ONTO INNOVATION INC.

Previous wording

Our products and services are used by our customers who manufacture many types of ICs for a multitude of applications, each having unique manufacturing challenges. This includes ICs to enable information processing and management (logic ICs), memory storage (NAND, 3D-NAND, NOR, and DRAM), analog devices (e.g., Wi-Fi and 5G radio ICs, power devices), MEMS sensor devices (accelerometers, pressure sensors, microphones), image sensors, and other end markets including components for artificial intelligence, hard disk drives, LEDs, and power management.

Current wording

Our products and services are used by our customers who manufacture many types of ICs for a multitude of applications, each having unique manufacturing challenges. This includes ICs to enable information processing and management (logic ICs), memory storage (NAND, 3D-NAND, NOR, and DRAM), analog devices (e.g., Wi-Fi and 5G radio ICs, power devices), MEMS sensor devices (accelerometers, pressure sensors, microphones), image sensors, and other end markets including components for AI, hard disk drives, LEDs, and power management.

Previous wording

Gross profit as a percentage of revenue increased to 52.2% for fiscal 2024 compared to 51.5% for fiscal 2023. This was primarily driven by an increase in volume and change in product mix, partially offset by write-downs related to the impairment and exit of certain lithography inventory in fiscal 2024.

Current wording

Gross profit as a percentage of revenue decreased to 49.7% for fiscal 2025 compared to 52.2% for fiscal 2024. This was primarily driven by write-downs of excess and obsolete inventory, restructuring costs related to infrastructure transition and costs related to contract manufacturing set-up in fiscal 2025.

Previous wording

The increase in operating expenses in fiscal 2024 compared to fiscal 2023 was primarily due to increases in research and development, and sales and marketing expenses related to increased headcount and compensation costs, project costs, travel expenses and write-off of purchased in process research and development assets.

Current wording

The increase in operating expenses in fiscal 2025 compared to fiscal 2024 was primarily due to increased restructuring expenses, transaction and amortization costs related to the acquisition of Semilab USA, research and development project costs and compensation cost.

Previous wording

Our cash, cash equivalents and marketable securities balance increased to $852.3 million at the end of fiscal 2024 from $697.8 million at the end of fiscal 2023. This increase was primarily the result of $245.7 million of cash generated from operating activities, partially offset by cash used for capital expenditures of $31.9 million, acquisitions of $26.8 million, purchases of common stock of $25.1 million and $19.0 million of cash used for tax payments related to net share settlement of employee stock-based compensation plans.

Current wording

Our cash, cash equivalents and marketable securities balance decreased to $639.6 million at the end of fiscal 2025 from $852.3 million at the end of fiscal 2024. This decrease was primarily the result of cash used for acquisitions of $436.1 million, purchases of common stock of $75.0 million, capital expenditures of $28.5 million, $13.5 million for tax payments related to net share settlement of employee stock-based compensation plans and purchase of non-marketable equity securities of $8.0 million, partially offset by $328.3 million of cash generated from operating activities and $13.4 million of cash from issuance of shares through share-based compensation plans.

Previous wording

Revenue. Our revenue is derived from the sale of our systems and software, spare parts, and services. Our revenue was $987.3 million, $815.9 million and $1,005.2 million for the years ended December 28, 2024, December 30, 2023 and December 31, 2022, respectively. This represents an increase of 21.0% from 2023 to 2024 and a decrease of 18.8% from 2022 to 2023.

Current wording

Revenue. Our revenue is derived from the sale of our systems and software, spare parts, and services. Our revenue was $1,005.3 million, $987.3 million and $815.9 million for the years ended January 3, 2026, December 28, 2024 and December 30, 2023, respectively. This represents an increase of 2% from 2024 to 2025 and an increase of 21% from 2023 to 2024.

Previous wording

Total systems and software revenue decreased $182.4 million for the year ended December 30, 2023, as compared to the year ended December 31, 2022, primarily due to a decrease in units shipped of our metrology product lines to customers in advanced nodes applications. This decline was partially offset by an increase in units shipped of our inspection and lithography product lines to customers in specialty devices and advanced packaging applications. Parts and services revenue is generated from part sales, maintenance service contracts, and system upgrades, as well as time and material billable service calls. During fiscal 2023, the decrease in total parts and services revenue was primarily due to lower factory utilization by several of our customers resulting in a decline in their spare parts requirements.

