What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-10-31 · 63 added, 75 removed, 108 unchanged (56% of the section changed)

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Certain statements in this Form 10-Q, or incorporated by reference in this Form 10-Q, of Onto Innovation Inc.

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

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

• our business momentum and future growth;

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• future revenue, gross profits, research and development and engineering expenses, selling, general and administrative expenses, and cash requirements;

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

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

• the effects of natural disasters or public health emergencies on the global economy and on our customers, suppliers, employees, and business;

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Actual results may differ materially and adversely from those included in such forward-looking statements.

Forward-looking statements reflect our position as of the date of this Form 10-Q

and we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Forward-looking statements reflect our position as of the date of this Form 10-Q and we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Critical Accounting Estimates

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We believe that, over the long term, our customers will continue to invest in advanced technologies and new materials to enable smaller design rules and higher density applications that fuel demand for process control equipment.

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

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

Three Months Ended

September 28,

December 28, 2024

(in thousands, except for percentages and per share data)

Gross profit as a percent of revenue

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Diluted earnings per share

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

These increases were partially offset by decline in sales to foundry customers during the September 2024 quarter.

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

• Operating expenses in the September 2024 quarter increased by 4.9% compared to the June 2024 quarter primarily due to an increase in restructuring expenses, research and development project costs, and compensation cost.

Our cash, cash equivalents and marketable securities balance increased to $855.4 million at September 28, 2024, compared to $697.8 million at December 30, 2023.

This increase was primarily the result of $189.7 million of cash generated from operating activities, and $9.2 million of cash from issuance of shares through share-based compensation plans, partially offset by cash used for capital expenditures of $27.3 million and $18.4 million for tax payments related to net share settlement of employee stock-based compensation plans.

Employee headcount at September 28, 2024 was approximately 1,518.

In 2022 and 2023, the United States government implemented additional export regulations for U.S.

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

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

• Operating expenses for the March 2025 quarter decreased by 10.9% compared to the December 2024 quarter primarily due to the write off of in process research and development in the December 2024 quarter.

Our cash, cash equivalents and marketable securities balance decreased to $850.6 million at March 29, 2025, compared to $852.3 million at December 28, 2024.

This decrease was primarily the result of cash used for purchases of our common stock of $75.0 million, $8.7 million for tax payments related to net share settlement of employee stock-based compensation plans, capital expenditures of $8.2 million and purchases of non-marketable equity securities of $8.0 million, partially offset by $92.0 million of cash generated from operating activities and $4.2 million of cash from issuance of shares through share-based compensation plans.

Employee headcount at March 29, 2025 was approximately 1,555.

In recent years, the United States government implemented additional export regulations for U.S.

semiconductor technology sold in China.

We have applied for, and in some cases received, export licenses to continue doing business with our customers that are affected by the new export rules.

However, the new export controls have continued to negatively impact our net sales in China for the first, second, and third fiscal quarters of 2024.

We have applied for export licenses to continue doing business with our customers that are affected by the export rules.

However, the export controls have contributed to lower net sales in China for the first fiscal quarter of 2025 compared to the same period in the prior year.

The recent imposition of tariffs by the U.S.

government, and countermeasures taken by foreign countries, are likely to have an adverse impact on our business in the near-term.

The full extent of the impact is currently uncertain and will depend both on future developments in global trade policy and the extent to which our efforts to mitigate tariffs impacts are successful.

We are continuously assessing the impact of tariffs and related governmental actions on our business.

For a discussion of the risks related to our business and operations, see Part II, Item 1A – Risk Factors of this Form 10-Q.

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

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

Our revenue is primarily derived from the sale of our systems, software licensing, services and spare parts.

Our revenue of $252.2 million increased 21.7% for the three months ended September 28, 2024 as compared to the three months ended September 30, 2023, in which revenue totaled $207.2 million.

For the nine months ended September 28, 2024 and September 30, 2023, our revenue totaled $723.4 million and $597.0 million, respectively, representing a year-over-year increase of 21.2%

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

Our revenue of $266.6 million increased 16.5% for the three months ended March 29, 2025 as compared to the three months ended March 30, 2024, for which revenue totaled $228.8 million.

