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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended ~~September~~March 3031, ~~2018~~2019

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

For the transition period from to

Commission File No. 001-36226

RUDOLPH TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Delaware

22-3531208

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

16 Jonspin Road, Wilmington, Massachusetts 01887

(Address of principal executive offices, including zip code)

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

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	RTEC	New York Stock Exchange (NYSE)

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

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

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

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

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

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

The number of outstanding shares of the Registrant’s Common Stock on ~~October~~April 1516, ~~2018~~2019 was 31,~~900~~026,~~604~~385.

Table of Contents

TABLE OF CONTENTS

Item No.		Page
	PART I FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets at September 30, 2018 and December 31, 2017	3
	Condensed Consolidated Balance Sheets at March 31, 2019 and December 31, 2018	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017	4
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018	4
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and 2017	5
	Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and 2018	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017	6
	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2019 and 2018	6
	Notes to Condensed Consolidated Financial Statements	7
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2524
Item 4.	Controls and Procedures	25
	PART II OTHER INFORMATION
Item 1.	Legal Proceedings	2625
Item 1A.	Risk Factors	2625
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	2726
Item 4.	Mine Safety Disclosures	2726
Item 5.	Other Information	2726
Item 6.	Exhibits	27

Table of Contents

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

RUDOLPH TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

	September 30, 2018			December 31, 2017
	March 31, 2019			December 31, 2018
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	~~124~~100,~~334~~168		$	67112,~~770~~388
Marketable securities		70,~~005~~602			~~109~~62,~~589~~684
Accounts receivable, less allowance of $956 and $460		68,512			65,283
Accounts receivable, less allowance of $1,032 and $691		66,357			64,194
Inventories, net		91103,~~391~~989			6796,~~521~~820
Income taxes receivable		35,~~253~~046			76,~~220~~111
Prepaid expenses and other current assets		89,~~976~~958			48,~~699~~710
Total current assets		~~366~~356,~~471~~120			~~322~~350,~~082~~907
Property, plant and equipment, net		1618,~~763~~599			1718,~~342~~874
Operating lease right-of-use assets		13,734			—
Goodwill		22,495			22,495
Identifiable intangible assets, net		7,~~786~~061			87,~~632~~448
Other assets		1618,~~395~~301			1518,~~371~~316
Total assets	$	~~429~~436,~~910~~310		$	~~385~~418,~~922~~040
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	3026,~~095~~391		$	2630,~~800~~681
Deferred revenue		7,~~564~~491			6,~~223~~767
Other current liabilities		7,922			9,284
Current operating lease obligations		2,458			—
Total current liabilities		45,581			42,307
Other current liabilities		7,852			7,543
Other non-current liabilities		10,173			10,461
Total current liabilities		44,192			44,991
Total liabilities		55,754			52,768
Non-current operating lease obligations		12,742			—
Other non-current liabilities		9,514			11,161
Total liabilities		66,448			56,152
Commitments and contingencies
Stockholders’ equity:
Common stock		3231			3231
Additional paid-in capital		~~390~~370,~~547~~714			~~386~~369,~~196~~893
Accumulated other comprehensive loss		(1,~~568~~686	)		(1,~~205~~263	)
Accumulated deficit		(14,855	)		(51,869	)
Retained earnings (accumulated deficit)		803			(6,773	)
Total stockholders’ equity		~~374~~369,~~156~~862			~~333~~361,~~154~~888
Total liabilities and stockholders’ equity	$	~~429~~436,~~910~~310		$	~~385~~418,~~922~~040

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

Table of Contents

RUDOLPH TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2018			2017			2018			2017
	2019			2018
Revenue	$	60,~~432~~892		$	6673,~~920~~096		$	~~211,004~~		$	~~195,017~~
Cost of revenue		28,~~978~~873			3130,~~775~~675			~~95,393~~			~~92,548~~
Gross profit		3132,~~454~~019			3542,~~145~~421			~~115,611~~			~~102,469~~
Operating expenses:
Research and development		12,~~313~~718			1211,~~020~~783			~~36,829~~			~~36,176~~
Selling, general and administrative		11,~~128~~306			1012,~~102~~793			~~35,867~~			~~29,880~~
Amortization		~~384~~387			~~506~~380			~~1,147~~			~~1,516~~
Patent litigation income		—			(13,000	)		—			(13,000	)
Total operating expenses		24,411			24,956
Total operating expenses		23,825			9,628			73,843			54,572
Operating income		7,608			17,465
Operating income		7,629			25,517			41,768			47,897
Interest income, net		(806	)		(391	)
Interest income, net		(607	)		(244	)		(1,474	)		(658	)
Other (income) expense, net		(381	)		182
Other expense (income), net		(132	)		98			(90	)		533
Income before income taxes		8,795			17,674
Income before income taxes		8,368			25,663			43,332			48,022
Provision for income taxes		1,219			2,544
Provision for income taxes		1,181			8,294			6,318			14,309
Net income	$	7,576		$	15,130
Net income	$	7,187		$	17,369		$	37,014		$	33,713
Earnings per share:
Earnings per share:
Basic	$	0.25		$	0.48
Basic	$	0.23		$	0.55		$	1.16		$	1.07
Diluted	$	0.24		$	0.47
Diluted	$	0.22		$	0.54		$	1.14		$	1.05
Weighted average shares outstanding:
Weighted average shares outstanding:
Basic		30,916			31,662
Basic		31,901			31,571			31,807			31,455
Diluted		31,266			32,317
Diluted		32,408			32,170			32,387			32,126

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

Table of Contents

RUDOLPH TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2018			2017			2018			2017
	2019			2018
Net income	$	7,~~187~~576		$	1715,~~369~~130		$	~~37,014~~		$	~~33,713~~
Other comprehensive income:
Change in net unrealized gains (losses) on marketable securities, net of tax		(68	)		(2	)		62			43
Change in net unrealized gains on marketable securities, net of tax		95			23
Change in currency translation adjustments		(~~202~~518	)		91632			~~(425~~	)		~~1,344~~
Total comprehensive income	$	67,~~917~~153		$	1715,~~458~~785		$	~~36,651~~		$	~~35,100~~

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

Table of Contents

RUDOLPH TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH~~STOCKHOLDERS’ ~~FLOWS~~EQUITY

(In thousands)

(Unaudited)

	Nine Months Ended September 30,
	Common Stock						Additional Paid-in			Accumulated Other Comprehensive			Retained Earnings (Accumulated
	2018			2017
	Shares			Amount			Capital			Loss			Deficit)			Total
Cash flows from operating activities:
Balance at December 31, 2018		30,906		$	31		$	369,893		$	(1,263	)	$	(6,773	)	$	361,888
Net income	$	37,014		$	33,713
Issuance of shares through share-based compensation plans, net		103			—			—			—			—			—
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Repurchase of common stock		(37	)					(744	)		—			—			(744	)
Amortization of intangibles		1,147			1,516
Net income		—			—			—			—			7,576			7,576
Depreciation		3,634			2,925
Share-based compensation		—			—			2,163			—			—			2,163
Foreign currency exchange loss		217			533
Share-based compensation plan withholdings		(27	)		—			(598	)		—			—			(598	)
Change in fair value of contingent consideration		603			132
Currency translation		—			—			—			(518	)		—			(518	)
Share-based compensation		4,879			4,413
Unrealized gain on investments		—			—			—			95			—			95
Provision for doubtful accounts and inventory valuation		3,105			3,019
Balance at March 31, 2019		30,945		$	31		$	370,714		$	(1,686	)	$	803		$	369,862
Patent litigation income		—			(13,000	)
	Common Stock						Additional Paid-in			Accumulated Other Comprehensive			Retained Earnings (Accumulated
Changes in operating assets and liabilities		(26,160	)		9,536
	Shares			Amount			Capital			Loss			Deficit)			Total
Net cash and cash equivalents provided by operating activities		24,439			42,787
Balance at December 31, 2017		31,604		$	32		$	386,196		$	(1,205	)	$	(51,869	)	$	333,154
Cash flows from investing activities:
Issuance of shares through share-based compensation plans, net		169			—			122			—			—			122
Purchases of marketable securities		(113,353	)		(103,224	)
Net income		—			—			—			—			15,130			15,130
Proceeds from sales of marketable securities		152,588			99,931
Share-based compensation		—			—			1,507			—			—			1,507
Cash advanced on convertible note receivable		(1,000	)		—
Share-based compensation plan withholdings		(31	)		—			(839	)		—			—			(839	)
Purchases of property, plant and equipment		(4,127	)		(7,447	)
Currency translation		—			—			—			632			—			632
Net cash and cash equivalents provided by (used in) investing activities		34,108			(10,740	)
Unrealized gain on investments		—			—			—			23			—			23
Cash flows from financing activities:
Balance at March 31, 2018		31,742		$	32		$	386,986		$	(550	)	$	(36,739	)	$	349,729
Redemption of stock warrants		—			(1,025	)
Purchase of common stock		(38	)		—
Tax payments related to shares withheld for share-based compensation plans		(980	)		(1,331	)
Payment of contingent consideration for acquired business		(1,057	)		(358	)
Issuance of shares through share-based compensation plans		490			289
Net cash and cash equivalents used in financing activities		(1,585	)		(2,425	)
Effect of exchange rate changes on cash and cash equivalents		(398	)		545
Net increase in cash and cash equivalents		56,564			30,167
Cash and cash equivalents at beginning of period		67,770			37,859
Cash and cash equivalents at end of period	$	124,334		$	68,026
Supplemental disclosure of cash flow information:
Income taxes paid	$	2,389		$	6,917

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

Table of Contents

RUDOLPH TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2019			2018
Cash flows from operating activities:
Net income	$	7,576		$	15,130
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Amortization of intangibles		387			380
Depreciation		1,254			1,310
Foreign currency exchange (loss) gain		(381	)		183
Change in fair value of contingent consideration		—			318
Share-based compensation		2,163			1,507
Provision for doubtful accounts and inventory valuation		1,028			705
Changes in operating assets and liabilities		(13,593	)		(14,894	)
Net cash and cash equivalents (used in) provided by operating activities		(1,566	)		4,639
Cash flows from investing activities:
Purchases of marketable securities		(22,142	)		(57,134	)
Proceeds from sales of marketable securities		14,295			54,404
Purchases of property, plant and equipment		(1,320	)		(1,442	)
Net cash and cash equivalents used in investing activities		(9,167	)		(4,172	)
Cash flows from financing activities:
Purchase of common stock		(744	)		—
Tax payments related to shares withheld for share-based compensation plans		(598	)		(839	)
Issuance of shares through share-based compensation plans		—			122
Net cash and cash equivalents used in financing activities		(1,342	)		(717	)
Effect of exchange rate changes on cash and cash equivalents		(145	)		535
Net increase in cash and cash equivalents		(12,220	)		285
Cash and cash equivalents at beginning of period		112,388			67,770
Cash and cash equivalents at end of period	$	100,168		$	68,055

Supplemental disclosure of cash flow information:
Income taxes paid	$	114		$	249

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

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RUDOLPH TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

(Unaudited)

NOTE 1. Basis of Presentation

The accompanying interim unaudited Condensed Consolidated Financial Statements have been prepared by Rudolph Technologies, Inc. (the “Company” or “Rudolph”) and in the opinion of management reflect all adjustments, consisting of normal recurring accruals, necessary for their fair presentation in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Preparing financial statements requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual amounts could differ materially from reported amounts. The interim results for the three ~~and nine~~ month ~~periods~~period ended ~~September~~March 3031, ~~2018~~2019 are not necessarily indicative of results to be expected for the entire year or any future periods. This interim financial information should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 (“~~2017~~2018 10-K”) filed with the Securities and Exchange Commission (“SEC”) on February 1615, ~~2018~~2019. The accompanying Condensed Consolidated Balance ~~Sheet~~Sheets at December 31, ~~2017~~2018 has been derived from the audited consolidated financial statements included in the ~~2017~~2018 10-K.

