# EDGAR Filing Document

**Accession Number:** 0000704532
**File Stem:** 0000950170-23-004283
**Filing Date:** 2023-2
**Character Count:** 419394
**Document Hash:** 2be4bfcaece805a9cdd863bc0cb7d0b8
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0000950170-23-004283.hdr.sgml**: 20230224

**ACCESSION NUMBER**: 0000950170-23-004283

**CONFORMED SUBMISSION TYPE**: 10-K

**PUBLIC DOCUMENT COUNT**: 104

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230224

**DATE AS OF CHANGE**: 20230224

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** ONTO INNOVATION INC.
- **CENTRAL INDEX KEY:** 0000704532
- **STANDARD INDUSTRIAL CLASSIFICATION:** MEASURING & CONTROLLING DEVICES, NEC [3829]
- **IRS NUMBER:** 942276314
- **STATE OF INCORPORATION:** DE
- **FISCAL YEAR END:** 1226

**FILING VALUES:**
- **FORM TYPE:** 10-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-39110
- **FILM NUMBER:** 23663630

**BUSINESS ADDRESS:**
- **STREET 1:** 16 JONSPIN ROAD
- **CITY:** WILMINGTON
- **STATE:** MA
- **ZIP:** 01887
- **BUSINESS PHONE:** 9782536200

**MAIL ADDRESS:**
- **STREET 1:** 16 JONSPIN ROAD
- **CITY:** WILMINGTON
- **STATE:** MA
- **ZIP:** 01887

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** Onto Innovation Inc.
- **DATE OF NAME CHANGE:** 20191025

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** NANOMETRICS INC
- **DATE OF NAME CHANGE:** 19920703

?xml version="1.0" encoding="ASCII"? 10-K

[<u>**Table of Contents**</u>](#table_of_contents)

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

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**FORM** 10-K

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**(Mark One)**

☒ **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the Fiscal Year Ended** December 31, 2022

**OR**

☐ **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the transition period from to**

**Commission File No.** 001-39110

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ONTO INNOVATION INC.

(Exact name of registrant as specified in its charter)

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| | |
|:---|:---|
| Delaware | 94-2276314 |
| **(State or other jurisdiction of**<br>**incorporation or organization)** | **(I.R.S. Employer**<br>**Identification Number)** |

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16 Jonspin Road**,** Wilmington**,** MA 01887

**(Address of principal executive offices) (Zip Code)**

**Registrant's telephone number, including area code: (**978**)** 253-6200

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**SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:**

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| | | |
|:---|:---|:---|
| Title of Each Class | <u>Trading Symbol</u> | Name of Exchange on Which Registered |
| Common Stock, $0.001 par value per share<br>| ONTO | **New York Stock**<br>**Exchange (**NYSE**)** |

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**SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:**

**None**

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.:

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| | | | |
|:---|:---|:---|:---|
| Large accelerated filer | ☒ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
|  |  | Emerging growth company | ☐ |

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive oﬃcers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The aggregate market value of the registrant's voting Common Stock held by non-affiliates of the registrant was approximately $3,072,410,193 based on the closing price of the Common Stock on the New York Stock Exchange on July 2, 2022.

The number of shares of the registrant's Common Stock outstanding as of February 6, 2023 was 48,754,780.

**DOCUMENTS INCORPORATED BY REFERENCE**

Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K incorporate by reference information from the definitive proxy statement for the registrant's annual meeting of stockholders scheduled to be held on May 9, 2023.

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[<u>**Table of Contents**</u>](#table_of_contents)

**TABLE OF CONTENTS**

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| | | |
|:---|:---|:---|
| **Item No.** |  | **Page** |
| [**<u>PART I</u>**](#part_i) | [**<u>PART I</u>**](#part_i) | [**<u>PART I</u>**](#part_i) |
| [1.](#item_1__business) | [<u>Business</u>](#item_1__business) | 2 |
| 1A. | <u>Risk Factors</u> | 12 |
| [1B.](#item_1b__unresolved_staff_comments) | [<u>Unresolved Staff Comments</u>](#item_1b__unresolved_staff_comments) | 29 |
| [2.](#item_2__properties) | [<u>Properties</u>](#item_2__properties) | 30 |
| [3.](#item_3__legal_proceedings) | [<u>Legal Proceedings</u>](#item_3__legal_proceedings) | 30 |
| [4.](#item_4__mine_safety_disclosures) | [<u>Mine Safety Disclosures</u>](#item_4__mine_safety_disclosures) | 30 |
| [**<u>PART II</u>**](#part_ii) | [**<u>PART II</u>**](#part_ii) | [**<u>PART II</u>**](#part_ii) |
| [5.](#item_5__market_for_registrant_s_common_e) | [<u>Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities</u>](#item_5__market_for_registrant_s_common_e) | 31 |
| 6. | [<u>\[Reserved\]</u>](#item6_reserved) | 32 |
| [7.](#item_7__management_s_discussion_and_anal) | [<u>Management's Discussion and Analysis of Financial Condition and Results of Operations</u>](#item_7__management_s_discussion_and_anal) | 33 |
| [7A.](#item_7a__quantitative_and_qualitative_di) | [<u>Quantitative and Qualitative Disclosures About Market Risk</u>](#item_7a__quantitative_and_qualitative_di) | 42 |
| [8.](#item_8__financial_statements_and_supplem) | [<u>Financial Statements and Supplementary Data</u>](#item_8__financial_statements_and_supplem) | 42 |
| [9.](#item_9__changes_in_and_disagreements_wit) | [<u>Changes in and Disagreements with Accountants on Accounting and Financial Disclosure</u>](#item_9__changes_in_and_disagreements_wit) | 42 |
| [9A.](#item_9a__controls_and_procedures) | [<u>Controls and Procedures</u>](#item_9a__controls_and_procedures) | 42 |
| [9B.](#item_9b__other_information) | [<u>Other Information</u>](#item_9b__other_information) | 43 |
| [9C](#item_9c__disclosure_regarding_foreign_ju). | [<u>Disclosure Regarding Foreign Jurisdictions that Prevent Inspection</u>](#item_9c__disclosure_regarding_foreign_ju) | 43 |
| [**<u>PART III</u>**](#part_iii) | [**<u>PART III</u>**](#part_iii) | [**<u>PART III</u>**](#part_iii) |
| [10.](#item_10__directors__executive_officers_a) | [<u>Directors, Executive Officers and Corporate Governance</u>](#item_10__directors__executive_officers_a) | 44 |
| [11.](#item_11__executive_compensation) | [<u>Executive Compensation</u>](#item_11__executive_compensation) | 44 |
| [12.](#item_12__security_ownership_of_certain_b) | [<u>Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters</u>](#item_12__security_ownership_of_certain_b) | 44 |
| [13.](#item_13__certain_relationships_and_relat) | [<u>Certain Relationships and Related Transactions, and Director Independence</u>](#item_13__certain_relationships_and_relat) | 44 |
| [14.](#item_14__principal_accounting_fees_and_s) | [<u>Principal Accountant Fees and Services</u>](#item_14__principal_accounting_fees_and_s) | 44 |
| [**<u>PART IV</u>**](#part_iv) | [**<u>PART IV</u>**](#part_iv) | [**<u>PART IV</u>**](#part_iv) |
| [15.](#item_15__exhibits_and_financial_statemen) | [<u>Exhibits and Financial Statement Schedules</u>](#item_15__exhibits_and_financial_statemen) | 45 |
| [<u>Signatures</u>](#signatures) | [<u>Signatures</u>](#signatures) |  |

---

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[<u>**Table of Contents**</u>](#table_of_contents)

**FORWARD-LOOKING STATEMENTS**

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our business momentum and future growth;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•technology development, product introduction and acceptance of our products and services;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our manufacturing practices and ability to deliver both products and services consistent with our customers' demands and expectations and to strengthen our market position, including our ability to source components, materials, and equipment due to supply chain delays or shortages;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our expectations of the semiconductor market outlook;

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

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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the effects of natural disasters or public health emergencies, such as the current COVID-19 pandemic, on the global economy and on our customers, suppliers, employees, and business;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our dependence on certain significant customers and anticipated trends and developments in and management plans for our business and the markets in which we operate; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•our ability to be successful in managing our cost structure and cash expenditures and results of litigation.

Statements contained or incorporated by reference in this Form 10-K that are not purely historical are forward-looking statements and are subject to safe harbors created 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, such as those identified in Part I, Item 1A. "Risk Factors" and elsewhere in this Form 10-K. Actual results may differ materially and adversely from those included in such forward-looking statements. Forward-looking statements reflect our position as of the date of this report 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.

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[<u>**Table of Contents**</u>](#table_of_contents)

**PART I**

**Item 1. Business.**

**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. Our products are primarily used by silicon wafer manufacturers, semiconductor device 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, electrical 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.

**2019 Merger**

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"). We accounted for the 2019 Merger as a reverse acquisition using the acquisition method of accounting in accordance with generally accepted accounting principles ("GAAP"). GAAP requires that either Nanometrics or Rudolph is designated as the acquirer for accounting and financial reporting purposes ("Accounting Acquirer"). Based on the evidence available, Rudolph was designated as the Accounting Acquirer while Nanometrics was the acquirer for legal purposes. Therefore, Rudolph's historical results of operations replaced Nanometrics' historical results of operations for all periods prior to the 2019 Merger. However, ONTO stock price and volumes prior to October 25, 2019 are Nanometrics (NANO) stock data.

**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. Our principal market is semiconductor capital equipment. Semiconductors packaged as integrated circuits, 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 end customers manufacture many types of integrated circuits for a multitude of applications, each having unique manufacturing challenges. This includes integrated circuits to enable information processing and management (logic integrated circuits), memory storage (NAND, 3D-NAND, and DRAM), analog devices (e.g., Wi-Fi and 5G radio integrated circuits, 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.

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[<u>**Table of Contents**</u>](#table_of_contents)

**Current Trends**

**Business Environment**

Our metrology systems and software are primarily used for controlling certain manufacturing processes utilized in the production of advanced, or leading-edge, wafer designs. The shrinking of features such as the constituents that form a single transistor are known as node reductions. The numeric identification of a specific node usually refers to a dimension associated with one of the transistor's constituents. Advanced nodes are associated with transistor dimensions less than 16nm. 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 process control/metrology equipment is generally installed prior to the installation of the actual process equipment for that reason. Additional process control equipment is normally purchased when the initial process yields have been stabilized and more manufacturing capacity is required to meet production demands. Therefore, our sales to customers for advanced nodes is generally higher when manufacturing lines for new nodes are being established and may not represent continuous sales revenue until our initial systems reach high levels of utilization driven by the need for greater capacity. In 2022 several top semiconductor manufacturers entered pilot production at a 3nm node using our Atlas<sup>®</sup> V products.

Our inspection systems, lithography systems, and software are primarily used for processing and inspecting advanced packaging associated with back-end manufacturing. Advanced packaging techniques comprise a very wide variety of assembly methods in order to connect individual chips to a larger printed circuit ("PC") board, or connecting a group of chips together to form a "system in a package" ("SIP"), also known as heterogeneous integration ("HI"), or chiplets. Many of these advanced packages require lithographic imaging to produce copper interconnections between the chip and the PC Board or between chips in the case of SIP or HI advanced packages. Our inspection systems and software are used for process control and detection of potential reliability failures in nearly all of these packages. Unlike the cyclical nature of our metrology equipment associated with node shrinks, our sales revenue for advanced packaging is generally driven by assembly volumes. 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, making the inspection process control systems attach rates quite linear with production volumes of these devices.

Several macro-drivers continue to drive demand for sophisticated metrology and inspection systems. In 2020, a significant portion of the global workforce began working from home as part of corporate efforts to isolate and protect workers from COVID-19. This transition resulted in extremely high usage of data centers and cloud processing that drove higher demand for increased memory and HPC devices. In 2021, wireless 5G networks drove demand for new 5G phones and that demand continued in the first half of 2022 as new phones from Apple and Samsung were introduced to the market. The building of the 5G network over the next several years will also bring more machine-to-machine communications. In addition, the rise of electric vehicles and other industrial technologies is creating an increase in demand for power semiconductors. And semiconductor manufacturers are increasingly developing chiplets that include a series of smaller die rather than one larger monolithic die. These macro-drivers are increasing the need for high-performance semiconductors and advanced packaging, which are then driving the demand for sophisticated metrology and inspection systems in order to achieve the semiconductor performance required while achieving a profitable manufacturing yield.

Since the first fiscal quarter of 2020, Onto Innovation has launched twelve new products that include six new metrology systems, two new macro defect inspection system, a panel lithography tool and two new software products. These new products were introduced as logic integrated device manufacturers ("IDMs") and foundries were increasing their capacity while following aggressive plans to transition their manufacturing to smaller nodes. Other customer interactions at memory and specialty device manufacturers as well as providers of advanced packaging centered around satisfying the immediate demand for these devices with our existing product portfolio, while partnering with R&D groups to prepare for the process controls needed for the next generation of semiconductors and packaging that will require the latest systems from Onto Innovation. We believe our strong engineering teams have delivered, and will continue to deliver, new products to our customers, followed by our field engineers providing customer support, while simultaneously achieving our gross and operating margin targets that were established in our long-term operating models. Revenue reached $1 billion in fiscal 2022 as customers transitioned to advanced nodes and increased advanced packaging volumes, and the Company was able to achieve operating margins and earnings at the high end of our quarterly guidance and analysts' estimates.

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[<u>**Table of Contents**</u>](#table_of_contents)

**Markets**

**Advanced Nodes.** "Advanced Nodes" refers to leading-edge integrated circuits where the feature sizes of transistors and other features continue to shrink in specified steps, or nodes measured in nanometers (nm). Demand for our products continues to be driven by our customers' desire for higher overall chip performance without increasing the chip size, while improving power efficiency, logic processing capability, data storage volume and manufacturing yield. To achieve these goals, our customers have increased their use of more complex materials and processing methods in their manufacturing flow. The primary paths for performance gains are geometric scaling, known as node shrinks, or scaling of transistor dimensions. In some cases, our customers are implementing new materials and methods in high volume manufacturing, including materials and device architectures to reduce power consumption, and stacked devices. To scale NAND memory, a 3D stacking architecture has been implemented at several customers with more than 150 storage cell layers for devices in production. Additional innovation continues in Data Storage, Power Devices, MEMS, and Image Sensors. We believe the use of these new materials and manufacturing methods has increased demand for our products such as the Atlas<sup>®</sup> product line that is capable of measuring these advanced nodes as certain features shrink beyond 7nm, to 5nm, 3nm and in the most advanced of cases, 2 nm.

To shrink features, new methods, including multiple patterning lithography and extreme ultra-violet ("EUV") lithography, have been developed. The EUV process is driving significantly higher requirements for the silicon wafers that are entering the EUV chamber. Small, particles on the backside of the wafer measuring a few micrometers (microns) can distort the images being projected onto the top side. Our NovusEdge<sup>®</sup> inspection tool has been installed at major silicon wafer manufacturers to detect backside contamination and edge cracking as a final quality control mechanism before wafers are shipped to the semiconductor fabrication processes. The top side of wafers used for the EUV process is covered with an epitaxial layer, which must also be scanned for any impurities. This compositional analysis is measured using our Element<sup>®</sup> 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 portable consumer devices, including smartphones, watches, and tablets. Historically, integrated circuit packaging refers to the final stage of semiconductor device fabrication, in which a single circuit made from semiconducting material (a die or chip) is encased in a molded package using small wires to provide connections to a carrier that can be soldered to a printed circuit board and also prevents physical damage and corrosion to the chip. Advanced Packaging refers loosely to the multi-layer conductors and chip structures (other than wires) that often interconnect multiple die, feed them with electric power and create signal paths to and from the PC board, dissipate their heat, and protect them from damage. Today, the drive to pack more functions into a small space and reduce their power requirements demands that chip packages do much more than ever before to combine multiple chips and functions into a single molded package.

One example of the technology used in Advanced Packaging is the 3D integration of semiconductors. This technology involves stacking individual chips in one integrated package. Through-silicon vias ("TSVs") are vertical copper interconnects that are embedded from the bottom surface of a die to the top surface and uses small copper/solder "bumps" to connect one chip to another, which allows power and communication to be shared among the individually stacked components. This offers the advantages of shorter signal paths and, in turn, reduced power consumption, enhanced bandwidths, integration of heterogeneous components such as memory and logic chips, and smaller surface area. The processes required for 3D integration vary from one manufacturer to another and many continue to be optimized for yield and to ensure the functioning of individual stacked chips.

Heterogeneous packages are another advanced packaging technology using copper pillars/bumps to vertically connect a wide variety of stacked die for 2.5D, and 3D integration techniques as well as horizontally connected chips and are considered the next disruptive technology for several reasons. First, heterogeneous integrated packages using 3D stacking can significantly reduce the space needed inside an electronic device, such as a smartphone, by combining multiple chips/functions into a SIP. Next, it improves the system's performance by reducing power and signal conductor lengths, which previously were routed from package to package through a PC board. Using thin redistribution layers ("RDLs") to connect chips that are side-by-side or "fan out" power and signal connections to the larger contacts on the PC board, which accounts for 35 percent of the packaging cost. Lastly, the technology is currently considered the preferred vehicle for next generation uses, such as SIP, and package on package formats. As a result of the small overall form factor, heterogeneous integrated packages provide the functionality needed in high-end mobile and wearable products.

The current and projected adoption of 5G-enabled smartphones continues to grow. Even as overall sales of smartphones waned in 2022, the demand for 5G chipsets, which are used in both handsets and infrastructure, did not. This trend is driving semiconductor manufacturers to increase capacity to support the advanced packaging technologies that are used in production of 5G integrated circuits, which continues to create opportunities for our solutions.

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**Panel Substrate Manufacturing**. One current process to manufacture advanced packaging involves attaching known good die to a 300mm wafer, used as a temporary carrier when adding components such as RDLs and copper pillars. 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 reconstituted wafer. In order to meet the growing demand at reduced average selling prices, manufacturers are looking to scalable technology. 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 600mm x 600mm. This larger size enables companies manufacturing large area packages to increase the number of devices being processed at each step as they are no longer limited to operating within the constraints of a round wafer. By responding to market opportunities and addressing the stringent demands of customers' technical roadmaps, we believe that Onto Innovation is optimally positioned to capitalize on the emerging market of high-volume manufacturing of advanced IC substrates. For example, the JetStep<sup>®</sup> 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. The Firefly<sup>®</sup> series of panel level macro inspection tools, designed for high resolution inspection, can provide defect detection and location information to the JetStep X500 tool for each die, which greatly improves lithography throughput using our exclusive StepFAST™ process. It also delivers a combination of defect classification and process throughput in a single software platform. It reduces capital investment requirements and provides a reliable pathway to transition from wafer to panel-based processes.

**Technology**

We believe that our expertise in our core technologies of optics and software and our combined investment in research and development will enable us to rapidly develop new technologies and products as we have demonstrated over the past three years of operation in order to quickly respond to emerging industry trends and competitive challenges. The breadth of our technology enables us to offer a diverse combination of metrology, inspection, and process control solutions. Unique features have been designed into our lithography systems to meet our customers' changing process requirements. Our metrology and inspection technologies provide process control for the majority of advanced node wafers processed today in a semiconductor wafer fab. In front-end processes, OCD metrology, thin film metrology, wafer stress metrology and macro defect detection and classification technologies allow yield enhancement for critical processes such as photolithography, diffusion, etch, chemical mechanical planarization ("CMP") and outgoing quality control. Within the back-end manufacturing processes, our 2D/3D advanced macro defect inspection provides our customers with critical quality assurance and process information. Defects may be created during probing, bumping, dicing, assembly processes (RDLs, TSVs, copper pillars, etc.) or general handling and can have a major impact on device and process quality. Lastly, we turn the gathered data into useful knowledge for our customers to make yield-enhancing decisions, which lower their scrap cost and environmental impact and improve their margins.

**Onto Innovation's Products**

**Automated Metrology Systems**. Our automated systems primarily consist of fully automated metrology systems that are employed in semiconductor production environments. The Atlas family of products represents our line of high-performance metrology systems providing OCD and thin film metrology and wafer stress metrology for transistor and interconnect metrology applications. The thin film and OCD technology is supported by our NanoCD™ suite of solutions including our latest introductions of AI Diffract™ software, SpectraProbe™ software and NanoGen™ scalable computing engine, which enables visualization, modeling, and analysis of complex structures.

AI Diffract is a modeling, visualization and analysis software that takes signals from the metrology systems, providing critical dimension, thickness, and optical properties from in-line measurements. The software has an intuitive three-dimensional modeling interface to provide visualization of today's advanced and complex semiconductor devices. There are proprietary fitting algorithms in AI Diffract that enable very accurate and very fast calculations for signal processing for high fidelity model-based measurements. SpectraProbe is a model-less fitting engine that enables fast time to solution for in-line excursion detection and control. SpectraProbe complements the high-fidelity modeling of AI Diffract with a simple machine learning interface for rapid recipe deployment. The software is supported by NanoGen, an enterprise scale computing hardware system that is deployed to run the computing intensive analysis software. NanoGen leverages commercial server chips and networking architecture and is optimized to support the workload of AI Diffract and SpectraProbe analysis.

**Integrated Metrology Systems**. Our integrated metrology ("IM") systems are installed directly onto wafer processing equipment to provide near real-time measurements for improved process control and maximum throughput. Our IM systems are sold directly to end user customers. The IMPULSE<sup>®</sup> family of products includes the latest technology for OCD, and thin film metrology, and have been successfully qualified on numerous independent wafer fabrication equipment suppliers' platforms.

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**Silicon Wafer All-surface Inspection/Characterization**. "All-surface" refers to inspection of the wafer frontside, edge, and backside as well as wafer's locator notch. The edge inspection process focuses on the area near the wafer edge, an area that poses difficulty for traditional wafer frontside inspection technology due to its varied topography and process variation. Edge bevel inspection looks for defects on the side edge of a wafer. Edge bead removal and edge exclusion metrology involve a topside surface measurement required exclusively in the lithography process, primarily to determine if wafers have been properly aligned for the edge exclusion region. The primary reason for wafer backside inspection is to determine if contamination has been created that may spread throughout the wafer fab. 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.

Our materials characterization products include systems that are used to monitor the physical, optical, electrical 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.

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<sup>®</sup> 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. Field-established tools such as the F30™, NSX<sup>®</sup>, and the latest Dragonfly<sup>®</sup> 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. Using Discover<sup>®</sup> 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**. Automating the defect detection and classification process is best done by a system that can mimic, or even extend, the response of the human eye, but at a much higher speed, with higher resolution and more consistency. To do this, our systems capture full-color whole wafer images using simultaneous dark and bright field illumination. The resulting bright and dark field images are compared to those from an "ideal" wafer having no defects. When a difference is detected, its image is broken down into mathematical vectors that allow rapid and accurate comparison with a library of known classified defects stored in the tool's database. Patented and proprietary enhancements of this approach enable very fast and highly repeatable image classification. The system is pre-programmed with an extensive library of local, global, and color defects and can also store a virtually unlimited amount of new defect classes. This allows customers to define defects based on their existing defect classification system, provides more reliable automated rework decisions and enables more accurate statistical process control data. Reviewing defects off-line enables automated inspection systems to maintain their utilization for high throughput inspection. Using defect image files captured by automated inspection systems, operators are able to view high-resolution defect images to determine defects that cause catastrophic failure of a device, known as killer defects. Combining the review process with classifying defects enables faster analysis by grouping defects found together as one larger defect, a scratch for example, and defects of similar types across a wafer lot to be grouped based on size, repeating defects, and other user-defined specifications.

**Yield Analysis**. Using wafer maps, charts and graphs, the massive amounts of data gathered through automated inspection can be analyzed to determine trends across bumps, die, wafers and lots. This analysis may determine where a process variation or deviation has occurred, allowing process engineers to make corrections or enhancements to increase yields. Defect data analysis is performed to identify, analyze and locate the source of defects and other manufacturing process excursions. Using either a single wafer map or a composite map created from multiple wafer maps, this analysis enables identification of defect patterns and distribution. When combined with inspection data from inspection points -placed strategically, this analysis may pinpoint the source of the defects so corrective action can be taken.

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**Opaque Film Metrology**. The MetaPULSE<sup>®</sup> systems allow customers to simultaneously measure the thickness and other properties of up to six metal or non-metallic opaque film layers without physically contacting product wafers. PULSE<sup>®</sup> technology uses an ultra-fast laser to generate acoustic waves that pass down through a stack of opaque films such as those used in copper or aluminum interconnect processes, as well as the hard mask layer in 3D NAND chips, sending back to the surface a reflected signal (echo) that indicates film thickness, density, and other process critical parameters. We believe we are a leader in providing systems that can measure opaque thin-film stacks non-destructively with the speed and accuracy semiconductor device manufacturers demand in order to achieve high yields with the latest fabrication processes. The technology is ideal for characterizing copper interconnect structures. The MetaPULSE systems, used initially for fast and accurate measurements of metal interconnect in front-end wafer fabs, have now been chosen by back-end manufacturers to perform system measurements in new process applications such as RF filters and modules, driven by the need for on-product metrology as feature sizes decrease and pattern densities increase.

**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.

**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. Substrates are aligned on the system and the mask is imaged through a projection lens onto photoresist material coated on the substrate. The substrate is then moved, or "stepped," to a second position to expose an adjacent area. The system repeats the step and exposure process until the entire substrate is patterned. 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.

In order to deal with increased input/output ("I/O") resulting from devices with enhanced functionality, increased power distribution efficiency, and higher frequency, IDMs and outsourced semiconductor assembly and test ("OSATs") facilities must incorporate lithography capabilities to create RDLs for their advanced packaging technologies. However, the associated substrates and processes are significantly different than those used in front-end wafer processing. For advanced packaging, the lithography system must perform in a completely different application, with significantly different operating parameters. For example, most packaging is an additive process, while wafer processing is subtractive, and thick films, rather than thin films, are used to enable the creation of features. In order for equipment to effectively function in this environment, it must overcome these challenges. Our JetStep<sup>®</sup> systems have been specifically designed to meet these challenges head on. The new JetStep X500 System is designed for rectangular substrates (panels), which when combined with user-selectable wavelength options, maximizes throughput while not limiting resolution when needed. High-fidelity optics are able to image the fine features required while at the same time achieving superior depth of field to minimize non-flatness that is typical for advanced packaging applications. On-the-fly auto focus and an innovative reticle management system improve yield and utilization. These features result in a revolutionary lithography system specifically designed to meet advanced packaging challenges.

**Process Control Software**. We provide a wide range of advanced process control solutions, which are designed to improve factory profitability, including run-to-run control, fault detection, classification and tool automation. We are a leading provider of process control software in the semiconductor industry. Advanced process control ("APC") employs software to automatically detect or predict tool failure (fault detection) as well as calculate recipe settings for a process that will drive the yielded output to meet and exceed the target, despite variations in the incoming material and minor instabilities within the process equipment. Process control software enables the factory to increase capacity and yield while decreasing rework and scrap. It enables reduced production costs by lowering consumables, process engineering time and manufacturing cycle time.

**Yield Management Software**. Semiconductor manufacturers use yield management software ("YMS") to obtain valuable process yield and equipment productivity information. The data necessary to generate productivity information comes from many different sources throughout the wafer fab: inspection and metrology systems, tool sensors, tool recipes, electrical tests and the fab environment. As the complexity and cost of manufacturing processes increase, the value of faster, better analysis to support critical manufacturing decisions grows. 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.

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**Customers**

Over 190 microelectronic device manufacturers purchased Onto Innovation tools or software in 2022. We support a diverse customer base in terms of both geographic location and type of device manufactured. Our customers are located in over 18 countries. The following chart identifies our customers that represented 10% or more of total revenue for each of the last three fiscal years:

---

| | | |
|:---|:---|:---|
|  | **2021** | **2020** |
| Taiwan Semiconductor Manufacturing Co. Ltd.<br> \* | \* | \* |
| Samsung Semiconductor<br> \* | \* | \* |
| SK Hynix Inc.<br> \* | ^ | ^ |
| \* The customer accounted for 10% or more of total revenue during the period. | \* The customer accounted for 10% or more of total revenue during the period. | \* 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. | ^ The customer accounted for less than 10% of total revenue during the period. | ^ The customer accounted for less than 10% of total revenue during the period. |

---

**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. We provide local direct sales, service and application support through our worldwide offices located in the United States, South Korea, Japan, Taiwan, China, Vietnam Singapore and Europe, and work with selected dealers and sales representatives on a more limited basis in various countries. Our applications team is composed of technically experienced sales engineers who are knowledgeable in the use of metrology systems generally and the unique features and advantages of our specific products. Supported by our technical applications team, our sales and support teams work closely with our customers to offer cost-effective solutions to complex measurement and process problems.

We believe that customer service and technical support for our systems are crucial factors that distinguish us from our competitors and are essential to building and maintaining close, long-term relationships with our customers. We generally provide a warranty for our products that ranges from twelve to fourteen months to cover defects in material and workmanship. 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. We have field service operations based in various locations throughout the United States, South Korea, Taiwan, China, Japan, Vietnam, Malaysia, Singapore, Israel, and Europe.

**Competition** 

We offer various products for various semiconductor manufacturing process steps, and several of our products extend across the same process flow. However, for process control of each of these process steps, we have multiple established and potential competitors, some of which may have greater financial, research, engineering, manufacturing and marketing resources than we have. We may also face future competition from new market entrants from other overseas and domestic sources. We expect our competitors to continue to improve the design and performance of their current products and processes, and to introduce new products and processes with improved price and performance characteristics. In order to remain competitive, we believe that we will require significant financial resources to offer a broad range of products, and to maintain customer service and support centers worldwide, and to invest in product research and development.

In every market in which we participate, the global semiconductor equipment industry is intensely competitive, and driven by rapid technological adoption cycles. Our ability to compete effectively depends upon our ability to continuously improve our products, applications and services, and our ability to develop new products, applications and services that meet constantly evolving customer requirements.

In automated systems for the semiconductor industry, our principal competitors are KLA Corporation ("KLA") and Nova Ltd. (formerly Nova Measuring Instruments Ltd.) ("Nova") for thin film and critical dimension OCD metrology. Our principal competitors for advanced packaging inspection are KLA and Camtek Ltd. ("Camtek"). While the advanced packaging lithography market is served by various competitors, our primary competitors are Ushio, Inc. ("Ushio") and Canon, Inc. ("Canon"). Our primary competitor for inspection in the panel market is GigaVis Co. Ltd. The primary competitor for our software products is PDF Solutions, Inc. ("PDF Solutions") and our primary competitor for integrated metrology systems for the semiconductor industry is Nova. The opto-electronics, discrete device and industrial and scientific markets are addressed primarily by our material characterization and 4D systems, served by numerous competitors, of which no single competitor or group of competitors has established a majority position.

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We believe that our competitive position in each of our markets is based on the ability of our products and services to address customer requirements related to numerous competitive factors. Competitive selections are based on many factors involving technological innovation, productivity, total cost of ownership of the system, including impact on end of line yield, price, product performance and throughput capability, quality, reliability and customer support.

**Manufacturing** 

Our manufacturing operations are in Milpitas California, Tucson Arizona, Wilmington Massachusetts, Bloomington Minnesota, and at various contract manufacturers around the world. 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.

