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 June 29, 2019

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 number: 000-13470

NANOMETRICS INCORPORATED

(Exact name of registrant as specified in its charter)

Delaware	94-2276314
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
1550 Buckeye Drive Milpitas, California	95035
(Address of principal executive offices)	(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	NANO	The Nasdaq Stock Market LLC (Nasdaq Global Select Market)

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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☒    No   ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “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 by Rule 12b-2 of the Exchange Act) Yes  ☐    No  ☒

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

NANOMETRICS INCORPORATED

INDEX TO QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 29, 2019

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets at June 29, 2019 and December 29, 2018 (Unaudited)	3
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 29, 2019 and June 30, 2018 (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 29, 2019 and June 30, 2018 (Unaudited)	5
	Condensed Consolidated Statement of Stockholders’ Equity for the Three and Six Months Ended June 29, 2019 and June 30, 2018 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 29, 2019 and June 30, 2018 (Unaudited)	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32
Item 4.	Controls and Procedures	33
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 6.	Exhibits	35
Signatures		36

2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NANOMETRICS INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands except share and per share amounts)

(Unaudited)

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

See Notes to Condensed Consolidated Financial Statements

3

NANOMETRICS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share amounts)

(Unaudited)

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

See Notes to Condensed Consolidated Financial Statements

4

NANOMETRICS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended						Six Months Ended
	June 29, 2019			June 30, 2018			June 29, 2019		June 30, 2018
Net income	$	3,930		$	17,675		$	6,903	$	34,056
Other comprehensive income:
Change in foreign currency translation adjustment		(42	)		(2,555	)		602		(568	)
Net change in unrealized gains (losses) on available-for-sale investments		44			52			102		(37	)
Other comprehensive income		2			(2,503	)		704		(605	)
Comprehensive income	$	3,932		$	15,172		$	7,607	$	33,451

See Notes to Condensed Consolidated Financial Statements

5

NANOMETRICS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

	Common Stock				Additional Paid-In			Retained		Accumulated Other Comprehensive			Total Stockholders’
Three Months Ended June 29, 2019	Shares		Amount		Capital			Earnings		Loss			Equity
Balance as of March 30, 2019		24,534,582	$	25	$	251,841		$	70,375	$	(1,855	)	$	320,386
Net income		—		—		—			3,930		—			3,930
Foreign currency translation adjustments		—		—		—			—		(42	)		(42	)
Unrealized gain on investments, net of tax		—		—		—			—		44			44
Issuance of common stock under stock-based compensation plans, net of taxes paid		293,802		—		1,462			—		—			1,462
Stock-based compensation expense		—		—		3,200			—		—			3,200
Balance as of June 29, 2019		24,828,384	$	25	$	256,503		$	74,305	$	(1,853	)	$	328,980
	Common Stock				Additional Paid-In			Retained		Accumulated Other Comprehensive			Total Stockholders’
Three Months Ended June 30, 2018	Shares		Amount		Capital			Earnings		Loss			Equity
Balance as of March 31, 2018		23,890,563	$	24	$	234,793		$	26,136	$	(226	)	$	260,727
Net income		—		—		—			17,675		—			17,675
Foreign currency translation adjustments		—		—		—			—		(2,555	)		(2,555	)
Unrealized gain on investments, net of tax		—		—		—			—		52			52
Issuance of common stock under stock-based compensation plans, net of taxes paid		175,805		—		(94	)		—		—			(94	)
Stock-based compensation expense		—		—		2,679			—		—			2,679
Balance as of June 30, 2018		24,066,368	$	24	$	237,378		$	43,811	$	(2,729	)	$	278,484

See Notes to Condensed Consolidated Financial Statements

6

NANOMETRICS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

(In thousands)

(Unaudited)

	Common Stock						Additional Paid-In			Retained		Accumulated Other Comprehensive			Total Stockholders’
Six Months Ended June 29, 2019	Shares			Amount			Capital			Earnings		Loss			Equity
Balance as of December 29, 2018		24,372,193		$	24		$	247,983		$	67,402	$	(2,557	)	$	312,852
Net income		—			—			—			6,903		—			6,903
Foreign currency translation adjustments		—			—			—			—		602			602
Unrealized gain on investments, net of tax		—			—			—			—		102			102
Issuance of common stock under stock-based compensation plans, net of taxes paid		456,191			1			2,206			—		—			2,207
Stock-based compensation expense		—			—			6,314			—		—			6,314
Balance as of June 29, 2019		24,828,384		$	25		$	256,503		$	74,305	$	(1,853	)	$	328,980
	Common Stock						Additional Paid-In			Retained		Accumulated Other Comprehensive			Total Stockholders’
Six Months Ended June 30, 2018	Shares			Amount			Capital			Earnings		Loss			Equity
Balance as of December 30, 2017		24,628,722		$	26		$	255,368		$	9,113	$	(2,124	)	$	262,383
Net income		—			—			—			34,056		—			34,056
Adjustment due to adoption of ASU 2014-09 Revenue from Contracts with Customers, net of tax		—			—			—			642		—			642
Foreign currency translation adjustments		—			—			—			—		(568	)		(568	)
Unrealized loss on investments, net of tax		—			—			—			—		(37	)		(37	)
Issuance of common stock under stock-based compensation plans, net of taxes paid		333,833			(2	)		(20	)		—		—			(22	)
Stock-based compensation expense		—			—			5,017			—		—			5,017
Repurchases and retirement of common stock under share repurchase plans		(896,187	)		—			(22,987	)		—		—			(22,987	)
Balance as of June 30, 2018		24,066,368		$	24		$	237,378		$	43,811	$	(2,729	)	$	278,484

See Notes to Condensed Consolidated Financial Statements

7

NANOMETRICS INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months Ended
	June 29, 2019			June 30, 2018
Cash flows from operating activities:
Net income	$	6,903		$	34,056
Reconciliation of net income to net cash from operating activities:
Depreciation and amortization		5,061			3,326
Stock-based compensation		6,314			5,017
Disposal of fixed assets		(861	)		51
Inventory write-down		2,922			269
Deferred income taxes		—			4,320
Changes in assets and liabilities:
Accounts receivable		473			7,193
Inventories		(8,290	)		(1,722	)
Inventories-delivered systems		(830	)		(322	)
Prepaid expenses and other		(1,974	)		(3,422	)
Operating lease - right of use assets		1,077			—
Accounts payable, accrued and other liabilities		(10,941	)		7,204
Deferred revenue		738			2,464
Operating lease liabilities		(888	)		—
Income taxes payable		(2,007	)		537
Net cash provided by (used in) operating activities		(2,303	)		58,971
Cash flows from investing activities:
Payments to acquire certain assets		—			(2,000	)
Sales of marketable securities		1,627			18,507
Maturities of marketable securities		24,700			17,345
Purchases of marketable securities		(36,093	)		(16,320	)
Purchases of property, plant and equipment		(8,314	)		(1,761	)
Proceeds from sale of property, plant and equipment		896			—
Net cash provided by (used in) investing activities		(17,184	)		15,771
Cash flows from financing activities:
Proceeds from sale of shares under employee stock option plans and purchase plan		4,535			2,709
Taxes paid on net issuance of stock awards		(2,328	)		(2,731	)
Repurchases of common stock under share repurchase plans		—			(22,987	)
Net cash provided by (used in) financing activities		2,207			(23,009	)
Effect of exchange rate changes on cash and cash equivalents		364			(431	)
Net increase (decrease) in cash and cash equivalents		(16,916	)		51,302
Cash and cash equivalents, beginning of period		110,951			34,899
Cash and cash equivalents, end of period	$	94,035		$	86,201
Supplemental disclosure of non-cash investing activities:
Transfers between inventory and property, plant and equipment, net	$	755		$	73
Unpaid property, plant and equipment		662			555

See Notes to Condensed Consolidated Financial Statements

8

NANOMETRICS INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

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

Basis of Presentation – The accompanying condensed consolidated financial statements (“financial statements”) have been prepared on a consistent basis with the audited consolidated financial statements as of December 29, 2018 and include all normal recurring adjustments necessary to fairly state the information set forth therein. All significant intercompany accounts and transactions have been eliminated in consolidation.

The financial statements have been prepared in accordance with the regulations of the United States Securities and Exchange Commission (“SEC”) for interim periods in accordance with S-X Article 10, and, therefore, omit certain information and footnote disclosure necessary to present the statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The operating results for interim periods are not necessarily indicative of the operating results that may be expected for the entire year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 29, 2018, which were included in the Company’s Annual Report on Form 10-K filed with the SEC on February 25, 2019.

Fiscal Period – The Company uses a 52/53 week fiscal year ending on the last Saturday of the calendar year. All references to the quarter refer to Nanometrics’ fiscal quarter. The fiscal quarters reported herein are 13 week periods.

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

Changes to Significant Accounting Policies

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

Leases - The Company adopted the new accounting standard Topic 842, Leases and all related amendments, as of December 30, 2018, the first day of its 2019 fiscal year, by electing to use the additional optional transition method permitted under the Topic of applying the new leases standard at the adoption date for all then-active leases and prospectively to leasing arrangements entered after the adoption date. The Company’s reporting for the comparative period presented in the financial statements continues to follow prior U.S. GAAP.

The main impact of Topic 842 was to increase the transparency and comparability of the Company’s financial statements by requiring the recognition of right of use assets (“ROU assets”) and lease liabilities on the Company’s balance sheet for leases classified as operating leases under which the Company is lessee. Under the Topic, disclosures are required to meet the objective of enabling users of the Company’s financial statements to assess the amount, timing, and uncertainty of cash flows arising from such leases.

9

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

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

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

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

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

1. The lease transfers ownership of the underlying identified asset to the Company by the end of the lease term.

2. The lease grants the Company an option to purchase the underlying identified asset that it is reasonably certain to exercise.

3. Generally, the lease term is for the major part of the remaining economic useful life of the underlying identified asset.

4. The present value of the sum of the lease payments and any residual value guaranteed by the Company that is not already reflected in the lease payments equals or exceeds substantially all the fair value of the underlying identified asset.

5. The underlying asset is of such a specialized nature that it wouldn’t have an alternative use to the lessor at the end of the lease term.

The Company has not entered into any contracts that transfer ownership of the underlying identified asset to the Company by the end of the lease term and there are only a small number of individually insignificant leases that contain a purchase option, none of which the Company intends to exercise. The Company has evaluated its contracts under these criteria and has determined that all such contracts are operating leases.

The Company does not reassess the lease classification after the commencement date unless (a) the contract is modified, and the modification is not accounted for as a separate contract, (b) there is a change in the lease term, or (c) there is a change in the assessment of whether the Company is reasonably certain to exercise an option to purchase the underlying asset.

Measuring the lease – Topic 842 requires the Company to record a ROU Asset and a lease liability at the lease commencement date for all leases. The Company does this by measuring and recording a lease liability equal to the present value of all remaining lease payments. The Company applies judgment in estimating the remaining lease term. For its offices, data centers, colocation agreements, ISP services and logistics it assesses the current life of the lease, defined renewal periods in the contract (if any), the strategic plan for maintaining (or replacing) the asset among other factors in determining the future lease term when measuring the lease. While implementing Topic 842, the Company noted that none of its leases contained residual value guarantees, variable lease payments or any restrictions or covenants imposed by the lessors, outside of standard restrictions on subletting office space.

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

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

10

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

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

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

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

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

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

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

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

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

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Fiscal year	Amount
2019 (remainder)	$	1,833
2020		2,949
2021		2,096
2022		1,544
2023		1,249
Thereafter		2,706
Total future minimum lease payments		12,377
Less: future interest		(1,515	)
Total	$	10,862
Reported as of June 29, 2019
Operating lease liability - short term	$	2,845
Operating lease liability - long term		8,017
Total	$	10,862

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

Fiscal year	Amount
2019	$	3,002
2020		1,891
2021		1,051
2022		970
2023		750
Thereafter		696
Total	$	8,360

Note 2. New Accounting Pronouncements

Recently Adopted Accounting Standards

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

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

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Recently Issued Accounting Standards

In August 2018, the FASB issued an accounting standard update to provide additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The amendments in this update should be applied retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the effect of this update on its consolidated financial condition and results of operations.

In August 2018, the FASB issued an accounting standard update which improves the effectiveness of fair value measurement disclosures in the notes to the financial statements. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Certain amendments within the update should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. Entities are permitted to early adopt any removed or modified disclosures upon issuance of this update and delay adoption of the additional disclosures until their effective date. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated results of operations or consolidated statement of cash flows.

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

In June 2016, the FASB issued an accounting standard update which requires measurement and timely recognition of expected credit losses for financial assets. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The standard is to be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently evaluating the effect of this update on its consolidated financial condition and results of operations.

Note 3. Acquisition

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

4D’s Dynamic Interferometry® solutions are used in a variety of industries to provide accurate shape and surface measurement data, which provides feedback to customers of optical quality, machine finish, and surface defectivity, to improve manufacturing yield and performance. The addition of 4D’s technology added new technology to the Company’s portfolio, expanded its served markets with new applications in the scientific research, aerospace, industrial and optics manufacturing markets.

During the three-month period ended June 29, 2019, an immaterial purchase price adjustment was recorded resulting in an immaterial decrease to Goodwill for the 4D acquisition in 2018. The following table presents the purchase price allocation as of November 15, 2018 (in thousands):

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

Note 4. Revenue

The Company disaggregates its revenue from contracts with customers by geographic location. See Note 15 for further information.

Contract assets and liabilities

Contract assets and liabilities consisted of the following (in thousands):

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

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

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

Note 5. Fair Value Measurements and Disclosures

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

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

Level 3 — Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Such unobservable inputs include an estimated discount rate used in the Company’s discounted present value analysis of

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

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

The following tables present the Company’s assets and liabilities measured at estimated fair value on a recurring basis, excluding accrued interest components, categorized in accordance with the fair value hierarchy (in thousands), as of the following dates:

	June 29, 2019								December 29, 2018
	Fair Value Measurements Using Input Types								Fair Value Measurements Using Input Types
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	10,964	$	—	$	—	$	10,964	$	113	$	—	$	—	$	113
Commercial paper		—		24,937		—		24,937		—		1,993		—		1,993
Certificates of deposit		—		2,000		—		2,000		—		—		—		—
Total cash equivalents	$	10,964	$	26,937	$	—	$	37,901	$	113	$	1,993	$	—	$	2,106
Marketable securities:
Certificates of deposits	$	—	$	13,013	$	—	$	13,013	$	—	$	9,497	$	—	$	9,497
Commercial paper		—		14,066		—		14,066		—		7,932		—		7,932
Corporate debt securities		—		15,301		—		15,301		—		15,730		—		15,730
Asset-backed Securities		—		8,567		—		8,567		—		7,682		—		7,682
Total marketable securities	$	—	$	50,947	$	—	$	50,947	$	—	$	40,841	$	—	$	40,841
Total(1)	$	10,964	$	77,884	$	—	$	88,848	$	113	$	42,834	$	—	$	42,947

⁽¹⁾ Excludes $56.1 million and $108.8 million held in operating accounts as of June 29, 2019 and December 29, 2018, respectively. See “Note 6. Cash and Investments” of the Notes to Condensed Consolidated Financial Statements for more information.

The fair values of the marketable securities that are classified as Level 1 in the table above were derived from quoted market prices for identical assets or liabilities in active markets that the Company can access. The fair value of marketable securities that are classified as Level 2 in the table above were derived from non-binding market consensus prices that were corroborated by observable market data, quoted market prices for similar instruments, or pricing models, such as discounted cash flow techniques with all significant inputs derived from or corroborated by observable market data. There were no transfers of instruments between Level 1, Level 2 and Level 3 during the financial periods presented.

Derivatives

The Company uses foreign currency exchange forward contracts to mitigate variability in gains and losses generated from the re-measurement of certain monetary assets and liabilities denominated in foreign currencies. These derivatives are carried at fair value with changes recorded in other income (expense), net in the condensed consolidated statements of operations. Changes in the fair value of these derivatives are largely offset by re-measurement of the underlying assets and liabilities. The derivatives have maturities of approximately 30 days.

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

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

	June 29, 2019						December 29, 2018
			Fair Value						Fair Value
	Notional Amount		Asset		Liability		Notional Amount		Asset		Liability
Undesignated Hedges:
Forward Foreign Currency Contracts
Purchase	$	27.4	$	—	$	0.1	$	25.9	$	—	$	—
Sell	$	—	$	—	$	—	$	21.8	$	—	$	0.2

Note 6. Cash and Investments

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

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

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

Realized gains and losses on sale of securities are recorded in other income (expense), net, in the Company’s condensed consolidated statement of operations. For the three and six months ended June 29, 2019 and June 30, 2018, net realized gains and losses were not material.

Unrealized gains or losses, net of tax effect, are recorded in accumulated other comprehensive income (loss) within stockholders’ equity. Both the gross unrealized gains and gross unrealized losses for the three and six months ended June 29, 2019 and June 30, 2018 were not material, and no marketable securities had other than temporary impairment.

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

Note 7. Accounts Receivable

The Company maintains arrangements under which eligible accounts receivable in Japan are sold without recourse to unrelated third-party financial institutions. These receivables were not included in the condensed consolidated balance sheets as the criteria for sale treatment had been met. The Company pays administrative fees as well as interest, which ranged 0.63% to 1.68% during the six months ended June 29, 2019, based on the anticipated length of time between the date the sale is consummated, and the expected collection date of the receivables sold.

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The Company sold $2.1 million and $11.6 million of receivables during the three months ended June 29, 2019 and June 30, 2018, respectively, and $14.2 million and $33.5 million of receivables during the six months ended June 29, 2019 and June 30, 2018, respectively. There were no amounts due from such third-party financial institutions at June 29, 2019 and December 29, 2018.

