Dear Fellow Stockholders
We are incredibly pleased to report that Onto
Innovation had another record year with
systems revenue growth of 32% significantly
exceeding industry estimates of 8-10%
growth in wafer fab equipment for 2022. With
relentless focus on driving operational
efficiencies, our GAAP earnings per share
increased 57% over the prior year.
Financial Highlights
While growing earnings over the prior year,
we simultaneously increased our investments
in R&D, expanded manufacturing capacity,
and added infrastructure that established
new training centers closer to our customers
in Asia. These investments are in preparation
for an expected return to growth beyond
2023 when markets stabilize.
Our balance sheet remains quite strong, with
$548 million in total cash and investments
with no debt. We believe this gives us at a
competitive advantage as we continue to look
toward growth through M&A. In addition, our
strong balance sheet allows us to return
capital to stockholders. In 2022, we evaluated
opportunistic market conditions for potential
repurchases of our stock. Our total share
repurchases were just over one million shares
resulting in a return of capital to stockholders
of $65.3 million dollars. The share
repurchases were executed under our
existing $100 million dollar authorization by
the board of directors, with the balance
remaining in place.
Secular Trends Driving Sustainable Growth
The electronics and semiconductor markets
continue to experience accelerated adoption
of several industry growth drivers that enable
the technology that is transforming how we
live and work. That transformative technology
is enabling secular demand drivers such as
high-performance computing (HPC), artificial
intelligence (AI), machine learning (ML), rapid
growth in new automotive electronics, and 5G
communication expansions. These secular
trends are driving our logic and memory
customers to continuously manufacture
next-generation semiconductor wafers as
well as new and increasingly more complex
advanced packaging that includes multiple
devices in a single package to support the
increasing global demand for data driven
information. In addition, our automotive and
compound semiconductor customers
continue to expand their power and specialty
device manufacturing to support the growth
of automotive electronic content, electric
vehicles, rapid charging, and renewable
energy infrastructure. We continue to see
secular growth coming from each of these
high growth markets as our customers install
new technologies within their existing fabs
and build new fabs to keep up with demand in
the future.
Perhaps just as important as long-term
market growth is the increasing need for
process control solutions that are developed
by Onto Innovation’s engineering teams. Our
diverse and unique product portfolio, which
spans bare wafer manufacturing, wafer fabs,
and advanced packaging, provides a broad
understanding of innovative ways to improve
processes across the value chain. Many of
those process steps will have increased
complexity associated with the anticipated
new transistor architectures and advanced
packaging methods that require significantly
more metrology and inspection equipment to
optimize the manufacturing yields.
Our Environmental Focus
We made important strides in our
environmental, social and governance (ESG)
commitments as we continued to outpace
our yearly milestones for greenhouse gas
continuously change how we are all
reductions and renewable energy usage in
connected to our families, communities, and
our facilities. We recognize that a healthy
the world. As we continue to grow, we remain
environment is a necessary foundation for a
confident in the leverage of our business
stable economy and society. By increasing
model and financial structure with a
yields and decreasing cycle times, Onto
commitment to our long-term operating model
facilitates higher output while helping
and an expectation to generate robust cash
customers reduce their carbon footprint
flow and returning capital to our stockholders.
through reductions in overall power
consumption per wafer and other
necessary utilities.
And finally, on behalf of the entire team at
Onto Innovation and the board of directors,
we thank you for your dedicated support
In addition to helping customers reduce
and investment.
their impact on the environment we also
seek to reduce our own carbon footprint by
Sincerely,
at least 30% by 2025. In 2022 we achieved
significant progress toward that goal as,
compared to 2021, we reduced our water
consumption by 55%, increased our use of
renewable energy to 32%, and reduced our
carbon footprint per person by 29%.
Looking Ahead
Perhaps the most exciting company record we
set in 2022 was for awards we received from
customers. Customers presented four awards
to Onto Innovation ranging from a “best
supplier” award to a “novel technology” award.
In addition, the Atlas® V metrology system
was acknowledged by the industry as the best
new product launch at SEMICON® West by
SEMI® and Semiconductor Digest magazine.
We are becoming a more strategic and critical
partner for our customers and our role in the
industry is growing. With processes
increasing in complexity across that value
chain, the demand for our process control
solutions has been growing faster than
industry. We are excited to contribute to our
customers’ innovations, which are enabling
global transitions to HPC, AI, ML,
electrification of vehicles, and the creation of
next-generation technologies that
We are incredibly pleased to report that Onto
high-performance computing (HPC), artificial
Innovation had another record year with
intelligence (AI), machine learning (ML), rapid
systems revenue growth of 32% significantly
growth in new automotive electronics, and 5G
exceeding industry estimates of 8-10%
communication expansions. These secular
growth in wafer fab equipment for 2022. With
trends are driving our logic and memory
relentless focus on driving operational
customers to continuously manufacture
efficiencies, our GAAP earnings per share
next-generation semiconductor wafers as
increased 57% over the prior year.
Financial Highlights
well as new and increasingly more complex
advanced packaging that includes multiple
devices in a single package to support the
While growing earnings over the prior year,
increasing global demand for data driven
we simultaneously increased our investments
information. In addition, our automotive and
in R&D, expanded manufacturing capacity,
compound semiconductor customers
and added infrastructure that established
continue to expand their power and specialty
new training centers closer to our customers
device manufacturing to support the growth
in Asia. These investments are in preparation
of automotive electronic content, electric
for an expected return to growth beyond
vehicles, rapid charging, and renewable
2023 when markets stabilize.
energy infrastructure. We continue to see
secular growth coming from each of these
Our balance sheet remains quite strong, with
high growth markets as our customers install
$548 million in total cash and investments
new technologies within their existing fabs
with no debt. We believe this gives us at a
and build new fabs to keep up with demand in
competitive advantage as we continue to look
the future.
toward growth through M&A. In addition, our
strong balance sheet allows us to return
Perhaps just as important as long-term
capital to stockholders. In 2022, we evaluated
market growth is the increasing need for
opportunistic market conditions for potential
process control solutions that are developed
repurchases of our stock. Our total share
by Onto Innovation’s engineering teams. Our
repurchases were just over one million shares
diverse and unique product portfolio, which
resulting in a return of capital to stockholders
spans bare wafer manufacturing, wafer fabs,
of $65.3 million dollars. The share
and advanced packaging, provides a broad
repurchases were executed under our
understanding of innovative ways to improve
existing $100 million dollar authorization by
processes across the value chain. Many of
the board of directors, with the balance
those process steps will have increased
remaining in place.
complexity associated with the anticipated
new transistor architectures and advanced
packaging methods that require significantly
Secular Trends Driving Sustainable Growth
more metrology and inspection equipment to
The electronics and semiconductor markets
optimize the manufacturing yields.
continue to experience accelerated adoption
of several industry growth drivers that enable
Our Environmental Focus
the technology that is transforming how we
We made important strides in our
live and work. That transformative technology
environmental, social and governance (ESG)
is enabling secular demand drivers such as
commitments as we continued to outpace
continuously change how we are all
connected to our families, communities, and
the world. As we continue to grow, we remain
confident in the leverage of our business
model and financial structure with a
commitment to our long-term operating model
and an expectation to generate robust cash
flow and returning capital to our stockholders.
And finally, on behalf of the entire team at
Onto Innovation and the board of directors,
we thank you for your dedicated support
and investment.
Sincerely,
Michael P. Plisinski
Chief Executive Officer
Christopher A. Seams
Chairman of the Board
our yearly milestones for greenhouse gas
reductions and renewable energy usage in
our facilities. We recognize that a healthy
environment is a necessary foundation for a
stable economy and society. By increasing
yields and decreasing cycle times, Onto
facilitates higher output while helping
customers reduce their carbon footprint
through reductions in overall power
consumption per wafer and other
necessary utilities.
In addition to helping customers reduce
their impact on the environment we also
seek to reduce our own carbon footprint by
at least 30% by 2025. In 2022 we achieved
significant progress toward that goal as,
compared to 2021, we reduced our water
consumption by 55%, increased our use of
renewable energy to 32%, and reduced our
carbon footprint per person by 29%.
Looking Ahead
Perhaps the most exciting company record we
set in 2022 was for awards we received from
customers. Customers presented four awards
to Onto Innovation ranging from a “best
supplier” award to a “novel technology” award.
In addition, the Atlas® V metrology system
was acknowledged by the industry as the best
new product launch at SEMICON® West by
SEMI® and Semiconductor Digest magazine.
We are becoming a more strategic and critical
partner for our customers and our role in the
industry is growing. With processes
increasing in complexity across that value
chain, the demand for our process control
solutions has been growing faster than
industry. We are excited to contribute to our
customers’ innovations, which are enabling
global transitions to HPC, AI, ML,
electrification of vehicles, and the creation of
next-generation technologies that
Safe Harbor
Certain statements in this document may be considered "forward-looking statements" or may be based on
"forward-looking statements," including, but not limited to, those concerning: our business momentum and
future growth; technology development, product introduction and acceptance of our products and services;
our manufacturing practices and ability to both deliver 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; our expectations of the semiconductor
market outlook; future revenue, gross profits, research and development and engineering expenses, selling,
general and administrative expenses, and cash requirements; the effects of political, economic, legal, and
regulatory changes or conflicts on our global operations; 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; 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; our ability
to be successful in managing our cost structure and cash expenditures and results of litigation; as well as other
matters that are not purely historical data. Statements contained or incorporated by reference in this document
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" of our Form 10-K
for the fiscal year ended December 31, 2022. 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
hereof 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.
Stockholder Information
LOCATION
HEADQUARTERS
Onto Innovation
16 Jonspin Road
Wilmington, Massachusetts 01887
Phone 978.253.6200
ontoinnovation.com
OTHER LOCATIONS
View all locations on our website:
https://ontoinnovation.com/company/locations
TRANSFER AGENT
MAIL CORRESPONDENCE TO
Computershare Trust Company, N.A.
Stockholder Services
P.O. Box 43078
Providence RI 02940-3078
SEND OVERNIGHT CORRESPONDENCE TO
Computershare
150 Royall St., Suite 101
Canton, MA 02021
ONLINE INQUIRIES
www-us.computershare.com/investor/contact
PHONE
781.575.4223 or 800.368.5948
INVESTOR INFORMATION
GENERAL STOCKHOLDER AND INVESTOR QUESTIONS MAY
BE DIRECTED TO
Mike Sheaffer
Investor Relations, ESG Reporting
Onto Innovation
16 Jonspin Road
Wilmington, Massachusetts 01887
investors@ontoinnovation.com
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young, LLP
Iselin, New Jersey
STOCK SYMBOL
Common stock is traded on the New York Stock
Exchange under the symbol: ONTO
ANNUAL MEETING
Stockholders are invited to attend the Annual
Meeting at 12:00 p.m. (ET) on Tuesday,
May 9, 2023 at our offices, located at:
16 Jonspin Road
Wilmington, MA 01887
page intentionally left blank
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(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
ONTO INNOVATION INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
94-2276314
(I.R.S. Employer
Identification Number)
16 Jonspin Road, Wilmington, MA 01887
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (978) 253-6200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class
Common Stock, $0.001 par value per share
Trading Symbol
ONTO
Name of Exchange on Which Registered
New York Stock
Exchange (NYSE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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.:
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
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.
Item No.
Page
TABLE OF CONTENTS
1.
1A.
1B.
2.
3.
4.
5.
6.
7.
7A.
8.
9.
9A.
9B.
9C.
10.
11.
12.
13.
14.
PART I
Business ......................................................................................................................................................
Risk Factors ................................................................................................................................................
Unresolved Staff Comments .......................................................................................................................
Properties ....................................................................................................................................................
Legal Proceedings ......................................................................................................................................
Mine Safety Disclosures .............................................................................................................................
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities .................................................................................................................................................
[Reserved] ..................................................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations .....................
Quantitative and Qualitative Disclosures About Market Risk ....................................................................
Financial Statements and Supplementary Data...........................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .....................
Controls and Procedures .............................................................................................................................
Other Information .......................................................................................................................................
Disclosure Regarding Foreign Jurisdictions that Prevent Inspection .........................................................
PART III
Directors, Executive Officers and Corporate Governance..........................................................................
Executive Compensation ............................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...
Certain Relationships and Related Transactions, and Director Independence ............................................
Principal Accountant Fees and Services .....................................................................................................
PART IV
Exhibits and Financial Statement Schedules ..............................................................................................
15.
Signatures
2
12
29
30
30
30
31
32
33
42
42
42
42
43
43
44
44
44
44
44
45
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:
• our business momentum and future growth;
•
technology development, product introduction and acceptance of our products and services;
• 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;
• our expectations of the semiconductor market outlook;
•
•
•
future revenue, gross profits, research and development and engineering expenses, selling, general and
administrative expenses, and cash requirements;
the effects of political, economic, legal, and regulatory changes or conflicts on our global operations;
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;
• 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
• 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.
1
Item 1. Business.
General
PART I
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.
2
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® 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.
3
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® 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® 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® 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.
4
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® 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® 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® 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.
5
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® 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®, and the latest Dragonfly® G3 inspection systems are found in the wafer fab (front-
end) and packaging (back-end) facilities around the world. These high-speed tools incorporate features such as wafer-less
recipe creation, tool-to-tool correlation and multiple inspection resolutions. Using Discover® yield management software, the
vast amounts of data gathered through automated inspection can be analyzed and classified to determine trends and locate root
causes that directly affect yield.
Automated Defect Classification and Pattern Analysis. 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.
6
Opaque Film Metrology. The MetaPULSE® 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®
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® 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.
7
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:
Taiwan Semiconductor Manufacturing Co. Ltd..................................................
Samsung Semiconductor.....................................................................................
SK Hynix Inc. .....................................................................................................
* The customer accounted for 10% or more of total revenue during the period.
^ The customer accounted for less than 10% of total revenue during the period.
Sales, Customer Service and Application Support
2022
*
*
*
2021
*
*
^
2020
*
*
^
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.
8
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.
9
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:
• Passion – ownership, pride and caring in our work
•
Integrity – honesty, dependable, predictable and accountable
• Collaboration – working together toward a common goal
• Results – meeting and exceeding goals, focused toward innovation and growth
These core values define the way we do business in our everyday actions and choices. 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.
10
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:
• Pay-for-performance - Reward those who achieve or exceed set goals and objectives, while also recognizing those
making significant, impactful contributions;
• External market based - Pay levels that are competitive with respect to the labor market in which we compete for
talent;
•
Internal equity - Providing fair compensation programs within the Company;
• Fiscal responsibility - Providing programs which can be responsibly supported by our operations; and
• Legal compliance - Ensure compliance with the applicable laws of the states and countries in which we operate in
all material respects.
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:
• Demanded excellence in our environmental performance, as illustrated in our annual ESG reports.
• Demanded excellence in our quality performance, as demonstrated through our product and process qualification
commitments, including ISO 9001 Quality Management;
• Set goals to reduce our environmental impact, including an increase in our use of renewable energy, a decrease in
hazardous waste landfill, an increase in our use of recycled materials and beneficial reuse, and a reduction in our
freshwater usage;
• 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.
• Produced systems responsibly by offering tool trade-in, refurbishment and technology upgrade programs;
• Provided corporate matching for employee donations to qualified nonprofit organizations; and
• Engaged in community service projects in our communities globally.
We
encourage
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.
ESG Report
our website
(located
review
2021
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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:
• The Restriction of Hazardous Substances Directive (“RoHS”), which restricts the use of certain hazardous
substances in electrical and electronic equipment;
• General Data Protection Regulation (“GDPR”), which provides guidelines for the collection and processing of
personal information from individuals who live in the European Union;
• 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;
• Conflict minerals reporting, which imposes disclosure requirements regarding the use of “conflict” minerals mined
from the Democratic Republic of Congo and adjoining countries in products; and
• Export regulations.
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
•
•
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.
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.
• 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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•
•
If we deliver systems with defects, our credibility will be harmed, and the sales and market acceptance of our
systems will decrease.
Our integrated metrology systems are integrated with systems sold independently by wafer fabrication equipment
suppliers, and a decrease in sales by these suppliers, or the development of competing systems by these suppliers,
could harm our business.
• We must attract and retain experienced senior executives and other key personnel with knowledge of
semiconductor device manufacturing and inspection, metrology or lithography equipment and related software to
help support our future growth, and competition for such personnel in our industry is high.
•
•
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.
Any prolonged disruption in the operations of our manufacturing facilities could have a material adverse effect on
our revenue.
• 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.
•
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
•
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
•
•
•
•
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.
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.
Even if we are able to develop new products that gain market acceptance, sales of these new products could impair
our ability to sell existing products.
If our relationships with our large customers deteriorate, our product development activities could be adversely
affected.
Risks Related to Intellectual Property and Data Security
• We may fail to adequately protect our intellectual property and, therefore, lose our competitive advantage.
•
•
Protection of our intellectual property rights, or the efforts of third parties to enforce their own intellectual property
rights against us, may result in costly and time-consuming litigation, substantial damages, lost product sales and/or
the loss of important intellectual property rights.
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
•
•
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.
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
• 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.
•
•
•
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.
Political and economic instability may result in reduced demand for our products.
Natural disasters, changes in climate and geo-political conflicts could materially adversely affect our worldwide
operations (or those of our business partners).
• We may face difficulties in staffing and managing foreign branch operations due to political tensions or cultural
differences.
•
•
Currency fluctuations may impact our international sales or expose us to exchange rate risk.
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
•
•
Changes in tax rates or tax liabilities could affect results.
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.
• 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.
•
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
• We may choose to acquire new and complementary businesses, products or technologies instead of developing
them ourselves, and we may be unable to complete these acquisitions or may not be able to successfully integrate
an acquired business in a cost-effective and non-disruptive manner.
•
If we cannot effectively manage growth, our business may suffer.
Risks Related to the Global Economy and the Semiconductor Industry
•
•
Cyclicality in the semiconductor device industry has led to substantial decreases in demand for our systems in the
past and may, from time to time, continue to do so.
Our future rate of growth is highly dependent on the development and growth of the market for microelectronic
device inspection, lithography and metrology equipment.
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.
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:
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•
•
•
•
•
the efforts of our sales force;
the complexity of the customer’s fabrication processes;
the internal technical capabilities and sophistication of the customer;
the customer’s budgetary constraints; and
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
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could adversely affect our business. For example, components used in certain of our products use raw materials that may be
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
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organizations such as the Organization for Economic Cooperation and Development are also actively considering changes to
existing tax laws or have proposed or enacted new laws that could increase our tax obligations in countries where we do
business or cause us to change the way we operate our business. 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
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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.
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:
•
•
•
•
•
•
•
•
diversion of management’s attention from day-to-day operational matters and current products and customers;
lack of synergy or the inability to successfully integrate the new business or to realize expected synergies;
integration of acquired businesses and their operations, including enterprise resource planning systems, may be
costly and time-consuming and divert resources away from other projects;
failure to commercialize the new technology or business;
failure to meet the expected performance of the new technology or business;
failure to retain key employees and customer or supplier relationships;
lower-than-expected market opportunities or market acceptance of any new products; and
unexpected reduction of sales of existing products as a result of the introduction of new products.
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:
•
•
•
•
•
engage, train and manage a larger sales force and additional service personnel;
expand the geographic coverage of our sales force;
expand our information systems;
identify and successfully integrate acquired businesses into our operations; and
administer appropriate financial and administrative control procedures.
27
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.
28
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:
•
•
•
•
•
a prohibition on stockholder actions through written consent;
a requirement that special meetings of stockholders be called only by the chairperson of our Board of Directors or
majority of our directors;
advance notice requirements for stockholder proposals and director nominations by stockholders;
the authority of our Board of Directors to issue, without stockholder approval, preferred stock with such terms as
the Board may determine; and
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:
•
•
•
•
•
•
•
•
•
variations in operating results from quarter to quarter;
changes in earnings estimates by analysts or our failure to meet analysts’ expectations;
changes in the market price per share of our public company customers;
market conditions in the semiconductor and other industries into which we sell products;
general economic conditions;
political changes, hostilities or natural disasters such as hurricanes and floods;
the impact of the COVID-19 pandemic, or other future infectious disease pandemics, on the global economy and
on our customers, suppliers, employees, and business;
low trading volume of our common stock; and
the number of firms making a market in our common stock.
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.
29
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.
Facility Purpose
Location
Wilmington, Massachusetts ............. Corporate Headquarters, Engineering, Manufacturing and Service
Milpitas, California .......................... Engineering, Manufacturing, Service and Administration ..............
Budd Lake, New Jersey ................... Engineering, Service and Administration ........................................
Bloomington, Minnesota ................. Engineering, Manufacturing, Service and Administration ..............
Bend, Oregon ................................... Engineering and Service ..................................................................
Hillsboro, Oregon ............................ Engineering and Service ..................................................................
Richardson, Texas ............................ Engineering .....................................................................................
Snoqualmie, Washington ................. Engineering and Service ..................................................................
Tucson, Arizona ............................... Engineering, Manufacturing and Service ........................................
Taiwan ............................................. Sales and Service .............................................................................
China ................................................ Sales, Service and Engineering .......................................................
South Korea ..................................... Sales and Service .............................................................................
Japan ................................................ Sales and Service .............................................................................
Singapore ......................................... Sales and Service .............................................................................
Approximate
Square
Footage
77,500
134,000
49,000
98,600
12,700
10,000
21,000
20,300
18,900
37,700
34,300
21,900
9,000
9,800
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.
30
PART II
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
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.
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 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.
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.
Stockholder returns over the indicated period should not be considered indicative of future stockholder returns.
Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2023.
Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2023.
12/17
12/18
12/19
12/20
12/21
12/22
12/17
Onto Innovation Inc. .............................................
NYSE Composite..................................................
PHLX Semiconductor ...........................................
Onto Innovation Inc. .............................................
NYSE Composite..................................................
PHLX Semiconductor ...........................................
109.7
91.1
94.0
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.
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.
12/20
146.6
114.3
153.4
12/19
109.7
91.1
94.0
12/18
100.0
100.0
100.0
190.7
122.3
235.7
146.6
114.3
153.4
100.0
100.0
100.0
406.0
147.5
336.7
190.7
122.3
235.7
406.0
147.5
336.7
273.1
133.8
219.3
273.1
133.8
219.3
12/22
12/21
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,
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,
31
31
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):
Total Number
of Shares
Purchased (1)
Average
Price
Paid per
Share
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Program
Maximum
Approximate Dollar
Value of
Shares that
May Yet Be
Purchased Under
the Program
667 $
109 $
79 $
855 $
62.15
66.71
66.81
63.16
665 $
105 $
76 $
846
47,137
39,961
34,773
Period
October 2, 2022 - October 31, 2022
November 1, 2022 - November 30, 2022
December 1, 2022 - December 31, 2022
Three Months Ended December 31, 2022
1 Includes shares withheld through net
share settlements.
Item 6. [Reserved]
32
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):
Year Ended
December 31,
2022
January 1,
2022
Revenue .................................................................................... $
Gross profit ............................................................................... $
Gross profit as a percent of revenue .........................................
Total operating expenses .......................................................... $
Net income ................................................................................ $
Diluted earnings per share ........................................................ $
1,005,183
539,221
$
$
54 %
302,507
223,334
4.49
$
$
$
788,899
429,086
54 %
272,679
142,349
2.86
•
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.
• 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.
• 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.
33
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
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.
34
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.
Revenue ....................................................................................
Cost of revenue .........................................................................
Gross profit ...........................................................................
Operating expenses: ..................................................................
Research and development ...................................................
Sales and marketing ..............................................................
General and administrative ...................................................
Amortization .........................................................................
Total operating expenses ..................................................
Operating income ......................................................................
Interest income, net ...................................................................
Other expense, net ....................................................................
Income before provision (benefit) for income taxes .............
Provision (benefit) for income taxes .........................................
Net income ................................................................................
Results of Operations for 2022, 2021 and 2020
December 31,
2022
Year Ended
January 1,
2022
December 26,
2020
100.0 %
46.4 %
53.6 %
11.2 %
6.5 %
6.9 %
5.5 %
30.1 %
23.5 %
0.5 %
— %
24.0 %
1.8 %
22.2 %
100.0 %
45.6 %
54.4 %
12.2 %
7.3 %
8.6 %
6.5 %
34.6 %
19.8 %
0.1 %
(0.2 )%
19.7 %
1.7 %
18.0 %
100.0 %
50.0 %
50.0 %
15.2 %
8.6 %
11.7 %
9.7 %
45.2 %
4.8 %
0.5 %
(0.5 )%
4.8 %
(0.7 )%
5.5 %
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:
December 31,
2022
Systems and software ...................................... $ 865,707
84,266
Parts .................................................................
55,210
Services ............................................................
Total revenue ........................................... $ 1,005,183
Year Ended
January 1,
2022
86 % $ 669,114
72,753
8 %
47,032
6 %
100 % $ 788,899
December 26,
2020
85 % $ 450,459
65,444
9 %
40,593
6 %
100 % $ 556,496
80 %
12 %
8 %
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.
35
The following table sets forth, for the periods indicated, our revenue by geographic region as percentages of our revenue.
Revenue ..................................................................................... $
China ......................................................................................
South Korea ...........................................................................
Taiwan ...................................................................................
United States ..........................................................................
Europe ....................................................................................
Japan ......................................................................................
Southeast Asia .......................................................................
Total revenue .....................................................................
December 31,
2022
1,005,183
Year Ended
January 1,
2022
December 26,
2020
$
788,899
$
556,496
25 %
22 %
20 %
12 %
8 %
6 %
7 %
100 %
19 %
20 %
25 %
16 %
8 %
8 %
4 %
100 %
22 %
16 %
22 %
15 %
9 %
11 %
5 %
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:
• Research and Development. 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.
• Sales and Marketing. Sales and marketing expenses are primarily comprised of salaries and related costs for sales
and marketing personnel, as well as commissions and other non-personnel related expenses. 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.
36
• General and Administrative. 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.
• Amortization of Identifiable Intangible Assets. 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):
December 31,
2022
Year Ended
January 1,
2022
December 26,
2020
Income before provision (benefit) for income taxes ....................
Provision (benefit) for income taxes ............................................
Effective tax rate ..........................................................................
$
$
241.6
18.3
$
$
7.6 %
155.7
13.3
$
$
8.6 %
26.9
(4.2 )
(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
37
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.
• 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.
• 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.
• 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.
• 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.
• 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.
• 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.
• 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.
• During the year ended December 26, 2020, financing activities used cash primarily to purchase shares of our
38
common stock under the share repurchase authorization of $52.0 million.
From time to time, we evaluate whether to acquire new or complementary businesses, products or technologies. We may
fund all of or a portion of the price of these investments or acquisitions in cash, stock, or a combination of cash and stock. 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).
Less than 1
year
Payments due by period
1-3
years
3-5
years
Total
More than
5 years
Operating lease obligations .............................................
Purchase obligations (1) ...................................................
Total ............................................................................
$ 25,232 $
417,148
348,984
$ 442,380 $ 355,860 $ 79,111 $
6,876 $ 10,946 $
68,165
4,891 $
—
4,891 $
2,519
—
2,519
(1) 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.
39
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
40
approximate actual costs. We maintain reserves for our excess and obsolete inventory equal to the difference between the cost
of inventory and the estimated market value based upon assumptions about future product lifecycles, product demand and
market conditions. If actual product lifecycles, product demand and market conditions are less favorable than those originally
projected by management, additional inventory write-downs may be required.
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.
41
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.
42
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
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.
43
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.
44
PART IV
Item 15. Exhibits and Financial Statement Schedule.
(a) The following documents are filed as part of this Form 10-K:
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.
2.
Financial Statement Schedule
See Index to financial statements on page F-1 of this report.
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.
Exhibit No.
2.1
3.1
3.2
4.1
4.2
10.1*
10.1.1*
Exhibit Description
Agreement and Plan of Merger, dated as of June
23, 2019, by and among Nanometrics
Incorporated, Rudolph Technologies, Inc. and
PV Equipment Inc.
Amended and Restated Certificate of
Incorporation of Onto Innovation Inc.
Amended and Restated Bylaws of Onto
Innovation Inc.
Form of Common Stock Certificate
Description of Securities
Nanometrics Incorporated Amended and
Restated 2005 Equity Incentive Plan
Form of Performance-Based Restricted Stock
Unit Agreement
10.1.2* Nanometrics Incorporated Amended and
Restated 2005 Equity Incentive Plan forms of
Stock Option and Restricted Stock Unit
Agreements
10.2* Rudolph Technologies, Inc. 2009 Stock Plan
10.2.1* Amended form of Employee Restricted Stock
Unit Purchase Agreement pursuant to the
Rudolph Technologies, Inc. 2009 Stock Plan
10.3* Rudolph Technologies, Inc. 2018 Stock Plan
10.3.1* Form of Employee Performance Stock Unit
Purchase Agreement pursuant to the Rudolph
Technologies, Inc. 2018 Stock Plan
Form
File Number Date of First Filing
Exhibit
No./Appendix
Reference
8-K
000-13470
June 24, 2019
2.1
8-K
001-39110 October 28, 2019
8-K
10-K
10-K
001-39110 January 27, 2020
001-39110 February 25, 2020
001-39110 February 25, 2020
3.2
3.1
4.1
4.2
DEF14A
000-13470 April 4, 2017 Appendix B
8-K
10-K
000-13470 March 24, 2015
000-13470 March 13, 2008
99.1
10.8
DEFR14A
10-Q
000-27965 May 8, 2009
001-36226 August 3, 2017
Appendix A
10.12
8-K
10-Q
001-36226 May 16, 2018
001-36226 August 2, 2018
10.1
10.1
45
Exhibit No.
Exhibit Description
10.4* Onto Innovation Inc. 2020 Stock Plan
10.4.2* Form of Employee Stock Option Agreement for
usage under the Onto Innovation Inc. 2020 Stock
Plan
Form
8-K
8-K
File Number Date of First Filing
001-39110 May 14, 2020
001-39110 May 14, 2020
Exhibit
No./Appendix
Reference
10.1
10.1
10.4.3* Form of Director Stock Option Agreement for
8-K
001-39110 May 14, 2020
10.1
usage under the Onto Innovation Inc. 2020 Stock
Plan
10.4.5* Form of Employee Restricted Stock Unit
10-Q
001-39110 August 5, 2021
10.1
Agreement for usage under the Onto Innovation
Inc. 2020 Stock Plan
10.4.6* Form of Director Restricted Stock Unit Purchase
Agreement for usage under the Onto Innovation
Inc. 2020 Stock Plan
10-Q
001-39110 August 5, 2021
10.1
10.4.7* Form of Employee Performance Stock Unit
10-Q
001-39110 August 5, 2021
10.1
Purchase Agreement for usage under the Onto
Innovation Inc. 2020 Stock Plan
10.4.8* Form of Employee Incentive Restricted Stock
Unit Purchase Agreement for usage under the
Onto Innovation Inc. 2020 Stock Plan
10.5* Onto Innovation Inc. 2020 Employee Stock
10.6*
10.7*
Purchase Plan
Form of Indemnification Agreement
Form of Onto Innovation Inc. Indemnification
Agreement
10.8* 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.
