Onto Innovation Inc.

Good day, and welcome to the Onto Innovation First 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. Please go ahead, sir.

Thank you, Connor, and good afternoon, everyone. Onto Innovation issued its 2021 First 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 where a copy of the release is posted. Joining us on the call today are Michael Plosinski, Chief Executive Officer, and Stephen Ross, Chief Financial Officer. As always, 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, forecasts, and expected performance, consist of forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These estimates, whether expressed or implied, are 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 uncertainties 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 ON2 Innovation's results are currently described in ON2 Innovation's Form 10-K report for the year ended December 2020, as well as other quarterly filings with the SEC. ON2 Innovation does not update forward-looking statements and expressly disclaims any obligations 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 hand the call over to Mike Plosinski. Mike?

Good afternoon, everyone, and thank you for joining our call this afternoon. Earlier today, we announced first quarter revenue of $169.3 million, which exceeded the high end of our guidance range, without any revenue associated with the pending approval of our license applications by the U.S. Department of Commerce. We also raised our expectations for the second quarter, which at the midpoint represents 32% growth year-over-year and is well above our commentary from last quarter. In total, these positive revisions imply 26% increase in revenue for the first half of 2021 over the prior year, and we expect revenue in the second half of the year to be even stronger. Our better results and outlook reflect the strengthening market demand in our core markets, but also the exciting progress we're making to expand our served markets. So let's begin with highlights from the first quarter, starting with our advanced node customers. Demand for our optical CD metrology systems by multiple logic customers more than doubled over the fourth quarter to support expansions below the 7 nanometer node. At these nodes, the complex interaction of shrinking geometries, new materials, and the introduction of new 3D transistor structures is creating the need for additional metrology steps and additional measurements per step. We believe this increase in capital intensity will favor onto innovation's proven metrology performance at optical speeds, which are orders of magnitude faster than X-ray. We see this value extending through the three nanometer node and have already received requests for second additional systems at a partner using our latest platform to develop that three nanometer process. We believe our platform's configurable performance and cost ratio was a key factor in the decision by a top three logic manufacturer to select onto innovation for optical metrology of the critical interconnect layers in the back end of the line. This selection over an entrenched incumbent is for our customer's next generation product ramp, and we expect shipments to begin in the second half and carry through to 2022. In addition to expanding our opportunities in existing markets, we are making great progress expanding our available markets, including the estimated 400 million planar films market. After shipping the first of our planar film systems in the fourth quarter, we've already booked an additional seven tools for shipments to that customer in the second and third quarter of this year, with follow-on orders expected in the second half of this year. In addition, Three more customers placed orders for our thin film solution, with deliveries in the second half of 2021, and with further expansions expected by all four customers in 2022. Similar advances are being made in the advanced packaging and specialty markets, which continue to experience strong growth from multiple well-documented drivers in 5G, high-performance compute, and AI. As we guided last quarter, we saw incredibly strong demand from advanced packaging customers, which resulted in growth of nearly 50% over the fourth quarter, offsetting an expected pause in the 5G expansions we experienced in the fourth quarter. The majority of the packaging growth was to support high-performance compute and memory devices where our inspection systems integrated with our AI classification software is proving to be a critical combination for process control. Our unique ability to leverage proprietary AI software to transform process control data streams into actionable intelligence has migrated from the mission critical automotive market to these leading edge devices where faster and more accurate decisions are crucial to not only detecting but also resolving process issues before impacting production. Similarly, Our StepFast solution for panel lithography has demonstrated a 2x gain in productivity while simultaneously improving yield by employing sophisticated machine learning algorithms to optimize stepper performance. In the first quarter, we received a repeat order for our StepFast solution in excess of $6 million for delivery in the fourth quarter of this year. This order brings our backlog for lithography to over $20 million with additional orders expected in the quarter. In addition to the strong demand in our currently served markets, we're encouraged by the progress we are making in two new specialty device markets. In the first quarter, we received several repeat orders ahead of plan from a top three CMOS image sensor manufacturer to support the ramp of their latest imaging device. We're seeing this demand because existing systems were unable to detect critical defects associated with the more advanced process. For the year, we expect orders from multiple top-tier CIS suppliers totaling in the double digits. Likewise, progress with our newly acquired overlay metrology business is also going very well. We've already integrated our proven run-to-run software into the latest overlay product, which shipped to multiple compound semiconductor customers in the first quarter. This new overlay solution will be fully released in the second half of the year and not only optimizes the lithography process, but also has the potential to improve cell productivity, a significant value proposition in an already constrained market projecting a CAGR of 25% growth through 2025. Now, I'd like to turn the call over to Steve to discuss the first quarter financial highlights. Steve?