Recent Accounting Pronouncements

Recently Adopted

Effective January 1, ~~2018~~2019, the Company adopted Accounting Standards Update (“ASU”) No. ~~2016~~2018-1607, “~~Income~~Compensation ~~Tax~~– Stock Compensation (Topic ~~740~~718): ~~Intra-Entity~~Improvements ~~Transfers~~to ofNonemployee ~~Assets~~Share-Based ~~Other~~Payment ~~Than Inventory~~Accounting.” This ASU, ~~which~~expands isthe ~~part~~scope of ~~the~~Topic ~~simplification~~718 ~~initiative~~to ofinclude ~~the~~share-based ~~Financial~~payment ~~Accounting~~transactions ~~Standards~~for ~~Board~~acquiring ~~(“FASB”),~~goods isand ~~intended~~services tofrom ~~reduce~~nonemployees. An entity should apply the ~~complexity~~requirements of ~~U.S.~~Topic ~~GAAP~~718 ~~and~~to ~~diversity~~nonemployee inawards ~~practice~~except ~~related~~for specific guidance on inputs to ~~the~~an ~~tax~~option ~~consequences~~pricing ofmodel ~~certain~~and ~~types~~the attribution of ~~intra-entity~~cost. The ~~asset~~ASU ~~transfers~~is effective for the fiscal years beginning after December 15, ~~particularly~~2018, ~~those~~including ~~involving~~interim ~~intellectual~~periods ~~property~~within that fiscal year. The adoption of ASU No. ~~2016~~2018-1607 did not have ~~any~~a material impact on the Company’s consolidated financial position, results of operations, and cash flows.

Effective January 1, ~~2018~~2019, the Company adopted ASU No. ~~2016~~ 2018-1502, “Income Statement of– ~~Cash~~Reporting ~~Flows~~Comprehensive Income (Topic ~~230~~220): ~~Classification~~Reclassification of Certain ~~Cash~~Tax ~~Receipts~~Effects ~~and~~from ~~Cash~~Accumulated ~~Payments~~Other Comprehensive Income.” The ~~This~~new ~~ASU~~guidance ~~provides~~allows companies to reclassify stranded tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”) from accumulated other comprehensive income to retained earnings. The guidance onalso ~~statement~~requires certain new disclosures regardless of ~~cash~~a ~~flows~~company’s ~~presentation~~election. The standard is effective for ~~eight~~annual ~~specific~~periods ~~cash~~beginning ~~flow~~after ~~issues~~December ~~where~~15, ~~diversity~~2018 inand ~~practice~~for ~~exists~~interim periods within those annual periods, with earlier adoption permitted. The adoption of ASU No. ~~2016~~2018-1502 did not have a material impact on the Company’s consolidated financial position, results of operations, and cash flows.

~~Effective~~In ~~January~~February 12016, ~~2018,~~ the ~~Company~~FASB ~~adopted~~issued ASU No. ~~2014~~2016-0902, “~~Revenue~~Leases ~~from Contracts with Customers~~ (Topic ~~606~~842),.” ~~which~~ASU ~~supersedes~~No. ~~nearly~~2016-02 ~~all~~requires ~~existing~~that ~~revenue~~lessees ~~recognition~~recognize ~~guidance. The~~virtually ~~core~~all ~~principle~~ of ~~this~~their ~~ASU~~leases ison ~~that~~the ~~revenue~~balance ~~should~~sheet, beby ~~recognized~~recording toa ~~depict the transfer~~ right-of-use ~~promised~~asset ~~goods~~and orlease ~~services~~liability. toOn ~~customers~~January in1, an2019, ~~amount~~the ~~that~~Company ~~reflects~~adopted ~~the~~ASU ~~consideration~~No. to2016-02 ~~which~~using the ~~entity~~modified ~~expects~~retrospective tomethod bewhich ~~entitled~~applies inthe ~~exchange~~provisions ~~for those goods or services. As a result~~ of the ~~adoption~~standard ofat ~~ASU No. 2014-09,~~ the ~~Company~~effective ~~changed~~date ~~its~~without ~~accounting~~adjusting ~~policy~~the ~~for~~comparative ~~revenue~~periods ~~recognition~~presented. The ~~Refer~~Company toalso ~~Note~~elected 2,the ~~“Revenue”~~package ~~for~~of ~~further~~practical ~~information~~expedients.

There was not a cumulative-effect adjustment to the Company’s beginning retained earnings as a result of adopting ASU No. 2016-02. The Company has recognized additional operating lease assets and obligations of $14.4 million as of January 1, 2019. The Company elected to not reassess prior conclusions related to the identification, classification and accounting for initial direct costs for leases that commenced prior to January 1, 2019. For additional disclosure and detail, see Note 5 of the Notes to the Condensed Consolidated Financial Statements, “Leasing Arrangements.”

Recently Issued

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

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

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

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

In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation (Topic718): Scope of Modification Accounting.” This ASU amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under Accounting Standards Codification (“ASC”) 718. The ASU is effective for the fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. The Company is currently evaluating the effect the adoption of ASU No. 2017-09 will have on its consolidated financial position, results of operations, and cash flows, if any.

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

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

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

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

NOTE 2. Revenue

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

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

Revenue Recognition

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

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

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~~Contracts~~In ~~with~~May ~~customers~~2017, ~~may~~the ~~include~~FASB ~~multiple~~issued ~~performance~~ASU ~~obligations~~No. ~~For~~2017-09, ~~such~~“Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.” This ASU amends the scope of modification accounting for share-based payment arrangements, and provides guidance on the ~~Company~~types ~~allocates~~of ~~revenue~~changes to ~~each~~the ~~performance~~terms ~~obligation~~or conditions of share-based onpayment ~~its~~awards ~~relative~~to ~~standalone~~which ~~selling~~an ~~price~~entity would be required to apply modification accounting under Accounting Standards Codification (“ASC”) 718. The ASU is effective for the fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. The ~~Company~~adoption ~~generally~~of ~~determines~~ASU ~~standalone~~No. ~~selling~~2017-09 ~~prices~~is ~~based~~not expected to have a material effect on the ~~prices~~Company’s ~~charged~~consolidated tofinancial ~~customers~~position, orresults ~~the~~of ~~expected~~operations, ~~cost~~and ~~plus~~cash ~~margin~~flows, if any.

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

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

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

Recently issued accounting guidance not discussed above is not applicable.

~~The~~NOTE ~~following~~2. Fair ~~table~~Value ~~represents a disaggregation of revenue by timing of revenue:~~Measurements

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

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

~~See~~The ~~Note~~following 15tables ~~for~~provide ~~additional~~the ~~discussion~~assets ofand ~~the~~liabilities ~~Company’s~~carried ~~disaggregated~~at ~~revenue~~fair invalue ~~detail.~~measured on a recurring basis at March 31, 2019 and December 31, 2018:

Systems Revenue

			Fair Value Measurements Using
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2019
Assets:
Available-for-sale debt securities:
Municipal notes and bonds	$	70,602	$	—	$	70,602	$	—
Foreign currency forward contracts		13		—		13		—
Total assets	$	70,615	$	—	$	70,615	$	—
Liabilities:
Contingent consideration - acquisitions	$	2,060	$	—	$	—	$	2,060
Total liabilities	$	2,060	$	—	$	—	$	2,060

December 31, 2018
Assets:
Available-for-sale debt securities:
Municipal notes and bonds	$	62,684	$	—	$	62,684	$	—
Total assets	$	62,684	$	—	$	62,684	$	—
Liabilities:
Contingent consideration - acquisitions	$	2,060	$	—	$	—	$	2,060
Foreign currency forward contracts		32		—		32		—
Total liabilities	$	2,092	$	—	$	32	$	2,060

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

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

Software Licensing, Support and Maintenance Revenue

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

Parts Revenue

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

Services Revenue

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

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~~Contract~~Level 1 ~~Liabilities~~inputs are based on quoted market prices that are available in active markets. The Company does not have any recurring financial assets and liabilities that are recorded in its Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 that are classified as Level 1 inputs.

The Company’s ~~records~~available-for-sale ~~contract~~debt ~~liabilities~~securities ~~when~~classified ~~the~~as ~~customer~~Level 2 ~~has~~are ~~been~~valued ~~billed~~using inobservable ~~advance~~inputs ofto ~~the~~quoted ~~Company~~market ~~completing~~prices, ~~its~~benchmark ~~performance~~yields, ~~obligations~~reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. The ~~These~~foreign ~~amounts~~currency forward contracts are ~~recorded~~primarily asmeasured ~~deferred~~based ~~revenue~~on inthe foreign currency spot and forward rates quoted by the ~~Consolidated~~banks ~~Balance~~or ~~Sheets~~foreign currency dealers. ~~The~~Investment ~~beginning~~prices ~~balance~~are inobtained ~~deferred~~from ~~revenue~~third ~~was~~party $7pricing providers,~~206~~ aswhich ofmodel ~~January~~prices 1utilizing the above observable inputs, ~~2018.~~for each asset class.

~~Changes~~Level 3 liabilities consisted of contingent consideration related to an acquisition for which the Company uses a discounted cash flow model to value these liabilities. The Level 3 assumptions used in ~~deferred~~the discounted cash flow model for the contingent consideration included projected revenue, ~~were~~timing asof ~~follows:~~cash flows and estimates of discount rates of 9.2% and 9.4% for the three months ended March 31, 2019 and 2018, respectively. A significant decrease in the projected revenue or increase in discount rates could result in a significantly lower fair value measurement for the contingent consideration.

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

This table presents a reconciliation of all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2019:

Practical Expedients

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Balance at December 31, 2018	$	2,060
Additions		—
Payments		—
Transfer into (out of) Level 3		—
Balance at March 31, 2019	$	2,060

~~The~~See ~~Company~~Note ~~generally~~3 ~~expenses~~for ~~sales~~additional ~~commissions~~discussion ~~when~~regarding ~~incurred because~~ the ~~amortization~~fair ~~period~~value isof ~~one~~the ~~year~~Company’s ormarketable ~~less~~securities. ~~These costs are recorded within selling, general and administrative expenses.~~

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

The ~~Company~~carrying ~~does~~value ~~not~~of ~~disclose~~cash ~~the~~and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates fair value because of ~~remaining~~the ~~performance~~short-term ~~obligations~~maturity ~~for~~of ~~contracts~~these ~~with~~instruments. The anestimated ~~original~~fair ~~expected~~value ~~length~~ of ~~one~~these ~~year~~obligations oris ~~less~~based ~~and~~primarily ~~contracts~~on ~~for~~a ~~which~~market approach, comparing the Company’s ~~recognizes~~interest ~~revenue~~rates into ~~the~~those ~~amount~~rates tothe ~~which~~Company believes it ~~has~~would reasonably receive upon re-entry into the ~~right~~market. Judgment is required to ~~invoice~~estimate the fair value, using available market information and appropriate valuation methods.

~~NOTE~~The 3carrying amount of the convertible notes receivable approximates fair value based on current interest rates for instruments with similar characteristics. Convertible notes receivable are initially recognized at fair value. The Company does not subsequently adjust the fair value of these convertible ~~Fair~~notes ~~Value~~receivable unless ~~Measurements~~it is determined that the convertible notes receivable are impaired. The Company considers the issuer’s financial condition, payment history, and other relevant factors when assessing the collectability of a convertible note and to reserve the portion of such convertible note for which collection does not appear likely. Interest income is recognized as earned.

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

The Company has evaluated its investment policies and determined that all of its marketable securities, which are comprised of debt securities, are to be classified as available-for-sale. The Company’s available-for-sale debt securities are carried at fair value, with the unrealized gains and losses reported in Stockholders’ equity under the caption “Accumulated other comprehensive loss.” Realized gains and losses on available-for-sale securities are included in “Other expense (income)” on the Condensed Consolidated Statements of Operations. The Company records other-than-temporary impairment charges for its available-for-sale debt securities when it intends to sell the securities, it is more-likely-than not that it will be required to sell the securities before a recovery, or when it does not expect to recover the entire amortized cost basis of the securities. The cost of securities sold is based on the specific identification method.

The Company has determined that the gross unrealized losses on its marketable securities at March 31, 2019 and December 31, 2018 are temporary in nature. The Company reviews its investment portfolio to identify and evaluate marketable securities that have indications of possible impairment. Factors considered in determining whether a loss is other-than-

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~~The~~temporary ~~following~~include ~~tables~~the ~~provide~~length ~~the~~of ~~assets~~time and ~~liabilities~~extent ~~carried~~to atwhich fair value ~~measured~~has onbeen aless ~~recurring~~than ~~basis~~the atcost ~~September 30~~basis, ~~2018~~credit quality and ~~December 31,~~the ~~2017:~~Company’s ability and intent to hold the securities for a period of time sufficient to allow for any anticipated recovery in market value.

