ONTO INNOVATION INC. 10-Q

Item 1. Financial Statements ONTO INNOVATION INC. CONDENSED CONSOLIDATED S TATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Three Months Ended Nine Months Ended September 28, September 30, September 28, September 30, 2024 2023 2024 2023 Revenue $ 252,210 $ 207,185 $ 723,382 $ 597,012 Cost of revenue 115,831 100,333 340,482 284,724 Gross profit 136,379 106,852 382,900 312,288 Operating expenses: Research and development 28,277 26,136 81,876 80,421 Sales and marketing 19,451 14,755 56,746 46,416 General and administrative 22,465 18,131 60,298 56,130 Amortization 13,114 13,824 39,338 41,473 Total operating expenses 83,307 72,846 238,258 224,440 Operating income 53,072 34,006 144,642 87,848 Interest income, net 8,667 5,694 24,524 13,900 Other (expense) income, net ( 724 ) ( 1,001 ) 10 ( 2,992 ) Income before provision for income taxes 61,015 38,699 169,176 98,756 Provision for income taxes 7,964 2,813 16,323 7,906 Net income $ 53,051 $ 35,886 $ 152,853 $ 90,850 Earnings per share: Basic $ 1.07 $ 0.73 $ 3.10 $ 1.86 Diluted $ 1.07 $ 0.73 $ 3.08 $ 1.84 Weighted average number of shares outstanding: Basic 49,426 49,043 49,333 48,933 Diluted 49,694 49,401 49,669 49,259 The accompanying notes are an integral part of these financial statements. 1 Table of Contents ONTO INNOVATION INC. CONDENSED CONSOLIDATED STATEM ENTS OF COMPREHENSIVE INCOME (In thousands) (Unaudited) Three Months Ended Nine Months Ended September 28, September 30, September 28, September 30, 2024 2023 2024 2023 Net income $ 53,051 $ 35,886 $ 152,853 $ 90,850 Other comprehensive income (loss), net of tax: Change in net unrealized gains on available-for-sale marketable securities 2,162 672 1,304 1,901 Change in currency translation adjustments 4,859 ( 2,761 ) 270 ( 4,669 ) Total other comprehensive income (loss), net of tax 7,021 ( 2,089 ) 1,574 ( 2,768 ) Total comprehensive income $ 60,072 $ 33,797 $ 154,427 $ 88,082 The accompanying notes are an integral part of these financial statements. 2 Table of Contents ONTO INNOVATION INC. CONDENSED CONSOLIDA TED BALANCE SHEETS (In thousands) (Unaudited) September 28, 2024 December 30, 2023 ASSETS Current Assets: Cash and cash equivalents $ 188,738 $ 233,508 Marketable securities 666,666 464,303 Accounts receivable, less allowance of $ 2,613 and $ 2,659 253,716 226,556 Inventories, net 308,304 327,773 Prepaid expenses and other current assets 40,524 31,127 Total current assets 1,457,948 1,283,267 Property, plant and equipment, net 120,090 103,611 Goodwill 315,811 315,811 Identifiable intangible assets, net 128,086 167,375 Deferred income taxes 34,760 18,836 Other assets 16,670 20,812 Total assets $ 2,073,365 $ 1,909,712 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 47,986 $ 49,869 Accrued liabilities 43,590 42,062 Deferred revenue 26,769 24,763 Other current liabilities 26,391 31,032 Total current liabilities 144,736 147,726 Other non-current liabilities 25,104 25,451 Total liabilities 169,840 173,177 Commitments and contingencies Stockholders’ equity: Common stock 49 49 Additional paid-in capital 1,274,592 1,262,029 Accumulated other comprehensive loss ( 6,325 ) ( 7,899 ) Accumulated earnings 635,209 482,356 Total stockholders’ equity 1,903,525 1,736,535 Total liabilities and stockholders’ equity $ 2,073,365 $ 1,909,712 The accompanying notes are an integral part of these financial statements. 3 Table of Contents ONTO INNOVATION INC. CONDENSED CONSOLIDATED S TATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September 28, September 30, 2024 2023 Cash flows from operating activities: Net income $ 152,853 $ 90,850 Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: Amortization of intangibles 39,338 41,473 Depreciation 10,818 9,018 Share-based compensation 21,826 19,913 Provision for inventory valuation 5,925 6,111 Deferred income taxes ( 15,951 ) ( 21,193 ) Other, net ( 97 ) 3,005 Changes in operating assets and liabilities ( 25,035 ) ( 38,790 ) Net cash and cash equivalents provided by operating activities 189,677 110,387 Cash flows from investing activities: Purchases of marketable securities ( 538,132 ) ( 360,273 ) Proceeds from maturities and sales of marketable securities 342,958 314,124 Purchases of property, plant and equipment ( 27,277 ) ( 20,110 ) Net cash and cash equivalents used in investing activities ( 222,451 ) ( 66,259 ) Cash flows from financing activities: Purchases and retirement of common stock — ( 3,197 ) Tax payments related to shares withheld for share-based compensation plans ( 18,441 ) ( 10,367 ) Payment of contingent consideration for acquired business ( 737 ) ( 803 ) Issuance of shares through share-based compensation plans 9,178 5,285 Net cash and cash equivalents used in financing activities ( 10,000 ) ( 9,082 ) Effect of exchange rate changes on cash and cash equivalents ( 1,996 ) ( 4,333 ) Net (decrease) increase in cash and cash equivalents ( 44,770 ) 30,713 Cash and cash equivalents at beginning of period 233,508 175,872 Cash and cash equivalents at end of period $ 188,738 $ 206,585 Supplemental disclosure of cash flow information: Income taxes paid (net of refunds) $ 30,232 $ 28,935 The accompanying notes are an integral part of these financial statements. 4 Table of Contents ONTO INNOVATION INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands) (Unaudited) Common Stock Additional Paid-in Accumulated Other Comprehensive Accumulated Shares Amount Capital Loss Earnings Total Balance at December 30, 2023 49,086 $ 49 $ 1,262,029 $ ( 7,899 ) $ 482,356 $ 1,736,535 Net income — — — — 46,853 46,853 Share-based compensation — — 6,486 — — 6,486 Issuance of shares through share-based compensation plans, net 169 — 4,015 — — 4,015 Share-based compensation plan withholdings ( 53 ) — ( 9,088 ) — — ( 9,088 ) Currency translation — — — ( 2,593 ) — ( 2,593 ) Unrealized loss on investments — — — ( 657 ) — ( 657 ) Balance at March 30, 2024 49,202 $ 49 $ 1,263,442 $ ( 11,149 ) $ 529,209 $ 1,781,551 Net income — — — — 52,949 52,949 Share-based compensation — — 8,244 — — 8,244 Issuance of shares through share-based compensation plans, net 181 — — — — — Share-based compensation plan withholdings ( 44 ) — ( 8,871 ) — — ( 8,871 ) Currency translation — — — ( 1,996 ) — ( 1,996 ) Unrealized loss on investments — — — ( 201 ) — ( 201 ) Balance at June 29, 2024 49,339 $ 49 $ 1,262,815 $ ( 13,346 ) $ 582,158 $ 1,831,676 Net income — — — — 53,051 53,051 Share-based compensation — — 7,096 — — 7,096 Issuance of shares through share-based compensation plans, net 53 — 5,163 — — 5,163 Share-based compensation plan withholdings ( 2 ) — ( 482 ) — — ( 482 ) Currency translation — — — 4,859 — 4,859 Unrealized gain on investments — — — 2,162 — 2,162 Balance at September 28, 2024 49,390 $ 49 $ 1,274,592 $ ( 6,325 ) $ 635,209 $ 1,903,525 5 Table of Contents Common Stock Additional Paid-in Accumulated Other Comprehensive Accumulated Shares Amount Capital Loss Earnings Total Balance at December 31, 2022 48,684 $ 49 $ 1,243,631 $ ( 10,010 ) $ 362,756 $ 1,596,426 Net income — — — — 29,068 29,068 Share-based compensation — — 6,119 — — 6,119 Issuance of shares through share-based compensation plans, net 225 — — — — — Purchases of common stock ( 46 ) — ( 1,638 ) — ( 1,559 ) ( 3,197 ) Share-based compensation plan withholdings ( 62 ) — ( 6,273 ) — — ( 6,273 ) Currency translation — — — 1,090 — 1,090 Unrealized gain on investments — — — 1,392 — 1,392 Balance at April 1, 2023 48,801 $ 49 $ 1,241,839 $ ( 7,528 ) $ 390,265 $ 1,624,625 Net income — — — — 25,896 25,896 Share-based compensation — — 7,745 — — 7,745 Issuance of shares through share-based compensation plans, net 227 — 5,285 — — 5,285 Share-based compensation plan withholdings ( 56 ) — ( 3,676 ) — — ( 3,676 ) Currency translation — — — ( 2,998 ) — ( 2,998 ) Unrealized loss on investments — — — ( 163 ) — ( 163 ) Balance at July 1, 2023 48,972 $ 49 $ 1,251,193 $ ( 10,689 ) $ 416,161 $ 1,656,714 Net income — — — — 35,886 35,886 Share-based compensation — — 6,049 — — 6,049 Issuance of shares through share-based compensation plans, net 109 — — — — — Purchases and retirement of common stock — — — — — — Share-based compensation plan withholdings ( 3 ) — ( 418 ) — — ( 418 ) Currency translation — — — ( 2,761 ) — ( 2,761 ) Unrealized loss on investments — — — 672 — 672 Balance at September 30, 2023 49,078 $ 49 $ 1,256,824 $ ( 12,778 ) $ 452,047 $ 1,696,142 The accompanying notes are an integral part of these financial statements. 