We manufacture key modular assemblies and integrated tools and make reasonable efforts to ensure that externally purchased parts or raw materials are available from multiple suppliers, if possible. Certain components, subassemblies and services necessary for the manufacture of our systems are obtained either from a sole supplier or limited group of suppliers. We also have long-term supply agreements with strategic suppliers for the supply of key assemblies for use in our products.

We rely on limited source suppliers for certain parts and subassemblies. This reliance creates a potential inability to obtain an adequate supply of required components, and reduced control over pricing and time of delivery of components. An inability to obtain adequate supplies may require us to seek alternative sources of supply or redesign our systems to accommodate different components or subassemblies, which could result in additional expenses and delays in product development or shipment of product to our customers. Disruption or termination of the supply of components has delayed and could continue to delay shipments of some of our systems. Such delays may damage our customer relationships and reduce our sales.

**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. Whether it is for an advancement of current technology, yield and manufacturing improvement, enabling new end device technology, or the development of a new application in our core or emerging markets, we are committed to product excellence and longevity.

The markets for equipment and systems for manufacturing semiconductor devices and for performing OCD metrology, macro-defect inspection, advanced packaging lithography and thin film transparent and opaque process control metrology are characterized by continuous technological development and product innovations. We believe that the rapid and ongoing development of new products and enhancements to existing products is critical to our success. 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. 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 31, 2022, we have been granted, or hold exclusive licenses to 411 U.S. and foreign patents. The patents we own, jointly own or exclusively license have expiration dates ranging from 2023 to 2040. We also have 117 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.

Our pending patent applications may never be issued, and even if they are, these patents, our existing patents and the patents we license may not provide sufficiently broad protection to protect our intellectual property, or they may prove to be unenforceable. To protect our intellectual property, we also rely on a combination of patents, copyrights, trademarks, trade secret laws, contractual provisions and licenses and non-disclosure agreements. There can be no assurance (i) that any patents or trademarks issued to or licensed by us will not be challenged, invalidated or circumvented, (ii) that the rights granted thereunder will provide us with a competitive advantage or (iii) that we will be able to fully protect our intellectual property. Additionally, others may obtain patents or trademarks and assert them against us. From time to time, we receive communications from third parties asserting that our systems, software and/or methods may contain features that such third parties claim may infringe upon their intellectual property rights.

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From time to time, we may find it necessary to initiate litigation against other persons or entities to protect and/or enforce our intellectual property rights or contractual rights. However, litigation is costly and time consuming and there is no assurance that any lawsuit we bring will yield the result that we seek, as (i) the lawsuit may be dismissed or there could be an adverse finding, (ii) we may not be able to pursue the lawsuit due to the laws of the applicable country or (iii) there may be a subsequent unfavorable change in the laws that limit our ability to pursue the lawsuit. There is a risk that our means of protecting our intellectual property may not be adequate. For example, our competitors may independently develop similar technology or duplicate our products. If we fail to adequately protect our intellectual property, it would be easier for our competitors to sell competing products.

**Human Capital and Talent** 

As of December 31, 2022, we had approximately 1,636 staff globally, 411 in research and development, 318 in operations, 161 in administration and 746 in sales, applications and service support. A large percentage of our employees have technical backgrounds and undergraduate and/or advanced degrees. Many of our employees have specialized skills and experience that are of value to our business, products and services. 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. None of our employees are represented by a union and we have never experienced a work stoppage because of union actions. We consider our employee relations to be favorable.

**Purpose and Culture.** All of our employees are expected to uphold the following core values which are foundational to our culture:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Passion – ownership, pride and caring in our work

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Integrity – honesty, dependable, predictable and accountable

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Collaboration – working together toward a common goal

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•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. 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. The skills, experience and industry knowledge of our employees significantly benefit our operations and performance. We continuously evaluate, modify, and enhance our internal processes, tools and technologies to increase employee engagement, productivity, quality and efficiency. We offer employees access to internal and external training and development courses to support individual development. We review succession plans and focus on promoting internal talent to help grow our employees, both professionally and personally.

We strive to promote and cultivate an inclusive and diverse culture that welcomes and celebrates everyone without bias. In addition, we look to actively engage within our communities to foster and attain social equity.

In order to ensure that we are meeting our human capital and talent objectives, we frequently utilize employee surveys to understand the effectiveness of our employee and Company programs and where we can improve across the Company. Our latest survey, completed during fiscal 2022, had a participation rate of over 84% of all our employees. Through the survey, our employees indicated that the Company's greatest strengths include ensuring that managers are communicating performance expectations to employees by providing feedback on performance and supporting development, providing a caring work environment, and fostering an environment where employees have the opportunity to do their best and have a sense of accomplishment from their work.

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**Compensation Philosophy**. Our compensation philosophy creates the framework and building blocks for our rewards and recognition programs. We have a pay-for-performance culture that ties compensation to the performance of the individual and the Company. We provide balanced compensation programs that focus on the following five key elements:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Pay-for-performance - Reward those who achieve or exceed set goals and objectives, while also recognizing those making significant, impactful contributions;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•External market based - Pay levels that are competitive with respect to the labor market in which we compete for talent;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Internal equity - Providing fair compensation programs within the Company;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Fiscal responsibility - Providing programs which can be responsibly supported by our operations; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Legal compliance - Ensure compliance with the applicable laws of the states and countries in which we operate in all material respects.

**Safety, Health and Wellness**. We strive to provide an environment which is safe and where our employees can be productive. We have rigorous health and safety programs focused on awareness, recognition, risk assessment and management, as well as teamwork.

In response to the COVID-19 pandemic, we implemented a response plan that we believe was in the best interest and health of our employees and the communities in which we operate. We continue to follow local statutory safety requirements while also monitoring COVID case numbers, in the communities in which operate, to constantly update our safety protocols and requirements

Our benefit plans are competitive and comprehensive. We provide each of our employees educational programs and initiatives focused on holistic wellness supporting nutritional, physical, emotional, mental and financial wellbeing.

**Corporate Social Responsibility**

Our stakeholders are essential to our business – shareholders, customers, suppliers, employees, communities as well as the environment and society. 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. Actions we have taken in pursuit of these commitments include the following environmental and social programs:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Demanded excellence in our environmental performance, as illustrated in our annual ESG reports.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Demanded excellence in our quality performance, as demonstrated through our product and process qualification commitments, including ISO 9001 Quality Management;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•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 our use of recycled materials and beneficial reuse, and a reduction in our freshwater usage;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Commitment to RBA Code of Conduct and humane treatment of all at Onto Innovation both upstream and downstream. We established policies and practices to ensure that: Working conditions are safe. Workers are treated with respect and dignity. Manufacturing processes are environmentally responsible.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Produced systems responsibly by offering tool trade-in, refurbishment and technology upgrade programs;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Provided corporate matching for employee donations to qualified nonprofit organizations; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Engaged in community service projects in our communities globally.

We encourage you to review our 2021 ESG Report (located on our website at https://ontoinnovation.com/company/corporate-social-responsibility) 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. Such regulations include, but are not limited to:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•The Restriction of Hazardous Substances Directive ("RoHS"), which restricts the use of certain hazardous substances in electrical and electronic equipment;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•General Data Protection Regulation ("GDPR"), which provides guidelines for the collection and processing of personal information from individuals who live in the European Union;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•The U.S. Foreign Corrupt Practices Act ("FCPA"), which prohibits companies and their individual officers from influencing foreign officials with any personal payments or rewards;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Export regulations.

Our compliance with export regulations has negatively impacted our ability to compete for the business of domestic customers in China, which has adversely affected our results of operations. 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 ability to compete for the business of domestic customers in China, which may adversely affect our results of operations" and "PART I, Item 7 - management's Discussion and Analysis of Financial Condition and Results of Operations - Key Events - Expanded U.S. Export Controls."

**Available Information**

Our Internet website address is http://www.ontoinnovation.com. The information on our website is not incorporated into this Form 10-K. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K (and any amendments to those reports) are made available free of charge, on or through our Internet website, as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. 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. 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.

We also make available, free of charge, through our investor relations website, our corporate governance summary, 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.

Investors and others should also note that we announce material financial information to our investors using our investor relations website, SEC filings, press releases, public conference calls and webcasts. We use these channels as well as social media to communicate with the public about the Company, our products and services and other matters. It is possible that the information we post on social media could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in the Company to review the information we post on the social media channels listed on our investor relations website.

**Item 1A. Risk Factors.**

Below is a summary the principal factors and uncertainties that make investing in our company risky. You should read this summary together with the more detailed description of each risk factor contained further below.

Risks Related to Our Operations

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We are subject to order and shipment uncertainties. Our profitability will decline if we fail to accurately forecast customer demand when managing inventory.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•If we deliver systems with defects, our credibility will be harmed, and the sales and market acceptance of our systems will decrease.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•The COVID-19 pandemic and the resulting economic impact and supply chain issues have affected our business and could, in the future, adversely affect our business, results of operations, and financial condition.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Any prolonged disruption in the operations of our manufacturing facilities could have a material adverse effect on our revenue.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We may outsource select manufacturing activities to third-party service providers, which decreases our control over the performance of these functions and may result in lower quality and functionality of our products.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Our ability to fulfill our backlog may have an effect on our long-term ability to procure contracts and fulfill current contracts.

Risks Related to Our Customers

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•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.

Risks Related to Product Development

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•If we are not successful in developing new and enhanced products for the semiconductor device manufacturing industry, we will lose sales and market share to our competitors.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•If new products developed by us do not gain general market acceptance, we will be unable to generate revenue and recover our investments, which may result in a write down of inventory.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•If our relationships with our large customers deteriorate, our product development activities could be adversely affected.

Risks Related to Intellectual Property and Data Security

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We may fail to adequately protect our intellectual property and, therefore, lose our competitive advantage.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•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.

Risks Related to Competition

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Some of our current and potential competitors have significantly greater resources than we do, and increased competition could impair sales of our products or cause us to reduce our prices.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•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.

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Risks Related to Our International Operations

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We are subject to compliance with domestic and foreign laws and regulations, and the burden of complying with such laws and regulations, or any failure to comply, has adversely affected and may continue to adversely affect our business, financial condition and results of operations.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Political and economic instability may result in reduced demand for our products.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Natural disasters, changes in climate and geo-political conflicts could materially adversely affect our worldwide operations (or those of our business partners).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•We may face difficulties in staffing and managing foreign branch operations due to political tensions or cultural differences.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Currency fluctuations may impact our international sales or expose us to exchange rate risk.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Our internal controls with respect to anti-corruption laws may not be effective, and any failure to comply with such laws may result in severe sanctions and liabilities, which may negatively affect our business, operating results and financial condition.

Risks Related to Tax Laws, Financial Markets and the Environment

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Changes in tax rates or tax liabilities could affect results.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Turmoil or fluctuations in the credit markets and the financial services industry may negatively impact our business, results of operations, financial condition or liquidity, and our factoring arrangements may expose us to additional risks.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Customer and investor focus on our environmental, social and governance responsibility practices and policies, and related regulatory requirements, may make our supply chain more complex, and any failure to comply with customer or investor guidelines or applicable laws and regulations may adversely affect our relationship with customers and investors or our reputation and results of operations.

Risks Related to Growth and Acquisitions

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•If we cannot effectively manage growth, our business may suffer.

Risks Related to the Global Economy and the Semiconductor Industry

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•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.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Our future rate of growth is highly dependent on the development and growth of the market for microelectronic device inspection, lithography and metrology equipment.

General Risk Factors

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Provisions of our charter documents and of Delaware law could discourage potential acquisition proposals and/or delay, deter or prevent a change in control of our company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Our stock price is volatile.

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**Risks Related to Our Operations**

**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.**

We need to continually evaluate our global supply chains and assess opportunities to reduce costs. We must also enhance quality, speed and flexibility to meet changing demand for our products and product mix and uncertain market conditions. Our success also depends in part on refining our cost structure and supply chains so that we have flexibility and can maintain and improve profitability. Deteriorations 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 our margins on a product, we will need to establish high volume supply agreements with our vendors. We cannot be certain that we will be able to timely negotiate vendor supply agreements on improved terms and conditions, or at all. Failure to achieve the desired level of cost reductions could adversely affect our financial results. Despite our efforts to control costs and increase efficiency in our facilities, changes in demand could still cause us to realize lower operating margins and profitability.

Further, our gross margins and financial performance may be adversely affected by increases in our operating costs, such as material, labor, supplier costs, logistics and energy costs, all of which have been and may continue to be subject to inflationary pressures. 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 and other cost increases due to the COVID-19 pandemic and the effects of the Russia-Ukraine conflict. We have also experienced, and may continue to experience, production delays, disruptions and cost increases due to the worldwide shortage of semiconductor components as a result of sharp increases in demand for semiconductor products in general.

These risks may be heightened because we obtain some of the components and subassemblies included in our systems from a limited group of suppliers and do not have long-term contracts with many of our suppliers. Our dependence on limited-source suppliers of components and our lack of long-term contracts with many of our suppliers expose us to several risks, including a potential inability to obtain an adequate supply of components, price increases, late deliveries and poor component quality. A significant number of our suppliers are the sole source or single source for certain components or subassemblies. If such a supplier is unable or unwilling to manufacture and deliver components to us on the time schedule and of the quality or quantity that we require, we may be forced to seek to engage an additional or replacement supplier or redesign our product to use alternative components, which could result in additional expenses and delays in product development or shipment of product to our customers. Disruption or termination of the supply of components has delayed and could continue to delay shipments of some of our systems. Such delays may damage our customer relationships and reduce our sales. The lead-time required for shipments of some of our components can be greater than six months. In addition, the lead time required to qualify new suppliers for lasers and certain optics could be as long as a year, and the lead time required to qualify new suppliers of other components could be as long as nine months. In some cases, we may need to purchase components in advance of receiving customer orders for product. If we are unable to accurately predict our component needs, or if our component supply is disrupted, as it has been due to supply chain disruptions, logistics difficulties and shipping delays due to the COVID-19 pandemic and global electronic component shortages, 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.

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. We may not be able to pass cost increases through to our customers fully (or at all), and if supply chain delays and shortages delay delivery of our products, our customers may seek to purchase from our competitors. 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.**

Variations in the length of our sales cycles could cause our revenue and cash flows, and consequently, our business, financial condition, operating results and cash flows to fluctuate widely from period to period. This variation could cause our stock price to decline. Our customers generally take a long time to evaluate our inspection and/or film metrology systems and many people are involved in the evaluation process. We expend significant resources educating and providing information to our prospective customers regarding the uses and benefits of our systems in the semiconductor fabrication process. The length of time it takes for us to make a sale depends upon many factors, including, but not limited to:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the efforts of our sales force;

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the complexity of the customer's fabrication processes;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the internal technical capabilities and sophistication of the customer;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the customer's budgetary constraints; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the quality and sophistication of the customer's current metrology, inspection or lithography equipment.

Because of the number of factors influencing the sales process, the period between our initial contact with a customer and the time when we recognize revenue from that customer and receive payment, if ever, varies widely in length. Our sales cycles, including the time it takes for us to build a product to customer specifications after receiving an order to the time we recognize revenue, typically range from three to twenty-four months. Sometimes our sales cycles can be much longer, particularly with customers in Asia. During these cycles, we commit substantial resources to our sales efforts in advance of receiving any revenue, and we may never receive any revenue from a customer despite our sales efforts. If we do make a sale, our customers often purchase only one of our systems, the performance of which they then evaluate for a lengthy period before purchasing any more of our systems. The number of additional products a customer purchases, if any, depends on many factors, including the customer's capacity requirements. The period between a customer's initial purchase and any subsequent purchases can vary from three months to a year or longer, and variations in the length of this period could cause further fluctuations in our operating results and, possibly, in our stock price.

**We are subject to order and shipment uncertainties. Our profitability will decline if we fail to accurately forecast customer demand when managing inventory.**

We typically plan production and inventory levels based on internal forecasts of customer demand, which can be highly unpredictable and can fluctuate substantially, which could lead to excess inventory write-downs and resulting negative impacts on gross margin and net income. 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. Recently, certain of our customers have publicly stated their intent to decrease their memory product inventory levels as lead time for components begins to decrease. This could lead to 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. If we overestimate our customers' requirements, we may have excess inventory, which could lead to obsolete inventory and unexpected costs. Conversely, if we underestimate our customers' requirements, or if we experience sustained disruptions to our supply chain or shipping delays, including those we continue to experience due to the COVID-19 pandemic, we may have inadequate inventory, which could lead to foregone revenue opportunities, loss of potential market share and damage to customer relationships as product deliveries may not be made on a timely basis, disrupting our customers' production schedules. In response to anticipated long lead times to obtain inventory and materials from outside suppliers and foundries, we periodically order materials in advance of customer demand. This advance ordering has in the past and may in the future result in excess inventory levels or unanticipated inventory write-downs if expected orders fail to materialize, or other factors make our products less saleable. In addition, any significant future cancellation or deferral of product orders could adversely affect our revenue and margins, increase inventory write-downs due to obsolete inventory, and adversely affect our operating results and stock price.

Our earnings could be negatively affected, and our inventory levels could materially increase, if we are unable to predict our inventory needs in an accurate and timely manner and adjust our orders for parts and subcomponents in the event that our needs increase or decrease materially due to unexpected increases or decreases in demand for our products. 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.

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**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. 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. 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. 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 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 believe that sales of integrated metrology systems will continue to be an important source of our net revenues. Sales of our integrated metrology systems depend upon the ability of a small number of wafer fabrication equipment suppliers to sell semiconductor manufacturing equipment products that are compatible with our metrology systems as components. If these suppliers, such as Applied Materials, Inc., Ebara Corporation, Lam Research Corporation and Tokyo Electron, are unable to sell such products, if they choose to focus their attention on products that do not integrate with our systems, or if they choose to develop competing systems, our business could suffer.

**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.**

Our success depends, to a significant degree, upon the continued contributions of our key executive management, engineering, sales and marketing, customer support, finance and manufacturing personnel. The loss of any of these key personnel, each of whom would be extremely difficult to replace, through resignations, retirement or other circumstances, could harm our business and operating results. Despite our employment and noncompetition agreements with key members of our senior management team, these individuals or other key employees may still leave us, which could have a material adverse effect on our business. We do not have key person life insurance on any of our executives. In addition, to support our future growth, we will need to attract and retain additional qualified employees. Competition for such personnel in our industry is intense, and we may not be successful in attracting and retaining qualified employees.

The expansion of high technology companies worldwide and growth in the demand for semiconductors following the onset of the COVID-19 pandemic have increased demand and competition for qualified personnel. 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. 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.

**The COVID-19 pandemic and the resulting economic impact and supply chain issues have affected our business and could, in the future, adversely affect our business, results of operations, and financial condition.**

The effects of the public health crisis caused by the COVID-19 pandemic and the resulting economic impact have affected, and may continue to affect, our operations and those of our suppliers, third-party service providers, and customers. The extent to which the COVID-19 pandemic will continue to impact our business, results of operations, and financial conditions is difficult to predict and depends on numerous evolving factors including the duration and scope of the pandemic; government, social, business, and other actions that have been and will be taken in response to the pandemic; appearance of new variants of COVID-19; the availability, adoption, and efficacy of vaccines and treatments; and the intensity and duration of the resulting macroeconomic conditions. The COVID-19 pandemic exposes our business, results of operations, and financial condition to the following risks: 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, risk of illness, travel restrictions or other factors; a potential decrease in short-term and/or long-term demand for our products; an increase in potential opportunities

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for the Company to be subject to an adverse cybersecurity event as a result of an increase in employees working from home, which could give rise to business disruptions, loss of information, intellectual property and critical data as well as other negative impacts; and potential difficulty accessing capital, if needed in the future, either through our credit agreement or through a sale of securities, due to market conditions generally or a decline or volatility in the market for our securities. The effects of these risks, alone or taken together, could have a material adverse effect on our business, results of operations, legal exposure, or financial condition. Additional sustained or prolonged outbreaks of COVID-19 could exacerbate the adverse impact of the conditions and may also heighten many of the other risks described in this "Risk Factors" section.

**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 use contract manufacturers in China, Japan and the United States. Our manufacturing processes are highly complex and require sophisticated and costly equipment and a specially designed facility. As a result, any prolonged disruption in the operations of our manufacturing facilities could seriously harm our ability to satisfy our customer order deadlines. For example, shelter-in-place orders and other measures implemented during the COVID-19 pandemic to protect employees resulted in reduced workforce availability at product manufacturing sites and reduced output at some of our vendors and suppliers. Restrictions on our access to or operation of manufacturing facilities or on our support operations or workforce, or similar limitations for our vendors and suppliers, may impact our ability to meet customer demand and could have a material adverse effect on our financial condition and results of operations. If we cannot timely deliver our systems, our results from operations and cash flows could be materially and adversely affected.

**We outsource select manufacturing activities to third-party service providers, which decreases our control over the performance of these functions and may result in lower quality and functionality of our products.**

We outsource product manufacturing to third-party service providers. Outsourcing reduces our control over the performance of the outsourced functions. Dependence on outsourcing may also adversely affect our ability to bring new products to market. If we do not effectively manage our outsourcing strategy or if third party service providers do not perform as anticipated, we may experience operational difficulties, increased costs, manufacturing interruptions or inefficiencies in the operation of our supply chain, any or all of which could delay our delivery of products to our customers, and materially and adversely affect our business, financial condition, and results of operations.

**Our ability to fulfill our backlog may have an effect on our long-term ability to procure contracts and fulfill current contracts.**

Our ability to fulfill our backlog may be limited by our ability to devote sufficient financial and human capital resources and may be limited by available material supplies. If we do not fulfill our backlog in a timely manner, we may experience delays in product delivery, which would postpone receipt of revenue from those delayed deliveries. Delayed fulfillment also increases the risk that a customer may change or cancel an order due to evolution of the customer's technological, production or market needs, which would result in a loss of revenue. 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.

**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.**

Sales to end user customers that individually represent at least ten percent of our revenue typically account for, in the aggregate, a considerable amount of our revenue. We operate in the highly concentrated, capital-intensive semiconductor device manufacturing industry. Historically, a substantial portion of our revenue in each quarter and year has been derived from sales to relatively few customers, and this trend is expected to continue. If any of our key customers were to purchase significantly fewer of our systems in the future, or if they delay or cancel a large order, our revenue and cash flows could meaningfully decline. We expect that we will continue to depend on a small number of large customers for a sizable portion of our revenue. In addition, as large semiconductor device manufacturers seek to establish closer relationships with their suppliers, we expect that our customer base will become even more concentrated.

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**Risks Related to Product Development**

**If we are not successful in developing new and enhanced products for the semiconductor device manufacturing industry, we will lose sales and market share to our competitors.**

We operate in an industry that is highly competitive and subject to evolving industry standards, rapid technological changes, rapid changes in consumer demands and the rapid introduction of new, higher performance systems with shorter product life cycles. To be competitive in our demanding market, we must continually design, develop and introduce in a timely manner new lithography, inspection and metrology process control systems that meet the performance and price demands of semiconductor device manufacturers. We must also continue to refine our current systems so that they remain competitive. We expect to continue to make significant investments in our research and development activities and at times may make inventory investments prior to commercialization. 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. In addition, we cannot provide assurance that we will be able to develop new products for the most opportunistic new markets and applications. Any significant delay in releasing new systems could cause our products to become obsolete, adversely affect our reputation, give a competitor a first-to-market advantage or cause a competitor to achieve greater market share.

In addition, our competitors may provide innovative technology that may have performance advantages over systems we currently offer or may offer in the future. They may be able to develop products comparable or superior to those that we offer or may adapt more quickly to new technologies or evolving customer requirements. In particular, we currently are developing additional product enhancements that we believe will address future customer requirements, but we may fail in a timely manner to complete the development or introduction of these additional product enhancements successfully, or these product enhancements may not achieve market acceptance or be competitive.

Further, customers that may otherwise desire to purchase our products from us and purchase other products from our competitors may nevertheless purchase competing products from our competitors rather than purchase our products due to a variety of reasons, including to gain favor or volume pricing from our competitors.

**If new products developed by us do not gain general market acceptance, we will be unable to generate revenue and recover our investments, which may result in a write down of inventory.**

Inspection, lithography and metrology product development is inherently risky because it is difficult to foresee developments in semiconductor device manufacturing technology, coordinate technical personnel, and identify and eliminate system design flaws. Further, our products are leading edge and complex, and often the applications to our customers' businesses are unique. Any new systems we introduce may not achieve or sustain a significant degree of market acceptance and sales.

We expect to spend a significant amount of time and resources developing new systems and refining our existing systems. In light of the long product development cycles inherent in our industry, these expenditures will be made well in advance of the prospect of deriving revenue from the sale of those systems. The long lead times for some components may also require us to place orders for components and accumulate inventory in advance of market acceptance of our products.

Our ability to commercially introduce and successfully market new systems is subject to a wide variety of challenges during the development cycle, including start-up bugs, design defects, and other matters that could delay introduction of these systems. 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.

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 result in a write down of our investments in inventory. As a result, our market share, revenue, operating results or stock price would 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.**

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. This diversion of resources could have a further negative effect on sales of our current systems and the value of inventory.

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**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. 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. If our current relationships with our large customers are impaired, or if we are unable to develop similar collaborative relationships with important customers in the future, our product development activities could be adversely affected.

**Risks Related to Intellectual Property and Data Security**

**We may fail to adequately protect our intellectual property and, therefore, lose our competitive advantage.**

Our future success and competitive position depend in part upon our ability to obtain and maintain proprietary technology for our principal product families. If we fail to adequately protect our intellectual property, it will give our competitors a significant advantage. We own or have licensed a number of patents relating to our metrology, lithography, wafer and defect inspection systems, as well as artificial intelligence and machine learning systems, and software, including both embedded and application software, and have filed applications for additional patents. 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. 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 challenged by third parties. Third parties may also design around our patents or copy our patented inventions without our knowledge.

In addition to patent protection, we rely upon copyrights for protection of our proprietary software and documentation, trademarks for protection of our brand and source of goods, and trade secret law, and confidentiality and non-compete agreements for protection of our confidential and proprietary information and technology. These measures do not guarantee protection of our intellectual property, however. We can give no assurance that our copyrights will be upheld or will successfully deter infringement by third parties. Even though we routinely enter into confidentiality agreements with our employees and other third parties there can be no assurances that trade secrets and proprietary information will not be disclosed, that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets, or that we can fully protect our trade secrets and proprietary information. Violations by others of our confidentiality agreements and the loss of employees who have specialized knowledge and expertise could harm our competitive position and cause our sales and operating results to decline as a result of increased competition. It also possible that third parties will misappropriate our trade secrets or other confidential information. We may be subject to cybersecurity breaches in which a third party obtains our confidential information. Third parties may also reverse engineer our products to copy our technology. Any of these circumstances could result in harm to our competitive position in the market. Failure to protect our trademarks can lead to other companies selling products using confusing similar names, thereby damaging our brand. In some countries, it can be difficult to register trademarks because of the strict examination process or blocking trademarks for other goods. Costly and time-consuming litigation might be necessary to enforce and determine the scope of our intellectual property rights, and failure to obtain or maintain trade secret protection might adversely affect our ability to continue our research or bring products to market.

From time to time, we may find it necessary to initiate litigation against other persons or entities to protect and/or enforce our intellectual property or contractual rights. However, litigation is costly and time consuming and there is no assurance that any lawsuit we bring will yield the result that we seek, as (i) the lawsuit may be dismissed or there could be an adverse finding, (ii) we may not be able to pursue the lawsuit due to the laws of the applicable country or (iii) there may be a subsequent unfavorable change in law that limits our ability to pursue the lawsuit. For example, litigation discovery practice in China, Japan, South Korea, continental Europe and Taiwan is not as robust as the United States, so it can be more difficult to determine if a company is infringing on our patents and more challenging to bring a lawsuit. Monitoring and preventing unauthorized use are also difficult and the measures we take to protect our intellectual property rights may not be adequate. Accordingly, infringement of our intellectual property rights poses a serious risk of doing business. There is a risk that we may be unable to adequately protect our intellectual property rights in certain foreign countries. For example, our competitors may independently develop similar technology or duplicate our products. If this occurs, it would be easier for our competitors to develop and sell competing products in these countries.

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**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.**

We may be required to initiate litigation in order to enforce our intellectual property rights or to determine the noninfringement, scope or validity of a third party's intellectual property rights. Any litigation, regardless of outcome, could be expensive and time consuming and could subject us to significant liabilities or require us to re-engineer our products or obtain expensive licenses from third parties. There can be no assurance that any patents, copyrights or other intellectual property rights issued to or licensed by us will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide us with a competitive advantage. Furthermore, there is no assurance that any litigation we are involved in will yield the result that we seek as (i) the lawsuit may be dismissed or there could be an adverse finding, (ii) we may not be able to pursue the lawsuit due to the laws of the applicable country or (iii) there may be a subsequent unfavorable change in law that limits our ability to pursue the lawsuit.

In addition, our commercial success depends in part on our ability to avoid infringing or misappropriating patents or other intellectual property rights owned by third parties. From time to time, we receive communications from third parties asserting that our products or systems infringe, or may infringe, on the intellectual property rights of these third parties. These claims of infringement may lead to protracted and costly litigation, which could require us to pay substantial damages or have the sale of our products or systems stopped by an injunction. Infringement claims could also cause product or system delays or require us to redesign our products or systems, and these delays could result in the loss of substantial revenue. We may also be required to obtain a license from the third party or cease activities utilizing the third party's intellectual property rights. We may not be able to enter into such a license or such a license may not be available on commercially reasonable terms. 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.

**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.**

As part of our business, we store our data and certain data about our customers, vendors and employees in our information technology system. We also rely on our information technology system for business operations. If there is a breach as a result of third-party action, employee error, malfeasance, break-ins or otherwise, of our security measures designed to protect this information and prevent data loss and other security breaches, and someone obtains unauthorized access to our customers', vendors' or employees' data or disrupts our access to our own data and systems, we could face loss of business, regulatory investigations or court orders, our reputation could be severely damaged, we could be required to expend significant capital and other resources to alleviate the problem, as well as incur significant costs and liabilities, including due to litigation, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or regulations, and costs for remediation and other incentives offered to customers.

Cyber-attacks and other malicious internet-based activities continue to increase. In response to the COVID-19 pandemic, our expanded reliance on remote access to our information systems has further increased our exposure to potential cybersecurity breaches. 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.

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. In addition, third parties have made attempts to fraudulently induce employees or users to disclose information to gain access to our data or our customers' data. As a result of any of these events, our or our customers' and vendors' information could be accessed or disclosed improperly. In addition, cybersecurity incidents affecting our customers could result in substantial delays in our ability to ship to those customers or install our products, which could result in delays in revenue recognition or the cancellation of orders, and cybersecurity incidents affecting our suppliers could result in substantial delays in our ability to obtain necessary components for our products from those suppliers, which could hamper our ability to ship our products to our customers, harming our results of operations and our customer relationships. 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.