			Fair Value Measurements Using
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2018
Assets:
Available-for-sale debt securities:
Municipal notes and bonds	$	70,005	$	—	$	70,005	$	—
Foreign currency forward exchange contracts		156		—		156		—
Total assets	$	70,161	$	—	$	70,161	$	—
Liabilities:
Contingent consideration - acquisitions		2,139		—		—		2,139
Total liabilities	$	2,139	$	—	$	—	$	2,139
December 31, 2017
Assets:
Available-for-sale debt securities:
Municipal notes and bonds	$	109,589	$	—	$	109,589	$	—
Foreign currency forward exchange contracts		45		—		45		—
Total assets	$	109,634	$	—	$	109,634	$	—
Liabilities:
Contingent consideration - acquisitions	$	2,593	$	—	$	—	$	2,593
Total liabilities	$	2,593	$	—	$	—	$	2,593

At March 31, 2019 and December 31, 2018, marketable securities are categorized as follows:

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

	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Fair Value
March 31, 2019
Municipal notes and bonds	$	70,481	$	126	$	5	$	70,602
Total marketable securities	$	70,481	$	126	$	5	$	70,602
December 31, 2018
Municipal notes and bonds	$	62,681	$	43	$	40	$	62,684
Total marketable securities	$	62,681	$	43	$	40	$	62,684

The ~~Company’s~~amortized ~~available-for-sale~~cost ~~debt~~and ~~securities~~estimated ~~classified~~fair asvalue ~~Level 2 are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels~~ of ~~price~~marketable ~~transparency. The~~securities ~~foreign~~classified ~~currency~~by ~~forward~~the ~~exchange~~maturity ~~contracts~~date ~~are~~listed ~~primarily measured based~~ on the ~~foreign~~security, ~~currency~~regardless ~~spot~~of ~~and forward rates quoted by~~ the ~~banks~~Condensed orConsolidated ~~foreign~~Balance ~~currency~~Sheets ~~dealers. Investment~~classification, ~~prices~~is ~~are~~as ~~obtained~~follows ~~from~~at ~~third party pricing providers~~March 31, ~~which~~2019 ~~model~~and ~~prices utilizing the above observable inputs~~December 31, ~~for~~2018: ~~each asset class.~~

Level 3 liabilities consisted of contingent consideration related to an acquisition for which the Company uses a discounted cash flow model to value these liabilities. The Level 3 assumptions used in the discounted cash flow model for the contingent consideration included projected revenue, timing of cash flows and estimates of discount rates of 9.4% and 8.6% for the nine months ended September 30, 2018 and 2017, respectively. A significant decrease in the projected revenue or increase in discount rates could result in a significantly lower fair value measurement for the contingent consideration.

	March 31, 2019				December 31, 2018
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due within one year	$	57,345	$	57,379	$	47,767	$	47,732
Due after one through five years		13,136		13,223		14,914		14,952
Due after five through ten years		—		—		—		—
Due after ten years		—		—		—		—
Total marketable securities	$	70,481	$	70,602	$	62,681	$	62,684

~~This~~The following table ~~presents~~summarizes athe ~~reconciliation~~estimated offair ~~all~~value ~~liabilities~~and ~~measured~~gross atunrealized ~~fair~~holding ~~value~~losses onof amarketable ~~recurring~~securities, ~~basis~~aggregated ~~using~~by ~~significant~~investment ~~unobservable~~instrument ~~inputs~~and ~~(Level~~period 3)of ~~for~~time ~~the~~in ~~nine~~an ~~months~~unrealized ~~ended~~loss ~~September~~position, at March 3031, 2019 and December 31, 2018:

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	In Unrealized Loss Position For Less Than 12 Months					In Unrealized Loss Position For Greater Than 12 Months
Balance at December 31, 2017	$	2,593
	Fair Value			Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Additions		—
March 31, 2019
Total loss included in selling, general and administrative expense		603
Municipal notes and bonds	$	10,400		$	1	$	4,676	$	4
Payments		(1,057	)
Total	$	10,400		$	1	$	4,676	$	4
Transfers into (out of) Level 3		—
December 31, 2018
Balance at September 30, 2018	$	2,139
Municipal notes and bonds	$	27,952		$	30	$	4,671	$	10
Total	$	27,952		$	30	$	4,671	$	10

See Note 42 for additional discussion regarding the fair value of the Company’s marketable securities.

NOTE 4. Derivative Instruments and Hedging Activities

The Company, when it considers it to be appropriate, enters into forward contracts to hedge the economic exposures arising from foreign currency denominated transactions. At March 31, 2019 and December 31, 2018, these contracts included the future sale of Japanese Yen to purchase U.S. dollars. Derivative instruments are measured at fair value and recognized as either, “Prepaid expenses and other current assets” or “Other current liabilities” in the Condensed Consolidated Balance Sheets with changes in the net derivatives position reflected in operating cash flows. The foreign currency forward contracts were entered into by the Company’s Japanese subsidiary to economically hedge a portion of certain intercompany obligations. The forward contracts are not designated as hedges for accounting purposes and increases in the fair value of $45 for the three months ended March 31, 2019 and a decrease in the fair value of $433 for the three months ended March 31, 2018, are recorded under the caption “Other expense (income), net” in the Condensed Consolidated Statements of Operations.

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~~Fair~~The ~~Value~~dollar equivalent of ~~Other~~the ~~Financial~~U.S. ~~Instruments~~dollar forward contracts and related fair values as of March 31, 2019 and December 31, 2018 were as follows:

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates fair value because of the short-term maturity of these instruments. The estimated fair value of these obligations is based primarily on a market approach, comparing the Company’s interest rates to those rates the Company believes it would reasonably receive upon re-entry into the market. Judgment is required to estimate the fair value, using available market information and appropriate valuation methods.

	March 31, 2019		December 31, 2018
Notional amount	$	5,806	$	6,746
Fair value of asset (liability)	$	13	$	(32	)

~~The~~NOTE ~~carrying~~5. ~~amount~~Leasing ~~of the convertible note receivable approximates fair value based on current interest rates for instruments with similar characteristics.~~Arrangements

~~NOTE~~The 4Company leases space for its corporate headquarters, manufacturing, sales and service operations, vehicles and information technology equipment under operating leases. ~~Marketable~~ ~~Securities~~All of the Company’s leases are operating leases. The Company elected not to apply Accounting Standard Codification Topic 842 (“ASC 842”) to arrangements with lease terms of less than 12 months. Operating lease right-of-use assets and obligations are reflected within the captions “Operating lease right-of-use assets,” “Current operating lease obligations,” and “Non-current operating lease obligations,” respectively, on the Condensed Consolidated Balance Sheets.

~~The~~Operating ~~Company~~lease ~~has~~costs ~~evaluated~~were ~~its~~$877 ~~investment~~during ~~policies~~the ~~and~~three ~~has~~months ~~determined~~ended ~~that~~March ~~all of its marketable securities~~31, ~~which~~2019. These costs are ~~comprised~~primarily ofrelated ~~debt securities, are~~ to ~~be classified as available~~long-~~for-sale. The~~term ~~Company’s~~operating ~~available-for-sale debt securities are carried at fair value~~leases, ~~with~~but ~~the~~also ~~unrealized~~include ~~gains~~immaterial ~~and~~amounts ~~losses reported in Stockholders’ equity under the caption “Accumulated other comprehensive loss.” Realized gains and losses on available-~~for~~-sale~~ ~~debt securities are included in “Other expense” in the Condensed Consolidated Statements of Operations. The Company records other~~short-~~than-temporary~~term ~~impairment~~leases ~~charges~~less ~~for its available-for-sale debt securities when it intends to sell the securities, it is more-likely-~~than ~~not~~12 ~~that~~months. Operating itlease ~~will~~costs beare ~~required~~recognized toon ~~sell the securities before~~ a ~~recovery,~~straight-line ~~or when it does not expect to recover the entire amortized cost~~ basis ofover the ~~securities. The~~terms ~~cost~~ of ~~securities sold is based on~~ the ~~specific identification method~~leases.

~~The~~Additional ~~Company~~operating ~~has~~lease ~~determined~~right-of-use ~~that~~assets ~~the~~of ~~gross~~$10 ~~unrealized~~were ~~losses~~recognized onas ~~its~~non-cash ~~marketable~~asset ~~securities~~additions atthat ~~September 30,~~resulted ~~2018~~from ~~and~~new ~~December 31,~~operating ~~2017~~lease ~~are~~liabilities ~~temporary~~during inthe ~~nature. The~~three ~~Company~~months ~~reviews~~ended ~~its~~March ~~investment~~31, ~~portfolio~~2019. toCash ~~identify~~paid ~~and~~for ~~evaluate~~amounts ~~marketable~~included ~~securities~~in ~~that~~the ~~have~~present ~~indications~~value of ~~possible~~operating ~~impairment. Factors~~lease ~~considered~~liabilities inwas ~~determining~~$846 ~~whether~~during ~~a loss is other-than-temporary include~~ the ~~length~~three ofmonths ~~time~~ended ~~and~~March ~~extent to which fair value has been less than the cost basis~~31, ~~credit~~2019 ~~quality~~ and ~~the~~is ~~Company’s~~included ~~ability and intent to hold the securities for a period of time sufficient to allow for any anticipated recovery~~ in ~~market~~operating ~~value~~cash flows.

AtThe ~~September 30,~~Company ~~2018~~often has the option to renew lease terms for buildings and ~~December 31,~~other ~~2017,~~assets. ~~marketable~~The ~~securities~~exercise of lease renewal options are ~~categorized~~generally at the Company’s sole discretion. In addition, certain lease arrangements may be terminated prior to their original expiration date at the Company’s discretion. The Company evaluates renewal and termination options at the lease commencement date to determine if it is reasonably certain to exercise the option on the basis of economic factors. The weighted average of the remaining lease term for operating leases as ~~follows:~~of March 31, 2019 was 8.1 years.

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

The discount rate implicit within the Company’s leases is generally not determinable and therefore the Company determines the discount rate based on its incremental borrowing rate. The incremental borrowing rate for our leases is determined based on the lease term in which lease payments are made. The weighted average discount rate used to measure operating lease liabilities as of March 31, 2019 was 4.7%.

The ~~amortized~~following ~~cost~~table ~~and~~presents ~~estimated~~information ~~fair~~about ~~value of marketable securities classified by~~ the ~~maturity~~amount ~~date~~and ~~listed~~timing onof ~~the~~cash ~~security,~~flows ~~regardless~~arising offrom the ~~Condensed~~Company’s ~~Consolidated~~operating ~~Balance~~leases ~~Sheet classification, are~~ as ~~follows~~of atMarch ~~September 30, 2018 and December~~ 31, ~~2017~~2019:

		September 30, 2018				December 31, 2017
	March 31, 2019
		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Maturity of Lease Liabilities	Lease Payments
Due within one year		$	63,901	$	63,831	$	104,742	$	104,605
2019	$	2,361
Due after one through five years			6,191		6,174		5,008		4,984
2020		2,944
Due after five through ten years			—		—		—		—
2021		2,019
Due after ten years			—		—		—		—
2022		1,988
Total marketable securities		$	70,092	$	70,005	$	109,750	$	109,589
2023	$	1,698
Thereafter		7,484
Total undiscounted operating lease payments	$	18,494
Less: Imputed interest		3,294
Present value of operating lease liabilities	$	15,200

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~~The~~NOTE ~~following~~6. ~~table~~Purchased ~~summarizes~~Intangible the estimated fair value and gross unrealized holding losses of marketable securities, aggregated by investment instrument and period of time in an unrealized loss position, at September 30, 2018 and December 31, 2017:Assets

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

Purchased intangible assets as of March 31, 2019 and December 31, 2018 are as follows:

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

	Gross Carrying Amount		Accumulated Amortization		Net
March 31, 2019
Finite-lived intangibles:
Developed technology	$	66,177	$	59,987	$	6,190
Customer and distributor relationships		9,560		9,149		411
Trade names		4,361		3,901		460
Total identifiable intangible assets	$	80,098	$	73,037	$	7,061
December 31, 2018
Finite-lived intangibles:
Developed technology	$	66,177	$	59,692	$	6,485
Customer and distributor relationships		9,560		9,082		478
Trade names		4,361		3,876		485
Total identifiable intangible assets	$	80,098	$	72,650	$	7,448

~~NOTE~~Intangible 5asset amortization expenses for the three months ended March 31, 2019 and 2018 were $387 and $380, respectively. Assuming ~~Convertible~~no ~~Note~~change ~~Receivable~~in the gross carrying value of identifiable intangible assets and estimated lives, estimated amortization expenses for the remainder of 2019 are $1,161, and for each of the next five years estimated amortization expenses are $1,346 for 2020, $598 for 2021, $532 for 2022, $515 for 2023, and $431 for 2024.