Note 8. Financial Statement Components

The following tables provide details of selected financial statement components as of the following dates (in thousands):

	At
	June 29, 2019			December 29, 2018
Inventories:
Raw materials and sub-assemblies	$	35,880		$	31,434
Work in process		21,061			22,383
Finished goods		9,689			8,098
Inventories		66,630			61,915
Inventories-delivered systems		1,010			180
Total inventories	$	67,640		$	62,095
Property, plant and equipment, net:(1)
Land	$	15,570		$	15,571
Machinery and equipment		37,608			39,898
Building and improvements		26,344			21,354
Software		10,377			10,116
Furniture and fixtures		2,471			2,551
Leasehold improvements		1,774			-
Capital in progress		4,505			6,027
Total property, plant and equipment, gross		98,649			95,517
Accumulated depreciation and amortization		(45,870	)		(47,617	)
Total property, plant and equipment, net	$	52,779		$	47,900
(1) Depreciation and amortization expense of property, plant and equipment was $1.9 million and $1.6 million for the three months ended June 29, 2019 and June 30, 2018, respectively, and $3.5 million and $3.3 million for the six months ended June 29, 2019 and June 30, 2018, respectively.
Other Current Liabilities:
Accrued warranty	$	3,755		$	4,379
Accrued taxes		965			1,738
Customer deposits		388			293
Accrued professional services		625			448
Third party commissions		249			1,382
Other		1,326			1,181
Total other current liabilities	$	7,308		$	9,421

Components of Accumulated Other Comprehensive Income (Loss)

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

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

Note 9. Goodwill and Intangible Assets

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

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

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

	December 29, 2018
	Adjusted cost		Accumulated amortization			Net carrying amount
Developed technology	$	35,954	$	(16,532	)	$	19,422
Customer relationships		6,531		(1,519	)		5,012
Trade name		1,500		(8	)		1,492
In-process research and development		1,400		—			1,400
Total	$	45,385	$	(18,059	)	$	27,326

The amortization of finite-lived intangibles is computed using the straight-line method. Estimated remaining lives of finite-lived intangibles range from less than one year to fifteen years. The total intangible amortization expense for the three and six months ended June 29, 2019 was $0.8 million and $1.5 million, respectively, and for the three and six months ended June 30, 2018 was $35,000 and $70,000, respectively.

There were no impairment charges related to intangible assets recorded during the six months ended June 29, 2019 and June 30, 2018.

The estimated future amortization expense of finite intangible assets as of June 29, 2019 is as follows (in thousands):

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

In-process research and development of $0.9 million has been omitted from the above table as its estimated useful life is indeterminant at June 29, 2019. It will be tested for potential impairment, along with Goodwill, until its estimated useful life becomes finite.

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Note 10. Warranties

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

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

	Three Months Ended						Six Months Ended
	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018
Balance as of beginning of period	$	3,848		$	4,643		$	4,379		$	4,863
Accruals for warranties issued during period		910			1,450			1,870			2,895
Settlements during the period		(1,003	)		(1,187	)		(2,494	)		(2,852	)
Balance as of end of period	$	3,755		$	4,906		$	3,755		$	4,906

Note 11. Commitments and Contingencies

Merger – Rudolph Technologies, Inc. – On June 23, 2019, the Company entered into an Agreement and Plan of Merger (“Merger”) with Rudolph Technologies, Inc. (“Rudolph”) and PV Equipment Inc., a wholly-owned subsidiary of the Company. Consummation of the merger is subject to certain closing conditions including regulatory approvals and shareholder approval from both the Company’s shareholders and those of Rudolph. Under the terms and subject to the conditions set forth in the Merger, at the effective time of the Merger, each outstanding share of common stock, par value $0.001 per share, of Rudolph will be converted into 0.8042 shares of common stock, par value $0.001, of the Company. At the effective time of the Merger, Rudolph’s common stockholders will own approximately 50%, and the Company’s common stockholders will own approximately 50%, of the outstanding shares of common stock of the combined company on a fully diluted basis. The Agreement and Plan of Merger, as well as other related documents were included in the Company’s Current Report of Form 8-K filed with the SEC on June 24, 2019.

Intellectual Property Indemnification Obligations – The Company will, from time to time, in the normal course of business, agree to indemnify certain customers, vendors or others against third party claims that the Company’s products, when used for their intended purpose(s), or the Company’s intellectual property, infringe the intellectual property rights of such third parties or other claims made against parties with whom it enters into contractual relationships. It is not possible to determine the maximum potential amount of liability under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances that are likely to be involved in each particular claim. Historically, the Company has not made payments under these obligations and believes that the estimated fair value of these agreements is immaterial. Accordingly, no liabilities have been recorded for these obligations in the accompanying condensed consolidated balance sheets as of June 29, 2019 and December 29, 2018.

Legal Proceedings - From time to time, the Company is subject to various legal proceedings or claims arising in the ordinary course of business.

On August 2, 2017, the Company was named as defendant in a complaint filed in New Hampshire Superior Court (“Complaint”). The Complaint, brought by Optical Solutions, Inc. (“OSI”), alleges claims arising from a purported exclusive purchase contract between OSI and the Company pertaining to certain product. On September 18, 2017, the Company removed the action to the United States District Court for the District of New Hampshire. On September 25, 2017, the Company moved to transfer the Complaint to the District Court for the Northern District of California. On December 20, 2017, the Company filed its complaint against OSI in the California Superior Court for the County of Santa Clara alleging claims arising from OSI’s breach of certain purchase orders. The Company’s complaint was later removed by OSI to the Northern District of California.  On May 29, 2018, the District Court of New Hampshire issued an order granting the Company’s motion to transfer OSI’s Complaint to the Northern District of California and denying the Company’s motion to dismiss the Complaint without prejudice. On June 14, 2018, OSI’s Complaint was consolidated with the Company’s complaint against OSI. On August 9, 2018, OSI filed an Amended Complaint. On September 19, 2018, the Company filed a motion to dismiss OSI’s Amended Complaint for failure to state a claim. The Company’s motion to dismiss was heard on February 28, 2019. On March 5, 2019 the Court granted the Company’s motion to dismiss with leave to amend.

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OSI filed a Second Amended Complaint on March 29, 2019. The Company filed a motion to dismiss the Second Amended Complaint on May 31, 2019. A hearing on the Company’s motion to dismiss the Second Amended Complaint is scheduled for November 14, 2019. Trial has been set for May 16, 2022.

The Company records a provision for a loss when it believes that it is both probable that a loss has been incurred and the amount can be reasonably estimated. Based on current information, the Company believes it does not have any probable and reasonably estimable losses related to any current legal proceedings and claims. Although it is difficult to predict the outcome of legal proceedings, the Company believes that any liability that may ultimately arise from the resolution of these ordinary course matters will not have a material adverse effect on the business, financial condition and results of operations.

Note 12. Net Income Per Share

The Company presents both basic and diluted net income per share on the face of its condensed consolidated statements of operations. Basic net income per share excludes the effect of potentially dilutive shares and is computed by dividing net income by the weighted-average number of shares of common stock outstanding for the period. Diluted net income per share is computed using the weighted-average number of shares of common stock outstanding for the period plus the effect of all dilutive securities representing potential shares of common stock outstanding during the period.

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

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

Note 13. Stockholders’ Equity and Stock-Based Compensation

Options and Employee Stock Purchase Plan (“ESPP”) Awards

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

	Three Months Ended		Six Months Ended
	June 29, 2019	June 30, 2018	June 29, 2019	June 30, 2018
Employee Stock Purchase Plan:
Expected life	0.5 years	0.5 years	0.5 years	0.5 years
Volatility	41.3%	27.2%	39.1%	37.2%
Risk free interest rate	2.51%	1.61%	1.86%	0.91%
Dividends	—	—	—	—

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

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

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

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

Restricted Stock Units (“RSUs”)

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

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

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

Market-Based Performance Stock Units (“PSUs”)

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

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

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

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

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Valuation of PSUs

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

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

Stock-based Compensation Expense

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

	Three Months Ended				Six Months Ended
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Cost of products	$	272	$	133	$	532	$	231
Cost of service		209		186		394		341
Research and development		739		506		1,511		983
Selling		740		737		1,544		1,270
General and administrative		1,240		1,117		2,333		2,192
Total stock-based compensation expense related to employee stock options and employee stock purchases	$	3,200	$	2,679	$	6,314	$	5,017

Note 14. Income Taxes

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

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

The provision for income taxes consists of the following (in thousands):

	Three Months Ended				Six Months Ended
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Provision for income taxes	$	632	$	2,895	$	1,163	$	7,337

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

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

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

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

Note 15. Segment, Geographic, Product and Significant Customer Information

The Company has one operating segment, which is the sale, design, manufacture, marketing and support of optical critical dimension and thin film systems. The following tables summarize total net revenues and long-lived assets (excluding intangible assets) attributed to significant countries (in thousands):

	Three Months Ended				Six Months Ended
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Total net revenues:
United States	$	9,170	$	7,392	$	26,044	$	14,130
China		25,873		28,333		40,233		36,375
South Korea		13,070		30,980		27,038		68,798
Singapore		8,723		2,380		10,274		14,535
Japan		4,214		15,017		8,531		28,396
Taiwan		3,650		1,974		14,939		3,034
Other		2,920		2,528		7,661		5,649
Total net revenues	$	67,620	$	88,604	$	134,720	$	170,917

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

With respect to customer concentration, Micron Technology, Inc., SK hynix, and Yangtze Memory Technologies Co. Ltd. each accounted for more than 10% of total sales for the three months ended June 29, 2019, and Intel Corporation, SK hynix, and Taiwan Semiconductor Manufacturing Company Limited each accounted for more than 10% of total sales for the six months ended June 29, 2019. Intel Corporation, Samsung Electronics Co. Ltd., Toshiba Memory Corporation, and Yangtze Memory Technologies Co. Ltd. each accounted for more than 10% of total sales for the three months ended June 30, 2018. Intel Corporation, Micron Technology, Inc., Samsung Electronics Co. Ltd., SK hynix, Toshiba Memory Corporation, and Yangtze Memory Technologies Co. Ltd. each accounted for more than 10% of total sales for the six months ended June 30, 2018.

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

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. The statements contained in this document that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding future periods, financial results, revenues, margins, growth, customers, tax rates, product performance, and the impact of accounting rules on our business and the future implications of our statements regarding goals, strategy, and similar terms. We may identify these statements by the use of words such as “anticipate,” “believe,” “continue,” “could,” “expect,” “may,” “might,” “project,” “will,” and other similar expressions. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements, except as may otherwise be required by law.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain risks, uncertainties and changes in circumstances, many of which may be difficult to predict or beyond our control, including those factors referenced in this document, including in Part II, Item 1A, Risk Factors below, and in Part I, Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018, filed with the Securities and Exchange Commission (“SEC”) on February 25, 2019 (our “Annual Report”). In particular, our results could vary significantly based on: changes in customer and industry spending; rate and extent of changes in product mix; adoption of new products; timing of orders, shipments, and acceptance of products; our ability to secure volume supply agreements; uncertainties related to our acquisition of 4D Technology Corporation; and general economic conditions. In evaluating our business, investors should carefully consider these factors in addition to any other risks and uncertainties set forth elsewhere. The occurrence of the events described in the risk factors of our Annual Report and risk factors elsewhere in this report as well as other risks and uncertainties could materially and adversely affect our business, operating results and financial condition. While management believes that the discussion and analysis in this report is adequate for a fair presentation of the information presented, we recommend that you read this discussion and analysis in conjunction with (i) our audited consolidated financial statements and notes thereto for the fiscal year ended December 29, 2018, which were included in our Annual Report, (ii) the section captioned “Risk Factors” in this Quarterly Report and our Annual Report, and (iii) our other filings with the SEC.

Overview

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

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

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

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

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

Nanometrics Products

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

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Automated Systems

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

Integrated Systems

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

Software

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

Materials Characterization

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

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

Industrial, Scientific, and Research Markets: 4D Technology

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

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

• Introduced new products, applications, and upgrades in every core product line and primary market served;

• Diversified our product line and served markets through acquisitions; and

• Continued development of new measurement and inspection technologies for advanced fabrication processes and packaging.

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Important Themes and Significant Trends

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

• Proliferation of Optical Critical Dimension Metrology across Fabrication Processes. Device dimensions must be carefully controlled during each step of processing. These patterned structures are measured at many subsequent production steps including Chemical Mechanical Polishing, Etch, and Thin Film processing, all driving broader OCD adoption. Our proprietary OCD systems can provide the critical process control of these circuit dimensions that is necessary for successful manufacturing of these state-of-the-art devices. Nanometrics OCD technology is broadly adopted across 3D-NAND, DRAM, and logic semiconductor manufacturing processes.

• Proliferation of 3D Transistor Architectures. Our end customers continue to improve device density and performance by scaling front-end-of-line transistor architectures. Many of these designs, including FinFET transistors, have buried features and high aspect ratio stacked features that enable improved performance and density. The advanced designs require additional process control to manage the complex shapes and materials properties, driving additional applications of our systems.

• Proliferation of High-Density 3D-NAND. Our end customers have migrated to multi (many) layered high aspect ratio 3D-NAND devices. Many stacks of NAND cells are formed in parallel. This 3D-NAND architecture enables cost effective density scaling, removing the burden of density from lithography to deposition and etch processes. These devices require additional process control of deposition stacks, planarization processes, and critical high aspect ratio etch processes. Nanometrics thin films and OCD technologies are adopted across the 3D-NAND process including the periphery CMOS processing, NAND cell formation, and Interconnect of the devices.

• Adoption of New Types of Thin Film Materials. The need for ever increasing device circuit speed coupled with lower power consumption has pushed semiconductor device manufacturers to new materials and processing methods with single atom/sub nanometer control over these processes.

• Need for Improved Process Control to Drive Process Efficiencies. Competitive forces influencing semiconductor device manufacturers, such as price-cutting, shorter product life cycles and time to market, place pressure on manufacturers to rapidly achieve production efficiency. Device manufacturers are using our integrated and automated systems, as well as advanced metrology algorithms and analytics, throughout the fabrication process to ensure that manufacturing processes scale rapidly, are accurate and can be repeated on a consistent basis.

Critical Accounting Policies and Estimates

The preparation of our financial statements conforms to accounting principles generally accepted in the United States of America, which requires management to make estimates and judgments in applying our accounting policies that have an important impact on our reported amounts of assets, liabilities, revenue, expenses and related disclosures at the date of our financial statements. On an ongoing basis, management evaluates its estimates including those related to bad debts, inventory valuations, warranty obligations, impairment and income taxes. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from management’s estimates.

Except for the changes noted below, there were no significant changes in our critical accounting policies during the six months ended June 29, 2019. Please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K filed with the SEC on February 25, 2019 for a complete discussion of our critical accounting policies.

Change in Accounting for Leases (Adoption of ASU 2016-02 Leases) - We adopted the new accounting standard ASC 842 and related amendments in the first quarter of fiscal 2019 using the alternative optional transition method. As such, we recognized the cumulative effect of initially applying the new lease standard as an adjustment to the opening balance of retained earnings for fiscal 2019. Comparative financial statements for fiscal 2018 have been prepared under the previous accounting standard. Please refer to Note 1. Nature of Business, Basis of Presentation and Significant Accounting Policies for further discussion of this change.

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Recent Accounting Pronouncements

See Note 2 of the Unaudited Condensed Consolidated Financial Statements for a description of recent accounting pronouncements, including the respective dates of adoption and effects or anticipated effects on our results of operations and financial condition.

Results of Operations

Net Revenues

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

	Three Months Ended									Six Months Ended
	June 29, 2019		June 30, 2018		Change					June 29, 2019		June 30, 2018		Change
Product	$	52,541	$	76,704	$	(24,163	)	-31.5	%	$	106,396	$	147,723	$	(41,327	)	-28.0	%
Service		15,079		11,900		3,179		26.7	%		28,324		23,194		5,130		22.1	%
Total net revenues	$	67,620	$	88,604	$	(20,984	)	-23.7	%	$	134,720	$	170,917	$	(36,197	)	-21.2	%

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

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

Gross margin

Our gross margin breakdown was as follows:

	Three Months Ended		Six Months Ended
	June 29, 2019	June 30, 2018	June 29, 2019			June 30, 2018
Products	52.9%	59.2%		51.9	%		59.5	%
Service	49.0%	45.9%		48.3	%		45.7	%

The calculation of products gross margin includes both cost of products and amortization of intangibles.

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

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

Operating expenses

Our operating expenses comprised the following categories (in thousands, except percentages):

	Three Months Ended										Six Months Ended
	June 29, 2019		June 30, 2018		Change						June 29, 2019		June 30, 2018		Change
Research and development	$	14,098	$	12,491	$	1,607			12.9	%	$	27,085	$	22,693	$	4,392			19.4	%
Selling		8,244		10,151		(1,907	)		-18.8	%		17,526		19,175		(1,649	)		-8.6	%
General and administrative		7,885		7,465		420			5.6	%		15,790		15,206		584			3.8	%
Merger expenses		907		-		907		na				907		-		907		na
Amortization of intangible assets		289		—		289		na				578		-		578		na
Total operating expenses	$	31,423	$	30,107	$	1,316			4.4	%	$	61,886	$	57,074	$	4,812			8.4	%

Research and development

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

Selling

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

General and administrative

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

Merger

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

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Amortization of intangible assets

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

Other income (expense), net.

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

	Three Months Ended										Six Months Ended
	June 29, 2019			June 30, 2018			Change				June 29, 2019			June 30, 2018			Change
Interest expense, net	$	(15	)	$	(48	)	$	33	-68.8	%	$	(106	)	$	(141	)	$	35	-24.8	%
Net gains on investments		478			314			164	52.2	%		788			583			205	35.2	%
Other gains (losses), net		350			(480	)		830	-172.9	%		310			(397	)		707	-178.1	%
Other income (expense), net		828			(166	)		994	-598.8	%		1,098			186			912	490.3	%
Total other income (expense), net	$	813		$	(214	)	$	1,027	-479.9	%	$	992		$	45		$	947	2104.4	%

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

Provision for income taxes

We recorded a tax provision of $0.6 million and $2.9 million for the three months ended June 29, 2019 and June 30, 2018, respectively, and $1.2 million and $7.3 million for the six months ended June 29, 2019 and June 30, 2018, respectively. The decrease in the tax provision for 2019 from 2018 was primarily related to our decreased profitability for the three months ended June 29, 2019, and the six months ended June 29, 2019, as well as less U.S. tax required on foreign earnings under the Tax Credit and Jobs Act (“TCJA”).

