ONTO INNOVATION INC.

Onto Innovation Inc. is a worldwide leader in the design, development, manufacture and support of metrology and inspection tools for the semiconductor industry, including process control tools that perform optical metrology and inspection on patterned and unpatterned wafers, wafer substrate and panel substrate lithography systems, and process control analytical software. The company's principal market is semiconductor capital equipment, and its products are primarily used by silicon wafer manufacturers, semiconductor integrated circuit fabricators, and advanced packaging manufacturers. The industry is characterized by rapid technological adoption cycles and cyclicality in the semiconductor device industry, which has led to substantial decreases in demand for systems in the past and may continue to do so from time to time.

The global semiconductor equipment industry is intensely competitive, and Onto Innovation has multiple established and potential competitors. In automated systems for the semiconductor industry, the principal competitors are KLA Corporation and Nova Ltd. for thin film and critical dimension OCD metrology. For advanced packaging inspection, the principal competitors are KLA and Camtek Ltd. In the advanced packaging lithography market, primary competitors are Ushio, Inc. and Canon, Inc. The primary competitor for inspection in the panel market is GigaVis Co. Ltd., and for software products, the primary competitor is PDF Solutions, Inc. For integrated metrology systems, the primary competitor is Nova. The company believes its competitive position is based on the ability of its products and services to address customer requirements related to numerous competitive factors including technological innovation, productivity, total cost of ownership, price, product performance, throughput capability, quality, reliability, and customer support.

Onto Innovation generates revenue from the sale of its systems and software, spare parts, and services. For the year ended January 3, 2026, systems and software revenue was $847,835 thousand ¹, parts revenue was $84,200 thousand ², and services revenue was $73,228 thousand ³. The company's revenue is derived from a diverse customer base located in over 25 countries, with over 190 customers purchasing tools or software in 2025. The company provides local direct sales, service, and application support through worldwide offices located in the United States, South Korea, Japan, Taiwan, Malaysia, China, Vietnam, Singapore, and Europe.

The company's product portfolio includes automated metrology systems such as the Atlas family of products, which provide OCD and thin film metrology and wafer stress metrology for transistor and interconnect metrology applications. The integrated metrology systems, including the IMPULSE family of products, are installed directly onto wafer processing equipment to provide near real-time measurements. The company also offers silicon wafer all-surface inspection and characterization products, including the FAaST and CnCV product lines, which were added through the Semilab USA acquisition. The FAaST system is a versatile, non-contact electrical metrology platform, and the CnCV product line enables wafer-level characterization of wide-bandgap materials without test device fabrication. The MBIR product line of Infra-Red OCD and materials analysis products was also added through the Semilab USA acquisition.

The company's macro defect inspection products include the F30, NSX, Firefly, and Dragonfly G3 inspection systems, which are found in wafer fab and packaging facilities around the world. The company's advanced packaging lithography systems include the JetStep X500 System, which is designed for rectangular substrates (panels) and combines user-selectable wavelength options to maximize throughput. The company also provides a wide range of advanced process control software solutions, including run-to-run control, fault detection, classification, and tool automation, as well as yield management software designed to analyze data from disparate sources and multiple sites. The 4D business offers a line of interferometry systems for the measurement and inspection of high precision surfaces, serving end markets including high precision optics surfaces, aerospace and defense components, and unique research and scientific instrumentation.

In the fourth quarter of 2025, the company acquired Semilab USA, which was a subsidiary of Semilab International Zrt., for a total purchase price of $526.6 million ⁴. The acquisition added three advanced product lines—FAaST, CnCV, and MBIR—to Onto Innovation's portfolio. In February 2024, the Onto Innovation Board of Directors approved a share repurchase authorization allowing the company to repurchase up to $200 million ⁵ worth of shares of common stock. During the twelve months ended January 3, 2026, the company repurchased 492 thousand ⁶ shares of common stock under this repurchase authorization, and at January 3, 2026, there was $99.9 million ⁷ available for future share repurchases. The company also implemented a new enterprise resource planning system during the third quarter of fiscal 2025.

For the fiscal year ended January 3, 2026, total revenue was $1,005,263 thousand ⁸, compared to $987,321 thousand ⁹ in fiscal 2024, representing an increase of 2% ¹⁰. Gross profit was $499,770 thousand ¹¹ compared to $515,308 thousand ¹² in the prior year, with gross profit as a percentage of revenue decreasing to 49.7% ¹³ from 52.2% ¹⁴. Net income was $136,759 thousand ¹⁵ compared to $201,670 thousand ¹⁶ in fiscal 2024. Diluted earnings per share were $2.78 ¹⁷ compared to $4.06 ¹⁸ in the prior year. Cash, cash equivalents and marketable securities decreased to $639,622 thousand ¹⁹ at the end of fiscal 2025 from $852,328 thousand ²⁰ at the end of fiscal 2024.

