Q1 2026 Onto Innovation Inc Earnings Call

May 5, 2026

Operator: Thank you for standing by. 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 Sidney Ho. Please go ahead.

Speaker #3: At this time, I would like to turn the conference over to Sydney Ho. Please go ahead.

Speaker #2: Thank you, Taryn, and good afternoon, everyone. ONTO INNOVATION issued its 2026 first quarter financial results this afternoon, shortly after the market closed. If you did not receive a copy of the release, please refer to the company's website where a copy of the release is posted.

Sidney Ho: Thank you, Taryn. Good afternoon, everyone. Onto Innovation issued its 2026 Q1 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 Plisinski, 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. 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.

Speaker #2: Joining us on the call today are Michael Plisinski, 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.

Speaker #2: 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.

Speaker #2: 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.

Sidney Ho: 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. Let me now turn the call over to our CEO, Michael Plisinski. Michael?

Speaker #2: As a reminder, a detailed reconciliation between GAAP and non-GAAP results can be found in today's earnings release. Let me now turn the call over to our CEO, Mike Plisinski.

Speaker #2: Mike?

Speaker #3: Thank you, Sydney. Good afternoon, everyone, and thank you for joining us on our call today. The ONTO INNOVATION team is off to an outstanding start to the year as the momentum in our business continues to build in support of strong demand for AI compute.

Michael Plisinski: Thank you, Sidney. Good afternoon, everyone, and thank you for joining us on our call today. The Onto Innovation team is off to an outstanding start to the year as the momentum in our business continues to build in support of strong demand for AI compute. This surge in demand across both front-end and advanced packaging resulted in Q1 revenue above our original guidance range and is expected to continue with the heightened outlook for the Q2 revenue, which at the midpoint represents a 20% increase year-over-year. Momentum should continue into the H2 of the year with rising customer expansions enhanced by accelerating new product adoption and a growing backlog, all indicating more than 15% sequential revenue growth in the H2 of the year. In total, we expect revenue growth of more than 30% in 2026.

Speaker #3: This surge in demand across both front-end and advanced packaging resulted in first-quarter revenue above our original guidance range and is expected to continue with the heightened outlook for the second quarter revenue, which at the midpoint represents a 20% increase year over year.

Speaker #3: Momentum should continue into the second half of the year with rising customer expansions enhanced by accelerating new product adoption and a growing backlog, all indicating more than 15% sequential revenue growth in the second half of the year.

Speaker #3: In total, we expect revenue growth of more than 30% in 2026. the insatiable end-market demand for high-performance compute and supporting process technologies, including silicon photonics.

Michael Plisinski: This momentum is driven by the insatiable end market demand for high-performance compute and supporting process technologies, including silicon photonics. Customers benefit from our broad and synergistic portfolio of optical process control technologies, which, through our software, are capable of working together to provide more actionable intelligence to manufacturers. The announcement of our strategic collaboration with the leader in X-ray technology, Rigaku, expands this capability significantly. While optical metrology is preferred for high-volume manufacturing, additional needs are emerging as manufacturers increase the application of exotic materials and 3D structures at transistor and chiplet scale, which is where the penetration power and precision of X-ray technology can provide additional information about material composition and underlayer data to potentially improve optical metrology robustness.

Speaker #3: Customers benefit from our broad and synergistic portfolio of optical process control technologies, which, through our software, are capable of working together to provide more This momentum is driven by actionable intelligence to manufacturers.

Speaker #3: The announcement of our strategic collaboration with a leader in X-ray technology, Rigaku, expands this capability significantly. So while optical metrology is preferred for high-volume manufacturing, additional needs are emerging as manufacturers increase the application of exotic materials in 3D structures at the transistor and chiplet scale, which is where the penetration power and precision of X-ray technology can provide additional information about material composition and underlayer data to potentially improve optical metrology robustness.

Speaker #3: The key to realizing this benefit is our AI diffract software, where our customers were the first to see the potential benefits of leveraging AI diffract technology to unleash the strength of Rogaku's X-ray systems to solve process metrology challenges where other suppliers struggled.

Michael Plisinski: The key to realizing this benefit is our Ai Diffract software, where our customers were the first to see the potential benefits of leveraging Ai Diffract technology to unleash the strength of Rigaku's X-ray systems to solve process metrology challenges where other suppliers struggled. Now, with 2 competitive wins in hand and several other evaluations planned across memory and logic manufacturers, we are confident that the value of this combination to our customers will increase. In addition to revenue from licensing Ai Diffract to support Rigaku X-ray systems, another revenue stream involves the development of more complex hybrid metrology solutions to provide unique production capable metrology by combining the strengths of optical and X-ray technologies. The breadth and depth of Rigaku's X-ray technology makes them an outstanding partner as they enjoy one of the broadest portfolios of X-ray technology spanning CD, materials analysis, and films.

Speaker #3: Now, with two competitive wins in hand and several other evaluations planned across memory and logic manufacturers, we are confident that the value of this combination to our customers will increase.

Speaker #3: In addition, to revenue from licensing AI diffract to support Rogaku X-ray systems, another revenue stream involves the development of more complex hybrid metrology solutions to provide unique production-capable metrology by combining the strengths of optical and X-ray technologies.

Speaker #3: The breadth and depth of Rogaku's X-ray technology makes them an outstanding partner, as they enjoy one of the broadest portfolios of X-ray technology spanning CD, materials analysis, and films.

Speaker #3: Rogaku has over 75-year history in X-ray, with over 600 million in 2025 revenue, of which approximately 40% is related to the semiconductor industry. We're proud to be working together and our investment of $27% of the business, which provides us a seat on their board of directors, will further strengthen our long-term alignment, provide deeper insight into X-ray technology roadmaps, and position us to jointly advance next-generation hybrid metrology solutions.

Michael Plisinski: Rigaku has over 75-year history in X-ray, with over $600 million in 2025 revenue, of which approximately 40% is related to the semiconductor industry. We're proud to be working together, and our investment of 27% of the business, which provides us a seat on their board of directors, will further strengthen our long-term alignment, provide deeper insight into X-ray technology roadmaps, and position us to jointly advance next generation hybrid metrology solutions. While the Rigaku partnership expands our opportunities for growth tied to future process challenges, today's process challenges are driving increased demand for our solutions in both advanced packaging and advanced nodes.

Speaker #3: So, while the Rogaku partnership expands our opportunities for growth tied to future process challenges, today's process challenges are driving increased demand for our solutions in both advanced packaging and advanced nodes.

Speaker #3: Starting with advanced packaging, we're, of course, thrilled to have announced our qualification adoption of Dragonfly G5's inspection system at a leading 2.5D logic customer.

Michael Plisinski: Starting with advanced packaging, we're of course thrilled to have announced our qualification adoption of Dragonfly G5's inspection system at a leading 2.5D logic customer. Closely following our wins in high bandwidth memory for both 2D inspection and 3D metrology, our team did a phenomenal job to accelerate the delivery of this completely new platform, which delivers improved sensitivity, high throughput, and the flexibility of multiple sensors to provide a compelling and differentiated value proposition to the customer. Shipments to customers are ahead of plan, and we are actively engaging with new customers and applications. With a pipeline of over 15 distinct applications across over 10 customers, the outlook for Dragonfly G5 is very promising, providing opportunities for both share gains in current markets and expansion into new markets.

Speaker #3: So closely following our wins in high-bandwidth memory for both 2D inspection and 3D metrology. Our team did a phenomenal job to accelerate the delivery of this completely new platform, which delivers improved sensitivity, high throughput, and the flexibility of multiple sensors to provide a compelling and differentiated value proposition to the customer.