Our provision for income taxes for the three months ended June 29, 2019 of $0.6 million reflects an effective tax rate of 13.9%. The tax rate for the three months ended June 29, 2019 differs from the Federal statutory rate of 21.0% primarily due to foreign tax credits, R&D tax credits, and tax benefits associated with the settlement of equity options/awards, partially offset by foreign income being subject to tax at higher rates, state income taxes, and non-deductible equity compensation.  

Our provision for income taxes for the six months ended June 29, 2019 of $1.2 million reflects an effective tax rate of 14.4%. The tax rate for the six months ended June 29, 2019 differs from the Federal statutory rate of 21.0% primarily due to foreign tax credits, R&D tax credits, and tax benefits associated with the settlement of equity options/awards, partially offset by foreign income being subject to tax at higher rates, state income taxes, and non-deductible equity compensation.

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

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

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

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

Liquidity and Capital Resources

Our principal sources of liquidity are cash and cash equivalents, and marketable securities, and cash flow generated from our operations. Our liquidity is affected by many factors, including those that relate to our specific operations and those that relate to the uncertainties of global and regional economies and the sectors of the semiconductor industry in which we operate in. Although our cash requirements will fluctuate based on the timing and extent of these factors, we believe our existing cash, cash equivalents and marketable securities, combined with cash currently projected to be generated from our operations, will be sufficient to satisfy our working capital needs, capital asset purchases, outstanding commitments and other liquidity requirements associated with our existing operations over the next twelve months.

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

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

	Six Months Ended
	June 29, 2019			June 30, 2018
Cash provided by (used in) operating activities	$	(2,303	)	$	58,971
Cash provided by (used in) investing activities		(17,184	)		15,771
Cash provided by (used in) financing activities		2,207			(23,009	)

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

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

Cash provided by operating activities during the six months ended June 30, 2018 was $59.0 million, consisting primarily of net income of $34.1 million, adjusted for non-cash items of $13.0 million, and $11.9 million of net cash inflows related to changes in operating assets and liabilities. The changes in operating assets and liabilities were generally driven by the timing of our customer payments for accounts receivable and vendor payments for accounts payable.

Cash used in investing activities of $17.1 million during the six months ended June 29, 2019 consisted primarily of $9.8 million of net purchases of marketable securities and payments for acquisition of property, plant and equipment of $8.3 million.

Cash provided by investing activities of $15.8 million during the six months ended June 30, 2018 consisted primarily of net sales and maturities of marketable securities of $19.6 million, offset in part by payments for acquisition of property, plant and equipment and certain assets of $3.8 million.

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

Cash used in financing activities of $23.0 million during the six months ended June 30, 2018 consisted primarily of $23.0 million of common stock repurchases and payments of $2.7 million for taxes on net issuance of stock awards, partially offset by proceeds from the issuance of common stock from the employee stock purchase program and the exercise of stock options of $2.7 million.

Repurchases of Common Stock

On March 14, 2019 our Board of Directors authorized the repurchase of up to $80.0 million of our common stock. This plan is referred to as the Stock Repurchase Plan. Under the terms of the Stock Repurchase Plan shares may be repurchased through open market or privately negotiated transactions. During the six months ended June 29, 2019 no shares were repurchased under the Stock Repurchase Plan.

During the three months ended March 31, 2018, the Stock Repurchase Plan for $50.0 million that was authorized on November 15, 2017 was completed and we repurchased 896,187 shares at an average purchase price of $25.65 per share for a total of $23.0 million.

Off-Balance Sheet Arrangements

As of June 29, 2019, we had no off-balance sheet arrangements or obligations.

Contractual Obligations

There have been no material changes outside the ordinary course of our business from those reported in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018, filed with the SEC on February 25, 2019.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk does not differ materially from that discussed in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018, filed with the SEC on February 25, 2019. However, we cannot give any assurance as to the effect that future changes in interest rates or foreign currency rates will have on our consolidated balance sheet, results of operations or cash flows.

Foreign Currency Risk

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

To manage the level of exposure to the risk of foreign currency exchange rate fluctuations, we enter into foreign currency forward exchange contracts to protect against currency exchange risks associated with existing assets and liabilities. A foreign currency forward exchange contract acts as a hedge by increasing in value when underlying assets decrease in value or underlying liabilities increase in value due to changes in foreign exchange rates. Conversely, a foreign currency forward exchange contract decreases in value when underlying assets increase in value or underlying liabilities decrease in value due to changes in foreign exchange rates. These forward contracts are not designated as accounting hedges, so the unrealized gains and losses are recognized in other income (expense), net, in advance of the actual foreign currency cash flows with the fair value of these forward contracts being recorded as accrued liabilities or other current assets.

We do not use forward contracts for trading purposes. Our forward contracts generally have maturities of 30 days or less. We enter into foreign currency forward exchange contracts based on estimated future asset and liability exposures, and the effectiveness of our hedging program depends on our ability to estimate these future asset and liability exposures. Recognized gains and losses with respect to our current hedging activities will ultimately depend on how accurately we are able to match the amount of foreign currency forward exchange contracts with actual underlying asset and liability exposures.

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

Interest Rate Risk

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

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer (“CEO”), and our Vice President, Finance (who is our Principal Financial and Accounting Officer (“PFO”)), the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on the evaluation, our CEO and PFO concluded that as of June 29, 2019, our disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 were (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and reported to our management, including our Chief Executive Officer and Principal Financial Officer, to allow timely discussions regarding required disclosures.

Changes in Internal Control over Financial Reporting

During the quarter ended June 29, 2019, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

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

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PART II — OTHER INFORMATION

ITEM 1 LEGAL PROCEEDINGS

The information set forth under Note 11. Commitments and Contingencies of Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

ITEM 1A. RISK FACTORS

Investing in our securities involves a high degree of risk. In assessing these risks, you should carefully consider the information included in this report, including our financial statements and the related notes thereto. You should carefully review and consider all of the risk factors set forth in Part l, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018, filed with the SEC on February 25, 2019.

The risks described in our Annual Report on Form 10-K are not the only ones we face. Additional risks and uncertainties that are not currently known to us or that we currently believe are immaterial may also impair our business operations. Our business, operating results and financial conditions could be materially harmed by any of these risks. The trading price of our common stock could decline due to any of these risks and investors may lose all or part of their investment.

There have been no material changes in our risk factors from those discussed in our Annual Report on Form 10-K for the fiscal year ended December 29, 2018, except as follows:

If we are unable to close the merger with Rudolph, it could create unforeseen, adverse effects on our business operations.

On June 23, 2019, we entered into an Agreement and Plan of Merger, (“Merger Agreement”), with Rudolph Technologies, Inc., (“Rudolph”), and PV Equipment Inc., a wholly-owned subsidiary of Nanometrics, pursuant to which, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, PV Equipment Inc. will merge with and into Rudolph, with Rudolph continuing as a wholly owned subsidiary of Nanometrics and the surviving corporation of the merger. 

The closing of the merger is subject to closing conditions which, if not met or waived, could cause the transaction not to close. Therefore, the merger may not be completed or may not be completed as quickly as expected. If the Merger Agreement is terminated, the market price of our common stock will likely decline, as we believe that our market price reflects an assumption that the merger will be completed. In addition, our stock price may be adversely affected as a result of the fact that we have incurred and will continue to incur significant expenses related to the merger that will not be recovered if the merger is not completed. If the merger agreement is terminated under certain circumstances, we may be obligated to pay Rudolph a termination fee of $26.0 million. As a consequence of the failure of the merger to be completed, as well as of some or all of these potential effects of the termination of the Merger Agreement, our business could be materially and adversely affected.

 If the merger with Rudolph closes, we will need to integrate our business with that of Rudolph, which may be more difficult than we anticipate.

Following the closing of the merger with Rudolph, we will need to integrate our business with the business of Rudolph, which if we are not able to do easily and quickly, may adversely affect the combined businesses of the company.  For example, complications in integrating our businesses may impair our combined ability to meet rapid demand shifts, continue technological innovation and introduce new products to meet customers’ rapidly changing requirements, our combined ability to identify, effect and integrate acquisitions, joint ventures or other transactions, protect and enforce our intellectual property rights, monitor and address the increasing complexity of certain manufacturing processes, and assess and address raw material shortages and price increases.  Any failure or difficulties encountered as a result of challenges in integrating our businesses may materially affect our combined businesses, operating results, and prospects.

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ITEM 6. EXHIBITS

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

Exhibit No.	Description	Form	File Number	Date of First Filing	Exhibit Number/ Appendix Reference
2	Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
2.1	Agreement and Plan of Merger by and among Registrant, Rudolph Technologies, Inc., and PV Equipment, Inc., dated June 23, 2019	8-K	000-13470	6/24/2019	2.1
3.(i)	Certificate of Incorporation
3.1	Certificate of Incorporation of the Registrant	8-K	000-13470	10/5/2006	3.1
3.(ii)	Bylaws
3.2	Bylaws of the Registrant	-	-	-	-
4	Instruments Defining the Rights of Security Holders, Including Indentures
4.1	Reference is made to Exhibits 3.1 and 3.2	-	-	-	-
31	Rule 13a-14(a)/15d-14(a) Certifications
31.1	Certification of Pierre-Yves Lesaicherre, principal executive officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	-	-	-	-
31.2	Certification of Greg Swyt, principal financial officer of the Registrant, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	-	-	-	-
32	Section 1350 Certifications
32.1	Certification of Pierre-Yves Lesaicherre, principal executive officer of the Registrant, and Greg Swyt, principal financial officer of the Registrant pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This Certification accompanies this report and shall, not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed for purposes of §18 of the Securities Exchange Act of 1934, as amended.	-	-	-	-
101	The following financial statements, formatted in XBRL: (i) Condensed Consolidated Balance Sheets at June 29, 2019 and December 29, 2018, (ii) Condensed Consolidated Statements of Operations for the three and six months ended June 29, 2019 and June 30, 2018, (iii) Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended June 29, 2019 and June 30, 2018, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 29, 2019 and June 30, 2018, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.
101.INS	XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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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.

NANOMETRICS INCORPORATED
(Registrant)
By:	/s/    GREG SWYT
	Greg Swyt
	Vice President, Finance
	(Duly Authorized Officer, Principal Financial and Accounting Officer)

Dated: July 31, 2019

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EX-3.2

Exhibit 3.2

BYLAWS OF

NANOMETRICS INCORPORATED

(a Delaware corporation)

(effective June 23, 2019)

Table of Contents

Page

Article I CORPORATE OFFICES1

1.1 REGISTERED OFFICE.1

1.2 OTHER OFFICES.1

Article II MEETINGS OF STOCKHOLDERS1

2.1 PLACE OF MEETINGS.1

2.2 ANNUAL MEETING.1

2.3 SPECIAL MEETING.1

2.4 ADVANCE NOTICE PROCEDURES; NOTICE OF STOCKHOLDERS’ MEETINGS.1

2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.3

2.6 QUORUM.3

2.7 ADJOURNED MEETING; NOTICE.3

2.8 CONDUCT OF BUSINESS.3

2.9 VOTING.3

2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.4

2.11 PROXIES.4

2.12 LIST OF STOCKHOLDERS ENTITLED TO VOTE.4

2.13 INSPECTORS OF ELECTION.5

Article III DIRECTORS5

3.1 POWERS.5

3.2 NUMBER OF DIRECTORS.5

3.3 ELECTION AND QUALIFICATION OF OFFICE OF DIRECTORS.5

3.4 TERM.6

3.5 RESIGNATION AND VACANCIES.6

3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.6

3.7 REGULAR MEETINGS.6

3.8 SPECIAL MEETINGS; NOTICE.7

3.9 QUORUM.7

3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.7

3.11 FEES AND COMPENSATION OF DIRECTORS.7

3.12 REMOVAL OF DIRECTORS.8

Article IV COMMITTEES8

4.1 COMMITTEES OF DIRECTORS.8

4.2 COMMITTEE MINUTES.8

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Table of Contents

(continued)

Page

4.3 MEETINGS AND ACTION OF COMMITTEES.8

Article V OFFICERS9

5.1 OFFICERS.9

5.2 APPOINTMENT OF OFFICERS.9

5.3 SUBORDINATE OFFICERS.9

5.4 REMOVAL AND RESIGNATION OF OFFICERS.9

5.5 VACANCIES IN OFFICES.9

5.6 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.9

5.7 AUTHORITY AND DUTIES OF OFFICERS.10

Article VI RECORDS AND REPORTS10

6.1 MAINTENANCE AND INSPECTION OF RECORDS.10

6.2 INSPECTION BY DIRECTORS.10

Article VII GENERAL MATTERS10

7.1 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.10

7.2 STOCK CERTIFICATES; PARTLY PAID SHARES.11

7.3 SPECIAL DESIGNATION ON CERTIFICATES.11

7.4 LOST CERTIFICATES.11

7.5 CONSTRUCTION; DEFINITIONS.11

7.6 DIVIDENDS.12

7.7 FISCAL YEAR.12

7.8 SEAL.12

7.9 TRANSFER OF STOCK.12

7.10 STOCK TRANSFER AGREEMENTS.12

7.11 REGISTERED STOCKHOLDERS.12

7.12 WAIVER OF NOTICE.12

Article VIII NOTICE BY ELECTRONIC TRANSMISSION13

8.1 NOTICE BY ELECTRONIC TRANSMISSION.13

8.2 DEFINITION OF ELECTRONIC TRANSMISSION.13

8.3 INAPPLICABILITY.14

Article IX INDEMNIFICATION14

9.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.14

9.2 INDEMNIFICATION OF OTHERS.14

9.3 PREPAYMENT OF EXPENSES.14

9.4 DETERMINATION; CLAIM.14

9.5 NON-EXCLUSIVITY OF RIGHTS.15

208718387 v1 -ii-

Table of Contents

(continued)

Page

9.6 INSURANCE.15

9.7 OTHER INDEMNIFICATION.15

9.8 AMENDMENT OR REPEAL.15

Article X AMENDMENTS.15

Article XI FORUM SELECTION15

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BYLAWSOF NANOMETRICS INCORPORATED (a Delaware Corporation)

Article I

CORPORATE OFFICES

1.1REGISTERED OFFICE.

The registered office of Nanometrics Incorporated shall be fixed in the corporation’s certificate of incorporation, as the same may be amended from time to time.

1.2OTHER OFFICES.

The corporation’s board of directors (the “Board”) may at any time establish other offices at any place or places where the corporation is qualified to do business.

Article II

MEETINGS OF STOCKHOLDERS

2.1PLACE OF MEETINGS.

Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the Board. In the absence of any such designation or determination, stockholders’ meetings shall be held at the corporation’s principal executive office.

2.2ANNUAL MEETING.

The annual meeting of stockholders shall be held each year. The Board shall designate the date and time of the annual meeting. In the absence of such designation the annual meeting of stockholders shall be held on the second Tuesday of May of each year at 10:00 a.m. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding business day. At the annual meeting, directors shall be elected and any other proper business may be transacted.

2.3SPECIAL MEETING.

A special meeting of the stockholders may be called as provided in the certificate of incorporation.

No business may be transacted at such special meeting other than the business specified in such notice to stockholders. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board may be held.

2.4ADVANCE NOTICE PROCEDURES; NOTICE OF STOCKHOLDERS’ MEETINGS.

At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (B) otherwise properly brought before the meeting by or at the direction of the Board, or (C) otherwise

1.

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properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the secretary of the corporation. To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than one hundred twenty (120) calendar days before the one year anniversary of the date on which the corporation first mailed its proxy statement to stockholders in connection with the previous year’s annual meeting of stockholders; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date of the prior year’s meeting, notice by the stockholder to be timely must be so received not later than the close of business on the later of one hundred twenty (120) calendar days in advance of such annual meeting and ten (10) calendar days following the date on which public announcement of the date of the meeting is first made. A stockholder’s notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the corporation’s books, of the stockholder proposing such business, (c) the class and number of shares of the corporation that are beneficially owned by the stockholder, (d) any material interest of the stockholder in such business, and (e) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “1934 Act”), in his capacity as a proponent to a stockholder proposal. Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder’s meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (i). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph (i), and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted.

Only persons who are nominated in accordance with the procedures set forth in this paragraph (ii) shall be eligible for election as directors. Nominations of persons for election to the Board may be made at a meeting of stockholders by or at the direction of the Board or by any stockholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this paragraph (ii). Such nominations, other than those made by or at the direction of the Board, shall be made pursuant to timely notice in writing to the secretary of the corporation in accordance with the provisions of paragraph (i) of this Section 2.4. Such stockholder’s notice shall set forth (a) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the corporation that are beneficially owned by such person, (D) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for elections of directors, or is otherwise required, in each case pursuant to Regulation 14A under the 1934 Act (including without limitation such person’s written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected); and (b) as to such stockholder giving notice, the information required to be provided pursuant to paragraph (i) of this Section 2.4. At the request of the Board, any person nominated by a stockholder for election as a director shall furnish to the secretary of the corporation that information required to be set forth in the stockholder’s notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this paragraph (ii). The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these bylaws, and if he should so determine, he shall so declare at the meeting, and the defective nomination shall be disregarded.

These provisions shall not prevent the consideration and approval or disapproval at an annual meeting of reports of officers, directors and committees of the Board, but in connection therewith no new business shall be acted upon at any such meeting unless stated, filed and received as herein provided.

2.

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Notwithstanding anything in these bylaws to the contrary, no business brought before a meeting by a stockholder shall be conducted at an annual meeting except in accordance with procedures set forth in this Section 2.4.

All notices of meetings of stockholders shall be sent or otherwise given in accordance with either Section 2.5 or Section 8.1 of these bylaws not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, if any, date and hour of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called.

2.5MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.

