Quarterly Report for Quarter Ending September 30, 2026 (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, and geopolitical conflicts, including the ongoing conflict involving Israel, the U.S., Iran and other actors, 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; the Company's ability to realize the anticipated benefits of the Rigaku Transaction (as defined below), including as a result of fluctuations in the price of the Rigaku common stock; 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 January 3, 2026 (the "2025 Form 10-K") filed with the Securities and Exchange Commission (the "SEC") on February 24, 2026, 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 2025 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 2025 Form 10-K.

For more information, please see our critical accounting estimates as previously disclosed in the 2025 Form 10-K and recent accounting pronouncements discussed in Note 1, "Basis of Presentation" to the Condensed Consolidated Financial Statements include in Part 1, Item 1 of this Form 10-Q.

Executive Summary

We are a worldwide leader in the design, development, manufacture and support of process control tools that perform macro-defect inspection and metrology, lithography systems, and process control analytical software used by semiconductor and advanced packaging device manufacturers. We deliver comprehensive solutions throughout the semiconductor fabrication process with our families of proprietary products that provide critical yield-enhancing information, enabling microelectronic device manufacturers to drive down costs and time to market of their devices. We provide process and yield management solutions used in both wafer processing facilities, often referred to as "front-end" manufacturing, and in device packaging and test facilities, commonly referred to as "back-end" manufacturing. Our advanced process control software portfolio includes powerful solutions for standalone tools, groups of tools, or factory-wide suites to enhance productivity and achieve significant cost savings.

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 core focus is the measurement and control of the structure, composition, and geometry of semiconductor devices as they are fabricated on silicon wafers to improve device performance and manufacturing yields.

Our products and services are used by our customers who manufacture many types of ICs for a multitude of applications, each having unique manufacturing challenges. This includes ICs to enable information processing and management (logic ICs), memory storage (NAND, 3D-NAND, NOR, and DRAM), analog devices (e.g., Wi-Fi and 5G radio ICs, power devices), MEMS sensor devices (accelerometers, pressure sensors, microphones), image sensors, and other end markets including components for AI, hard disk drives, LEDs, and power management.

The semiconductor and electronics industries have also been characterized by constant technological innovation. 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 $1.25 billion at September 30, 2026, compared to $639.6 million at January 3, 2026. This increase was primarily the result of $1.2 billion of cash provided by financing activities and $166.6 million of cash generated from operating activities. These increases were offset by cash used in investing activities of $1.3 billion, which included the purchase of the Company's equity investment in Rigaku of $719.5 million. Employee headcount at September 30, 2026 was approximately 1,952.

On May 21, 2026, we issued $1.5 billion aggregate principal amount of 2031 Notes. The 2031 Notes were issued pursuant to the Indenture. Pursuant to the purchase agreement between the Company and the representative of the initial purchasers of the 2031 Notes, we granted the initial purchasers an option to purchase up to an additional $200 million aggregate principal amount of 2031 Notes. On May 19, 2026, the initial purchasers exercised this option in full and the 2031 Notes issued on May 21, 2026 include the additional $200 million aggregate principal amount of 2031 Notes. Also in May 2026, in connection with the pricing

of the 2031 Notes and the exercise by the initial purchasers of their option in full to purchase additional Notes, respectively, we entered into the Capped Call Transactions with several financial institutions, including one or more of the initial purchasers and/or their respective affiliates.

On August 10, 2026, the Company completed the Rigaku Transaction, funded with a portion of the net proceeds from the 2031 Notes and cash on hand. In connection with the Rigaku Transaction, we received the right to nominate one director to Rigaku's board of directors.