Speaker #3: Shipments to customers are ahead of plan, and we are actively engaging with new customers and applications. With a pipeline of over 15 distinct applications across more than 10 customers, the outlook for Dragonfly G5 is very promising, providing opportunities for both share gains in current markets and expansion into new markets.

Speaker #3: Just as 2D features within die are shrinking rapidly, so are the 3D interconnects between die. Two years ago, the most advanced bumps were approximately 15 to 25 microns high.

Michael Plisinski: Just as 2D features within die are shrinking rapidly, so are the 3D interconnects between die. 2 years ago, the most advanced bumps were approximately 15 to 25 µm high. Today, we're sampling bumps below 6 µm in height. This adoption of smaller, more dense bumps plays to the strength of our 3Di technology and has led to several more OSAT customers and over 10 additional orders in the quarter. Finally, the strong demand for AI and industry constraints and packaging capacity are causing customers to look at additional processes such as panel level packaging, where larger substrates can provide for greater economies of scale as the adoption of heterogeneous packaging drives larger package sizes. We're pleased to learn that JetStep was recently qualified at 2 packaging suppliers to AI device manufacturers with ramp up expectations in 2027.

Speaker #3: Today, we're sampling bumps below 6 microns in height. This adoption of smaller, more dense bumps plays to the strength of our 3DI technology and has led to several more OSAC customers in over 10 additional orders in the quarter.

Speaker #3: Finally, the strong demand for AI in the industry constraints and packaging capacity are causing customers to look at additional processes, such as panel-level packaging, where larger substrates can provide for greater economies of scale as the adoption of heterogeneous packaging drives larger package sizes.

Speaker #3: We're pleased to learn the Jetstep was recently qualified at two packaging suppliers to AI device manufacturers with ramp-up expectations in 2027. Considering all of these growth drivers, we believe our advanced packaging revenue will grow more than 50% in 2026.

Michael Plisinski: Considering all of these growth drivers, we believe our advanced packaging revenue will grow more than 50% in 2026. Turning to our advanced nodes business, it continues to strengthen across both logic and memory. Adoption of our Atlas G6 platform is expanding following successful competitive head-to-head evaluations at several key accounts for next-generation logic nodes, while in memory, we're seeing solid traction as DRAM customers ramp development of next-generation devices. Additionally, we secured a new application win for TSV metrology using our Atlas system, with initial shipments expected to commence in H2 of the year. With this broad-based strength in logic, DRAM, and early signs of recovery in NAND, we now expect our advanced nodes business to grow approximately 25% in 2026, ahead of the average WFE growth expectations in the low 20s.

Speaker #3: Turning to our advanced nose nodes business, it continues to strengthen across both logic and memory, adoption of our Atlas G6 platform is expanding, following successful competitive head-to-head evaluations at several key accounts for next-generation logic nodes, while in memory, we're seeing solid traction as DRAM customers ramp development of next-generation devices.

Speaker #3: Additionally, we secured a new application win for TSV metrology using our Atlas system, with initial shipments expected to commence in the second half of the year.

Speaker #3: With this broad-based strength in logic, DRAM, and early signs of recovery in NAND, we now expect our advanced nodes business to grow approximately 25% in 2026, ahead of the average WFE growth expectations in the low 20s.

Speaker #3: And with that, let me now turn the call to Brian to review our financial highlights and provide second-quarter guidance. Brian? Thanks, Mike. Good afternoon, everyone.

Michael Plisinski: With that, let me now turn the call to Brian to review our financial highlights and provide Q2 guidance. Brian?

Brian Roberts: Thanks, Mike. Good afternoon, everyone. As Mike noted, 2026 is off to a strong start for Onto Innovation as we exceeded the high end of our Q1 guidance range across all key financial metrics, including revenue, gross margin, operating margin, and earnings per share. Revenue of $292 million increased nearly 10% sequentially on strength primarily across our Advanced Nodes business, highlighted by adoption of the Atlas G6 and our inspection products, including the initial commercial shipments of the Dragonfly G5. Specialty Device in AP was approximately $160 million in the quarter, of which two-thirds was advanced packaging, $25 million related to Semilab, and the remainder specialty device, including power semi. Advanced Nodes was approximately $80 million, of which 60% was memory, primarily DRAM, and the remainder logic. Software and services comprise the remaining Q1 revenue.

Speaker #3: As Mike noted, 2026 is off to a strong start for ONTO INNOVATION as we exceeded the high end of our first quarter guidance range across all key financial metrics, including revenue, gross margin, operating margin, and earnings per share.

Speaker #3: Revenue of $292 million increased nearly 10% sequentially, on strength primarily across our advanced nodes business, highlighted by adoption of the Atlas G6, and our inspection products, including the initial commercial shipments of the Dragonfly G5.

Speaker #3: Specialty device and AP was approximately 160 million in the quarter, of which two-thirds was advanced packaging. 25 million related to Semilab. And the remainder, specialty device including power semi.

Speaker #3: Advanced nodes was approximately 80 million, of which 60% was memory, primarily DRAM, and the remainder logic. Software and services comprised the remaining first quarter revenue.

Speaker #3: Despite increasing headwinds around certain material input costs, such as memory and higher fuel and shipping charges, we demonstrated solid margin performance as gross margin improved sequentially by 110 basis points to 55.7%, and operating margin increased by 150 basis points to 26.7%.

Brian Roberts: Despite increasing headwinds around certain material input costs, such as memory and higher fuel and shipping charges, we demonstrated solid margin performance as gross margin improved sequentially by 110 basis points to 55.7%, and operating margin increased by 150 basis points to 26.7%. Our performance reflects benefits recognized primarily from our move to extended factories. Earnings per share were $1.42, reflecting a 13% improvement over Q4 2025. On 20 April, we announced the deepening of our strategic partnership with Rigaku, including the purchase of a 27% stake in the company from Carlyle Group for approximately $710 million. The deal is expected to close in H2 2026 and be primarily funded with cash on hand.

Speaker #3: Our performance reflects benefits recognized primarily from our move to extended factories. Earnings per share were $1.42, reflecting a 13% improvement over Q4 2025. On April 20th, we announced the deepening of our strategic partnership with Rogaku, including the purchase of a 27% stake in the company, from Carlisle Group, for approximately $710 million.

Speaker #3: The deal is expected to close in the second half of 2026 and be primarily funded with cash on hand. The strategic rationale as Mike discussed is clear.

Brian Roberts: The strategic rationale, as Mike discussed, is clear, but let me take a minute to discuss the financial side of the transaction. We will account for the purchase using the fair value option method for investments, which simply means the deal would be recorded at cost, and then each reporting period, we will show an unrealized gain or loss based upon the movement in Rigaku's stock price. This will be reflected in the other income section of our P&L. While Rigaku's financials will not be consolidated into our numbers, we see three primary benefits which will enhance our financial results. First, Rigaku's X-ray tool integrated with our Ai Diffract software will generate incremental licensing revenue to us at nearly a 100% margin. Second, we expect we will sell additional metrology tools, such as our Atlas G6 to customers who are using the integrated X-ray tool.

Speaker #3: But let me take a minute to discuss the financial side of the transaction. We will account for the purchase using the fair value option method for investments, which simply means the deal would be recorded at cost and then each reporting period we will show an unrealized gain or loss based upon the movement in Rogaku's stock price.

Speaker #3: This will be reflected in the other income section of our P&L. While Rogaku's financials will not be consolidated into our numbers, we see three primary benefits, which will enhance our financial results.