Notice of any meeting of stockholders shall be given:

i.if mailed, when deposited in the United States mail, postage prepaid, directed to the stockholder at his or her address as it appears on the corporation’s records; or

ii.if electronically transmitted as provided in Section 8.1 of these bylaws.

An affidavit of the secretary or an assistant secretary of the corporation or of the transfer agent or any other agent of the corporation that the notice has been given by mail or by a form of electronic transmission, as applicable, shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

2.6QUORUM.

The holders of a majority of the stock issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairperson of the meeting, or (ii) the stockholders entitled to vote at the meeting, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.

2.7ADJOURNED MEETING; NOTICE.

When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time, place if any thereof, and the means of remote communications if any by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

2.8CONDUCT OF BUSINESS.

The chairperson of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of business.

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2.9VOTING.

The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.12 of these bylaws, subject to Section 217 (relating to voting rights of fiduciaries, pledgors and joint owners of stock) and Section 218 (relating to voting trusts and other voting agreements) of the Delaware General Corporation Law (the “DGCL”).

Except as may be otherwise provided in the certificate of incorporation or these bylaws, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder.

2.10RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.

In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted and which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other such action.

If the Board does not so fix a record date:

i.The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.

ii.The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.

A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.

2.11PROXIES.

Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL.

2.12LIST OF STOCKHOLDERS ENTITLED TO VOTE.

The officer who has charge of the stock ledger of the corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. The corporation shall not be required to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least 10 days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the corporation’s principal executive office. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such

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information is available only to stockholders of the corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Such list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.

2.13INSPECTORS OF ELECTION.

A written proxy may be in the form of a telegram, cablegram, or other means of electronic transmission which sets forth or is submitted with information from which it can be determined that the telegram, cablegram, or other means of electronic transmission was authorized by the person.

Before any meeting of stockholders, the Board shall appoint an inspector or inspectors of election to act at the meeting or its adjournment. The number of inspectors shall be either one (1) or three (3). If any person appointed as inspector fails to appear or fails or refuses to act, then the chairperson of the meeting may, and upon the request of any stockholder or a stockholder’s proxy shall, appoint a person to fill that vacancy.

Such inspectors shall:

i.determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies;

ii.receive votes, ballots or consents;

iii.hear and determine all challenges and questions in any way arising in connection with the right to vote;

iv.count and tabulate all votes or consents;

v.determine when the polls shall close;

vi.determine the result; and

vii.do any other acts that may be proper to conduct the election or vote with fairness to all stockholders.

The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three (3) inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.

Article III

DIRECTORS

3.1POWERS.

Subject to the provisions of the DGCL and any limitations in the certificate of incorporation or these bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board.

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3.2NUMBER OF DIRECTORS.

The authorized number of directors shall be determined from time to time by resolution of the Board. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.

3.3ELECTION AND QUALIFICATION OF OFFICE OF DIRECTORS.

Except as provided in Section 3.5 of these bylaws, each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until such director’s successor is elected and qualified or until such director’s earlier death, resignation or removal. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws. The certificate of incorporation or these bylaws may prescribe other qualifications for directors.

3.4TERM.

Each director shall hold office until the next annual meeting of stockholders and until his or her successor is elected and qualified, or until his or her earlier resignation or removal.

3.5RESIGNATION AND VACANCIES.

Any director may resign at any time upon notice given in writing or by electronic transmission to the corporation. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies.

Unless otherwise provided in the certificate of incorporation or these bylaws, vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. A person so elected by the directors then in office to fill a vacancy or newly created directorship shall hold office until the next annual meeting of the stockholders and until his or her successor shall have been duly elected and qualified.

If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the DGCL.

If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the DGCL as far as applicable.

3.6PLACE OF MEETINGS; MEETINGS BY TELEPHONE.

The Board may hold meetings, both regular and special, either within or outside the State of Delaware.

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Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board, or any committee designated by the Board, may participate in a meeting of the Board, or any committee, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.

3.7REGULAR MEETINGS.

Regular meetings of the Board may be held without notice at such time and at such place as shall from time to time be determined by the Board.

3.8SPECIAL MEETINGS; NOTICE.

Special meetings of the Board for any purpose or purposes may be called at any time by the chairperson of the Board, the chief executive officer, the president, the secretary or a majority of the authorized number of directors.

Notice of the time and place of special meetings shall be:

i.delivered personally by hand, by courier or by telephone;

ii.sent by United States first-class mail, postage prepaid;

iii.sent by facsimile; or

iv.sent by electronic mail,

v.directed to each director at that director’s address, telephone number, facsimile number or electronic mail address, as the case may be, as shown on the corporation’s records.

If the notice is (i) delivered personally by hand, by courier or by telephone, (ii) sent by facsimile or (iii) sent by electronic mail, it shall be delivered or sent at least 24 hours before the time of the holding of the meeting. If the notice is sent by United States mail, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. Any oral notice may be communicated to the director. The notice need not specify the place of the meeting (if the meeting is to be held at the corporation’s principal executive office) nor the purpose of the meeting.

3.9QUORUM.

At all meetings of the Board, a majority of the authorized number of directors shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board, except as may be otherwise specifically provided by statute, the certificate of incorporation or these bylaws. If a quorum is not present at any meeting of the Board, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.

A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.

3.10BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.

Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing or by

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electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

3.11FEES AND COMPENSATION OF DIRECTORS.

Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board shall have the authority to fix the compensation of directors.

3.12REMOVAL OF DIRECTORS.

Any director may be removed from office by the stockholders of the corporation. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director’s term of office.

Article IV

COMMITTEES

4.1COMMITTEES OF DIRECTORS.

The Board may, by resolution passed by a majority of the authorized number of directors, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board or in these bylaws, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) approve or adopt, or recommend to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopt, amend or repeal any bylaw of the corporation.

4.2COMMITTEE MINUTES.

Each committee shall keep regular minutes of its meetings and report the same to the Board when required.

4.3MEETINGS AND ACTION OF COMMITTEES.

Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of:

i.Section 3.6 (place of meetings and meetings by telephone);

ii.Section 3.7 (regular meetings);

iii.Section 3.8 (special meetings and notice);

iv.Section 3.9 (quorum);

v.Section 7.12 (waiver of notice); and

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vi.Section 3.10 (board action by written consent without a meeting) with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the Board and its members.

However:

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vii.the time of regular meetings of committees may be determined either by resolution of the Board or by resolution of the committee;

viii.special meetings of committees may also be called by resolution of the Board; and

ix.notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws.

Article V

OFFICERS

5.1OFFICERS.

The officers of the corporation shall be a president and a secretary. The corporation may also have, at the discretion of the Board, a chairperson of the Board, a vice chairperson of the Board, a chief executive officer, a chief financial officer or treasurer, one or more vice presidents, one or more assistant vice presidents, one or more assistant treasurers, one or more assistant secretaries, and any such other officers as may be appointed in accordance with the provisions of these bylaws. Any number of offices may be held by the same person.

5.2APPOINTMENT OF OFFICERS.

The Board shall appoint the officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 and 5.5 of these bylaws, subject to the rights, if any, of an officer under any contract of employment.

5.3SUBORDINATE OFFICERS.

The Board may appoint, or empower the chief executive officer or, in the absence of a chief executive officer, the president, to appoint, such other officers and agents as the business of the corporation may require. Each of such officers and agents shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the Board may from time to time determine.

5.4REMOVAL AND RESIGNATION OF OFFICERS.

Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board at any regular or special meeting of the Board or, except in the case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board.

Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.

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5.5VACANCIES IN OFFICES.

Any vacancy occurring in any office of the corporation shall be filled by the Board or as provided in Section 5.2.

5.6REPRESENTATION OF SHARES OF OTHER CORPORATIONS.

The chairperson of the Board, the president, any vice president, the treasurer, the secretary or assistant secretary of this corporation, or any other person authorized by the Board or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.

5.7AUTHORITY AND DUTIES OF OFFICERS.

All officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the Board or the stockholders and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board.

Article VI

RECORDS AND REPORTS

6.1MAINTENANCE AND INSPECTION OF RECORDS.

The corporation shall, either at its principal executive office or at such place or places as designated by the Board, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these bylaws as amended to date, accounting books, and other records.

Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation’s stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person’s interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent so to act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in Delaware or at its principal executive office.

6.2INSPECTION BY DIRECTORS.

Any director shall have the right to examine the corporation’s stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper.

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Article VIIGENERAL MATTERS

7.1EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.

The Board, except as otherwise provided in these bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

7.2STOCK CERTIFICATES; PARTLY PAID SHARES.

The shares of the corporation shall be represented by certificates, provided that the Board may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Every holder of stock in the corporation represented by certificates shall be entitled to have a certificate signed by, or in the name of the corporation by, the chairman or vice-chairman of the board of directors, or the president or vice-president, and by the chief financial officer, or the treasurer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.

The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.

7.3SPECIAL DESIGNATION ON CERTIFICATES.

If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

7.4LOST CERTIFICATES.

Except as provided in this Section 7.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any

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certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.

7.5CONSTRUCTION; DEFINITIONS.

Unless the context requires otherwise, the general provisions, rules of construction and definitions in the DGCL shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation and a natural person.

7.6DIVIDENDS.

The Board, subject to any restrictions contained in either (i) the DGCL, or (ii) the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the corporation’s capital stock.

The Board may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies.

7.7FISCAL YEAR.

The fiscal year of the corporation shall be fixed by resolution of the Board and may be changed by the Board.

7.8SEAL.

The corporation may adopt a corporate seal, which shall be adopted and which may be altered by the Board. The corporation may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

7.9TRANSFER OF STOCK.

Stock of the corporation shall be transferable in the manner prescribed by law and in these bylaws. Transfers of stock shall be made on the books of the corporation only by the record holder of such stock or by his or her attorney lawfully constituted in writing and, if such stock is certificated, upon the surrender of the certificate therefor, which shall be canceled before a new certificate shall be issued.

7.10STOCK TRANSFER AGREEMENTS.

The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.

7.11REGISTERED STOCKHOLDERS.

The corporation:

i.shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner;

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ii.shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares; and

iii.shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

7.12WAIVER OF NOTICE.

Whenever notice is required to be given under any provision of the DGCL, the certificate of incorporation or these bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the certificate of incorporation or these bylaws.

Article VIII

NOTICE BY ELECTRONIC TRANSMISSION

8.1NOTICE BY ELECTRONIC TRANSMISSION.

Without limiting the manner by which notice otherwise may be given effectively to stockholders pursuant to the DGCL, the certificate of incorporation or these bylaws, any notice to stockholders given by the corporation under any provision of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any such consent shall be deemed revoked if:

i.the corporation is unable to deliver by electronic transmission two consecutive notices given by the corporation in accordance with such consent; and

ii.such inability becomes known to the secretary or an assistant secretary of the corporation or to the transfer agent, or other person responsible for the giving of notice.

However, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.

Any notice given pursuant to the preceding paragraph shall be deemed given:

iii.if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice;

iv.if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice;

v.if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and

vi.if by any other form of electronic transmission, when directed to the stockholder.

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An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the corporation that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

8.2DEFINITION OF ELECTRONIC TRANSMISSION.

An “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.

8.3INAPPLICABILITY.

Notice by a form of electronic transmission shall not apply to Sections 164, 296, 311, 312 or 324 of the DGCL.

Article IX

INDEMNIFICATION

9.1INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The corporation shall indemnify and hold harmless, to the fullest extent permitted by the DGCL as it presently exists or may hereafter be amended, any director or officer of the corporation who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”) by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person in connection with any such Proceeding. The corporation shall be required to indemnify a person in connection with a Proceeding initiated by such person only if the Proceeding was authorized by the Board.

9.2INDEMNIFICATION OF OTHERS.

The corporation shall have the power to indemnify and hold harmless, to the extent permitted by applicable law as it presently exists or may hereafter be amended, any employee or agent of the corporation who was or is made or is threatened to be made a party or is otherwise involved in any Proceeding by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was an employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person in connection with any such Proceeding.

9.3PREPAYMENT OF EXPENSES.

The corporation shall pay the expenses incurred by any officer or director of the corporation, and may pay the expenses incurred by any employee or agent of the corporation, in defending any Proceeding in advance of its final disposition; provided, however, that the payment of expenses incurred by a person in advance of the final disposition of the Proceeding shall be made only upon receipt of an undertaking by the person to repay all amounts advanced if it should be ultimately determined that the person is not entitled to be indemnified under this Article IX or otherwise.

14.

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9.4DETERMINATION; CLAIM.

If a claim for indemnification or payment of expenses under this Article IX is not paid in full within sixty days after a written claim therefor has been received by the corporation the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the corporation shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law.

9.5NON-EXCLUSIVITY OF RIGHTS.

The rights conferred on any person by this Article IX shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the certificate of incorporation, these bylaws, agreement, vote of stockholders or disinterested directors or otherwise.

9.6INSURANCE.

The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of the DGCL.

9.7OTHER INDEMNIFICATION.

The corporation’s obligation, if any, to indemnify any person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or non-profit entity shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or non-profit enterprise.

9.8AMENDMENT OR REPEAL.

Any repeal or modification of the foregoing provisions of this Article IX shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification.

Article X

AMENDMENTS.

These bylaws may be adopted, amended or repealed by the stockholders of the corporation. However, the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal these bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal these bylaws as set forth above.

Article XI

FORUM SELECTION

Unless the corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another state court located within the State of Delaware or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) shall, to the fullest extent permitted by law,

15.

208718387 v1

be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the corporation, (b) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee or agent of the corporation to the corporation or the corporation’s stockholders, including any claim alleging aiding and abetting of such breach of a fiduciary duty, (c) any action asserting a claim arising pursuant to any provision of the DGCL, the certificate of incorporation or the bylaws of the corporation, (d) any action asserting a claim against the corporation or any director or officer or other employee of the corporation governed by the internal affairs doctrine or (e) any other action asserting an “internal corporate claim” (as that term is defined in Section 115 of the DGCL). Any person or entity owning, purchasing or otherwise acquiring any interest in shares of capital stock of the corporation shall be deemed to have notice of and consented to the provisions of this bylaw.

If any action or proceeding the subject matter of which is within the scope of paragraph (i) above is filed in a court other than in accordance with the above provision (a “Foreign Action”) in the name of any stockholder, such stockholder shall be deemed to have consented to (a) the personal jurisdiction of the state and federal courts located within the State of Delaware in connection with any action brought in any such court to enforce paragraph (i) above (an “FSC Enforcement Action”) and (b) having service of process made upon such stockholder in any such FSC Enforcement Action by service upon such stockholder’s counsel in the Foreign Action as agent for such stockholder.”

16.

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EX-31.1

Exhibit 31.1

I, Pierre-Yves Lesaicherre, certify that:

1. I have reviewed this Form 10-Q of Nanometrics Incorporated;

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 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 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:	July 31, 2019
By:	/s/ Pierre-Yves Lesaicherre
	Pierre-Yves Lesaicherre
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

I, Greg Swyt, certify that:

1. I have reviewed this Form 10-Q of Nanometrics Incorporated;

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 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 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 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:	July 31, 2019
By:	/s/ Greg Swyt
	Greg Swyt
	Vice President, Finance (Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND 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, Pierre-Yves Lesaicherre, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge, the Quarterly Report of Nanometrics Incorporated on Form 10-Q for the quarterly period ended June 29, 2019, (a) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (b) that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Nanometrics Incorporated.

July 31, 2019	/s/ Pierre-Yves Lesaicherre
	Pierre-Yves Lesaicherre
	Chief Executive Officer
	(Principal Executive Officer)

I, Greg Swyt, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge, the Quarterly Report of Nanometrics Incorporated on Form 10-Q for the quarterly period ended June 29, 2019, (a) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (b) that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Nanometrics Incorporated.

July 31, 2019	/s/ Greg Swyt
	Greg Swyt
	Vice President, Finance
	(Principal Financial and Accounting Officer)

This certification accompanies the Quarterly Report on Form 10-Q for the period ended June 29, 2019 of Nanometrics Incorporated (the “Company”) pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company or incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, made before or after the date of this Quarterly Report and irrespective of any general incorporation language contained in such filing.

