ONTO INNOVATION INC.

Previous wording

Certain statements in this Form 10-Q, or incorporated by reference in this Form 10-Q, of Onto Innovation Inc. (referred to in this Form 10-Q, together with its consolidated subsidiaries, unless otherwise specified or suggested by the context, as the “Company,” “Onto Innovation,” “we,” “our” or “us”) may be considered “forward-looking statements” or may be based on “forward-looking statements,” including, but not limited to, those concerning:

Current wording

Certain statements in this Form 10-Q, or incorporated by reference in this Form 10-Q, of Onto Innovation Inc. (referred to in this Form 10-Q, together with its consolidated subsidiaries, unless otherwise specified or suggested by the context, as the “Company,” “Onto Innovation,” “we,” “our” or “us”) are considered “forward-looking statements” or are based on “forward-looking statements,” including, but not limited to, those concerning:

Previous wording

the effects of political, economic, legal, and regulatory changes or conflicts on our global operations;

Current wording

the effects of political, economic, legal, and regulatory changes, including tariffs and trade disputes, or conflicts on our global operations;

Previous wording

The following table summarizes certain key financial information for the periods indicated below (in thousands, except per share and percent data):

Current wording

The following table summarizes certain key financial information for the periods indicated below:

Previous wording

In the fiscal quarter ended September 28, 2024 (the “September 2024 quarter”), revenue increased 4.1% compared to the fiscal quarter ended June 29, 2024 (the “June 2024 quarter”), primarily due to increases in sales to NAND and DRAM customers in advanced nodes applications and sales to DRAM customers in specialty devices and advanced packaging. These increases were partially offset by decline in sales to foundry customers during the September 2024 quarter.

Current wording

In the fiscal quarter ended March 29, 2025 (the “March 2025 quarter”), revenue increased 1% compared to the fiscal quarter ended December 28, 2024 (the “December 2024 quarter”), primarily due to higher sales of our metrology systems to DRAM and NAND customers, partially offset by lower sales of our inspection systems.

Previous wording

Gross profit as a percentage of revenue in the September 2024 quarter increased by 1% compared to the June 2024 quarter primarily due to increased volume and change in product mix.

Current wording

Gross profit as a percentage of revenue for the March 2025 quarter increased by 4% compared to the December 2024 quarter primarily due to increased volume and favorable change in product mix in the 2025 period and inventory write-downs causing comparatively lower margins during the 2024 period.

Previous wording

Our cash, cash equivalents and marketable securities balance increased to $855.4 million at September 28, 2024, compared to $697.8 million at December 30, 2023. This increase was primarily the result of $189.7 million of cash generated from operating activities, and $9.2 million of cash from issuance of shares through share-based compensation plans, partially offset by cash used for capital expenditures of $27.3 million and $18.4 million for tax payments related to net share settlement of employee stock-based compensation plans. Employee headcount at September 28, 2024 was approximately 1,518.

Current wording

Our cash, cash equivalents and marketable securities balance decreased to $850.6 million at March 29, 2025, compared to $852.3 million at December 28, 2024. This decrease was primarily the result of cash used for purchases of our common stock of $75.0 million, $8.7 million for tax payments related to net share settlement of employee stock-based compensation plans, capital expenditures of $8.2 million and purchases of non-marketable equity securities of $8.0 million, partially offset by $92.0 million of cash generated from operating activities and $4.2 million of cash from issuance of shares through share-based compensation plans. Employee headcount at March 29, 2025 was approximately 1,555.

Previous wording

In 2022 and 2023, the United States government implemented additional export regulations for U.S. semiconductor technology sold in China. We have applied for, and in some cases received, export licenses to continue doing business with our customers that are affected by the new export rules. However, the new export controls have continued to negatively impact our net sales in China for the first, second, and third fiscal quarters of 2024.

Current wording

In recent years, the United States government implemented additional export regulations for U.S. semiconductor technology sold in China. We have applied for export licenses to continue doing business with our customers that are affected by the export rules. However, the export controls have contributed to lower net sales in China for the first fiscal quarter of 2025 compared to the same period in the prior year.

