Onto Innovation Inc.

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 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 report. Let me turn the call over to our CEO, Mike Paczynski. Mike.

Thank you, Sydney. Good afternoon, everyone. Thank you for joining us on our call today. We capped off 2024 with our sixth consecutive quarter of growth and a new quarterly revenue record of $264 million. Growth from the specialty and advanced packaging markets was strong throughout the year, and also culminated in a record fourth quarter led by strong AI packaging demand. Financially, gross margins improved every quarter in the year to end at nearly 55% in the fourth quarter. We'll continue our focus on driving gross and operating margin improvement throughout 2025. Now let's review the fourth quarter business highlights, starting with our specialty device and advanced packaging markets, which grew a healthy 30% for the calendar year. Our largest market overall in the quarter was AI packaging, led by strong growth in shipments to support 2.5D logic packaging. As expected, orders from HBM declined after a record third quarter. However, as HBM order allocations from end markets are becoming clearer between the three main suppliers, we are seeing a pickup in demand to support the growth of 2.5D logic packaging. For the full year, inspection tool revenue for AI packaging more than doubled and was split nearly equally between 2.5D Logic and HBM. To support the growing complexity in advanced packaging processes, customers are adopting more of our front-end metrology tools to improve control in both 2.5D Logic and HBM processes. For the year, our metrology revenue in advanced packaging exceeded $50 million and more than triple that of 2023. And we expect additional growth into the new year. In addition to AI packaging, interest is growing in the panel market, particularly for the use of glass panels for enterprise server and AI applications. We're pleased that in the quarter, Firefly was adopted at two leading panel manufacturers for applications in glass and advanced IC substrates. These leaders selected Firefly technology for the ability of our integrated multi-sensor to solve a variety of application challenges beyond high-resolution defect inspection, ultimately reducing or eliminating manual processes. In addition, the new customers expand our panel install base as they are not currently JetStep X500 lithography customers. This is creating potential opportunities for future cross-selling and the adoption of integrated solutions like StepFast used in panel-level fan-out applications. Also in the quarter, revenue from power devices set another record and was the second largest market in the fourth quarter behind 2.5D packaging. For the year, power revenue grew 10% despite soft end market demand, delaying several customer expansions. During the year, we believe our customers focused on driving yield improvements, and we were pleased our portfolio of solutions and applications experience could contribute to that effort. Switching gears to our advanced nodes markets, we saw our fourth consecutive quarter of growth, momentum we expect will strengthen more significantly in 2025. In the quarter, logic and memory both grew, and as expected, gate all-around revenue was the largest increase, nearly doubling over the prior quarter. In addition to growth for our Atlas OCD tools, demand for our Iris film metrology also increased with successful qualifications in memory, logic, and packaging, reaching nearly $100 million in revenue for the year. We expect demand for our iris films to grow further in the new year as we expand both customers and markets served. Concluding our highlights for the fourth quarter, we've recently launched several new products aimed at strengthening and expanding our opportunities in advanced packaging, advanced nodes, and power semiconductors. These products are in the process of being proven out at several top five semiconductor manufacturers and leading power manufacturers. We expect incremental revenues from these new products starting later this year and more meaningful revenue in 2026 when these products ramp into higher volumes. Now, I'll turn the call over to Mark to review our financial highlights and provide first quarter guidance.

Thanks, Mike, and good afternoon, everyone. As Mike highlighted, we had another strong performance by the ON2 team wrapping up 2024. exceeding the midpoint for revenue and exceeding the high end of our EPS guidance for Q4. Fourth quarter revenue of $264 million increased 5% versus the third quarter and up 21% versus the prior year, with fourth quarter EPS increasing 13% sequentially to $1.51, up 42% versus the prior year. Specialty devices and advanced packaging continued to be the growth driver during 2024, as well as strengthening of advanced nodes, exiting Q4 with sequential quarter-over-quarter growth throughout the year. Before going into further details on our Q4 performance and our outlook for Q1, I'd first like to quickly highlight the full-year financial performance by the team in 2024. We achieved 21% revenue growth, 37% operating income growth. Cash from operations and EPS both achieved 43% growth, twice the rate of our earnings growth for 2024. Now shifting back to Q4 and looking at the quarterly revenue by markets, our biggest market remains specialty devices and advanced packaging, which increased 5% from Q3 with record quarterly revenue of $170 million and represents 64% of revenue. Advanced nodes, which had revenue of $48 million, increased 12% over Q3 and represents 18% of revenue. Software and services with revenue of $46 million decreased by 4% compared to Q3, representing 18% of revenue. As Mike stated, we achieved 55% gross margin for the fourth quarter at the high end of our guidance range of 54% to 55%, while achieving 300 basis point improvements since the beginning of the year. As reflected in our GAAP gross margin, during the quarter, we incurred merger and acquisition-related expenses and restructuring charges relating to the exit and impairment of certain assets as a result of the acquisitions we announced in October. Fourth quarter operating expenses were $68 million at the high end of our guidance range as we continued to accelerate R&D investments within the quarter. Our operating income of $75 million was 29% of revenue for the fourth quarter compared to 28% for Q3. We achieved quarter-over-quarter operating margin improvement throughout 2024, totaling approximately 300 basis point improvements since the start of the year. Our net income performance improved 200 basis points to 28% of revenue for Q4, supported from favorable investment income and tax rate within the quarter. Now moving to the balance sheet, we ended the fourth quarter with cash and short-term investments of $852 million. Cash remained relatively flat to Q3 as we executed $25 million of share buybacks at an average price of $159 per share under our existing $200 million authorization. In addition, we finalized and closed the two previously announced acquisitions. We achieved operating cash flow of 56 million, or 21% of revenue, down from previous record levels for Q2 and Q3, primarily due to the timing of shipments in the quarter. Inventory ended the quarter at 287 million, down 21 million versus Q3 and achieving six quarters of consecutive decline in exiting 2024 below $300 million as projected. We expect to stay relatively flat for the first quarter and expect to maintain inventory levels at 1.7 to 1.8 turns in line with external benchmarks. Now turning to our outlook for the first quarter, we currently expect revenue for the first quarter to be between $260 and $274 million. We expect gross margins will be 54 to 56%. For operating expenses, we expect to be between 69 to 72 million. For the full year, we expect our effective tax rate to be between 14 to 16%. We expect our diluted share count for the first quarter to be approximately 49.8 million shares. Based upon these assumptions, we anticipate our non-GAAP earnings for the first quarter to be between $1.40 and $1.54 per share. And with that, I will turn it back to Mike for additional insights into Q1 and further commentary on 2025. Mike?