Q1 2022 Onto Innovation Inc Earnings Call
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Good day and welcome to the onto innovation first quarter earnings release Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Michael Schafer Investor Relations. Please go ahead Sir.
Thank you Jenny and good afternoon, everyone onto innovation issued its 2022 first quarter financial results. This afternoon. Shortly after the market close if you have not received 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 <unk>, Chief Executive Officer, and Steven Roth Chief Financial Officer.
As always I'd like to remind you that the statements made by the management on this call will contain forward looking statements within the meaning of the federal Securities laws.
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 innovations result, so I would encourage you to review our earnings release.
<unk> filings.
Onto innovation does not undertake any obligation to update these forward looking statements in light of new information or future events. Today's discussion of our financial results will be presented on a non-GAAP financial basis, unless otherwise specified as a reminder, a detailed reconciliation between GAAP and non-GAAP results can be found in today's earnings release I will now go ahead and turn the call.
Everyone likes Lozinski Mike.
Thanks, Mike Good afternoon, everyone and thank you for joining our first quarter earnings call I'm pleased to report that the onto innovation team delivered another record quarter of 241 million exceeding the high end of our guidance. This represents a growth of 7% over the prior quarter and an impressive 43%.
Over the first quarter of last year.
Operating margins at 31% were in line with our long term operating model. Despite the ongoing supply chain challenges, which we'll discuss later in the call.
Another highlight for the start of the year as the increase in magnitude of volume purchase agreements with several of our top semiconductor manufacturers. We have now closed agreements for 2022 valued at over $390 million for inspection metrology solutions across front and back end applications. This.
An increase of approximately 40% over the prior year exceeding estimates for wafer fab equipment growth by almost a factor of two we appreciate these expanding partnerships and believe this growth reflects the value of our collaborations and unique combination of software and hardware is delivering to our customers.
So let's begin with the review of the first quarter, starting with our advanced nodes customers revenue from this market grew 36% over the fourth quarter, resulting in a non to record of $100 million in equipment sales. The strongest growth was from our Atlas metrology platform to support expansions in both DRAM and NAND each growing.
By over 70% from the fourth quarter.
This demand as a result of both customer expansions and an increasing number of critical layers being moved to the Atlas platform. Many of these new layers are referred to as advanced process control or APC layers, meaning our metrology is being used to directly impact the process and therefore requires higher sampling rates.
But these layers, it's essential to have the throughput and the measurement robustness necessary to provide the critical data.
Combination of our Atlas platforms industry, leading number of discrete channels and the AI Diffract software is unique.
Model and capability is proving to be one of the best solutions for monitoring complex nano scale <unk> structures and high volume production.
In addition to metrology for <unk> structures, the adoption of Iris cleaner film metrology continues to build momentum and in the quarter. We saw Iris metrology revenue increase with several orders from the new leading NAND customer we announced late in the fourth quarter, we expect additional customers to adopt iris. This.
Year further expanding our position in this new market segment.
Revenue from advanced logic customers was down after a very strong fourth quarter, but still significant and roughly the same as our NAND revenue. We're encouraged by the fact that about 40% of the logic revenue was in support of three nanometer Finfet process control in R&D and pilot production. We review this week.
Do this as a good early indication for significant future demand when these customers move to higher volumes.
Now turning to the specialty and advanced packaging markets, our dragonfly G. III set another record for sales and was adopted by 12 customer sites, where we were not previously the inspection process tool of record these new opportunities spanning both front and back end applications were opened up because of the high speed.
And submicron sensitivity of the Dragonfly G. III combined with exclude exclusive features like our clear find and two ADC technology.
Adding to that an emerging need for defect control in both edge and backside surfaces has proven critical for advanced packaging of chip lit.
HBM three memory packages.
Current solutions on the market are not meeting the customers' requirements and to address this need in close cooperation with the top three semiconductor manufacturer. We developed the <unk> 40, a powerful new module for the Dragonfly G III.
The new ABB 40 module provides high resolution high speed inspection of these secondary wafer surfaces.