10.9* Employment Agreement, dated as of November
9, 2015, by and between Rudolph Technologies,
Inc. and Michael Plisinski.
10.10* Offer Letter to Yoon Ah E. Oh, dated October 4,
2021, by and between Yoon Ah E. Oh and Onto
Innovation Inc.
10.11* Offer Letter to Mark Slicer, dated April 1, 2022,
by and between Mark Slicer and Onto
Innovation Inc.
10.12* Executive Change in Control Agreement, dated
July 5, 2022, by and between Onto Innovation
Inc. and Yoon Ah Oh
10-Q
001-39110 November 4, 2021
10.1
S-8
8-K
8-K
333-238492 May 19, 2020
001-39110 November 6, 2019
001-39110
September 13,
2021
10.2
10.1
10.1
10-Q
001-36226 August 6, 2014
10.2
8-K
001-36226 November 9, 2015
10.1
10-Q
001-39110 May 3, 2022
10.1
8-K
001-39110 May 17, 2022
10.1
10-Q
001-39110 November 10,
10.1
2022
―
―
10.13*+ Form of Executive Change in Control
―
―
Agreement
46
Subsidiaries.
Exhibit Description
Exhibit No.
21.1+
23.1+ Consent of Ernst & Young LLP, Independent
Registered Public Accounting Firm.
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.
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.
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.
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.
File Number Date of First Filing
―
―
―
―
―
―
―
―
―
―
―
―
Exhibit
No./Appendix
Reference
―
―
―
―
―
―
Form
―
―
―
―
―
―
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase
Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase
104
*
+
Document
Cover Page Interactive Data File (formatted in inline XBRL and
contained in Exhibit 101)
Management contract, compensatory plan or arrangement.
Filed herewith.
47
ONTO INNOVATION INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
Consolidated Financial Statements:
Reports of Independent Registered Public Accounting Firm (PCAOB ID Number 42)............................................
Consolidated Statements of Operations for the years ended December 31, 2022, January 1, 2022 and
December 26, 2020 ...............................................................................................................................................
Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, January 1, 2022 and
December 26, 2020 ................................................................................................................................................
Consolidated Balance Sheets as of December 31, 2022 and January 1, 2022 ...........................................................
Consolidated Statements of Cash Flows for the years ended December 31, 2022, January 1, 2022 and
December 26, 2020 ................................................................................................................................................
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022, January 1, 2022 and
December 26, 2020 ................................................................................................................................................
Notes to the Consolidated Financial Statements ........................................................................................................
Consolidated Financial Statement Schedule:
Schedule of Valuation and Qualifying Accounts .......................................................................................................
Page
F-2
F-5
F-6
F-7
F-8
F-9
F-10
F-31
F-1
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 accounts 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
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.
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
How We Addressed the
Matter in Our Audit
F-2
the validity and reasonableness of the data and assumptions used in estimating the excess and
obsolete inventory reserve.
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.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2008.
Iselin, New Jersey
February 24, 2023
F-3
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
F-4
ONTO INNOVATION INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Revenue ...................................................................................................
Cost of revenue ........................................................................................
Gross profit ..........................................................................................
Operating expenses:
Research and development ..................................................................
Sales and marketing .............................................................................
General and administrative ..................................................................
Amortization ........................................................................................
Total operating expenses .................................................................
Operating income .....................................................................................
Interest income, net ..................................................................................
Other expense, net ...................................................................................
Income before provision (benefit) for income taxes ............................
Provision (benefit) for income taxes ........................................................
Net income ...............................................................................................
Earnings per share:
$
December 31,
2022
1,005,183 $
465,962
539,221
Year Ended
January 1,
2022
788,899 $
359,813
429,086
December 26,
2020
556,496
278,043
278,453
111,953
65,688
69,582
55,284
302,507
236,714
5,011
(141 )
241,584
18,250
223,334 $
96,118
57,235
67,960
51,366
272,679
156,407
1,163
(1,888 )
155,682
13,333
142,349 $
84,584
48,136
65,310
53,746
251,776
26,677
2,899
(2,708 )
26,868
(4,157 )
31,025
$
Basic ....................................................................................................
Diluted .................................................................................................
$
$
4.52 $
4.49 $
2.89 $
2.86 $
0.63
0.63
Weighted average number of shares outstanding:
Basic ....................................................................................................
Diluted .................................................................................................
49,424
49,764
49,242
49,728
49,136
49,475
The accompanying notes are an integral part of these consolidated financial statements.
F-5
ONTO INNOVATION INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Year Ended
January 1,
2022
142,349 $
December 26,
2020
31,025
123
5,043
5,166
36,191
Net income ...............................................................................................
Other comprehensive income (loss), net of tax:
December 31,
2022
223,334 $
$
Change in net unrealized gains (losses) on available-for-sale marketable
securities ..............................................................................................
Change in currency translation adjustments ........................................
Total other comprehensive income (loss), net of tax ...........................
Total comprehensive income ...................................................................
$
(2,447 )
(8,879 )
(11,326 )
212,008 $
(537 )
(2,715 )
(3,252 )
139,097 $
The accompanying notes are an integral part of these consolidated financial statements.
F-6
ONTO INNOVATION INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
Current Assets:
ASSETS
Cash and cash equivalents .......................................................................................
Marketable securities ...............................................................................................
Accounts receivable, less allowance of $1,572 at December 31, 2022 and
$1,303 at January 1, 2022 ....................................................................................
Inventories ...............................................................................................................
Prepaid expenses and other current assets ...............................................................
Total current assets ..............................................................................................
Property, plant and equipment, net ..............................................................................
Goodwill ......................................................................................................................
Identifiable intangible assets, net .................................................................................
Deferred income taxes .................................................................................................
Other assets ..................................................................................................................
Total assets...........................................................................................................
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable .....................................................................................................
Accrued liabilities ....................................................................................................
Deferred revenue .....................................................................................................
Other current liabilities ............................................................................................
Total current liabilities .........................................................................................
Deferred and other tax liabilities..................................................................................
Other non-current liabilities .........................................................................................
Total liabilities .....................................................................................................
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock, $0.001 par value, 3,000 shares authorized, no shares
issued and outstanding ..........................................................................................
Common stock, $0.001 par value, 97,000 shares authorized, 48,684 and
49,300 issued and outstanding at December 31, 2022 and January 1, 2022,
respectively. ..........................................................................................................
Additional paid-in capital ........................................................................................
Accumulated other comprehensive income .............................................................
Accumulated earnings ..............................................................................................
Total stockholders’ equity ...................................................................................
Total liabilities and stockholders’ equity..............................................................
December 31,
2022
January 1,
2022
$
175,872 $
371,912
169,602
341,741
241,395
324,282
21,411
1,134,872
91,980
315,811
222,197
4,778
25,225
1,794,863 $
54,526 $
48,836
30,163
27,033
160,558
7,366
30,513
198,437
177,205
243,108
16,433
948,089
82,094
315,811
277,281
4,822
21,716
1,649,813
53,345
43,042
29,979
28,160
154,526
40,281
28,951
223,758
—
—
49
1,243,631
(10,010 )
362,756
1,596,426
1,794,863 $
49
1,256,179
1,316
168,511
1,426,055
1,649,813
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-7
ONTO INNOVATION INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income ...............................................................................................................
$
223,334 $
142,350 $
31,025
December 31,
2022
Year Ended
January 1,
2022
December 26,
2020
Adjustments to reconcile net income to net cash and cash equivalents provided
by operating activities:
Depreciation .............................................................................................................
Amortization of intangibles ......................................................................................
Share-based compensation ........................................................................................
Write-off of acquired in-process research and development .......................................
Acquired inventory step-up amortization ...................................................................
Provision for inventory valuation ..............................................................................
Deferred income taxes ..............................................................................................
Other, net .................................................................................................................
Change in operating assets and liabilities, net of effects of business acquired:
Accounts receivable .............................................................................................
Income taxes ........................................................................................................
Inventories ...........................................................................................................
Prepaid expenses and other assets .........................................................................
Accounts payable .................................................................................................
Accrued and other liabilities .................................................................................
Net cash and cash equivalents provided by operating activities ..........................
Cash flows from investing activities:
9,378
55,284
24,426
5,652
—
9,313
(33,601 )
(563 )
(65,140 )
(5,006 )
(93,905 )
(4,954 )
1,181
11,304
136,703
14,435
51,366
19,542
—
393
8,175
(12,618 )
2,267
(27,829 )
1,307
(57,175 )
(768 )
12,142
21,694
175,281
13,832
53,746
17,662
—
10,678
14,703
(11,631 )
4,711
(25,816 )
(1,196 )
(42,409 )
11,409
11,403
17,867
105,984
Purchases of marketable securities ............................................................................
Proceeds from maturities and sales of marketable securities .......................................
Purchases of property, plant and equipment ...............................................................
Acquisitions, net of cash acquired .............................................................................
Cash received from convertible note receivable .........................................................
Net cash and cash equivalents used in investing activities ..................................
(371,287 )
338,645
(18,405 )
(4,644 )
—
(55,691 )
(361,022 )
255,063
(12,039 )
(23,795 )
—
(141,793 )
(313,027 )
265,409
(3,829 )
—
2,848
(48,599 )
Cash flows from financing activities:
Purchases of common stock ....................................................................................
Tax payments related to shares withheld for share-based compensation plans ..........
Payment of contingent consideration for acquired business ......................................
Issuance of shares through share-based compensation plans.....................................
Net cash and cash equivalents provided by (used in) financing activities ............
Effect of exchange rate changes on cash and cash equivalents .......................................
Net increase in cash and cash equivalents ......................................................................
Cash and cash equivalents at beginning of year .............................................................
Cash and cash equivalents at end of year .......................................................................
$
(65,257 )
(8,874 )
(2,287 )
8,068
(68,350 )
(6,391 )
6,270
169,602
175,872 $
—
(7,403 )
—
10,073
2,670
(3,276 )
32,882
136,720
169,602 $
(52,000 )
(4,052 )
(569 )
2,919
(53,702 )
2,364
6,047
130,673
136,720
Supplemental disclosure of cash flow information:
Income taxes paid, net ..............................................................................................
$
58,687 $
23,766 $
6,415
The accompanying notes are an integral part of these consolidated financial statements.
F-8
ONTO INNOVATION INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the years ended December 31, 2022,
January 1, 2022 and December 26, 2020
(In thousands)
Balance at December 31, 2019 .......... 50,184
$
50
Common Stock
Shares
Amount
Additional
Paid-in
Capital
$ 1,269,437
Accumulated
Other
Comprehensive
Income / (Loss)
Accumulated
Earnings /
(Deficit)
Total
$
(598 ) $
(4,863 ) $ 1,264,026
668
(1,882 )
—
—
1
(2 )
—
—
2,918
(51,998 )
—
17,662
Issuance of shares through share-
based compensation plans, net ....
Repurchase of common stock ........
Net income .....................................
Share-based compensation .............
Share-based compensation plan
withholdings ..............................
Other ..............................................
Currency translation .......................
Unrealized gain on investments .....
(118 )
(94 )
—
—
Balance at December 26, 2020 .......... 48,758
Issuance of shares through share-
based compensation plans, net ....
Net income .....................................
Share-based compensation .............
Share-based compensation plan
withholdings ..............................
Currency translation .......................
Unrealized loss on investments ......
(108 )
—
—
Balance at January 1, 2022 ................ 49,300
650
—
—
—
—
—
—
49
—
—
—
—
—
—
49
(4,052 )
—
—
—
1,233,967
10,072
—
19,542
(7,402 )
—
—
1,256,179
—
—
—
—
—
—
5,043
123
4,568
—
—
31,025
—
—
—
—
—
26,162
2,919
(52,000 )
31,025
17,662
(4,052 )
—
5,043
123
1,264,746
—
—
—
—
142,349
—
10,072
142,349
19,542
—
(2,715 )
(537 )
1,316
—
—
—
168,511
(7,402 )
(2,715 )
(537 )
1,426,055
Issuance of shares through share-
based compensation plans, net ....
Repurchase of common stock ........
Net income .....................................
Share-based compensation .............
Share-based compensation plan
withholdings ..............................
Currency translation .......................
Unrealized loss on investments ......
509
(1,018 )
—
—
(107 )
—
—
Balance at December 31, 2022 .......... 48,684 $
1
(1 )
—
—
8,067
(36,167 )
—
24,426
—
—
—
—
—
(29,089 )
223,334
—
8,068
(65,257 )
223,334
24,426
—
—
—
49 $ 1,243,631 $
(8,874 )
—
—
—
(8,879 )
(2,447 )
(10,010 ) $
—
—
—
(8,874 )
(8,879 )
(2,447 )
362,756 $ 1,596,426
The accompanying notes are an integral part of these consolidated financial statements
F-9
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.
F-10
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.
F-11
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.
F-12
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.
F-13
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.
F-14
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,
2022
January 1,
2022
Notional amount .........................................................................................................
Fair value of liability ..................................................................................................
$
27,923 $
135
32,293
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.
F-15
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
Significant
Other
Observable
Inputs (Level 2)
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Unobservable
Inputs (Level 3)
Carrying
Value
December 31, 2022
Assets:
Available-for-sale debt securities:
Municipal notes and bonds ................................ $
Asset-backed securities ......................................
Certificates of deposit ........................................
Commercial paper ..............................................
Corporate bonds .................................................
Total assets ..................................................... $
178,868 $
1,534
52,095
80,079
59,335
371,912 $
Liabilities:
Foreign currency forward contracts .......................
Total liabilities ............................................... $
135 $
135 $
— $
—
—
—
—
—
$
—
— $
178,868 $
1,534
52,095
80,079
59,335
371,912 $
135 $
135 $
—
—
—
—
—
—
—
—
Fair Value Measurements Using
Significant
Other
Observable
Inputs (Level 2)
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Unobservable
Inputs (Level 3)
Carrying
Value
January 1, 2022
Assets:
Available-for-sale debt securities:
Municipal notes and bonds ................................ $
Asset-backed securities ......................................
Certificates of deposit ........................................
Commercial paper ..............................................
Corporate bonds .................................................
Total assets ..................................................... $
170,980 $
2,009
33,192
73,113
62,447
341,741 $
Liabilities:
Foreign currency forward contracts ....................... $
Total liabilities ............................................... $
26 $
26 $
— $
—
—
—
—
—
$
— $
— $
170,980 $
2,009
33,192
73,113
62,447
341,741 $
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.
F-16
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
Cost
Gross
Unrealized
Holding Gains
Gross
Unrealized
Holding Losses
Fair
Value
December 31, 2022
Municipal notes and bonds ........................................................ $
Asset-backed securities ..............................................................
Certificates of deposit ................................................................
Commercial paper ......................................................................
Corporate bonds .........................................................................
Total marketable securities .................................................... $
January 1, 2022
Municipal notes and bonds ........................................................ $
Asset-backed securities ..............................................................
Certificates of deposit ................................................................
Commercial paper ......................................................................
Corporate bonds .........................................................................
Total marketable securities .................................................... $
181,196 $
1,555
52,190
80,199
60,334
375,474 $
171,203 $
2,009
33,200
73,152
62,634
342,198 $
27 $
—
24
16
4
71 $
38 $
—
2
2
29
71 $
$
2,355
21
118
136
1,003
3,633 $
$
261
—
10
41
216
528 $
178,868
1,534
52,095
80,079
59,335
371,912
170,980
2,009
33,192
73,113
62,447
341,741
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
January 1, 2022
Fair
Value
219,211
122,530
—
—
341,741
Due within one year ................................................................... $
Due after one through five years ................................................
Due after five through ten years.................................................
Due after ten years .....................................................................
Amortized
Cost
311,934 $
63,540
—
—
Fair
Value
309,385 $
62,527
—
—
Amortized
Cost
219,353 $
122,845
—
—
Total marketable securities .................................................... $
375,474 $
371,912 $
342,198 $
F-17
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
For Less Than 12 Months
Gross
Unrealized
Losses
Fair
Value
In Unrealized Loss Position
For Greater Than 12 Months
Fair
Value
Gross
Unrealized
Losses
December 31, 2022
Municipal notes and bonds ........................................................ $
Asset-backed securities ..............................................................
Certificates of deposit ................................................................
Commercial paper ......................................................................
Corporate bonds .........................................................................
Total marketable securities .................................................... $
January 1, 2022
Municipal notes and bonds ........................................................ $
Certificates of deposit ................................................................
Commercial paper ......................................................................
Corporate bonds .........................................................................
Total marketable securities .................................................... $
96,301 $
1,555
22,400
50,550
28,975
199,781 $
113,790 $
16,300
58,681
53,661
242,432 $
1,273 $
21
118
136
637
2,185 $
262 $
10
40
150
462 $
69,159 $
—
—
—
28,769
97,928 $
— $
—
—
2,587
2,587 $
1,082
—
—
—
366
1,448
—
—
—
66
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 .............................................................................................................. $
Goodwill from Inspectrology acquisition ..........................................................................................
Balance at January 1, 2022 ....................................................................................................................
Goodwill adjustment ..........................................................................................................................
Balance at December 31, 2022 .............................................................................................................. $
306,632
9,179
315,811
—
315,811
F-18
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
Finite-lived intangible assets:
Developed technology .........................................................................
Customer and distributor relationships ................................................
Trademarks and trade names ...............................................................
Total identifiable intangible assets ...................................................
January 1, 2022
Finite-lived intangible assets:
Developed technology .........................................................................
Customer and distributor relationships ................................................
Trademarks and trade names ...............................................................
Total identifiable intangible assets ...................................................
$
$
$
$
378,197 $
73,321
14,171
465,689 $
205,386 $
30,195
7,911
243,492 $
172,811
43,126
6,260
222,197
377,997 $
73,321
14,171
465,489 $
155,976 $
25,608
6,624
188,208 $
222,021
47,713
7,547
277,281
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:
Cash Flow Information
Cash paid for operating lease liabilities ...................................................................... $
Right-of-use assets obtained in exchange for operating lease liabilities ..................... $
Operating Lease Information
Weighted average remaining lease term ....................................................................
Weighted average discount rate .................................................................................
Year Ended
December 31,
2022
January 1,
2022
6,368 $
9,295 $
6,247
304
December 31,
2022
January 1,
2022
4.5
3.8 %
5.3
4.5 %
F-19
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except per share data)
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 ............................................................................................................................................................ $
2024 ............................................................................................................................................................
2025 ............................................................................................................................................................
2026 ............................................................................................................................................................
2027 ............................................................................................................................................................
Thereafter ....................................................................................................................................................
Total undiscounted operating lease payments .........................................................................................
Less: imputed interest .................................................................................................................................
Present value of operating lease liabilities ............................................................................................... $
6,721
5,799
4,646
2,905
1,905
2,399
24,375
2,030
22,345
7.
Balance Sheet Components:
Inventories
Inventories are comprised of the following:
Materials .....................................................................................................................
Work-in-process .........................................................................................................
Finished goods ............................................................................................................
Total inventories .....................................................................................................
$
231,029 $
69,072
24,181
$
324,282 $
157,343
60,415
25,350
243,108
December 31,
2022
January 1,
2022
Property, Plant and Equipment
Property, plant and equipment, net, is comprised of the following:
Land and building ....................................................................................................... $
Machinery and equipment ..........................................................................................
Furniture and fixtures .................................................................................................
Computer equipment and software .............................................................................
Leasehold improvements ............................................................................................
Accumulated depreciation ..........................................................................................
Total property, plant and equipment, net ................................................................ $
December 31,
2022
January 1,
2022
50,344 $
56,924
2,949
15,415
18,539
144,171
(52,191 )
91,980 $
48,297
50,226
2,534
13,856
13,710
128,623
(46,529 )
82,094
F-20
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:
Operating lease right-of-use assets .............................................................................
Other ...........................................................................................................................
Total other assets ....................................................................................................
$
$
20,746 $
4,479
25,225 $
17,488
4,228
21,716
December 31,
2022
January 1,
2022
Accrued liabilities
Accrued liabilities is comprised of the following:
Payroll and related expenses .......................................................................................
Warranty .....................................................................................................................
Other ...........................................................................................................................
Total accrued liabilities ...........................................................................................
$
$
36,529 $
10,890
1,417
48,836 $
32,581
9,093
1,368
43,042
December 31,
2022
January 1,
2022
Other current liabilities
Other current liabilities is comprised of the following:
Customer deposits .......................................................................................................
Current operating lease obligations ............................................................................
Income tax payable .....................................................................................................
Accrued professional fees ...........................................................................................
Other ...........................................................................................................................
Total other current liabilities ...................................................................................
$
$
12,482 $
5,678
1,910
968
5,995
27,033 $
9,459
3,968
6,315
912
7,506
28,160
December 31,
2022
January 1,
2022
Other non-current liabilities
Other non-current liabilities is comprised of the following:
Non-current operating lease obligations ..................................................................... $
Unrecognized tax benefits (including interest) ...........................................................
Deferred revenue ........................................................................................................
Other ...........................................................................................................................
Total non-current liabilities..................................................................................... $
16,345 $
7,693
2,852
3,623
30,513 $
13,754
7,861
1,693
5,643
28,951
December 31,
2022
January 1,
2022
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.
F-21
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
December 31,
2022
January 1,
2022
Balance, beginning of the period ............................................................... $
Accruals .................................................................................................
Warranty liability assumed from Inspectrology acquisition ..................
Usage .....................................................................................................
Balance, end of the period ......................................................................... $
9,682 $
16,040
—
(13,893 )
11,830 $
6,485
11,892
407
(9,102 )
9,682
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
Complaint. On August 14, 2020, the Company filed a motion to dismiss with regard to one of the two remaining claims. On
F-22
ONTO INNOVATION INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(In thousands, except per share data)
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:
Point-in-time ...................................................................................... $
Over-time ...........................................................................................
Total revenue ............................................................................. $
958,409 $
46,773
1,005,183 $
749,276
39,623
788,899
See Note 14 of the Notes to the Consolidated Financial Statements for additional discussion of the Company’s
Year Ended
December 31,
2022
January 1,
2022
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:
Balance, beginning of the period ....................................................... $
Deferred revenue assumed from Inspectrology acquisition ...........
Deferral of revenue ........................................................................
Recognition of deferred revenue ....................................................
Balance, ending of the period ............................................................ $
31,672 $
—
81,772
(80,430 )
33,014 $
15,627
386
69,656
(53,997 )
31,672
Year Ended
December 31,
2022
January 1,
2022
F-23
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:
Share-based compensation expense:
Restricted stock units, including all performance and market
based awards .............................................................................. $
Stock options and employee stock purchase options .....................
Total share-based compensation ........................................................
Tax effect on share-based compensation .......................................
Net effect on net income .................................................................... $
Effect on earnings per share:
Basic .............................................................................................. $
Diluted ........................................................................................... $
Year Ended
December 31,
2022
January 1,
2022
December 26,
2020
21,729 $
2,697
24,426
5,237
19,189 $
17,174 $
2,368
19,542
4,255
15,287 $
15,780
1,882
17,662
3,849
13,813
(0.39 ) $
(0.39 ) $
(0.31 ) $
(0.31 ) $
(0.28 )
(0.28 )
F-24
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:
Nonvested at December 31, 2019 ......................................................................
Granted ..........................................................................................................
Vested ............................................................................................................
Forfeited .........................................................................................................
Nonvested at December 26, 2020 ......................................................................
Granted ..........................................................................................................
Vested ............................................................................................................
Forfeited .........................................................................................................
Nonvested at January 1, 2022 ............................................................................
Granted ..........................................................................................................
Vested ............................................................................................................
Forfeited .........................................................................................................
Nonvested at December 31, 2022 ......................................................................
Number of
Shares
Weighted
Average
Grant Date
Fair Value
1,107 $
498 $
(498 ) $
(143 ) $
964 $
338 $
(441 ) $
(96 ) $
765 $
410 $
(373 ) $
(59 ) $
743 $
28.89
34.71
29.46
29.99
31.37
69.82
30.90
42.40
48.25
82.48
42.87
58.98
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:
Foreign currency exchange losses, net ......................................... $
Other ............................................................................................
Total other expense, net ........................................................... $
(73 ) $
(68 )
(141 ) $
(2,020 ) $
132
(1,888 ) $
(3,070 )
362
(2,708 )
Year Ended
December 31,
2022
January 1,
2022
December 26,
2020
F-25
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:
December 31,
2022
Year Ended
January 1,
2022
December 26,
2020
Current:
Federal .................................................................................................
State .....................................................................................................
Foreign .................................................................................................
$
Deferred:
Federal .................................................................................................
State .....................................................................................................
Foreign .................................................................................................
Total income tax expense (benefit) ..................................................
$
The income before tax is comprised of the following:
47,963 $
987
2,901
51,851
(31,622 )
(1,506 )
(473 )
(33,601 )
18,250 $
21,791 $
1,007
3,153
25,951
(9,475 )
(540 )
(2,603 )
(12,618 )
13,333 $
1,466
371
5,637
7,474
(10,355 )
(1,036 )
(240 )
(11,631 )
(4,157 )
Domestic operations ................................................................................
Foreign operations ...................................................................................
December 31,
2022
239,527 $
2,057 $
$
$
Year Ended
January 1,
2022
136,143 $
19,539 $
December 26,
2020
(120 )
26,988
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:
December 31,
2022
Year Ended
January 1,
2022
December 26,
2020
$
50,732
467
(481 )
(25,445 )
1,423
1,910
(7,146 )
(1,526 )
—
(1,684 )
18,250
$
$
32,693
1,066
(3,817 )
(11,061 )
1,721
689
(3,607 )
(1,987 )
(732 )
(1,632 )
13,333
$
5,642
126
596
(4,262 )
2,013
213
(4,858 )
(2,905 )
(1,141 )
(419 )
(4,157 )
8 %
9 %
(16 )%
Federal income tax provision at statutory rate .........................................
State taxes, net of federal effect ...............................................................
Foreign taxes, net of federal effect ..........................................................
Foreign Derived Intangible Income (“FDII”) Deduction .........................
US tax on foreign source income .............................................................
Non-deductible officer's compensation....................................................
Research and development tax credit ......................................................
Tax impact of audit and statue closures ...................................................
Impact of the CARES Act .......................................................................
Other ........................................................................................................
Provision (benefit) for income taxes ....................................................
Effective tax rate ..................................................................................
$
$
F-26
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,
2022
January 1,
2022
Deferred tax assets:
$
Reserves and accruals ...............................................................................................
Deferred revenue ......................................................................................................
Share-based compensation ........................................................................................
Tax credit carryforward ............................................................................................
Net operating losses ..................................................................................................
Depreciation and amortization ..................................................................................
Operating lease liabilities..........................................................................................
Other .........................................................................................................................
Gross deferred tax assets...........................................................................................
Less: valuation allowance .........................................................................................
Total deferred tax assets after valuation allowance ..................................................
Deferred tax liabilities:
Depreciation and amortization ..................................................................................
Operating lease right of use assets ............................................................................
Other .........................................................................................................................
Gross deferred tax liabilities .....................................................................................
Net deferred tax liabilities ...........................................................................................
17,231 $
3,512
3,942
12,197
1,643
125
4,162
4,044
46,856
(11,772 )
35,084
(32,693 )
(4,890 )
(89 )
(37,672 )
15,084
4,729
3,023
10,339
3,254
368
3,575
2,364
42,736
(10,948 )
31,788
(63,554 )
(3,469 )
(224 )
(67,247 )
(35,459 )
$
(2,588 ) $
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.
F-27
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:
December 31,
2022
Year Ended
January 1,
2022
December 26,
2020
Balance, beginning of the period .............................................................
Gross increases—tax positions in prior period ....................................
Gross decreases—tax positions in prior period ....................................
Gross increases—current-period tax positions.....................................
Closure of audit/statute limitation ........................................................
Balance, end of the period .......................................................................
$
$
12,373 $
456
—
1,729
(1,548 )
13,010 $
13,486 $
156
(204 )
1,193
(2,258 )
12,373 $
15,143
347
—
1,048
(3,052 )
13,486
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
translation
adjustments
Net unrealized
gains (losses) on
marketable
securities
Accumulated
other
comprehensive
income (loss)
Balance at December 26, 2020 .........................................................
Net current period other comprehensive income ..........................
Reclassifications ...........................................................................
Balance at January 1, 2022 ...............................................................
Net current period other comprehensive loss ................................
Reclassifications ...........................................................................
Balance at December 31, 2022 .........................................................
$
$
4,479 $
(2,715 )
—
1,764
(8,879 )
—
(7,115 ) $
89 $
(537 )
—
(448 )
(2,447 )
—
(2,895 ) $
4,568
(3,252 )
—
1,316
(11,326 )
—
(10,010 )
F-28
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:
December 31,
2022
Systems and software .................................. $ 865,707
84,266
Parts .............................................................
55,210
Services ........................................................
Total revenue ....................................... $ 1,005,183
Year Ended
January 1,
2022
86 % $ 669,114
72,753
8 %
47,032
6 %
100 % $ 788,899
December 26,
2020
85 % $ 450,459
65,444
9 %
40,593
6 %
100 % $ 556,496
80 %
12 %
8 %
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:
December 31,
2022
Year Ended
January 1,
2022
December 26,
2020
Revenue from third parties:
China ...................................................................................... $
South Korea ...........................................................................
Taiwan ...................................................................................
United States ..........................................................................
Europe ....................................................................................
Japan ......................................................................................
Southeast Asia .......................................................................
Total revenue ..................................................................... $
250,968 $
224,172
199,104
121,487
80,256
58,133
71,062
1,005,183 $
151,027 $
160,373
194,458
123,858
64,943
61,186
33,054
788,899 $
125,023
90,193
120,959
81,708
49,697
59,295
29,621
556,496
The following chart identifies our customers that represented 10% or more of total revenue for each of the last three fiscal
years:
Taiwan Semiconductor Manufacturing Co. Ltd..................................................
Samsung Semiconductor.....................................................................................
SK Hynix Inc. .....................................................................................................
^ The customer accounted for less than 10% of total revenue during the period.
2022
15 %
13 %
11 %
2021
18 %
16 %
^
2020
14 %
15 %
^
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.
F-29
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:
Numerator:
Net income ...........................................................................................
$
223,334 $
142,349 $
31,025
December 31,
2022
January 1,
2022
December 26,
2020
Denominator:
Basic earnings per share - weighted average shares
outstanding ........................................................................................
Effect of potential dilutive securities:
Restricted stock units, employee stock purchase grants and stock
options - dilutive shares ....................................................................
Diluted earnings per share - weighted average shares
outstanding ........................................................................................
Earnings per share:
49,424
49,242
49,136
340
486
339
49,764
49,728
49,475
Basic ....................................................................................................
Diluted .................................................................................................
$
$
4.52 $
$
4.49
2.89 $
$
2.86
0.63
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:
Shares of common stock repurchased ................................
Cost of stock repurchased .................................................. $
Average price paid per share ............................................. $
1,018
65,257 $
64.09 $
—
— $
— $
1,882
52,000
27.62
Year Ended
December 31,
2022
January 1,
2022
December 26,
2020
F-30
ONTO INNOVATION INC. AND SUBSIDIARIES
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Column A
Description
Fiscal Year 2022:
Column B
Balance at
Beginning of
Period
Column C
Column D
Column E
Charged to (Recovery
of) Costs and Expense
Charged to Other
Accounts (net)
Deductions
Balance at
End of Period
Allowance for credit losses .... $
Deferred tax valuation
allowance ...........................
Fiscal Year 2021:
Allowance for credit losses .... $
Deferred tax valuation
allowance ...........................
Fiscal Year 2020:
Allowance for credit losses .... $
Deferred tax valuation
allowance ...........................
Allowance for convertible
notes receivable..................
1,303 $
10,948
784 $
356 $
824
955 $
—
$
87
$
1,572
—
—
11,772
—
$
436
$
1,303
14,238
(3,290 )
—
—
10,948
1,247 $
327 $
—
$
790
$
784
14,160
2,000
78
—
—
—
14,238
—
2,000
—
F-31
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.
SIGNATURES
Onto Innovation Inc.
(Registrant)
By:
Date:
/s/ Michael P. Plisinski
Michael P. Plisinski
Chief Executive Officer
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
Michael P. Plisinski
/s/ Mark R. Slicer
Mark R. Slicer
/s/ Leo Berlinghieri
Leo Berlinghieri
Chief Executive Officer (Principal
Executive Officer)
February 24, 2023
Senior Vice President, Chief Financial
Officer (Principal Financial Officer and
Principal Accounting Officer)
February 24, 2023
Director
February 24, 2023
/s/ Stephen D. Kelley
Director
February 24, 2023
Stephen D. Kelley
/s/ David B. Miller
David B. Miller
Director
February 24, 2023
/s/ Karen M. Rogge
Director
February 24, 2023
Karen M. Rogge
/s/ Christopher A. Seams
Christopher A. Seams
/s/ May Su
May Su
Director
Director
February 24, 2023
February 24, 2023
/s/ Christine A. Tsingos
Director
February 24, 2023
Christine A. Tsingos
F-32
SUBSIDIARIES
Exhibit 21.1
Name
Rudolph Technologies, Inc.
4D Technology Corporation
Inspectrology LLC
Onto Innovation Japan Co. Ltd.
Onto Innovation (Shanghai) Trading Co., Ltd.
Nanometrics China Company Ltd.
Onto Innovation Germany GmbH
Onto Innovation Hong Kong Limited
Onto Innovation Europe, B.V.
Onto Innovation Switzerland GmBH
Nanometrics U.K. Ltd.
Nanometrics Israel, Ltd.
Onto Innovation Korea Ltd.
Onto Innovation Southeast Asia Pte. Limited
Onto Innovation Ireland Limited
Onto Innovation Malaysia Sdn. Bhd.
Onto Innovation Vietnam PTE Company Limited
Neta SAS
Jurisdiction
U.S.A.
U.S.A.
U.S.A.
Japan
China
China
Germany
Hong Kong
Netherlands
Switzerland
United Kingdom
Israel
Korea
Singapore
Ireland
Malaysia
Vietnam
France
Rule 13a-14(a) Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.1
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:
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;
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;
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
Disclosed in this report any change in the registrant’s internal control over financial reporting
d.
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):
All significant deficiencies and material weaknesses in the design or operation of internal control
a.
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b.
significant role in the registrant’s internal control over financial reporting.
Any fraud, whether or not material, that involves management or other employees who have a
Date: February 24, 2023
By: /s/ Michael P. Plisinski
Michael P. Plisinski
Chief Executive Officer
Exhibit 31.2
Rule 13a-14(a) Certification of Chief Financial Officer
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:
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;
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;
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
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):
All significant deficiencies and material weaknesses in the design or operation of internal control
a.
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b.
significant role in the registrant’s internal control over financial reporting.
Any fraud, whether or not material, that involves management or other employees who have a
Date: February 24, 2023
By: /s/ Mark R. Slicer
Mark R. Slicer
Chief Financial Officer
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
Exhibit 32.1
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
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
Exhibit 32.2
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
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant
Filed by a Party other than the Registrant
Check the appropriate box:
Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to Rule 14a-12
Onto Innovation Inc.
(Name of Registrant as specified in its charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check all boxes that apply):
No fee required.
Fee paid previously with preliminary materials.
Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.
NOTICE OF 2023 ANNUAL MEETING OF STOCKHOLDERS
Date:
Time:
Place:
Tuesday, May 9, 2023
12:00 p.m., Eastern Time
The Company’s offices located at 16 Jonspin Road, Wilmington, MA 01887
Record Date:
Only stockholders of record at the close of business on March 13, 2023 are entitled to vote at the
meeting and any adjournment or postponement thereof for which no new record date is set.
Items of Business: 1.
To elect the Board’s eight nominees for director to serve until the next Annual Meeting and until
their successors are duly elected and qualified;
2.
3.
4.
5.
To approve, on an advisory (non-binding) basis, the compensation of our named executive officers
as disclosed in this proxy statement;
To hold an advisory (non-binding) vote on the frequency of advisory votes on named executive
officer compensation;
To ratify the appointment of Ernst & Young LLP as our independent registered public accounting
firm for the fiscal year ending December 30, 2023; and
To transact such other business as may properly come before the meeting and any adjournment or
postponement thereof.
These items of business are described more fully below in this proxy statement. This year we will be providing access to our
proxy materials via the Internet in accordance with the Securities and Exchange Commission’s “Notice and Access” rules. On
or about March 30, 2023, we will be mailing to our stockholders our Notice of Internet Availability of Proxy Materials, which
contains instructions for accessing our 2023 proxy statement and 2022 annual report to stockholders and how to vote online.
In addition, the Notice of Internet Availability of Proxy Materials will contain instructions on how to request a paper copy of
the 2023 proxy statement and 2022 annual report to stockholders.
Your vote is important. As always, we encourage you to vote your shares as soon as possible and prior to the Annual Meeting
even if you plan to attend the Annual Meeting. Voting early will ensure your shares are represented at the Annual Meeting,
regardless of whether you attend the Annual Meeting. You may cast your vote via the Internet, by telephone, or during the
Annual Meeting. If you receive a paper copy of the proxy card by mail, you may also mark, sign, date, and return the proxy
card in the accompanying postage-prepaid envelope.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 9, 2023:
This notice, the proxy statement, and the 2022 Annual Report to Stockholders are available at:
https://www.ontoinnovation.com/ar-proxy
FOR THE BOARD OF DIRECTORS
Yoon Ah E. Oh
Corporate Secretary
Wilmington, Massachusetts
March 30, 2023
PROXY STATEMENT
TABLE OF CONTENTS
Forward Looking Statements
Proxy Summary
Onto Innovation Proxy Statement
Proposal 1 – Election of Directors
Nominees For Director
Corporate Governance Principles and Practices
Proposal 2 – Advisory Vote to Approve Executive Officer Compensation
Executive Officer Compensation
Compensation Committee Report on Executive Officer Compensation
Executive Officer Compensation Tables
CEO Pay Ratio
Proposal 3 -- Advisory Vote on the Frequency of Advisory Votes on Named Executive Officer Compensation
Proposal 4 – Ratification of Appointment of Independent Registered Public Accounting Firm
Audit Committee Report
Executive Officer Biographies
Security Ownership of Certain Beneficial Owners
Equity Compensation Plan Information
Other Matters
Questions and Answers About the Annual Meeting
Additional Information
Page
1
2
5
6
9
14
25
26
44
45
54
56
57
60
61
63
64
64
65
70
Forward Looking Statements
Certain statements in this proxy statement of Onto Innovation Inc. (referred to in this proxy statement, 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: our business momentum and future growth; technology development, product introduction
and acceptance of our products and services; our manufacturing practices and ability to both deliver 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; our expectations of the semiconductor market
outlook; future revenue, gross profits, research and development and engineering expenses, selling, general and administrative
expenses, and cash requirements; the effects of political, economic, legal, and regulatory changes or conflicts on our global
operations; 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; 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; our ability
to be successful in managing our cost structure and cash expenditures and results of litigation; as well as other matters that are
not purely historical data. Statements contained or incorporated by reference in this proxy statement 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” of our Form 10-K for the fiscal year
ended December 31, 2022. 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.
1
PROXY SUMMARY
This summary highlights information contained elsewhere in the proxy statement. This summary does not contain all of the
information that you should consider, and you should read the entire proxy statement carefully before voting.
Stockholder Voting Matters
Voting Matter
Proposal 1: Election of Directors
Proposal 2: Advisory Vote to Approve Named Executive Officer
Compensation
Proposal 3: Advisory Vote on the Frequency of Advisory Votes on
Named Executive Officer Compensation
EVERY 1 YEAR
Proposal 4: Ratification of Appointment of Independent Registered
Public Accounting Firm for the Fiscal Year Ending December 30, 2023
FOR
Corporate Governance Highlights
Snapshot Of Board Composition
Board Vote
Recommendation
Page Reference for
more information
FOR ALL
FOR
6
25
56
57
The following table presents a snapshot of the expected composition of the Onto Innovation Board of Directors (the “Board”)
immediately following the 2023 Annual Meeting, assuming the election of all nominees named in the proxy statement.
Board Characteristic
Total Number of Directors
Percentage of Independent Directors
Average Age of Directors (years)
Average Tenure of Directors (years)
Separate Chairperson and CEO roles
Independent Chairperson
Audit Committee Financial Experts
Female Director Representation
Race/Ethnicity Diversity Representation
2
Onto
Innovation
8
87.5%
63.4
6.1
Yes
Yes
2
37.5%
12.5%
Snapshot Of Board Governance And Compensation Policies
The following table presents a snapshot of the Onto Innovation Board governance and compensation policies currently in effect.
Policy
Majority Voting for All Directors
Regular Executive Sessions of Independent Directors
Annual Board, Committee, and Director Evaluations
Risk Oversight by Full Board and Committees
Independent Audit, Compensation, and Nominating & Governance Committees
Code of Business Conduct and Ethics for Employees and Directors
Financial Information Integrity Policy
Stock Ownership Requirement for Directors
Stock Ownership Requirement for CEO
Stock Ownership Requirement for other NEOs
Stock-Based Award Grant Date Policy
Anti-Hedging, Anti-Short Sale & Anti-Pledging Policies
Incentive Compensation Clawback Policy
No Tax Gross-Up Provisions
No Poison Pill
Stock Buyback Program
Double Trigger Change-in-Control Provisions for Executive Officers
Annual Environmental, Social, and Governance Report
3
Onto Innovation
Yes
Yes
Yes
Yes
Yes
Yes
Yes
3x annual retainer
3x base salary
1x base salary
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Snapshot Of Board Governance And Compensation Policies Newly Implemented Or Adjusted In Past Year
The following presents a snapshot of the Onto Innovation Board governance and compensation policies that were newly
implemented or adjusted in the past year.
• After the 2022 Annual Meeting of Stockholders, the following actions were taken with regard to the composition
and leadership structure of the Board and standing committees of the Board:
◦ As previously disclosed, Edward J. Brown Jr. and Bruce C. Rhine each retired from the Board following the
conclusion of their terms as of the 2022 Annual Meeting.
◦ The Audit Committee was reduced to three members: Karen M. Rogge, May Su, and Christine A. Tsingos, with
Ms. Tsingos serving as Chairperson.
◦ David B. Miller was appointed Chairperson of the Compensation Committee following Mr. Brown’s retirement.
The other members of the Compensation Committee are currently Leo Berlinghieri, and Mses. Su, and Tsingos.
◦ The Nominating & Governance Committee was reduced to three members: Messrs. Berlinghieri, Miller, and
Seams, with Mr. Berlinghieri serving as Chairperson.
• The Board formed a new standing M&A Committee with the following members: Christopher A. Seams, Ms. Rogge
and Mr. Miller, with Mr. Miller serving as Chairperson.
• The annual review of the charters for the Audit, Compensation and Nominating & Governance Committees was
performed and completed. The Board also reviewed and approved updates to the Company’s Code of Business
Conduct and Ethics, Related Parties Transaction Policy, Financial Information Integrity Policy, Investment Policy,
Incentive Compensation Clawback Policy, and Corporate Governance Guidelines (formerly, the Summary of
Corporate Governance Policies).
• The Board approved a new Insider Trading Policy which, includes, among other things, a prohibition against all
pledging of company securities as collateral for loans by directors, employees and other individuals and entities
covered by the Insider Trading Policy.
• The Compensation Committee approved a new Stock-Based Award Grant Date Policy, which establishes the dates
upon which the Company will grant stock-based awards to directors, officers, and other employees of the Company,
including annual grants as well as grants for promotions, new hires, retention and other special circumstances.
•
In January 2023, the Board appointed Stephen D. Kelley to the Board and to the Audit Committee.
4
__________________________________________
PROXY STATEMENT
__________________________________________
The proxy detailed herein is solicited on behalf of the Board of Directors (the “Board” or “Board of Directors”) of Onto
Innovation for use at the 2023 Annual Meeting of Stockholders to be held May 9, 2023 at 12:00 p.m. Eastern Time (the “Annual
Meeting”), or at any adjournment or postponement thereof, for the purposes set forth herein and in the accompanying Notice
of Annual Meeting of Stockholders. The Annual Meeting will be held at the Company’s principal executive offices located at
16 Jonspin Road, Wilmington, MA 01887. Directions to the Annual Meeting may be found on our website
(www.ontoinnovation.com) by clicking on “Company,” “Locations,” “Massachusetts” and then accessing the interactive map.
The Company’s telephone number is (978) 253-6200.
On or about March 30, 2023, we will furnish a Notice of Internet Availability of Proxy Materials (“Notice”) to our stockholders
containing instructions on how to access the proxy materials online at:
https://www.ontoinnovation.com/ar-proxy
Instructions on how to vote online and to request a printed copy of the proxy materials may be found in the Notice. If you
receive a Notice by mail, you will not receive a paper copy of the proxy materials unless you request such materials by following
the instructions contained in the Notice. Your vote is important, regardless of the extent of your holdings.
5
PROPOSAL 1
ELECTION OF DIRECTORS
Nominees
The Company’s Amended and Restated Certificate of Incorporation provides that directors shall be elected at each Annual
Meeting of Stockholders, and that each director of the Company shall serve until the expiration of the term for which he or she
is elected and until his or her successor is duly elected and qualified, or until his or her earlier death, resignation, disqualification
or removal.
Based on the recommendation of the Nominating & Governance Committee, the eight director nominees approved by the Board
for inclusion in this proxy statement and for election at the Annual Meeting are:
Leo Berlinghieri
Stephen D. Kelley David B. Miller Michael P. Plisinski
Karen M. Rogge Christopher A. Seams May Su Christine A. Tsingos
Each nominee is currently serving as a director of Onto Innovation. In making its recommendations, the Nominating &
Governance Committee considered a number of factors, including its criteria for Board membership, which include the
qualifications that must be possessed by a director candidate in order to be nominated for a position on our Board. Each nominee
has indicated that he or she will serve if elected. Unless otherwise instructed, the proxy holders will vote the proxies received
by them for the Company’s eight nominees. In the event that any nominee of the Company becomes unable or unavailable to
serve as a director at the time of the Annual Meeting (which we do not anticipate) the proxy holders will vote the proxies for
any substitute nominee who is designated by the current Board to fill the vacancy. Alternatively, the Board, in its discretion,
may elect not to nominate a substitute and to reduce the size of the Board. We do not have any reason to believe that any of
the nominees will be unable or will decline to serve as a director.
Board Composition And Refreshment
A priority of the Nominating & Governance Committee and the Board as a whole is making certain that the composition of the
Board reflects the desired professional experience, skills, and backgrounds in order to present an array of viewpoints and
perspectives, help develop and execute strategy for the future, and effectively represent the long-term interests of stockholders.
Further, the Board recognizes the importance of Board refreshment in order to continue to achieve an appropriate balance of
tenure, turnover, diversity, and skills on the Board.
Vote Required
Pursuant to the Company’s Amended and Restated Bylaws (“Bylaws”), our directors are elected by the affirmative vote of the
majority of the votes cast (provided, however, that if the number of nominees exceeds the number of directors to be elected,
directors will be elected by a plurality voting standard). In order for a director in an uncontested election to be elected, the
number of votes cast “for” his/her election must exceed the number of votes cast “against” his/her election (with “abstentions”
and “broker non-votes” not counted as a vote cast either “for” or “against” that director’s election). If a nominee who is an
incumbent director receives a greater number of “against” votes for election than “for” votes in an uncontested election and is
not elected, our Corporate Governance Guidelines provide that such director must promptly tender a resignation to the Board.
Our Nominating & Governance Committee would then make a recommendation to the Board on whether to accept or reject
the tendered resignation, or whether other action should be taken. Within 90 days after the date of the certification of the
election results, our Board will act on any such tendered resignation and publicly disclose (in a press release, a filing with the
SEC or other broadly disseminated means of communication) its decision regarding the tendered resignation and the rationale
behind the decision.
6
Information About The Nominees And Continuing Directors
Our Board and its Nominating & Governance Committee believe that all of the director nominees are highly qualified, have
demonstrated leadership skills, and have the requisite experience and judgment in areas that are relevant to our business. We
believe that their ability to challenge and stimulate management and their dedication to the affairs of the Company collectively
serve the interests of the Company and its stockholders. The Company is unaware of any arrangements or understandings
between any director or nominee and any other person(s) pursuant to which any director or nominee was or is to be selected.
The eight nominees for director are set forth below. All information is as of the record date.
Name
Nominee Directors:
Principal Occupation
Board Tenure(1)
Leo Berlinghieri
Former President and Chief Executive Officer of MKS Instruments, Inc.
14.5 years
Stephen D. Kelley
President and Chief Executive Officer of Advanced Energy Industries, Inc.
<0.2 year
David B. Miller
Former President of DuPont Electronics & Communications
Michael P. Plisinski
Chief Executive Officer of Onto Innovation Inc.
Karen M. Rogge
President of RYN Group LLC, and Former Senior Vice President and
Chief Financial Officer of Extreme Networks, Inc.
Christopher A. Seams
Former Chief Executive Officer of Deca Technologies Inc.
May Su
Former Chief Executive Officer of Kateeva, Inc.
Christine A. Tsingos
Former Executive Vice President and Chief Financial Officer of
Bio-Rad Laboratories, Inc.
7.7 years
7.4 years
1.5 years
7.6 years
1.1 years
8.9 years
(1) On October 25, 2019 (the “Merger Date”), Rudolph Technologies, Inc. merged with and into Nanometrics Incorporated, which was then
renamed Onto Innovation Inc. (the “2019 Merger”). Unless otherwise indicated or context otherwise requires, as used herein
“Nanometrics” refers to Nanometrics Incorporated and its subsidiaries prior to the Merger Date and “Rudolph” refers to Rudolph
Technologies, Inc. and its subsidiaries prior to the Merger Date. Board tenure includes time served on the Rudolph Board of Directors or
the Nanometrics Board of Directors, as applicable, prior to the Merger Date.
There are no family relationships between any directors or executive officers of the Company. The Nominating & Governance
Committee considered the professional experience, skills, and backgrounds of the nominees and recommended the nominees
to the full Board.
7
The following reflects additional information regarding the background and qualifications of our director nominees, including
the experience and skills that support the Board’s determination that each director nominee should serve on our Board.
The director nominees for 2023 voluntarily self-identified with the following diversity characteristics:
• Gender Self-Identification:
•
•
Race/Ethnicity Identification:
LGBTQ+ Identification:
62.5% Male / 37.5% Female
87.5% White / 12.5% Asian
None
8
NOMINEES FOR DIRECTOR
Leo Berlinghieri
Director Since:
Age:
Independent Status:
Board Committee(s):
July 2008
69
Independent Director
Nominating & Governance (Chairperson), Compensation
Other Public Company Boards: MKS Instruments, Inc. (2005-2013)
From July 2005 to December 2013, Mr. Berlinghieri served as President and Chief Executive Officer of MKS Instruments,
Inc., a critical subsystem and instrument provider to the semiconductor industry. From April 2004 to July 2005, Mr. Berlinghieri
served as President and Chief Operating Officer, and prior to that served as Vice President and Chief Operating Officer from
July 2003 to April 2004, at MKS Instruments, Inc. Mr. Berlinghieri also served on the Advisory Board of Unipower, LLC
from 2017 to 2019, as a director on the North America Advisory Board of Semiconductor Equipment and Materials
International (SEMI) from 2005 to 2013, holding the role of chairperson in 2012 and 2013, and on the Board of Directors of
the Massachusetts High Technology Council, Inc. from 2006 to 2013.
Key Qualifications, Attributes, Skills and Experience
Mr. Berlinghieri has over 34 years of experience in the semiconductor industry and extensive international, financial, and
operations experience through his various roles with MKS Instruments, Inc., including Chief Executive Officer, Chief
Operating Officer and Vice President of Global Sales and Service.
Stephen D. Kelley
Director Since:
Age:
Independent Status:
Board Committee(s):
January 2023
60
Independent Director
Audit
Other Public Company Boards: Advanced Energy Industries, Inc. (since March 2021)
Amkor Technology, Inc. (2013-2020)
Mr. Kelley has served President & Chief Executive Officer of Advanced Energy Industries, Inc., which designs and
manufactures highly engineered power delivery systems for semiconductor wafer fabrication equipment and other mission-
critical applications, since March 2021. Previously, Mr. Kelley served as President and Chief Executive Officer of Amkor
Technology, Inc., a leading semiconductor package and test company, from May 2013 to June 2020. Prior to joining Amkor,
Mr. Kelley served as Senior Advisor to Advanced Technology Investment Company, the Abu Dhabi-sponsored investment
company that owned GlobalFoundries Inc. at the time, from June through November 2012. Mr. Kelley served as Executive
Vice President and Chief Operating Officer of Cree, Inc. from 2008 to 2011. Previously, Mr. Kelley held executive leadership
roles at Texas Instruments Inc. and Philips Semiconductors. Mr. Kelley holds a Bachelor of Science degree in Chemical
Engineering from the Massachusetts Institute of Technology and a Juris Doctor degree from Santa Clara University.
Key Qualifications, Attributes, Skills and Experience
With over 30 years of leadership experience in the semiconductor industry, Mr. Kelley has a comprehensive understanding of
our industry and extensive management experience, and also possesses first-hand knowledge of our customer base and has
in-depth experience in strategic planning, business development, technology, manufacturing, and operations relevant to our
business. Mr. Kelley was recommended to serve on our Board by a third-party search firm.
9
David B. Miller
Director Since:
Age:
Independent Status:
Board Committee(s):
July 2015
66
Independent Director
Compensation (Chairperson), Nominating & Governance,
M&A (Chairperson)
Other Public Company Boards: Merrimac Industries, Inc. (2002-2008)
Mr. Miller served as Rudolph’s non-executive Chairperson from August 2018 through the Merger Date. From June 1981 to
November 2015, Mr. Miller served in various positions, most recently as President, at DuPont Electronics &
Communications, an electronic materials company. Mr. Miller previously served as the President of the University of
Virginia School of Engineering & Applied Science Foundation from 2016 to 2018. Mr. Miller served on the board of
directors of Semiconductor Equipment and Materials International (SEMI) from 2011 to 2015 and on the board of the North
Carolina Chamber of Commerce from 2010 to 2015. He has also served on several electronics joint venture boards in the
U.S. and Asia. Mr. Miller holds a Bachelor of Science degree in Electrical Engineering from the University of Virginia.
Specific Qualifications, Attributes, Skills and Experience
Mr. Miller has over 40 years of experience in the electronics industry. In his prior roles, including as President of DuPont
Electronics & Communications, he had oversight of technology advancement, complex financial transactions, profit and loss
responsibility and investor relations, and brings substantial management and market expertise to the Board. Mr. Miller also
has substantial international experience, having served on several electronics joint venture boards in the U.S. and Asia as well
as on the board of SEMI International.
Michael P. Plisinski
Director Since:
Age:
Independent Status:
Board Committee(s):
November 2015
53
Non-Independent Director
None
Other Public Company Boards: None
Mr. Plisinski has served as the Company’s Chief Executive Officer since the Merger Date and was previously Chief Executive
Officer of Rudolph from November 2015 through the Merger Date. Prior to his appointment as Rudolph’s CEO, Mr. Plisinski
served as Rudolph’s Executive Vice President and Chief Operating Officer from October 2014 to November 2015 and as Vice
President and General Manager, Data Analysis and Review Business Unit from February 2006, when Rudolph merged with
August Technology Corporation, a provider of process control equipment for thin film measurement and macro defect
inspection, until October 2014. From February 2004 to February 2006, Mr. Plisinski served as August Technology’s Vice
President of Engineering and, from July 2003 to February 2004, as its Director of Strategic Marketing for review and analysis
products. Mr. Plisinski joined August Technology in connection with its acquisition of Counterpoint Solutions, a supplier of
optical review and automated metrology equipment to the semiconductor industry, where he was both sole founder and
President from June 1999 to July 2003. Since August 2020, Mr. Plisinski has served on the Board of Cognizer.AI, a software
company that specializes in deep-learning powered natural language intelligence. Mr. Plisinski has a Bachelor of Science
degree in Computer Science from the University of Massachusetts and has completed the Advanced Management Program
from Harvard Business School.
Key Qualifications, Attributes, Skills and Experience
Mr. Plisinski brings to our Board of Directors insights based on his leadership roles at the Company and his deep knowledge
of our products, markets, customers, culture, and organization.
10
Karen M. Rogge
Director Since:
Age:
Independent Status:
Board Committee(s):
September 2021
68
Independent Director
Audit, M&A
Other Public Company Boards: GigCapital5, Inc. (since February 2023)
Rambus Inc. (since April 2021)
Kemet Corporation (2018-2020)
AeroCentury Corp. (2017-2018)
Ms. Rogge is president of the RYN Group LLC, a management consulting business, which she founded in 2010. She served as
the Interim Vice President and Chief Financial Officer of Applied Micro Circuits Corporation, a semiconductor company, from
2015 to 2016. Previously, Ms. Rogge served as the Senior Vice President and Chief Financial Officer of Extreme Networks, a
computer network company, from 2007 to 2009. Earlier in her career, she held executive financial and operations management
positions at Hewlett Packard Company and Seagate Technology. Ms. Rogge holds a Master of Business Administration degree
from Santa Clara University, and a Bachelor of Science degree in business administration from California State University,
Fresno. She maintains a National Association of Corporate Directors (NACD) Board Leadership Fellow credential and has
attended the Stanford Directors College. Ms. Rogge also serves as a director of GigCapital6, Inc., a privately held special
purpose acquisition company.
Key Qualifications, Attributes, Skills and Experience
Ms. Rogge has substantial financial and international experience gained in her roles as Chief Financial Officer of Applied
Micro Circuits Corporation and Extreme Networks as well as in executive financial and operations roles at Hewlett Packard
Company and Seagate Technology. From her prior roles she also gained a broad array of technological exposure, interaction,
and understanding.
Christopher A. Seams
Director Since:
Age:
Independent Status:
Board Committee(s):
August 2015
60
Independent Director
Nominating & Governance, M&A
Other Public Company Boards: Xperi Inc. (since October 2013)
Mr. Seams served as Chief Executive Officer of Deca Technologies Inc., a wafer-level electronic interconnect solutions
provider to the semiconductor industry, from June 2013 to August 2016. Prior to Deca Technologies, Mr. Seams served as
Executive Vice President of sales and marketing at Cypress Semiconductor, a semiconductor design and manufacturing
company, and held various technical and operational management positions in its manufacturing, development, and operations.
Prior to joining Cypress in 1990, Mr. Seams worked in process development for Advanced Micro Devices and Philips Research
Laboratories. Mr. Seams earned his Bachelor of Science degree in electrical engineering from Texas A&M University and his
master’s degree in electrical and computer engineering from the University of Texas at Austin. Mr. Seams has a Professional
Certificate in Advanced Computer Security from Stanford University and is a senior member of the Institute of Electrical and
Electronics Engineers. Mr. Seams is a member of the American College of Corporate Directors (ACCD) as well as a member
and Certified Director of the National Association of Corporate Directors (NACD).
Key Qualifications, Attributes, Skills and Experience
Mr. Seams has over 30 years of experience within the semiconductor industry. During that time he has gained substantial
management, financial and international experience as a senior leader at multiple companies. He also brings to the Board
technology and innovation experience gained through an array of technical and operational management positions in
manufacturing, development, operations, and process development.
11
May Su
Director Since:
Age:
Independent Status:
Board Committee(s):
March 2022
65
Independent Director
Audit, Compensation
Other Public Company Boards: Kateeva, Inc. (2020-2022)
Ms. Su served as Chief Executive Officer of Kateeva, Inc., a company that builds inkjet deposition equipment solutions, from
March 2020 to October 2022. Prior to becoming Chief Executive Officer, Ms. Su served as Kateeva’s Chief Marketing Officer
starting in January 2018 and added the role of Senior Vice President of Sales in May 2019. Before joining Kateeva, Ms. Su
was an independent consultant from 2016 to 2018. From 2012 to 2016, Ms. Su served in an array of senior management roles,
including Vice President, Strategic Marketing and Vice President Strategic OEM Sales, for Brooks Automation, Inc., a provider
of automation, vacuum and instrumentation equipment for multiple markets, including semiconductor manufacturing. From
2009 to 2012, Ms. Su served as Vice President and General Manager for Crossing Automation Inc., a manufacturer of
fabrication and tool automation products, which was acquired by Brooks Automation in 2012. Before her role at Crossing
Automation, Ms. Su was President of U.S. & European Field Operations for Nova Measuring Instrument, Inc., a provider of
metrology devices for advanced process control used in semiconductor manufacturing, and held other senior management roles
with Aviza Technology, Inc., New-Wave Research, KLA-Tencor Corporation and Lam Research Corporation. Ms. Su holds
a Bachelor of Science degree in mechanical engineering from Cornell University, a Master of Science degree in mechanical
engineering from University of California-Berkeley, and a Master of Business Administration degree from Santa Clara
University, Leavey School of Business. Ms. Su also serves on the board of directors of Applied Engineering, Inc., a high-tech
contract manufacturing company.
Key Qualifications, Attributes, Skills and Experience
Ms. Su has over 40 years of experience within the semiconductor capital equipment industry. During that time she has
gained substantial management, international and financial experience in her role as Chief Executive Officer of Kateeva, Inc.,
as well as in other executive and general manager roles.
Christine A. Tsingos
Director Since:
Age:
Independent Status:
Board Committee(s):
May 2014
64
Independent Director
Audit (Chairperson), Compensation
Other Public Company Boards: Envista Holdings Corporation (since September 2019)
Varex Imaging Corporation (since February 2017)
Telesis Bio Inc. (since May 2021)
Ms. Tsingos served as the Executive Vice President and Chief Financial Officer of Bio-Rad Laboratories, a manufacturer and
distributor of life science research and clinical diagnostics products, from December 2002 through May 2019. Prior to Bio-
Rad, Ms. Tsingos held executive positions at Autodesk, The Cooper Companies, and Attest Systems. Ms. Tsingos earned a
Bachelor of Arts degree in International Studies from the American University in Washington, D.C. and a Master of Business
Administration degree in International Business from the George Washington University. In 2010, Ms. Tsingos was awarded
the prestigious Bay Area CFO of the Year.
Key Qualifications, Attributes, Skills and Experience
Ms. Tsingos has over 30 years of financial and operational experience with a series of companies, including 16 years of service
as Chief Financial Officer of Bio-Rad Laboratories through which she also gained comprehensive international experience.
Ms. Tsingos also has significant experience and knowledge of both the Company and the semiconductor industry derived from
nine years of dedicated service on the Boards of Directors of Nanometrics and the Company.
12
The Board recommends voting “FOR”
all of the nominees set forth above.
13
CORPORATE GOVERNANCE PRINCIPLES AND PRACTICES
Onto Innovation is committed to sound and effective corporate governance practices. Having such practices is essential to
running our business efficiently and maintaining our integrity in the marketplace. The major components of our corporate
governance practices are described below.
Board Leadership Structure
In accordance with our sound and effective corporate governance practices, the roles of Chief Executive Officer (“CEO”) and
Chairperson of the Board are held by separate individuals. Our Board is led by Christopher A. Seams, who is an independent
director and has served as Chairperson of the Board since the Merger Date. The Board’s primary responsibility is to oversee
management of the company. Company management is led by Michael P. Plisinski, who has served as our CEO and a director
since the Merger Date.
Our Board is currently comprised of one non-independent director, Mr. Plisinski, and seven independent directors, each of
whom has been affirmatively determined by our Board to meet the criteria for independence established by the Securities and
Exchange Commission (“SEC”) and the New York Stock Exchange (“NYSE”). The independent directors meet periodically
in executive session chaired by the Chairperson without the CEO or other management present. Furthermore, each director is
encouraged to suggest items for the Board agenda in advance of any meeting and to raise at any Board meeting subjects that
are not on the agenda for that meeting.
The Board believes that, at the current time, the designation of an independent Chairperson of the Board facilitates the
functioning of the Board, while leaving the CEO with the responsibility for setting the strategic direction for the Company and
for the day-to-day leadership and performance of the Company. The independent Chairperson of the Board:
•
Presides at all meetings of the stockholders and the Board at which he or she is present;
• Establishes the agenda for each Board and stockholder meeting;
• Calls and prepares the agenda for and presides over separate executive sessions of the independent directors;
• Acts as a liaison between the independent directors and the Company’s management; and
•
Performs such other powers and duties as may from time to time be assigned by the Board or as may be prescribed by
the Company’s Bylaws.
Board Meetings
In 2022, each incumbent director attended at least 96% of the aggregate of the total number of Board meetings and the total
number of meetings of Board committees on which such director served during the time such director served on the Board.
Edward J. Brown, Jr. and Bruce C. Rhine both attended 75% or more of the Board meetings and meetings of committees on
which they served that were held during 2022 until the Company’s 2022 Annual Meeting date at which Messrs. Brown and
Rhine did not stand for reelection to the Board. While the Company does not currently have a formal policy regarding the
attendance of directors at the Annual Meeting of stockholders, directors are encouraged to attend. All members of the Board
who stood for reelection at the Company’s 2022 Annual Meeting of Stockholders attended the Annual Meeting.
In 2022, the Board held a total of six Board meetings. On four occasions during 2022 the Company’s Board met in executive
session in which only the independent Board members were present.
14
Board Independence
The Board makes an annual determination as to the independence of each of our Board members under the current standards
for “independence” established by the NYSE and the SEC. The Board has determined that the following nominees for election
as directors to our Board are independent under the NYSE Listing Rules and SEC rules: Leo Berlinghieri, Stephen D. Kelley,
David B. Miller, Karen M. Rogge, Christopher A. Seams, May Su, and Christine A. Tsingos. Michael P. Plisinski, due to his
position as our CEO, is not considered to be independent. The two directors who did not stand for re-election in 2022, Edward
J. Brown, Jr. and Bruce C. Rhine were both determined by the Board to be independent under applicable NYSE and SEC rules.
During 2022, none of the independent members of our Board was a party to any transactions, relationships, or arrangements
that were considered by the Board to impair his or her independence.
Oversight Of Risk
One of the Board’s primary responsibilities is reviewing the Company’s strategic plans and objectives, including oversight of
the principal risk exposures of the Company. In particular, the Board is responsible for monitoring and assessing strategic risk
exposure, including determining the nature and level of risk appropriate for the Company. The Board does not have a standing
risk management committee, but rather administers this oversight function directly through the Board as a whole, as well as
through the standing Board committees, which address risks inherent in their respective areas of oversight. The Audit
Committee, along with the Nominating and Governance Committee, assists the Board in oversight and monitoring of the
financial and legal risks facing the Company, management’s approach to addressing these risks and strategies for risk
mitigation. On at least an annual basis, the Audit Committee reviews, and discusses with management, policies and systems
pursuant to which management addresses risk, including risks associated with our audit, financial reporting, internal control,
disclosure control, cybersecurity, regulatory compliance and investment policies. Our Compensation Committee, at least
annually, reviews our compensation program to ensure that it does not encourage excessive risk-taking. Our Nominating &
Governance Committee oversees risks related to governance issues, such as succession planning. It also monitors and oversees
legal compliance and compliance with the Company’s Code of Business Conduct and Ethics, including the investigation and
enforcement of the provisions of the Code of Business Conduct and Ethics. Each of our Committees regularly reviews with
our Board any issues that arise in connection with the risk matters within the scope of its responsibilities and, in accordance
with our Corporate Governance Guidelines, our full Board regularly engages in discussions of risk management to assess major
risks facing our Company and review options for the mitigation of such risks. As a result of the foregoing, we believe that our
CEO, together with the Chairpersons of our Audit, Compensation and Nominating & Governance Committees and our full
Board, provide effective oversight of Company risk.
As part of the Company’s cybersecurity initiatives, we have established the Cyber Security Council (“CSC”), a cybersecurity
oversight committee composed of members of the management team. The CSC oversees and is responsible for the executive
level supervision of the Company’s cybersecurity risk, information security, and technology risk, as well as the Information
Technology department’s actions to identify, assess, mitigate, and remediate cyber related issues. The CSC receives regular
quarterly reports from the Vice President of Information Technology on the Company’s cybersecurity risk profile and enterprise
cybersecurity program and meets with the Board’s Audit Committee on at least a quarterly basis. The CSC annually reviews
and recommends the Company’s information security policy and information security program to the Board for approval. The
Board reviews and discusses the Company’s technology strategy with the Vice President of Information Technology on an
annual basis and approves the Company’s technology strategic plan.
15
Board Committees
The Board has four standing committees with separate chairpersons: the Audit, Compensation, Nominating & Governance, and
M&A Committees. Each of the Board committees is composed solely of independent directors and has adopted a written charter
that sets forth the specific responsibilities and qualifications for membership on the committee. The charters of these
committees are available on our website at https://investors.ontoinnovation.com/governance/governance-documents/.
In 2022, the composition of and number of meetings held by the Company’s Board committees were as follows:
Committee Chairperson
Committee Members
Number of Meetings
Held in 2022
Christine A. Tsingos
Audit Committee
Edward J. Brown, Jr.1
Bruce C. Rhine1
Karen M. Rogge
Christopher A. Seams2
May Su3
Nominating & Governance Committee
Leo Berlinghieri
David B. Miller6
David B. Miller
David B. Miller
Bruce C. Rhine1
Christopher A. Seams
Compensation Committee
Edward J. Brown, Jr.4
Leo Berlinghieri
May Su5
Christine A. Tsingos
M&A Committee
Karen M. Rogge
Christopher A. Seams
10
6
6
2
1
2
3
4
5
6
Committee member until his retirement from the Board effective at the 2022 Annual Meeting.
Committee member from January 2022 until May 2022.
Committee member effective as of May 2022.
Committee chairperson until his retirement from the Board effective at the 2022 Annual Meeting.
Committee member effective as of appointment to the Board in March 2022.
Committee chairperson effective as of May 2022.
Audit Committee
The current members of the Audit Committee are Stephen D. Kelley, Karen M. Rogge, May Su, and Christine A. Tsingos, who
also serves as the chairperson of the committee. The Audit Committee assists the Board in fulfilling its responsibilities for
general oversight of the integrity of our financial statements, our accounting policies and procedures and our compliance with
legal and regulatory requirements. Among its functions, the Audit Committee is responsible for:
• The appointment, compensation, performance evaluation, retention, and oversight of the Company’s independent
registered public accounting firm;
• The approval of services performed by the Company’s independent registered public accounting firm;
• Reviewing the responsibilities, functions, and performance of the Company’s internal audit function;
• Reviewing the scope and results of internal audits and ongoing assessments of the Company’s risk management
processes and system of internal control;
• Reviewing and approving in advance any related party transactions; and
• Evaluating the Company’s system of internal control over financial reporting and disclosure controls and procedures.
The report of our Audit Committee is found below under the caption “Audit Committee Report.”
The Board has determined that each of the Audit Committee members meets the Audit Committee membership requirements
set forth by the NYSE and the SEC, including that they be “independent” and financially literate. Furthermore, the Board has
16
determined that Ms. Tsingos and Ms. Rogge each qualify as an “Audit Committee Financial Expert” as that term is defined
under SEC rules and have “accounting or related financial management expertise” as contemplated by NYSE rules.
Compensation Committee
The current members of the Compensation Committee are Leo Berlinghieri, May Su, Christine A. Tsingos, and David B.
Miller, who also serves as chairperson of the committee. The Compensation Committee is responsible for reviewing and
approving the compensation of the Company’s officers, reviewing and recommending to the Board for approval the
compensation policy for the Company’s non-employee directors, and administering the Company’s equity compensation plans,
among other things. With respect to the compensation of the Company’s CEO, the Compensation Committee reviews and
approves the various elements of the CEO’s compensation. With respect to other officers, including each of our named
executive officers (“NEOs”), the Compensation Committee reviews the compensation for such individuals presented to the
Compensation Committee by the CEO and the reasons therefor and, in its discretion, may approve or modify the compensation
packages for such individuals. The Compensation Committee has delegated to the Company’s CEO the authority, within certain
parameters, to approve the grant of restricted stock units (“RSUs”) to employees and consultants who are not directors or
executive officers subject Section 16 reporting obligations.
In accordance with its charter, the Compensation Committee may form, and delegate its authority to, subcommittees when
appropriate. Further, the Compensation Committee has the authority to retain independent compensation consultants and to
obtain advice from internal or external legal, accounting, and other advisors to assist in the evaluation of director, officer, or
employee compensation or other matters within the scope of the Compensation Committee’s responsibilities and is directly
responsible for the appointment, compensation, and oversight of such consultants and other outside advisors, including their
fees and other retention terms. From time to time, the Compensation Committee engages the services of such independent
compensation consultants to provide advice on compensation plans and issues related to the Company’s executive officer and
non-executive officer employees. In 2022, the Compensation Committee engaged Compensia, Inc. (“Compensia”) to provide
such assistance to the Compensation Committee.
Each current member of our Compensation Committee is a “non-employee” director within the meaning of Rule 16b-3 under
the Exchange Act. The Board has determined that each of the Compensation Committee members meets the Compensation
Committee membership requirements set forth by the NYSE and the SEC, including that they be “independent.”
For further discussion of the Compensation Committee and its processes and procedures, please refer to the “Compensation
Program Objectives, Design, and Practices” section in the Compensation Discussion and Analysis below. The Compensation
Committee Report is included under the caption “Compensation Committee Report on Executive Officer Compensation” in
this Proxy Statement.
Nominating & Governance Committee
The current members of the Nominating & Governance Committee are David B. Miller, Christopher A. Seams, and Leo
Berlinghieri, who also serves as chairperson of the committee. The responsibilities of the Nominating & Governance
Committee include:
•
Identifying prospective director nominees and recommending to the Board director nominees for the next Annual
Meeting of Stockholders and replacements of a director in the event of a vacancy on the Board;
• Recommending to the Board the appointment of directors to Board committees;
• Developing and recommending to the Board, and monitoring compliance with, the corporate governance guidelines
applicable to the Company;
• Managing the CEO selection process;
• Overseeing evaluation of Company management; and
• Conduct an annual review of management succession planning.
The Nominating & Governance Committee also oversees the annual evaluation of the Board, the committees of the Board and
the individual directors. Among other topics, the evaluation in general assesses:
•
For both the Board and the committees:
◦ Their structure and composition;
◦ The format and content of meetings; and
◦ The effectiveness of the Board and the committees, as applicable.
17
•
For each individual director:
◦ Their performance and approach to their directorship;
◦ Their understanding of their role as a director;
◦ Their understanding of critical aspects of the Company’s business, products and strategy; and
◦ Their skills, experience and ongoing training.
The goal of the evaluation is to identify and address any performance issues at the Board, committee or individual level, should
they exist, identify potential gaps in the boardroom and to assure the maintenance of an appropriate mix of director skills and
qualifications. Upon completion of the evaluation, the Nominating & Governance Committee provides feedback to the Board,
the committees and the individual directors regarding the results of the evaluation and raises any issues that have been identified
which may need to be addressed.
The Nominating & Governance Committee utilizes a variety of methods for identifying and evaluating potential candidates for
joining the Board. For 2022, the Nominating & Governance Committee engaged both Spencer Stuart and ON Partners, each
an executive search and leadership consulting firm, to assist with this process. The Nominating & Governance Committee’s
general policy is to assess the appropriate size and needs of the Board and whether any vacancies are expected due to retirement
or otherwise. In addition, candidates for director are typically reviewed in the context of the current composition of the Board,
the operating requirements of the Company, the current needs of the Board, and the long-term interests of stockholders, with
the goal of maintaining a balance of knowledge, experience and capability. In the event those vacancies are anticipated, or
otherwise arise, the Nominating & Governance Committee will consider recommending various potential candidates to fill
such vacancies. Candidates may also come to the attention of the Nominating & Governance Committee through its current
members, stockholders or other persons.
The Board has determined that each of the Nominating & Governance Committee members meets the Nominating &
Governance Committee membership requirements, including the independence requirements of the NYSE and the SEC.
M&A Committee
The current members of the M&A Committee are Karen M. Rogge, Christopher A. Seams, and David B. Miller, who also
serves as chairperson of the committee. The Board established the M&A Committee as a standing committee in May 2022 to
assist the Board in evaluating potential acquisitions, investments, mergers, divestitures, and similar strategic transactions and
to oversee management’s execution of such strategic transactions. The M&A Committee’s responsibilities include:
• Reviewing and assessing strategic transactions identified by management, including the valuation, strategic rationale
and integration strategy for any proposed transaction;
• Approving non-binding term sheets, letters of intent, indications of interest, and other similar documents for strategic
transactions;
• Overseeing the diligence processes for strategic transactions; and
•
Providing guidance to management as to the desired methodology and processes for identification, development, and
presentation of strategic opportunities.
Other Committees
Our Board may from time to time establish other special or standing committees to facilitate the oversight of management of
the Company or to discharge specific duties delegated to the committee by the full Board.
Compensation Committee Interlocks And Insider Participation
During fiscal year 2022, Leo Berlinghieri, Edward J. Brown, Jr., David B. Miller, May Su, and Christine A. Tsingos were each
a member of the Compensation Committee. Mr. Brown ceased serving on the committee as of his retirement from the Board
at the 2022 Annual Meeting. No member of our Compensation Committee was at any time during fiscal year 2022, or formerly,
an officer or employee of Onto Innovation or any subsidiary of Onto Innovation. No member of our Compensation Committee
had any relationship with us during fiscal year 2022 requiring disclosure under Item 404 of Regulation S-K under the Exchange
Act. During fiscal year 2022, none of our executive officers served as a member of the board of directors or compensation
committee (or other committee serving an equivalent function) of any entity that had one or more executive officers serving as
a member of our Board of Directors or Compensation Committee.
18
Board Membership Criteria And Nominee Identification
The Nominating & Governance Committee of the Board determines the required selection criteria and qualifications of director
nominees based upon the needs of the Company at the time nominees are considered. While the Nominating & Governance
Committee has no specific minimum qualifications for director candidates, persons considered for nomination to the Board
must demonstrate the following qualifications to be recommended by the Nominating & Governance Committee for election:
• The candidate must exhibit proven leadership capabilities, high integrity, and experience with a high level of
responsibilities within his or her chosen field;
• The candidate must possess the ability to apply good business judgment and be of sound mind and high moral
character;
• The candidate must have no personal or financial interest that would conflict or appear to conflict with the interests
of the Company;
• The candidate must be in a position to properly exercise his or her duties of loyalty and care and be willing and able
to commit the necessary time for Board and committee service; and
• The candidate must have the ability to grasp complex principles of business, finance, international transactions and
semiconductor inspection, metrology, lithography, and related software technologies.
The Nominating & Governance Committee retains the right to modify these qualifications from time to time.
In selecting director nominees, the Nominating & Governance Committee considers, among other factors:
• The competencies and skills that the candidate possesses and the candidate’s areas of qualification and expertise that
would enhance the composition of the Board and further its ability to offer advice and guidance to management;
• How the candidate would contribute to the Board’s overall balance of expertise, perspectives, backgrounds, and
experiences in substantive matters pertaining to the Company’s business; and
• The candidate’s demonstrated excellence in his or her field and commitment to rigorously representing the long-term
interests of the Company’s stockholders.
When current Board members are considered for nomination for reelection, the Nominating & Governance Committee also
takes into consideration their prior contributions to and performance on the Board and their record of attendance.
The Nominating & Governance Committee considers the above criteria for nominees identified by the Nominating &
Governance Committee itself, by stockholders, or through other sources. The Nominating & Governance Committee uses the
same criteria for evaluating all nominees, regardless of the original source of nomination. The Nominating & Governance
Committee may use the services of a third-party search firm to assist in the identification or evaluation of Board member
candidates.
Consideration Of Director Nominees
The Nominating & Governance Committee has a formal policy with regard to consideration of director candidates
recommended by the Company’s stockholders, which is contained within the Company’s Director Candidate Policy, which
may be found on our website at:
https://investors.ontoinnovation.com/governance/governance-documents/
In accordance with this policy, the Nominating & Governance Committee will consider recommendations for director
candidates from stockholders holding no less than 1% of the Company’s securities for at least 12 months prior to the date of
the submission of the recommendation. Stockholders wishing to recommend persons for consideration by the Nominating &
Governance Committee as nominees for election to the Company’s Board can do so by writing to the Office of the General
Counsel of the Company at its principal executive offices giving:
• The candidate’s name, age, business address and residence address;
• The candidate’s detailed biographical data and qualifications including principal occupation and employment history;
• The class and number of shares of the Company which are beneficially owned by the candidate;
• The candidate’s written consent to being named as a nominee and to serving as a director, if elected;
•
Information regarding any relationship between the candidate and the Company in the last three years;
19
• Any other information relating to the candidate that is required by law to be disclosed in solicitations of proxies for
election of directors;
• The name and address of the recommending or nominating stockholder;
• The class and number of shares of the Company which are beneficially owned by the recommending or nominating
stockholder; and
• A description of all arrangements or understandings between such stockholder and each nominee and any other person
or persons (naming such person or persons) relating to the nomination.
Stockholders also have the right to directly nominate director candidates, without any action or recommendation on the
part of the Nominating & Governance Committee or the Board, by following the procedures set forth in Section 2.5 of
the Company’s Bylaws.
Corporate Governance Guidelines
Our Board has adopted Corporate Governance Guidelines, which, along with the Company’s Certificate of Incorporation and
Bylaws and the Board committee charters, provide the framework for the governance of Onto Innovation. The Board follows
the procedures and standards in the Corporate Governance Guidelines to fulfill its responsibilities and discharge its governance
duties. A copy of the Corporate Governance Guidelines is available on our website at:
https://investors.ontoinnovation.com/governance/governance-documents/
Codes Of Ethics
We have adopted a Code of Business Conduct and Ethics (applicable to all directors, officers, employees, consultants, and
contractors) and a Financial Information Integrity Policy (applicable to our financial officers, including our CEO and Chief
Financial Officer (“CFO”)) that each set forth principles of ethical and legally compliant conduct and establish procedures for
reporting any violations. Copies of the Code of Business Conduct and Ethics and the Financial Information Integrity Policy
may be found on our website at:
https://investors.ontoinnovation.com/governance/governance-documents
or may be requested (without charge) by writing to:
Onto Innovation Inc.
Attention: Investor Relations
16 Jonspin Road
Wilmington, Massachusetts 01887
The Company will post on its website any amendment or waiver of a provision of our Code of Business Conduct and Ethics as
may be required, and within the time period specified, by applicable SEC rules.
Corporate Social Responsibility
An important part of advancing the semiconductor industry through our innovation is being a socially responsible company.
Our Company’s core values of Passion, Integrity, Collaboration, and Results underpin our commitments to sustainable growth
and to making a positive contribution to people and the planet. We strive to achieve responsible and sustainable business
practices and continuous improvement in our own operations, in our partnerships with our customers, across our supply chain
and in our engagements with our other stakeholders. Our Company invests in environmental, social, and governance (“ESG”)
initiatives across our business and integrates ESG principles into our day-to-day operations.
Business and Governance. Our Company has established a cross-functional ESG executive leadership team that is responsible
for proposing goals, developing and executing strategy, and embedding ESG into our operations management. This ESG
leadership team provides regular updates to the Board and engages them to discuss ESG strategy, gain alignment on goals, and
report on progress. Our Board is actively engaged in the Company’s ESG oversight and has the primary responsibility for our
ESG priorities. Board committees provide further guidance and oversight on relevant ESG topics including the Compensation
Committee on human capital management, the Audit Committee on information security and the Nominating & Governance
Committee on ethics compliance.
20
Workplace. As described in the “Social Programs” section in our 2021 ESG Report, our Company strives to provide a work
environment that fosters inclusion and diversity, ensures every voice is heard, and enables employees to achieve their full
potential. Our Company aims to maintain a collaborative, supportive, and opportunity-rich culture that enhances innovation
and employee engagement. We strive to protect the health and safety of our personnel throughout our entire operation, including
our offices, manufacturing sites, research and development (“R&D”) centers, and our field team working at customer sites.
Community. Our Company believes that positively involving our employees and giving back to our community is central to
our culture and an expression of our core values. In 2021, the Company initiated RISE (Reimagining Initiatives for Society and
the Environment) Teams, which have direct oversight from the ESG leadership team. These teams are formed at each location
globally in order to promote local charitable giving including employee volunteer hours and employee donations. Our RISE
Teams’ philanthropy and volunteerism programs provide financial and human services to improve the quality of life in the
communities in which we operate. We are committed to creating positive impacts in communities around the world by
contributing to local, national, and international organizations that support community needs such as hunger, food and water
security, disadvantaged children and senior citizens, health improvement, and environmental protection.
Sustainable Operations. We believe that incorporating environmental sustainability into business leads to better products,
more efficient operations, and added value for our customers. As the world tackles climate change and other critical
environmental issues, we seek to do our part by responsibly managing our impact with global goals for energy efficiency,
greenhouse gas emissions, carbon footprint per employee, water conservation, and landfill hazardous waste reduction and
elimination. We carefully monitor and manage our environmental impact across our business and work to implement cost-
effective best practices, focusing our efforts where we believe we can have the biggest long-term impact. Our Company looks
at impacts from procurement to manufacturing, during R&D and product design, and throughout a product’s lifecycle. We
carefully manage our environmental impact, set goals, and report progress annually through our annual ESG report, which is
carefully reviewed and verified by our internal audit function.
Products and Customers. Our Company demands excellence in our quality and environmental performance, as demonstrated
through our product and process qualification commitments, which resulted in our ISO 9001 Quality Management certification.
We continuously strive to develop innovative products and solutions that help our customers improve their product yields and
reduce the amount of scrapped materials. We seek to achieve this through our monitoring processes and by alerting customers
via our software products before specification limits are reached, thereby helping customers avoid product test failures. In
addition, our equipment meets or exceeds safety requirements and incorporates higher throughput to reduce the energy required
to process customer products on a per unit basis, benefiting our customers and the environment. Our Company also strives to
extend the life of our products and solutions to enable our customers to realize greater value from our products with a potentially
lower environmental impact.
Responsible Supply Chain. Our Company understands the importance of an ethical, responsible, resilient, and diverse supply
chain, and we engage with our suppliers to address a wide range of issues including human rights, humane treatment, freely
chosen employment, labor, anti-corruption, supplier diversity, environmental impact, and responsible mineral sourcing. We are
a strong proponent of supply-chain-related industry standards and endeavor to uphold the guidelines published by the
Responsible Business Alliance (“RBA”). Since joining in 2021, the Company has been an affiliate member of the RBA, the
world’s largest industry coalition dedicated to corporate responsibility in global supply chains. Beginning in 2022, our direct
suppliers are expected to adhere to our Global Supplier Code of Conduct, which incorporates the RBA code of conduct and
covers topics such as ethics, integrity, transparency, anti-corruption, conflict minerals, human trafficking, environmental
sustainability, and social responsibility. Acknowledgment of and consent to adhere to our Global Supplier Code of Conduct is
a mandatory requirement of our new supplier onboarding process.
For more information about our ESG efforts, please refer to our Annual ESG Report available in the Company section of our
website at https://ontoinnovation.com/company/environmental-social-governance. Our ESG Report shall not be deemed
“filed” with the SEC for purposes of federal securities law, and it shall not be incorporated by reference into any of the
Company’s current, past or future SEC filings unless specifically noted in such filing. The information contained on our website
is not part of this document and the ESG report shall not be deemed soliciting material.
Related Person Transactions Policy
There have been no “related person transactions” from January 1, 2022 to the date of this proxy statement, nor are there any
currently proposed “related person transactions,” involving any director, director nominee or executive officer of the Company,
any known 5% stockholder of the Company or any immediate family member of any of the foregoing persons (which are
referred to together as “related persons”). A “related person transaction” generally means a transaction involving more than
$120,000 in which the Company (including any of its subsidiaries) is a participant and in which one of our executive officers,
directors, director nominees or 5% shareholders (or their immediate family members), each of whom we refer to as a related
person, has a direct or indirect material interest.
21
The Board has adopted written policies and procedures addressing the Company’s procedures with respect to the review,
approval and ratification of “related person transactions” that are required to be disclosed pursuant to Item 404(a) of Regulation
S-K. Our related person practices and policies are designed to ensure that our directors, officers and employees are proactively
screened from any conflicts of interests that may interfere with their obligations to the Company. Our policies are included in
the Company’s Related Parties Transaction Policy.
Pursuant to the Related Parties Transaction Policy, the Audit Committee, which consists entirely of independent directors, will
review any proposed transaction in which the Company or its subsidiaries are to participate if the aggregate amount involved
in the transaction will or may exceed $120,000 and any related person may have a direct or indirect material interest in the
transaction. The Audit Committee will consider the facts and circumstances and may approve or ratify a proposed transaction
if the Audit Committee determines that the transaction is not inconsistent with the interests of the Company and its stockholders.
The Audit Committee may impose such conditions as it deems appropriate in connection with its approval.
Communications With The Board Of Directors
We have a formal policy regarding communications with the Board, our Stockholder & Interested Party Communications
Policy, which is found on our website at https://investors.ontoinnovation.com/governance/governance-documents/.
Stockholders may communicate with the Board, the Audit, Compensation, or Nominating & Governance Committee, or any
of the Company’s directors by writing to:
Onto Innovation Inc.
Office of the General Counsel
16 Jonspin Road
Wilmington, Massachusetts 01887
Such communications will be forwarded to the intended recipient(s) to the extent appropriate. Prior to forwarding any
communication, the General Counsel will review it and, in his or her discretion, will not forward a communication deemed to
be of a commercial nature or otherwise inappropriate.
22
Compensation Of Directors
Directors who are employees of the Company receive no compensation for their services as members of the Board. Director
compensation for non-employee members of the Board is a mix of cash and equity-based compensation, which is meant to
align the interests of our directors with the Company’s long-term performance and stockholder interests. The compensation
during fiscal 2022 for directors who were not employees of the Company is as follows:
Board Compensation Element
Annual Retainer
Annual Equity Grant (in RSUs)
Committee Chairperson Stipend
Audit
Compensation
Nominating & Governance
M&A
Committee Member Stipend
Audit
Compensation
Nominating & Governance
M&A
Chairperson Stipend
Initial Equity Grant (in RSUs)
Amount/Value
$70,000 (1)
$150,000 (2)
$20,000 (1)
$15,000 (1)
$10,000 (1)
$5,000 (1)
$10,000 (1)
$7,500 (1)
$5,000 (1)
$2,500 (1)
$50,000 (1)
$150,000 (3)
(1) Paid subsequent to the director election results at the Annual Meeting of Stockholders.
(2) Awarded at the second quarter Board meeting in a number of shares calculated by dividing the listed amount by the
closing stock price per share of Company Common Stock on the date of grant.
(3) Awarded as of the first Board meeting following election or appointment and calculated in the same manner as the
annual equity grant above but prorated by the number of quarters between such first meeting and the date on which
the next annual equity grant is scheduled to be awarded.
Any initial equity grants and/or annual equity grants typically vest on the first anniversary of the grant date. Equity awards
granted to directors are granted under and subject to the terms of the Onto Innovation Inc. 2020 Stock Plan (the “2020 Stock
Plan”).
23
For the fiscal year ended December 31, 2022, the non-employee directors received total compensation indicated in the table
below. There were no option awards, non-equity incentive plan compensation, or pension and nonqualified deferred
compensation earnings granted to such directors. They did not earn any type of compensation during the year other than what
is disclosed in the following table:
Name
Leo Berlinghieri
Edward J. Brown, Jr.(2)
Stephen D. Kelley(3)
David B. Miller
Bruce C. Rhine(2)
Karen M. Rogge
Christopher A. Seams
May Su
Christine A. Tsingos
Fees Earned or
Paid in Cash
Stock
Awards (1)
All Other
Compensation
Total
$87,500
—
N/A
$95,000
—
$82,500
$127,500
$87,500
$97,500
$151,116
—
N/A
$151,116
—
$151,116
$151,116
$151,116
$151,116
—
—
N/A
—
—
—
—
—
—
$238,616
—
N/A
$246,116
—
$233,616
$278,616
$238,616
$248,616
(1) Represents the grant date fair value for each share-based compensation award granted during the year, calculated in accordance
with FASB ASC Topic 718. The assumptions used in determining the grant date fair value of these awards are set forth in Note 10
to our consolidated financial statements, which are included in our Annual Report on Form 10-K for the fiscal year ended December
31, 2022 filed with the SEC. As of December 31, 2022, our directors had the following stock awards outstanding: Mr. Berlinghieri
– 2,100 RSUs; Mr. Miller – 2,100 RSUs; Ms. Rogge – 2,100 RSUs; Mr. Seams – 2,100 RSUs; Ms. Su - 2,100 RSUs ; and Ms.
Tsingos – 2,100 RSUs.
(2) Messrs. Brown and Rhine did not stand for re-election to the Board on May 10, 2022.
(3) Mr. Kelley did not join the Board until January 2023.
Stock Ownership/Retention Guidelines For Directors
The Company has established guidelines related to stock ownership and retention for its non-employee directors. Currently,
the guidelines require that each non-employee director of the Company maintain ownership of shares of the Company’s
Common Stock equal in value to at least three times the amount of the director’s annual cash retainer. For a new director, the
stock holding requirement must be attained within five years of his or her initial election or appointment to the Board.
Compliance with the Company’s stock ownership and retention guidelines is reviewed annually by the Compensation
Committee. As of their last review in January 2023, the Compensation Committee determined that all directors who were with
the Company for more than one year were in compliance with the ownership requirements.
24
PROPOSAL 2
ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER
COMPENSATION
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, enables our stockholders
to vote to approve, on an advisory (non-binding) basis, the compensation of our named executive officers as disclosed in this
proxy statement in accordance with SEC rules. Consistent with the recommendation of the Board and the preference of our
stockholders as reflected in the non-binding advisory vote on the frequency of future advisory votes on named executive officer
compensation held at the Nanometrics 2017 Annual Meeting of Stockholders, the Company currently holds an annual “say on
pay” vote. In accordance with this policy, this year we are requesting our stockholders to approve an advisory resolution to
approve the Company’s named executive officer compensation as reported in this Proxy Statement.
Our executive officer compensation arrangements are designed, consistent with our compensation philosophy and pay-for-
performance principles, to provide competitive compensation packages that enable the Company to attract and retain talented
executive officers, motivate executive officers to achieve the Company’s short- and long-term business strategies and
objectives, align the interests of executive officers with those of stockholders, and are consistent with current market practices
and good corporate governance principles. Please read the Compensation Discussion and Analysis beginning on the following
page for additional details about our executive officer compensation arrangements, including information about the fiscal year
2022 compensation of our named executive officers.
We are asking our stockholders to indicate their support for our compensation arrangements as described in this proxy
statement.
For the reasons discussed above, the Board recommends that stockholders vote in favor of the following resolution:
“RESOLVED, that the Company’s stockholders APPROVE, on an advisory basis, the compensation paid to
the Company’s named executive officers, as disclosed in the proxy statement for this meeting pursuant to Item
402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and
narrative discussion and other related tables and disclosures.”
Because your vote is advisory, it will not be binding upon or overrule any decisions of the Board, nor will it create any additional
fiduciary duty on the part of the Board. This advisory vote is not intended to address any specific item of compensation, but
rather the overall compensation of our named executive officers and our compensation philosophy, policies, and practices
described in this proxy statement, and does not seek to have the Board or Compensation Committee take any specific action.
However, the Board and the Compensation Committee value the views expressed by our stockholders in their vote on this
proposal and will take into account the outcome of the vote when considering executive officer compensation matters in the
future.
Vote Required
The affirmative vote, in person or by proxy, of a majority of the shares present or represented at the meeting and entitled to
vote will be required to approve, on an advisory (non-binding) basis, the compensation of our named executive officers as
disclosed in this proxy statement.
The Board recommends a vote “FOR” the approval of the compensation of the
named executive officers as disclosed in this proxy statement pursuant to Item 402
of Regulation S-K.
25
EXECUTIVE OFFICER COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Introduction
This Compensation Discussion and Analysis (“CD&A”) describes our compensation philosophy, process, plans, and practices
for our executive officers and contains a discussion of the material elements of compensation awarded to, earned by, or paid to
the Company’s named executive officers or “NEOs.” The Company’s NEOs for 2022 were:
Onto Innovation’s Named Executive Officers (NEOs)
NEO Name
Michael P. Plisinski
Mark R. Slicer
James (Cody) Harlow
Robert Fiordalice
Yoon Ah E. Oh
Chief Executive Officer
Chief Financial Officer
Position
Chief Operating Officer
Sr. Vice President & General Manager, Metrology Business Unit
Vice President, General Counsel, and Corporate Secretary
Former Officers
Steven R. Roth
Former Sr. Vice President & Chief Financial Officer
EXECUTIVE SUMMARY
2022 Financial Highlights
In 2022, the Company realized record financial results in critical metrics. These include, but are not limited to:
•
•
Record full year revenue of $1.005 billion reflecting growth of over 27% year-over-year.
Record full year GAAP diluted earnings per share of $4.49 increased 57% year-over-year.
26
The following reflects some of our financial accomplishments in fiscal 2022 as compared to fiscal 2021 and 2020:
27
2022 Compensation Highlights
Executive compensation is a key component of our corporate governance practices and our plans to drive long-term
profitable growth. We’ve designed our compensation program to both attract and retain best-in-class executive management
and to motivate our executive officers to achieve corporate objectives and create value for shareholders. In 2022, key
features of our compensation program included the following:
•
•
•
Competitive base salary increases: base salaries for executive officers were set based on several factors,
including executive officers’ unique qualifications, role, and responsibilities, individual performance, and
measurable contribution to the Company’s profitability and success.
Rigorous annual incentive goals: executive officer cash incentive compensation is tied to overall corporate
performance, achievement of individual performance goals, and, for those executive officers associated with a
particular business unit, to individual business unit performance as well.
An emphasis on performance-based long-term incentives: a substantial portion of executive officer compensation
is in the form of long-term equity incentives that incentivize both long-term service at the Company and creating
shareholder value.
Results Of The 2022 Stockholder Vote On Executive Officer Compensation
In 2022, stockholders were provided with the opportunity to cast an advisory (non-binding) vote (a “say-on-pay” proposal) on
the compensation of our NEOs for fiscal 2021. Our stockholders approved this say-on-pay proposal, with 94.2% of votes cast
voting in favor of our executive compensation program. Our Compensation Committee and Board recognize the fundamental
interest our stockholders have in the compensation of our executive officers. Noting the strong support for our 2021
compensation program, the Compensation Committee maintained a consistent approach to our executive officer compensation
program in 2022.
The Compensation Committee will continue to consider input from our stockholders as reflected in the outcome of our annual
say-on-pay vote when making executive compensation program decisions.
COMPENSATION PROGRAM OBJECTIVES, DESIGN, AND PRACTICES
Our Compensation Philosophy And Principles
Our compensation philosophy, which serves as the framework for the Company’s executive officer compensation program, is
defined by two key tenets: (1) rewarding continuous improvement in financial and operating results and (2) creation of
stockholder value. The Compensation Committee acts on behalf of the Board and, by extension, on behalf of our stockholders,
to establish, implement and continually monitor adherence to our compensation philosophy. Accordingly, the Compensation
Committee has developed a set of core objectives and principles that it has used to develop the executive officer compensation
program. The specific objectives of our executive officer compensation program are to:
•
attract and retain executive officer talent;
• motivate executive officers to achieve the Company’s short- and long-term business strategies and objectives, and
•
align the interests of executive officers with those of stockholders.
Consistent with the foregoing, the Compensation Committee believes that the most effective executive officer compensation
program is one that rewards the achievement of specific strategic and operating goals of the Company on both an annual and a
long-term basis, and that incentivizes executive officers to create value for stockholders. The Compensation Committee
evaluates both performance and compensation to ensure that the Company maintains its ability to attract and retain superior
employees in key positions. Based on that evaluation, the Compensation Committee designs the compensation provided to
executive officers to remain competitive with the compensation paid to similarly situated executive officers at peer group
companies. The Compensation Committee believes executive officer compensation packages provided by the Company to its
executive officers, including the NEOs, should include base salary, annual cash incentive opportunities, and long-term stock-
based compensation, including equity incentive opportunities that reward performance as measured against pre-established
goals.
28
The following principles support the objectives and design of the compensation program:
• The compensation program is designed to be fair and competitive, from an internal and external perspective, taking
into account each executive officer’s unique qualifications, role, responsibilities, individual performance, and
measurable contribution to the Company’s profitability;
• A substantial portion of an executive officer’s compensation is designed to be at risk and linked to the achievement
of both corporate and individual financial, management or other performance goals and changes in stockholder value;
and
• All compensation program elements taken as a whole are designed to help focus executive officers on achieving the
Company’s financial and strategic goals while supporting our culture and core values.
To underscore the importance of “pay-for-performance” in our compensation philosophy, the Compensation Committee has
developed incentive arrangements based on performance standards that the Compensation Committee believes, at target
achievement, will incentivize our executive officers to meet or exceed industry performance.
The Company also strives to promote an ownership mentality among its key leadership, in part through the guidelines described
below under the heading “Stock Ownership/Retention Guidelines.” To that end, the CEO is required to maintain ownership of
the Company’s Common Stock equal in value to at least three times the CEO’s year-end base salary. The other executive
officers are required to maintain a minimum share ownership level equal in value to their current year-end base salary. In
further support of this approach, our Board has established an anti-pledging policy to ensure that personal interests relating to
the stock holdings of officers and directors do not conflict with their duties to the Company.
29
Our Compensation Practices
The Compensation Committee has adopted the following practices and policies with respect to the Company’s executive officer
compensation program:
What We Do
Committee
Independence
The Compensation Committee consists of independent directors and reserves time at each
meeting to meet in executive session without management present.
Independent
Compensation
Consultant
The Compensation Committee has engaged its own independent compensation consultant and
annually assesses the consultant’s performance, independence, and whether any potential
conflicts of interest exist.
Independent Legal
Advisor
The Compensation Committee may engage its own independent legal advisor specializing in
corporate compensation issues, as necessary.
CEO Goal Setting
and Performance
Evaluation
Peer Group
The Compensation Committee, with the input of the full Board, engages in formal goal setting
and performance evaluation processes with the CEO.
The Compensation Committee has established formal criteria for the selection of peer groups
used as a competitive reference point with respect to executive officer and director compensation,
program design and practices, and financial and stock performance.
Stock Ownership
Guidelines
The Company maintains rigorous stock ownership guidelines, which apply to executive officers
and directors, and serve as a risk-mitigating feature within our compensation structure.
Double Trigger
Change-in-Control
The Company has entered into agreements with executive officers, including the CEO, that
contain change-in-control severance protection. Executive officers are entitled to severance in the
event of both a change in control of the Company and a qualifying termination of employment
(“double trigger”).
Clawback Policy
The Company has adopted a policy that provides for the reimbursement of incentive
compensation (including equity awards granted as compensation) previously awarded or paid to
an executive officer in the event that financial results or other performance measures on which the
award or payment were determined are restated or adjusted.
Grant Date Policy
The Company has adopted a policy on stock-based awards made to our directors, officers, and
employees that prohibits manipulation of award grant dates or the timing of our release of
material nonpublic information with the intent of benefitting an award recipient.
What We Do Not Do
No Pledging
Tax Gross-Ups on
Perquisites or
Severance
The Company’s insider trading policy prohibits our directors, officers and employees from
purchasing Company securities on margin, borrowing against Company securities held in a
margin account, or pledging Company securities as collateral for a loan.
The Company does not provide any tax gross-up payments to cover personal income taxes on
perquisites or severance benefits related to a change in control.
30
COMPENSATION DECISION-MAKING PROCESS
Determination of Compensation Awards
The Compensation Committee’s goal is to target elements of compensation within a competitive range, using a balanced
approach that does not use rigid percentiles to target pay levels for each compensation element. For 2022, the Compensation
Committee reviewed each element of compensation described below and set the target total direct compensation opportunities
of our executive officers after taking into consideration the following factors:
• Company profitability;
• The executive officer’s unique qualifications;
• The executive officer’s role and responsibilities;
• The executive officer’s individual performance and measurable contribution to the Company’s profitability and
success; and
• Compensation levels of similar positions with comparable companies in the industry.
The Compensation Committee does not assign relative weights or rankings to any of these factors and does not solely use any
quantitative formula, target percentile or multiple for establishing compensation among the executive officers or in relation to
the competitive market data.
Role of the Compensation Committee
The Compensation Committee is charged with making all final determinations regarding the compensation of our executive
officers. In the beginning of each year, the Compensation Committee evaluates the CEO’s performance in light of the goals
and objectives established at the beginning of the previous fiscal year for measuring his performance. The CEO does not
participate in the Compensation Committee’s or Board’s deliberations regarding his compensation. In addition, the CEO meets
with the Compensation Committee to present the proposed compensation plans for each of the Company’s executive officers
other than the CEO, including the other NEOs. Based on these meetings and internal deliberations, the Compensation
Committee then approves the annual compensation for the Company’s CEO and other executive officers, including the NEOs,
including base salary, cash incentive award opportunity, and equity compensation.
In the same time period, the Compensation Committee also reviews and recommends for approval by the Board:
•
•
the Company Compensation Plan for all non-executive employees, including (i) adjustments to base compensation
and profit-sharing, bonus and other cash incentive plans, and (ii) the annual equity award budget; and
the annual compensation program for non-employee directors.
In reviewing and setting the annual compensation for each executive officer, the Compensation Committee considers the
amounts payable under each of the elements of their respective compensation plans, including base salary, annual cash incentive
awards, and equity grants. The Compensation Committee takes into consideration both the Company’s internal pay equity as
well as the competitive environment within which the Company operates. The Compensation Committee then determines
whether the base salary and annual and long-term incentive award opportunities for the individual executive officers support
the Company's compensation objectives and are both competitive and reasonable in the context of the Company’s competitive
market.
Role of Management
With regard to compensation for executive officers other than the CEO, the Compensation Committee seeks input from the
CEO and the human resources department. Each year, the CEO is responsible for establishing proposed personal and corporate
objectives for the Company’s other executive officers, including the other NEOs. These objectives, subject to the approval of
the Compensation Committee, are reviewed and agreed upon by the CEO with the applicable executive officer. In addition, as
part of the annual performance review of the Company’s executive officers, the CEO assesses the performance of his direct
reports and recommends any merit increase to be proposed for each individual. These recommendations are compiled by the
CEO into executive officer compensation plans which include any proposed merit increases, each executive officer’s personal
and corporate objectives, proposed annual incentive award opportunities (expressed as a percentage of their base salary) and
equity grant proposals, and are submitted to the Compensation Committee for review and consideration for approval. At the
Compensation Committee meeting during which the executive officer compensation plans are reviewed, the CEO attends the
initial session to present the proposed plans and to answer questions. Thereafter, the Compensation Committee meets without
the CEO present to review, discuss and approve all executive officer compensation plans, subject to any modifications made
by the Compensation Committee.
31
Role Of The Compensation Consultant
The Compensation Committee may retain independent compensation consultants to assist the Compensation Committee in
discharging its duties. During 2022, the Compensation Committee engaged Compensia, an independent executive officer
compensation consulting firm, to provide advice on the Company’s executive officer compensation arrangements. Compensia
does not provide any services other than those related to compensation consulting and does not provide any services to the
Company's management. The Compensation Committee determined that Compensia is independent within the meaning of the
NYSE Listing Rules, and that the work performed by Compensia does not raise any conflicts of interest.
For 2022, the Compensation Committee requested that Compensia:
•
•
•
evaluate the efficacy of the Company’s existing compensation strategy and practices in supporting and reinforcing the
Company’s long-term strategic goals;
assist in refining the Company’s compensation strategy and further implementing the executive officer compensation
program to execute that strategy; and
provide market information to assist the Compensation Committee in establishing 2022 executive officer
compensation.
Peer Companies
In setting executive officer compensation, the Compensation Committee evaluates compensation levels for executive officers
at other similarly situated companies. For 2022, the Compensation Committee engaged Compensia to provide peer group data
and perform an assessment of compensation levels provided to executive officers. In addition, the Compensation Committee
obtains and evaluates market compensation information using third-party and internal resources. The Compensation Committee
reviews data related to compensation levels and programs of other similar companies prior to making its decisions, but only
considers such information in a general manner in order to obtain a better understanding of the current compensation practices
within our industry.
In the Compensation Committee’s review of executive officer compensation for the 2022 fiscal year, the Compensation
Committee considered publicly available market data from peer company proxy disclosures and industry compensation surveys
for companies that typically include similarly sized semiconductor and semiconductor capital equipment companies or similar
firms for each Company executive officer in a like or similar role.
In mid-2021, for compensation decisions for the Company’s 2022 fiscal year, Compensia recommended and the Compensation
Committee approved the Company’s compensation peer group which took into consideration the following factors:
•
Semiconductor capital equipment and other electronics and hardware technology companies;
• Revenue between approximately 0.5x and 2x the Company’s revenue run-rate; and
• Market cap between approximately 0.3x and 3x the Company’s average market cap.
The Company’s compensation peer group for the 2021 review (which was used to make decisions regarding 2022
compensation) consisted of the following companies:
Companies Included In The Company’s Compensation Peer Group For 2022
Advanced Energy Industries Inc.
Knowles Electronics, LLC
Rambus Incorporated
Ambarella International LP
Lattice Semiconductor Corporation
Semtech
Axcelis Technologies Inc.
MACOM Technology Solutions Holdings, Inc.
Silicon Laboratories
Azenta, Inc.
Cohu, Inc.
FormFactor, Inc.
Ichor Holdings Ltd.
MaxLinear, Inc.
Novanta Inc.
Photronics, Inc.
Power Integrations, Inc.
32
Ultra Clean Holdings, Inc.
Veeco Instruments, Inc.
The pay practices of the foregoing Company peer group were analyzed for base salary and annual and long-term incentives.
Periodically, peer groups are used to evaluate other programs such as executive officer retirement, perquisites and severance
policies. Our peer group data is supplemented by broader technology industry data from compensation surveys to further
facilitate the evaluation of compensation levels and design. Compensation levels are generally developed at the low (25th
percentile), middle (50th percentile) and high (75th percentile) end of the market for each pay element (base salary and short-
term and long-term incentives) and for total compensation.
While the Compensation Committee considers market data for each pay element and in total, the Compensation Committee
does not specifically target any particular market compensation level. Instead, the Compensation Committee uses its discretion
in setting the compensation levels as appropriate.
ELEMENTS OF THE COMPANY’S 2022 COMPENSATION PLAN
Compensation Program Design
Our executive officer compensation program, which applies to all executive officers including our NEOs, is generally
composed of three parts, each of which is intended to address different objectives: base salary, annual cash performance
incentives, and long-term equity incentives.
Base salaries serve as the foundation of our executive compensation program. The Compensation Committee uses base salary
and certain other benefits available to all employees, such as the Onto Innovation Inc. 2020 Employee Stock Purchase Plan
(“ESPP”), our 401(k) plan with Company matching contributions, and health and welfare benefits, as a means for providing
base compensation to executive officers commensurate with their knowledge and experience and for fulfilling their basic job
responsibilities. The Compensation Committee also derives the other executive compensation elements, annual cash incentives
and long-term equity incentives, by weighing them against base salary. As discussed above, the Compensation Committee
generally establishes base salary levels for executive officers at or near the start of each year.
The annual cash incentive component of the Company’s executive officer compensation program rewards executive officers
for achieving specific corporate, business unit, as applicable, and individual goals. The Company’s annual cash incentive
awards are administered through its Management By Objectives (“MBO”) bonus plan. The MBO bonus plan provides
guidelines for the calculation of annual cash incentive compensation, subject to the Compensation Committee’s oversight. At
its first meeting each year, the Compensation Committee typically determines final bonuses for executive officers earned in
the preceding year based on each individual’s performance, the performance of the Company through its audited financial
statements, business unit performance (as applicable), and the CEO’s recommendations (except with respect to the CEO's own
bonus).
The long-term equity incentive component includes grants of (i) performance-based stock units (“PSUs”), which are earned
based on the Company's total shareholder return (“TSR”) relative to the top 30 companies in the Philadelphia Stock Exchange
Semiconductor Index over two- and three-year performance periods, and (ii) time-based RSUs, which vest in equal annual
increments over time. All grants are made under the Company’s 2020 Stock Plan and shares earned and vested are subject to
the Company’s stock ownership and retention guidelines and insider trading policy. The Compensation Committee generally
approves the grant of annual equity awards to officers at its first regularly scheduled meeting each year. The Compensation
Committee does not generally grant equity awards at other times during the year, other than in the case of a new hire, promotion
or other exceptional circumstances.
The Compensation Committee aligns both the Company’s annual cash incentive plan and long-term equity incentive program
with the Company’s performance relative to pre-established performance goals based on the Company’s stated financial
objectives, historical performance, and anticipated market and economic conditions for the performance period. The
Compensation Committee seeks to structure the equity and cash incentive compensation program to motivate executive officers
to achieve the business goals set by the Company and reward the executive officers for achieving such goals, which we believe
aligns the financial incentives of our executive officers with the interests of our stockholders.
33
The table below summarizes the foregoing key elements of our executive officer compensation structure for 2022.
Executive Officer Compensation Elements
Element
Form
Description
Base Salary
Fixed Cash Compensation
Competitive cash compensation that takes into consideration the
scope and complexity of the role, individual qualifications,
experience, and internal value to the Company.
Annual Cash
Incentive Plan
Annual Variable Cash Bonus
Annual variable cash bonus contingent on meeting performance
criteria related to corporate, business unit/department (as applicable),
and individual performance objectives.
Long-Term Equity
Incentive Program
Long-Term Stock-Based
Compensation
PSUs are earned based on Company TSR performance relative to a
designated peer group. Time-based RSUs vest incrementally over a
fixed period.
In adopting this design, the Compensation Committee considered a number of parameters, including the advice of its
independent compensation consultant, comparable practices within the industry, and the desire to achieve the goals underlying
the compensation program. The Compensation Committee and Board further believe that each of the elements as well as the
entire compensation package for Company executive officers is appropriate given the Company’s performance, industry,
current challenges and environment.
The three components of our executive compensation program are commonly used for executive officers at companies within
the Company’s peer group and, therefore, the Compensation Committee found them to be appropriate in its talent attraction
and retention strategy. Given that a substantial portion of an executive officer's overall compensation is tied to individual and
Company performance through the annual cash incentive and long-term equity incentive components, we also think the
structure of our executive compensation program meets the Company's other objectives of motivating executive officers to
achieve the Company's short- and long-term business strategies and objectives and aligning the interests of executive officers
with those of our stockholders. The pay-for-performance nature of our compensation structure rewards the achievement of
strategic, operational and financial goals, thereby enhancing stockholder value.
The Compensation Committee’s compensation determinations vary for each executive officer depending on a number of
factors, including but not limited to, the scope of his or her responsibilities, leadership skills and values, and individual
performance. The Compensation Committee does not apply formulas or assign specific mathematical weights to any of these
factors, but rather exercises its business judgment and discretion to make a subjective determination after considering all of
these measures collectively.
Annually, the Compensation Committee reviews the elements of the compensation package as well as the overall package
afforded to the executive officers. At such time, the Compensation Committee, in its discretion, can approve adjustments to the
elements of the program. This review is typically performed coincident with the evaluation of each executive officer’s
performance in relation to his or her cash incentive compensation goals, salary adjustment, and equity grants, if any, as
discussed in more detail in the sections below.
Impact Of Performance On Compensation
The performance of the Company and of each executive officer has a direct impact on the compensation received by such
executive officer. On an annual basis, the CEO reviews the performance and compensation for the Company’s non-CEO
executive officers to determine any potential salary adjustment for each individual. The CEO then proposes (except with respect
to the CEO’s own compensation) to the Compensation Committee the annual cash incentive payout to executive officers,
including the NEOs, under the MBO bonus plan, the target cash incentive compensation for the upcoming year, any base salary
adjustments, and equity award amounts for the upcoming year. Each of these recommendations, and the Compensation
Committee’s final compensation determination for executive officers, is based on each executive's performance and
contributions to the Company, as well as overall Company performance.
34
The structure of the Company’s annual cash incentive and long-term equity incentive components of the compensation program
are also both intended to incentivize performance. The MBO bonus plan includes various incentive level opportunities based
on the executive officer’s accountability and impact on Company operations, with target award opportunities that are
established as a percentage of base salary.
Under our MBO bonus plan, payout is based upon achievement of corporate, business unit (as applicable), and personal
objectives, with no payout unless the Company meets the threshold level of at least one of the Board-approved corporate
financial targets established as part of the plan. Personal objectives are awarded only upon clear achievement of the associated
goal. Failure to meet the personal objectives thereby has a negative impact on the ultimate bonus payout, even when the
Company achieves its corporate goals.
The CEO recommends to the Compensation Committee individual performance goals for the executive officers (including the
NEOs), other than the CEO, for the current year, which are combined with the corporate and business unit (as applicable)
targets into an annual cash incentive opportunity proposal. The personal targets that are established are designed to result in
additional incremental value to the Company if they are achieved. The target level of the corporate and business unit
components of the bonus goals are set based on the Company’s financial budget established by the Board at the beginning of
the year. The determination of these goals is made annually to meet the changing nature of the Company’s business.
Upon completion of the prior year’s results and prior to implementation of the current year’s proposed executive compensation
plan, the results for each executive officer are submitted to, and reviewed by, the Compensation Committee, which considers
the CEO’s recommendations for executive officers other than the CEO and determines the final bonus earned by each executive
officer based on Company and individual performance. The Compensation Committee may exercise discretion in adjusting and
approving an individual’s award under the bonus plan based upon its review.
The two elements of the Company’s long-term equity incentive compensation program are also performance-based. The PSU
grants, which are explained in further detail below, measure the Company’s TSR over two- and three-year periods as compared
to that of companies in the Philadelphia Semiconductor Index (SOX) and reward executives for achieving TSR greater than
that of other Companies in the Index. In addition, because the value of PSUs and the service-based RSUs granted to executive
officers are tied to the Company's stock price, their value increases or decreases with the performance of the Company stock,
further incentivizing executives to manage the Company for the benefit of the Company's stockholders.
Based upon the foregoing, the compensation that an executive officer may realize is significantly impacted by the positive or
negative performance of such individual as well as Company performance.
Compensation Plan Design And Decisions For 2022
For 2022, the Compensation Committee conducted a review of the compensation program and determined that the 2022
executive compensation plan would retain the same basic elements as the prior year’s plan as these elements aligned the
Company’s program with its current business strategy and included the pay for performance aspect of its executive
compensation program. Taking into account the Company’s 2021 financial performance and outlook for 2022, each executive
officer’s performance and responsibilities, and current market compensation rates for each executive officer position, among
other criteria, the Compensation Committee approved the program and compensation plan structure for the executive officers
in 2022 as detailed below.
Base Salary
The Company provides executive officers and other employees with a base salary to compensate them for services rendered
during the fiscal year. The Compensation Committee supports the compensation philosophy of moderation for elements such
as base salary and other executive officer benefits. As noted above under “Impact of Performance on Compensation,” base
salary decisions are made as part of the Company’s formal annual review process and are influenced by the performance of the
Company and the individual.
For 2022, the Compensation Committee reviewed and determined salaries after reviewing salary data supplied by the
independent compensation consultant, including data regarding the peer comparison group, as well as consideration of the
compensation for the executive officers on a company-wide basis, based on their relative duties and responsibilities and the
recommendations of the CEO (other than with respect to his own compensation). The Compensation Committee did not apply
formulas or assign specific mathematical weights to any of these factors, but rather exercised its business judgment and
discretion to make a subjective determination regarding each executive officer's base salary for 2022, as applicable, after
35
considering all of these factors collectively. The CEO’s recommendations for salary adjustments (other than his own) were
reviewed, modified and approved as deemed appropriate by the Compensation Committee.
The table below shows the increases in NEO base salary for the 2022 that were approved by the Compensation Committee.
Named Executive Officer
2021 Base Salary
2022 Base Salary
% Increase
Michael P. Plisinski
Mark R. Slicer
James (Cody) Harlow
Robert Fiordalice
Yoon Ah E. Oh
Steven R. Roth
Annual Cash Incentive Compensation
$618,341
N/A
$300,000
$270,783
$350,000
$418,862
$636,892
$450,000
$309,000
$308,693
$360,500
$436,800
3%
N/A
3%
14%
3%
4%
For 2022, as in prior years, the annual cash incentive plan was structured such that each NEO’s potential cash award was subject
to the achievement of 2022 corporate financial objectives. These corporate financial objectives were established at levels in
excess of the overall industry projections in order to incentivize the Company to outperform the industry.
The 2022 annual cash incentive plan had three components: corporate goals, business unit goals (if applicable), and personal
performance goals, each of which is described in more detail below.
• The corporate goals relate to corporate revenue and corporate non-GAAP operating income. For NEOs who are not
aligned with a particular business unit, 70% of their cash bonus potential is based on corporate goals. For NEOs who
are aligned with a particular business unit, 30% of their cash bonus potential is based on corporate goals. The entirety
of each executive officer’s cash bonus payout, however, was contingent on the Company meeting at least one of the
2022 corporate revenue or corporate non-GAAP operating income goals thresholds of 80% of target and 70% of target,
respectively. Should the Company not have reached the threshold level for both the 2022 corporate revenue and
corporate non-GAAP operating income goals, then no payout under the plan would have been made to the CEO or the
executive officers. The performance ranges for each metric included a payout level for threshold performance at 50%
of target payout and an established target level to achieve the maximum payout by exceeding the corporate performance
objectives for each of the corporate financial metrics. If the corporate goal target is exceeded in either or both corporate
goal categories, then the cash payout increases as follows:
◦ Corporate Revenue: From 100% to 120% of the corporate goal target, additional cash compensation is earned
linearly up to 200% of the target bonus amount.
◦ Non-GAAP Operating Income: From 100% to 130% of corporate goal target, additional cash compensation is
earned linearly up to 200% of the target bonus amount.
For our NEOs the 2022 target annual cash bonus opportunities were set as follows:
Named Executive Officer
Michael P. Plisinski
Mark R. Slicer
James (Cody) Harlow
Robert Fiordalice
Yoon Ah E. Oh
Steven R. Roth
2022 Target Annual Cash Incentive As a
Percentage of Base Salary
100%
70%
60%
50%
50%
65%
•
For those executive officers who were associated with a particular Company business unit, 40% of their cash bonus
potential was allocated to business unit financial performance goals. In 2022, these goals included achievement of
fiscal 2022 business unit revenue and non-GAAP operating income objectives. For an executive officer to earn his or
her potential cash award apportioned to the business unit goals, his or her respective business unit needed to achieve at
least 80% of the business unit revenue target and/or 70% of the business unit non-GAAP operating income target.
Additional cash payout of up to 200% is realized if either of the business unit goals is exceeded, similar to the Corporate
goal parameters above. As stated above, the payout of the business unit goal component of the bonus was contingent
on achieving the threshold for at least one of the Company corporate goals.
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• The final component of the cash incentive compensation plan was the inclusion of personal performance goals that are
specific to the individual executive officers. This portion of the plan accounts for 30% of the cash bonus potential for
all executive officers. The NEO personal performance goals in 2022 included targets related to additional corporate
financial measures, operational measures and activities, quality, product development measures or marketing initiatives
and personnel development, depending on the executive officer involved. As with the business unit goal component
of the bonus, payout of the personal performance goal component of the bonus was contingent on achieving the
threshold for at least one of the Company corporate goals.
The following table reflects the structure of the corporate and business unit goals components of the cash incentive
compensation plan. The personal goal payout component is fixed -- if achieved, the payout is for the target amount.
Corporate/Business
Unit Goal
Revenue
Operating Income (Non-
GAAP)
Weighting
50%
50%
Threshold
(50% Payout)
80% of target
70% of target
Target
(100% Payout)
100% of target
100% of target
Max
(200% Payout)
120% of target
130% of target
The following table reflects the Corporate targets, actual results, and percentage payouts for fiscal 2022 for the CEO and other
executive officers.
Cash Incentive Compensation Plan -
Corporate Target Categories
Corporate Revenue
Non-GAAP Operating Income
2022
Target
$950.8M
$290.1M
2022
Actual
$1,005.2M
$301.7M
2022
Payout Percentage
129%
113%
Of the NEOs in 2022, only Mr. Fiordalice included a Business Unit Goal component as part of his cash incentive compensation
plan.
Personal goal achievement for the CEO and other NEOs at the time of the incentive award ranged from 76% to 100% of
personal goals achieved in 2022.
Actual amounts paid to the CEO and the other NEOs under their respective annual cash incentive plans are reported below in
the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table.
Long-Term Equity Incentive Plan
In 2022, the structure of the long-term equity incentives was set by the Compensation Committee through the consideration of
a number of factors and recommendations from the CEO (except in connection with his own grants).
The following parameters were included in the design of the long-term equity incentive program in 2022:
Performance-Based Stock Units: 50% of each executive officer’s equity grant was comprised of PSUs. The relative TSR plan
design includes the following features:
•
•
50% of the PSU grant will be assessed at each of two performance periods, at two years and at three years from the
grant date (e.g. for awards granted in early 2022, the performance periods would be 2022 through 2024 and 2025).
Performance will be assessed using TSR, which measures growth in stock price, plus any dividends paid, during the
performance period.
• TSR performance will be compared to that of other companies in the Philadelphia Semiconductor Index (SOX).
37
• The performance and standards to earn the PSU equity awards in 2022 are as follows:
TSR Performance Relative to Peers
Below 25th Percentile
25th Percentile
55th Percentile
80th Percentile and above
PSUs Earned as % of Target
0%
50%
100%
200%
• The PSU award payout will be calculated on a straight-line basis between the 25th & 55th and the 55th & 80th
percentile levels referenced above.
• A negative TSR cap has been instituted which limits any PSUs earned to target level if the Company’s TSR is negative
over the performance period and our TSR ranks above the target performance level.
• Earned PSUs are not subject to additional service-based vesting conditions.
Service-Vesting Restricted Stock Units: 50% of each executive officer’s equity grant is comprised of service-based RSUs,
which vest in equal annual increments over three years.
The following table summarizes the components of the long-term equity incentive program.
Long- Term Equity Incentive Compensation Program Provisions
Performance-based / Service-based grant breakout
Service-based grant vesting period
Performance-based grant evaluation period
Performance-based grant metric(s)
Performance-based grant vesting period
Performance threshold for earning grant
Percent of performance-based grant earned at threshold
Measure at which 100% of performance-based grant is earned
Maximum performance-based grant upside
Measure at which maximum upside of performance-based grant is
earned
2022
50%-50%
33.3% annually
over 3 years
50% of grant
at 2 and 3 years
Relative TSR
100% upon earning
25th TSR percentile
50%
55th TSR percentile
200%
80th TSR percentile
In February 2023, the first tranche of the PSUs awarded in 2021 vested. The Company’s TSR performance based on the 20-
day average market value prior to the vesting date was determined and ranked against the participating companies in the SOX.
The Company’s TSR for this assessment period was 40.1%, which placed the Company at the 89th TSR percentile in the SOX.
Therefore, the PSUs earned as a percent of the target number awarded was 200%.
Also in February 2023, the second tranche of the PSUs awarded in 2020 vested. The Company’s TSR performance based on
the 20-day average market value prior to the vesting date was determined and ranked against the participating companies in the
SOX. The Company’s TSR for this assessment period was 104.9%, which placed the Company at the 85th TSR percentile in
the SOX. Therefore, the PSUs earned as a percent of the target number awarded was 200%.
The actual number of PSUs and RSUs granted to the NEOs in 2022 and the related value are reported below in the table titled
Grants Of Plan-Based Awards In 2022.
Personal Benefits And Perquisites
Benefits
All employees of the Company, including its executive officers, are eligible to participate in the following benefit plans and
programs:
• Health and dental insurance;
• Elective vision care program;
38
• Life insurance and accidental death and dismemberment coverage;
•
•
401(k) plan;
Short- and long-term disability insurance with supplemental income continuation;
• Health care and dependent care flexible spending account programs;
• Employee assistance program (EAP);
• Employee stock purchase plan;
• Employee referral bonus program;
•
IP recognition awards; and
• Matching of charitable donations through the Company-sponsored charitable foundation.
The Company, in its discretion, may offer to reimburse the expenses that an employee incurs as a result of the Company
requiring the individual to relocate their primary residence for employment purposes. The Compensation Committee believes
that these benefits are consistent with industry practice and are important in recruiting and retaining qualified employees.
Limited Perquisites
The Company does not offer extensive perquisites to our executive officers. For 2022, the Compensation Committee reviewed
the potential perquisites to be offered by the Company to the executive officers and determined that such perquisites would be
limited to Company-paid tax preparation services and Company-paid membership in one airline executive club. Executive
officers are also eligible to participate in the Company’s Charitable Match Program, under which the Company will match,
dollar for dollar, up to $1,000 in donations to eligible charitable organizations. The Compensation Committee believes that
these benefits are reasonable and consistent with the Company’s overall compensation program and enable the Company to
attract and retain superior employees for key positions.
Retirement Provision For Equity Awards
All employees, including our NEOs, are also eligible to participate in the Company’s post-retirement equity award vesting
program. Under that program:
• An employee is “retirement eligible” if they achieve a combination of age plus years of service with the Company
totaling 70, with a base minimum age of 58 years old and a minimum service requirement of five years.
• Upon retirement by the employee, any equity awards granted by the Company shall vest based on:
◦ The vesting schedule established for service-based equity awards; or
◦ The actual performance results for performance-based equity awards.
Employee Stock Purchase Plan
The Company (as successor to Nanometrics) has maintained an Employee Stock Purchase Plan since 1986. The Company’s
2020 Employee Stock Purchase Plan was approved by stockholders in 2020 and is currently administered by the Compensation
Committee.
Under the terms of our current Employee Stock Purchase Plan, eligible employees may elect to have up to fifteen percent (15%)
of eligible compensation deducted from their base salary and applied to the purchase of shares of Company Common Stock.
The price the employee pays for each share of stock is eighty-five percent (85%) of the fair market value of the Company
Common Stock at the end of the applicable six-month purchase period. The Employee Stock Purchase Plan qualifies as a non-
compensatory plan under Code Section 423.
39
CORPORATE AND GOVERNANCE POLICIES
Employment And Change-In-Control Agreements
Each of the NEOs is entitled to payments upon a qualifying termination of employment following a change-in-control event.
The Compensation Committee believes that providing severance in a change-in-control situation is beneficial to stockholders
so that executive officers may remain objectively neutral when evaluating a transaction that may be beneficial to stockholders
yet could negatively impact the continued employment of the executive officer.
The Company is party to an employment agreement with Mr. Plisinski that provides for certain benefits upon termination or a
change in control of the Company. Upon the appointment of Mr. Plisinski to the position of CEO of Rudolph, he entered into
a new employment agreement with Rudolph, which was assumed by the Company in connection with the 2019 Merger.
We have also entered into the same form of Executive Change in Control Agreement with each of our other current NEOs. Mr.
Roth was party to a management agreement with the Company that provided for certain benefits in the event of termination or
a change in control of the Company. Mr. Roth voluntarily resigned at the end of 2022, however, and therefore no termination
or change in control benefits were paid to him.
See “Potential Payments Upon Termination of Employment or Change in Control” below for a description of these
arrangements and potential payments that the NEOs would have been entitled to receive upon applicable hypothetical
termination scenarios as of December 31, 2022.
Other Elements Of Post-Termination Compensation
The Company does not have a practice of providing retirement benefits, including any supplemental executive officer
retirement plans (SERP), to its executive officers, other than through its 401(k) plan and post-retirement vesting for equity
awards granted by the Company, as described above. The Company retains the discretion to utilize the offer of severance and/or
change-in-control protection as an incentive in its hiring and retention of executive officers.
Non-Solicitation And Non-Competition Policy
The Company maintains a policy of entering into an agreement with each of its new executive officers, which contains both
non-solicitation and non-competition provisions. Each of our NEOs is party to such an agreement. The non-solicitation
provisions apply for one year after termination of the individual’s employment while the non-competition provisions are in
effect during the individual’s employment and generally for one year thereafter, except for Mr. Plisinski, whose non-solicitation
and non-competition provisions are in place during and extend for two years after the end of his employment with the Company.
In all cases, these covenants have been implemented to protect the confidential information, goodwill and other assets of the
Company. For those individuals with employment agreements, should a breach of the non-solicitation or non-competition terms
of their agreements occur, this could give rise to the Company declaring a breach under the agreement and terminating all
severance payments thereunder.
General Termination Benefits
Upon termination of an executive officer’s employment with the Company, the individual is entitled to receive his or her base
salary earned through the termination date. Thereafter, further cash compensation to the executive officer is discontinued,
except to the extent that severance or change-in-control payments are required to be made in accordance with individual or
Company severance protection arrangements. Pursuant to his employment agreement with the Company, Mr. Plisinski is
entitled to elect to continue group health or other group benefits as allowed by COBRA with continued Company co-payments
for agreed post-termination periods. The Company retains the right to offer severance and/or payment of COBRA benefits to
any individual who is terminated from the Company at its discretion. See “Potential Payments Upon Termination of
Employment or Change in Control” below for a further description of these arrangements.
40
Stock Ownership Policy
The Company has established a stock ownership policy for its non-employee directors and executive officers subject to Section
16 reporting requirements, which is designed to align the interests of Company leadership with the interests of stockholders
and give Company leadership a stake in the long-term financial future of the Company.
The stock ownership levels currently in effect under the policy are the following:
Company Role
Non-Employee Directors
CEO
Company Common Stock
Holding Requirement
Effective Date
3x value of the annual
retainer
Within 5 years of initial election
to Board
3x value of CEO’s
base salary
Within 5 years of hire/promotion
Executive Officers Subject to
Section 16 Reporting Requirements
1x value of executive officer’s
base salary
Within 5 years of hire/promotion
In assessing compliance with the foregoing guidelines, the Company takes into consideration only the ownership of Common
Stock in the Company and unexercised stock options that are vested and “in-the-money.” As a result, unearned PSUs, unvested
service-based RSUs and unvested stock options do not qualify as shares for purposes of compliance with the Company’s stock
ownership and retention guidelines.
Participants are expected to achieve their ownership guideline target within five years of becoming subject to the policy.
Existing participants were subject to this policy as of the date of the policy and any new participants will be subject to the
policy on their hire, promotion, election or appointment date, as applicable.
Compliance with the Company’s stock ownership and retention guidelines is reviewed annually by the Compensation
Committee. As of its last review in January 2023, the Compensation Committee determined that all executive officers and
directors who were with the Company and acting in their executive officer/director capacities for periods in excess of one year
were in compliance with the ownership requirements. Should any individual in the future not own the minimum number of
required shares after notice by the Compensation Committee, additional action, including possible removal from the executive
officer role or a determination to not nominate the director for election, would be considered by the Board.
The Compensation Committee has scheduled its review of the Company’s stock ownership and retention guidelines for its
January 2024 meeting and at this annual review will evaluate the appropriateness of the foregoing stock ownership levels for
2024 based in part on the average closing price of a share of the Company’s stock during the 30 consecutive trading days
ending on and including the last day of the most recently completed fiscal year, as well as other considerations such as market
conditions and comparable practices within the industry.
Prohibition On Pledging, Margining or Hedging Of Company Stock
Our insider trading policy prohibits Company directors and employees, including our executive officers, from purchasing
Company securities on margin, borrowing against Company securities held in a margin account, or pledging Company
securities as collateral for a loan. Company directors and employees are also prohibited from engaging in short sales, derivative
transactions, and hedging transactions involving Company securities.
Adjustments Or Recovery Of Prior Compensation
The Company has also adopted an incentive compensation clawback policy that provides for the recovery or adjustment of
performance-based compensation awarded or paid to current or former executive officers during the prior three completed
fiscal years in the event that the financial results on which an award or payment was determined are restated to correct a material
non-compliance with any financial reporting requirements under applicable securities laws.
In addition, if the Company is required to restate its financial results due to material noncompliance with any financial reporting
requirements as a result of misconduct, the Sarbanes-Oxley Act of 2002 requires the CEO and CFO to disgorge:
41
• Any bonus or other incentive-based or equity-based compensation received from the Company during the 12-month
period following the first public issuance of the non-compliant financial reporting document; and
• Any profits realized from the sale of Company stock during that 12-month period.
Compensation Program Risk Assessment
In 2022, the Compensation Committee, with advice and input from Compensia, its independent compensation consultant,
reviewed our compensation program and whether compensation design features may have the potential to incentivize executive
officers to take risks that are reasonably likely to have a material adverse effect on the Company. Among others, the Committee
reviewed the following features of our compensation program: compensation philosophy and pay mix; performance measures
used in incentive plans; goal setting and payout leverage and caps; calculation and verification of performance outcomes for
incentive payments; and mitigating factors built into the program to reduce risk. Based on this review and the input from
Compensia, the Compensation Committee concluded that the Company’s compensation program does not create risks that are
reasonably likely to have a material adverse effect on the Company.
IRS Limits On Deductibility Of Compensation
Prior to the enactment of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) in December 2017, Section 162(m) of the Internal
Revenue Code of 1986, as amended (“IRC”), limited the tax deductibility of annual compensation in excess of $1 million paid
to any public corporation’s CEO and three other highest-paid executive officers (other than the chief financial officer). Certain
qualifying performance-based compensation was not subject to the $1 million deduction limit, however. With the passage of
the Tax Act, only qualifying performance-based compensation paid pursuant to a binding written contract in effect on
November 2, 2017 (and not modified in any material respect on or after November 2, 2017) as set forth under the Tax Act will
be eligible for the deduction exception. The Tax Act also expanded the executive officers covered by Section 162(m) to include
the chief financial officer as well as any person who ever was a covered executive officer for any prior taxable year, beginning
after December 31, 2016. As a result of these changes, starting in 2018, compensation payable by us in excess of $1 million
to any person who was an NEO since fiscal year 2016 is non-deductible, regardless of whether the compensation is
performance-based.
Although the Compensation Committee considers deductibility issues when approving executive officer compensation
elements, the Compensation Committee believes that the other compensation objectives, such as attracting, retaining and
providing appropriate incentives to executive officers, are important and can supersede the goal of maintaining deductibility.
Consequently, the Compensation Committee generally makes compensation decisions without regard to deductibility, as the
Compensation Committee believes it has appropriately structured its compensation programs to provide incentives to our
executive officers to increase Company return and stockholder value.
42
CONCLUSION
In reviewing its compensation programs, the Company has concluded that each element of compensation as well as the total
compensation opportunities for its executive officers, including the NEOs, are reasonable, appropriate and in the interests of
the Company and its stockholders. The Company believes that this compensation program appropriately satisfies the
Company’s goals of establishing a compensation package that attracts and retains a strong, motivated leadership team, aligns
the financial incentives of the executive officers with the interests of the stockholders, and rewards the achievement of specific
annual, long-term, and strategic goals of the Company. The Company believes that the compensation program, which has been
established and is reflected herein has enabled it to recruit and secure a talented and motivated leadership team by which the
Company drives toward the ultimate objective of improving stockholder value.
43
COMPENSATION COMMITTEE REPORT ON
EXECUTIVE OFFICER COMPENSATION
We, the Compensation Committee of the Board, have reviewed and discussed the Compensation Discussion and Analysis
(“CD&A”) within the Executive Officer Compensation section of this proxy statement with the management of the Company.
Based on such review and discussions, we have recommended to the Board that the CD&A be included as part of this proxy
statement.
THE COMPENSATION COMMITTEE
David B. Miller (Chairperson)
Leo Berlinghieri
May Su
Christine A. Tsingos
44
Summary Compensation Table
The following table summarizes the compensation earned by our NEOs in the fiscal years noted.
Name and Principal Position
Michael P. Plisinski
Chief Executive Officer
Mark R. Slicer (4)
Chief Financial Officer
James (Cody) Harlow (5)
Chief Operating Officer
Robert Fiordalice (5)
Senior Vice President & General Manager,
Metrology Business Unit
Yoon Ah E. Oh (6)
Vice President, General Counsel, and
Corporate Secretary
Steven R. Roth (7)
Former Senior Vice President, Finance &
Administration and Chief Financial Officer
Year
2022
2021
2020
2022
Salary ($)
$634,751
$639,353
$592,089
$275,192
Bonus ($)
—
—
—
$150,000
Stock Awards
($)(1)
$3,977,905
$3,487,747
$2,672,777
$1,000,038
Non-Equity
Incentive Plan
Compensation
($)(2)
$697,044
$995,529
$489,408
$240,334
All Other
Compensation
($)(3)
$3,601
$11,681
$9,414
$5,652
Total ($)
$5,313,301
$5,134,310
$3,763,688
$1,671,216
2022
$307,962
2022
$308,276
2022
2021
2022
2021
2020
$359,288
$60,577
$225,606
$433,095
$400,975
—
—
—
$250,000
—
—
—
$397,810
$202,910
$98,384
$1,007,066
$363,773
$202,381
$7,999
$882,429
$568,303
$600,008
$556,934
$755,707
$545,698
$206,287
$54,610
$155,794
$462,843
$215,489
$9,490
$115
$1,143,368
$965,310
$7,458
$11,844
$9,414
$945,792
$1,663,489
$1,171,576
(1) Amounts reflect the grant date fair value for each share-based compensation award granted to the NEOs during the covered year,
calculated in accordance with FASB ASC Topic 718. The assumptions used in determining the grant date fair values of awards are set
forth in Note 2 to our consolidated financial statements, which are included in our Annual Report on Form 10-K filed with the SEC on
February 24, 2023. For 2022, the amount reported for each NEO includes the grant date fair value attributable to the 2022 awards of
(i) time-based RSUs and (ii) PSUs, assuming that the performance conditions were satisfied at target at the time of grant. The grant
date fair value attributable to the 2022 PSU awards, assuming maximum performance achievement, is as follows: Mr. Plisinski,
$4,455,747; Mr. Harlow, $445,594; Mr. Fiordalice, $407,471; Ms. Oh, $636,465; and Mr. Roth, $623,834. Mr. Slicer's stock awards
in 2022 were entirely in the form of time-based RSUs. The actual amounts earned will be determined following the end of the two-
year performance period (February 10, 2022 – February 10, 2024) and the three-year performance period (February 10, 2022 – February
10, 2025).
(2) The amounts for a given year represent the amount earned in respect of that year under the Company’s annual cash performance
incentive plan, as applicable, notwithstanding the year in which it was paid. See “Compensation Discussion and Analysis – Annual
Cash Incentive Compensation” for further information.
(3) Refer to the All Other Compensation table for more detailed information about the 2022 compensation reported in this column.
(4) Mr. Slicer joined the Company as Chief Financial Officer effective May 17, 2022.
(5) Although employed by Onto Innovation prior to 2022, Mr. Harlow and Mr. Fiordalice were not NEOs prior to 2022.
(6) Ms. Oh joined the Company as Vice President & General Counsel effective October 25, 2021.
(7) Mr. Roth served as Principal Financial Officer of the Company from the Merger Date until May 17, 2022.
45
All Other Compensation
Name
Michael P. Plisinski
Mark R. Slicer
James (Cody) Harlow
Robert Fiordalice
Yoon Ah E. Oh
Steven R. Roth
Year
2022
2022
2022
2022
2022
2022
Matching
Contribution
to 401(k) ($)
$2,911
$5,192
$8,530
$7,309
$8,800
$6,768
Insurance
($)(1)
$690
$460
$690
$690
$690
$690
Perquisites and
Other Personal
Benefits ($)(2)
—
—
$89,164
—
—
—
Severance
Compensation ($)
—
—
—
—
—
—
Total
($)
$3,601
$5,652
$98,384
$7,999
$9,490
$7,458
(1)
Insurance is the premium associated with coverage under the group term life insurance and accidental death and dismemberment
insurance plans. Coverage is equal to the lesser of two (2) times salary or $500,000.
(2) The value of aggregate perquisites and benefits for each NEO except Mr. Harlow is less than $10,000, and therefore, perquisites for
these individuals are not required to be disclosed in accordance with SEC rules. Mr. Harlow's perquisites included income tax return
preparation fees of $785, executive airline club fees of $695 and moving/relocation expense reimbursements of $87,684.
Grants Of Plan-Based Awards In 2022
The following table sets forth information with respect to non-equity and equity incentive plan awards that were
granted during 2022 to the NEOs. No stock option awards were granted to any NEO in 2022.
Name
$32,445
$55,125
Mark R. Slicer
Michael P. Plisinski
Grant Date Threshold
$111,456
2/10/2022
2/10/2022
2/10/2022
5/17/2022
5/17/2022
James (Cody) Harlow 2/10/2022
2/10/2022
2/10/2022
2/10/2022
2/10/2022
2/10/2022
2/10/2022
2/10/2022
2/10/2022
2/10/2022
2/10/2022
2/10/2022
Robert Fiordalice
Yoon Ah E. Oh
Steven R. Roth
$11,678
$31,544
$47,646
Estimated Future Payouts Under
Non-Equity Incentive Plan
Awards ($) (1)
Target
Maximum
$636,891 $1,082,715
Estimated Future Payouts Under
Equity Incentive Plan Awards (#)(2)
Target
Threshold
Maximum
$315,000
$535,500
$185,400
$315,180
$155,700
$264,690
$180,250
$306,425
$272,260
$462,843
9,525
19,049
38,098
953
1,905
3,810
871
1,742
3,484
1,361
2,721
5,442
1,334
2,667
5,334
All Other
Stock
Awards:
Grant Date
Number of
Shares of
Stock or
Units (#) (3)
Fair Value
of Stock
and Option
Awards ($)
19,049
$2,227,874
$1,750,032
12,821
$1,000,038
1,905
1,742
2,722
2,667
$222,797
$175,012
$203,736
$160,038
$318,232
$250,070
$311,917
$245,017
(1) The amounts reported in these columns represent the annual cash incentive opportunities under the Company’s cash incentive
compensation plan for each of our NEOs for the 2022 performance period. The metrics against which performance was measured under
this plan, as well as other details regarding the plan, are discussed above in the Compensation Discussion and Analysis under “Annual
Cash Incentive Compensation.” The amounts actually earned by our NEOs under the plan are reflected in the “Non-Equity Incentive
Plan Compensation” column of the Summary Compensation Table above.
(2) The amounts reported in these columns represent the award opportunities under the Company’s PSU program. The metrics against
which performance will be measured under this program, as well as other details regarding the plan, are discussed above in the
Compensation Discussion and Analysis under the heading “Long-Term Equity Incentive Plan.” The performance periods for these
awards are two years and three years with the final determinations of the award ultimately earned being made in 2024 and 2025.
46
(3) The amounts reported in this column represent the awards of RSUs which are subject to service-based vesting conditions, as discussed
above in the Compensation Discussion and Analysis under the heading “Long-Term Equity Incentive Plan.” These RSUs vest in 33.3%
increments on each of the first three anniversaries of the grant date.
Outstanding Equity Awards At 2022 Fiscal Year-End
The following table sets forth information with respect to outstanding equity awards held by the NEOs as of December 31,
2022. No stock option awards were outstanding as of December 31, 2022.
Stock Awards
Name
Michael P. Plisinski
Mark R. Slicer
James (Cody)
Harlow
Robert Fiordalice
Yoon Ah E. Oh
Steven R. Roth(5)
Grant
Date (1)
2/7/2020
2/8/2021
2/10/2022
5/17/2022
10/1/2021
2/10/2022
2/7/2020
2/8/2021
2/10/2022
10/25/2021
2/10/2022
2/7/2020
2/8/2021
2/10/2022
Number of Shares
or Units of Stock
That Have Not
Vested (#)(2)
10,403
16,556
19,049
12,821
Market Value of
Shares or Units of
Stock That Have
Not Vested ($)(3)
$708,340
$1,127,298
$1,297,046
$872,982
2,738
1,905
563
938
1,742
5,362
2,722
2,124
3,587
2,667
$186,430
$129,711
$38,335
$63,868
$118,613
$365,099
$185,341
$144,623
$244,239
$181,596
Equity Incentive Plan
Awards: Number of Unearned
Shares, Units or Other
Rights That Have Not
Vested (#)(4)
15,604
24,834
19,049
Equity Incentive Plan
Awards: Market or Payout
Value of Unearned
Shares, Units or Other
Rights That Have Not
Vested ($) (3)
$1,062,476
$1,690,947
$1,297,046
1,905
845
1,407
1,742
2,721
3,186
5,381
2,667
$129,711
$57,536
$95,803
$118,613
$185,273
$216,935
$366,392
$181,596
(1) For a better understanding of this table, we have included an additional column showing the grant date of each stock award.
(2) Amount includes service-based RSU awards vesting 1/3rd per year on the anniversary of the grant date.
(3) Based on the Company’s common stock closing price of $68.09 per share on December 31, 2022.
(4) PSU awards are reported in this table at number of target shares. The actual number of shares earned will be determined based on
performance achievement measured over two (2)- and three (3)-year performance periods, and any earned shares will vest on the
second and third anniversaries, respectively, of the grant date.
(5) Mr. Roth participates in the Company’s post-retirement equity award vesting program.
Stock Vested In 2022
The following table sets forth information with respect to the value realized by the NEOs upon vesting of PSUs and RSUs
during 2022, and such values reflect the total pre-tax value realized by each NEO. There were no stock option exercises by
any of the NEOs during 2022.
Name
Michael P. Plisinski
Mark R. Slicer
James (Cody) Harlow
Robert Fiordalice
Yoon Ah E. Oh
Steven R. Roth
Stock Awards
Number of
Shares Acquired
on Vesting (#)
Value
Realized on
Vesting ($)(1)
56,453
—
1,369
4,117
2,681
12,616
$5,124,158
—
$87,684
$359,528
$180,431
$1,144,668
(1) The aggregate dollar amount realized is based on the fair market value of the shares upon vesting.
47
Pay Versus Performance
We are required by SEC rules to disclose the following information regarding compensation paid to our NEOs. The amounts
set forth below under the headings “Compensation Actually Paid to CEO” and “Average Compensation Actually Paid for
NEOs” have been calculated in a manner consistent with Item 402(v) of Regulation S-K. Footnotes (4), (5) and (6) below set
forth the adjustments from the Total Compensation for each NEO reported in the Summary Compensation Table above.
The following table sets forth additional compensation information of our Chief Executive Officer (CEO) and our non-CEO
NEOs along with total shareholder return, net income and total revenue performance results for fiscal years 2020, 2021 and
2022.
Summary
Compensation
Table for CEO
$5,313,301
$5,134,310
$3,763,688
Compensation
Actually Paid to
CEO(2)(3)
$2,086,925
$13,985,674
$4,453,187
Year (1)
2022
2021
2020
Average
Summary
Compensation
Table Total for
NEOs
$1,129,974
$1,069,940
$934,489
Average
Compensation
Actually Paid to
NEOs(2)(3)
$711,974
$2,149,621
$1,463,581
Value of Initial Fixed $100
Investment Based on:
Total Shareholder
Return(7)
Peer Group Total
Shareholder
Return(7)
$86.27
$176.97
$30.11
$42.98
$125.09
$56.09
(1) The CEO and NEOs included in the above compensation columns reflect the following:
Net Income
Total Revenue
$223,334
$142,349
$31,025
$1,005,183
$788,899
$556,496
CEO
Year
2022 Michael P. Plisinski
2021 Michael P. Plisinski
2020 Michael P. Plisinski
Mark R. Slicer, James (Cody) Harlow, Robert Fiordalice, Yoon Ah E. Oh, Steven R. Roth
Steven R. Roth, Rollin Kocher, Kevin Heidrich, Robert A. Koch, Yoon Ah E. Oh
Steven R. Roth, Rollin Kocher, Kevin Heidrich, Robert A. Koch
NEOs
(2) Fair value or change in fair value, as applicable, of equity awards in the “Compensation Actually Paid” columns was
determined by reference to (1) for RSU awards, closing price on applicable year-end dates or, in the case of vesting dates,
the actual vesting price, (2) for TSR-based PSU awards, the fair value calculated by a Monte Carlo simulation model as
of the applicable year-end date(s) or, in the case of vesting date, the actual vesting price and probability of achievement.
(3) For the portion of “Compensation Actually Paid” that is based on year-end stock prices, the following prices were used:
for 2022: $68.09 (32.7% reduction from prior year), for 2021: $101.23 (110.8% increase from prior year), and for 2020:
$48.02 (1.0% increase from prior year).
(4) 2022 “Compensation Actually Paid” to the CEO and the average “Compensation Actually Paid” to the NEOs reflect the
following adjustments from Total Compensation reported in the Summary Compensation Table:
Total Reported in 2022 Summary Compensation Table (SCT)
Less, Value of Stock & Option Awards Reported in SCT
Less, Change in Pension Value and Non-Qualified Deferred Compensation Earnings in SCT
Plus, Pension Service Cost and impact of Pension Plan Amendments
Plus, Year-End value of Awards Granted in Fiscal Year that are Unvested and Outstanding
Plus, Change in Fair Value of Prior Year awards that are Outstanding and Unvested
Plus, FMV of Awards Granted this Year and that Vested this Year
Plus, Change in Fair Value (from Prior Year-End) of Prior Year awards that Vested this year
Less, Prior Year Fair Value of Prior Year awards that failed to vest this year
Total Adjustments
“Compensation Actually Paid” for Fiscal Year 2022
CEO
Average of NEOs
$5,313,301
($3,977,905)
—
—
$2,764,863
($2,584,704)
—
$571,370
—
($3,226,376)
$2,086,925
$1,129,974
($577,372)
—
—
$436,885
($143,057)
—
($134,457)
—
($418,000)
$711,974
48
(5) 2021 “Compensation Actually Paid” to the CEO and the average “Compensation Actually Paid” to the NEOs reflect the
following adjustments from Total Compensation reported in the Summary Compensation Table:
Total Reported in 2021 Summary Compensation Table (SCT)
Less, Value of Stock & Option Awards Reported in SCT
Less, Change in Pension Value and Non-Qualified Deferred Compensation Earnings in SCT
Plus, Pension Service Cost and impact of Pension Plan Amendments
Plus, Year-End value of Awards Granted in Fiscal Year that are Unvested and Outstanding
Plus, Change in Fair Value of Prior Year awards that are Outstanding and Unvested
Plus, FMV of Awards Granted this Year and that Vested this Year
Plus, Change in Fair Value (from Prior Year-End) of Prior Year awards that Vested this year
Less, Prior Year Fair Value of Prior Year awards that failed to vest this year
Total Adjustments
“Compensation Actually Paid” for Fiscal Year 2021
CEO
Average of NEOs
$5,134,310
($3,487,747)
—
—
$6,761,134
$5,241,435
—
$336,542
—
$8,851,364
$13,985,674
$1,069,940
($533,902)
—
—
$879,706
$665,069
—
$68,807
—
$1,079,680
$2,149,621
(6) 2021 “Compensation Actually Paid” to the CEO and the average “Compensation Actually Paid” to the NEOs reflect the
following adjustments from Total Compensation reported in the Summary Compensation Table:
Total Reported in 2020 Summary Compensation Table (SCT)
Less, Value of Stock & Option Awards Reported in SCT
Less, Change in Pension Value and Non-Qualified Deferred Compensation Earnings in SCT
Plus, Pension Service Cost and impact of Pension Plan Amendments
Plus, Year-End value of Awards Granted in Fiscal Year that are Unvested and Outstanding
Plus, Change in Fair Value of Prior Year awards that are Outstanding and Unvested
Plus, FMV of Awards Granted this Year and that Vested this Year
Plus, Change in Fair Value (from Prior Year-End) of Prior Year awards that Vested this year
Less, Prior Year Fair Value of Prior Year awards that failed to vest this year
Total Adjustments
“Compensation Actually Paid” for Fiscal Year 2020
CEO
Average of NEOs
$3,763,688
($2,672,777)
—
—
$2,941,125
$318,972
—
$102,179
—
$689,499
$4,453,187
$934,489
($435,715)
—
—
$479,458
$487,384
—
($2,036)
—
$529,092
$1,463,581
(7) Company and Peer Group TSR reflects the Company’s peer group (PHLX Semiconductor Index) as reflected in our
Annual Report on the Form 10-K pursuant to Item 201(e) of Regulation S-K for the fiscal year ended December 31, 2022.
Each year reflects what the cumulative value of $100 would be, including the reinvestment of dividends, if such amount
were invested on December 31, 2019.
Pay versus Performance Descriptive Disclosure
We chose Total Revenue as our Company Selected Measure for evaluating Pay versus Performance because it is a key metric,
along with operating income, in determining the annual cash incentive compensation paid to the CEO and other NEOs. It also
highlights the rapid growth of the Company over the last three years.
Our TSR lagged the TSR for our peer group in 2020 but increased significantly in 2021 both in terms of real dollars and in
relation to our peer group TSR, which our TSR exceeded by approximately 40%. In 2022, the dollar value of our TSR dropped
but was nonetheless over 100% greater than our peer group TSR. There is a positive relationship between TSR and
“Compensation Actually Paid” to our CEO and the other NEOs between 2020 and 2021, when both metrics increased, and
between 2021 and 2022, when both metrics dropped, despite our TSR equaling approximately twice our peer group TSR.
There is a positive relationship between Net Income and “Compensation Actually Paid” to our CEO and the other NEOs
between 2020 and 2021, when both metrics increased. There is an inverse relationship between Net Income and
“Compensation Actually Paid” to our CEO and the other NEOs between 2021 and 2020 when Net Income increased, but
“Compensation Actually Paid” decreased. Similarly, from 2020 to 2021 there is a positive relationship between Total Revenue
and “Compensation Actually Paid”, when both metrics increased, and an inverse relationship between 2021 and 2020 when
Total Revenue increased, but “Compensation Actually Paid” to our CEO and the other NEOs decreased.
49
Pay versus Performance Tabular List
The table below lists our most important performance measures used to link “Compensation Actually Paid” for our NEOs to
company performance, over the fiscal year ending December 31, 2022. Both Total Revenue and Operating Income factor into
the annual cash incentive compensation paid to NEOs and Company TSR over two- and three-year measurement periods
determine the ultimate value of PSUs awarded to NEOs. For a further discussion of how each of these financial measures
relates to NEO compensation, see our “Compensation Discussion and Analysis” beginning on page 26 of this Proxy Statement.
The performance measures included in this table are not ranked by relative importance.
Total Revenue
Operating Income
TSR
Most Important Financial Measures
Pension And Nonqualified Deferred Compensation
The Company does not have a defined benefit pension program, nor does it offer non-qualified deferred compensation.
Potential Payments Upon Termination Of Employment Or Change In Control
This section (including the following tables) summarizes each NEO’s estimated payments and other benefits that would be
received by the NEO or the NEO’s estate if his or her employment had terminated on December 31, 2022, under the hypothetical
circumstances set forth below. As Mr. Roth voluntarily resigned from the Company in December 2022, he did not receive any
termination payments (other than post-retirement equity award vesting) from the Company and we do not include discussion
of potential payments upon his termination or a change in control below.
Certain of our NEOs are entitled to certain termination payments upon his or her death or Disability, his or her involuntary
termination without Cause, or his or her voluntary termination with Good Reason as described below. Although the definitions
of each of these terms is specific to the NEO’s employment agreement or change-in-control agreement with the Company, the
terms generally have the following meanings:
•
•
“Disability” generally means that the executive officer, due to physical or mental impairment, is unable to perform his
or her duties to the Company for a specified period of time.
“Cause” generally means that the executive officer engaged in a crime, willful gross misconduct or other serious act
involving moral turpitude; materially breached an agreement between him or her and the Company; or otherwise
materially breached his or her obligations to the Company.
• A voluntary termination for “Good Reason” generally means, depending on the particular executive officer’s
agreement, that the executive officer’s duties, responsibilities or status with the Company or its successor are
materially reduced; his or her primary place of work is moved to a location outside a predetermined radius; in particular
cases, certain reduction in compensation; or the Company materially breaches the terms of his or her agreement with
the Company or any successor fails to assume the executive officer’s change-in-control agreement.
In addition to the payments and other benefits described below, under our 2020 Stock Plan, in the event of a change in control,
unless the Board or Compensation Committee determine that some other treatment is warranted in their discretion, if the
acquiror elects not to assume or substitute an equity award, then upon the effective date of the change in control all RSUs and
PSUs held by any employees of the Company (including NEOs) become fully vested and the performance goals or other vesting
conditions for PSUs shall be deemed achieved at 100% of the target levels.
50
NEO Employment and Change in Control Agreements
Mr. Plisinski’s employment agreement provides for the following:
Mr. Plisinski
•
•
In the event of any termination of Mr. Plisinski’s employment, he is entitled to payment of all base salary due and
owing through the termination date and an amount equal to all earned but unused vacation through the termination
date.
In the event Mr. Plisinski’s employment is terminated due to his death, his estate would be entitled to:
Payment of his then-current base salary as if his employment had continued for three months following his death;
Continued co-payment for a period of six months following his death of amounts due under COBRA for
continuation of the Company’s group health and other group benefits for his covered dependents, if the covered
dependents so elect;
Payment of his annual incentive cash bonus based on actual performance achievement, prorated for the time
employed preceding his death, to be paid out with the Company’s annual incentive plan payouts; and
Immediate vesting of stock options and SARs, and immediate vesting of RSU awards granted after his
appointment as CEO which by their terms would vest within 12 months after death and, if a performance award,
based on actual performance achievement for such performance period completed within 12 months after death.
•
In the event Mr. Plisinski’s employment is terminated due to his Disability, he would be entitled to:
Payment of his then-current base salary through the end of the month of such termination;
Continued co-payment for a maximum period of six months following his Disability of amounts due under
COBRA for continuation of the Company’s group health and other group benefits, if he or his covered
dependents, as appropriate, so elects;
Payment of his annual incentive cash bonus based on actual performance achievement, prorated for the time
employed preceding his termination, to be paid out with the Company’s annual incentive plan payouts; and
Immediate vesting of stock options and SARs, and immediate vesting of RSU awards granted after his
appointment as CEO which by their terms would vest within 12 months after termination for disability and, if a
performance award, based on actual performance achievement for such performance period completed within
12 months after termination.
•
In the event Mr. Plisinski’s employment is terminated by the Company without Cause or Mr. Plisinski terminates his
employment for Good Reason, he would be entitled to:
Payment of two times his then-current base salary, paid over 24 months (i.e., salary continuation for two years);
Continued co-payment for a period of up to 18 months of amounts due under COBRA for continuation of the
Company’s group health and other group benefits, if he so elects; and
Vesting of any equity incentive awards outstanding as of the termination date that, by their terms:
(1) represent either unvested shares which were earned based on a completed performance period under a
performance-based award granted on or after the employment agreement effective date and which as of the
termination date are then subject to time-based vesting only, or shares under such an equity incentive award
granted on or after the employment agreement effective date which will be earned under a performance-based
award based on actual achievement under a performance period which has been completed on or prior to the
termination date but as to which performance period the actual number of shares earned against the award
performance goals has not yet been determined by the Company; and
(2) would have become vested based solely on the passage of time within the 12-month period immediately
following the termination date had Mr. Plisinski continued in employment with the Company.
51
•
If, within 18 months following the occurrence of a Change in Control, Mr. Plisinski’s employment is terminated for
any reason other than for Cause or Mr. Plisinski terminates his employment for Good Reason, he would be entitled
to:
Payment of two times the sum of his then-current base salary and target annual cash bonus, paid over 24 months;
Continued co-payment for a period of up to 18 months of amounts due under COBRA for continuation of the
Company’s group health and other group benefits, if he so elects; and
Immediate vesting of all unvested stock options, SARs and all unvested and outstanding performance-based (at
target) and service-based RSUs and other equity awards.
To the extent that Change in Control termination payments made to Mr. Plisinski under his agreement are subject
to the excise tax imposed by Section 4999 of the IRC, Mr. Plisinski would either have to pay the excise tax or
have his benefits reduced so that no portion of his termination payments were subject to the excise tax.
In order to receive these termination or Change in Control termination payments, Mr. Plisinski would be required
to sign a general release of all known and unknown claims that he may have against the Company.
As part of his employment agreement, Mr. Plisinski is subject to non-solicitation and non-competition
restrictions that limit his ability to compete with the Company during the term of the agreement and for a period
of two years following his resignation or termination for any reason.
•
For Mr. Plisinski, a “Change in Control” would generally be considered to have occurred if:
a merger or consolidation of the Company or an acquisition by the Company involving the issuance of its securities
as consideration for the acquired business results in the stockholders of the Company following such transactions
having less than 50% of combined voting power of the surviving entity;
any person or persons becomes the beneficial owner of 30% or more of our outstanding shares;
all or substantially all assets of the Company are disposed of pursuant to a plan of liquidation of the Company;
all or substantially all of our assets are sold; or
during any 12 month consecutive period the individuals who presently make up our Board or who become members
of our Board with the approval of at least a majority of our existing Board cease to constitute at least a majority of the
Board; provided any transaction or event described above will not constitute a change in control under the agreement
unless it qualifies as a “change in control” under Section 409A of the IRC.
The following table reflects the potential payments to Mr. Plisinski in the event of his termination or his termination following
a Change in Control as of December 31, 2022:
Potential Payments To Mr. Plisinski Upon Termination Or Change in Control
Value of
Accelerated
Unvested
Equity
$7,183,155
Management
Incentive
Bonus
—
Cash Severance
Base Salary
Benefits
Continuation
$48,538
Termination Circumstance as of 12/31/2022
By the Company without Cause
Executive officer resignation for Good Reason
Death
Disability
Within 18 months following Change in Control:
By the Company without Cause
By the executive officer with Good Reason
—
$7,183,155
$48,538
$697,044
(1x bonus)
$697,044
(1x bonus)
$1,394,088
(2x bonus)
$1,394,088
(2x bonus)
$7,183,155
$16,179
$7,183,155
$16,179
$7,183,155
$48,538
$7,183,155
$48,538
$1,273,782
(2x salary)
$1,273,782
(2x salary)
$159,223
(3 mos. salary)
—
$1,273,782
(2x salary)
$1,273,782
(2x salary)
52
Messrs. Slicer, Harlow, and Fiordalice and Ms. Oh
The Executive Change in Control Agreements for Messrs. Slicer, Harlow, and Fiordalice and Ms. Oh provide for the following:
• Upon cessation of the executive’s employment at the Company for any reason under the Executive Change in Control
Agreement, the executive (or his or her estate) shall be entitled to payment of:
•
•
All base salary earned through the executive's termination date but not yet paid;
Any unreimbursed business expenses that are eligible for reimbursement under the Company’s policies;
Any accrued but unused vacation pay or paid time off;
Any amount arising from the executive’s participation in, or benefits, under any employee benefits plans,
programs or arrangements; and
Any amounts earned but not yet paid under any applicable bonus or incentive plan.
The executive (or his or her estate) shall also be entitled to any applicable indemnification rights.
If, within one year following the occurrence of a Change in Control, or within 60 days prior to the occurrence of a
Change in Control, the executive’s employment is terminated for any reason other than for Cause or the executive
resigns for Good Reason, the executive shall be entitled to the following benefits in exchange for an unrevoked general
release:
Payment of his or her then-current base salary for a period of 12 months;
Accelerated vesting of all unvested stock options, outstanding RSUs and other performance awards;
Any performance award that was assumed, substituted or continued with the Change in Control that had not
already satisfied its performance conditions shall be treated as of the termination date as vested at the target level
and fully vested as to any service conditions;
Payment of 100% of the executive’s target annual bonus for the fiscal year in which the termination date occurs;
and
The executive may elect to maintain the executive’s and his or her dependent’s health care benefit coverage to
the same extent provided for by and with the same Company/Executive officer payment contribution percentages
under Company’s group plans at the time of termination. Such coverage shall extend for a term of one year from
the termination date unless she becomes covered as an insured under another employer’s or spousal health care
plan.
• Under the Executive Change in Control Agreements, a “Change in Control” would generally be considered to have
occurred if:
any person or entity, or multiple persons or entities acting as a group, becomes the beneficial owner of more than
50% of our outstanding voting shares;
Continuing Directors no longer constitute a majority of the Board, where “Continuing Director” means a Board
member who was a Board member when the Executive Change in Control Agreement was executed or who was
nominated, elected or approved by at least a majority of Board members were, at that time, Continuing Directors,
but excluding any individual whose initial assumption to office occurred as a result of any actual or threatened
election contest or proxy solicitation, unless such person’s treatment as a Continuing Director is subsequently
approved by a majority of Continuing Directors; or
there is 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 entitled to vote
immediately prior to such Business Combination still beneficially own more than 50% of the outstanding
securities of the surviving entity in substantially the same proportions as their ownership immediately prior to
such Business Combination; (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 Business Combination constitute at least
50% of the members of the board of directors or other governing body of the acquiring entity; and (C) no person
53
beneficially owns, directly or indirectly, securities that represent immediately after such merger or consolidation
more than 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).
The following table reflects the potential payments to Messrs. Slicer, Harlow, and Fiordalice and Ms. Oh in the event any of
them is terminated following a change in control as of December 31, 2022:
Potential Payments Within 12 Months Following Change in Control
Termination Circumstance as of 12/31/2022
By the Company without cause
Mark R. Slicer
James (Cody) Harlow
Robert Fiordalice
Yoon Ah E. Oh
By the executive officer with good reason
Mark R. Slicer
James (Cody) Harlow
Robert Fiordalice
Yoon Ah E. Oh
Cash Severance
(Base Salary)
Management
Incentive Bonus
Value of Accelerated
Unvested Equity
Benefits
Continuation
$450,000
$309,000
$311,400
$360,500
$450,000
$309,000
$311,400
$360,500
$315,000
$185,400
$155,700
$180,250
$315,000
$185,400
$155,700
$180,250
$872,982
$445,853
$492,767
$735,712
$872,982
$445,853
$492,767
$735,712
$32,358
$23,611
$32,358
$8,490
$32,358
$23,611
$32,358
$8,490
The following table reflects the potential payments to Messrs. Slicer, Harlow, and Fiordalice and Ms. Oh in the event any of
them is terminated following reasons other than change in control as of December 31, 2022:
Potential Payments Following Termination Circumstance as of 12/31/2022
Management Incentive Bonus
Name
Mark R. Slicer
James (Cody) Harlow
Robert Fiordalice
Yoon Ah E. Oh
Involuntary Without
Cause Termination
$240,334
$202,910
$202,381
$206,287
Executive Resignation
for Good Reason
$240,334
$202,910
$202,381
$206,287
Death
$240,334
$202,910
$202,381
$206,287
Disability
$240,334
$202,910
$202,381
$206,287
Each of Messrs. Slicer, Harlow, and Fiordalice and Ms. Oh has also entered into a separate agreement upon employment with
the Company that subjects him or her to non-competition and non-solicitation restrictions, which limit his or her ability to
compete with the Company during his or her employment and for a period of one year following his or her resignation or
termination for any reason.
Retention Bonus Agreements
No NEO has entered into a Retention Bonus Agreement with the Company.
CEO Pay Ratio
In accordance with the Dodd-Frank Act and applicable SEC rules, we are providing the following information about the
relationship of our CEO’s compensation to the compensation of all our employees. For 2022:
• the annual total compensation of the median employee was $131,080;
• the annual total compensation of our CEO, Michael P. Plisinski, as reported in the Summary Compensation Table included
in this proxy statement, was $5,313,301; and
• the ratio of the annual total compensation of our CEO to the median employee’s annual total compensation was 41 to 1.
This pay ratio is a reasonable estimate calculated in good faith, in a manner consistent with Item 402(u) of Regulation S-K,
based on our payroll and employment records and the methodology described below. The SEC rules for identifying the “median
employee” and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety
of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation
54
practices. As such, the pay ratios reported by other companies may not be comparable to the pay ratio set forth above, as other
companies may have different employment and compensation practices and may utilize different methodologies, exclusions,
estimates and assumptions in calculating their own pay ratios.
To identify the employee with the median of the annual total compensation of all our employees that is used for the year ended
2022, we used the following methodology and made the following material assumptions, adjustments and estimates:
•
•
We determined that as of December 31, 2022, our employee population consisted of approximately 1,600
individuals located in the U.S. and in countries in Europe and Asia. This population consisted of our full-time,
part-time and temporary employees. We excluded a limited number of temporary agency employees and
independent contractors, who are employees of, and whose compensation is determined by third parties unaffiliated
with the Company and as such are not considered our employees for the purposes of the pay ratio calculation.
To identify the “median employee” from our employee population, we used a consistently applied compensation
measure which included annual salary as reflected in our payroll records, as well as stock awards and non-equity
incentive plan compensation earned in 2022, which was our measurement period. We applied a foreign currency
to U.S. dollar exchange rate to the compensation paid in foreign currency and we did not make any cost-of-living
adjustments. We selected this compensation measure because it is readily available in our existing payroll records
and because it is a reasonable proxy for total compensation for purposes of determining the “median employee.”
Once we identified our “median employee,” we calculated the elements of such employee’s compensation for 2022 in
accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K. The median employee’s annual total compensation
of $131,080 may include as applicable salary, stock awards and non-equity incentive plan compensation, as well as Company
matching contributions to the 401(k) employee savings plan, and the cost of Company paid premiums associated with coverage
under the group term life insurance and accidental death and dismemberment insurance plan.
55
PROPOSAL 3
ADVISORY VOTE ON THE FREQUENCY OF ADVISORY VOTES ON
NAMED EXECUTIVE OFFICER COMPENSATION
Pursuant to Rule 14a-21(b) of the Exchange Act, we are required to submit a non-binding, advisory vote to
stockholders at least once every six years to determine whether future advisory votes on the compensation paid to our
NEOs should be held every one year, every two years, or every three years. At the 2017 Annual Meeting of
Stockholders of Nanometrics, our stockholders indicated their preference that the Company solicit an advisory vote
on NEO compensation every one year. In accordance with the results of that vote, our Board of Directors implemented
a policy of taking an advisory vote on NEO compensation each year.
We are once again asking stockholders to advise us as to how frequently they wish to cast an advisory vote on the
compensation of our NEOs. After careful consideration, our Board of Directors has determined that an advisory vote
on the compensation of our NEOs should continue to be held every one year. Although our executive compensation
program is designed to promote a long-term correlation between pay and performance, the Board of Directors
recognizes that executive compensation disclosures are made annually. Holding an annual advisory vote on executive
compensation provides us with more direct and immediate feedback on our compensation decisions. We believe that
an annual advisory vote on executive compensation is therefore consistent with our philosophy on good corporate
governance practices and our executive compensation philosophy, policies, and practices.
In arriving at our recommendation on the frequency vote, we reviewed the results of our previous shareholder vote in
2017, when an annual vote was approved by a majority of the stockholders. As required by the Dodd-Frank Act, this
is an advisory vote, which means that this proposal is not binding on us. Regardless, our Board of Directors values the
opinions expressed by stockholders and will take into account the outcome of this advisory vote when considering the
frequency of future advisory votes on the compensation of our NEOs.
Vote Required
For the proposal to approve, on any advisory basis, the frequency of votes on named executive officer compensation,
stockholders will select from four options: to hold the advisory vote on named executive officer compensation every
“1 Year,” “2 Years,” or “3 Years,” or to abstain from voting. The frequency (”1 Year,” “2 Years,” or “3 Years”)
receiving the greatest number of votes will be considered the frequency recommended by stockholders to the Board.
The Board recommends that stockholders vote that future advisory votes on
named executive officer compensation be held every “1 Year.”
56
PROPOSAL 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Although ratification by stockholders is not required by law, the Board is submitting the Audit Committee’s selection
of Ernst & Young LLP (“EY”) as the Company’s independent registered public accounting firm for fiscal year 2023
for ratification as a matter of good corporate governance and recommends that the stockholders vote for ratification
of such appointment. In the event of a negative vote on such ratification, the Board will reconsider its selection. Even
if the selection is ratified, the Audit Committee may appoint a new independent registered public accounting firm at
any time during the year if the Audit Committee believes that such a change would be in the best interests of the
Company and its stockholders. EY has indicated that representatives of EY, the independent registered public
accounting firm presented herein, will be in attendance at the Annual Meeting. Such representatives will have the
opportunity to make a statement, if they desire to do so, and to respond to appropriate questions.
Independent Registered Public Accounting Firm Selection Process
EY served as the independent registered public accounting firm for Rudolph (the accounting acquirer in the merger
with Nanometrics) from 2008 through the Merger Date and has been the Company’s independent registered public
accounting firm since the Merger Date, serving in this role during fiscal 2022. During this time, the firm has
demonstrated:
• A high degree of independence and professionalism in their audit engagement with the Company;
• A solid record of partner and professional staff continuity;
• A knowledge of current and emerging accounting and auditing issues affecting the Company;
• A deep and ongoing understanding of the Company’s business model and industry; and
• A readiness to assist the Company and its audit committee in keeping up to date with the latest accounting and
auditing pronouncements and their application to the Company’s business.
In making its selection of an independent registered public accounting firm, the Audit Committee assesses, among
other factors:
• The performance of the independent registered public accounting firm in the prior year;
• The anticipated needs of the Company and ability of the accounting firm to address them in the coming year;
• The proposed fees for the coming year; and
• The potential impact of changing auditors for the coming year.
Ultimately, the selection of the independent registered public accounting firm is made with the best interest of the
Company and its stockholders in mind.
Factors Used To Assess Independent Registered Public Accounting Firm Quality
Members of the Audit Committee have experience in dealing with audits of other public companies as well as
experience with other accounting firms. After the Merger Date, the Audit Committee’s basis for the selection of EY
as the Company’s independent registered public accounting firm included, among other considerations, familiarity
with Rudolph’s accounting practices as the accounting acquirer in the 2019 Merger, EY’s breadth of services and
international footprint as well as expense considerations. On an ongoing basis, EY has been responsive, reliable and
professional in their dealings with the Audit Committee and has appropriately assisted the Audit Committee in its
oversight of the Company’s financial processes and financial statements. In addition, EY makes available to the
57
Company specialists within EY to assist in the audit when consultation on specific and unique issues is warranted.
These processes appear to be effective in assisting EY with their audit engagement.
As a part of the Audit Committee’s review of EY’s qualifications, EY provides the Company with the firm-wide
comments from the Public Company Accounting Oversight Board (“PCAOB”) regarding PCAOB’s examinations of
EY for the prior year. EY also updates the Company with the quality improvements that the firm has made as a result
of the PCAOB comments as well as other changes to their quality and risk assessment processes.
Audit Committee’s Involvement In The Lead Partner Selection
In accordance with SEC and PCAOB independence guidelines, EY employs a regular schedule of rotation of both the
lead engagement partner (“Lead Partner”) and the concurring partner. Such a regularly scheduled rotation provides
for sufficient overlap of the new Lead Partner with the outgoing Lead Partner. This process allows the members of
the Audit Committee and the Company management to become familiar with the new Lead Partner and new staff and
to introduce them to the Company’s business. Prior to the new Lead Partner’s full engagement, the Audit Committee
and Company management meet with EY to review and offer feedback on the industry experience, financial acumen
and anticipated fit of the new Lead Partner with the Company.
Audit Committee Pre-Approval Of Audit And Permissible Non-Audit Services Of Independent Registered
Public Accounting Firm
Pursuant to our Audit Committee charter, our Audit Committee must pre-approve all audit and permissible non-audit
services provided by the Company’s independent registered public accounting firm. These services may include audit
services, audit-related services, tax and other services. Pre-approval is generally provided for up to one year, and any
pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget.
The independent registered public accounting firm and management are required to periodically report to the Audit
Committee regarding the extent of services provided by the independent registered public accounting firm in
accordance with this pre-approval and the fees for the services performed to date. The Audit Committee may also pre-
approve particular services on a case-by-case basis. During fiscal 2022, all services provided by EY to the Company
were pre-approved by the Audit Committee in accordance with this policy, and the Audit Committee has concluded
that the provision of these services is compatible with the accountants’ independence.
Audit and Non-Audit Fees
The following table sets forth the fees billed for the fiscal year ended December 31, 2022 and the fiscal year ended
January 1, 2022 by EY, the Company’s independent registered public accounting firm.
Fees
Audit
Audit Related
Tax
All Other
Total
Audit Fees
2022
2021
$2,025,000
45,000
45,000
5,400
$2,120,400
$1,816,000
42,000
—
5,200
$1,863,200
Audit fees for the fiscal years ended December 31, 2022 and January 1, 2022 were for the audit of the Company’s
annual financial statements including management’s assessment of internal control over financial reporting, the review
of the Company’s quarterly financial statements and statutory and regulatory audits, consents, and other services.
These fees may include services that are normally provided by the independent registered public accounting firm in
connection with regulatory filings or engagements including any comfort letters and consents for financings and filings
made with the SEC.
58
Audit Related Fees
Audit related fees for the fiscal years ended December 31, 2022 and January 1, 2022 were for assurance and related
services reasonably related to the performance of the audit or review of the Company’s annual financial statements
that are not reported under “Audit Fees,” and consisted primarily of fees for employee benefit plan audits.
Tax Fees
Tax fees may include fees for tax compliance, tax planning and tax advice. Tax fees for the fiscal year ended December
31, 2022 were for tax advice.
All Other Fees
All other fees would consist of fees for products and services other than the services described above. For the fiscal
year ended December 31, 2022 and January 1, 2022, all other fees included payments for an accounting and auditing
information tool.
Negotiation of the annual independent registered public accounting firm fees is the responsibility of the Audit
Committee with the support of the Company’s CFO. All of the EY fees listed in the chart above for fiscal years 2021
and 2022 were pre-approved by the Audit Committee, which concluded that the provision of such services by EY was
compatible with the maintenance of that firm’s independence in the conduct of its audit functions.
Vote Required
The affirmative vote, in person or by proxy, of a majority of the shares present or represented at the meeting and
entitled to vote will be required to ratify the appointment of Ernst & Young LLP as the Company’s independent
registered public accounting firm for the year ending December 30, 2023.
The Board recommends voting “FOR” the ratification of the appointment of
Ernst & Young LLP as the Company’s independent registered public accounting
firm for the year ending December 30, 2023.
59
AUDIT COMMITTEE REPORT
The following is the Audit Committee’s report submitted to the Board for the fiscal year ended December 31, 2022.
As noted in the Audit Committee’s charter, management is responsible for the Company’s internal controls and the
financial reporting process. The independent registered public accounting firm is responsible for performing an
independent audit of the Company’s consolidated financial statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States) and for issuing a report thereon. Additionally, the independent
registered public accounting firm is responsible for performing an independent audit of the Company’s internal control
over financial reporting and for issuing a report thereon. The Committee’s responsibility is to monitor and oversee
these processes.
In this context, the Audit Committee of the Board has:
•
•
•
•
reviewed and discussed with management and with Ernst & Young LLP, the Company’s independent registered
public accounting firm, together and separately, the Company’s audited consolidated financial statements
contained in its Annual Report on Form 10-K for the fiscal year ended December 31, 2022;
discussed with Ernst & Young LLP the matters required to be discussed by Statement on Auditing Standards No.
1301, Communications with Audit Committees;
received the written disclosures and the letter from Ernst & Young LLP required by applicable requirements of
the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s
communications with the Audit Committee concerning independence, and has discussed with Ernst & Young
LLP its independence; and
discussed and reviewed with the Company’s manager - internal audit (“Mgr-IA”) and Ernst & Young LLP, with
and without management present, the Company’s work in complying with the requirements of Section 404 under
the Sarbanes-Oxley Act of 2002 regarding internal control over financial reporting. In connection therewith, the
Audit Committee also discussed with the Mgr-IA, with and without other members of management present,
management’s assessment of the effectiveness of internal control over financial reporting as of December 31,
2022. The Audit Committee also discussed Ernst & Young LLP’s audit report on internal controls over financial
reporting as of December 31, 2022 with management and Ernst & Young LLP.
Based on the foregoing review and discussions, the Audit Committee recommended to the Board that the audited
financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December
31, 2022.
THE AUDIT COMMITTEE
Christine A. Tsingos (Chairperson)
Stephen D. Kelley
Karen Rogge
May Su
60
EXECUTIVE OFFICER BIOGRAPHIES
Set forth below is certain information regarding the executive officers of the Company and their ages as of March 30,
2023. Information relating to Michael P. Plisinski is set forth above under the caption “PROPOSAL 1 - ELECTION
OF DIRECTORS.” The individuals listed reflect the Company’s officers designated by the Board as “Executive
Officers” for the 2023 fiscal year. The Company is unaware of any arrangements or understandings between the
executive officers of the Company and other person(s) pursuant to which an executive officer was or is to be selected,
except that Mr. Plisinski was appointed as CEO of the Company pursuant to the Merger Agreement for the 2019
Merger.
Named Executive Officers (NEOs)
Mark R. Slicer Chief Financial Officer Age: 52
• Mr. Slicer has served the Company in his current role since May 2022.
• Prior Experience:
◦
◦
◦
◦
September 2019 to May 2022: Senior Vice President and Global Operations Controller at Boston
Scientific, a global medical technology manufacturer, where he was responsible for the financial
performance of the global manufacturing and distribution network having a production value of
approximately $3 billion.
February 2014 to September 2019: Senior Vice President and Corporate Controller, Boston Scientific, in
which role he oversaw a team of over 500 finance employees across the globe, managing approximately
$10 billion in revenue.
February 2008 to February 2014: Executive roles in finance and internal audit, Boston Scientific.
Preceding Mr. Slicer’s tenure at Boston Scientific, he served in various finance and audit roles at General
Electric and PricewaterhouseCoopers.
• Mr. Slicer earned a Bachelor of Science in Accounting from Providence College and is licensed as a Certified
Public Accountant in the Commonwealth of Massachusetts.
James (Cody) Harlow Chief Operating Officer Age: 50
• Mr. Harlow has served the Company in his current role since October 2021.
• Prior Experience:
◦ December 2019 to September 2021: Managing Director, Operations and Supply Chain, Applied
Materials, a provider of manufacturing equipment, services and software to the semiconductor, display
and related industries.
◦ December 2017 to December 2019: Senior Director, Operations and Supply Chain, Applied Materials.
◦
September 2013 to December 2017: Director, Worldwide Operations, Applied Materials.
◦ March 2013 to September 2013: Chief Operating Officer, Semiconductor Support Services.
◦
Prior to 2013, Mr. Harlow held an array of manufacturing management roles in 14 years with Applied
Materials.
• Mr. Harlow holds a B.S. in Nuclear Engineering Technology from Thomas Edison State University, a M.S. in
organizational and human resource development from Abilene Christian University and an M.B.A. from the
University of Phoenix. In addition, Mr. Harlow served as a nuclear propulsion supervisor in the U.S. Navy.
Robert Fiordalice Senior Vice President & General Manager, Metrology Business Unit Age: 61
• Mr. Fiordalice has served the Company in his current role since January 2022.
• Prior Experience:
◦ October 2019 to January 2022: Vice President & General Manager, Wafer Solutions Business Unit, Onto
Innovation Inc.
◦ August 2017 to October 2019: General Manager, Materials Characterization Group, Nanometrics.
◦ October 2013 to July 2017: General Manager, Advanced Packaging, Nanometrics.
◦ August 2006 to August 2013: Vice President, Account Technology, Intermolecular, Inc.
61
◦
Prior to 2006, Mr. Fiordalice held technology management roles with both KLA Tencor Corporation and
Motorola Inc.
• Mr. Fiordalice holds a B.S. in Genetics from University of California at Berkeley and a M.S. in Physics from
Syracuse University.
Yoon Ah E. Oh Vice President, General Counsel, and Corporate Secretary Age: 41
• Ms. Oh has served the Company in her current role since October 2021.
• Prior Experience:
◦
◦
June 2020 to September 2021: Associate General Counsel and Corporate Secretary, Analog Devices, Inc.,
a semiconductor company.
June 2018 to May 2020: Vice President, Associate General Counsel and Corporate Secretary, Endo
International Plc., a specialty pharmaceutical company.
◦ May 2017 to June 2018: Vice President, Associate General Counsel, Endo International Plc.
◦
◦
◦
September 2015 to April 2017: Senior Counsel, Corporate, Endo International Plc.
September 2013 to September 2015: Associate, Dechert LLP.
September 2007 to August 2013: Associate, Cahill Gordon & Reindel LLP.
• Ms. Oh holds a B.S. in Political Science from Yale University and earned her J.D. from Harvard Law School. Ms.
Oh is admitted to practice in the States of Pennsylvania and New York.
Other Executive Officers
Srinivas Vedula, Ph.D. Senior Vice President, Customer Success Group Age: 50
• Dr. Vedula has served the Company in his current role since September 2021.
• Prior Experience:
◦ October 2019 to August 2021: Vice President, Business Development, Metrology Business Unit, Onto
Innovation Inc.
◦ December 2017 to September 2019: Vice President, Global Sales, Nanometrics, Inc.
◦
◦
◦
January 2014 to November 2017: General Manager, Optical Metrology Solutions, Nanometrics, Inc.
January 2009 to December 2013: Director of Marketing and Applications, KLA Corporation.
Prior to 2009, Mr. Vedula held additional roles in product marketing and applications engineering over
12 years with KLA Tencor Corporation.
• Dr. Vedula holds a Bachelor of Technology degree from the Indian Institute of Technology in Bombay, India and
a Ph.D. from the University of Tennessee, both in Chemical Engineering.
Ju Jin, Ph.D. Senior Vice President & General Manager, Inspection Business Unit Age: 58
• Dr. Jin has served the Company in his current role since March 2021.
• Prior Experience:
◦ October 2019 to March 2021: Vice President & General Manager, Inspection Business Unit, Onto
◦
Innovation Inc.
July 2019 to October 2019: Vice President & General Manager, Inspection Business Unit, Rudolph
Technologies, Inc.
◦ August 2016 to July 2019: Sr. Director of Marketing & Business Development, Orbotech Ltd., a supplier
of yield-enhancing and process-enabling solutions for the manufacture of electronics products and a
subsidiary of KLA Corporation.
◦ April 2009 to August 2016: President and CEO, Applied Electro-Optics Inc.
◦ March 2004 to April 2009: Director and General Manager, Accretech USA.
• Dr. Jin holds a B.S. from Xian Jiatong University in China, a M.S. from Nagaoka University of Technology in
Japan and a Ph.D. from the University of Tokyo in Japan, all in Mechanical Engineering.
62
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to beneficial ownership of the Company’s Common
Stock as of March 13, 2023 (except as otherwise indicated), by (i) each individual or group known by the Company
to own beneficially more than five percent (5%) of the Common Stock; (ii) each of the NEOs; (iii) each of the
Company’s directors and director nominees; and (iv) all directors, director nominees and executive officers as a group.
Except as indicated in the footnotes to this table, the persons named in the table have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by them, subject to community property
laws where applicable.
Name and Address of Beneficial Owner
Amount and Nature of
Beneficial Ownership
Percent of Class(1)
BlackRock, Inc. (2)
55 East 52nd Street, New York, NY 10055
The Vanguard Group (3)
100 Vanguard Boulevard, Malvern, PA 19355
Michael P. Plisinski
Mark R. Slicer
James (Cody) Harlow
Robert Fiordalice
Yoon Ah E. Oh
Steven R. Roth (4)
Leo Berlinghieri
Stephen D. Kelley (5)
David B. Miller
Karen M. Rogge
Christopher A. Seams
May Su
Christine A. Tsingos
All directors, director nominees and executive
officers as a group (fifteen (15) persons) (6)
* Less than 1%
8,009,729
5,605,334
238,166
-
1,627
12,768
2,484
14,665
17,201
-
14,608
2,950
32,629
2,100
39,909
396,923
16.4%
11.5%
*
*
*
*
*
*
*
*
*
*
*
*
*
*
(1) Applicable percentage ownership is based on 48,845,513 shares of Common Stock outstanding as of March 13, 2023.
Beneficial ownership of shares is determined in accordance with the rules of the SEC and generally includes shares as to
which a person holds sole or shared voting or investment power. Shares of Common Stock subject to RSUs which will vest
within sixty (60) days of March 13, 2023 are deemed to be beneficially owned by the person holding such RSUs for the
purpose of computing the percentage ownership of such person but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person. Unless otherwise noted, the address for the executive officers and
directors named in this table is c/o Onto Innovation Inc., 16 Jonspin Road, Wilmington, Massachusetts 01887.
(2)
(3)
Information provided herein is based on the Schedule 13G/A that was filed by BlackRock, Inc. on January 23, 2023, which
reported that BlackRock, Inc. had sole voting power over 7,950,008 shares, shared voting power over zero shares, sole
dispositive power over 8,009,729 shares and shared dispositive power over zero shares.
Information provided herein is based on the Schedule 13G/A that was filed by The Vanguard Group on February 9, 2023,
which reported that The Vanguard Group had sole voting power over zero shares, shared voting power over 84,195 shares,
sole dispositive power over 5,472,717 shares and shared dispositive power over 132,617 shares.
(4) The number of shares held by Mr. Roth is based on his response to the Company’s Director & Officer questionnaire as of
December 31, 2022 .
(5) Mr. Kelley did not become a Company director until January 24, 2023.
(6)
Includes 14,550 shares subject to restricted stock units vesting within 60 days of March 13, 2023 for all directors, director
nominees, and executive officers as a group.
63
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth, as of December 31, 2022, certain information related to our equity compensation plans.
(a)
(b)
(c)
Plan Category
Equity compensation plans approved
by security holders
Equity compensation plans not approved
by security holders
Total
Number of Securities
to be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights (1)
743,034
n/a
743,034
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
—
n/a
—
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))(2)
4,201,733
n/a
4,201,733
(1) Includes 743,034 shares issuable upon vesting of outstanding restricted stock units under the Onto Innovation Inc. 2020
Stock Plan, the Rudolph Technologies, Inc. 2018 Stock Plan and the Nanometrics Incorporated 2005 Equity Incentive
Plan.
(2) As of December 31, 2022, 3,085,817 shares were available under the 2020 Stock Plan and 1,115,916 shares were
available under the ESPP.
OTHER MATTERS
The Company knows of no other matters to be submitted for consideration at the Annual Meeting. If any other matters
properly come before the Annual Meeting, it is the intention of the persons acting as proxies to vote the shares they
represent as the Board may recommend.
64
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
What Is The Purpose Of The Annual Meeting?
At the Annual Meeting, stockholders will be asked to vote upon the matters set forth in the accompanying Notice of
Annual Meeting, including:
•
•
•
•
the election of eight directors;
an advisory vote to approve named executive officer compensation;
an advisory vote on the frequency of advisory votes on named executive officer compensation; and
the ratification of the appointment of our independent registered public accounting firm for fiscal 2023,
all of which are more fully described herein.
Will Other Matters Be Voted On At The Annual Meeting?
We are not currently aware of any matters to be presented at the Annual Meeting other than those described in this
proxy statement. If any other matters not described in the proxy statement are properly presented at the meeting, any
proxies received by us will be voted in the discretion of the proxy holders.
Who Is Entitled To Vote?
If you were a stockholder of record as of the close of business on March 13, 2023, which is referred to in this proxy
statement as the “record date,” you are entitled to receive notice of the Annual Meeting and to vote the shares of
common stock that you held as of the close of business on the record date. Each stockholder is entitled to one vote for
each share of common stock held by such stockholder on the record date.
May I Attend The Meeting?
All stockholders of record as of the record date may attend the Annual Meeting, which will be held at the Company’s
offices located at 16 Jonspin Road, Wilmington, MA 01887. To obtain directions to attend the Annual Meeting and
vote in person, please visit our website (www.ontoinnovation.com), and click on “Company,” then “Locations,” and
then “Massachusetts” to access the interactive map. As always, we encourage you to vote your shares prior to the
Annual Meeting.
What is Required To Be Admitted To The Annual Meeting?
If you have a stock certificate or hold shares in an account with our transfer agent, you are considered the “stockholder
of record” with respect to those shares. If you are a stockholder of record, you will need valid picture identification
and proof that you are a stockholder of record of the Company as of the record date to gain admission to the Annual
Meeting.
If you are a beneficial holder, you will be required to present a valid picture identification and proof from your bank,
broker or other record holder of your shares that you are the beneficial owner of such shares to gain admission to the
Annual Meeting. If you are a beneficial holder and wish to vote your shares at the meeting, you will need a legal proxy
from your bank, broker or other record holder of your shares.
All attendees will be expected to comply with any health and safety protocols in effect at the Company’s facility at
the time of the Annual Meeting.
What Constitutes A Quorum?
The required quorum for the transaction of business at the Annual Meeting is a majority of the issued and outstanding
shares of Common Stock of the Company, $0.001 par value per share (“Common Stock”), present in person or by
proxy and entitled to vote at the Annual Meeting. On the record date, 48,845,513 shares of the Company’s Common
65
Stock were issued and outstanding, each entitled to one vote on each matter to be acted upon at the Annual Meeting.
Your shares will be counted towards the quorum only if you submit a valid proxy (or one is submitted on your behalf
by your broker, bank or other nominee) or if you vote in person at the meeting. Abstentions and broker non-votes will
be counted to determine whether there is a quorum present. If a quorum is not present, the Annual Meeting may be
adjourned or postponed to a later date.
What Are “Broker Non-Votes”?
A broker non-vote occurs when a bank, broker or other registered holder of record holds shares for a beneficial owner
but is not empowered to vote on a particular proposal on behalf of such beneficial owner because the proposal is
considered “non-routine” and the beneficial owner has not provided voting instructions on that proposal. The election
of directors, the advisory vote to approve named executive officer compensation, and the advisory vote on the
frequency of advisory votes on named executive officer compensation are treated as “non-routine” proposals. This
means that if a brokerage firm holds your shares on your behalf, those shares will not be voted with respect to any of
these proposals unless you provide instructions to that firm. See below under “What Is the Vote Required for Election
of Directors?” and “What Is the Vote Required for the Approval of Proposals Other Than Director Elections?” for a
discussion of the impact of broker non-votes on each of the proposals that will be presented at the Annual Meeting.
In order to ensure that any shares held on your behalf by a bank, broker or other registered holder of record
are voted in accordance with your wishes, we encourage you to provide instructions to that firm or organization
in accordance with the Notice or voting instruction form provided by the broker, bank or other registered
holder or to contact your broker, bank or other registered holder to request a proxy form.
Who Bears The Cost Of Soliciting Proxies?
The Company will bear the cost of soliciting proxies. In addition, the Company may reimburse brokerage firms and
other persons representing beneficial owners of shares for their expenses in forwarding solicitation material to such
beneficial owners. Solicitation of proxies by mail may be supplemented by telephone, facsimile, e-mail or other
electronic means or personal solicitation by directors, officers or regular employees of the Company. No additional
compensation will be paid to such persons for such services.
Why Did I Receive A “Notice Of Internet Availability Of Proxy Materials” But No Proxy Materials?
We are distributing the Company’s proxy materials to stockholders of record via the Internet in accordance with the
“Notice and Access” approach permitted by rules of the SEC. This approach benefits the environment, while providing
a timely and convenient method of accessing the materials and voting. Accordingly, we have sent you a Notice
because the Board of the Company is soliciting your proxy to vote at the 2023 Annual Meeting of Stockholders,
including at any adjournments or postponements of the meeting. On or about March 30, 2023, the Company will
begin mailing the Notice to all stockholders of record entitled to vote at the Annual Meeting. All stockholders will
have the ability to access the proxy materials on the website referred to in the Notice or request to receive a printed
set of the proxy materials. Instructions on how to access the proxy materials over the Internet or to request a printed
copy of the proxy materials and the Company’s 2022 Annual Report may be found in the Notice.
What Does It Mean If I Received More Than One Notice?
If you receive more than one Notice, your shares may be registered in more than one name or in different accounts.
Please follow the voting instructions on each of the Notices to ensure that all of your shares are voted.
How Do I Go About Voting?
You may vote “For” or “Against” each of the director nominees or you may “Abstain” from voting with respect to
any nominee. For the advisory vote on the frequency of advisory votes on named executive officer compensation,
you may vote for every “1 Year,” “2 Years,” or “3 Years,” or you may “Abstain” from voting. For each of the other
matters to be voted on, you may vote “For” or “Against” or “Abstain” from voting.
66
Voting For Shares Registered Directly In The Name Of The Stockholder
If you are a stockholder of record with shares registered in your name, you can vote by one of the following methods:
•
In Person - To vote in person, come to the Annual Meeting and you will receive a ballot when you arrive.
You will be required to show valid picture identification and proof that you are a stockholder of record of the
Company as of the record date to be admitted to the Annual Meeting.
• Via the Internet - To submit your proxy by Internet, go to www.investorvote.com/ONTO and follow the
instructions on the secure website. The deadline for proxy submission via the Internet is 11:59 p.m. (EDT)
on May 8, 2023.
• Via Telephone – To submit your proxy by telephone, call toll free 1-800-652-VOTE (8683) within the
•
United States, US territories and Canada.
By Mail – Stockholders who receive a paper proxy card may complete, sign and date their proxy card and
mail it in the pre-addressed postage-paid envelope that accompanies the proxy card. Proxy cards submitted
by mail must be received prior to the time of the Annual Meeting in order for your shares to be voted.
Even if you plan to attend the Annual Meeting, we recommend that you submit your proxy in advance so that your
shares are represented at the Annual Meeting in the event you are unable to attend the meeting. Each stockholder of
record is entitled to one vote for each share of Common Stock owned by such stockholder on all matters presented at
the Annual Meeting. Stockholders do not have the right to cumulate their votes in the election of directors.
If you return a signed and dated proxy card but do not indicate how the shares are to be voted, those shares will be
voted in accordance with Onto Innovation’s Board’s recommendations. A valid proxy card also authorizes the
individuals named therein as proxies to vote your shares in their discretion on any other matters, which, although not
described in the proxy statement, are properly presented for action at the Annual Meeting. If you indicate on your
proxy card that you wish to “abstain” from voting on an item, your shares will not be voted on that item.
While Internet proxy voting is being provided to allow you to submit your proxy online, with procedures designed to
ensure the authenticity and correctness of your proxy vote instructions, please be aware that you must bear any costs
associated with your Internet access, such as usage charges from Internet access providers and telephone companies.
Voting By Proxy For Shares Registered In Street Name
If your shares are held in a stock brokerage account or by a bank or other holder of record, you are considered the
“beneficial owner” of shares held in “street name.” As the beneficial owner, you have the right to direct your broker,
bank or other holder of record on how to vote your shares by submitting voting instructions to such person in
accordance with the directions that the entity provides. In the event you are considered the “beneficial owner” of
shares held in “street name” and you wish to vote in person at the Annual Meeting, you must obtain a legal proxy
from your broker, bank or another agent. Your vote also authorizes the person(s) acting as your proxy to vote your
shares in their discretion. Follow the instructions from your broker or bank included with these proxy materials or
contact your broker or bank to request a legal proxy.
May I Revoke My Proxy Or My Voting Instructions?
If you are a stockholder of record, you may revoke your proxy or change your vote after submitting your proxy at any
time before the polls close at the Annual Meeting by doing any of the following:
•
•
•
•
By delivering a written notice of revocation or a duly executed proxy card bearing a later date to the Corporate
Secretary of the Company at the Company’s principal executive offices prior to the Annual Meeting;
By submitting a timely and valid later proxy online at www.investorvote.com/ONTO;
By submitting a timely and valid later proxy by telephone call to 1-800-652-VOTE (8683) within the USA,
US territories and Canada; or
By attending the Annual Meeting and voting in person.
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If you are a beneficial owner of shares, please contact your bank, broker or other holder of record for specific
instructions on how to change or revoke your voting instructions.
What Happens If I Do Not Vote?
Stockholder Of Record: Shares Registered In Your Name
If you are a stockholder of record and do not submit a proxy by mail, telephone, or the Internet or by attending the
Annual Meeting and voting in person, your shares will not be voted.
Beneficial Owner: Shares Registered In The Name Of Broker Or Bank
If you are a beneficial owner and do not instruct your broker, bank, or other agent how to vote your shares, the question
of whether your broker or nominee will still be able to vote your shares depends on whether the NYSE deems the
particular proposal to be a “routine” matter. Brokers and nominees can use their discretion to vote “uninstructed”
shares with respect to matters that are considered to be “routine,” but not with respect to “non-routine” matters. Under
the rules and interpretations of the NYSE, “non-routine” matters are matters that may substantially affect the rights or
privileges of stockholders, such as mergers, stockholder proposals, elections of directors (even if not contested),
executive officer compensation (including any advisory stockholder votes on executive officer compensation and on
the frequency of stockholder advisory votes on named executive officer compensation), and certain corporate
governance proposals, even if management supported. Accordingly, your broker or nominee may not vote your shares
on the election of directors, the advisory proposal to approve the named executive officer compensation, or the
advisory proposal on the frequency of advisory votes on named executive officer compensation without your
instructions, but may vote your shares on the proposal to ratify the appointment of Ernst & Young LLP as the
Company’s independent registered public accounting firm for the fiscal year ending December 30, 2023 even in the
absence of your instruction.
What If I Return A Proxy Card Or Otherwise Submit a Proxy But Do Not Make Specific Choices?
If you return a signed and dated proxy card or otherwise submit a proxy without marking voting selections, your shares
will be voted, as applicable, “For” the election of all seven nominees for director, “For” the advisory approval of the
named executive officer compensation, for future advisory votes on named executive office compensation to be held
every “1 Year,” and “For” the ratification of the appointment of Ernst & Young, LLP as the independent registered
public accounting firm of the Company for its fiscal year ending December 30, 2023. If any other matter is properly
presented at the meeting, your proxyholder will vote your shares using his or her best judgment.
What Is The Vote Required For Election Of Directors?
For the election of directors, each director is elected by a majority of the votes cast (except that if the number of
nominees exceeds the number of directors to be elected, directors will be elected by a plurality voting standard). This
means that for a director nominee to be elected to our Board, the number of votes cast “for” a director’s election must
exceed the number of votes cast “against” that director’s election (with “abstentions” and “broker non-votes” not
counted as a vote cast either “for” or “against” that director’s election, although abstentions and broker non-votes
count for the purpose of determining a quorum). Our Bylaws provide for election of directors by a majority of votes
cast in uncontested elections, and our Corporate Governance Guidelines provides that any incumbent director nominee
in an uncontested election who does not receive an affirmative majority of votes cast must promptly tender such
director’s resignation to our Board. Further information regarding the process that will be followed if such an event
occurs can be located under the heading “Proposal 1 - Election of Directors.”
What Is The Vote Required For The Approval Of Proposals Other Than Director Elections?
The proposal to approve, on an advisory basis, the compensation of our named executive officers and the proposal to
ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year
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ending December 30, 2023 each requires the affirmative vote, in person or by proxy, of a majority of the shares present
in person or represented by proxy at the meeting and entitled to vote on the matter to be approved. For each of these
two proposals, abstentions in effect count as negative votes, because they are shares represented in person or by proxy
that are entitled to vote on the matter and not voted in the affirmative. For the proposal to approve, on any advisory
basis, the frequency of advisory votes on named executive officer compensation, the frequency (“1 Year,” “2 Years,”
or “3 Years”) receiving the greatest number of votes will be considered the frequency recommended by stockholders
to the Board. For this proposal, abstentions will have no impact on outcome, since approval by a percentage of the
shares present in person or represented by proxy at the meeting and entitled to vote on the matter is not required. For
all other proposals, broker non-votes are not counted as part of the vote total (because they are not considered “entitled
to vote” on the matter) and have no effect on the outcome.
What Is Householding?
The Company has adopted a procedure approved by the SEC called “householding.” Under this procedure, when
multiple stockholders of record share the same address, we may deliver only one (1) Notice or set of householding
materials to that address unless we have received contrary instructions from one or more of those stockholders. The
same procedure may be followed by brokers and other nominees holding shares of our stock in “street name” for more
than one beneficial owner with the same address.
If a stockholder holds shares of stock in multiple accounts (e.g., with our transfer agent and/or banks, brokers or other
registered stockholders), we may be unable to use the householding procedures and, therefore, that stockholder may
receive multiple copies of the Notice. You should follow the instructions on each Notice that you receive in order to
vote the shares you hold in different accounts.
A stockholder that shares an address with another stockholder if such household has received only one Notice, may
write or call us as specified below:
(i)
(ii)
To request a separate copy of such materials, which will be promptly mailed without charge; and
To request that separate copies of these materials be sent to his or her home for future meetings.
Conversely, a stockholder of record who shares the same address with another stockholder of record may write or call
us as specified below to request that a single set of proxy materials be delivered to that address. Such stockholder
requests may be made to our Investor Relations Department either via phone at 978-253-6200 or by mail directed to:
Investor Relations Department
Onto Innovation Inc.
16 Jonspin Road
Wilmington, Massachusetts 01887
If you are a beneficial owner of shares held in street name, please contact your bank, broker or other holder of record
regarding such requests.
How Can I Find Out the Results Of The Voting At The Annual Meeting?
Preliminary voting results will be announced at the Annual Meeting. Final voting results will be published in a Current
Report on Form 8-K that we expect to file within four business days after the Annual Meeting. If final voting results
are not available to us in time to file a Form 8-K within four business days after the meeting, we intend to file a Form
8-K to publish preliminary results and, within four business days after the final results are known to us, file an
additional Form 8-K to publish the final results.
What Are The Deadlines For Submission Of Stockholder Proposals For The 2024 Annual Meeting?
Stockholders of the Company are entitled to present proposals for consideration at forthcoming stockholder meetings
provided that they comply with the proxy rules promulgated by the SEC, if applicable, and the Bylaws of the
Company. Stockholders wishing to present a proposal at the Company’s 2024 Annual Meeting of Stockholders must
submit such proposal in writing to the Corporate Secretary at Onto Innovation Inc., 16 Jonspin Road, Wilmington,
Massachusetts 01887 no later than December 1, 2023 in accordance with Rule 14a-8 under the Exchange Act, if they
wish for it to be eligible for inclusion in the proxy statement and form of proxy relating to that meeting. In addition,
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under the Company’s Bylaws, a stockholder wishing to nominate a director or make a proposal at the 2024 Annual
Meeting of Stockholders outside of Exchange Act Rule 14a-8 must submit such nomination or proposal in writing to
the Corporate Secretary at the above address no earlier than January 10, 2024 and no later than February 9, 2024. In
addition, to comply with the universal proxy, stockholders who intend to solicit proxies in support of director nominees
other than the Company nominees in connection with the 2024 Annual Meeting of Stockholders must provide notice
that sets forth the information required by Rule 14a-19 under the Exchange Act, postmarked or submitted
electronically to the Company at its principal executive office no later than March 11, 2024.
The Nominating & Governance Committee will also consider qualified director nominees recommended by
stockholders. Our process for receiving and evaluating Board member nominations from our stockholders is described
above under the caption “Consideration Of Director Nominees.”
You are also advised to review the Company’s Bylaws, which contain additional requirements about advance notice
of stockholder proposals and director nominations.
ADDITIONAL INFORMATION
Stockholders may obtain a copy of the Company’s Annual Report on Form 10-K for the fiscal year ended December
31, 2022, including financial statements and schedules included in the Annual Report on Form 10-K, without charge,
by visiting the Company’s website at https://investors.ontoinnovation.com/ or by writing to:
Michael Sheaffer
Sr. Director, Investor Relations & ESG Reporting
16 Jonspin Road
Wilmington, Massachusetts 01887
Upon written request to the Company, at the above address for Investor Relations, the exhibits set forth on the exhibit
index of the Company’s Annual Report on Form 10-K will be made available at reasonable charge (which will be
limited to our reasonable expenses in furnishing such exhibits).
BY ORDER OF THE BOARD OF DIRECTORS
Dated: March 30, 2023
Yoon Ah E. Oh
Corporate Secretary
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