Onto Innovation Q2 2025 Earnings Report

Onto Innovation EPS Results

• Actual EPS: $1.25
• Consensus EPS: $1.27
• Beat/Miss: Missed by -$0.02
• One Year Ago EPS: $1.32

Onto Innovation Revenue Results

• Actual Revenue: $253.60 million
• Expected Revenue: $250.56 million
• Beat/Miss: Beat by +$3.04 million
• YoY Revenue Growth: +4.70%

Onto Innovation Announcement Details

• Quarter: Q2 2025
• Date: 8/7/2025
• Time: After Market Closes
• Conference Call Date: Thursday, August 7, 2025
• Conference Call Time: 4:30PM ET

Onto 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. Onto Innovation Inc. was founded in 1940 and is headquartered in Wilmington, Massachusetts.

Onto Innovation Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Onto Innovation delivered a strong second quarter with $253.6 million in revenue (up 5% year-over-year), 54.5% gross margin, and a 25.9% operating margin, all exceeding the midpoint of guidance.
• Positive Sentiment: The company agreed to acquire key product lines from Semi Lab International, adding ~$130 million in annual revenue, immediately accretive to margins, and boosting first-year EPS by over 10% at a 10x EBITDA multiple.
• Negative Sentiment: Third quarter guidance of $210 million to $225 million in revenue reflects an anticipated pause in advanced node spending, driving a projected dip in operating margin to 18–21%.
• Positive Sentiment: Management expects a sharp acceleration in AI packaging spend in Q4—at least a 50% quarter-over-quarter lift—bringing combined specialty device and advanced packaging revenue back to 2024 peak levels.
• Neutral Sentiment: While tariffs are projected to cost $2–3 million in each of Q3 and Q4, a region-for-region manufacturing strategy and sourcing improvements aim to reduce 2026 tariff exposure to negligible levels.

Presentation

[Operator]

Day, and welcome to the Onto Innovation Second Quarter Earnings Release Conference Call. Today's conference is being recorded.

[Operator]

At this time, I'd like to turn the conference over to Sidney Ho. Please go ahead.

[Sidney Ho, VP-IR at Onto Innovation]

Thank you, Justin, and good afternoon, everyone. Onto Innovation issued its twenty twenty five second quarter financial results this afternoon after the market closed. Our service provider, Business Wire, has technical issues disseminating the release, but you can find it on the SEC website at sec.gov or on our company's website in the Investors section. Joining us on the call today are Michael Plasinski, Chief Executive Officer and Brian Roberts, 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.

[Sidney Ho, VP-IR at Onto Innovation]

Those statements are subject to a range of changes, risks and uncertainties that can cause actual results to vary materially. For more information regarding the risk factors that may impact 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.

[Sidney Ho, VP-IR at Onto Innovation]

Let me now turn the call over to our CEO, Mike Lisinski. Mike?

[Michael Plisinski, CEO & Director at Onto Innovation]

Thank you, Sydney. Good afternoon, everyone, and thank you for joining us on our call today. Onto Innovation delivered a strong second quarter with revenue and operating margin, both exceeding the midpoint of our guidance range. More importantly, we made excellent progress in new product adoption and announced a strategic agreement to acquire several synergistic product lines from Semi Lab International, a deal we expect to close in the coming months pending standard US and Hungarian regulatory approvals. This transaction with Semi Lab expands our portfolio of inspection and metrology systems by adding electrical surface metrology surface charge metrology, and materials analysis technology.

[Michael Plisinski, CEO & Director at Onto Innovation]

These additions will allow us to address new challenges facing our advanced nodes and advanced packaging customers as they adopt more exotic materials for use in three d architectures. For example, the growing demand and complexity for disaggregated devices is creating a need to measure unwanted residual charge on chiplet circuitry. These charges, if not detected, can impact yield when chiplets from different sources are placed on substrates and packaged. Likewise, for new gate designs in both logic and memory, electrical metrology may provide critical insights into gate performance far earlier in the process. The importance of these technologies are reflected in the portfolio's approximately 20% annual growth over the last five years, a growth far outperforming WFE during that period.

[Michael Plisinski, CEO & Director at Onto Innovation]

The acquired product lines are projected to add over $130,000,000 in annual revenue, be immediately accretive to both gross and operating margin and increase first year earnings per share by more than 10%, With an implied price to EBITDA ratio of 10x, it is clear that this transaction will enhance shareholder value. Now let's turn to our quarterly highlights and our thoughts about the back half of the year. As we discussed on our call in May, following 10% year over year growth for the 2025, we're preparing for third quarter revenue to represent a low watermark for the business. However, our discussions with customers continue to support a revenue rebound in the fourth quarter consistent with revenue levels we reported in the first two quarters of this year. So let's begin with specialty device and advanced packaging markets.

[Michael Plisinski, CEO & Director at Onto Innovation]

AI packaging remains a key driver for us with innovations in architectures, substrates, and interconnect shrinks, creating new opportunities for Dragonfly systems in both three d and two d applications. We'll start with the need for high resolution inspection where our next generation Dragonfly platform achieved a significant milestone in the quarter when we successfully validated the platform's optical performance and scan time against our key customers' comprehensive new requirements for two and a half D logic packaging. Our Dragonfly platform performed exceptionally well, passing all tests, and customer pull remains strong. In fact, we are seeing pull from several additional customers exploring the need for more advanced inspection while maintaining the flexibility to serve other applications through the other sensors. As a result, we now expect to ship next gen Dragonfly systems to several customers in the second half of the year.

[Michael Plisinski, CEO & Director at Onto Innovation]

Demand is also growing for our subsurface inspection for use in die stacking process control and die crack inspection and memory and logic applications as well as wafer bonding applications for void and delamination detection. We expect demand to nearly double in the second half over the first half of the year with most shipments expected in the fourth quarter. Likewise, demand for three d I technology is increasing with tools shipped to more than 10 different customers across an expanding list of applications, including memory logic, OSATs, and specialty devices. The precision and speed of the three d I is showing advantages not only in traditional applications, but also in solving new challenges. For example, in two and a half d logic packaging, the control of chip height and flatness is critical to downstream processes.

[Michael Plisinski, CEO & Director at Onto Innovation]

Our 3DI, in conjunction with other Dragonfly sensors, will provide critical data used to control this step in next generation AI packaging architectures. Also in the quarter, the performance of three d I expanded our two d position in co packaged optics with a win over alternative technologies to measure multiple height parameters critical to production of these devices. Though nascent today, the benefit in power savings and performance, particularly for hyperscalers, is expected to drive a 30% CAGR over the next five years. In summary, we expect a sharp acceleration in AI logic packaging revenue in the fourth quarter, with revenue increasing at least 50% quarter over quarter. This improved expectation has reduced the anticipated decline in this area by half from what we'd initially projected in May.

[Michael Plisinski, CEO & Director at Onto Innovation]

Together, with an expected recovery in power revenue, specialty device and advanced packaging revenue in the fourth quarter will likely approach peak levels seen in 2024. Now turning to the advanced node market. Second quarter revenue from memory markets remained strong led by increased investments in NAND, while DRAM remained near record levels. Gate all around revenue, which has grown by more than 50% year over year, did slow in the second quarter as expected. However, we are quite pleased to expand our position in this market by recently winning both Atlas OCD and Iris Films orders totaling over $20,000,000 from a new customer moving aggressively to release Gate All Around technology.

[Michael Plisinski, CEO & Director at Onto Innovation]

We expect much of this revenue in the fourth quarter. The continued expansion of our common films business is creating a nice backdrop for the adoption of our new Iris G2 platform, specifically designed to serve the estimated $500,000,000 critical films market. As previously discussed, advanced node spending is expected to pause in the third quarter. However, customers continue to indicate a meaningful uptick in the fourth quarter across memory and logic. For the full year, we expect advanced nodes revenue will nearly double as compared to 2024.

[Michael Plisinski, CEO & Director at Onto Innovation]

And as we think about fourth quarter revenue, we are confident that we will see a rebound to levels more consistent with what we have reported in the first and second quarters of this year. This is based upon constructive discussions with customers, meaningful acceleration in AI packaging spend and an uptick in advanced nodes from what's expected in the third quarter. So before we move into the financials, I want to take a moment to welcome our new CFO, Brian Roberts. Brian brings over two decades of experience as a public company CFO with a track record of driving financial performance and creating value for stakeholders. His operational rigor and depth of experience are important assets to the team as we build a far more resilient and flexible global operation while at the same time strengthening our overall financial foundation.

[Michael Plisinski, CEO & Director at Onto Innovation]

With that, let me turn the call to Brian to review our financial highlights and provide third quarter guidance. Brian?

[Brian Roberts, CFO at Onto Innovation]

Thanks, Mike. Good afternoon, everyone. I'm excited to be here as part of the Onto Innovation team and look forward to meeting with many of you over the coming quarters. As Mike highlighted, we delivered a solid second quarter with revenue of $253,600,000 or an increase of about 5% year over year. Gross margin for the second quarter was 54.5%.

[Brian Roberts, CFO at Onto Innovation]

Excluding approximately $1,100,000 of expense incurred in the quarter due to tariffs, gross margin would have been approximately 55%. Operating margin of 25.9% was near the high end of our expected range and was a result of productivity gains in R and D and operations. Finally, earnings per share for the quarter was 1.25 reflecting approximately $01 of impact due to unfavorable foreign exchange loss and a $02 impact caused by an increase in the effective tax rate to 16%. At a market level for the second quarter, we recorded advanced nodes revenue of $89,000,000 or 35% of Q2's revenue. Specialty devices and advanced packaging revenue was $117,000,000 which represents 46% of revenue.

[Brian Roberts, CFO at Onto Innovation]

And software and services revenue was $48,000,000 or 19% of revenue. Cash from operations was $58,000,000 representing cash conversion of 95% of our non GAAP net income in the quarter. We ended the quarter with approximately $895,000,000 of cash and investments, representing an increase of $44,000,000 from Q1. Given the pending acquisition of certain product lines from Semi Lab, we did not repurchase shares in the second quarter. Once the acquisition closes, which is expected to happen in the coming months, we will pay Semi Lab $475,000,000 in cash and issue 706,215 shares of our common stock.

[Brian Roberts, CFO at Onto Innovation]

The value of the total transaction based upon Onto's closing price as of 06/27/2025 was approximately $545,000,000 Now turning to our outlook for the third quarter. Revenue for the third quarter is expected to be in the range of $210,000,000 to $225,000,000 This reflects the anticipated slowdown in advanced node spending that has been previously communicated. As Mike detailed, we are expecting a sharp acceleration in AI packaging spend in the fourth quarter, which gives us confidence that Q4 revenue will return to a level more consistent with what we reported in the 2025. Gross margin in the third quarter is expected to be in the range of 53% to 55%, which includes an anticipated one percentage point impact due to tariffs. Excluding tariffs, gross margin for the third quarter is expected to remain flat with Q2 levels.

[Brian Roberts, CFO at Onto Innovation]

With tariffs still at the forefront of today's news, let me take a minute to provide a brief overview of our tariff exposure. Today, we incur tariffs primarily in two buckets: inbound tariffs on components we source into The United States, which accounts for about 90% of our cost and outbound tariffs primarily on parts sold into other markets within our services business. We are not currently exposed to tariffs on the sale of our tooling equipment to our customers due to executive orders signed back in April. We expect to incur tariff expense of approximately $2,000,000 to $3,000,000 in each of the third and fourth quarters, primarily due to inbound tariffs. To further mitigate remaining tariff exposure, we are aggressively installing manufacturing capability alongside partners into several Asian markets to build out our region for region strategy.

[Brian Roberts, CFO at Onto Innovation]

The team has done a tremendous job and expects to begin shipments of tools from these new facilities in the third quarter with roughly half of our product volume shipped internationally by the 2026. This move to better serve our international customers with a regional based manufacturing approach, continued sourcing improvements and applying for duty drawback approvals will result in expected 2026 tariff exposure to be negligible. The one caveat, of course, is that it is based upon the various orders and regulations in effect as of today. We will continue to monitor closely the tariff environment and adjust as necessary. Turning to operating margins.

[Brian Roberts, CFO at Onto Innovation]

Given the lower revenue expected in the third quarter, we will likely experience a temporary decrease in operating margin to a range of 18% to 21%. While the team has put short term controls in place to reduce discretionary spend in Q3, we are taking a prudent approach to not significantly impact the operating cost structure, especially in R and D, which could impact our ability to meet customer needs in Q4 and in 2026. With the anticipated rebound in revenue in the fourth quarter, we would expect operating margins to also return to a range consistent with the 2025. Earnings per share for Q3 is expected in the range of $0.75 to $0.95 This assumes an estimated tax rate of approximately 15% and about 49,000,000 shares outstanding. This guidance does not include any anticipated impacts from the pending Semi Lab acquisition.

[Brian Roberts, CFO at Onto Innovation]

And with that, let me turn it back to Mike for some closing thoughts before we take your questions.

[Michael Plisinski, CEO & Director at Onto Innovation]

Thank you, Brian. In summary, let me leave you with what I believe are the key takeaways from our performance to date and what we expect over the remainder of the year. First, we're quite pleased with the progress we are making across our portfolio, particularly in submicron two d inspection where we can now meet or exceed our customers' performance requirements. We're also encouraged by the growing opportunities in three d interconnect and gate metrology as well as in common and critical films. Second, we are looking forward to the addition of new surface charge metrology and materials characterization technologies to our portfolio and the potential for new value creation to our customers.

[Michael Plisinski, CEO & Director at Onto Innovation]

The acquisition is expected to be immediately accretive to both our margins and EPS, and that's not including synergies that we will discuss after the deal closes. Third, and as Brian noted, the ramp up of our region for region strategy will allow us to better serve our global customer base while also improving our operational resilience, mitigate tariff related exposure, and provide meaningful improvements to our financial performance in 2026. Finally, an acceleration in AI packaging spend will drive fourth quarter revenue back to a level consistent with the first and second quarter this year. With the many advancements we are making to our portfolio organically and through strategic acquisitions, we believe we are well positioned to delight our customers and expand our overall share, setting the table for a stronger 2026. And now, Justin, let's open the call for questions from our covering analysts.

[Operator]

Thank you. If you would like to signal with questions, please press star one on your touch tone telephone. And the first question today comes from Craig Ellis with B. Riley Securities.

[Craig Ellis, Director - Research at B Riley Financial]

Yes. Thanks for taking the question, and welcome aboard. I look forward to meeting you and interacting. Mike, I wanted to start by following up on the encouraging comments you had about next gen Dragonfly in two areas. One, you talked about significant milestones being attained with a key customer.

[Craig Ellis, Director - Research at B Riley Financial]

I was hoping for a little bit more color there and just what some of the next steps are with that customer. And then secondly, you talked about new customer revenue opportunities with this product later this year. Was hoping you could elaborate there too.

[Michael Plisinski, CEO & Director at Onto Innovation]

Sure, Craig. So from the, you know, we'll start with the first customer. The the milestone was significant because what we did and we told we we said in the last call that we were starting to run samples for customers. That proved successful. Now we ran some very stringent tests, very controlled tests for the customers, which demonstrated not only the the resolution capability or the the optical performance from a detection standpoint, but also from a throughput standpoint.

[Michael Plisinski, CEO & Director at Onto Innovation]

And, of course, these these requirements weren't just for what's in production today, but for what they need in the years ahead. So passing those milestones was significant. As to next steps, we're still solidifying the system, you know, making sure it performs as it is now over months of testing, reliability testing, etcetera, etcetera, so that we'll be ready to ship a high quality product on time for the customer. And as for the other opportunities, we see in other markets and remember, we we mentioned previously that this was designed for front end applications to go after and open up the front end macro market, but we're also seeing other customers in memory, etcetera, looking for potential high resolution inspection to solve other yield issues. So the applications vary, customer to customer, but the performance of the of the Dragonfly in the demos have been very, very strong.

[Michael Plisinski, CEO & Director at Onto Innovation]

And so the the results have been very positive, and we are getting increased demand for the tools to be able to ship this year. So we've actually started to bring in inventory and increase our production plans, to ship, like I mentioned on the call, more tools this year than just the the ones planned for the first customer.

[Craig Ellis, Director - Research at B Riley Financial]

Yeah. That's great to hear. Congratulations on the progress, And then secondly, great to see the business bouncing back in the fourth quarter, the confidence the company has. What I wanted to do is understand if the business gets back to those first half levels that implies a range of 250 to 267,000,000. What would make the difference between coming in closer to the low end versus coming in at the high end?

[Craig Ellis, Director - Research at B Riley Financial]

And are there any any particular programs that you're looking at as being critical to to achieving that rebound? Thanks, Mike.

[Michael Plisinski, CEO & Director at Onto Innovation]

Thanks, Craig. I think the range is less driven by the programs and more by the customer demands. We've seen a lot of movements, so we've seen pull ins from some customers. We've seen some, you know, publicized you know, publicly announced push outs. And as I mentioned in the prepared remarks, we've seen, you know, an increase in demand on our AI packaging, so for tools to support AI packaging.

[Michael Plisinski, CEO & Director at Onto Innovation]

So, you know, as as you know, this is a tough industry to predict. So I think the q four will solidify and the real variables are in the customer demand, less so are you know, we're not actually planning on any of our current programs driving the q four revenue number. So the new releases in the in the Iris films and in the Dragonfly next gen, etcetera, etcetera, those are all baked into the 2026, our view of 2026. And the q four is really around just the the strong demand we're seeing for the current products, yes, and the nice backlog that we have.

[Operator]

And our next question will come from Matthew Cristo with Cantor.

[Matthew Prisco, Director at Cantor Fitzgerald]

Hi, guys. So I wanna hit on this, NextGen Dragonfly as well. Sounds like making great progress there. So, just for clarification, do you still expect the evaluation tool to be in customers' hands for year end? And do you still think that decision comes, in first half twenty six?

[Matthew Prisco, Director at Cantor Fitzgerald]

And then given the progress you've made, how are you thinking about, potential to regain share there as we move through '26 and this school moves into production? Thanks.

[Michael Plisinski, CEO & Director at Onto Innovation]

Yeah. We are definitely planning to ship tools this year, and we are on track for that. And as I mentioned, we're actually increasing the number of tools we expect to ship this year based based on on the strong demand drivers we see. Because I I mentioned the last call, because this customer is well familiar with our tools, they the cut in period will not be as long as it typically would be for a brand new tool. So in the discussions we've had with the customers, there are various areas of performance they wanna verify in production.

[Michael Plisinski, CEO & Director at Onto Innovation]

And after that happens, they've indicated they would be willing to move this into, you know, into volume orders. So I think the guidance we've given has been, you know, conservative and and and so far.

[Matthew Prisco, Director at Cantor Fitzgerald]

Great. And then you you mentioned 26 quickly at the end of your prepared remarks. So just looking looking into next year, how are you thinking about Onto's growth potential maybe relative to the market? And and how do you rank order the the top growth drivers into next year and maybe some areas that could be expected headwinds? Thank you.

[Michael Plisinski, CEO & Director at Onto Innovation]

Well, for sure, we think the the Dragonfly, the NexGen Dragonfly will be a a strong driver. You know, there's a lot of applications that it's that that we're finding interest in. We mentioned a few, not just for the high resolution inspection, but also for the subsurface inspection, three d I. So there's a lot of applications spanning expanding needs for the Dragonfly that I think is gonna drive. From a from a growth percentage, because that's much bigger, but from a growth percentage, we're pretty excited about the progress in the films market as well.

[Michael Plisinski, CEO & Director at Onto Innovation]

So really good progress on the adoption of Iris for common films used in both the front end and packaging. We're seeing more demand on the packaging side. We also are making progress with the with the introduction of our second generation Iris designed for critical films. And, you know, we expect to be shipping a tool to a top three manufacturer, in the next few months for that application.

[Operator]

And our next question will come from Brian Chin with Stifel.

[Brian Chin, Director - Applied Technologies at Stifel Financial Corp]

Hi there. Good afternoon. And thanks for letting us ask a couple of questions. And Brian, welcome to the call. Maybe

[Michael Plisinski, CEO & Director at Onto Innovation]

to Thank you.

[Brian Chin, Director - Applied Technologies at Stifel Financial Corp]

Yeah. Maybe to to follow-up on some of the prior questions. It sounds like Dragonfly for subsurface defect inspection is is a pretty big factor, in terms of that q four rise in revenue. Is that mainly to one customer? Is it like a new application on that customer's road map? If you could just provide some clarity.

[Michael Plisinski, CEO & Director at Onto Innovation]

No. It's actually not not one customer. It's several customers. And as we mentioned, we've we've been expanding the application. So I I think I talked about die die stacking process control.

[Michael Plisinski, CEO & Director at Onto Innovation]

So you can imagine memory is die stacking. There are other die stacking applications. Two and a half d logic has also got some alignment challenges with with die and substrate and multiple substrates. So, you know, we've got basically the AI packaging type applications, but we also have applications that we're seeing in in the specialty devices, particularly in power that is taking advantage of the subsurface defect inspection. And we also mentioned early adopters of wafer bonding or some of the pilot lines focused on wafer bonding applications.

[Michael Plisinski, CEO & Director at Onto Innovation]

We're also seeing demand for the level of sensitivity and throughput we can offer with our with our subsurface inspection. So it's quite a variety, and, you know, and that's good. And we continue to find new applications.

[Brian Chin, Director - Applied Technologies at Stifel Financial Corp]

K. Great. And then rel relating to the next generation Dragonfly and, you know, it's it's a good announcement that you're shipping to multiple customers or plan to, later in the second half. I'm just curious, Mike. How important do you think this platform is to defending your existing positions in HPM inspection?

[Michael Plisinski, CEO & Director at Onto Innovation]

I think it's quite important. The the platform is probably the most significant it's probably the most significant inspection platform we've released, and that includes the shift from the old AXISX, the strobing based platform, to the TDI technology, which was the start of the the super flies, dragonfly and firefly. So I'd say this is even more significant transition than that. The the capabilities in the optical systems, the illumination, the camera, the algorithms that have changed and improved, this is a really a really big step forward as it was designed. I mentioned in in the call several times.

[Michael Plisinski, CEO & Director at Onto Innovation]

We started this effort several years back, three years ago, and, now it's being accelerated and coming to fruition. And we've been, quite happy with the results coming off the wafer demos that we've seen.

[Brian Chin, Director - Applied Technologies at Stifel Financial Corp]

Great. I I sneak one last quick one in. Just in terms of the the q four, you know, advanced packaging up significantly, why do you why do think advanced nodes maybe is rebounding as strongly in q four? Would you if you had to put a finer point on it, do you think it's more DRAM digestion oriented? Is it tied to to foundry logic, something else?

[Michael Plisinski, CEO & Director at Onto Innovation]

Well, I think it's a couple factors. And and one of them one of them ties to just our expanded position or wallet share in each of these markets. So as as a customer, let's say, adds only 5,000 or 10,000 wafer starts, we might have had a handful of OCD tools. And now we're getting a handful of OCD tools, some films tools, and integrated metrology as well. So our wallet share has been increasing as we demonstrate the value of that optical metrology ecosystem.

[Michael Plisinski, CEO & Director at Onto Innovation]

In addition so that's one thing. In addition, the the the win at the gate all around customer, which concluded both the OCD and the films metrology, that's significant increase the fourth quarter, mostly in the fourth quarter.

[Operator]

And we'll take a question from Blayne Curtis with Jefferies.

[Blayne Curtis, Managing Director at Jefferies Financial Group]

Hey, guys. Thanks for taking my question. Actually, I wanted to go back to the AI packaging. I was wondering if you could give us some color. If you look at the overall segment, 117 is kind of down 9%.

[Blayne Curtis, Managing Director at Jefferies Financial Group]

Maybe you could just just a little color as to between those two pieces within that AI packaging and the specialty, you know, how that trend versus overall. And then I really wanna know in the acceleration of this logic packaging, is it the existing main customer, or are you seeing strength from additional OSAT customers?

[Michael Plisinski, CEO & Director at Onto Innovation]

Good question. Most of it is the is the existing main customer, but we are seeing orders from OSATs in support of essentially that customer or in support of the the two and a half d logic packaging. So it's both, but I would say mostly it's from the existing customer, and it's it's a lot of these new applications. And also, as we mentioned before, the Dragonfly does a lot of different serves a lot of different application segments within that customer. So Right.

[Blayne Curtis, Managing Director at Jefferies Financial Group]

Yep.

[Blayne Curtis, Managing Director at Jefferies Financial Group]

Gotcha. And then I'm just curious. You talked about your new Dragonfly meeting the specs of the customer. I mean, I guess I was a little bit surprised when your existing tool couldn't meet the specs of CoAuthL. So when you look at the road map, I mean, how much visibility do you have for the co ops road map over the next several years beyond the current iteration?

[Blayne Curtis, Managing Director at Jefferies Financial Group]

And will that tool also be able to solve the same amount of, steps?

[Michael Plisinski, CEO & Director at Onto Innovation]

Yeah. It's certainly designed for several generations ahead, and the and the customer input has been confirming that. So we've been working very, very closely with the customers on the develop on the specifications, on the requirements for this tool. But, again, this tool was designed to go after front end applications, so much, much more advanced than where the where the packaging area was and still is, frankly. So I think we've got plenty of runway with the existing technology as we're being released as we're designing and releasing it, but also the road maps extend that even further.

[Michael Plisinski, CEO & Director at Onto Innovation]

And there's several aspects to those road maps that as the years go by and we're continuing to innovate and develop, that we'll be able to continue to maintain that position.

[Blayne Curtis, Managing Director at Jefferies Financial Group]

Thank you.

[Operator]

And moving on to David Dooley with Steelhead Securities.

[David Duley, Managing Principal at Steelhead Securities]

Thank you for taking my questions. I was wondering if you might be able to elaborate a little bit more on, semi lab. And, you know, it was great that you gave us some ideas of what the products and applications might be. But I I think I seem to remember in the press release that, you know, you're trying to target their products at advanced nodes. So that kind of indicates, I think, that they're more trailing edge nodes or specialty nodes.

[David Duley, Managing Principal at Steelhead Securities]

Could you just elaborate on kind of what you think your road map will be as far as targeting advanced nodes and what sort of sales synergies that you might have with your own tools.

[Michael Plisinski, CEO & Director at Onto Innovation]

So we we gave a little bit of hint in the prepared remarks. We think there's opportunities in the metrologies for more advanced gate structures. So looking at the electrical characteristics or residual charges left in the gate and maybe using that combined with our acoustic metrology to provide some, let's say, prediction of gate performance before you go to a final test or probing somewhere in the middle of the the process. So I think that's one area on the advanced node side, but there's also advanced packaging applications. And I think the materials characterization component is an area that we we will as we run that through our channels to market, we may find new opportunities not just in power semi or the specialty devices, but also in advanced node applications.

[Michael Plisinski, CEO & Director at Onto Innovation]

I mean, the use of exotic materials, complex materials, and the interaction between layers and and how these materials are stacking up, that's an area of of concern for customers. And if by combining some of their sensor capabilities and our AI diffract modeling technology, we can we can unlock additional capability from the tools, that's a big value to our customers. So that that's why we've said, you know, the synergies we'll talk about post closing when we have an opportunity to bring the engineering teams together and and look more in more detail what what we can actually achieve. But even as it is, the as straight as the systems are, they're serving a wide range of markets that we also are serving. So packaging, specialty, power, and, so there's synergies right there.

[David Duley, Managing Principal at Steelhead Securities]

Okay. And then just kind of two follow on questions. Could you just comment about what you think the HBM spend will be in the second half of the year and 2026 if possible? And then, I had to ask about panel lithography. It's, you know, I've noticed someone's gotta ask about it, Mike.

[David Duley, Managing Principal at Steelhead Securities]

Team Taiwan seems to have actually agreed upon a substrate size, and there just seems like a, you know, a lot more articles about moving and adoption of of, you know, rectangular panels. So I was just curious if you might be able to comment.

[Michael Plisinski, CEO & Director at Onto Innovation]

Yeah. Thanks for asking. We're actually planning to ship two steppers this quarter, so it's good you asked. And, hopefully, additional orders for the end of the year. But so that's on the on on the litho side.

[Michael Plisinski, CEO & Director at Onto Innovation]

From the the substrate or the new panel size, yep, it's clear the market's going to the to the square substrate. Obviously, our stepper was designed for large panels. So 500 by 500, six fifty by six fifty, even larger, and we are getting customer interest in even larger. From a, you know, positioning in the team Taiwan opportunity, that's gonna be tougher given the cost structure and the performance of the system. So I that's not really the the focus of our STEPR.

[Michael Plisinski, CEO & Director at Onto Innovation]

It's the much larger sizes as well. I think what it does though is demonstrates the importance of moving to square processing, especially as the chiplet architectures become more widely adopted. So I think that's positive. And, you know, when we look at the rest of our process control equipment, we are very aggressively preparing for the new square substrate panel processing. So I think we're we're quite excited about that and have nearly nearly our entire suite of process control tools being geared up to support that process. Oh, and on the HPM. On the HPM.

[Michael Plisinski, CEO & Director at Onto Innovation]

We expect it to be roughly roughly flat to to the first half, So relatively stable.

[David Duley, Managing Principal at Steelhead Securities]

Do you think it grows next year?

[Michael Plisinski, CEO & Director at Onto Innovation]

I would say I would have said yes, but I think now with the announcement announcement of a 100% tariffs and, you know, we there's so much uncertainty and how that really ripples through markets and decisions from customers. I I think it's premature to give too much color on the 2026 right now.

[David Duley, Managing Principal at Steelhead Securities]

Thank you.

[Operator]

And we'll take a question from Edward Yang with Oppenheimer.

[Edward Yang, Analyst at Oppenheimer & Co. Inc.]

Mike, and welcome aboard, Brian. Look forward to working with you.

[Brian Roberts, CFO at Onto Innovation]

Thank you.

[Edward Yang, Analyst at Oppenheimer & Co. Inc.]

My question is also on Semi Lab, and that looked like a very attractive asset, and you picked it up at very reasonable multiple. So just wanted to understand better, you know, why was it available? You mentioned it growing at a 20% CAGR. Is that the expected growth rate you expect for '26, 2026 as well? And was it Onto or Semi Lab that wanted it to be more cash heavy versus equity in terms of the the price paid?

[Michael Plisinski, CEO & Director at Onto Innovation]

So, obviously, you know, these deals take a long time to come to fruition, so there's a lot of discussions going on. And as the stock adjusted, obviously, Onto's view of our stock was was such that we we wanted to shift this to much more cash. And, you know, and the semi lab team agreed, and and we we struck the deal. Not a 100% cash. They still wanted the you know, a portion of the upside that they thought they would capture from the Onto Onto stock. And the other question?

[Brian Roberts, CFO at Onto Innovation]

Just your view And

[Edward Yang, Analyst at Oppenheimer & Co. Inc.]

the growth rate for, 02/1926, do you expect that to be aligned with the the 20% CAGR?

[Michael Plisinski, CEO & Director at Onto Innovation]

We we expect this to be a we'll we'll give more clarity as we move into next year and we do the closing and whatnot. But we do expect it to be above average growth, let's say that for us.

[Edward Yang, Analyst at Oppenheimer & Co. Inc.]

Got it. And my follow-up question, first of all, congrats in swinging the momentum on the market share side. It sounds like you're enjoying a lot of positive momentum. Just wanted to put the your comments on 3Di metrology in the right context. So did you displace an incumbent there?

[Edward Yang, Analyst at Oppenheimer & Co. Inc.]

And are these two are these 10 customers that you gained in three d I using using your product in the typical high performance computing applications that we associate in that segment?

[Michael Plisinski, CEO & Director at Onto Innovation]

So in in most of the applications, and we didn't go into a lot of the traditional applications where we mentioned the memory logic and the the OSATs, etcetera, that would be all displacing an incumbent. So that would be competitive wins. In the example of the copackaged optics, I I believe it yes. It was also a competitive win, so displacing an incumbent.

[Michael Plisinski, CEO & Director at Onto Innovation]

In the case of the two and a half d logic, that unique application, the customer tried many different ways to solve that that problem with many different customers, and it was a combination of our Dragonfly sensors that ultimately resulted in the right solution with the precision they required. So that was sort of a new application based on the capabilities we were able to deliver.

[Edward Yang, Analyst at Oppenheimer & Co. Inc.]

Got it. Thanks for the time.

[Michael Plisinski, CEO & Director at Onto Innovation]

My pleasure.

[Operator]

And that does conclude the question and answer session. I'll now hand the conference back over to you.

[Sidney Ho, VP-IR at Onto Innovation]

Thanks, Justin. We will be participating in a number of investor conferences throughout the quarter. We look forward to seeing many of you there. A replay of the call today will be available on our website at approximately 07:30 Eastern Time this evening. We'd like to thank you for your continued interest in Onto Innovation. Justin, please wrap up the call.

[Operator]

Well, thank you. And that does conclude today's conference. We do thank you for your participation. Have an excellent day.

Participants

Executives

• Sidney Ho, VP-IR
• Michael Plisinski, CEO & Director
• Brian Roberts, CFO

Analysts

• Craig Ellis, Director - Research at B Riley Financial
• Matthew Prisco, Director at Cantor Fitzgerald
• Brian Chin, Director - Applied Technologies at Stifel Financial Corp
• Blayne Curtis, Managing Director at Jefferies Financial Group
• David Duley, Managing Principal at Steelhead Securities
• Edward Yang, Analyst at Oppenheimer & Co. Inc.