Speaker #3: First, Rogaku's X-ray tool integrated with our AI diffract software will generate incremental licensing revenue to us at nearly 100% margin. Second, we expect we will sell additional metrology tools, such as our Atlas G6, to customers who are using the integrated X-ray tool.

Speaker #3: And third, we expect Rogaku will continue to pay dividends to shareholders, which equates to approximately $7 million or more per year, based on our expected ownership stake.

Brian Roberts: Third, we expect Rigaku will continue to pay dividends to shareholders, which equates to approximately $7 million or more per year based on our expected ownership stake. Within a year of the close of the transaction, we would expect that the income generated from these three sources will offset any foregone interest income on cash used in the deal. Now let me discuss our outlook for Q2 with some thoughts on the remainder of 2026. We previously announced on 16 April, our Q2 revenue expectation of $320 to 330 million, representing at the midpoint a 10% increase to previous analyst expectations and 28% year-over-year growth. As we look to H2 of this year, revenue is expected to accelerate to at least 15% growth over H1 of 2026.

Speaker #3: Within a year of the close of the transaction, we would expect that the income generated from these three sources will offset any foregone interest income on cash used in the deal.

Speaker #3: Now, let me discuss our outlook for the second quarter with some thoughts on the remainder of 2026. We previously announced on April 16th our Q2 revenue expectation of $320 to $330 million, representing at the midpoint a 10% increase to previous analyst expectations and $28% year-over-year growth.

Speaker #3: As we look to the second half of this year, revenue is expected to accelerate to at least 15% growth over the first half of 2026.

Speaker #3: This translates to 2026 revenue greater than $1.3 billion. Alongside this outstanding revenue result are our expectations for continued second quarter gross and operating margin expansion.

Brian Roberts: This translates to 2026 revenue greater than $1.3 billion. Alongside this outstanding revenue result is our expectations for continued Q2 gross and operating margin expansion. We do note increasing headwinds around certain material costs, fuel charges, and investments in our R&D and services teams to support the revenue ramp, we are confident in our ability to show continued margin expansion. We currently expect Q2 gross margin in the range of 56% to 56.5%, operating expenses of $90 to $92 million, operating margin in the range of 28% to 28.6%, and earnings of approximately $1.69 per share at the midpoint. This assumes a non-GAAP tax rate of approximately 15% and slightly more than 50 million shares outstanding.

Speaker #3: While we do note increasing headwinds around certain material costs, fuel charges, and investments in our R&D and services teams to support the revenue ramp, we are confident in our ability to show continued margin expansion.

Speaker #3: We currently expect Q2 gross margin in the range of 56 to 56.5%, operating expenses of $90 to $92 million, operating margin in the range of 28 to 28.6%, and earnings of approximately $1.69 per share at the midpoint.

Speaker #3: This assumes a non-gap tax rate of approximately 15% and slightly more than $50 million shares outstanding. While closely monitoring macro and micro headwinds impacting our cost structure, we remain confident that we will improve gross margins in Q3 and Q4 at a rate of at least 50 basis points per quarter and exit Q4 with an operating margin greater than 30%.

Brian Roberts: While closely monitoring macro and micro headwinds impacting our cost structure, we remain confident that we will improve gross margins in Q3 and Q4 at a rate of at least 50 basis points per quarter and exit Q4 with an operating margin greater than 30%. With that, let me turn it back to Mike for some closing thoughts before we take your questions. Mike.

Speaker #3: And with that, let me turn it back to Mike for some closing thoughts before we take your questions. Mike?

Speaker #2: Thank you, Brian. In summary, this quarter underscores the strength of our execution and the accelerating momentum across our portfolio. We exceeded expectations in the first quarter, advanced our leadership and advanced packaging with a successful qualification of Dragonfly G5 at multiple key customers, and took a major step forward in our metrology strategy through the partnership and investment in Rogaku.

Michael Plisinski: Thank you, Brian. In summary, Q1 underscores the strength of our execution and the accelerating momentum across our portfolio. We exceeded expectations in Q1, advanced our leadership in advanced packaging with the successful qualification of Dragonfly G5 at multiple key customers, and took a major step forward in our metrology strategy through the partnership and investment in Rigaku. At the same time, our operational discipline continues to enhance scalability and drive strong margin expansion. Our visibility continues to strengthen, supported by record backlog, new product momentum, and deep collaboration with customers as we work together to solve their most critical process control challenges. With this visibility, market expansion, and our relentless drive to improve operational efficiencies, we believe Onto Innovation is well positioned to not only outperform this year, but also carry that momentum forward into 2027.

Speaker #2: At the same time, our operational discipline continues to enhance scalability and drive strong margin expansion. Our visibility continues to strengthen, supported by record backlog, new product momentum, and deep collaboration with customers as we work together to solve their most critical process control challenges.

Speaker #2: With this visibility, y, market expansion, and our relentless drive to improve operational efficiencies, we believe onto innovation is well positioned to not only outperform this year but also carry that momentum forward into 2027.

Speaker #2: And now, Taryn, let's open the call for questions from our covering analysts.

Michael Plisinski: Now, Taryn, let's open the call for questions from our covering analysts.

Speaker #3: Thank you. If you are dialed in via the telephone and would like to ask a question, please signal by pressing *1 on your telephone keypad.

Operator: Thank you. If you are dialed in via the telephone and would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. We ask that you please limit yourself to 1 question and 1 follow-up question. Again, you may press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal. We'll take our first question from Craig Ellis with B. Riley Securities.

Speaker #3: If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our yourself to one question and one follow-up question.

Speaker #3: Again, you may press *1 to ask a question and we'll pause for just a moment to allow everyone an opportunity to signal. We'll take our first question from Craig Ellis with B.

Speaker #3: Reilly Securities.

Speaker #4: Yeah, thanks for taking the question and congratulations on the really strong execution. Guys, Mike, I wanted to start with a question on Dragonfly G5.

Craig Ellis: Yeah. Thanks for taking the question, and congratulations on the real strong execution, guys. Mike, I wanted to start with a question on Dragonfly G5. Clearly you got a marquee win that starts to ship in Q2, which is great to see. Can you just talk about the way the pipeline allows for visibility for growth through the back half of the year? Then what are you hearing from customers with Dragonfly G5 relative to 2027?

Speaker #4: So clearly, you got a marquee win that starts to ship in 2Q, which is great to see. Can you just talk about the way the pipeline allows for visibility for growth through the back half of the year?

Speaker #4: And then what are you hearing from customers with Dragonfly G5 relative to 2027?

Speaker #2: Great question, Craig. So from the G5 perspective, one of the, I think, comments I made is that we're actually getting requests to pull in and serving those requests to pull in G5 shipments.

Michael Plisinski: Great question, Craig. From the G5 perspective, one of the comments I made is that we're actually getting requests to pull in and serving those requests to pull in G5 shipments. In fact, we've shipped several systems in Q1. We'll be shipping more into Q2, and even more in Q3 and Q4. We see a steady growth in demand for the G5 throughout all four quarters. That's an acceleration or a pull-in of the G5. From a perspective of 2027, we certainly, from those existing customers, we certainly have visibility into stronger demands, as you would expect, as they get cut in to production in 2026. As that production expands in 2027, we have, you know, more business, and that's what we're expecting.

Speaker #2: So in fact, we'll be shipping we've shipped several systems in Q1. We'll be shipping more into Q2 and even more in Q3 and Q4.

Speaker #2: So, we see a steady growth in demand for the G5 throughout all four quarters. So, that's an acceleration or a pull-in of the G5.

