities.  The standard is effective for fiscal years beginning after December 15, 2020.  The Company is currently evaluating the effect the adoption of ASU No. 2016-13 will have on its consolidated financial position, results of operations, and cash flows, if any.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The FASB issued this update to require the recognition of lease assets and lease liabilities on the balance sheet of lessees. In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” and ASU No. 2018-10, “Codification Improvements to Topic 842, Leases.” ASU No. 2016-02 and the subsequent modifications are identified as “ASC 842.” ASC 842 will be effective for fiscal years beginning after December 15, 2018, including interim periods within such fiscal years. Early adoption is permitted. The Company intends to adopt ASC 842 using a modified retrospective transition method and will elect the package of practical expedients. The Company expects adoption to increase the assets and liabilities recorded on its consolidated balance sheet and increase the level of disclosures related to leases. In addition, the Company is in the process of identifying appropriate changes to its accounting policies, business processes, and related internal controls to support recognition and disclosure requirements under ASC 842.

Recently issued accounting guidance not discussed above is not applicable or did not have, or is not expected to have, a material impact to the Company.

NOTE 2. Revenue

Adoption of ASC Topic 606, “Revenue from Contracts with Customers”

On January 1, 2018, the Company adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.  Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.  The Company did not record a cumulative impact due to the adoption of Topic 606.

Revenue Recognition

Revenue is recognized when control of the promised goods or services are transferred to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services.  The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

The Company has elected to account for shipping and handling activities as the fulfillment of a promise to transfer goods to the customer and therefore records these activities under the caption “Cost of revenue.”  Sales tax and any other taxes collected concurrent with revenue producing activities are excluded from revenue.  Incidental items that are immaterial in the context of the contract are recognized as expense.  These accounting policy elections are consistent with the manner in which the Company has historically recorded these items.  

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Contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged to customers or the expected cost plus margin.

Disaggregated Revenue

The following table presents the Company’s revenue disaggregated by revenue source:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Systems	$	43,955	$	50,831	$	160,170	$	145,968
Software licensing, support and maintenance		6,877		6,053		21,879		20,447
Parts		7,141		7,101		20,884		20,779
Services		2,459		2,935		8,071		7,823
Total revenue	$	60,432	$	66,920	$	211,004	$	195,017

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

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2018		2018
Point-in-time	$	56,185	$	198,864
Over-time		4,247		12,140
Total revenue	$	60,432	$	211,004

See Note 15 for additional discussion of the Company’s disaggregated revenue in detail.

Systems Revenue

Revenue from systems is recognized when the Company transfers control of the product to the customer.  To indicate transfer of control, the Company must have a present right to payment, legal title must have passed to the customer and the customer must have the significant risks and rewards of ownership.  The Company generally transfers control for system sales when the customer or the customer’s agent picks up the system at the Company’s facility.  Payment for the majority of the Company’s systems have 80-90% of the invoice amount due within 30 days and the remaining amount due upon customer acceptance, which includes installation, recalibration and qualification by the customer.  Customer acceptance is generally based on the Company’s products meeting published performance specifications, which have been demonstrated prior to shipment.  The Company provides an assurance warranty on its systems for a period of twelve to fifteen months against defects in material and workmanship.  The Company provides for the estimated cost of product warranties at the time revenue is recognized.

Depending on the terms of the systems arrangement, the Company may also defer the recognition of a portion of the consideration expected to be received because the Company has to satisfy a future obligation (e.g., installation, training and extended warranties). The Company uses an observable price to determine the standalone selling price for separate performance obligations or a cost plus margin approach when one is not available.

Software Licensing, Support and Maintenance Revenue

Revenue from software licenses provides the customer with a right to use the software as it exists when made available to the customer.  Revenue from software licenses are recognized upfront at the point in time when the software is made available to the customer.  Revenue from licensing support and maintenance is recognized as the support and maintenance are provided, which is over the contract period.  Payment for software licensing, support and maintenance is generally due in 30 days.  

Parts Revenue

Revenue from parts is recognized when the Company transfers control of the product, which typically occurs when the Company ships the product from its facilities to the customer.  Payment for parts is generally due in 30 days.  

Services Revenue

Revenue from services primarily consists of service contracts, which provide additional maintenance coverage beyond the Company’s assurance warranty on its products, service labor, consulting and training.  Revenue from service contracts is recognized ratably over the term of the service contract.  Revenue from service labor, consulting and training is recognized as services are performed.  Payment for services is generally due in 30 days.  

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Contract Liabilities

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 Consolidated Balance Sheets.  The beginning balance in deferred revenue was $7,206 as of January 1, 2018.

Changes in deferred revenue were as follows:

	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2018			2018
Balance, beginning of the period	$	8,799		$	7,206
Deferral of revenue		4,354			15,002
Recognition of deferred revenue		(4,449	)		(13,504	)
Balance, ending of the period	$	8,704		$	8,704

Practical Expedients

The Company generally expenses sales commissions when incurred because the amortization period is one year or less. These costs are recorded within selling, general and administrative expenses.

The Company does not adjust the amount of consideration for the effects of a significant financing component as the payment terms are generally one year or less.

The Company does not disclose the value of remaining performance obligations for contracts with an original expected length of one year or less and contracts for which the Company recognizes revenue in the amount to which it has the right to invoice.

NOTE 3. Fair Value Measurements

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

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The following tables provide the assets and liabilities carried at fair value measured on a recurring basis at September 30, 2018 and December 31, 2017:

			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)
September 30, 2018
Assets:
Available-for-sale debt securities:
Municipal notes and bonds	$	70,005	$	—	$	70,005	$	—
Foreign currency forward exchange contracts		156		—		156		—
Total assets	$	70,161	$	—	$	70,161	$	—
Liabilities:
Contingent consideration - acquisitions		2,139		—		—		2,139
Total liabilities	$	2,139	$	—	$	—	$	2,139
December 31, 2017
Assets:
Available-for-sale debt securities:
Municipal notes and bonds	$	109,589	$	—	$	109,589	$	—
Foreign currency forward exchange contracts		45		—		45		—
Total assets	$	109,634	$	—	$	109,634	$	—
Liabilities:
Contingent consideration - acquisitions	$	2,593	$	—	$	—	$	2,593
Total liabilities	$	2,593	$	—	$	—	$	2,593

The Company’s available-for-sale debt securities classified as Level 1 are based on quoted market prices that are available in active markets.

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 exchange 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 9.4% and 8.6% for the nine months ended September 30, 2018 and 2017, 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 fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2018:

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Balance at December 31, 2017	$	2,593
Additions		—
Total loss included in selling, general and administrative expense		603
Payments		(1,057	)
Transfers into (out of) Level 3		—
Balance at September 30, 2018	$	2,139

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

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Fair Value of Other Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates fair value because of the short-term maturity of these instruments.  The estimated fair value of these obligations is based primarily on a market approach, comparing the 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 information and appropriate valuation methods.

The carrying amount of the convertible note receivable approximates fair value based on current interest rates for instruments with similar characteristics.

NOTE 4. Marketable Securities

The Company has evaluated its investment policies and has determined that all of its marketable securities, which are comprised of debt securities, are to be classified as available-for-sale.  The Company’s available-for-sale debt securities are carried at fair value, with the unrealized gains and losses reported in Stockholders’ equity under the caption “Accumulated other comprehensive loss.”  Realized gains and losses on available-for-sale debt securities are included in “Other expense” in 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 sold is based on the specific identification method.

The Company has determined that the gross unrealized losses on its marketable securities at September 30, 2018 and December 31, 2017 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 September 30, 2018 and December 31, 2017, marketable securities are categorized as follows:

	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Fair Value
September 30, 2018
Municipal notes and bonds	$	70,092	$	—	$	87	$	70,005
Total marketable securities	$	70,092	$	—	$	87	$	70,005
December 31, 2017
Municipal notes and bonds	$	109,750	$	—	$	161	$	109,589
Total marketable securities	$	109,750	$	—	$	161	$	109,589

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 Sheet classification, are as follows at September 30, 2018 and December 31, 2017:

	September 30, 2018				December 31, 2017
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	63,901	$	63,831	$	104,742	$	104,605
Due after one through five years		6,191		6,174		5,008		4,984
Due after five through ten years		—		—		—		—
Due after ten years		—		—		—		—
Total marketable securities	$	70,092	$	70,005	$	109,750	$	109,589

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The following table summarizes the estimated fair value and gross unrealized holding losses of marketable securities, aggregated by investment instrument and period of time in an unrealized loss position, at September 30, 2018 and December 31, 2017:

	Unrealized Loss Position For Less Than 12 Months				Unrealized Loss Position For Greater Than 12 Months
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
September 30, 2018
Municipal notes and bonds	$	50,097	$	70	$	7,172	$	17
Total	$	50,097	$	70	$	7,172	$	17
December 31, 2017
Municipal notes and bonds	$	98,805	$	161	$	—	$	—
Total	$	98,805	$	161	$	—	$	—

See Note 2 for additional discussion regarding the fair value of the Company’s marketable securities.

NOTE 5. Convertible Note Receivable

The Company entered into a convertible loan agreement with Simax Precision Technologies Limited (“Simax”) on May 31, 2018.  Simax may borrow from the Company up to $15,000 in multiple promissory notes.  The Company expects to be a supplier of lithography modules to Simax which is focused on the manufacture, sale and service of lithography systems.  

The convertible notes will bear a rate of interest of 4.25% per annum payable on a semi-annual basis.  The convertible notes provide the Company with the option to convert the outstanding indebtedness into equity.   If the Company does not elect to exercise its option to convert the notes, Simax will repay the principal amount outstanding and any outstanding interest in equal installments beginning on the fifth anniversary of the loan date and continuing on a quarterly basis over the next three years.

As of September 30, 2018, the Convertible notes receivable balance was $1,000 with accrued interest of $4.

NOTE 6. Derivative Instruments and Hedging Activities

The Company, when it considers it to be appropriate, enters into forward exchange contracts to hedge the economic exposures arising from foreign currency denominated transactions. At September 30, 2018 and December 31, 2017, these contracts included the future sale of Japanese Yen to purchase U.S. dollars.  Derivative instruments are recognized as either, “Prepaid expenses and other current assets” or “Other current liabilities” in the Condensed Consolidated Balance Sheets and are measured at fair value.  The foreign currency forward exchange contracts were entered into by the Company’s Japanese subsidiary to economically hedge a portion of certain intercompany obligations.  The forward exchange contracts are not designated as hedges for accounting purposes and increases in the fair value of $111 for the nine months ended September 30, 2018 and a decrease in the fair value of $251 for the nine months ended September 30, 2017, are recorded under the caption “Other expense (income), net” in the Condensed Consolidated Statements of Operations.

The dollar equivalent of the U.S. dollar forward exchange contracts and related fair values as of September 30, 2018 and December 31, 2017 were as follows:

	September 30, 2018		December 31, 2017
Notional amount	$	5,709	$	8,417
Fair value of asset	$	156	$	45

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NOTE 7. Purchased Intangible Assets

Purchased intangible assets as of September 30, 2018 and December 31, 2017 are as follows:

	Gross Carrying Amount		Accumulated Amortization		Net
September 30, 2018
Finite-lived intangibles:
Developed technology	$	66,127	$	59,396	$	6,731
Customer and distributor relationships		9,561		9,016		545
Trade names		4,361		3,851		510
Total identifiable intangible assets	$	80,049	$	72,263	$	7,786
December 31, 2017
Finite-lived intangibles:
Developed technology	$	65,827	$	58,522	$	7,305
Customer and distributor relationships		9,560		8,818		742
Trade names		4,361		3,776		585
Total identifiable intangible assets	$	79,748	$	71,116	$	8,632

Intangible asset amortization expenses for the three and nine months ended September 30, 2018 were $384 and $1,147, respectively.  For the three and nine month periods ended September 30, 2017, intangible assets amortization expenses were $506 and $1,516, respectively.  Assuming no change in the gross carrying value of identifiable intangible assets and estimated lives, estimated amortization expenses for the remainder of 2018 are $386, and for each of the next five years estimated amortization expenses are $1,544 for 2019, $1,341 for 2020, $594 for 2021, $527 for 2022, and $511 for 2023.

NOTE 8. Balance Sheet Details

Inventories

Inventories are comprised of the following:

	September 30, 2018		December 31, 2017
Materials	$	55,856	$	39,765
Work-in-process		24,467		20,923
Finished goods		11,068		6,833
Total inventories	$	91,391	$	67,521

The Company has established reserves of $12,164 and $13,035 as of September 30, 2018 and December 31, 2017, respectively, for slow moving and obsolete inventory, which are included in the amounts above.

Property, Plant and Equipment

Property, plant and equipment, net is comprised of the following:

	September 30, 2018			December 31, 2017
Land and building	$	2,584		$	2,584
Machinery and equipment		29,370			29,870
Furniture and fixtures		3,267			3,201
Computer equipment and software		6,749			5,444
Leasehold improvements		9,494			9,472
		51,464			50,571
Accumulated depreciation		(34,701	)		(33,229	)
Total property, plant and equipment, net	$	16,763		$	17,342

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Other assets

Other assets is comprised of the following:

	September 30, 2018		December 31, 2017
Deferred income taxes	$	14,896	$	14,879
Convertible note receivable	$	1,000	$	—
Other		499		492
Total other assets	$	16,395	$	15,371

Other current liabilities

Other current liabilities is comprised of the following:

	September 30, 2018		December 31, 2017
Intangible asset acquisition - Stella Alliance	$	250	$	100
Contingent consideration - acquisitions		781		634
Customer deposits		877		5,561
Other		6,014		2,989
Total other current liabilities	$	7,922	$	9,284

Other non-current liabilities

Other non-current liabilities is comprised of the following:

	September 30, 2018		December 31, 2017
Unrecognized tax benefits (including interest)	$	4,698	$	4,660
Contingent consideration - acquisitions		1,358		1,959
Deferred revenue		1,140		983
Other		2,977		2,859
Total other non-current liabilities	$	10,173	$	10,461

NOTE 9. Commitments and Contingencies

Intellectual Property Indemnification Obligations

The Company has entered into agreements with customers that include limited intellectual property indemnification obligations that are customary in the industry.  These guarantees generally require the Company to compensate the other party for certain damages and costs incurred as a result of third party intellectual property claims arising from these transactions.  The nature of the intellectual property indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to its customers.  Historically, the Company has not made any indemnification payments under such agreements and no amount has been accrued in the accompanying Condensed Consolidated Financial Statements with respect to these indemnification guarantees.

Warranty Reserves

The Company generally provides a warranty on its products for a period of 12 to 15 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 warranty reserves are generally associated with sales that occurred during the 12 to 15 months prior to the quarter-end and warranty accruals are related to sales during the same year.

