ONTO INNOVATION INC. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period specified in SEC rules and forms. These controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating disclosure controls and procedures, we have recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Management is required to apply judgment in evaluating its controls and procedures. We performed an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, to assess the effectiveness of the design and operation of our disclosure controls and procedures under the Exchange Act as of December 31, 2022. Based on that evaluation, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures were effective as of December 31, 2022 at the reasonable assurance level. Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process 42 Table of Contents designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (“COSO”). Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2022. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may be circumvented or deteriorate. Attestation Report of the Registered Public Accounting Firm Our consolidated financial statements as of and for the year ended December 31, 2022 have been audited by Ernst & Young LLP, our independent registered public accounting firm, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Ernst & Young LLP has also audited our internal control over financial reporting as of December 31, 2022, as stated in its attestation report included elsewhere in this Form 10-K. Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our fiscal quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection. Not applicable. 43 Table of Contents PART III Certain information required by Part III is omitted from this Form 10-K because we expect to file a definitive proxy statement within one hundred twenty (120) days after the end of our fiscal year pursuant to Regulation 14A (the “Proxy Statement”) for our Annual Meeting of Stockholders currently scheduled for May 9, 2023, and the information included in the Proxy Statement is incorporated herein by reference. Item 10. Directors, Executive Officers and Corporate Governance. The information required by this Item with respect to directors and executive officers is incorporated by reference to the information under the headings “Proposal 1: Election of Directors,” “Executive Officers” and “Corporate Governance Principles and Practices” in the Proxy Statement. Information regarding compliance with Section 16 of the Exchange Act is incorporated by reference to the information under the heading “Delinquent Section 16(a) Reports” in the Proxy Statement, if any. Code of Business Conduct and Ethics. We have adopted a code of business conduct and ethics that applies to our principal executive officer, principal financial officer and controller. This code of business conduct and ethics is posted on our internet website address at http://investors.ontoinnovation.com. We will post on our website any amendment to or waiver from a provision of our code of business conduct and ethics as may be required, and within the time period specified, by applicable SEC rules. Item 11. Executive Compensation. The information required by this Item is incorporated by reference to the information under the headings “Executive Officer Compensation,” “Compensation of Directors,” “Executive Officer Compensation Tables,” “Compensation Committee Report on Executive Officer Compensation,” “Stock Ownership/Retention Guidelines for Directors” and “Compensation Committee Interlocks and Insider Participation” in the Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this Item is incorporated by reference to the information under the headings “Security Ownership of Certain Beneficial Owners” and “Equity Compensation Plan Information” in the Proxy Statement. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this Item is incorporated by reference to the information under the headings “Related Persons Transaction Policy” and “Board Independence” in the Proxy Statement. Item 14. Principal Accountant Fees and Services. The information required by this Item is incorporated by reference to the information under the heading “Proposal 3: Ratification of Appointment of Independent Registered Public Accounting Firm” in the Proxy Statement. 44 Table of Contents PART IV Item 15. Exhibits and Financial Statement Schedule. (a) The following documents are filed as part of this Form 10-K: 1. Financial Statements The consolidated financial statements and consolidated financial statement information required by this Item are included on pages F-1 through F-9 of this report. The Reports of Independent Registered Public Accounting Firm appear on pages F-2 through F-4 of this report. 2. Financial Statement Schedule See Index to financial statements on page F-1 of this report. 3. Exhibits Exhibits are as set forth in the “Exhibit Index”, provided below. Where so indicated, exhibits, which were previously filed, are incorporated by reference. Exhibit No. Exhibit Description Form File Number Date of First Filing Exhibit No./Appendix Reference 2.1 Agreement and Plan of Merger, dated as of June 23, 2019, by and among Nanometrics Incorporated, Rudolph Technologies, Inc. and PV Equipment Inc. 8-K 000-13470 June 24, 2019 2.1 3.1 Amended and Restated Certificate of Incorporation of Onto Innovation Inc. 8-K 001-39110 October 28, 2019 3.2 3.2 Amended and Restated Bylaws of Onto Innovation Inc. 8-K 001-39110 January 27, 2020 3.1 4.1 Form of Common Stock Certificate 10-K 001-39110 February 25, 2020 4.1 4.2 Description of Securities 10-K 001-39110 February 25, 2020 4.2 10.1* Nanometrics Incorporated Amended and Restated 2005 Equity Incentive Plan DEF14A 000-13470 April 4, 2017 Appendix B 10.1.1* Form of Performance-Based Restricted Stock Unit Agreement 8-K 000-13470 March 24, 2015 99.1 10.1.2* Nanometrics Incorporated Amended and Restated 2005 Equity Incentive Plan forms of Stock Option and Restricted Stock Unit Agreements 10-K 000-13470 March 13, 2008 10.8 10.2* Rudolph Technologies, Inc. 2009 Stock Plan DEFR14A 000-27965 May 8, 2009 Appendix A 10.2.1* Amended form of Employee Restricted Stock Unit Purchase Agreement pursuant to the Rudolph Technologies, Inc. 2009 Stock Plan 10-Q 001-36226 August 3, 2017 10.12 10.3* Rudolph Technologies, Inc. 2018 Stock Plan 8-K 001-36226 May 16, 2018 10.1 10.3.1* Form of Employee Performance Stock Unit Purchase Agreement pursuant to the Rudolph Technologies, Inc. 2018 Stock Plan 10-Q 001-36226 August 2, 2018 10.1 45 Table of Contents Exhibit No. Exhibit Description Form File Number Date of First Filing Exhibit No./Appendix Reference 10.4* Onto Innovation Inc. 2020 Stock Plan 8-K 001-39110 May 14, 2020 10.1 10.4.2* Form of Employee Stock Option Agreement for usage under the Onto Innovation Inc. 2020 Stock Plan 8-K 001-39110 May 14, 2020 10.1 10.4.3* Form of Director Stock Option Agreement for usage under the Onto Innovation Inc. 2020 Stock Plan 8-K 001-39110 May 14, 2020 10.1 10.4.5* Form of Employee Restricted Stock Unit Agreement for usage under the Onto Innovation Inc. 2020 Stock Plan 10-Q 001-39110 August 5, 2021 10.1 10.4.6* Form of Director Restricted Stock Unit Purchase Agreement for usage under the Onto Innovation Inc. 2020 Stock Plan 10-Q 001-39110 August 5, 2021 10.1 10.4.7* Form of Employee Performance Stock Unit Purchase Agreement for usage under the Onto Innovation Inc. 2020 Stock Plan 10-Q 001-39110 August 5, 2021 10.1 10.4.8* Form of Employee Incentive Restricted Stock Unit Purchase Agreement for usage under the Onto Innovation Inc. 2020 Stock Plan 10-Q 001-39110 November 4, 2021 10.1 10.5* Onto Innovation Inc. 2020 Employee Stock Purchase Plan S-8 333-238492 May 19, 2020 10.2 10.6* Form of Indemnification Agreement 8-K 001-39110 November 6, 2019 10.1 10.7* Form of Onto Innovation Inc. Indemnification Agreement 8-K 001-39110 September 13, 2021 10.1 10.8* Management Agreement, dated as of July 24, 2000 by and between Rudolph Technologies, Inc. and Steven R. Roth as restated and amended on July 29, 2014. 10-Q 001-36226 August 6, 2014 10.2 10.9* Employment Agreement, dated as of November 9, 2015, by and between Rudolph Technologies, Inc. and Michael Plisinski. 8-K 001-36226 November 9, 2015 10.1 10.10* Offer Letter to Yoon Ah E. Oh, dated October 4, 2021, by and between Yoon Ah E. Oh and Onto Innovation Inc. 10-Q 001-39110 May 3, 2022 10.1 10.11* Offer Letter to Mark Slicer, dated April 1, 2022, by and between Mark Slicer and Onto Innovation Inc. 8-K 001-39110 May 17, 2022 10.1 10.12* Executive Change in Control Agreement, dated July 5, 2022, by and between Onto Innovation Inc. and Yoon Ah Oh 10-Q 001-39110 November 10, 2022 10.1 10.13*+ Form of Executive Change in Control Agreement ― ― ― ― 46 Table of Contents Exhibit No. Exhibit Description Form File Number Date of First Filing Exhibit No./Appendix Reference 21.1+ Subsidiaries. ― ― ― ― 23.1+ Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. ― ― ― ― 31.1+ Rule 13a-14(a) Certification of Chief Executive Officer of the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. ― ― ― ― 31.2+ Rule 13a-14(a) Certification of Chief Financial Officer of the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. ― ― ― ― 32.1+ Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ― ― ― ― 32.2+ Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ― ― ― ― 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted in inline XBRL and contained in Exhibit 101) * Management contract, compensatory plan or arrangement. + Filed herewith. 