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

Three Months Ended

Nine Months Ended

September 28,

September 30,

September 28,

September 30,

(in thousands, except for percentages)

Systems and software

Total revenue

Total systems and software revenue increased $47.8 million and $126.9 million for the three and nine months ended September 28, 2024, respectively, as compared to the three and nine months ended September 30, 2023, respectively.

The increases for the three months ended September 28, 2024 were primarily due to an increase in shipments of our inspection and metrology product lines to DRAM and NAND customers, which was partially offset by a decrease in shipments of our lithography product lines to OSAT customers.

The increases for the nine months ended September 28, 2024 were primarily due to an increase

in shipments of our inspection product lines to DRAM and foundry customers, which was partially offset by a decrease in shipments of our metrology and lithography product lines.

The decrease in total parts and services revenue for the three and nine months ended September 28, 2024, as compared to the three and nine months ended September 30, 2023, was primarily due to lower demand by several of our customers, resulting in a decline in their spare parts requirements.

Total systems and software revenue increased $36.3 million for the three months ended March 29, 2025, as compared to the three months ended March 30, 2024.

The increase for the three months ended March 29, 2025 was primarily attributed to increased shipments of our metrology product lines to DRAM and NAND customers, partially offset by decline in shipments of our inspection and lithography products to specialty device and advanced packaging customers.

The increase in total parts and services revenue for the three months ended March 29, 2025, as compared to the three months ended March 30, 2024, was primarily due to higher service contract and system upgrade revenue, partially offset by lower parts sales.

Parts and services revenue is generated from part sales, maintenance service contracts, and system upgrades, as well as time and material billable service calls.

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Our gross profit has been and will likely continue to be affected by a variety of factors, including manufacturing efficiencies, provision for excess and obsolete inventory, pricing by competitors or suppliers, new product introductions, production volume, customization and reconfiguration of systems, international and domestic sales mix, system and software product mix and parts and service margins.

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

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

Three Months Ended

Nine Months Ended

September 28,

September 30,

September 28,

September 30,

(in thousands, except for percentages)

Gross profit as a percentage of revenue

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

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

Operating Expenses.

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They also include consulting fees, the cost of related supplies and legal costs to defend our patents.

Our research and development expenses were $28.3 million and $81.9 million for the three and nine month periods ended September 28, 2024, respectively, as compared to $26.1 million and $80.4 million for the three and nine month periods ended September 30, 2023, respectively.

The increase in research and development expenses of $2.2 million for the three month period ended September 28, 2024, as compared to the three month period ended September 30, 2023 was primarily due to increases in compensation costs of $1.7 million, product development costs of $0.2 million, travel costs of $0.2 million and depreciation and amortization costs of $0.1 million.

The increase in research and development expenses of $1.5 million for the nine month period ended September 28, 2024, as compared to the nine month period ended September 30, 2023, was primarily due to increases in compensation costs of $0.7 million, travel costs of $0.5 million and outside service costs of $0.3 million.

Our research and development expenses were $28.0 million for the three month period ended March 29, 2025, as compared to $26.6 million for the three month period ended March 30, 2024.

The increase in research and development expenses of $1.4 million for the three month period ended March 29, 2025, as compared to the three month period ended March 30, 2024 was primarily due to increases in compensation costs of $0.4 million, outside service costs of $0.5 million and depreciation and amortization costs of $0.5 million.

• Sales and Marketing .

Sales and marketing expenses are primarily comprised of salaries, commissions and related costs for sales and marketing personnel, as well as other non-personnel related expenses.

Our sales and marketing expenses were $19.5 million and $56.7 million for the three and nine month periods ended September 28, 2024, respectively, compared to $14.8 million and $46.4 million for the three and nine month periods ended September 30, 2023, respectively.

The increase in sales and marketing expenses of $4.7 million for the three month period ended September 28, 2024, as compared to the three month period ended September 30, 2023, was primarily due to increases in compensations costs of $4.3 million, travel costs of $0.3 million and freight and duty costs of $0.1 million.

The increase in sales and marketing expenses of $10.3 million for the nine month period ended September 28, 2024, as compared to the nine month period ended September 30, 2023, was primarily due to increases in compensations costs of $9.4 million, travel costs of $0.4 million, sales and marketing costs of $0.3 million, outside services costs of $0.1 million and freight and duty costs of $0.1 million.

Our sales and marketing expenses were $19.7 million for the three month period ended March 29, 2025, compared to $18.3 million for the three month period ended March 30, 2024.