Speaker #2: From a perspective of 2027, we certainly, from those existing customers, we certainly have visibility into stronger demands, as you would expect, as they get cut into production in '26, as that production expands in '27.

Speaker #2: We have more. And that's what we're expecting. But I also mentioned that we have a very strong pipeline of application studies. And I highlighted that these are both studies in existing technologies, so existing markets we serve, as well as new markets and those applications are going quite well.

Michael Plisinski: I also mentioned that we have a very strong pipeline of application studies, and I highlighted that these are both studies in existing technologies, so existing markets we serve, as well as new markets. Those applications are going quite well, which would imply, you know, if it's successful in resulting in orders, imply significant expansion in 2027.

Speaker #2: Which would imply if successful and resulting in orders, imply significant expansion in 2027.

Speaker #4: Very good. And then the follow-up question is on advanced nodes. So we're significantly raising our view for advanced nodes growth this year to 25%.

Craig Ellis: Very good. The follow-up question is on advanced nodes. We're significantly raising our view for advanced nodes growth this year to 25%. Can you just talk about some of the end-use drivers for that, and how we should think about linearity as we go through the back half of the year in 2026? Thanks, Mike.

Speaker #4: Can you just talk about some of the end-use drivers for that and how we should think about linearity as we go through the back half of the year in '26?

Speaker #4: Thanks, Mike.

Speaker #2: You're welcome. So for us, the advanced nodes, the biggest driver is, of course, the Atlas OCD metrology. And some of the latest capabilities we're providing customers is with smaller spots.

Michael Plisinski: You're welcome. For us, the advanced nodes, the biggest driver is, of course, the Atlas OCD metrology. You know, some of the latest capabilities we're providing customers is with smaller spots. Being able to measure in die, in the actual die to measure provide more process information that the customers can use to improve yield. Historically, spot sizes were too large to do that, and you had to measure in some sort of test areas. Customers prefer to do it on die if possible. We're seeing good drivers from that. We also are working on the integrated metrology, and we've had some good progress in integrated metrology from logic customers, building on the strength we have in the memory market.

Speaker #2: So being able to measure in die, in the actual die to measure, provide more process information that the customers can use to improve yield.

Speaker #2: Historically, spot sizes were too large to do that. And you had to measure in some sort of test areas. Customers prefer to do it on die if possible.

Speaker #2: So we're seeing good drivers from that. We also are working on the integrated metrology. And we've had some good progress in integrated metrology from Logic customers building on the strength we have in the memory market.

Speaker #2: So that also contributes to some of the growth we're seeing, as well as in the film. So the Iris Films tools—we're seeing some level of growth there.

Michael Plisinski: That also contributes to some of the growth we're seeing, as well as in the film. The Iris films tools, we're seeing some level of growth there, in the common films, but we continue to work with customers on the critical films as well, and hopefully see that contributing to some exciting news more towards the end of this year and into 2027. That's what we're seeing on the advanced node side.

Speaker #2: In the common films, but we continue to work with customers on the critical films as well. And hopefully see that contributing to some exciting news more towards the end of this year and into 2027.

Speaker #2: So that's what we're seeing on the advanced node side.

Speaker #4: Got it. Thank you.

Craig Ellis: Got it. Thank you.

Speaker #3: We'll take our next question from Blaine Curtis with Jefferies.

Operator: We'll take our next question from Blaine Curtis with Jefferies.

Speaker #5: Hi, Asher Wiener. I'm from Blaine. Thanks for taking my question. Just the first one. Last quarter, you were talking about a big VPA potentially being two-thirds weighted into 2027.

Ezra Weener: Hi, Ezra Weener on for Blaine. Thanks for taking my question. Just the first one. Last quarter, you were talking about a big VPA potentially being two-thirds weighted into 2027 and could get pulled in half-half, theoretically, into 2026. Can you talk a little bit about what you're seeing in terms of demand from customers from a timing perspective, and if you're seeing pull-ins?

Speaker #5: And could get pulled in half-half, theoretically, into '26. Can you talk a little bit about what you're seeing in terms of demand from customers from a timing perspective?

Speaker #5: And if you're seeing pull-ins?

Speaker #2: Broadly speaking, we are seeing pull-ins, but not at the expense of the 2027 numbers. So it's really more of a broader rising of the tide.

Michael Plisinski: Broadly speaking, we are seeing pull-ins, but not at the expense of the 2027 numbers. It's really more of a broader rising of the tide. The pull-ins, you know, if you look at 2026 and 2027, a lot of these expansions are tied to new fabs coming online versus filling up excess capacity or excess capacity in existing fabs. The pull-ins are if the customers are able to, you know, ramp up a fab quickly enough and they wanna take some more tools, or we had some share gains and we see a share shift and they wanna pull in some tools. But it's, you know, it's not at the expense what we see so far of 2027. In fact, 2027 continues to look much stronger even than 2026.

Speaker #2: The pull-ins if you look at '26 and '27, a lot of these expansions are tied to new fabs coming online, versus filling up excess capacity or excess opportunity yeah, capacity in existing fabs.

Speaker #2: So the pull-ins are if the customers are able to ramp up a fab quickly enough and they want to take some more tools. Or we had some share gains and we see a share shift and they want to pull in some tools.

Speaker #2: But it's not at the expense of what we see so far of '27. In fact, '27 continues to look much stronger, even than '26.

Speaker #5: Got it. Thanks. And then just a follow-up. Dragonfly G5, was looked at as a margin improvement story versus G3. Can you help kind of talk about how much you're seeing that actually impact margin?

Ezra Weener: Got it. Thanks. Just a follow-up. Dragonfly G5 was looked at as a margin improvement story versus G3. Can you help kind of talk about how much you're seeing that actually impact margin?

Speaker #2: Yeah. So it's for sure going to be an improvement in margins is a completely new tool with a significant improvement in value proposition to the customers.

Michael Plisinski: Yeah. It's for sure going to be an improvement in margins as a completely new tool with a significant improvement in value proposition to the customer. Overall, the cost of ownership is, for the customer, much more attractive. You are not going to see the margin improvement in the initial H1 of the year because the relative volume is low as we continue to ramp it throughout this year. Going into the H2, where I'd expect you to see a more significant impact is in 2027 when that transition to Dragonfly G5 is much more predominant, much stronger, and it's a higher percentage of the overall inspection revenue.

Speaker #2: So overall, the cost of ownership is for the customer much more attractive. You are not going to see the margin improvement in the initial first half of the year because the relative volume is low, as we continue to ramp it throughout the second half of throughout this year.

Speaker #2: So going into the second half. Where I'd expect you to see a more significant impact is in 2027, when the when that transition to Dragonfly G5 is much more predominant, much stronger.

Speaker #2: And it's a higher percentage of the overall inspection revenue.

Speaker #5: Got it. Thank you.

Ezra Weener: Got it. Thank you.

Operator: If you follow up your question

Speaker #3: If you want to read your question.

Michael Plisinski: That said, we do continue to expect to improve the gross margins throughout each of the quarters throughout this year.

Speaker #2: That's it. We do continue to expect to improve the gross margins throughout each of the quarters throughout this year.

Speaker #3: If you find that your question has been answered, you may remove yourself from the queue by pressing Star 2. And once again, if you'd like to ask a question, you may join the queue by pressing Star 1.

Operator: We'll move to our next question from Edward Yang with Oppenheimer.

Speaker #3: We'll move to our next question from Edward Yang with Oppenheimer.

Operator: If you find that your question has been answered, you may remove yourself from the queue by pressing star two. Once again, if you would like to ask a question, you may join the queue by pressing star one. We'll move to our next question from Edward Yang with Oppenheimer.