The initial success has already led to a volume purchase agreement totaling over $70 million from this customer over the next six quarters.
<unk> several other customers to adopt this technology throughout the year.
We also see investments in interconnect technology to enable panel level packaging for heterogeneous devices. The advantages for heterogeneous devices and system performance power consumption and form factor of well documented however, the current cost and production constraints of legacy and sub five nanometer wafers.
Provides another incentive for designers to leverage chip architectures to optimize circuitry.
Specific design nodes and create leading edge and cost optimized devices.
So to enable this shift to heterogeneous devices, a significant increase in panel panel manufacturing is required at Jpmorgan, Taiwan report estimates that from 2021% to 2025 manufacturing capacity for these finished panels will expand with a compounded annual growth rate of 20%.
Processing. These panels is complex with a lot of inherent variation in the process materials compounded by shrinking interconnects and increasing numbers of layers printed on both sides of the panel.
The first to just step back 500 lithography systems are making steady progress through our customers' product qualification stages, which include qualifying the process. This means that together with our customers. We are working to identify opportunities to improve both the tool in the process.
This effort, we're also demonstrating onto strategic value by broadening the discussions to include process monitoring and control solutions to actively adjust equipment based on the advanced analytics, we have developed.
We've won two such engagement engagements and expect a third panel yield engagement to be added in 2022 now.
Now I'll turn it over to Steve for the Q1 financial highlights and the second quarter guidance Steve.
Good afternoon, everyone.
Hi, Barbara and some details on our Q1 results and follow up with second quarter guidance.
As Mike mentioned, we had another record quarter with first quarter revenues of 241 billion above the high end of guidance.
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Great.
As Mike mentioned, we had another record quarter.
Revenues of $241 million above the high end guidance, which is achieving strong demand of our process control business.
We do not recognize any revenue from our initial Jessica holography systems in the quarter.
We also are pleased to have delivered our ninth consecutive quarter.
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Percent of sales.
And experience now.
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Operator.
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I apologize to everybody on the phone I am having problems obviously my my phone service.
No.
Breaking down revenue by market, we saw strengthening event, though market as Mike mentioned, which represented 40% of sales.
Alright, thanks for the device and advanced packaging market represent 41% of revenue experienced the slowdown in the quarter, primarily from RF customers. After a strong Q4.
Finally software and services decreased slightly from the prior quarter up 17% year over year and represented 17% of revenues.
Gross margins were $54 three up from $53 eight in the same period, a year ago and down.
And down from $54 nine in the fourth quarter.
Okay.
Widely publicized by others in the industry.
Our experiencing multiple cost pressures from our supply chain that have impacted our gross margins.
We've accelerated inventory delivery to help mitigate unexpected supply chain disruptions that impacted production and customer shipments or commitments.
We have also seen increases in commodity and chip pricing difficulty in supply availability and a significant increase in logistics costs due to the high demand China, China Lockdowns.
Where possible we are working with suppliers to implement second sources and increased adoption of our newer higher value systems.
First quarter operating expenses were $56 8 million, an increase of $1 nine from the fourth quarter.
Increase was primarily due to higher corporate payroll taxes associated with variable stock based compensation in the quarter as well as higher office expenses as we began reopening our facilities.
Even with these inflationary pressures that we've talked about.
We're able to tightly manage our discretionary expenses and which.
Which resulted in a 31% operating margin for the quarter.
Net income increased in the first quarter and was $65 6 million or $1 32 per share and above the high end of our guidance.
The fourth quarter, we reported net income of $61 2 million or $1 23 per share.
In addition, we received additional tax benefit as a result of new tax rules regarding mandatory capitalization of research and development cost, which.
Which became effective beginning of this year.
You are having discussions with the new rules may be repealed power if they do stay in effect. We currently expect our effective tax rate.
Between 13 or 14%.
Moving to the balance sheet, we ended the first quarter with a cash position of 542 million up 31 million from Q4.
Placebo increased to $107 million in the quarter, our days sales outstanding increased to 78 days.
Our inventory increased to $263 million in the quarter on higher planned sales for the second half of 2022.