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Results of Operations for the Three and Nine Months Ended September 28, 2024 and September 30, 2023

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Results of Operations for the Three Months Ended March 29, 2025 and March 30, 2024

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Revenue. Our revenue is primarily derived from the sale of our systems, software licensing, services and spare parts. Our revenue of $252.2 million increased 21.7% for the three months ended September 28, 2024 as compared to the three months ended September 30, 2023, in which revenue totaled $207.2 million. For the nine months ended September 28, 2024 and September 30, 2023, our revenue totaled $723.4 million and $597.0 million, respectively, representing a year-over-year increase of 21.2%

Current wording

Revenue. Our revenue is primarily derived from the sale of our systems, software licensing, services and spare parts. Our revenue of $266.6 million increased 16.5% for the three months ended March 29, 2025 as compared to the three months ended March 30, 2024, for which revenue totaled $228.8 million.

Previous wording

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

Current wording

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

Previous wording

Total systems and software revenue increased $47.8 million and $126.9 million for the three and nine months ended September 28, 2024, respectively, as compared to the three and nine months ended September 30, 2023, respectively. The increases for the three months ended September 28, 2024 were primarily due to an increase in shipments of our inspection and metrology product lines to DRAM and NAND customers, which was partially offset by a decrease in shipments of our lithography product lines to OSAT customers. The increases for the nine months ended September 28, 2024 were primarily due to an increase in shipments of our inspection product lines to DRAM and foundry customers, which was partially offset by a decrease in shipments of our metrology and lithography product lines. The decrease in total parts and services revenue for the three and nine months ended September 28, 2024, as compared to the three and nine months ended September 30, 2023, was primarily due to lower demand by several of our customers, resulting in a decline in their spare parts requirements. Parts and services revenue is generated from part sales, maintenance service contracts, and system upgrades, as well as time and material billable service calls.

Current wording

Total systems and software revenue increased $36.3 million for the three months ended March 29, 2025, as compared to the three months ended March 30, 2024. The increase for the three months ended March 29, 2025 was primarily attributed to increased shipments of our metrology product lines to DRAM and NAND customers, partially offset by decline in shipments of our inspection and lithography products to specialty device and advanced packaging customers. The increase in total parts and services revenue for the three months ended March 29, 2025, as compared to the three months ended March 30, 2024, was primarily due to higher service contract and system upgrade revenue, partially offset by lower parts sales. Parts and services revenue is generated from part sales, maintenance service contracts, and system upgrades, as well as time and material billable service calls.

Previous wording

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

Current wording

The following table lists, for the periods indicated, our gross profit in dollars and as percentages of our total revenue:

Previous wording

The increase in gross profit as a percentage of revenue for the three and nine months ended September 28, 2024 as compared to the three and nine months ended September 30, 2023 was primarily due to increased volume and change in product mix.

Current wording

The increase in gross profit as a percentage of revenue for the three months ended March 29, 2025 as compared to the three months ended March 30, 2024 was primarily due to increased volume and change in product mix.

Previous wording

Research and Development. We believe that it is critical to continue to make substantial investments in research and development to ensure the availability of innovative technology that meets the current and projected requirements of our customers’ most advanced designs. We have maintained and intend to continue our commitment to investing in research and development in order to continue to offer new products and technologies. Accordingly, we devote a significant portion of our technical, management and financial resources to research and development programs. Research and development expenditures consist primarily of salaries and related expenses of employees engaged in research, design and development activities. They also include consulting fees, the cost of related supplies and legal costs to defend our patents. Our research and development expenses were $28.3 million and $81.9 million for the three and nine month periods ended September 28, 2024, respectively, as compared to $26.1 million and $80.4 million for the three and nine month periods ended September 30, 2023, respectively. The increase in research and development expenses of $2.2 million for the three month period ended September 28, 2024, as compared to the three month period ended September 30, 2023 was primarily due to increases in compensation costs of $1.7 million, product development costs of $0.2 million, travel costs of $0.2 million and depreciation and amortization costs of $0.1 million. The increase in research and development expenses of $1.5 million for the nine month period ended September 28, 2024, as compared to the nine month period ended September 30, 2023, was primarily due to increases in compensation costs of $0.7 million, travel costs of $0.5 million and outside service costs of $0.3 million.