The increase in sales and marketing expenses of $1.4 million for the three month period ended March 29, 2025, as compared to the three month period ended March 30, 2024, was primarily due to increases in compensation costs of $1.1 million and travel costs of $0.3 million.

• General and Administrative .

General and administrative expenses are primarily comprised of salaries and related costs for corporate and administrative personnel, as well as other non-personnel related expenses.

Our general and administrative expenses were $22.5 million and $60.3 million for the three and nine month periods ended September 28, 2024, respectively, as compared to $18.1 million and $56.1 million for the three and nine month periods ended September 30, 2023, respectively.

The increase in general and administrative expenses of $4.4 million for the three month period ended September 28, 2024, as compared to the three month period ended September 30, 2023, was primarily due to increases in compensation costs of $3.7 million, other office expense costs of $0.6 million, and travel costs of $0.1 million.

The increase in general and administrative expenses of $4.2 million for the nine month period ended September 28, 2024, as compared to the nine month period ended September 30, 2023, was primarily due to increases in compensation costs of $2.6 million, depreciation and amortization of $1.3 million, travel costs of $0.6 million and other office expense costs of $0.4 million, partially offset by an decrease in outside services costs of $0.7 million.

Our general and administrative expenses were $23.9 million for the three month period ended March 29, 2025, as compared to $17.6 million for the three month period ended March 30, 2024.

The increase in general and administrative expenses of $6.3 million for the three month period ended March 29, 2025, as compared to the three month period ended March 30, 2024, was primarily due to increases in compensation costs of $4.9 million, outside service costs of $2.7 million,

and depreciation and amortization costs of $0.4 million, partially offset by a decrease in other general expenses of $1.7 million.

• Amortization of Identifiable Intangible Assets .

Amortization of identifiable intangible assets was $13.1 million and $39.3 million for the three and nine month periods ended September 28, 2024, respectively, compared to $13.8 million and $41.5 million for the three and nine month periods ended September 30, 2023, respectively.

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

Amortization of identifiable intangible assets was $8.4 million for the three month period ended March 29, 2025, compared to $13.1 million for the three month period ended March 30, 2024.

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

Interest income, net .

Net interest income was $8.7 million and $24.5 million for the three and nine month periods ended September 28, 2024, respectively, as compared to $5.7 million and $13.9 million for the three and nine month periods ended September 30, 2023, respectively.

The increases in net interest income for both the three and nine month periods ended September 28, 2024, as compared to the three and nine month periods ended September 30, 2023, were due to higher cash and marketable securities balances and higher interest rates during the 2024 period.

Net interest income was $9.3 million for the three month period ended March 29, 2025, as compared to $7.4 million for the three month period ended March 30, 2024.

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

Other (expense) income, net .

Other expense, net was $0.7 million for the three month period ended September 28, 2024, as compared to $1.0 million for the same period in the prior year.

Other income, net was $10 thousand for the nine month period ended September 28, 2024, as compared to other expense, net of $3.0 million for the same period in the prior year.

Decreases in foreign exchange losses, net during all of the comparative periods presented were the primary drivers in the period over period changes.

Other expense, net was $0.7 million for the three month period ended March 29, 2025, as compared to other income, net of $0.8 million for the three month period ended March 30, 2024.

Foreign exchange losses during the 2025 period versus foreign exchange gains in the 2024 period were the primary drivers contributing to the period over period changes.

Income Taxes .

We recorded an income tax provision of $8.0 million and $16.3 million for the three and nine month periods ended September 28, 2024, respectively, as compared to $2.8 million and $7.9 million for the three and nine month periods ended September 30, 2023, respectively.

Our effective tax rates of 13% and 10% for the three and nine month periods ended September 28, 2024 respectively, differ from the statutory rate of 21%, primarily due to (i) research and development tax credits, (ii) the deduction related to foreign derived intangible income (“FDII”), and (iii) excess tax benefits associated with equity compensation.

Our effective tax rate of 7% and 8% for the three and nine month periods ended September 30, 2023, respectively, differed from the statutory rate of 21%, primarily due to (i) research and development tax credits, (ii) the deduction related to FDII, and (iii) excess tax benefits associated with equity compensation.

We recorded an income tax provision of $7.6 million for the three month period ended March 29, 2025, as compared to $4.0 million for the three month period ended March 30, 2024.