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 29, 2019	Jul. 26, 2019
Document And Entity Information [Abstract]
Entity Registrant Name	NANOMETRICS INC
Entity Central Index Key	0000704532
Document Type	10-Q
Document Period End Date	Jun. 29, 2019
Amendment Flag	false
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
Trading Symbol	NANO
Current Fiscal Year End Date	--12-28
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Shell Company	false
Title of 12(b) Security	Common Stock, $0.001 par value per share
Security Exchange Name	NASDAQ
Entity Address, State or Province	CA
Entity File Number	000-13470
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	1550 Buckeye Drive
Entity Address, City or Town	Milpitas
City Area Code	408
Local Phone Number	545-6000
Entity Address, Postal Zip Code	95035
Entity Tax Identification Number	94-2276314
Document Quarterly Report	true
Document Transition Report	false
Entity Common Stock, Shares Outstanding		24,828,384

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 29, 2019	Dec. 29, 2018
Current assets:
Cash and cash equivalents	$ 94,035	$ 110,951
Marketable securities	50,947	40,841
Accounts receivable, net of allowances of $209 and $170, respectively	51,602	50,854
Inventories	66,630	61,915
Inventories-delivered systems	1,010	180
Prepaid expenses and other	7,955	6,140
Total current assets	272,179	270,881
Property, plant and equipment, net	52,779	47,900
Operating lease - right of use assets, net	10,767
Goodwill	26,310	26,372
Intangible assets, net	25,811	27,326
Deferred income tax assets	2,807	2,569
Other assets	446	582
Total assets	391,099	375,630
Current liabilities:
Accounts payable	19,459	16,540
Accrued payroll and related expenses	10,361	21,658
Deferred revenue	9,865	8,990
Operating lease liabilities	2,845
Other current liabilities	7,308	9,421
Income taxes payable	1,117	3,164
Total current liabilities	50,955	59,773
Deferred revenue	1,616	1,753
Income taxes payable	1,150	871
Deferred tax liabilities	163	162
Operating lease liabilities	8,017
Other long-term liabilities	218	219
Total liabilities	62,119	62,778
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $0.001 par value; 3,000,000 shares authorized; no shares issued or outstanding	0	0
Common stock, $0.001 par value, 47,000,000 shares authorized: 24,828,384 and 24,372,193, respectively, issued and outstanding	25	24
Additional paid-in capital	256,503	247,983
Retained earnings	74,305	67,402
Accumulated other comprehensive loss	(1,853)	(2,557)
Total stockholders’ equity	328,980	312,852
Total liabilities and stockholders’ equity	$ 391,099	$ 375,630

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Jun. 29, 2019	Dec. 29, 2018
Statement Of Financial Position [Abstract]
Allowances for doubtful accounts	$ 209	$ 170
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	3,000,000	3,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	47,000,000	47,000,000
Common stock, shares issued	24,828,384	24,372,193
Common stock, shares outstanding	24,828,384	24,372,193

XML

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

XML

Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018	Jun. 29, 2019	Jun. 30, 2018
Statement Of Income And Comprehensive Income [Abstract]
Net income	$ 3,930	$ 17,675	$ 6,903	$ 34,056
Other comprehensive income:
Change in foreign currency translation adjustment	(42)	(2,555)	602	(568)
Net change in unrealized gains (losses) on available-for-sale investments	44	52	102	(37)
Other comprehensive income	2	(2,503)	704	(605)
Comprehensive income	$ 3,932	$ 15,172	$ 7,607	$ 33,451

XML

Condensed Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-In Capital	Retained Earnings	Accumulated Other Comprehensive Loss
Beginning Balance Value at Dec. 30, 2017	$ 262,383	$ 26	$ 255,368	$ 9,113	$ (2,124)
Beginning Balance Shares at Dec. 30, 2017		24,628,722
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	34,056			34,056
Adjustment due to adoption of ASU 2014-09 Revenue from Contracts with Customers, net of tax	642			642
Foreign currency translation adjustments	(568)				(568)
Unrealized gain (loss) on investments, net of tax	(37)				(37)
Issuance of common stock under stock-based compensation plans, net of taxes paid	(22)	$ (2)	(20)
Issuance of common stock under stock-based compensation plans, net of taxes paid, Shares		333,833
Stock-based compensation expense	5,017		5,017
Repurchases and retirement of common stock under share repurchase plans	(22,987)		(22,987)
Repurchases and retirement of common stock under share repurchase plans, Shares		(896,187)
Ending Balance Value at Jun. 30, 2018	278,484	$ 24	237,378	43,811	(2,729)
Ending Balance Shares at Jun. 30, 2018		24,066,368
Beginning Balance Value at Mar. 31, 2018	260,727	$ 24	234,793	26,136	(226)
Beginning Balance Shares at Mar. 31, 2018		23,890,563
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	17,675			17,675
Foreign currency translation adjustments	(2,555)				(2,555)
Unrealized gain (loss) on investments, net of tax	52				52
Issuance of common stock under stock-based compensation plans, net of taxes paid	(94)		(94)
Issuance of common stock under stock-based compensation plans, net of taxes paid, Shares		175,805
Stock-based compensation expense	2,679		2,679
Ending Balance Value at Jun. 30, 2018	278,484	$ 24	237,378	43,811	(2,729)
Ending Balance Shares at Jun. 30, 2018		24,066,368
Beginning Balance Value at Dec. 29, 2018	$ 312,852	$ 24	247,983	67,402	(2,557)
Beginning Balance Shares at Dec. 29, 2018	24,372,193	24,372,193
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	$ 6,903			6,903
Foreign currency translation adjustments	602				602
Unrealized gain (loss) on investments, net of tax	102				102
Issuance of common stock under stock-based compensation plans, net of taxes paid	2,207	$ 1	2,206
Issuance of common stock under stock-based compensation plans, net of taxes paid, Shares		456,191
Stock-based compensation expense	6,314		6,314
Ending Balance Value at Jun. 29, 2019	$ 328,980	$ 25	256,503	74,305	(1,853)
Ending Balance Shares at Jun. 29, 2019	24,828,384	24,828,384
Beginning Balance Value at Mar. 30, 2019	$ 320,386	$ 25	251,841	70,375	(1,855)
Beginning Balance Shares at Mar. 30, 2019		24,534,582
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	3,930			3,930
Foreign currency translation adjustments	(42)				(42)
Unrealized gain (loss) on investments, net of tax	44				44
Issuance of common stock under stock-based compensation plans, net of taxes paid	1,462		1,462
Issuance of common stock under stock-based compensation plans, net of taxes paid, Shares		293,802
Stock-based compensation expense	3,200		3,200
Ending Balance Value at Jun. 29, 2019	$ 328,980	$ 25	$ 256,503	$ 74,305	$ (1,853)
Ending Balance Shares at Jun. 29, 2019	24,828,384	24,828,384

XML

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018
Cash flows from operating activities:
Net income	$ 6,903	$ 34,056
Reconciliation of net income to net cash from operating activities:
Depreciation and amortization	5,061	3,326
Stock-based compensation	6,314	5,017
Disposal of fixed assets	(861)	51
Inventory write-down	2,922	269
Deferred income taxes		4,320
Changes in assets and liabilities:
Accounts receivable	473	7,193
Inventories	(8,290)	(1,722)
Inventories-delivered systems	(830)	(322)
Prepaid expenses and other	(1,974)	(3,422)
Operating lease - right of use assets	1,077
Accounts payable, accrued and other liabilities	(10,941)	7,204
Deferred revenue	738	2,464
Operating lease liabilities	(888)
Income taxes payable	(2,007)	537
Net cash provided by (used in) operating activities	(2,303)	58,971
Cash flows from investing activities:
Payments to acquire certain assets		(2,000)
Sales of marketable securities	1,627	18,507
Maturities of marketable securities	24,700	17,345
Purchases of marketable securities	(36,093)	(16,320)
Purchases of property, plant and equipment	(8,314)	(1,761)
Proceeds from sale of property, plant and equipment	896
Net cash provided by (used in) investing activities	(17,184)	15,771
Cash flows from financing activities:
Proceeds from sale of shares under employee stock option plans and purchase plan	4,535	2,709
Taxes paid on net issuance of stock awards	(2,328)	(2,731)
Repurchases of common stock under share repurchase plans		(22,987)
Net cash provided by (used in) financing activities	2,207	(23,009)
Effect of exchange rate changes on cash and cash equivalents	364	(431)
Net increase (decrease) in cash and cash equivalents	(16,916)	51,302
Cash and cash equivalents, beginning of period	110,951	34,899
Cash and cash equivalents, end of period	94,035	86,201
Supplemental disclosure of non-cash investing activities:
Transfers between inventory and property, plant and equipment, net	755	73
Unpaid property, plant and equipment	$ 662	$ 555

XML

Nature of Business, Basis of Presentation and Significant Accounting Policies

6 Months Ended

Jun. 29, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Nature of Business, Basis of Presentation and Significant Accounting Policies

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

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

Basis of Presentation – The accompanying condensed consolidated financial statements (“financial statements”) have been prepared on a consistent basis with the audited consolidated financial statements as of December 29, 2018 and include all normal recurring adjustments necessary to fairly state the information set forth therein. All significant intercompany accounts and transactions have been eliminated in consolidation.

The financial statements have been prepared in accordance with the regulations of the United States Securities and Exchange Commission (“SEC”) for interim periods in accordance with S-X Article 10, and, therefore, omit certain information and footnote disclosure necessary to present the statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The operating results for interim periods are not necessarily indicative of the operating results that may be expected for the entire year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 29, 2018, which were included in the Company’s Annual Report on Form 10-K filed with the SEC on February 25, 2019.

Fiscal Period – The Company uses a 52/53 week fiscal year ending on the last Saturday of the calendar year. All references to the quarter refer to Nanometrics’ fiscal quarter. The fiscal quarters reported herein are 13 week periods.

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

Changes to Significant Accounting Policies

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

Leases - The Company adopted the new accounting standard Topic 842, Leases and all related amendments, as of December 30, 2018, the first day of its 2019 fiscal year, by electing to use the additional optional transition method permitted under the Topic of applying the new leases standard at the adoption date for all then-active leases and prospectively to leasing arrangements entered after the adoption date. The Company’s reporting for the comparative period presented in the financial statements continues to follow prior U.S. GAAP.

The main impact of Topic 842 was to increase the transparency and comparability of the Company’s financial statements by requiring the recognition of right of use assets (“ROU assets”) and lease liabilities on the Company’s balance sheet for leases classified as operating leases under which the Company is lessee. Under the Topic, disclosures are required to meet the objective of enabling users of the Company’s financial statements to assess the amount, timing, and uncertainty of cash flows arising from such leases.

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

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

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

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

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

1. The lease transfers ownership of the underlying identified asset to the Company by the end of the lease term.

2. The lease grants the Company an option to purchase the underlying identified asset that it is reasonably certain to exercise.

3. Generally, the lease term is for the major part of the remaining economic useful life of the underlying identified asset.

4. The present value of the sum of the lease payments and any residual value guaranteed by the Company that is not already reflected in the lease payments equals or exceeds substantially all the fair value of the underlying identified asset.

5. The underlying asset is of such a specialized nature that it wouldn’t have an alternative use to the lessor at the end of the lease term.

The Company has not entered into any contracts that transfer ownership of the underlying identified asset to the Company by the end of the lease term and there are only a small number of individually insignificant leases that contain a purchase option, none of which the Company intends to exercise. The Company has evaluated its contracts under these criteria and has determined that all such contracts are operating leases.

The Company does not reassess the lease classification after the commencement date unless (a) the contract is modified, and the modification is not accounted for as a separate contract, (b) there is a change in the lease term, or (c) there is a change in the assessment of whether the Company is reasonably certain to exercise an option to purchase the underlying asset.

Measuring the lease – Topic 842 requires the Company to record a ROU Asset and a lease liability at the lease commencement date for all leases. The Company does this by measuring and recording a lease liability equal to the present value of all remaining lease payments. The Company applies judgment in estimating the remaining lease term. For its offices, data centers, colocation agreements, ISP services and logistics it assesses the current life of the lease, defined renewal periods in the contract (if any), the strategic plan for maintaining (or replacing) the asset among other factors in determining the future lease term when measuring the lease. While implementing Topic 842, the Company noted that none of its leases contained residual value guarantees, variable lease payments or any restrictions or covenants imposed by the lessors, outside of standard restrictions on subletting office space.

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

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

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

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

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

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

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

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

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

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

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

Fiscal year	Amount
2019 (remainder)	$	1,833
2020		2,949
2021		2,096
2022		1,544
2023		1,249
Thereafter		2,706
Total future minimum lease payments		12,377
Less: future interest		(1,515	)
Total	$	10,862
Reported as of June 29, 2019
Operating lease liability - short term	$	2,845
Operating lease liability - long term		8,017
Total	$	10,862

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

Fiscal year	Amount
2019	$	3,002
2020		1,891
2021		1,051
2022		970
2023		750
Thereafter		696
Total	$	8,360

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New Accounting Pronouncements

6 Months Ended

Jun. 29, 2019

Accounting Changes And Error Corrections [Abstract]

New Accounting Pronouncements

Note 2. New Accounting Pronouncements

Recently Adopted Accounting Standards

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

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

Recently Issued Accounting Standards

In August 2018, the FASB issued an accounting standard update to provide additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The amendments in this update should be applied retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the effect of this update on its consolidated financial condition and results of operations.

In August 2018, the FASB issued an accounting standard update which improves the effectiveness of fair value measurement disclosures in the notes to the financial statements. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Certain amendments within the update should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. Entities are permitted to early adopt any removed or modified disclosures upon issuance of this update and delay adoption of the additional disclosures until their effective date. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated results of operations or consolidated statement of cash flows.

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

In June 2016, the FASB issued an accounting standard update which requires measurement and timely recognition of expected credit losses for financial assets. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The standard is to be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company is currently evaluating the effect of this update on its consolidated financial condition and results of operations.

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Acquisition

6 Months Ended

Jun. 29, 2019

Business Combinations [Abstract]

Acquisition

Note 3. Acquisition

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

4D’s Dynamic Interferometry® solutions are used in a variety of industries to provide accurate shape and surface measurement data, which provides feedback to customers of optical quality, machine finish, and surface defectivity, to improve manufacturing yield and performance. The addition of 4D’s technology added new technology to the Company’s portfolio, expanded its served markets with new applications in the scientific research, aerospace, industrial and optics manufacturing markets.

During the three-month period ended June 29, 2019, an immaterial purchase price adjustment was recorded resulting in an immaterial decrease to Goodwill for the 4D acquisition in 2018. The following table presents the purchase price allocation as of November 15, 2018 (in thousands):

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

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Revenue

6 Months Ended

Jun. 29, 2019

Revenue From Contract With Customer [Abstract]

Revenue

Note 4. Revenue

The Company disaggregates its revenue from contracts with customers by geographic location. See Note 15 for further information.

Contract assets and liabilities

Contract assets and liabilities consisted of the following (in thousands):

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

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

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

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Fair Value Measurements and Disclosures

6 Months Ended

Jun. 29, 2019

Fair Value Disclosures [Abstract]

Fair Value Measurements and Disclosures

Note 5. Fair Value Measurements and Disclosures

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

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

Level 3 — Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Such unobservable inputs include an estimated discount rate used in the Company’s discounted present value analysis of

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

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

The following tables present the Company’s assets and liabilities measured at estimated fair value on a recurring basis, excluding accrued interest components, categorized in accordance with the fair value hierarchy (in thousands), as of the following dates:

	June 29, 2019								December 29, 2018
	Fair Value Measurements Using Input Types								Fair Value Measurements Using Input Types
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	10,964	$	—	$	—	$	10,964	$	113	$	—	$	—	$	113
Commercial paper		—		24,937		—		24,937		—		1,993		—		1,993
Certificates of deposit		—		2,000		—		2,000		—		—		—		—
Total cash equivalents	$	10,964	$	26,937	$	—	$	37,901	$	113	$	1,993	$	—	$	2,106
Marketable securities:
Certificates of deposits	$	—	$	13,013	$	—	$	13,013	$	—	$	9,497	$	—	$	9,497
Commercial paper		—		14,066		—		14,066		—		7,932		—		7,932
Corporate debt securities		—		15,301		—		15,301		—		15,730		—		15,730
Asset-backed Securities		—		8,567		—		8,567		—		7,682		—		7,682
Total marketable securities	$	—	$	50,947	$	—	$	50,947	$	—	$	40,841	$	—	$	40,841
Total(1)	$	10,964	$	77,884	$	—	$	88,848	$	113	$	42,834	$	—	$	42,947

^{(1) Excludes $56.1 million and $108.8 million held in operating accounts as of June 29, 2019 and December 29, 2018, respectively. See “Note 6. Cash and Investments” of the Notes to Condensed Consolidated Financial Statements for more information.}

The fair values of the marketable securities that are classified as Level 1 in the table above were derived from quoted market prices for identical assets or liabilities in active markets that the Company can access. The fair value of marketable securities that are classified as Level 2 in the table above were derived from non-binding market consensus prices that were corroborated by observable market data, quoted market prices for similar instruments, or pricing models, such as discounted cash flow techniques with all significant inputs derived from or corroborated by observable market data. There were no transfers of instruments between Level 1, Level 2 and Level 3 during the financial periods presented.

Derivatives

The Company uses foreign currency exchange forward contracts to mitigate variability in gains and losses generated from the re-measurement of certain monetary assets and liabilities denominated in foreign currencies. These derivatives are carried at fair value with changes recorded in other income (expense), net in the condensed consolidated statements of operations. Changes in the fair value of these derivatives are largely offset by re-measurement of the underlying assets and liabilities. The derivatives have maturities of approximately 30 days.

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

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

	June 29, 2019						December 29, 2018
			Fair Value						Fair Value
	Notional Amount		Asset		Liability		Notional Amount		Asset		Liability
Undesignated Hedges:
Forward Foreign Currency Contracts
Purchase	$	27.4	$	—	$	0.1	$	25.9	$	—	$	—
Sell	$	—	$	—	$	—	$	21.8	$	—	$	0.2

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Cash and Investments

6 Months Ended

Jun. 29, 2019

Investments Debt And Equity Securities [Abstract]

Cash and Investments

Note 6. Cash and Investments

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

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

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

Realized gains and losses on sale of securities are recorded in other income (expense), net, in the Company’s condensed consolidated statement of operations. For the three and six months ended June 29, 2019 and June 30, 2018, net realized gains and losses were not material.

Unrealized gains or losses, net of tax effect, are recorded in accumulated other comprehensive income (loss) within stockholders’ equity. Both the gross unrealized gains and gross unrealized losses for the three and six months ended June 29, 2019 and June 30, 2018 were not material, and no marketable securities had other than temporary impairment.

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

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Accounts Receivable

6 Months Ended

Jun. 29, 2019

Receivables [Abstract]

Accounts Receivable

Note 7. Accounts Receivable

The Company maintains arrangements under which eligible accounts receivable in Japan are sold without recourse to unrelated third-party financial institutions. These receivables were not included in the condensed consolidated balance sheets as the criteria for sale treatment had been met. The Company pays administrative fees as well as interest, which ranged 0.63% to 1.68% during the six months ended June 29, 2019, based on the anticipated length of time between the date the sale is consummated, and the expected collection date of the receivables sold.

The Company sold $2.1 million and $11.6 million of receivables during the three months ended June 29, 2019 and June 30, 2018, respectively, and $14.2 million and $33.5 million of receivables during the six months ended June 29, 2019 and June 30, 2018, respectively. There were no amounts due from such third-party financial institutions at June 29, 2019 and December 29, 2018.

