NYSE:ONTO Onto Innovation Q3 2024 Earnings Report $122.70 -1.69 (-1.36%) Closing price 03:59 PM EasternExtended Trading$122.38 -0.32 (-0.26%) As of 07:43 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Onto Innovation EPS ResultsActual EPS$1.34Consensus EPS $1.31Beat/MissBeat by +$0.03One Year Ago EPS$0.96Onto Innovation Revenue ResultsActual Revenue$252.20 millionExpected Revenue$250.85 millionBeat/MissBeat by +$1.35 millionYoY Revenue Growth+21.70%Onto Innovation Announcement DetailsQuarterQ3 2024Date10/31/2024TimeAfter Market ClosesConference Call DateThursday, October 31, 2024Conference Call Time4:30PM ETUpcoming EarningsOnto Innovation's Q1 2025 earnings is scheduled for Thursday, May 8, 2025, with a conference call scheduled at 4:30 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by Onto Innovation Q3 2024 Earnings Call TranscriptProvided by QuartrOctober 31, 2024 ShareLink copied to clipboard.There are 10 speakers on the call. Operator00:00:00Ladies 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. Speaker 100:00:14Thank you, Lisa, and good afternoon, everyone. ON2 Innovation issued its 2024 Q3 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 Placzynski, Chief Executive Officer and Mark Slizer, 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. Speaker 100:00:47Those 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 Onto Innovation's results, I would encourage you to review our earnings release and our SEC 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. Speaker 100:01:28Let me now turn the call over to our CEO, Mike Lesinski. Mike? Speaker 200:01:33Thank you, Sydney. Good afternoon, everyone, and thank you for joining us today. Overall, we executed well in the Q3 with revenue coming in at $252,000,000 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%. Speaker 200:01:57This resulted in record cash generation from operations of $67,000,000 Mark will soon discuss these highlights and our outlook for Q4, which was negatively impacted by over $10,000,000 in JetStep lithography push outs due to customers' capacity needs. But first, we'll review the Q3 highlights starting with our specialty device and advanced packaging markets, where AI packaging revenue led the inspection business with growth in high bandwidth memory, 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. Speaker 200:02:57Revenue from power devices was the 2nd 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 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 are expanding our core inspection technology with the tuck in of Lumina instruments announced earlier today. Speaker 200:03:38Lumina 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 you. This new capability is complementary to our patterned inspection technologies with no overlap in capability. And as a result, we expect the new applications will expand our SAM by $250,000,000 annually in the next 3 years. Speaker 200:04:37In addition to Lumina Instruments, we announced the acquisition of the lithography business from Kulicke and Sofa. With this tuck in, we had an incredibly talented team with over 200 man years of lithography experience, 24 issued patents and 8 more pending. Based on Eindhoven, we believe this team and technology will contribute to the acceleration of our JetStep lithography roadmaps and extend our competitive differentiation. We expect the combination of these 2 small tuck ins to be accretive to earnings within 12 months and generate up to $100,000,000 in annual revenue in the next 3 years. For reference, revenue today is negligible. Speaker 200:05:17While 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 4th quarter guidance. Speaker 300:05:51Thanks, Mike, and good afternoon, everyone. As Mike highlighted, we exceeded the midpoint of our revenue and EPS guidance, executing towards the high end of these ranges due to better than expected demand for advanced packaging for AI devices, gate all around investments in advanced nodes and stronger software and services within the quarter. We achieved another record operating cash flow of $67,000,000 for the 2nd straight quarter. Operating cash flow yielded 27% represents more than doubling of operating cash during the same period last year. 3rd quarter revenue of $252,000,000 was up 4% versus the 2nd quarter and up 22% versus the prior year. Speaker 300:06:28The 3rd quarter EPS increased 2% sequentially to 1.34 and up 40% versus the prior year. Looking at the quarterly revenue by markets, our biggest market remains specialty devices and advanced packaging, which was down slightly from Q2 with quarterly revenue of $161,000,000 and represents 64% of revenue. Our biggest sequential increase was Advanced Nodes, which had revenue of $42,000,000 increased 32% over Q2 and represents 17% of revenue. Software and services with revenue of $49,000,000 increased 5% over Q2, representing 19% of revenue. We achieved 55% gross margin for the 3rd quarter at the high end of our guidance range of 53% to 55%, driving more than 100 basis point improvement over the 2nd quarter and over 300 basis point improvement since the beginning of the year. Speaker 300:07:213rd quarter operating expenses were $67,000,000 exceeding the high end of our guidance range as we accelerated our ramp in R and D investments within the quarter, extending our product capabilities in integrated metrology and technology differentiation to expand our 3 d metrology for advanced packaging applications. Our operating income of $70,000,000 was 28% of revenue for the 3rd quarter compared to 27% from the 2nd quarter. We achieved quarter over quarter operating margin improvement with 3 consecutive quarters totaling approximately 300 basis point improvement since the start of the year. Our net income performance also 26 percent of revenue was supported from favorable investment income resulting from our increased cash balance. Now turning to the balance sheet. Speaker 300:08:08We ended the second quarter sorry, we ended the Q3 with cash and short term investments of $855,000,000 achieving operating cash flow of $67,000,000 and converting 100 percent of our operating cash and operating income into cash. Inventory ended the quarter at $308,000,000 down $12,000,000 versus Q2 and achieving 5 quarters of sequential decline. We expect further inventory reduction of another $8,000,000 to $10,000,000 for the 4th quarter as we Speaker 100:12:25We are holding for the ONTU Innovation. We are just experiencing brief interruption in today's conference. Please continue to Operator00:13:31You may continue the conference, sir. Speaker 200:13:34Okay. Well, thank you very much. Hopefully, everybody is still on the line. And I will finish my prepared remarks and we'll go to questions. So in summary, we're aligned to several diverse end market drivers, and we're well positioned to leverage our portfolio of inspection metrology and software to solve manufacturers' customer our manufacturing customers' high value problems. Speaker 200:13:57Through close customer collaborations, we have many exciting new product launches, such as 3 d Bump Metrology, which we recently delivered to a leading memory manufacturer and void inspection for wafer bonding applications that we expect to ship this year. In addition to the organically developed technology, our recent tuck ins further enhance our both our portfolio of synergistic technologies and the markets that we can pursue. Combining the outlook for the end markets we're serving with our new product opportunities, we expect another solid year of growth in 2025. And that concludes our prepared remarks. Lisa, please open the call for questions from our covering analysts. Operator00:14:41Thank you. And our first question comes from Brian Chin with Stifel. Speaker 400:15:02Hi there. Speaker 500:15:03Thanks for letting us ask a few questions. And also just FYI, Mike, I think where you picked up versus where Mark may have left off, I think there might have been a break there in terms of some of that content, but just FYI. Anyways, back on script here. The So TSMC effectively ran out of space to expand its COAS footprint this year, but the demand is very high. And so I was kind of curious, what do you currently see as timing for when that activity could pick up again? Speaker 500:15:41And when you combine that with the visibility you have on gate all around expansion, how confident are you that ONTU revenue will show further improvement from existing levels moving into first quarter or first half of next year? Speaker 200:15:57Good question. We're I'd say highly confident. We're confident in revenues growing from here as we move into the first half of next year. And it's driven by not just gate all around, but we also mentioned DRAM capacity expansions that we're seeing to support both the enterprise server starting to pick up a little bit, but also the lack of capacity due to supporting all of the HPM growth. So we see both. Speaker 200:16:30And as far as the TSMC or sorry, the yes, what you mentioned TSMC, the cost expansion, they have been very aggressive at adding the capacity. We did mention on the prepared remarks that may or may not have made it out there that we expect the 4th quarter to see a fairly significant increase, while the HBM maybe is a little more muted in the Q4 from an AI packaging perspective. So they're already starting to find space to add capacity and we expect that to be remain fairly strong in the first half. Speaker 500:17:12Okay, got it. And that's helpful. And so maybe a little bit earlier customer readiness from that standpoint to take equipment, it sounds like. And then in terms of that $10,000,000 lithography delay, was that customer driven? Any other sort of color behind that? Speaker 500:17:32And when has that been rescheduled to? Speaker 200:17:38We're not clear on the reschedule. So that's still being discussed. But yes, it was customer driven based on their needs. The tools are ready to go. Speaker 500:17:53Okay. Got it. And maybe just kind of one more question in broader strokes. KLA last night on its earnings call, in addition to sort of being pretty upbeat on process control intensity they're seeing at TSMC as that customer shifts from pilot to high volume production. They also expressed a lot of confidence based on the higher process control intensity that they would outgrow WFE in 2025. Speaker 500:18:23And so when you look at that, again, that high process control intensity both for gate all around expansions as well as COOS, advanced packaging maybe HBM. I guess how much confidence do you have in On2's ability to outgrow WFE again in 2025 like you did in 2024? Speaker 200:18:45Well, it depends on what