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What changed in ONTO INNOVATION INC.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of ONTO INNOVATION INC.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+222 added−211 removedSource: 10-K (2025-02-25) vs 10-K (2024-02-26)

Top changes in ONTO INNOVATION INC.'s 2024 10-K

222 paragraphs added · 211 removed · 185 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

40 edited+4 added−7 removed93 unchanged
Biggest changeSales, Customer Service and Application Support We believe that the capability for direct sales and support is beneficial for developing and maintaining close customer relationships and for rapidly responding to changing customer requirements.
Biggest changeThe following table shows the revenue concentration at our top customers for the respective fiscal years: Year Ended Customer December 28, 2024 December 30, 2023 December 31, 2022 Customer A * * * Customer B * * * Customer C * ^ * * Total customer revenue was 10% or more of total revenue. ^ Total customer revenue was less than 10% of total revenue. 6 Table of Contents Sales, Customer Service and Application Support We believe that the capability for direct sales and support is beneficial for developing and maintaining close customer relationships and for rapidly responding to changing customer requirements.
General Onto Innovation is a worldwide leader in the design, development, manufacture and support of metrology and inspection tools for the semiconductor industry, including process control tools that perform optical metrology on patterned and unpatterned wafers, wafer macro-defect inspection, including macro-inspection of both 2D and 3D wafer features, wafer substrate and panel substrate lithography systems, and process control analytical software.
General Onto Innovation ® is a worldwide leader in the design, development, manufacture and support of metrology and inspection tools for the semiconductor industry, including process control tools that perform optical metrology and inspection on patterned and unpatterned wafers, including macro defect inspection of both 2D and 3D wafer features, wafer substrate and panel substrate lithography systems, and process control analytical software.
We provide balanced compensation programs that focus on the following five key elements: • Pay-for-performance - Reward those who achieve or exceed set goals and objectives, while also recognizing those making significant, impactful contributions; 8 Table of Contents • External market based - Pay levels that are competitive with respect to the labor market in which we compete for talent; • Internal equity - Providing fair compensation programs within the Company; • Fiscal responsibility - Providing programs which can be responsibly supported by our operations; and • Legal compliance - Ensure compliance with the applicable laws of the states and countries in which we operate in all material respects.
We provide balanced compensation programs that focus on the following five key elements: • Pay-for-performance - Reward those who achieve or exceed set goals and objectives, while also recognizing those making significant, impactful contributions; • External market based - Pay levels that are competitive with respect to the labor market in which we compete for talent; • Internal equity - Providing fair compensation programs within the Company; • Fiscal responsibility - Providing programs which can be responsibly supported by our operations; and • Legal compliance - Ensure compliance with the applicable laws of the states and countries in which we operate in all material respects.
This includes ICs to enable information processing and management (logic ICs), memory storage (NAND, 3D-NAND, and DRAM), analog devices (e.g., Wi-Fi and 5G radio ICs, power devices), MEMS sensor devices (accelerometers, pressure sensors, microphones), CMOS image sensors, and other specialty end markets including components for hard disk drives, LEDs, and power management devices. Current Trends Markets Advanced Nodes.
This includes ICs to enable information processing and management (logic ICs), memory storage (NAND, 3D-NAND, and DRAM), analog devices (e.g., Wi-Fi and 5G radio ICs, power devices), MEMS sensor devices (accelerometers, pressure sensors, microphones), CMOS image sensors, and other specialty end markets including components for hard disk drives, LEDs, and power management devices. Markets Advanced Nodes.
It is our strategy to outsource the assemblies that do not contain elements that we believe lead to a direct competitive advantage. Most of our automated and integrated products are currently manufactured at our Milpitas and Bloomington facilities. We currently do not expect our manufacturing operations to require additional major investments in capital equipment.
It is our strategy to outsource the assemblies that do not contain elements that we believe lead to a direct competitive advantage. Most of our automated and integrated products are currently manufactured at our Milpitas and Bloomington facilities. We currently do not expect our manufacturing operations to require additional major investments in capital equipment in the near term.
Advanced Packaging Lithography . Our lithography steppers use projection optics to expose circuit patterns from a mask or reticle onto a substrate to expose images with optimal fidelity. These systems employ a bright light that is transmitted through a mask or reticle containing display circuit patterns.
Our lithography steppers use projection optics to expose circuit patterns from a mask or reticle onto a substrate to expose images with optimal fidelity. These systems employ a bright light that is transmitted through a mask or reticle containing display circuit patterns.
Once the exposure process has been completed, the substrate is developed with an alkali solution to reveal the underlying material. The 5 Table of Contents imaged photoresist serves as a stencil barrier that allows for the processing of the underlying metal or insulating layers. The substrates then continue through the etching, stripping and deposition processes until multi-layer circuits are completed.
Once the exposure process has been completed, the substrate is developed with an alkali solution to reveal the underlying material. The imaged photoresist serves as a stencil barrier that allows for the processing of the underlying metal or insulating layers. The substrates then continue through the etching, stripping and deposition processes until multi-layer circuits are completed.
Inspection rates for advanced packages are high throughout the assembly process to avoid a single defective chip from being assembled into a relatively expensive package. Thus, unlike the cyclical nature of our metrology equipment associated with node shrinks, our sales revenue for advanced packaging is generally driven by assembly volumes. ​ Panel Substrate Manufacturing .
Inspection rates for advanced packages are high throughout the assembly process to avoid a single defective chip from being assembled into a relatively expensive package. Thus, unlike the cyclical nature of our metrology equipment associated with node shrinks, our sales revenue for advanced packaging is generally driven by assembly volumes.
Foreign Corrupt Practices Act (“FCPA”), which prohibits companies and their individual officers from influencing foreign officials with any personal payments or rewards; • Conflict minerals reporting, which imposes disclosure requirements regarding the use of “conflict” minerals mined from the Democratic Republic of Congo and adjoining countries in products; and 9 Table of Contents • Export regulations.
Foreign Corrupt Practices Act (“FCPA”), which prohibits companies and their individual officers from influencing foreign officials with any personal payments or rewards; • Conflict minerals reporting, which imposes disclosure requirements regarding the use of “conflict” minerals mined from the Democratic Republic of Congo and adjoining countries in products; and • Export regulations.
We strive to create a respectful work environment characterized by mutual trust and the absence of intimidation, oppression, discrimination and exploitation. Talent Development and Acquisition . Successful execution of our strategy is dependent on attracting, developing and retaining key employees and members of our management and leadership teams.
We strive to create a respectful work environment characterized by mutual trust and the absence of intimidation, oppression, discrimination and exploitation. 8 Table of Contents Talent Development and Acquisition . Successful execution of our strategy is dependent on attracting, developing and retaining key employees and members of our management and leadership teams.
To achieve these goals, our customers have increased their use of more complex 2 Table of Contents materials and processing methods in their manufacturing flow. The primary path for performance gains is geometric scaling, known as node shrinks, or scaling of transistor dimensions.
To achieve these goals, our customers have increased their use of more complex materials and processing methods in their manufacturing flow. The primary path for performance gains is geometric scaling, known as node shrinks, or scaling of transistor dimensions.
We provide system support to our customers through factory technical support and globally deployed field service personnel. 6 Table of Contents The factory technical support operations provide customers with telephonic technical support access, direct training programs, operating manuals and other technical support information to enable effective use of our metrology and measurement instruments and systems.
We provide system support to our customers through factory technical support and globally deployed field service personnel. The factory technical support operations provide customers with telephonic technical support access, direct training programs, operating manuals and other technical support information to enable effective use of our metrology and measurement instruments and systems.
As a result, customers are demanding robust yield management systems that can analyze large, complex data sets quickly and effectively. Our fully integrated YMS is designed to analyze data from disparate sources and multiple sites to maximize productivity across the entire value chain. Customers Over 220 customers purchased Onto Innovation tools or software in 2023.
As a result, customers are demanding robust yield management systems that can analyze large, complex data sets quickly and effectively. Our fully integrated YMS is designed to analyze data from disparate sources and multiple sites to maximize productivity across the entire value chain. Customers Over 240 customers purchased Onto Innovation tools or software in 2024.
Accordingly, we devote a significant portion of our technical, management and financial resources to research and development programs. 7 Table of Contents Intellectual Property We believe that our success will depend to a great degree upon innovation, technological expertise and our ability to adapt our products to new technology.
Accordingly, we devote a significant portion of our technical, management and financial resources to research and development programs. Intellectual Property We believe that our success will depend to a great degree upon innovation, technological expertise and our ability to adapt our products to new technology.
Our metrology systems used to measure and characterize these small features are generally purchased when a customer is beginning to manufacture at a new, smaller node, in order to set up and test new manufacturing equipment being installed for the new node.
Our metrology systems used to measure and characterize these small features are generally purchased when a customer is beginning development at a new, smaller node, in order to set up and test new manufacturing equipment being installed for production at the new node.
For 3 Table of Contents example, the JetStep ® X500 lithography system, having emerged from the flat panel display market, is readily capable of processing RDLs on very thin advanced organic laminate panels in the semiconductor advanced packaging market.
For example, the JetStep ® X500 lithography system, having emerged from the flat panel display market, is readily capable of processing RDLs on very thin advanced organic laminate panels in the semiconductor advanced packaging market.
Actions we have taken in pursuit of these commitments include the following environmental and social programs: • Demanded excellence in our environmental performance, as illustrated in our annual ESG reports. • Demanded excellence in our quality performance, as demonstrated through our product and process qualification commitments, including ISO 9001 Quality Management; • Set goals to reduce our environmental impact, including an increase in our use of renewable energy, a decrease in hazardous waste landfill, an increase in recycling materials and beneficial reuse, and a reduction in our freshwater usage; • Committed to RBA Code of Conduct and humane treatment of all at Onto Innovation both upstream and downstream.
Actions we have taken in pursuit of these commitments include the following environmental and social programs: • Demanded excellence in our environmental performance. • Demanded excellence in our quality performance, as demonstrated through our product and process qualification commitments, including ISO 9001 Quality Management; • Set goals to reduce our environmental impact, including an increase in our use of renewable energy, a decrease in hazardous waste landfill, an increase in recycling materials and beneficial reuse, and a reduction in our freshwater usage; • Committed to Responsible Business Alliance (RBA) Code of Conduct and humane treatment of all at Onto Innovation both upstream and downstream.
Demand for our products continues to be driven by our customers’ desire for higher overall chip performance enabled by a greater number of transistors per square millimeter, while improving power efficiency, logic processing capability, data storage volume and manufacturing yield.
Demand for our products also continues to be driven by our customers’ desire for higher overall chip performance enabled by a greater number of transistors 2 Table of Contents per square millimeter, while improving power efficiency, logic processing capability, data storage volume and manufacturing yield.
Industry Background We participate in the sale, design, manufacture, marketing and support of process control systems for optical critical dimension (“OCD”) metrology, thin film metrology, silicon wafer inspection, 2D and 3D macro inspection and lithography tools for advanced packaging and advanced analytical software for semiconductor manufacturing as well as inspection systems for certain industrial applications and scientific research.
Industry Background We participate in the sale, design, manufacture, marketing and support of process control systems across all major segments of the semiconductor industry for optical critical dimension (“OCD”) metrology, thin film metrology, silicon wafer inspection, including 2D and 3D macro inspection and lithography tools for advanced packaging and advanced analytical software for semiconductor manufacturing as well as inspection systems for certain industrial applications and scientific research.
Advanced packaging facilities looking to improve Cost of Ownership and increase productivity are transitioning from 300mm wafers to large rectangular panels, which can be as large as 650mm x 650mm.
Advanced packaging facilities looking to improve Cost of Ownership and 3 Table of Contents increase productivity are transitioning from 300mm wafers to large rectangular panels, which can be as large as 650mm x 650mm.
The patents we own, jointly own or exclusively license have expiration dates ranging from 2024 to 2042. We also have 175 pending patent applications in the United States and other countries. Our patents and patent applications principally cover various aspects of metrology, macro-defect detection and classification, altered material characterization, lithography techniques, automation, artificial intelligence, and machine learning.
The patents we own, jointly own or exclusively license have expiration dates ranging from 2025 to 2043. We also have 240 pending patent applications in the United States and other countries. Our patents and patent applications principally cover various aspects of metrology, macro-defect detection and classification, altered material characterization, lithography techniques, automation, artificial intelligence, and machine learning.
We also make available, free of charge, through our investor relations website, our corporate governance guidelines, Code of Business Conduct and Ethics, charters of the committees of our Board of Directors, and other information and materials, including information about how to contact our Board of Directors.
We also make available, free of charge, through our investor relations website at https://investors.ontoinnovation.com, our corporate governance guidelines, Code of Business Conduct and Ethics, charters of the committees of our Board of Directors, and other information and materials, including information about how to contact our Board of Directors.
Our future success will depend, in large part, upon our ability to attract, motivate and retain our highly skilled, technical, operational and managerial team members, who are in great demand in our industry and business communities. Approximately 59% of our employees are located in the United States, 37% in Asia Pacific and 4% in Europe.
Our future success will depend, in large part, upon our ability to attract, motivate and retain our highly skilled, technical, operational and managerial team members, who are in great demand in our industry and business communities. Approximately 56% of our employees are located in the United States, 39% in Asia Pacific and 5% in Europe.
As a result, we have a policy of seeking patents on inventions governing new products or technologies as part of our ongoing research, development, and manufacturing activities. As of December 30, 2023, we have been granted, or hold exclusive licenses to, 398 U.S. and foreign patents.
As a result, we have a policy of seeking patents on inventions governing new products or technologies as part of our ongoing research, development, and manufacturing activities. As of December 28, 2024, we have been granted, or hold exclusive licenses to, 408 U.S. and foreign patents.
All of our employees are expected to uphold the following core values which are foundational to our culture: • Passion – ownership, pride and caring in our work • Integrity – honesty, dependable, predictable and accountable • Collaboration – working together toward a common goal • Results – meeting and exceeding goals, focused toward innovation and growth These core values define the way we do business in our everyday actions and choices.
All of our employees are expected to uphold the following core values which are foundational to our culture: • Passion – ownership, pride and caring in our work • Integrity – honesty, dependability, ethicality and accountability • Collaboration – working together toward a common goal • Results – meeting and exceeding goals, focusing on innovation and growth These core values define the way we do business in our everyday actions and choices.
This compositional analysis may be measured using our Element ® system using Fourier Transform Infrared (“FTIR”) algorithms. Advanced Packaging. “Advanced Packaging” refers to a variety of technologies that enable the miniaturization of electronic products, such as smartphones, watches, and tablets.
This compositional analysis may be measured using our Element ® system using Fourier Transform Infrared (“FTIR”) algorithms. Advanced Packaging. “Advanced packaging” refers to a variety of technologies on either wafer or panel level substrates (or both) that enable the miniaturization of electronic products, such as smartphones, watches, and tablets.
For more information, please see “Part I, Item IA - Protection of our intellectual property rights, or the efforts of third parties to enforce their own intellectual property rights against us, may result in costly and time-consuming litigation, substantial damages, lost product sales and/or the loss of important intellectual property rights.” Human Capital and Talent As of December 30, 2023, we had approximately 1,497 staff globally, 377 in research and development, 280 in operations, 181 in administration and 659 in sales, applications and service support.
For more information, please see “Part I, Item IA - Protection of our intellectual property rights, or the efforts of third parties to enforce their own intellectual property rights against us, may result in costly and time-consuming litigation, substantial damages, lost product sales and/or the loss of important intellectual property rights.” Human Capital and Talent As of December 28, 2024, we had approximately 1,551 staff globally, 370 in research and development, 266 in operations, 209 in administration and 706 in sales, applications and service support.
We are working to make our workforce more inclusive, our business more sustainable, and our communities more engaged by maintaining strong environmental, social and governance (“ESG”) practices.
We are working to make our workforce more inclusive, our business more sustainable, and our communities more engaged by maintaining strong sustainability practices.
One current process to manufacture advanced packaging involves attaching known good die to a 300mm wafer. SIP packages can often contain side-by-side die, meaning the package can be large and limit the number of packages being placed on a wafer. In order to meet the growing demand at reduced average selling prices, manufacturers are looking to scalable technology.
SIP packages can often contain side-by-side die, meaning the package can be large and limit the number of packages being placed on a wafer. In order to meet the growing demand at reduced average selling prices, manufacturers are looking to scalable technology.
We established policies and practices to ensure that: working conditions are safe; workers are treated with respect and dignity; and manufacturing processes are environmentally responsible. • Produced systems responsibly by offering tool trade-in, refurbishment and technology upgrade programs; • Provided corporate matching for employee donations to qualified nonprofit organizations; and • Engaged in community service projects in our communities globally.
We have established policies and practices to ensure that: working conditions are safe; workers are treated with respect and dignity; and manufacturing processes are environmentally responsible. • Produced systems responsibly by offering tool trade-in, refurbishment and technology upgrade programs; • Provided corporate matching for employee donations to qualified nonprofit organizations; and • Engaged in community service projects in our communities globally. 9 Table of Contents Compliance with Governmental Regulations We are subject to international, federal, state and local regulations that are customary to businesses in the semiconductor capital equipment manufacturing industry.
“Advanced Nodes” refers to leading-edge ICs where the sizes of transistors and other features continue to shrink. Advanced nodes are associated with transistor dimensions less than 16 nanometers (nm).
“Advanced nodes” refers to leading-edge ICs where the sizes of transistors and other features continue to shrink. Advanced nodes are associated with transistor dimensions less than 10 nanometers (nm), with the most advanced logic devices now in production using 3nm and soon 2nm transistor dimensions.
Documents that are not available through the SEC’s website may also be obtained by submitting an online request to the SEC at http://www.sec.gov.
All filings we make with the SEC are also available free of charge via EDGAR through the SEC’s website at http://www.sec.gov. These filings may also be obtained through the SEC’s website. Documents that are not available through the SEC’s website may also be obtained by submitting an online request to the SEC at http://www.sec.gov.
Using Discover ® yield management software, the vast amounts of data gathered through automated inspection can be analyzed and classified to determine trends and locate root causes that directly affect yield. Automated Defect Classification and Pattern Analysis .
These high-speed tools incorporate features such as wafer-less recipe creation, tool-to-tool correlation and multiple inspection resolutions. Using Discover ® yield management software, the vast amounts of data gathered through automated inspection can be analyzed and classified to determine trends and locate root causes that directly affect yield. Automated Defect Classification and Pattern Analysis .
The information on our website is not incorporated into this Form 10-K.
Available Information Our Internet website address is http://www.ontoinnovation.com. The information on our website is not incorporated into this Form 10-K.
Industrial, Scientific, and Research Markets ― 4D Technology ® . The 4D business offers a line of interferometry systems for the measurement and inspection of high precision surfaces. End markets include high precision optics surfaces and components, aerospace and defense components, and unique research and scientific instrumentation that requires the unique high-speed results of the 4D systems.
Industrial, Scientific, and Research Markets ― 4D Technology ® . The 4D business offers a line of interferometry systems for the measurement and inspection of high precision surfaces.
Our materials characterization products include systems that are used to monitor the physical, optical, and material characteristics of discrete electronic industry, opto-electronic, HB-LED (high brightness LEDs), solar PV (solar photovoltaics), compound semiconductor, strained silicon and silicon-on-insulator (“SOI”) devices, including composition, crystal structure, layer thickness, dopant concentration, contamination and electron mobility. 4 Table of Contents We have a broad portfolio of products for materials characterization including photoluminescence mapping and Fourier Transform Infrared (“FTIR”) spectroscope in automated and manual systems for substrate quality and epitaxial thickness metrology.
For instance, it is critical that the wafer backside be free of defects prior to the EUV lithography process to prevent focus and exposure problems on the wafer frontside. 4 Table of Contents Our materials characterization products include systems that are used to monitor the physical, optical, and material characteristics of discrete electronic industry, opto-electronic, HB-LED (high brightness LEDs), solar PV (solar photovoltaics), compound semiconductor, strained silicon and silicon-on-insulator (“SOI”) devices, including composition, crystal structure, layer thickness, dopant concentration, contamination and electron mobility.
For more information, please see “Part I, Item IA - Risk Factors - If we do not manage our supply chain effectively, our operating results may be adversely affected, and any increases in material, labor, supplier, logistics and other operating costs, or supply chain delays and shortages, could lower our margins or result in lost sales”.
For more information, please see “Part I, Item IA - Risk Factors - If we do not manage our supply chain effectively, our operating results may be adversely affected, and any increases in material, labor, supplier, logistics and other operating costs, or supply chain delays and shortages, could lower our margins or result in lost sales”. 7 Table of Contents Research and Development We continue to invest in research and development to provide our customers with products that add value to their manufacturing processes and that provide a better and differentiated solution than our competitors so that our products stay in the forefront of current and future market demands.
For additional discussion of the impact of trade policies and export regulations on our competitive position, see “Part I, Item IA - Risk Factors - Tariffs, export regulations, and other market barriers have impacted and may continue to impact our ability to compete for the business of domestic customers in China and other jurisdictions, and our results of operations.” Available Information Our Internet website address is http://www.ontoinnovation.com.
For additional discussion of the impact of trade policies and export regulations on our competitive position, see “Part I, Item IA - Risk Factors - Tariffs, export regulations, and other market barriers have impacted and may continue to impact our ability to compete for the business of domestic customers in China and other jurisdictions, and our results of operations.” We expect that the new U.S. presidential administration will seek to implement a regulatory reform agenda that is significantly different than that of the prior administration, which may impact agency rulemaking and enforcement priorities, which could, in turn, have a material effect on our business.
Field-established tools such as the F30™, NSX ® , Firefly ® , and the latest Dragonfly ® G3 inspection systems are found in the wafer fab (front-end) and packaging (back-end) facilities around the world. These high-speed tools incorporate features such as wafer-less recipe creation, tool-to-tool correlation and multiple inspection resolutions.
Chip manufacturers deploy advanced macro defect inspection throughout the production line to monitor key process steps, gather process-enhancing information and ultimately, lower manufacturing costs. Field-established tools such as the F30™, NSX ® , Firefly ® , and the latest Dragonfly ® G3 inspection systems are found in the wafer fab (front-end) and packaging (back-end) facilities around the world.
We support a diverse customer base in terms of both geographic location and type of device manufactured. Our customers are located in over 28 countries. The following chart identifies our customers that represented 10% or more of total revenue for each of the last three fiscal years: 2023 2022 2021 Samsung Semiconductor * * * Taiwan Semiconductor Manufacturing Co.
We support a diverse customer base in terms of both geographic location and type of device manufactured. Our customers are located in over 24 countries.
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For instance, it is critical that the wafer backside be free of defects prior to the EUV lithography process to prevent focus and exposure problems on the wafer frontside.
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The growth in artificial intelligence (AI) based applications has generated significant demand and new technology requirements in the advanced node segment, including for both logic and memory devices.
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The NanoSpec ® line supports thin film measurement across all applications in both low volume production and research applications. Macro Defect Inspection . Chip manufacturers deploy advanced macro defect inspection throughout the production line to monitor key process steps, gather process-enhancing information and ultimately, lower manufacturing costs.
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Recently, the growth in AI applications has generated significant demand and new technology requirements in the advanced packaging segment at both the wafer process and panel process levels. ​ Panel Substrate Manufacturing . One current process to manufacture advanced packaging involves attaching known good die to a 300mm wafer.
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Ltd. * * * SK Hynix Inc. ^ * ^ * The customer accounted for 10% or more of total revenue during the period. ^ The customer accounted for less than 10% of total revenue during the period.
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We have a broad portfolio of products for materials characterization including photoluminescence mapping and Fourier Transform Infrared (“FTIR”) spectroscope in automated and manual systems for substrate quality and epitaxial thickness metrology. The NanoSpec ® line supports thin film measurement across all applications in both low volume production and research applications. Macro Defect Inspection .
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Research and Development We continue to invest in research and development to provide our customers with products that add value to their manufacturing processes and that provide a better and differentiated solution than our competitors so that our products stay in the forefront of current and future market demands.
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End markets include high precision optics surfaces and components, aerospace and defense components, and unique research and scientific instrumentation that requires the unique high-speed results of the 4D systems. 5 Table of Contents Advanced Packaging Lithography .
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We encourage you to review our 2022 ESG Report (located on our website at https://ontoinnovation.com/company/environmental-social-governance) for more detailed information regarding our ESG initiatives. Nothing on our website, including our ESG Report or sections thereof, is deemed incorporated by reference into this Form 10-K.
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Compliance with Governmental Regulations We are subject to international, federal, state and local regulations that are customary to businesses in the semiconductor capital equipment manufacturing industry.
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All filings we make with the SEC are also available free of charge via EDGAR through the SEC’s website at http://www.sec.gov. In addition, the historic reports and materials that were filed by Nanometrics and Rudolph with the SEC are available at our investor relations website at https://investors.ontoinnovation.com. These filings may also be obtained through the SEC’s website.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

73 edited+16 added−9 removed181 unchanged
Biggest changeDeterioration in the tariff environment, political instability or changes in suppliers may cause our costs to increase and, if we are not able to offset the increased costs by charging higher sales prices, will cause a decline in our margins. To improve margins on our products, we would need to negotiate price reductions with our vendors.
Biggest changeDeterioration in the tariff environment such as discussed herein under the heading “Tariffs, export regulations, and other market barriers have impacted and may continue to impact our ability to compete for the business of domestic customers in China and other jurisdictions, which has adversely affected and may continue to adversely affect our, business, financial condition and results of operations,” political instability or changes in suppliers may cause our costs to increase and, if we are not able to offset the increased costs by charging higher sales prices, will cause a decline in our margins.
Risks Related to Intellectual Property and Data Security • We may fail to adequately protect our intellectual property and, therefore, lose our competitive advantage. • Protection of our intellectual property rights, or the efforts of third parties to enforce their own intellectual property rights against us, may result in costly and time-consuming litigation, substantial damages, lost product sales and/or the loss of important intellectual property rights. 11 Table of Contents • If our network security measures are breached and unauthorized access is obtained to a customer’s data, to our data, or to our information technology systems, we may incur significant legal and financial exposure and liabilities and may experience disruptions in our operations. • Compliance with data protection laws may be costly and may impede development of new products, and any failure to comply with, or inquiries under, these laws could have a material adverse effect on our business, results of operations and financial condition.
Risks Related to Intellectual Property and Data Security • We may fail to adequately protect our intellectual property and, therefore, lose our competitive advantage. 11 Table of Contents • Protection of our intellectual property rights, or the efforts of third parties to enforce their own intellectual property rights against us, may result in costly and time-consuming litigation, substantial damages, lost product sales and/or the loss of important intellectual property rights. • If our network security measures are breached and unauthorized access is obtained to a customer’s data, to our data, or to our information technology systems, we may incur significant legal and financial exposure and liabilities and may experience disruptions in our operations. • Compliance with data protection laws may be costly and may impede development of new products, and any failure to comply with, or inquiries under, these laws could have a material adverse effect on our business, results of operations and financial condition.
Compliance with data protection laws may be costly and may impede development of new products, and any failure to comply with, or inquiries under, these laws may could have a material adverse effect on our business, results of operations, and financial condition.
Compliance with data protection laws may be costly and may impede development of new products, and any failure to comply with, or inquiries under, these laws could have a material adverse effect on our business, results of operations, and financial condition.
Because the governments of these countries have provided extensive financial support to our semiconductor device manufacturing customers in these countries, we believe that our customers could be disproportionately affected by any trade embargoes, excise taxes, tariffs, or other restrictions imposed by their governments on trade with U.S. companies such as ourselves, particularly with respect to the ongoing tensions between the United States and China.
Because the governments of these countries have provided extensive financial support to our semiconductor device manufacturing customers in these countries, we believe that our customers could be disproportionately affected by any trade embargoes, excise taxes, tariffs, trade retaliation, or other restrictions imposed by their governments on trade with U.S. companies such as ourselves, particularly with respect to the ongoing tensions between the United States and China.
In addition, we source components for certain of our tools from a supplier in Israel. If the conflict in Israel and the surrounding area escalates, it could disrupt our supply chain, resulting in a material adverse impact on our business.
In addition, we source components for certain of our tools from a supplier in Israel. If the conflict in Israel and Gaza and the surrounding area escalates, it could disrupt our supply chain, resulting in a material adverse impact on our business.
Over the last several years, the U.S. government has significantly expanded export controls on certain technologies and commodities to certain markets, particularly with respect to semiconductor and other high technology exports to China. For example, the U.S.
Additionally, over the last several years, the U.S. government has significantly expanded export controls on certain technologies and commodities to certain markets, particularly with respect to semiconductor and other high technology exports to China. For example, the U.S.
Further, there are numerous risks associated with acquisitions and potential acquisitions, including, but not limited to: • diversion of management’s attention from day-to-day operational matters and current products and customers; • lack of synergy or the inability to successfully integrate the new business or to realize expected synergies; 25 Table of Contents • integration of acquired businesses and their operations, including enterprise resource planning systems, may be costly and time-consuming and divert resources away from other projects; • failure to commercialize the new technology or business; • failure to meet the expected performance of the new technology or business; • failure to retain key employees and customer or supplier relationships; • lower-than-expected market opportunities or market acceptance of any new products; and • unexpected reduction of sales of existing products as a result of the introduction of new products.
Further, there are numerous risks associated with acquisitions and potential acquisitions, including, but not limited to: • diversion of management’s attention from day-to-day operational matters and current products and customers; • lack of synergy or the inability to successfully integrate the new business or to realize expected synergies; • integration of acquired businesses and their operations, including enterprise resource planning systems, may be costly and time-consuming and divert resources away from other projects; • failure to commercialize the new technology or business; • failure to meet the expected performance of the new technology or business; • failure to retain key employees and customer or supplier relationships; • lower-than-expected market opportunities or market acceptance of any new products; and • unexpected reduction of sales of existing products as a result of the introduction of new products.
Competition for engineering and other technical personnel in some of the markets in which we operate is especially intense due to continued increases in the number of technology companies worldwide. In order to attract and retain executives and other key employees, we must provide a competitive compensation package, including cash and stock-based compensation.
Competition for engineering and other technical personnel in some of the markets in which we operate is especially intense due to continued increases in the number of technology companies worldwide. In order to attract and retain executives and other key employees, we must provide a competitive compensation package, including cash and share-based compensation.
Our profitability will decline if we fail to accurately forecast customer demand when managing inventory. • If we deliver systems with defects, our credibility will be harmed, and the sales and market acceptance of our systems will decrease. • Our integrated metrology systems are integrated with systems sold independently by wafer fabrication equipment suppliers, and a decrease in sales by these suppliers, or the development of competing systems by these suppliers, could harm our business. • We must attract and retain experienced senior executives and other key personnel with knowledge of semiconductor device manufacturing and inspection, metrology or lithography equipment and related software to help support our future growth, and competition for such personnel in our industry is high. • Any prolonged disruption in the operations of our manufacturing facilities could have a material adverse effect on our revenue. • We outsource select manufacturing activities to third-party service providers, which decreases our control over the performance of these functions, may result in lower quality and functionality of our products, and exposes us to additional supply chain risks. • Our ability to fulfill our backlog may have an effect on our long-term ability to procure contracts and fulfill current contracts.
Our profitability will decline if we fail to accurately forecast customer demand when managing inventory. • If we deliver systems with defects, our credibility will be harmed, and the sales and market acceptance of our systems will decrease. • Our integrated metrology systems are integrated with systems sold independently by wafer fabrication equipment suppliers, and a decrease in sales by these suppliers, or the development of competing systems by these suppliers, could harm our business. • We must attract and retain experienced senior executives and other key personnel with knowledge of semiconductor device manufacturing and inspection, metrology or lithography equipment and related software to help support our future growth, and competition for such personnel in our industry is high. • Any prolonged disruption in the operations of our manufacturing facilities could have a material adverse effect on our revenue. • We outsource select manufacturing activities to third-party service providers, which decreases our control over the performance of these functions, may result in lower quality and functionality of our products, and exposes us to additional supply chain risks. • Our ability to fulfill our backlog may have an effect on our long-term ability to procure contracts and fulfill current contracts. • We are implementing a new enterprise resource planning system.
If the anticipated value of our stock-based incentive awards does not materialize so that they cease to be viewed as valuable, if our profits decrease, or if our total compensation package is not viewed as competitive, our ability to attract, retain and motivate executives and key employees could be weakened.
If the anticipated value of our share-based incentive awards does not materialize so that they cease to be viewed as valuable, if our profits decrease, or if our total compensation package is not viewed as competitive, our ability to attract, retain and motivate executives and key employees could be weakened.
A failure by us, our suppliers, or other parties with whom we do business to comply with posted privacy policies or with other federal, state, or international privacy-related or data protection laws and regulations, including GDPR, CCPA, CPRA and other new or changing privacy laws and regulations, could result in proceedings against 19 Table of Contents us by governmental entities or others, which could have a material adverse effect on our business, results of operations, and financial condition.
A failure by us, our suppliers, or other parties with whom we do business to comply with posted privacy policies or with other federal, state, or international privacy-related or data protection laws and regulations, including GDPR, CCPA, CPRA and other new or changing privacy laws and regulations, could result in proceedings against us by governmental entities or others, which could have a material adverse effect on our business, results of operations, and financial condition.
Adverse economic conditions, such as sustained periods of economic uncertainty or a crisis in the financial markets may have a material adverse effect on our liquidity and financial condition if our ability to obtain credit from the capital financial markets, or from trade creditors was impaired.
Adverse economic conditions, such as sustained periods of economic uncertainty or a crisis in the financial markets may have a material adverse effect on our liquidity and financial condition if our ability to obtain credit from the capital financial markets, or from trade creditors is impaired.
Price reductions or lost sales as a result of these competitive pressures would reduce our total revenue and could adversely impact our financial results. Because of the high cost of switching equipment vendors in our markets, it is sometimes difficult for us to win new customers from our competitors even if our systems are superior to theirs.
Price reductions or lost sales as a result of these competitive pressures would reduce our total revenue and could adversely impact our financial results. 20 Table of Contents Because of the high cost of switching equipment vendors in our markets, it is sometimes difficult for us to win new customers from our competitors even if our systems are superior to theirs.
For example, we are or expect to become subject to various new or proposed climate-related and other sustainability laws and regulations, including, for example, the state of California’s new climate change disclosure requirements, the EU’s new Corporate Sustainability Reporting Directive and proposed climate-change disclosure requirements from the SEC.
For example, we are, or may become subject to various new or proposed climate-related and other sustainability laws and regulations, including, for example, the state of California’s new climate change disclosure requirements, the EU’s new Corporate Sustainability Reporting Directive and proposed climate-change disclosure requirements from the SEC.
We principally compete with KLA, Nova, Camtek, Ushio, Canon, and PDF Solutions. Each of our products also competes with products that use different metrology, inspection or lithography techniques. Some of our competitors have greater financial, engineering, manufacturing and marketing resources, broader product offerings and service capabilities and larger installed customer bases than we do.
We principally compete with KLA, Nova, Camtek, Ushio, Canon, GigaVis Co. Ltd. and PDF Solutions. Each of our products also competes with products that use different metrology, inspection or lithography techniques. Some of our competitors have greater financial, engineering, manufacturing and marketing resources, broader product offerings and service capabilities and larger installed customer bases than we do.
Similarly, if the conflict in Israel and the surrounding area escalates further, it could result in disruptions to our supply chain and/or the operations of our customers in a manner that reduces demand for our products.
Similarly, if the conflict in Israel and Gaza and the surrounding area escalates, it could result in disruptions to our supply chain and/or the operations of our customers in a manner that reduces demand for our products.
If banks and financial institutions with whom we have banking relationships enter receivership or become insolvent in the future, we may be unable to access, and we may lose, some or all of our existing cash, cash equivalents and investments to the extent those funds are not insured or otherwise protected by the FDIC.
If banks and 24 Table of Contents financial institutions with whom we have banking relationships enter receivership or become insolvent in the future, we may be unable to access, and we may lose, some or all of our existing cash, cash equivalents and investments to the extent those funds are not insured or otherwise protected by the FDIC.
Any such occurrence may have a material adverse impact on our gross margins and business, financial position, results of operations and cash flows. 13 Table of Contents Variations in the amount of time it takes for us to sell our systems may cause fluctuations in our operating results, which could cause our stock price to decline.
Any such occurrence may have a material adverse impact on our gross margins and business, financial position, results of operations and cash flows. Variations in the amount of time it takes for us to sell our systems may cause fluctuations in our operating results, which could cause our stock price to decline.
In addition, these export controls may also reduce overall global demand for our customers’ products or for other products produced or manufactured in the U.S. or based on U.S. technology, in turn reducing demand for our products, which could have a material adverse effect on our business, financial condition and results of operations.
In addition, these export controls may also reduce overall global demand for our customers’ products or for other products 21 Table of Contents produced or manufactured in the U.S. or based on U.S. technology, in turn reducing demand for our products, which could have a material adverse effect on our business, financial condition and results of operations.
Any or all of the above issues could negatively affect our ability to attract new customers, cause existing customers to choose to purchase from our competitors, result in reputational damage or subject us to third-party lawsuits, regulatory fines or other action or liability, which could adversely affect our operating results.
Any or all of the above issues could negatively affect our ability to attract new customers, cause 19 Table of Contents existing customers to choose to purchase from our competitors, result in reputational damage or subject us to third-party lawsuits, regulatory fines or other action or liability, which could adversely affect our operating results.
In addition, the patents that we do own or that have been issued or licensed to us may not provide us with competitive advantages and/or may be invalidated, enforceable and/or challenged by third parties. Third parties may also design around our patents or copy our patented inventions without our knowledge.
In addition, the patents that we do own or that have been issued or licensed to us may not provide us with competitive advantages and/or may be invalidated, rendered unenforceable and/or challenged by third parties. Third parties may also design around our patents or copy our patented inventions without our knowledge.
Factors affecting our stock price may include: • variations in operating results from quarter to quarter; • changes in earnings estimates by analysts or our failure to meet analysts’ expectations; • changes in the market price per share of our public company customers; • market conditions in the semiconductor and other industries into which we sell products; • general economic conditions; • political changes, hostilities or natural disasters such as hurricanes and floods; • the impact of infectious disease pandemics, on the global economy and on our customers, suppliers, employees, and business; • low trading volume of our common stock; and • the number of firms making a market in our common stock. 27 Table of Contents In addition, the stock market has experienced periods of significant price and volume fluctuations.
Factors affecting our stock price may include: • variations in operating results from quarter to quarter; • changes in earnings estimates by analysts or our failure to meet analysts’ expectations; • changes in the market price per share of our public company customers; • market conditions in the semiconductor and other industries into which we sell products; • general economic conditions; • political changes, hostilities or natural disasters such as hurricanes and floods; • the impact of infectious disease pandemics, on the global economy and on our customers, suppliers, employees, and business; 27 Table of Contents • low trading volume of our common stock; and • the number of firms making a market in our common stock.
Also, similar worldwide anti-bribery laws, such as the U.K. Bribery Act and Chinese anti-corruption laws, generally prohibit companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business.
Also, similar worldwide anti-bribery laws, such as the U.K. Bribery Act and Chinese anti-corruption laws, generally prohibit companies and their intermediaries from 23 Table of Contents making improper payments to non-U.S. officials for the purpose of obtaining or retaining business.
If this occurs, it could be easier for our competitors to develop and sell competing products in these countries. Accordingly, infringement of our intellectual property rights poses a serious risk to our ability to conduct business.
If 18 Table of Contents this occurs, it could be easier for our competitors to develop and sell competing products in these countries. Accordingly, infringement of our intellectual property rights poses a serious risk to our ability to conduct business.
We cannot provide any assurance that we will be successful in consummating future acquisitions on favorable terms or that we will realize the benefits that we anticipate from one or more acquisitions that we consummate. Integrating any business, product, technology or service into our current operations could be expensive and time-consuming and/or disrupt our ongoing business.
We cannot provide any assurance that we will be successful in consummating future acquisitions on favorable terms or that we will realize the benefits that we anticipate from one or more acquisitions that we consummate. Integrating any business, product, technology or service into our current operations could be expensive and 25 Table of Contents time-consuming and/or disrupt our ongoing business.
We may experience difficulties or delays in our development efforts with respect to new systems, and we may not ultimately be successful in our product enhancement efforts to improve and advance products or in responding effectively to technological change, as not all research and development activities result in viable commercial 16 Table of Contents products.
We may experience difficulties or delays in our development efforts with respect to new systems, and we may not ultimately be successful in our product enhancement efforts to improve and advance products or in responding effectively to technological change, as not all research and development activities result in viable commercial products.
Any of our pending patent applications 17 Table of Contents may be rejected, however, and we may be unable to develop additional proprietary technology that is patentable in the future.
Any of our pending patent applications may be rejected, however, and we may be unable to develop additional proprietary technology that is patentable in the future.
Any prolonged disruption in the operations of our manufacturing facilities could have a material adverse effect on our revenue. We produce the majority of our systems in our manufacturing facilities located in Wilmington, Massachusetts, Milpitas, California and Bloomington, Minnesota. We also use contract manufacturers in China, Japan and the United States.
Any prolonged disruption in the operations of our manufacturing facilities could have a material adverse effect on our revenue. We produce the majority of our systems in our manufacturing facilities in the following locations: Wilmington, Massachusetts; Milpitas, California; Tucson, Arizona; and Bloomington, Minnesota. We also use contract manufacturers in China, Japan and the United States.
In October 2023, the DoC revised and expanded the 2022 export controls. The effect of these changes, among others, is that Onto Innovation is required to conduct additional end-use diligence and in some instances obtain export licenses before providing products to certain customers.
In October 2023, as well as 2024 and early 2025, the DoC revised and expanded the 2022 export controls. The effect of these changes, among others, is that Onto Innovation is required to conduct additional end-use diligence and in some instances obtain export licenses before providing products to certain customers.
However, if the Russia-Ukraine or Israel-Hamas conflicts escalate further and/or the U.S. or other jurisdictions impose additional sanctions on the governments or entities involved, this could result in disruptions to the global economy and/or supply chains that could adversely affect our business.
However, if the Russia-Ukraine conflict and/or the conflicts in Israel and Gaza and the surrounding area escalate further, and/or the U.S. or other jurisdictions impose additional sanctions on the governments or entities involved, this could result in disruptions to the global economy and/or supply chains that could adversely affect our business.
Many countries and organizations such as the Organization for Economic Cooperation and Development are also actively considering changes to existing tax laws or have proposed or enacted new laws that could increase our tax obligations in countries where we do business or cause us to change the way we operate our business.
Many countries and organizations, such as the Organization for Economic Cooperation and Development (“OECD”), which is discussed further below, are also actively considering changes to existing tax laws or have proposed or enacted new laws that could increase our tax obligations in countries where we do business or cause us to change the way we operate our business.
Operating costs have increased and may continue to increase further as a result of supply chain disruptions in connection with the sourcing of components, materials, equipment, engineering support, and services, labor shortages, high inflation rates, and cost increases attributable to the COVID-19 pandemic and the effects of the Russia-Ukraine conflict.
Operating costs have increased and may continue to increase further as a result of supply chain disruptions in connection with the sourcing of components, materials, equipment, engineering support, and services, labor shortages, high inflation rates, and cost increases attributable to the effects of geopolitical events, such as the Russia-Ukraine conflict.
Additionally, if we are consistently unable to fulfill our backlog, this may be a disincentive to customers to award large contracts to us in the future until they are comfortable that we can effectively manage our backlog.
Additionally, if we are consistently unable to fulfill our backlog, this may be a disincentive to customers to award large contracts to us in the future until they are comfortable that we can effectively manage our backlog. We are implementing a new enterprise resource planning system.
The COVID-19 pandemic exposed our business, results of operations, and financial condition to the following adverse impacts: disruptions to our supply chain in connection with the sourcing of materials, support, and services; disruption 22 Table of Contents of operations due to unavailability of employees as a result of illness, travel restrictions and other factors; and a decrease in demand for our products; Additional sustained or prolonged outbreaks of COVID-19, or any ongoing, worsening or recurring supply chain disruptions or macroeconomic effects of the pandemic could have a material adverse effect on our business, results of operations, legal exposure, or financial condition and may also heighten many of the other risks described in this “Risk Factors” section.
A public health crisis could expose our business, results of operations, and financial condition to the following adverse impacts: disruptions to our supply chain in connection with the sourcing of materials, support, and services; disruption of operations due to unavailability of employees as a result of illness, travel restrictions and other factors; and a decrease in demand for our products; Additional sustained or prolonged public health crises, or any ongoing, worsening or recurring supply chain disruptions or macroeconomic effects of such crises could have a material adverse effect on our business, results of operations, legal exposure, or financial condition and may also heighten many of the other risks described in this “Risk Factors” section.
Our future annual and quarterly tax rates could be affected by 23 Table of Contents numerous factors, including changes in the (1) applicable tax laws; (2) composition of earnings in countries with differing tax rates; or (3) recoverability of our deferred tax assets and liabilities. Beginning in 2022, the U.S.
Our future annual and quarterly tax rates could be affected by numerous factors, including changes in the (1) applicable tax laws; (2) composition of earnings in countries with differing tax rates; or (3) recoverability of our deferred tax assets and liabilities.
As discussed herein under the heading “Tariffs, export regulations, and other market barriers have impacted and may continue to impact both our ability to compete for the business of domestic customers in China and our results of operations,” the U.S. government issued new export control rules in 2022 and 2023 aimed at restricting China’s access to semiconductor equipment and advanced computing technology, among other things.
As discussed herein under the heading “Tariffs, export regulations, and other market barriers have impacted and may continue to impact our ability to compete for the business of domestic customers in China and other jurisdictions, which has adversely affected and may continue to adversely affect our, business, financial condition and results of operations,” the U.S. government issued new export control rules between 2022 and 2025 aimed at restricting China’s access to semiconductor equipment and advanced computing technology, among other things.
Our systems are complex and have occasionally contained errors, defects and bugs when introduced. Defects may be created during probing, bumping, dicing or general handling, and can have a major impact on device and process quality. When this occurs, our credibility and the market acceptance and sales of our systems could be harmed.
If we deliver systems with defects, our credibility will be harmed, and the sales and market acceptance of our systems will decrease. Our systems are complex and have occasionally contained errors, defects and bugs when introduced. Defects may be created during probing, bumping, dicing or general handling, and can have a major impact on device and process quality.
As the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, our ability to anticipate these techniques or to implement adequate preventative measures is reduced.
Cyber-attacks and other malicious internet-based activities continue to increase. As the techniques used to obtain unauthorized access or sabotage systems change frequently and generally are not identified until they are launched against a target, our ability to anticipate these techniques or to implement adequate preventative measures is reduced.
These fluctuations have particularly affected the market prices of the securities of high technology companies like ours. Any such market fluctuations in the future could adversely affect the market price of our common stock.
In addition, the stock market has experienced periods of significant price and volume fluctuations. These fluctuations have particularly affected the market prices of the securities of high technology companies like ours. Any such market fluctuations in the future could adversely affect the market price of our common stock.
But we cannot be certain that we will be able to do so in a timely manner, or at all. Failure to achieve the desired level of cost reductions could adversely affect our financial results.
To improve margins on our products, we would need to negotiate price reductions with our vendors. But we cannot be certain that we will be able to do so in a timely manner, or at all. Failure to achieve the desired level of cost reductions could adversely affect our financial results.
We can provide no assurance that these objectives can be met in a timely manner in response to industry cycles, and we cannot predict when and to what extent sales may normalize, or when and to what extent gross margins may improve, following any such occurrence. If we fail to respond to industry cycles, our business could be seriously harmed.
We can provide no assurance that these objectives can be met in a timely manner in response to industry cycles, and we cannot predict when and to what extent sales may normalize, or when 26 Table of Contents and to what extent gross margins may improve, following any such occurrence.
We may also experience supplier or customer issues as a result of adverse macroeconomic conditions. If our customers have difficulties in obtaining capital or financing, this could result in lower sales. Customers with liquidity issues could also 26 Table of Contents result in an increase in bad debt expense.
If we fail to respond to industry cycles, our business could be seriously harmed. We may also experience supplier or customer issues as a result of adverse macroeconomic conditions. If our customers have difficulties in obtaining capital or financing, this could result in lower sales. Customers with liquidity issues could also result in an increase in bad debt expense.
Depending on the final form of guidance adopted by OECD members and legislation ultimately enacted, if any, there may be significant consequences for us due to our international business activities, including, but not limited to, an increase in our tax uncertainty and adverse effects on our provision for income taxes.
Depending on the final form of legislation ultimately enacted, there may be significant consequences for us due to our international business activities, including, but not limited to, an increase in our tax uncertainty and adverse effects on our provision for income taxes. The U.S. presidential administration has directed the U.S.
In December 2021, the Organization for Economic Co-operation and Development (“OECD”), released guidance covering various topics, including country-by-country reporting, definitional changes to permanent establishment and Base Erosion and Profit Shifting (“BEPS”), an initiative that aims to standardize and modernize global tax policy. The proposed guidance also established a global minimum tax of 15%.
The OECD has released guidance covering various topics, including country-by-country reporting, definitional changes to permanent establishment and Base Erosion and Profit Shifting (“BEPS”), an initiative that aims to standardize and modernize global tax policy. The guidance also established a global minimum tax of 15%.
The extent to which the economic effects of the COVID-19 pandemic could continue to impact our business, results of operations, and financial conditions is difficult to predict and depends on numerous evolving factors including any future resurgences of the pandemic and the intensity and duration of any resulting adverse macroeconomic conditions.
The extent to which the economic effects of a public health crisis could impact our business, results of operations, and financial conditions are difficult to predict, and depend on numerous evolving factors including any future resurgences of the public health crisis and the intensity and duration of any resulting adverse macroeconomic conditions.
We may also divert sales and marketing resources from our current systems in order to successfully launch and promote our new or next generation systems. This diversion of resources could have a further negative effect on sales of our current systems and the value of inventory.
Competition from our new systems could have a negative effect on sales of our existing systems and the prices that we could charge for these systems. We may also divert sales and marketing resources from our current systems in order to successfully launch and promote our new or next generation systems.
Any material increase in our inventories could result in an adverse effect on our financial position, while any material decrease in our ability to procure needed inventories could result in an inability to supply customer demand for our products, thus adversely affecting our revenue. 14 Table of Contents If we deliver systems with defects, our credibility will be harmed, and the sales and market acceptance of our systems will decrease.
Any material increase in our inventories could result in an adverse effect on our financial position, while any material decrease in our ability 14 Table of Contents to procure needed inventories could result in an inability to supply customer demand for our products, thus adversely affecting our revenue.
Further, we hold inventory of products that may be affected by these recent U.S. government actions, including potential order cancellations. If the sale of these products is delayed or we are unable to return or dispose of our inventory on favorable economic terms, we may incur additional carrying costs for the inventory or otherwise record charges associated with this inventory.
If the sale of these products is delayed or we are unable to return or dispose of our inventory on favorable economic terms, we may incur additional carrying costs for the inventory or otherwise record charges associated with this inventory.
Our business may also be affected by public health issues (for example, an outbreak of a contagious disease such as COVID-19, avian influenza, measles or Ebola).
Our business may also be affected by public health issues (for example, an outbreak of a contagious disease such as COVID-19, avian influenza, measles or Ebola). The effects of a public health crisis may affect our operations and those of our suppliers, third-party service providers, and customers.
Further, if our systems contain errors, defects or bugs, computer viruses or malicious code as a result of cyber-attacks to our computer networks, we may be required to expend significant capital and resources to alleviate these problems. Defects could also lead to product liability as a result of product liability lawsuits against us or against our customers.
When this occurs, our credibility and the market acceptance and sales of our systems could be harmed. Further, if our systems contain errors, defects or bugs, computer viruses or malicious code as a result of cyber-attacks to our computer networks, we may be required to expend significant capital and resources to alleviate these problems.
The effect of these types of events on our revenue and cash flows could be material because we derive substantial revenue from sales to semiconductor device foundries in Taiwan such as Taiwan Semiconductor Manufacturing Company Ltd., from memory chip manufacturers in South Korea such as Samsung Electronics Co., Ltd., and from semiconductor device manufacturers in Japan such as Toshiba Corporation.
The effect of these types of events on our revenue and cash flows could be material because we derive substantial revenue from sales to semiconductor device foundries in Taiwan such as Taiwan Semiconductor Manufacturing Company Ltd., from memory chip manufacturers in South Korea such as Samsung Electronics Co., Ltd., and from semiconductor device manufacturers in Japan such as Toshiba Corporation. 22 Table of Contents Natural disasters, changes in climate, public health crises, and geo-political conflicts could materially adversely affect our worldwide operations (or those of our business partners).
In the event of a successful product liability claim, we could be obligated to pay damages significantly in excess of our product liability insurance limits.
Our product liability insurance policy currently provides both aggregate coverage as well as an overall umbrella coverage. In the event of a successful product liability claim, we could be obligated to pay damages significantly in excess of our product liability insurance limits.
Our efforts to mitigate any cost increases, labor impacts and supply chain delays and shortages may not be successful, and we cannot predict the duration of these current trends or other future increases in operating costs.
Further, a significant increase in the price of one or more of these components or subassemblies could seriously harm our results of operations and cash flows. 13 Table of Contents Our efforts to mitigate any cost increases, labor impacts and supply chain delays and shortages may not be successful, and we cannot predict the duration of these current trends or other future increases in operating costs.
In order to anticipate these trends and ensure that critical development projects proceed in a coordinated manner, we must continue to collaborate closely with our largest customers. Our relationships with these and other customers provide us with access to valuable information regarding trends in the semiconductor device industry, which enables us to better plan our product development activities.
Our relationships with these and other customers provide us with access to valuable information regarding trends in the semiconductor device industry, which enables us to better plan our product development activities.
We have agreed to indemnify our customers under certain circumstances against liability arising from defects in our systems provided that we also include a cap on our liability in the related sales agreements. Our product liability insurance policy currently provides both aggregate coverage as well as an overall umbrella coverage.
Defects could also lead to product liability as a result of product liability lawsuits against us or against our customers. We have agreed to indemnify our customers under certain circumstances against liability arising from defects in our systems provided that we also include a cap on our liability in the related sales agreements.
In addition, a worsening economy or an economic crisis could also adversely impact our customers’ ability to finance the purchase of systems from us or our suppliers’ ability to provide us with product, either of which may negatively impact our business and results of operations. 24 Table of Contents We are subject to various environmental laws and regulations that could impose substantial costs upon us, and failure to comply with such laws and regulations may harm our business, operating results and financial condition.
In addition, a worsening economy or an economic crisis could also adversely impact our customers’ ability to finance the purchase of systems from us or our suppliers’ ability to provide us with product, either of which may negatively impact our business and results of operations.
Compliance with such laws and regulations, as well as the overall increased focus and scrutiny from the SEC and other regulators, investors, customers, vendors, employees, and other stakeholders concerning environmental, social and governance (“ESG”) and climate matters, could impose additional costs on us.
Compliance with such laws and regulations, as well as any increased focus or scrutiny from the SEC and other regulators, investors, customers, vendors, employees, and other stakeholders concerning sustainability and climate matters, could impose additional costs on us. We may unintentionally violate environmental laws or regulations in the future as a result of human error, equipment failure or other causes.
We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.
In addition, we are subject to regular examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.
In addition, recent proposals to increase the U.S. corporate income tax rate, increase U.S. taxation of international business operations and impose a global minimum tax could have a negative impact on our tax position depending upon the terms of the final enacted legislation.
In addition, any changes to U.S. and global corporate income tax laws, including increasing U.S. taxation of international business operations and imposing a global minimum tax could have a negative impact on our tax position in the future.
Any of these developments or changes in federal, state, or international tax laws or tax rulings could adversely affect our effective tax rate and our results of operations. In addition, we are subject to regular examination of our income tax returns by the Internal Revenue Service and other tax authorities.
Any of these developments or changes in federal, state, or international tax laws or tax rulings could adversely affect our effective tax rate and our results of operations.
If we are unable to accurately predict our component needs, or if our component supply is disrupted, we may miss market opportunities by not being able to meet the demand for our systems. Further, a significant increase in the price of one or more of these components or subassemblies could seriously harm our results of operations and cash flows.
If we are unable to accurately predict our component needs, or if our component supply is disrupted, we may miss market opportunities by not being able to meet the demand for our systems.
We have limited visibility into our customers’ inventories, future customer demand and the product mix that our customers will require, which could adversely affect our production forecasts and operating margins. Certain of our customers have publicly stated their intent to decrease their memory product inventory levels as lead time for components begins to decrease.
We have limited visibility into our customers’ inventories, future customer demand and the product mix that our customers will require, which could adversely affect our production forecasts and operating margins. In addition, innovation in our industry could render significant portions of our inventory obsolete.
Risks Related to Growth and Acquisitions • We may choose to acquire new and complementary businesses, products or technologies instead of developing them ourselves, and we may be unable to complete these acquisitions or may not be able to successfully integrate an acquired business in a cost-effective and non-disruptive manner. • If we cannot effectively manage growth, our business may suffer.
Risks Related to Growth and Acquisitions • We may choose to acquire new and complementary businesses, products or technologies instead of developing them ourselves, and we may be unable to complete these acquisitions or may not be able to successfully integrate an acquired business in a cost-effective and non-disruptive manner. • If we cannot effectively manage growth, our business may suffer. 12 Table of Contents Risks Related to the Global Economy and the Semiconductor Industry • Cyclicality in the semiconductor device industry has led to substantial decreases in demand for our systems in the past and may, from time to time, continue to do so. • Our future rate of growth is highly dependent on the development and growth of the market for microelectronic device inspection, lithography and metrology equipment.
Our business is subject to risks inherent in doing business internationally, including compliance with, inconsistencies among, and unexpected changes in, a wide variety of foreign laws and regulatory environments, including, among other issues, with respect to employees, protection of our intellectual property, and a wide variety of operational regulations and trade and export controls under domestic, foreign, and international law. 21 Table of Contents We are faced with various risks that may be associated with our compliance with existing, new, different, inconsistent or conflicting laws, regulations and rules enacted by governments and/or their regulatory agencies in the countries in which we operate as well as rules and policies implemented at our customer sites.
Our business is subject to risks inherent in doing business internationally, including compliance with, inconsistencies among, and unexpected changes in, a wide variety of foreign laws and regulatory environments, including, among other issues, with respect to employees, protection of our intellectual property, and a wide variety of operational regulations and trade and export controls under domestic, foreign, and international law.
Accordingly, the loss of an intellectual property dispute could hinder our ability to sell our products or systems or make the sale of our products or systems more expensive, which could lead to reduced revenue or lower margins, respectively. 18 Table of Contents If our network security measures are breached and unauthorized access is obtained to a customer’s data, to our data, or to our information technology systems, we may incur significant legal and financial exposure and liabilities and may experience disruptions in our operations.
If our network security measures are breached and unauthorized access is obtained to a customer’s data, to our data, or to our information technology systems, we may incur significant legal and financial exposure and liabilities and may experience disruptions in our operations.
If we do not achieve market acceptance of new products, we may be unable to generate sufficient revenue and cash flow to recover our research and development costs and may experience a write down of our investments in inventory. As a result, our market share, revenue, operating results or stock price could be negatively impacted.
Since our customers are not obligated by long-term contracts to purchase our systems, our anticipated product orders may not materialize, or orders that are placed may be canceled. 17 Table of Contents If we do not achieve market acceptance of new products, we may be unable to generate sufficient revenue and cash flow to recover our research and development costs and may experience a write down of our investments in inventory.
Accordingly, unless our systems offer performance or cost advantages that outweigh a customer’s expense of switching to our systems, it will be difficult for us to achieve significant sales to that manufacturer once it has selected another vendor’s capital equipment for an application. 20 Table of Contents Risks Related to Our International Operations Tariffs, export regulations, and other market barriers have impacted and may continue to impact our ability to compete for the business of domestic customers in China and other jurisdictions, which has adversely affected and may continue to adversely affect our, business, financial condition and results of operations.
Risks Related to Our International Operations Tariffs, export regulations, and other market barriers have impacted and may continue to impact our ability to compete for the business of domestic customers in China and other jurisdictions, which has adversely affected and may continue to adversely affect our, business, financial condition and results of operations.
Risks Related to Our Customers Our largest customers account for a substantial portion of our revenue, and our revenue and cash flows could decline considerably if one or more of these customers were to purchase significantly fewer of our systems or delay or cancel a large order.
Additionally, if we do not effectively implement the ERP system as planned or the system does not operate as intended, the effectiveness of our internal control over financial reporting could be adversely affected or our ability to assess it adequately could be delayed. 16 Table of Contents Risks Related to Our Customers Our largest customers account for a substantial portion of our revenue, and our revenue and cash flows could decline considerably if one or more of these customers were to purchase significantly fewer of our systems or delay or cancel a large order.
It is possible that the U.S. government will impose additional export controls on our products or systems, which could lead to further revenue losses. Such changes could result in additional restrictions on our ability to sell products to customers in China and other jurisdictions.
It is possible that the U.S. government will impose additional export controls on our products or systems, which could lead to further revenue losses. For example, it remains uncertain what changes, if any, the new U.S. presidential administration will make with respect to U.S. export control policy.
Even if we are able to develop new products that gain market acceptance, sales of these new products could impair our ability to sell existing products. Competition from our new systems could have a negative effect on sales of our existing systems and the prices that we could charge for these systems.
As a result, our market share, revenue, operating results or stock price could be negatively impacted. Even if we are able to develop new products that gain market acceptance, sales of these new products could impair our ability to sell existing products.
If our relationships with our large customers deteriorate, our product development activities could be adversely affected. The success of our product development efforts depends on our ability to anticipate market trends and the price, performance and functionality requirements of semiconductor device manufacturers.
The success of our product development efforts depends on our ability to anticipate market trends and the price, performance and functionality requirements of semiconductor device manufacturers. In order to anticipate these trends and ensure that critical development projects proceed in a coordinated manner, we must continue to collaborate closely with our largest customers.
Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminated the existing option to deduct research and development expenditures and requires taxpayers to amortize them over five years pursuant to IRC Section 174. Although Congress is considering legislation that would defer the amortization requirement to later years, we have no assurance that the provision will be repealed or otherwise modified.
Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminated the existing option to deduct research and development expenditures and requires taxpayers to amortize them over five years pursuant to IRC Section 174. The requirement reduced our cash flows for 2022, 2023 and 2024, and may continue to reduce our cash flows.
In addition, any licenses that are granted to us or to our customers may have a short duration or require us to satisfy various conditions. Any of these occurrences could have a material adverse effect on our revenues, business, financial condition and results of operations.
In addition, any licenses that are granted to us or to our customers may have a short duration or require us to satisfy various conditions, and it is possible that licenses that have been granted may be revoked or we may not be successful in obtaining reissuance of such licenses upon their expiration or in the event modifications are required to a previously issued license.
Removed
Risks Related to the Global Economy and the Semiconductor Industry • Cyclicality in the semiconductor device industry has led to substantial decreases in demand for our systems in the past and may, from time to time, continue to do so. 12 Table of Contents • Our future rate of growth is highly dependent on the development and growth of the market for microelectronic device inspection, lithography and metrology equipment.
Added
Our failure to implement it successfully, on time and on budget could have a material adverse effect on us.
Removed
This has and could continue to result in a temporary decrease in demand for our products as customers delay capacity expansions until inventory levels are sufficiently reduced. In addition, innovation in our industry could render significant portions of our inventory obsolete.
Added
Our failure to implement it successfully, on time and on budget could have a material adverse effect on us. We are in the process of completing a multi-year implementation of a complex new enterprise resource planning (“ERP”) system. ERP implementations are complex, time-consuming, labor intensive, and involve substantial expenditures on system software and implementation activities.
Removed
Since our customers are not obligated by long-term contracts to purchase our systems, our anticipated product orders may not materialize, or orders that are placed may be canceled.
Added
The ERP system is critical to our ability to provide important information to our management, obtain and deliver products, provide services and customer support, send invoices and track payments, fulfill contractual obligations, accurately maintain books and records, provide accurate, timely and reliable reports on our financial and operating results, and otherwise operate our business.
Removed
Cyber-attacks and other malicious internet-based activities continue to increase. The Russia–Ukraine conflict and related sanctions imposed by the U.S. government may expose government entities and public and private U.S. companies to attempted or actual cybersecurity attacks launched in retaliation, and these attacks could materially disrupt our supply chain or our systems and operations or those of our customers and suppliers.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

8 edited+2 added−1 removed12 unchanged
Biggest changeAs of the date of this Form 10-K, no risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition.
Biggest changeThroughout the year, the IT department conducts phishing campaigns and other simulated hacking attacks with employees as a way of reminding them of their security obligations and ensuing that our SETA (security education and training awareness) has been effective. 28 Table of Contents As of the date of this Form 10-K, no risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition.
Cybersecurity Governance The Company’s Board of Directors has oversight of information security matters at the Company, including reviewing the Company’s cybersecurity practices. At least annually, the Vice President of IT presents the Company’s information security policies and programs to the Board. Our Audit Committee is tasked with overseeing the risks from cybersecurity threats.
Cybersecurity Governance The Company’s Board of Directors has oversight of information security matters at the Company, including reviewing the Company’s cybersecurity practices. At least annually, the Vice President of IT presents the Company’s information security policies and programs to the Board . Our Audit Committee is tasked with overseeing risks from cybersecurity threats.
Our team of cybersecurity professionals then collaborate with technical and business stakeholders across our business units to further analyze the risk to the company, and form detection, mitigation and remediation strategies. As part of the above processes, we regularly engage external auditors and subject matter experts to assess our internal cybersecurity programs and compliance with applicable practices and standards.
Our team of cybersecurity professionals then collaborates with technical and business stakeholders across our business units to further analyze the risk to the Company, and form detection, mitigation and remediation strategies. As part of the above processes, we regularly engage external auditors and subject matter experts to assess our internal cybersecurity programs and compliance with applicable practices and standards.
For more information on the cybersecurity risks we face that could adversely impact us, please see “Part I, Item IA - Risk Factors - If our network security measures are breached and unauthorized access is obtained to a customer’s data, to our data, 28 Table of Contents or to our information technology systems, we may incur significant legal and financial exposure and liabilities and may experience disruptions in our operations”.
For more information on the cybersecurity risks we face that could adversely impact us, please see “Part I, Item IA - Risk Factors - If our network security measures are breached and unauthorized access is obtained to a customer’s data, to our data, or to our information technology systems, we may incur significant legal and financial exposure and liabilities and may experience disruptions in our operations”.
The Cybersecurity Disclosure Committee is tasked with evaluating whether such incidents have material impact on the Company, and thus require disclosure, as well as any other actions that may be appropriate in response to the incident.
The CDC is tasked with evaluating whether such incidents have material impact on the Company, and thus require disclosure, as well as any other actions that may be appropriate in response to the incident.
To defend, detect and respond to cybersecurity incidents, we, among other things: conduct proactive cybersecurity reviews of systems and applications, perform penetration testing using external third-party tools and techniques to test security controls, conduct employee training, monitor emerging laws and regulations related to data protection and information security and implement appropriate changes.
To defend, detect and respond to cybersecurity incidents, we, among other things: conduct proactive cybersecurity reviews of systems and applications, perform penetration testing using external third-party tools and techniques to test security controls, conduct employee training, utilize an expert third party to continuously monitor and respond to possible threats, monitor emerging laws and regulations related to data protection and information security and implement appropriate changes.
The CDC promptly notifies the Audit Committee if it determines that an incident is likely to have a material impact on the Company and updates the Audit Committee on a quarterly basis of any incidents that it determined were not material. The Vice President of IT acts as our head of information security in leading our information security organization.
The CDC promptly notifies the Audit Committee if it determines that an incident is likely to have a material impact on the Company and updates the Audit Committee on a quarterly basis of any incidents that it has evaluated and determined were not material.
Our VP of IT has over 20 years of industry experience, including serving in similar roles leading and overseeing cybersecurity programs at other public companies. Team members who support our information security program have relevant educational and industry experience, including holding similar positions at large technology companies. 29 Table of Contents
Team members who support our information security program have relevant educational and industry experience, including holding similar positions at other technology companies. 29 Table of Contents
Removed
Throughout the year, the IT department conducts phishing campaigns and other simulated hacking attacks with employees as a way of reminding them of their security obligations and ensuing that our SETA (security education and training awareness) has been effective.
Added
We regularly collaborate with leading security providers, industry groups, and industry peers to exchange information on trends and best practices to address new and evolving cybersecurity risks.
Added
The Vice President of IT acts as our head of information security in leading our information security organization. Our Vice President of IT has over 25 years of industry experience leading large technology organizations, including, most recently, as the leader of the IT organization at a large privately held company.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeLocation Facility Purpose Approximate Square Footage Wilmington, Massachusetts Corporate Headquarters, Engineering, Manufacturing and Service 77,500 Milpitas, California Engineering, Manufacturing, Service and Administration 134,600 Budd Lake, New Jersey Engineering, Service and Administration 49,000 Bloomington, Minnesota Engineering, Manufacturing, Service and Administration 98,700 Bend, Oregon Engineering and Service 12,700 Hillsboro, Oregon Engineering and Service 10,000 Snoqualmie, Washington Engineering and Service 20,300 Tucson, Arizona Engineering, Manufacturing and Service 18,900 Taiwan Sales and Service 37,600 China Sales, Service and Engineering 26,200 South Korea Sales and Service 29,200 Japan Sales and Service 14,000 Singapore Sales and Service 9,800 We also lease office space for other smaller sales and service offices in several locations throughout the world.
Biggest changeLocation Facility Purpose Approximate Square Footage Wilmington, Massachusetts Corporate Headquarters, Engineering, Manufacturing and Service 77,500 Milpitas, California Engineering, Manufacturing, Service and Administration 134,600 Budd Lake, New Jersey Engineering, Service and Administration 48,900 Bloomington, Minnesota Engineering, Manufacturing, Service and Administration 98,700 Bend, Oregon Engineering and Service 12,700 Hillsboro, Oregon Engineering and Service 10,000 Snoqualmie, Washington Engineering and Service 20,300 Tucson, Arizona Engineering, Manufacturing and Service 18,900 Taiwan Sales and Service 38,600 China Sales, Service and Engineering 26,700 South Korea Sales and Service 29,200 Japan Sales and Service 13,300 Singapore Sales and Service 9,800 We also lease office space for other smaller sales and service offices in several locations throughout the world.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table provides details of common stock purchased during the three-month period ended December 30, 2023 (in thousands, except per share data): Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program October 1, 2023 - October 30, 2023 2 $ 121.77 — $ 31,577 October 31, 2023 - November 30, 2023 1 $ 133.33 — $ 31,577 December 1, 2023 - December 30, 2023 — $ — — $ 31,577 Three Months Ended December 30, 2023 3 — 1 Includes shares withheld through net share settlements.
Biggest changeThe following table provides details of common stock purchased during the three-month period ended December 28, 2024: Period Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in thousands, except for per share data) September 29, 2024 - October 28, 2024 2 $ 205.36 — $ 200,000 October 29, 2024 - November 28, 2024 158 $ 159.21 157 $ 174,935 November 29, 2024 - December 28, 2024 1 $ 166.29 — $ 174,935 Three Months Ended December 28, 2024 161 157 1 Includes shares withheld through net share settlements.
The graph assumes that $100 was invested on December 31, 2018 in the Company’s common stock and in each index. Stockholder returns over the indicated period should not be considered indicative of future stockholder returns. Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved.
The graph assumes that $100 was invested on December 31, 2019 in the Company’s common stock and in each index. Stockholder returns over the indicated period should not be considered indicative of future stockholder returns. Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common stock, $0.01 par value per share, is quoted on the New York Stock Exchange (“NYSE”) under the symbol “ONTO.” As of February 5, 2024, there were approximately 106 stockholders of record.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common stock, $0.01 par value per share, is quoted on the New York Stock Exchange (“NYSE”) under the symbol “ONTO.” As of February 3, 2024, there were approximately 88 stockholders of record.
In addition to our share repurchase program, we withhold common stock shares associated with net share settlements to cover tax withholding obligations upon the vesting of restricted stock unit awards under the Company’s equity incentive program. During the three and twelve months ended December 30, 2023, we withheld 3 thousand and 125 thousand shares through net share settlements, respectively.
In addition to our share repurchase program, we withhold common stock shares associated with net share settlements to cover tax withholding obligations upon the vesting of restricted stock unit awards under the Company’s equity incentive program. During the three and twelve months ended December 28, 2024, we withheld 3 thousand and 102 thousand shares through net share settlements, respectively.
In November 2020, the Onto Innovation Board of Directors approved a share repurchase authorization, which allows us to repurchase up to $100 million worth of shares of our common stock. Repurchases may be made through both public market 31 Table of Contents and private transactions from time to time with shares purchased being subsequently retired.
In February 2024, the Onto Innovation Board of Directors approved a share repurchase authorization, which allows us to repurchase up to $200 million worth of shares of our common stock. Repurchases may be made through both public market and private transactions from time to time with shares purchased being subsequently retired.
For the three and twelve month periods ended December 30, 2023, net share settlements cost $0.4 million and $10.8 million, respectively. Please refer to Note 10 of the Notes to the Consolidated Financial Statements included in this Form 10-K for further discussion regarding our equity incentive plan.
For the three and twelve month periods ended December 28, 2024, net share settlements cost $0.6 million and $19.1 million, respectively. Please refer to Note 11 of the Notes to the Consolidated Financial Statements included in this Form 10-K for further discussion regarding our equity incentive plan.
During the twelve months ended December 30, 2023, we repurchased 46 thousand shares of our common stock. The amount paid to repurchase the shares in excess of par value, including transaction costs, is recorded directly as a decrease to additional paid-in capital and accumulated earnings.
During the three and twelve months ended December 28, 2024, we repurchased 157 thousand shares of our common stock under this repurchase authorization. The amount paid to repurchase the shares in excess of par value, including transaction costs, is recorded directly as a decrease to additional paid-in capital and accumulated earnings.
At December 30, 2023, there was $31.6 million available for future share repurchases under the share repurchase authorization. For further information, see Note 16 in the accompanying Notes to the Consolidated Financial Statements included in this Form 10-K.
At December 28, 2024, there was $174.9 million available for future share repurchases under the share repurchase authorization. 31 Table of Contents For further information, see Note 17 in the accompanying Notes to the Consolidated Financial Statements included in this Form 10-K.
Prior to the 2019 Merger, Nanometrics’ common stock was quoted on the Nasdaq Global Select Market under the symbol “NANO” and Rudolph’s common stock was quoted on the NYSE under the symbol “RTEC.” Set forth below is a line graph comparing the annual percentage change in the cumulative return to the stockholders of the Company’s common stock with the cumulative return of the NYSE Composite Index and an industry specific index, the PHLX Semiconductor Index, for the period commencing on December 31, 2018 and ending on December 31, 2023.
Set forth below is a line graph comparing the annual percentage change in the cumulative return to the stockholders of the Company’s common stock with the cumulative return of the NYSE Composite Index and an industry specific index, the PHLX Semiconductor Index, for the period commencing on December 31, 2019 and ending on December 31, 2024.
Copyright 1980-2024. 12/18 12/19 12/20 12/21 12/22 12/23 Onto Innovation Inc. 100.0 133.7 173.9 370.3 249.0 559.1 NYSE Composite 100.0 125.5 134.3 162.0 146.9 167.1 PHLX Semiconductor 100.0 163.3 250.9 358.4 233.4 389.7 We have never declared or paid a cash dividend on our common stock and we currently do not intend to do so.
Copyright 1980-2024. 12/19 12/20 12/21 12/22 12/23 12/24 Onto Innovation Inc. 100.0 130.1 277.0 186.3 418.2 455.8 NYSE Composite 100.0 107.0 129.1 117.0 133.2 154.2 PHLX Semiconductor 100.0 153.7 219.5 142.9 238.7 287.3 We have never declared or paid a cash dividend on our common stock and we currently do not intend to do so.
Removed
On October 25, 2019, we became Onto Innovation Inc. upon the effectiveness of the merger (the “2019 Merger”) between Nanometrics Incorporated (“Nanometrics”) and Rudolph Technologies, Inc. (“Rudolph”).
Removed
Historical data for Onto Innovation in the line graph for the period commencing on December 31, 2018 and ending on October 25, 2019 reflects the cumulative return to the stockholders of Nanometrics.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

51 edited+15 added−7 removed36 unchanged
Biggest changeOur future effective income tax rate depends on various factors, such as 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 acquisitions and research and development credits as a percentage of aggregate pre-tax income. 36 Table of Contents Liquidity and Capital Resources Our cash, cash equivalents and marketable securities consist of the following: Year Ended December 30, December 31, 2023 2022 Cash and cash equivalents $ 233,508 $ 175,872 Marketable securities 464,303 371,912 Total cash, cash equivalents and marketable securities $ 697,811 $ 547,784 Sources and Uses of Cash A summary of cash provided by (used in) operating, investing, and financing activities is as follows: Year Ended December 30, December 31, January 1, 2023 2022 2022 Cash provided by operating activities $ 171,973 $ 136,703 $ 175,281 Cash used in investing activities $ (103,387 ) $ (55,691 ) $ (141,793 ) Cash (used in) provided by financing activities $ (9,475 ) $ (68,350 ) $ 2,670 Operating Activities Cash provided by operating activities during fiscal 2023 was $172.0 million, which reflects net income, adjusted to exclude the effect of non-cash operating charges, of $204.5 million.
Biggest changeLiquidity and Capital Resources Our cash, cash equivalents and marketable securities consist of the following: Year Ended December 28, December 30, 2024 2023 (in thousands) Cash and cash equivalents $ 212,945 $ 233,508 Marketable securities 639,383 464,303 Total cash, cash equivalents and marketable securities $ 852,328 $ 697,811 Sources and Uses of Cash A summary of cash provided by (used in) operating, investing, and financing activities is as follows: Year Ended December 28, December 30, December 31, 2024 2023 2022 (in thousands) Cash provided by operating activities $ 245,676 $ 171,973 $ 136,703 Cash used in investing activities $ (226,547 ) $ (103,387 ) $ (55,691 ) Cash used in financing activities $ (35,673 ) $ (9,475 ) $ (68,350 ) Operating Activities Cash provided by operating activities during fiscal 2024 was $245.7 million, which reflects net income, adjusted to exclude the effect of non-cash operating charges, of $290.2 million.
Critical Accounting Policies and Estimates Management’s discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements included in this Form 10-K, which have been prepared in accordance with accounting principles generally accepted in the United States.
Critical Accounting Estimates Management’s discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements included in this Form 10-K, which have been prepared in accordance with accounting principles generally accepted in the United States.
The year-over-year dollar decrease from 2022 through 2023 was primarily due to a decrease in total compensation costs of $1.5 million on lower headcount and variable compensation plan elements, a decrease in outside service expenses of $0.8 million and a decrease in depreciation expense of $0.7 million, partially offset by an increase in travel expenses of $0.3 million.
The year-over-year dollar decrease from 2022 through 2023 was primarily due to a decrease in total compensation costs of $1.5 million on lower headcount and variable compensation plan elements, a decrease in outside service expenses of $0.8 million and a decrease in depreciation expense of $0.7 million, partially offset by an increase in travel expenses of $0.3 million. • General and Administrative .
Long-Lived Assets. Goodwill is tested for impairment during the fourth quarter, or whenever events or 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.
Indefinite-Lived and Long-Lived Assets. Goodwill is tested for impairment during the fourth quarter, or whenever events or 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.
We maintain reserves for our excess and obsolete inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future product lifecycles, product demand and market conditions. If actual product lifecycles, product demand and market conditions are less favorable than those originally projected by management, additional inventory write-downs may be required.
We maintain reserves for our excess and obsolete inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future product lifecycles, product demand and market conditions. 39 Table of Contents If actual product lifecycles, product demand and market conditions are less favorable than those originally projected by management, additional inventory write-downs may be required.
This decline was partially offset by an increase in units shipped of our inspection and lithography product lines to customers in specialty devices and advanced packaging applications. Parts and services revenue is generated from part sales, maintenance service contracts, and system upgrades, as well as time and material billable service calls.
This decline was partially offset by an increase in units shipped of our inspection and lithography product lines to customers in specialty devices and advanced packaging applications. Parts and services revenue is generated 34 Table of Contents from part sales, maintenance service contracts, and system upgrades, as well as time and material billable service calls.
We expect that our existing cash, cash 37 Table of Contents equivalents, marketable securities and availability under our line of credit will be sufficient to meet our anticipated cash requirements for working capital, capital expenditures and other cash needs for the next 12 months following the filing of this Form 10-Q.
We expect that our existing cash, cash equivalents, marketable securities and availability under our line of credit will be sufficient to meet our anticipated cash requirements for working capital, capital expenditures and other cash needs for the next 12 months following the filing of this Form 10-Q.
We continue to maintain our commitment to investing in new product development and enhancement to existing products. • Sales and Marketing . Sales and marketing expenses are primarily comprised of salaries and related costs for sales and marketing personnel, as well as commissions and other non-personnel related expenses.
We continue to maintain our commitment to investing in new product development and enhancement to existing products. 35 Table of Contents • Sales and Marketing . Sales and marketing expenses are primarily comprised of salaries and related costs for sales and marketing personnel, as well as commissions and other non-personnel related expenses.
We use an 38 Table of Contents observable price to determine the standalone selling price for separate performance obligations or a cost-plus margin approach when one is not available. Revenue from software licenses, which is primarily sold without systems, is recognized upfront at the point in time when the software is made available to the customer.
We use an observable price to determine the standalone selling price for separate performance obligations or a cost-plus margin approach when one is not available. Revenue from software licenses, which is primarily sold without systems, is recognized upfront at the point in time when the software is made available to the customer.
Such a change in 39 Table of Contents recognition or measurement could result in the recognition of a tax benefit or an additional charge to the tax provision in the period.
Such a change in recognition or measurement could result in the recognition of a tax benefit or an additional charge to the tax provision in the period. 40 Table of Contents
The year-over-year dollar increase from 2022 through 2023 was primarily due increased litigation expenses of $7.4 million, restructuring charges of $3.6 million for employee severance costs during the 2023 period, an increase in depreciation expense of $1.9 million and an increase in facilities expenses of $0.4 million.
The year-over-year dollar increase from 2022 through 2023 was primarily due increased litigation expenses of $7.4 million, restructuring charges of $3.6 million for employee severance costs during the 2023 period, an increase in depreciation expense of $1.9 million and an increase in facilities expenses of $0.4 million. • Amortization of Identifiable Intangible Assets .
The income tax provision differs from the federal statutory income tax rate of 21% for 2022 primarily due to a benefit related to the Foreign Derived Intangible Income Deduction (“FDII”) of $25.4 million, excess benefits related to stock compensation of $3.5 million, tax benefits for research and development credits of $7.1 million, and a one-time benefit of $1.5 million related to the recognition of a tax benefit associated with the lapse of a statute of limitations.
The income tax provision differs from the federal statutory income tax rate of 21% for 2022 primarily due to a benefit related to the FDII of $25.4 million, excess benefits related to stock compensation of $3.5 million, tax benefits for research and development credits of $7.1 million, and a one-time benefit of $1.5 million related to the recognition of a tax benefit associated with the lapse of a statute of limitations.
Research and development expenditures consist primarily of salaries and related expenses of employees engaged in research, design and development activities. They also include consulting fees, the cost of related supplies and legal costs to defend our intellectual property. Our research and development expenses were $104.4 million, $112.0 million and $96.1 million in fiscal years 2023, 2022 and 2021, respectively.
Research and development expenditures consist primarily of salaries and related expenses of employees engaged in research, design and development activities. They also include consulting fees, the cost of related supplies and legal costs to defend our intellectual property. Our research and development expenses were $116.8 million, $104.4 million and $112.0 million in fiscal years 2024, 2023 and 2022, respectively.
Contractual Obligations The following table summarizes our significant contractual obligations at December 30, 2023, and the effect such obligations are expected to have on our liquidity and cash flows in future periods. We are currently unable to provide a reasonably reliable estimate of the amount or periods when cash settlement of this liability may occur (dollars in thousands).
Contractual Obligations The following table summarizes our significant contractual obligations at December 28, 2024, and the effect such obligations are expected to have on our liquidity and cash flows in future periods. We are currently unable to provide a reasonably reliable estimate of the amount or periods when cash settlement of this liability may occur.
Interest income, net . In fiscal years 2023, 2022 and 2021, net interest income was $20.4 million, $5.0 million and $1.2 million, respectively. The increases in net interest income from 2022 to 2023 and from 2021 to 2022 were due to higher average balances and higher interest rates during both the 2023 and 2022 periods, respectively. Income taxes.
In fiscal years 2024, 2023 and 2022, net interest income was $33.5 million, $20.4 million and $5.0 million, respectively. The increases in net interest income from 2023 to 2024 and from 2022 to 2023 were due to higher average balances and higher interest rates during both the 2024 and 2023 periods, respectively. Income taxes.
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.
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 decrease in gross profit as a percentage of revenue from 2022 to 2023 was primarily due to decreased revenue volume, unfavorable product mix, and increased manufacturing costs due to inflationary pressures during the 2023 fiscal period.
The decrease in gross profit as a percentage of revenue from 2022 to 2023 was primarily due to decreased revenue volume, unfavorable product mix, and increased manufacturing costs due to inflationary pressures during the 2023 fiscal period. Operating Expenses. Our operating expenses consist of: • Research and Development .
General and administrative expenses are primarily comprised of salaries and related costs for general administrative personnel, as well as other non-personnel related expenses. Our general and administrative expenses were $83.1 million, $69.6 million and $68.0 million in fiscal years 2023, 2022 and 2021, respectively.
General and administrative expenses are primarily comprised of salaries and related costs for general administrative personnel, as well as other non-personnel related expenses. Our general and administrative expenses were $85.8 million, $83.1 million and $69.6 million in fiscal years 2024, 2023 and 2022, respectively.
Year Ended December 30, 2023 December 31, 2022 January 1, 2022 Revenue 100.0 % 100.0 % 100.0 % Cost of revenue 48.5 % 46.4 % 45.6 % Gross profit 51.5 % 53.6 % 54.4 % Operating expenses: Research and development 12.7 % 11.2 % 12.2 % Sales and marketing 7.6 % 6.5 % 7.3 % General and administrative 10.2 % 6.9 % 8.6 % Amortization 6.7 % 5.5 % 6.5 % Total operating expenses 37.2 % 30.1 % 34.6 % Operating income 14.3 % 23.5 % 19.8 % Interest income, net 2.5 % 0.5 % 0.1 % Other expense, net (0.5 )% — % (0.2 )% Income before provision for income taxes 16.3 % 24.0 % 19.7 % Provision for income taxes 1.4 % 1.8 % 1.7 % Net income 14.9 % 22.2 % 18.0 % Results of Operations for 2023, 2022 and 2021 Revenue .
Year Ended December 28, 2024 December 30, 2023 December 31, 2022 Revenue 100.0 % 100.0 % 100.0 % Cost of revenue 47.8 % 48.5 % 46.4 % Gross profit 52.2 % 51.5 % 53.6 % Operating expenses: Research and development 11.8 % 12.7 % 11.2 % Sales and marketing 7.7 % 7.6 % 6.5 % General and administrative 8.7 % 10.2 % 6.9 % Amortization 5.0 % 6.7 % 5.5 % Total operating expenses 33.2 % 37.2 % 30.1 % Operating income 19.0 % 14.3 % 23.5 % Interest income, net 3.4 % 2.5 % 0.5 % Other expense, net — % (0.5 )% — % Income before provision for income taxes 22.4 % 16.3 % 24.0 % Provision for income taxes 1.9 % 1.4 % 1.8 % Net income 20.5 % 14.9 % 22.2 % Results of Operations for 2024, 2023 and 2022 Revenue .
Payments for contingent consideration for acquired business were $0.8 million and $2.3 million in fiscal 2023 and 2022. There were no payments for contingent consideration for acquired business in fiscal 2021. We have a credit agreement with a bank that provides for a line of credit that is secured by the marketable securities we have with the bank.
Payments for contingent consideration for acquired business were $0.7 million, $0.8 million and $2.3 million in fiscal 2024, 2023 and 2022. 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.
Our principal market is semiconductor capital equipment. Semiconductors packaged as integrated circuits (“ICs”), or “chips”, are used in consumer electronics, server and enterprise systems, mobile computing (including smart phones and tablets), data storage devices, and embedded automotive and control systems.
Our principal market is semiconductor capital equipment. Semiconductors packaged as ICs, or “chips,” are used in consumer electronics, server and enterprise systems, mobile computing (including smart phones and tablets), data storage devices, and embedded automotive and control systems.
Our sales and marketing expenses were $61.8 million, $65.7 million and $57.2 million in fiscal years 2023, 2022 and 2021, respectively.
Our sales and marketing expenses were $76.2 million, $61.8 million and $65.7 million in fiscal years 2024, 2023 and 2022, respectively.
Our revenue is derived from the sale of our systems and software, spare parts, and services. Our revenue was $815.9 million, $1,005.2 million and $788.9 million for the years ended December 30, 2023, December 31, 2022 and January 1, 2022, respectively. This represents a decrease of 18.8% from 2022 to 2023 and an increase of 27.4% from 2021 to 2022.
Our revenue is derived from the sale of our systems and software, spare parts, and services. Our revenue was $987.3 million, $815.9 million and $1,005.2 million for the years ended December 28, 2024, December 30, 2023 and December 31, 2022, respectively. This represents an increase of 21.0% from 2023 to 2024 and a decrease of 18.8% from 2022 to 2023.
We are permitted to borrow up to 70% of the value of eligible securities held at the time the line of credit is accessed. As of December 30, 2023, the available line of credit was approximately $100.0 million with an available interest rate of 7.0%.
We are permitted to borrow up to 70% of the value of eligible securities held at the time the line of credit is accessed, up to a maximum of $100 million. As of December 28, 2024, the available line of credit was approximately $100.0 million with an available interest rate of 6.2%.
Our gross profit was $420.3 million, $539.2 million and $429.1 million for the years ended December 30, 2023, December 31, 2022, and January 1, 2022, respectively. Our gross profit represented 51.5%, 53.6% and 54.4% of our revenue for the years ended December 30, 2023, December 31, 2022, and January 1, 2022, respectively.
Our gross profit was $515.3 million, $420.3 million and $539.2 million for the years ended December 28, 2024, December 30, 2023, and December 31, 2022, respectively. Our gross profit represented 52.2%, 51.5% and 53.6% of our revenue for the years ended December 28, 2024, December 30, 2023, and December 31, 2022, respectively.
The following table sets forth, for the periods indicated, our revenue by geographic region as percentages of our revenue. 34 Table of Contents Year Ended December 30, 2023 December 31, 2022 January 1, 2022 Revenue $ 815,868 $ 1,005,183 $ 788,899 South Korea 21 % 22 % 20 % Taiwan 17 % 20 % 25 % China 17 % 25 % 19 % United States 16 % 12 % 16 % Japan 11 % 6 % 8 % Southeast Asia 11 % 7 % 4 % Europe 7 % 8 % 8 % Total revenue 100 % 100 % 100 % The overall Asia region continues to account for a majority of our revenues as a substantial amount of the worldwide capacity investments for semiconductor manufacturing continue to occur in this region and we expect that trend to continue.
Year Ended December 28, 2024 December 30, 2023 December 31, 2022 (in thousands, except for percentages) Revenue $ 987,321 $ 815,868 $ 1,005,183 Taiwan 31 % 17 % 20 % South Korea 29 % 21 % 22 % China 12 % 17 % 25 % United States 11 % 16 % 12 % Japan 6 % 11 % 6 % Southeast Asia 6 % 11 % 7 % Europe 5 % 7 % 8 % Total revenue 100 % 100 % 100 % The overall Asia region continues to account for a majority of our revenues as a substantial amount of the worldwide capacity investments for semiconductor manufacturing continue to occur in this region and we expect that trend to continue.
During fiscal 2023, the decrease in total parts and services revenue was primarily due to lower factory utilization by several of our customers resulting in a decline in their spare parts requirements.
During fiscal 2023, the decrease in total parts and services revenue was primarily due to lower factory utilization by several of our customers resulting in a decline in their spare parts requirements. The following table sets forth, for the periods indicated, our revenue by geographic region as percentages of our revenue.
Our cash, cash equivalents and marketable securities balance increased to $697.8 million at the end of fiscal 2023 compared to $547.8 million at the end of fiscal 2022.
Our cash, cash equivalents and marketable securities balance increased to $852.3 million at the end of fiscal 2024 from $697.8 million at the end of fiscal 2023.
We record contract liabilities when the customer has been billed in advance of completing our performance obligations. These amounts are recorded as deferred revenue in the Consolidated Balance Sheets. Inventory Valuation. Inventories are stated at the lower of cost or net realizable value.
We record contract liabilities when the customer has been billed in advance of completing our performance obligations. These amounts are recorded as deferred revenue in the Consolidated Balance Sheets. Business combinations.
Results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions. These estimates and judgments are regularly reviewed by management on an ongoing basis at the end of each quarter prior to the public release of our financial results. Management believes that the following are critical accounting estimates: Revenue Recognition.
These estimates and judgments are regularly reviewed by management on an ongoing basis at the end of each quarter prior to the public release of our financial results. 38 Table of Contents Management believes that the following are critical accounting estimates: Revenue Recognition.
The following table provides details of income tax (dollars in millions): Year Ended December 30, 2023 December 31, 2022 January 1, 2022 Income before provision for income taxes $ 132.6 $ 241.6 $ 155.7 Provision for income taxes $ 11.4 $ 18.3 $ 13.3 Effective tax rate 8.6 % 7.6 % 8.6 % The income tax provision differs from the federal statutory income tax rate of 21% for 2023 primarily due to a benefit related to the Foreign Derived Intangible Income Deduction (“FDII”) of $13.0 million, excess benefits related to stock compensation of $3.4 million, tax benefits for research and development credits of $6.4 million, and a one-time benefit of $1.6 million related to the recognition of a tax benefit associated with the lapse of a statute of limitations.
The following table provides details of income tax: Year Ended December 28, 2024 December 30, 2023 December 31, 2022 (in thousands, except for percentages) Income before provision for income taxes $ 220,447 $ 132,582 $ 241,584 Provision for income taxes $ 18,777 $ 11,423 $ 18,250 Effective tax rate 8.5 % 8.6 % 7.6 % The income tax provision differs from the federal statutory income tax rate of 21% for 2024 primarily due to a benefit related to the Foreign Derived Intangible Income Deduction (“FDII”) of $17.0 million, tax effect of share-based compensation of $6.9 million, tax benefits for research and development credits of $6.6 million, a decrease to the Company’s valuation allowance of $1.8 million, and a one-time benefit of $3.2 million related to the recognition of a tax benefit associated with the lapse of a statute of limitations.
Tax withholding payments for vested equity awards, partially offset by proceeds from sales of shares through share-based compensation plans were $5.5 million and $0.8 million for fiscal 2023 and 2022, respectively. In fiscal 2021 proceeds received from sales of shares through share-based compensation plans, partially offset by tax withholding payments for vested equity award, provided cash of $2.7 million.
Purchases of our common stock were $25.1 million, $3.2 million and $65.3 million in fiscal 2024, 2023 and 2022, respectively. Tax withholding payments for vested equity awards, partially offset by proceeds from sales of shares through share-based compensation plans were $9.9 million, $5.5 million and $0.8 million for fiscal 2024, 2023 and 2022, respectively.
Significant non-cash operating charges included depreciation, amortization, share-based compensation, provision for inventory valuation and deferred income taxes. Cash provided by operating activities in fiscal 2023 increased compared to fiscal 2022 primarily due to improved inventory management and lower income tax payments. Our working capital was $1,135.5 million at December 30, 2023 and $974.3 million at December 31, 2022.
Cash provided by operating activities in fiscal 2023 increased compared to fiscal 2022 primarily due to improved inventory management and lower income tax payments. Our working capital was $1,307.4 million at December 28, 2024 and $1,135.5 million at December 30, 2023.
The following table lists, for the periods indicated, the different sources of our revenue in dollars (thousands) and as percentages of our total revenue: Year Ended December 30, 2023 December 31, 2022 January 1, 2022 Systems and software $ 683,316 84 % $ 865,707 86 % $ 669,114 85 % Parts 74,604 9 % 84,266 8 % 72,753 9 % Services 57,948 7 % 55,210 6 % 47,032 6 % Total revenue $ 815,868 100 % $ 1,005,183 100 % $ 788,899 100 % Total systems and software revenue decreased $182.4 million for the year ended December 30, 2023, as compared to the year ended December 31, 2022, primarily due to a decrease in units shipped of our metrology product lines to customers in advanced nodes applications.
The following table lists, for the periods indicated, the different sources of our revenue in dollars (thousands) and as percentages of our total revenue: Year Ended December 28, 2024 December 30, 2023 December 31, 2022 (in thousands, except for percentages) Systems and software $ 850,443 86 % $ 683,316 84 % $ 865,707 86 % Parts 76,584 8 % 74,604 9 % 84,266 8 % Services 60,294 6 % 57,948 7 % 55,210 6 % Total revenue $ 987,321 100 % $ 815,868 100 % $ 1,005,183 100 % Total systems and software revenue increased $167.1 million for the year ended December 28, 2024, as compared to the year ended December 30, 2023, primarily due to an increase in units shipped of our inspection product line to customers in support of advanced packaging needs for chips used in AI applications.
The income tax provision differs from the federal statutory income tax rate of 21% for 2021 primarily due to a benefit related to the Foreign Derived Intangible Income Deduction (“FDII”) of $11.1 million, excess benefits related to stock compensation of $3.8 million, tax benefits for research and development credits of $3.6 million, tax benefit from foreign income being taxed at lower rates of $3.8 million, and a one-time benefit of $2.0 million from a reduction to recorded tax reserve related to a lapse of a statute of limitations.
The income tax provision differs from the federal statutory income tax rate of 21% for 2023 primarily due to a benefit related to the FDII of $13.0 million, excess benefits related to stock compensation of $3.4 million, tax benefits for research and development credits of $6.4 million, and a one-time benefit of $1.6 million related to the recognition of a tax benefit associated with the lapse of a statute of limitations.
During fiscal 2022, the increase in parts and services revenue was primarily due to increased spending by our customers on system upgrades and repairs of existing systems.
Parts and services revenue is generated from part sales, maintenance service contracts, and system upgrades, as well as time and material billable service calls. During fiscal 2024, the increase in total parts and services revenue was primarily due to increased spending by our customers on system upgrades and repairs of existing systems.
Investing Activities We used $103.4 million, $55.7 million and $141.8 million of cash in investing activities in fiscal 2023, 2022 and 2021, respectively. Capital expenditures, net of proceeds in fiscal 2023, 2022 and 2021 were $19.8 million, $18.4 million and $12.0 million. Capital expenditures were primarily for investments in facility improvements, demonstration and testing equipment, manufacturing and network equipment.
Investing Activities We used $226.5 million, $103.4 million and $55.7 million of cash in investing activities in fiscal 2024, 2023 and 2022, respectively. Capital expenditures, net of proceeds in fiscal 2024, 2023 and 2022 were $31.9 million, $19.8 million and $18.4 million.
The year-over-year dollar increase from 2021 through 2022 was primarily due to increased facilities expenses of $5.0 million, partially offset by a decrease of $3.8 million in depreciation expense. • Amortization of Identifiable Intangible Assets . Amortization of identifiable intangible assets, primarily purchased technology, was $54.8 million, $55.3 million and $51.4 million in fiscal years 2023, 2022 and 2021, respectively.
The year-over-year dollar increase from 2023 through 2024 was primarily due to increases in depreciation expense of $1.8 million and facilities expense of $1.4 million, partially offset by a decrease in freight and duty costs of $0.5 million.
The credit agreement is available to us until such time that either party terminates the arrangement at its discretion. To date, we have not utilized the line of credit. Our future capital requirements will depend on many factors, including the timing and amount of our revenue and our investment decisions, which will affect our ability to generate additional cash.
Our future capital requirements will depend on many factors, including the timing and amount of our revenue and our investment decisions, which will affect our ability to generate additional cash.
This increase was primarily the result of $172.0 million of cash generated from operating activities, partially offset by cash used for capital expenditures of $22.6 million and $10.8 million of cash used for tax payments related to net share settlement of employee stock-based compensation plans.
This increase was primarily the result of $245.7 million of cash generated from operating activities, partially offset by cash used for capital expenditures of $31.9 million, acquisitions of $26.8 million, purchases of common stock of $25.1 million and $19.0 million of cash used for tax payments related to net share settlement of employee stock-based compensation plans. 33 Table of Contents In recent years, the U.S. government implemented additional export regulations for U.S. semiconductor technology sold in China.
The following table summarizes certain key financial information for the periods indicated below (in thousands, except per share and percent data): Year Ended December 30, December 31, 2023 2022 Revenue $ 815,868 $ 1,005,183 Gross profit $ 420,254 $ 539,221 Gross profit as a percent of revenue 52 % 54 % Total operating expenses $ 304,176 $ 302,507 Net income $ 121,159 $ 223,334 Diluted earnings per share $ 2.46 $ 4.49 • In fiscal 2023, revenue decreased 19% compared to fiscal 2022, primarily due to a decrease in sales to memory and foundry customers in advanced nodes.
The following table summarizes certain key financial information for the periods indicated below: Year Ended December 28, December 30, 2024 2023 (in thousands, except for percentages and per share data) Revenue $ 987,321 $ 815,868 Gross profit $ 515,308 $ 420,254 Gross profit as a percent of revenue 52.2 % 51.5 % Total operating expenses $ 328,205 $ 304,176 Net income $ 201,670 $ 121,159 Diluted earnings per share $ 4.06 $ 2.46 • In fiscal 2024, revenue increased 21% compared to fiscal 2023, primarily due to an increase in sales in our inspection business of Dragonfly systems and other products in support of advanced packaging needs for chips used in Artificial Intelligence (AI) applications. • Gross profit as a percentage of revenue increased to 52.2% for fiscal 2024 compared to 51.5% for fiscal 2023.
Results of Operations The following table sets forth, for the periods indicated, our results of operations as percentages of our revenue. Our results of operations are reported as one business segment.
For a discussion of the risks related to our business and operations, see Part I, Item 1A – Risk Factors of this Annual Report on Form 10-K. Results of Operations The following table sets forth, for the periods indicated, our results of operations as percentages of our revenue. Our results of operations are reported as one business segment.
These benefits were partially offset by the inclusion of U.S. tax on foreign source income of $1.4 million and non-deductible officer’s compensation of $1.9 million.
These benefits were partially offset by non-deductible officer’s compensation of $3.4 million.
The year-over-year dollar increase from 2021 through 2022 was primarily due to higher compensation costs of $7.4 million for increased headcount and variable compensation costs, the write-off of purchased in process research and development assets of $4.6 million and increased costs related to new product initiatives of approximately $3.3 million.
The year-over-year dollar increase from 2023 through 2024 was primarily due to write-off of acquired in-process research and development of $4.0 million and increased compensation costs of $1.6 million, outside services costs of $3.3 million, product development costs of $1.9 million, travel costs of $0.6 million, research and development project costs of $0.5 million, freight and duty costs of $0.2 million and depreciation expenses of $0.2 million.
In 2022 and 2023, the United States government implemented additional export regulations for U.S. semiconductor technology sold in China. We have applied for export licenses to continue doing business with our customers that are affected by the new export rules.
We have applied for export licenses to continue doing business with our customers that are affected by the new export rules. However, the new export controls have resulted in lower net sales in China for fiscal 2024 compared to the prior fiscal years.
Purchases of marketable securities, net of proceeds from sales and maturities of marketable securities, for fiscal 2023, 2022 and 2021 was $83.6 million, $4.6 million and $23.8 million, respectively. Net cash paid for acquisitions in fiscal 2022 and 2021 were $4.6 million and $23.8 million, respectively. There were no acquisitions in fiscal 2023.
Net cash paid for acquisitions in fiscal 2024 and 2022 was $26.8 million and $4.6 million, respectively. There were no acquisitions in fiscal 2023. From time to time, we evaluate whether to acquire new or complementary businesses, products or technologies.
Total systems and software revenue increased $196.6 million for the year ended December 31, 2022, as compared to the year ended January 1, 2022, primarily due to an increase in overall demand for our products from semiconductor industry customers, particularly in advanced nodes applications, and specialty devices and advanced packaging.
Total systems and software revenue decreased $182.4 million for the year ended December 30, 2023, as compared to the year ended December 31, 2022, primarily due to a decrease in units shipped of our metrology product lines to customers in advanced nodes applications.
Payments due by period Total Less than 1 year 1-3 years 3-5 years More than 5 years Operating lease obligations $ 21,673 $ 5,929 $ 9,429 $ 5,192 $ 1,123 Purchase obligations (1) 437,105 426,087 11,018 — — Total $ 458,778 $ 432,016 $ 20,447 $ 5,192 $ 1,123 (1) Represents our agreements to purchase goods and services consisting of outstanding purchase orders for goods and services.
Payments due by period Total Less than 1 year 1-3 years 3-5 years More than 5 years (in thousands) Operating lease obligations $ 16,842 $ 6,095 $ 7,177 $ 3,570 $ — Purchase obligations (1) 438,193 243,932 194,261 — — Total $ 455,035 $ 250,027 $ 201,438 $ 3,570 $ — (1) Represents our agreements to purchase goods and services consisting of outstanding purchase orders for goods and services.
Financing Activities We used $9.5 million and $68.4 million of cash in financing activities for fiscal 2023 and 2022, respectively. Financing activities provided $2.7 million in fiscal 2021. Repurchases of common stock were $3.2 million and $65.3 million in fiscal 2023 and 2022, respectively. There were no repurchases of common stock in 2021.
We may fund all of or a portion of the price of these investments or acquisitions in cash, stock, or a combination of cash and stock. 37 Table of Contents Financing Activities We used $35.7 million, $9.5 million and $68.4 million of cash in financing activities for fiscal 2024, 2023 and 2022, respectively.
The year-over-year dollar decrease from 2022 through 2023 was primarily due to certain assets becoming fully amortized. The year-over-year dollar increase from 2021 through 2022 was primarily due to a full year of amortization being included in the 2022 fiscal period for in-process research and development that became classified as an identifiable intangible asset in the second half of 2021.
Amortization of identifiable intangible assets, primarily purchased technology, was $49.4 million, $54.8 million and $55.3 million in fiscal years 2024, 2023 and 2022, respectively. The consecutive year-over-year dollar decreases from 2022 through 2024 were primarily due to certain assets becoming fully amortized. Interest income, net .
The year-over-year dollar increase from 2021 through 2022 was primarily due to increased total compensation costs of $5.8 million for higher headcount and variable compensation plan costs. Higher travel related expenses of approximately $0.4 million contributed to the overall increase. 35 Table of Contents • General and Administrative .
The year-over-year dollar increase from 2023 through 2024 was primarily due to increases in total compensation costs of $13.0 million, travel costs of $0.7 million, outside services costs of $0.3 million, sales and marketing costs of $0.3 million and production expenses of $0.1 million.
Removed
The decreases were partially offset by increases in sales to wafer substrate, memory and discrete & specialty customers in specialty device and advanced packaging applications. • Gross profit as a percentage of revenue decreased to 52% for fiscal 2023 from 54% for fiscal 2022.
Added
This was primarily driven by an increase in volume and change in product mix, partially offset by write-downs related to the impairment and exit of certain lithography inventory in fiscal 2024. • The increase in operating expenses in fiscal 2024 compared to fiscal 2023 was primarily due to increases in research and development, and sales and marketing expenses related to increased headcount and compensation costs, project costs, travel expenses and write-off of purchased in process research and development assets.
Removed
This was primarily driven by decreased revenue volume, unfavorable product mix, and increased manufacturing costs due to inflationary pressures. • The increase in operating expenses in fiscal 2023 compared to fiscal 2022 was primarily due to higher general and administrative expenses related to litigation and restructuring charges which included reductions in workforce.
Added
The increase in gross profit as a percentage of revenue from 2023 to 2024 was primarily due to an increase in revenue volume and change in product mix, partially offset by write-downs related to the impairment and exit of certain lithography inventory.
Removed
However, the new export controls have resulted in lower net sales in China for fiscal 2023 compared to the prior fiscal year. 33 Table of Contents For a discussion of the risks related to our business and operations, see Part I, Item 1A – Risk Factors of this Annual Report on Form 10-K.
Added
These benefits were partially offset by the inclusion of U.S. tax on foreign source income of $1.4 million and non-deductible officer’s compensation of $1.9 million. 36 Table of Contents Our future effective income tax rate depends on various factors, such as 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 acquisitions and research and development credits as a percentage of aggregate pre-tax income.
Removed
The year-over-year change in systems revenue was primarily due to an increase in units shipped in our metrology and inspection product lines. Parts and services revenue is generated from part sales, maintenance service contracts, and system upgrades, as well as time and material billable service calls.
Added
Significant non-cash operating charges included depreciation, amortization, share-based compensation, provision for inventory valuation, deferred income taxes and write off of acquired in-process research and development. Cash provided by operating activities in fiscal 2024 increased compared to fiscal 2023 primarily due to higher net income and continued improvements in inventory management.
Removed
The decrease in gross profit as a percentage of revenue from 2021 to 2022 was primarily due to supply chain cost increases in the 2022 fiscal period, partially offset by higher factory utilization associated with increased sales volume during the 2022 fiscal period. Operating Expenses. Our operating expenses consist of: • Research and Development .
Added
Cash provided by operating activities during fiscal 2023 was $172.0 million, which reflects net income, adjusted to exclude the effect of non-cash operating charges, of $204.5 million. Significant non-cash operating charges included depreciation, amortization, share-based compensation, provision for inventory valuation and deferred income taxes.
Removed
These benefits were partially offset by the inclusion of U.S. tax on foreign source income of $1.7 million.
Added
Capital expenditures were primarily for enterprise resource planning systems implementation, investments in facility improvements, demonstration and testing equipment, manufacturing and network equipment. Purchases of marketable securities, net of proceeds from sales and maturities of marketable securities, for fiscal 2024, 2023 and 2022 was $167.9 million, $83.6 million and $4.6 million, respectively.
Removed
From time to time, we evaluate whether to acquire new or complementary businesses, products or technologies. We may fund all of or a portion of the price of these investments or acquisitions in cash, stock, or a combination of cash and stock.
Added
The credit agreement is available to us until such time that either party terminates the arrangement at its discretion. As of the date of this filing, we have not utilized the line of credit.
Added
Results may differ from these estimates due to actual outcomes being different from those on which we based our assumptions.
Added
We account 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.
Added
While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement.
Added
As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.
Added
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 our consolidated statements of operations.
Added
Accounting for business combinations requires our management to make significant estimates and assumptions, especially at the acquisition date including our estimates for intangible assets, contractual obligations assumed, restructuring liabilities, pre-acquisition contingencies, and contingent consideration, where applicable.
Added
Although we believe the assumptions and estimates we have 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.
Added
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. Inventory Valuation.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+0 added−0 removed5 unchanged
Biggest changeAs of December 30, 2023, and December 31, 2022, we had thirty-eight and six outstanding forward contracts, respectively, with a total notional contract value of $51.6 million and $27.9 million, respectively. We do not use derivative financial instruments for trading or speculative purposes.
Biggest changeAs of December 28, 2024, and December 30, 2023, we had fifty-six and thirty-eight outstanding forward contracts, respectively, with a total notional contract value of $45.9 million and $51.6 million, respectively. We do not use derivative financial instruments for trading or speculative purposes.
Based on a sensitivity analysis performed on our financial investments held as of December 30, 2023, a hypothetical increase of 100 basis points in interest rates would result in a decrease of $3.0 million in the fair value of our available-for-sale debt securities and would not have a material impact on our consolidated financial position, results of operations or cash flows.
Based on a sensitivity analysis performed on our financial investments held as of December 28, 2024, a hypothetical increase of 100 basis points in interest rates would result in a decrease of $3.4 million in the fair value of our available-for-sale debt securities and would not have a material impact on our consolidated financial position, results of operations or cash flows.

Other ONTO 10-K year-over-year comparisons