47 Table of Contents ONTO INNOVATION INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Page Consolidated Financial Statements: Reports of Independent Registered Public Accounting Firm (PCAOB ID Number 42 ) F- 2 Consolidated Statements of Operations for the years ended December 31, 2022, January 1, 2022 and December 26, 2020 F- 5 Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, January 1, 2022 and December 26, 2020 F- 6 Consolidated Balance Sheets as of December 31, 2022 and January 1, 2022 F- 7 Consolidated Statements of Cash Flows for the years ended December 31, 2022, January 1, 2022 and December 26, 2020 F- 8 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022, January 1, 2022 and December 26, 2020 F- 9 Notes to the Consolidated Financial Statements F- 10 Consolidated Financial Statement Schedule: Schedule of Valuation and Qualifying Accounts F- 31 F- 1 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Onto Innovation Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Onto Innovation Inc. (the Company) as of December 31, 2022, and January 1, 2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and January 1, 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 24, 2023, expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account s or disclosure to which it relates. Reserve for Excess and Obsolete Inventory Description of the Matter As described in Notes 2 and 7 to the consolidated financial statements, the Company records inventory net of a reserve for excess and obsolete inventory resulting in net inventories of $324.3 million as of December 31, 2022. The valuation of certain of the Company's inventory is subject to risks associated with supply and demand. As described in Note 2 to the consolidated financial statements, the Company maintains reserves for excess and obsolete inventory equal to the difference between the cost of inventory and its estimated net realizable value based upon assumptions about historical and future demand for the Company’s products and market conditions Auditing management’s estimate of the excess and obsolete inventory reserve was subjective and required significant judgment as the excess and obsolete inventory reserve is sensitive to changes in the Company’s operations and assumptions used to estimate the reserve including management’s assumptions with regards to product life-cycles, product demand and market conditions, which includes historical usage, expected future usage, on-hand quantities of individual materials, and anticipated engineering design changes or advancements. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s excess and obsolete inventory reserve process, including those over F- 2 Table of Contents the validity and reasonableness of the data and assumptions used in estimating the excess and obsolete inventory reserve. To test the adequacy of the Company’s excess and obsolete inventory reserve, we performed audit procedures that included, among others, assessing methodologies and assumptions used, testing the completeness and accuracy of the underlying data used by management in its analysis including the usage of historical materials, considering potential product obsolescence, observing physical inventory on-hand and inspecting historical gross margins to assess whether any items are being sold at a loss or lower margins that may need to be included in the reserve. We assessed the historical accuracy of management’s estimated excess and obsolete inventory reserve and performed sensitivity analyses to evaluate changes in the estimate that result from changes in the Company’s significant assumptions. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2008. Iselin, New Jersey February 24, 2023 F- 3 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Onto Innovation Inc. Opinion on Internal Control Over Financial Reporting We have audited Onto Innovation Inc.’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Onto Innovation Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and January 1, 2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 24, 2023 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting . Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Iselin, New Jersey February 24, 2023 F- 4 Table of Contents ONTO INNOVATION INC. CONSOLIDATED STATEM ENTS OF OPERATIONS (In thousands, except per share data) Year Ended December 31, 2022 January 1, 2022 December 26, 2020 Revenue $ 1,005,183 $ 788,899 $ 556,496 Cost of revenue 465,962 359,813 278,043 Gross profit 539,221 429,086 278,453 Operating expenses: Research and development 111,953 96,118 84,584 Sales and marketing 65,688 57,235 48,136 General and administrative 69,582 67,960 65,310 Amortization 55,284 51,366 53,746 Total operating expenses 302,507 272,679 251,776 Operating income 236,714 156,407 26,677 Interest income, net 5,011 1,163 2,899 Other expense, net ( 141 ) ( 1,888 ) ( 2,708 ) Income before provision (benefit) for income taxes 241,584 155,682 26,868 Provision (benefit) for income taxes 18,250 13,333 ( 4,157 ) Net income $ 223,334 $ 142,349 $ 31,025 Earnings per share: Basic $ 4.52 $ 2.89 $ 0.63 Diluted $ 4.49 $ 2.86 $ 0.63 Weighted average number of shares outstanding: Basic 49,424 49,242 49,136 Diluted 49,764 49,728 49,475 The accompanying notes are an integral part of these consolidated financial statements. F- 5 Table of Contents ONTO INNOVATION INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Year Ended December 31, 2022 January 1, 2022 December 26, 2020 Net income $ 223,334 $ 142,349 $ 31,025 Other comprehensive income (loss), net of tax: Change in net unrealized gains (losses) on available-for-sale marketable securities ( 2,447 ) ( 537 ) 123 Change in currency translation adjustments ( 8,879 ) ( 2,715 ) 5,043 Total other comprehensive income (loss), net of tax ( 11,326 ) ( 3,252 ) 5,166 Total comprehensive income $ 212,008 $ 139,097 $ 36,191 The accompanying notes are an integral part of these consolidated financial statements. F- 6 Table of Contents ONTO INNOVATION INC. CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) December 31, 2022 January 1, 2022 ASSETS Current Assets: Cash and cash equivalents $ 175,872 $ 169,602 Marketable securities 371,912 341,741 Accounts receivable, less allowance of $ 1,572 at December 31, 2022 and $ 1,303 at January 1, 2022 241,395 177,205 Inventories 324,282 243,108 Prepaid expenses and other current assets 21,411 16,433 Total current assets 1,134,872 948,089 Property, plant and equipment, net 91,980 82,094 Goodwill 315,811 315,811 Identifiable intangible assets, net 222,197 277,281 Deferred income taxes 4,778 4,822 Other assets 25,225 21,716 Total assets $ 1,794,863 $ 1,649,813 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 54,526 $ 53,345 Accrued liabilities 48,836 43,042 Deferred revenue 30,163 29,979 Other current liabilities 27,033 28,160 Total current liabilities 160,558 154,526 Deferred and other tax liabilities 7,366 40,281 Other non-current liabilities 30,513 28,951 Total liabilities 198,437 223,758 Commitments and contingencies (Note 8) Stockholders’ equity: Preferred stock, $ 0.001 par value, 3,000 shares authorized, no shares issued and outstanding — — Common stock, $ 0.001 par value, 97,000 shares authorized, 48,684 and 49,300 issued and outstanding at December 31, 2022 and January 1, 2022, respectively. 49 49 Additional paid-in capital 1,243,631 1,256,179 Accumulated other comprehensive income ( 10,010 ) 1,316 Accumulated earnings 362,756 168,511 Total stockholders’ equity 1,596,426 1,426,055 Total liabilities and stockholders’ equity $ 1,794,863 $ 1,649,813 The accompanying notes are an integral part of these consolidated financial statements. F- 7 Table of Contents ONTO INNOVATION INC. CONSOLIDATED STATEM ENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2022 January 1, 2022 December 26, 2020 Cash flows from operating activities: Net income $ 223,334 $ 142,350 $ 31,025 Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: Depreciation 9,378 14,435 13,832 Amortization of intangibles 55,284 51,366 53,746 Share-based compensation 24,426 19,542 17,662 Write-off of acquired in-process research and development 5,652 — — Acquired inventory step-up amortization — 393 10,678 Provision for inventory valuation 9,313 8,175 14,703 Deferred income taxes ( 33,601 ) ( 12,618 ) ( 11,631 ) Other, net ( 563 ) 2,267 4,711 Change in operating assets and liabilities, net of effects of business acquired: Accounts receivable ( 65,140 ) ( 27,829 ) ( 25,816 ) Income taxes ( 5,006 ) 1,307 ( 1,196 ) Inventories ( 93,905 ) ( 57,175 ) ( 42,409 ) Prepaid expenses and other assets ( 4,954 ) ( 768 ) 11,409 Accounts payable 1,181 12,142 11,403 Accrued and other liabilities 11,304 21,694 17,867 Net cash and cash equivalents provided by operating activities 136,703 175,281 105,984 Cash flows from investing activities: Purchases of marketable securities ( 371,287 ) ( 361,022 ) ( 313,027 ) Proceeds from maturities and sales of marketable securities 338,645 255,063 265,409 Purchases of property, plant and equipment ( 18,405 ) ( 12,039 ) ( 3,829 ) Acquisitions, net of cash acquired ( 4,644 ) ( 23,795 ) — Cash received from convertible note receivable — — 2,848 Net cash and cash equivalents used in investing activities ( 55,691 ) ( 141,793 ) ( 48,599 ) Cash flows from financing activities: Purchases of common stock ( 65,257 ) — ( 52,000 ) Tax payments related to shares withheld for share-based compensation plans ( 8,874 ) ( 7,403 ) ( 4,052 ) Payment of contingent consideration for acquired business ( 2,287 ) — ( 569 ) Issuance of shares through share-based compensation plans 8,068 10,073 2,919 Net cash and cash equivalents provided by (used in) financing activities ( 68,350 ) 2,670 ( 53,702 ) Effect of exchange rate changes on cash and cash equivalents ( 6,391 ) ( 3,276 ) 2,364 Net increase in cash and cash equivalents 6,270 32,882 6,047 Cash and cash equivalents at beginning of year 169,602 136,720 130,673 Cash and cash equivalents at end of year $ 175,872 $ 169,602 $ 136,720 Supplemental disclosure of cash flow information: Income taxes paid, net $ 58,687 $ 23,766 $ 6,415 The accompanying notes are an integral part of these consolidated financial statements. F- 8 Table of Contents ONTO INNOVATION INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY For the years ended December 31, 2022, January 1, 2022 and December 26, 2020 (In thousands) Common Stock Additional Paid-in Accumulated Other Comprehensive Accumulated Earnings / Shares Amount Capital Income / (Loss) (Deficit) Total Balance at December 31, 2019 50,184 $ 50 $ 1,269,437 $ ( 598 ) $ ( 4,863 ) $ 1,264,026 Issuance of shares through share- based compensation plans, net 668 1 2,918 — — 2,919 Repurchase of common stock ( 1,882 ) ( 2 ) ( 51,998 ) — — ( 52,000 ) Net income — — — — 31,025 31,025 Share-based compensation — — 17,662 — — 17,662 Share-based compensation plan withholdings ( 118 ) — ( 4,052 ) — — ( 4,052 ) Other ( 94 ) — — — — — Currency translation — — — 5,043 — 5,043 Unrealized