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Financial Statement Components

6 Months Ended

Jun. 29, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Financial Statement Components

Note 8. Financial Statement Components

The following tables provide details of selected financial statement components as of the following dates (in thousands):

	At
	June 29, 2019			December 29, 2018
Inventories:
Raw materials and sub-assemblies	$	35,880		$	31,434
Work in process		21,061			22,383
Finished goods		9,689			8,098
Inventories		66,630			61,915
Inventories-delivered systems		1,010			180
Total inventories	$	67,640		$	62,095
Property, plant and equipment, net:(1)
Land	$	15,570		$	15,571
Machinery and equipment		37,608			39,898
Building and improvements		26,344			21,354
Software		10,377			10,116
Furniture and fixtures		2,471			2,551
Leasehold improvements		1,774			-
Capital in progress		4,505			6,027
Total property, plant and equipment, gross		98,649			95,517
Accumulated depreciation and amortization		(45,870	)		(47,617	)
Total property, plant and equipment, net	$	52,779		$	47,900
(1) Depreciation and amortization expense of property, plant and equipment was $1.9 million and $1.6 million for the three months ended June 29, 2019 and June 30, 2018, respectively, and $3.5 million and $3.3 million for the six months ended June 29, 2019 and June 30, 2018, respectively.
Other Current Liabilities:
Accrued warranty	$	3,755		$	4,379
Accrued taxes		965			1,738
Customer deposits		388			293
Accrued professional services		625			448
Third party commissions		249			1,382
Other		1,326			1,181
Total other current liabilities	$	7,308		$	9,421

Components of Accumulated Other Comprehensive Income (Loss)

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

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

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Goodwill and Intangible Assets

6 Months Ended

Jun. 29, 2019

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Note 9. Goodwill and Intangible Assets

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

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

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

	December 29, 2018
	Adjusted cost		Accumulated amortization			Net carrying amount
Developed technology	$	35,954	$	(16,532	)	$	19,422
Customer relationships		6,531		(1,519	)		5,012
Trade name		1,500		(8	)		1,492
In-process research and development		1,400		—			1,400
Total	$	45,385	$	(18,059	)	$	27,326

The amortization of finite-lived intangibles is computed using the straight-line method. Estimated remaining lives of finite-lived intangibles range from less than one year to fifteen years. The total intangible amortization expense for the three and six months ended June 29, 2019 was $0.8 million and $1.5 million, respectively, and for the three and six months ended June 30, 2018 was $35,000 and $70,000, respectively.

There were no impairment charges related to intangible assets recorded during the six months ended June 29, 2019 and June 30, 2018.

The estimated future amortization expense of finite intangible assets as of June 29, 2019 is as follows (in thousands):

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

In-process research and development of $0.9 million has been omitted from the above table as its estimated useful life is indeterminant at June 29, 2019. It will be tested for potential impairment, along with Goodwill, until its estimated useful life becomes finite.

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Warranties

6 Months Ended

Jun. 29, 2019

Product Warranties Disclosures [Abstract]

Warranties

Note 10. Warranties

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

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

	Three Months Ended						Six Months Ended
	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018
Balance as of beginning of period	$	3,848		$	4,643		$	4,379		$	4,863
Accruals for warranties issued during period		910			1,450			1,870			2,895
Settlements during the period		(1,003	)		(1,187	)		(2,494	)		(2,852	)
Balance as of end of period	$	3,755		$	4,906		$	3,755		$	4,906

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Commitments and Contingencies

6 Months Ended

Jun. 29, 2019

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 11. Commitments and Contingencies

Merger – Rudolph Technologies, Inc. – On June 23, 2019, the Company entered into an Agreement and Plan of Merger (“Merger”) with Rudolph Technologies, Inc. (“Rudolph”) and PV Equipment Inc., a wholly-owned subsidiary of the Company. Consummation of the merger is subject to certain closing conditions including regulatory approvals and shareholder approval from both the Company’s shareholders and those of Rudolph. Under the terms and subject to the conditions set forth in the Merger, at the effective time of the Merger, each outstanding share of common stock, par value $0.001 per share, of Rudolph will be converted into 0.8042 shares of common stock, par value $0.001, of the Company. At the effective time of the Merger, Rudolph’s common stockholders will own approximately 50%, and the Company’s common stockholders will own approximately 50%, of the outstanding shares of common stock of the combined company on a fully diluted basis. The Agreement and Plan of Merger, as well as other related documents were included in the Company’s Current Report of Form 8-K filed with the SEC on June 24, 2019.

Intellectual Property Indemnification Obligations – The Company will, from time to time, in the normal course of business, agree to indemnify certain customers, vendors or others against third party claims that the Company’s products, when used for their intended purpose(s), or the Company’s intellectual property, infringe the intellectual property rights of such third parties or other claims made against parties with whom it enters into contractual relationships. It is not possible to determine the maximum potential amount of liability under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances that are likely to be involved in each particular claim. Historically, the Company has not made payments under these obligations and believes that the estimated fair value of these agreements is immaterial. Accordingly, no liabilities have been recorded for these obligations in the accompanying condensed consolidated balance sheets as of June 29, 2019 and December 29, 2018.

Legal Proceedings - From time to time, the Company is subject to various legal proceedings or claims arising in the ordinary course of business.

On August 2, 2017, the Company was named as defendant in a complaint filed in New Hampshire Superior Court (“Complaint”). The Complaint, brought by Optical Solutions, Inc. (“OSI”), alleges claims arising from a purported exclusive purchase contract between OSI and the Company pertaining to certain product. On September 18, 2017, the Company removed the action to the United States District Court for the District of New Hampshire. On September 25, 2017, the Company moved to transfer the Complaint to the District Court for the Northern District of California. On December 20, 2017, the Company filed its complaint against OSI in the California Superior Court for the County of Santa Clara alleging claims arising from OSI’s breach of certain purchase orders. The Company’s complaint was later removed by OSI to the Northern District of California.  On May 29, 2018, the District Court of New Hampshire issued an order granting the Company’s motion to transfer OSI’s Complaint to the Northern District of California and denying the Company’s motion to dismiss the Complaint without prejudice. On June 14, 2018, OSI’s Complaint was consolidated with the Company’s complaint against OSI. On August 9, 2018, OSI filed an Amended Complaint. On September 19, 2018, the Company filed a motion to dismiss OSI’s Amended Complaint for failure to state a claim. The Company’s motion to dismiss was heard on February 28, 2019. On March 5, 2019 the Court granted the Company’s motion to dismiss with leave to amend.

OSI filed a Second Amended Complaint on March 29, 2019. The Company filed a motion to dismiss the Second Amended Complaint on May 31, 2019. A hearing on the Company’s motion to dismiss the Second Amended Complaint is scheduled for November 14, 2019. Trial has been set for May 16, 2022.

The Company records a provision for a loss when it believes that it is both probable that a loss has been incurred and the amount can be reasonably estimated. Based on current information, the Company believes it does not have any probable and reasonably estimable losses related to any current legal proceedings and claims. Although it is difficult to predict the outcome of legal proceedings, the Company believes that any liability that may ultimately arise from the resolution of these ordinary course matters will not have a material adverse effect on the business, financial condition and results of operations.

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Net Income Per Share

6 Months Ended

Jun. 29, 2019

Earnings Per Share [Abstract]

Net Income Per Share

Note 12. Net Income Per Share

The Company presents both basic and diluted net income per share on the face of its condensed consolidated statements of operations. Basic net income per share excludes the effect of potentially dilutive shares and is computed by dividing net income by the weighted-average number of shares of common stock outstanding for the period. Diluted net income per share is computed using the weighted-average number of shares of common stock outstanding for the period plus the effect of all dilutive securities representing potential shares of common stock outstanding during the period.

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

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

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Stockholders' Equity and Stock-Based Compensation

6 Months Ended

Jun. 29, 2019

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stockholders' Equity and Stock-Based Compensation

Note 13. Stockholders’ Equity and Stock-Based Compensation

Options and Employee Stock Purchase Plan (“ESPP”) Awards

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

	Three Months Ended		Six Months Ended
	June 29, 2019	June 30, 2018	June 29, 2019	June 30, 2018
Employee Stock Purchase Plan:
Expected life	0.5 years	0.5 years	0.5 years	0.5 years
Volatility	41.3%	27.2%	39.1%	37.2%
Risk free interest rate	2.51%	1.61%	1.86%	0.91%
Dividends	—	—	—	—

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

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

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

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

Restricted Stock Units (“RSUs”)

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

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

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

Market-Based Performance Stock Units (“PSUs”)

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

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

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

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

Valuation of PSUs

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

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

Stock-based Compensation Expense

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

	Three Months Ended				Six Months Ended
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Cost of products	$	272	$	133	$	532	$	231
Cost of service		209		186		394		341
Research and development		739		506		1,511		983
Selling		740		737		1,544		1,270
General and administrative		1,240		1,117		2,333		2,192
Total stock-based compensation expense related to employee stock options and employee stock purchases	$	3,200	$	2,679	$	6,314	$	5,017

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Income Taxes

6 Months Ended

Jun. 29, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Note 14. Income Taxes

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

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

The provision for income taxes consists of the following (in thousands):

	Three Months Ended				Six Months Ended
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Provision for income taxes	$	632	$	2,895	$	1,163	$	7,337

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

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

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

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

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Segment, Geographic, Product and Significant Customer Information

6 Months Ended

Jun. 29, 2019

Segment Reporting [Abstract]

Segment, Geographic, Product and Significant Customer Information

Note 15. Segment, Geographic, Product and Significant Customer Information

The Company has one operating segment, which is the sale, design, manufacture, marketing and support of optical critical dimension and thin film systems. The following tables summarize total net revenues and long-lived assets (excluding intangible assets) attributed to significant countries (in thousands):

	Three Months Ended				Six Months Ended
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Total net revenues:
United States	$	9,170	$	7,392	$	26,044	$	14,130
China		25,873		28,333		40,233		36,375
South Korea		13,070		30,980		27,038		68,798
Singapore		8,723		2,380		10,274		14,535
Japan		4,214		15,017		8,531		28,396
Taiwan		3,650		1,974		14,939		3,034
Other		2,920		2,528		7,661		5,649
Total net revenues	$	67,620	$	88,604	$	134,720	$	170,917

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

With respect to customer concentration, Micron Technology, Inc., SK hynix, and Yangtze Memory Technologies Co. Ltd. each accounted for more than 10% of total sales for the three months ended June 29, 2019, and Intel Corporation, SK hynix, and Taiwan Semiconductor Manufacturing Company Limited each accounted for more than 10% of total sales for the six months ended June 29, 2019. Intel Corporation, Samsung Electronics Co. Ltd., Toshiba Memory Corporation, and Yangtze Memory Technologies Co. Ltd. each accounted for more than 10% of total sales for the three months ended June 30, 2018. Intel Corporation, Micron Technology, Inc., Samsung Electronics Co. Ltd., SK hynix, Toshiba Memory Corporation, and Yangtze Memory Technologies Co. Ltd. each accounted for more than 10% of total sales for the six months ended June 30, 2018.

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

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Nature of Business, Basis of Presentation and Significant Accounting Policies (Policies)

6 Months Ended

Jun. 29, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Description of Business

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

Basis of Presentation

Basis of Presentation – The accompanying condensed consolidated financial statements (“financial statements”) have been prepared on a consistent basis with the audited consolidated financial statements as of December 29, 2018 and include all normal recurring adjustments necessary to fairly state the information set forth therein. All significant intercompany accounts and transactions have been eliminated in consolidation.

The financial statements have been prepared in accordance with the regulations of the United States Securities and Exchange Commission (“SEC”) for interim periods in accordance with S-X Article 10, and, therefore, omit certain information and footnote disclosure necessary to present the statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The operating results for interim periods are not necessarily indicative of the operating results that may be expected for the entire year. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 29, 2018, which were included in the Company’s Annual Report on Form 10-K filed with the SEC on February 25, 2019.

Fiscal Period

Fiscal Period – The Company uses a 52/53 week fiscal year ending on the last Saturday of the calendar year. All references to the quarter refer to Nanometrics’ fiscal quarter. The fiscal quarters reported herein are 13 week periods.

Use of Estimates

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

Leases

Leases - The Company adopted the new accounting standard Topic 842, Leases and all related amendments, as of December 30, 2018, the first day of its 2019 fiscal year, by electing to use the additional optional transition method permitted under the Topic of applying the new leases standard at the adoption date for all then-active leases and prospectively to leasing arrangements entered after the adoption date. The Company’s reporting for the comparative period presented in the financial statements continues to follow prior U.S. GAAP.

The main impact of Topic 842 was to increase the transparency and comparability of the Company’s financial statements by requiring the recognition of right of use assets (“ROU assets”) and lease liabilities on the Company’s balance sheet for leases classified as operating leases under which the Company is lessee. Under the Topic, disclosures are required to meet the objective of enabling users of the Company’s financial statements to assess the amount, timing, and uncertainty of cash flows arising from such leases.

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

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

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

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

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

1. The lease transfers ownership of the underlying identified asset to the Company by the end of the lease term.

2. The lease grants the Company an option to purchase the underlying identified asset that it is reasonably certain to exercise.

3. Generally, the lease term is for the major part of the remaining economic useful life of the underlying identified asset.

4. The present value of the sum of the lease payments and any residual value guaranteed by the Company that is not already reflected in the lease payments equals or exceeds substantially all the fair value of the underlying identified asset.

5. The underlying asset is of such a specialized nature that it wouldn’t have an alternative use to the lessor at the end of the lease term.

The Company has not entered into any contracts that transfer ownership of the underlying identified asset to the Company by the end of the lease term and there are only a small number of individually insignificant leases that contain a purchase option, none of which the Company intends to exercise. The Company has evaluated its contracts under these criteria and has determined that all such contracts are operating leases.

The Company does not reassess the lease classification after the commencement date unless (a) the contract is modified, and the modification is not accounted for as a separate contract, (b) there is a change in the lease term, or (c) there is a change in the assessment of whether the Company is reasonably certain to exercise an option to purchase the underlying asset.

Measuring the lease – Topic 842 requires the Company to record a ROU Asset and a lease liability at the lease commencement date for all leases. The Company does this by measuring and recording a lease liability equal to the present value of all remaining lease payments. The Company applies judgment in estimating the remaining lease term. For its offices, data centers, colocation agreements, ISP services and logistics it assesses the current life of the lease, defined renewal periods in the contract (if any), the strategic plan for maintaining (or replacing) the asset among other factors in determining the future lease term when measuring the lease. While implementing Topic 842, the Company noted that none of its leases contained residual value guarantees, variable lease payments or any restrictions or covenants imposed by the lessors, outside of standard restrictions on subletting office space.

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

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

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

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

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

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

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

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

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

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

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

Fiscal year	Amount
2019 (remainder)	$	1,833
2020		2,949
2021		2,096
2022		1,544
2023		1,249
Thereafter		2,706
Total future minimum lease payments		12,377
Less: future interest		(1,515	)
Total	$	10,862
Reported as of June 29, 2019
Operating lease liability - short term	$	2,845
Operating lease liability - long term		8,017
Total	$	10,862

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

Fiscal year	Amount
2019	$	3,002
2020		1,891
2021		1,051
2022		970
2023		750
Thereafter		696
Total	$	8,360

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Nature of Business, Basis of Presentation and Significant Accounting Policies (Tables)

6 Months Ended

Jun. 29, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Components of Lease Expense

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

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

Summary of Other Information Related to Leases

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

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

Summary of Maturity Analysis of Leases

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

Fiscal year	Amount
2019 (remainder)	$	1,833
2020		2,949
2021		2,096
2022		1,544
2023		1,249
Thereafter		2,706
Total future minimum lease payments		12,377
Less: future interest		(1,515	)
Total	$	10,862
Reported as of June 29, 2019
Operating lease liability - short term	$	2,845
Operating lease liability - long term		8,017
Total	$	10,862

Future Minimum Lease Payments

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

Fiscal year	Amount
2019	$	3,002
2020		1,891
2021		1,051
2022		970
2023		750
Thereafter		696
Total	$	8,360

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Acquisition (Tables)

6 Months Ended

Jun. 29, 2019

Business Combinations [Abstract]

Summary of Purchase Price Allocation

During the three-month period ended June 29, 2019, an immaterial purchase price adjustment was recorded resulting in an immaterial decrease to Goodwill for the 4D acquisition in 2018. The following table presents the purchase price allocation as of November 15, 2018 (in thousands):

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

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Revenue (Tables)

6 Months Ended

Jun. 29, 2019

Revenue From Contract With Customer [Abstract]

Summary of Contract Assets and Liabilities

Contract assets and liabilities consisted of the following (in thousands):

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

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Fair Value Measurements and Disclosures (Tables)

6 Months Ended

Jun. 29, 2019

Fair Value Disclosures [Abstract]

Assets and Liabilities Measured at Estimated Fair Value on Recurring Basis Excluding Accrued Interest Components

The following tables present the Company’s assets and liabilities measured at estimated fair value on a recurring basis, excluding accrued interest components, categorized in accordance with the fair value hierarchy (in thousands), as of the following dates:

	June 29, 2019								December 29, 2018
	Fair Value Measurements Using Input Types								Fair Value Measurements Using Input Types
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market funds	$	10,964	$	—	$	—	$	10,964	$	113	$	—	$	—	$	113
Commercial paper		—		24,937		—		24,937		—		1,993		—		1,993
Certificates of deposit		—		2,000		—		2,000		—		—		—		—
Total cash equivalents	$	10,964	$	26,937	$	—	$	37,901	$	113	$	1,993	$	—	$	2,106
Marketable securities:
Certificates of deposits	$	—	$	13,013	$	—	$	13,013	$	—	$	9,497	$	—	$	9,497
Commercial paper		—		14,066		—		14,066		—		7,932		—		7,932
Corporate debt securities		—		15,301		—		15,301		—		15,730		—		15,730
Asset-backed Securities		—		8,567		—		8,567		—		7,682		—		7,682
Total marketable securities	$	—	$	50,947	$	—	$	50,947	$	—	$	40,841	$	—	$	40,841
Total(1)	$	10,964	$	77,884	$	—	$	88,848	$	113	$	42,834	$	—	$	42,947

^{(1) Excludes $56.1 million and $108.8 million held in operating accounts as of June 29, 2019 and December 29, 2018, respectively. See “Note 6. Cash and Investments” of the Notes to Condensed Consolidated Financial Statements for more information.}