Continued acceleration of inventory deliveries that I, just discussed as a hedge against supply chain disruptions.
Now turning to second quarter guidance.
We currently expect revenue for the second quarter from a process control business to be between 234 $248 million.
Our guidance range excludes the potential revenue from lithography systems due to the uncertainty and timing of revenue recognition and the growing magnitude of the systems revenue, which could be as high as $20 million in Q2.
Earnings per share in the revenue range is expected to be 18, $1 16, and $1 35 per share.
We expect that our gross margins will hold steady at 54, 5% plus or minus 1% primarily accounting for the impact we.
We see from the supply chain and again this guidance does not include lithography systems.
Operating expenses were aggressively hired to support our growth and we perform our annual compensation adjustments and the beginning of Q2.
We currently anticipate that we are.
Our operating expenses will increase in the second quarter and be in the range of 57, 5% to $60 5 million.
Now I will turn the call back to Mike for additional insights on Q2, and the remainder of 2022 Mike.
Mike.
Thank you, Steve and glad your phone is working.
Using the midpoint of guidance for the second quarter, we're projecting 33% growth for the first half of 2022 versus the prior year, which is well ahead of the current consensus for annual wafer fab equipment growth.
As we discussed our performance reflects not just the strong markets, but our growing position within these markets and as Steve mentioned this does not yet include any lithography systems.
In the second quarter and for the remainder of the year, we see <unk> NAND investments being the largest contributor to growth.
The current transition to high spec <unk> NAND is still in the early stages, we estimate that by the end of this year only 10% of NAND will be greater than 176 layers. We expect that number could be as high as 80% of NAND by the end of 2025.
In addition to leveraging our core Atlas OCD metrology, we've been closely collaborating with leaders in high stack NAND to demonstrate the benefits of the aspect metrology and met a pulse acoustic metrology for critical high stack NAND applications. As a reminder, the unique benefits of aspect.
And Atlas metrology combined to provide fast and accurate channel whole metrology, which is critical to yields.
We expect to add our second customer for aspect metrology in this quarter and possibly a third by the year end.
In addition, we have learned the control of the Morpheus carbon film thickness is critically important for proper transistor formation.
In high stack <unk> NAND as these films become thicker metal pulses inherently non destructive on product measurement capability is proving to be the safest and most accurate source of this critical data.
We expect this to be a significant new driver for the meta pulse technology, adding to the already strong demand from expanding RF empower customers.
To support the growth in DRAM, NAND and logic that generally conservative silicon wafer manufacturers are increase in capacity over the next year.
This creates demand for our element material systems, where we are best in class for carbon and oxygen metrology and our Nova <unk> patterned macro inspection systems, where we are five times more sensitive at the wafer edge than our competition.
Based on the backlog, we have we expect both products to increase in revenue in the second half of the year and continue to grow into 2023.
So with end market demand expected to remain healthy through the year and the additional tailwind from new applications, such as panel lithography <unk> NAND and expansions in silicon wafer manufacturing, we maintain our view that the second half of 2022 will be stronger for onto innovation in the first half of course this assumes no.
Unforeseen supply chain or geopolitical impacts, which is certainly a factor, but remains very difficult to predict.
And with that we'll open the line for your questions.
Greater.
Thank you.
I'd like to ask a question. Please signal by pressing star one on your telephone keypad after using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
And we'll go first to Craig Ellis with B Riley Securities.
Yes, thanks for taking the questions and congratulations on the strong execution, Mike I wanted to start with just a point or a question on one of the operating dynamics you talked about the volume purchase agreement. So clearly very strong customer engagement with onto year to date I believe it was 300.
<unk> 90 million.
The question is how should investors look at the potential for you to add any further volume purchase agreements through the year or do you typically do that mostly in the first quarter or is that something that is built on over the course of the calendar year.
Generally it's in the.
Fourth quarter, leading up but we had a few of them through negotiations and also they were still refining their their own plans based on <unk>.
Supply chain challenges they were having so a couple of them drifted into the first quarter, but generally they're they're all locked up in the fourth quarter.