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Changes in the Company’s warranty reserves are as follows:

	Nine Months Ended September 30,
	2018			2017
Balance, beginning of the period	$	2,427		$	1,788
Accruals		2,720			2,511
Usage		(2,589	)		(2,025	)
Balance, end of the period	$	2,558		$	2,274

Warranty reserves are reported in the Condensed Consolidated Balance Sheets under the caption “Accounts payable and accrued liabilities.”

Legal Matters

From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business.  There are no legal proceedings pending or threatened against the Company that management believes are likely to have a material adverse effect on the Company’s consolidated financial position or otherwise.

Line of Credit

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 September 30, 2018 was approximately $102 million with an available interest rate of 3.8%.  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.

NOTE 10. Share-Based Compensation

Restricted Stock Unit Activity

A summary of the activity with respect to the Company’s unvested restricted stock units during the nine months ended September 30, 2018 is as follows:

	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2017		1,014		$	14.88
Granted		274		$	28.25
Vested		(300	)	$	14.22
Forfeited		(68	)	$	17.50
Nonvested at September 30, 2018		920		$	18.89

Included in the number of shares granted in the table directly above are 53 market performance-based restricted stock units (“MPRSUs”) granted to executives in 2018.  Vesting of these MPRSUs is contingent upon the Company meeting certain total shareholder return (“TSR”) levels as compared to a select peer group over three years from the year granted.  The 2018 MPRSUs cliff vest at the end of the three-year period and have a maximum potential to vest at 200% (105 shares) based on TSR performance.  The related share-based compensation expense is determined based on the estimated fair value of the underlying shares on the date of grant and is recognized straight-line over the vesting term.  The estimated fair value per share of the MPRSUs was $30.76.

As of September 30, 2018 and December 31, 2017, there was $11,088 and $9,420 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 2.1 years and 2.2 years for each of the respective periods.

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NOTE 11. Other Expense (Income), net

Other expense (income), net is comprised of the following:

	Three Months Ended September 30,					Nine Months Ended September30,
	2018			2017		2018			2017
Gain on casualty insurance claim	$	(302	)	$	—	$	(302	)	$	—
Foreign currency exchange losses (gains), net		174			98		217			533
Other		(4	)		—		(5	)		—
Total other expense (income), net	$	(132	)	$	98	$	(90	)	$	533

NOTE 12. Income Taxes

The following table provides details of income taxes:

	Three Months Ended September 30,						Nine Months Ended September30,
	2018			2017			2018			2017
Income before income taxes	$	8,368		$	25,663		$	43,332		$	48,022
Provision for income taxes	$	1,181		$	8,294		$	6,318		$	14,309
Effective tax rate		14.1	%		32.3	%		14.6	%		29.8	%

The income tax provision for the three and nine months ended September 30, 2018 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 and nine months ended September 30, 2018 as compared to the same period in 2017 are primarily due to enactment of U.S. tax reform, which provides for a change in the corporate tax rate from 35% to 21%, changes in the mix of forecasted earnings by jurisdictions and the Foreign Derived Intangible Income Deduction.

The 2017 Tax Act was enacted on December 22, 2017.  The 2017 Tax Act reduces the U.S. federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, provides tax benefits for export sales and creates new taxes on certain foreign sourced earnings.  The Company is applying the guidance in SAB 118 when accounting for the enactment-date effects of the 2017 Tax Act.  At September 30, 2018, the Company has not completed its accounting for all of the tax effects of the 2017 Tax Act.  In all cases, the Company will continue to make and refine its calculations as additional analysis is completed.  The Company’s estimates may also be affected as it gains a more thorough understanding of the 2017 Tax Act.  These changes could be material to income tax expense.

Foreign-Derived Intangible Income:  The 2017 Tax Act provides tax incentives to U.S. companies to earn income from the sale, lease or license of goods and services abroad in the form of a deduction for foreign-derived intangible income (“FDII”).  FDII is taxed at an effective rate of 13.1% for taxable years beginning after December 31, 2017 and at an effective rate of 16.4% for taxable years beginning after December 31, 2025. The accounting for the deduction for FDII is similar to a special deduction and should be accounted for based on the guidance in ASC 740-10-25-37.  The tax benefits for special deductions ordinarily are recognized no earlier than the year in which they are deductible on a tax return.  As of September 30, 2018, the Company has made sufficient progress in its calculations to reasonably estimate the effect on its estimated annual effective tax rate.  Since a large portion of the Company’s sales are made to non-U.S. customers, this adjustment decreased its effective tax rate by 4.3%.  The Company will continue to refine its calculations, which may result in changes to this amount.

The Company does not expect other provisions of the 2017 Tax Act, including global intangible low-taxed income (“GILTI”), the new interest expense limitations and base erosion anti-abuse tax (“BEAT”) to have a material impact on the Company’s effective tax rate.

Deferred Tax Assets and Liabilities: The Company remeasured certain deferred tax assets and liabilities based on the rates to which they are expected to reverse in the future, which is anticipated to be 21%.  The Company recorded a provisional amount of $8.0 million as of December 31, 2017 related to the remeasurement of certain deferred tax balances. Due to the continued refinement of the Company’s transition tax calculation, discussed further below, and the effect it may have on the measurement of NOLs and other carryforwards, the Company will continue to analyze and refine its calculations related to the measurement of these balances.

One-Time Transition Tax: The one-time transition tax is based on its total post-1986 earnings and profits (“E&P”), which it has deferred from U.S. income taxes under previous U.S. law.  The Company originally recorded a provisional amount for its one-time transition tax liability for all of its foreign subsidiaries, resulting in a transition tax benefit (net of foreign tax credits)

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of $0.1 million being recorded at December 31, 2017.  As the Company continues to refine its E&P analysis, it will refine its calculations of the one-time transition tax, which could affect the measurement of this liability.  No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations.

The Company currently has a partial valuation allowance recorded against certain foreign and state net operating loss and credit carryforwards where the realizability of such deferred tax assets is substantially in doubt.  Each quarter, the Company assesses the likelihood that it will be able to recover its deferred tax assets. The Company considers available evidence, both positive and negative, including forecasted earnings in assessing the need for a valuation allowance.  As a result of the Company’s analysis, it concluded that it is more likely than not that a portion of its deferred tax assets will not be realized. Therefore, the Company continues to provide a valuation allowance against certain deferred tax assets.  The Company continues to monitor available evidence and 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 $2,447 as of September 30, 2018 and December 31, 2017.

NOTE 13. Earnings Per Share

Basic earnings per share is calculated using the weighted average number of shares of common stock outstanding during the period.  Diluted earnings per share is computed in the same manner and also gives effect to all dilutive common equivalent shares outstanding during the 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.

The following table sets forth the weighted average number of restricted stock units that have been excluded from the calculation of diluted earnings per share as their effect would have been anti-dilutive:

	Three Months Ended September 30,				Nine Months Ended September30,
	2018		2017		2018		2017
Restricted stock units		7		2		17		9
Total		7		2		17		9

The Company’s basic and diluted earnings per share amounts are as follows:

	Three Months Ended September 30,				Nine Months Ended September30,
	2018		2017		2018		2017
Numerator:
Net income	$	7,187	$	17,369	$	37,014	$	33,713
Denominator:
Basic earnings per share - weighted average shares    outstanding		31,901		31,571		31,807		31,455
Effect of potential dilutive securities:
Employee stock options and restricted stock    units - dilutive shares		507		599		580		669
Warrant - dilutive shares		—		—		—		2
Diluted earnings per share - weighted average shares    outstanding		32,408		32,170		32,387		32,126
Earnings per share:
Basic	$	0.23	$	0.55	$	1.16	$	1.07
Diluted	$	0.22	$	0.54	$	1.14	$	1.05

NOTE 14. Accumulated Other Comprehensive Loss

Comprehensive income includes net income, foreign currency translation adjustments and net unrealized gains and losses on available-for-sale debt securities.  See the Condensed Consolidated Statements of Comprehensive Income for the effect of the components of comprehensive income on the Company’s net income.

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The components of accumulated other comprehensive loss, net of tax, are as follows:

	Foreign currency translation adjustments		Net unrealized (gains) losses on marketable securities			Accumulated other comprehensive loss (income)
Balance at December 31, 2017	$	1,079	$	126		$	1,205
Net current period other comprehensive income		425		(62	)		363
Reclassifications		—		—			—
Balance at September 30, 2018	$	1,504	$	64		$	1,568

NOTE 15. Segment Reporting and Geographic Information

The Company is engaged in the design, development, manufacture and support of high-performance control metrology, defect inspection, advanced packaging lithography and data analysis systems used by microelectronics device manufacturers. The Company and its subsidiaries currently operate in a single operating segment: the design, development, manufacture and support of high-performance process control defect inspection and metrology, advanced packaging lithography and process control software systems used by microelectronics device manufacturers.  Therefore the Company has one 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 table lists the different sources of revenue:

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2018				2017				2018				2017
Systems and Software:
Process control	$	41,164	68	%	$	43,821	65	%	$	145,458	69	%	$	135,408	70	%
Lithography		2,791	5	%		7,010	11	%		14,712	7	%		10,560	5	%
Software licensing, support and maintenance		6,877	11	%		6,053	9	%		21,879	10	%		20,447	10	%
Parts		7,141	12	%		7,101	11	%		20,884	10	%		20,779	11	%
Services		2,459	4	%		2,935	4	%		8,071	4	%		7,823	4	%
Total revenue	$	60,432	100	%	$	66,920	100	%	$	211,004	100	%	$	195,017	100	%

For geographical revenue reporting, revenue is attributed to the geographic location to which the product is shipped.  Revenue by geographic region is as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Revenue from third parties:
United States	$	11,476	$	7,666	$	29,344	$	25,856
Taiwan		10,233		17,300		35,643		49,960
Japan		4,134		6,268		14,082		12,944
China		11,547		4,151		52,866		24,156
South Korea		10,977		10,852		44,581		36,099
Singapore		4,644		4,664		11,985		9,875
Other Asia		1,102		1,690		3,520		3,249
Germany		3,527		4,488		8,668		12,357
Other Europe		2,792		9,841		10,315		20,521
Total revenue	$	60,432	$	66,920	$	211,004	$	195,017

The following customer accounted for more than 10% of total revenue for the indicated periods:

	Nine Months Ended September 30,
	2018			2017
Customer A		10.5	%		8.2	%

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NOTE 16. Share Repurchase Authorization

In January 2015, the Board of Directors authorized the Company to repurchase up to 3,000 shares of the Company’s common stock with no established end date.  The authorization allows for repurchases to be made in the open market or through negotiated transactions from time to time.  During the three and nine months ended September 30, 2018, the Company repurchased 2 shares of common stock pursuant to the share repurchase authorization.  At September 30, 2018, there were 709 shares available for future stock repurchases under this share repurchase authorization.  Shares of common stock purchased under the share repurchase authorization are retired.

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

Certain statements in this Quarterly Report on Form 10-Q (this “Form 10-Q”) are forward-looking statements, including those concerning 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 Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements may be identified by words such as, but not limited to, “anticipate,” “believe,” “expect,” “intend,” “plan,” “should,” “may,” “could,” “will” and words or phrases of similar meaning, as they relate to our management or us.

The forward-looking statements contained herein reflect our expectations with respect to future events and are subject to certain risks, uncertainties and assumptions.  Actual results may differ materially from those included in such forward-looking statements for a number of reasons including, but not limited to, the following: 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; our ability to successfully integrate acquired businesses into our business and fully realize, or realize within the expected time frame, the expected combination benefits from the acquisitions; the imposition of tariffs or trade restrictions and costs, burdens and restrictions associated with other governmental actions and the “Risk Factors” set forth in Item 1A in our 2017 10-K and any subsequently filed Quarterly Reports on Form 10-Q.  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.

Critical Accounting Policies

The preparation of condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make judgments, assumptions and estimates 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 a material effect on our financial condition or results of operations.  Specifically, these policies have the following attributes: (1) we are required to make judgments and assumptions about matters that are highly uncertain at the 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 position and results of operations.

Estimates and assumptions about future events and their effects cannot be determined with certainty.  We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances.  These estimates may change as new events occur, as additional information is obtained and as our operating

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environment changes.  In addition, management is periodically faced with uncertainties, the outcomes of which are not within our control and will not be known for prolonged periods of time. Certain of these uncertainties are discussed in our 2017 10-K in the Items entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of 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 financial position and results of operations.

For more information, please see our critical accounting policies as previously disclosed in our 2017 10-K.

During the quarter ended March 31, 2018, the Company adopted the provisions of ASC 606, “Revenue from Contracts with Customers.”  See Note 1 to the Condensed Consolidated Financial Statements included in this Form 10-Q regarding the impact of recent accounting pronouncements on our financial position and results of operations and Note 2, “Revenue,” in the notes to the financial statements, related to the impact of the adoption of ASC 606 on our financial statements and accounting policies.

Overview

We are a worldwide leader in the design, development, manufacture and support of process control tools that perform macro-defect inspections and metrology, lithography systems and process control analytical software used by semiconductor and advanced packaging device manufacturers.  We deliver comprehensive solutions throughout the semiconductor fabrication process with our families of proprietary products that provide critical yield-enhancing information, enabling microelectronic device manufacturers to drive down costs and the time to market of their devices.  We provide process and yield management solutions used in both wafer processing facilities, often referred to as “front-end” manufacturing, 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, group of tools, or factory-wide suites to enhance productivity and achieve significant cost savings.  Our systems are backed by worldwide customer support.

Our business is affected by the annual spending patterns of our customers on semiconductor capital equipment.  The amount that our customers devote to capital equipment spending depends on a number of factors, including general worldwide economic conditions, as well as other economic drivers such as sales of personal computers, tablets, cell phones, wearable devices, other personal electronic devices and automotive sales.  Current forecasts by industry analysts for the semiconductor device manufacturing industry project an increase in capital equipment spending of approximately 7% for 2018.  Our revenue and profitability tend to follow the trends of certain segments within the semiconductor market.

Historically, a significant portion of our revenue in each quarter and year has been derived from sales to relatively few customers, and we expect this trend to continue.  For the nine months ended September 30, 2018 and for the years ended December 31, 2017, 2016 and 2015, aggregate sales to customers that individually represented at least five percent of our revenue accounted for 21.7%, 27.2%, 34.5%, and 23.3% of our revenue, respectively.

We do not have purchase contracts with any of our customers that obligate them to continue to purchase our products, and they could cease purchasing products from us at any time.  A delay in purchase or a cancellation by any of our large customers could cause quarterly revenue to vary significantly.  In addition, during any given quarter, a significant portion of our revenue may be derived from the sale of a relatively small number of systems, with one customer accounting for 10% or more of our revenue.  One customer accounted for 10.5% of our revenue for the nine months ended September 30, 2018.  The following table lists the average selling price for our systems:

System	Average Selling Price Per System
Process control	$250,000 to $2.1 million
Lithography steppers	$3.0 million to $8.5 million

A significant portion of our revenue is derived from customers outside of the United States.  A substantial portion of our international sales is denominated in U.S. dollars.  We expect that revenue generated from customers outside of the United States will continue to account for a significant percentage of our revenue.

