Onto Innovation Inc.

Good day and welcome to the On2 Innovation second quarter earnings release conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mike Schaefer, investor relations. Please go ahead, sir.

Thank you, Todd. And good afternoon, everyone. On2 Innovation issued its 2020 second quarter financial results this afternoon shortly after the market closed. If you have not received a copy of the release, please refer to the company's website at www.on2innovation.com. On2Innovation.com, where a copy of the release is posted. Joining us on the call today are Michael Plisinski, Chief Executive Officer, and Stephen Ross, Chief Financial Officer. As is always the case, I need to remind you of the safe harbor regulations. Any matters today that are not historical facts, particularly comments regarding the company's future plans, products, objectives, forecasts, and expected performance consist of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such estimates, whether expressed or implied, are being made based on currently available information and the company's best judgment at this time. Within these is a wide range of assumptions that the company believes is to be reasonable. However, it must be recognized that these statements are subject to a range of certainties that can cause the actual results to vary materially. Thus, the company cautions that these statements are no guarantees of future performance. Risk factors that may impact Onto Innovations results are currently described in Onto Innovations Form 10-K report for the year ended December 2019, as well as other filings with the Securities and Exchange Commission. Onto Innovations does not update forward-looking statements and expressly disclaims any obligation to do so. Today's discussion of our financial results will be presented on a non-GAAP financial basis unless otherwise specified. As a reminder, a detailed reconciliation between GAAP and non-GAAP results can be found in today's earnings release. I will now go ahead and turn the call over to Mike Plisinski. Mike?

Thank you, Mike. Good afternoon, everyone, and thank you for joining our call this afternoon. Our second quarter results highlight the progress we are making on two key initiatives for 2020. The first initiative is to unlock the operational efficiencies across the newly merged company. Over the last nine months, we've implemented improvements in the business structure, systems and processes, and supply chain. These efforts are beginning to show through in our financials with improving gross margin and lower operating expenses. Our second initiative was to leverage our broader scale of technology and talent to accelerate the delivery of comprehensive solutions to our customers' high-value problems. By working closely with our customers, our team has made excellent progress in the quarter and we announced four new optical metrology platforms further enhanced by a new AI DEPRACT engine which reduces the time to solution for OCD modeling by 80%. This incredibly talented team is pushing optical capabilities beyond the reach of our competitors and maintaining the best solution for high volume manufacturing at the very leading edge designs. In addition, our inspection team is standing into the growing CMOS image sensor market with a competitive win at a leading supplier of high-end sensors for mobile, automotive, and medical applications. Finally, we see the investments in panel-level packaging increasing, and our growing backlog provides the confidence that ON2's step-fast solution, which includes jet-step lithography, firefly inspection, and discover analytics, is providing unique and compelling value proposition. In summary, We're very pleased with the progress made in the second quarter across both strategic initiatives, which together strengthen our financial foundation and broaden our growth opportunities across the semiconductor value chain. Now I'll provide some detail on the second quarter, beginning with our largest segment, the advanced nodes. Spending in this segment was better than expected and maintained the strong levels from the first quarter in both logic and memory. Not surprisingly, we did see some concentration in the quarter with two of the top five semiconductor manufacturers, one logic and another memory, combining for over 35% of total revenue. Our pneumatology suite was developed in collaboration with our customers to deliver the greater precision, accuracy, and productivity required for the latest 3D NAND sub-7 nanometer logic and 1-alpha DRAM devices. This suite was released on schedule due to the extraordinary effort and creativity employed by our development teams to overcome the limitations our COVID-19 safety protocols placed on our development and application teams. The ability for the Atlas V to deliver TEM quality measurements at optical speeds will make it the preferred solution for high volume manufacturing of next generation logic and memory devices.