Notional Amounts and Fair Values of Outstanding Derivative Instruments

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

	June 29, 2019						December 29, 2018
			Fair Value						Fair Value
	Notional Amount		Asset		Liability		Notional Amount		Asset		Liability
Undesignated Hedges:
Forward Foreign Currency Contracts
Purchase	$	27.4	$	—	$	0.1	$	25.9	$	—	$	—
Sell	$	—	$	—	$	—	$	21.8	$	—	$	0.2

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Cash and Investments (Tables)

6 Months Ended

Jun. 29, 2019

Investments Debt And Equity Securities [Abstract]

Cash, Cash Equivalents and Available-for-Sale Investments

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

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

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Financial Statement Components (Tables)

6 Months Ended

Jun. 29, 2019

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Selected Financial Statement Components

The following tables provide details of selected financial statement components as of the following dates (in thousands):

	At
	June 29, 2019			December 29, 2018
Inventories:
Raw materials and sub-assemblies	$	35,880		$	31,434
Work in process		21,061			22,383
Finished goods		9,689			8,098
Inventories		66,630			61,915
Inventories-delivered systems		1,010			180
Total inventories	$	67,640		$	62,095
Property, plant and equipment, net:(1)
Land	$	15,570		$	15,571
Machinery and equipment		37,608			39,898
Building and improvements		26,344			21,354
Software		10,377			10,116
Furniture and fixtures		2,471			2,551
Leasehold improvements		1,774			-
Capital in progress		4,505			6,027
Total property, plant and equipment, gross		98,649			95,517
Accumulated depreciation and amortization		(45,870	)		(47,617	)
Total property, plant and equipment, net	$	52,779		$	47,900
(1) Depreciation and amortization expense of property, plant and equipment was $1.9 million and $1.6 million for the three months ended June 29, 2019 and June 30, 2018, respectively, and $3.5 million and $3.3 million for the six months ended June 29, 2019 and June 30, 2018, respectively.
Other Current Liabilities:
Accrued warranty	$	3,755		$	4,379
Accrued taxes		965			1,738
Customer deposits		388			293
Accrued professional services		625			448
Third party commissions		249			1,382
Other		1,326			1,181
Total other current liabilities	$	7,308		$	9,421

Components of Accumulated Other Comprehensive Income (Loss)

Components of Accumulated Other Comprehensive Income (Loss)

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

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Goodwill and Intangible Assets (Tables)

6 Months Ended

Jun. 29, 2019

Goodwill And Intangible Assets Disclosure [Abstract]

Intangible Assets

Intangible assets as of June 29, 2019 and December 29, 2018 consisted of the following (in thousands):

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

	December 29, 2018
	Adjusted cost		Accumulated amortization			Net carrying amount
Developed technology	$	35,954	$	(16,532	)	$	19,422
Customer relationships		6,531		(1,519	)		5,012
Trade name		1,500		(8	)		1,492
In-process research and development		1,400		—			1,400
Total	$	45,385	$	(18,059	)	$	27,326

Estimated Future Amortization Expense

The estimated future amortization expense of finite intangible assets as of June 29, 2019 is as follows (in thousands):

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

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Warranties (Tables)

6 Months Ended

Jun. 29, 2019

Product Warranties Disclosures [Abstract]

Components of Warranty Accrual

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

	Three Months Ended						Six Months Ended
	June 29, 2019			June 30, 2018			June 29, 2019			June 30, 2018
Balance as of beginning of period	$	3,848		$	4,643		$	4,379		$	4,863
Accruals for warranties issued during period		910			1,450			1,870			2,895
Settlements during the period		(1,003	)		(1,187	)		(2,494	)		(2,852	)
Balance as of end of period	$	3,755		$	4,906		$	3,755		$	4,906

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Net Income Per Share (Tables)

6 Months Ended

Jun. 29, 2019

Earnings Per Share [Abstract]

Reconciliation of Basic and Diluted Net Income Per Share Computations

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

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

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Stockholders' Equity and Stock-Based Compensation (Tables)

6 Months Ended

Jun. 29, 2019

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Employee Stock Purchase Plan Assumptions

	Three Months Ended		Six Months Ended
	June 29, 2019	June 30, 2018	June 29, 2019	June 30, 2018
Employee Stock Purchase Plan:
Expected life	0.5 years	0.5 years	0.5 years	0.5 years
Volatility	41.3%	27.2%	39.1%	37.2%
Risk free interest rate	2.51%	1.61%	1.86%	0.91%
Dividends	—	—	—	—

Summary of Activity of Stock Options

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

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

Summary of Activity for RSUs

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

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

Summary of Activity for PSUs

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

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

PSUs Valuation Assumptions

The assumptions for the valuation of PSUs are summarized as follows:

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

Stock-based Compensation Expense

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

	Three Months Ended				Six Months Ended
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Cost of products	$	272	$	133	$	532	$	231
Cost of service		209		186		394		341
Research and development		739		506		1,511		983
Selling		740		737		1,544		1,270
General and administrative		1,240		1,117		2,333		2,192
Total stock-based compensation expense related to employee stock options and employee stock purchases	$	3,200	$	2,679	$	6,314	$	5,017

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Income Taxes (Tables)

6 Months Ended

Jun. 29, 2019

Income Tax Disclosure [Abstract]

Provision for Income Taxes

The provision for income taxes consists of the following (in thousands):

	Three Months Ended				Six Months Ended
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Provision for income taxes	$	632	$	2,895	$	1,163	$	7,337

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Segment, Geographic, Product and Significant Customer Information (Tables)

6 Months Ended

Jun. 29, 2019

Segment Reporting [Abstract]

Total Net Revenue

The following tables summarize total net revenues and long-lived assets (excluding intangible assets) attributed to significant countries (in thousands)

	Three Months Ended				Six Months Ended
	June 29, 2019		June 30, 2018		June 29, 2019		June 30, 2018
Total net revenues:
United States	$	9,170	$	7,392	$	26,044	$	14,130
China		25,873		28,333		40,233		36,375
South Korea		13,070		30,980		27,038		68,798
Singapore		8,723		2,380		10,274		14,535
Japan		4,214		15,017		8,531		28,396
Taiwan		3,650		1,974		14,939		3,034
Other		2,920		2,528		7,661		5,649
Total net revenues	$	67,620	$	88,604	$	134,720	$	170,917

Long-lived Tangible Assets

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

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Nature of Business, Basis of Presentation and Significant Accounting Policies - Textual (Details) - USD ($) $ in Thousands		6 Months Ended
	Dec. 31, 2018	Jun. 29, 2019	Jun. 30, 2018	Dec. 30, 2018
Accounting Policies [Line Items]
Fiscal year/fiscal quarter duration		91 days	91 days
Lease, practical expedients, package		true
Lease liability		$ 10,862
Lease payments to lessors		1,582
Operating lease, right to use asset		10,767
Topic 842 [Member]
Accounting Policies [Line Items]
Lease liability		0		$ 11,500
Lease payments to lessors	$ 100
Operating lease, right to use asset		$ 700		$ 11,600
Minimum [Member]
Accounting Policies [Line Items]
Fiscal year/fiscal quarter duration		364 days
Maximum [Member]
Accounting Policies [Line Items]
Fiscal year/fiscal quarter duration		371 days

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Nature of Business, Basis of Presentation and Significant Accounting Policies - Components of Lease Expense (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 29, 2019	Jun. 29, 2019
Leases [Abstract]
Operating lease expense	$ 924	$ 1,771

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Nature of Business, Basis of Presentation and Significant Accounting Policies - Summary of Other Information Related to Leases (Details) $ in Thousands	6 Months Ended
	Jun. 29, 2019 USD ($)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used by operating leases	$ 1,582
Right of use assets recognized in exchange for operating lease liabilities	698
Imputed interest - operating leases	$ 254
Weighted average remaining lease term - operating leases (months)	61 months
Weighted average discount rate - operating leases (per annum)	4.88%

XML

Nature of Business, Basis of Presentation and Significant Accounting Policies - Summary of Maturity Analysis of Leases (Details) $ in Thousands	Jun. 29, 2019 USD ($)
Leases [Abstract]
2019 (remainder)	$ 1,833
2020	2,949
2021	2,096
2022	1,544
2023	1,249
Thereafter	2,706
Total future minimum lease payments	12,377
Less: future interest	(1,515)
Total	10,862
Operating lease liability - short term	2,845
Operating lease liability - long term	$ 8,017

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Nature of Business, Basis of Presentation and Significant Accounting Policies - Future Minimum Lease Payments (Details) $ in Thousands	Dec. 29, 2018 USD ($)
Leases [Abstract]
2019	$ 3,002
2020	1,891
2021	1,051
2022	970
2023	750
Thereafter	696
Total	$ 8,360

XML

Acquisition - Textual (Details) $ in Thousands	Nov. 15, 2018 USD ($)
4D Technology Corporation [Member]
Business Acquisition [Line Items]
Purchase consideration	$ 42,515

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Acquisition - Summary of Purchase Price Allocation (Details) - USD ($) $ in Thousands	Jun. 29, 2019	Dec. 29, 2018	Nov. 15, 2018
Business Acquisition [Line Items]
Goodwill	$ 26,310	$ 26,372
4D Technology Corporation [Member]
Business Acquisition [Line Items]
Cash and cash equivalents			$ 1,414
Accounts receivable, net			4,156
Inventories			4,563
Prepaid and other current assets			104
Property and equipment			145
Accounts payable			(702)
Accrued liabilities			(760)
Deferred revenue			(197)
Deferred tax liabilities			(5,408)
Total assets acquired/liabilities assumed			3,315
Total identified intangible assets			23,500
Total identifiable net assets			26,815
Goodwill			15,700
Total purchase consideration			42,515
4D Technology Corporation [Member] | Developed technology [Member]
Business Acquisition [Line Items]
Total identified intangible assets			15,500
4D Technology Corporation [Member] | In-process research and development [Member]
Business Acquisition [Line Items]
Total identified intangible assets			1,400
4D Technology Corporation [Member] | Customer relationships [Member]
Business Acquisition [Line Items]
Total identified intangible assets			4,600
4D Technology Corporation [Member] | Order backlog [Member]
Business Acquisition [Line Items]
Total identified intangible assets			500
4D Technology Corporation [Member] | Trade name [Member]
Business Acquisition [Line Items]
Total identified intangible assets			$ 1,500

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Revenue - Summary of Contract Assets and Liabilities (Details) - USD ($) $ in Thousands	Jun. 29, 2019	Dec. 29, 2018
Contract With Customer Asset And Liability [Abstract]
Contract assets	$ 4,399	$ 2,189
Contract liabilities	11,481	10,743
Net contract liabilities	$ 7,082	$ 8,554

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Revenue - Textual (Details) - USD ($) $ in Millions	3 Months Ended	6 Months Ended
	Jun. 29, 2019	Jun. 29, 2019
Revenue From Contract With Customer [Abstract]
Revenue recognized during the period related to contract liabilities	$ 1.7	$ 3.2
Decrease in net contract liabilities		$ 1.5

XML

Revenue - Textual (Details 1) - Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2019-06-30	Jun. 29, 2019
Minimum [Member]
Revenue From Contract With Customer [Line Items]
Expected period to be recognized as revenue	6 months
Maximum [Member]
Revenue From Contract With Customer [Line Items]
Expected period to be recognized as revenue	12 months

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Fair Value Measurements and Disclosures - Assets and Liabilities Measured at Estimated Fair Value on Recurring Basis Excluding Accrued Interest Components (Details) - Fair Value, Measurements, Recurring [Member] - USD ($) $ in Thousands	Jun. 29, 2019	Dec. 29, 2018
Assets:
Total cash equivalents	$ 37,901	$ 2,106
Total marketable securities	50,947	40,841
Total	88,848	42,947
Level 1 [Member]
Assets:
Total cash equivalents	10,964	113
Total marketable securities	0	0
Total	10,964	113
Level 2 [Member]
Assets:
Total cash equivalents	26,937	1,993
Total marketable securities	50,947	40,841
Total	77,884	42,834
Level 3 [Member]
Assets:
Total cash equivalents	0	0
Total marketable securities	0	0
Total	0	0
Money market funds [Member]
Assets:
Total cash equivalents	10,964	113
Money market funds [Member] | Level 1 [Member]
Assets:
Total cash equivalents	10,964	113
Money market funds [Member] | Level 2 [Member]
Assets:
Total cash equivalents	0	0
Money market funds [Member] | Level 3 [Member]
Assets:
Total cash equivalents	0	0
Commercial paper [Member]
Assets:
Total cash equivalents	24,937	1,993
Total marketable securities	14,066	7,932
Commercial paper [Member] | Level 1 [Member]
Assets:
Total cash equivalents	0	0
Total marketable securities	0	0
Commercial paper [Member] | Level 2 [Member]
Assets:
Total cash equivalents	24,937	1,993
Total marketable securities	14,066	7,932
Commercial paper [Member] | Level 3 [Member]
Assets:
Total cash equivalents	0	0
Total marketable securities	0	0
Certificates of deposits [Member]
Assets:
Total cash equivalents	2,000	0
Total marketable securities	13,013	9,497
Certificates of deposits [Member] | Level 1 [Member]
Assets:
Total cash equivalents	0	0
Total marketable securities	0	0
Certificates of deposits [Member] | Level 2 [Member]
Assets:
Total cash equivalents	2,000	0
Total marketable securities	13,013	9,497
Certificates of deposits [Member] | Level 3 [Member]
Assets:
Total cash equivalents	0	0
Total marketable securities	0	0
Corporate debt securities [Member]
Assets:
Total marketable securities	15,301	15,730
Corporate debt securities [Member] | Level 1 [Member]
Assets:
Total marketable securities	0	0
Corporate debt securities [Member] | Level 2 [Member]
Assets:
Total marketable securities	15,301	15,730
Corporate debt securities [Member] | Level 3 [Member]
Assets:
Total marketable securities	0	0
Asset-backed Securities [Member]
Assets:
Total marketable securities	8,567	7,682
Asset-backed Securities [Member] | Level 1 [Member]
Assets:
Total marketable securities	0	0
Asset-backed Securities [Member] | Level 2 [Member]
Assets:
Total marketable securities	8,567	7,682
Asset-backed Securities [Member] | Level 3 [Member]
Assets:
Total marketable securities	$ 0	$ 0

XML

Fair Value Measurements and Disclosures - Assets and Liabilities Measured at Estimated Fair Value on Recurring Basis Excluding Accrued Interest Components (Parenthetical) (Details) - Fair Value, Measurements, Recurring [Member] - USD ($) $ in Thousands	Jun. 29, 2019	Dec. 29, 2018
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents	$ 37,901	$ 2,106
Cash [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total cash equivalents	$ 56,100	$ 108,800

XML

Fair Value Measurements and Disclosures - Textual (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018	Jun. 29, 2019	Jun. 30, 2018	Dec. 29, 2018
Fair Value Measurements and Disclosures (Textual) [Abstract]
Fair value assets among level 1, level 2 and level 3 transfers, amount	$ 0		$ 0		$ 0
Forward Foreign Currency Contracts [Member]
Fair Value Measurements and Disclosures (Textual) [Abstract]
Derivative term			30 days
Forward Foreign Currency Contracts [Member] | Other Income (Expense), Net [Member]
Fair Value Measurements and Disclosures (Textual) [Abstract]
Loss on settlement of derivatives	$ 500,000	$ 700,000	$ 700,000	$ 1,700,000

XML

Fair Value Measurements and Disclosures - Notional Amounts and Fair Values of Outstanding Derivative Instruments (Details) - Forward Foreign Currency Contracts [Member] - Not Designated as Hedging Instrument [Member] - USD ($)	Jun. 29, 2019	Dec. 29, 2018
Purchase [Member]
Derivatives Fair Value [Line Items]
Notional Amount	$ 27,400,000	$ 25,900,000
Fair Value Asset	0	0
Fair Value Liability	100,000	0
Sell [Member]
Derivatives Fair Value [Line Items]
Notional Amount	0	21,800,000
Fair Value Asset	0	0
Fair Value Liability	$ 0	$ 200,000

XML

Cash and Investments - Cash, Cash Equivalents and Available-for-Sale Investments (Details) - USD ($) $ in Thousands	Jun. 29, 2019	Dec. 29, 2018
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	$ 144,932	$ 151,878
Gross Unrealized Gains	50	0
Gross Unrealized Losses	0	(86)
Estimated Fair Market Value	144,982	151,792
Cash [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	56,134	108,845
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Estimated Fair Market Value	56,134	108,845
Money market funds [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	10,964	113
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Estimated Fair Market Value	10,964	113
Commercial paper [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	24,937	1,993
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Estimated Fair Market Value	24,937	1,993
Certificates of deposits [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	2,000	0
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Estimated Fair Market Value	2,000	0
Certificates of deposits [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	13,003	9,500
Gross Unrealized Gains	10	0
Gross Unrealized Losses	0	(3)
Estimated Fair Market Value	13,013	9,497
Commercial paper [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	14,063	7,933
Gross Unrealized Gains	3	0
Gross Unrealized Losses	0	(1)
Estimated Fair Market Value	14,066	7,932
Corporate debt securities [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	15,281	15,788
Gross Unrealized Gains	20	0
Gross Unrealized Losses	0	(58)
Estimated Fair Market Value	15,301	15,730
Asset-backed Securities [Member]
Schedule Of Available For Sale Securities [Line Items]
Amortized Cost	8,550	7,706
Gross Unrealized Gains	17	0
Gross Unrealized Losses	0	(24)
Estimated Fair Market Value	$ 8,567	$ 7,682

XML

Cash and Investments - Textual (Details)	6 Months Ended	12 Months Ended
	Jun. 29, 2019	Dec. 29, 2018
Investments Debt And Equity Securities [Abstract]
Investment maturity period, less than	33 months	33 months