The sales cycle for our systems typically ranges from six to twenty-four months and can be longer when our customers are evaluating new technology.  Due to the length of these cycles, we invest significantly in research and development and sales and marketing in advance of generating revenue related to these investments.

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Results of Operations for the Three and Nine Month Periods Ended September 30, 2018 and 2017

Revenue.  Our revenue is primarily derived from the sale of our systems, services, spare parts and software licensing.  Our revenue of $60.4 million decreased 9.7% for the three months ended September 30, 2018 as compared to the same period in 2017, in which revenue totaled $66.9 million.  For the nine month period ended September 30, 2018 and 2017, our revenue totaled $211.0 million and $195.0 million, respectively, representing a year-over-year increase of 8.2%.

The following table lists, for the periods indicated, the different sources of our revenue in dollars (thousands) and as percentages of our total revenue:

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2018				2017				2018				2017
Systems and Software:
Process control	$	41,164	68	%	$	43,821	65	%	$	145,458	69	%	$	135,408	70	%
Lithography		2,791	5	%		7,010	11	%		14,712	7	%		10,560	5	%
Software licensing, support and maintenance		6,877	11	%		6,053	9	%		21,879	10	%		20,447	10	%
Parts		7,141	12	%		7,101	11	%		20,884	10	%		20,779	11	%
Services		2,459	4	%		2,935	4	%		8,071	4	%		7,823	4	%
Total revenue	$	60,432	100	%	$	66,920	100	%	$	211,004	100	%	$	195,017	100	%

Total systems and software revenue increased $15.6 million for the nine months ended September 30, 2018, as compared to the nine months ended September 30, 2017.  Process control system revenue increased $10.1 million for the nine months ended September 30, 2018, as compared to the same period in 2017, primarily due to higher metrology system sales in the 2018 period.  Lithography system revenue increased $4.2 million for the nine months ended September 30, 2018, as compared to the same period in 2017, primarily due to the shipment of a JetStep G system during the first half of 2018.  Software revenue increased $1.4 million for the nine months ended September 30, 2018, as compared to the same period in 2017.  Systems revenue generated by our latest product releases and major enhancements in each of our product families amounted to 74% of total revenue for the nine months ended September 30, 2018, as compared to 70% of total revenue for the nine months ended September 30, 2017.  The year-over-year increase in total parts and services revenue for the nine months ended September 30, 2018 is primarily due to increased spending by our customers on system upgrades and repairs of existing systems.  Parts and services revenue are generated from parts sales, maintenance service contracts, system upgrades, as well as from time and material billable service calls. 

For the three months ended September 30, 2018, total systems and software revenue decreased $6.1 million, as compared to the same period in the prior year.  Lithography systems revenue decreased $4.2 million for the three months ended September 30, 2018, as compared to the same period in 2017, primarily due to less JetStep units sold.  There was also a decrease of $2.7 million in process control system revenue for the three months ended September 30, 2018, as compared to the same period in 2017, primarily due to fewer inspection and metrology units sold.  The decrease in total systems and software revenue was partially offset by an increase of $0.9 million in software revenue for the three months ended September 30, 2018, as compared to the same period in 2017. Systems revenue generated by our latest product releases and major enhancements in each of our product families amounted to 72% of total revenue for the three months ended September 30, 2018, as compared to 75% of total revenue for the three months ended September 30, 2017. 

Deferred revenue of $7.6 million was recorded in the Condensed Consolidated Balance Sheet under the caption “Deferred revenue” and $1.1 million was recorded under the caption “Other non-current liabilities” at September 30, 2018.  Deferred revenue primarily consisted of $6.3 million for deferred maintenance agreements and $2.4 million for outstanding deliverables.

Gross Profit.  Our gross profit has been and will continue to be affected by a variety of factors, including manufacturing efficiencies, provision for 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 $31.5 million and $115.6 million for the three and nine months ended September 30, 2018, respectively, as compared to $35.1 million and $102.5 million for the same periods in 2017.  Our gross profit represented 52.0% and 54.8% of our revenue for the three and nine months ended September 30, 2018, respectively.  For both the three and nine months ended September 30, 2017, gross profit represented 52.5% of our revenue.  The increase in gross profit as a percentage of revenue for the nine months ended September 30, 2018, as compared to the same period in 2017, is primarily due to system and software product mix and the sale of a lithography system that had been previously written down in purchase accounting.  We expect our gross profit to be in the range of 52.0% to 53.0% for the quarter ending December 31, 2018.

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Operating Expenses.  Major components of operating expenses include research and development, as well as selling, general and administrative expenses.

Research and Development.  Our research and development expenses were $12.3 million and $36.8 million for the three and nine months ended September 30, 2018, respectively, as compared to $12.0 million and $36.2 million for the same periods in 2017.  Research and development expenses represented 20.4% and 17.5% of our revenue for the three and nine months ended September 30, 2018, respectively, as compared to 18.0% and 18.6% of revenue for the prior year periods.  Research and development expenses increased for the year-over-year periods due to increases in compensation and project costs, which were partially offset by a decrease in litigation expenses.

Selling, General and Administrative.  Our selling, general and administrative expenses were $11.1 million and $35.9 million for the three and nine months ended September 30, 2018, respectively, as compared to $10.1 million and $29.9 million for the same periods in 2017.  Selling, general and administrative expenses represented 18.4% and 17.0% of our revenue for the three and nine months ended September 30, 2018, respectively, as compared to 15.1% and 15.3% of our revenue for the same periods in 2017.  The year-over-year dollar increase for the nine months ended September 30, 2018 in selling, general and administrative expenses was primarily due to an increase in compensation costs, an increase in sales commissions and a loss recorded for the possible misappropriation of payroll taxes by a third party accountant.

Income Taxes. We recorded an income tax provision of $1.2 million and $6.3 million for the three and nine months ended September 30, 2018, respectively.  Our effective tax rate of 14.6% differs from the statutory rate of 21% for the nine months ended September 30, 2018 primarily due to the enactment of the 2017 Tax Act, which provides for a projected foreign derived intangible income deduction and a federal research and development credit.  For the three and nine months ended September 30, 2017, we recorded an income tax provision of $8.3 million and $14.3 million, respectively.

Among other things, the 2017 Tax Act lowered the U.S. federal corporate income tax rate from 35% to 21% and implemented a territorial tax system.  The lower U.S. corporate income tax rate is effective January 1, 2018; however the U.S. deferred tax assets and liabilities were re-measured in 2017 when the 2017 Tax Act was enacted.  Also in 2017, as part of the transition to the new territorial tax system, the 2017 Tax Act imposed a one-time tax on deemed repatriation of foreign subsidiaries’ earnings.  At September 30, 2018, we have not completed our accounting for the tax effects of enactment of the 2017 Tax Act; however, we have made reasonable estimates of the effects.  The total provisional impact of the 2017 Tax Act as summarized below, which is included as a component of the provision from income taxes, is further described in Note 12 in the accompanying Notes to the Condensed Consolidated Financial Statements (dollars in thousands).

	Nine Months Ended			Year Ended
	September 30, 2018			December 31, 2017
Re-measurement of U.S. deferred tax assets and liabilities	$	—		$	8,020
Transition tax on non-U.S. subsidiaries’ earnings		—			1,450
Foreign tax credits applied against transition tax		—			(1,556	)
Valuation allowance for unused foreign tax credits		—			1,542
Foreign Derived Intangible Income		(2,293	)		—
Global Intangible Low-Taxed Income (net of Foreign Tax Credit)		126			—
Interest Expense Deduction Limitation		—			—
Base Erosion Anti-Abuse Tax		—			—
Total impact of the 2017 Tax Act on the provision for income taxes	$	(2,167	)	$	9,456

We are continuing to assess the impact of the 2017 Tax Act and may record adjustments in 2018 as additional analysis is completed and as we gain a more thorough understanding of the legislation.

Our future effective income tax rate depends on various factors, such as future impacts of the 2017 Tax Act, new tax legislation, the geographic composition of our pre-tax income, the amount of our pre-tax income as business activities fluctuate, and non-deductible expenses incurred in connection with acquisitions and research and development credits 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 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 development credits.  We consider available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance.  

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As a result of our analysis, we concluded that it is more likely than not that a portion of our net deferred tax assets will not be realized.  Therefore, we continue to provide a valuation allowance against certain net deferred tax assets.  We continue to monitor available evidence and may reverse some or all of the valuation allowance in future periods, if appropriate.

Liquidity and Capital Resources

At September 30, 2018, we had $194.3 million of cash, cash equivalents and marketable securities and $320.9 million in working capital.  At December 31, 2017, we had $177.4 million of cash, cash equivalents and marketable securities and $279.8 million in working capital.

Operating activities provided $24.4 million in net cash and cash equivalents for the nine months ended September 30, 2018.  The net cash and cash equivalents provided by operating activities during the nine months ended September 30, 2018 resulted primarily from net income, adjusted to exclude the effect of non-cash operating charges of $50.6 million and offset by a decrease in cash used in operating assets and liabilities of $26.2 million.  This decrease was primarily attributed to an increase in inventories.  Operating activities provided $42.8 million in net cash and cash equivalents for the nine months ended September 30, 2017.  The net cash and cash equivalents provided by operating activities during the nine months ended September 30, 2017 resulted primarily from net income, adjusted to exclude the effect of non-cash operating charges of $33.3 million and an increase in cash provided from operating assets and liabilities of $9.5 million.  

Net cash and cash equivalents of $34.1 million provided by investing activities during the nine months ended September 30, 2018 resulted from proceeds from sales of marketable securities of $152.6 million, offset by the purchase of marketable securities of $113.4 million, capital expenditures of $4.1 million, and cash advanced on a convertible note receivable of $1.0 million.  Net cash and cash equivalents used in investing activities of $10.7 million during the nine months ended September 30, 2017 resulted from the purchase of marketable securities of $103.2 million and capital expenditures of $7.4 million, partially offset by proceeds from sales of marketable securities of $99.9 million.

Net cash and cash equivalents used in financing activities during the nine months ended September 30, 2018 of $1.6 million was due primarily to the payment of contingent consideration for acquired business of $1.1 million, and tax payments related to shares withheld for share-based compensation plans of $1.0 million, offset by proceeds from sales of shares through share-based compensation plans of $0.5 million.  For the nine months ended September 30, 2017, financing activities used $2.4 million, which resulted primarily from tax payments related to share withheld for share-based compensation plans of $1.3 million, the redemption of stock warrants of $1.0 million and payment of contingent consideration for acquired business of $0.4 million, partially offset by proceeds from sales of shares through share-based compensation plans of $0.3 million.

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

We entered into a convertible loan agreement with Simax Precision Technologies Limited (“Simax”) on May 31, 2018.  Simax may borrow up to $15 million in multiple promissory notes from us.  We expect to be a supplier of lithography modules to Simax which is focused on the manufacture, sale and service of lithography systems.  As of the date of this report, Simax has borrowed $1 million and we anticipate that they will borrow an additional $4 million during the three months ended December 31, 2018 under the convertible loan agreement. See Note 5 in the accompanying Notes to the Condensed Consolidated Financial Statements included in this Form 10-Q for further information.

In January 2015, our Board of Directors authorized the Company to repurchase up to 3.0 million shares of our common stock with no established end date.  The authorization allows for repurchases to be made in the open market or through negotiated transactions from time to time.  During the nine months ended September 30, 2018, the Company repurchased 1.6 thousand shares of common stock pursuant to the shares repurchase authorization.  At September 30, 2018, there were 0.7 million shares available for future stock repurchases under this share repurchase authorization.  Shares of common stock purchased under the share repurchase authorization are retired.  For further information, see Note 16 in the accompanying Notes to the Condensed Consolidated Financial Statements included in this Form 10-Q.

We have a credit agreement with a bank that provides for a line of 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 September 30, 2018, the available line of credit was approximately $102 million with an available interest rate of 3.8%.  The credit agreement is available to us until such time that either party terminates the arrangement at its discretion.  To date, we have not utilized this line of credit.

Our future capital requirements will depend on many factors, including the timing and amount of our revenue and our investment decisions, which will affect our ability to generate additional cash.  We expect that our existing cash, cash

24

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 next 12 months following the filing of this Form 10-Q.  Thereafter, if cash generated from operations and financing activities is insufficient to satisfy our working capital requirements, we may seek additional funding through bank borrowings, sales of securities or other means.  There can be no assurance that we will be able to raise any such capital on terms acceptable to us or at all.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate and Credit Market Risk

We are exposed to changes in interest rates and market liquidity including our investments in certain available-for-sale debt 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 debt securities.  It is possible that we are at risk if interest rates, market liquidity or 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 marketable securities held as of September 30, 2018, an immediate adverse change of 10% in interest rates (e.g., a change from 3.00% to 3.30%) would result in an immaterial decrease in the fair value of our available-for-sale debt securities and would not have a material impact on our consolidated financial position, results of operations or cash flows.

Foreign Currency Risk

A substantial portion of our systems and software sales are denominated in U.S. dollars with the exception of Japan.  As a result, we 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.  From time to time, we may enter into forward exchange contracts to economically hedge a portion, but not all, of the existing and anticipated foreign currency denominated transactions expected to occur within 12 months.  The change in fair value of the forward exchange contracts is recognized under the caption “Other (income) expense” in the Condensed Consolidated Statements of Operations for each reporting period. As of September 30, 2018, we had nineteen forward exchange contracts outstanding with a total notional contract value of $5.7 million.  We do not use derivative financial instruments for trading or speculative purposes.

We have branch operations in Taiwan, Singapore and South Korea and wholly-owned subsidiaries in Europe, Japan and China.  Our international subsidiaries and branches operate primarily using local functional currencies.  Our exposure to foreign currency exchange rate fluctuations arise from intercompany balances between our U.S. headquarters and that of our 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 September 30, 2018 was approximately $26.0 million. A hypothetical change of 10% in the relative value of the U.S. dollar versus local functional currencies could result in approximately $1.8 million in foreign currency exchange losses / (gains) which would be recorded as non-operating expense in other expense (income) 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 business, results of operations and financial condition.

Item 4. Controls and Procedures

We maintain a set of disclosure controls and procedures, as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act, designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our CEO and Chief Financial Officer (“CFO”), as appropriate, to allow for timely decisions regarding required disclosure.  The disclosure controls and procedures are designed to provide reasonable assurance of achieving the desired control objectives.