Speaker #6: Hi, guys. Thanks for the time. And congrats on the G5 Foundry qualification. That's a big win for you guys. Maybe, Mike, can you give a little bit more detail on why the Foundry customer liked the new platform versus other options?

Edward Yang: Hi, guys. Thanks for the time and congrats on the G5 foundry qualification. That's a big win for you guys. You know, maybe, Mike, can you give a little bit more detail on, you know, why the foundry customer, you know, liked the new platform versus other options? Are you expecting any share recapture, you know, new layer wins or broader customer application expansion, related to G5?

Speaker #6: And are you expecting any share recapture new layer wins or broader customer application expansion? Related to G5.

Speaker #2: So I characterize it as a two-and-a-half D Logic customer. I didn't say Foundry per se. So we'll just stick to two-and-a-half D Logic. But I do expect so in the head-to-head, you have to win.

Michael Plisinski: I characterized it as a two-and-a-half D logic customer. I didn't say foundry per se, we'll just stick to two-and-a-half D logic. I do expect, you know, in the head-to-head, you have to win, and if you win, then you get more orders. That by definition means that we're going to see some opportunities shift back to us that were either served by us before or are new opportunities for us. Again, driven by the higher resolution and the compelling value that the flexibility of the Dragonfly delivered to the customer. I think you also asked why the win. You know, again, we've been in this market for a long time. Packaging is very different than the front end. Our tool is designed for packaging.

Speaker #2: And if you win, then you get more orders. So that by definition means that we're going to see some opportunities shift back to us that were either served by us before or a new opportunities for us.

Speaker #2: Again, driven by the higher resolution and the compelling value that the flexibility of the Dragonfly delivered to the customer. I think you also asked what the—why the win.

Speaker #2: Again, we've been in this market for a long time. Packaging is very different than the front end. Our tool is designed for packaging. What we needed to do is deliver on the high resolution piece.

Michael Plisinski: What we needed to do is deliver on the high resolution piece. We've done that. We, you know, we are seeing things now below 200 nanometers, where historically 800 nanometers might have been about the limit. This is a combination of new optics, new camera, new staging, basically a ground-up system. Leveraging all of our experience and the challenges in packaging with die warp, with wafer warp, with rough surfaces due to, you know, different types of CMP polishing, leaving, you know, rough surfaces for metal layers and things like this. All of our algorithms and experience help to create a, you know, a very compelling system. In addition, we added some new capabilities. Die-to-die algorithms that allow us to eliminate die variation.

Speaker #2: We've done that. We are seeing things now below 200 nanometers. Where historically, 800 nanometers might have been about the limit. This is a combination of new optics, new camera, new staging, basically a ground-up system but leveraging all of our experience in the challenges in packaging with dye warp, with wafer warp, with rough surfaces due to different types of CMP polishing, leaving rough surfaces for metal layers and things like this.

Speaker #2: So all of our algorithms and experience help to create a very compelling system. And in addition, we added some new capabilities, dye-to-dye, algorithms that allow us to eliminate dye variation, I think that's a significant improvement, complementary to our golden dye.

Michael Plisinski: I think that's a significant improvement, complementary to our golden die algorithms from the past. Yeah, I think there's a variety of reasons. At the end of the day, the customer just wants the best cost of ownership, the most flexible system for the valuable fab space that they have. This system is designed for several generations ahead and, yeah, we're happy we won and look forward to continuing to win.

Speaker #2: Algorithms from the past. So yeah, I think there's a variety of reasons. And at the end of the day, the customer just wants the best cost of ownership, most flexible system for the valuable fab space that they have.

Speaker #2: So this system is designed for several generations ahead. And yeah, we're happy we won. And look forward to continuing to win.

Speaker #1: That's very helpful color. For my follow-up, would just be on the 2027 outlook. Sounds like you have a rich menu of growth opportunities. Obviously, a very favorable industry backdrop, but a lot of internal drivers as well.

Edward Yang: That's very helpful color. For my follow-up, would just be on the 2027 outlook. Sounds like you have a rich menu of growth opportunities. Obviously a very favorable industry backdrop, but a lot of internal drivers as well. If you were to rank order the opportunities you're particularly excited about, whether it's Atlas G6, Dragonfly, 3Di, Iris, JetStep, X-ray, et cetera, maybe give some color around how you feel about 2027 and your ability to outgrow WFE. Thank you.

Speaker #1: So, if you were to rank order the opportunities you're particularly excited about—whether it's Atlas G6, Dragonfly, 3Di, Iris, Jetstep, X-Ray, et cetera—maybe give some color around how you feel about 2027 and your ability to outgrow WFE.

Speaker #1: Thank you.

Speaker #2: You're asking me which of the children I love best. I think the highest growth and the highest contributions to growth or potential share gain opportunities will definitely come from the Dragonfly G5.

Michael Plisinski: You're asking me which of the children I love best. I think the highest growth and the highest contributions to growth or potential share gain opportunities will definitely come from the Dragonfly G5. I think it's expanding into or has the potential to expand into nearly $1 billion in new markets. That's exciting. The existing markets it's serving are also growing. I think there's a lot of opportunities for the Dragonfly. The Atlas G6, you know, is making good progress in gate-all-around customers. That's gonna continue to ramp and the OCD, you know, continues to be a critical component for process control in the gate-all-around technologies, even as we look at integrating X-ray systems in order to extend the opportunities for OCD and expand the opportunities for OCD.

Speaker #2: I think it's expanding into or has the potential to expand into nearly a billion dollars in new markets. That's exciting. And the existing markets it's serving are also growing.

Speaker #2: So I think there's a lot of opportunities for Dragonfly. The Atlas G6 is making good progress in gate all around customers. That's going to continue to ramp.

Speaker #2: And the OCD continues to be a critical component for process control in the gate-all-around technologies, even as we look at integrating X-ray systems in order to extend the opportunities for OCD.

Speaker #2: And expand the opportunities for OCD. These are complementary, not replacements. I think they work well together. In addition, I think the surface charge metrology is another good growth area for us.

Michael Plisinski: These are complementary, not replacements. I think they work well together. In addition, I think the surface charge metrology is another good growth area for us. We see more and more interest from, especially from packaging. As chiplet architectures become more of the, you know, more mainstream, the concerns around charge metrology or residual charge having an impact on yield, a direct impact on yield for a package is high. So the, you know, the products that we're coming out with and opportunities for the SDI, I think are continuing to grow. So that's another exciting opportunity. Of course, you know, right up with that is the panel level mark products we have with both JetStep and the Firefly.

Speaker #2: We see more and more interest from especially from packaging as chiplet architectures become more of the more mainstream. The concerns around charge metrology or residual charge having an impact on yield, a direct impact on yield for a package, is high.

Speaker #2: And so the products that were coming out with and opportunities for the SDI, I think, are continuing to grow. So that's another exciting opportunity.

Speaker #2: Of course, right up with that is the panel-level products we have with both Jetstep and the Firefly. We talked about some growth there as well.

Michael Plisinski: We talked about some growth there as well, recently, and we see, you know, a meaningful shift now with the panel market starting to gain traction and people recognizing some of the benefits there. Yeah, I think that's. Then there's some more things.

Speaker #2: Recently, and we see a meaningful shift now with the panel market starting to gain traction and people recognizing some of the benefits there. So yeah, I think that's and then there's some more things to say.

Edward Yang: Suffice it to say you expect to outgrow WFE?

Speaker #1: You expect to outgrow WFE?

Speaker #2: Yes.

Edward Yang: Yes.

Michael Plisinski: Yes.