Got it and then clear message that <unk>.
<unk> NAND is going to be.
An area of strength, because we look at the second quarter and in the back half of the year, but if you were to have been out some of the <unk> and ranked them below three D. NAND, how would that look for onto innovation this year.
Well, we still see pretty strong demand from the packaging customers I mentioned.
The work on the <unk> 40.
And the demand that I highlighted there that's.
That's going to be a pretty strong contributor throughout the year.
And then.
I would say below that DRAM remains pretty strong I mean, theres a theres a lot that will go on in the fourth quarter. We believe theres a lot of factory expansion some have slipped from third quarter to fourth quarter pretty well publicized so.
Part of that is DRAM, so I'd say that would be our third.
And then of course, the lithography, which would fit into packaging, but the panel lithography is.
<unk> separated as we wait for the sign offs to progress.
Got it and then I'll just flip it over to Steve for one question hopefully the line is working on your end Steve.
On the tax item that you mentioned what was <unk>.
<unk> 10 in earnings per share benefit in the quarter.
And I think you said if this persists it would mean a tax rate of 13% to 15% is that correct. Thank you.
Yes can you hear me, Craig if you're driving close yes like 13%.
<unk>, 2014%.
Tax rate.
If it persists.
To put it in place because they weren't effective the beginning of the year.
And I'd say, probably again, our tax rate typically in the 16% range 16, 17%. So it added probably about 5% for the E P.
For the quarter.
Got it thanks, guys I'll hop back in the queue.
Thanks, Craig.
We will go next to Quinn Bolton of Needham.
Thanks, guys.
Let me just follow up on Craig's question there on the on the tax.
What are the chances that it gets repealed or that you won't be able to continue to recognize that benefit is it do we need a change in tax law to go back to the 16% to 17% or is it more company specific.
Yes, no no change in the backlog, though this was put in.
During the Trump administration when it kicked in.
<unk> this year.
You had talked in the current administration has been tax changes and things like that so that's where there's rumbling up potentially going away, but it's not.
Lead onto it.
All got this tax change at the beginning of the year.
Got it. Thank you for that clarification, and then I wanted to ask on the litho.
I know youre going through the qualification.
But can you give us any sense of how far through that qualification argue how likely is it that you think you might be able to recognize some of that 20 million figure that you had mentioned in the second quarter.
I think I think there's a good chance. We've always said, we think Q1 or Q2, but there is.
There is.
Because of the complexity that is not just our tool, but also for instance, radicals we've had.
Redo radical several times as the customer debug the radicals printing for the process somewhat.
Several layers on each side thats quite a bit of.
Quite a bit of extra work that is sort of <unk>.
Happening in parallel to the qualification of our of our stepper.
So.
It's hard to predict but.
Well, we're hopeful and we're optimistic that the second quarter. We can we can see that put behind us.
Great and then Mike a follow up on lithography I know.
Beginning of the year you put out the.
Statement that your backlog for litho head to head at that point reached about $100 million can you help quantify for us in our high volume panel manufacturing.
Facility, how many how many steppers would you need in that facility is it one or two is it is it more than that I'm, just trying to get a sense.
We see panel move into high volume production, what's what's the unit opportunity for high volume.
Factory.
Okay.
So.
These are moving into high volume. So so the way these lines run their setup as lines almost like solar alliance, where Kenneth input raw material output of finished panel unlike traditional wafer fab so each.
Your line takes two steppers.
To print the front side then it's flipped in printed on the back side then it moves to the next step in the line. So I would say the.
Okay.
What we're seeing for some of these larger fabs as they are being built to support up to let's say 10 lines.
Six to 10 lines.
From what we know I mean I think.
That's changing in the market quickly evolving but thats.
That's sort of where we're at now.
Great. That's very helpful. Thank you Mike.
And we'll move to our next question from Tom <unk> with D. A Davidson.
Yes. Good afternoon. Thanks for the question a couple more lithography questions for you Mike.
When you look at your backlog is that mainly the 500 or is that composed of the three hundreds in the 35 hundreds as well.