Scope of the Controls Evaluation

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 this Form 10-Q.  In the 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 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

25

components of our disclosure controls and procedures are also evaluated on an ongoing basis by other personnel in our accounting, finance, internal audit and legal functions.  The overall goals of these various evaluation activities are to monitor our disclosure controls and procedures and to modify them on an ongoing basis as necessary.  A control system can provide only reasonable, not absolute, assurance that the control system’s objectives will be met.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.  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.

Conclusions

As of September 30, 2018, 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 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.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

For a description of our previously reported legal proceedings refer to Part I, Item 3, “Legal Proceedings” in our 2017 10-K.

From time to time we may be a party to routine legal proceedings and claims in the ordinary course of business.  There are no legal proceedings pending or threatened against the Company that management believes are likely to have a material adverse effect on the Company’s consolidated financial position or otherwise.

Item 1A. Risk Factors

There have been no material changes to our risk factors as discussed in Part I, Item 1A, “Risk Factors” in our 2017 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In January 2015, our Board of Directors authorized the Company to repurchase up to 3.0 million shares of our common stock with no established end date.  The authorization allows for repurchases to be made in the open market or through negotiated transactions from time to time.  During the nine months ended September 30, 2018, the Company repurchased 1.6 thousand shares of common stock pursuant to the share repurchase authorization.  At September 30, 2018, there were 0.7 million shares available for future stock repurchases under this share repurchase authorization.  Shares of common stock purchased under the share repurchase authorization are retired.  For further information, see Note 16 in the accompanying Notes to the Condensed Consolidated Financial Statements.

In addition to our share repurchase program, we withhold shares of common stock associated with net share settlements to cover tax withholding obligations upon the vesting of restricted stock units awarded under our equity incentive program.  During the three and nine months ended September 30, 2018, we withheld 0.1 thousand and 36 thousand shares, respectively, through net share settlements.  For the three and nine months ended September 30, 2018 net share settlements costs were $3 thousand and $980 thousand, respectively.  Please refer to Note 10 in the accompanying Notes to the Condensed Consolidated Financial Statements for additional information regarding our share-based compensation plans.

26

The following table provides details of the shares of common stock purchased and withheld during the three months ended September 30, 2018 (in thousands, except per share data):

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total number of shares purchased as part of repurchase program		Max No of shares that may yet be purchased under the plan
July 1, 2018 - July 31, 2018		—	$	—		—		711
August 1, 2018 - August 31, 2018		—		—		—		711
September 1, 2018 - September 30, 2018		1.7		24.03		2		709
Three months ended September 30, 2018		1.7	$	24.03		2		709

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No.	Description
31.1	Certification of Michael P. Plisinski, Chief Executive Officer, pursuant to Securities Exchange Act Rule 13a-14(a).
31.2	Certification of  Steven R. Roth, Chief Financial Officer, pursuant to Securities Exchange Act Rule 13a-14(a).
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Michael P. Plisinski, Chief Executive Officer of Rudolph Technologies, Inc.
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Steven R. Roth, Chief Financial Officer of Rudolph Technologies, Inc.
101.INS	XBRL Instance 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

27

SIGNATURES

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

		Rudolph Technologies, Inc.
Date:	November 1, 2018	By:	/s/  Michael P. Plisinski
		Michael P. Plisinski
		Chief Executive Officer
Date:	November 1, 2018	By:	/s/  Steven R. Roth
		Steven R. Roth
		Senior Vice President, Chief Financial Officer and Principal Accounting Officer

28

EX-31.1

Exhibit 31.1

Rule 13a-14(a) Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Michael P. Plisinski, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Rudolph Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 1, 2018

By:	/s/ MICHAEL P. PLISINSKI
	Michael P. Plisinski Chief Executive Officer

EX-31.2

Exhibit 31.2

Rule 13a-14(a) Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Steven R. Roth, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Rudolph Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 1, 2018

By:	/s/ STEVEN R. ROTH
	Steven R. Roth Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael P. Plisinski, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Rudolph Technologies, Inc. on Form 10-Q for the quarter ended September 30, 2018 fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and that the information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Rudolph Technologies, Inc.

Date: November 1, 2018

By:	/s/  MICHAEL P. PLISINSKI
	Michael P. Plisinski Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Steven R. Roth, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Rudolph Technologies, Inc. on Form 10-Q for the quarter ended September 30, 2018 fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and that the information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Rudolph Technologies, Inc.

Date: November 1, 2018

By:	/s/  STEVEN R. ROTH
	Steven R. Roth Senior Vice President and Chief Financial Officer

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Document and Entity Information Document - shares	9 Months Ended
	Sep. 30, 2018	Oct. 15, 2018
Document And Entity Information [Abstract]
Entity Registrant Name	RUDOLPH TECHNOLOGIES INC
Trading Symbol	RTEC
Entity Central Index Key	0001094392
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Document Type	10-Q
Document Period End Date	Sep. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		31,900,604

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CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Current Assets:
Cash and cash equivalents	$ 124,334	$ 67,770
Marketable securities	70,005	109,589
Accounts receivable, less allowance of $956 and $460	68,512	65,283
Inventories, net	91,391	67,521
Income taxes receivable	3,253	7,220
Prepaid expenses and other current assets	8,976	4,699
Total current assets	366,471	322,082
Property, plant and equipment, net	16,763	17,342
Goodwill	22,495	22,495
Identifiable intangible assets, net	7,786	8,632
Other assets	16,395	15,371
Total assets	429,910	385,922
Current liabilities:
Accounts payable and accrued liabilities	30,095	26,800
Deferred revenue	7,564	6,223
Other current liabilities	7,922	9,284
Total current liabilities	45,581	42,307
Other non-current liabilities	10,173	10,461
Total liabilities	55,754	52,768
Commitments and contingencies
Stockholders’ equity:
Common stock	32	32
Additional paid-in capital	390,547	386,196
Accumulated other comprehensive loss	(1,568)	(1,205)
Accumulated deficit	(14,855)	(51,869)
Total stockholders’ equity	374,156	333,154
Total liabilities and stockholders’ equity	$ 429,910	$ 385,922

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Statement Of Financial Position [Abstract]
Allowance for Doubtful Accounts Receivable, Current	$ 956	$ 460

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Consolidated Statements Of Operations [Abstract]
Revenue	$ 60,432	$ 66,920	$ 211,004	$ 195,017
Cost of revenue	28,978	31,775	95,393	92,548
Gross profit	31,454	35,145	115,611	102,469
Operating expenses:
Research and development	12,313	12,020	36,829	36,176
Selling, general and administrative	11,128	10,102	35,867	29,880
Amortization	384	506	1,147	1,516
Patent litigation income	0	(13,000)	0	(13,000)
Total operating expenses	23,825	9,628	73,843	54,572
Operating income	7,629	25,517	41,768	47,897
Interest income, net	(607)	(244)	(1,474)	(658)
Other expense (income), net	(132)	98	(90)	533
Income before income taxes	8,368	25,663	43,332	48,022
Provision for income taxes	1,181	8,294	6,318	14,309
Net income	$ 7,187	$ 17,369	$ 37,014	$ 33,713
Earnings per share:
Basic	$ 0.23	$ 0.55	$ 1.16	$ 1.07
Diluted	$ 0.22	$ 0.54	$ 1.14	$ 1.05
Weighted average shares outstanding:
Basic	31,901	31,571	31,807	31,455
Diluted	32,408	32,170	32,387	32,126

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Consolidated Statement Of Comprehensive Income [Abstract]
Net income	$ 7,187	$ 17,369	$ 37,014	$ 33,713
Other comprehensive income:
Change in net unrealized gains (losses) on marketable securities, net of tax	(68)	(2)	62	43
Change in currency translation adjustments	(202)	91	(425)	1,344
Total comprehensive income	$ 6,917	$ 17,458	$ 36,651	$ 35,100

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Cash flows from operating activities:
Net income	$ 37,014	$ 33,713
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Amortization of intangibles	1,147	1,516
Depreciation	3,634	2,925
Foreign currency exchange loss	217	533
Change in fair value of contingent consideration	603	132
Share-based compensation	4,879	4,413
Provision for doubtful accounts and inventory valuation	3,105	3,019
Patent litigation income		(13,000)
Changes in operating assets and liabilities	(26,160)	9,536
Net cash and cash equivalents provided by operating activities	24,439	42,787
Cash flows from investing activities:
Purchases of marketable securities	(113,353)	(103,224)
Proceeds from sales of marketable securities	152,588	99,931
Cash advanced on convertible note receivable	(1,000)
Purchases of property, plant and equipment	(4,127)	(7,447)
Net cash and cash equivalents provided by (used in) investing activities	34,108	(10,740)
Cash flows from financing activities:
Redemption of stock warrants	0	(1,025)
Purchase of common stock	(38)
Tax payments related to shares withheld for share-based compensation plans	(980)	(1,331)
Payment of contingent consideration for acquired business	(1,057)	(358)
Issuance of shares through share-based compensation plans	490	289
Net cash and cash equivalents used in financing activities	(1,585)	(2,425)
Effect of exchange rate changes on cash and cash equivalents	(398)	545
Net increase in cash and cash equivalents	56,564	30,167
Cash and cash equivalents at beginning of period	67,770	37,859
Cash and cash equivalents at end of period	124,334	68,026
Supplemental disclosure of cash flow information:
Income taxes paid	$ 2,389	$ 6,917

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Basis of Presentation

9 Months Ended

Sep. 30, 2018

Organization And Nature Of Operations [Abstract]

Basis of Presentation

NOTE 1. Basis of Presentation

The accompanying interim unaudited Condensed Consolidated Financial Statements have been prepared by Rudolph Technologies, Inc. (the “Company” or “Rudolph”) and in the opinion of management reflect all adjustments, consisting of normal recurring accruals, necessary for their fair presentation in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).  Preparing financial statements requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes.  Actual amounts could differ materially from reported amounts.  The interim results for the three and nine month periods ended September 30, 2018 are not necessarily indicative of results to be expected for the entire year or any future periods.  This interim financial information should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (“2017 10-K”) filed with the Securities and Exchange Commission (“SEC”) on February 16, 2018.  The accompanying Condensed Consolidated Balance Sheet at December 31, 2017 has been derived from the audited consolidated financial statements included in the 2017 10-K.

Recent Accounting Pronouncements

Recently Adopted

Effective January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2016-16, “Income Tax (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.”  This ASU, which is part of the simplification initiative of the Financial Accounting Standards Board (“FASB”), is intended to reduce the complexity of U.S. GAAP and diversity in practice related to the tax consequences of certain types of intra-entity asset transfers, particularly those involving intellectual property.  The adoption of ASU No. 2016-16 did not have any impact on the Company’s consolidated financial position, results of operations, and cash flows.

Effective January 1, 2018, the Company adopted ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This ASU provides guidance on statement of cash flows presentation for eight specific cash flow issues where diversity in practice exists.  The adoption of ASU No. 2016-15 did not have a material impact on the Company’s consolidated financial position, results of operations, and cash flows.

Effective January 1, 2018, the Company adopted ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes nearly all existing revenue recognition guidance.  The core principle of this ASU is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.As a result of the adoption of ASU No. 2014-09, the Company changed its accounting policy for revenue recognition. Refer to Note 2, “Revenue” for further information.

Recently Issued

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.”  This ASU is part of the FASB’s larger disclosure framework project intended to improve the effectiveness of financial statement footnote disclosure.  ASU 2018-13 modifies required fair value disclosures related primarily to level 3 investments.  This ASU is effective for annual periods beginning after December 15, 2019 and interim periods within those annual periods.  The adoption of ASU 2018-13 is not expected to have a material effect on the Company’s consolidated financial position, results of operations, and cash flows.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.”  This ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.  An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost.  The ASU is effective for the fiscal years beginning after December 15, 2018, including interim periods within that fiscal year.  The adoption of ASU 2018-07 is not expected to have a material effect on the Company’s consolidated financial position, results of operations, and cash flows.  

In February 2018, the FASB issued ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.”  The new guidance allows companies to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act (the “2017 Tax Act”) from accumulated other comprehensive income to retained earnings.  The guidance also requires certain new disclosures regardless of a company’s election.  The standard is effective for annual periods beginning after December 15, 2018 and for interim periods within those annual periods, with earlier adoption permitted.  The adoption of ASU 2018-02 is not expected to have a material effect on the Company’s consolidated financial position, results of operations, and cash flows.

In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation (Topic718): Scope of Modification Accounting.”  This ASU amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the 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 ASU is effective for the fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years.  The Company is currently evaluating the effect the adoption of ASU No. 2017-09 will have on its consolidated financial position, results of operations, and cash flows, if any.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.”  This ASU eliminates Step 2 from the goodwill impairment test.   Accordingly, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to the excess, limited to the total amount of goodwill allocated to the reporting unit.  The ASU is effective for the fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years.  The Company is currently evaluating the effect the adoption of ASU No. 2017-04 will have on its consolidated financial position, results of operations, and cash flows, if any.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326),” which introduces new guidance for the accounting for credit losses on instruments within its scope.  Given the breadth of that scope, the new ASU will impact both financial services and non-financial services entities.  The standard is effective for fiscal years beginning after December 15, 2020.  The Company is currently evaluating the effect the adoption of ASU No. 2016-13 will have on its consolidated financial position, results of operations, and cash flows, if any.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The FASB issued this update to require the recognition of lease assets and lease liabilities on the balance sheet of lessees. In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” and ASU No. 2018-10, “Codification Improvements to Topic 842, Leases.” ASU No. 2016-02 and the subsequent modifications are identified as “ASC 842.” ASC 842 will be effective for fiscal years beginning after December 15, 2018, including interim periods within such fiscal years. Early adoption is permitted. The Company intends to adopt ASC 842 using a modified retrospective transition method and will elect the package of practical expedients. The Company expects adoption to increase the assets and liabilities recorded on its consolidated balance sheet and increase the level of disclosures related to leases. In addition, the Company is in the process of identifying appropriate changes to its accounting policies, business processes, and related internal controls to support recognition and disclosure requirements under ASC 842.

Recently issued accounting guidance not discussed above is not applicable or did not have, or is not expected to have, a material impact to the Company.

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Revenue

9 Months Ended

Sep. 30, 2018

Revenue From Contract With Customer [Abstract]

Revenue

NOTE 2. Revenue

Adoption of ASC Topic 606, “Revenue from Contracts with Customers”

On January 1, 2018, the Company adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.  Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.  The Company did not record a cumulative impact due to the adoption of Topic 606.

Revenue Recognition

Revenue is recognized when control of the promised goods or services are transferred to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services.  The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

The Company has elected to account for shipping and handling activities as the fulfillment of a promise to transfer goods to the customer and therefore records these activities under the caption “Cost of revenue.”  Sales tax and any other taxes collected concurrent with revenue producing activities are excluded from revenue.  Incidental items that are immaterial in the context of the contract are recognized as expense.  These accounting policy elections are consistent with the manner in which the Company has historically recorded these items.  

Contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged to customers or the expected cost plus margin.

Disaggregated Revenue

The following table presents the Company’s revenue disaggregated by revenue source:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Systems	$	43,955	$	50,831	$	160,170	$	145,968
Software licensing, support and maintenance		6,877		6,053		21,879		20,447
Parts		7,141		7,101		20,884		20,779
Services		2,459		2,935		8,071		7,823
Total revenue	$	60,432	$	66,920	$	211,004	$	195,017

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

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2018		2018
Point-in-time	$	56,185	$	198,864
Over-time		4,247		12,140
Total revenue	$	60,432	$	211,004

See Note 15 for additional discussion of the Company’s disaggregated revenue in detail.

Systems Revenue

Revenue from systems is recognized when the Company transfers control of the product to the customer.  To indicate transfer of control, the Company must have a present right to payment, legal title must have passed to the customer and the customer must have the significant risks and rewards of ownership.  The Company generally transfers control for system sales when the customer or the customer’s agent picks up the system at the Company’s facility.  Payment for the majority of the Company’s systems have 80-90% of the invoice amount due within 30 days and the remaining amount due upon customer acceptance, which includes installation, recalibration and qualification by the customer.  Customer acceptance is generally based on the Company’s products meeting published performance specifications, which have been demonstrated prior to shipment.  The Company provides an assurance warranty on its systems for a period of twelve to fifteen months against defects in material and workmanship.  The Company provides for the estimated cost of product warranties at the time revenue is recognized.

Depending on the terms of the systems arrangement, the Company may also defer the recognition of a portion of the consideration expected to be received because the Company has to satisfy a future obligation (e.g., installation, training and extended warranties). The Company uses an observable price to determine the standalone selling price for separate performance obligations or a cost plus margin approach when one is not available.

Software Licensing, Support and Maintenance Revenue

Revenue from software licenses provides the customer with a right to use the software as it exists when made available to the customer.  Revenue from software licenses are recognized upfront at the point in time when the software is made available to the customer.  Revenue from licensing support and maintenance is recognized as the support and maintenance are provided, which is over the contract period.  Payment for software licensing, support and maintenance is generally due in 30 days.  

Parts Revenue

Revenue from parts is recognized when the Company transfers control of the product, which typically occurs when the Company ships the product from its facilities to the customer.  Payment for parts is generally due in 30 days.  

Services Revenue

Revenue from services primarily consists of service contracts, which provide additional maintenance coverage beyond the Company’s assurance warranty on its products, service labor, consulting and training.  Revenue from service contracts is recognized ratably over the term of the service contract.  Revenue from service labor, consulting and training is recognized as services are performed.  Payment for services is generally due in 30 days.  

Contract Liabilities

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 Consolidated Balance Sheets.  The beginning balance in deferred revenue was $7,206 as of January 1, 2018.

Changes in deferred revenue were as follows:

	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2018			2018
Balance, beginning of the period	$	8,799		$	7,206
Deferral of revenue		4,354			15,002
Recognition of deferred revenue		(4,449	)		(13,504	)
Balance, ending of the period	$	8,704		$	8,704

Practical Expedients

The Company generally expenses sales commissions when incurred because the amortization period is one year or less. These costs are recorded within selling, general and administrative expenses.

The Company does not adjust the amount of consideration for the effects of a significant financing component as the payment terms are generally one year or less.

The Company does not disclose the value of remaining performance obligations for contracts with an original expected length of one year or less and contracts for which the Company recognizes revenue in the amount to which it has the right to invoice.

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Fair Value Measurements

9 Months Ended

Sep. 30, 2018

Fair Value Measurements [Abstract]

Fair Value Measurements

NOTE 3. Fair Value Measurements

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

The following tables provide the assets and liabilities carried at fair value measured on a recurring basis at September 30, 2018 and December 31, 2017:

			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)
September 30, 2018
Assets:
Available-for-sale debt securities:
Municipal notes and bonds	$	70,005	$	—	$	70,005	$	—
Foreign currency forward exchange contracts		156		—		156		—
Total assets	$	70,161	$	—	$	70,161	$	—
Liabilities:
Contingent consideration - acquisitions		2,139		—		—		2,139
Total liabilities	$	2,139	$	—	$	—	$	2,139
December 31, 2017
Assets:
Available-for-sale debt securities:
Municipal notes and bonds	$	109,589	$	—	$	109,589	$	—
Foreign currency forward exchange contracts		45		—		45		—
Total assets	$	109,634	$	—	$	109,634	$	—
Liabilities:
Contingent consideration - acquisitions	$	2,593	$	—	$	—	$	2,593
Total liabilities	$	2,593	$	—	$	—	$	2,593

The Company’s available-for-sale debt securities classified as Level 1 are based on quoted market prices that are available in active markets.

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 exchange 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 9.4% and 8.6% for the nine months ended September 30, 2018 and 2017, 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 fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2018:

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Balance at December 31, 2017	$	2,593
Additions		—
Total loss included in selling, general and administrative expense		603
Payments		(1,057	)
Transfers into (out of) Level 3		—
Balance at September 30, 2018	$	2,139

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

Fair Value of Other Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates fair value because of the short-term maturity of these instruments.  The estimated fair value of these obligations is based primarily on a market approach, comparing the 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 information and appropriate valuation methods.

The carrying amount of the convertible note receivable approximates fair value based on current interest rates for instruments with similar characteristics.

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Marketable Securities

9 Months Ended

Sep. 30, 2018

Marketable Securities [Abstract]

Marketable Securities

NOTE 4. Marketable Securities

The Company has evaluated its investment policies and has determined that all of its marketable securities, which are comprised of debt securities, are to be classified as available-for-sale.  The Company’s available-for-sale debt securities are carried at fair value, with the unrealized gains and losses reported in Stockholders’ equity under the caption “Accumulated other comprehensive loss.”  Realized gains and losses on available-for-sale debt securities are included in “Other expense” in 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 sold is based on the specific identification method.

The Company has determined that the gross unrealized losses on its marketable securities at September 30, 2018 and December 31, 2017 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 September 30, 2018 and December 31, 2017, marketable securities are categorized as follows:

	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Fair Value
September 30, 2018
Municipal notes and bonds	$	70,092	$	—	$	87	$	70,005
Total marketable securities	$	70,092	$	—	$	87	$	70,005
December 31, 2017
Municipal notes and bonds	$	109,750	$	—	$	161	$	109,589
Total marketable securities	$	109,750	$	—	$	161	$	109,589

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 Sheet classification, are as follows at September 30, 2018 and December 31, 2017:

	September 30, 2018				December 31, 2017
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	63,901	$	63,831	$	104,742	$	104,605
Due after one through five years		6,191		6,174		5,008		4,984
Due after five through ten years		—		—		—		—
Due after ten years		—		—		—		—
Total marketable securities	$	70,092	$	70,005	$	109,750	$	109,589

The following table summarizes the estimated fair value and gross unrealized holding losses of marketable securities, aggregated by investment instrument and period of time in an unrealized loss position, at September 30, 2018 and December 31, 2017:

	Unrealized Loss Position For Less Than 12 Months				Unrealized Loss Position For Greater Than 12 Months
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
September 30, 2018
Municipal notes and bonds	$	50,097	$	70	$	7,172	$	17
Total	$	50,097	$	70	$	7,172	$	17
December 31, 2017
Municipal notes and bonds	$	98,805	$	161	$	—	$	—
Total	$	98,805	$	161	$	—	$	—

See Note 2 for additional discussion regarding the fair value of the Company’s marketable securities.

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Convertible Note Receivable

9 Months Ended

Sep. 30, 2018

Receivables [Abstract]

Convertible Note Receivable

NOTE 5. Convertible Note Receivable

The Company entered into a convertible loan agreement with Simax Precision Technologies Limited (“Simax”) on May 31, 2018.  Simax may borrow from the Company up to $15,000 in multiple promissory notes.  The Company expects to be a supplier of lithography modules to Simax which is focused on the manufacture, sale and service of lithography systems.  

The convertible notes will bear a rate of interest of 4.25% per annum payable on a semi-annual basis.  The convertible notes provide the Company with the option to convert the outstanding indebtedness into equity.   If the Company does not elect to exercise its option to convert the notes, Simax will repay the principal amount outstanding and any outstanding interest in equal installments beginning on the fifth anniversary of the loan date and continuing on a quarterly basis over the next three years.

As of September 30, 2018, the Convertible notes receivable balance was $1,000 with accrued interest of $4.

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Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2018

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

NOTE 6. Derivative Instruments and Hedging Activities

The Company, when it considers it to be appropriate, enters into forward exchange contracts to hedge the economic exposures arising from foreign currency denominated transactions. At September 30, 2018 and December 31, 2017, these contracts included the future sale of Japanese Yen to purchase U.S. dollars.  Derivative instruments are recognized as either, “Prepaid expenses and other current assets” or “Other current liabilities” in the Condensed Consolidated Balance Sheets and are measured at fair value.  The foreign currency forward exchange contracts were entered into by the Company’s Japanese subsidiary to economically hedge a portion of certain intercompany obligations.  The forward exchange contracts are not designated as hedges for accounting purposes and increases in the fair value of $111 for the nine months ended September 30, 2018 and a decrease in the fair value of $251 for the nine months ended September 30, 2017, are recorded under the caption “Other expense (income), net” in the Condensed Consolidated Statements of Operations.

The dollar equivalent of the U.S. dollar forward exchange contracts and related fair values as of September 30, 2018 and December 31, 2017 were as follows:

	September 30, 2018		December 31, 2017
Notional amount	$	5,709	$	8,417
Fair value of asset	$	156	$	45

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Purchased Intangible Assets

9 Months Ended

Sep. 30, 2018

Purchased Intangible Assets [Abstract]

Purchased Intangible Assets

NOTE 7. Purchased Intangible Assets

Purchased intangible assets as of September 30, 2018 and December 31, 2017 are as follows:

	Gross Carrying Amount		Accumulated Amortization		Net
September 30, 2018
Finite-lived intangibles:
Developed technology	$	66,127	$	59,396	$	6,731
Customer and distributor relationships		9,561		9,016		545
Trade names		4,361		3,851		510
Total identifiable intangible assets	$	80,049	$	72,263	$	7,786
December 31, 2017
Finite-lived intangibles:
Developed technology	$	65,827	$	58,522	$	7,305
Customer and distributor relationships		9,560		8,818		742
Trade names		4,361		3,776		585
Total identifiable intangible assets	$	79,748	$	71,116	$	8,632

Intangible asset amortization expenses for the three and nine months ended September 30, 2018 were $384 and $1,147, respectively.  For the three and nine month periods ended September 30, 2017, intangible assets amortization expenses were $506 and $1,516, respectively.  Assuming no change in the gross carrying value of identifiable intangible assets and estimated lives, estimated amortization expenses for the remainder of 2018 are $386, and for each of the next five years estimated amortization expenses are $1,544 for 2019, $1,341 for 2020, $594 for 2021, $527 for 2022, and $511 for 2023.

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Balance Sheet Details

9 Months Ended

Sep. 30, 2018

Balance Sheet Detail [Abstract]

Balance Sheet Details

NOTE 8. Balance Sheet Details

Inventories

Inventories are comprised of the following:

	September 30, 2018		December 31, 2017
Materials	$	55,856	$	39,765
Work-in-process		24,467		20,923
Finished goods		11,068		6,833
Total inventories	$	91,391	$	67,521

The Company has established reserves of $12,164 and $13,035 as of September 30, 2018 and December 31, 2017, respectively, for slow moving and obsolete inventory, which are included in the amounts above.

Property, Plant and Equipment

Property, plant and equipment, net is comprised of the following:

	September 30, 2018			December 31, 2017
Land and building	$	2,584		$	2,584
Machinery and equipment		29,370			29,870
Furniture and fixtures		3,267			3,201
Computer equipment and software		6,749			5,444
Leasehold improvements		9,494			9,472
		51,464			50,571
Accumulated depreciation		(34,701	)		(33,229	)
Total property, plant and equipment, net	$	16,763		$	17,342

Other assets

Other assets is comprised of the following:

	September 30, 2018		December 31, 2017
Deferred income taxes	$	14,896	$	14,879
Convertible note receivable	$	1,000	$	—
Other		499		492
Total other assets	$	16,395	$	15,371

Other current liabilities

Other current liabilities is comprised of the following:

	September 30, 2018		December 31, 2017
Intangible asset acquisition - Stella Alliance	$	250	$	100
Contingent consideration - acquisitions		781		634
Customer deposits		877		5,561
Other		6,014		2,989
Total other current liabilities	$	7,922	$	9,284

Other non-current liabilities

Other non-current liabilities is comprised of the following:

	September 30, 2018		December 31, 2017
Unrecognized tax benefits (including interest)	$	4,698	$	4,660
Contingent consideration - acquisitions		1,358		1,959
Deferred revenue		1,140		983
Other		2,977		2,859
Total other non-current liabilities	$	10,173	$	10,461

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2018

Commitments And Contingencies [Abstract]

Commitments and Contingencies

NOTE 9. Commitments and Contingencies

Intellectual Property Indemnification Obligations

The Company has entered into agreements with customers that include limited intellectual property indemnification obligations that are customary in the industry.  These guarantees generally require the Company to compensate the other party for certain damages and costs incurred as a result of third party intellectual property claims arising from these transactions.  The nature of the intellectual property indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to its customers.  Historically, the Company has not made any indemnification payments under such agreements and no amount has been accrued in the accompanying Condensed Consolidated Financial Statements with respect to these indemnification guarantees.

Warranty Reserves

The Company generally provides a warranty on its products for a period of 12 to 15 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 warranty reserves are generally associated with sales that occurred during the 12 to 15 months prior to the quarter-end and warranty accruals are related to sales during the same year.

Changes in the Company’s warranty reserves are as follows:

	Nine Months Ended September 30,
	2018			2017
Balance, beginning of the period	$	2,427		$	1,788
Accruals		2,720			2,511
Usage		(2,589	)		(2,025	)
Balance, end of the period	$	2,558		$	2,274

Warranty reserves are reported in the Condensed Consolidated Balance Sheets under the caption “Accounts payable and accrued liabilities.”

Legal Matters

From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business.  There are no legal proceedings pending or threatened against the Company that management believes are likely to have a material adverse effect on the Company’s consolidated financial position or otherwise.

Line of Credit

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 September 30, 2018 was approximately $102 million with an available interest rate of 3.8%.  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.