The General Data Protection Regulation ("GDPR") is a regulation in European Union ("EU") law on data protection and privacy for the individuals within the EU and the European Economic Area ("EEA"). It also addresses the export of personal data outside the EU and EEA areas. The United Kingdom has adopted legislation that substantially implements the GDPR and

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provides for a similar penalty structure. We are also subject to the California Consumer Privacy Act of 2018 ("CCPA"), which became effective January 1, 2020, as well as the California Privacy Rights Act (CPRA), an amendment and expansion of the CCPA. Although the CPRA has an effective date of January 1, 2023, many of its provisions will retroactively apply to personal information collected from January 1, 2022. We may also be subject to other data privacy laws in the United States and the other countries in which we operate. In many cases, these laws apply not only to third-party transactions, but also to transfers of information between us and our subsidiaries, and among the subsidiaries and other parties with which we have commercial relations. The introduction of new products or expansion of our activities in certain jurisdictions may subject us to additional laws and regulations. These U.S. federal and state and foreign laws and regulations, including GDPR which can be enforced by private parties or government entities, are constantly evolving and can be subject to significant change. In addition, the application and interpretation of these laws and regulations, including GDPR, are often uncertain, particularly in our evolving industry, and may be interpreted and applied differently from country to country. Appropriate technical and organizational measures are necessary to implement these data protection principles. These laws and regulations can be costly to comply with and may delay or impede the development of new products, result in negative publicity, increase our operating costs, require significant management time and attention, or subject us to inquiries or investigations, claims or other remedies, including fines, which may be significant, or demands that we modify or cease existing business practices. 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.

**Risks Related to Competition**

**Some of our current and potential competitors have significantly greater resources than we do, and increased competition could impair sales of our products or cause us to reduce our prices.**

The market for semiconductor capital equipment is highly competitive. We face substantial competition from established companies in each of the markets we serve. We principally compete with KLA Corporation, Nova Measuring Instruments, Camtek, Ushio, Canon, and PDF Solutions. We compete to a lesser extent with Nikon. 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. As a result, these competitors may be able to respond more quickly to new or emerging technologies or market developments by devoting greater resources to the development, promotion and sale of products, which, in turn, could impair sales of our products. Further, there may be significant merger and acquisition activity among our competitors and potential competitors, which, in turn, may provide them with a competitive advantage over us by enabling them to rapidly expand their product offerings and service capabilities to meet a broader range of customer needs.

Many of our customers and potential customers in the semiconductor device manufacturing industry are large companies that require global support and service for their semiconductor capital equipment. We believe that our global support and service infrastructure is sufficient to meet the needs of our customers and potential customers. However, some of our competitors have more extensive infrastructures than we do, which could place us at a disadvantage when competing for the business of global semiconductor device manufacturers. Many of our competitors are investing heavily in the development of new systems that will compete directly with our systems. We have, from time to time, selectively reduced prices on our systems in order to protect our market share, and competitive pressures may necessitate further price reductions. We expect our competitors in each product area to continue to improve the design and performance of their products and to introduce new products with competitive prices and performance characteristics. These product introductions would likely require us to decrease the prices of our systems and increase the level of discounts that we grant our customers. 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.**

We believe that once a semiconductor device manufacturer has selected one vendor's capital equipment for a production-line application, the manufacturer generally relies upon that capital equipment and, to the extent possible, subsequent generations of the same vendor's equipment for the life of the application. Once a vendor's equipment has been installed in a production line application, a semiconductor device manufacturer must often make substantial technical modifications and may experience production-line downtime in order to switch to another vendor's equipment. 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.

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**Risks Related to Our International Operations**

**We are subject to compliance with domestic and foreign laws and regulations, and the burden of complying with such laws and regulations, or any failure to comply, has adversely affected and may continue to adversely affect our business, financial condition and results of operations**.

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 with which we are not familiar, 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.

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. These laws, regulations, rules and policies could relate to any of an array of issues including, but not limited to, environmental, tax, intellectual property, trade secrets, product liability, contracts, antitrust, employment, securities, import/export and unfair competition. The cost of maintaining compliance under multiple and changing regulatory regimes may adversely affect our business, financial condition and results of operations, and, in the case of export controls, has adversely affected and may continue to adversely affect our results of operations. As discussed below 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 recently issued, on October 7, 2022, new export control rules aimed at restricting China's access to advanced computing technology. To comply with the new rules, Onto Innovation has had to expend time and resources that might otherwise have been used for revenue generating activities. Further regulatory changes could require additional diversion of resources to compliance efforts. In addition, in the event that we fail to comply with or violate U.S. or foreign laws or regulations or customer policies, we could be subject to civil or criminal claims or proceedings that may result in monetary fines, penalties or other costs against us or our employees, which may adversely affect our operating results, financial condition, customer relations and ability to conduct our business.

**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 semiconductor device industry is a high-visibility industry in many of the European and Asian countries in which we sell our products. 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.

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, effective June 2020, the U.S. Department of Commerce imposed new export controls on the transfer of many U.S. products and technologies, including many commercial-grade electronics, to "military end users" or for "military end use" in China, which may include many Chinese commercial companies that sell products to or do business with the Chinese military. Likewise, since May 2019, the U.S. Department of Commerce has imposed restrictions on the transfer of any products from the U.S., as well as many products produced overseas that incorporate U.S. content or rely on U.S. software or technology, to Huawei Technologies Co., Ltd., and its overseas affiliates, followed by a comparable action in December 2020, related to Semiconductor Manufacturing International Corporation (SMIC) and its overseas affiliates. Most recently, in October 2022, the Bureau of Industry and Security ("BIS") of the U.S. Department of Commerce implemented new export controls related to the Chinese semiconductor manufacturing, advanced computing, and supercomputer industries (the "October 2022 Export Controls"). In 2022, BIS also added a number of companies in China to the Unverified List and Entity List of the Export Administration Regulations ("EAR"), including Yangtze Memory Technologies Co., Ltd (YMTC).

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. While we are taking appropriate measures to comply with all current export control laws and regulations applicable to our business and are applying for export licenses when required, there can be no assurance that export licenses applied for by us or our customers, will be granted in a timely manner or at all. We have experienced and may continue to experience a temporary loss of revenues while we are obtaining licenses with certain customers affected by export controls. Failure to obtain any required license could result in a reduction of anticipated revenues until we are able to replace unlicensed orders with other customer orders for which a license has been obtained or is not required, and there can be no assurance that replacement orders will be obtained on favorable terms, in a timely manner, or at all. In addition, any licenses that are granted to us or to our customers may have a short duration or

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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. 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.

The administrative processing, attendant delays and risk of ultimately not obtaining required export approvals also put us at a disadvantage relative to our non-U.S. competitors who may not be required to comply with U.S. export controls. This difficulty and uncertainty has adversely affected our ability to compete for and win business from domestic customers in China.

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. Foreign customers affected by current or future U.S. government sanctions, controls or threats of sanctions or controls may respond by developing their own solutions to replace our products or by utilizing our foreign competitors' products. 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. Increased restrictions on China exports may also lead to regulatory retaliation by the Chinese government, which may adversely impact our business. International trade disputes could result in increases in tariffs and other trade restrictions and protectionist measures that could adversely impact our operations and reduce the competitiveness of our products relative to local and global competitors.

**Political and economic instability may result in reduced demand for our products**.

We are subject to various global risks related to political and economic instabilities in countries in which we derive sales. If terrorist activities, armed conflict, civil or military unrest or political instability occurs outside of the United States, these events may result in reduced demand for our products. For example, the Ukraine–Russia geographic region is a major source of critical raw materials used for semiconductor manufacturing (such as neon and palladium), and any supply chain disruptions or shortages of such materials due to the ongoing conflict in that region could impact our customers in a manner that reduces demand for our products.

In addition, due to the complex relationships among China, Hong Kong, Taiwan, and the United States, there is risk that political, diplomatic, and national security influences might lead to trade, technology, or capital disputes, or disruptions affecting the semiconductor industry. In particular, the escalation of geopolitical tensions between China and Taiwan may cause disruptions in the markets in which we operate and lead to a decreased demand for our products, which could adversely affect our business in Asia or have a negative impact on the regional or global economy.

Furthermore, an outbreak of hostilities or other political upheaval in China, Taiwan, Japan, or South Korea, or an economic downturn in Asia or globally, would likely harm the operations of our customers in these countries. 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.

**Natural disasters, changes in climate and geo-political conflicts could materially adversely affect our worldwide operations (or those of our business partners).** 

The occurrence of one or more natural disasters such as hurricanes, tropical storms, fires, cyclones, earthquakes, tsunamis, flooding, typhoons, volcanic eruptions and weather conditions such as major or extended winter storms, droughts and tornadoes, whether as a result of climate change or otherwise, may disrupt manufacturing or other operations. For example, our Milpitas operations are located near major earthquake fault lines in California. There may also be conflict or uncertainty in the countries in which we operate, including public health issues (for example, an outbreak of a contagious disease such as COVID-19, avian influenza, measles or Ebola), safety issues, natural disasters, fire, disruptions of service from utilities, nuclear power plant accidents or general economic or political unrest, including war, civil unrest or terrorist attacks. We cannot provide any assurance that alternate means of conducting our operations (whether through alternate production capacity or service providers or otherwise) would be available if a major disruption were to occur or that, if such alternate means were available, they could be obtained on favorable terms. We have no operations in Russia, Belarus or Ukraine and do not have significant customers or suppliers in any of those countries. Consequently, to date, our operations have not been materially adversely affected by Russia's invasion of Ukraine. However, if the Russia-Ukraine conflict escalates and/or the U.S. and other jurisdictions impose additional sanctions on Russia and its supporters, there could be a disruption to the global economy and/or supply chains that could adversely affect our business. For example, components used in certain of our products use raw materials that may be

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sourced from Russia and Ukraine; if supply of those materials is disrupted it could adversely impact our ability manufacture and sell those products, which could adversely affect our results of operations.

**We may face difficulties in staffing and managing foreign branch operations due to political tensions or cultural differences**.

During periods of tension between the governments of the United States and certain other countries, it is often difficult for U.S. companies such as ours to staff and manage operations in such countries. Language and other cultural differences may also inhibit our sales and marketing efforts and create internal communication problems among our U.S. and foreign research and development teams, increasing the difficulty of managing multiple remote locations performing various development, quality assurance, and yield ramp analysis projects.

**Currency fluctuations may impact our international sales or expose us to exchange rate risk.** 

A substantial portion of our international sales are denominated in U.S. dollars. As a result, if the dollar rises in value in relation to foreign currencies, our systems will become more expensive to customers outside the United States and may be less competitive with systems produced by competitors outside the United States. These conditions could negatively impact our international sales. Foreign sales also expose us to collection risk in the event it becomes more expensive for our foreign customers to convert their local currencies into U.S. dollars. Additionally, in the event a larger portion of our revenue becomes denominated in foreign currencies, we would be subject to a potentially significant exchange rate risk, and any failure to sufficiently hedge or otherwise manage these risks could materially and adversely affect our financial condition, results of operations, and liquidity.

**Our internal controls with respect to anti-corruption laws may not be effective, and any failure to comply with such laws may result in severe sanctions and liabilities, which may negatively affect our business, operating results and financial condition.**

We are subject to the Foreign Corrupt Practices Act of 1977, as amended (the "FCPA"), and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute, 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 making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Some of our distribution partners are located in parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. The policies and procedures we have implemented to discourage these practices by our employees, our existing safeguards and any future improvements may prove to be ineffective, and our employees, consultants, sales agents or distributors may engage in conduct for which we might be held responsible. Violations of the FCPA or international anti-corruption laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the U.S. government may seek to hold us liable for successor liability FCPA violations committed by companies in which we invest or that we acquire. We cannot assure you that our internal control policies and procedures will protect us from reckless or negligent acts committed by our employees, distributors, partners, consultants or agents.

**Risks Related to Tax Laws, Financial Markets and the Environment**

**Changes in tax rates or tax liabilities could affect results.**

As a global company, we are subject to taxation in the United States and various other countries. Significant judgment is required to determine and estimate worldwide tax liabilities. 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. Beginning in 2022, the U.S. 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. The requirement will reduce our cash flows for 2022, unless repealed. 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. Based on the nature of the uncertainties around specific legislation to be enacted, we have not quantified the impact of this risk. 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

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business or cause us to change the way we operate our business. 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. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. Although we believe our tax estimates are reasonable, there can be no assurance that any final determination will not be materially different from the treatment reflected in our historical income tax provisions and accruals, which could materially and adversely affect our results of operations.

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. 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.

**Turmoil or fluctuations in the credit markets and the financial services industry may negatively impact our business, results of operations, financial condition or liquidity, and our factoring arrangements may expose us to additional risks.**

In the past, global credit markets and the financial services industry have experienced periods of turmoil and upheaval characterized by the tightening of the credit markets, the weakening of the global economy and an unprecedented level of intervention from the United States and other governments. 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. 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.

**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.**

Some of our operations use substances regulated under various federal, state, local, and international laws governing the environment, including those relating to the storage, use, discharge, disposal, labeling, and human exposure to hazardous and toxic materials. We could incur costs, fines and civil or criminal sanctions, third-party property damage or personal injury claims, or could be required to incur substantial investigation or remediation costs, if we were to violate or become liable under environmental laws. Liability under environmental laws can be joint and several and without regard to comparative fault. Compliance with current or future environmental laws and regulations could restrict our ability to expand our facilities or require us to acquire additional expensive equipment, modify our manufacturing processes, or incur other significant expenses. We may unintentionally violate environmental laws or regulations in the future as a result of human error, equipment failure or other causes. In addition to the potential adverse effects on our business operations of such an event, we are committed to maintaining safe working conditions for our employees and sourcing, manufacturing, and distributing our products in a responsible and environmentally friendly manner, and any failure on our part to do so may cause reputational harm for the Company.

**Customer and investor focus on our environmental, social and governance responsibility practices and policies, and related regulatory requirements, may make our supply chain more complex, and any failure to comply with customer or investor guidelines or applicable laws and regulations may adversely affect our relationship with customers and investors or our reputation and results of operations.**

There is an increasing focus on corporate environmental, social and governance ("ESG") responsibility in the semiconductor industry, particularly with OEMs that manufacture consumer electronics. A number of our customers have adopted, or may adopt, procurement policies that include ESG provisions or requirements that their suppliers should comply with, or they may seek to include such provisions or requirements in their procurement terms and conditions. An increasing number of investors are also requiring companies to disclose corporate ESG policies, practices and metrics. Legal and regulatory requirements, as well as investor expectations, on corporate ESG practices and disclosure, are subject to change, can be unpredictable, and may be difficult and expensive for us to comply with, given the complexity of our supply chain and manufacturing. If we are unable to comply, or are unable to cause our suppliers or contract manufacturers to comply, with such policies or provisions or meet the requirements of our customers and our investors, a customer may stop purchasing products from us or an investor may sell their shares, and may take legal action against us, which could harm our reputation, revenue and results of operations.

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**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.**

Our success depends on our ability to continually enhance and broaden our product offerings in response to changing technologies, customer demands and competitive pressures. To this end, we have, from time to time, engaged in the process of identifying, analyzing and negotiating possible acquisition transactions, and, from time to time, acquiring one or more businesses, and we expect to continue to do so in the future. We may choose to acquire new and complementary businesses, products, technologies and/or services instead of developing them ourselves. We may, however, face competition for acquisition targets from larger and more established companies with greater financial resources, making it more difficult for us to complete acquisitions. 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. Further, there are numerous risks associated with acquisitions and potential acquisitions, including, but not limited to:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•diversion of management's attention from day-to-day operational matters and current products and customers;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•lack of synergy or the inability to successfully integrate the new business or to realize expected synergies;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•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;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•failure to commercialize the new technology or business;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•failure to meet the expected performance of the new technology or business;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•failure to retain key employees and customer or supplier relationships;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•lower-than-expected market opportunities or market acceptance of any new products; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•unexpected reduction of sales of existing products as a result of the introduction of new products.

Our inability to consummate one or more acquisitions on favorable terms, or our failure to realize the intended benefits from one or more acquisitions, could have a material adverse effect on our business, liquidity, financial position and/or results of operations, including as a result of our incurrence of indebtedness and related interest expense and our assumption of unforeseen contingent liabilities. We might need to raise additional funds through public or private equity or debt financings to finance any acquisition. In that event, we could be forced to obtain financing on terms that are not favorable to us and, in the case of equity financing, that result in dilution to our stockholders. In addition, any impairment of goodwill or other intangible assets, amortization of intangible assets, write-down of other assets or charges resulting from the costs of acquisitions and purchase accounting could harm our business and operating results.

**If we cannot effectively manage growth, our business may suffer.**

Over the long-term, we intend to grow our business by increasing our sales efforts and completing strategic acquisitions. To effectively manage growth, we must, among other things:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•engage, train and manage a larger sales force and additional service personnel;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•expand the geographic coverage of our sales force;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•expand our information systems;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•identify and successfully integrate acquired businesses into our operations; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•administer appropriate financial and administrative control procedures.

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Growth of our business will likely place a significant strain on our management, financial, operational, technical, sales and administrative resources. Any failure to effectively manage our growth may cause our business to suffer and our stock price to decline.

**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 operating results are subject to significant variation due to global economic conditions and the cyclical nature of the semiconductor device industry. Our business depends upon the capital expenditures of semiconductor device manufacturers, which, in turn, depend upon the current and anticipated market demand for semiconductors and products using semiconductors. The timing, length and severity of the up-and-down cycles in the semiconductor equipment industry are difficult to predict. In recent history, the industry has experienced significant downturns, generally in connection with declines in economic conditions. This cyclical nature of the industry in which we operate affects our ability to accurately predict future revenue and, thus, future expense levels. When cyclical fluctuations result in lower-than-expected revenue levels, operating results may be adversely affected, and cost reduction measures may be necessary in order for us to remain competitive and financially sound. During a down cycle, we must be in a position to adjust our cost and expense structure to prevailing market conditions and to continue to motivate and retain our key employees. In addition, during periods of rapid growth, we must be able to increase manufacturing capacity and personnel to meet customer demand. 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 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. These conditions could also affect our key suppliers, which could affect their ability to supply parts and result in delays of our customer shipments.

**Our future rate of growth is highly dependent on the development and growth of the market for microelectronic device inspection, lithography and metrology equipment.**

We target our products to address the needs of microelectronic device manufacturers for defect inspection, metrology and lithography. If for any reason the market for microelectronic device inspection, lithography or metrology equipment fails to grow in the long term, we may be unable to maintain current revenue levels in the short term and maintain our historical growth in the long term. Growth in the inspection market is dependent to a large extent upon microelectronic manufacturers replacing manual inspection with automated inspection technology. Growth in the metrology market is dependent to a large extent upon new chip designs and capacity expansion of microelectronic manufacturers. Growth in the lithography market is dependent on the development of cost-effective packaging with high fine pitch RDLs, ultimately migrating to multi-die, large, form-factor packages. There can be no assurance that manufacturers will undertake these actions at the rate we expect.

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**General Risk Factors**

**Provisions of our charter documents and of Delaware law could discourage potential acquisition proposals and/or delay, deter or prevent a change in control of our company.**

Provisions of our certificate of incorporation and by-laws may inhibit changes in control of our company not approved by our Board of Directors. These provisions also limit the circumstances in which a premium can be paid for our common stock and in which a proxy contest for control of our board may be initiated. These provisions provide for:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•a prohibition on stockholder actions through written consent;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•a requirement that special meetings of stockholders be called only by the chairperson of our Board of Directors or majority of our directors;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•advance notice requirements for stockholder proposals and director nominations by stockholders;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the authority of our Board of Directors to issue, without stockholder approval, preferred stock with such terms as the Board may determine; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the authority of our board, without stockholder approval, to adopt a stockholder rights plan.

We are also entitled to avail ourselves of the protections of Section 203 of the Delaware General Corporation Law, which could inhibit changes in control of the Company.

**Our stock price is volatile.**

The market price of our common stock has fluctuated widely. Consequently, the current market price of our common stock may not be indicative of future market prices, and we may be unable to sustain or increase the value of an investment in our common stock. Factors affecting our stock price may include:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•variations in operating results from quarter to quarter;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•changes in earnings estimates by analysts or our failure to meet analysts' expectations;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•changes in the market price per share of our public company customers;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•market conditions in the semiconductor and other industries into which we sell products;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•general economic conditions;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•political changes, hostilities or natural disasters such as hurricanes and floods;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the impact of the COVID-19 pandemic, or other future infectious disease pandemics, on the global economy and on our customers, suppliers, employees, and business;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•low trading volume of our common stock; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•the number of firms making a market in 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.

**Item 1B. Unresolved Staff Comments.**

None.

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**Item 2. Properties.**

Our principal executive office building is located at 16 Jonspin Road in Wilmington, Massachusetts. We own our Milpitas and Richardson facilities and lease facilities for corporate, engineering, manufacturing, sales and service-related purposes in the United States and nine other countries - China, Japan, South Korea, Singapore, Taiwan, Malaysia, Vietnam, Germany and France. The following table indicates the location, the general purpose and the square footage of our material facilities. Our leases expire at various times through July 1, 2029.

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| | | |
|:---|:---|:---|
| **Location** | **Facility Purpose** | **Approximate<br>Square<br>Footage** |
| Wilmington, Massachusetts | Corporate Headquarters, Engineering, Manufacturing and Service | 77500 |
| Milpitas, California | Engineering, Manufacturing, Service and Administration | 134000 |
| Budd Lake, New Jersey | Engineering, Service and Administration | 49000 |
| Bloomington, Minnesota | Engineering, Manufacturing, Service and Administration | 98600 |
| Bend, Oregon | Engineering and Service | 12700 |
| Hillsboro, Oregon | Engineering and Service | 10000 |
| Richardson, Texas | Engineering | 21000 |
| Snoqualmie, Washington | Engineering and Service | 20300 |
| Tucson, Arizona | Engineering, Manufacturing and Service | 18900 |
| Taiwan | Sales and Service | 37700 |
| China | Sales, Service and Engineering | 34300 |
| South Korea | Sales and Service | 21900 |
| Japan | Sales and Service | 9000 |
| Singapore | Sales and Service | 9800 |

---

We also lease office space for other smaller sales and service offices in several locations throughout the world.

We believe that our existing facilities and capital equipment are adequate to meet our current requirements and that suitable additional or substitute space is available on commercially reasonable terms if needed.

**Item 3. Legal Proceedings.**

The information set forth under the heading "Legal Matters" in Note 8, "Commitments and Contingencies" to the Consolidated Financial Statements is incorporated herein by reference.

**Item 4. Mine Safety Disclosures.**

None.

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**PART II**

**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 6, 2023, there were approximately 113 stockholders of record. 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 the industry specific index, PHLX Semiconductor Index, for the period commencing on December 31, 2017 and ending on December 31, 2021. Historical data for Onto Innovation in the line graph for the period commencing on December 31, 2017 and ending on October 25, 2019 reflects the cumulative return to the stockholders of Nanometrics.

The information contained in the performance graph shall not be deemed to be "soliciting material" or to be "filed" with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing.

The graph assumes that $100 was invested on December 31, 2017 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.

![img167067152_0.jpg](img167067152_0.jpg)

Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2023.

---

| | | | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **12/17** | **12/17** | **12/18** | **12/18** | **12/19** | **12/19** | **12/20** | **12/20** | **12/21** | **12/21** | **12/22** | **12/22** |
| Onto Innovation Inc. |  | 100.0 |  | 109.7 |  | 146.6 |  | 190.7 |  | 406.0 |  | 273.1 |
| NYSE Composite |  | 100.0 |  | 91.1 |  | 114.3 |  | 122.3 |  | 147.5 |  | 133.8 |
| PHLX Semiconductor |  | 100.0 |  | 94.0 |  | 153.4 |  | 235.7 |  | 336.7 |  | 219.3 |

---

We have never declared or paid a cash dividend on our common stock and we currently do not intend to do so. The declaration of any future dividends by us is within the discretion of our Board of Directors and will be dependent on our earnings, financial condition and capital requirements as well as any other factors deemed relevant by our Board of Directors.

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 and private transactions from time to time. During the twelve months ended December 31, 2022, we repurchased 1.0 million,

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shares of common stock under the repurchase authorization and those shares were subsequently retired. At December 31, 2022, there was $34.8 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.

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 and stock option exercises under the Company's equity incentive program. During the three and twelve months ended December 31, 2022, we withheld 4 thousand and 107 thousand shares through net share settlements, respectively. For the three and twelve month periods ended December 31, 2022, net share settlements cost $0.3 million and $8.9 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.

The following table provides details of common stock purchased during the three month period ended December 31, 2022 (in thousands, except per share data):

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| | | | | |
|:---|:---|:---|:---|:---|
| **Period** | **Total Number<br>of Shares<br>Purchased (1)** | **Average<br>Price<br>Paid per<br>Share** | **Total Number<br>of Shares<br>Purchased as<br>Part of Publicly<br>Announced<br>Program** | **Maximum<br>Approximate Dollar Value of<br>Shares that<br>May Yet Be<br>Purchased Under<br>the Program** |
| October 2, 2022 - October 31, 2022 | 667 | $62.15 | 665 | $47137 |
| November 1, 2022 - November 30, 2022 | 109 | $66.71 | 105 | $39961 |
| December 1, 2022 - December 31, 2022 | 79 | $66.81 | 76 | $34773 |
| Three Months Ended December 31, 2022 | 855 | $63.16 | 846 |  |
| 1 Includes shares withheld through net share settlements. |  |  |  |  |

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**Item 6. [Reserved]**

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**Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.**

**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, 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 integrated circuits for a multitude of applications, each having unique manufacturing challenges. This includes integrated circuits to enable information processing and management (logic integrated circuits), memory storage (NAND, 3D-NAND, NOR, and DRAM), analog devices (e.g., Wi-Fi and 5G radio integrated circuits, power devices), MEMS sensor devices (accelerometers, pressure sensors, microphones), image sensors, and other end markets including components for 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 (in thousands, except per share and percent data):

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| | | |
|:---|:---|:---|
|  | **Year Ended** | **Year Ended** |
|  | **December 31,** | **January 1,** |
|  | **2022** | **2022** |
| Revenue | $1005183 | $788899 |
| Gross profit | $539221 | $429086 |
| Gross profit as a percent of revenue | 54% | 54% |
| Total operating expenses | $302507 | $272679 |
| Net income | $223334 | $142349 |
| Diluted earnings per share | $4.49 | $2.86 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•In fiscal 2022, revenue increased 27% compared to fiscal 2021, primarily due to an increase in sales to memory customers in advanced nodes applications and OSAT customers in specialty device and advanced packaging applications, partially offset by an increase in sales to foundry customers for advanced node applications.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Gross margin as a percentage of revenue was relatively flat at 54% for both fiscal 2022 and 2021 years. This was primarily driven by increased revenue volume, offset by unfavorable product mix and increased manufacturing costs due to inflationary pressures.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•The increase in operating expenses in fiscal 2022 compared to fiscal 2021 was primarily due to increases in research and development, and sales and marketing expenses related to increased headcount, travel expenses and the write-off of purchased in process research and development assets.

Our cash, cash equivalents and marketable securities balance increased to $547.8 million at the end of fiscal 2022 compared to $511.3 million at the end of fiscal 2021. This increase was primarily the result of $136.7 million of cash generated from operating activities. This source of cash was partially offset of $65.3 million of cash used for the purchase of our common stock, $18.4 million used for capital expenditures and $4.6 million used for the purchase of acquired research and development assets.

The demand environment, particularly in memory and advanced nodes, has weakened, and as a result, we expect a reduction in wafer fabrication equipment spending in fiscal year 2023. We expect the regulatory conditions, and the slowing

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economic environment, to negatively impact our financial results in fiscal year 2023. We believe that the semiconductor industry macroeconomics have not changed and anticipate that the industry's long-term growth projections will normalize, but in the short-term, the industry is seeing volatility and disruption due to inflationary pressures, geopolitical unrest and the lingering effects of the pandemic.

**Key Events**

Expanded U.S. Export Controls

In October 2022, BIS issued the October 2022 Export Controls related to the Chinese semiconductor manufacturing, advanced computing, and supercomputer industries. The October 2022 Export Controls include restrictions on certain semiconductor integrated circuits, commodities containing such integrated circuits, and semiconductor manufacturing equipment and restrict the ability of U.S. persons to support the development or production of integrated circuits at certain semiconductor fabrication facilities in China. The primary impact of the October 2022 Export Controls on Onto Innovation is that we are now required to obtain a license to do business with certain Chinese customers that produce certain advanced computing integrated circuits. The October 2022 Export Controls also expanded the scope of foreign-produced items subject to license requirements to entities on the Entity List that are located in China. In 2022, BIS also added a number of Chinese companies to the Unverified List and Entity List, including Yangtze Memory Technologies Co., Ltd.

We may experience a temporary loss of revenues while we apply for licenses needed to continue doing business with certain customers affected by the new export rules. A failure to obtain required license could result in a reduction of anticipated revenues. We have assessed and will continue to assess the impact of the October 2022 Export Controls and the addition of new entities to the Unverified List and Entity List on our business, financial condition and results of operations. We have estimated these new restrictions will negatively impact our revenue by approximately $80.0 million for fiscal year 2023.

Impact of COVID-19 and the Global Semiconductor Supply Shortage

To date, the COVID-19 pandemic has disrupted the way that we conduct business but has not had a material adverse impact on our operations. We have experienced some delays in customer deliveries. Additionally, we are impacted by the global shortage in electronic components and inflationary pressures. Our supply chain is strained in some cases as the availability of materials, logistics and freight options are challenging in many jurisdictions, which have resulted in long lead times, rising prices and supply chain disruptions. We expect supply chain shortages as well as inflationary cost pressures to persist into fiscal year 2023. While demand for our products has remained strong, further disruptions to our supply chain in connection with the sourcing of materials, inflationary pressures, equipment and engineering support, and services from geographic areas that have been impacted by COVID-19 may pose risks to our business, results of operations and financial condition. We are continuing to serve our customers while taking appropriate precautionary measures to provide a safe work environment for our employees and customers.

For a discussion of certain risks related to the international nature of our business and our operations and the COVID-19 pandemic and the resulting economic impact and supply chain issues, see Part I, Item 1A – Risk Factors of this 2022 Form 10-K.

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**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.

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| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **December 31, <br>2022** | **January 1, <br>2022** | **December 26, <br>2020** |
| Revenue | 100.0% | 100.0% | 100.0% |
| Cost of revenue | 46.4% | 45.6% | 50.0% |
| &nbsp;&nbsp;&nbsp;Gross profit | 53.6% | 54.4% | 50.0% |
| Operating expenses: |  |  |  |
| &nbsp;&nbsp;&nbsp;Research and development | 11.2% | 12.2% | 15.2% |
| &nbsp;&nbsp;&nbsp;Sales and marketing | 6.5% | 7.3% | 8.6% |
| &nbsp;&nbsp;&nbsp;General and administrative | 6.9% | 8.6% | 11.7% |
| &nbsp;&nbsp;&nbsp;Amortization | 5.5% | 6.5% | 9.7% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total operating expenses | 30.1% | 34.6% | 45.2% |
| Operating income | 23.5% | 19.8% | 4.8% |
| Interest income, net | 0.5% | 0.1% | 0.5% |
| Other expense, net | —% | (0.2)% | (0.5)% |
| &nbsp;&nbsp;&nbsp;Income before provision (benefit) for income taxes | 24.0% | 19.7% | 4.8% |
| Provision (benefit) for income taxes | 1.8% | 1.7% | (0.7)% |
| Net income | 22.2% | 18.0% | 5.5% |

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**Results of Operations for 2022, 2021 and 2020** 

Revenue. Our revenue is derived from the sale of our systems and software, spare parts, and services. Our revenue was $1,005.2 million, $788.9 million and $556.5 million for the years ended December 31, 2022, January 1, 2022 and December 26, 2020, respectively. This represents an increase of 27.4% from 2021 to 2022 and an increase of 41.8% from 2020 to 2021.