gain on investments — — — 123 — 123 Balance at December 26, 2020 48,758 49 1,233,967 4,568 26,162 1,264,746 Issuance of shares through share- based compensation plans, net 650 — 10,072 — — 10,072 Net income — — — — 142,349 142,349 Share-based compensation — — 19,542 — — 19,542 Share-based compensation plan withholdings ( 108 ) — ( 7,402 ) — — ( 7,402 ) Currency translation — — — ( 2,715 ) — ( 2,715 ) Unrealized loss on investments — — — ( 537 ) — ( 537 ) Balance at January 1, 2022 49,300 49 1,256,179 1,316 168,511 1,426,055 Issuance of shares through share- based compensation plans, net 509 1 8,067 — — 8,068 Repurchase of common stock ( 1,018 ) ( 1 ) ( 36,167 ) — ( 29,089 ) ( 65,257 ) Net income — — — — 223,334 223,334 Share-based compensation — — 24,426 — — 24,426 Share-based compensation plan withholdings ( 107 ) — ( 8,874 ) — — ( 8,874 ) Currency translation — — — ( 8,879 ) — ( 8,879 ) Unrealized loss on investments — — — ( 2,447 ) — ( 2,447 ) Balance at December 31, 2022 48,684 $ 49 $ 1,243,631 $ ( 10,010 ) $ 362,756 $ 1,596,426 The accompanying notes are an integral part of these consolidated financial statements F- 9 Table of Contents ONTO INNOVATION INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share data) 1. Organization and Nature of Operations: Onto Innovation Inc. (“Onto Innovation” or the “Company”) is a worldwide leader in the design, development, manufacture and support of process control tools that perform macro-defect inspection and metrology, lithography systems, and process control analytical software used by semiconductor and advanced packaging device manufacturers. The Company delivers 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 time to market of their devices. The Company provides process and yield management solutions used in both wafer processing facilities, often referred to as “front-end” manufacturing, and in device packaging and test facilities, commonly referred to as “back-end” manufacturing. The Company’s advanced process control software portfolio includes powerful solutions for standalone tools, groups of tools, or factory-wide suites to enhance productivity and achieve significant cost savings. Onto Innovation’s systems are backed by worldwide customer service and applications support. The Company has branch sales and service offices or subsidiaries in Korea, Japan, China, Taiwan, Singapore, Malaysia, Vietnam and in several countries in Europe. The Company operates in a single reportable segment and is a provider of process characterization equipment and software for wafer fabs and advanced packaging facilities. 2. Summary of Significant Accounting Policies: Consolidation. The consolidated financial statements reflect the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. Fiscal Year. The fiscal year of 2022 began on January 2, 2022 and ended December 31, 2022. The fiscal year of 2021 began on December 27, 2020 and ended January 1, 2022. The fiscal year of 2020 began on January 1, 2020 and ended December 26, 2020. Revenue Recognition . Revenue is recognized when control of the promised goods or services are transferred to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable. The Company has elected to account for shipping and handling activities as the fulfillment of a promise to transfer goods to the customer and therefore records these activities under the caption “Cost of revenue.” Sales tax and any other taxes collected concurrent with revenue producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. These accounting policy elections are consistent with the manner in which the Company has historically recorded these items. Contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged to customers or the expected cost-plus margin. Systems and Software 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. The Company provides an assurance warranty on its systems for a period of twelve to fourteen 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 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. F- 10 Table of Contents ONTO INNOVATION INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except per share data) 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, which is primarily sold with our systems, is 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. 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. 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 and consulting is recognized as services are performed. Revenue from installation services is recognized at a point in time when installation is complete. Practical Expedients The Company generally expenses sales commissions when incurred because the amortization period is one year or less. These costs are recorded within selling, general and administrative expenses. The Company does not adjust the amount of consideration for the effects of a significant financing components, if any, as the payment terms are one year or less. The Company does not disclose the value of remaining performance obligations for contracts with an original expected length of one year or less and contracts for which the Company recognizes revenue in the amount to which it has the right to invoice. For additional information on the Company’s revenue recognition, see Note 9 of Notes to the Consolidated Financial Statements. Business Combinations. The Company accounts for business combinations under the acquisition method of accounting, which requires us to recognize separately from goodwill the assets acquired, and the liabilities assumed at their acquisition date fair values. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, the Company’s estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recognized in its consolidated statements of operations. Accounting for business combinations requires the Company’s management to make significant estimates and assumptions, especially at the acquisition date including its estimates for intangible assets, contractual obligations assumed, restructuring liabilities, pre-acquisition contingencies, and contingent consideration, where applicable. Although the Company believes the assumptions and estimates it has made in the past have been reasonable and appropriate, they are based, in part, on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Estimates in valuing certain acquired intangible assets under the income approach include growth in future expected cash flows from product sales, acquired technologies, technology obsolescence rates, estimated cash flows from the projects when completed and discount rates. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. F- 11 Table of Contents ONTO INNOVATION INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except per share data) Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates made by management include the allowance for credit losses, excess and obsolete inventory, fair value of assets acquired and liabilities assumed in a business combination, recoverability and useful lives of property, plant and equipment and identifiable intangible assets, recoverability of goodwill, recoverability of deferred tax assets, liabilities for product warranty, contingencies, including litigation reserves and share-based payments and liabilities for tax uncertainties. Actual results could differ from those estimates. These estimates and assumptions are based on historical experience and on various other factors which the Company believes to be reasonable under the circumstances. The Company may engage third-party valuation specialists to assist with estimates related to the valuation of financial instruments, assets and stock awards associated with various contractual arrangements. Such estimates often require the selection of appropriate valuation methodologies and significant judgment. Actual results could differ from these estimates under different assumptions or circumstances and such differences could be material. Cash and Cash Equivalents. Cash and cash equivalents include cash and highly liquid debt instruments with original maturities of three months or less when purchased. Marketable Securities. The Company determined that all of its investment securities are to be classified as available-for-sale. 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 and, interest and dividends on available-for-sale securities are included in interest income and other, net. Available-for-sale securities are classified as current assets regardless of their maturity date if they are available for use in current operations. The Company reviews its investment portfolio to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, credit quality and the Company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. When a decline in fair value is determined to be other-than-temporary, unrealized losses on available-for-sale securities are charged against earnings. The specific identification method is used to determine the gains and losses on marketable securities. For additional information on the Company’s marketable securities, see Note 4 of Notes to the Consolidated Financial Statements. Allowance for Credit Losses. The Company maintains an allowance for credit losses that is estimated based on a combination of factors including write-off history, aging analysis, forecast of future economic conditions and any specific known troubled accounts. The Company believes the allowance is adequate to cover expected losses on trade receivables. Provisions for expected credit losses are classified as selling, general and administrative expense in the Consolidated Statements of Operations. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Inventories . 