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Share-Based Compensation

9 Months Ended

Sep. 30, 2018

Share Based Compensation [Abstract]

Share-Based Compensation

NOTE 10. Share-Based Compensation

Restricted Stock Unit Activity

A summary of the activity with respect to the Company’s unvested restricted stock units during the nine months ended September 30, 2018 is as follows:

	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2017		1,014		$	14.88
Granted		274		$	28.25
Vested		(300	)	$	14.22
Forfeited		(68	)	$	17.50
Nonvested at September 30, 2018		920		$	18.89

Included in the number of shares granted in the table directly above are 53 market performance-based restricted stock units (“MPRSUs”) granted to executives in 2018.  Vesting of these MPRSUs is contingent upon the Company meeting certain total shareholder return (“TSR”) levels as compared to a select peer group over three years from the year granted.  The 2018 MPRSUs cliff vest at the end of the three-year period and have a maximum potential to vest at 200% (105 shares) based on TSR performance.  The related share-based compensation expense is determined based on the estimated fair value of the underlying shares on the date of grant and is recognized straight-line over the vesting term.  The estimated fair value per share of the MPRSUs was $30.76.

As of September 30, 2018 and December 31, 2017, there was $11,088 and $9,420 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 2.1 years and 2.2 years for each of the respective periods.

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Other Expense (Income), net

9 Months Ended

Sep. 30, 2018

Other Income Expense [Abstract]

Other Expense (Income), net

NOTE 11. Other Expense (Income), net

Other expense (income), net is comprised of the following:

	Three Months Ended September 30,					Nine Months Ended September30,
	2018			2017		2018			2017
Gain on casualty insurance claim	$	(302	)	$	—	$	(302	)	$	—
Foreign currency exchange losses (gains), net		174			98		217			533
Other		(4	)		—		(5	)		—
Total other expense (income), net	$	(132	)	$	98	$	(90	)	$	533

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Income Taxes

9 Months Ended

Sep. 30, 2018

Income Taxes [Abstract]

Income Taxes

NOTE 12. Income Taxes

The following table provides details of income taxes:

	Three Months Ended September 30,						Nine Months Ended September30,
	2018			2017			2018			2017
Income before income taxes	$	8,368		$	25,663		$	43,332		$	48,022
Provision for income taxes	$	1,181		$	8,294		$	6,318		$	14,309
Effective tax rate		14.1	%		32.3	%		14.6	%		29.8	%

The income tax provision for the three and nine months ended September 30, 2018 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 and nine months ended September 30, 2018 as compared to the same period in 2017 are primarily due to enactment of U.S. tax reform, which provides for a change in the corporate tax rate from 35% to 21%, changes in the mix of forecasted earnings by jurisdictions and the Foreign Derived Intangible Income Deduction.

The 2017 Tax Act was enacted on December 22, 2017.  The 2017 Tax Act reduces the U.S. federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred, provides tax benefits for export sales and creates new taxes on certain foreign sourced earnings.  The Company is applying the guidance in SAB 118 when accounting for the enactment-date effects of the 2017 Tax Act.  At September 30, 2018, the Company has not completed its accounting for all of the tax effects of the 2017 Tax Act.  In all cases, the Company will continue to make and refine its calculations as additional analysis is completed.  The Company’s estimates may also be affected as it gains a more thorough understanding of the 2017 Tax Act.  These changes could be material to income tax expense.

Foreign-Derived Intangible Income:  The 2017 Tax Act provides tax incentives to U.S. companies to earn income from the sale, lease or license of goods and services abroad in the form of a deduction for foreign-derived intangible income (“FDII”).  FDII is taxed at an effective rate of 13.1% for taxable years beginning after December 31, 2017 and at an effective rate of 16.4% for taxable years beginning after December 31, 2025. The accounting for the deduction for FDII is similar to a special deduction and should be accounted for based on the guidance in ASC 740-10-25-37.  The tax benefits for special deductions ordinarily are recognized no earlier than the year in which they are deductible on a tax return.  As of September 30, 2018, the Company has made sufficient progress in its calculations to reasonably estimate the effect on its estimated annual effective tax rate.  Since a large portion of the Company’s sales are made to non-U.S. customers, this adjustment decreased its effective tax rate by 4.3%.  The Company will continue to refine its calculations, which may result in changes to this amount.

The Company does not expect other provisions of the 2017 Tax Act, including global intangible low-taxed income (“GILTI”), the new interest expense limitations and base erosion anti-abuse tax (“BEAT”) to have a material impact on the Company’s effective tax rate.

Deferred Tax Assets and Liabilities: The Company remeasured certain deferred tax assets and liabilities based on the rates to which they are expected to reverse in the future, which is anticipated to be 21%.  The Company recorded a provisional amount of $8.0 million as of December 31, 2017 related to the remeasurement of certain deferred tax balances. Due to the continued refinement of the Company’s transition tax calculation, discussed further below, and the effect it may have on the measurement of NOLs and other carryforwards, the Company will continue to analyze and refine its calculations related to the measurement of these balances.

One-Time Transition Tax: The one-time transition tax is based on its total post-1986 earnings and profits (“E&P”), which it has deferred from U.S. income taxes under previous U.S. law.  The Company originally recorded a provisional amount for its one-time transition tax liability for all of its foreign subsidiaries, resulting in a transition tax benefit (net of foreign tax credits) of $0.1 million being recorded at December 31, 2017.  As the Company continues to refine its E&P analysis, it will refine its calculations of the one-time transition tax, which could affect the measurement of this liability.  No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations.

The Company currently has a partial valuation allowance recorded against certain foreign and state net operating loss and credit carryforwards where the realizability of such deferred tax assets is substantially in doubt.  Each quarter, the Company assesses the likelihood that it will be able to recover its deferred tax assets. The Company considers available evidence, both positive and negative, including forecasted earnings in assessing the need for a valuation allowance.  As a result of the Company’s analysis, it concluded that it is more likely than not that a portion of its deferred tax assets will not be realized. Therefore, the Company continues to provide a valuation allowance against certain deferred tax assets.  The Company continues to monitor available evidence and 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 $2,447 as of September 30, 2018 and December 31, 2017.

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Earnings Per Share

9 Months Ended

Sep. 30, 2018

Earnings Loss Per Share [Abstract]

Earnings Per Share

NOTE 13. Earnings Per Share

Basic earnings per share is calculated using the weighted average number of shares of common stock outstanding during the period.  Diluted earnings per share is computed in the same manner and also gives effect to all dilutive common equivalent shares outstanding during the 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.

The following table sets forth the weighted average number of restricted stock units that have been excluded from the calculation of diluted earnings per share as their effect would have been anti-dilutive:

	Three Months Ended September 30,				Nine Months Ended September30,
	2018		2017		2018		2017
Restricted stock units		7		2		17		9
Total		7		2		17		9

The Company’s basic and diluted earnings per share amounts are as follows:

	Three Months Ended September 30,				Nine Months Ended September30,
	2018		2017		2018		2017
Numerator:
Net income	$	7,187	$	17,369	$	37,014	$	33,713
Denominator:
Basic earnings per share - weighted average shares    outstanding		31,901		31,571		31,807		31,455
Effect of potential dilutive securities:
Employee stock options and restricted stock    units - dilutive shares		507		599		580		669
Warrant - dilutive shares		—		—		—		2
Diluted earnings per share - weighted average shares    outstanding		32,408		32,170		32,387		32,126
Earnings per share:
Basic	$	0.23	$	0.55	$	1.16	$	1.07
Diluted	$	0.22	$	0.54	$	1.14	$	1.05

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Accumulated Other Comprehensive Loss

9 Months Ended

Sep. 30, 2018

Accumulated Other Comprehensive Loss [Abstract]

Accumulated Other Comprehensive Loss

NOTE 14. Accumulated Other Comprehensive Loss

Comprehensive income includes net income, foreign currency translation adjustments and net unrealized gains and losses on available-for-sale debt securities.  See the Condensed Consolidated Statements of Comprehensive Income for the effect of the components of comprehensive income on the Company’s net income.

The components of accumulated other comprehensive loss, net of tax, are as follows:

	Foreign currency translation adjustments		Net unrealized (gains) losses on marketable securities			Accumulated other comprehensive loss (income)
Balance at December 31, 2017	$	1,079	$	126		$	1,205
Net current period other comprehensive income		425		(62	)		363
Reclassifications		—		—			—
Balance at September 30, 2018	$	1,504	$	64		$	1,568

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Segment Reporting and Geographic Information

9 Months Ended

Sep. 30, 2018

Segment Reporting And Geographic Information [Abstract]

Segment Reporting and Geographic Information

NOTE 15. Segment Reporting and Geographic Information

The Company is engaged in the design, development, manufacture and support of high-performance control metrology, defect inspection, advanced packaging lithography and data analysis systems used by microelectronics device manufacturers. The Company and its subsidiaries currently operate in a single operating segment: the design, development, manufacture and support of high-performance process control defect inspection and metrology, advanced packaging lithography and process control software systems used by microelectronics device manufacturers.  Therefore the Company has one 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 table lists the different sources of revenue:

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2018				2017				2018				2017
Systems and Software:
Process control	$	41,164	68	%	$	43,821	65	%	$	145,458	69	%	$	135,408	70	%
Lithography		2,791	5	%		7,010	11	%		14,712	7	%		10,560	5	%
Software licensing, support and maintenance		6,877	11	%		6,053	9	%		21,879	10	%		20,447	10	%
Parts		7,141	12	%		7,101	11	%		20,884	10	%		20,779	11	%
Services		2,459	4	%		2,935	4	%		8,071	4	%		7,823	4	%
Total revenue	$	60,432	100	%	$	66,920	100	%	$	211,004	100	%	$	195,017	100	%

For geographical revenue reporting, revenue is attributed to the geographic location to which the product is shipped.  Revenue by geographic region is as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Revenue from third parties:
United States	$	11,476	$	7,666	$	29,344	$	25,856
Taiwan		10,233		17,300		35,643		49,960
Japan		4,134		6,268		14,082		12,944
China		11,547		4,151		52,866		24,156
South Korea		10,977		10,852		44,581		36,099
Singapore		4,644		4,664		11,985		9,875
Other Asia		1,102		1,690		3,520		3,249
Germany		3,527		4,488		8,668		12,357
Other Europe		2,792		9,841		10,315		20,521
Total revenue	$	60,432	$	66,920	$	211,004	$	195,017

The following customer accounted for more than 10% of total revenue for the indicated periods:

	Nine Months Ended September 30,
	2018			2017
Customer A		10.5	%		8.2	%

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Share Repurchase Authorization

9 Months Ended

Sep. 30, 2018

Share Repurchase Program [Abstract]

Share Repurchase Authorization

NOTE 16. Share Repurchase Authorization

In January 2015, the Board of Directors authorized the Company to repurchase up to 3,000 shares of the Company’s common stock with no established end date.  The authorization allows for repurchases to be made in the open market or through negotiated transactions from time to time.  During the three and nine months ended September 30, 2018, the Company repurchased 2 shares of common stock pursuant to the share repurchase authorization.  At September 30, 2018, there were 709 shares available for future stock repurchases under this share repurchase authorization.  Shares of common stock purchased under the share repurchase authorization are retired.

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Revenue (Tables)

9 Months Ended

Sep. 30, 2018

Revenue Recognition [Abstract]

Schedule of Disaggregation of Revenue

The following table presents the Company’s revenue disaggregated by revenue source:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Systems	$	43,955	$	50,831	$	160,170	$	145,968
Software licensing, support and maintenance		6,877		6,053		21,879		20,447
Parts		7,141		7,101		20,884		20,779
Services		2,459		2,935		8,071		7,823
Total revenue	$	60,432	$	66,920	$	211,004	$	195,017

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

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2018		2018
Point-in-time	$	56,185	$	198,864
Over-time		4,247		12,140
Total revenue	$	60,432	$	211,004

Schedule of Changes in Deferred Revenue

Changes in deferred revenue were as follows:

	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2018			2018
Balance, beginning of the period	$	8,799		$	7,206
Deferral of revenue		4,354			15,002
Recognition of deferred revenue		(4,449	)		(13,504	)
Balance, ending of the period	$	8,704		$	8,704

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Fair Value Measurements - (Tables)

9 Months Ended

Sep. 30, 2018

Fair Value Measurements [Abstract]

Fair Value Measurements, Recurring and Nonrecurring

The following tables provide the assets and liabilities carried at fair value measured on a recurring basis at September 30, 2018 and December 31, 2017:

			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)
September 30, 2018
Assets:
Available-for-sale debt securities:
Municipal notes and bonds	$	70,005	$	—	$	70,005	$	—
Foreign currency forward exchange contracts		156		—		156		—
Total assets	$	70,161	$	—	$	70,161	$	—
Liabilities:
Contingent consideration - acquisitions		2,139		—		—		2,139
Total liabilities	$	2,139	$	—	$	—	$	2,139
December 31, 2017
Assets:
Available-for-sale debt securities:
Municipal notes and bonds	$	109,589	$	—	$	109,589	$	—
Foreign currency forward exchange contracts		45		—		45		—
Total assets	$	109,634	$	—	$	109,634	$	—
Liabilities:
Contingent consideration - acquisitions	$	2,593	$	—	$	—	$	2,593
Total liabilities	$	2,593	$	—	$	—	$	2,593

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation

This table presents a reconciliation of all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2018:

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Balance at December 31, 2017	$	2,593
Additions		—
Total loss included in selling, general and administrative expense		603
Payments		(1,057	)
Transfers into (out of) Level 3		—
Balance at September 30, 2018	$	2,139

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Marketable Securities - (Tables)

9 Months Ended

Sep. 30, 2018

Marketable Securities [Abstract]

Schedule of Marketable Securities by Category

At September 30, 2018 and December 31, 2017, marketable securities are categorized as follows:

	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Fair Value
September 30, 2018
Municipal notes and bonds	$	70,092	$	—	$	87	$	70,005
Total marketable securities	$	70,092	$	—	$	87	$	70,005
December 31, 2017
Municipal notes and bonds	$	109,750	$	—	$	161	$	109,589
Total marketable securities	$	109,750	$	—	$	161	$	109,589

Schedule of Amortized Cost and Estimated Fair Value of Marketable Securities Classified by Maturity Date

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 Sheet classification, are as follows at September 30, 2018 and December 31, 2017:

	September 30, 2018				December 31, 2017
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	63,901	$	63,831	$	104,742	$	104,605
Due after one through five years		6,191		6,174		5,008		4,984
Due after five through ten years		—		—		—		—
Due after ten years		—		—		—		—
Total marketable securities	$	70,092	$	70,005	$	109,750	$	109,589

Summary of Estimated Fair Value and Gross Unrealized Holding Losses of Marketable Securities in Unrealized Loss Position

The following table summarizes the estimated fair value and gross unrealized holding losses of marketable securities, aggregated by investment instrument and period of time in an unrealized loss position, at September 30, 2018 and December 31, 2017:

