Onto Innovation Inc.

Good afternoon, everyone. Onto Innovation issued its 2021 fourth quarter and full 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 where a copy of the release is posted. Joining us on the call today are Michael Plosinski, Chief Executive Officer, and Steven 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, Forecast and expected performance consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These estimates, whether expressed or implied, are based currently on 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 actual results to vary materially. Thus, the company cautions that these statements are no guarantees of future performance. Risk factors that may impact Onto Innovation's results are currently described in Onto Innovation's Form 10-K report for the year ended December 2020, as well as other quarterly filings with the SEC. Onto 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 Blazinski.

Mike? Thanks, Mike. Good afternoon and a Happy New Year to everyone. We're pleased to start the year off by reporting fourth quarter revenue exceeded the high end of our guidance, growing 12% over the third quarter and resulting in our equipment business growing nearly 50% for the year. This was our fifth straight quarter of revenue growth, and it was our eighth consecutive quarter of increasing operating margins. The ON2 team has done a great job unlocking operational synergies, even in this environment of rapid expansion and disruptions from the pandemic and global supply chains. Despite these ongoing challenges, we expect to maintain our growth momentum into the new year with projections for first quarter revenue up slightly at the low end and up approximately 7% at the high end of our guidance range. But before looking to 2022, let's begin with a few highlights from the fourth quarter, starting with the advanced packaging and specialty device markets, which grew by a very healthy 21% over the prior quarter. Revenue from compound semiconductor and RF manufacturers increased by 140% in the quarter and represented roughly 40% of total revenue from our specialty and packaging customers in the quarter. Our powerful combination of process control technology and process analysis software is delivering higher levels of productivity to our customers and contributed to this strong demand. As an example, a recent customer leveraged our integrated solutions to increase factory output by an estimated 10%. We see similar opportunities to increase productivity for our advanced packaging customers, especially in heterogeneous packaging. For example, by integrating our... In the fourth quarter, we delivered our third StepFast solution to a leading supplier of panel-level fan-out technology used for packaging high-performance 5G devices. We expect to uncover additional opportunities to provide productivity solutions to our JetStep X500 customers as we begin to deliver against our 100 million of backlog. In parallel to heterogeneous packaging, we see a universal acceleration of interconnect strengths, creating demand for more precise metrology and higher resolution inspection systems. The Dragonfly platform meets these new industry demands by providing accurate 3D metrology, clarified reliability, and sub-micron inspection resolution in a single system. In addition, We leverage our software to automate the analysis of these data streams to provide not just critical data, but critical decisions. As a result, revenue for our Dragonfly platform increased 67% over the prior year. Turning to our Advanced Nodes customers, revenue from this market increased 6%, resulting in another quarterly record. Our Atlas platform is proving to be a powerful base for optical metrology. It can be configured to measure everything from the most advanced 3D transistor structures down to common planar films. We see increasing capital intensity for the Atlas platform, especially in advanced logic, where we provide measurement sensitivity required for complex transistor structures such as advanced FinFET and gate-all-around at speeds orders of magnitude faster than X-ray systems. In fact, 60% of our advanced logic revenue in the quarter was to support metrology for the 3 nanometer node. Metrology for DRAM memory represented the strongest growth in the quarter with revenue from several large capacity expansions in Asia. The combination of our Atlas platform and AI diffract software delivers improvements in sensitivity and modeling times by, again, aggregating data from multiple sources. We've shown this hybrid metrology solution provides a five-fold increase in sensitivity for our integrated metrology platform, resulting in a 74% increase in integrated metrology revenue for the advanced nodes in 2021. With several memory customers forecasting additional expansions in 2022, we're optimistic that this growth will continue into the new year. Before we discuss our outlook for 2022, I will turn the call over to Steve to review our financial highlights for the quarter. Steve?

Thanks, Mike, and good afternoon, everyone. I will start by providing some details on our Q4 results and then follow with our guidance for the first quarter of 2022. As Mike mentioned, we had another record revenue quarter. In fact, we had several company financial records this quarter. Our fourth quarter revenue was $226 million above the high end of guidance, up 12% over the last quarter, and up 45% over the same period last year. The revenue growth was broad-based, with metrology, inspection, and software all experiencing record revenue in the quarter. Breaking down the revenue by market, 48% of the sales were in our specialty device and advanced packaging markets, which continued to strength from the previous quarter and increased 21%. That increase was driven by RF, MEMS, and power customers, as well as growth from the OSETs. The advanced node markets represented 33% of sales, with strong memory sales being partially offset by weaker logic foundry sales in the quarter. Finally, software and services increased slightly and represented 19% of revenue. We continued to maintain strong gross margins at 55% in both the third and fourth quarters. Higher revenues, including stronger software sales, were offset by supply chain and logistic cost increases in the quarter. We continue to work on product margin improvement programs and supply sourcing programs to mitigate the impact from the supply chain on our gross margin. The fourth quarter operating expenses was $54.9 million, an increase of $3.3 million from $51.6 million in the third quarter. The increase is primarily due to onboarding of new headcount to support the growth we're experiencing and variable compensation plan adjustments. We continued our quarterly operating margin improvements each quarter since the merger, with a record fourth quarter operating margin of 31% and well within our published long-term operating model on a quarterly run rate basis. We also published a new long-term operating model just after the quarter closed, with revenue targets of $1 billion to $1.4 billion, operating margins of 31% to 36% in those revenue ranges, and earnings power north of $8 per share at the high end of that model. Net income increased in the fourth quarter and was $61.2 million, or $1.23 per share, and above the high end of guidance. In the third quarter, we reported net income of $48.7 million, or $0.98 per share. Moving to the balance sheet, we ended the quarter with a cash position of $511 million, up $50 million from Q3. Our free cash flow for Q4 was $51 million, or 23% of revenue, and for the year we generated $163 million of free cash flow. Accounts receivable decreased to $177 million in the quarter, and our day sales outstanding declined to 72 days. Our inventory increased to $243 million in the quarter on higher planned sales for 2022 and continued acceleration of inventory deliveries as a hedge against supply chain disruptions. Now turning to the first quarter guidance. We currently expect revenue to increase from the fourth quarter and be in the range of $226 to $240 million. As noted last quarter, we currently have several of our new lithography systems which have shipped or are shipping in Q1, with the revenue being deferred awaiting acceptance from the customer. It is currently unclear whether those systems will be accepted by the end of the quarter and recognized as revenue. The high end of our revenue guidance anticipates inclusion of those lithography systems. Earnings per share in the revenue range are expected to be between $1.13 and $1.20 per diluted share, and are partially affected by a reset of our effective tax rate for 2022. We also expect our gross margins to be between 53.5 and 55.5%. As we previously discussed, our new lithography systems will put some pressure on our gross margins during 2022 due to manufacturing inefficiencies as we ramp our production throughout the year. For operating expenses, we are aggressively hiring to support our growth, and typically have higher operating expenses in the first quarter as payroll taxes and other compensation plans reset. Therefore, we're currently anticipating our operating expenses will increase in the first quarter and be in the range of $55.5 to $57.5 million. With that, I'll turn the call back to Mike for additional insight into Q1 and the remainder of 2022. Mike? Thank you, Steve.