Current wording

Research and Development. We believe that it is critical to continue to make substantial investments in research and development to ensure the availability of innovative technology that meets the current and projected requirements of our customers’ most advanced designs. We have maintained and intend to continue our commitment to investing in research and development in order to continue to offer new products and technologies. Accordingly, we devote a significant portion of our technical, management and financial resources to research and development programs. Research and development expenditures consist primarily of salaries and related expenses of employees engaged in research, design and development activities. They also include consulting fees, the cost of related supplies and legal costs to defend our patents. Our research and development expenses were $28.0 million for the three month period ended March 29, 2025, as compared to $26.6 million for the three month period ended March 30, 2024. The increase in research and development expenses of $1.4 million for the three month period ended March 29, 2025, as compared to the three month period ended March 30, 2024 was primarily due to increases in compensation costs of $0.4 million, outside service costs of $0.5 million and depreciation and amortization costs of $0.5 million.

Previous wording

Sales and Marketing. Sales and marketing expenses are primarily comprised of salaries, commissions and related costs for sales and marketing personnel, as well as other non-personnel related expenses. Our sales and marketing expenses were $19.5 million and $56.7 million for the three and nine month periods ended September 28, 2024, respectively, compared to $14.8 million and $46.4 million for the three and nine month periods ended September 30, 2023, respectively. The increase in sales and marketing expenses of $4.7 million for the three month period ended September 28, 2024, as compared to the three month period ended September 30, 2023, was primarily due to increases in compensations costs of $4.3 million, travel costs of $0.3 million and freight and duty costs of $0.1 million. The increase in sales and marketing expenses of $10.3 million for the nine month period ended September 28, 2024, as compared to the nine month period ended September 30, 2023, was primarily due to increases in compensations costs of $9.4 million, travel costs of $0.4 million, sales and marketing costs of $0.3 million, outside services costs of $0.1 million and freight and duty costs of $0.1 million.

Current wording

Sales and Marketing. Sales and marketing expenses are primarily comprised of salaries, commissions and related costs for sales and marketing personnel, as well as other non-personnel related expenses. Our sales and marketing expenses were $19.7 million for the three month period ended March 29, 2025, compared to $18.3 million for the three month period ended March 30, 2024. The increase in sales and marketing expenses of $1.4 million for the three month period ended March 29, 2025, as compared to the three month period ended March 30, 2024, was primarily due to increases in compensation costs of $1.1 million and travel costs of $0.3 million.

Previous wording

General and Administrative. General and administrative expenses are primarily comprised of salaries and related costs for corporate and administrative personnel, as well as other non-personnel related expenses. Our general and administrative expenses were $22.5 million and $60.3 million for the three and nine month periods ended September 28, 2024, respectively, as compared to $18.1 million and $56.1 million for the three and nine month periods ended September 30, 2023, respectively. The increase in general and administrative expenses of $4.4 million for the three month period ended September 28, 2024, as compared to the three month period ended September 30, 2023, was primarily due to increases in compensation costs of $3.7 million, other office expense costs of $0.6 million, and travel costs of $0.1 million. The increase in general and administrative expenses of $4.2 million for the nine month period ended September 28, 2024, as compared to the nine month period ended September 30, 2023, was primarily due to increases in compensation costs of $2.6 million, depreciation and amortization of $1.3 million, travel costs of $0.6 million and other office expense costs of $0.4 million, partially offset by an decrease in outside services costs of $0.7 million.

Current wording

General and Administrative. General and administrative expenses are primarily comprised of salaries and related costs for corporate and administrative personnel, as well as other non-personnel related expenses. Our general and administrative expenses were $23.9 million for the three month period ended March 29, 2025, as compared to $17.6 million for the three month period ended March 30, 2024. The increase in general and administrative expenses of $6.3 million for the three month period ended March 29, 2025, as compared to the three month period ended March 30, 2024, was primarily due to increases in compensation costs of $4.9 million, outside service costs of $2.7 million, and depreciation and amortization costs of $0.4 million, partially offset by a decrease in other general expenses of $1.7 million.

Previous wording

Amortization of Identifiable Intangible Assets. Amortization of identifiable intangible assets was $13.1 million and $39.3 million for the three and nine month periods ended September 28, 2024, respectively, compared to $13.8 million and $41.5 million for the three and nine month periods ended September 30, 2023, respectively. The decreases in amortization of identifiable intangible assets of $0.7 million and $2.2 million for the three and nine month periods ended September 28, 2024, as compared to the three and nine month periods ended September 30, 2023, respectively, were primarily due to certain assets becoming fully amortized.