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. The Company reviews and sets standard costs as needed, but at a minimum, on an annual basis, at current manufacturing costs in order to approximate actual costs. The Company evaluates inventories for excess quantities and obsolescence. The Company establishes inventory reserves when conditions exist that suggest that inventory may be in excess of anticipated demand or is obsolete based upon assumptions about historical and future demand for the Company’s products and market conditions. In addition, inventories are evaluated for potential obsolescence due to the effect of known and anticipated engineering design changes. Once a reserve has been established, it is maintained until the item to which it relates is scrapped or sold. The Company regularly evaluates its ability to realize the value of inventory based on a combination of factors including the following: historical usage rates, forecasted sales, product end-of-life dates, estimated current and future market values and new product introductions. When recorded, reserves are intended to reduce the carrying value of the Company’s inventory to its net realizable value. If actual demand for the Company’s products deteriorates, or market conditions are less favorable than those that the Company projects, additional reserves may be required. F- 12 Table of Contents ONTO INNOVATION INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except per share data) Property, Plant and Equipment. Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment is computed using the straight-line method over the estimated useful lives of the assets, which are five to twenty-two years for buildings, three to ten years for machinery and equipment, three to ten years for furniture and fixtures, three years for computer equipment, and three to seven years for software. Leasehold improvements are amortized using the straight-line method over the lesser of the lease term or the estimated useful life of the related asset. Repairs and maintenance costs are expensed as incurred and major renewals and betterments are capitalized. Long-Lived Assets and Finite-Lived Acquired Intangible Assets. Long-lived assets, such as property, plant, and equipment, and identifiable acquired intangible assets with finite useful lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset, which is generally based on discounted cash flows. There were no impairments of long-lived assets for the years ended December 31, 2022, January 1, 2022 and December 26, 2020. Goodwill and Indefinite Lived Intangible Assets. Goodwill and indefinite lived intangible assets are tested for impairment on an annual basis or when an event or changes in circumstances indicate that its carrying value may not be recoverable. Goodwill impairment is tested at the reporting unit level, which is defined as an operating segment or one level below the operating segment. The Company has three reporting units and one operating segment. No goodwill impairment occurred in fiscal years 2022, 2021, or 2020. Goodwill is reviewed for impairment using either a qualitative assessment or a quantitative goodwill impairment test. If the Company chooses to perform a qualitative assessment and determine the fair value more likely than not exceeds the carrying value, no further evaluation is necessary. When the Company performs the quantitative goodwill impairment test, it compares fair value to carrying value, which includes goodwill. If fair value exceeds carrying value, the goodwill is not considered impaired. If the carrying value is higher than the fair value, the difference would be recognized as an impairment loss. Intangible assets with indefinite lives, including in-process research and development (“IPR&D”), are tested for impairment if impairment indicators arise and, at a minimum, annually. However, the Company is permitted to first assess qualitative factors to determine if a quantitative impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that an indefinite-lived intangible asset’s fair value is less than its carrying amount. Otherwise, no further impairment testing is required. The indefinite-lived intangible asset impairment test consists of a one-step analysis that compares the fair value of the intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. We consider many factors in evaluating whether the value of intangible assets with indefinite lives may not be recoverable, including, but not limited to estimates of future cash flows, the discount rate, terminal growth rates, general economic conditions, our outlook and market performance of our industry and recent and forecasted financial performance. There was no impairment of goodwill or IPR&D for the years ended December 31, 2022, January 1, 2022 and December 26, 2020. For additional information on the Company’s goodwill and purchased intangible assets, see Note 5 of Notes to the Consolidated Financial Statements. Concentration of Credit Risk. Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of accounts receivable, cash and cash equivalents and marketable securities. The Company maintains cash and cash equivalents and marketable securities with higher credit quality issuers and monitors the amount of credit exposure to any one issuer. The Company's investment policy provides guidelines and limits regarding credit quality, investment concentration, investment type, and maturity that the Company believes will provide liquidity while reducing risk of loss of capital. Investments are of a short-term nature and include investments in commercial paper, corporate debt securities, asset-backed securities, U.S. Treasury, U.S. Government, and U.S. Agency debt. The Company’s accounts receivable result primarily from the sale of semiconductor equipment, related accessories and replacement parts. The Company’s customer base is highly concentrated and historically, a relatively small number of customers have accounted for a significant portion of its revenues. Write-offs of uncollectible accounts have historically not been material. The Company actively monitors its customers' financial strength to reduce the risk of loss. F- 13 Table of Contents ONTO INNOVATION INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except per share data) Warranties. The Company generally provides a warranty on its products for a period of twelve to fourteen months against defects in material and workmanship. The Company provides for the estimated cost of product warranties at the time revenue is recognized. The estimated future warranty obligations are affected by the warranty periods, sales volumes, product failure rates, material usage and labor and replacement costs incurred in correcting a product failure. If actual product failure rates, material usage, labor or replacement costs differ from the Company’s estimates, revisions to the estimated warranty obligations would be required. The warranty accrual represents the best estimate of the amount necessary to settle future and existing claims on products sold as of the balance sheet date. The Company periodically assesses the adequacy of its recorded warranty reserve and adjusts the amounts in accordance with changes in these factors. Income Taxes . The Company accounts for income taxes using the asset and liability approach for deferred taxes which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns. A valuation allowance is recorded to reduce a deferred tax asset to that portion which more likely than not will be realized. For additional information on the Company’s income taxes, see Note 12 of Notes to the Consolidated Financial Statements. Translation of Foreign Currencies. The Company’s international branches and subsidiaries primarily generate and expend cash in their local functional currency. Accordingly, all balance sheet accounts of these local functional currency branches and subsidiaries are translated into U.S. dollars at the fiscal period-end exchange rate, and income and expense accounts are translated into U.S. dollars using average rates in effect for the period. The resulting translation adjustments are recorded as cumulative translation adjustments and are recorded directly as a separate component of stockholders’ equity under the caption, “Accumulated other comprehensive loss.” The Company had accumulated exchange losses resulting from the translation of foreign operation financial statements of $ 7,115 and $ 1,764 as of December 31, 2022 and January 1, 2022, respectively. Share-based Compensation . The Company measures the cost of employee services received in exchange for the award of equity instruments based on the fair value of the award at the date of grant. Compensation expense is recognized using the straight-line attribution method to recognize share-based compensation over the service period of the award, with adjustments recorded for forfeitures as they occur. For additional information on the Company’s share-based compensation plans, see Note 10 of Notes to the Consolidated Financial Statements. Research and Development Costs . Expenditures for research and development are expensed as incurred. Derivative Instruments and Hedging Activities . The Company’s policy is to mitigate the effect of exchange rate fluctuations on certain foreign currency denominated business exposures. The Company has a policy that allows for the use of derivative financial instruments to hedge foreign currency exchange rate fluctuations on forecasted revenue and net monetary assets or liabilities denominated in various foreign currencies. The Company carries derivative financial instruments (derivatives) on the balance sheet at their fair values, in either prepaid expenses and other current assets or other current liabilities in the Consolidated Balance Sheets. The Company does not use derivatives for trading or speculative purposes. The Company does not believe that it is exposed to more than a nominal amount of credit risk in its foreign currency hedges, as counterparties are large, global and well-capitalized financial institutions. The Company’s exposures are in liquid currencies (Japanese yen, euros, Korean won, Taiwanese dollars, Chinese renminbi, Singapore dollars and Israeli shekel), so there is minimal risk that appropriate derivatives to maintain the Company’s hedging program would not be available in the future. To hedge foreign currency risks, the Company uses foreign currency exchange forward contracts, where possible and prudent. These hedge contracts are valued using standard valuation formulas with assumptions about future foreign currency exchange rates derived from existing exchange rates, interest rates, and other market factors. F- 14 Table of Contents ONTO INNOVATION INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except per share data) The dollar equivalent