Onto Innovation Inc.

Conference is being recorded. At this time, I would like to turn the conference over to Mike Schaefer, Investor Relations. Please go ahead.

Thank you, Rachel, and good afternoon, everyone. Onto Innovation issued its 2023 fourth quarter and full year financial results this afternoon, shortly after the market closed. If you did not receive 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 Mark Fleischer, Chief Financial Officer. I would like to remind you that the statements made by management on this call will contain forward-looking statements within the meaning of federal securities laws. Those statements are subject to a range of changes, risks, and uncertainties that can call actual results to vary materially. For more information regarding the risk factors that impact ON2 Innovation's results, I would encourage you to review our earnings release and our SEC filings. ON2 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 our CEO, Mike Klasinski.

Mike? Thank you, Mike. Good afternoon, everyone, and thank you for joining our call today. As you may have already seen, On2Innovation had a strong end to the year with fourth quarter revenues exceeding the high end of our guidance range. This was primarily due to stronger than projected demand for Dragonfly inspection systems to support packaging of memory and logic devices for AI applications. We expect this demand to continue as reflected in our increased guidance range for the first quarter. Financially, we're starting to benefit from tighter controls and operational efficiencies, which resulted in generating over 28% of cash from operations in the quarter, while still supporting the multi-quarter surge in demand for the Dragonfly systems. We expect improvements in margins will soon follow, bringing us back in line with our long-term operating model by end of the year. So let's begin with our specialty and advanced packaging customers where the boom in AI spending lifted revenue from this market by 17% over the prior quarter and set a consecutive quarterly record. In fact, since the start of the year, quarterly revenue for the specialty device and advanced packaging markets has grown 65%. While on an annual basis, revenues have risen from 220 million in 2020 to just over 500 million in 2023. Several markets have contributed to this growth, including power semiconductors, where demand for our solutions increased 50% this year. But the greatest and most consistent growth has come from our longstanding partnerships with the top semiconductor manufacturers and their increasing investments in advanced packaging, including chiplet and 3D memory architectures. Over the next several years, as these architectures increase in complexity and interconnect density, we expect additional process steps to create the need for more dragonfly inspection and new metrology applications. For example, in the fourth quarter, we shipped several of our newer front-end metrology systems, including echo films and aspect metrology, to leading manufacturers and OSATs for emerging packaging applications. Another highlight for the quarter was our lithography team shipping three systems as planned to two customers supporting mobile and high performance compute applications. To complement our lithography tools and provide additional technology for leading edge panel manufacturers, we announced the availability of our latest Firefly G3 panel inspection system in the fourth quarter. This third generation of our Firefly panel tool now includes all of the metrology capabilities of the Dragonfly G3 and shares the same high-performance optical design. This tool's inspection and metrology capability is being used to qualify glass panel substrates as well as more traditional panels. It is fully integrated with our software solutions, which we expect will help our customers accelerate their ability to reach productivity and yield targets especially for the next generation of heterogeneous packaging technologies. Turning briefly to the advanced nodes, as we projected, revenue from these customers declined in the fourth quarter, and we believe it has finally reached the bottom. Consistent with historical performance, the revenue was split nearly equally between DRAM, NAND, and Logic. Although revenue was light overall, we continued to receive early orders for gate all-around pilot lines, And in the fourth quarter, we received approximately 20 million of additional orders for Atlas and Iris systems for deliveries in the first half of 2024. We're optimistic that these placements indicate a strengthening of our position when volume ramps occur, likely in early 2025. Now I'll turn the call over to Mark to discuss our financial performance in the fourth quarter and guidance for the first quarter.