Good question.
It's primarily the X five hundreds so it's I'd say, there's onesie twosies of the.
Others I'm not even sure we included those in the $100 million.
So I'd say its primarily the.
The X 500.
Okay, and then do you have a 95.
Oh go ahead.
Sorry, I said, 995% by primarily.
Quite a bit okay, alright, and then is there any update on your ability to ramp capacity over the next couple of quarters.
Yeah.
Yes, that's another good question, we're making steady progress we've done a lot of hiring.
We've brought in.
Really talented leadership and there they are having a.
An outsized impact I would say on our progress.
<unk> are coming together the talent is coming in and I am seeing every time I go downstairs.
Steady progress not just on the tool builds but on how they are being built.
Efficiencies in tracking and moving material and doing the sub assemblies and quality control checks.
Quite a bit.
That that is required and that that we still have yet to do but the progress is really really positive I would say by the end of this year, we should be in fairly good shape, maybe maybe a little bit into the.
New year 2023.
Okay.
You look at the orders that go into I think 2024 are you. The gating factor there or is that just one of those factories are planned to be built.
That's another good question, no I would say where the gating factor.
Some of them there are some factories.
Where there were tied to new factory build out, but if we could ship product earlier, they would take take it earlier.
Thanks.
So, yes, we're gating factor and we're working hard to.
We've already talked about increasing the capacity for 2023, where we're now looking at what it would take to increase capacity again for.
For 2024.
Alright, Okay, and then final question on the IRS.
Why was the first product of the first line.
Is it applicable to the other DRAM and logic foundries as well.
Well for sure it wasn't the first we've had.
Probably over 12 or 15.
Customers in total across a wide range in the first was a top three semiconductor manufacturer that was from last year. What I mentioned was that this quarter, we had another big uptick in the Iris.
Platform and it was because of a new NAND customer that recently adopted well we talked about it in the fourth quarter with the press release.
Fairly large.
So, let's say agreement or purchase agreement volume purchase agreement covering a wide range of our product lines, including the Iris.
Okay. Thank you for your time.
Youre welcome Thanks, Tom.
We'll move onto our next question from Brian Chin with Stifel.
Hi, there good afternoon. Thank.
Thanks for letting us ask a few questions and congratulations on the results.
Maybe first question.
More on the gross margin.
So maybe for you Steve.
Can you quantify what sort of the incremental headwind was in terms of.
This inflationary cost environment in terms of Q1, whether you expect that to be similar or up in.
In Q2, and also if you get those Rev. Rec in Q2 on the X five hundreds where do you think it is assume that $20 million revenue. What do you think that does to gross margins and <unk> and I have a follow up.
So.
Alright, so let's start with the first part the supply chain side of it Brian I mean.
We increased.
Second increase and I think that that logistics and freight cost problem.
Probably cost us almost three quarters.
A point on the margin.
And then obviously, we've had some obviously supply inventory <unk>.
Supply parts increases too so I'd say I mean normally we're at 55%.
In our core business and.
I think thats, where we would have been if it wasn't for these logistics.
For sure.
On the X 500, I mean, that's a little tougher right.
Obviously, there's a big range in there depending on the Rev Rec.
And as we've said.
The initial system theyre going to be very low margin, a little margin to low margin systems, because they were done as we start to ramp manufacturing and engineering Bill So.
So we have an idea of what actually is going to get Rev. Rec in the quarter.
Hard to say, what how much that's going to impact the overall margins.
But yes, it's going to persist I mean, obviously as Mike talked about I mentioned in Craig's question, we are in a significant manufacturing Ram so.
We do expect.
That could persist throughout the for the next several quarters as we continue to ramp up building more and more of the system. So it's a little early to tell you exactly the impact on Q2.
From those systems.
Got it got it and I imagine that this is obviously a big step up in that revenue.
When it hits this year and then.
Probably levels off and as the other businesses that have higher margins and you make improvements you converge with your target model again, maybe next year.
And also I guess, Mike in terms of you made some reference to sort of your exposure to bare wafer the <unk> silicon wafer market.