Current wording

Total systems and software revenue decreased $2.6 million for the year ended January 3, 2026, as compared to the year ended December 28, 2024, primarily due to a decrease in units shipped of our inspection product line to customers in support of advanced packaging needs for chips used in AI applications, partially offset by an increase in metrology product line units shipped to customers in Advanced Nodes and units shipped to Semilab USA customers in SiC specialty devices. Parts and services revenue is generated from part sales, maintenance service contracts, and system upgrades, as well as time and material billable service calls. During fiscal 2025, the increase in total parts and services revenue was primarily due to increased spending by our customers on system upgrades and repairs of existing systems.

Previous wording

Gross Profit. Our gross profit has been and will likely continue to be affected by a variety of factors, including manufacturing efficiencies, provision for excess and obsolete inventory, pricing by competitors or suppliers, new product introductions, production volume, inventory step-up from purchase accounting, customization and reconfiguration of systems, international and domestic sales mix, system and software product mix, and parts and services margins. Our gross profit was $515.3 million, $420.3 million and $539.2 million for the years ended December 28, 2024, December 30, 2023, and December 31, 2022, respectively. Our gross profit represented 52.2%, 51.5% and 53.6% of our revenue for the years ended December 28, 2024, December 30, 2023, and December 31, 2022, respectively. The increase in gross profit as a percentage of revenue from 2023 to 2024 was primarily due to an increase in revenue volume and change in product mix, partially offset by write-downs related to the impairment and exit of certain lithography inventory. The decrease in gross profit as a percentage of revenue from 2022 to 2023 was primarily due to decreased revenue volume, unfavorable product mix, and increased manufacturing costs due to inflationary pressures during the 2023 fiscal period.

Current wording

Gross Profit. Our gross profit has been and will likely continue to be affected by a variety of factors, including manufacturing efficiencies, provision for excess and obsolete inventory, pricing by competitors or suppliers, new product introductions, production volume, inventory step-up from purchase accounting, customization and reconfiguration of systems, international and domestic sales mix, system and software product mix, and parts and services margins. Our gross profit was $499.8 million, $515.3 million and $420.3 million for the years ended January 3, 2026, December 28, 2024, and December 30, 2023, respectively. Our gross profit represented 49.7%, 52.2% and 51.5% of our revenue for the years ended January 3, 2026, December 28, 2024, and December 30, 2023, respectively. The decrease in gross profit as a percentage of revenue from 2024 to 2025 was primarily due to restructuring and other expenses for the write down of excess and obsolete inventory. The increase in gross profit as a percentage of revenue from 2023 to 2024 was primarily due to an increase in revenue volume and change in product mix, partially offset by write-downs related to the impairment and exit of certain lithography inventory.

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 intellectual property. Our research and development expenses were $116.8 million, $104.4 million and $112.0 million in fiscal years 2024, 2023 and 2022, respectively. The year-over-year dollar increase from 2023 through 2024 was primarily due to write-off of acquired in-process research and development of $4.0 million and increased compensation costs of $1.6 million, outside services costs of $3.3 million, product development costs of $1.9 million, travel costs of $0.6 million, research and development project costs of $0.5 million, freight and duty costs of $0.2 million and depreciation expenses of $0.2 million. The year-over-year dollar decrease from 2022 through 2023 was primarily due to decreases of $4.6 million for the write-off of acquired in-process research and development assets and cost containment initiatives of $3.3 million, partially offset by increases in depreciation expenses of $0.6 million and travel expenses of $0.3 million. We continue to maintain our commitment to investing in new product development and enhancement to existing products.

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 intellectual property. Our research and development expenses were $132.0 million, $113.9 million and $104.4 million in fiscal years 2025, 2024 and 2023, respectively. The year-over-year dollar increase from 2024 through 2025 was primarily due to increases in compensation costs, production expenses and depreciation and amortization. The year-over-year dollar increase from 2023 through 2024 was primarily due to increase in compensation costs, outside services costs, product development costs, travel costs, research and development project costs, freight and duty costs, and depreciation expenses. We continue to maintain our commitment to investing in new product development and enhancement to existing products.

Previous wording

Sales and Marketing. Sales and marketing expenses are primarily comprised of salaries and related costs for sales and marketing personnel, as well as commissions and other non-personnel related expenses. Our sales and marketing expenses were $76.2 million, $61.8 million and $65.7 million in fiscal years 2024, 2023 and 2022, respectively. The year-over-year dollar increase from 2023 through 2024 was primarily due to increases in total compensation costs of $13.0 million, travel costs of $0.7 million, outside services costs of $0.3 million, sales and marketing costs of $0.3 million and production expenses of $0.1 million. The year-over-year dollar decrease from 2022 through 2023 was primarily due to a decrease in total compensation costs of $1.5 million on lower headcount and variable compensation plan elements, a decrease in outside service expenses of $0.8 million and a decrease in depreciation expense of $0.7 million, partially offset by an increase in travel expenses of $0.3 million.