The Company does not control Rigaku and does not consolidate Rigaku's financial results. At initial recognition, the Company irrevocably elected the fair value option under ASC 825, Financial Instruments, for its investment in Rigaku, which is presented as "Investment in Rigaku," a non-current asset, on the Condensed Consolidated Balance Sheets. The investment is remeasured to fair value at each reporting date based on the quoted market price of Rigaku's common stock on the Tokyo Stock Exchange, translated into U.S. dollars at the closing spot exchange rate. All changes in the U.S. dollar fair value of the investment, including amounts attributable to changes in Rigaku's share price and changes in the Japanese yen to U.S. dollar exchange rate, are recognized in net income within "Unrealized gain (loss) on investment in Rigaku" under "Other income (expense), net" in the Condensed Consolidated Statements of Operations. We recognized an unrealized loss of $40.8 million for the three and nine months ended September 30, 2026.

For a discussion of the risks related to our business and operations, see Part I, Item 1A - Risk Factors of the 2025 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 30, 2026 and September 27, 2025

Revenue. Our revenue is primarily derived from the sale of our systems, software licensing, services and spare parts. Our revenue of $409.7 million increased 87.8% for the three months ended September 30, 2026 as compared to the three months ended September 27, 2025, for which revenue totaled $218.2 million. For the nine months ended September 30, 2026 and September 27, 2025, our revenue totaled $1.04 billion and $738.4 million, respectively, representing a year-over-year increase of 41.5%.

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 increased $185.6 million and $281.2 million for the three and nine months ended September 30, 2026, respectively, as compared to the three and nine months ended September 27, 2025, respectively. The increase was attributable to increased demand for inspection and metrology systems. The increase in total parts and services revenue for the three and nine months ended September 30, 2026, as compared to the three and nine months ended September 27, 2025, was primarily due to higher customer support activity 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 increase in gross profit as a percentage of revenue for the three and nine months ended September 30, 2026 as compared to the three and nine months ended September 27, 2025 was primarily due to increased sales of newer product lines with higher standard margins.

Operating Expenses.

Our operating expenses consist of:

Total other income, net. Total other expense was $30.5 million and $21.0 million for the three and nine month periods ended September 30, 2026, as compared to total other income of $8.3 million and $24.3 million for the three and nine month periods ended September 27, 2025. The decrease in total other income, net for the three months ended September 30, 2026, as compared to the three months ended September 27, 2025, and for the nine month period ended September 30, 2026, as compared to the nine month period ended September 27, 2025, was primarily attributable to recognition of an unrealized loss in Rigaku during the period of $40.8 million.

Income Taxes. We recorded an income tax provision of $18.1 million and $30.8 million for the three and nine month periods ended September 30, 2026, respectively, compared to $3.8 million and $17.1 million for the three and nine month periods ended September 27, 2025, respectively. Our effective tax rate was 27.9% and 18.0% for the three and nine month periods ended September 30, 2026, respectively, compared to 12.0% for both the three and nine month periods ended September 27, 2025.

The following table reconciles our GAAP effective tax rate to our non-GAAP adjusted effective tax rate, which excludes the tax impact associated with the investment in Rigaku. We believe the non-GAAP adjusted effective tax rate provides useful information to investors in evaluating our effective tax rate because the changes in the fair value are driven by the market price of Rigaku's shares and, because no tax benefit is recognized on unrealized losses due to a valuation allowance, may result in significant period to period variability in our effective tax rate. Management uses the non-GAAP adjusted effective tax rate to evaluate tax impacts from ordinary operations.

There was no comparable adjustment in the 2025 periods because the investment in Rigaku occurred in 2026.

Our effective tax rate differed from the U.S. federal statutory rate of 21% primarily due to the impact of foreign taxes, including the Pillar Two global minimum tax, the tax impact associated with the unrealized loss on our investment in Rigaku, tax benefits associated with the Foreign Derived Intangible Income ("FDII") deductions, federal research and development tax credits, foreign tax credits, and excess tax benefits associated with equity compensation.

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

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 month period ended September 30, 2026 was $166.6 million. The net cash and cash equivalents provided by operating activities during the nine month period ended September 30, 2026 resulted primarily from net income, adjusted to exclude the effect of non-cash operating charges of $152.0 million. Significant non-cash operating charges included depreciation, amortization, share-based compensation and provision for inventory valuation. Cash provided by operating activities for the first nine months of 2026 decreased compared to the corresponding period in fiscal 2025, primarily due to timing of accounts receivable payments and higher inventory levels driven by revenue growth, partially offset by increased in accounts payable and accrued expense due to the timing of vendor payments and higher operational activity.

