Onto Innovation Inc.

Good day and welcome to the Onto Innovation fourth quarter earnings release. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Michael Schaefer with Investor Relations. Please go ahead, sir.

Thank you, Sarah, and good afternoon, everyone. Onto Innovation issued its 2020 fourth quarter and four-year 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.ontoinnovation.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, especially comments regarding the company's future plans, products, objectives, forecasted and expected performance, consist of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These 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 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 guarantee of future performance. Risk factors that may impact ON2 Innovation's results are currently described in ON2 Innovation's Form 10-K report for the year end of December 2019, as well as other quarterly filings with the Securities and Exchange Commission. ON2 Innovation 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?

Thanks, Mike. Good afternoon, everyone, and a happy, healthy new year to each of you and your families. With 2020 successfully behind us, the On2Innovation team is looking forward to a new year fueled by strong markets and our strengthening customer partnerships. We're proud to already have five of our six new products announced in 2020, accepted by top tier semiconductor manufacturers, clearing the way for further adoption in 2021. In addition, we added new markets such as high-end image sensors, planar film metrology, and heterogeneous packaging. In total, we estimate that by the end of 2020, we expanded our available markets by over 500 million. Our successful integration of Rudolph and Netometrics creates a strong financial foundation, already achieving the gross and operating margins outlined in our long-term operating model. This foundation enables growth from both organic and inorganic investments Such as our recent acquisition of InSpectrology, a leader in overlay metrology for the expanding compound semiconductor market. Now let's start with some highlights from the fourth quarter. Our growth in the fourth quarter exceeded the high end of guidance, increasing 23% over the prior quarter, while our operating income grew 58% over the same period. Revenue from customer expansions and advanced nodes doubled over the third quarter. The strongest growth came from NAND customers, but we also saw double-digit growth from both DRAM and Logic customers. In total, we delivered standalone systems to 10 customers to support these expansions. Building on the broad appeal of the current Atlas platform, we shipped our newest Atlas 5 systems to multiple Logic customers for evaluations at 5 and 3 nanometer design rules, as well as evaluations for leading DRAM devices for the 1Z and 1 alpha nodes. Complementing our Atlas platform, Impulse integrated metrology revenue increased significantly in the quarter, but more importantly, we added a new DRAM customer. After an extensive evaluation, the customer selected Impulse for the most critical process steps in their next generation memory product expected to ramp in 2021. We estimate these critical steps will represent over half of this customer's integrated metrology volume. We also recognized revenue on our industry-first aspect IRCD technology, providing high aspect ratio channel hole measurements critical for 3D NAND with over 170 device layers. We have successfully demonstrated the capability to other NAND customers and expect to deliver several evaluation units in the first half of the year. Demand for element compositional metrology is expanding, driven by the impact of slight material variations on transistor performance at the most advanced nodes. In the quarter, a second memory supplier selected the element system for inline composition metrology of incoming wafers. In addition, a leading supplier of material deposition equipment, took shipment of an element system for the characterization and development of next generation dielectrics for advanced 3D NAND and logic devices. While we don't expect large volumes from this customer, we do anticipate additional orders. Now let's review our packaging and specialty device market, which resulted in our largest source of revenue for the second quarter in a row. Growth in the fourth quarter was up another 3% following a 44% jump in the third quarter. Revenue from our customers supporting 5G represented the strongest growth in the quarter. Estimates for MediaTek and Qualcomm of another 500 million 5G-enabled phones in 2021, an increase of 250% over 2020, suggest continued strong growth in the new year. To support rapidly shrinking interconnect geometries, customers are demanding more precise and repeatable measurements. This trend has contributed to revenue from our flagship Dragonfly platform doubling in 2020 over 2019. And in collaboration with our leading customers, we recently released the third generation Dragonfly system. This new system increases 2D sensitivity by 40% and throughput by 30%. Our 3D metrology throughput has increased by a very impressive 50%. We've shipped multiple third generation Dragonfly systems to both OSETs and top five semiconductor manufacturers. In addition, the Dragonfly G3 was selected by another top three manufacturer of image sensors for mobile devices. Dragonfly platform was the only tool capable of detecting a critical yield defect at full production speed. We expect follow on orders from this customer in the first half of 2021. To conclude the fourth quarter highlights, our new products are well positioned to support the transistor and packaging architectures that are enabling new devices for AI and data center applications and the transition to 5G. The timing of these inflections is setting the stage for a strong 2021, which I'll discuss after Steve covers the fourth quarter financial highlights. Steve?