6 Table of Contents ONTO INNOVATION INC. NOTES TO CONDENSED CONSOLI DATED FINANCIAL STATEMENTS (In thousands, except per share data and percentages) (Unaudited) NOTE 1. Basis of Presentation The accompanying interim unaudited Condensed Consolidated Financial Statements have been prepared by Onto Innovation Inc. (together with its consolidated subsidiaries, unless otherwise specified or suggested by the context, the “Company,” “Onto Innovation,” “we,” “our” or “us”) and in the opinion of management reflect all adjustments, consisting of normal recurring accruals, necessary for their fair presentation in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Preparing financial statements requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual amounts could differ materially from reported amounts. The interim results for the three and nine months ended September 28, 2024 are not necessarily indicative of results to be expected for the entire year or any future periods. This interim financial information should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 30, 2023 (the “2023 Form 10-K”) filed with the Securities and Exchange Commission on February 26, 2024. The accompanying Condensed Consolidated Balance Sheet at December 30, 2023 has been derived from the audited consolidated financial statements included in the 2023 Form 10-K. The Company operates on a 52- or 53-week fiscal year ending on the Saturday closest to December 31. Our fiscal year ending December 28, 2024 (“fiscal year 2024”) is a 52-week fiscal year. The first quarter of the Company’s fiscal year 2024 ended on March 30, 2024, the second quarter ended on June 29, 2024 and the third quarter ended on September 28, 2024. Our fiscal year ended December 30, 2023 was a 52-week fiscal year. The third quarter of the fiscal year ended December 30, 2023 ended on September 30, 2023. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates made by management include 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, allowance for credit losses, liabilities for product warranty, 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. Adoption of Accounting Standards Recently Adopted or Effective There have been no recent accounting pronouncements or changes in accounting pronouncements during the three and nine months ended September 28, 2024, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2023, that are of significance, or potential significance, to the Company. Updates Not Yet Effective In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which expands disclosures about a public entity’s reportable segments and requires more enhanced information about a reportable segment including information 7 Table of Contents about the reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is required to adopt this standard in fiscal year 2024 for the annual reporting period ending December 28, 2024, with retrospective disclosure of prior periods presented. The Company expects there will be no material impact on its Consolidated Financial Statements from the adoption of ASU 2023-07. In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which requires public entities to disclose consistent categories and greater disaggregation of information in the rate reconciliation and for income taxes paid. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is required to adopt this standard prospectively in fiscal year 2025 for the annual reporting period ending December 27, 2025. The Company is currently in the process of evaluating the impact of adoption on its Consolidated Financial Statements. NOTE 2. 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. The following tables provide the assets and liabilities carried at fair value measured on a recurring basis at September 28, 2024 and December 30, 2023: Fair Value Measurements Using Significant Other Observable Inputs (Level 2) September 28, 2024 December 30, 2023 Assets: Available-for-sale debt securities: Government notes and bonds $ 287,509 $ 195,800 Certificates of deposit 75,435 67,467 Commercial paper 157,915 99,635 Corporate bonds 145,807 101,401 Total assets $ 666,666 $ 464,303 Liabilities: Foreign currency forward contracts $ 605 $ 1,370 Total liabilities $ 605 $ 1,370 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 8 Table of Contents 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 3 for additional discussion regarding the fair value of the Company’s marketable securities. NOTE 3. Marketable Securities At September 28, 2024 and December 