you're expecting WF to be. But if it's in this 5% to 10% range, which is where I think most of the consensus is landing, then we're highly confident in outperforming those numbers, for the same reasons. And I did talk about increased process control intensity, especially in the area of Q and A, logic or AI packaging, based on the complexity of the process as well as the needs for much better yields. These are very expensive devices and any yield issue across any of the products is going to drive a pretty expensive loss. So yes, there's a lot of process control intensity. Speaker 200:19:35And yes, we're seeing that as well. And they're still learning. So a lot of the capabilities of our Dragonfly with the many different sensors, we see the customers working with us to combine different sensors to find the solutions and metrologies that don't exist today in any other tool. So there's a lot of learning that's going on through our collaborations with the customers. Speaker 500:20:04Thanks. I appreciate the opportunity for any follow ups. Thanks. Operator00:20:15And our next question comes from Vedva T. Sirota. Please go ahead. Speaker 600:20:22Hi. Thanks for taking my question. So the first thing I wanted to ask about is last quarter you had talked about volume purchase agreements for gate all around nodes, I think they were roughly $120,000,000 Can you give us an idea or a sense of how that splits out between customers given that some of the leading edge customers are now facing issues with their gate all around transition. So has your visibility on those VPs changed? Is there any conversation changes where you may not get that whole €120,000,000 Speaker 200:21:11Not to any major degree, no. In fact, we continue to work off some of that VPA. There's still quite a bit left for 2025 and our backlog continues to strengthen and look relatively good across the board. So no, I would say that, yes, there's certainly some movement by some customers, but our position remains strong and growing or strengthening, I should say. Speaker 600:21:44Is it primarily because of the leading foundry customer being strong? Is that a way to think about it? Speaker 200:21:55That's one, but we did mention that the number we talked about were 2 customers and both look still strong. Speaker 600:22:05Okay. Understood. So now maybe on changing tracks on the HPM kind of a ramp, What's the visibility you have on the HPM capacity additions? Like one of the things Teradyne pointed out on their call is they're seeing HPM capacity additions could be muted next year as in the growth for Teradyne's HPM revenues could be muted next year. What is your sense or visibility into how that HBM piece of the business goes into or the trajectory of that business into 2025? Speaker 200:22:48Well, I also mentioned that in my remarks around we're seeing a quite an increase, a doubling in capacity from the 2.5 D logic side. And last quarter, we talked about HBM increasing. So that alone would drive an increase, an expected increase in HBM. And then, of course, you have an additional intensity, an additional number of HBM around each GPU for the new latest devices. That said, we also see, let's say, we're not seeing movement on HBM expansion yet. Speaker 200:23:34And so I echo that and that's what I mentioned in the prepared remarks is that it's not clear yet, but we would expect that some kind of expansion would have to follow to support all of that new 2.5D logic that's coming on board. My guess is there could be still some conservatism by the players and still trying to understand who's going to win what share from, let's say, the major driver, the major end customer. And so they're careful with the capacity expansions. That's my guess, but I don't know, but we are seeing that muted behavior from HBM right now. Speaker 600:24:21Got it. That's fair. And then the last one I had was on the power semiconductors, could you help us understand sort of the size of that revenue opportunity for you? And given that we're seeing a big downturn in the auto market, but your inspection revenues continue to be strong on the power side, it'd be great if you could provide like what's the disparity there? What continues to drive your revenues versus we're seeing CapEx cuts across the board? Speaker 200:24:56Yes. I mentioned it the last couple of quarters. It's all about driving yields and sort of creates a impact on yields and sort of creates a requirement for additional process control or better process control capabilities. So we're seeing some of that. And then I think it's pretty well publicized that the yields in general are not that high. Speaker 200:25:31So customers tend to want to if they want to increase output or prepare for increased output, they can focus on yield instead of adding just capacity and throwing away. So that makes them more profitable when they do actually ramp. Speaker 600:25:50So how should we think about the opportunity for you as in kind of the size of the business or any color there would be helpful? Speaker 200:26:02Well, we don't break it all down there, but it's becoming one of our top markets behind AI packaging in the specialty and advanced packaging market. So I think it is number 2 in that space. Speaker 600:26:20Thank you. I'll get back in the queue. Operator00:26:25And we'll move to our next question from Edward Yang with Oppenheimer. Speaker 700:26:32Hi, Mark. Hi, Mike. Hi, Mark. Congrats on a great quarter. Just wanted to drill down a little bit deeper into your outlook into 2025. Speaker 700:26:43You're expecting continued growth there and outpacing WFE. But obviously this year you're looking for revenue to grow about 20% and that's well a multiple of how much WFE grew this year. So thinking about all the different puts and takes, what are the things that give you confidence or less confidence? And will you can you size up again? Are there any reasons why growth should meaningfully accelerate or decelerate from your 2024 run rate? Speaker 200:27:22I would say since I said we'd grow, there'd be a meaningful acceleration and that would be an advanced nodes for sure. That's been bouncing along the bottom and now we've talked about gate all around opportunity expansions, but we now also are starting to see and gain more confidence in DRAM, additional DRAM capacity and growth there, driving our advanced nodes. So we see that staying growing quite nicely. The AI packaging for sure gate all around and the process control intensity and volume increases there is creating opportunities. We'll see what happens with the HBM, does it stay muted or not? Speaker 200:28:08If not, I think there'll be some significant growth there. I don't see how it could stay as it is if the COOS essentially doubles. So we'll see, but that's that. And then we talked about the Power Semi. And in there, I said we would at least sustain these record levels in the prepared remarks, which implies we would expect to exceed and set new record levels. Speaker 200:28:36So this would be a floor for us. And so that will be another growth driver for us as we look at 2025. Speaker 700:28:46And just to clarify, when you say accelerate, I mean, do you mean accelerate off of a 20% revenue growth rate? Speaker 200:28:55Yes, good point. No, I'm not trying to imply we'd grow above 20%. No. So I should have used the word not accelerate. And Speaker 700:29:10one of your larger foundry customers signed an advanced packaging deal with an OSAT in Arizona earlier this month. Does this have any relevance to your order book? And again, can you speak to the broader ability of your customers to place tools at this point? It seems like things are loosening up a little bit. Is space still a bottleneck? Speaker 200:29:36Things are loosening up. So there's new capacity coming up. But even signing that deal, there's timelines to transfer and to qualify and to bring in tools, etcetera, which some of it's in process. So but there's not an immediate like a launch, right? So yes, it's all part of the breaking of the current bottlenecks in the COOS capacity. Speaker 200:30:03There's also actions being taken by that large customer as well internally. And there's been discussions about the Intellix purchase. And in my prepared remarks, I did mention Q4, we see a nice big uptick from the gate all around sorry, for the 2.5D logic packaging, and we expect that to maintain pretty healthy in the first half. Speaker 700:30:33And just a final question maybe from Mark. I saw the SG and A ticked up a little bit sequentially and is that a good run rate going forward or was there any extra spending in there that impacted the quarter? Speaker 400:30:49Yes. I mean, I would think our Speaker 300:30:50goal is to hold total OpEx in line or better than Q3. So I'd use that run rate from Q3 into Q4. In my prepared remarks, which might have been abbreviated, our goal is to drive offsets to the cost of the tuck ins within Q4. So we can our goal is to stay at those levels for Q4 or better. Speaker 400:31:18Thank you. Speaker 700:31:20Thanks. Operator00:31:22And we'll move to our next question from Meyer Popuri from B. Riley Securities. Speaker 800:31:30Yes. Hi there. I'm actually on for Craig Ellis. But you mentioned packaging pickup in the Q4. Is that kind of related to the increased complexity needs as we move into this RDL based packaging? Speaker 800:31:47Or is it more to do with just general volume increases? And if it's to do with this, LDL based packaging increase, is that a trend that we can expect to continue as RDL picks up over the incumbent? Speaker 200:32:01I think the complexity increases is from 2 things a couple of things. 1 is, yes, they're introducing some new processes that they've talked about. But 2 is yields haven't been yields have room to improve. So they're also looking at areas that could be impacting yield and how can they measure. So you can't fix what you can't see. Speaker 200:32:25So how can we see help them see what is impacting yield so then they can make the adjustments and fix it. And that dynamic is also in play and that's where I mentioned the incredible breadth of capability we have on the Dragonfly platform to bring to bear different types of sensors and metrologies and inspection in order to combine that data and see things that you wouldn't see on any single tool. So that provides new insights into the yield opportunities to improve. Speaker 800:33:06Okay. Yes, right. No, that's a great answer. So I have a question on the flies, the Dragonfly and the Firefly. Obviously, they're really capable tools in 2 d metrology, but you've also pointed out before how they're incredibly capable in the 3 d inspection space. Speaker 800:33:21Do you see that kind of picking up share? I know you mentioned one memory customer who wanted it for these 3 d inspection processes. Do you see that 3 d inspection aspect to these tools picking up? Speaker 200:33:36So there's localized 3 d capability, which is very powerful and we use that for high aspect ratio 3 d, very high precision metrology. That is part of the 2 d applications. What I was talking about was 3 d bump metrology and that's early that's still early stages. So it's too soon to predict how big or how much that could be. It depends on adoption rate and how well we do in production. Speaker 200:34:07The tool we shipped is an evaluation tool. So they'll now based on the data exchanges we've had and all the wafers we've run for them in our facility, they now want to take the tool on-site, prove it in production and then hopefully we start to see revenue. And that's probably 3 to 6 to 9 month on the outside type process. Speaker 800:34:34All right, got you. That's yes, I hope that goes well. And then about those volume purchases that we Speaker 200:34:40announced And we sorry, we do I was going to say we do expect to ship additional tools in the Q4 to additional customers for evaluation. Speaker 800:34:52And that's evaluation on 3 d? Speaker 400:34:55Yes. Speaker 800:34:57Okay, great. And again, about those volume purchase agreements, so we were talking about last quarter, I forgot exactly who asked this question, but there was some talk about how these might convert into kind of larger agreements in the future. Is there any progress there in terms of kind of converting these initial agreements into perhaps larger partnerships going forward? Speaker 200:35:23I think what I might have said is that we would expect perhaps additional revenue through the year. And right now, they're still working on this. So I think it will they got to cut through this and then we'll see what happens in the second half of the year. But that's still my projection. I wouldn't if I was going to bias it, I'd bias it towards they're going to need some additional tools in the second half versus not. Speaker 800:35:57Okay. Thanks so much. Yes, that's all I have. Thanks for talking to me. Speaker 200:36:03My pleasure. Operator00:36:05And our next question comes from Charles Shi with Needham. Speaker 400:36:10Hey. So you guys got to cut off the big chunk of the prepared remarks. We actually didn't hear. So maybe, Mark, can you kind of repeat what the Q4 guidance line by line was in your prepared remarks? Because I think it's kind of important that if you can repeat for us, that would be great. Speaker 400:36:30Hopefully, this doesn't count as a question. Speaker 300:36:35No, thanks. Yes. So I mean, I'll just start out Charles, I'll just start out at inventory. So inventory ended the quarter at $308,000,000 down $12,000,000 versus Q2 and achieving 5 quarters of central decline sequential decline. We expect further inventory reduction of another $8,000,000 to $10,000,000 for the Q4 as we project to be below $300,000,000 as we exit 24, which will be a $50,000,000 reduction from our peak of 2023 inventory levels. Speaker 300:37:05As we look at the Q4, we currently expect revenue for the Q4 to be between $253,000,000 $267,000,000 dollars We expect gross margins will be 54% to 55%. With our inventory still above our target level, this is delaying our ability to cut in the supply chain cost reductions as we continue to prioritize the burn down of existing component levels. For operating expenses, we expect to be between $66,000,000 to $68,000,000 as we look to hold OpEx flat or better versus Q3 as we optimize R and D to minimize the cost impact of the tuck ins we announced earlier. For the Q4, we expect our effective tax rate to be between 15% to 16%. We expect our diluted share count for the Q4 to be approximately 49,800,000 shares. Speaker 300:37:53Based upon these assumptions, we anticipate our Speaker 400:38:05Yes, yes, thanks. Speaker 200:38:05So, I'm trying to Speaker 400:38:08Yes, thanks. So, I'm trying to connect the dots here, Mike. Over the last quarter, let's say, 3 months, 2 out of the, let's say, 4 leading edge customers you have, have had a pretty tough news coverage, their struggles and the potential pressure on CapEx. But we know that your leasehold, which unfortunately has been quite often a downside contributor to your quarterly earnings for the past 1 year, 1.5, Has a lot of sales tied into those 2 customers? Am I connecting the dots right here because I would be thinking maybe some of the push out or maybe it looks sounds like it's more like I mean it's delayed to unknown date. Speaker 400:39:12It's really tied to these 2 customers. So is that anything to do with the CapEx cut that they could be going through? Speaker 200:39:27So I don't know which 2 customers particularly you have in mind, it doesn't matter too much. I think if you look at the substrate market where this where the lithography tool plays, there was massive, let's say, bottlenecks that several of the enterprise server customers, manufacturers complained about publicly that they were supply constrained by lack of substrates. And so there was a really, really aggressive expansion through 2022, maybe a little bit into 2023. And then as we all know, the markets really softened, especially for enterprise high performance compute. And so NVIDIA's the AI is the big engine now and that's on the wafer basis. Speaker 200:40:23So that capacity, that excess capacity is starting to be picked up and we see a little bit of pickup, but it's still off of a kind of a low base. You can see that reflected in the end in the comments I made about DRAM and the strength we're seeing now in DRAM. And that's driven by some of the enterprise hyperscalers and some enterprise compute warming up. So I'm not sure if that answers your question, but I'm not sure what you're trying to get at. Speaker 400:41:00Yes. Okay. Okay. So it sounds like you think the push out is probably more of the cyclical factor at play rather than anything that's structural. I mean, those two customers are probably having more of a structural problem than the cyclical problem. Speaker 400:41:15That was what I'm trying to figure out. Speaker 200:41:20Yes. I think it's more Speaker 400:41:23yes. Go ahead. Yes. So the other thing I do want to talk to you about really is the AI Packaging business. I think last quarter you talked about maybe second half this year, roughly 10% below the first half level, combining 2.5D and HBM. Speaker 400:41:48And based on what you said, it sounds like in Q3, HBM was okay, 2.5D was down a bit, Q4, 2.5D coming back up, but HBM a little bit more muted. But do you still view that minus 10%, half over half the right number? Is it is there any upside or downside to that number so far based on what you see? Speaker 200:42:12Yes, that's a good question. It was in my prepared remarks, which of course no one seemed to have heard. But it was I did say that it's cut in half. So things have if I had said that 5% to 10%, it's about half of that now as far as the down goes. It's about half of the decline that we originally projected. Speaker 400:42:35Okay. Okay. Okay. It's roughly 5% down compared with the first half level. And the first half twenty twenty five, because allow me to finish this question. Speaker 400:42:49You kind of said that you expect that they will be higher than second half twenty twenty four level. Based on the order intake, based on the customer indications, do you still feel like that's about the right like first half twenty twenty five higher than second half twenty twenty four, but still have to wait and see if you can exceed the first half twenty twenty four level? Speaker 200:43:16This is for AI Packaging specifically? Speaker 400:43:20AI Packaging, yes. Speaker 200:43:24Yes. I think for Logic, it's going to be relatively healthy. So maybe at the same level, I'd have to double check. But the real question mark is the HBM piece. As we mentioned, we see that muted right now, though when we look at the expansion on the 2.5D Logic side, it's hard not to expect expansion on HBM to keep up. Speaker 400:43:59Got it. Thanks, Mike. Speaker 200:44:03You're welcome, Charles. Operator00:44:06And our next question comes from Mark Miller with The Benchmark Company. Speaker 900:44:12Congrats on your another good quarter. I was just wondering, can you give us a feeling for what you're expecting in China and Korea next year? Speaker 200:44:25Korea, we can say I mentioned DRAM and the DRAM growth. So you could guess that Korea would participate in that. China, we expect I mean, we're already relatively de risked in China. So we're around the 10% to 15% range. And I would expect to be in that same range maybe yes, I would expect to be in that same range. Speaker 900:44:54So 10% to 15% of sales from China next year? Speaker 400:44:58Yes. Thank you. You're welcome. Operator00:45:05And our next question comes from David Duley with Steelhead Securities. Speaker 900:45:11Yes. Thanks for taking my question. My first question is on the NAND market. Your big Korean HBM customer also plays in that market. I think they're talking about their SSD business being up 20% sequentially and 4 30% year over year. Speaker 900:45:29Lam is talking about a big upgrade cycle to move up in the number of layers. So we're not seeing wafer new wafer starts added, but we're seeing a big upgrade cycle. And I was just wondering how you might participate in that? Speaker 200:45:46We see NAND growing for us in 2025. And on a percentage basis, it would look very impressive. But it's still off of a very small base. So we don't see NAND recovering. So it's probably, as we mentioned a couple, I think now 2 quarters ago, it's really the high level, high stack NAND to support AI devices and AI server farms, the high speed data. Speaker 200:46:16So that's essentially what we see. As far as the high stack and then the more layers mean a lot more of our process control, not as much. So the capital intensity will there'll be a couple of extra steps in there and that's where the Aspect metrology comes into play. But we don't see any massive increases in, let's say, our OCD metrology as a result. Speaker 900:46:50Okay. And my second question is kind of around the high bandwidth memory market. I realize your customers aren't giving you a lot of visibility, I guess, into when they might expand the capacity. But when you think about I think you've highlighted this, the number of chips per GPU is probably going to double with Blackwell versus Hopper. You got them stack it going from stacking 8 to 12. Speaker 900:47:17And you also have Micron ramping up and I think Samsung just announced yesterday or the day before that they're close to signing their agreement with NVIDIA as well. So I'm kind of curious why you wouldn't be much more positive about the growth in that end market given all the unit volume growth and more customers coming online. And is there anyway, just maybe you could elaborate a little bit more. Speaker 200:47:46What makes me positive is orders. So I see all the activity and I like our position and we're trying to expand our position with the work we're doing on the 3 d metrology. So going after more, let's say, wallet share. But we're not seeing the orders yet. And as I mentioned, I think earlier that there's some conservatism with these customers. Speaker 200:48:13If everyone's ramping and qualified, they may not know yet what share they're going to have and how much they want to expand in order to serve that share. I'm sure NVIDIA is working them all against each other. So I don't know if that's just a guess, but yes, when I start seeing orders, I'll get a lot more confident. What we can do is look at the model and say, hey, the capacity we see is not matching the demand that that 2.5D upgrade or expansion is going to need. So something has to give. Speaker 900:48:48And you keep highlighting how all the CO OP capacity expansion should mean that HBM capacity expands. I think I understand what you're saying, but could you just elaborate a little bit more on that? Speaker 200:49:02Well, if the markets were at perfect equilibrium and we're going to double the 2.5D Logix side and we're saying that for each 2.5D Logix, the amount of HBM around it is going to increase, let's say, a factor of 2, like the number you use. That's a 4x increase in D or HBM that would be required. That's just if everything was in equilibrium. So now you have to say, okay, well, some capacity was added, not everybody got cut into, let's say, the NVIDIA supply chain early on. So who's going to win? Speaker 200:49:44How much excess capacity is there? I mean, we try and model this out. But to us, no matter how we look at this, it looks like some capacity expansion is going to be required. Speaker 900:49:56Yes. Okay. And two final questions. What are your lead times for your HBM inspection tools? And the second question is, a lot of this co op capacity that's going to come online is not necessarily going to come online at TSMC. Speaker 900:50:11If you listen to ASC, they're ramping up as fast as they can, as TSMC's partner to expand co ops. And there's another question earlier about Amcor, but that's a couple of years out, I would think. Do you benefit from capacity expansions at the Taiwanese OSATs the same degree that you would benefit from capacity expansions at TSMC for 2.5 de packaging? Speaker 200:50:38If they run the exact same process, then yes. That's yet to be determined. So we are benefiting. We are seeing engagement. We are getting orders. Speaker 200:50:53Obviously, not to the same degree right now as the leader that you mentioned, but they're also nowhere near I mean, they're not even ramping yet, right? They're just starting to ramp. So I would say that remains to be seen. But again, yields are yields. It's hard to believe anyone's going to have better yields or better process than TSMC. Speaker 200:51:19So my guess is we'd see at least an equivalent process control intensity. Speaker 400:51:26Okay. Thank you. Oh, and the lead time? Speaker 200:51:31Lead time. Well, I was not going to answer that anyway, but I would say we're looking at 3 months or so. It's definitely increasing. The volume has gone way up. But as we've always mentioned, we build to a forecast to the extent we have a good forecast data. Speaker 200:51:51We can adjust lead times. But things are ticking out a little bit because of the such strong demand we have right now. Speaker 900:52:02So with that kind of short lead time, obviously, if a customer came in and want a bunch of tools, you have the capacity to meet that order? Speaker 200:52:13Yes, we work hard to make sure we do. I mean, no one expected us to have to double the capacity output for Dragonflies this year and yet that's essentially what we've done. So yes, the teams are outstanding at getting creative, reducing cycle times, leveraging our supply chain partners and making sure we serve our customers. Speaker 300:52:38And as we've commented before, we have the capacity within our manufacturing to do that. Speaker 900:52:45Excellent. You guys, we appreciate the excellent execution. Speaker 200:52:52Thanks, David. Thank you. Operator00:52:54And we'll take our last question in queue from Brian Chin with Stifel. Speaker 400:53:01Hi there. Speaker 500:53:05It wasn't really a question, but what I was going to suggest or maybe just put out there is that, I appreciate Mark repeating the complete Q4 guidance. And I was going to ask Mike, if you had substantive commentary after Mark's guidance, I think we missed pretty much all that. So if there was something there, it might be worth repeating. If not, then no bother. I just wanted to throw that out there. Speaker 200:53:37Sure. I can yes, Brian, we're just aligning to where on the his prepared remarks was cut to be picked up. Give us one. Yes. So essentially, I had said that demand for process control and AI packaging, gate all around power semiconductors remains quite strong. Speaker 200:53:58Specifically with AI Packaging, we see improvements over our prior second half twenty twenty four projections. And this I've already mentioned, so that I'll skip. And I mentioned that's helping to offset that added growth in the AI packaging is offsetting the $10,000,000 push out that we had expected from the lithography. So in fact, we would have been a significant beat. And then I mentioned that the market leader in AI logic packaging recently announced a doubling of 2.5D logic capacity for next year. Speaker 200:54:33Though not yet certain, we would expect to see orders with supporting HBM memory to also improve to support this growth in logic, again, something we discussed. And I mentioned that the growth in high bandwidth memory has taken a meaningful amount of capacity away from standard DRAM as HBM requires roughly 3 times more wafer capacity. And this in turn is contributing to an expansion and advanced DRAM to support a recovery in enterprise servers and investments by hyperscale customers, which we expect to see or benefit from more meaningfully in the first half of twenty twenty five. Yes, I think that's the essential message. I tried to bring that all in when I answered some of the questions. Speaker 500:55:18Okay. Yes, yes, I think we're able to incorporate some of that. No, I appreciate that. Maybe just maybe one last question against that. I know you don't dictate your customers' intake and demand and shipment timing, but to the extent that you kind of can have some I guess, modulation here where kind of one customer is bigger, another customer maybe subsides for a quarter or 2 or whatever the case is. Speaker 500:55:48I guess that alleviates sort of your manufacturing upward pressure on your manufacturing footprint. To the extent you may have HBM stronger in the same period that COOS is strong, do you have that ability to flex upwards in terms of higher output in manufacturing? Speaker 200:56:05Yes, we absolutely do. I mean, we're not even running full second shifts, let alone 3rd shift. So that alone, if we made no other improvements would allow us to significantly increase capacity. So we absolutely do. There's other things we're working on. Speaker 200:56:22I mentioned working with supply chain partners. So we're moving some of the less skilled or more some of the sub assemblies to partners, where we can take that off and free up the floor and free up our higher trained technical people, so to focus on the more difficult integration. So yes, we definitely have the ability to serve the customers and their needs as they grow. Speaker 500:56:53Yes. And maybe just to clarify one comment you made. I think you said backlog continues to strengthen. So it sounds like you're running a positive book to bill with orders ahead of revenue across the business? Speaker 200:57:07Well, we don't I don't have it exactly in front of me. I just mentioned the backlog has strengthened. So we don't really report on it. But I knew people would be concerned around or asking about the VPA and what does that mean? How is that being worked down? Speaker 200:57:22And in fact, we continue to grow our backlog even as we work through that BPA. So to me, that was a comment just to indicate we still see strong demand and not much softening, at least in the areas we're focused on right now. Speaker 500:57:40And I imagine even the fact you have that VPA and HBM is a portion of that, I guess that does give you some comfort that some of that activity is still on the come next year? Speaker 200:57:55Yes, for sure. I didn't say it would go to 0. HBM is still going to be there. I just think it could be even stronger based on the demand supply models we have between the 2.5 D logic and the HBM. Speaker 700:58:13So Speaker 400:58:13hopefully there's some upside we can talk about in future quarters. Speaker 500:58:17Appreciate that. Thank you. Operator00:58:21And ladies and gentlemen, this concludes today's Q and A session. I'd like now to turn the call back to Sidney Ho for any additional or closing remarks. Speaker 100:58:30Thank you. We will be participating in a number of investor conferences throughout this quarter. We look forward to seeing many of you there. A replay of the call today will be available on our website at approximately 7:30 Eastern Time this evening. We'd like to thank you for your continued interest in Onsu Innovation. Speaker 100:58:47Lisa, please conclude the call. Operator00:58:51And ladies and gentlemen, this concludes today's call. Thank you for your patience and your participation. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallOnto Innovation Q3 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) Onto Innovation Earnings HeadlinesBlackRock, Inc. Reduces Stake in Onto Innovation Inc.May 6 at 12:03 PM | gurufocus.comOnto Innovation's (ONTO) Neutral Rating Reiterated at Cantor FitzgeraldMay 6 at 2:05 AM | americanbankingnews.comElon just did WHAT!?As you may recall, Biden and the Fed were working on a central bank digital currency, or CBDC. Had they gotten away with it, the Fed and U.S. banks could have seized control of our financial lives forever. But Trump stopped them cold on January 23rd, 2025, when he outlawed CBDCs… Paving the way for Elon Musk's secret master plan.May 6, 2025 | Brownstone Research (Ad)Cantor Fitzgerald Downgrades Onto Innovation (ONTO)May 5 at 3:16 PM | msn.com4ONTO : Onto Innovation Stock: A Deep Dive Into Analyst Perspectives (10...May 5 at 3:16 PM | benzinga.comOnto Innovation price target lowered to $180 from $280 at B. RileyApril 22, 2025 | markets.businessinsider.comSee More Onto Innovation Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Onto Innovation? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Onto Innovation and other key companies, straight to your email. Email Address About Onto InnovationOnto Innovation (NYSE:ONTO) engages in the design, development, manufacture, and support of process control tools that performs optical metrology. The company offers lithography systems and process control analytical software. It also offers process and yield management solutions, and device packaging and test facilities through standalone systems for optical metrology, macro-defect inspection, packaging lithography, and transparent and opaque thin film measurements. In addition, the company provides process control software portfolio that includes solutions for standalone tools, groups of tools, and enterprise-or factory-wide suites. Further, it engages in systems software, spare parts, and other services, as well as offers software licensing services. The company's products are used in semiconductor and advanced packaging device manufacturers; silicon wafer; light emitting diode; vertical-cavity surface-emitting laser; micro-electromechanical system; CMOS image sensor; power device; analog device; RF filter; data storage; and various industrial and scientific applications. 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There are 10 speakers on the call. Operator00:00:00Ladies 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. Speaker 100:00:14Thank you, Lisa, and good afternoon, everyone. ON2 Innovation issued its 2024 Q3 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 Placzynski, Chief Executive Officer and Mark Slizer, 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. Speaker 100:00:47Those 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 Onto Innovation's results, I would encourage you to review our earnings release and our SEC 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. Speaker 100:01:28Let me now turn the call over to our CEO, Mike Lesinski. Mike? Speaker 200:01:33Thank you, Sydney. Good afternoon, everyone, and thank you for joining us today. Overall, we executed well in the Q3 with revenue coming in at $252,000,000 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%. Speaker 200:01:57This resulted in record cash generation from operations of $67,000,000 Mark will soon discuss these highlights and our outlook for Q4, which was negatively impacted by over $10,000,000 in JetStep lithography push outs due to customers' capacity needs. But first, we'll review the Q3 highlights starting with our specialty device and advanced packaging markets, where AI packaging revenue led the inspection business with growth in high bandwidth memory, 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. Speaker 200:02:57Revenue from power devices was the 2nd 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 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 are expanding our core inspection technology with the tuck in of Lumina instruments announced earlier today. Speaker 200:03:38Lumina 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 you. This new capability is complementary to our patterned inspection technologies with no overlap in capability. And as a result, we expect the new applications will expand our SAM by $250,000,000 annually in the next 3 years. Speaker 200:04:37In addition to Lumina Instruments, we announced the acquisition of the lithography business from Kulicke and Sofa. With this tuck in, we had an incredibly talented team with over 200 man years of lithography experience, 24 issued patents and 8 more pending. Based on Eindhoven, we believe this team and technology will contribute to the acceleration of our JetStep lithography roadmaps and extend our competitive differentiation. We expect the combination of these 2 small tuck ins to be accretive to earnings within 12 months and generate up to $100,000,000 in annual revenue in the next 3 years. For reference, revenue today is negligible. Speaker 200:05:17While 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 4th quarter guidance. Speaker 300:05:51Thanks, Mike, and good afternoon, everyone. As Mike highlighted, we exceeded the midpoint of our revenue and EPS guidance, executing towards the high end of these ranges due to better than expected demand for advanced packaging for AI devices, gate all around investments in advanced nodes and stronger software and services within the quarter. We achieved another record operating cash flow of $67,000,000 for the 2nd straight quarter. Operating cash flow yielded 27% represents more than doubling of operating cash during the same period last year. 3rd quarter revenue of $252,000,000 was up 4% versus the 2nd quarter and up 22% versus the prior year. Speaker 300:06:28The 3rd quarter EPS increased 2% sequentially to 1.34 and up 40% versus the prior year. Looking at the quarterly revenue by markets, our biggest market remains specialty devices and advanced packaging, which was down slightly from Q2 with quarterly revenue of $161,000,000 and represents 64% of revenue. Our biggest sequential increase was Advanced Nodes, which had revenue of $42,000,000 increased 32% over Q2 and represents 17% of revenue. Software and services with revenue of $49,000,000 increased 5% over Q2, representing 19% of revenue. We achieved 55% gross margin for the 3rd quarter at the high end of our guidance range of 53% to 55%, driving more than 100 basis point improvement over the 2nd quarter and over 300 basis point improvement since the beginning of the year. Speaker 300:07:213rd quarter operating expenses were $67,000,000 exceeding the high end of our guidance range as we accelerated our ramp in R and D investments within the quarter, extending our product capabilities in integrated metrology and technology differentiation to expand our 3 d metrology for advanced packaging applications. Our operating income of $70,000,000 was 28% of revenue for the 3rd quarter compared to 27% from the 2nd quarter. We achieved quarter over quarter operating margin improvement with 3 consecutive quarters totaling approximately 300 basis point improvement since the start of the year. Our net income performance also 26 percent of revenue was supported from favorable investment income resulting from our increased cash balance. Now turning to the balance sheet. Speaker 300:08:08We ended the second quarter sorry, we ended the Q3 with cash and short term investments of $855,000,000 achieving operating cash flow of $67,000,000 and converting 100 percent of our operating cash and operating income into cash. Inventory ended the quarter at $308,000,000 down $12,000,000 versus Q2 and achieving 5 quarters of sequential decline. We expect further inventory reduction of another $8,000,000 to $10,000,000 for the 4th quarter as we Speaker 100:12:25We are holding for the ONTU Innovation. We are just experiencing brief interruption in today's conference. Please continue to Operator00:13:31You may continue the conference, sir. Speaker 200:13:34Okay. Well, thank you very much. Hopefully, everybody is still on the line. And I will finish my prepared remarks and we'll go to questions. So in summary, we're aligned to several diverse end market drivers, and we're well positioned to leverage our portfolio of inspection metrology and software to solve manufacturers' customer our manufacturing customers' high value problems. Speaker 200:13:57Through close customer collaborations, we have many exciting new product launches, such as 3 d Bump Metrology, which we recently delivered to a leading memory manufacturer and void inspection for wafer bonding applications that we expect to ship this year. In addition to the organically developed technology, our recent tuck ins further enhance our both our portfolio of synergistic technologies and the markets that we can pursue. Combining the outlook for the end markets we're serving with our new product opportunities, we expect another solid year of growth in 2025. And that concludes our prepared remarks. Lisa, please open the call for questions from our covering analysts. Operator00:14:41Thank you. And our first question comes from Brian Chin with Stifel. Speaker 400:15:02Hi there. Speaker 500:15:03Thanks for letting us ask a few questions. And also just FYI, Mike, I think where you picked up versus where Mark may have left off, I think there might have been a break there in terms of some of that content, but just FYI. Anyways, back on script here. The So TSMC effectively ran out of space to expand its COAS footprint this year, but the demand is very high. And so I was kind of curious, what do you currently see as timing for when that activity could pick up again? Speaker 500:15:41And when you combine that with the visibility you have on gate all around expansion, how confident are you that ONTU revenue will show further improvement from existing levels moving into first quarter or first half of next year? Speaker 200:15:57Good question. We're I'd say highly confident. We're confident in revenues growing from here as we move into the first half of next year. And it's driven by not just gate all around, but we also mentioned DRAM capacity expansions that we're seeing to support both the enterprise server starting to pick up a little bit, but also the lack of capacity due to supporting all of the HPM growth. So we see both. Speaker 200:16:30And as far as the TSMC or sorry, the yes, what you mentioned TSMC, the cost expansion, they have been very aggressive at adding the capacity. We did mention on the prepared remarks that may or may not have made it out there that we expect the 4th quarter to see a fairly significant increase, while the HBM maybe is a little more muted in the Q4 from an AI packaging perspective. So they're already starting to find space to add capacity and we expect that to be remain fairly strong in the first half. Speaker 500:17:12Okay, got it. And that's helpful. And so maybe a little bit earlier customer readiness from that standpoint to take equipment, it sounds like. And then in terms of that $10,000,000 lithography delay, was that customer driven? Any other sort of color behind that? Speaker 500:17:32And when has that been rescheduled to? Speaker 200:17:38We're not clear on the reschedule. So that's still being discussed. But yes, it was customer driven based on their needs. The tools are ready to go. Speaker 500:17:53Okay. Got it. And maybe just kind of one more question in broader strokes. KLA last night on its earnings call, in addition to sort of being pretty upbeat on process control intensity they're seeing at TSMC as that customer shifts from pilot to high volume production. They also expressed a lot of confidence based on the higher process control intensity that they would outgrow WFE in 2025. Speaker 500:18:23And so when you look at that, again, that high process control intensity both for gate all around expansions as well as COOS, advanced packaging maybe HBM. I guess how much confidence do you have in On2's ability to outgrow WFE again in 2025 like you did in 2024? Speaker 200:18:45Well, it depends on what you're expecting WF to be. But if it's in this 5% to 10% range, which is where I think most of the consensus is landing, then we're highly confident in outperforming those numbers, for the same reasons. And I did talk about increased process control intensity, especially in the area of Q and A, logic or AI packaging, based on the complexity of the process as well as the needs for much better yields. These are very expensive devices and any yield issue across any of the products is going to drive a pretty expensive loss. So yes, there's a lot of process control intensity. Speaker 200:19:35And yes, we're seeing that as well. And they're still learning. So a lot of the capabilities of our Dragonfly with the many different sensors, we see the customers working with us to combine different sensors to find the solutions and metrologies that don't exist today in any other tool. So there's a lot of learning that's going on through our collaborations with the customers. Speaker 500:20:04Thanks. I appreciate the opportunity for any follow ups. Thanks. Operator00:20:15And our next question comes from Vedva T. Sirota. Please go ahead. Speaker 600:20:22Hi. Thanks for taking my question. So the first thing I wanted to ask about is last quarter you had talked about volume purchase agreements for gate all around nodes, I think they were roughly $120,000,000 Can you give us an idea or a sense of how that splits out between customers given that some of the leading edge customers are now facing issues with their gate all around transition. So has your visibility on those VPs changed? Is there any conversation changes where you may not get that whole €120,000,000 Speaker 200:21:11Not to any major degree, no. In fact, we continue to work off some of that VPA. There's still quite a bit left for 2025 and our backlog continues to strengthen and look relatively good across the board. So no, I would say that, yes, there's certainly some movement by some customers, but our position remains strong and growing or strengthening, I should say. Speaker 600:21:44Is it primarily because of the leading foundry customer being strong? Is that a way to think about it? Speaker 200:21:55That's one, but we did mention that the number we talked about were 2 customers and both look still strong. Speaker 600:22:05Okay. Understood. So now maybe on changing tracks on the HPM kind of a ramp, What's the visibility you have on the HPM capacity additions? Like one of the things Teradyne pointed out on their call is they're seeing HPM capacity additions could be muted next year as in the growth for Teradyne's HPM revenues could be muted next year. What is your sense or visibility into how that HBM piece of the business goes into or the trajectory of that business into 2025? Speaker 200:22:48Well, I also mentioned that in my remarks around we're seeing a quite an increase, a doubling in capacity from the 2.5 D logic side. And last quarter, we talked about HBM increasing. So that alone would drive an increase, an expected increase in HBM. And then, of course, you have an additional intensity, an additional number of HBM around each GPU for the new latest devices. That said, we also see, let's say, we're not seeing movement on HBM expansion yet. Speaker 200:23:34And so I echo that and that's what I mentioned in the prepared remarks is that it's not clear yet, but we would expect that some kind of expansion would have to follow to support all of that new 2.5D logic that's coming on board. My guess is there could be still some conservatism by the players and still trying to understand who's going to win what share from, let's say, the major driver, the major end customer. And so they're careful with the capacity expansions. That's my guess, but I don't know, but we are seeing that muted behavior from HBM right now. Speaker 600:24:21Got it. That's fair. And then the last one I had was on the power semiconductors, could you help us understand sort of the size of that revenue opportunity for you? And given that we're seeing a big downturn in the auto market, but your inspection revenues continue to be strong on the power side, it'd be great if you could provide like what's the disparity there? What continues to drive your revenues versus we're seeing CapEx cuts across the board? Speaker 200:24:56Yes. I mentioned it the last couple of quarters. It's all about driving yields and sort of creates a impact on yields and sort of creates a requirement for additional process control or better process control capabilities. So we're seeing some of that. And then I think it's pretty well publicized that the yields in general are not that high. Speaker 200:25:31So customers tend to want to if they want to increase output or prepare for increased output, they can focus on yield instead of adding just capacity and throwing away. So that makes them more profitable when they do actually ramp. Speaker 600:25:50So how should we think about the opportunity for you as in kind of the size of the business or any color there would be helpful? Speaker 200:26:02Well, we don't break it all down there, but it's becoming one of our top markets behind AI packaging in the specialty and advanced packaging market. So I think it is number 2 in that space. Speaker 600:26:20Thank you. I'll get back in the queue. Operator00:26:25And we'll move to our next question from Edward Yang with Oppenheimer. Speaker 700:26:32Hi, Mark. Hi, Mike. Hi, Mark. Congrats on a great quarter. Just wanted to drill down a little bit deeper into your outlook into 2025. Speaker 700:26:43You're expecting continued growth there and outpacing WFE. But obviously this year you're looking for revenue to grow about 20% and that's well a multiple of how much WFE grew this year. So thinking about all the different puts and takes, what are the things that give you confidence or less confidence? And will you can you size up again? Are there any reasons why growth should meaningfully accelerate or decelerate from your 2024 run rate? Speaker 200:27:22I would say since I said we'd grow, there'd be a meaningful acceleration and that would be an advanced nodes for sure. That's been bouncing along the bottom and now we've talked about gate all around opportunity expansions, but we now also are starting to see and gain more confidence in DRAM, additional DRAM capacity and growth there, driving our advanced nodes. So we see that staying growing quite nicely. The AI packaging for sure gate all around and the process control intensity and volume increases there is creating opportunities. We'll see what happens with the HBM, does it stay muted or not? Speaker 200:28:08If not, I think there'll be some significant growth there. I don't see how it could stay as it is if the COOS essentially doubles. So we'll see, but that's that. And then we talked about the Power Semi. And in there, I said we would at least sustain these record levels in the prepared remarks, which implies we would expect to exceed and set new record levels. Speaker 200:28:36So this would be a floor for us. And so that will be another growth driver for us as we look at 2025. Speaker 700:28:46And just to clarify, when you say accelerate, I mean, do you mean accelerate off of a 20% revenue growth rate? Speaker 200:28:55Yes, good point. No, I'm not trying to imply we'd grow above 20%. No. So I should have used the word not accelerate. And Speaker 700:29:10one of your larger foundry customers signed an advanced packaging deal with an OSAT in Arizona earlier this month. Does this have any relevance to your order book? And again, can you speak to the broader ability of your customers to place tools at this point? It seems like things are loosening up a little bit. Is space still a bottleneck? Speaker 200:29:36Things are loosening up. So there's new capacity coming up. But even signing that deal, there's timelines to transfer and to qualify and to bring in tools, etcetera, which some of it's in process. So but there's not an immediate like a launch, right? So yes, it's all part of the breaking of the current bottlenecks in the COOS capacity. Speaker 200:30:03There's also actions being taken by that large customer as well internally. And there's been discussions about the Intellix purchase. And in my prepared remarks, I did mention Q4, we see a nice big uptick from the gate all around sorry, for the 2.5D logic packaging, and we expect that to maintain pretty healthy in the first half. Speaker 700:30:33And just a final question maybe from Mark. I saw the SG and A ticked up a little bit sequentially and is that a good run rate going forward or was there any extra spending in there that impacted the quarter? Speaker 400:30:49Yes. I mean, I would think our Speaker 300:30:50goal is to hold total OpEx in line or better than Q3. So I'd use that run rate from Q3 into Q4. In my prepared remarks, which might have been abbreviated, our goal is to drive offsets to the cost of the tuck ins within Q4. So we can our goal is to stay at those levels for Q4 or better. Speaker 400:31:18Thank you. Speaker 700:31:20Thanks. Operator00:31:22And we'll move to our next question from Meyer Popuri from B. Riley Securities. Speaker 800:31:30Yes. Hi there. I'm actually on for Craig Ellis. But you mentioned packaging pickup in the Q4. Is that kind of related to the increased complexity needs as we move into this RDL based packaging? Speaker 800:31:47Or is it more to do with just general volume increases? And if it's to do with this, LDL based packaging increase, is that a trend that we can expect to continue as RDL picks up over the incumbent? Speaker 200:32:01I think the complexity increases is from 2 things a couple of things. 1 is, yes, they're introducing some new processes that they've talked about. But 2 is yields haven't been yields have room to improve. So they're also looking at areas that could be impacting yield and how can they measure. So you can't fix what you can't see. Speaker 200:32:25So how can we see help them see what is impacting yield so then they can make the adjustments and fix it. And that dynamic is also in play and that's where I mentioned the incredible breadth of capability we have on the Dragonfly platform to bring to bear different types of sensors and metrologies and inspection in order to combine that data and see things that you wouldn't see on any single tool. So that provides new insights into the yield opportunities to improve. Speaker 800:33:06Okay. Yes, right. No, that's a great answer. So I have a question on the flies, the Dragonfly and the Firefly. Obviously, they're really capable tools in 2 d metrology, but you've also pointed out before how they're incredibly capable in the 3 d inspection space. Speaker 800:33:21Do you see that kind of picking up share? I know you mentioned one memory customer who wanted it for these 3 d inspection processes. Do you see that 3 d inspection aspect to these tools picking up? Speaker 200:33:36So there's localized 3 d capability, which is very powerful and we use that for high aspect ratio 3 d, very high precision metrology. That is part of the 2 d applications. What I was talking about was 3 d bump metrology and that's early that's still early stages. So it's too soon to predict how big or how much that could be. It depends on adoption rate and how well we do in production. Speaker 200:34:07The tool we shipped is an evaluation tool. So they'll now based on the data exchanges we've had and all the wafers we've run for them in our facility, they now want to take the tool on-site, prove it in production and then hopefully we start to see revenue. And that's probably 3 to 6 to 9 month on the outside type process. Speaker 800:34:34All right, got you. That's yes, I hope that goes well. And then about those volume purchases that we Speaker 200:34:40announced And we sorry, we do I was going to say we do expect to ship additional tools in the Q4 to additional customers for evaluation. Speaker 800:34:52And that's evaluation on 3 d? Speaker 400:34:55Yes. Speaker 800:34:57Okay, great. And again, about those volume purchase agreements, so we were talking about last quarter, I forgot exactly who asked this question, but there was some talk about how these might convert into kind of larger agreements in the future. Is there any progress there in terms of kind of converting these initial agreements into perhaps larger partnerships going forward? Speaker 200:35:23I think what I might have said is that we would expect perhaps additional revenue through the year. And right now, they're still working on this. So I think it will they got to cut through this and then we'll see what happens in the second half of the year. But that's still my projection. I wouldn't if I was going to bias it, I'd bias it towards they're going to need some additional tools in the second half versus not. Speaker 800:35:57Okay. Thanks so much. Yes, that's all I have. Thanks for talking to me. Speaker 200:36:03My pleasure. Operator00:36:05And our next question comes from Charles Shi with Needham. Speaker 400:36:10Hey. So you guys got to cut off the big chunk of the prepared remarks. We actually didn't hear. So maybe, Mark, can you kind of repeat what the Q4 guidance line by line was in your prepared remarks? Because I think it's kind of important that if you can repeat for us, that would be great. Speaker 400:36:30Hopefully, this doesn't count as a question. Speaker 300:36:35No, thanks. Yes. So I mean, I'll just start out Charles, I'll just start out at inventory. So inventory ended the quarter at $308,000,000 down $12,000,000 versus Q2 and achieving 5 quarters of central decline sequential decline. We expect further inventory reduction of another $8,000,000 to $10,000,000 for the Q4 as we project to be below $300,000,000 as we exit 24, which will be a $50,000,000 reduction from our peak of 2023 inventory levels. Speaker 300:37:05As we look at the Q4, we currently expect revenue for the Q4 to be between $253,000,000 $267,000,000 dollars We expect gross margins will be 54% to 55%. With our inventory still above our target level, this is delaying our ability to cut in the supply chain cost reductions as we continue to prioritize the burn down of existing component levels. For operating expenses, we expect to be between $66,000,000 to $68,000,000 as we look to hold OpEx flat or better versus Q3 as we optimize R and D to minimize the cost impact of the tuck ins we announced earlier. For the Q4, we expect our effective tax rate to be between 15% to 16%. We expect our diluted share count for the Q4 to be approximately 49,800,000 shares. Speaker 300:37:53Based upon these assumptions, we anticipate our Speaker 400:38:05Yes, yes, thanks. Speaker 200:38:05So, I'm trying to Speaker 400:38:08Yes, thanks. So, I'm trying to connect the dots here, Mike. Over the last quarter, let's say, 3 months, 2 out of the, let's say, 4 leading edge customers you have, have had a pretty tough news coverage, their struggles and the potential pressure on CapEx. But we know that your leasehold, which unfortunately has been quite often a downside contributor to your quarterly earnings for the past 1 year, 1.5, Has a lot of sales tied into those 2 customers? Am I connecting the dots right here because I would be thinking maybe some of the push out or maybe it looks sounds like it's more like I mean it's delayed to unknown date. Speaker 400:39:12It's really tied to these 2 customers. So is that anything to do with the CapEx cut that they could be going through? Speaker 200:39:27So I don't know which 2 customers particularly you have in mind, it doesn't matter too much. I think if you look at the substrate market where this where the lithography tool plays, there was massive, let's say, bottlenecks that several of the enterprise server customers, manufacturers complained about publicly that they were supply constrained by lack of substrates. And so there was a really, really aggressive expansion through 2022, maybe a little bit into 2023. And then as we all know, the markets really softened, especially for enterprise high performance compute. And so NVIDIA's the AI is the big engine now and that's on the wafer basis. Speaker 200:40:23So that capacity, that excess capacity is starting to be picked up and we see a little bit of pickup, but it's still off of a kind of a low base. You can see that reflected in the end in the comments I made about DRAM and the strength we're seeing now in DRAM. And that's driven by some of the enterprise hyperscalers and some enterprise compute warming up. So I'm not sure if that answers your question, but I'm not sure what you're trying to get at. Speaker 400:41:00Yes. Okay. Okay. So it sounds like you think the push out is probably more of the cyclical factor at play rather than anything that's structural. I mean, those two customers are probably having more of a structural problem than the cyclical problem. Speaker 400:41:15That was what I'm trying to figure out. Speaker 200:41:20Yes. I think it's more Speaker 400:41:23yes. Go ahead. Yes. So the other thing I do want to talk to you about really is the AI Packaging business. I think last quarter you talked about maybe second half this year, roughly 10% below the first half level, combining 2.5D and HBM. Speaker 400:41:48And based on what you said, it sounds like in Q3, HBM was okay, 2.5D was down a bit, Q4, 2.5D coming back up, but HBM a little bit more muted. But do you still view that minus 10%, half over half the right number? Is it is there any upside or downside to that number so far based on what you see? Speaker 200:42:12Yes, that's a good question. It was in my prepared remarks, which of course no one seemed to have heard. But it was I did say that it's cut in half. So things have if I had said that 5% to 10%, it's about half of that now as far as the down goes. It's about half of the decline that we originally projected. Speaker 400:42:35Okay. Okay. Okay. It's roughly 5% down compared with the first half level. And the first half twenty twenty five, because allow me to finish this question. Speaker 400:42:49You kind of said that you expect that they will be higher than second half twenty twenty four level. Based on the order intake, based on the customer indications, do you still feel like that's about the right like first half twenty twenty five higher than second half twenty twenty four, but still have to wait and see if you can exceed the first half twenty twenty four level? Speaker 200:43:16This is for AI Packaging specifically? Speaker 400:43:20AI Packaging, yes. Speaker 200:43:24Yes. I think for Logic, it's going to be relatively healthy. So maybe at the same level, I'd have to double check. But the real question mark is the HBM piece. As we mentioned, we see that muted right now, though when we look at the expansion on the 2.5D Logic side, it's hard not to expect expansion on HBM to keep up. Speaker 400:43:59Got it. Thanks, Mike. Speaker 200:44:03You're welcome, Charles. Operator00:44:06And our next question comes from Mark Miller with The Benchmark Company. Speaker 900:44:12Congrats on your another good quarter. I was just wondering, can you give us a feeling for what you're expecting in China and Korea next year? Speaker 200:44:25Korea, we can say I mentioned DRAM and the DRAM growth. So you could guess that Korea would participate in that. China, we expect I mean, we're already relatively de risked in China. So we're around the 10% to 15% range. And I would expect to be in that same range maybe yes, I would expect to be in that same range. Speaker 900:44:54So 10% to 15% of sales from China next year? Speaker 400:44:58Yes. Thank you. You're welcome. Operator00:45:05And our next question comes from David Duley with Steelhead Securities. Speaker 900:45:11Yes. Thanks for taking my question. My first question is on the NAND market. Your big Korean HBM customer also plays in that market. I think they're talking about their SSD business being up 20% sequentially and 4 30% year over year. Speaker 900:45:29Lam is talking about a big upgrade cycle to move up in the number of layers. So we're not seeing wafer new wafer starts added, but we're seeing a big upgrade cycle. And I was just wondering how you might participate in that? Speaker 200:45:46We see NAND growing for us in 2025. And on a percentage basis, it would look very impressive. But it's still off of a very small base. So we don't see NAND recovering. So it's probably, as we mentioned a couple, I think now 2 quarters ago, it's really the high level, high stack NAND to support AI devices and AI server farms, the high speed data. Speaker 200:46:16So that's essentially what we see. As far as the high stack and then the more layers mean a lot more