Current wording

Sales and Marketing. Sales and marketing expenses are primarily comprised of salaries and related costs for sales and marketing personnel, as well as commissions and other non-personnel related expenses. Our sales and marketing expenses were $70.0 million, $76.0 million and $61.8 million in fiscal years 2025, 2024 and 2023, respectively. The year-over-year dollar decrease from 2024 through 2025 was primarily due to decreases in compensation costs, outside services and fees, and facilities expenses. The year-over-year dollar increase from 2023 through 2024 was primarily due to increases in total compensations costs, travel costs, outside service costs, sales and marketing costs and production expenses.

Previous wording

General and Administrative. General and administrative expenses are primarily comprised of salaries and related costs for general administrative personnel, as well as other non-personnel related expenses. Our general and administrative expenses were $85.8 million, $83.1 million and $69.6 million in fiscal years 2024, 2023 and 2022, respectively. The year-over-year dollar increase from 2023 through 2024 was primarily due to increases in depreciation expense of $1.8 million and facilities expense of $1.4 million, partially offset by a decrease in freight and duty costs of $0.5 million. The year-over-year dollar increase from 2022 through 2023 was primarily due increased litigation expenses of $7.4 million, restructuring charges of $3.6 million for employee severance costs during the 2023 period, an increase in depreciation expense of $1.9 million and an increase in facilities expenses of $0.4 million.

Current wording

General and Administrative. General and administrative expenses are primarily comprised of salaries and related costs for general administrative personnel, as well as other non-personnel related expenses. Our general and administrative expenses were $107.1 million, $79.9 million and $79.6 million in fiscal years 2025, 2024 and 2023, respectively. The year-over-year dollar increase from 2024 through 2025 was primarily due to increases in compensation costs, outside services and fees, travel costs, facilities expenses, and other general expenses. The year-over-year dollar increase from 2023 through 2024 was primarily due to increases in depreciation expense, facilities expense and partially offset by a decrease in freight and duty costs.

Previous wording

Amortization of Identifiable Intangible Assets. Amortization of identifiable intangible assets, primarily purchased technology, was $49.4 million, $54.8 million and $55.3 million in fiscal years 2024, 2023 and 2022, respectively. The consecutive year-over-year dollar decreases from 2022 through 2024 were primarily due to certain assets becoming fully amortized.

Current wording

Amortization of Identifiable Intangible Assets. Amortization of identifiable intangible assets, primarily purchased technology, was $39.4 million, $49.4 million and $54.8 million in fiscal years 2025, 2024 and 2023, respectively. The year-over-year dollar decrease from 2024 to 2025 was due to certain assets becoming fully amortized, partially offset by Semilab USA amortization of $5.6 million. The year-over-year dollar decrease from 2023 through 2024 was due to certain assets becoming fully amortized.

Previous wording

Interest income, net. In fiscal years 2024, 2023 and 2022, net interest income was $33.5 million, $20.4 million and $5.0 million, respectively. The increases in net interest income from 2023 to 2024 and from 2022 to 2023 were due to higher average balances and higher interest rates during both the 2024 and 2023 periods, respectively.

Current wording

Interest income, net. In fiscal years 2025, 2024 and 2023, net interest income was $35.0 million, $33.5 million and $20.4 million, respectively. The increases in net interest income from 2024 to 2025 and from 2023 to 2024 were due to higher average balances and higher interest rates during both the 2025 and 2024 periods, respectively.

Previous wording

Cash provided by operating activities during fiscal 2023 was $172.0 million, which reflects net income, adjusted to exclude the effect of non-cash operating charges, of $204.5 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 in fiscal 2023 increased compared to fiscal 2022 primarily due to improved inventory management and lower income tax payments.

Current wording

Cash provided by operating activities during fiscal 2025 was $328.3 million, which reflects net income, adjusted to exclude the effect of non-cash operating charges, of $131.5 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 in fiscal 2025 increased compared to fiscal 2024 primarily due to improved cash collections and higher accounts payable balances driven by increased contract manufacturing activity, partially offset by higher cash outflows for income taxes resulting from the timing of payments and the settlement of prior period liabilities, as well as a use of cash in accrued and other liabilities.

Previous wording

Our working capital was $1,307.4 million at December 28, 2024 and $1,135.5 million at December 30, 2023.

Current wording

Our working capital was $1,049.1 million at January 3, 2026 and $1,307.4 million at December 28, 2024.