30, 2023, marketable securities are categorized as follows: Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Fair Value September 28, 2024 Government notes and bonds $ 286,447 $ 1,064 $ 2 $ 287,509 Certificates of deposit 75,320 115 — 75,435 Commercial paper 157,641 278 4 157,915 Corporate bonds 145,028 788 9 145,807 Total marketable securities $ 664,436 $ 2,245 $ 15 $ 666,666 December 30, 2023 Government notes and bonds $ 195,733 $ 393 $ 326 $ 195,800 Certificates of deposit 67,377 93 3 67,467 Commercial paper 99,591 54 10 99,635 Corporate bonds 101,146 391 136 101,401 Total marketable securities $ 463,847 $ 931 $ 475 $ 464,303 The amortized cost and estimated fair value of marketable securities classified by the maturity date listed on the security, regardless of the Condensed Consolidated Balance Sheets classification, is as follows at September 28, 2024 and December 30, 2023: September 28, 2024 December 30, 2023 Amortized Cost Fair Value Amortized Cost Fair Value Due within one year $ 481,132 $ 482,238 $ 331,136 $ 330,937 Due after one through five years 135,329 136,453 132,711 133,366 Due after five through ten years 235 235 — — Due after ten years 47,740 47,740 — — Total marketable securities $ 664,436 $ 666,666 $ 463,847 $ 464,303 The Company has evaluated its investment policies and determined that all of its marketable securities, which are comprised of debt securities, are to be classified as available-for-sale. The Company’s available-for-sale debt securities are carried at fair value, with the unrealized gains and losses reported in Stockholders’ equity under the caption “Accumulated other comprehensive loss.” Gross realized gains and losses on available-for-sale securities are included in “Other (expense) income, net” on the Condensed Consolidated Statements of Operations and were not material during the three and nine months ended September 28, 2024 and September 30, 2023. The Company records credit losses for its available-for-sale debt securities when it intends to sell the securities, it is more-likely-than not that it will be required to sell the securities before a recovery, or when it does not expect to recover the entire amortized cost basis of the securities. The cost of securities sold is based on the specific identification method. The Company has determined that the gross unrealized losses on its marketable securities at September 28, 2024 and December 30, 2023 are temporary in nature. The Company regularly reviews its investment portfolio to identify and evaluate marketable securities that have indications of possible impairment from credit losses or other factors. Factors considered in determining whether an unrealized loss is considered to be a credit loss 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 securities for a period of time sufficient to allow for any anticipated recovery in market value. 9 Table of Contents 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 September 28, 2024 and December 30, 2023: 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 September 28, 2024 Government notes and bonds $ 12,439 $ 1 $ 1,996 $ 1 Certificates of deposit 4,360 — — — Commercial paper 20,624 4 — — Corporate bonds 16,930 7 6,700 2 Total $ 54,353 $ 12 $ 8,696 $ 3 December 30, 2023 Government notes and bonds $ 82,776 $ 325 $ 180 $ 1 Certificates of deposit 11,839 3 — — Commercial paper 20,121 10 — — Corporate bonds 20,268 103 5,999 33 Total $ 135,004 $ 441 $ 6,179 $ 34 See Note 2 for additional discussion regarding the fair value of the Company’s marketable securities. NOTE 4. Derivative Instruments and Hedging Activities The Company, when it considers it to be appropriate, enters into forward contracts to hedge the economic exposures arising from foreign currency denominated transactions. At September 28, 2024 and December 30, 2023, these contracts were denominated in euro, Chinese renminbi, Japanese yen, Korean won, Singapore dollars, and Taiwanese dollars. Foreign currency forward contracts are not designated as hedges for accounting purposes, and therefore, the change in fair value is recorded in “Other (expense) income, net,” in the Condensed Consolidated Statements of Operations. The Company records its forward contracts at fair value in either “Prepaid expenses and other current assets” or “Other current