Current wording

Amortization of Identifiable Intangible Assets. Amortization of identifiable intangible assets was $8.4 million for the three month period ended March 29, 2025, compared to $13.1 million for the three month period ended March 30, 2024. The decreases in amortization of identifiable intangible assets of $4.7 million for the three month period ended March 29, 2025, as compared to the three month period ended March 30, 2024, was primarily due to certain assets becoming fully amortized.

Previous wording

Interest income, net. Net interest income was $8.7 million and $24.5 million for the three and nine month periods ended September 28, 2024, respectively, as compared to $5.7 million and $13.9 million for the three and nine month periods ended September 30, 2023, respectively. The increases in net interest income for both the three and nine month periods ended September 28, 2024, as compared to the three and nine month periods ended September 30, 2023, were due to higher cash and marketable securities balances and higher interest rates during the 2024 period.

Current wording

Interest income, net. Net interest income was $9.3 million for the three month period ended March 29, 2025, as compared to $7.4 million for the three month period ended March 30, 2024. The increase in net interest income for the three month period ended March 29, 2025, as compared to the three month period ended March 30, 2024, was due to higher cash and marketable securities balances partially offset by lower interest rates during the 2025 period.

Previous wording

Other (expense) income, net. Other expense, net was $0.7 million for the three month period ended September 28, 2024, as compared to $1.0 million for the same period in the prior year. Other income, net was $10 thousand for the nine month period ended September 28, 2024, as compared to other expense, net of $3.0 million for the same period in the prior year. Decreases in foreign exchange losses, net during all of the comparative periods presented were the primary drivers in the period over period changes.

Current wording

Other (expense) income, net. Other expense, net was $0.7 million for the three month period ended March 29, 2025, as compared to other income, net of $0.8 million for the three month period ended March 30, 2024. Foreign exchange losses during the 2025 period versus foreign exchange gains in the 2024 period were the primary drivers contributing to the period over period changes.

Previous wording

Income Taxes. We recorded an income tax provision of $8.0 million and $16.3 million for the three and nine month periods ended September 28, 2024, respectively, as compared to $2.8 million and $7.9 million for the three and nine month periods ended September 30, 2023, respectively. Our effective tax rates of 13% and 10% for the three and nine month periods ended September 28, 2024 respectively, differ from the statutory rate of 21%, primarily due to (i) research and development tax credits, (ii) the deduction related to foreign derived intangible income (“FDII”), and (iii) excess tax benefits associated with equity compensation. Our effective tax rate of 7% and 8% for the three and nine month periods ended September 30, 2023, respectively, differed from the statutory rate of 21%, primarily due to (i) research and development tax credits, (ii) the deduction related to FDII, and (iii) excess tax benefits associated with equity compensation.

Current wording

Income Taxes. We recorded an income tax provision of $7.6 million for the three month period ended March 29, 2025, as compared to $4.0 million for the three month period ended March 30, 2024. Our effective tax rate of 10.6% for the three month period ended March 29, 2025 differed from the statutory rate of 21%, primarily due to (i) research and development tax credits, (ii) the deduction related to foreign derived intangible income (“FDII”), and (iii) excess tax benefits associated with equity compensation. Our effective tax rate of 7.9% for the three month period ended March 30, 2024 differed from the statutory rate of 21%, primarily due to (i) research and development tax credits, (ii) the deduction related to FDII, and (iii) excess tax benefits associated with equity compensation.

Previous wording

Our cash, cash equivalents and marketable securities consist of the following in dollars (thousands) for the periods indicated:

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Our cash, cash equivalents and marketable securities consist of the following in dollars for the periods indicated:

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A summary of cash provided by (used in) operating, investing, and financing activities is as follows in dollars (thousands) for the periods indicated:

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A summary of cash provided by (used in) operating, investing, and financing activities is as follows in dollars for the periods indicated:

Previous wording

Net cash and cash equivalents provided by operating activities for the nine months ended September 28, 2024 were $189.7 million. The net cash and cash equivalents provided by operating activities during the nine months ended September 28, 2024 resulted primarily from net income, adjusted to exclude the effect of non-cash operating charges, of $214.7 million. Significant non-cash operating charges included depreciation, amortization, share-based compensation, provision for inventory valuation and deferred income taxes. Cash provided by operating activities for the first nine months of fiscal 2024 increased compared to the corresponding period in fiscal 2023 primarily due to improved inventory management, higher cash collections and higher investment income.