Speaker #1: Next year? OK.

Edward Yang: Next year? Okay.

Speaker #2: We do expect to next year as well.

Michael Plisinski: We do expect to next year as well.

Speaker #1: Perfect. Thank you very much.

Edward Yang: Perfect. Thank you very much.

Speaker #3: We'll take our next question from Matthew Prisco with Cantor.

Operator: We'll take our next question from Matthew Prisco with Cantor.

Speaker #4: Yeah, thanks, guys, for taking the question. I just wanted to start on the advanced packaging market and the kind of improved outlook there. Primary drivers within that, what got incrementally strong over the last 90 days between maybe HBM co-op, co-op-like panel, little packaging, and what's included now in that number from a G5 perspective?

Matthew Prisco: Yeah. Thanks, guys. Taking the question. I just wanted to start on the advanced packaging market and the kind of improved outlook there. Primary drivers within that what got incrementally strong over the last 90 days between maybe HBM CoWoS-like panel level packaging and what's included now in that number from a G5 perspective? Thanks.

Speaker #4: Thanks.

Speaker #2: In all, and so for all the growth we talked about, how much of it is G5? It's still relatively small, so call it less than 10%.

Michael Plisinski: For all the growth we talked about, how much of it is G5, it's still relatively small. You know, call it, you know, less than 10%, maybe even, you know, 5%. It's ramping, you know.

Speaker #2: Maybe even 5%. So it's ramping. Pardon me?

Matthew Prisco: How are you thinking about those other areas?

Michael Plisinski: Pardon me?

Speaker #4: And then maybe how you think about all those other areas playing and being contributors to growth.

Matthew Prisco: Maybe how you think about all those other areas playing and being contributors to growth.

Speaker #2: Oh, they're significant contributors to growth. So the G3 demand is still going up. The G5 is ramping every quarter. It's growing very dramatically. So it's starting from zero.

Michael Plisinski: Oh, they're significant contributors to growth. The G3 demand is still going up. The G5 is ramping every quarter. It's growing very dramatically. It's starting from zero. Q1 is gonna be a handful of tools. Q2, Q3, it continues to nearly double each quarter throughout the year. It's growing quite a bit. I think overall, yeah, you're looking at over 50% growth in advanced packaging. If I think about 2.5D logic or HBM, they're very similar in growth outlooks for us. Similar to what they were in 2024 when everything was ramping. I think we talked about them split roughly equally.

Speaker #2: Q1 is going to be a handful of tools. Q2, Q3 continues to nearly double each quarter throughout the year. So it's growing quite a bit.

Speaker #2: I think overall, yeah, you're looking at over 50% growth in advanced packaging, and if I think about 2.5D logic or HBM, they're very similar in growth outlooks.

Speaker #2: For us. Similar to what they were in '24 when everything was ramping. I think we talked about them split roughly equally.

Speaker #4: Gotcha. That's helpful. And then maybe can you talk a little bit more about the Rigaku collaboration and how you think about revenues there ramping in the second half, primarily it seems like starting with software, and then how we should think about that combo optical X-Ray tool timing of that system and potential magnitude of that opportunity over time?

Matthew Prisco: Got you. That's helpful. Then maybe, can you talk a little bit more about the Rigaku collaboration and how you think about revenues there ramping in H2, primarily it seems like starting with software, and then how we should think about that combo optical X-ray tool, timing of that system and, you know, potential magnitude of that opportunity over time?

Speaker #2: So on the software piece, we'll provide some more guidance as we continue to gain experience putting in the working with Rigaku as they drive the sales.

Michael Plisinski: On the software piece, we'll provide some more guidance as we continue to gain experience putting in the working with Rigaku as they drive the sales. We're two separate companies now, so we're two separate companies, so we're dependent. Our software attach rate to their CD X-ray tools is depending on their CD X-ray tool pipeline. We've looked, we think it's quite healthy. We need more experience with how long it takes to close. Based on what we've seen, I would say we expect that software revenue to grow throughout 2026 and then grow even further in 2027, based on the pipeline we've seen.

Speaker #2: We're two separate companies now. So we're two separate companies. So we're dependent. Our software attach rate to their CD X-ray tools is depending on their CD X-ray tool pipeline.

Speaker #2: We've looked. We think it's quite healthy. We need more experience with how long it takes to close, and based on what we've seen, I would say we expect that software revenue to grow throughout '26 and then grow even further in '27.

Speaker #2: Based on the pipeline we've seen. But we're now starting to leverage some of our contacts in the industry and with some of these customers looking for new opportunities now that we have a more solidified arrangement.

Michael Plisinski: We're now starting to leverage some of our contacts in the industry and with some of these customers looking for new opportunities now that we have a more solidified arrangement, that number could grow. We'll provide more guidance as we continue to work together. The hybrid metrology solution, that's further out. That is more working with customers, understanding their challenges, looking at ways to combine information to provide production-worthy systems, N+2 kind of, you know, several generations out. You know, OCD right now is going to cover through 1 nanometer type processes. There'll be some incremental sales we talked about, but the hybrid metrology is gonna be more on some of the new technologies coming out in 2 years.

Speaker #2: And so that number could grow. So we'll provide more guidance as we continue to work together. The hybrid metrology solution, that's further out. That is more working with customers, understanding their challenges, and then looking at ways to combine information to provide production-worthy systems.

Speaker #2: N plus 2 kind of several generations out. OCD right now is going to cover through 1 nanometer type processes. There'll be some incremental sales.

Speaker #2: We talked about. But the hybrid metrology is going to be more on some of the new technologies coming out in a couple of years.

Speaker #2: So that means we're starting now in R&D working with our partners in the R&D space. And then look at timing for HBM. And that's where the real money will come in.

Michael Plisinski: That means we're starting now in R&D, working with our partners in the R&D space, and then look at timing for HVM, and that's where the real money will come in.

Speaker #5: Matt, in its simplest form, as I mentioned in my remarks, I mean, if you think about just from an interest income or the foregone interest income and think about what it means for us over the next 12 months, we feel very confident that we will more than pick that back up.

Brian Roberts: Matt, in its simplest form, as I mentioned in my remarks, I mean, if you think about just from an interest income or, you know, the foregone interest income and think about what it means for us over the next 12 months, we feel very confident that we will more than pick that back up through the combination of the licensing revenue that we've talked about as the primary kind of revenue stream, plus then the dividend income that we'll see from Rigaku. Those two numbers together from an income perspective should offset what we're foregoing in interest.

Speaker #5: Through the combination of the licensing revenue that we've talked about as the primary kind of revenue stream, plus then the dividend income that we'll see from Rigaku.

Speaker #5: So those two numbers together from an income perspective should offset what we're forgoing in interest.

Speaker #4: Thanks, guys.

Matthew Prisco: Thanks, guys.

Speaker #3: We'll take our next question from Vedvati Srotri with Evercore ISI.

Operator: We'll take our next question from Vedvati Shrotre with Evercore ISI.

Speaker #6: Hi, I'm taking my question. My first one's on advanced packaging. You talked about two growth opportunities. Additionally, silicon photonics and panel-level packaging. Can you help kind of size the revenue opportunity that could be here, and when do you expect to start seeing volumes on this?

Vedvati Shrotre: Hi, taking my question. My first one's on advanced packaging. You talked about two growth opportunities additionally, like silicon photonics and panel level packaging. Can you help kind of size the revenue opportunity that could be here and like when do you expect to start seeing volumes on this?