~~The~~NOTE ~~Company entered into a convertible loan agreement with Simax Precision Technologies Limited (“Simax”) on May 31, 2018~~7. ~~Simax~~ ~~may~~Convertible ~~borrow~~Notes from the Company up to $15,000 in multiple promissory notes. The Company expects to be a supplier of lithography modules to Simax which is focused on the manufacture, sale and service of lithography systems. Receivable

The ~~convertible~~Company ~~notes~~entered ~~will~~into ~~bear~~ a ~~rate~~convertible ofloan ~~interest~~agreement ofwith ~~4.25%~~Simax ~~per~~Precision ~~annum~~Technologies ~~payable~~Limited (“Simax”) on aMay ~~semi-annual~~31, ~~basis~~2018. ~~The~~Under ~~convertible notes provide~~ the ~~Company~~agreement, ~~with~~Simax ~~the~~may ~~option~~borrow tofrom ~~convert~~ the ~~outstanding indebtedness into equity. If the~~ Company ~~does~~up ~~not elect~~ to ~~exercise~~$15,000 ~~its~~in ~~option~~multiple topromissory ~~convert the~~ notes, ~~Simax~~subject ~~will~~to ~~repay~~limitations. The ~~the~~Company ~~principal~~expects ~~amount~~to ~~outstanding~~be ~~and~~a ~~any~~supplier ~~outstanding~~of ~~interest~~lithography inmodules ~~equal~~to ~~installments~~Simax ~~beginning~~which onis ~~the~~focused ~~fifth~~on ~~anniversary of~~ the ~~loan~~manufacture, ~~date~~sale and ~~continuing~~service onof alithography ~~quarterly basis over the next three years~~systems.

AsThe convertible notes will bear a rate of ~~September~~interest ~~30,~~of ~~2018,~~4.25% ~~the~~per ~~Convertible~~annum payable on a semi-annual basis. The convertible notes ~~receivable~~provide ~~balance~~the ~~was~~Company $1with the option to convert the outstanding indebtedness into equity. If the Company does not elect to exercise its option to convert the notes into equity,~~000~~ ~~with~~Simax ~~accrued~~will repay the principal amount outstanding and any outstanding interest in equal installments beginning on the fifth anniversary of $4the loan date and continuing on a quarterly basis over the next three years.

~~NOTE~~As ~~6. Derivative~~of ~~Instruments~~March ~~and~~31, ~~Hedging~~2019, ~~Activities~~the convertible notes receivable balance was $5,000 with accrued interest of $93.

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

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

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

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NOTE 7. Purchased Intangible Assets

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

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

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

NOTE 8. Balance Sheet Details

Inventories

Inventories are comprised of the following:

	September 30, 2018		December 31, 2017
	March 31, 2019		December 31, 2018
Materials	$	5570,~~856~~431	$	3961,~~765~~025
Work-in-process		2422,~~467~~342		2021,~~923~~910
Finished goods		11,~~068~~216		613,~~833~~885
Total inventories	$	91103,~~391~~989	$	6796,~~521~~820

The Company has established reserves of $1211,~~164~~711 and $1311,~~035~~678 as of ~~September~~March 3031, ~~2018~~2019 and December 31, ~~2017~~2018, respectively, for slow moving and obsolete inventory, which are included in the amounts above.

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Property, Plant and Equipment

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

	September 30, 2018			December 31, 2017
	March 31, 2019			December 31, 2018
Land and building	$	2,584		$	2,584
Machinery and equipment		2928,~~370~~886			29,~~870~~097
Furniture and fixtures		3,~~267~~232			3,~~201~~226
Computer equipment and software		68,~~749~~901			57,~~444~~906
Leasehold improvements		9,~~494~~449			9,~~472~~448
		51,464			50,571
		53,052			52,261
Accumulated depreciation		(34,~~701~~453	)		(33,~~229~~387	)
Total property, plant and equipment, net	$	1618,~~763~~599		$	1718,~~342~~874

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Other assets

Other assets is comprised of the following:

	September 30, 2018		December 31, 2017
	March 31, 2019		December 31, 2018
Deferred income taxes	$	14,896	$	14,879
Convertible notes receivable	$	5,000	$	5,000
Convertible note receivable	$	1,000	$	—
Deferred income taxes		12,785		12,810
Other		~~499~~516		~~492~~506
Total other assets	$	1618,~~395~~301	$	1518,~~371~~316

Other current liabilities

Other current liabilities is comprised of the following:

	September 30, 2018		December 31, 2017
	March 31, 2019		December 31, 2018
Intangible asset acquisition - Stella Alliance	$	250	$	100
Contingent consideration - acquisitions	$	1,422	$	1,422
Contingent consideration - acquisitions		781		634
Customer deposits		888		1,135
Customer deposits		877		5,561
Accrued inventory		1,082		1,103
Other		64,~~014~~460		23,~~989~~883
Total other current liabilities	$	7,~~922~~852	$	97,~~284~~543

Other non-current liabilities

Other non-current liabilities is comprised of the following:

	September 30, 2018		December 31, 2017
	March 31, 2019		December 31, 2018
Unrecognized tax benefits (including interest)	$	45,~~698~~462	$	45,~~660~~409
Contingent consideration - acquisitions		~~1,358~~638		~~1,959~~638
Deferred revenue		1,~~140~~196		~~983~~1,314
Other		2,977		2,859
Deferred rent		—		1,405
Total other non-current liabilities	$	10,173	$	10,461
Other		2,218		2,395
Total other non-current liabilities	$	9,514	$	11,161

NOTE 9. Commitments and Contingencies

Intellectual Property Indemnification Obligations

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

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Warranty Reserves

The Company generally provides a warranty on its products for a period of 12 to 15 months against defects in material and workmanship. The Company estimates the costs that may be incurred during the warranty period and records a liability in the amount of such costs at the time revenue is recognized. The Company’s estimate is based primarily on historical experience. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Settlements of warranty reserves are generally associated with sales that occurred during the 12 to 15 months prior to the quarter-end and warranty accruals are related to sales during the same year.

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

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2018			2017
	2019			2018
Balance, beginning of the period	$	2,~~427~~441		$	12,~~788~~427
Accruals		~~2,720~~672			~~2,511~~959
Usage		(~~2,589~~853	)		(~~2,025~~820	)
Balance, end of the period	$	2,~~558~~260		$	2,~~274~~566

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

Legal Matters

From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business. ~~There~~As of March 31, 2019, there are no legal proceedings pending or threatened against the Company that management believes are likely to have a material adverse effect on the Company’s consolidated financial position or otherwise.

Line of Credit

The Company has a credit agreement with a bank that provides for a line of credit which is secured by the marketable securities the Company has with the bank. The Company is permitted to borrow up to 70% of the value of eligible securities held at the time the line of credit is accessed. The available line of credit as of ~~September~~March 3031, ~~2018~~2019 was approximately $~~102~~96.7 million with an available interest rate of 34.80%. The credit agreement is available to the Company until such time that either party terminates the arrangement at their discretion. The Company has not utilized the line of credit to date.

NOTE 10. ~~Share-Based Compensation~~Revenue

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

AContracts ~~summary~~with ofcustomers may include multiple performance obligations. For such arrangements, the ~~activity~~Company ~~with~~allocates ~~respect~~revenue to ~~the~~each performance obligation based on its relative standalone selling price. The Company’s ~~unvested~~generally ~~restricted~~determines ~~stock~~standalone ~~units~~selling ~~during~~prices based on the ~~nine~~prices ~~months~~charged ~~ended~~to ~~September 30,~~customers ~~2018~~or isthe asexpected ~~follows:~~cost-plus margin.

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

Disaggregated Revenue

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

As of September 30, 2018 and December 31, 2017, there was $11,088 and $9,420 of total unrecognized compensation cost related to restricted stock units granted under the Company’s stock plans, respectively. That cost is expected to be recognized over a weighted average period of 2.1 years and 2.2 years for each of the respective periods.

	Three Months Ended
	March 31,
	2019		2018
Systems	$	42,772	$	56,102
Software licensing, support and maintenance		7,037		7,455
Parts		8,077		6,985
Services		3,006		2,554
Total revenue	$	60,892	$	73,096

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

	Three Months Ended
	March 31,
	2019		2018
Point-in-time	$	56,591	$	69,396
Over-time		4,301		3,700
Total revenue	$	60,892	$	73,096

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

Systems Revenue

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

Software Licensing, Support and Maintenance Revenue

Parts Revenue

Services Revenue

Contract Liabilities

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

Changes in deferred revenue were as follows:

	Three Months Ended
	March 31,
	2019			2018
Balance, beginning of the period	$	8,080		$	7,206
Deferral of revenue		1,805			4,553
Recognition of deferred revenue		(1,198	)		(2,986	)
Balance, ending of the period	$	8,687		$	8,773

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NOTE 11. ~~Other~~ ~~Expense~~Share-Based ~~(Income), net~~Compensation

Restricted Stock Unit Activity

A summary of the Company’s restricted stock unit activity with respect to the three months ended March 31, 2019 is as follows:

	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2018		794		$	19.51
Granted		288		$	23.50
Vested		(124	)	$	14.21
Forfeited		(5	)	$	20.28
Nonvested at March 31, 2019		953		$	21.40

Included in the number of shares granted in the table directly above are 55 market performance-based restricted stock units (“MPRSUs”) granted to executives in 2019. Vesting of these MPRSUs is contingent upon the Company meeting certain total shareholder return (“TSR”) levels as compared to a select peer group over three years from the year granted. The 2019 MPRSUs cliff vest at the end of the three-year period and have a maximum potential to vest at 200% (111 shares) based on TSR performance. The related share-based compensation expense is determined based on the estimated fair value of the underlying shares on the date of grant and is recognized straight-line over the vesting term. The estimated fair value per share of the MPRSUs was $26.72.

As of March 31, 2019 and December 31, 2018, there was $14,034 and $9,517 of total unrecognized compensation cost related to restricted stock units granted under the Company’s stock plans, respectively. That cost is expected to be recognized over a weighted average period of 2.6 years and 2.1 years for each of the respective periods.

NOTE 12. Other Expense (Income), Net

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2018			2017			2018			2017
	2019			2018
Gain on casualty insurance claim	$	(302	)	$	—		$	(302	)	$	—
Foreign currency exchange losses (gains), net	$	(381	)	$	183
Foreign currency exchange losses (gains), net		174			98			217			533
Rental income		—			(1	)
Other		(4	)		—			(5	)		—
Total other expense (income), net	$	(381	)	$	182
Total other expense (income), net	$	(132	)	$	98		$	(90	)	$	533

NOTE 1213. Income Taxes

The following table provides details of income taxes:

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2018			2017			2018			2017
	2019			2018
Income before income taxes	$	8,~~368~~795		$	2517,~~663~~674		$	~~43,332~~		$	~~48,022~~
Provision for income taxes	$	1,~~181~~219		$	82,~~294~~544		$	~~6,318~~		$	~~14,309~~
Effective tax rate		1413.19	%		3214.34	%		~~14.6~~	%		~~29.8~~	%

The income tax provision for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2018~~2019 was computed based on the Company’s annual forecast of profit by jurisdiction and forecasted effective tax rate for the year. The changes in the Company’s effective tax rate for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2018~~2019 as compared to the same period in ~~2017~~2018 are primarily due to ~~enactment~~changes in the mix of ~~U.S.~~forecasted ~~tax~~earnings ~~reform~~by jurisdictions, ~~which~~Section ~~provides~~162 ~~for~~(m) aadjustment ~~change~~and in the ~~corporate~~ tax-exempt ~~rate~~interest. The ~~from~~Company’s ~~35%~~recorded toeffective ~~21%,~~tax ~~changes~~rate inis less than the ~~mix~~U.S. ofstatutory ~~forecasted~~rate ~~earnings~~primarily bydue ~~jurisdictions~~to ~~and~~a ~~the~~projected Foreign Derived Intangible Income Deduction from the Tax Act and federal research and development tax credits..