Previous wording

We used $226.5 million, $103.4 million and $55.7 million of cash in investing activities in fiscal 2024, 2023 and 2022, respectively. Capital expenditures, net of proceeds in fiscal 2024, 2023 and 2022 were $31.9 million, $19.8 million and $18.4 million. Capital expenditures were primarily for enterprise resource planning systems implementation, investments in facility improvements, demonstration and testing equipment, manufacturing and network equipment. Purchases of marketable securities, net of proceeds from sales and maturities of marketable securities, for fiscal 2024, 2023 and 2022 was $167.9 million, $83.6 million and $4.6 million, respectively. Net cash paid for acquisitions in fiscal 2024 and 2022 was $26.8 million and $4.6 million, respectively. There were no acquisitions in fiscal 2023.

Current wording

We used $121.6 million, $226.5 million and $103.4 million of cash in investing activities in fiscal 2025, 2024 and 2023, respectively. Capital expenditures, net of proceeds in fiscal 2025, 2024 and 2023 were $28.5 million, $31.9 million and $19.8 million. Capital expenditures were primarily for enterprise resource planning systems implementation, investments in facility improvements, demonstration and testing equipment, manufacturing and network equipment. Proceeds from sales and maturities of marketable securities, net of purchases of marketable securities was $351.1 million for fiscal 2025, purchases of marketable securities, net of proceeds from sales and maturities of marketable securities, for fiscal 2024 and 2023 was $167.9 million and $83.6 million, respectively. Net cash paid for acquisitions in fiscal 2025 and 2024 was $436.1 million and $26.8 million, respectively. There were no acquisitions in fiscal 2023.

Previous wording

We used $35.7 million, $9.5 million and $68.4 million of cash in financing activities for fiscal 2024, 2023 and 2022, respectively. Purchases of our common stock were $25.1 million, $3.2 million and $65.3 million in fiscal 2024, 2023 and 2022, respectively. Tax withholding payments for vested equity awards, partially offset by proceeds from sales of shares through share-based compensation plans were $9.9 million, $5.5 million and $0.8 million for fiscal 2024, 2023 and 2022, respectively. Payments for contingent consideration for acquired business were $0.7 million, $0.8 million and $2.3 million in fiscal 2024, 2023 and 2022.

Current wording

We used $75.1 million, $35.7 million and $9.5 million of cash in financing activities for fiscal 2025, 2024 and 2023, respectively. Purchases of our common stock were $75.0 million, $25.1 million and $3.2 million in fiscal 2025, 2024 and 2023, respectively. Tax withholding payments for vested equity awards, partially offset by proceeds from sales of shares through share-based compensation plans were $0.1 million, $9.9 million and $5.5 million for fiscal 2025, 2024 and 2023, respectively. Payments for contingent consideration for acquired business were $0.7 million and $0.8 million in fiscal 2024 and 2023, respectively. There were no payments of contingent consideration for acquired business in fiscal 2025.

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 December 28, 2024, the available line of credit was approximately $100.0 million with an available interest rate of 6.2%. 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 million. As of January 3, 2026, the available line of credit was approximately $100.0 million with an available interest rate of 4.3%. 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.

Previous wording

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 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. In addition, a reduction in or volatility with respect to our stock price or a general market downturn could materially impact our ability to sell securities on favorable terms or at all. There can be no assurance that we will be able to raise any such capital on terms acceptable to us or at all.

Current wording

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 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-K. 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. In addition, a reduction in or volatility with respect to our stock price or a general market downturn could materially impact our ability to sell securities on favorable terms or at all. There can be no assurance that we will be able to raise any such capital on terms acceptable to us or at all.

Previous wording

Inventory Valuation. Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less predictable costs of completion, disposal and transportation. Cost is generally determined on a first-in, first-out basis, and includes material, labor and manufacturing overhead costs. We review and set standard costs as needed, but at a minimum, on an annual basis, at current manufacturing costs in order to approximate actual costs. We maintain reserves for our excess and obsolete inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future product lifecycles, product demand and market conditions.

Current wording

Inventory Valuation. Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less predictable costs of completion, disposal and transportation. Cost is generally determined on a first-in, first-out basis, and includes material, labor and manufacturing overhead costs. We review and set standard costs as needed, but at a minimum, on an annual basis, at current manufacturing costs in order to approximate actual costs. We maintain reserves for our excess and obsolete inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future product lifecycles, product demand and market conditions. If actual product lifecycles, product demand and market conditions are less favorable than those originally projected by management, additional inventory write-downs may be required.