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

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **December 31, <br>2022** | **December 31, <br>2022** | **January 1, <br>2022** | **January 1, <br>2022** | **December 26, <br>2020** | **December 26, <br>2020** |
| Systems and software | $865707 | 86% | $669114 | 85% | $450459 | 80% |
| Parts | 84266 | 8% | 72753 | 9% | 65444 | 12% |
| Services | 55210 | 6% | 47032 | 6% | 40593 | 8% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total revenue | $1005183 | 100% | $788899 | 100% | $556496 | 100% |

---

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. 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. 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.

Total systems and software revenue increased $218.7 million for the year ended January 1, 2022, as compared to the year ended December 26, 2020, primarily due to an increase in overall demand for our products from semiconductor industry customers, particularly in specialty devices and advanced packaging and advanced nodes applications, and the inclusion of $22.3 million of revenue from the Inspectrology acquisition. 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. During fiscal 2021, the increase in parts and services revenue was primarily due to increased spending by our customers on system upgrades and repairs of existing systems.

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The following table sets forth, for the periods indicated, our revenue by geographic region as percentages of our revenue.

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| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **December 31, <br>2022** | **January 1, <br>2022** | **December 26, <br>2020** |
| Revenue | $1005183 | $788899 | $556496 |
| &nbsp;&nbsp;&nbsp;China | 25% | 19% | 22% |
| &nbsp;&nbsp;&nbsp;South Korea | 22% | 20% | 16% |
| &nbsp;&nbsp;&nbsp;Taiwan | 20% | 25% | 22% |
| &nbsp;&nbsp;&nbsp;United States | 12% | 16% | 15% |
| &nbsp;&nbsp;&nbsp;Europe | 8% | 8% | 9% |
| &nbsp;&nbsp;&nbsp;Japan | 6% | 8% | 11% |
| &nbsp;&nbsp;&nbsp;Southeast Asia | 7% | 4% | 5% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.

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, inventory step-up from purchase accounting, customization and reconfiguration of systems, international and domestic sales mix, system and software product mix, and parts and services margins. Our gross profit was $539.2 million, $429.1 million and $278.5 million for the years ended December 31, 2022, January 1, 2022, and December 26, 2020, respectively. Our gross profit represented 53.6%, 54.4% and 50.0% for the years ended December 31, 2022, January 1, 2022, and December 26, 2020, respectively. The decrease in gross profit as a percentage of revenue from 2021 to 2022 was primarily due to continued 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. The increase in gross profit as a percentage of revenue from 2020 to 2021 was primarily due to higher factory utilization associated with stronger sales levels in the 2021 fiscal period, inventory reserve charges for a discontinued product line and the sale of inventory written-up to fair value upon the 2019 Merger in the 2020 fiscal period. This increase in gross profit was partially offset by supply chain cost increases in the 2021 fiscal period.

Operating Expenses.

Our operating expenses consist of:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•<u>Research and Development</u>. We believe that it is critical to continue to make substantial investments in research and development to ensure the availability of innovative technology that meets the current and projected requirements of our customers' most advanced designs. We have maintained, and intend to continue, our commitment to investing in research and development in order to continue to offer new products and technologies. Accordingly, we devote a significant portion of our technical, management and financial resources to research and development programs. 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 $112.0 million, $96.1 million and $84.6 million in fiscal years 2022, 2021 and 2020, respectively. The year-over-year dollar increase from 2021 through 2022 was primarily due to increased costs related to new product initiatives, increased headcount and the write-off of purchased in process research and development assets. The year-over-year dollar increase from 2020 through 2021 was primarily due to increased costs related to new product initiatives and increased variable compensation plan costs. We continue to maintain our commitment to investing in new product development and enhancement to existing products.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•<u>Sales and Marketing</u>. 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. Our sales and marketing expenses were $65.7 million, $57.2 million and $48.1 million in fiscal years 2022, 2021 and 2020, respectively. The year-over-year dollar increase from 2021 through 2022 was primarily due to increased headcount, including variable compensation plan costs and higher travel related expenses. The year-over-year dollar increase from 2020 through 2021 was primarily due to increased personnel costs, including variable compensation plan costs.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•<u>General and Administrative</u>. 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 $69.6 million, $68.0 million and $65.3 million in fiscal years 2022, 2021 and 2020, respectively. The year-over-year dollar increase from 2021 through 2022 was primarily due to increased headcount, including variable compensation plan costs. The year-over-year dollar increase from 2020 through 2021 was primarily due to increased personnel costs, including variable compensation plan costs.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•<u>Amortization of Identifiable Intangible Assets</u>. Amortization of identifiable intangible assets, primarily purchased technology, was $55.3 million, $51.4 million and $53.7 million in fiscal years 2022, 2021 and 2020, respectively. 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 IPR&D that became classified as identifiable intangible assets in second half of 2021. The year-over-year dollar decrease from 2020 through 2021 was primarily due to certain intangible assets becoming fully amortized, partially offset by amortization for newly acquired intangible assets in 2021.

Interest income, net. In fiscal years 2022, 2021 and 2020, net interest income was $5.0 million, $1.2 million and $2.9 million, respectively. The increase in net interest income from 2021 to 2022 was due to higher average balances and higher interest rates during the 2022 period. The decrease in net interest income from 2020 to 2021 was due to lower interest rates during the 2021 period.

Income taxes. The following table provides details of income tax (dollars in millions):

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| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **December 31, <br>2022** | **January 1, <br>2022** | **December 26, <br>2020** |
| Income before provision (benefit) for income taxes | $241.6 | $155.7 | $26.9 |
| Provision (benefit) for income taxes | $18.3 | $13.3 | $(4.2) |
| Effective tax rate | 7.6% | 8.6% | (15.5)% |

---

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. 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.

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 statute of limitations. These benefits were partially offset by the inclusion of U.S. tax on foreign source income of $1.7 million.

The income tax provision differs from the federal statutory income tax rate of 21% for 2020 primarily due to a benefit related to the FDII of $4.3 million, tax benefits for research and development credits of $4.9 million, and a one-time benefit related to the closure of an IRS audit for tax years 2016 through 2018 of $2.9 million. These benefits were partially offset by the inclusion of Global Intangible Low-Taxed Income ("GILTI") of $2.0 million.

Our future effective income tax rate depends on various factors, such as future impacts of the Tax Act, possible further 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.

On March 27, 2020, the "Coronavirus Aid, Relief and Economic Security Act" (the "CARES Act") was enacted. The CARES Act includes provisions relating to refundable payroll tax credits, deferral of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The Company filed a claim for a refund of prior years' income taxes paid under the provisions of the CARES Act which resulted in a tax benefit of $1.9 million as the 2019 net operating loss was carried back to a year with higher tax rates.

Unanticipated changes in our tax provisions or exposure to additional tax liabilities could affect our profitability and cash flow. We are subject to income and other taxes in the United States and foreign jurisdictions. Changes in applicable U.S. (federal, state and local) or foreign tax laws and regulations, or their interpretation and application, including the possibility of retroactive effect, have affected and could continue to affect our tax expense and profitability as, for example, they did in 2017

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upon passage of the Tax Cuts and Jobs Act. In addition, the final determination of any state or federal tax audits or related litigation, in particular with regard to the sustainment of our positions on research credits and timing of revenue recognition under IRC Section 451(b), could be materially different from our historical income tax provisions and accruals.

Beginning in 2022, the TCJA eliminates the existing option to deduct research and development expenditures and requires taxpayers to amortize them over five years for U.S. incurred expenditures and fifteen years for non-U.S. expenditures pursuant to IRC Section 174. Although Congress has considered legislation that would defer the amortization requirement to later years, we have no assurance that the provision will be repealed or otherwise modified. If the requirement is not modified, it will continue to reduce our cash flows for 2023. Changes in our tax provisions or an increase in our tax liabilities, whether due to changes in applicable laws and regulations, the interpretation or application thereof, or a final determination of tax audits or litigation or agreements, could have a material adverse effect on our financial position, results of operations and/or cash flows.

**Liquidity and Capital Resources**

At December 31, 2022, we had $547.8 million of cash, cash equivalents and marketable securities and $974.3 million in working capital. At January 1, 2022, we had $511.3 million of cash, cash equivalents and marketable securities and $793.6 million in working capital.

Net cash and cash equivalents provided by operating activities for the years ended December 31, 2022, January 1, 2022 and December 26, 2020 totaled $136.7 million, $175.3 million and $106.0 million, respectively.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Cash provided by operating activities decreased in fiscal 2022 compared to fiscal 2021 primarily due to an increase in inventories of $36.7 million, an increase in accounts receivable of $37.3 million, an increase in income taxes of $6.3 million, and an increase in prepaid expenses and other assets of $4.2 million, partially offset by higher net income, adjusted to exclude the effect of non-cash charges, of $67.3 million, an increase in accounts payable of $11.0 million and an increase in accrued and other liabilities of $10.4 million.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•Cash provided by operating activities increased in fiscal 2021 compared to fiscal 2020 primarily due to higher net income, adjusted to exclude the effect of non-cash charges of $91.2 million, an increase in accrued and other liabilities of $3.8 million and an increase in income taxes of $2.5 million, partially offset by an increase in inventories of $14.7 million, an increase in prepaid expenses and other assets of $12.2 million and an increase in accounts receivable of $2.0 million.

Net cash and cash equivalents used in investing activities for the years ended December 31, 2022, January 1, 2022 and December 26, 2020 was $55.7 million, $141.8 million and $48.6 million, respectively.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•During the year ended December 31, 2022, net cash used in investing activities included purchases of marketable securities, net of proceeds from sales of marketable securities of $32.6 million, purchase of business net of cash acquired of $4.6 million, and purchases of property, plant and equipment of $18.4 million.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•During the year ended January 1, 2022, net cash used in investing activities included purchases of marketable securities, net of proceeds from sales of marketable securities of $106.0 million, purchase of business net of cash acquired of $23.8 million, and purchases of property, plant and equipment of $12.0 million.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•During the year ended December 26, 2020, net cash used in investing activities included purchases of marketable securities, net of proceeds from sales of marketable securities of $47.6 million and purchases of property, plant and equipment of $3.8 million, partially offset by cash received from convertible note receivable of $2.8 million.

Net cash used in financing activities was $68.4 million and $53.7 million for the year ended December 31, 2022 and December 26, 2020, respectively. For the year ended January 1, 2022 financing activities provided $2.7 million.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•During the year ended December 31, 2022, financing activities primarily used cash for repurchases of common stock of $65.3 million, tax payments related to shares withheld to satisfy employee tax obligations in connection with the vesting of awards under share-based compensation plans of $8.9 million and payments related to contingent consideration for acquired business of $2.3 million, partially offset by proceeds from sale of shares through share-based compensation plans of $8.1 million.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•During the year ended January 1, 2022, financing activities provided cash from shares issued through share-based compensation plans of $10.1 million, partially offset by cash used to pay taxes related to shares withheld to satisfy employee tax obligations in connection with the vesting of awards under share-based compensation plans of $7.4 million.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;•During the year ended December 26, 2020, financing activities used cash primarily to purchase shares of our common stock under the share repurchase authorization of $52.0 million.

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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. In the first quarter of 2021, the Company acquired Inspectrology, LLC for $24.0 million in cash.

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 and private transactions from time to time. During the twelve months ended December 31, 2022, we repurchased 1.0 million shares of common stock under this repurchase authorization and those shares were subsequently retired. At December 31, 2022, there was $34.7 million available for future share under this share repurchase authorization.

For further information regarding our share repurchases, see Note 16 in the accompanying Notes to the Consolidated Financial Statements included in this Form 10-K.

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. 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 31, 2022, the available line of credit was approximately $108.4 million with an available interest rate of 6.0%. 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. 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. In addition, 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.

**Contractual Obligations**

The following table summarizes our significant contractual obligations at December 31, 2022, 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).

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **Payments due by period** | **Payments due by period** | **Payments due by period** | **Payments due by period** | **Payments due by period** |
|  | **Total** | **Less than 1<br>year** | **1-3<br>years** | **3-5<br>years** | **More than<br>5 years** |
| Operating lease obligations | $25232 | $6876 | $10946 | $4891 | $2519 |
| Purchase obligations (1) | 417148 | 348984 | 68165 |  |  |
| &nbsp;&nbsp;&nbsp;Total | $442380 | $355860 | $79111 | $4891 | $2519 |

---

<sup>(1)</sup> Represents our agreements to purchase goods and services consisting of outstanding purchase orders for goods and services.

**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. We review the accounting policies we use in reporting our financial results on a regular basis. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, accounts receivable, inventories, business acquisitions, intangible assets, share-based payments, income taxes and warranty obligations. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. 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. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our Consolidated Financial Statements.

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Revenue Recognition. Revenue is recognized when control of the promised goods or services are transferred to our customers in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods or services. We account for a contract when it has approval and commitment from both parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

We account for shipping and handling activities as the fulfillment of a promise to transfer goods to the customer and therefore record these activities under the caption "Cost of revenue." Sales tax and any other taxes collected concurrent with revenue producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense.

Contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers or the expected cost-plus margin.

Revenue from systems is recognized when we transfer control of the product to our customer. To indicate transfer of control, we must have a present right to payment, legal title must have passed to the customer and the customer must have the significant risks and rewards of ownership. We generally transfer control for system sales when the customer or the customer's agent picks up the system at our facility. We provide an assurance warranty on our systems for a period of twelve to fourteen months against defects in material and workmanship. We provide for the estimated cost of product warranties at the time revenue is recognized.

Depending on the terms of the systems arrangement, we may also defer the recognition of a portion of the consideration expected to be received because we have to satisfy a future obligation (e.g., installation and extended warranties). 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. Software licenses provide the customer with limited rights to use the software. Revenue from licensing support and maintenance is recognized as the support and maintenance are provided, which is over the contract period.

Revenue from parts is recognized when we transfer control of the product, which typically occurs when we ship the product from our facilities to the customer.

Revenue from services primarily consists of service contracts, which provide additional maintenance coverage beyond our assurance warranty on our products, service labor, consulting and training. Revenue from service contracts is recognized ratably over the term of the service contract. Revenue from service labor and consulting is recognized as services are performed.

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. 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. 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. 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. 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. 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. 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. 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.

Excess and Obsolete Inventory. 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. We review and set standard costs as needed, but at a minimum, on an annual basis, at current manufacturing costs in order to approximate actual costs. We maintain reserves for our excess and obsolete inventory equal to the difference between the cost

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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.

Goodwill and Indefinite Lived Intangible 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. The Company has three reporting units and one operating segment. Goodwill is reviewed for impairment using either a qualitative assessment or a quantitative goodwill impairment test. If the Company chooses to perform a qualitative assessment and determine the fair value more likely than not exceeds the carrying value, no further evaluation is necessary. When the Company performs the quantitative goodwill impairment test, it compares fair value to carrying value, which includes goodwill. If fair value exceeds carrying value, the goodwill is not considered impaired. If the carrying value is higher than the fair value, the difference would be recognized as an impairment loss.

Intangible assets with indefinite lives, including in-process research and development ("IPR&D"), are tested for impairment if impairment indicators arise and, at a minimum, annually. However, the Company is permitted to first assess qualitative factors to determine if a quantitative impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that an indefinite-lived intangible asset's fair value is less than its carrying amount. Otherwise, no further impairment testing is required. The indefinite-lived intangible asset impairment test consists of a one-step analysis that compares the fair value of the intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. We consider many factors in evaluating whether the value of intangible assets with indefinite lives may not be recoverable, including, but not limited to estimates of future cash flows, the discount rate, terminal growth rates, general economic conditions, our outlook and market performance of our industry and recent and forecasted financial performance.

There was no impairment of goodwill or IPR&D for the years presented.

Long-Lived Assets and Finite-Lived Acquired Intangible Assets. We periodically review long-lived assets, other than goodwill, for impairment whenever changes in events or circumstances indicate that the carrying amount of an asset may not be recoverable. Assumptions and estimates used in the determination of impairment losses, such as future cash flows and disposition costs, may affect the carrying value of long-lived assets and the impairment of such long-lived assets, if any, could have a material effect on our consolidated financial statements. No such indicators were noted in 2022, 2021 or 2020.

Accounting for Income Taxes. As part of the process of preparing our consolidated financial statements, we are required to estimate our current tax exposure together with our temporary differences resulting from differing treatment of items for tax and accounting purposes. These temporary differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. Management judgment is required in determining our provision for income taxes and any valuation allowance recorded against our deferred tax assets. The need for a valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred taxes will be recoverable. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to adjust the valuation allowance, which could materially impact our financial position and results of operations. At December 31, 2022 and January 1, 2022, we had recorded valuation allowances of $11.8 million and $10.9 million on certain of our deferred tax assets to reflect the deferred tax assets at the net amount that is more likely than not to be realized. We evaluated the realizability of the deferred tax assets based on positive earnings as well as the projected earnings in future years and believe it is more likely than not that the substantial majority of our deferred tax asset will be realized in the future years. We will continue to monitor the realizability of the deferred tax assets and evaluate the valuation allowance.

We recognize liabilities for uncertain tax positions based on a two-step process. The first step requires us to determine if the weight of available evidence indicates that the tax position has met the threshold for recognition; therefore, we must evaluate whether it is more likely than not that the position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step requires us to measure the tax benefit of the tax position taken, or expected to be taken, in an income tax return as the largest amount that is more than 50% likely of being realized when effectively settled. This measurement step is inherently difficult and requires subjective estimations of such amounts to determine the probability of various possible outcomes. We reevaluate the uncertain tax positions each quarter based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues, and new audit activity. 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.

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Although we believe the measurement of our liabilities for uncertain tax positions is reasonable, no assurance can be given that the final outcome of these matters will not be different than what is reflected in the historical income tax provisions and accruals. If additional taxes are assessed as a result of an audit or litigation, it could have a material effect on our income tax provision and net income in the period or periods for which that determination is made.

**Item 7A. Quantitative and Qualitative Disclosures About Market Risk.**

Interest Rate and Credit Market Risk

We are exposed to changes in interest rates and market liquidity including our investments in certain available-for-sale securities. Our available-for-sale securities consist of fixed and variable rate income investments, such as municipal notes, municipal bonds and corporate bonds. We continually monitor our exposure to changes in interest rates, market liquidity and credit ratings of issuers for our available-for-sale securities. It is possible that we are at risk if interest rates, market liquidity or credit ratings of issuers change in an unfavorable direction. The magnitude of any gain or loss will be a function of the difference between the fixed or variable rate of the financial instrument and the market rate, and our financial condition and results of operations could be materially affected. Based on a sensitivity analysis performed on our financial investments held as of December 31, 2022, a hypothetical increase of 100 basis points in interest rates would result in a decrease of $2.0 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.

Foreign Currency Risk

We enter into foreign currency forward contracts to minimize the short-term impact of exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities, primarily cash and intercompany receivables and payables. In addition, we hedge certain anticipated foreign currency cash flows, primarily on revenues denominated in Japanese yen. These forward contracts are not designated as accounting hedges, so the change in fair value of the forward exchange contracts is recognized under the caption "Other expense, net" in the Consolidated Statements of Operations for each reporting period. As of December 31, 2022, and January 1, 2022, we had six and seven outstanding forward contracts, respectively, with a total notional contract value of $27.9 million and $32.3 million, respectively. We do not use derivative financial instruments for trading or speculative purposes.

**Item 8. Financial Statements and Supplementary Data.**

The consolidated financial statements and related information required by this Item are set forth on the pages indicated in Item 15(a) of this Form 10-K.

**Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.**

None.

**Item 9A. Controls and Procedures.**

**Evaluation of Disclosure Controls and Procedures**

We maintain disclosure controls and procedures that are designed to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period specified in SEC rules and forms. These controls and procedures are also designed to ensure that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating disclosure controls and procedures, we have recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Management is required to apply judgment in evaluating its controls and procedures.

We performed an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, to assess the effectiveness of the design and operation of our disclosure controls and procedures under the Exchange Act as of December 31, 2022. Based on that evaluation, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures were effective as of December 31, 2022 at the reasonable assurance level.

**Management's Report on Internal Control Over Financial Reporting**

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process

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designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) ("COSO"). Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2022.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may be circumvented or deteriorate.

**Attestation Report of the Registered Public Accounting Firm**

Our consolidated financial statements as of and for the year ended December 31, 2022 have been audited by Ernst & Young LLP, our independent registered public accounting firm, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Ernst & Young LLP has also audited our internal control over financial reporting as of December 31, 2022, as stated in its attestation report included elsewhere in this Form 10-K.

**Changes in Internal Control over Financial Reporting**

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our fiscal quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

**Item 9B. Other Information.**

None.

**Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection.**

Not applicable.

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**PART III**

Certain information required by Part III is omitted from this Form 10-K because we expect to file a definitive proxy statement within one hundred twenty (120) days after the end of our fiscal year pursuant to Regulation 14A (the "Proxy Statement") for our Annual Meeting of Stockholders currently scheduled for May 9, 2023, and the information included in the Proxy Statement is incorporated herein by reference.

**Item 10. Directors, Executive Officers and Corporate Governance.**

The information required by this Item with respect to directors and executive officers is incorporated by reference to the information under the headings "Proposal 1: Election of Directors," "Executive Officers" and "Corporate Governance Principles and Practices" in the Proxy Statement. Information regarding compliance with Section 16 of the Exchange Act is incorporated by reference to the information under the heading "Delinquent Section 16(a) Reports" in the Proxy Statement, if any.

Code of Business Conduct and Ethics. We have adopted a code of business conduct and ethics that applies to our principal executive officer, principal financial officer and controller. This code of business conduct and ethics is posted on our internet website address at http://investors.ontoinnovation.com. We will post on our website any amendment to or waiver from a provision of our code of business conduct and ethics as may be required, and within the time period specified, by applicable SEC rules.

**Item 11. Executive Compensation.**

The information required by this Item is incorporated by reference to the information under the headings "Executive Officer Compensation," "Compensation of Directors," "Executive Officer Compensation Tables," "Compensation Committee Report on Executive Officer Compensation," "Stock Ownership/Retention Guidelines for Directors" and "Compensation Committee Interlocks and Insider Participation" in the Proxy Statement.

**Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.**

The information required by this Item is incorporated by reference to the information under the headings "Security Ownership of Certain Beneficial Owners" and "Equity Compensation Plan Information" in the Proxy Statement.

**Item 13. Certain Relationships and Related Transactions, and Director Independence.**

The information required by this Item is incorporated by reference to the information under the headings "Related Persons Transaction Policy" and "Board Independence" in the Proxy Statement.

**Item 14. Principal Accountant Fees and Services.**

The information required by this Item is incorporated by reference to the information under the heading "Proposal 3: Ratification of Appointment of Independent Registered Public Accounting Firm" in the Proxy Statement.

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**PART IV**

**Item 15. Exhibits and Financial Statement Schedule.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)The following documents are filed as part of this Form 10-K:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.Financial Statements

The consolidated financial statements and consolidated financial statement information required by this Item are included on pages F-1 through F-9 of this report. The Reports of Independent Registered Public Accounting Firm appear on pages F-2 through F-4 of this report.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.Financial Statement Schedule

See Index to financial statements on page F-1 of this report.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.Exhibits

Exhibits are as set forth in the "Exhibit Index", provided below. Where so indicated, exhibits, which were previously filed, are incorporated by reference.

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **<u>Exhibit No.</u>** | **<u>Exhibit Description</u>** | **<u>Form</u>** | **<u>File Number</u>** | **<u>Date of First Filing</u>** | **<u>Exhibit No./Appendix Reference</u>** |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[<u>2.1</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000119312519179290/d760159dex21.htm) | [<u>Agreement and Plan of Merger, dated as of June 23, 2019, by and among Nanometrics Incorporated, Rudolph Technologies, Inc. and PV Equipment Inc.</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000119312519179290/d760159dex21.htm) | [<u>8-K</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000119312519179290/d760159dex21.htm) | [<u>000-13470</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000119312519179290/d760159dex21.htm) | [<u>June 24, 2019</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000119312519179290/d760159dex21.htm) | [<u>2.1</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000119312519179290/d760159dex21.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[<u>3.1</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000119312519275593/d823487dex32.htm) | [<u>Amended and Restated Certificate of Incorporation of Onto Innovation Inc.</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000119312519275593/d823487dex32.htm) | [<u>8-K</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000119312519275593/d823487dex32.htm) | [<u>001-39110</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000119312519275593/d823487dex32.htm) | [<u>October 28, 2019</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000119312519275593/d823487dex32.htm) | [<u>3.2</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000119312519275593/d823487dex32.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[<u>3.2</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020001927/onto-ex31_41.htm) | [<u>Amended and Restated Bylaws of Onto Innovation Inc.</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020001927/onto-ex31_41.htm) | [<u>8-K</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020001927/onto-ex31_41.htm) | [<u>001-39110</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020001927/onto-ex31_41.htm) | [<u>January 27, 2020</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020001927/onto-ex31_41.htm) | [<u>3.1</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020001927/onto-ex31_41.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[<u>4.1</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020006357/onto-ex41_473.htm) | [<u>Form of Common Stock Certificate</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020006357/onto-ex41_473.htm) | [<u>10-K</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020006357/onto-ex41_473.htm) | [<u>001-39110</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020006357/onto-ex41_473.htm) | [<u>February 25, 2020</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020006357/onto-ex41_473.htm) | [<u>4.1</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020006357/onto-ex41_473.htm) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[<u>4.2</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020006357/onto-ex42_503.htm) | [<u>Description of Securities</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020006357/onto-ex42_503.htm) | [<u>10-K</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020006357/onto-ex42_503.htm) | [<u>001-39110</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020006357/onto-ex42_503.htm) | [<u>February 25, 2020</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020006357/onto-ex42_503.htm) | [<u>4.2</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020006357/onto-ex42_503.htm) |
| &nbsp;&nbsp;&nbsp;[<u>10.1\*</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459017005962/nano-def14a_20170523.htm) | [<u>Nanometrics Incorporated Amended and Restated 2005 Equity Incentive Plan</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459017005962/nano-def14a_20170523.htm) | [<u>DEF14A</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459017005962/nano-def14a_20170523.htm) | [<u>000-13470</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459017005962/nano-def14a_20170523.htm) | [<u>April 4, 2017</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459017005962/nano-def14a_20170523.htm) | [<u>Appendix B</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459017005962/nano-def14a_20170523.htm) |
| &nbsp;&nbsp;&nbsp;[<u>10.1.1\*</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000070453215000010/formofperformance-basedres.htm) | [<u>Form of Performance-Based Restricted Stock Unit Agreement</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000070453215000010/formofperformance-basedres.htm) | [<u>8-K</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000070453215000010/formofperformance-basedres.htm) | [<u>000-13470</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000070453215000010/formofperformance-basedres.htm) | [<u>March 24, 2015</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000070453215000010/formofperformance-basedres.htm) | [<u>99.1</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000070453215000010/formofperformance-basedres.htm) |
| &nbsp;&nbsp;&nbsp;[<u>10.1.2\*</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000119312508055689/dex108.htm) | [<u>Nanometrics Incorporated Amended and Restated 2005 Equity Incentive Plan forms of Stock Option and Restricted Stock Unit Agreements</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000119312508055689/dex108.htm) | [<u>10-K</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000119312508055689/dex108.htm) | [<u>000-13470</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000119312508055689/dex108.htm) | [<u>March 13, 2008</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000119312508055689/dex108.htm) | [<u>10.8</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000119312508055689/dex108.htm) |
| &nbsp;&nbsp;&nbsp;[<u>10.2\*</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000095012309008438/y75945d2defr14a.htm) | [<u>Rudolph Technologies, Inc. 2009 Stock Plan</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000095012309008438/y75945d2defr14a.htm) | [<u>DEFR14A</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000095012309008438/y75945d2defr14a.htm) | [<u>000-27965</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000095012309008438/y75945d2defr14a.htm) | [<u>May 8, 2009</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000095012309008438/y75945d2defr14a.htm) | [<u>Appendix A</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000095012309008438/y75945d2defr14a.htm) |
| &nbsp;&nbsp;&nbsp;[<u>10.2.1\*</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000109439217000034/a6302017ex1012.htm) | [<u>Amended form of Employee Restricted Stock Unit Purchase Agreement pursuant to the Rudolph Technologies, Inc. 2009 Stock Plan</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000109439217000034/a6302017ex1012.htm) | [<u>10-Q</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000109439217000034/a6302017ex1012.htm) | [<u>001-36226</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000109439217000034/a6302017ex1012.htm) | [<u>August 3, 2017</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000109439217000034/a6302017ex1012.htm) | [<u>10.12</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000109439217000034/a6302017ex1012.htm) |
| &nbsp;&nbsp;&nbsp;[<u>10.3\*</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000156459018013732/rtec-ex101_26.htm) | [<u>Rudolph Technologies, Inc. 2018 Stock Plan</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000156459018013732/rtec-ex101_26.htm) | [<u>8-K</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000156459018013732/rtec-ex101_26.htm) | [<u>001-36226</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000156459018013732/rtec-ex101_26.htm) | [<u>May 16, 2018</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000156459018013732/rtec-ex101_26.htm) | [<u>10.1</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000156459018013732/rtec-ex101_26.htm) |
| &nbsp;&nbsp;&nbsp;[<u>10.3.1\*</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000156459018018955/rtec-ex101_357.htm) | [<u>Form of Employee Performance Stock Unit Purchase Agreement pursuant to the Rudolph Technologies, Inc. 2018 Stock Plan</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000156459018018955/rtec-ex101_357.htm) | [<u>10-Q</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000156459018018955/rtec-ex101_357.htm) | [<u>001-36226</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000156459018018955/rtec-ex101_357.htm) | [<u>August 2, 2018</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000156459018018955/rtec-ex101_357.htm) | [<u>10.1</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000156459018018955/rtec-ex101_357.htm) |

---

------

[<u>**Table of Contents**</u>](#table_of_contents)

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **<u>Exhibit No.</u>** | **<u>Exhibit Description</u>** | **<u>Form</u>** | **<u>File Number</u>** | **<u>Date of First Filing</u>** | **<u>Exhibit No./Appendix Reference</u>** |
| &nbsp;&nbsp;&nbsp;[<u>10.4\*</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020025340/onto-ex101_59.htm) | [<u>Onto Innovation Inc. 2020 Stock Plan</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020025340/onto-ex101_59.htm) | [<u>8-K</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020025340/onto-ex101_59.htm) | [<u>001-39110</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020025340/onto-ex101_59.htm) | [<u>May 14, 2020</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020025340/onto-ex101_59.htm) | [<u>10.1</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020025340/onto-ex101_59.htm) |
| &nbsp;&nbsp;&nbsp;[<u>10.4.2\*</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020025340/onto-ex101_59.htm) | [<u>Form of Employee Stock Option Agreement for usage under the Onto Innovation Inc. 2020 Stock Plan</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020025340/onto-ex101_59.htm) | [<u>8-K</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020025340/onto-ex101_59.htm) | [<u>001-39110</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020025340/onto-ex101_59.htm) | [<u>May 14, 2020</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020025340/onto-ex101_59.htm) | [<u>10.1</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020025340/onto-ex101_59.htm) |
| &nbsp;&nbsp;&nbsp;[<u>10.4.3\*</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020025340/onto-ex101_59.htm) | [<u>Form of Director Stock Option Agreement for usage under the Onto Innovation Inc. 2020 Stock Plan</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020025340/onto-ex101_59.htm) | [<u>8-K</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020025340/onto-ex101_59.htm) | [<u>001-39110</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020025340/onto-ex101_59.htm) | [<u>May 14, 2020</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020025340/onto-ex101_59.htm) | [<u>10.1</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020025340/onto-ex101_59.htm) |
| &nbsp;&nbsp;&nbsp;[<u>10.4.5\*</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021041715/onto-ex101_216.htm) | [<u>Form of Employee Restricted Stock Unit Agreement for usage under the Onto Innovation Inc. 2020 Stock Plan</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021041715/onto-ex101_216.htm) | [<u>10-Q</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021041715/onto-ex101_216.htm) | [<u>001-39110</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021041715/onto-ex101_216.htm) | [<u>August 5, 2021</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021041715/onto-ex101_216.htm) | [<u>10.1</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021041715/onto-ex101_216.htm) |
| &nbsp;&nbsp;&nbsp;[<u>10.4.6\*</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021041715/onto-ex101_216.htm) | [<u>Form of Director Restricted Stock Unit Purchase Agreement for usage under the Onto Innovation Inc. 2020 Stock Plan</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021041715/onto-ex101_216.htm) | [<u>10-Q</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021041715/onto-ex101_216.htm) | [<u>001-39110</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021041715/onto-ex101_216.htm) | [<u>August 5, 2021</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021041715/onto-ex101_216.htm) | [<u>10.1</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021041715/onto-ex101_216.htm) |
| &nbsp;&nbsp;&nbsp;[<u>10.4.7\*</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021041715/onto-ex101_216.htm) | [<u>Form of Employee Performance Stock Unit Purchase Agreement for usage under the Onto Innovation Inc. 2020 Stock Plan</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021041715/onto-ex101_216.htm) | [<u>10-Q</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021041715/onto-ex101_216.htm) | [<u>001-39110</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021041715/onto-ex101_216.htm) | [<u>August 5, 2021</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021041715/onto-ex101_216.htm) | [<u>10.1</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021041715/onto-ex101_216.htm) |
| &nbsp;&nbsp;&nbsp;[<u>10.4.8\*</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021054563/onto-ex101_7.htm) | [<u>Form of Employee Incentive Restricted Stock Unit Purchase Agreement for usage under the Onto Innovation Inc. 2020 Stock Plan</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021054563/onto-ex101_7.htm) | [<u>10-Q</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021054563/onto-ex101_7.htm) | [<u>001-39110</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021054563/onto-ex101_7.htm) | [<u>November 4, 2021</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021054563/onto-ex101_7.htm) | [<u>10.1</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021054563/onto-ex101_7.htm) |
| &nbsp;&nbsp;&nbsp;[<u>10.5\*</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020026089/onto-ex102_23.htm) | [<u>Onto Innovation Inc. 2020 Employee Stock Purchase Plan</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020026089/onto-ex102_23.htm) | [<u>S-8</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020026089/onto-ex102_23.htm) | [<u>333-238492</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020026089/onto-ex102_23.htm) | [<u>May 19, 2020</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020026089/onto-ex102_23.htm) | [<u>10.2</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459020026089/onto-ex102_23.htm) |
| &nbsp;&nbsp;&nbsp;[<u>10.6\*</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459019040962/onto-ex101_6.htm) | [<u>Form of Indemnification Agreement</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459019040962/onto-ex101_6.htm) | [<u>8-K</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459019040962/onto-ex101_6.htm) | [<u>001-39110</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459019040962/onto-ex101_6.htm) | [<u>November 6, 2019</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459019040962/onto-ex101_6.htm) | [<u>10.1</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459019040962/onto-ex101_6.htm) |
| &nbsp;&nbsp;&nbsp;[<u>10.7\*</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021047687/onto-ex101_7.htm) | [<u>Form of Onto Innovation Inc. Indemnification Agreement</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021047687/onto-ex101_7.htm) | [<u>8-K</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021047687/onto-ex101_7.htm) | [<u>001-39110</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021047687/onto-ex101_7.htm) | [<u>September 13, 2021</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021047687/onto-ex101_7.htm) | [<u>10.1</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459021047687/onto-ex101_7.htm) |
| &nbsp;&nbsp;&nbsp;[<u>10.8\*</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000109439214000029/a6302014ex102.htm) | [<u>Management Agreement, dated as of July 24, 2000 by and between Rudolph Technologies, Inc. and Steven R. Roth as restated and amended on July 29, 2014.</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000109439214000029/a6302014ex102.htm) | [<u>10-Q</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000109439214000029/a6302014ex102.htm) | [<u>001-36226</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000109439214000029/a6302014ex102.htm) | [<u>August 6, 2014</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000109439214000029/a6302014ex102.htm) | [<u>10.2</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000109439214000029/a6302014ex102.htm) |
| &nbsp;&nbsp;&nbsp;[<u>10.9\*</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000109439215000041/a8k11-09x15101exhibit.htm) | [<u>Employment Agreement, dated as of November 9, 2015, by and between Rudolph Technologies, Inc. and Michael Plisinski.</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000109439215000041/a8k11-09x15101exhibit.htm) | [<u>8-K</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000109439215000041/a8k11-09x15101exhibit.htm) | [<u>001-36226</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000109439215000041/a8k11-09x15101exhibit.htm) | [<u>November 9, 2015</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000109439215000041/a8k11-09x15101exhibit.htm) | [<u>10.1</u>](https://www.sec.gov/Archives/edgar/data/0001094392/000109439215000041/a8k11-09x15101exhibit.htm) |
| &nbsp;&nbsp;&nbsp;[<u>10.10\*</u>](https://www.sec.gov/Archives/edgar/data/704532/000156459022017529/onto-ex101_90.htm) | [<u>Offer Letter to Yoon Ah E. Oh, dated October 4, 2021, by and between Yoon Ah E. Oh and Onto Innovation Inc.</u>](https://www.sec.gov/Archives/edgar/data/704532/000156459022017529/onto-ex101_90.htm) | [<u>10-Q</u>](https://www.sec.gov/Archives/edgar/data/704532/000156459022017529/onto-ex101_90.htm) | [<u>001-39110</u>](https://www.sec.gov/Archives/edgar/data/704532/000156459022017529/onto-ex101_90.htm) | [<u>May 3, 2022</u>](https://www.sec.gov/Archives/edgar/data/704532/000156459022017529/onto-ex101_90.htm) | [<u>10.1</u>](https://www.sec.gov/Archives/edgar/data/704532/000156459022017529/onto-ex101_90.htm) |
| &nbsp;&nbsp;&nbsp;[<u>10.11\*</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459022020477/onto-ex101_6.htm) | [<u>Offer Letter to Mark Slicer, dated April 1, 2022, by and between Mark Slicer and Onto Innovation Inc.</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459022020477/onto-ex101_6.htm) | [<u>8-K</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459022020477/onto-ex101_6.htm) | [<u>001-39110</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459022020477/onto-ex101_6.htm) | [<u>May 17, 2022</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459022020477/onto-ex101_6.htm) | [<u>10.1</u>](https://www.sec.gov/Archives/edgar/data/0000704532/000156459022020477/onto-ex101_6.htm) |
| &nbsp;&nbsp;&nbsp;[<u>10.12\*</u>](https://www.sec.gov/Archives/edgar/data/704532/000156459022037253/onto-ex101_98.htm) | [<u>Executive Change in Control Agreement, dated July 5, 2022, by and between Onto Innovation Inc. and Yoon Ah Oh</u>](https://www.sec.gov/Archives/edgar/data/704532/000156459022037253/onto-ex101_98.htm) | [<u>10-Q</u>](https://www.sec.gov/Archives/edgar/data/704532/000156459022037253/onto-ex101_98.htm) | [<u>001-39110</u>](https://www.sec.gov/Archives/edgar/data/704532/000156459022037253/onto-ex101_98.htm) | [<u>November 10, 2022</u>](https://www.sec.gov/Archives/edgar/data/704532/000156459022037253/onto-ex101_98.htm) | [<u>10.1</u>](https://www.sec.gov/Archives/edgar/data/704532/000156459022037253/onto-ex101_98.htm) |
| &nbsp;&nbsp;&nbsp;10.13\*+ | Form of Executive Change in Control Agreement | ― | ― | ― | ― |

---

------

[<u>**Table of Contents**</u>](#table_of_contents)

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **<u>Exhibit No.</u>** | **<u>Exhibit Description</u>** | **<u>Form</u>** | **<u>File Number</u>** | **<u>Date of First Filing</u>** | **<u>Exhibit No./Appendix Reference</u>** |
| &nbsp;&nbsp;&nbsp;21.1+ | Subsidiaries. | ― | ― | ― | ― |
| &nbsp;&nbsp;&nbsp;23.1+ | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. | ― | ― | ― | ― |
| &nbsp;&nbsp;&nbsp;31.1+ | Rule 13a-14(a) Certification of Chief Executive Officer of the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ― | ― | ― | ― |
| &nbsp;&nbsp;&nbsp;31.2+ | Rule 13a-14(a) Certification of Chief Financial Officer of the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ― | ― | ― | ― |
| &nbsp;&nbsp;&nbsp;32.1+ | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ― | ― | ― | ― |
| &nbsp;&nbsp;&nbsp;32.2+ | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ― | ― | ― | ― |
| &nbsp;&nbsp;&nbsp;101.INS | Inline XBRL Instance Document | Inline XBRL Instance Document |  |  |  |
| &nbsp;&nbsp;&nbsp;101.SCH | Inline XBRL Taxonomy Extension Schema Document | Inline XBRL Taxonomy Extension Schema Document |  |  |  |
| &nbsp;&nbsp;&nbsp;101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | Inline XBRL Taxonomy Extension Calculation Linkbase Document |  |  |  |
| &nbsp;&nbsp;&nbsp;101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | Inline XBRL Taxonomy Extension Definition Linkbase Document |  |  |  |
| &nbsp;&nbsp;&nbsp;101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | Inline XBRL Taxonomy Extension Label Linkbase Document |  |  |  |
| &nbsp;&nbsp;&nbsp;101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | Inline XBRL Taxonomy Extension Presentation Linkbase Document |  |  |  |
| &nbsp;&nbsp;&nbsp;104 | Cover Page Interactive Data File (formatted in inline XBRL and contained in Exhibit 101) | Cover Page Interactive Data File (formatted in inline XBRL and contained in Exhibit 101) |  |  |  |
| &nbsp;&nbsp;&nbsp;\* | Management contract, compensatory plan or arrangement. | Management contract, compensatory plan or arrangement. |  |  |  |
| &nbsp;&nbsp;&nbsp;+ | Filed herewith. | Filed herewith. |  |  |  |

---

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND**

**FINANCIAL STATEMENT SCHEDULE**

---

| | |
|:---|:---|
|  | **Page** |
| **Consolidated Financial Statements:** |  |
| &nbsp;&nbsp;&nbsp;&nbsp;[<u>Reports of Independent Registered Public Accounting Firm (PCAOB ID Number</u> 42<u>)</u>](#report_of_independent_registered) | F-2 |
| &nbsp;&nbsp;&nbsp;&nbsp;[<u>Consolidated Statements of Operations for the years ended December 31, 2022, January 1, 2022 and</u> <br> <u>December 26, 2020</u>](#consolidated_statements_operations) | F-5 |
| &nbsp;&nbsp;&nbsp;&nbsp;[<u>Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, January 1, 2022 and December 26, 2020</u>](#consolidated_statements_comprehensive_in) | F-6 |
| &nbsp;&nbsp;&nbsp;&nbsp;[<u>Consolidated Balance Sheets as of December 31, 2022 and January 1, 2022</u>](#consolidated_balance_sheets) | F-7 |
| &nbsp;&nbsp;&nbsp;&nbsp;[<u>Consolidated Statements of Cash Flows for the years ended December 31, 2022, January 1, 2022 and</u> <br> <u>December 26, 2020</u>](#consolidated_statements_cash_flows) | F-8 |
| &nbsp;&nbsp;&nbsp;&nbsp;[<u>Consolidated Statements of Stockholders' Equity for the years ended December 31, 2022, January 1, 2022 and December 26, 2020</u>](#consolidated_stockholders) | F-9 |
| &nbsp;&nbsp;&nbsp;&nbsp;[<u>Notes to the Consolidated Financial Statements</u>](#organization_and_nature_of_operations) | F-10 |
| **Consolidated Financial Statement Schedule:** |  |
| &nbsp;&nbsp;&nbsp;&nbsp;[<u>Schedule of Valuation and Qualifying Accounts</u>](#schedule_of_valuation_and_qualifying_acc) | F-31 |

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[<u>**Table of Contents**</u>](#table_of_contents)

**Report of Independent Registered Public Accounting Firm**

To the Stockholders and the Board of Directors of Onto Innovation Inc.

**Opinion on the Financial Statements**

We have audited the accompanying consolidated balance sheets of Onto Innovation Inc. (the Company) as of December 31, 2022, and January 1, 2022, the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and January 1, 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 24, 2023, expressed an unqualified opinion thereon.

**Basis for Opinion**

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

**Critical Audit Matter** 

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account**s** or disclosure to which it relates.

**Reserve for Excess and Obsolete Inventory**

---

| | |
|:---|:---|
| Description of the Matter | As described in Notes 2 and 7 to the consolidated financial statements, the Company records inventory net of a reserve for excess and obsolete inventory resulting in net inventories of $324.3 million as of December 31, 2022. The valuation of certain of the Company's inventory is subject to risks associated with supply and demand. As described in Note 2 to the consolidated financial statements, the Company maintains reserves for excess and obsolete inventory equal to the difference between the cost of inventory and its estimated net realizable value based upon assumptions about historical and future demand for the Company's products and market conditions<br>Auditing management's estimate of the excess and obsolete inventory reserve was subjective and required significant judgment as the excess and obsolete inventory reserve is sensitive to changes in the Company's operations and assumptions used to estimate the reserve including management's assumptions with regards to product life-cycles, product demand and market conditions, which includes historical usage, expected future usage, on-hand quantities of individual materials, and anticipated engineering design changes or advancements. |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company's excess and obsolete inventory reserve process, including those over  |

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[<u>**Table of Contents**</u>](#table_of_contents)

the validity and reasonableness of the data and assumptions used in estimating the excess and obsolete inventory reserve. <br>To test the adequacy of the Company's excess and obsolete inventory reserve, we performed audit procedures that included, among others, assessing methodologies and assumptions used, testing the completeness and accuracy of the underlying data used by management in its analysis including the usage of historical materials, considering potential product obsolescence, observing physical inventory on-hand and inspecting historical gross margins to assess whether any items are being sold at a loss or lower margins that may need to be included in the reserve. We assessed the historical accuracy of management's estimated excess and obsolete inventory reserve and performed sensitivity analyses to evaluate changes in the estimate that result from changes in the Company's significant assumptions.<br>

/s/ Ernst & Young LLP

We have served as the Company's auditor since 2008.

Iselin, New Jersey

February 24, 2023

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[<u>**Table of Contents**</u>](#table_of_contents)

**Report of Independent Registered Public Accounting Firm**

To the Stockholders and the Board of Directors of Onto Innovation Inc.

**Opinion on Internal Control Over Financial Reporting**

We have audited Onto Innovation Inc.'s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Onto Innovation Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and January 1, 2022, the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 24, 2023 expressed an unqualified opinion thereon.

**Basis for Opinion**

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

**Definition and Limitations of Internal Control Over Financial Reporting**

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Iselin, New Jersey

February 24, 2023

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(In thousands, except per share data)**

---

| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **December 31, <br>2022** | **January 1, <br>2022** | **December 26, <br>2020** |
| Revenue | $1005183 | $788899 | $556496 |
| Cost of revenue | 465962 | 359813 | 278043 |
| &nbsp;&nbsp;&nbsp;Gross profit | 539221 | 429086 | 278453 |
| Operating expenses: |  |  |  |
| &nbsp;&nbsp;&nbsp;Research and development | 111953 | 96118 | 84584 |
| &nbsp;&nbsp;&nbsp;Sales and marketing | 65688 | 57235 | 48136 |
| &nbsp;&nbsp;&nbsp;General and administrative | 69582 | 67960 | 65310 |
| &nbsp;&nbsp;&nbsp;Amortization | 55284 | 51366 | 53746 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total operating expenses | 302507 | 272679 | 251776 |
| Operating income | 236714 | 156407 | 26677 |
| Interest income, net | 5011 | 1163 | 2899 |
| Other expense, net | (141) | (1888) | (2708) |
| &nbsp;&nbsp;&nbsp;Income before provision (benefit) for income taxes | 241584 | 155682 | 26868 |
| Provision (benefit) for income taxes | 18250 | 13333 | (4157) |
| Net income | $223334 | $142349 | $31025 |
| Earnings per share: |  |  |  |
| &nbsp;&nbsp;&nbsp;Basic | $4.52 | $2.89 | $0.63 |
| &nbsp;&nbsp;&nbsp;Diluted | $4.49 | $2.86 | $0.63 |
| Weighted average number of shares outstanding: |  |  |  |
| &nbsp;&nbsp;&nbsp;Basic | 49424 | 49242 | 49136 |
| &nbsp;&nbsp;&nbsp;Diluted | 49764 | 49728 | 49475 |

---

The accompanying notes are an integral part of these consolidated financial statements.

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**

**(In thousands)** 

---

| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **December 31, <br>2022** | **January 1, <br>2022** | **December 26, <br>2020** |
| Net income | $223334 | $142349 | $31025 |
| Other comprehensive income (loss), net of tax: |  |  |  |
| &nbsp;&nbsp;&nbsp;Change in net unrealized gains (losses) on available-for-sale marketable securities | (2447) | (537) | 123 |
| &nbsp;&nbsp;&nbsp;Change in currency translation adjustments | (8879) | (2715) | 5043 |
| &nbsp;&nbsp;&nbsp;Total other comprehensive income (loss), net of tax | (11326) | (3252) | 5166 |
| Total comprehensive income | $212008 | $139097 | $36191 |

---

The accompanying notes are an integral part of these consolidated financial statements.

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**CONSOLIDATED BALANCE SHEETS**

**(In thousands, except per share data)**

---

| | | |
|:---|:---|:---|
|  | **December 31,<br>2022** | **January 1,<br>2022** |
| **ASSETS** |  |  |
| Current Assets: |  |  |
| &nbsp;&nbsp;&nbsp;Cash and cash equivalents | $175872 | $169602 |
| &nbsp;&nbsp;&nbsp;Marketable securities | 371912 | 341741 |
| &nbsp;&nbsp;&nbsp;Accounts receivable, less allowance of $1,572 at December 31, 2022 and <br>&nbsp;&nbsp;&nbsp;&nbsp;$1,303 at January 1, 2022 | 241395 | 177205 |
| &nbsp;&nbsp;&nbsp;Inventories | 324282 | 243108 |
| &nbsp;&nbsp;&nbsp;Prepaid expenses and other current assets | 21411 | 16433 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current assets | 1134872 | 948089 |
| Property, plant and equipment, net | 91980 | 82094 |
| Goodwill | 315811 | 315811 |
| Identifiable intangible assets, net | 222197 | 277281 |
| Deferred income taxes | 4778 | 4822 |
| Other assets | 25225 | 21716 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total assets | $1794863 | $1649813 |
| **LIABILITIES AND STOCKHOLDERS' EQUITY** |  |  |
| Current liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;Accounts payable | $54526 | $53345 |
| &nbsp;&nbsp;&nbsp;Accrued liabilities | 48836 | 43042 |
| &nbsp;&nbsp;&nbsp;Deferred revenue | 30163 | 29979 |
| &nbsp;&nbsp;&nbsp;Other current liabilities | 27033 | 28160 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current liabilities | 160558 | 154526 |
| Deferred and other tax liabilities | 7366 | 40281 |
| Other non-current liabilities | 30513 | 28951 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities | 198437 | 223758 |
| Commitments and contingencies (Note 8) |  |  |
| Stockholders' equity: |  |  |
| &nbsp;&nbsp;&nbsp;Preferred stock, $0.001 par value, 3,000 shares authorized, no shares<br> issued and outstanding |  |  |
| &nbsp;&nbsp;&nbsp;Common stock, $0.001 par value, 97,000 shares authorized, 48,684 and <br> 49,300 issued and outstanding at December 31, 2022 and January 1, 2022, <br> respectively. | 49 | 49 |
| &nbsp;&nbsp;&nbsp;Additional paid-in capital | 1243631 | 1256179 |
| &nbsp;&nbsp;&nbsp;Accumulated other comprehensive income | (10010) | 1316 |
| &nbsp;&nbsp;&nbsp;Accumulated earnings | 362756 | 168511 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total stockholders' equity | 1596426 | 1426055 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities and stockholders' equity | $1794863 | $1649813 |

---

The accompanying notes are an integral part of these consolidated financial statements.

------

[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In thousands)**

---

| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **December 31, <br>2022** | **January 1, <br>2022** | **December 26, <br>2020** |
| Cash flows from operating activities: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Net income | $223334 | $142350 | $31025 |
| Adjustments to reconcile net income to net cash and cash equivalents provided<br>&nbsp;&nbsp;&nbsp;&nbsp; by operating activities: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Depreciation | 9378 | 14435 | 13832 |
| &nbsp;&nbsp;&nbsp;&nbsp;Amortization of intangibles | 55284 | 51366 | 53746 |
| &nbsp;&nbsp;&nbsp;&nbsp;Share-based compensation | 24426 | 19542 | 17662 |
| &nbsp;&nbsp;&nbsp;&nbsp;Write-off of acquired in-process research and development | 5652 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Acquired inventory step-up amortization |  | 393 | 10678 |
| &nbsp;&nbsp;&nbsp;&nbsp;Provision for inventory valuation | 9313 | 8175 | 14703 |
| &nbsp;&nbsp;&nbsp;&nbsp;Deferred income taxes | (33601) | (12618) | (11631) |
| &nbsp;&nbsp;&nbsp;&nbsp;Other, net | (563) | 2267 | 4711 |
| &nbsp;&nbsp;&nbsp;&nbsp;Change in operating assets and liabilities, net of effects of business acquired: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable | (65140) | (27829) | (25816) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income taxes | (5006) | 1307 | (1196) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories | (93905) | (57175) | (42409) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses and other assets | (4954) | (768) | 11409 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | 1181 | 12142 | 11403 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued and other liabilities | 11304 | 21694 | 17867 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash and cash equivalents provided by operating activities | 136703 | 175281 | 105984 |
| Cash flows from investing activities: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Purchases of marketable securities | (371287) | (361022) | (313027) |
| &nbsp;&nbsp;&nbsp;&nbsp;Proceeds from maturities and sales of marketable securities | 338645 | 255063 | 265409 |
| &nbsp;&nbsp;&nbsp;&nbsp;Purchases of property, plant and equipment | (18405) | (12039) | (3829) |
| &nbsp;&nbsp;&nbsp;&nbsp;Acquisitions, net of cash acquired | (4644) | (23795) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash received from convertible note receivable |  |  | 2848 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash and cash equivalents used in investing activities | (55691) | (141793) | (48599) |
| Cash flows from financing activities: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Purchases of common stock | (65257) |  | (52000) |
| &nbsp;&nbsp;&nbsp;&nbsp;Tax payments related to shares withheld for share-based compensation plans | (8874) | (7403) | (4052) |
| &nbsp;&nbsp;&nbsp;&nbsp;Payment of contingent consideration for acquired business | (2287) |  | (569) |
| &nbsp;&nbsp;&nbsp;&nbsp;Issuance of shares through share-based compensation plans | 8068 | 10073 | 2919 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash and cash equivalents provided by (used in) financing activities | (68350) | 2670 | (53702) |
| Effect of exchange rate changes on cash and cash equivalents | (6391) | (3276) | 2364 |
| Net increase in cash and cash equivalents | 6270 | 32882 | 6047 |
| Cash and cash equivalents at beginning of year | 169602 | 136720 | 130673 |
| Cash and cash equivalents at end of year | $175872 | $169602 | $136720 |
| Supplemental disclosure of cash flow information: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Income taxes paid, net | $58687 | $23766 | $6415 |

---

The accompanying notes are an integral part of these consolidated financial statements.

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY**

**For the years ended December 31, 2022,** 

**January 1, 2022 and December 26, 2020** 

**(In thousands)**

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Common Stock** | **Common Stock** | **Additional Paid-in** | **Accumulated<br>Other<br>Comprehensive** | **Accumulated Earnings /** |  |
|  | **Shares** | **Amount** | **Capital** | **Income / (Loss)** | **(Deficit)** | **Total** |
| Balance at December 31, 2019 | 50184 | $50 | $1269437 | $(598) | $(4863) | $1264026 |
| &nbsp;&nbsp;&nbsp;Issuance of shares through share-<br> based compensation plans, net | 668 | 1 | 2918 |  |  | 2919 |
| &nbsp;&nbsp;&nbsp;Repurchase of common stock | (1882) | (2) | (51998) |  |  | (52000) |
| &nbsp;&nbsp;&nbsp;Net income |  |  |  |  | 31025 | 31025 |
| &nbsp;&nbsp;&nbsp;Share-based compensation |  |  | 17662 |  |  | 17662 |
| &nbsp;&nbsp;&nbsp;Share-based compensation plan <br>&nbsp;&nbsp;&nbsp;&nbsp;withholdings | (118) |  | (4052) |  |  | (4052) |
| &nbsp;&nbsp;&nbsp;Other | (94) |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Currency translation |  |  |  | 5043 |  | 5043 |
| &nbsp;&nbsp;&nbsp;Unrealized gain on investments |  |  |  | 123 |  | 123 |
| Balance at December 26, 2020 | 48758 | 49 | 1233967 | 4568 | 26162 | 1264746 |
| &nbsp;&nbsp;&nbsp;Issuance of shares through share-<br> based compensation plans, net | 650 |  | 10072 |  |  | 10072 |
| &nbsp;&nbsp;&nbsp;Net income |  |  |  |  | 142349 | 142349 |
| &nbsp;&nbsp;&nbsp;Share-based compensation |  |  | 19542 |  |  | 19542 |
| &nbsp;&nbsp;&nbsp;Share-based compensation plan <br>&nbsp;&nbsp;&nbsp;&nbsp;withholdings | (108) |  | (7402) |  |  | (7402) |
| &nbsp;&nbsp;&nbsp;Currency translation |  |  |  | (2715) |  | (2715) |
| &nbsp;&nbsp;&nbsp;Unrealized loss on investments |  |  |  | (537) |  | (537) |
| Balance at January 1, 2022 | 49300 | 49 | 1256179 | 1316 | 168511 | 1426055 |
| &nbsp;&nbsp;&nbsp;Issuance of shares through share-<br> based compensation plans, net | 509 | 1 | 8067 |  |  | 8068 |
| &nbsp;&nbsp;&nbsp;Repurchase of common stock | (1018) | (1) | (36167) |  | (29089) | (65257) |
| &nbsp;&nbsp;&nbsp;Net income |  |  |  |  | 223334 | 223334 |
| &nbsp;&nbsp;&nbsp;Share-based compensation |  |  | 24426 |  |  | 24426 |
| &nbsp;&nbsp;&nbsp;Share-based compensation plan <br>&nbsp;&nbsp;&nbsp;&nbsp;withholdings | (107) |  | (8874) |  |  | (8874) |
| &nbsp;&nbsp;&nbsp;Currency translation |  |  |  | (8879) |  | (8879) |
| &nbsp;&nbsp;&nbsp;Unrealized loss on investments |  |  |  | (2447) |  | (2447) |
| Balance at December 31, 2022 | 48684 | $49 | $1243631 | $(10010) | $362756 | $1596426 |

---

The accompanying notes are an integral part of these consolidated financial statements

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**(In thousands, except per share data)**

**1.** **Organization and Nature of Operations:**

Onto Innovation Inc. ("Onto Innovation" or the "Company") is 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. The Company delivers 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. The Company provides 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. The Company's 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. Onto Innovation's systems are backed by worldwide customer service and applications support. The Company has branch sales and service offices or subsidiaries in Korea, Japan, China, Taiwan, Singapore, Malaysia, Vietnam and in several countries in Europe. The Company operates in a single reportable segment and is a provider of process characterization equipment and software for wafer fabs and advanced packaging facilities.

**2.** **Summary of Significant Accounting Policies:** 

**Consolidation.** The consolidated financial statements reflect the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

**Fiscal Year.** The fiscal year of 2022 began on January 2, 2022 and ended December 31, 2022. The fiscal year of 2021 began on December 27, 2020 and ended January 1, 2022. The fiscal year of 2020 began on January 1, 2020 and ended December 26, 2020.

**Revenue Recognition**. Revenue is recognized when control of the promised goods or services are transferred to the Company's customers in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

The Company has elected to account for shipping and handling activities as the fulfillment of a promise to transfer goods to the customer and therefore records these activities under the caption "Cost of revenue." Sales tax and any other taxes collected concurrent with revenue producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. These accounting policy elections are consistent with the manner in which the Company has historically recorded these items.

Contracts with customers may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged to customers or the expected cost-plus margin.

Systems and Software Revenue

Revenue from systems is recognized when the Company transfers control of the product to the customer. To indicate transfer of control, the Company must have a present right to payment, legal title must have passed to the customer and the customer must have the significant risks and rewards of ownership. The Company generally transfers control for system sales when the customer or the customer's agent picks up the system at the Company's facility. The Company provides an assurance warranty on its systems for a period of twelve to fourteen months against defects in material and workmanship. The Company provides for the estimated cost of product warranties at the time revenue is recognized.

Depending on the terms of the systems arrangement, the Company may also defer the recognition of a portion of the consideration expected to be received because the Company has to satisfy a future obligation (e.g., installation and extended warranties). The Company uses an observable price to determine the standalone selling price for separate performance obligations or a cost-plus margin approach when one is not available.

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**

**(In thousands, except per share data)**

Revenue from software licenses provides the customer with a right to use the software as it exists when made available to the customer. Revenue from software licenses, which is primarily sold with our systems, is recognized upfront at the point in time when the software is made available to the customer. Revenue from licensing support and maintenance is recognized as the support and maintenance are provided, which is over the contract period.

Parts Revenue

Revenue from parts is recognized when the Company transfers control of the product, which typically occurs when the Company ships the product from its facilities to the customer.

Services Revenue

Revenue from services primarily consists of service contracts, which provide additional maintenance coverage beyond the Company's assurance warranty on its products, service labor, consulting and training. Revenue from service contracts is recognized ratably over the term of the service contract. Revenue from service labor and consulting is recognized as services are performed. Revenue from installation services is recognized at a point in time when installation is complete.

Practical Expedients

The Company generally expenses sales commissions when incurred because the amortization period is one year or less. These costs are recorded within selling, general and administrative expenses.

The Company does not adjust the amount of consideration for the effects of a significant financing components, if any, as the payment terms are one year or less.

The Company does not disclose the value of remaining performance obligations for contracts with an original expected length of one year or less and contracts for which the Company recognizes revenue in the amount to which it has the right to invoice.

For additional information on the Company's revenue recognition, see Note 9 of Notes to the Consolidated Financial Statements.

**Business Combinations.** The Company accounts 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. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, the Company's estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. 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 its consolidated statements of operations. Accounting for business combinations requires the Company's management to make significant estimates and assumptions, especially at the acquisition date including its estimates for intangible assets, contractual obligations assumed, restructuring liabilities, pre-acquisition contingencies, and contingent consideration, where applicable. Although the Company believes the assumptions and estimates it has 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. 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.

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**

**(In thousands, except per share data)**

**Use of Estimates.** The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates made by management include the allowance for credit losses, excess and obsolete inventory, fair value of assets acquired and liabilities assumed in a business combination, recoverability and useful lives of property, plant and equipment and identifiable intangible assets, recoverability of goodwill, recoverability of deferred tax assets, liabilities for product warranty, contingencies, including litigation reserves and share-based payments and liabilities for tax uncertainties. Actual results could differ from those estimates.

These estimates and assumptions are based on historical experience and on various other factors which the Company believes to be reasonable under the circumstances. The Company may engage third-party valuation specialists to assist with estimates related to the valuation of financial instruments, assets and stock awards associated with various contractual arrangements. Such estimates often require the selection of appropriate valuation methodologies and significant judgment. Actual results could differ from these estimates under different assumptions or circumstances and such differences could be material.

**Cash and Cash Equivalents.** Cash and cash equivalents include cash and highly liquid debt instruments with original maturities of three months or less when purchased.

**Marketable Securities.** The Company determined that all of its investment securities are to be classified as available-for-sale. Available-for-sale debt securities are carried at fair value, with the unrealized gains and losses reported in stockholders' equity under the caption "Accumulated other comprehensive loss." Realized gains and losses and, interest and dividends on available-for-sale securities are included in interest income and other, net. Available-for-sale securities are classified as current assets regardless of their maturity date if they are available for use in current operations. The Company reviews its investment portfolio to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, credit quality and the Company's ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. When a decline in fair value is determined to be other-than-temporary, unrealized losses on available-for-sale securities are charged against earnings. The specific identification method is used to determine the gains and losses on marketable securities.

For additional information on the Company's marketable securities, see Note 4 of Notes to the Consolidated Financial Statements.

**Allowance for Credit Losses.** The Company maintains an allowance for credit losses that is estimated based on a combination of factors including write-off history, aging analysis, forecast of future economic conditions and any specific known troubled accounts. The Company believes the allowance is adequate to cover expected losses on trade receivables. Provisions for expected credit losses are classified as selling, general and administrative expense in the Consolidated Statements of Operations. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

**Inventories**. 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 Company reviews and sets standard costs as needed, but at a minimum, on an annual basis, at current manufacturing costs in order to approximate actual costs.

The Company evaluates inventories for excess quantities and obsolescence. The Company establishes inventory reserves when conditions exist that suggest that inventory may be in excess of anticipated demand or is obsolete based upon assumptions about historical and future demand for the Company's products and market conditions. In addition, inventories are evaluated for potential obsolescence due to the effect of known and anticipated engineering design changes. Once a reserve has been established, it is maintained until the item to which it relates is scrapped or sold. The Company regularly evaluates its ability to realize the value of inventory based on a combination of factors including the following: historical usage rates, forecasted sales, product end-of-life dates, estimated current and future market values and new product introductions. When recorded, reserves are intended to reduce the carrying value of the Company's inventory to its net realizable value. If actual demand for the Company's products deteriorates, or market conditions are less favorable than those that the Company projects, additional reserves may be required.

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**

**(In thousands, except per share data)**

**Property, Plant and Equipment.** Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment is computed using the straight-line method over the estimated useful lives of the assets, which are five to twenty-two years for buildings, three to ten years for machinery and equipment, three to ten years for furniture and fixtures, three years for computer equipment, and three to seven years for software. Leasehold improvements are amortized using the straight-line method over the lesser of the lease term or the estimated useful life of the related asset. Repairs and maintenance costs are expensed as incurred and major renewals and betterments are capitalized.

**Long-Lived Assets and Finite-Lived Acquired Intangible Assets.** Long-lived assets, such as property, plant, and equipment, and identifiable acquired intangible assets with finite useful lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset, which is generally based on discounted cash flows. There were no impairments of long-lived assets for the years ended December 31, 2022, January 1, 2022 and December 26, 2020.

**Goodwill and Indefinite Lived Intangible Assets.** Goodwill and indefinite lived intangible assets are tested for impairment on an annual basis or when an event or changes in 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. The Company has three reporting units and one operating segment. No goodwill impairment occurred in fiscal years 2022, 2021, or 2020. Goodwill is reviewed for impairment using either a qualitative assessment or a quantitative goodwill impairment test. If the Company chooses to perform a qualitative assessment and determine the fair value more likely than not exceeds the carrying value, no further evaluation is necessary. When the Company performs the quantitative goodwill impairment test, it compares fair value to carrying value, which includes goodwill. If fair value exceeds carrying value, the goodwill is not considered impaired. If the carrying value is higher than the fair value, the difference would be recognized as an impairment loss.

Intangible assets with indefinite lives, including in-process research and development ("IPR&D"), are tested for impairment if impairment indicators arise and, at a minimum, annually. However, the Company is permitted to first assess qualitative factors to determine if a quantitative impairment test is necessary. Further testing is only required if the entity determines, based on the qualitative assessment, that it is more likely than not that an indefinite-lived intangible asset's fair value is less than its carrying amount. Otherwise, no further impairment testing is required. The indefinite-lived intangible asset impairment test consists of a one-step analysis that compares the fair value of the intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. We consider many factors in evaluating whether the value of intangible assets with indefinite lives may not be recoverable, including, but not limited to estimates of future cash flows, the discount rate, terminal growth rates, general economic conditions, our outlook and market performance of our industry and recent and forecasted financial performance.

There was no impairment of goodwill or IPR&D for the years ended December 31, 2022, January 1, 2022 and December 26, 2020.

For additional information on the Company's goodwill and purchased intangible assets, see Note 5 of Notes to the Consolidated Financial Statements.

**Concentration of Credit Risk.** Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of accounts receivable, cash and cash equivalents and marketable securities.

The Company maintains cash and cash equivalents and marketable securities with higher credit quality issuers and monitors the amount of credit exposure to any one issuer. The Company's investment policy provides guidelines and limits regarding credit quality, investment concentration, investment type, and maturity that the Company believes will provide liquidity while reducing risk of loss of capital. Investments are of a short-term nature and include investments in commercial paper, corporate debt securities, asset-backed securities, U.S. Treasury, U.S. Government, and U.S. Agency debt.

The Company's accounts receivable result primarily from the sale of semiconductor equipment, related accessories and replacement parts. The Company's customer base is highly concentrated and historically, a relatively small number of customers have accounted for a significant portion of its revenues. Write-offs of uncollectible accounts have historically not been material. The Company actively monitors its customers' financial strength to reduce the risk of loss.

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**

**(In thousands, except per share data)**

**Warranties.** The Company generally provides a warranty on its products for a period of twelve to fourteen months against defects in material and workmanship. The Company provides for the estimated cost of product warranties at the time revenue is recognized. The estimated future warranty obligations are affected by the warranty periods, sales volumes, product failure rates, material usage and labor and replacement costs incurred in correcting a product failure. If actual product failure rates, material usage, labor or replacement costs differ from the Company's estimates, revisions to the estimated warranty obligations would be required. The warranty accrual represents the best estimate of the amount necessary to settle future and existing claims on products sold as of the balance sheet date. The Company periodically assesses the adequacy of its recorded warranty reserve and adjusts the amounts in accordance with changes in these factors.

**Income Taxes**. The Company accounts for income taxes using the asset and liability approach for deferred taxes which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's consolidated financial statements or tax returns. A valuation allowance is recorded to reduce a deferred tax asset to that portion which more likely than not will be realized.

For additional information on the Company's income taxes, see Note 12 of Notes to the Consolidated Financial Statements.

**Translation of Foreign Currencies.** The Company's international branches and subsidiaries primarily generate and expend cash in their local functional currency. Accordingly, all balance sheet accounts of these local functional currency branches and subsidiaries are translated into U.S. dollars at the fiscal period-end exchange rate, and income and expense accounts are translated into U.S. dollars using average rates in effect for the period. The resulting translation adjustments are recorded as cumulative translation adjustments and are recorded directly as a separate component of stockholders' equity under the caption, "Accumulated other comprehensive loss." The Company had accumulated exchange losses resulting from the translation of foreign operation financial statements of $7,115 and $1,764 as of December 31, 2022 and January 1, 2022, respectively.

**Share-based Compensation**. The Company measures the cost of employee services received in exchange for the award of equity instruments based on the fair value of the award at the date of grant. Compensation expense is recognized using the straight-line attribution method to recognize share-based compensation over the service period of the award, with adjustments recorded for forfeitures as they occur.

For additional information on the Company's share-based compensation plans, see Note 10 of Notes to the Consolidated Financial Statements.

**Research and Development Costs**. Expenditures for research and development are expensed as incurred.

**Derivative Instruments and Hedging Activities**. The Company's policy is to mitigate the effect of exchange rate fluctuations on certain foreign currency denominated business exposures. The Company has a policy that allows for the use of derivative financial instruments to hedge foreign currency exchange rate fluctuations on forecasted revenue and net monetary assets or liabilities denominated in various foreign currencies. The Company carries derivative financial instruments (derivatives) on the balance sheet at their fair values, in either prepaid expenses and other current assets or other current liabilities in the Consolidated Balance Sheets. The Company does not use derivatives for trading or speculative purposes. The Company does not believe that it is exposed to more than a nominal amount of credit risk in its foreign currency hedges, as counterparties are large, global and well-capitalized financial institutions. The Company's exposures are in liquid currencies (Japanese yen, euros, Korean won, Taiwanese dollars, Chinese renminbi, Singapore dollars and Israeli shekel), so there is minimal risk that appropriate derivatives to maintain the Company's hedging program would not be available in the future.

To hedge foreign currency risks, the Company uses foreign currency exchange forward contracts, where possible and prudent. These hedge contracts are valued using standard valuation formulas with assumptions about future foreign currency exchange rates derived from existing exchange rates, interest rates, and other market factors.

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**

**(In thousands, except per share data)**

The dollar equivalent of the U.S. dollar forward contracts and related fair values as of December 31, 2022 and January 1, 2022 were as follows:

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **January 1,** |
|  | **2022** | **2022** |
| Notional amount | $27923 | $32293 |
| Fair value of liability | 135 | 26 |

---

During the years ended December 31, 2022 and January 1, 2022, the Company recognized losses of $3,487 and $1,650 on maturities of forward contracts, respectively. During the year ended December 26, 2020, the Company recognized a gain of $510 on maturities of forward contracts. The aggregate notional amounts of matured contracts were $365,985, $420,460 and $373,749 for 2022, 2021 and 2020, respectively.

**Contingencies and Litigation**. The Company is subject to the possibility of losses from various contingencies, including certain legal proceedings, lawsuits and other claims. The Company accrues for a loss contingency when it concludes that the likelihood of a loss is probable and the amount of the loss can be reasonably estimated. If the Company concludes that loss contingencies that could be material to any one of its financial statements are not probable, but are reasonably possible, or are probable, but cannot be estimated, then the Company discloses the nature of the loss contingencies, together with an estimate of the range of possible loss or a statement that such loss is not reasonably estimable. The Company expenses as incurred the costs of defending legal claims against the Company. The Company does not recognize gain contingencies until realized. See Note 8 of the Notes to the Consolidated Financial Statements, "Commitments and Contingencies" for a detailed description.

**Recent Accounting Pronouncements.**

Recently Adopted and Issued

Recently adopted and issued accounting guidance is not applicable or did not have, or is not expected to have, a material impact to the Company.

**3.** **Fair Value Measurements:**

Fair Value of Financial Instruments

The Company has evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts. The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates fair value because of the short-term maturity of these instruments.

Fair Value Hierarchy

The Company applies a three-level valuation hierarchy for fair value measurements. This hierarchy prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability. Level 3 inputs are unobservable inputs based on management's assumptions used to measure assets and liabilities at fair value. A financial asset's or liability's fair value measurement classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**

**(In thousands, except per share data)**

The following tables provide the assets and liabilities carried at fair value measured on a recurring basis at December 31, 2022 and January 1, 2022:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Fair Value Measurements Using** | **Fair Value Measurements Using** | **Fair Value Measurements Using** | **Fair Value Measurements Using** |
|  | **Carrying<br>Value** | **Quoted Prices in<br>Active Markets<br>for Identical<br>Assets (Level 1)** | **Significant<br>Other <br>Observable<br>Inputs (Level 2)** | **Significant<br>Unobservable<br>Inputs (Level 3)** |
| **December 31, 2022** |  |  |  |  |
| Assets: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Available-for-sale debt securities: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Municipal notes and bonds | $178868 | $— | $178868 | $— |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Asset-backed securities | 1534 |  | 1534 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certificates of deposit | 52095 |  | 52095 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Commercial paper | 80079 |  | 80079 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Corporate bonds | 59335 |  | 59335 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total assets | $371912 | $— | $371912 | $— |
| Liabilities: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Foreign currency forward contracts | 135 | $— | 135 | $— |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities | $135 | $— | $135 | $— |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Fair Value Measurements Using** | **Fair Value Measurements Using** | **Fair Value Measurements Using** | **Fair Value Measurements Using** |
|  | **Carrying<br>Value** | **Quoted Prices in<br>Active Markets<br>for Identical<br>Assets (Level 1)** | **Significant<br>Other <br>Observable<br>Inputs (Level 2)** | **Significant<br>Unobservable<br>Inputs (Level 3)** |
| **January 1, 2022** |  |  |  |  |
| Assets: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Available-for-sale debt securities: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Municipal notes and bonds | $170980 | $— | $170980 | $— |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Asset-backed securities | 2009 |  | 2009 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certificates of deposit | 33192 |  | 33192 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Commercial paper | 73113 |  | 73113 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Corporate bonds | 62447 |  | 62447 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total assets | $341741 | $— | $341741 | $— |
| Liabilities: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Foreign currency forward contracts | $26 | $— | $26 | $— |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities | $26 | $— | $26 | $— |

---

Available-for-sale debt securities classified as Level 2 are valued using observable inputs to quoted market prices, benchmark yields, reported trades, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. The foreign currency forward contracts are primarily measured based on the foreign currency spot and forward rates quoted by the banks or foreign currency dealers. Investment prices are obtained from third party pricing providers, which model prices utilizing the above observable inputs, for each asset class.

See Note 4 for additional discussion regarding the fair value of the Company's marketable securities.

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**

**(In thousands, except per share data)**

**4.** **Marketable Securities:**

At December 31, 2022 and January 1, 2022, marketable securities are categorized as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Amortized<br>Cost** | **Gross<br>Unrealized<br>Holding Gains** | **Gross<br>Unrealized<br>Holding Losses** | **Fair<br>Value** |
| **December 31, 2022** |  |  |  |  |
| Municipal notes and bonds | $181196 | $27 | $2355 | $178868 |
| Asset-backed securities | 1555 |  | 21 | 1534 |
| Certificates of deposit | 52190 | 24 | 118 | 52095 |
| Commercial paper | 80199 | 16 | 136 | 80079 |
| Corporate bonds | 60334 | 4 | 1003 | 59335 |
| &nbsp;&nbsp;&nbsp;Total marketable securities | $375474 | $71 | $3633 | $371912 |
| **January 1, 2022** |  |  |  |  |
| Municipal notes and bonds | $171203 | $38 | $261 | $170980 |
| Asset-backed securities | 2009 |  |  | 2009 |
| Certificates of deposit | 33200 | 2 | 10 | 33192 |
| Commercial paper | 73152 | 2 | 41 | 73113 |
| Corporate bonds | 62634 | 29 | 216 | 62447 |
| &nbsp;&nbsp;&nbsp;Total marketable securities | $342198 | $71 | $528 | $341741 |

---

The amortized cost and estimated fair value of marketable securities classified by the maturity date listed on the security, regardless of the Consolidated Balance Sheet classification, is as follows at December 31, 2022 and January 1, 2022:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **December 31, 2022** | **December 31, 2022** | **January 1, 2022** | **January 1, 2022** |
|  | **Amortized <br>Cost** | **Fair<br> Value** | **Amortized <br>Cost** | **Fair<br> Value** |
| Due within one year | $311934 | $309385 | $219353 | $219211 |
| Due after one through five years | 63540 | 62527 | 122845 | 122530 |
| Due after five through ten years |  |  |  |  |
| Due after ten years |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Total marketable securities | $375474 | $371912 | $342198 | $341741 |

---

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**

**(In thousands, except per share data)**

The following table summarizes the estimated fair value and gross unrealized holding losses of marketable securities, aggregated by investment instrument and period of time in an unrealized loss position, at December 31, 2022 and January 1, 2022.

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **In Unrealized Loss Position <br>For Less Than 12 Months** | **In Unrealized Loss Position <br>For Less Than 12 Months** | **In Unrealized Loss Position <br>For Greater Than 12 Months** | **In Unrealized Loss Position <br>For Greater Than 12 Months** |
|  | **Fair<br> Value** | **Gross<br> Unrealized <br>Losses** | **Fair<br> Value** | **Gross<br> Unrealized <br>Losses** |
| **December 31, 2022** |  |  |  |  |
| Municipal notes and bonds | $96301 | $1273 | $69159 | $1082 |
| Asset-backed securities | 1555 | 21 |  |  |
| Certificates of deposit | 22400 | 118 |  |  |
| Commercial paper | 50550 | 136 |  |  |
| Corporate bonds | 28975 | 637 | 28769 | 366 |
| &nbsp;&nbsp;&nbsp;Total marketable securities | $199781 | $2185 | $97928 | $1448 |
| **January 1, 2022** |  |  |  |  |
| Municipal notes and bonds | $113790 | $262 | $— | $— |
| Certificates of deposit | 16300 | 10 |  |  |
| Commercial paper | 58681 | 40 |  |  |
| Corporate bonds | 53661 | 150 | 2587 | 66 |
| &nbsp;&nbsp;&nbsp;Total marketable securities | $242432 | $462 | $2587 | $66 |

---

See Note 3 for additional discussion regarding the fair value of the Company's marketable securities.

**5.** **Goodwill and Purchased Intangible Assets:**

Goodwill and purchased intangible assets with indefinite useful lives are not amortized but are reviewed for impairment annually during the fourth quarter of each fiscal year and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The process of evaluating the potential impairment of goodwill and intangible assets requires significant judgment. The Company regularly monitors current business conditions and considers other factors including, but not limited to, adverse industry or economic trends, restructuring actions and lower projections of profitability that may impact future operating results. The Company performed its annual assessment in the fourth quarter of fiscal 2022 and concluded that no impairment charge was required.

Goodwill

The changes in the carrying amount of goodwill are as follows:

---

| | |
|:---|:---|
| Balance at December 26, 2020 | $306632 |
| &nbsp;&nbsp;&nbsp;Goodwill from Inspectrology acquisition | 9179 |
| Balance at January 1, 2022 | 315811 |
| &nbsp;&nbsp;&nbsp;Goodwill adjustment |  |
| Balance at December 31, 2022 | $315811 |

---

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**

**(In thousands, except per share data)**

Purchased Intangible Assets

Purchased intangible assets as of December 31, 2022 and January 1, 2022 are as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **Gross Carrying Amount** | **Accumulated Amortization** | **Net** |
| **December 31, 2022** |  |  |  |
| &nbsp;&nbsp;Finite-lived intangible assets: |  |  |  |
| &nbsp;&nbsp;&nbsp;Developed technology | $378197 | $205386 | $172811 |
| &nbsp;&nbsp;&nbsp;Customer and distributor relationships | 73321 | 30195 | 43126 |
| &nbsp;&nbsp;&nbsp;Trademarks and trade names | 14171 | 7911 | 6260 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total identifiable intangible assets | $465689 | $243492 | $222197 |
| **January 1, 2022** |  |  |  |
| &nbsp;&nbsp;Finite-lived intangible assets: |  |  |  |
| &nbsp;&nbsp;&nbsp;Developed technology | $377997 | $155976 | $222021 |
| &nbsp;&nbsp;&nbsp;Customer and distributor relationships | 73321 | 25608 | 47713 |
| &nbsp;&nbsp;&nbsp;Trademarks and trade names | 14171 | 6624 | 7547 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total identifiable intangible assets | $465489 | $188208 | $277281 |

---

Intangible asset amortization expense amounted to $55,284, $51,366 and $53,746 for the years ended December 31, 2022, January 1, 2022 and December 26, 2020, respectively. Assuming no change in the gross carrying value of identifiable intangible assets and estimated lives, estimated amortization expenses are $54,823 for 2023, $49,137 for 2024, $32,587 for 2025, $31,394 for 2026 and $23,173 for 2027.

**6.** **Leasing Arrangements:**

The Company determines if an arrangement is a lease at its inception. Operating lease arrangements are comprised primarily of real estate and equipment agreements for which the right-of-use assets are included in "Other assets" and the corresponding lease liabilities, depending on their maturity, are included in "Other current liabilities" or "Other non-current liabilities" in the Consolidated Balance Sheets.

Right-of-use assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The lease term includes options to extend the lease when it is reasonably certain that the option will be exercised. Lease agreements frequently require the Company to pay real estate taxes, insurance and maintenance costs. Leases with a term of one year or less are not recorded on the Consolidated Balance Sheets and lease expense for these leases is recognized on a straight-line basis over the lease term.

The Company uses its estimated incremental borrowing rate in determining the present value of lease payments considering the term of the lease, which is derived from information available at the lease commencement date, giving consideration to publicly available data for instruments with similar characteristics. The Company accounts for the lease and non-lease components as a single lease component.

Lease costs for operating leases were $6,368 and $5,964 for the years ended December 31, 2022 and January 1, 2022, respectively. Operating lease costs are generally recognized over the lease term. The Company elected the practical expedient to not provide comparable presentation for periods prior to adoption.

Details of the Company's operating leases are as follows:

---

| | | |
|:---|:---|:---|
|  | **Year Ended** | **Year Ended** |
| **Cash Flow Information** | **December 31,<br>2022** | **January 1,<br>2022** |
| Cash paid for operating lease liabilities | $6368 | $6247 |
| Right-of-use assets obtained in exchange for operating lease liabilities | $9295 | $304 |

---

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**

**(In thousands, except per share data)**

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **January 1,** |
| **Operating Lease Information** | **2022** | **2022** |
| Weighted average remaining lease term | 4.5 | 5.3 |
| Weighted average discount rate | 3.8% | 4.5% |

---

As of December 31, 2022, there was an insignificant amount of commitments for operating leases that have not yet commenced. The reconciliation of the maturities of operating leases to the lease liabilities recorded on the Consolidated Balance Sheet as of December 31, 2022 is as follows:

---

| | |
|:---|:---|
| **Fiscal Year** |  |
| 2023 | $6721 |
| 2024 | 5799 |
| 2025 | 4646 |
| 2026 | 2905 |
| 2027 | 1905 |
| Thereafter | 2399 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total undiscounted operating lease payments | 24375 |
| Less: imputed interest | 2030 |
| Present value of operating lease liabilities | $22345 |

---

**7.** **Balance Sheet Components:**

Inventories

Inventories are comprised of the following:

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **January 1,** |
|  | **2022** | **2022** |
| Materials | $231029 | $157343 |
| Work-in-process | 69072 | 60415 |
| Finished goods | 24181 | 25350 |
| &nbsp;&nbsp;&nbsp;Total inventories | $324282 | $243108 |

---

Property, Plant and Equipment

Property, plant and equipment, net, is comprised of the following:

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **January 1,** |
|  | **2022** | **2022** |
| Land and building | $50344 | $48297 |
| Machinery and equipment | 56924 | 50226 |
| Furniture and fixtures | 2949 | 2534 |
| Computer equipment and software | 15415 | 13856 |
| Leasehold improvements | 18539 | 13710 |
|  | 144171 | 128623 |
| Accumulated depreciation | (52191) | (46529) |
| &nbsp;&nbsp;&nbsp;Total property, plant and equipment, net | $91980 | $82094 |

---

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**

**(In thousands, except per share data)**

Other assets

Other assets is comprised of the following:

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **January 1,** |
|  | **2022** | **2022** |
| Operating lease right-of-use assets | $20746 | $17488 |
| Other | 4479 | 4228 |
| &nbsp;&nbsp;&nbsp;Total other assets | $25225 | $21716 |

---

Accrued liabilities

Accrued liabilities is comprised of the following:

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **January 1,** |
|  | **2022** | **2022** |
| Payroll and related expenses | $36529 | $32581 |
| Warranty | 10890 | 9093 |
| Other | 1417 | 1368 |
| &nbsp;&nbsp;&nbsp;Total accrued liabilities | $48836 | $43042 |

---

Other current liabilities

Other current liabilities is comprised of the following:

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **January 1,** |
|  | **2022** | **2022** |
| Customer deposits | $12482 | $9459 |
| Current operating lease obligations | 5678 | 3968 |
| Income tax payable | 1910 | 6315 |
| Accrued professional fees | 968 | 912 |
| Other | 5995 | 7506 |
| &nbsp;&nbsp;&nbsp;Total other current liabilities | $27033 | $28160 |

---

Other non-current liabilities

Other non-current liabilities is comprised of the following:

---

| | | |
|:---|:---|:---|
|  | **December 31,** | **January 1,** |
|  | **2022** | **2022** |
| Non-current operating lease obligations | $16345 | $13754 |
| Unrecognized tax benefits (including interest) | 7693 | 7861 |
| Deferred revenue | 2852 | 1693 |
| Other | 3623 | 5643 |
| &nbsp;&nbsp;&nbsp;Total non-current liabilities | $30513 | $28951 |

---

**8.** **Commitments and Contingencies:**

Factoring

The Company maintains arrangements under which eligible accounts receivable in Japan are sold without recourse to unrelated third-party financial institutions. The Company sold $32,385 of receivables during the year ended December 31, 2022. There were no material gains or losses on the sale of such receivables. There were no amounts due from such third-party financial institutions at December 31, 2022.

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**

**(In thousands, except per share data)**

Intellectual property Indemnification Obligations

The Company has entered into agreements with customers that include limited intellectual property indemnification obligations that are customary in the industry. These guarantees generally require the Company to compensate the other party for certain damages and costs incurred as a result of third-party intellectual property claims arising from these transactions. The nature of the intellectual property indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to its customers. Historically, the Company has not made any indemnification payments under such agreements and no amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification guarantees.

Warranty Reserves

The Company generally provides a warranty on its products for a period of 12 to 14 months against defects in material and workmanship. The Company estimates the costs that may be incurred during the warranty period and records a liability in the amount of such costs at the time revenue is recognized. The Company's estimate is based primarily on historical experience. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Settlements of warranty reserves are generally associated with sales that occurred during the 12 to 14 months prior to the year-end and warranty accruals are related to sales during the same year.

Changes in the Company's warranty reserves are as follows:

---

| | | |
|:---|:---|:---|
|  | **Year Ended** | **Year Ended** |
|  | **December 31, <br>2022** | **January 1, <br>2022** |
| Balance, beginning of the period | $9682 | $6485 |
| &nbsp;&nbsp;&nbsp;Accruals | 16040 | 11892 |
| &nbsp;&nbsp;&nbsp;Warranty liability assumed from Inspectrology acquisition |  | 407 |
| &nbsp;&nbsp;&nbsp;Usage | (13893) | (9102) |
| Balance, end of the period | $11830 | $9682 |

---

Legal Matters

From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business. The following reflects an overview of the material developments with regard to the Company's pending material legal proceedings.

Optical Solutions Inc. v. Nanometrics Incorporated (Case No. 18-cv-00417-BLF): On August 2, 2017, Nanometrics was named as defendant in a complaint filed in New Hampshire Superior Court (the "Complaint"). The Complaint, brought by Optical Solutions, Inc. ("OSI"), alleges claims arising from a purported exclusive purchase contract between OSI and Nanometrics pertaining to certain products. The relief sought is the award of damages in an amount to be proven at trial, attorney's fees and cost as well as other relief the court deems just and proper. On September 18, 2017, Nanometrics removed the action to the United States District Court for the District of New Hampshire (the "District of New Hampshire"). On September 25, 2017, Nanometrics moved to transfer the Complaint to the United States District Court for the Northern District of California (the "Northern District of California"). On December 20, 2017, Nanometrics filed its complaint against OSI in the California Superior Court for the County of Santa Clara alleging claims arising from OSI's breach of certain purchase orders. The relief sought is the award of damages in an amount to be proven at trial including pre- and post-judgment interest, punitive damages, restitution for benefits unjustly received by OSI, attorney's fees and cost as well as other relief the court deems just and proper. Nanometrics' complaint was later removed by OSI to the Northern District of California. On May 29, 2018, the District of New Hampshire issued an order granting Nanometrics' motion to transfer the Complaint to the Northern District of California and denying Nanometrics' motion to dismiss the Complaint without prejudice. On June 14, 2018, the Complaint was consolidated with Nanometrics' complaint against OSI. On August 9, 2018, OSI filed an Amended Complaint. On September 19, 2018, Nanometrics filed a motion to dismiss OSI's Amended Complaint for failure to state a claim. Nanometrics' motion to dismiss was heard on February 28, 2019. On March 5, 2019, the Northern District of California granted Nanometrics' motion to dismiss with leave to amend. OSI filed a Second Amended Complaint on March 29, 2019. Nanometrics filed a motion to dismiss OSI's Second Amended Complaint on May 31, 2019. In October 2019, Nanometrics was renamed Onto Innovation Inc. as a result of the Merger. Thereafter, the Company's second motion to dismiss was heard on November 14, 2019. On November 26, 2019, the Northern District of California granted the Company's motion to dismiss with leave to amend. OSI filed a Third Amended Complaint on January 21, 2020. On March 2, 2020, the Company filed a motion to dismiss OSI's Third Amended Complaint and a hearing on the motion was held on June 11, 2020. On June 23, 2020, the Northern District of California granted the Company's motion to dismiss with prejudice with regard to two claims asserted by OSI and dismissed two other claims asserted by OSI with leave to amend. Thereafter, on July 7, 2020, OSI filed a Fourth Amended

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**

**(In thousands, except per share data)**

Complaint. On August 14, 2020, the Company filed a motion to dismiss with regard to one of the two remaining claims. On December 1, 2020, the Northern District of California denied this final motion to dismiss and as a result the Company filed its Answer in this matter on December 22, 2020. Discovery is now closed and the trial date is set for December 4, 2023. At this time, the loss contingency in this matter is remote and the Company does not anticipate the outcome of the matter to have a material impact on its financial position, results of operations, or cash flows.

Open and Committed Purchase Orders

As of December 31, 2022, the Company has open and committed purchase orders of $417,148, of which $348,984 is for less than one year.

Line of Credit

The Company has a credit agreement with a bank that provides for a line of credit which is secured by the marketable securities the Company has with the bank. The Company is permitted to borrow up to 70% of the value of eligible securities held at the time the line of credit is accessed. The available line of credit as of December 31, 2022 was approximately $108,375 with an available interest rate of 6.0%. The credit agreement is available to the Company until such time that either party terminates the arrangement at their discretion. The Company has not utilized the line of credit to date.

**9.** **Revenue**

The following table represents a disaggregation of revenue by timing of revenue:

---

| | | |
|:---|:---|:---|
|  | **Year Ended** | **Year Ended** |
|  | **December 31, <br>2022** | **January 1, <br>2022** |
| Point-in-time | $958409 | $749276 |
| Over-time | 46773 | 39623 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total revenue | $1005183 | $788899 |

---

See Note 14 of the Notes to the Consolidated Financial Statements for additional discussion of the Company's disaggregated revenue in detail.

Contract Liabilities

The Company records contract liabilities when the customer has been billed in advance of the Company completing its performance obligations primarily related to service contracts and installation. For contracts that have a duration of one year or less, these amounts are recorded as current deferred revenue in the Consolidated Balance Sheets. As of December 31, 2022 and January 1, 2022, the Company carried a long-term deferred revenue balance of $2,852 and $1,693, respectively, in "other non-current liabilities" on the Consolidated Balance Sheets.

Changes in deferred revenue were as follows:

---

| | | |
|:---|:---|:---|
|  | **Year Ended** | **Year Ended** |
|  | **December 31, <br>2022** | **January 1, <br>2022** |
| Balance, beginning of the period | $31672 | $15627 |
| &nbsp;&nbsp;&nbsp;Deferred revenue assumed from Inspectrology acquisition |  | 386 |
| &nbsp;&nbsp;&nbsp;Deferral of revenue | 81772 | 69656 |
| &nbsp;&nbsp;&nbsp;Recognition of deferred revenue | (80430) | (53997) |
| Balance, ending of the period | $33014 | $31672 |

---

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**

**(In thousands, except per share data)**

**10.** **Share-Based Compensation and Employee Benefit Plans:**

Share-Based Compensation Plans

The Company's share-based compensation plans are intended to attract and retain employees and to provide an incentive for them to assist the Company to achieve long-range performance goals and to enable them to participate in long-term growth of the Company. The Company settles restricted stock unit awards, employee stock purchase option exercises and stock option exercises with newly issued common shares.

Onto Innovation Inc. 2020 Stock Plan (the "2020 Plan"). The 2020 Plan provides for the grant of 3,744 stock options and other stock awards to employees, directors and consultants at an exercise price equal to the fair market value of the common stock on the date of grant. Options granted under the 2020 Plan typically grade vest over a three-year period and expire ten years from the date of grant. Restricted stock units granted under the 2020 Plan typically vest over a three-year period for employees and one year for directors; however, other vesting periods are allowable under the 2020 Plan. Restricted stock units ("RSU") granted to employees have time based or performance-based vesting. As of December 31, 2022, there were 3,086 shares of common stock available for issuance pursuant to future grants under the 2020 Plan.

Onto Innovation Inc. 2020 Employee Stock Purchase Plan (the "2020 ESPP"). Under the terms of the 2020 ESPP, eligible employees may have up to 10 % of eligible compensation deducted from their pay and applied to the purchase of shares of Company common stock. The price the employee pays for each share of stock is 85 % of the lesser of the fair market value of Company common stock at the beginning or the end of the applicable six-month purchase period. The 2020 ESPP is intended to qualify under Section 423 of the Internal Revenue Code and is a compensatory plan as defined by FASB ASC 718, "Stock Compensation." Through the Company's employee stock purchase plans, employees purchased 142, 242 and 91 shares during the twelve months ended December 31, 2022, January 1, 2022 and December 26, 2020, respectively. As of December 31, 2022 and January 1, 2022, there were 1,116 and 1,258, shares available for issuance under the Company's employee stock purchase plan, respectively.

The following table reflects share-based compensation expense by type of award:

---

| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **December 31,<br>2022** | **January 1,<br>2022** | **December 26, <br>2020** |
| Share-based compensation expense: |  |  |  |
| &nbsp;&nbsp;&nbsp;Restricted stock units, including all performance and market <br>&nbsp;&nbsp;&nbsp;&nbsp;based awards | $21729 | $17174 | $15780 |
| &nbsp;&nbsp;&nbsp;Stock options and employee stock purchase options | 2697 | 2368 | 1882 |
| Total share-based compensation | 24426 | 19542 | 17662 |
| &nbsp;&nbsp;&nbsp;Tax effect on share-based compensation | 5237 | 4255 | 3849 |
| Net effect on net income | $19189 | $15287 | $13813 |
| Effect on earnings per share: |  |  |  |
| &nbsp;&nbsp;&nbsp;Basic | $(0.39) | $(0.31) | $(0.28) |
| &nbsp;&nbsp;&nbsp;Diluted | $(0.39) | $(0.31) | $(0.28) |

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**

**(In thousands, except per share data)**

Restricted Stock Units

During fiscal years 2022, 2021 and 2020, the Company issued both service-based RSUs and market-based performance RSUs ("PRSUs"). Service-based RSUs typically vest over a period of 3 years or less. Market-based PRSUs generally vest three years from the grant date if certain performance criteria are achieved and require continued employment. Based upon the terms of such awards, the number of shares that can be earned over the performance periods is based on the Company's Common Stock price performance compared to the market price performance of a designated benchmark index, ranging from 0% to 200% of target. The designated benchmark index was the Philadelphia Semiconductor Sector Index for market-based PRSUs issued in 2022, 2021 and 2020. The stock price performance or market price performance is measured using the closing price for the 20-trading days prior to the dates the performance period begins and ends.

The following table summarizes the Company's combined service-based RSUs and market-based PRSUs:

---

| | | |
|:---|:---|:---|
|  | **Number of<br>Shares** | **Weighted<br>Average<br>Grant Date<br>Fair Value** |
| Nonvested at December 31, 2019 | 1107 | $28.89 |
| &nbsp;&nbsp;&nbsp;Granted | 498 | $34.71 |
| &nbsp;&nbsp;&nbsp;Vested | (498) | $29.46 |
| &nbsp;&nbsp;&nbsp;Forfeited | (143) | $29.99 |
| Nonvested at December 26, 2020 | 964 | $31.37 |
| &nbsp;&nbsp;&nbsp;Granted | 338 | $69.82 |
| &nbsp;&nbsp;&nbsp;Vested | (441) | $30.90 |
| &nbsp;&nbsp;&nbsp;Forfeited | (96) | $42.40 |
| Nonvested at January 1, 2022 | 765 | $48.25 |
| &nbsp;&nbsp;&nbsp;Granted | 410 | $82.48 |
| &nbsp;&nbsp;&nbsp;Vested | (373) | $42.87 |
| &nbsp;&nbsp;&nbsp;Forfeited | (59) | $58.98 |
| Nonvested at December 31, 2022 | 743 | $69.01 |

---

Of the 743 shares outstanding at December 31, 2022, 644 are service-based RSUs and 99 are market-based PRSUs. The fair value of the Company's service-based RSUs was calculated based on the fair market value of the Company's stock at the date of grant. The fair value of the Company's market-based PRSUs granted during fiscal years 2022, 2021, and 2020 was calculated using a Monte Carlo simulation model at the date of the grant, resulting in a weighted average grant-date fair value per share of $85.49, $80.04, and $47.86, respectively.

As of December 31, 2022, there was $28,653 of total unrecognized compensation cost related to restricted stock units granted under the plans. That cost is expected to be recognized over a weighted average period of 1.5 years.

401(k) Savings Plan

The Company has a 401(k) savings plan that allows employees to contribute up to 100% of their annual compensation to the Plan on a pre-tax or after-tax basis, limited to a maximum annual amount as set periodically by the Internal Revenue Service. The plan provides a 50% match of all employee contributions up to 6 percent of the employee's salary. Matching contributions to the plan totaled $2,965, $2,544 and $2,315 for the years ended December 31, 2022, January 1, 2022 and December 26, 2020, respectively.

**11.** **Other Expense, Net:**

Other expense, net is comprised of the following:

---

| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **December 31, <br>2022** | **January 1, <br>2022** | **December 26, <br>2020** |
| Foreign currency exchange losses, net | $(73) | $(2020) | $(3070) |
| Other | (68) | 132 | 362 |
| &nbsp;&nbsp;&nbsp;Total other expense, net | $(141) | $(1888) | $(2708) |

---

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**

**(In thousands, except per share data)**

**12.** **Income Taxes:**

The components of income tax expense are as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **December 31, <br>2022** | **January 1, <br>2022** | **December 26, <br>2020** |
| Current: |  |  |  |
| &nbsp;&nbsp;&nbsp;Federal | $47963 | $21791 | $1466 |
| &nbsp;&nbsp;&nbsp;State | 987 | 1007 | 371 |
| &nbsp;&nbsp;&nbsp;Foreign | 2901 | 3153 | 5637 |
|  | 51851 | 25951 | 7474 |
| Deferred: |  |  |  |
| &nbsp;&nbsp;&nbsp;Federal | (31622) | (9475) | (10355) |
| &nbsp;&nbsp;&nbsp;State | (1506) | (540) | (1036) |
| &nbsp;&nbsp;&nbsp;Foreign | (473) | (2603) | (240) |
|  | (33601) | (12618) | (11631) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total income tax expense (benefit) | $18250 | $13333 | $(4157) |

---

The income before tax is comprised of the following:

---

| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **December 31, <br>2022** | **January 1, <br>2022** | **December 26, <br>2020** |
| Domestic operations | $239527 | $136143 | $(120) |
| Foreign operations | $2057 | $19539 | $26988 |

---

The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. federal income tax rate of 21% for the years ended December 31, 2022, January 1, 2022 and December 26, 2020, to income before provision for income taxes as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **December 31, <br>2022** | **January 1, <br>2022** | **December 26, <br>2020** |
| Federal income tax provision at statutory rate | $50732 | $32693 | $5642 |
| State taxes, net of federal effect | 467 | 1066 | 126 |
| Foreign taxes, net of federal effect | (481) | (3817) | 596 |
| Foreign Derived Intangible Income ("FDII") Deduction | (25445) | (11061) | (4262) |
| US tax on foreign source income | 1423 | 1721 | 2013 |
| Non-deductible officer's compensation | 1910 | 689 | 213 |
| Research and development tax credit | (7146) | (3607) | (4858) |
| Tax impact of audit and statue closures | (1526) | (1987) | (2905) |
| Impact of the CARES Act |  | (732) | (1141) |
| Other | (1684) | (1632) | (419) |
| &nbsp;&nbsp;&nbsp;Provision (benefit) for income taxes | $18250 | $13333 | $(4157) |
| &nbsp;&nbsp;&nbsp;Effective tax rate | 8% | 9% | (16)% |

---

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**

**(In thousands, except per share data)**

Deferred tax assets and liabilities are comprised of the following:

---

| | | |
|:---|:---|:---|
|  | **December 31, <br>2022** | **January 1, <br>2022** |
| Deferred tax assets: |  |  |
| &nbsp;&nbsp;Reserves and accruals | $17231 | $15084 |
| &nbsp;&nbsp;Deferred revenue | 3512 | 4729 |
| &nbsp;&nbsp;Share-based compensation | 3942 | 3023 |
| &nbsp;&nbsp;Tax credit carryforward | 12197 | 10339 |
| &nbsp;&nbsp;Net operating losses | 1643 | 3254 |
| &nbsp;&nbsp;Depreciation and amortization | 125 | 368 |
| &nbsp;&nbsp;Operating lease liabilities | 4162 | 3575 |
| &nbsp;&nbsp;Other | 4044 | 2364 |
| &nbsp;&nbsp;Gross deferred tax assets | 46856 | 42736 |
| &nbsp;&nbsp;Less: valuation allowance | (11772) | (10948) |
| &nbsp;&nbsp;Total deferred tax assets after valuation allowance | 35084 | 31788 |
| Deferred tax liabilities: |  |  |
| &nbsp;&nbsp;Depreciation and amortization | (32693) | (63554) |
| &nbsp;&nbsp;Operating lease right of use assets | (4890) | (3469) |
| &nbsp;&nbsp;Other | (89) | (224) |
| &nbsp;&nbsp;Gross deferred tax liabilities | (37672) | (67247) |
| Net deferred tax liabilities | $(2588) | $(35459) |

---

At December 31, 2022 and January 1, 2022, the Company had recorded valuation allowances of $11,772 and 10,948, respectively, on a certain portion of the Company's deferred tax assets to reflect the deferred tax assets at the net amount that is more likely than not to be realized. The Company maintains a valuation allowance against a portion of its federal and foreign tax credit carryforwards and state net operating losses and research and development credits of $1,601 and $10,171, respectively.

In assessing the realizability of deferred tax assets, the Company uses a more likely than not standard. If it is determined that it is more-likely-than-not that deferred tax assets will not be realized, a valuation allowance must be established against the deferred tax assets. The ultimate realization of the assets is dependent on the generation of future taxable income during the periods in which the associated temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income and tax planning strategies when making this assessment. In making the determination that it is more likely than not that the Company's deferred tax assets will be realized as of December 31, 2022, the Company relied primarily on the reversal of deferred tax liabilities as well as projected future taxable income.

At December 31, 2022, the Company had tax effected state and foreign net operating loss carryforwards of $1,168 and $475, respectively. The federal, state and foreign net operating loss carryforwards expire on various dates beginning in 2023 through 2037.

At December 31, 2022, the Company had foreign tax credit carryforwards and state research & development credits of $1,601, and $14,797, respectively. The foreign tax credit carryforwards are set to expire at various dates beginning December 31, 2029. The state research & development credits have no expiration dates.

As of December 31, 2022, the Company has provided U.S. income taxes on all its foreign earnings. The Company continues to permanently reinvest the cash held offshore to support its working capital needs. The Company has accrued $82 for additional foreign withholding taxes that may be required from its United Kingdom and China entities in the event of a cash distribution.

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**

**(In thousands, except per share data)**

The total amount of unrecognized tax benefits are as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **December 31,<br>2022** | **January 1,<br>2022** | **December 26, <br>2020** |
| Balance, beginning of the period | $12373 | $13486 | $15143 |
| &nbsp;&nbsp;&nbsp;Gross increases—tax positions in prior period | 456 | 156 | 347 |
| &nbsp;&nbsp;&nbsp;Gross decreases—tax positions in prior period |  | (204) |  |
| &nbsp;&nbsp;&nbsp;Gross increases—current-period tax positions | 1729 | 1193 | 1048 |
| &nbsp;&nbsp;&nbsp;Closure of audit/statute limitation | (1548) | (2258) | (3052) |
| Balance, end of the period | $13010 | $12373 | $13486 |

---

The unrecognized tax benefits at December 31, 2022 and January 1, 2022 were $13,010 and $12,373, respectively, of which $7,614 and $7,832, respectively, would be reflected as an adjustment to income tax expense if recognized. The year over year increase from 2021 to 2022 is primarily due to additional unrecognized tax benefits related to federal and state tax exposures, offset by expiring tax statues. It is reasonably possible that certain amounts of unrecognized tax benefits may reverse in the next 12 months; however, the Company does not expect such reversals to have a significant impact on its results of operations or financial position.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2022, January 1, 2022 and December 26, 2020, the Company recognized approximately $149, $(814) and $(193), respectively, in interest and penalties (benefit) expense associated with uncertain tax positions. As of December 31, 2022 and January 1, 2022, the Company had accrued interest and penalties expense included in the table of unrecognized tax benefits of $628 and $430, respectively.

The Company is subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. The Company is subject to ordinary statute of limitation rules of three and four years for federal and state returns, respectively. However, due to tax attribute carryforwards, the Company is subject to examination for tax years 2012 forward for U.S. federal tax purposes with respect to carryforward amounts. The Company is also subject to examination in various states for tax years 2003 forward with respect to carryforward amounts. The Company is subject to examination for tax years 2014 forward for various foreign jurisdictions. The Company believes that adequate amounts have been reserved for any adjustments that may ultimately result from any future examinations of these years.

In the normal course of business, the Company is subject to tax audits in various jurisdictions, and such jurisdictions may assess additional income taxes or other taxes against it. Although the Company believes its tax estimates are reasonable, the final determination of tax audits and any related litigation could be materially different from the Company's historical income tax provisions and accruals. The results of an audit or litigation could have a material adverse effect on the Company's results of operations or cash flows in the period or periods for which that determination is made.

**13.** **Accumulated Other Comprehensive Income (Loss):**

Comprehensive income includes net income, foreign currency translation adjustments, and net unrealized gains and losses on available-for-sale debt securities. See the Consolidated Statements of Comprehensive Income for the effect of the components of comprehensive income on the Company's net income.

The components of accumulated other comprehensive income (loss), net of tax, are as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **Foreign currency<br>translation<br>adjustments** | **Net unrealized<br>gains (losses) on<br>marketable<br>securities** | **Accumulated<br>other<br>comprehensive<br>income (loss)** |
| Balance at December 26, 2020 | $4479 | $89 | $4568 |
| &nbsp;&nbsp;&nbsp;Net current period other comprehensive income | (2715) | (537) | (3252) |
| &nbsp;&nbsp;&nbsp;Reclassifications |  |  |  |
| Balance at January 1, 2022 | 1764 | (448) | 1316 |
| &nbsp;&nbsp;&nbsp;Net current period other comprehensive loss | (8879) | (2447) | (11326) |
| &nbsp;&nbsp;&nbsp;Reclassifications |  |  |  |
| Balance at December 31, 2022 | $(7115) | $(2895) | $(10010) |

---

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**

**(In thousands, except per share data)**

**14.** **Segment Reporting and Geographic Information:**

The Company is engaged in the design, development, manufacture and support of high-performance control metrology, defect inspection, lithography and data analysis systems used by microelectronics device manufacturers. The Company and its subsidiaries currently operate in a single operating segment: the design, development, manufacture and support of high-performance process control defect inspection and metrology, lithography and process control software systems used by microelectronics device manufacturers. Therefore, the Company has one reportable segment. The Company's chief operating decision maker is the Chief Executive Officer (the "CEO"). The CEO allocates resources and assesses performance of the business and other activities at the reportable segment level.

The following table lists the different sources of revenue:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **December 31, <br>2022** | **December 31, <br>2022** | **January 1, <br>2022** | **January 1, <br>2022** | **December 26, <br>2020** | **December 26, <br>2020** |
| Systems and software | $865707 | 86% | $669114 | 85% | $450459 | 80% |
| Parts | 84266 | 8% | 72753 | 9% | 65444 | 12% |
| Services | 55210 | 6% | 47032 | 6% | 40593 | 8% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total revenue | $1005183 | 100% | $788899 | 100% | $556496 | 100% |

---

The Company's significant operations outside the United States include sales, service and application offices in Asia and Europe. For geographical revenue reporting, revenue is attributed to the geographic location to which the product is shipped. Revenue by geographic region is as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **December 31, <br>2022** | **January 1, <br>2022** | **December 26, <br>2020** |
| Revenue from third parties: |  |  |  |
| &nbsp;&nbsp;&nbsp;China | $250968 | $151027 | $125023 |
| &nbsp;&nbsp;&nbsp;South Korea | 224172 | 160373 | 90193 |
| &nbsp;&nbsp;&nbsp;Taiwan | 199104 | 194458 | 120959 |
| &nbsp;&nbsp;&nbsp;United States | 121487 | 123858 | 81708 |
| &nbsp;&nbsp;&nbsp;Europe | 80256 | 64943 | 49697 |
| &nbsp;&nbsp;&nbsp;Japan | 58133 | 61186 | 59295 |
| &nbsp;&nbsp;&nbsp;Southeast Asia | 71062 | 33054 | 29621 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total revenue | $1005183 | $788899 | $556496 |

---

The following chart identifies our customers that represented 10% or more of total revenue for each of the last three fiscal years:

---

| | | | |
|:---|:---|:---|:---|
|  | **2022** | **2021** | **2020** |
| Taiwan Semiconductor Manufacturing Co. Ltd. | 15% | 18% | 14% |
| Samsung Semiconductor | 13% | 16% | 15% |
| SK Hynix Inc. | 11% | ^ | ^ |
| ^ The customer accounted for less than 10% of total revenue during the period. | ^ The customer accounted for less than 10% of total revenue during the period. | ^ The customer accounted for less than 10% of total revenue during the period. | ^ The customer accounted for less than 10% of total revenue during the period. |

---

At December 31, 2022, two customers, Samsung Semiconductor and Taiwan Semiconductor Manufacturing Co. Ltd., accounted for more than 10% of net accounts receivable. At January 1, 2022, one customer, Taiwan Semiconductor Manufacturing Co. Ltd., accounted for more than 10% of net accounts receivable.

Substantially all of the Company's long-lived assets are located within the United States of America.

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[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC.**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)**

**(In thousands, except per share data)**

**15.** **Earnings Per Share:**

Basic income per share is calculated using the weighted average number of shares of common stock outstanding during the period. Restricted stock units and stock options are included in the calculation of diluted earnings per share, except when their effect would be anti-dilutive.

The Company's basic and diluted earnings per share amounts are as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **December 31,<br>2022** | **January 1,<br>2022** | **December 26, <br>2020** |
| Numerator: |  |  |  |
| &nbsp;&nbsp;&nbsp;Net income | $223334 | $142349 | $31025 |
| Denominator: |  |  |  |
| &nbsp;&nbsp;&nbsp;Basic earnings per share - weighted average shares<br> outstanding | 49424 | 49242 | 49136 |
| &nbsp;&nbsp;&nbsp;Effect of potential dilutive securities: |  |  |  |
| &nbsp;&nbsp;&nbsp;Restricted stock units, employee stock purchase grants and stock<br> options - dilutive shares | 340 | 486 | 339 |
| &nbsp;&nbsp;&nbsp;Diluted earnings per share - weighted average shares<br> outstanding | 49764 | 49728 | 49475 |
| Earnings per share: |  |  |  |
| &nbsp;&nbsp;&nbsp;Basic | $4.52 | $2.89 | $0.63 |
| &nbsp;&nbsp;&nbsp;Diluted | $4.49 | $2.86 | $0.63 |

---

**16.** **Share Repurchase Authorization:**

In November 2020, the Onto Innovation Board of Directors approved a share repurchase authorization, which allows the Company to repurchase up to $100,000 worth of shares of its common stock. Repurchases may be made through both public market and private transactions from time to time with shares purchased being subsequently retired. During the twelve months ended December 31, 2022, the Company repurchased and retired 1,018 shares of its common stock under this repurchase authorization and those shares were subsequently retired. At December 31, 2022, there was $34,773 available for future share repurchases under this share repurchase authorization.

The following table summarizes the Company's stock repurchases:

---

| | | | |
|:---|:---|:---|:---|
|  | **Year Ended** | **Year Ended** | **Year Ended** |
|  | **December 31, <br>2022** | **January 1, <br>2022** | **December 26, <br>2020** |
| Shares of common stock repurchased | 1018 |  | 1882 |
| Cost of stock repurchased | $65257 | $— | $52000 |
| Average price paid per share | $64.09 | $— | $27.62 |

---

------

[<u>**Table of Contents**</u>](#table_of_contents)

**ONTO INNOVATION INC. AND SUBSIDIARIES**

**SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS**

**(In thousands)**

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **Column A** | **Column B** | **Column C** | **Column C** | **Column D** | **Column E** |
| **Description** | **Balance at<br>Beginning of<br>Period** | **Charged to (Recovery <br>of) Costs and Expense** | **Charged to Other <br>Accounts (net)** | **Deductions** | **Balance at<br>End of Period** |
| **Fiscal Year 2022:** |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Allowance for credit losses | $1303 | $356 | $— | $87 | $1572 |
| &nbsp;&nbsp;&nbsp;Deferred tax valuation <br>&nbsp;&nbsp;&nbsp;&nbsp;allowance | 10948 | 824 |  |  | 11772 |
| **Fiscal Year 2021:** |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Allowance for credit losses | $784 | $955 | $— | $436 | $1303 |
| &nbsp;&nbsp;&nbsp;Deferred tax valuation <br>&nbsp;&nbsp;&nbsp;&nbsp;allowance | 14238 | (3290) |  |  | 10948 |
| **Fiscal Year 2020:** |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Allowance for credit losses | $1247 | $327 | $— | $790 | $784 |
| &nbsp;&nbsp;&nbsp;Deferred tax valuation <br>&nbsp;&nbsp;&nbsp;&nbsp;allowance | 14160 | 78 |  |  | 14238 |
| &nbsp;&nbsp;&nbsp;Allowance for convertible <br>&nbsp;&nbsp;&nbsp;&nbsp;notes receivable | 2000 |  |  | 2000 |  |

---

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[<u>**Table of Contents**</u>](#table_of_contents)

**SIGNATURES**

**PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.**

---

| | |
|:---|:---|
| Onto Innovation Inc.<br>(Registrant) | Onto Innovation Inc.<br>(Registrant) |
| By: | /s/ Michael P. Plisinski |
|  | **Michael P. Plisinski**<br>**Chief Executive Officer** |
| Date: | February 24, 2023 |

---

**PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.**

---

| | | |
|:---|:---|:---|
| **Signature** | **Title** | **Date** |
| /s/ Michael P. Plisinski | Chief Executive Officer (Principal Executive Officer) | February 24, 2023 |
| **Michael P. Plisinski** |  |  |
| /s/ Mark R. Slicer | Senior Vice President, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | February 24, 2023 |
| **Mark R. Slicer** | Senior Vice President, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |  |
| /s/ Leo Berlinghieri | Director | February 24, 2023 |
| **Leo Berlinghieri** |  |  |
| /s/ Stephen D. Kelley | Director | February 24, 2023 |
| **Stephen D. Kelley** |  |  |
| /s/ David B. Miller | Director | February 24, 2023 |
| **David B. Miller** |  |  |
| /s/ Karen M. Rogge | Director | February 24, 2023 |
| **Karen M. Rogge** |  |  |
| **/s/** Christopher A. Seams | Director | February 24, 2023 |
| **Christopher A. Seams** |  |  |
| /s/ May Su | Director | February 24, 2023 |
| **May Su** |  |  |
| /s/ Christine A. Tsingos | Director | February 24, 2023 |
| **Christine A. Tsingos** |  |  |

---

------

## Ex-10

**EXHIBIT 10.13**

EXECUTIVE CHANGE IN CONTROL AGREEMENT

THIS EXECUTIVE CHANGE IN CONTROL AGREEMENT is entered into as of [DATE] (this "**Agreement**"), by and between Onto Innovation Inc., a Delaware corporation (the "**Company**"), and [NAME] (the "**Executive**").

RECITALS

WHEREAS, the Company desires to create a greater incentive for Executive to remain in the employ of the Company, including in the event of any potential change in control of the Company; and

WHEREAS, the parties desire to memorialize their agreement with respect thereto in the manner set forth herein,

NOW, THEREFORE, in consideration of Executive's past and future services to the Company and the mutual covenants contained herein, the receipt and adequacy of which is hereby acknowledged, the parties hereto hereby agree as follows:

1.<u>Payments on Cessation of Employment</u>. Upon cessation of employment for any reason hereunder, Executive or his or her estate shall be entitled to payment of (i) any portion of Executive's annual base salary earned through Executive's Termination Date (as defined below) but not theretofore paid, (ii) any unreimbursed business expenses that are eligible for reimbursement in accordance with the Company's policies, (iii) any accrued but unused vacation pay or paid time off owed to Executive, and (iv) any amount arising from Executive's participation in, or benefits under, any employee benefit plans, programs or arrangements, which amounts shall be payable in accordance with the terms and conditions of such employee benefit plans, programs or arrangements (collectively the "**Accrued Obligations**"). Executive or his or her estate shall also have any rights to indemnification Executive may have under the Company's Certificate of Incorporation, Bylaws, or separate indemnification agreement, as applicable, and as each may be amended from time to time. In addition, except as otherwise specifically provided in a bonus plan or incentive arrangement, amounts determined with respect to a completed fiscal year but not paid as of the date of termination will be paid in accordance with the timing specified in such bonus or incentive plan.

2.<u>Termination by the Company other than for Cause or Resignation by Executive for Good Reason Following a Change in Control or a Termination by the Company within Two Months Preceding a Change in Control and other than for Cause</u>. If, within one (1) year following a Change in Control, (i) Executive's employment with the Company is terminated by the Company for any reason other than for Cause (as defined in Section 7(a) below) and not as a result of Disability or (ii) Executive resigns for Good Reason (as defined in Section 7(b) below), Executive shall be entitled to the following benefits, in exchange for a signed unrevoked General Release as provided under Section 3 below:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)<u>Continued Payment of Salary</u>. The Company shall pay an amount equal to Executive's then-current base salary (excluding any reductions that gave rise to Good Reason) for a period of twelve (12) months, less any deductions required by applicable law.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)<u>Accelerated Vesting</u>. Provided that Executive's then outstanding options, restricted stock units or other awards (collectively, "**Awards**"), other than Performance Awards (as defined below),

------

granted in accordance with the Onto Innovation Stock Plan or any predecessor or successor plan (each a "**Stock Plan**") ("**Awards**") have not accelerated under the applicable Stock Plan, then all such Awards that vest based on continued service shall fully vest as of the Termination Date (or, if termination is under Section 2(f), the consummation of the Change in Control). If Executive is unable to exercise all or a portion of any exercisable Awards during the applicable post Termination Date exercise period due to a contractual, legal or regulatory restriction that prohibits the exercise of such Awards, the exercise period of such Awards shall be automatically extended for an additional ninety (90) days following the termination of such contractual, legal or regulatory restriction; provided, however, that in no event will such exercise period be extended beyond the maximum permitted contractual term for such Awards, and nothing herein is intended to prohibit earlier cancellation or termination of such Awards in connection with a Change in Control in which such Awards are not assumed, substituted or continued.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)<u>Performance Awards</u>. Any portion of an Award that vests based on attainment of performance criteria (each a "**Performance Award**") that was assumed, substituted, or continued in connection with the Change in Control and that had not already satisfied its performance conditions shall be treated as of the Termination Date (or, if Section 2(f) applies, the consummation of the Change in Control) as vested at the "target level" (if there are multiple vesting levels depending on the level of performance) and fully vested as to any service conditions.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)<u>Bonus Severance Payment</u>. Executive shall receive an additional payment of an amount equal to 100% of Executive's target annual bonus in effect for the fiscal year in which the Termination Date occurs (the "**Bonus Severance Payment**") in lieu of any such annual bonus that might otherwise have been due for such year. The Bonus Severance Payment shall be paid together with the first installment of salary-based severance in Section 2(a), subject to any delay in payment required by Section 8.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)<u>Medical and Dental Benefits</u>. Executive shall be entitled to elect to maintain Executive's and his/her dependent's health care benefit coverage to the same extent provided for by and with the same Company/Executive payment contribution percentages under the Company's group plans as of the Termination Date. Such coverage shall extend for a term of one (1) year from the Termination Date (or, if Section 2(f) applies, one (1) year from the consummation of the Change in Control) unless Executive becomes covered as an insured under another employer's or spousal health care plan. At such time Executive shall notify the Company and the Company shall cease its obligation to provide for continued health care benefits coverage. For tax purposes, this coverage may be considered income to the Executive. Such coverage shall be counted as coverage pursuant to the continuation health coverage rules referred to as "**COBRA**." If Executive and Executive's dependents continue coverage pursuant to COBRA following the conclusion of the period that the Company makes premium payments hereunder, Executive will be responsible for the entire payment of such premiums required under COBRA for the remainder of the applicable COBRA period. Any applicable insurance premiums that are paid by the Company shall not include any amounts payable by Executive under a Code Section 125 health care reimbursement plan, which amounts, if any, are the sole responsibility of Executive. Notwithstanding the foregoing, the Company may end the payment of premiums earlier (but not Executive's eligibility for COBRA) if it reasonably determines that applicable laws or regulations are reasonably likely to cause the payment of these premiums to trigger taxes or penalties on the Company, other participants or, to the extent Executive would be taxed on more than the amount of the premiums, to Executive.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)<u>Termination Preceding Change in Control</u>. If Executive's employment with the Company is terminated by the Company for any reason other than Cause or Disability, such termination

------

occurs during the negotiation or after execution of a definitive agreement with respect to a Change in Control, and the Change in Control is consummated within sixty (60) days following the Termination Date, the termination shall be treated as though it had occurred within twelve (12) months following the Change in Control for purposes of this Section 2, and Executive shall be entitled to the benefits set forth in Section 2(a)-(e) in exchange for a signed unrevoked General Release as provided under Section 3 below.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)Nothing in this Section 2 supersedes any more favorable treatment applicable to Executive under Company plans, policies, practices, or agreements with respect to the availability of certain payments or equity compensation treatment if Executive is eligible for "retirement" under the Company's equity awards or other programs as of the Termination Date, provided that Executive satisfies the terms for such retirement.

3.<u>Timing of Payments and Required Release</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)<u>Timing and Release</u>. The payments provided for in Section 1 shall be payable immediately upon Executive's termination or cessation of employment or as otherwise provided therein. All compensation and benefits under Section 2 herein are in consideration for Executive's execution of the general release of all known and unknown claims that Executive may then have against the Company, its predecessors, successors, acquirer, any affiliates related thereto and its or their officers, directors, employees, and agents (other than any claims paid with respect to the Change in Control or to continued indemnification and similar protections), the form of which will be provided by the Company (the "**General Release**"). The General Release will, among other things, specifically relate to all of Executive's rights and claims in existence at the time of such execution (to the extent releasable) and shall confirm Executive's obligations under Executive's written confidentiality or proprietary information agreement (or any successor agreement thereto) and any similar obligations under applicable law. If Executive does not properly execute such General Release, the parties expressly acknowledge and agree that Executive will not be entitled to any of the benefits provided under Section 2 herein. Subject to any delay required by Section 8(a) below, payments provided for in Section 2(a) and Section 2(e) herein, as applicable, shall begin within ten (10) days after the Company's receipt of the signed, unrevoked General Release (or, if later under Section 2(f), the closing of the Change in Control), the first payment shall be a "catch up" payment to include the total amount that Executive would have received as of such date if these payments had commenced with the first payroll pay date following the Termination Date, and payments shall continue in accordance with the Company's customary payroll practices. The General Release must be returned to the Company within fifty (50) days after employment ends, so that payments shall begin no later than sixty (60) days after the Termination Date (or, if Section 2(f) applies, the first payroll cutoff date following the consummation of the Change in Control). In the event that the foregoing sixty (60) day period extends over the end of a calendar year, then payment shall not begin until the next calendar year. All such payments will be subject to applicable payroll or other taxes required to be withheld by the Company. In addition, all payments hereunder shall be paid no later than the last day of the second year following the year in which the cessation of employment occurred.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)<u>Special Equity Release Rules</u>. Benefits provided for in Sections 2(b) or 2(c), directly or as a result of Section 2(f), shall be made in accordance with the applicable Stock Plan as modified by the requirements in this Section 3(b). Each Award will become tentatively fully vested, pending satisfying the General Release requirements, upon the occurrence of a cessation of employment described in Section 2, subject to compliance, if necessary, with Section 409A. The portion of each Award for which vesting is accelerated by the preceding sentence will only become fully vested and exercisable if and when Executive satisfies the release requirements, and any such

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tentatively vested portion will be forfeited retroactively to Executive's date of termination if Executive either notifies the Company that Executive will not execute or will revoke the Release or the period for providing the Release expires without Executive's complying with the release requirements. The Company may choose instead to permit Executive to exercise the tentatively vested portions of exercisable awards before the General Release becomes effective and release to Executive any tentatively vested portions of other Awards, subject to Executive's undertaking to repay the Company in the manner determined by the Compensation Committee at such time if Executive fails to satisfy the release requirements thereafter. If Executive holds an Award requiring exercise, the Company will give Executive a reasonable period of notice and opportunity to exercise the Award (with any option expiration period extended to the earlier of one year after employment ends or the original term of the option). Because the General Release requirement does not delay taxation of any restricted stock that is treated as tentatively vesting, if Executive holds any such shares Executive will be subject to taxation as of the date Executive's employment ends, even though Executive will forfeit the tentatively vested shares if Executive does not timely comply with the General Release requirement. Notwithstanding the foregoing, to the extent permitted by the applicable Stock Plan, nothing in this Agreement shall preclude the Company from accelerating the vesting and exercisability of any or all Awards to an earlier period and/or terminating unexercised Awards as provided under the Stock Plan.

4.<u>Subsequent Employment; Mitigation</u>. The compensation and benefits payable hereunder, with the exception of continued COBRA premium payments, shall not be reduced or offset by any amounts that Executive earns or could earn from any subsequent employment. If Section 2(e) applies and any severance was paid before the closing of the Change in Control, severance due on or after the closing shall be offset by prior payments to the extent permitted by Section 409A.

5.<u>Section 280G Matters</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)If any payment or benefit (including payments and benefits pursuant to this Agreement) Executive would receive in connection with a Change in Control from the Company or otherwise ("**Payment**") would (i) constitute a "parachute payment" within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the "**Excise Tax**"), then such Payment will be equal to the Reduced Amount. The "**Reduced Amount**" will be either (x) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax, or (y) the largest portion, up to and including the total, of the Payment, whichever amount set forth in clause (x) or (y), after taking into account all applicable federal, state, provincial, foreign, and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), which results in Executive's receipt, on an after-tax basis, of the greater economic benefit notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in a Payment is required pursuant to the preceding sentence and the Reduced Amount is determined pursuant to clause (x) of the preceding sentence, the reduction shall occur in the manner (the "**Reduction Method**") that results in the greatest economic benefit for Executive. If more than one method of reduction will result in the same economic benefit, the items so reduced will be reduced pro rata (the "**Pro Rata Reduction Method**").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)Notwithstanding any provision of this Section 5 to the contrary, if the Reduction Method or the Pro Rata Reduction Method would result in any portion of the Payment being subject to taxes pursuant to Section 409A ("**Section 409A**") of the Internal Revenue Code of 1986, as amended (the "**Code**") that would not otherwise be subject to taxes pursuant to Section 409A, then the Reduction Method and/or the Pro Rata Reduction Method, as the case may be, shall be modified so as to avoid the imposition of taxes pursuant to Section 409A as follows: (i) as a first priority,

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the modification shall preserve to the greatest extent possible, the greatest economic benefit for the Executive as determined on an after-tax basis; (ii) as a second priority, Payments that are contingent on future events (e.g., being terminated without Cause), shall be eliminated before Payments that are not contingent on future events; and (iii) as a third priority, Payments that are "deferred compensation" within the meaning of Section 409A shall, if permitted by Section 409A, be reduced before Payments that are not "deferred compensation" within the meaning of Section 409A.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)The professional firm engaged by the Company for general tax purposes as of the day prior to the effective date of the Change in Control shall make all determinations required to be made under this Section 5. If the professional firm so engaged by the Company is serving as an accountant or auditor for the individual, entity or group effecting the Change in Control, the Company shall appoint a nationally recognized independent registered public accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such professional firm required to be made hereunder. Any good faith determinations of the professional firm made hereunder shall be final, binding and conclusive upon the Company and Executive.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)If Executive receives a Payment for which the Reduced Amount was determined pursuant to clause (x) of this Section 5(a) and the Internal Revenue Service determines thereafter that some portion of the Payment (after reduction pursuant to clause (x) of this Section 5(a)) is subject to the Excise Tax, Executive shall promptly return to the Company a sufficient amount of the Payment so that no portion of the remaining Payment is subject to the Excise Tax. For the avoidance of doubt, if the Reduced Amount was determined pursuant to clause (y) of this Section 5(a), Executive shall have no obligation to return any portion of the Payment pursuant to the preceding sentence.

6.<u>Employment Status</u>. Nothing in this Agreement shall be deemed to constitute a contract for employment for any specific period of time. The parties expressly acknowledge and agree that the undersigned's employment with the Company shall continue to be "at will."

7.<u>Definitions</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)<u>Cause</u>. For purposes of this Agreement, "**Cause**" means:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)Executive's willful gross misconduct;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)Executive's unjustifiable neglect of his duties (as determined in the good faith judgment of the Board);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3)Executive's acting in any manner that has a direct, substantial and adverse effect on the Company or its reputation;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4)Executive's repeated material failure or repeated refusal to comply with reasonable written policies, standards and regulations established by the Company from time to time which failure, if curable, is not cured to the reasonable satisfaction of the Board during the thirty (30) day period following written notice of such failure from the Company;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(5)any tortious act, unlawful act or malfeasance that causes or reasonably could cause (for example, if it became publicly known) material harm to the Company's standing, condition or reputation;

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(6)any material breach by Executive of the provisions of any confidential information agreement with the Company or other material improper disclosure of the Company's confidential or proprietary information;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(7)Executive's theft, dishonesty, or falsification of any Company records;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(8)Executive's being found liable in any Securities and Exchange Commission or other civil or criminal securities law action or entering any cease and desist order with respect to such action (regardless of whether or not Executive admits or denies liability); or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(9)Executive's (A) obstructing or impeding; (B) endeavoring to influence, obstruct or impede, or (C) failing to materially cooperate with, any investigation authorized by the Board or any governmental or self-regulatory entity (an "Investigation"). However, Executive's failure to waive attorney-client privilege relating to communications with Executive's own attorney in connection with an Investigation will not constitute "Cause."

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)<u>Good Reason</u>. For purposes of this Agreement, "**Good Reason**" means any of the following, without Executive's written consent:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)a significant reduction by the Company in Executive's annual base salary;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)a material reduction in duties, authorities, or responsibilities relative to Executive's duties, authorities, or responsibilities in effect immediately prior to the Change in Control (other than where the reduction in such duties, authorities, or responsibilities relates to an assumption of duties, authorities, or responsibilities of a different sort but of an equivalent level within the Company); for the avoidance of doubt, continued employment following a Change in Control with substantially the same duties, authorities, or responsibilities with respect to the Company's business and operations (or the replacement noted above) will not constitute "Good Reason" (for example, "Good Reason" does not exist if Executive is employed by the Company or a successor or parent entity with substantially the same duties, authorities, or responsibilities with respect to the Company's business that Executive had immediately prior to the Change in Control regardless of whether Executive's title is revised to reflect Executive's placement within the overall corporate hierarchy or whether Executive provides services to a subsidiary, affiliate, business unit or otherwise) and, within such context, ceasing to be an officer of the ultimate (or any) public company shall not by itself be such a material reduction;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3)a material breach of its obligations under this Agreement by the Company; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4)a relocation of Executive's assigned office location to a facility that is more than fifty (50) miles from its current location and that materially increases Executive's one-way driving distance from Executive's principal personal residence to such office location at which Executive is required to perform services (except for required business travel to the extent consistent with Executive's prior business travel obligations).

To be treated as resigning for Good Reason, Executive must provide written notice to the Company effective within sixty (60) days after the first occurrence of such event, provide the Company with at least thirty (30) days to correct the purported Good Reason, and actually resign effective within sixty (60) days after the earlier of the date the Company provides written notice that it will not correct the Good Reason or the end of the cure period.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)<u>Change in Control</u>. A "**Change in Control**" means:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)the acquisition by any one person or entity, or more than one person or entity acting as a group (a "**Person**"), of beneficial ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than fifty percent (50%) of the total voting power of the stock of the Company; provided, however, that for purposes of this Section 7(c)(1), the following acquisitions will not constitute a Change in Control: (A) the acquisition of additional stock by any one Person, who is considered to own more than fifty percent (50%) of the total voting power of the stock of the Company, (B) any acquisition directly from the Company (excluding an acquisition pursuant to the exercise, conversion or exchange of any security exercisable for, convertible into or exchangeable for common stock or voting securities of the Company, unless the Person exercising, converting or exchanging such security acquired such security directly from the Company or an underwriter or agent of the Company), (C) any acquisition by the Company, (D) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (E) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of this Section 7(c)(3);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)such time as the Continuing Directors (as defined below) do not constitute a majority of the Board of Directors of the Company (or, if applicable, the Board of Directors of a successor to the Company) (the "**Board**"), where the term "**Continuing Director**" means at any date a member of the Board (A) who was a member of the Board on the date of the execution of this Agreement or (B) who was nominated, elected, or approved subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination, election, or approval or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (B) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board, unless such person's treatment as a Continuing Director is later approved in the same manner as set forth above (i.e., by at least a majority of the pre-approval Continuing Directors);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3)the consummation of a merger, consolidation, reorganization, recapitalization or statutory share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company in one or a series of transactions (a "**Business Combination**"), unless, immediately following such Business Combination, each of the following three conditions is satisfied: (A) all or substantially all of the individuals and entities who were the beneficial owners of the then-outstanding shares of common stock of the Company and then-outstanding securities of the Company entitled to vote generally in the election of directors immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of the beneficial interest in the outstanding securities of the surviving entity or its parent entity and more than fifty percent (50%) of the voting securities in such entity (in each case determined immediately after such merger or consolidation) in such Business Combination (which shall include, without limitation, an entity that as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring entity is referred to herein as the "**Acquiring Entity**") in substantially the same proportions as their ownership, immediately prior to such Business Combination,

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of the then-outstanding share of common stock of the Company and then-outstanding securities of the Company entitled to vote generally in the election of directors, respectively; (B) the individuals who were members of the Board of Directors of the Company immediately prior to the execution of the agreement providing for such merger, consolidation, reorganization, recapitalization or share exchange constitute at least fifty percent (50%) of the members of the board of directors or other governing body of the Acquiring Entity; and (C) no Person (excluding any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Entity) beneficially owns, directly or indirectly, securities that represent immediately after such merger or consolidation more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of either the Company or the other surviving entity or its ultimate parent, or of the combined voting power of the then-outstanding securities of such entity entitled to vote generally in the election of directors or other governing body (except to the extent that such ownership existed prior to the Business Combination);

For purposes of this definition, persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with Company.

In addition, to the extent required for compliance with Section 409A, in no event will a Change in Control be deemed to have occurred if such transaction is not also a "change in the ownership or effective control of" the Company or a "change in the ownership of a substantial portion of the assets of" the Company, as determined under Treasury Regulations Section 1.409A-3(i)(5).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)<u>Disability</u>. For purposes of this Agreement, "**Disability**" means that Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months or that causes Executive to begin to receive long-term disability benefits under a Company plan.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)<u>Termination Date</u>. The date Executive ceases to be employed by the Company is the "**Termination Date**."

8.<u>Section 409A</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)Notwithstanding anything to the contrary herein, the following provisions apply to the extent severance and other benefits provided herein are subject to Section 409A. Severance benefits shall not commence until Executive has a "separation from service" for purposes of Section 409A. Each installment of severance benefits is a separate "payment" for purposes of Treas. Reg. Section 1.409A-2(b)(2)(i), and the severance benefits are intended to satisfy the exemptions from application of Section 409A provided under Treasury Regulations Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9). However, if such exemptions are not available and Executive is, upon separation from service, a "specified employee" for purposes of Section 409A, then, solely to the extent necessary to avoid adverse personal tax consequences under Section 409A, the timing of the severance benefits payments shall be delayed until the earlier of (i) six (6) months and one (1) day after Executive's separation from service or (ii) Executive's death, with payment after death being made as promptly as reasonably practicable consistent with the requirements of Section 409A.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)If the severance benefits are not covered by one or more exemptions from the application of Section 409A and the Release could become effective in the calendar year following the calendar year in which Executive separates from service, the separation agreement will not be deemed effective any earlier than the Release Deadline. None of the severance benefits will be paid or otherwise delivered prior to the effective date of the Release.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)All expenses or other reimbursements as provided herein shall be payable in accordance with the Company's policies in effect from time to time, provided that such reimbursements (i) shall be made on or prior to the last day of the taxable year following the taxable year in which such expenses were incurred by Executive; (ii) no such reimbursement or expenses eligible for reimbursement in any taxable year shall in any way affect the expenses eligible for reimbursement in any other taxable year; and (iii) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchanged for another benefit.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)The severance and other benefits provided herein are intended to qualify for an exemption from application of Section 409A or comply with its requirements to the extent necessary to avoid adverse personal tax consequences under Section 409A, and any ambiguities herein shall be interpreted accordingly. In any event, the Company makes no representations or warranty and will have no liability to Executive or any other person if any provisions of or payments under this Agreement are determined to constitute deferred compensation subject to Section 409A but not to satisfy the conditions of that section.

9.<u>Certain Reductions and Offsets</u>. To the extent that any federal, state or local laws, including, without limitation, the federal Worker Adjustment and Retraining Notification Act (the "**WARN Act**") or any other so-called "plant closing" laws (including but not limited to California Labor Code Section 1400), require the Company to give advance notice or make a payment of any kind to Executive because of Executive's involuntary termination due to a layoff, reduction in force, plant or facility closing, sale of business, change in control, or any other similar event or reason, the benefits payable under this Agreement shall be correspondingly reduced. The benefits provided under this Agreement are intended to satisfy any and all statutory obligations that may arise out of Executive's involuntary termination of employment for the foregoing reasons, and the parties shall construe and enforce the terms of this Agreement accordingly.

10.<u>Cooperation</u> – After Executive's employment ends, Executive agrees to cooperate with the Company in providing reasonable assistance as requested by the Company's Chief Executive Officer or his or her designee with respect to the transitioning of Executive's work and agrees that he or she will be available to the Company for these purposes and that Executive will comply in good faith with the directions of the Chief Executive Officer or his or her designee, all at the cost of the Company. The post-employment assistance is expected to include availability to answer questions regarding the operation of the Company but is not expected to extend beyond providing responses by email and/or phone on an occasional basis. In addition, following termination of Executive's employment for any or no reason, if, in the reasonable judgment of the Company or its counsel, Executive's assistance or cooperation is needed due to his or her personal involvement in or knowledge about the circumstances to which a litigation or investigation relates, Executive agrees to provide reasonable cooperation so long as such cooperation is on mutually agreeable timing and terms determined through good faith discussions (and with assistance or cooperation permitted to be provided remotely where possible). Executive agrees that any such transition assistance or litigation or investigation cooperation does not constitute continued employment nor other service providing relationship with respect to equity vesting and has been adequately compensated for by Executive's prior compensation. The Company will reimburse Executive for reasonable travel and lodging expenses related to such cooperation in litigation or investigations subject to the rules in Section 8(c) hereof and will discuss with Executive

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a per diem. Executive will undertake to satisfy requests for information from the Company with respect to the above undertaking that are not unreasonable in frequency or required effort. Nothing in this provision is intended to restrict or preclude Executive from, or otherwise influence Executive in, testifying fully and truthfully in legal, administrative, or any other proceedings involving the Company, as required by law or formal legal process.

11.<u>Return of Company Property</u>. Not later than the Termination Date (unless otherwise agreed by the Company in writing), Executive shall return to the Company all documents (and all copies thereof) and other property and information belonging to the Company that Executive has in his or her possession or control. The documents and property to be returned include, but are not limited to, all files, correspondence, email, memoranda, notes, notebooks, records, plans, forecasts, reports, studies, analyses, compilations of data, proposals, agreements, financial information, research and development information, marketing information, operational and personnel information, databases, computer-recorded information, tangible property and equipment (including, but not limited to, computers, facsimile machines, mobile telephones, and servers), credit cards, entry cards, identification badges and keys; and any materials of any kind which contain or embody any proprietary or confidential information of the Company (and all reproductions thereof in whole or in part). Executive agrees to make a diligent search to locate any such documents, property and information. If Executive has used any personally owned computer, server, or e-mail system to receive, store, review, prepare or transmit any Company confidential or proprietary data, materials or information, then within ten (10) business days after the Termination Date (or within such other timing as provided in writing by the Company), Executive shall provide the Company with a computer-useable copy of all such information and then permanently delete and expunge such confidential or proprietary information from those systems without retention of any reproductions. Executive agrees to provide the Company access to Executive's personally owned computer, server or e-mail systems as requested to verify that the necessary copying and/or deletion is done.

12.<u>Continued Compliance with Proprietary Information Obligations, Confidentiality, and Other Restrictive Covenants</u>. From and after the Termination Date, Executive shall continue to abide by all of the terms and provisions of Executive's written confidentiality or proprietary information agreement and restrictive covenants agreement (and any other comparable agreement signed by Executive), in accordance with its or their terms.

13.<u>Continued Compliance with Nondisparagement Requirements</u>. During the period of Executive's employment with the Company and during twelve (12) months following cessation of employment, Executive will not knowingly and materially disparage, criticize, or otherwise make any derogatory statements regarding the Company or any officer, director or agent of the Company nor will the Company knowingly and materially disparage, criticize, or otherwise make any derogatory statements regarding Executive. Notwithstanding the foregoing, nothing contained in this Agreement will be deemed to restrict Executive, the Company or any of the Company's current or former officers and/or directors from providing information to any governmental or regulatory agency (or in any way limit the content of any such information) to the extent they are requested or required to provide such information pursuant to applicable law or regulation.

14.<u>Miscellaneous Provisions</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)<u>Entire Agreement</u>. This Agreement, any applicable equity award agreements and any Confidentiality and Proprietary Rights Agreement, contains the entire agreement of the parties with respect to the subject matter herein and supersedes and replaces all prior or contemporaneous agreements or understandings between the parties. This Agreement may not be amended or modified in any manner, except by an instrument in writing signed by Executive

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and Chief Executive Officer of the Company. Failure of either party to enforce any of the provisions of this Agreement or any rights with respect thereto or failure to exercise any election provided for herein shall in no way be considered to be a waiver of such provisions, rights or elections or in any way effect the validity of this Agreement. The failure of either party to exercise any of said provisions, rights or elections shall not preclude or prejudice such party from later enforcing or exercising the same or other provisions, rights or elections which it may have under this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)<u>Resignation of all the Company Positions on Termination Date</u>. No later than the Termination Date, and prior to the provision or payment of any benefits under this Agreement on account of such termination (except as required by law with respect to Section 1 hereof), Executive must resign from all positions that Executive holds with the Company unless otherwise requested by the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)<u>Successors and Beneficiaries</u>. This Agreement shall be binding on and inure to the benefit of the successors, assigns, heirs, devisees and personal representatives of the parties, including any successor to the Company by merger or combination and any purchaser of all or substantially all of the assets of the Company. In the event that Executive dies before receipt of all benefits to which Executive becomes entitled under this Agreement, the payment of such benefits will be made, on the due date or dates hereunder had Executive survived, to the executors or administrators of Executive's estate.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)<u>Governing Law</u>. This Agreement is made in and shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)<u>Dispute Resolution</u>. To ensure the rapid and economical resolution of disputes that may arise in connection with Executive's employment and services for the Company, Executive and the Company agree that any and all disputes, claims, or causes of action, in law or equity, including but not limited to statutory claims, arising from or relating to the enforcement, breach, performance, or interpretation of this Agreement, Executive's employment with and services for the Company, or the termination of Executive's employment with and services for the Company, will be resolved pursuant to the Federal Arbitration Act, 9 U.S.C. §§1-16, and to the fullest extent permitted by law, by final, binding and confidential arbitration conducted in Boston, Massachusetts (or such other location as mutually agreed by the parties) by JAMS, Inc. ("**JAMS**") or its successors by a single arbitrator. Both Executive and the Company acknowledge that by agreeing to this arbitration procedure, they each waive the right to resolve any such dispute through a trial by jury or judge or administrative proceeding. Any such arbitration proceeding will be governed by JAMS' then applicable rules and procedures for employment disputes, which can be found at http://www.jamsadr.com/rules-clauses/ and which will be provided to Executive upon request. In any such proceeding, the arbitrator shall (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrator's essential findings and conclusions and a statement of the award. Executive and the Company each shall be entitled to all rights and remedies that either would be entitled to pursue in a court of law. Nothing in this Agreement is intended to prevent either the Company or Executive from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration pursuant to applicable law. The Company shall pay all filing fees in excess of those that would be required if the dispute were decided in a court of law and shall pay the arbitrator's fees and any other fees or costs unique to arbitration. Any awards or orders in such arbitrations may be entered and enforced as judgments in the federal and state courts of any competent jurisdiction.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)<u>Severability</u>. If any term, provision, covenant or condition of this Agreement is held to be invalid, void, or unenforceable, the remainder of the provisions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)<u>Expiration</u>. The Agreement will become effective on the date first set forth above and will terminate three (3) years from such date, other than as specified in this Section 14; provided that this Agreement will automatically be extended for successive one (1) year terms unless the Compensation Committee (the "**Compensation Committee**") of the Board provides Executive with written notice to the contrary at least thirty (30) days before the date the Agreement would otherwise be so extended. Such notice, in the sole discretion of the Compensation Committee, may provide that the term will not be extended in the future, that there will be an extension for a limited period of time, and/or that there will be no further automatic extensions of the term. Nonextension of the Agreement does not terminate Executive's employment nor entitle Executive to any payments under this Agreement, nor are any such payments due on a termination of employment or resignation for Good Reason that occurs after the term of this Agreement, except that nonextension will not affect Executive's receipt of any compensation or benefits with respect to a termination without Cause or resignation for Good Reason (or death or Disability) that occurs before the nonexpiration, even if the deadline for providing an effective General Reason is after the nonexpiration.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

ONTO INNOVATION INC.

By:

Michael P. Plisinski, CEO

[NAME]

By:

[Name]

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## Ex-21

**Exhibit 21.1**

**SUBSIDIARIES**

---

| | |
|:---|:---|
| &nbsp;&nbsp;**<u>Name</u>** | &nbsp;&nbsp;**<u>Jurisdiction</u>** |
| &nbsp;&nbsp;Rudolph Technologies, Inc. | &nbsp;&nbsp;U.S.A. |
| &nbsp;&nbsp;4D Technology Corporation | &nbsp;&nbsp;U.S.A. |
| &nbsp;&nbsp;Inspectrology LLC | &nbsp;&nbsp;U.S.A. |
| &nbsp;&nbsp;Onto Innovation Japan Co. Ltd. | &nbsp;&nbsp;Japan |
| &nbsp;&nbsp;Onto Innovation (Shanghai) Trading Co., Ltd. | &nbsp;&nbsp;China |
| &nbsp;&nbsp;Nanometrics China Company Ltd. | &nbsp;&nbsp;China |
| &nbsp;&nbsp;Onto Innovation Germany GmbH | &nbsp;&nbsp;Germany |
| &nbsp;&nbsp;Onto Innovation Hong Kong Limited | &nbsp;&nbsp;Hong Kong |
| &nbsp;&nbsp;Onto Innovation Europe, B.V. | &nbsp;&nbsp;Netherlands |
| &nbsp;&nbsp;Onto Innovation Switzerland GmBH | &nbsp;&nbsp;Switzerland |
| &nbsp;&nbsp;Nanometrics U.K. Ltd. | &nbsp;&nbsp;United Kingdom |
| &nbsp;&nbsp;Nanometrics Israel, Ltd. | &nbsp;&nbsp;Israel |
| &nbsp;&nbsp;Onto Innovation Korea Ltd. | &nbsp;&nbsp;Korea |
| &nbsp;&nbsp;Onto Innovation Southeast Asia Pte. Limited | &nbsp;&nbsp;Singapore |
| &nbsp;&nbsp;Onto Innovation Ireland Limited | &nbsp;&nbsp;Ireland |
| &nbsp;&nbsp;Onto Innovation Malaysia Sdn. Bhd. | &nbsp;&nbsp;Malaysia |
| &nbsp;&nbsp;Onto Innovation Vietnam PTE Company Limited | &nbsp;&nbsp;Vietnam |
| &nbsp;&nbsp;Neta SAS | &nbsp;&nbsp;France |

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## Ex-23

**Exhibit 23.1**

**Consent of Independent Registered Public Accounting Firm**

We consent to the incorporation by reference in the following Registration Statements:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)Registration Statement (Form S-8 No. 333-238492) pertaining to the Onto Innovation Inc. 2020 Employee Stock Purchase Plan.

of our reports dated February 24, 2023, with respect to the consolidated financial statements of Onto Innovation Inc. and the effectiveness of internal control over financial reporting of Onto Innovation Inc. included in this Annual Report (Form 10-K) of Onto Innovation Inc. for the year ended December 31, 2022.

/s/ Ernst & Young LLP

Iselin, New Jersey

February 24, 2023

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## Ex-31

**Exhibit 31.1**

**Rule 13a-14(a) Certification of Chief Executive Officer<br>Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002**

I, Michael P. Plisinski, certify that:

1. I have reviewed this annual report on Form 10-K of Onto Innovation Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 24, 2023

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| | |
|:---|:---|
| By: | /s/ Michael P. Plisinski |
|  | **Michael P. Plisinski** |
|  | **Chief Executive Officer** |

---

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## Ex-31

**Exhibit 31.2**

**Rule 13a-14(a) Certification of Chief Financial Officer<br>Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002**

I, Mark R. Slicer, certify that:

1. I have reviewed this annual report on Form 10-K of Onto Innovation Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 24, 2023

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| | |
|:---|:---|
| By: | /s/ Mark R. Slicer |
|  | **Mark R. Slicer** |
|  | **Chief Financial Officer** |

---

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## Ex-32

**Exhibit 32.1**

**CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO**

**SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

I, Michael P. Plisinski, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Onto Innovation Inc. on Form 10-K for the year ended December 31, 2022 fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of Onto Innovation Inc.

Date: February 24, 2023

---

| | |
|:---|:---|
| By: | /s/ Michael P. Plisinski |
|  | **Michael P. Plisinski** |
|  | **Chief Executive Officer** |

---

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## Ex-32

**Exhibit 32.2**

**CERTIFICATION OF CHIEF FINANCIAL OFFICER**

**PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO**

**SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

I, Mark R. Slicer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Onto Innovation Inc. on Form 10-K for the year ended December 31, 2022 fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of Onto Innovation Inc.

Date: February 24, 2023

---

| | |
|:---|:---|
| By: | /s/ Mark R. Slicer |
|  | **Mark R. Slicer** |
|  | **Chief Financial Officer** |

---

------