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

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

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

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

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

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ofThe ~~$0.1~~Company ~~million~~currently ~~being~~has a partial valuation allowance recorded atagainst ~~December~~certain ~~31,~~foreign ~~2017~~and state net operating loss and credit carryforwards where the realizability of such deferred tax assets is substantially in doubt. AsEach quarter, the Company ~~continues~~assesses the likelihood that it will be able to ~~refine~~recover its ~~E&P~~deferred ~~analysis,~~tax itassets. ~~will~~The ~~refine~~Company ~~its~~considers ~~calculations~~available ofevidence, ~~the~~both ~~one-time~~positive ~~transition~~and ~~tax~~negative, ~~which~~including ~~could~~forecasted ~~affect~~earnings in assessing the ~~measurement~~need offor ~~this~~a ~~liability~~valuation allowance. NoAs ~~additional~~a ~~income~~result ~~taxes~~of ~~have~~the ~~been~~Company’s ~~provided~~analysis, ~~for~~it ~~any~~concluded ~~remaining~~that ~~undistributed~~it ~~foreign~~is ~~earnings~~more likely than not ~~subject~~that toa ~~the~~portion ~~transition~~of its deferred tax assets will not be realized. Therefore, the Company continues to provide a valuation allowance against certain deferred tax assets. The Company continues to monitor available evidence and may reverse some or ~~any~~all ~~additional~~of ~~outside~~the ~~basis~~remaining ~~difference~~valuation ~~inherent~~allowance in ~~these~~future ~~entities~~periods, asif ~~these~~appropriate. The ~~amounts~~Company ~~continue~~has toa berecorded ~~indefinitely~~valuation ~~reinvested~~allowance inagainst ~~foreign~~certain ~~operations~~of its deferred tax assets of $3,172 as of March 31, 2019 and December 31, 2018.

~~The~~NOTE Company currently has a partial valuation allowance recorded against certain foreign and state net operating loss and credit carryforwards where the realizability of such deferred tax assets is substantially in doubt14. ~~Each~~ ~~quarter,~~Earnings ~~the~~Per Company assesses the likelihood that it will be able to recover its deferred tax assets. The Company considers available evidence, both positive and negative, including forecasted earnings in assessing the need for a valuation allowance. As a result of the Company’s analysis, it concluded that it is more likely than not that a portion of its deferred tax assets will not be realized. Therefore, the Company continues to provide a valuation allowance against certain deferred tax assets. The Company continues to monitor available evidence and may reverse some or all of the remaining valuation allowance in future periods, if appropriate. The Company has a recorded valuation allowance against certain of its deferred tax assets of $2,447 as of September 30, 2018 and December 31, 2017.Share

~~NOTE~~Basic 13earnings per share is calculated using the weighted average number of shares of common stock outstanding during the period. Diluted ~~Earnings~~earnings ~~Per~~per ~~Share~~share is computed in the same manner and also gives effect to all dilutive common stock equivalent shares outstanding during the period. Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive. In accordance with U.S. GAAP, these shares were not included in calculating diluted earnings per share.

Basic earnings per share is calculated using the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed in the same manner and also gives effect to all dilutive common equivalent shares outstanding during the period. Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive. In accordance with U.S. GAAP, these shares were not included in calculating diluted earnings per share.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2018		2017		2018		2017
	2019		2018
Restricted stock units		7208		233		17		9
Total		7208		233		17		9

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2018		2017		2018		2017
	2019		2018
Numerator:
Net income	$	7,~~187~~576	$	1715,~~369~~130	$	~~37,014~~	$	~~33,713~~
Denominator:
Basic earnings per share - weighted average shares outstanding		3130,~~901~~916		31,~~571~~662		~~31,807~~		~~31,455~~
Effect of potential dilutive securities:
Employee stock options and restricted stock units - dilutive shares		~~507~~350		~~599~~655		~~580~~		~~669~~
Warrant - dilutive shares		—		—		—		2
Diluted earnings per share - weighted average shares outstanding		31,266		32,317
Diluted earnings per share - weighted average shares outstanding		32,408		32,170		32,387		32,126
Earnings per share:
Earnings per share:
Basic	$	0.25	$	0.48
Basic	$	0.23	$	0.55	$	1.16	$	1.07
Diluted	$	0.24	$	0.47
Diluted	$	0.22	$	0.54	$	1.14	$	1.05

NOTE 1415. Accumulated Other Comprehensive Loss

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

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

	Foreign currency translation adjustments		Net unrealized (gains) losses on marketable securities			Accumulated other comprehensive loss (income)
Balance at December 31, 2017	$	1,079	$	126		$	1,205
Balance at December 31, 2018	$	1,273	$	(10	)	$	1,263
Net current period other comprehensive income		~~425~~518		(6295	)		~~363~~423
Reclassifications		—		—			—
Balance at September 30, 2018	$	1,504	$	64		$	1,568
Balance at March 31, 2019	$	1,791	$	(105	)	$	1,686

NOTE 1516. Segment Reporting and Geographic Information

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

The following table lists the different sources of revenue:

	Three Months Ended								~~Nine Months Ended~~
	September 30,								September 30,
	March 31,
	2018				2017				2018				2017
	2019				2018
Systems and Software:
Process control	$	4139,~~164~~158	6864	%	$	4348,~~821~~033	6566	%	$	~~145,458~~	69	%	$	~~135,408~~	70	%
Lithography		23,~~791~~614	56	%		78,~~010~~069	11	%		~~14,712~~	7	%		~~10,560~~	5	%
Software licensing, support and maintenance		67,~~877~~037	1112	%		67,~~053~~455	910	%		~~21,879~~	10	%		~~20,447~~	10	%
Parts		78,~~141~~077	1213	%		76,~~101~~985	1110	%		~~20,884~~	10	%		~~20,779~~	11	%
Services		23,~~459~~006	45	%		2,~~935~~554	43	%		~~8,071~~	4	%		~~7,823~~	4	%
Total revenue	$	60,~~432~~892	100	%	$	6673,~~920~~096	100	%	$	~~211,004~~	~~100~~	%	$	~~195,017~~	~~100~~	%

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

Three Months Ended

~~Nine Months Ended~~

September 30,

March 31,

2018

2017

2018

2017

2019

2018

Revenue from third parties:

United States

119,~~476~~131

79,~~666~~068

~~29,344~~

~~25,856~~

Taiwan

1011,~~233~~031

1714,~~300~~467

~~35,643~~

~~49,960~~

Japan

43,~~134~~940

64,~~268~~130

~~14,082~~

~~12,944~~

China

1116,~~547~~044

417,~~151~~971

~~52,866~~

~~24,156~~

South Korea

10,~~977~~771

1017,~~852~~230

~~44,581~~

~~36,099~~

Singapore

42,~~644~~016

4,~~664~~282

~~11,985~~

~~9,875~~

Other Asia

~~1,102~~993

1,~~690~~917

~~3,520~~

~~3,249~~

Germany

31,~~527~~850

41,~~488~~324

~~8,668~~

~~12,357~~

Other Europe

25,~~792~~116

92,~~841~~707

~~10,315~~

~~20,521~~

Total revenue

60,~~432~~892

6673,~~920~~096

~~211,004~~

~~195,017~~

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

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

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~~NOTE~~The ~~16.~~following ~~Share~~customers ~~Repurchase~~accounted ~~Authorization~~for more than 10% of total revenue for the indicated periods:

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

	Three Months Ended March 31,
	2019			2018
Customer A		27.2	%		14.2	%
Customer B		—	%		11.2	%

NOTE 17. Shares Repurchase Authorization

In October 2018, the Board of Directors approved a new share repurchase authorization, which allows the Company to repurchase up to $40,000 worth of shares of its common stock. The authorization provides for repurchases to be made in the open market or through negotiated transactions from time to time. The share repurchase authorization has no expiration date and may be discontinued at any time. During the three months ended March 31, 2019, the Company repurchased 37 shares of common stock under the share repurchase authorization and those shares were subsequently retired. At March 31, 2019, there was $32,494 available for future share repurchases.

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

Certain statements in this Quarterly Report on Form 10-Q (this “Form 10-Q”) are forward-looking statements, including those concerning our business momentum and future growth, acceptance of our products and services, our ability to deliver both products and services consistent with our customers’ demands and expectations and to strengthen our market position, our expectations of the semiconductor market outlook, future revenue, gross profits, research and development and engineering expenses, selling, general and administrative expenses, product introductions, technology development, manufacturing practices, cash requirements, our dependence on certain significant customers and anticipated trends and developments in and management plans for our business and the markets in which we operate, our anticipated revenue as a result of acquisitions, and our ability to be successful in managing our cost structure and cash expenditures and results of litigation. The statements contained in this Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as, but not limited to, “anticipate,” “believe,” “expect,” “intend,” “plan,” “should,” “may,” “could,” “will” and words or phrases of similar meaning, as they relate to our management or us.

The forward-looking statements contained herein reflect our expectations with respect to future events and are subject to certain risks, uncertainties and assumptions. Actual results may differ materially from those included in such forward-looking statements for a number of reasons including, but not limited to, the following: variations in the level of orders which can be affected by general economic conditions; seasonality and growth rates in the semiconductor manufacturing industry and in the markets served by our customers; the global economic and political climates; difficulties or delays in product functionality or performance; the delivery performance of sole source vendors; the timing of future product releases; failure to respond adequately to either changes in technology or customer preferences; changes in pricing by us or our competitors; our ability to manage growth; changes in management; risk of nonpayment of accounts receivable; changes in budgeted costs; our ability to leverage our resources to improve our position in our core markets, to weather difficult economic environments, to open new market opportunities and to target high-margin markets; the strength/weakness of the back-end and/or front-end semiconductor market segments; our ability to successfully integrate acquired businesses into our business and fully realize, or realize within the expected time frame, the expected combination benefits from the acquisitions; the imposition of tariffs or trade restrictions and costs, burdens and restrictions associated with other governmental actions and the “Risk Factors” set forth in Item 1A in our ~~2017~~2018 10-K and any subsequently filed Quarterly Reports on Form 10-Q. The forward-looking statements reflect our position as of the date of this report and we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Critical Accounting Policies

The preparation of condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make judgments, assumptions and estimates that affect the amounts reported. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below.

A critical accounting policy is defined as one that is both material to the presentation of our condensed consolidated financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition or results of operations. Specifically, these policies have the following attributes: (1) we are required to make judgments and assumptions about matters that are highly uncertain at the time of the estimate; and (2) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, could have a material effect on our financial position and results of operations.

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

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~~environment~~required ~~changes. In~~to ~~addition,~~make ~~management~~judgments isand ~~periodically~~assumptions ~~faced~~about ~~with~~matters ~~uncertainties,~~that ~~the outcomes of which~~ are ~~not~~highly ~~within~~uncertain ~~our~~at ~~control~~the ~~and will not be known for prolonged periods of~~ time. ~~Certain~~ of ~~these uncertainties are discussed in our 2017 10-K in~~ the ~~Items~~estimate; ~~entitled “Risk Factors”~~ and ~~“Management’s~~(2) ~~Discussion~~different ~~and~~estimates ~~Analysis~~we ofcould ~~Financial~~reasonably ~~Condition~~have ~~and~~used, ~~Results~~or ofchanges ~~Operations.” Based~~in ~~on a critical assessment of our accounting policies and~~ the ~~underlying~~estimate ~~judgments and uncertainties affecting the application of those policies, we believe~~ that ~~our condensed consolidated financial statements~~ are ~~fairly~~reasonably ~~stated~~likely into ~~accordance with U.S. GAAP~~occur, ~~and~~could ~~provide~~have a ~~fair~~material ~~presentation~~effect ofon our financial position and results of operations.

~~For~~Estimates ~~more~~and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. In addition, ~~please~~management ~~see~~is periodically faced with uncertainties, the outcomes of which are not within our ~~critical~~control ~~accounting~~and ~~policies~~will asnot ~~previously~~be ~~disclosed~~known for prolonged periods of time. Certain of these uncertainties are discussed in our ~~2017~~2018 10-K in the Items entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, we believe that our condensed consolidated financial statements are fairly stated in accordance with U.S. GAAP and provide a fair presentation of our financial position and results of operations.