of our process control, not as much. So the capital intensity will there'll be a couple of extra steps in there and that's where the Aspect metrology comes into play. But we don't see any massive increases in, let's say, our OCD metrology as a result. Speaker 900:46:50Okay. And my second question is kind of around the high bandwidth memory market. I realize your customers aren't giving you a lot of visibility, I guess, into when they might expand the capacity. But when you think about I think you've highlighted this, the number of chips per GPU is probably going to double with Blackwell versus Hopper. You got them stack it going from stacking 8 to 12. Speaker 900:47:17And you also have Micron ramping up and I think Samsung just announced yesterday or the day before that they're close to signing their agreement with NVIDIA as well. So I'm kind of curious why you wouldn't be much more positive about the growth in that end market given all the unit volume growth and more customers coming online. And is there anyway, just maybe you could elaborate a little bit more. Speaker 200:47:46What makes me positive is orders. So I see all the activity and I like our position and we're trying to expand our position with the work we're doing on the 3 d metrology. So going after more, let's say, wallet share. But we're not seeing the orders yet. And as I mentioned, I think earlier that there's some conservatism with these customers. Speaker 200:48:13If everyone's ramping and qualified, they may not know yet what share they're going to have and how much they want to expand in order to serve that share. I'm sure NVIDIA is working them all against each other. So I don't know if that's just a guess, but yes, when I start seeing orders, I'll get a lot more confident. What we can do is look at the model and say, hey, the capacity we see is not matching the demand that that 2.5D upgrade or expansion is going to need. So something has to give. Speaker 900:48:48And you keep highlighting how all the CO OP capacity expansion should mean that HBM capacity expands. I think I understand what you're saying, but could you just elaborate a little bit more on that? Speaker 200:49:02Well, if the markets were at perfect equilibrium and we're going to double the 2.5D Logix side and we're saying that for each 2.5D Logix, the amount of HBM around it is going to increase, let's say, a factor of 2, like the number you use. That's a 4x increase in D or HBM that would be required. That's just if everything was in equilibrium. So now you have to say, okay, well, some capacity was added, not everybody got cut into, let's say, the NVIDIA supply chain early on. So who's going to win? Speaker 200:49:44How much excess capacity is there? I mean, we try and model this out. But to us, no matter how we look at this, it looks like some capacity expansion is going to be required. Speaker 900:49:56Yes. Okay. And two final questions. What are your lead times for your HBM inspection tools? And the second question is, a lot of this co op capacity that's going to come online is not necessarily going to come online at TSMC. Speaker 900:50:11If you listen to ASC, they're ramping up as fast as they can, as TSMC's partner to expand co ops. And there's another question earlier about Amcor, but that's a couple of years out, I would think. Do you benefit from capacity expansions at the Taiwanese OSATs the same degree that you would benefit from capacity expansions at TSMC for 2.5 de packaging? Speaker 200:50:38If they run the exact same process, then yes. That's yet to be determined. So we are benefiting. We are seeing engagement. We are getting orders. Speaker 200:50:53Obviously, not to the same degree right now as the leader that you mentioned, but they're also nowhere near I mean, they're not even ramping yet, right? They're just starting to ramp. So I would say that remains to be seen. But again, yields are yields. It's hard to believe anyone's going to have better yields or better process than TSMC. Speaker 200:51:19So my guess is we'd see at least an equivalent process control intensity. Speaker 400:51:26Okay. Thank you. Oh, and the lead time? Speaker 200:51:31Lead time. Well, I was not going to answer that anyway, but I would say we're looking at 3 months or so. It's definitely increasing. The volume has gone way up. But as we've always mentioned, we build to a forecast to the extent we have a good forecast data. Speaker 200:51:51We can adjust lead times. But things are ticking out a little bit because of the such strong demand we have right now. Speaker 900:52:02So with that kind of short lead time, obviously, if a customer came in and want a bunch of tools, you have the capacity to meet that order? Speaker 200:52:13Yes, we work hard to make sure we do. I mean, no one expected us to have to double the capacity output for Dragonflies this year and yet that's essentially what we've done. So yes, the teams are outstanding at getting creative, reducing cycle times, leveraging our supply chain partners and making sure we serve our customers. Speaker 300:52:38And as we've commented before, we have the capacity within our manufacturing to do that. Speaker 900:52:45Excellent. You guys, we appreciate the excellent execution. Speaker 200:52:52Thanks, David. Thank you. Operator00:52:54And we'll take our last question in queue from Brian Chin with Stifel. Speaker 400:53:01Hi there. Speaker 500:53:05It wasn't really a question, but what I was going to suggest or maybe just put out there is that, I appreciate Mark repeating the complete Q4 guidance. And I was going to ask Mike, if you had substantive commentary after Mark's guidance, I think we missed pretty much all that. So if there was something there, it might be worth repeating. If not, then no bother. I just wanted to throw that out there. Speaker 200:53:37Sure. I can yes, Brian, we're just aligning to where on the his prepared remarks was cut to be picked up. Give us one. Yes. So essentially, I had said that demand for process control and AI packaging, gate all around power semiconductors remains quite strong. Speaker 200:53:58Specifically with AI Packaging, we see improvements over our prior second half twenty twenty four projections. And this I've already mentioned, so that I'll skip. And I mentioned that's helping to offset that added growth in the AI packaging is offsetting the $10,000,000 push out that we had expected from the lithography. So in fact, we would have been a significant beat. And then I mentioned that the market leader in AI logic packaging recently announced a doubling of 2.5D logic capacity for next year. Speaker 200:54:33Though not yet certain, we would expect to see orders with supporting HBM memory to also improve to support this growth in logic, again, something we discussed. And I mentioned that the growth in high bandwidth memory has taken a meaningful amount of capacity away from standard DRAM as HBM requires roughly 3 times more wafer capacity. And this in turn is contributing to an expansion and advanced DRAM to support a recovery in enterprise servers and investments by hyperscale customers, which we expect to see or benefit from more meaningfully in the first half of twenty twenty five. Yes, I think that's the essential message. I tried to bring that all in when I answered some of the questions. Speaker 500:55:18Okay. Yes, yes, I think we're able to incorporate some of that. No, I appreciate that. Maybe just maybe one last question against that. I know you don't dictate your customers' intake and demand and shipment timing, but to the extent that you kind of can have some I guess, modulation here where kind of one customer is bigger, another customer maybe subsides for a quarter or 2 or whatever the case is. Speaker 500:55:48I guess that alleviates sort of your manufacturing upward pressure on your manufacturing footprint. To the extent you may have HBM stronger in the same period that COOS is strong, do you have that ability to flex upwards in terms of higher output in manufacturing? Speaker 200:56:05Yes, we absolutely do. I mean, we're not even running full second shifts, let alone 3rd shift. So that alone, if we made no other improvements would allow us to significantly increase capacity. So we absolutely do. There's other things we're working on. Speaker 200:56:22I mentioned working with supply chain partners. So we're moving some of the less skilled or more some of the sub assemblies to partners, where we can take that off and free up the floor and free up our higher trained technical people, so to focus on the more difficult integration. So yes, we definitely have the ability to serve the customers and their needs as they grow. Speaker 500:56:53Yes. And maybe just to clarify one comment you made. I think you said backlog continues to strengthen. So it sounds like you're running a positive book to bill with orders ahead of revenue across the business? Speaker 200:57:07Well, we don't I don't have it exactly in front of me. I just mentioned the backlog has strengthened. So we don't really report on it. But I knew people would be concerned around or asking about the VPA and what does that mean? How is that being worked down? Speaker 200:57:22And in fact, we continue to grow our backlog even as we work through that BPA. So to me, that was a comment just to indicate we still see strong demand and not much softening, at least in the areas we're focused on right now. Speaker 500:57:40And I imagine even the fact you have that VPA and HBM is a portion of that, I guess that does give you some comfort that some of that activity is still on the come next year? Speaker 200:57:55Yes, for sure. I didn't say it would go to 0. HBM is still going to be there. I just think it could be even stronger based on the demand supply models we have between the 2.5 D logic and the HBM. Speaker 700:58:13So Speaker 400:58:13hopefully there's some upside we can talk about in future quarters. Speaker 500:58:17Appreciate that. Thank you. Operator00:58:21And ladies and gentlemen, this concludes today's Q and A session. I'd like now to turn the call back to Sidney Ho for any additional or closing remarks. Speaker 100:58:30Thank you. We will be participating in a number of investor conferences throughout this quarter. We look forward to seeing many of you there. A replay of the call today will be available on our website at approximately 7:30 Eastern Time this evening. We'd like to thank you for your continued interest in Onsu Innovation. Speaker 100:58:47Lisa, please conclude the call. Operator00:58:51And ladies and gentlemen, this concludes today's call. Thank you for your patience and your participation. 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