of the U.S. dollar forward contracts and related fair values as of December 31, 2022 and January 1, 2022 were as follows: December 31, January 1, 2022 2022 Notional amount $ 27,923 $ 32,293 Fair value of liability 135 26 During the years ended December 31, 2022 and January 1, 2022, the Company recognized losses of $ 3,487 and $ 1,650 on maturities of forward contracts, respectively. During the year ended December 26, 2020, the Company recognized a gain of $ 510 on maturities of forward contracts. The aggregate notional amounts of matured contracts were $ 365,985 , $ 420,460 and $ 373,749 for 2022, 2021 and 2020, respectively. Contingencies and Litigation . The Company is subject to the possibility of losses from various contingencies, including certain legal proceedings, lawsuits and other claims. The Company accrues for a loss contingency when it concludes that the likelihood of a loss is probable and the amount of the loss can be reasonably estimated. If the Company concludes that loss contingencies that could be material to any one of its financial statements are not probable, but are reasonably possible, or are probable, but cannot be estimated, then the Company discloses the nature of the loss contingencies, together with an estimate of the range of possible loss or a statement that such loss is not reasonably estimable. The Company expenses as incurred the costs of defending legal claims against the Company. The Company does not recognize gain contingencies until realized. See Note 8 of the Notes to the Consolidated Financial Statements, “Commitments and Contingencies” for a detailed description. Recent Accounting Pronouncements. Recently Adopted and Issued Recently adopted and issued accounting guidance is not applicable or did not have, or is not expected to have, a material impact to the Company. 3. Fair Value Measurements: Fair Value of Financial Instruments The Company has evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts. 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. Fair Value Hierarchy 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. F- 15 Table of Contents ONTO INNOVATION INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except per share data) The following tables provide the assets and liabilities carried at fair value measured on a recurring basis at December 31, 2022 and January 1, 2022: 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) December 31, 2022 Assets: Available-for-sale debt securities: Municipal notes and bonds $ 178,868 $ — $ 178,868 $ — Asset-backed securities 1,534 — 1,534 — Certificates of deposit 52,095 — 52,095 — Commercial paper 80,079 — 80,079 — Corporate bonds 59,335 — 59,335 — Total assets $ 371,912 $ — $ 371,912 $ — Liabilities: Foreign currency forward contracts 135 $ — 135 $ — Total liabilities $ 135 $ — $ 135 $ — 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) January 1, 2022 Assets: Available-for-sale debt securities: Municipal notes and bonds $ 170,980 $ — $ 170,980 $ — Asset-backed securities 2,009 — 2,009 — Certificates of deposit 33,192 — 33,192 — Commercial paper 73,113 — 73,113 — Corporate bonds 62,447 — 62,447 — Total assets $ 341,741 $ — $ 341,741 $ — Liabilities: Foreign currency forward contracts $ 26 $ — $ 26 $ — Total liabilities $ 26 $ — $ 26 $ — Available-for-sale debt securities classified as Level 2 are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. The foreign currency forward contracts are primarily measured based on the foreign currency spot and forward rates quoted by the banks or foreign currency dealers. Investment prices are obtained from third party pricing providers, which model prices utilizing the above observable inputs, for each asset class. See Note 4 for additional discussion regarding the fair value of the Company’s marketable securities. F- 16 Table of Contents ONTO INNOVATION INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except per share data) 4. Marketable Securities: At December 31, 2022 and January 1, 2022, marketable securities are categorized as follows: Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Fair Value December 31, 2022 Municipal notes and bonds $ 181,196 $ 27 $ 2,355 $ 178,868 Asset-backed securities 1,555 — 21 1,534 Certificates of deposit 52,190 24 118 52,095 Commercial paper 80,199 16 136 80,079 Corporate bonds 60,334 4 1,003 59,335 Total marketable securities $ 375,474 $ 71 $ 3,633 $ 371,912 January 1, 2022 Municipal notes and bonds $ 171,203 $ 38 $ 261 $ 170,980 Asset-backed securities 2,009 — — 2,009 Certificates of deposit 33,200 2 10 33,192 Commercial paper 73,152 2 41 73,113 Corporate bonds 62,634 29 216 62,447 Total marketable securities $ 342,198 $ 71 $ 528 $ 341,741 The amortized cost and estimated fair value of marketable securities classified by the maturity date listed on the security, regardless of the Consolidated Balance Sheet classification, is as follows at December 31, 2022 and January 1, 2022: December 31, 2022 January 1, 2022 Amortized Cost Fair Value Amortized Cost Fair Value Due within one year $ 311,934 $ 309,385 $ 219,353 $ 219,211 Due after one through five years 63,540 62,527 122,845 122,530 Due after five through ten years — — — — Due after ten years — — — — Total marketable securities $ 375,474 $ 371,912 $ 342,198 $ 341,741 F- 17 Table of Contents ONTO INNOVATION INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except per share data) The following table summarizes the estimated fair value and gross unrealized holding losses of marketable securities, aggregated by investment instrument and period of time in an unrealized loss position, at December 31, 2022 and January 1, 2022. In Unrealized Loss Position For Less Than 12 Months In Unrealized Loss Position For Greater Than 12 Months Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses December 31, 2022 Municipal notes and bonds $ 96,301 $ 1,273 $ 69,159 $ 1,082 Asset-backed securities 1,555 21 — — Certificates of deposit 22,400 118 — — Commercial paper 50,550 136 — — Corporate bonds 28,975 637 28,769 366 Total marketable securities $ 199,781 $ 2,185 $ 97,928 $ 1,448 January 1, 2022 Municipal notes and bonds $ 113,790 $ 262 $ — $ — Certificates of deposit 16,300 10 — — Commercial paper 58,681 40 — — Corporate bonds 53,661 150 2,587 66 Total marketable securities $ 242,432 $ 462 $ 2,587 $ 66 See Note 3 for additional discussion regarding the fair value of the Company’s marketable securities. 5. Goodwill and Purchased Intangible Assets: Goodwill and purchased intangible assets with indefinite useful lives are not amortized but are reviewed for impairment annually during the fourth quarter of each fiscal year and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The process of evaluating the potential impairment of goodwill and intangible assets requires significant judgment. The Company regularly monitors current business conditions and considers other factors including, but not limited to, adverse industry or economic trends, restructuring actions and lower projections of profitability that may impact future operating results. The Company performed its annual assessment in the fourth quarter of fiscal 2022 and concluded that no impairment charge was required. Goodwill The changes in the carrying amount of goodwill are as follows: Balance at December 26, 2020 $ 306,632 Goodwill from Inspectrology acquisition 9,179 Balance at January 1, 2022 315,811 Goodwill adjustment — Balance at December 31, 2022 $ 315,811 F- 18 Table of Contents ONTO INNOVATION INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except per share data) Purchased Intangible Assets Purchased intangible assets as of December 31, 2022 and January 1, 2022 are as follows: Gross Carrying Amount Accumulated Amortization Net December 31, 2022 Finite-lived intangible assets: Developed technology $ 378,197 $ 205,386 $ 172,811 Customer and distributor relationships 73,321 30,195 43,126 Trademarks and trade names 14,171 7,911 6,260 Total identifiable intangible assets $ 465,689 $ 243,492 $ 222,197 January 1, 2022 Finite-lived intangible assets: Developed technology $ 377,997 $ 155,976 $ 222,021 Customer and distributor relationships 73,321 25,608 47,713 Trademarks and trade names 14,171 6,624 7,547 Total identifiable intangible assets $ 465,489 $ 188,208 $ 277,281 Intangible asset amortization expense amounted to $ 55,284 , $ 51,366 and $ 53,746 for the years ended December 31, 2022, January 1, 2022 and December 26, 2020, respectively. Assuming no change in the gross carrying value of identifiable intangible assets and estimated lives, estimated amortization expenses are $ 54,823 for 2023, $ 49,137 for 2024, $ 32,587 for 2025, $ 31,394 for 2026 and $ 23,173 for 2027. 6. Leasing Arrangements: The Company determines if an arrangement is a lease at its inception. Operating lease arrangements are comprised primarily of real estate and equipment agreements for which the right-of-use assets are included in “Other assets” and the corresponding lease liabilities, depending on their maturity, are included in “Other current liabilities” or “Other non-current liabilities” in the Consolidated Balance Sheets. Right-of-use assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The lease term includes options to extend the lease when it is reasonably certain that the option will be exercised. Lease agreements frequently require the Company to pay real estate taxes, insurance and maintenance costs. Leases with a term of one year or less are not recorded on the Consolidated Balance Sheets and lease expense for these leases is recognized on a straight-line basis over the lease term. The Company uses its estimated incremental borrowing rate in determining the present value of lease payments considering the term of the lease, which is derived from information available at the lease commencement date, giving consideration to publicly available data for instruments with similar characteristics. The Company accounts for the lease and non-lease components as a single lease component. Lease costs for operating leases were $ 6,368 and $ 5,964 for the years ended December 31, 2022 and January 1, 2022, respectively. Operating lease costs are generally recognized over the lease term. The Company elected the practical expedient to not