	Unrealized Loss Position For Less Than 12 Months				Unrealized Loss Position For Greater Than 12 Months
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
September 30, 2018
Municipal notes and bonds	$	50,097	$	70	$	7,172	$	17
Total	$	50,097	$	70	$	7,172	$	17
December 31, 2017
Municipal notes and bonds	$	98,805	$	161	$	—	$	—
Total	$	98,805	$	161	$	—	$	—

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Derivative Instruments and Hedging Activities (Tables)

9 Months Ended

Sep. 30, 2018

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Forward Contracts and Related Fair Values

The dollar equivalent of the U.S. dollar forward exchange contracts and related fair values as of September 30, 2018 and December 31, 2017 were as follows:

	September 30, 2018		December 31, 2017
Notional amount	$	5,709	$	8,417
Fair value of asset	$	156	$	45

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Purchased Intangible Assets - (Tables)

9 Months Ended

Sep. 30, 2018

Purchased Intangible Assets [Abstract]

Schedule of Purchased Intangible Assets

Purchased intangible assets as of September 30, 2018 and December 31, 2017 are as follows:

	Gross Carrying Amount		Accumulated Amortization		Net
September 30, 2018
Finite-lived intangibles:
Developed technology	$	66,127	$	59,396	$	6,731
Customer and distributor relationships		9,561		9,016		545
Trade names		4,361		3,851		510
Total identifiable intangible assets	$	80,049	$	72,263	$	7,786
December 31, 2017
Finite-lived intangibles:
Developed technology	$	65,827	$	58,522	$	7,305
Customer and distributor relationships		9,560		8,818		742
Trade names		4,361		3,776		585
Total identifiable intangible assets	$	79,748	$	71,116	$	8,632

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Balance Sheet Details (Tables)

9 Months Ended

Sep. 30, 2018

Balance Sheet Detail [Abstract]

Schedule of Inventories

Inventories are comprised of the following:

	September 30, 2018		December 31, 2017
Materials	$	55,856	$	39,765
Work-in-process		24,467		20,923
Finished goods		11,068		6,833
Total inventories	$	91,391	$	67,521

Schedule of Property, Plant and Equipment, Net

Property, plant and equipment, net is comprised of the following:

	September 30, 2018			December 31, 2017
Land and building	$	2,584		$	2,584
Machinery and equipment		29,370			29,870
Furniture and fixtures		3,267			3,201
Computer equipment and software		6,749			5,444
Leasehold improvements		9,494			9,472
		51,464			50,571
Accumulated depreciation		(34,701	)		(33,229	)
Total property, plant and equipment, net	$	16,763		$	17,342

Schedule of Other Assets

Other assets is comprised of the following:

	September 30, 2018		December 31, 2017
Deferred income taxes	$	14,896	$	14,879
Convertible note receivable	$	1,000	$	—
Other		499		492
Total other assets	$	16,395	$	15,371

Schedule of Other Current Liabilities

Other current liabilities is comprised of the following:

	September 30, 2018		December 31, 2017
Intangible asset acquisition - Stella Alliance	$	250	$	100
Contingent consideration - acquisitions		781		634
Customer deposits		877		5,561
Other		6,014		2,989
Total other current liabilities	$	7,922	$	9,284

Schedule of Other Non-Current Liabilities

Other non-current liabilities is comprised of the following:

	September 30, 2018		December 31, 2017
Unrecognized tax benefits (including interest)	$	4,698	$	4,660
Contingent consideration - acquisitions		1,358		1,959
Deferred revenue		1,140		983
Other		2,977		2,859
Total other non-current liabilities	$	10,173	$	10,461

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Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2018

Commitments And Contingencies [Abstract]

Schedule of Changes in Warranty Reserves

Changes in the Company’s warranty reserves are as follows:

	Nine Months Ended September 30,
	2018			2017
Balance, beginning of the period	$	2,427		$	1,788
Accruals		2,720			2,511
Usage		(2,589	)		(2,025	)
Balance, end of the period	$	2,558		$	2,274

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Share-Based Compensation - (Tables)

9 Months Ended

Sep. 30, 2018

Share Based Compensation [Abstract]

Summary of Unvested Restricted Stock Unit Activity

A summary of the activity with respect to the Company’s unvested restricted stock units during the nine months ended September 30, 2018 is as follows:

	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2017		1,014		$	14.88
Granted		274		$	28.25
Vested		(300	)	$	14.22
Forfeited		(68	)	$	17.50
Nonvested at September 30, 2018		920		$	18.89

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Other Expense (Income), net (Tables)

9 Months Ended

Sep. 30, 2018

Other Income Expense [Abstract]

Schedule of Other Expense (Income), Net

	Three Months Ended September 30,					Nine Months Ended September30,
	2018			2017		2018			2017
Gain on casualty insurance claim	$	(302	)	$	—	$	(302	)	$	—
Foreign currency exchange losses (gains), net		174			98		217			533
Other		(4	)		—		(5	)		—
Total other expense (income), net	$	(132	)	$	98	$	(90	)	$	533

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Income Taxes - (Tables)

9 Months Ended

Sep. 30, 2018

Income Taxes [Abstract]

Schedule of Effective Tax Rate

The following table provides details of income taxes:

	Three Months Ended September 30,						Nine Months Ended September30,
	2018			2017			2018			2017
Income before income taxes	$	8,368		$	25,663		$	43,332		$	48,022
Provision for income taxes	$	1,181		$	8,294		$	6,318		$	14,309
Effective tax rate		14.1	%		32.3	%		14.6	%		29.8	%

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Earnings Per Share - (Tables)

9 Months Ended

Sep. 30, 2018

Earnings Per Share [Abstract]

Schedule of Anti-dilutive Securities Excluded from Computation of Earnings Per Share

The following table sets forth the weighted average number of restricted stock units that have been excluded from the calculation of diluted earnings per share as their effect would have been anti-dilutive:

	Three Months Ended September 30,				Nine Months Ended September30,
	2018		2017		2018		2017
Restricted stock units		7		2		17		9
Total		7		2		17		9

Schedule of Earnings Per Share, Basic and Diluted

The Company’s basic and diluted earnings per share amounts are as follows:

	Three Months Ended September 30,				Nine Months Ended September30,
	2018		2017		2018		2017
Numerator:
Net income	$	7,187	$	17,369	$	37,014	$	33,713
Denominator:
Basic earnings per share - weighted average shares    outstanding		31,901		31,571		31,807		31,455
Effect of potential dilutive securities:
Employee stock options and restricted stock    units - dilutive shares		507		599		580		669
Warrant - dilutive shares		—		—		—		2
Diluted earnings per share - weighted average shares    outstanding		32,408		32,170		32,387		32,126
Earnings per share:
Basic	$	0.23	$	0.55	$	1.16	$	1.07
Diluted	$	0.22	$	0.54	$	1.14	$	1.05

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Accumulated Other Comprehensive Loss (Tables)

9 Months Ended

Sep. 30, 2018

Accumulated Other Comprehensive Loss [Abstract]

Components of Accumulated Other Comprehensive Loss, Net of Tax

The components of accumulated other comprehensive loss, net of tax, are as follows:

	Foreign currency translation adjustments		Net unrealized (gains) losses on marketable securities			Accumulated other comprehensive loss (income)
Balance at December 31, 2017	$	1,079	$	126		$	1,205
Net current period other comprehensive income		425		(62	)		363
Reclassifications		—		—			—
Balance at September 30, 2018	$	1,504	$	64		$	1,568

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Segment Reporting and Geographic Information - (Tables)

9 Months Ended

Sep. 30, 2018

Segment Reporting And Geographic Information [Abstract]

Schedule of Revenue from External Customers by Products and Services

The following table lists the different sources of revenue:

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2018				2017				2018				2017
Systems and Software:
Process control	$	41,164	68	%	$	43,821	65	%	$	145,458	69	%	$	135,408	70	%
Lithography		2,791	5	%		7,010	11	%		14,712	7	%		10,560	5	%
Software licensing, support and maintenance		6,877	11	%		6,053	9	%		21,879	10	%		20,447	10	%
Parts		7,141	12	%		7,101	11	%		20,884	10	%		20,779	11	%
Services		2,459	4	%		2,935	4	%		8,071	4	%		7,823	4	%
Total revenue	$	60,432	100	%	$	66,920	100	%	$	211,004	100	%	$	195,017	100	%

Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area

For geographical revenue reporting, revenue is attributed to the geographic location to which the product is shipped.  Revenue by geographic region is as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Revenue from third parties:
United States	$	11,476	$	7,666	$	29,344	$	25,856
Taiwan		10,233		17,300		35,643		49,960
Japan		4,134		6,268		14,082		12,944
China		11,547		4,151		52,866		24,156
South Korea		10,977		10,852		44,581		36,099
Singapore		4,644		4,664		11,985		9,875
Other Asia		1,102		1,690		3,520		3,249
Germany		3,527		4,488		8,668		12,357
Other Europe		2,792		9,841		10,315		20,521
Total revenue	$	60,432	$	66,920	$	211,004	$	195,017

Schedule of Revenue by Major Customers by Reporting Segments

The following customer accounted for more than 10% of total revenue for the indicated periods:

	Nine Months Ended September 30,
	2018			2017
Customer A		10.5	%		8.2	%

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Revenue - Schedule of Disaggregation of Revenue by Revenue Source (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Disaggregation Of Revenue [Line Items]
Total revenue	$ 60,432	$ 66,920	$ 211,004	$ 195,017
Systems Revenue [Member]
Disaggregation Of Revenue [Line Items]
Total revenue	43,955	50,831	160,170	145,968
Software Revenue [Member]
Disaggregation Of Revenue [Line Items]
Total revenue	6,877	6,053	21,879	20,447
Parts Revenue [Member]
Disaggregation Of Revenue [Line Items]
Total revenue	7,141	7,101	20,884	20,779
Service Revenue [Member]
Disaggregation Of Revenue [Line Items]
Total revenue	$ 2,459	$ 2,935	$ 8,071	$ 7,823

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Revenue - Schedule of Disaggregation of Revenue by Timing of Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Disaggregation Of Revenue [Line Items]
Total revenue	$ 60,432	$ 66,920	$ 211,004	$ 195,017
Transferred at Point in Time [Member]
Disaggregation Of Revenue [Line Items]
Total revenue	56,185		198,864
Transferred over Time [Member]
Disaggregation Of Revenue [Line Items]
Total revenue	$ 4,247		$ 12,140

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Revenue - Additional Information (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Disaggregation Of Revenue [Line Items]
Deferred revenue	$ 8,704	$ 8,799	$ 7,206
Systems Revenue [Member]
Disaggregation Of Revenue [Line Items]
Number of days for payment due from customer	30 days
Software Revenue [Member]
Disaggregation Of Revenue [Line Items]
Number of days for payment due from customer	30 days
Parts Revenue [Member]
Disaggregation Of Revenue [Line Items]
Number of days for payment due from customer	30 days
Service Revenue [Member]
Disaggregation Of Revenue [Line Items]
Number of days for payment due from customer	30 days
Minimum [Member] | Systems Revenue [Member]
Disaggregation Of Revenue [Line Items]
Percentage of invoice amount due	80.00%
Assurance warranty period against defects	12 months
Maximum [Member] | Systems Revenue [Member]
Disaggregation Of Revenue [Line Items]
Percentage of invoice amount due	90.00%
Assurance warranty period against defects	15 months

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Revenue - Schedule of Changes in Deferred Revenue (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2018
Deferred Revenue Disclosure [Abstract]
Balance, beginning of the period	$ 8,799	$ 7,206
Deferral of revenue	4,354	15,002
Recognition of deferred revenue	(4,449)	(13,504)
Balance, ending of the period	$ 8,704	$ 8,704

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Fair Value Measurements - Schedule of Assets and Liabilities Carried at Fair Value Measured on a Recurring Basis (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Municipal notes and bonds	$ 70,005	$ 109,589
Foreign currency forward exchange contracts	156	45
Total assets	70,161	109,634
Contingent consideration - acquisitions	2,139	2,593
Total liabilities	2,139	2,593
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Municipal notes and bonds	0	0
Foreign currency forward exchange contracts	0	0
Total assets	0	0
Contingent consideration - acquisitions	0	0
Total liabilities	0	0
Significant Other Observable Inputs (Level 2) [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Municipal notes and bonds	70,005	109,589
Foreign currency forward exchange contracts	156	45
Total assets	70,161	109,634
Contingent consideration - acquisitions	0	0
Total liabilities	0	0
Significant Unobservable Inputs (Level 3) [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Municipal notes and bonds	0	0
Foreign currency forward exchange contracts	0	0
Total assets	0	0
Contingent consideration - acquisitions	2,139	2,593
Total liabilities	$ 2,139	$ 2,593

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Fair Value Measurements - Additional Information (Details)	Sep. 30, 2018	Sep. 30, 2017
Significant Unobservable Inputs (Level 3) [Member] | Measurement Input Discount Rate [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Estimated discount rates	0.094	0.086

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Fair Value Measurements - Reconciliation for All Liabilities Measured at Fair Value on Recurring Basis Using Significant Unobservable Inputs (level 3) (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2018 USD ($)
Fair Value Measurements [Abstract]
Balance at December 31, 2017	$ 2,593
Additions	0
Total loss included in selling, general and administrative expense	603
Payments	(1,057)
Transfers into (out of) Level 3	0
Balance at September 30, 2018	$ 2,139

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Marketable Securities - Schedule of Marketable Securities by Category (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 70,092	$ 109,750
Gross Unrealized Holding Gains	0	0
Gross Unrealized Holding Losses	87	161
Fair Value	70,005	109,589
Municipal Notes and Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	70,092	109,750
Gross Unrealized Holding Gains	0	0
Gross Unrealized Holding Losses	87	161
Fair Value	$ 70,005	$ 109,589

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Marketable Securities - Schedule of Amortized Cost and Estimated Fair Value of Marketable Securities Classified by Maturity Date (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Available For Sale Securities Debt Maturities Fair Value [Abstract]
Amortized Cost, Due within one year	$ 63,901	$ 104,742
Amortized Cost, Due after one through five years	6,191	5,008
Amortized Cost, Due after five through ten years	0	0
Amortized Cost, Due after ten years	0	0
Amortized Cost, Total marketable securities	70,092	109,750
Fair Value, Due within one year	63,831	104,605
Fair Value, Due after one through five years	6,174	4,984
Fair Value, Due after five through ten years	0	0
Fair Value, Due after ten years	0	0
Fair Value, Total marketable securities	$ 70,005	$ 109,589