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

During the quarter ended March 31, 2019, the Company adopted the provisions of ASC 842, “Leases.” See Note 1 to the Condensed Consolidated Financial Statements included in this Form 10-Q regarding the impact of recent accounting pronouncements on our financial position and results of operations and Note 5, “Leasing Arrangements,” to the Condensed Consolidated Financial Statements included in this Form 10-Q for a discussion of the impact of the adoption of ASC 842 on our financial statements and accounting policies.

Overview

We are a worldwide leader in the design, development, manufacture and support of process control tools that perform macro-defect inspections and metrology, lithography systems, and process control analytical software used by semiconductor and advanced packaging device manufacturers. We deliver comprehensive solutions throughout the semiconductor fabrication process with our families of proprietary products that provide critical yield-enhancing information, enabling microelectronic device manufacturers to drive down costs and ~~the~~ time to market of their devices. We provide process and yield management solutions used in both wafer processing facilities, often referred to as “front-end” ~~manufacturing,~~ and device packaging and test facilities, or “back-end” manufacturing, through a portfolio of standalone systems for macro-defect inspection, lithography, probe card test and analysis, and transparent and opaque thin film measurements. All of our systems feature sophisticated software and production-worthy automation. In addition, our advanced process control software portfolio includes powerful solutions for standalone tools, ~~group~~groups of tools, or factory-wide suites to enhance productivity and achieve significant cost savings. Our systems are backed by worldwide customer service and applications support.

Our business is affected by the annual spending patterns of our customers on semiconductor capital equipment. The amount that our customers devote to capital equipment spending depends on a number of factors, including general worldwide economic conditions, as well as other economic drivers such as ~~sales of~~ personal computers, ~~tablets,~~mobile ~~cell phones~~devices, ~~wearable~~data ~~devices~~centers, ~~other~~artificial ~~personal~~intelligence ~~electronic devices~~ and automotive sales. Current forecasts by industry analysts for the semiconductor device manufacturing industry project ~~an increase in~~ capital equipment spending ofto ~~approximately~~be 7down 15-18% for 2019 as compared to 2018. Our revenue and profitability tend to follow the trends of certain segments within the semiconductor market.

Historically, a significant portion of our revenue in each quarter and year has been derived from sales to relatively few customers, and we expect this trend to continue. For the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019 and for the years ended December 31, ~~2017~~2018, ~~2016~~2017 and ~~2015~~2016, aggregate sales to customers that individually represented at least five percent of our revenue accounted for 2139.76%, 2718.23%, 3427.52%, and 2334.35% of our revenue, respectively.

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

System		Average Selling Price Per System
Process control		$250,000 to $2.16 million
Lithography steppers		$32.06 million to $8.5 million

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

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

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~~Results~~A significant portion of ~~Operations~~our ~~for~~revenue is derived from customers outside of the ~~Three~~United ~~and~~States. A ~~Nine~~substantial ~~Month~~portion ~~Periods~~of ~~Ended~~our ~~September 30,~~international ~~2018~~sales ~~and~~are ~~2017~~denominated in U.S. dollars. We expect that revenue generated from customers outside of the United States will continue to account for a significant percentage of our revenue.

~~Revenue. Our~~The ~~revenue~~sales iscycle ~~primarily~~for ~~derived from the sale of~~ our systems, ~~services,~~typically ~~spare~~ranges ~~parts~~from ~~and~~six ~~software~~to ~~licensing. Our~~twenty-four ~~revenue~~months ofand ~~$60.4~~can ~~million~~be ~~decreased~~longer ~~9.7%~~when ~~for~~our ~~the~~customers ~~three~~are ~~months~~evaluating ~~ended~~new ~~September 30,~~technology. Due ~~2018 as compared~~ to the ~~same~~length ~~period~~of inthese ~~2017~~cycles, inwe ~~which~~invest ~~revenue~~significantly ~~totaled~~in ~~$66.9~~research ~~million. For~~and ~~the~~development ~~nine~~and ~~month~~sales ~~period~~and ~~ended~~marketing ~~September~~in ~~30,~~advance ~~2018~~of ~~and~~generating ~~2017, our~~ revenue ~~totaled~~related ~~$211.0~~to ~~million~~these ~~and $195~~investments.~~0 million, respectively, representing a year-over-year increase of 8.2%.~~

Results of Operations for the Three Month Periods Ended March 31, 2019 and 2018

Revenue. Our revenue is primarily derived from the sale of our systems, services, spare parts and software licensing. Our revenue of $60.9 million decreased 16.7% for the three months ended March 31, 2019 as compared to the same period in 2018, in which revenue totaled $73.1 million.

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

	Three Months Ended								~~Nine Months Ended~~
	September 30,								September 30,
	March 31,
	2018				2017				2018				2017
	2019				2018
Systems and Software:
Process control	$	4139,~~164~~158	6864	%	$	4348,~~821~~033	6566	%	$	~~145,458~~	69	%	$	~~135,408~~	70	%
Lithography		23,~~791~~614	56	%		78,~~010~~069	11	%		~~14,712~~	7	%		~~10,560~~	5	%
Software licensing, support and maintenance		67,~~877~~037	1112	%		67,~~053~~455	910	%		~~21,879~~	10	%		~~20,447~~	10	%
Parts		78,~~141~~077	1213	%		76,~~101~~985	1110	%		~~20,884~~	10	%		~~20,779~~	11	%
Services		23,~~459~~006	45	%		2,~~935~~554	43	%		~~8,071~~	4	%		~~7,823~~	4	%
Total revenue	$	60,~~432~~892	100	%	$	6673,~~920~~096	100	%	$	~~211,004~~	~~100~~	%	$	~~195,017~~	~~100~~	%

Total systems and software revenue ~~increased~~decreased $1513.67 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019, as compared to the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018. Process control system revenue ~~increased~~decreased $108.19 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019, as compared to the same period in ~~2017~~2018, primarily due to ~~higher~~lower ~~metrology~~inspection system sales in the ~~2018~~2019 period. Lithography system revenue ~~increased~~decreased $4.25 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019, as compared to the same period in ~~2017~~2018, primarily due to the shipment of a JetStep G system during the first half of 2018, which has a higher average selling price. Software revenue ~~increased~~decreased $10.4 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019, as compared to the same period in ~~2017~~2018. Systems revenue generated by our latest product releases and major enhancements in each of our product families amounted to 7472% of total revenue for the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019, as compared to 7076% of total revenue for the ~~nine~~three months ended ~~September~~March 3031, ~~2017~~2018. The year-over-year increase in total parts and services revenue for the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019 is primarily due to increased spending by our customers on system upgrades and repairs of existing systems. Parts and services revenue are generated from parts sales, maintenance service contracts, system upgrades, as well as from time and material billable service calls.

~~For~~Deferred ~~the three months ended September 30, 2018, total systems and software~~ revenue ~~decreased~~of $67.15 million, aswas ~~compared~~recorded toin the ~~same~~Condensed ~~period~~Consolidated inBalance ~~the~~Sheets ~~prior~~under ~~year. Lithography~~the ~~systems~~caption “Deferred revenue” ~~decreased~~and $41.2 million ~~for~~was ~~the~~recorded ~~three~~under ~~months~~the ~~ended~~caption ~~September~~“Other ~~30,~~non-current ~~2018,~~liabilities” asat ~~compared to the same period in 2017~~March 31, ~~primarily due to less JetStep units sold~~2019. ~~There~~ Deferred ~~was~~revenue ~~also~~primarily aconsisted ~~decrease~~ of $26.70 million ~~in process control system revenue~~ for ~~the~~deferred ~~three~~maintenance ~~months~~agreements ~~ended September 30, 2018, as compared to the same period in 2017, primarily due to fewer inspection~~ and ~~metrology units sold. The decrease in total systems and software revenue was partially offset by an increase of~~ $02.97 million ~~in software revenue~~ for ~~the~~outstanding ~~three months ended September 30, 2018, as compared to the same period in 2017~~deliverables. Systems revenue generated by our latest product releases and major enhancements in each of our product families amounted to 72% of total revenue for the three months ended September 30, 2018, as compared to 75% of total revenue for the three months ended September 30, 2017.

~~Deferred~~Gross ~~revenue~~Profit. Our gross profit has been and will continue to be affected by a variety of ~~$7.6~~factors, ~~million~~including ~~was~~manufacturing ~~recorded~~efficiencies, inprovision ~~the~~for ~~Condensed~~excess ~~Consolidated~~and ~~Balance~~obsolete ~~Sheet~~inventory, ~~under~~pricing ~~the~~by ~~caption~~competitors ~~“Deferred~~or ~~revenue”~~suppliers, new product introductions, production volume, customization and $1reconfiguration of systems, international and domestic sales mix, system and software product mix and parts and service margins.1 Our ~~million~~gross profit was ~~recorded~~$32.0 ~~under~~million for the ~~caption~~three ~~“Other~~months ~~non-current~~ended ~~liabilities” at September~~March 3031, 2019, as compared to $42.4 million for the same period in 2018. ~~Deferred~~Our ~~revenue~~gross ~~primarily~~profit ~~consisted~~represented ~~of $~~52.6% and 58.30% ~~million~~of our revenue for ~~deferred~~the ~~maintenance~~three ~~agreements~~months ended March 31, 2019 and $22018.4 The ~~million~~decrease in gross profit as a percentage of revenue for ~~outstanding~~the ~~deliverables~~three months ended March 31, 2019, as compared to the same period in 2018, is primarily due to lower volume of system and software sales as well as product mix.

~~Gross~~Operating ~~Profit~~Expenses. ~~Our~~Major ~~gross~~components ~~profit has been and will continue to be affected by a variety~~ of ~~factors,~~operating ~~including~~expenses ~~manufacturing~~include ~~efficiencies,~~research ~~provision for excess~~ and ~~obsolete inventory~~development, pricing by competitors or suppliers, new product introductions, production volume, customization and reconfiguration of systems, international and domestic sales mix, system and software product mix and parts and service margins. Our gross profit was $31.5 million and $115.6 million for the three and nine months ended September 30, 2018, respectively, as ~~compared~~well to $35.1 million and $102.5 million for the same periods in 2017. Our gross profit represented 52.0% and 54.8% of our revenue for the three and nine months ended September 30, 2018, respectively. For both the three and nine months ended September 30, 2017, gross profit represented 52.5% of our revenue. The increase in gross profit as ~~a percentage of revenue for the nine months ended September 30~~selling, ~~2018,~~general ~~as compared to the same period in 2017, is primarily due to system~~ and ~~software~~administrative ~~product mix and the sale of a lithography system that had been previously written down in purchase accounting~~expenses. ~~We expect our gross profit to be in the range of 52.0% to 53.0% for the quarter ending December 31, 2018.~~

Research and Development. Our research and development expenses were $12.7 million for the three months ended March 31, 2019, as compared to $11.8 million for the same period in 2018. Research and development expenses

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~~Operating~~represented ~~Expenses~~20. ~~Major~~9% ~~components~~and 16.1% of ~~operating~~our ~~expenses~~revenue ~~include~~for ~~research~~the ~~and~~three ~~development,~~months asended ~~well~~March 31, as2019 ~~selling,~~and ~~general~~2018. Research and ~~administrative~~development expenses increased for the year-over-year periods due to increases in new product initiatives.

~~Research~~Selling, General and ~~Development~~Administrative. Our ~~research~~selling, general and ~~development~~administrative expenses were $1211.3 million ~~and $36.8 million~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2018~~2019, ~~respectively,~~ as compared to $12.08 million ~~and $36.2 million~~ for the same ~~periods~~period in ~~2017~~2018. ~~Research~~Selling, general and ~~development~~administrative expenses represented 2018.46% and 17.5% of our revenue for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2018,~~2019 ~~respectively, as compared to 18.0%~~ and 182018.6% The ofyear-over-year ~~revenue~~dollar decrease for the ~~prior~~three ~~year~~months ~~periods. Research~~ended ~~and~~March 31, ~~development~~2019 ~~expenses~~in ~~increased~~selling, ~~for~~general ~~the~~and ~~year-over-year~~administrative ~~periods~~expenses was primarily due to ~~increases~~a decrease in ~~compensation~~sales commissions and ~~project~~a ~~costs,~~loss ~~which~~recorded ~~were~~for ~~partially~~the ~~offset~~misappropriation of payroll taxes by a ~~decrease~~third-party inaccountant ~~litigation~~recorded ~~expenses~~in 2018.