provide comparable presentation for periods prior to adoption. Details of the Company’s operating leases are as follows: Year Ended Cash Flow Information December 31, 2022 January 1, 2022 Cash paid for operating lease liabilities $ 6,368 $ 6,247 Right-of-use assets obtained in exchange for operating lease liabilities $ 9,295 $ 304 F- 19 Table of Contents ONTO INNOVATION INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except per share data) December 31, January 1, Operating Lease Information 2022 2022 Weighted average remaining lease term 4.5 5.3 Weighted average discount rate 3.8 % 4.5 % As of December 31, 2022, there was an insignificant amount of commitments for operating leases that have not yet commenced. The reconciliation of the maturities of operating leases to the lease liabilities recorded on the Consolidated Balance Sheet as of December 31, 2022 is as follows: Fiscal Year 2023 $ 6,721 2024 5,799 2025 4,646 2026 2,905 2027 1,905 Thereafter 2,399 Total undiscounted operating lease payments 24,375 Less: imputed interest 2,030 Present value of operating lease liabilities $ 22,345 7. Balance Sheet Components: Inventories Inventories are comprised of the following: December 31, January 1, 2022 2022 Materials $ 231,029 $ 157,343 Work-in-process 69,072 60,415 Finished goods 24,181 25,350 Total inventories $ 324,282 $ 243,108 Property, Plant and Equipment Property, plant and equipment, net, is comprised of the following: December 31, January 1, 2022 2022 Land and building $ 50,344 $ 48,297 Machinery and equipment 56,924 50,226 Furniture and fixtures 2,949 2,534 Computer equipment and software 15,415 13,856 Leasehold improvements 18,539 13,710 144,171 128,623 Accumulated depreciation ( 52,191 ) ( 46,529 ) Total property, plant and equipment, net $ 91,980 $ 82,094 F- 20 Table of Contents ONTO INNOVATION INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except per share data) Other assets Other assets is comprised of the following: December 31, January 1, 2022 2022 Operating lease right-of-use assets $ 20,746 $ 17,488 Other 4,479 4,228 Total other assets $ 25,225 $ 21,716 Accrued liabilities Accrued liabilities is comprised of the following: December 31, January 1, 2022 2022 Payroll and related expenses $ 36,529 $ 32,581 Warranty 10,890 9,093 Other 1,417 1,368 Total accrued liabilities $ 48,836 $ 43,042 Other current liabilities Other current liabilities is comprised of the following: December 31, January 1, 2022 2022 Customer deposits $ 12,482 $ 9,459 Current operating lease obligations 5,678 3,968 Income tax payable 1,910 6,315 Accrued professional fees 968 912 Other 5,995 7,506 Total other current liabilities $ 27,033 $ 28,160 Other non-current liabilities Other non-current liabilities is comprised of the following: December 31, January 1, 2022 2022 Non-current operating lease obligations $ 16,345 $ 13,754 Unrecognized tax benefits (including interest) 7,693 7,861 Deferred revenue 2,852 1,693 Other 3,623 5,643 Total non-current liabilities $ 30,513 $ 28,951 8. Commitments and Contingencies: Factoring The Company maintains arrangements under which eligible accounts receivable in Japan are sold without recourse to unrelated third-party financial institutions. The Company sold $ 32,385 of receivables during the year ended December 31, 2022. There were no material gains or losses on the sale of such receivables. There were no amounts due from such third-party financial institutions at December 31, 2022. F- 21 Table of Contents ONTO INNOVATION INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except per share data) 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 consolidated financial statements with respect to these indemnification guarantees. Warranty Reserves The Company generally provides a warranty on its products for a period of 12 to 14 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 14 months prior to the year-end and warranty accruals are related to sales during the same year. Changes in the Company’s warranty reserves are as follows: Year Ended December 31, 2022 January 1, 2022 Balance, beginning of the period $ 9,682 $ 6,485 Accruals 16,040 11,892 Warranty liability assumed from Inspectrology acquisition — 407 Usage ( 13,893 ) ( 9,102 ) Balance, end of the period $ 11,830 $ 9,682 Legal Matters From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business. The following reflects an overview of the material developments with regard to the Company’s pending material legal proceedings. Optical Solutions Inc. v. Nanometrics Incorporated (Case No. 18-cv-00417-BLF): On August 2, 2017, Nanometrics was named as defendant in a complaint filed in New Hampshire Superior Court (the “Complaint”). The Complaint, brought by Optical Solutions, Inc. (“OSI”), alleges claims arising from a purported exclusive purchase contract between OSI and Nanometrics pertaining to certain products. The relief sought is the award of damages in an amount to be proven at trial, attorney’s fees and cost as well as other relief the court deems just and proper. On September 18, 2017, Nanometrics removed the action to the United States District Court for the District of New Hampshire (the “District of New Hampshire”). On September 25, 2017, Nanometrics moved to transfer the Complaint to the United States District Court for the Northern District of California (the “Northern District of California”). On December 20, 2017, Nanometrics filed its complaint against OSI in the California Superior Court for the County of Santa Clara alleging claims arising from OSI’s breach of certain purchase orders. The relief sought is the award of damages in an amount to be proven at trial including pre- and post-judgment interest, punitive damages, restitution for benefits unjustly received by OSI, attorney’s fees and cost as well as other relief the court deems just and proper. Nanometrics’ complaint was later removed by OSI to the Northern District of California. On May 29, 2018, the District of New Hampshire issued an order granting Nanometrics’ motion to transfer the Complaint to the Northern District of California and denying Nanometrics’ motion to dismiss the Complaint without prejudice. On June 14, 2018, the Complaint was consolidated with Nanometrics’ complaint against OSI. On August 9, 2018, OSI filed an Amended Complaint. On September 19, 2018, Nanometrics filed a motion to dismiss OSI’s Amended Complaint for failure to state a claim. Nanometrics’ motion to dismiss was heard on February 28, 2019. On March 5, 2019, the Northern District of California granted Nanometrics’ motion to dismiss with leave to amend. OSI filed a Second Amended Complaint on March 29, 2019. Nanometrics filed a motion to dismiss OSI’s Second Amended Complaint on May 31, 2019. In October 2019, Nanometrics was renamed Onto Innovation Inc. as a result of the Merger. Thereafter, the Company’s second motion to dismiss was heard on November 14, 2019. On November 26, 2019, the Northern District of California granted the Company’s motion to dismiss with leave to amend. OSI filed a Third Amended Complaint on January 21, 2020. On March 2, 2020, the Company filed a motion to dismiss OSI’s Third Amended Complaint and a hearing on the motion was held on June 11, 2020. On June 23, 2020, the Northern District of California granted the Company’s motion to dismiss with prejudice with regard to two claims asserted by OSI and dismissed two other claims asserted by OSI with leave to amend. Thereafter, on July 7, 2020, OSI filed a Fourth Amended F- 22 Table of Contents ONTO INNOVATION INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except per share data) Complaint. On August 14, 2020, the Company filed a motion to dismiss with regard to one of the two remaining claims. On December 1, 2020, the Northern District of California denied this final motion to dismiss and as a result the Company filed its Answer in this matter on December 22, 2020. Discovery is now closed and the trial date is set for December 4, 2023. At this time, the loss contingency in this matter is remote and the Company does not anticipate the outcome of the matter to have a material impact on its financial position, results of operations, or cash flows. Open and Committed Purchase Orders As of December 31, 2022, the Company has open and committed purchase orders of $ 417,148 , of which $ 348,984 is for less than one year. 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 December 31, 2022 was approximately $ 108,375 with an available interest rate of 6.0 %. 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. 9. Revenue The following table represents a disaggregation of revenue by timing of revenue: Year Ended December 31, 2022 January 1, 2022 Point-in-time $ 958,409 $ 749,276 Over-time 46,773 39,623 Total revenue $ 1,005,183 $ 788,899 See Note 14 of the Notes to the Consolidated Financial Statements for additional discussion of the Company’s disaggregated revenue in detail. Contract Liabilities The Company records contract liabilities when the customer has been billed in advance of the Company completing its performance obligations primarily related to service contracts and installation. For contracts that have a duration of one year or less, these amounts are recorded as current deferred revenue in the Consolidated Balance Sheets. As of December 31, 2022 and January 1, 2022, the Company carried a long-term deferred revenue balance of $ 2,852 and $ 1,693 , respectively, in “other non-current liabilities” on the Consolidated Balance Sheets. Changes in deferred revenue were as follows: Year Ended December 31, 2022 January 1, 2022 Balance, beginning of the period $ 31,672 $ 15,627 Deferred revenue assumed from Inspectrology acquisition — 386 Deferral of revenue 81,772 69,656 Recognition of deferred revenue ( 80,430 ) ( 53,997 ) Balance, ending of the period $ 33,014 $ 31,672 F- 23 Table of Contents ONTO INNOVATION INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except per share data) 10. Share-Based Compensation and Employee Benefit Plans: Share-Based Compensation Plans The Company’s share-based compensation plans are intended to attract and retain employees and to provide an incentive for them to assist the Company to achieve long-range performance goals and to enable them to participate