liabilities” in the Condensed Consolidated Balance Sheets. The dollar equivalent of the U.S. dollar forward contracts and related fair values as of September 28, 2024 and December 30, 2023 were as follows: September 28, 2024 December 30, 2023 Notional amount $ 53,614 $ 51,551 Fair value of liability $ ( 605 ) $ ( 1,370 ) 10 Table of Contents NOTE 5. Purchased Intangible Assets Intangible Assets Purchased intangible assets as of September 28, 2024 and December 30, 2023 are as follows: Gross Carrying Amount Accumulated Amortization Net September 28, 2024 Finite-lived intangibles: Developed technology $ 378,246 $ 289,357 $ 88,889 Customer and distributor relationships 73,321 38,223 35,098 Trademarks and trade names 14,171 10,072 4,099 Total identifiable intangible assets $ 465,738 $ 337,652 $ 128,086 December 30, 2023 Finite-lived intangibles: Developed technology $ 378,197 $ 254,350 $ 123,847 Customer and distributor relationships 73,321 34,782 38,539 Trademarks and trade names 14,171 9,182 4,989 Total identifiable intangible assets $ 465,689 $ 298,314 $ 167,375 Assuming no change in the gross carrying value of identifiable intangible assets and estimated lives, future estimated amortization expenses are: Expected Amortization Fiscal Year: Expense 2024 (remainder) $ 9,849 2025 32,587 2026 31,394 2027 23,173 2028 12,288 2029 5,038 Thereafter 13,757 Total $ 128,086 NOTE 6. Balance Sheet Components Inventories Inventories, net are comprised of the following: September 28, 2024 December 30, 2023 Materials $ 202,934 $ 234,471 Work-in-process 81,845 67,816 Finished goods 23,525 25,486 Total inventories, net $ 308,304 $ 327,773 11 Table of Contents Property, Plant and Equipment Property, plant and equipment, net is comprised of the following: September 28, 2024 December 30, 2023 Machinery and equipment $ 83,006 $ 69,828 Land and building 46,583 47,889 Computer equipment and software 30,348 17,790 Leasehold improvements 23,902 22,089 Furniture and fixtures 3,985 3,921 187,824 161,517 Accumulated depreciation ( 67,734 ) ( 57,906 ) Total property, plant and equipment, net $ 120,090 $ 103,611 Other assets Other assets are comprised of the following: September 28, 2024 December 30, 2023 Operating lease right-of-use assets $ 15,021 $ 18,360 Other 1,649 2,452 Total other assets $ 16,670 $ 20,812 Accrued liabilities Accrued liabilities are comprised of the following: September 28, 2024 December 30, 2023 Payroll and related expenses $ 34,050 $ 33,052 Warranty 9,483 8,934 Other 57 76 Total accrued liabilities $ 43,590 $ 42,062 Other current liabilities Other current liabilities are comprised of the following: September 28, 2024 December 30, 2023 Customer deposits $ 5,951 $ 9,972 Current operating lease obligations 5,458 5,494 Income tax payable 4,463 3,210 Accrued professional fees 815 1,751 Other accrued taxes 6,096 3,570 Other 3,608 7,035 Total other current liabilities $ 26,391 $ 31,032 Other non-current liabilities Other non-current liabilities are comprised of the following: September 28, 2024 December 30, 2023 Non-current operating lease obligations $ 10,940 $ 14,027 Unrecognized tax benefits (including interest) 8,839 7,358 Deferred revenue 3,197 2,462 Other 2,128 1,604 Total other non-current liabilities $ 25,104 $ 25,451 12 Table of Contents NOTE 7. Commitments and Contingencies Intellectual Property Indemnification Obligations The Company has entered into agreements with customers that include limited intellectual property indemnification obligations that are customary in the industry. These guarantees generally require the Company to compensate the other party for certain damages and costs incurred as a result of third-party intellectual property claims arising from these transactions. The nature of the intellectual property indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to its customers. Historically, the Company has not made any indemnification payments under such agreements and no amount has been accrued in the accompanying Condensed Consolidated Financial Statements with respect to these indemnification guarantees. 