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 Mr. Michael Schaefer, Investor Relations. Please go ahead, sir.

Thank you, Jenny, and good afternoon, everyone. Onto Innovation issues its 2022 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'd like to remind you that the statements made by the management on this call will contain forward-looking statements within the meaning of the federal securities laws. Such statements are subject to a range of changes, risks, and uncertainties that can cause actual results to vary materially. For more information regarding the risk factors that may impact ON2 Innovation's results, I would encourage you to review our earnings release and our S&C filings. Onto Innovation does not undertake the obligation to update these forward-looking statements in light of new information or future events. 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 Klosinski. Mike?

Thanks, Mike. Good afternoon, everyone, and thank you for joining our first quarter earnings call. I'm pleased to report that the On2Innovation team delivered another record quarter of $241 million, exceeding the high end of our guidance. This represents a growth of 7% over the prior quarter and an impressive 43% over the first quarter of last year. Operating margins at 31% were in line with our long-term operating model, despite the ongoing supply chain challenges, which we'll discuss later in the call. Another highlight for the start of the year is the increase in magnitude of volume purchase agreements with several of our top semiconductor manufacturers. We've now closed agreements for 2022, valued at over $390 million for inspection metrology solutions across front and back-end applications. This represents an increase of approximately 40% over the prior year, exceeding estimates for wafer fab equipment growth by almost a factor of two. We appreciate these expanding partnerships and believe this growth reflects the value of our collaborations and unique combination of software and hardwares delivering to our customers. So let's begin with the review of the first quarter, starting with our Advanced Nodes customers. Revenue from this market grew 36% over the fourth quarter, resulting in an on-to record of $100 million in equipment sales. The strongest growth was from our Atlas metrology platform to support expansions in both DRAM and NAND, each growing by over 70% from the fourth quarter. This demand is a result of both customer expansions and an increasing number of critical layers being moved to the Atlas platform. Many of these new layers are referred to as advanced process controller APC layers, meaning our metrology is being used to directly impact the process and therefore requires higher sampling rates. For these layers, it's essential to have the throughput and the measurement robustness necessary to provide the critical data. The combination of our Atlas platform's industry-leading number of discrete channels and the AI diffract software's unique modeling capability is proving to be one of the best solutions for monitoring complex nanoscale 3D structures in high-volume production. In addition to metrology for 3D structures, The adoption of Iris Cleaner Film Metrology continues to build momentum, and in the quarter we saw Iris Metrology revenue increase with several orders from the new leading NAND customer we announced late in the fourth quarter. We expect additional customers to adopt Iris this year, further expanding our position in this new market segment. Revenue from Advanced Logic customers was down after a very strong fourth quarter and but still significant and roughly the same as our NAND revenue. We're encouraged by the fact that about 40% of the logic revenue was in support of 3-nanometer FinFET process control in R&D and pilot production. We view this as a good early indication for significant future demand when these customers move to higher volumes. Now, turning to the specialty and advanced packaging markets, Our Dragonfly G3 set another record for sales and was adopted by 12 customer sites where we were not previously the inspection process tool of record. These new opportunities spanning both front and back-end applications were opened up because of the high speed and sub-micron sensitivity of the Dragonfly G3 combined with exclusive features like our ClearFind and TrueIDC technology. Adding to that, an emerging need for defect control on both edge and backside surfaces is proving critical for advanced packaging of chiplets and HBM3 memory packages. Current solutions on the market are not meeting the customer's requirements, and to address this need, in close cooperation with the top three semiconductor manufacturer, we developed the EB40, a powerful new module for the Dragonfly G3. The new EB40 module provides high resolution, high speed inspection of these secondary wafer surfaces. The initial success has already led to a volume purchase agreement totaling over 70 million from this customer over the next six quarters. We expect several other customers to adopt this technology throughout the year. We also see investments in interconnect technology to enable panel level packaging for heterogeneous devices. The advantages for heterogeneous devices and system performance, power consumption, and form factor are well documented. However, the current cost and production constraints of legacy and sub-5 nanometer wafers provides another incentive for designers to leverage chiplet architectures to optimize circuitry for specific design nodes and create leading-edge and cost-optimized devices. So to enable this shift to heterogeneous devices, a significant increase in panel manufacturing is required. A JPMorgan Taiwan report estimates that from 2021 to 2025, manufacturing capacity for these finished panels will expand with a compounded annual growth rate of 20%. Processing these panels is complex, with a lot of inherent variation in the processed materials compounded by shrinking interconnects and increasing numbers of layers printed on both sides of the panel. The first two JetStep X500 lithography systems are making steady progress through our customers' product qualification stages, which include qualifying the process. This means that together with our customers, we're working to identify opportunities to improve both the tool and the process. Through this effort, we're also demonstrating ON2's strategic value by broadening the discussions to include process monitoring and control solutions to actively adjust equipment based on the advanced analytics we've developed. We've won two such engagements and expect a third panel yield engagement to be added in 2022. Now I'll turn it over to Steve for the Q1 financial highlights and the second quarter guidance. Steve?