in long-term growth of the Company. The Company settles restricted stock unit awards, employee stock purchase option exercises and stock option exercises with newly issued common shares. Onto Innovation Inc. 2020 Stock Plan (the “2020 Plan”) . The 2020 Plan provides for the grant of 3,744 stock options and other stock awards to employees, directors and consultants at an exercise price equal to the fair market value of the common stock on the date of grant. Options granted under the 2020 Plan typically grade vest over a three-year period and expire ten years from the date of grant. Restricted stock units granted under the 2020 Plan typically vest over a three-year period for employees and one year for directors; however, other vesting periods are allowable under the 2020 Plan. Restricted stock units (“RSU”) granted to employees have time based or performance-based vesting. As of December 31, 2022, there were 3,086 shares of common stock available for issuance pursuant to future grants under the 2020 Plan. Onto Innovation Inc. 2020 Employee Stock Purchase Plan (the “2020 ESPP”). Under the terms of the 2020 ESPP, eligible employees may have up to 10 % of eligible compensation deducted from their pay and applied to the purchase of shares of Company common stock. The price the employee pays for each share of stock is 85 % of the lesser of the fair market value of Company common stock at the beginning or the end of the applicable six-month purchase period. The 2020 ESPP is intended to qualify under Section 423 of the Internal Revenue Code and is a compensatory plan as defined by FASB ASC 718, “Stock Compensation.” Through the Company’s employee stock purchase plans, employees purchased 142 , 242 and 91 shares during the twelve months ended December 31, 2022, January 1, 2022 and December 26, 2020, respectively. As of December 31, 2022 and January 1, 2022, there were 1,116 and 1,258 , shares available for issuance under the Company’s employee stock purchase plan, respectively. The following table reflects share-based compensation expense by type of award: Year Ended December 31, 2022 January 1, 2022 December 26, 2020 Share-based compensation expense: Restricted stock units, including all performance and market based awards $ 21,729 $ 17,174 $ 15,780 Stock options and employee stock purchase options 2,697 2,368 1,882 Total share-based compensation 24,426 19,542 17,662 Tax effect on share-based compensation 5,237 4,255 3,849 Net effect on net income $ 19,189 $ 15,287 $ 13,813 Effect on earnings per share: Basic $ ( 0.39 ) $ ( 0.31 ) $ ( 0.28 ) Diluted $ ( 0.39 ) $ ( 0.31 ) $ ( 0.28 ) F- 24 Table of Contents ONTO INNOVATION INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except per share data) Restricted Stock Units During fiscal years 2022, 2021 and 2020, the Company issued both service-based RSUs and market-based performance RSUs (“PRSUs”). Service-based RSUs typically vest over a period of 3 years or less. Market-based PRSUs generally vest three years from the grant date if certain performance criteria are achieved and require continued employment. Based upon the terms of such awards, the number of shares that can be earned over the performance periods is based on the Company’s Common Stock price performance compared to the market price performance of a designated benchmark index, ranging from 0 % to 200 % of target. The designated benchmark index was the Philadelphia Semiconductor Sector Index for market-based PRSUs issued in 2022, 2021 and 2020. The stock price performance or market price performance is measured using the closing price for the 20 -trading days prior to the dates the performance period begins and ends. The following table summarizes the Company’s combined service-based RSUs and market-based PRSUs: Number of Shares Weighted Average Grant Date Fair Value Nonvested at December 31, 2019 1,107 $ 28.89 Granted 498 $ 34.71 Vested ( 498 ) $ 29.46 Forfeited ( 143 ) $ 29.99 Nonvested at December 26, 2020 964 $ 31.37 Granted 338 $ 69.82 Vested ( 441 ) $ 30.90 Forfeited ( 96 ) $ 42.40 Nonvested at January 1, 2022 765 $ 48.25 Granted 410 $ 82.48 Vested ( 373 ) $ 42.87 Forfeited ( 59 ) $ 58.98 Nonvested at December 31, 2022 743 $ 69.01 Of the 743 shares outstanding at December 31, 2022, 644 are service-based RSUs and 99 are market-based PRSUs. The fair value of the Company’s service-based RSUs was calculated based on the fair market value of the Company’s stock at the date of grant. The fair value of the Company’s market-based PRSUs granted during fiscal years 2022, 2021, and 2020 was calculated using a Monte Carlo simulation model at the date of the grant, resulting in a weighted average grant-date fair value per share of $ 85.49 , $ 80.04 , and $ 47.86 , respectively. As of December 31, 2022, there was $ 28,653 of total unrecognized compensation cost related to restricted stock units granted under the plans. That cost is expected to be recognized over a weighted average period of 1.5 years. 401(k) Savings Plan The Company has a 401(k) savings plan that allows employees to contribute up to 100 % of their annual compensation to the Plan on a pre-tax or after-tax basis, limited to a maximum annual amount as set periodically by the Internal Revenue Service. The plan provides a 50 % match of all employee contributions up to 6 percent of the employee’s salary. Matching contributions to the plan totaled $ 2,965 , $ 2,544 and $ 2,315 for the years ended December 31, 2022, January 1, 2022 and December 26, 2020, respectively. 11. Other Expense, Net: Other expense, net is comprised of the following: Year Ended December 31, 2022 January 1, 2022 December 26, 2020 Foreign currency exchange losses, net $ ( 73 ) $ ( 2,020 ) $ ( 3,070 ) Other ( 68 ) 132 362 Total other expense, net $ ( 141 ) $ ( 1,888 ) $ ( 2,708 ) F- 25 Table of Contents ONTO INNOVATION INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except per share data) 12. Income Taxes: The components of income tax expense are as follows: Year Ended December 31, 2022 January 1, 2022 December 26, 2020 Current: Federal $ 47,963 $ 21,791 $ 1,466 State 987 1,007 371 Foreign 2,901 3,153 5,637 51,851 25,951 7,474 Deferred: Federal ( 31,622 ) ( 9,475 ) ( 10,355 ) State ( 1,506 ) ( 540 ) ( 1,036 ) Foreign ( 473 ) ( 2,603 ) ( 240 ) ( 33,601 ) ( 12,618 ) ( 11,631 ) Total income tax expense (benefit) $ 18,250 $ 13,333 $ ( 4,157 ) The income before tax is comprised of the following: Year Ended December 31, 2022 January 1, 2022 December 26, 2020 Domestic operations $ 239,527 $ 136,143 $ ( 120 ) Foreign operations $ 2,057 $ 19,539 $ 26,988 The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. federal income tax rate of 21 % for the years ended December 31, 2022, January 1, 2022 and December 26, 2020, to income before provision for income taxes as follows: Year Ended December 31, 2022 January 1, 2022 December 26, 2020 Federal income tax provision at statutory rate $ 50,732 $ 32,693 $ 5,642 State taxes, net of federal effect 467 1,066 126 Foreign taxes, net of federal effect ( 481 ) ( 3,817 ) 596 Foreign Derived Intangible Income ( “ FDII ” ) Deduction ( 25,445 ) ( 11,061 ) ( 4,262 ) US tax on foreign source income 1,423 1,721 2,013 Non-deductible officer's compensation 1,910 689 213 Research and development tax credit ( 7,146 ) ( 3,607 ) ( 4,858 ) Tax impact of audit and statue closures ( 1,526 ) ( 1,987 ) ( 2,905 ) Impact of the CARES Act — ( 732 ) ( 1,141 ) Other ( 1,684 ) ( 1,632 ) ( 419 ) Provision (benefit) for income taxes $ 18,250 $ 13,333 $ ( 4,157 ) Effective tax rate 8 % 9 % ( 16 )% F- 26 Table of Contents ONTO INNOVATION INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except per share data) Deferred tax assets and liabilities are comprised of the following: December 31, 2022 January 1, 2022 Deferred tax assets: Reserves and accruals $ 17,231 $ 15,084 Deferred revenue 3,512 4,729 Share-based compensation 3,942 3,023 Tax credit carryforward 12,197 10,339 Net operating losses 1,643 3,254 Depreciation and amortization 125 368 Operating lease liabilities 4,162 3,575 Other 4,044 2,364 Gross deferred tax assets 46,856 42,736 Less: valuation allowance ( 11,772 ) ( 10,948 ) Total deferred tax assets after valuation allowance 35,084 31,788 Deferred tax liabilities: Depreciation and amortization ( 32,693 ) ( 63,554 ) Operating lease right of use assets ( 4,890 ) ( 3,469 ) Other ( 89 ) ( 224 ) Gross deferred tax liabilities ( 37,672 ) ( 67,247 ) Net deferred tax liabilities $ ( 2,588 ) $ ( 35,459 ) At December 31, 2022 and January 1, 2022, the Company had recorded valuation allowances of $ 11,772 and 10,948 , respectively, on a certain portion of the Company’s deferred tax assets to reflect the deferred tax assets at the net amount that is more likely than not to be realized. The Company maintains a valuation allowance against a portion of its federal and foreign tax credit carryforwards and state net operating losses and research and development credits of $ 1,601 and $ 10,171 , respectively. In assessing the realizability of deferred tax assets, the Company uses a more likely than not standard. If it is determined that it is more-likely-than-not that deferred tax assets will not be realized, a valuation allowance must be established against the deferred tax assets. The ultimate realization of the assets is dependent on the generation of future taxable income during the periods in which the associated temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income and tax planning strategies when making this assessment. In making the determination that it is more likely than not that the Company’s deferred tax assets will be realized as of December 31, 2022, the Company relied primarily on the reversal of deferred tax liabilities as well as projected future taxable income. At December 31, 2022, the Company had tax effected state and foreign net operating loss carryforwards of $ 1,168 and $ 475 , respectively. The federal, state and foreign net operating loss carryforwards expire on various dates beginning in 2023 through 2037. At December 31, 2022, the Company had foreign tax credit carryforwards and state research & development credits of $ 1,601 , and $ 14,797 , respectively. The foreign tax credit carryforwards are set to expire at various dates beginning December 