Onto Innovation Inc.

Ladies and gentlemen, good day and welcome to the Onto Innovation third quarter earnings release conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Sidney Ho. Please go ahead, sir.

Thank you, Lisa, and good afternoon, everyone. Onto Innovation issued its 2024 third quarter 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 Placinski, Chief Executive Officer, and Mark Slicer, Chief Financial Officer. I'd like to remind you that the statements made by management on this call will contain forward-looking statements within the meaning of the federal securities laws. Those 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 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 about 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. Let me now turn the call over to our CEO, Mike Lesinski. Mike?

Thank you, Sidney. Good afternoon, everyone, and thank you for joining us today. Overall, we executed well in the third quarter with revenue coming in at $252 million and setting a new quarterly record for inspection. In fact, we're on pace to nearly double our inspection revenue this calendar year. We also improved our gross margin to 54.5% and operating margin to 28%. This resulted in record cash generation from operations of 67 million. Mark will soon discuss these highlights and our outlook for Q4, which was negatively impacted by over 10 million in JetStep lithography pushouts due to customers' capacity needs. But first, we'll review the third quarter highlights, starting with our specialty device and advanced packaging markets, where AI packaging revenue led the inspection business with growth in high-bandwidth memory and offsetting a little less than projected decline in 2.5D logic packaging. Looking ahead, we expect to see increases in volume for logic packaging, as well as an increase in capital intensity for process control to address the growing complexity and need for higher process yields. This includes new demand for our front-end metrology systems, particularly for films and acoustic metrology. In fact, advanced packaging was one of the largest markets for our metrology business this quarter. Revenue from power devices was the second largest market and also set a quarterly record. Growth came from both metrology and inspection process control systems. Our power semiconductor customers continue to focus on driving yield improvements, especially with challenges associated with transitioning to larger wafer sizes, even as end customers demand remains temporarily muted. We expect this focus on yield to continue into next year and at least sustain this record level of revenue. Inspection has clearly been a strong driver for us, and we're expanding our core inspection technology with the tuck-in of Lumina instruments announced earlier today. Lumina is a small company with a very rich background in laser-based inspection technologies used in unpatterned, wafer, and emerging panel applications. Their patented technology will allow us to simultaneously scan top, bottom, and subsurfaces with sensitivities below 100 nanometers for silicon carbide and gallium nitride applications. We believe this technology will also be important for inspection of glass substrates and carriers used in 2.5D and 3D advanced packages where detecting surface defects Buried inclusion defects and residues on the silicon or glass core are important to yield. This new capability is complementary to our patterned inspection technologies with no overlapping capability. And as a result, we expect the new applications will expand our SAM by $250 million annually in the next three years. In addition to Lumina instruments, we announced the acquisition of the lithography business from Kulik & Sofa. With this tuck-in, we add an incredibly talented team with over 200 man-years of lithography experience, 24 issued patents, and eight more pending. Based in Eindhoven, we believe this team and technology will contribute to the acceleration of our Just Step lithography roadmaps and extend our competitive differentiation. We expect the combination of these two small tuck-ins to be accretive to earnings within 12 months and generate up to $100 million in annual revenue in the next three years. For reference, revenue today is negligible. While we strengthen our opportunities in the specialty and advanced packaging markets, we also see recovery from the advanced nodes. As expected, we saw growth in Logic, DRAM, and NAND in the quarter. In addition to our strong position in OCD metrology for these markets, we're seeing solid traction with our film metrology. This year, we're on pace to grow films metrology by over 50% versus 2023. Now, I'll turn the call over to Mark to review our financial highlights and provide fourth quarter guidance.