Our effective tax rate of 10.6% for the three month period ended March 29, 2025 differed from the statutory rate of 21%, primarily due to (i) research and development tax credits, (ii) the deduction related to foreign derived intangible income (“FDII”), and (iii) excess tax benefits associated with equity compensation.

Our effective tax rate of 7.9% for the three month period ended March 30, 2024 differed from the statutory rate of 21%, primarily due to (i) research and development tax credits, (ii) the deduction related to FDII, and (iii) excess tax benefits associated with equity compensation.

Our future effective income tax rate depends on various factors, such as possible changes in tax legislation, the geographic composition of our pre-tax income, the amount of our pre-tax income as business activities fluctuate, non-deductible expenses incurred in connection with business combinations, and research and development tax credits as a percentage of aggregate pre-tax income.

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The Organization for Economic Co-operation and Development (“OECD”) has been working on a Base Erosion and Profits Shifting project that, upon implementation, would change various aspects of the existing framework under which our tax obligations are determined in many of the countries in which we operate.

In this regard, the OECD has proposed policies aiming

to modernize global tax systems, including a country-by-country 15% minimum effective tax rate (“Pillar Two”) for multinational companies.

In this regard, the OECD has proposed policies aiming 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.

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Liquidity and Capital Resources

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

September 28,

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

December 28, 2024

(in thousands)

Cash and cash equivalents

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Sources and Uses of Cash

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

Nine Months Ended

September 28,

September 30,

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

Three Months Ended

(in thousands)

Cash provided by operating activities

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Operating Activities

Net cash and cash equivalents provided by operating activities for the nine months ended September 28, 2024 were $189.7 million.

The net cash and cash equivalents provided by operating activities during the nine months ended September 28, 2024 resulted primarily from net income, adjusted to exclude the effect of non-cash operating charges, of $214.7 million.

Net cash and cash equivalents provided by operating activities for the three months ended March 29, 2025 were $92.0 million.

The net cash and cash equivalents provided by operating activities during the three months ended March 29, 2025 resulted primarily from net income, adjusted to exclude the effect of non-cash operating charges, of $81.1 million.

Significant non-cash operating charges included depreciation, amortization, share-based compensation, provision for inventory valuation and deferred income taxes.

Cash provided by operating activities for the first nine months of fiscal 2024 increased compared to the corresponding period in fiscal 2023 primarily due to improved inventory management, higher cash collections and higher investment income.

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

Cash provided by operating activities for the first three months of fiscal 2025 increased compared to the corresponding period in fiscal 2024 primarily due to improved inventory management, higher cash collections and higher investment income.

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

Investing Activities

Net cash and cash equivalents used in investing activities for the nine months ended September 28, 2024 were $222.5 million.

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

Net cash and cash equivalents used in investing activities for the three months ended March 29, 2025 were $21.8 million.

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

From time to time, we evaluate whether to acquire new or complementary businesses, products or technologies.

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Financing Activities

Net cash and cash equivalents used in financing activities for the nine months ended September 28, 2024 were $10 million.

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

Net cash and cash equivalents used in financing activities for the three months ended March 29, 2025 were $79.5 million.

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

In February 2024, the Onto Innovation Board of Directors approved a share repurchase authorization, which allows the Company to repurchase up to $200 million worth of shares of its common stock.

Repurchases may be made through both public market and private transactions from time to time.

During the three and nine months ended September 28, 2024, we repurchased no shares of common stock under this repurchase authorization.

As of September 28, 2024, there was $200 million available for future share repurchases under this share repurchase authorization.

During the three months ended March 29, 2025, we repurchased 492 thousand shares of common stock under this repurchase authorization.

As of March 29, 2025, there was $99.9 million available for future share repurchases under this share repurchase authorization.

We have a credit agreement with a bank that provides for a variable-rate line of credit that is secured by the marketable securities we have with the bank.

We are permitted to borrow up to 70% of the value of eligible securities held at the time the line of credit is accessed, up to a maximum of $100.0 million.

As of September 28, 2024, the available line of credit was $100 million with an available interest rate of 6.6%.

As of March 29, 2025, the available line of credit was $100.0 million with an available interest rate of 5.0%.

The credit agreement is available to us until such time that either party terminates the arrangement at its discretion.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis