Quarterly Report for Quarter Ending September 27, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

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

Statements contained or incorporated by reference in this Form 10-Q that are not purely historical are forward-looking statements and are subject to safe harbors under Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as, but not limited to, "anticipate," "believe," "continue," "estimate," "expect," "intend," "plan," "should," "may," "could," "will," "would," "forecast," "project" and words or phrases of similar meaning, as they relate to our management or us.

Forward-looking statements contained herein reflect our current expectations, assumptions and projections with respect to future events and are subject to certain risks, uncertainties and assumptions. Actual results may differ materially and adversely from those included in such forward-looking statements as a result of various factors, including risks and uncertainties, many of which are beyond Onto Innovation's control. Such factors include, but are not limited to, the Company's ability to leverage its resources to improve its position in its core markets; its ability to weather difficult economic environments; its ability to open new market opportunities and target high-margin markets; the strength/weakness of the back-end and/or front-end semiconductor

market segments; fluctuations in customer capital spending; the Company's ability to effectively manage its supply chain and adequately source components from suppliers to meet customer demand; the effects of political, economic, legal, and regulatory changes or uncertainties, changes in U.S. tariff and trade policy and related retaliatory actions, the U.S. government shutdown] and geopolitical conflicts on the Company's global operations; the Company's ability to adequately protect its intellectual property rights and maintain data security; the effects of natural disasters or public health emergencies on the global economy and on the Company's customers, suppliers, employees, and business; its ability to effectively maneuver global trade issues and changes in trade and export regulations, tariffs and license policies; the Company's ability to maintain relationships with its customers and manage appropriate levels of inventory to meet customer demands; failure to consummate or a delay in consummating the acquisition of Semilab USA, including as a result of any failure to obtain the necessary regulatory approvals or to satisfy any of the other conditions to the proposed transaction on a timely basis or at all; and the Company's ability to successfully integrate acquired businesses and technologies, including the business of Semilab USA and to realize the anticipated benefits of such acquisitions. Additional information and considerations regarding the risks faced by Onto Innovation are available in our Annual Report on Form 10-K for the fiscal year ended December 28, 2024 (the "2024 Form 10-K") filed with the Securities and Exchange Commission (the "SEC") on February 25, 2025, in Part II, Item 1A. "Risk Factors" and elsewhere in this Form 10-Q, and in the other filings that we make with the SEC from time to time. Forward-looking statements reflect our position as of the date of this Form 10-Q and we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Critical Accounting Estimates

The preparation of condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") requires management to make judgments, assumptions and estimates that affect the amounts reported.

Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. In addition, management is periodically faced with uncertainties, the outcomes of which are not within our control and will not be known for prolonged periods of time. Certain of these uncertainties are discussed in the 2024 Form 10-K in the Items entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." There have been no material changes in our critical accounting estimates from the information presented in Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2024 Form 10-K.

For more information, please see our critical accounting estimates as previously disclosed in the 2024 Form 10-K and recent accounting pronouncements discussed in Note 1 to the Condensed Consolidated Financial Statements.

Executive Summary

We are 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. Our products are primarily used by silicon wafer manufacturers, semiconductor integrated circuit fabricators, and advanced packaging manufacturers operating in the semiconductor market. Our products are also used for process control in a number of other specialty device manufacturing markets, including light emitting diodes ("LED"), vertical-cavity surface-emitting lasers ("VCSEL"), micro-electromechanical systems ("MEMS"), CMOS image sensors ("CIS"), silicon and compound semiconductor (SiC and GaN) power devices, analog devices, RF filters, data storage, and certain industrial and scientific applications.

We provide process and yield management solutions used in bare silicon wafer production and wafer processing facilities, often referred to as "front-end" manufacturing, and advanced packaging of chips and test facilities, or "back-end" manufacturing, through a portfolio of standalone systems for optical metrology, macro-defect inspection, packaging lithography, as well as transparent and opaque thin film measurements. Our automated and integrated metrology systems measure critical dimensions, device structures, topography, shape, and various thin film compositions, including three-dimensional features and film thickness, as well as optical and material properties. Our primary areas of focus include products that provide critical yield-enhancing and actionable information, which is used by microelectronic device manufacturers to improve yield and time to market of their next-generation devices. Our systems feature sophisticated software and production-worthy automation. In addition, our advanced process control software portfolio includes powerful solutions for standalone tools, groups of tools, and factory-wide and

enterprise-wide suites to enhance productivity and achieve significant cost savings. Our systems are backed by worldwide customer service and applications support.

The semiconductor and electronics industries have been characterized by constant technological innovations. We believe that, over the long term, our customers will continue to invest in advanced technologies and new materials to enable smaller design rules and higher density applications that fuel demand for process control equipment.

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

Our cash, cash equivalents and marketable securities balance increased to $983.9 million at September 27, 2025, compared to $852.3 million at December 28, 2024. This increase was primarily the result of $233.3 million of cash generated from operating activities and $9.7 million of cash from issuance of shares through share-based compensation plans, partially offset by cash used for purchases of our common stock of $75.0 million, capital expenditures of $23.4 million, $12.6 million for tax payments related to net share settlement of employee stock-based compensation plans and purchases of non-marketable equity securities of $8.0 million. Employee headcount at September 27, 2025 was approximately 1,593.

On June 27, 2025, we entered into an Equity Purchase Agreement (the "Purchase Agreement") to acquire all the outstanding membership interests of Semilab USA from Semilab International Zrt. ("Semilab"), for $475.0 million in cash (subject to certain customary purchase price adjustments) and 706,215 shares of our common stock (the "Transaction"). On September 25, 2025, each of the Company and Semilab received a request for additional information and documentary material (a "Second Request") from the U.S. Department of Justice in connection with the Transaction. In response to the Second Request, and in order to increase the likelihood of a timely closing for the Transaction, on October 9, 2025, the parties entered into an amendment to the Purchase Agreement (the "Purchase Agreement Amendment"), pursuant to which the parties agreed that the Fourier-Transform infrared spectroscopy reflectometry systems business conducted by Semilab and its affiliates would not be included in the transaction and would instead be retained by Semilab. The Purchase Agreement Amendment amends the purchase price that the Company will pay to Semilab in the Transaction to $432.3 million in cash (subject to certain customary purchase price adjustments) and 641,771 shares of the Company's common stock, par value $0.001 per share. This represents a reduction of approximately $50.0 million in total Transaction value to approximately $495.0 million based upon the closing value of the Company's common stock on June 27, 2025. The Company continues to anticipate that the Transaction will be completed in 2025. See Note 2, "Acquisitions," in the Notes to the Condensed Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

The U.S. government has implemented export regulations for U.S. semiconductor technology sold or provided to customers in China, which have limited our ability to provide certain products and services to customers in China, over the past several years. The U.S. government continues to issue new export licensing requirements, and additional updates and other

requirements that have had the effect of further limiting our ability to provide certain products and services to customers outside the United States, including in China.

The recent imposition of tariffs by the U.S. government, and countermeasures taken by foreign countries, has had and will likely continue to have an adverse impact on our business in the near-term. The full extent of the impact is currently uncertain and will depend both on future developments in global trade policy and the extent to which our efforts to mitigate tariff impacts are successful. We are continuously assessing the impact of tariffs and related governmental actions on our business.

For a discussion of the risks related to our business and operations, see Part I, Item 1A - Risk Factors of the 2024 Form 10-K and Part II, Item 1A - Risk Factors of this Form 10-Q.

Results of Operations for the Three and Nine Months Ended September 27, 2025 and September 28, 2024

Revenue.Our revenue is primarily derived from the sale of our systems, software licensing, services and spare parts. Our revenue of $218.2 million decreased 14% for the three months ended September 27, 2025 as compared to the three months ended September 28, 2024, for which revenue totaled $252.2 million. For the nine-months ended September 27, 2025 and September 28, 2024, our revenue totaled $738.4 million and $723.4 million, respectively, representing a year-over-year increase of 2%.

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

Total systems and software revenue decreased $43.3 million and $2.9 million for the three and nine months ended September 27, 2025, respectively, as compared to the three and nine months ended September 28, 2024. The decreases for the three and nine months ended September 27, 2025 were primarily attributable to lower sales to DRAM, foundry and power customers in the specialty device and advanced packaging market. These year over year decreases in systems and software revenue were partially offset by increased sales to OSAT customers in the specialty device and advanced packaging market and increased sales to foundry and DRAM customers in the advanced node market. The increase in total parts and services revenue for the three and nine months ended September 27, 2025, as compared to the three and nine months ended September 28, 2024, was primarily due to higher parts sales and service contract revenue.

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

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

The decrease in gross profit as a percentage of revenue for the three and nine months ended September 27, 2025 as compared to the three and nine months ended September 28, 2024 was primarily due to restructuring and other expenses for the write down of excess and obsolete inventory.

Operating Expenses.

Our operating expenses consist of:

Interest income, net. Net interest income was $9.3 million and $27.2 million for the three and nine-month periods ended September 27, 2025, respectively, as compared to $8.7 million and $24.5 million for the three and nine-month periods ended September 28, 2024, respectively. The increases in net interest income for the three and nine-month periods ended September 27, 2025, as compared to the three and nine-month periods ended September 28, 2024, were due to higher cash and marketable securities balances, partially offset by lower interest rates during the 2025 period.

Other (expense) income, net. Other expense, net was $1.0 million and $0.7 for the three-month period ended September 27, 2025 and the three-month period ended September 28, 2024, respectively. Other expense, net was $2.9 million for the nine-month period ended September 27, 2025, as compared to other income, net of $10 thousand for the nine-month period ended September 28, 2024. Foreign exchange losses during the 2025 period versus foreign exchange gains in the 2024 period were the primary drivers contributing to the period over period changes.

Income Taxes. We recorded an income tax provision of $3.8 million and $17.1 million for the three and nine-month periods ended September 27, 2025, respectively, as compared to $8.0 million and $16.3 million for the three and nine-month periods ended September 28, 2024, respectively. Our effective tax rate of 12% for both the three and nine-month periods ended September 27, 2025, differed from the statutory rate of 21%, primarily due to research and development tax credits and the deduction related to foreign derived intangible income ("FDII") for the three month period ended September 27, 2025. For the nine month period ended September 27, 2025, research and development tax credits, the deduction related to FDII and excess tax benefits associated with equity compensation contributed to the difference with the statutory rate. Our effective tax rate of 13% and 10% for the three and nine-month periods ended September 28, 2024, respectively, each differed from the statutory rate of 21%, primarily due to research and development tax credits, the deduction related to FDII, and excess tax benefits associated with equity compensation.

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

We currently have a partial valuation allowance recorded for certain foreign and state loss and credit carryforwards where the realizability of such deferred tax assets is substantially in doubt. Each quarter we assess the likelihood that we will be able to recover our deferred tax assets primarily relating to state research and development credits. We consider available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. As a result of our analysis, we concluded that it is more likely than not that a portion of our net deferred tax assets will not be realized. Therefore, we continue to provide a valuation allowance against certain net deferred tax assets. We continue to monitor available evidence and may reverse some or all of the valuation allowance in future periods, if appropriate.

The Organization for Economic Co-operation and Development ("OECD") has been working on a Base Erosion and Profits Shifting project that, upon implementation, would change various aspects of the existing framework under which our tax obligations are determined in many of the countries in which we operate. In this regard, the OECD has proposed policies aiming to modernize global tax systems, including a country-by-country 15% minimum effective tax rate ("Pillar Two") for multinational companies. Numerous countries have enacted, or are in the process of enacting, legislation to implement the Pillar Two model rules with a subset of the rules becoming effective during the current year, and the remaining rules becoming effective in later periods. In June 2025, the Group of Seven ("G7") countries (Canada, France, Germany, Italy, Japan, the U.K. and the United States) agreed to exclude U.S. Multi-National entities (MNEs) from certain aspects of Pillar Two (the "G7 Statement") in exchange for the United States not imposing retaliatory taxes through the One Big Beautiful Bill Act. We will continue to monitor the G7 Statement, which has not yet been incorporated into the OECD framework. At this point in time, we do not expect any material tax impact associated with Pillar Two rules in the countries where we operate. As these rules continue to evolve with new legislation and guidance, we will continue to monitor and account for the enactment of Pillar Two and the potential impacts such rules may have on our effective tax rate and cash flows in future years.

On July 4, 2025, the United States enacted tax reform legislation through the One Big Beautiful Bill Act. Included in this legislation are provisions that allow for the immediate expensing of domestic U.S. research and development expenses, immediate expensing of certain capital expenditures, and other changes to the U.S. taxation of profits derived from foreign operations. The impact of the Act has been accounted for in the provision for taxes for the quarter ended September 27, 2025 and the amount is determined to be immaterial. The Company continues to evaluate the impact the new legislation will have on the Consolidated Financial Statements for future years. However, as the assessment is ongoing, the Company is not able to quantify the impact at this time.

Liquidity and Capital Resources

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

Sources and Uses of Cash

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

Operating Activities

Net cash and cash equivalents provided by operating activities for the nine months ended September 27, 2025 were $233.3 million. The net cash and cash equivalents provided by operating activities during the nine months ended September 27, 2025 resulted primarily from net income, adjusted to exclude the effect of non-cash operating charges, of $193.3 million. Significant non-cash operating charges included depreciation, amortization, share-based compensation, provision for inventory valuation and deferred income taxes. Cash provided by operating activities for the first nine months of fiscal 2025 increased compared to the corresponding period in fiscal 2024 primarily due to higher cash collections.

Our working capital was $1,382.1 million at September 27, 2025 and $1,307.4 million at December 28, 2024.

Investing Activities

Net cash and cash equivalents provided by investing activities for the nine months ended September 27, 2025 were $231.9 million. During the nine months ended September 27, 2025, net cash and cash equivalents provided by investing activities included proceeds from maturities and sales of marketable securities of $684.5 million, partially offset by purchases of marketable securities of $421.2 million, capital expenditures of $23.4 million and purchases of non-marketable equity securities of $8.0 million.

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. Our proposed acquisition of Semilab will cost $432.3 million in cash (subject to certain customary purchase price adjustments) and 641,771 shares of our common stock, par value $0.001 per share. See Note 2 of the Condensed Consolidated Financial Statements for further discussion regarding this proposed acquisition.

Financing Activities

Net cash and cash equivalents used in financing activities for the nine months ended September 27, 2025 were $77.9 million. During the nine months ended September 27, 2025, financing activities used cash primarily for purchases of common stock of $75.0 million and tax payments related to shares withheld to satisfy employee tax obligations in connection with the vesting of awards under share-based compensation plans of $12.6 million, partially offset by proceeds from sales of shares through share-based compensation plans of $9.7 million.

In February 2024, our Board of Directors approved a share repurchase authorization, which allows the Company to repurchase up to $200 million worth of shares of its common stock. Repurchases may be made through both public market and private transactions from time to time. During the three and nine months ended September 27, 2025, we repurchased 0 and 492 thousand shares of common stock under this repurchase authorization, respectively. As of September 27, 2025, there was $99.9 million available for future share repurchases under this share repurchase authorization.

We have a credit agreement with a bank that provides for a variable-rate line of credit that is secured by the marketable securities we have with the bank. We are permitted to borrow up to 70% of the value of eligible securities held at the time the line of credit is accessed, up to a maximum of $100.0 million. As of September 27, 2025, the available line of credit was $100.0 million with an available interest rate of 4.8%. 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.

Our future capital requirements will depend on many factors, including the timing and amount of our revenue and our investment decisions, which will affect our ability to generate additional cash. We expect that our existing cash, cash equivalents, marketable securities and availability under our line of credit will be sufficient to meet our anticipated cash requirements for working capital, capital expenditures, and other cash needs for the next 12 months following the filing of this Form 10-Q. Thereafter, if cash generated from operations and financing activities is insufficient to satisfy our working capital requirements, we may seek additional funding through bank borrowings, sales of securities or other means. A reduction in or volatility with respect to our stock price or a general market downturn could materially impact our ability to sell securities on favorable terms or at all. There can be no assurance that we will be able to raise any such capital on terms acceptable to us or at all.