And clearly.
It's clear messaging that there is not enough supply.
Out there and for probably many years and so it sounds like youre starting to see that capacity expansion hit you in a favorable way sorry in the second half of this year can you maybe help us size your exposure to that and kind of.
Maybe anything else sort of unpacking that opportunity, yes second half into next year.
Sure. So as I mentioned, it's two primary products Bolsa FERC process control. So one is for inspection of the <unk> said.
And the other is for.
Elemental content, so I mentioned the oxygen.
Nothing material that are critical for us to measure and control for for the high end applications of the wafers. So <unk> for instance.
Both of those products.
Combine them, we've talked about I think in the past around 120 to 140 <unk>.
Sam that's addressable worldwide and so based on the let's say the backlog that we have and which actually extends into 2023 for these product lines.
I'd say, where.
The opportunity is.
Upwards of 50% of that Sam.
Maybe more.
Okay got it that's really helpful. Maybe if I could sneak one last one in and some discussion of sort.
Backend inspection here a contributor to the BPA is I think that you referenced Mike.
I know a lot of focus in terms of heterogeneous integration and compute market being a big adopter of that.
I think there's also a pretty good incrementals option that can come out of smartphone chipsets moving to maybe two five D packaging in a couple of years ahead, and so I'm just curious if you might be difficult, but if you had a fan out like your Sam for backend inspection over the next two to three years, what do you think that growth rate can look like and I would imagine.
It's probably north of expectations for WMC.
Okay.
Yes.
Sure.
The question because theres a lot going on in the World. This advanced packaging you mentioned just to.
Also hybrid bonding that we've talked about I think last quarter a quarter before was we're seeing a lot of.
Investments, there and focus there.
And then the snowy be 40, which is which is also a wafer level packaging.
Yeah.
Technique.
As far as the growth rates.
I would say I would expect it to be above WRC I would say that the.
Smartphones from a panel perspective are likely more geared towards the panel level fan out at least that's what we've seen so far we have seen some increased demand for panel level fan out where that was really hot three or four years ago.
Kind of.
Petered out a little bit and most manufacturers shifted back to copper pillar or decided on copper pillar for a couple of generations now we're seeing that shift back to panel level fan out. So those would be lower kind of lower end applications, where high performance compute would be in this.
More panel substrate type application.
And then the amount of so I didn't give you a direct answer to your question. The other reason is.
The growth in panel level fan out there is not a lot of inline inspection right now it's a lot of final inspection and Thats not very high resolution inspection, so as far as.
Inspection and metrology to drive real process control and yield enhancements. This is some new.
A new focus for many of our customers. So that's why we've talked about some of these engagements opening up the opportunities for us to.
Co learn and work together to drive improvements in margins for these lines and therefore, hopefully drive a lot of potential in.
And spectrum business for us from that perspective and to give you an idea what we're hearing is yields for some of these lines.
Or in that 30% to 80% range, which is a wide range, but even at 80% that's not very very high yields.
Okay, that's great great color. Thanks.
And we'll go next to Dave Duley of steelhead.
Thank you for taking my question.
I was just wondering.
You've given us lots of data on multiple products that you talked about during your prepared remarks thus.
As far as the.
Three nanometer ramp up when would you expect to start to see.
More significant volumes for that.
Hi.
I would say next year maybe early.
We had originally hoped to the end of this year and there was some.
Some changes to our customers' plans, but I would hope that thats the demand is still high.
We'll see as you saw 40% of our logic revenue.
The amount of pilot and R&D investments was so significant that it amounted to 40% of our of our logic revenue in the quarter. So I think there is.
There is a lot of activity and I would call that in preparation for ramp so I'm optimistic that we'd see that in the first half next year.
Okay.
Yes.
[noise] exceeded your revenue targets in the first quarter and talked about how the second half of the year is going to be bigger than the first half of the year.
I haven't done the math, but I was just kind of curious.
Wafer fab equipment grows in this.
Let's say, 15% to 20% range, where do you think onto will shake out.