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Marketable Securities - Summary of Estimated Fair Value and Gross Unrealized Holding Losses of Marketable Securities in Unrealized Loss Position (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Schedule of Available-for-sale Securities [Line Items]
Unrealized Loss Position For Less Than 12 Months, Fair Value	$ 50,097	$ 98,805
Unrealized Loss Position For Less Than 12 Months, Gross Unrealized Losses	(70)	(161)
Unrealized Loss Position For Greater Than 12 Months, Fair Value	7,172	0
Unrealized Loss Position For Greater Than 12 Months, Gross Unrealized Losses	(17)	0
Municipal Notes and Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Unrealized Loss Position For Less Than 12 Months, Fair Value	50,097	98,805
Unrealized Loss Position For Less Than 12 Months, Gross Unrealized Losses	(70)	(161)
Unrealized Loss Position For Greater Than 12 Months, Fair Value	7,172	0
Unrealized Loss Position For Greater Than 12 Months, Gross Unrealized Losses	$ (17)	$ 0

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Convertible Note Receivable - Additional Information (Details) - USD ($)	May 31, 2018	Sep. 30, 2018	Dec. 31, 2017
Loans And Leases Receivable Disclosure [Line Items]
Convertible notes receivable		$ 1,000,000	$ 0
Accrued interest		$ 4,000
Convertible Loan Agreement [Member] | Simax Precision Technologies Limited [Member]
Loans And Leases Receivable Disclosure [Line Items]
Funds available in multiple promissory notes	$ 15,000,000
Convertible notes rate of interest	4.25%
Term of repayment for principal amount and outstanding interest	3 years

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Derivative Instruments and Hedging Activities - Additional Information (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Derivative Instruments And Hedging Activities Disclosure [Abstract]
Increase (decrease) in fair value of forward contracts	$ 111	$ (251)

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Derivative Instruments and Hedging Activities - Forward Contracts and Related Fair Values (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Derivative Instruments And Hedging Activities Disclosure [Abstract]
Notional amount	$ 5,709	$ 8,417
Fair value of asset	$ 156	$ 45

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Purchase Intangible Assets - (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Finite Lived Intangible Assets [Line Items]
Finite-lived intangibles, Gross Carrying Amount	$ 80,049	$ 79,748
Finite-lived intangibles, Accumulated Amortization	72,263	71,116
Finite-lived intangibles, Net	7,786	8,632
Developed Technology [Member]
Finite Lived Intangible Assets [Line Items]
Finite-lived intangibles, Gross Carrying Amount	66,127	65,827
Finite-lived intangibles, Accumulated Amortization	59,396	58,522
Finite-lived intangibles, Net	6,731	7,305
Customer and Distributor Relationships [Member]
Finite Lived Intangible Assets [Line Items]
Finite-lived intangibles, Gross Carrying Amount	9,561	9,560
Finite-lived intangibles, Accumulated Amortization	9,016	8,818
Finite-lived intangibles, Net	545	742
Trade Names [Member]
Finite Lived Intangible Assets [Line Items]
Finite-lived intangibles, Gross Carrying Amount	4,361	4,361
Finite-lived intangibles, Accumulated Amortization	3,851	3,776
Finite-lived intangibles, Net	$ 510	$ 585

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Purchase Intangible Assets - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Purchased Intangible Assets [Abstract]
Amortization	$ 384	$ 506	$ 1,147	$ 1,516
Future amortization expense, Remainder of 2018	386		386
Future amortization expense, 2019	1,544		1,544
Future amortization expense, 2020	1,341		1,341
Future amortization expense, 2021	594		594
Future amortization expense, 2022	527		527
Future amortization expense, 2023	$ 511		$ 511

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Balance Sheet Details - Schedule of Inventories (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Inventory Details [Abstract]
Materials	$ 55,856	$ 39,765
Work-in-process	24,467	20,923
Finished goods	11,068	6,833
Total inventories	$ 91,391	$ 67,521

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Balance Sheet Details - Additional Information (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Balance Sheet Detail [Abstract]
Inventory valuation reserves	$ 12,164	$ 13,035

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Balance Sheet Details - Schedule of Property, Plant and Equipment, Net (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	$ 51,464	$ 50,571
Accumulated depreciation	(34,701)	(33,229)
Total property, plant and equipment, net	16,763	17,342
Land and Building [Member]
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	2,584	2,584
Machinery and Equipment [Member]
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	29,370	29,870
Furniture and Fixtures [Member]
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	3,267	3,201
Computer Equipment and Software [Member]
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	6,749	5,444
Leasehold Improvements [Member]
Property Plant And Equipment [Line Items]
Property, plant and equipment, gross	$ 9,494	$ 9,472

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Balance Sheet Details - Schedule of Other Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Other Assets [Abstract]
Deferred income taxes	$ 14,896	$ 14,879
Convertible notes receivable	1,000	0
Other	499	492
Total other assets	$ 16,395	$ 15,371

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Balance Sheet Details - Schedule of Other Current Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Other Liabilities Current [Abstract]
Intangible asset acquisition - Stella Alliance	$ 250	$ 100
Contingent consideration - acquisitions	781	634
Customer deposits	877	5,561
Other	6,014	2,989
Total other current liabilities	$ 7,922	$ 9,284

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Balance Sheet Details - Schedule of Other Non-Current Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Other Liabilities Noncurrent [Abstract]
Unrecognized tax benefits (including interest)	$ 4,698	$ 4,660
Contingent consideration - acquisitions	1,358	1,959
Deferred revenue	1,140	983
Other	2,977	2,859
Total other non-current liabilities	$ 10,173	$ 10,461

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Commitments and Contingencies - Additional Information (Details) $ in Millions	9 Months Ended
	Sep. 30, 2018 USD ($)
Commitments And Contingencies [Line Items]
Percentage of maximum borrowing capacity of value of eligible securities	70.00%
Available line of credit	$ 102
Available interest rate on line of credit	3.80%
Minimum [Member]
Commitments And Contingencies [Line Items]
Warranty period	12 months
Maximum [Member]
Commitments And Contingencies [Line Items]
Warranty period	15 months

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Commitments and Contingencies - Schedule of Changes in Warranty Reserves (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Commitments And Contingencies [Abstract]
Balance, beginning of the period	$ 2,427	$ 1,788
Accruals	2,720	2,511
Usage	(2,589)	(2,025)
Balance, end of the period	$ 2,558	$ 2,274

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Share-Based Compensation - Summary of Unvested Restricted Stock Unit Activity (Details)	9 Months Ended
	Sep. 30, 2018 $ / shares shares
Restricted Stock Units Activity [Abstract]
Number of Shares, Nonvested beginning balance | shares	1,014
Number of Shares, Granted | shares	274
Number of Shares, Vested | shares	(300)
Number of Shares, Forfeited | shares	(68)
Number of Shares, Nonvested ending balance | shares	920
Weighted Average Grant Date Fair Value, Nonvested beginning balance | $ / shares	$ 14.88
Weighted Average Grant Date Fair Value, Granted | $ / shares	28.25
Weighted Average Grant Date Fair Value, Vested | $ / shares	14.22
Weighted Average Grant Date Fair Value, Forfeited | $ / shares	17.50
Weighted Average Grant Date Fair Value, Nonvested ending balance | $ / shares	$ 18.89

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Share-Based Compensation - Additional Information (Details) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Market performance-based restricted stock units granted	274
Maximum potential market performance-based restricted stock units to vest	105
Estimated fair value per share of the market performance-based restricted stock units	$ 30.76
Maximum potential market performance-based restricted stock units to vest percentage	200.00%
Market performance-based restricted stock units vesting period	3 years
Total unrecognized compensation cost related to restricted stock units granted	$ 11,088	$ 9,420
Unrecognized compensation cost related to restricted stock units, weighted average period	2 years 1 month 6 days	2 years 2 months 12 days
Market Performance Based Restricted Stock Units [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Market performance-based restricted stock units granted	53

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Other Expense (Income), Net - Schedule of Other Expense (Income), Net (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Other Income Expense [Abstract]
Gain on casualty insurance claim	$ (302)	$ 0	$ (302)	$ 0
Foreign currency exchange losses (gains), net	174	98	217	533
Other	(4)	0	(5)	0
Total other expense (income), net	$ (132)	$ 98	$ (90)	$ 533

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Income Taxes - Schedule of Effective Tax Rate (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Income Taxes [Abstract]
Income before income taxes	$ 8,368	$ 25,663	$ 43,332	$ 48,022
Provision for income taxes	$ 1,181	$ 8,294	$ 6,318	$ 14,309
Effective tax rate	14.10%	32.30%	14.60%	29.80%

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Income Taxes - Additional Information (Details) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2018 USD ($)	Dec. 31, 2017 USD ($)	Dec. 31, 2025
Income Taxes [Abstract]
Valuation allowance against deferred tax assets	$ 2,447	$ 2,447
Tax cuts and jobs act of 2017, incomplete accounting, change in tax rate, deferred tax assets, provisional income tax benefit		8,000
Transition tax expense		$ 100
Change in effective tax rate due to FDII	4.3
Effective income tax rate reconciliation, at federal statutory income tax rate, percent	21.00%	35.00%
Foreign derived intangible income (FDII) effective tax rate		13.1	16.4

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Earnings Per Share - Schedule of Anti-dilutive Securities Excluded from Computation of Earnings Per Share (Details) - shares shares in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share, amount	7	2	17	9
Restricted Stock Units (RSUs) [Member]
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share, amount	7	2	17	9

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Earnings Per Share - Schedule of Earnings Per Share, Basic and Diluted (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Earnings Per Share [Abstract]
Net income	$ 7,187	$ 17,369	$ 37,014	$ 33,713
Basic earnings per share - weighted average shares outstanding	31,901	31,571	31,807	31,455
Employee stock options and restricted stock units - dilutive shares	507	599	580	669
Warrant - dilutive shares	0	0	0	2
Diluted earnings per share - weighted average shares outstanding	32,408	32,170	32,387	32,126
Basic	$ 0.23	$ 0.55	$ 1.16	$ 1.07
Diluted	$ 0.22	$ 0.54	$ 1.14	$ 1.05

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Accumulated Other Comprehensive Loss - Components of Accumulated Other Comprehensive Loss, Net of Tax (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2018 USD ($)
Accumulated Other Comprehensive Income Loss [Line Items]
Balance at December 31, 2017	$ 333,154
Balance at September 30, 2018	374,156
Foreign Currency Translation Adjustments [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Balance at December 31, 2017	1,079
Net current period other comprehensive income	425
Reclassifications	0
Balance at September 30, 2018	1,504
Net Unrealized (Gains) Losses on Marketable Securities [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Balance at December 31, 2017	126
Net current period other comprehensive income	(62)
Reclassifications	0
Balance at September 30, 2018	64
Accumulated Other Comprehensive Loss (Income) [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Balance at December 31, 2017	1,205
Net current period other comprehensive income	363
Reclassifications	0
Balance at September 30, 2018	$ 1,568

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Segment Reporting and Geographic Information - Additional Information (Details)	9 Months Ended
	Sep. 30, 2018 Segment
Segment Reporting [Abstract]
Number of reportable segments	1

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Segment Reporting and Geographic Information - Schedule of Revenue from External Customers by Products and Services (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Segment Reporting Information [Line Items]
Revenues	$ 60,432	$ 66,920	$ 211,004	$ 195,017
Sales [Member] | Product [Member]
Segment Reporting Information [Line Items]
Concentration risk, percentage	100.00%	100.00%	100.00%	100.00%
Process Control [Member]
Segment Reporting Information [Line Items]
Revenues	$ 41,164	$ 43,821	$ 145,458	$ 135,408
Process Control [Member] | Sales [Member] | Product [Member]
Segment Reporting Information [Line Items]
Concentration risk, percentage	68.00%	65.00%	69.00%	70.00%
Lithography [Member]
Segment Reporting Information [Line Items]
Revenues	$ 2,791	$ 7,010	$ 14,712	$ 10,560
Lithography [Member] | Sales [Member] | Product [Member]
Segment Reporting Information [Line Items]
Concentration risk, percentage	5.00%	11.00%	7.00%	5.00%
Software Revenue [Member]
Segment Reporting Information [Line Items]
Revenues	$ 6,877	$ 6,053	$ 21,879	$ 20,447
Software Revenue [Member] | Sales [Member] | Product [Member]
Segment Reporting Information [Line Items]
Concentration risk, percentage	11.00%	9.00%	10.00%	10.00%
Parts [Member]
Segment Reporting Information [Line Items]
Revenues	$ 7,141	$ 7,101	$ 20,884	$ 20,779
Parts [Member] | Sales [Member] | Product [Member]
Segment Reporting Information [Line Items]
Concentration risk, percentage	12.00%	11.00%	10.00%	11.00%
Services [Member]
Segment Reporting Information [Line Items]
Revenues	$ 2,459	$ 2,935	$ 8,071	$ 7,823
Services [Member] | Sales [Member] | Product [Member]
Segment Reporting Information [Line Items]
Concentration risk, percentage	4.00%	4.00%	4.00%	4.00%

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Segment Reporting and Geographic Information - Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Segment Reporting Information [Line Items]
Revenues	$ 60,432	$ 66,920	$ 211,004	$ 195,017
United States [Member]
Segment Reporting Information [Line Items]
Revenues	11,476	7,666	29,344	25,856
Taiwan [Member]
Segment Reporting Information [Line Items]
Revenues	10,233	17,300	35,643	49,960
Japan [Member]
Segment Reporting Information [Line Items]
Revenues	4,134	6,268	14,082	12,944
China [Member]
Segment Reporting Information [Line Items]
Revenues	11,547	4,151	52,866	24,156
South Korea [Member]
Segment Reporting Information [Line Items]
Revenues	10,977	10,852	44,581	36,099
Singapore [Member]
Segment Reporting Information [Line Items]
Revenues	4,644	4,664	11,985	9,875
Other Asia [Member]
Segment Reporting Information [Line Items]
Revenues	1,102	1,690	3,520	3,249
Germany [Member]
Segment Reporting Information [Line Items]
Revenues	3,527	4,488	8,668	12,357
Other Europe [Member]
Segment Reporting Information [Line Items]
Revenues	$ 2,792	$ 9,841	$ 10,315	$ 20,521

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Segment Reporting and Geographic Information - Schedule of Revenue by Major Customers by Reporting Segments (Details)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Sales [Member] | Customer [Member] | Customer A [Member]
Segment Reporting Information [Line Items]
Entity-wide revenue, major customer, percentage	10.50%	8.20%

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Share Repurchase Authorization - Additional Information (Details)	3 Months Ended	9 Months Ended
	Sep. 30, 2018 shares	Sep. 30, 2018 shares
Share Repurchase Program [Abstract]
Stock Repurchase Program, Number of Shares Authorized to be Repurchased	3,000,000	3,000,000
Number of shares repurchased pursuant to share repurchase authorization	2,000	2,000
Stock Repurchase Program, Remaining Number of Shares Authorized to be Repurchased	709,000	709,000