The growth in artificial intelligence based applications has generated significant demand and new technology requirements in the advanced node segment, including for both logic and memory devices. The company believes that the use of new materials and manufacturing methods has increased demand for products such as the Atlas product line, which is capable of measuring advanced nodes as certain features shrink beyond 7nm, to 5nm, 3nm and in the most advanced of cases, 2 nm or less. The company also notes that the growth in AI applications has generated significant demand and new technology requirements in the advanced packaging segment at both the wafer process and panel process levels.

The company is positioned to capitalize on the emerging market of high-volume manufacturing of advanced IC substrates through products like the JetStep X500 lithography system, which is readily capable of processing RDLs on very thin advanced organic laminate panels. The Firefly series of panel level macro inspection tools can provide defect detection and location information to the JetStep X500 tool for each die, which greatly improves lithography throughput using the exclusive StepFAST process. The company believes it is optimally positioned to capitalize on this market as advanced packaging facilities looking to improve Cost of Ownership and increase productivity are transitioning from 300mm wafers to large rectangular panels, which can be as large as 650mm x 650mm.The company's manufacturing operations are in Milpitas, California; Tucson, Arizona; Wilmington, Massachusetts; Bloomington, Minnesota; and at various contract manufacturers around the world. It is the company's strategy to outsource the assemblies that do not contain elements that lead to a direct competitive advantage. Most automated and integrated products are currently manufactured at the Milpitas and Bloomington facilities. The company currently does not expect its manufacturing operations to require additional major investments in capital equipment in the near term.

The company continues to invest in research and development to provide customers with products that add value to their manufacturing processes. Research and development expenses were $131,978 thousand ²¹ in fiscal 2025, compared to $113,860 thousand ²² in fiscal 2024 and $104,442 thousand ²³ in fiscal 2023. Capital expenditures, net of proceeds, were $28,513 thousand ²⁴ in fiscal 2025, $31,903 thousand ²⁵ in fiscal 2024, and $22,573 thousand ²⁶ in fiscal 2023. The company has a share repurchase authorization with $99.9 million ²⁷ available for future share repurchases as of January 3, 2026. The company has never declared or paid a cash dividend on its common stock and currently does not intend to do so.

The company faces headwinds from U.S. export control regulations and policies that have negatively impacted its ability to compete for the business of domestic customers in China, which has adversely affected results of operations. The new export controls have resulted in lower net sales in China for fiscal 2025 compared to the prior fiscal years. The company also faces risks from tariffs, as in 2025 the U.S. implemented a number of tariffs on goods imported into the U.S., and reciprocal tariffs imposed by other countries have harmed and may continue to harm demand for products from customers in those regions.

The company faces constraints from the cyclical nature of the semiconductor device industry, which has led to substantial decreases in demand for its systems in the past and may continue to do so from time to time. The company also faces risks related to supply chain management, as certain components, subassemblies, and services necessary for the manufacture of its systems are obtained either from a sole supplier or limited group of suppliers. The lead time required for shipments of some components can be greater than six months, and the lead time required to qualify new suppliers for lasers and certain optics could be as long as a year.

The company faces material risks from U.S. export control regulations that have negatively impacted its ability to compete for business in China, resulting in lower net sales in China for fiscal 2025 compared to prior fiscal years. The company also faces significant customer concentration risk, as Customer A represented 20% ²⁸ of revenue, Customer B represented 15% ²⁹, and Customer C represented 14% ³⁰ in fiscal 2025, and the loss of any key customer could materially reduce revenue and cash flows. The company depends on limited-source suppliers for certain components, with lead times for some components exceeding six months and qualification of new suppliers for lasers and certain optics taking as long as a year, creating supply chain disruption risk. The integration of the Semilab USA acquisition, with a total purchase price of $526.6 million ³¹, may be more difficult, costly, or time-consuming than expected, and the company may fail to realize anticipated benefits.

Management's message emphasizes the company's position as a worldwide leader in process control tools for the semiconductor industry, highlighting the acquisition of Semilab USA in the fourth quarter of 2025 which added three advanced product lines to the portfolio. Management notes that in fiscal 2025, revenue increased 2% ³² compared to fiscal 2024, primarily due to higher sales to NAND and OSAT customers as well as revenue attributed to the acquired Semilab USA business, partially offset by lower sales to Foundry and DRAM customers. The strategic priorities emphasized include continuing to invest in research and development to provide customers with products that add value, maintaining a commitment to product excellence and longevity, and integrating the Semilab USA acquisition to realize anticipated benefits.