Current wording

Net cash and cash equivalents provided by operating activities for the three months ended March 29, 2025 were $92.0 million. The net cash and cash equivalents provided by operating activities during the three months ended March 29, 2025 resulted primarily from net income, adjusted to exclude the effect of non-cash operating charges, of $81.1 million. Significant non-cash operating charges included depreciation, amortization, share-based compensation, provision for inventory valuation and deferred income taxes. Cash provided by operating activities for the first three months of fiscal 2025 increased compared to the corresponding period in fiscal 2024 primarily due to improved inventory management, higher cash collections and higher investment income.

Previous wording

Our working capital was $1,313.2 million at September 28, 2024 and $1,135.5 million at December 30, 2023.

Current wording

Our working capital was $1,294.8 million at March 29, 2025 and $1.307.4 million at December 28, 2024.

Previous wording

Net cash and cash equivalents used in investing activities for the nine months ended September 28, 2024 were $222.5 million. During the nine months ended September 28, 2024, net cash and cash equivalents used in investing activities included purchases of marketable securities of $538.1 million and capital expenditures of $27.3 million, partially offset by proceeds from maturities and sales of marketable securities of $343.0 million .

Current wording

Net cash and cash equivalents used in investing activities for the three months ended March 29, 2025 were $21.8 million. During the three months ended March 29, 2025, net cash and cash equivalents used in investing activities included purchases of marketable securities of $208.5 million, capital expenditures of $8.2 million and purchases of non-marketable equity securities of $8.0 million, partially offset by proceeds from maturities and sales of marketable securities of $203.0 million.

Previous wording

Net cash and cash equivalents used in financing activities for the nine months ended September 28, 2024 were $10 million. During the nine months ended September 28, 2024, financing activities used cash primarily for tax payments related to shares withheld to satisfy employee tax obligations in connection with the vesting of awards under share-based compensation plans of $18.4 million, partially offset by proceeds from sales of shares through share-based compensation plans of $9.2 million.

Current wording

Net cash and cash equivalents used in financing activities for the three months ended March 29, 2025 were $79.5 million. During the three months ended March 29, 2025, financing activities used cash primarily for purchases of common stock of $75.0 million and tax payments related to shares withheld to satisfy employee tax obligations in connection with the vesting of awards under share-based compensation plans of $8.7 million, partially offset by proceeds from sales of shares through share-based compensation plans of $4.2 million.

Previous wording

In February 2024, the Onto Innovation Board of Directors approved a share repurchase authorization, which allows the Company to repurchase up to $200 million worth of shares of its common stock. Repurchases may be made through both public market and private transactions from time to time. During the three and nine months ended September 28, 2024, we repurchased no shares of common stock under this repurchase authorization. As of September 28, 2024, there was $200 million available for future share repurchases under this share repurchase authorization.

Current wording

In February 2024, the Onto Innovation Board of Directors approved a share repurchase authorization, which allows the Company to repurchase up to $200 million worth of shares of its common stock. Repurchases may be made through both public market and private transactions from time to time. During the three months ended March 29, 2025, we repurchased 492 thousand shares of common stock under this repurchase authorization. As of March 29, 2025, there was $99.9 million available for future share repurchases under this share repurchase authorization.

Previous wording

We have a credit agreement with a bank that provides for a variable-rate 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, up to a maximum of $100 million. As of September 28, 2024, the available line of credit was $100 million with an available interest rate of 6.6%. The credit agreement is available to us until such time that either party terminates the arrangement at its discretion. As of the date of this filing, we have not utilized the line of credit.

Current wording

We have a credit agreement with a bank that provides for a variable-rate 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, up to a maximum of $100.0 million. As of March 29, 2025, the available line of credit was $100.0 million with an available interest rate of 5.0%. The credit agreement is available to us until such time that either party terminates the arrangement at its discretion. As of the date of this filing, we have not utilized the line of credit.