Investing Activities

Net cash and cash equivalents used in investing activities for the nine month period ended September 30, 2026 was $1.3 billion. During the nine month period ended September 30, 2026, net cash and cash equivalents used in investing activities included the purchase of the Company's equity investment in Rigaku of $719.5 million, purchases of marketable securities of $987.8 million and capital expenditures of $8.8 million, offset by proceeds from maturities and sales of marketable securities of $435.0 million and acquisition related adjustments of $6.5 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.

Financing Activities

Net cash and cash equivalents provided by financing activities for the nine month period ended September 30, 2026 was $1.2 billion. During the nine month period ended September 30, 2026, financing activities provided cash from proceeds of the 2031 Notes, partially offset by cash used for the Capped Call Transaction and repurchases of common stock, as well as for tax payments related to shares withheld to satisfy employee tax obligations in connection with the vesting of awards under share-based compensation plans.

In February 2024, the Onto Innovation Board of Directors (the "Board") approved a share repurchase authorization (the "2024 Authorization"), which allows us to repurchase up to $200 million worth of shares of Common Stock. Under the 2024 Authorization, repurchases may be made through both public market and private transactions from time to time. Any amount paid to repurchase the shares in excess of par value, including transaction costs, would be recorded directly as a decrease to additional paid-in capital. During the three and nine month periods ended September 30, 2026, no shares of Common Stock were repurchased under the 2024 Authorization. During the three and nine months ended September 27, 2025, no shares and 492 thousand shares, respectively, of Common Stock were repurchased under the 2024 Authorization. At September 30, 2026, there was $99.9 million available for future share repurchases under the 2024 Authorization.

Additionally, in May 2026, the Board approved a share repurchase authorization (the "2026 Authorization"), which allowed the Company to repurchase up to $300 million worth of shares of Common Stock solely in connection with the 2031 Notes issuance. During the three and nine months ended September 30, 2026, no shares and 805 thousand shares, respectively, of Common Stock were repurchased under the 2026 Authorization. The 2026 Authorization is no longer in effect and any and all remaining and unused amount under the 2026 Authorization is no longer available for repurchase.

Indebtedness

As of September 30, 2026, the net carrying amount of our 2031 Notes of $1.47 billion (principal balance of $1.5 billion maturing in 2031) is presented in non-current liabilities in our condensed consolidated balance sheets. If the closing price of Common Stock exceeds $496.34 (or 130% of the conversion price of $381.80) for 20 of the last 30 trading days of any future quarter, our 2031 Notes would become convertible at the option of the holders during the subsequent fiscal quarter and the debt would be reclassified to current liabilities in our consolidated balance sheets.

On April 20, 2026, in connection with the Rigaku Transaction, we entered into a commitment letter with Goldman Sachs Bank USA ("Goldman Sachs") for a senior secured 364-day $500 million bridge term loan credit facility (the "Bridge Commitment"). Following the issuance of the 2031 Notes and Capped Call Transactions, the Company terminated the Bridge Commitment in full on May 21, 2026, and no amounts were drawn thereunder. The Company incurred total costs of $4.4 million in connection with the Bridge Commitment, all of which were expensed as incurred and recorded in "Other (expense) income, net" in the Condensed Consolidated Statements of Operations during the six months ended June 30, 2026. No amounts were incurred during the three month period ended September 30, 2026.

The Company had a credit agreement with a bank that provides for a variable-rate line of credit which was secured by the marketable securities the Company has with the bank. At January 3, 2026 the Company was permitted to borrow up to 70.0% of the value of eligible securities held at the time the line of credit would be accessed, up to a maximum of $100.0 million. The

available line of credit as of January 3, 2026 was $100.0 million with an available interest rate of 4.3%. The Company terminated this line of credit in the first quarter of 2026, and did not utilize the line of credit while it was active.

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 and marketable securities 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.