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. Warranty provisions are generally related to current period sales. Settlements of warranty reserves are generally associated with sales that occurred during the 12 to 14 months prior to the period-end. Changes in the Company’s warranty reserves are as follows: Nine Months Ended September 28, September 30, 2024 2023 Balance, beginning of the period $ 9,380 $ 11,830 Accruals 8,756 6,670 Usage ( 7,998 ) ( 9,311 ) Balance, end of the period $ 10,138 $ 9,189 Warranty reserves are reported in the Condensed Consolidated Balance Sheets under the captions “Accrued liabilities” and “Other non-current liabilities.” Legal Matters From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business. In the opinion of management, any potential liabilities resulting from any current disputes would not have a material adverse effect on the Company’s unaudited interim condensed consolidated financial statements. Line of Credit The Company has a credit agreement with a bank that provides for a variable-rate 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, up to a maximum of $ 100 million. The available line of credit as of September 28, 2024 was $ 100 million with an available interest rate of 6.6 %. 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 as of the date of this filing. NOTE 8. Revenue 13 Table of Contents The following table represents a disaggregation of revenue by timing of revenue: Three Months Ended Nine Months Ended September 28, September 30, September 28, September 30, 2024 2023 2024 2023 Point-in-time $ 237,935 $ 194,375 $ 679,517 $ 559,074 Over-time 14,275 12,810 43,865 37,938 Total revenue $ 252,210 $ 207,185 $ 723,382 $ 597,012 See Note 14 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 with respect to liabilities 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 Condensed Consolidated Balance Sheets. For contracts with a duration longer than one year, these amounts are recorded in other non-current liabilities in the Condensed Consolidated Balance Sheets. As of September 28, 2024 and December 30, 2023 , the Company carried a long-term deferred revenue balance of $ 3,197 and $ 2,462 , respectively. Changes in deferred revenue were as follows: Three Months Ended Nine Months Ended September 28, September 30, September 28, September 30, 2024 2023 2024 2023 Balance, beginning of the period $ 31,281 $ 27,256 $ 27,225 $ 33,014 Deferral of revenue 15,926 17,749 50,601 52,039 Recognition of current year deferred revenue ( 13,173 ) ( 13,407 ) ( 33,416 ) ( 36,542 ) Recognition of prior period deferred revenue ( 4,068 ) ( 4,867 ) ( 14,444 ) ( 21,780 ) Balance, end of the period $ 29,966 $ 26,731 $ 29,966 $ 26,731 NOTE 9. Share-Based Compensation Restricted Stock Unit Activity A summary of the Company’s restricted stock unit activity with respect to the nine months ended September 28, 2024 is as follows: Number of Shares Weighted Average Grant Date Fair Value Nonvested at December 30, 2023 584 $ 85.41 Granted 163 $ 192.34 Vested ( 320 ) $ 81.12 Forfeited ( 13 ) $ 98.60 Nonvested at September 28, 2024 414 $ 130.34 Of the 414 nonvested shares outstanding at September 28, 2024 , 332 are service-based RSUs and 82 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 2024 and 2023 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 $ 251.51 and $ 100.79 , respectively. 14 Table of Contents As of September 28, 2024 and December 30, 2023 , there was $ 34,231 and $ 26,559 of total unrecognized compensation cost related to restricted stock units granted under the Company’s stock plans, respectively. That cost is expected to be recognized over a weighted average period of 1.4 years following both September 28, 2024 and December 30, 2023 , respectively. NOTE 10. Other (Expense) Income, Net Other (expense) income, net, is comprised of the following: Three Months Ended Nine Months Ended September 28, September 30, September 28, September 30, 2024 2023 2024 2023 Foreign currency exchange losses, net $ ( 704 ) $ ( 1,009 ) $ ( 115 ) $ ( 3,116 ) Other ( 20 ) 8 125 124 Total other (expense) income, net $ ( 724 ) $ ( 1,001 ) $ 10 $ ( 2,992 ) NOTE 11. Income Taxes The following table provides details of income taxes: Three Months Ended Nine Months Ended September 28, September 30, September 28, September 30, 2024 2023 2024 2023 Income before income taxes $ 61,015 $ 38,699 $ 169,176 $ 98,756 Provision for income taxes $ 7,964 $ 2,813 $ 16,323 $ 7,906 Effective tax rate 13 % 7 % 10 % 8 % The income tax provision for the three and nine months ended September 