Michael Plisinski: We're already starting to see some volumes in silicon photonics. That from a size, I think you look at the end market demand and it's quite high. If you think about all the AI servers going in and all this desire to reduce the power consumption of those servers, provide additional speed between the memory and the logic as well. Two different areas silicon photonics are being used for co-packaged optics. You know, it can mean quite a bit of volume, but the question is how quickly it gets cut in. We've, we've talked about several different customers that we've already been selected and gaining traction, gaining orders. We have a kind of a good visibility and pipeline into additional orders or additional opportunities through the next, say, 12 months.

Speaker #2: We're already starting to see some volumes in silicon photonics. And from a size perspective, I think you look at the end market demand, and it's quite high.

Speaker #2: If you think about all the AI servers going in and all this desire to reduce the power consumption of those servers, provide additional speed between the memory and the logic as well.

Speaker #2: So two different areas, silicon photonics are being used. Co-packaged optics. It can mean quite a bit of volume. But the question is how quickly it gets cut in.

Speaker #2: So we've talked about several different customers that we've already been selected and gaining traction, gaining orders. We'll have a kind of a good visibility and pipeline into additional orders.

Speaker #2: Additional opportunities through the next, say, 12 months. I think from a sizing perspective, it's a little early to be too specific. But I would definitely see this as one of our high-growth areas.

Michael Plisinski: I think from a sizing perspective, it's a little early to be too specific, but, you know, I would definitely see this as one of our high growth areas from a relatively low base, but very high growth based on end market demand and need.

Speaker #2: From a relatively low base. But very high growth. Based on end market demand and need.

Vedvati Shrotre: How about panel-level packaging? I have a follow-up.

Speaker #6: And how about panel-level packaging? And then I have a follow-up.

Vedvati Shrotre: How about panel-level packaging? I have a follow-up.

Michael Plisinski: Panel-level packaging, I don't think we've come off of the $200 million or so that we've said over the several years. That includes the JetStep and the Firefly. I would say there's more of a bias as the industry starts to shift to this, where we see more manufacturers move to a panel packaging format. That number could go up quite meaningfully. For now, that's sort of a range you can think about.

Speaker #2: Panel-level packaging, I don't think we've come off of the 200 million or so that we've said over the several years. That includes the JetStep and the Firefly.

Speaker #2: I would say there's more of a bias. As the industry starts to shift to this, where we see more manufacturers move to a panel packaging format, that number could go up quite meaningfully.

Speaker #2: But for now, that's sort of a range you can think about.

Speaker #6: Understood. And for my second question, so I kind of wanted to understand what your tool lead times are. You talked about some of the headwinds that DRAM caused.

Vedvati Shrotre: Understood. For my second question, I kind of wanted to understand what your tool lead times are. You know, you talked about, you know, some of the headwinds like DM costs. You know, there's also some components to, like maybe specifically, are there any supply chain bottlenecks that are starting to creep up on the tools?

Speaker #6: There's also some components maybe specifically, are there any supply chain bottlenecks that are starting to creep up? On the tools?

Michael Plisinski: I'm sure if you asked our COO, he'd say, Yeah, plenty. You know, in general, we're managing through them. None of them are impacting our production and our commitments to customers, so we're doing a great job managing through, you know, the issues that pop up. This is one of the benefits of moving to the extended factories. We also, through that process, did some pruning of our supply chain tree. As we looked at shifting and who could support our overseas factories, you know, we made some changes to certain suppliers that didn't have the scale and capability to grow with us. You know, so I think right now we're in relatively good shape.

Speaker #2: I'm sure if you asked our COO, he'd say, yeah, plenty. But in general, we're managing through them. None of them are impacting our production.

Speaker #2: And our commitments to customers. So we're doing a great job managing through the issues that pop up. This is one of the benefits of moving to the extended factories.

Speaker #2: We also threw that process. Did some pruning of our supply chain tree. So as we looked at shifting and who could support our overseas factories, we made some changes to certain suppliers that didn't have the scale and capability to grow with us.

Speaker #2: And so I think right now we're in relatively good shape. Of course, lead times are extending out a little bit. But so far, no big issue.

Michael Plisinski: Of course, lead times are extending out a little bit, but so far, no big issue, and we're able to meet customer demand.

Speaker #2: And we're able to meet customer demand.

Speaker #6: Understood. Thank you.

Vedvati Shrotre: Understood. Thank you.

Speaker #3: We'll take our next question from Charles Xi with Needham.

Operator: We'll take our next question from Charles Shi with Needham.

Speaker #5: Hey, good afternoon. Mike, Brian. Maybe the first question regarding the Rigaku collaboration and the expected licensing revenue. I know you want to I mean, spend a few quarters to understand how to better forecast and maybe guide.

Charles Shi: Hey, good afternoon, Mike, Brian. Maybe the first question regarding the Rigaku collaboration and the expected licensing revenue. I know, you wanna, I mean, spend a few quarters to understand how to better forecast and then maybe guide. And we also understand, this is highly complementary to what you, what you have on the optical side. Can you kind of talk to us, what's the expected licensing revenue? What is the economics that looks like maybe on a per tool basis, each tool Rigaku ship out, how much licensing revenue can you get? Is, at least give us some sense on the order of magnitude. Is it a few hundred $K, a few $million?

Speaker #5: But also understand this is a highly complementary to what you have. On the optical side, but can you kind of talk to us, what's the expected licensing revenue?

Speaker #5: What is the economics that looks like? Maybe on a per-tool basis, each tool, Rigaku ship out, how much licensing revenue can you get as at least give us some sense on the order of magnitude?

Speaker #5: Is it a few hundred K? A few millions? What is that licensing revenue expected? What's the economics? Thanks.

Charles Shi: What is that, licensing revenue expected, at what's the economics? Thanks.

Speaker #2: Yeah, we're not going to break that down for anybody. But Brian did a nice job highlighting the components. So if you look at potential interest income, of the investment that we made, and then you subtract out roughly 7 million for dividends, then the residual is what we'd expect to see from license revenue and from profits from potential hybrid metrology sales.

Michael Plisinski: Yeah, we're not gonna break that down for anybody. Brian Roberts did a nice job highlighting the components. If you look at potential interest income of the investment that we made, and then you subtract out roughly $7 million for dividends, then the residual is what we'd expect to see from license revenue and from profits from potential hybrid metrology sales. I think that gives you a rough idea. Overall, that is not, you know, game-changing for Onto Innovation from a revenue perspective this year. The whole point is this is a strategic initiative that expands our opportunities significantly as we look out 3, 4, 5, 6 years ahead.

Speaker #2: So I think that gives you a rough idea. Overall, that is not game-changing for onto innovation from a revenue perspective this year. The whole point is this is a strategic initiative that expands our opportunities significantly as we look out three, four, five, six years ahead.

Speaker #5: Got it. Thanks, Mike. Maybe asking you a longer-term question regarding your positioning for hybrid bonding related inspection metrology. Opportunities. Definitely understood that you have a portfolio, a strong portfolio across different platforms, Dragonfly, maybe Echo Scan, etc.

Charles Shi: Got it. Thanks, Mike. Maybe asking you a longer-term question regarding your positioning for hybrid bonding related inspection metrology opportunities. Definitely understood that you have a portfolio, strong portfolio across different platforms, Dragonfly, maybe EchoScan, et cetera. Rigaku probably is also working on some X-ray based solutions there. How do you think about the positioning between your offering versus theirs? Especially for some of the applications, there seems to be some overlap. For example, your EchoScan versus some of the tools X-ray based solutions they may be working on. How do you solve that overlap of maybe you end up competing for some of the same opportunities? Any color, any thoughts would be great. Thanks.