~~Selling,~~Income ~~General and Administrative~~Taxes. ~~Our~~ ~~selling,~~We ~~general~~recorded ~~and~~an ~~administrative~~income ~~expenses~~tax ~~were~~provision ~~$11.1~~of ~~million and~~ $351.92 million for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2018,~~2019. Our ~~respectively,~~effective astax ~~compared~~rate toof ~~$10~~13.~~1 million and $29.~~9% ~~million~~differs ~~for~~from the ~~same~~statutory ~~periods~~rate inof ~~2017. Selling, general and administrative expenses represented 18.4~~21% ~~and 17.0% of our revenue~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2018,~~2019 ~~respectively,~~primarily asdue ~~compared~~ to ~~15.1%~~a ~~and~~projected ~~15.3%~~Foreign ofDerived ~~our~~Intangible ~~revenue~~Income ~~for~~Deduction from the ~~same~~Tax ~~periods~~Act inand ~~2017. The~~federal ~~year-over-year~~research ~~dollar~~and ~~increase~~development ~~for~~tax credits. For the ~~nine~~three months ended ~~September~~March 3031, 2018 ~~in selling~~, ~~general~~we ~~and~~recorded ~~administrative expenses was primarily due to~~ an ~~increase~~income intax ~~compensation~~provision ~~costs, an increase in sales commissions and a loss recorded for the possible misappropriation~~ of ~~payroll taxes by a third party accountant~~$2.5 million.

~~Income~~Our ~~Taxes.~~future Weeffective ~~recorded an~~ income tax ~~provision~~rate ofdepends ~~$1.2~~on ~~million~~various ~~and~~factors, ~~$6.3~~such ~~million~~as ~~for~~impacts of the ~~three~~Tax ~~and nine months ended September 30~~Act, ~~2018,~~possible ~~respectively. Our~~further ~~effective~~ tax ~~rate~~legislation, ~~of 14.6% differs from~~ the ~~statutory~~geographic ~~rate~~composition of ~~21%~~our ~~for~~pre-tax ~~the nine months ended September 30~~income, ~~2018 primarily due to~~ the ~~enactment~~amount of ~~the~~our ~~2017~~pre-tax ~~Tax~~income ~~Act,~~as ~~which~~business ~~provides~~activities ~~for~~fluctuate, anon-deductible ~~projected~~expenses ~~foreign~~incurred ~~derived~~in ~~intangible~~connection ~~income~~with ~~deduction~~acquisitions, and ~~a federal~~ research and development ~~credit. For~~tax ~~the~~credits ~~three~~as ~~and~~a ~~nine~~percentage ~~months~~of ~~ended~~aggregate ~~September 30, 2017, we recorded an income~~ pre-tax ~~provision of $8~~income.~~3 million and $14.3 million, respectively.~~

~~Among~~We ~~other~~currently ~~things,~~have ~~the~~a ~~2017~~partial ~~Tax~~valuation ~~Act~~allowance ~~lowered~~recorded ~~the~~for ~~U.S.~~certain ~~federal~~foreign ~~corporate~~and ~~income~~state ~~tax~~loss ~~rate~~and ~~from~~credit ~~35%~~carryforwards towhere ~~21%~~the ~~and~~realizability ~~implemented~~of asuch ~~territorial~~deferred tax ~~system. The~~assets ~~lower~~is Usubstantially in doubt.S. Each ~~corporate~~quarter ~~income~~we ~~tax~~assess ~~rate~~the islikelihood ~~effective~~that ~~January~~we 1,will ~~2018;~~be ~~however~~able ~~the~~to ~~U.S.~~recover our deferred tax assets ~~and~~primarily ~~liabilities~~relating ~~were~~to ~~re-measured~~state inresearch ~~2017~~and ~~when~~development ~~the 2017 Tax Act was enacted~~credits. ~~Also~~We inconsider ~~2017~~available evidence, asboth ~~part~~positive ofand ~~the~~negative, ~~transition~~including tohistorical ~~the~~levels ~~new~~of ~~territorial tax system~~income, ~~the~~expectations ~~2017~~and ~~Tax~~risks ~~Act~~associated ~~imposed~~with aestimates ~~one-time~~of ~~tax~~future ontaxable ~~deemed~~income ~~repatriation~~and ofongoing ~~foreign~~prudent ~~subsidiaries’~~and ~~earnings. At~~feasible ~~September~~tax ~~30,~~planning ~~2018,~~strategies wein ~~have~~assessing ~~not~~the ~~completed~~need ~~our accounting~~ for ~~the~~a ~~tax~~valuation ~~effects~~allowance. As ofa ~~enactment~~result of ~~the~~our ~~2017 Tax Act; however~~analysis, we ~~have~~concluded ~~made~~that ~~reasonable~~it ~~estimates~~is ofmore ~~the~~likely ~~effects. The~~than ~~total~~not ~~provisional~~that ~~impact~~a portion of ~~the~~our ~~2017~~net ~~Tax~~deferred ~~Act~~tax asassets ~~summarized~~will ~~below~~not be realized. Therefore, ~~which~~we iscontinue ~~included~~to asprovide a ~~component~~valuation ofallowance ~~the~~against ~~provision~~certain ~~from~~net ~~income~~deferred ~~taxes,~~tax isassets. We ~~further~~continue ~~described~~to inmonitor ~~Note~~available 12evidence inand ~~the~~may ~~accompanying~~reverse ~~Notes~~some toor all of the ~~Condensed~~valuation ~~Consolidated~~allowance ~~Financial~~in ~~Statements~~future ~~(dollars~~periods, inif ~~thousands)~~appropriate.

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

Liquidity and Capital Resources

WeAt ~~are~~March 31, ~~continuing~~2019, towe ~~assess~~had ~~the~~$170.8 ~~impact~~million of ~~the~~cash, ~~2017~~cash ~~Tax~~equivalents ~~Act~~ and ~~may~~marketable ~~record~~securities ~~adjustments~~and $311.9 million in working capital. At December 31, 2018, aswe ~~additional~~had ~~analysis~~$175.1 ismillion ~~completed~~of ~~and~~cash, ascash weequivalents ~~gain~~and amarketable ~~more~~securities ~~thorough~~and ~~understanding~~$305.9 ofmillion ~~the~~in ~~legislation~~working capital.

~~Our~~Operating ~~future~~activities ~~effective~~used ~~income~~$1.6 ~~tax~~million ~~rate~~in ~~depends~~net oncash ~~various~~and ~~factors~~cash equivalents for the three months ended March 31, ~~such~~2019. The asnet ~~future~~cash ~~impacts~~and ofcash equivalents used by operating activities during the ~~2017~~three ~~Tax~~months ~~Act~~ended March 31, ~~new~~2019 ~~tax~~resulted ~~legislation,~~primarily ~~the~~from ~~geographic~~a ~~composition~~decrease in cash used in operating assets and liabilities of ~~our~~$13.6 ~~pre-tax~~million, offset by net income, adjusted to exclude the ~~amount~~effect of ~~our pre~~non-~~tax~~cash ~~income~~operating ascharges ~~business~~of $12.0 million. This decrease was primarily attributed to increases in inventories. Operating activities ~~fluctuate~~provided $4.6 million in net cash and cash equivalents for the three months ended March 31, 2018. The net cash and cash equivalents provided by operating activities during the three months ended March 31, 2018 resulted primarily from net income, adjusted to exclude the effect of non-~~deductible~~cash ~~expenses~~operating ~~incurred~~charges inof ~~connection~~$19.5 ~~with~~million, ~~acquisitions~~partially ~~and~~offset ~~research~~by ~~and~~a ~~development~~decrease ~~credits~~in ascash aprovided ~~percentage~~from ofoperating ~~aggregate~~assets ~~pre-tax~~and ~~income~~liabilities of $14.9 million.

WeNet ~~currently~~cash ~~have~~and acash ~~partial~~equivalents ~~valuation~~of ~~allowance~~$9.2 ~~recorded~~million ~~for~~were ~~certain~~used ~~foreign~~in ~~and~~investing ~~state~~activities ~~loss~~during ~~and~~the ~~credit~~three ~~carryforwards~~months ~~where~~ended ~~the~~March 31, ~~realizability~~2019 ofprimarily ~~such~~for ~~deferred~~the ~~tax~~purchase ~~assets~~of ismarketable ~~substantially~~securities inof ~~doubt~~$22. ~~Each~~1 ~~quarter~~million weand ~~assess~~capital ~~the~~expenditures ~~likelihood~~of ~~that~~$1.3 wemillion, ~~will~~offset beby ~~able~~proceeds tofrom ~~recover~~sales ~~our~~of ~~deferred~~marketable ~~tax~~securities ~~assets~~of ~~primarily~~$14.3 ~~relating~~million. Net tocash ~~state~~and ~~research~~cash ~~and~~equivalents ~~development~~used ~~credits. We~~in ~~consider~~investing ~~available~~activities ~~evidence,~~of ~~both~~$4.2 ~~positive~~million ~~and~~during ~~negative,~~the ~~including~~three ~~historical~~months ~~levels~~ended ofMarch ~~income~~31, ~~expectations~~2018 ~~and~~resulted ~~risks~~from ~~associated~~the ~~with~~purchase ~~estimates~~ of ~~future~~marketable ~~taxable~~securities ~~income~~of $57.1 million and ~~ongoing~~capital ~~prudent~~expenditures ~~and~~of ~~feasible~~$1.4 ~~tax~~million, ~~planning~~offset ~~strategies~~by inproceeds ~~assessing~~from ~~the~~sales ~~need~~of ~~for~~marketable asecurities ~~valuation~~of ~~allowance~~$54. 4 million.

Net cash and cash equivalents used in financing activities during the three months ended March 31, 2019 of $1.3 million for the purchase of shares of our common stock under share repurchase authorizations of $0.7 million and tax payments related to shares withheld for share-based compensation plans of $0.6 million. For the three months ended March 31, 2018, financing activities used $0.7 million, which resulted from tax payments related to shares withheld for share-based compensation plans of $0.8 million, partially offset by proceeds from sales of shares through share-based compensation plans of $0.1 million.

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

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Assupplier ~~a result~~ of ~~our~~lithography ~~analysis,~~modules weto ~~concluded~~Simax ~~that~~which it is ~~more~~focused ~~likely~~on ~~than~~the ~~not~~manufacture, ~~that~~sale aand ~~portion~~service of ~~our~~lithography ~~net~~systems. As ~~deferred~~of ~~tax~~March ~~assets~~31, ~~will not be realized. Therefore~~2019, weSimax ~~continue~~has toborrowed ~~provide~~$5 amillion ~~valuation~~from ~~allowance~~us ~~against~~under ~~certain~~the ~~net~~convertible ~~deferred~~loan ~~tax assets~~agreement. We ~~continue~~See toNote ~~monitor~~7 ~~available~~in ~~evidence~~the ~~and~~accompanying ~~may~~Notes ~~reverse~~to ~~some~~the orCondensed ~~all~~Consolidated ofFinancial ~~the~~Statements ~~valuation~~included ~~allowance~~ in ~~future~~this ~~periods,~~Form if10-Q ~~appropriate~~for further information.

In ~~Liquidity~~October 2018, the Board of Directors approved a new share repurchase authorization, which allows us to repurchase up to $40 million worth of shares of our common stock. The authorization provides for repurchases to be made in the open market or through negotiated transactions from time to time. The share repurchase authorization has no expiration date and ~~Capital~~may ~~Resources~~be discontinued at any time. During the three months ended March 31, 2019, we repurchased 37 thousand shares of common stock under our share repurchase authorization and those shares were subsequently retired. At March 31, 2019, there was $32,494 available for future share repurchases. For further information, see Note 17 in the accompanying Notes to the Condensed Consolidated Financial Statements included in this Form 10-Q.

AtWe ~~September 30,~~have ~~2018,~~a wecredit ~~had~~agreement ~~$194.3~~with ~~million~~a bank that provides for a line of ~~cash,~~credit ~~cash~~that ~~equivalents~~is ~~and~~secured by the marketable securities ~~and~~we ~~$320~~have with the bank.9 We ~~million~~are inpermitted ~~working~~to ~~capital~~borrow up to 70% of the value of eligible securities held at the time the line of credit is accessed. At As ~~December~~ of March 31, ~~2017~~2019, wethe ~~had~~available line of credit was approximately $~~177~~96.47 million with an available interest rate of ~~cash,~~4.0%. The ~~cash~~credit ~~equivalents~~agreement ~~and~~is ~~marketable~~available ~~securities~~to ~~and~~us ~~$279~~until such time that either party terminates the arrangement at its discretion.8 To ~~million~~date, inwe ~~working~~have ~~capital~~not utilized this line of credit.