Above that.
Based on what I said, it would be it'd be north of 23% I mean, I think flat.
Quarter to quarter flat, that's around 23%. So since I said above you would have to guess at how much above but it would be above 23% so either way, even if we're flat.
It'd be ahead of the WMC is as you described it.
Excellent now.
I asked this question last quarter I was going to I think you gave us some commentary in your prepared remarks.
As you strip out these.
Lithography tools.
Where are you with providing a package of metrology and inspection and software too.
Applications and tools along with them.
So for panel level fan out applications actually we've got a significant traction there.
We have several customers already adopting the step fast, which is our branded solution, which integrates software inspection the firefly and our stepper.
<unk> 3500.
<unk>.
Our fully integrated turnkey solution and so thats adopted I think we now have.
Four.
For three or four customers panel level fan out customers. Most everyone, who is ramping panel level fan out is adopting that solution.
<unk>.
And we have a couple of others.
Interested in are talking about for their new lines.
Looking at that same technology, then moving to the X 500 customers as I mentioned there.
We're still in the learning phase with them. So there is there is.
Applications, we think that we can bring to bear and Theres a lot of willingness and openness to work with us So we've been.
Putting together a team a cross functional team to work with select customers and drive some level of yield improvement by looking at Bob.
Fab wide software opportunities or the data that the fab wide software it can provide.
Areas, where we can then applied certain process control.
Control techniques to feed into the lithography, which is one of the biggest determining factors of the yields in order to improve the overall line. So it's early stages for that second group.
Okay. Thank you.
Youre welcome.
And as a reminder, it is star one if you have a question at this time.
And we'll go to Mark Miller with the benchmark company.
Congratulations on another record quarter.
I was just wondering in terms of the backlog.
And the profile of the products in the backlog is it is it similar to the margins you've been recently been reporting or is it above or below in terms of the margins of the equipment in the backlog.
You've recently reported.
So you are asking about our total backlog mark right.
Correct.
Yes, so it would be.
Close to that I mean pretty much the corporate normal corporate process control market margins. Because this is obviously the same mix between metrology inspection could comment with the business know uneven waiting in our backlog right now between metrology inspection.
And then obviously you talked about the litho its got a $100 million on top of that but.
You are asking.
So I think I think.
To add a little color. There is several of the <unk> include some of the new products and so those will have certainly much higher margins than the previous products, they add more value and they provide more value.
To sort of.
What might dampen that has been the.
The amount of lithography thats in our backlog and that of course has.
Much lower margins.
So steve's answer that it's about around the corporate <unk> that makes sense, but just wanted to add a little color that for sure in our backlog, we're seeing a lot more adoption of the new products that do have higher margin with the exception of the lithography.
And what was your cash flow from operations for the quarter.
Okay and Capex.
So cash flow from operations was about $45 million Capex is like $2 5 million. So about a 43 cash flow.
And then your anticipation of a stronger second half as that.
Confidence is coming from the backlog or anticipation of just better business, especially from the memory people.
Or both.
Okay.
I mean.
Thank you, Greg and Mark.
Yes.
Mark can you repeat that question sure.
Your anticipation of stronger results in the second half of the year compared to the first half of the shares that.
From your visibility in the backlog or anticipation of better business coming from NAND and DRAM customers.
I would say it's mostly.
The backlog, but also the discussions we're having with our customers about their their ramp plans theyre still push pulling on us very hard for equipment, there's a little bit of movement like I mentioned.
With some of the customers ramps, but.
Overall, the demand environment is still very strong and our backlog continues to grow so.
I'd say that.
Yes, it's a combination of both.
Thank you.
You're welcome thank you.
And it appears there are no further questions at this time I would now like to turn the conference back to Michael Schafer for any additional or closing remarks.
Thanks, Jenny and we'd like to thank everybody for joining us today, a replay of the call is going to be available on our website by 730 Eastern time this evening.
Like to thank you for your continued interest in onto innovation and everyone have a great day Jenny Please conclude the call.
And this concludes today's call. Thank you for your participation you may now disconnect.
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