XML

Accounts Receivable - Textual (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018	Jun. 29, 2019	Jun. 30, 2018	Dec. 29, 2018
Accounts Receivable (Additional Textual) [Abstract]
Sold receivables amount	$ 2,100,000	$ 11,600,000	$ 14,200,000	$ 33,500,000
Due from unrelated third parties	$ 0		$ 0		$ 0
Minimum [Member]
Accounts Receivable (Textual) [Abstract]
Administrative fees as well as interest percent			0.63%
Maximum [Member]
Accounts Receivable (Textual) [Abstract]
Administrative fees as well as interest percent			1.68%

XML

Financial Statement Components - Selected Financial Statement Components (Details) - USD ($) $ in Thousands	Jun. 29, 2019	Mar. 30, 2019	Dec. 29, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 30, 2017
Inventories:
Raw materials and sub-assemblies	$ 35,880		$ 31,434
Work in process	21,061		22,383
Finished goods	9,689		8,098
Inventories	66,630		61,915
Inventories-delivered systems	1,010		180
Total inventories	67,640		62,095
Property, plant and equipment, net:
Total property, plant and equipment, gross	98,649		95,517
Accumulated depreciation and amortization	(45,870)		(47,617)
Total property, plant and equipment, net	52,779		47,900
Other Current Liabilities:
Accrued warranty	3,755	$ 3,848	4,379	$ 4,906	$ 4,643	$ 4,863
Accrued taxes	965		1,738
Customer deposits	388		293
Accrued professional services	625		448
Third party commissions	249		1,382
Other	1,326		1,181
Total other current liabilities	7,308		9,421
Land [Member]
Property, plant and equipment, net:
Total property, plant and equipment, gross	15,570		15,571
Machinery and equipment [Member]
Property, plant and equipment, net:
Total property, plant and equipment, gross	37,608		39,898
Building and improvements [Member]
Property, plant and equipment, net:
Total property, plant and equipment, gross	26,344		21,354
Software [Member]
Property, plant and equipment, net:
Total property, plant and equipment, gross	10,377		10,116
Furniture and fixtures [Member]
Property, plant and equipment, net:
Total property, plant and equipment, gross	2,471		2,551
Leasehold improvements [Member]
Property, plant and equipment, net:
Total property, plant and equipment, gross	1,774
Capital in progress [Member]
Property, plant and equipment, net:
Total property, plant and equipment, gross	$ 4,505		$ 6,027

XML

Financial Statement Components - Selected Financial Statement Components (Parenthetical) (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018	Jun. 29, 2019	Jun. 30, 2018
Organization Consolidation And Presentation Of Financial Statements [Abstract]
Depreciation and amortization expense of property, plant and equipment	$ 1.9	$ 1.6	$ 3.5	$ 3.3

XML

Financial Statement Components - Components of Accumulated Other Comprehensive Income (Loss) (Details) $ in Thousands	6 Months Ended
	Jun. 29, 2019 USD ($)
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning Balance Value	$ 312,852
Ending Balance Value	328,980
Foreign Currency Translations [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning Balance Value	(2,129)
Current period change	602
Ending Balance Value	(1,527)
Defined Benefit Pension Plans [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning Balance Value	(646)
Ending Balance Value	(646)
Unrealized Income (Loss) on Investment [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning Balance Value	218
Current period change	102
Ending Balance Value	320
Accumulated Other Comprehensive Income (Loss) [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning Balance Value	(2,557)
Current period change	704
Ending Balance Value	$ (1,853)

XML

Goodwill and Intangible Assets - Textual (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018	Jun. 29, 2019	Jun. 30, 2018	Dec. 29, 2018
Finite-Lived Intangible Assets [Line Items]
Goodwill	$ 26,310,000		$ 26,310,000		$ 26,372,000
Increase in adjusted cost basis of intangible assets due to foreign currency movements			68,000
Increase in accumulated amortization of intangible assets due to foreign currency movements			68,000
Reclassified in-process research and development to developed technology			500,000
Total intangible amortization expense	$ 800,000	$ 35,000	1,500,000	$ 70,000
Impairment charges			0	$ 0
Intangible assets acquired, In-process research and development			$ 900,000
Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangibles estimated remaining lives			1 year
Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangibles estimated remaining lives			15 years

XML

Goodwill and Intangible Assets - Intangible Assets (Details) - USD ($) $ in Thousands	Jun. 29, 2019	Dec. 29, 2018
Summary of intangible assets, net (excluding goodwill)
Adjusted cost	$ 45,453	$ 45,385
Accumulated amortization	(19,642)	(18,059)
Net carrying amount	25,811	27,326
Developed technology [Member]
Summary of intangible assets, net (excluding goodwill)
Adjusted cost	36,512	35,954
Accumulated amortization	(17,527)	(16,532)
Net carrying amount	18,985	19,422
Customer relationships [Member]
Summary of intangible assets, net (excluding goodwill)
Adjusted cost	6,541	6,531
Accumulated amortization	(2,057)	(1,519)
Net carrying amount	4,484	5,012
In-process research and development [Member]
Summary of intangible assets, net (excluding goodwill)
Adjusted cost	900	1,400
Net carrying amount	900	1,400
Trade name [Member]
Summary of intangible assets, net (excluding goodwill)
Adjusted cost	1,500	1,500
Accumulated amortization	(58)	(8)
Net carrying amount	$ 1,442	$ 1,492

XML

Goodwill and Intangible Assets - Estimated Future Amortization Expense (Details) $ in Thousands	Jun. 29, 2019 USD ($)
Estimated future amortization expense
2019 (remainder)	$ 1,376
2020	2,960
2021	2,960
2022	2,960
2023	2,960
Thereafter	11,695
Finite lived intangible assets, Net carrying amount	$ 24,911

XML

Warranties - Textual (Details)	6 Months Ended
	Jun. 29, 2019
Product Warranties Disclosures [Abstract]
Product warranty period	12 months

XML

Warranties - Components of Warranty Accrual (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018	Jun. 29, 2019	Jun. 30, 2018
Components of the warranty accrual [Roll Forward]
Balance as of beginning of period	$ 3,848	$ 4,643	$ 4,379	$ 4,863
Accruals for warranties issued during period	910	1,450	1,870	2,895
Settlements during the period	(1,003)	(1,187)	(2,494)	(2,852)
Balance as of end of period	$ 3,755	$ 4,906	$ 3,755	$ 4,906

XML

Commitments and Contingencies - Textual (Details)	Jun. 23, 2019 $ / shares	Jun. 29, 2019 USD ($) $ / shares	Dec. 29, 2018 USD ($) $ / shares
Commitments And Contingencies [Line Items]
Common stock, par value		$ 0.001	$ 0.001
Liabilities recorded for obligations | $		$ 0	$ 0
Parent Company [Member] | Combined Entity [Member]
Commitments And Contingencies [Line Items]
Ownership percentage	50.00%
Rudolph Technologies, Inc. [Member]
Commitments And Contingencies [Line Items]
Common stock, par value	$ 0.001
Common stock conversion ratio	0.8042
Rudolph Technologies, Inc. [Member] | Combined Entity [Member]
Commitments And Contingencies [Line Items]
Ownership percentage	50.00%

XML

Net Income Per Share - Reconciliation of Basic and Diluted Net Income Per Share Computations (Details) - shares shares in Thousands	3 Months Ended		6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018	Jun. 29, 2019	Jun. 30, 2018
Reconciliation of the basic and diluted net income per share computations
Weighted average common shares outstanding used in basic net income per share calculation	24,525	23,953	24,530	24,008
Potential dilutive common stock equivalents, using treasury stock method	318	489	320	480
Weighted average shares used in diluted net income per share calculation	24,843	24,442	24,850	24,488

XML

Stockholders' Equity and Stock-Based Compensation - Employee Stock Purchase Plan Assumptions (Details) - Employee Stock Purchase Plan [Member]	3 Months Ended		6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018	Jun. 29, 2019	Jun. 30, 2018
Assumption of stock option's fair value
Expected life	6 months	6 months	6 months	6 months
Volatility	41.30%	27.20%	39.10%	37.20%
Risk free interest rate	2.51%	1.61%	1.86%	0.91%
Dividends	0.00%	0.00%	0.00%	0.00%

XML

Stockholders' Equity and Stock-Based Compensation - Textual (Details) - $ / shares	6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018	Dec. 28, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options granted	0	0
Closing stock price	$ 34.71		$ 27.65
Performance-Based Restricted Stock Units (PSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percent of granted shares that will vest if target stock price performance is achieved	66.70%
Maximum percent of granted shares that will vest if maximum stock price performance is achieved	100.00%
Performance-Based Restricted Stock Units (PSUs) [Member] | Tranche One [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Period of vesting	1 year
Performance-Based Restricted Stock Units (PSUs) [Member] | Tranche Two [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Period of vesting	2 years
Performance-Based Restricted Stock Units (PSUs) [Member] | Tranche Three [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Period of vesting	3 years

XML

Stockholders' Equity and Stock-Based Compensation - Summary of Activity of Stock Options (Details) - USD ($) $ / shares in Units, $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 29, 2019	Dec. 29, 2018
Activity of stock option plans [Roll Forward]
Number of Shares Outstanding (Options), Beginning Balance (in shares)	83,394
Number of Shares Outstanding (Options), Exercised (in shares)	(70,100)
Number of Shares Outstanding (Options), Ending Balance (in shares)	13,294	83,394
Number of Shares Outstanding (Options), Exercisable (in shares)	13,294
Weighted average exercise price for stock option plans [Roll Forward]
Weighted Average Exercise Price, Beginning Balance (in dollars per share)	$ 15.80
Weighted Average Exercise Price, Exercised (in dollars per share)	15.72
Weighted Average Exercise Price, Ending Balance (in dollars per share)	16.19	$ 15.80
Weighted Average Exercise Price, Exercisable (in dollars per share)	$ 16.19
Weighted Average Remaining Contractual Term, Outstanding	1 year 18 days	1 year 2 months 8 days
Weighted Average Remaining Contractual Term, Exercisable	1 year 18 days
Aggregate Intrinsic Value, Outstanding	$ 246	$ 988
Aggregate Intrinsic Value, Exercisable	$ 246

XML

Stockholders' Equity and Stock-Based Compensation - Summary of Activity for RSUs (Details) - Restricted Stock Units (RSUs) [Member]	6 Months Ended
	Jun. 29, 2019 $ / shares shares
Activity for RSUs [Roll Forward]
Number of units, Beginning balance (in shares) | shares	769,003
Number of units, Granted (in shares) | shares	339,822
Number of units, Released (in shares) | shares	(303,127)
Number of units, Cancelled (in shares) | shares	(45,576)
Number of units, Ending balance (in shares) | shares	760,122
Weighted Average Fair Value for RSUs [Roll Forward]
Weighted Average Fair Value, Beginning balance (in dollars per share) | $ / shares	$ 31.39
Weighted Average Fair Value, Granted (in dollars per share) | $ / shares	28.68
Weighted Average Fair Value, Released (in dollars per share) | $ / shares	28.47
Weighted Average Fair Value, Cancelled (in dollars per share) | $ / shares	32.36
Weighted Average Fair Value, Ending balance (in dollars per share) | $ / shares	$ 31.28

XML

Stockholders' Equity and Stock-Based Compensation - Summary of Activity for PSUs (Details) - Performance-Based Restricted Stock Units (PSUs) [Member]	6 Months Ended
	Jun. 29, 2019 $ / shares shares
Activity for PSUs [Roll Forward]
Number of units, Beginning balance (in shares) | shares	112,163
Number of units, Granted (in shares) | shares	43,429
Number of units, Released (in shares) | shares	(16,066)
Number of units, Cancelled (in shares) | shares	(1,138)
Number of units, Ending balance (in shares) | shares	138,388
Weighted Average Fair Value for PSUs [Roll Forward]
Weighted Average Fair Value, Beginning balance (in dollars per share) | $ / shares	$ 22.37
Weighted Average Fair Value, Granted (in dollars per share) | $ / shares	19.09
Weighted Average Fair Value, Released (in dollars per share) | $ / shares	25.09
Weighted Average Fair Value, Cancelled (in dollars per share) | $ / shares	26.75
Weighted Average Fair Value, Ending balance (in dollars per share) | $ / shares	$ 20.99

XML

Stockholders' Equity and Stock-Based Compensation - PSUs Valuation Assumptions (Details) - Performance-Based Restricted Stock Units (PSUs) [Member] - $ / shares	6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant Date Fair Value Per Share (in dollars per share)	$ 19.09
Expected Dividend	0.00%	0.00%
Range of risk-free interest rates	2.45%
Range of risk-free interest rates, minimum		2.39%
Range of risk-free interest rates, maximum		2.63%
Range of expected volatilities for peer group, minimum	22.00%	22.00%
Range of expected volatilities for peer group, maximum	63.00%	66.00%
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant Date Fair Value Per Share (in dollars per share)	$ 13.12	$ 20.73
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant Date Fair Value Per Share (in dollars per share)	$ 23.75	$ 25.18

XML

Stockholders' Equity and Stock-Based Compensation - Stock-based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018	Jun. 29, 2019	Jun. 30, 2018
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense related to employee stock options and employee stock purchases	$ 3,200	$ 2,679	$ 6,314	$ 5,017
Cost of products [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense related to employee stock options and employee stock purchases	272	133	532	231
Cost of service [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense related to employee stock options and employee stock purchases	209	186	394	341
Research and development [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense related to employee stock options and employee stock purchases	739	506	1,511	983
Selling [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense related to employee stock options and employee stock purchases	740	737	1,544	1,270
General and administrative [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Total stock-based compensation expense related to employee stock options and employee stock purchases	$ 1,240	$ 1,117	$ 2,333	$ 2,192

XML

Income Taxes - Provision for Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018	Jun. 29, 2019	Jun. 30, 2018
Income Tax Disclosure [Abstract]
Provision for income taxes	$ 632	$ 2,895	$ 1,163	$ 7,337

XML

Income Taxes - Textual (Details) $ in Millions	Jun. 29, 2019 USD ($)
Income Tax Disclosure [Abstract]
Anticipated increase in unrecognized tax benefits during next twelve months	$ 1.2

XML

Segment, Geographic, Product and Significant Customer Information - Textual (Details) - segment	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 29, 2019	Jun. 30, 2018	Jun. 29, 2019	Jun. 30, 2018	Dec. 29, 2018
Concentration Risk [Line Items]
Number of operating segments			1
SK Hynix [Member] | Sales [Member] | Customer Concentration Risk [Member] | Minimum [Member]
Concentration Risk [Line Items]
Customer concentration risk percentage	10.00%		10.00%	10.00%
SK Hynix [Member] | Accounts Receivable [Member] | Credit Concentration Risk [Member] | Minimum [Member]
Concentration Risk [Line Items]
Customer concentration risk percentage			10.00%		10.00%
Micron Technology, Inc. [Member] | Sales [Member] | Customer Concentration Risk [Member] | Minimum [Member]
Concentration Risk [Line Items]
Customer concentration risk percentage	10.00%			10.00%
Micron Technology, Inc. [Member] | Accounts Receivable [Member] | Credit Concentration Risk [Member] | Minimum [Member]
Concentration Risk [Line Items]
Customer concentration risk percentage			10.00%
Yangtze Memory Technologies Co. Ltd. [Member] | Sales [Member] | Customer Concentration Risk [Member] | Minimum [Member]
Concentration Risk [Line Items]
Customer concentration risk percentage	10.00%	10.00%		10.00%
Yangtze Memory Technologies Co. Ltd. [Member] | Accounts Receivable [Member] | Credit Concentration Risk [Member] | Minimum [Member]
Concentration Risk [Line Items]
Customer concentration risk percentage			10.00%
Intel [Member] | Sales [Member] | Customer Concentration Risk [Member] | Minimum [Member]
Concentration Risk [Line Items]
Customer concentration risk percentage		10.00%	10.00%	10.00%
Taiwan Semiconductor [Member] | Sales [Member] | Customer Concentration Risk [Member] | Minimum [Member]
Concentration Risk [Line Items]
Customer concentration risk percentage			10.00%
Samsung Electronics Co. Ltd. [Member] | Sales [Member] | Customer Concentration Risk [Member] | Minimum [Member]
Concentration Risk [Line Items]
Customer concentration risk percentage		10.00%		10.00%
Toshiba Memory Corporation [Member] | Sales [Member] | Customer Concentration Risk [Member] | Minimum [Member]
Concentration Risk [Line Items]
Customer concentration risk percentage		10.00%		10.00%
Toshiba Memory Corporation [Member] | Accounts Receivable [Member] | Credit Concentration Risk [Member] | Minimum [Member]
Concentration Risk [Line Items]
Customer concentration risk percentage					10.00%

XML

Segment, Geographic, Product and Significant Customer Information - Total Net Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 29, 2019	Jun. 30, 2018	Jun. 29, 2019	Jun. 30, 2018
Net revenues:
Total net revenues	$ 67,620	$ 88,604	$ 134,720	$ 170,917
United States [Member]
Net revenues:
Total net revenues	9,170	7,392	26,044	14,130
China [Member]
Net revenues:
Total net revenues	25,873	28,333	40,233	36,375
South Korea [Member]
Net revenues:
Total net revenues	13,070	30,980	27,038	68,798
Taiwan [Member]
Net revenues:
Total net revenues	3,650	1,974	14,939	3,034
Japan [Member]
Net revenues:
Total net revenues	4,214	15,017	8,531	28,396
Singapore [Member]
Net revenues:
Total net revenues	8,723	2,380	10,274	14,535
Other [Member]
Net revenues:
Total net revenues	$ 2,920	$ 2,528	$ 7,661	$ 5,649

XML

Segment, Geographic, Product and Significant Customer Information - Long-lived Tangible Assets (Details) - USD ($) $ in Thousands	Jun. 29, 2019	Dec. 29, 2018
Long-lived tangible assets:
Total long-lived tangible assets	$ 52,779	$ 47,900
United States [Member]
Long-lived tangible assets:
Total long-lived tangible assets	51,365	46,325
International [Member]
Long-lived tangible assets:
Total long-lived tangible assets	$ 1,414	$ 1,575