28, 2024 was computed based on the Company’s annual forecast of profit by jurisdiction and forecasted effective tax rate for the year. The increase in the Company’s income tax provision for the three and nine months ended September 28, 2024 as compared to the three and nine months ended September 30, 2023 was primarily due, in each case, to an increase in quarterly earnings, partially offset by an increase in the excess benefits associated with equity compensation. The Company’s recorded effective tax rate for the periods presented is less than the U.S. statutory rate primarily due to projected Foreign Derived Intangible Income deductions, federal research and development tax credits, and excess tax benefits associated with equity compensation. The Company currently has a partial valuation allowance recorded against certain foreign and state net operating loss and credit carryforwards where the unrealizability of such deferred tax assets is more likely than not. Each quarter, the Company assesses the likelihood that it will be able to recover its deferred tax assets. The Company considers available evidence, both positive and negative, including forecasted earnings, in assessing its need for a valuation allowance. As a result of the Company’s analysis, it concluded that it is more likely than not that a portion of its deferred tax assets will not be realized. Therefore, the Company continues to provide a valuation allowance against certain deferred tax assets. The Company continues to monitor available evidence and may reverse some or all of its remaining valuation allowance in future periods, if appropriate. The Company has a recorded valuation allowance against a certain portion of its deferred tax assets of $ 13,960 at September 28, 2024 and December 30, 2023. The Organization for Economic Co-operation and Development (“OECD”) has been working on a Base Erosion and Profits Shifting (“BEPS”) project that would change various aspects of the existing framework under which the Company’s tax obligations are determined in many of the countries in which we operate. As part of the BEPS project, the OECD issued policies aimed to modernize global tax systems, including a country-by-country 15% minimum effective tax rate (“Pillar Two”) for multinational companies. Numerous countries have enacted, or are in the process of enacting, legislation to implement the Pillar Two model rules with a subset of the rules becoming effective during the current year, and the remaining rules becoming effective in later periods. At this point in time, the Company does not expect any material tax impact associated with Pillar Two rules in the countries where it operates. As these rules continue to evolve with new legislation and guidance, the Company will continue to monitor and account for the enactment of Pillar Two and the potential impacts such rules may have on its effective tax rate and cash flows in future years. 15 Table of Contents NOTE 12. Earnings Per Share Basic earnings per share is calculated using the weighted average number of shares of common stock outstanding during the period. Restricted stock units, employee stock purchase grants 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: Three Months Ended Nine Months Ended September 28, September 30, September 28, September 30, 2024 2023 2024 2023 Numerator: Net income $ 53,051 $ 35,886 $ 152,853 $ 90,850 Denominator: Basic earnings per share - weighted average shares outstanding 49,426 49,043 49,333 48,933 Effect of potential dilutive securities: Restricted stock units and employee stock purchase grants - dilutive shares 268 358 336 326 Diluted earnings per share - weighted average shares outstanding 49,694 49,401 49,669 49,259 Earnings per share: Basic $ 1.07 $ 0.73 $ 3.10 $ 1.86 Diluted $ 1.07 $ 0.73 $ 3.08 $ 1.84 NOTE 13. Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss, net of tax, were as follows: Foreign currency translation adjustments Net unrealized gains on available-for-sale marketable securities Accumulated other comprehensive loss Balance at December 30, 2023 $ ( 8,664 ) $ 765 $ ( 7,899 ) Net current period other comprehensive income 270 1,304 1,574 Balance at September 28, 2024 $ ( 8,394 ) $ 2,069 $ ( 6,325 ) Foreign currency translation adjustments Net unrealized (losses) gains on available-for-sale marketable securities Accumulated other comprehensive loss Balance at December 31, 2022 $ ( 7,115 ) $ ( 2,895 ) $ ( 10,010 ) Net current period other comprehensive (loss) income ( 4,669 ) 1,901 ( 2,768 ) Balance at September 30, 2023 $ ( 11,784 ) $ ( 994 ) $ ( 12,778 ) For the nine months ended September 28, 2024 and September 30, 2023 , tax effects on net income of amounts recorded in other comprehensive income (loss) were $ 358 and $ 407 , respectively. NOTE 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 16 Table of Contents decision maker is the Chief Executive Officer (the “CEO”). The CEO allocates resources and assesses performance of the business and other activities at the reportable segment level. The following table lists the different sources of revenue: Three Months Ended Nine Months Ended September 28, September 30, September 28, September 30, 2024 2023 2024 2023 Systems and software $ 217,135 86 % $ 169,346 82 % $ 622,400 86 % $ 495,523 83 % Parts 19,995 8 % 20,100 10 % 56,890 8 % 58,665 10 % Services 15,080 6 % 17,739 8 % 44,092 6 % 42,824 7 % Total revenue $ 252,210 100 % $ 207,185 100 % $ 723,382 100 % $ 597,012 100 % 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: Three Months Ended Nine Months Ended September 28, September 30, September 28, September 30, 2024 2023 2024 2023 Revenue from third parties: South Korea $ 77,014 $ 38,892 $ 227,958 $ 122,205 Taiwan 78,273 28,084 209,006 85,802 China 32,112 29,785 86,222 108,294 United States 21,979 29,805 61,763 103,756 Southeast Asia 15,589 25,060 55,796 68,040 Japan 12,559 32,597 45,172 60,832 Europe 14,684 22,962 37,465 48,083 Total revenue $ 252,210 $ 207,185 $ 723,382 $ 597,012 The following customers accounted for 10% or more of total revenue for the indicated periods: Nine Months Ended September 28, September 30, 2024 2023 Customer A 20 % 11 % Customer B 19 % 20 % Customer C 13 % ^ ^ The customer accounted for less than 10% of total revenue during the period. Three customers’ net accounts receivable balances, were individually greater than 10 % of net accounts receivable at September 28, 2024 , representing, in the aggregate approximately 43 % of the Company’s total net accounts receivable. Two customers’ net accounts receivable balances, were individually greater than 10 % of net accounts receivable at December 30, 2023 , representing, in the aggregate approximately 29 % of the Company’s total net accounts receivable. Substantially all of the Company’s long-lived assets are located within the United States of America. NOTE 15. Share Repurchase Authorization In February 2024, the Onto Innovation Board of Directors approved a new share repurchase authorization, which allows the Company to repurchase up to $ 200 million worth of shares of its common stock. Repurchases may be made through both public market and private transactions from time to time. Any amount paid to repurchase the shares in excess of par value, including transaction costs, would be recorded directly as a decrease to additional paid-in capital and accumulated earnings. During the three and nine months ended September 28, 2024 , no shares of the Company’s common stock were repurchased under the share repurchase authorization. At September 28, 2024 , there was $ 200 million available for future share repurchases under this share repurchase authorization. 17 Table of Contents NOTE 16. Restructuring From time to time, the Company approves restructuring plans, which include workforce reductions, to streamline operations and align the Company’s cost structure with its business outlook. These restructuring plans may result in charges to cost of goods sold for streamlining of certain manufacturing activities or for inventory write-downs primarily related to the exit of older product lines. Charges to operating expenses primarily include employee severance costs that are paid during the period incurred and charges for streamlining of certain operating activities. Restructuring expenses recorded in the Condensed Consolidated Statements of Operations are as follows: Three Months Ended Nine Months Ended September 28, September 30, September 28, September 30, 2024 2023 2024 2023 Cost of goods sold $ 1,084 $ — $ 2,575 $ 2,279 Operating expenses 2,167 — 3,046 3,226 Total restructuring expenses $ 3,251 $ — $ 5,621 $ 5,505