~~Operating~~Our ~~activities~~future ~~provided~~capital ~~$24.4~~requirements ~~million~~will independ ~~net~~on ~~cash~~many ~~and~~factors, ~~cash~~including ~~equivalents for~~ the ~~nine~~timing ~~months~~and ~~ended~~amount ~~September 30,~~of ~~2018. The~~our ~~net~~revenue ~~cash~~ and ~~cash~~our ~~equivalents~~investment ~~provided~~decisions, bywhich ~~operating~~will ~~activities~~affect ~~during~~our ~~the~~ability ~~nine~~to ~~months~~generate ~~ended~~additional ~~September 30,~~cash. We ~~2018~~expect ~~resulted~~that ~~primarily~~our ~~from~~existing ~~net income~~cash, ~~adjusted~~cash toequivalents, ~~exclude~~marketable ~~the~~securities ~~effect~~and ofavailability ~~non-cash~~under ~~operating~~our ~~charges~~line of ~~$50.6~~credit ~~million~~will ~~and~~be ~~offset~~sufficient byto ameet ~~decrease~~our inanticipated cash ~~used~~requirements infor ~~operating~~working ~~assets~~capital, ~~and~~capital ~~liabilities~~expenditures ofand ~~$26.2~~other ~~million. This~~cash ~~decrease~~needs ~~was~~for ~~primarily~~the ~~attributed~~next to12 anmonths ~~increase~~following inthe ~~inventories. Operating~~filing ~~activities~~of ~~provided~~this ~~$42~~Form 10-Q.8 Thereafter, ~~million~~if ~~in net~~ cash ~~and~~generated ~~cash~~from ~~equivalents~~operations ~~for~~and ~~the~~financing ~~nine~~activities ~~months~~is ~~ended~~insufficient ~~September~~to ~~30,~~satisfy ~~2017. The~~our ~~net~~working ~~cash~~capital ~~and~~requirements, ~~cash~~we ~~equivalents~~may ~~provided~~seek byadditional ~~operating~~funding ~~activities~~through ~~during~~bank ~~the nine months ended September 30~~borrowings, ~~2017~~sales ~~resulted~~of ~~primarily~~securities ~~from~~or ~~net~~other ~~income,~~means. There ~~adjusted~~can tobe ~~exclude~~no ~~the~~assurance ~~effect~~that ofwe ~~non-cash~~will ~~operating~~be ~~charges~~able ofto ~~$33.3~~raise ~~million~~any ~~and~~such ancapital ~~increase~~on interms ~~cash~~acceptable ~~provided~~to ~~from~~us ~~operating~~or ~~assets~~at ~~and liabilities of $9~~all.~~5 million.~~

~~Net~~Item ~~cash and cash equivalents of $34~~3.~~1 million provided by investing activities during the nine months ended September~~ ~~30,~~Quantitative ~~2018 resulted from proceeds from sales of marketable securities of $152.6 million, offset by the purchase of marketable securities of $113.4 million, capital expenditures of $4.1 million,~~ and ~~cash~~Qualitative ~~advanced~~Disclosures onAbout aMarket convertible note receivable of $1.0 million. Net cash and cash equivalents used in investing activities of $10.7 million during the nine months ended September 30, 2017 resulted from the purchase of marketable securities of $103.2 million and capital expenditures of $7.4 million, partially offset by proceeds from sales of marketable securities of $99.9 million.Risk

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

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

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

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

We have a credit agreement with a bank that provides for a line of credit that is secured by the marketable securities we have with the bank. We are permitted to borrow up to 70% of the value of eligible securities held at the time the line of credit is accessed. As of September 30, 2018, the available line of credit was approximately $102 million with an available interest rate of 3.8%. The credit agreement is available to us until such time that either party terminates the arrangement at its discretion. To date, we have not utilized this line of credit.

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

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate and Credit Market Risk

We are exposed to changes in interest rates and market liquidity including our investments in certain available-for-sale debt securities. Our available-for-sale securities consist of fixed and variable rate income investments, such as municipal notes, municipal bonds and corporate bonds. We continually monitor our exposure to changes in interest rates, market liquidity and credit ratings of issuers for our available-for-sale ~~debt~~ securities. It is possible that we are at risk if interest rates, market liquidity or credit ratings of issuers change in an unfavorable direction. The magnitude of any gain or loss will be a function of the difference between the fixed or variable rate of the financial instrument and the market rate, and our financial condition and results of operations could be materially affected. Based on a sensitivity analysis performed on our ~~marketable~~financial ~~securities~~investments held as of ~~September~~March 3031, ~~2018~~2019, an immediate adverse change of 10% in interest rates (e.g., a change from 3.00% to 3.30%) would result in an immaterial decrease in the fair value of our available-for-sale debt securities and would not have a material impact on our consolidated financial position, results of operations or cash flows.

Foreign Currency Risk

A substantial portion of our systems and software sales are denominated in U.S. dollars with the exception of Japan. As a result, we have relatively little exposure to foreign currency exchange risk with respect to these sales. Substantially all of our sales in Japan are denominated in Japanese yen. From time to time, we may enter into forward exchange contracts to economically hedge a portion, but not all, of the existing and anticipated foreign currency denominated transactions expected to occur within 12 months. The change in fair value of the forward exchange contracts is recognized under the caption “Other (income) expense” in the Condensed Consolidated Statements of Operations for each reporting period. As of ~~September~~March 3031, ~~2018~~2019, we had ~~nineteen~~twenty-three forward exchange contracts outstanding with a total notional contract value of $5.78 million. We do not use derivative financial instruments for trading or speculative purposes.

We have branch operations in Taiwan, Singapore and South Korea and wholly-owned subsidiaries in Europe, Japan and China. Our international subsidiaries and branches operate primarily using local functional currencies. Our exposure to foreign currency exchange rate fluctuations arise from intercompany balances between our U.S. headquarters and that of our foreign owned entities. Our intercompany balances are denominated in U.S. dollars. Since each foreign entity’s functional currency is generally denominated in its local currency, there is exposure to foreign exchange risk when the foreign entity’s intercompany balance is remeasured at a reporting date, resulting in transaction gains or losses. The intercompany balance, exposed to foreign currency risk, as of ~~September~~March 3031, ~~2018~~2019 was approximately $2621.06 million. A hypothetical change of 10% in the relative value of the U.S. dollar versus local functional currencies could result in approximately $10.84 million in foreign currency exchange losses / (gains) which would be recorded as non-operating expense in other expense (income) in our Condensed Consolidated Statements of Operations. We cannot accurately predict future exchange rates or the overall impact of future exchange rate fluctuations on our business, results of operations and financial condition.

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Condensed Consolidated Statements of Operations. We cannot accurately predict future exchange rates or the overall impact of future exchange rate fluctuations on our business, results of operations and financial condition.

Item 4. Controls and Procedures

We maintain ~~a set of~~ disclosure controls and procedures, asthat ~~defined~~are ~~in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act,~~ designed to ensure that information we are required to bedisclose ~~disclosed by us~~ in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time ~~periods~~period specified in SEC rules and forms. These ~~and~~controls are procedures are also designed to ensure that such information is accumulated and communicated to our management, including our ~~CEO~~principal ~~and~~executive ~~Chief~~officer ~~Financial~~and ~~Officer~~principal ~~(“CFO”)~~financial officer, as appropriate, to allow ~~for~~ timely decisions regarding required disclosure. ~~The~~In designing and evaluating disclosure controls and procedures, ~~are~~we have recognized that any control and procedures, no matter how well designed toand operated, can provide only reasonable assurance of achieving the desired control objectives. Management is required to exercise judgment in evaluating its controls and procedures.

Scope of the Controls Evaluation

The evaluation of our disclosure controls and procedures included a review of the controls’ objectives and design, our implementation of the controls and the effect of the controls on the information generated for use in this Form 10-Q. In the course of the evaluation, we sought to identify data errors, control problems or acts of fraud and confirm that appropriate corrective actions, if any, including process improvements, were being undertaken. This type of evaluation is performed on a quarterly basis so that the conclusions of management, including the CEO and CFO, concerning the effectiveness of the controls can be reported in our Quarterly Reports on Form 10-Q and in our Annual Reports on Form 10-K. Many of the components of our disclosure controls and procedures are also evaluated on an ongoing basis by other personnel in our accounting, finance, internal audit and legal functions. The overall goals of these various evaluation activities are to monitor our disclosure controls and procedures and to modify them on an ongoing basis as necessary. A control system can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.

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components of our disclosure controls and procedures are also evaluated on an ongoing basis by other personnel in our accounting, finance, internal audit and legal functions. The overall goals of these various evaluation activities are to monitor our disclosure controls and procedures and to modify them on an ongoing basis as necessary. A control system can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.

Conclusions

As of ~~September~~March 3031, ~~2018~~2019, an evaluation of our disclosure controls and procedures was carried out under the supervision and with the participation of our management, including the CEO and CFO. Based on this evaluation, the CEO and CFO have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this Form 10-Q.

Changes in Internal Control over Financial Reporting

There ~~has~~have been no ~~change~~changes in ~~our~~the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the Company’s quarter ended ~~September~~March 3031, ~~2018~~2019 that ~~has~~have materially affected, or isare reasonably likely to materially affect, ~~our~~its internal control over financial reporting.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

For a description of our previously reported legal proceedings refer to Part I, Item 3, “Legal Proceedings” in our ~~2017~~2018 10-K.

From time to time we ~~may~~are besubject ~~a party~~ to ordinary routine ~~legal~~litigation ~~proceedings~~incidental ~~and~~to ~~claims~~our inbusiness. As ~~the~~of ~~ordinary~~March ~~course~~31, of2019, ~~business. There~~there are no legal proceedings pending or threatened against the Company that management believes are likely to have a material adverse effect on the Company’s consolidated financial position or otherwise.

Item 1A. Risk Factors

There have been no material changes to our risk factors as discussed in Part I, Item 1A, “Risk Factors” in our ~~2017~~2018 10-K.

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~25

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

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

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~~The~~Item ~~following~~2. ~~table~~Unregistered ~~provides~~Sales ~~details~~ of ~~the~~Equity ~~shares~~Securities ~~of common stock purchased~~ and ~~withheld~~Use ~~during~~of ~~the three months ended September 30, 2018 (in thousands, except per share data):~~Proceeds

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

In October 2018, the Board of Directors approved a new share repurchase authorization, which allows us to repurchase up to $40 million worth of shares of our common stock. The authorization provides for repurchases to be made in the open market or through negotiated transactions from time to time. The share repurchase authorization has no expiration date and may be discontinued at any time. During the three months ended March 31, 2019, we repurchased 37.5 thousand shares of common stock under our share repurchase authorization and those shares were subsequently retired. At March 31, 2019, there was $32.5 million available for future share repurchases. For further information, see Note 17 in the accompanying Notes to the Consolidated Financial Statements.

In addition to our share repurchase program, we withhold common stock shares associated with net share settlements to cover tax withholding obligations upon the vesting of restricted stock unit awards and stock option exercises under the Company’s equity incentive program. During the three months ended March 31, 2019, we withheld 27.3 thousand shares through net share settlements. For the three month period ended March 31, 2019, net share settlements cost $0.6 million. Please refer to Note 11 of the Notes to Consolidated Financial Statements for further discussion regarding our equity incentive plan.

The following table provides details of common stock purchased during the three month period ended March 31, 2018 (in thousands, except per share data):

Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program		Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Program
January 1, 2019 - January 31, 2019		55.0	$	20.43		37	$	32,494
February 1, 2019 - February 28, 2019		8.2		22.36		—	$	32,494
March 1, 2019 - March 31, 2019		1.6		22.17		—	$	32,494
Three months ended September 30, 2018		64.8	$	20.72		37	$	32,494

¹ Includes Shares withheld through net share settlements.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

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Item 6. Exhibits

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

		Rudolph Technologies, Inc.
Date:	~~November~~May 17, ~~2018~~2019	By:	/s/ Michael P. Plisinski
		Michael P. Plisinski
		Chief Executive Officer
Date:	~~November~~May 17, ~~2018~~2019	By:	/s/ Steven R. Roth
		Steven R. Roth
		Senior Vice President, Chief Financial Officer and Principal Accounting Officer

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