31, 2029 . The state research & development credits have no expiration dates. As of December 31, 2022, the Company has provided U.S. income taxes on all its foreign earnings. The Company continues to permanently reinvest the cash held offshore to support its working capital needs. The Company has accrued $ 82 for additional foreign withholding taxes that may be required from its United Kingdom and China entities in the event of a cash distribution. F- 27 Table of Contents ONTO INNOVATION INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except per share data) The total amount of unrecognized tax benefits are as follows: Year Ended December 31, 2022 January 1, 2022 December 26, 2020 Balance, beginning of the period $ 12,373 $ 13,486 $ 15,143 Gross increases—tax positions in prior period 456 156 347 Gross decreases—tax positions in prior period — ( 204 ) — Gross increases—current-period tax positions 1,729 1,193 1,048 Closure of audit/statute limitation ( 1,548 ) ( 2,258 ) ( 3,052 ) Balance, end of the period $ 13,010 $ 12,373 $ 13,486 The unrecognized tax benefits at December 31, 2022 and January 1, 2022 were $ 13,010 and $ 12,373 , respectively, of which $ 7,614 and $ 7,832 , respectively, would be reflected as an adjustment to income tax expense if recognized. The year over year increase from 2021 to 2022 is primarily due to additional unrecognized tax benefits related to federal and state tax exposures, offset by expiring tax statues. It is reasonably possible that certain amounts of unrecognized tax benefits may reverse in the next 12 months; however, the Company does not expect such reversals to have a significant impact on its results of operations or financial position. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2022, January 1, 2022 and December 26, 2020, the Company recognized approximately $ 149 , $( 814 ) and $( 193 ), respectively, in interest and penalties (benefit) expense associated with uncertain tax positions. As of December 31, 2022 and January 1, 2022, the Company had accrued interest and penalties expense included in the table of unrecognized tax benefits of $ 628 and $ 430 , respectively. The Company is subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. The Company is subject to ordinary statute of limitation rules of three and four years for federal and state returns, respectively. However, due to tax attribute carryforwards, the Company is subject to examination for tax years 2012 forward for U.S. federal tax purposes with respect to carryforward amounts. The Company is also subject to examination in various states for tax years 2003 forward with respect to carryforward amounts. The Company is subject to examination for tax years 2014 forward for various foreign jurisdictions. The Company believes that adequate amounts have been reserved for any adjustments that may ultimately result from any future examinations of these years. In the normal course of business, the Company is subject to tax audits in various jurisdictions, and such jurisdictions may assess additional income taxes or other taxes against it. Although the Company believes its tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from the Company’s historical income tax provisions and accruals. The results of an audit or litigation could have a material adverse effect on the Company’s results of operations or cash flows in the period or periods for which that determination is made. 13. Accumulated Other Comprehensive Income (Loss): Comprehensive income includes net income, foreign currency translation adjustments, and net unrealized gains and losses on available-for-sale debt securities. See the Consolidated Statements of Comprehensive Income for the effect of the components of comprehensive income on the Company’s net income. The components of accumulated other comprehensive income (loss), net of tax, are as follows: Foreign currency translation adjustments Net unrealized gains (losses) on marketable securities Accumulated other comprehensive income (loss) Balance at December 26, 2020 $ 4,479 $ 89 $ 4,568 Net current period other comprehensive income ( 2,715 ) ( 537 ) ( 3,252 ) Reclassifications — — — Balance at January 1, 2022 1,764 ( 448 ) 1,316 Net current period other comprehensive loss ( 8,879 ) ( 2,447 ) ( 11,326 ) Reclassifications — — — Balance at December 31, 2022 $ ( 7,115 ) $ ( 2,895 ) $ ( 10,010 ) F- 28 Table of Contents ONTO INNOVATION INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except per share data) 14. Segment Reporting and Geographic Information: The Company is engaged in the design, development, manufacture and support of high-performance control metrology, defect inspection, 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, 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: Year Ended December 31, 2022 January 1, 2022 December 26, 2020 Systems and software $ 865,707 86 % $ 669,114 85 % $ 450,459 80 % Parts 84,266 8 % 72,753 9 % 65,444 12 % Services 55,210 6 % 47,032 6 % 40,593 8 % Total revenue $ 1,005,183 100 % $ 788,899 100 % $ 556,496 100 % The Company’s significant operations outside the United States include sales, service and application offices in Asia and Europe. For geographical revenue reporting, revenue is attributed to the geographic location to which the product is shipped. Revenue by geographic region is as follows: Year Ended December 31, 2022 January 1, 2022 December 26, 2020 Revenue from third parties: China $ 250,968 $ 151,027 $ 125,023 South Korea 224,172 160,373 90,193 Taiwan 199,104 194,458 120,959 United States 121,487 123,858 81,708 Europe 80,256 64,943 49,697 Japan 58,133 61,186 59,295 Southeast Asia 71,062 33,054 29,621 Total revenue $ 1,005,183 $ 788,899 $ 556,496 The following chart identifies our customers that represented 10% or more of total revenue for each of the last three fiscal years: 2022 2021 2020 Taiwan Semiconductor Manufacturing Co. Ltd. 15 % 18 % 14 % Samsung Semiconductor 13 % 16 % 15 % SK Hynix Inc. 11 % ^ ^ ^ The customer accounted for less than 10% of total revenue during the period. At December 31, 2022, two customers, Samsung Semiconductor and Taiwan Semiconductor Manufacturing Co. Ltd., accounted for more than 10 % of net accounts receivable. At January 1, 2022, one customer, Taiwan Semiconductor Manufacturing Co. Ltd., accounted for more than 10 % of net accounts receivable. Substantially all of the Company’s long-lived assets are located within the United States of America. F- 29 Table of Contents ONTO INNOVATION INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (In thousands, except per share data) 15. Earnings Per Share: Basic income per share is calculated using the weighted average number of shares of common stock outstanding during the period. Restricted stock units and stock options are included in the calculation of diluted earnings per share, except when their effect would be anti-dilutive. The Company’s basic and diluted earnings per share amounts are as follows: December 31, 2022 January 1, 2022 December 26, 2020 Numerator: Net income $ 223,334 $ 142,349 $ 31,025 Denominator: Basic earnings per share - weighted average shares outstanding 49,424 49,242 49,136 Effect of potential dilutive securities: Restricted stock units, employee stock purchase grants and stock options - dilutive shares 340 486 339 Diluted earnings per share - weighted average shares outstanding 49,764 49,728 49,475 Earnings per share: Basic $ 4.52 $ 2.89 $ 0.63 Diluted $ 4.49 $ 2.86 $ 0.63 16. Share Repurchase Authorization: In November 2020, the Onto Innovation Board of Directors approved a share repurchase authorization, which allows the Company to repurchase up to $ 100,000 worth of shares of its common stock. Repurchases may be made through both public market and private transactions from time to time with shares purchased being subsequently retired. During the twelve months ended December 31, 2022, the Company repurchased and retired 1,018 shares of its common stock under this repurchase authorization and those shares were subsequently retired. At December 31, 2022, there was $ 34,773 available for future share repurchases under this share repurchase authorization. The following table summarizes the Company’s stock repurchases: Year Ended December 31, 2022 January 1, 2022 December 26, 2020 Shares of common stock repurchased 1,018 — 1,882 Cost of stock repurchased $ 65,257 $ — $ 52,000 Average price paid per share $ 64.09 $ — $ 27.62 F- 30 Table of Contents ONTO INNOVATION INC. AND SUBSIDIARIES SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS (In thousands) Column A Column B Column C Column D Column E Description Balance at Beginning of Period Charged to (Recovery of) Costs and Expense Charged to Other Accounts (net) Deductions Balance at End of Period Fiscal Year 2022: Allowance for credit losses $ 1,303 $ 356 $ — $ 87 $ 1,572 Deferred tax valuation allowance 10,948 824 — — 11,772 Fiscal Year 2021: Allowance for credit losses $ 784 $ 955 $ — $ 436 $ 1,303 Deferred tax valuation allowance 14,238 ( 3,290 ) — — 10,948 Fiscal Year 2020: Allowance for credit losses $ 1,247 $ 327 $ — $ 790 $ 784 Deferred tax valuation allowance 14,160 78 — — 14,238 Allowance for convertible notes receivable 2,000 — — 2,000 — F- 31 Table of Contents SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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. Onto Innovation Inc. (Registrant) By: /s/ Michael P. Plisinski Michael P. Plisinski Chief Executive Officer Date: February 24, 2023 PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. Signature Title Date /s/ Michael P. Plisinski Chief Executive Officer (Principal Executive Officer) February 24, 2023 Michael P. Plisinski /s/ Mark R. Slicer Senior Vice President, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) February 24, 2023 Mark R. Slicer /s/ Leo Berlinghieri Director February 24, 2023 Leo Berlinghieri /s/ Stephen D. Kelley Director February 24, 2023 Stephen D. Kelley /s/ David B. Miller Director February 24, 2023 David B. Miller /s/ Karen M. Rogge Director February 24, 2023 Karen M. Rogge /s/ Christopher A. Seams Director February 24, 2023 Christopher A. Seams /s/ May Su Director February 24, 2023 May Su /s/ Christine A. Tsingos Director February 24, 2023 Christine A. Tsingos F- 32