Speaker #5: But the Rigaku probably is also working on some X-ray-based solutions there. So how do you think about the positioning between your offering versus theirs?

Speaker #5: And especially for some of the applications, there seems to be some overlap—for example, your Echo Scan versus some of the tools, X-ray-based solutions.

Speaker #5: And they may be working on. How do you solve that overlap of maybe you maybe end up competing for some of the same opportunities?

Speaker #5: And any color, any thoughts would be great. Thanks.

Speaker #2: Yeah. I think, Charles, you're very well informed. You picked about the only overlap that exists. And we don't know a lot about what that is about.

Michael Plisinski: Yeah. I think, Charles, you're very well informed. You picked about the only overlap that exists, and we don't know a lot about what that is about. There is a potential overlap in packaging for, you know, X-ray inspection, that I think between our EchoScan and that. At the end of the day. Optical systems should always be much faster. The EchoScan, if it reaches its full potential, should be much faster, then it's going to be a benefit. The X-ray benefit is gonna be precision, and it's going to be penetration depth. In that case, there could be opportunities where one is like a, if you know, if you understand inspection, which I know you do, one is the inspection tools, the other is the high-end review tool.

Speaker #2: But there is a potential overlap in packaging for X-ray inspection. That I think between our Echo Scan and that. At the end of the day, optical systems should always be much faster.

Speaker #2: The Echo Scan, if it reaches its full potential, should be much faster. And then it's going to be a benefit. The X-ray benefit is going to be precision.

Speaker #2: And it's going to be penetration depth. So in that case, there could be opportunities where one is like a if you understand inspection, which I know you do, one is the inspection tools.

Speaker #2: The other is the high-end review tool. So optical inspection and SEM review. As an example. So they can work together. They can coexist. And that's part of the reasons we like this expanded opportunity to expand the portfolio and together offer customers the best of breed technologies.

Michael Plisinski: Some, you know, optical inspection and some review, as an example. They can work together. They can coexist. That's part of the reasons we like this expanded opportunity to expand the portfolio and together offer customers the best-of-breed technologies. Right now, that's about the only area. Otherwise, the films, the CD-SAXS versus optical CD, all of these are complementary. As long as the OCD can measure it, which so far we've demonstrated we can push OCD technology beyond where most people thought possible, they'll go with OCD. There are definitely gaps that we're starting to see, especially as 3D becomes more of a dominant part of the customer's process roadmaps, where penetration depth is critical.

Speaker #2: So right now and that's about the only area. Otherwise, the films, the CD sacks versus optical CD, all of these are complementary. As long as the OCD can measure it, which so far we've demonstrated we can push OCD technology beyond where most people thought possible.

Speaker #2: They'll go with OCD. But there are definitely gaps that we're starting to see, especially as 3D becomes more of a dominant part of the customer's process roadmaps, where penetration depth is critical.

Speaker #2: And it's going to provide some insight into the OCD modeling engines that'll make OCD more valuable, or let's say extend OCD further down the line.

Michael Plisinski: It's going to provide some insight into the OCD modeling engines that'll make OCD more valuable or, let's say, extend OCD, further down the line.

Speaker #5: To get the speed of OCD with the precision and penetration depth of X-ray. Got it. Thanks. That's very clear. Thank you.

Sidney Ho: Got it.

Charles Shi: Got it.

Sidney Ho: To get the speed of OCD with the precision and penetration depth of X-ray.

Michael Plisinski: To get the speed of OCD with the precision and penetration depth of X-ray.

Charles Shi: Got it. Thanks. That's very clear. Thank you.

Speaker #3: As a reminder, if you would like to ask a question, you may press star one on your telephone keypad now. We'll take our next question from Brian Chen with Stifel.

Operator: As a reminder, if you would like to ask a question, you may press star one on your telephone keypad now. We will take our next question from Brian Chin with Stifel.

Brian Chin: Hi there. Good evening. Thanks for letting us ask a few questions. Mike, referencing the two-and-a-half D logic win, are you baking in, to clarify, are you baking in a relatively modest contribution from G5 sales to this customer in H2? Could that be conservative? When you think about that qualification improving and strengthening your competitiveness for the variety of applications that that customer has, can you hazard a guess where your market share at that customer might shake out moving forward?

Speaker #4: Hi there. Good evening. Thanks for letting us ask a few questions. Mike, referencing the two and a half D logic win, are you baking in—just to clarify—are you baking in a relatively modest contribution from Gen 5 sales to this customer in the second half?

Speaker #4: Could that be conservative? And also, when you think about that qualification, improving and strengthening your competitiveness for the variety of applications that customer has, can you hazard a guess where your market share at that customer might shake out moving forward?

Speaker #2: Up. So I don't want to say exactly what could happen. But for sure, we've got new opportunities within the account that with the previous resolution and previous system that we couldn't serve.

Michael Plisinski: Up. I don't wanna say, you know, exactly what could happen, for sure, we've got new opportunities within the account that, you know, with the previous resolution, previous system, that we couldn't serve. We definitely see that. Could our forecast be conservative? Sure, it could be. Could there be upside to the H2? Sure, could be. You know, we gave the guidance now, and next quarter we'll provide additional guidance and see how things shake out. I don't think it's all tied to this customer. We mentioned 10 additional customers looking at the G5 for applications, about 15, I believe I said, over 15 applications, many of which we wouldn't have been able to serve in the past.

Speaker #2: So we definitely see that. Could our forecast be conservative? Sure. It could be. Could there be upside to the second half? Sure. Could be.

Speaker #2: But we gave the guidance now and next quarter we'll provide additional guidance and see how things shake out. But I don't think it's all tied to this customer.

Speaker #2: We mentioned 10 additional customers looking at the G5 for applications about 15, I believe I said, over 15, applications many of which we wouldn't have been able to serve in the past.

Speaker #2: So the opportunity to expand our overall SAM is also creating excitement and growth and upsize for maybe second half, but definitely into 2027.

Michael Plisinski: The opportunity to expand our overall SAM is also creating excitement and growth and upsize for maybe H2, but definitely into 2027.

Speaker #4: Yeah. I mean, kind of a mini question before I ask my follow-up. Relative to last year or the year before, there does seem to be a lot more breadth of potential customers as opposed to the recent years where it was pretty concentrated.

Brian Chin: Yeah. I mean, kind of a mini question before I ask my follow-up. You know, relative to last year or the year before, there does seem to be a lot more breadth of potential customers as opposed to, you know, the recent years where it was pretty concentrated.

Speaker #2: Yeah, for sure. Yeah. When we see this advanced packaging being migrated as customers try and focus in on their high-value add process steps and they outsource to others, some of the other process steps, we're seeing opportunities to well, we're not seeing the opportunity.

Michael Plisinski: Yeah, for sure. Yeah. When we see this advanced packaging being migrated as customers try and focus in on their high value add process steps, and they outsource to others some of the other process steps, we're seeing opportunities to Well, we're not seeing the opportunity. We are growing our position in those outsource partners. We're definitely seeing a proliferation, naturally through our customer base as well.

Speaker #2: We are growing our position in those outsourced partners. So we're definitely seeing a proliferation naturally through our customer base as well.

Speaker #4: Then maybe. Thank you. And then for the follow-up, is the Atlas TSV application when you referenced an example of the synergy between the two companies' optical and X-ray technologies and also the Rigotka relationship sounds undoubtedly like it's focused on the semiconductor engagement.

Brian Chin: Maybe Thank you. For the follow-up, is the Atlas TSV application when you reference an example of the synergy between the two companies, Optical and X-ray technologies? Also, you know, the Rigaku relationship sounds undoubtedly like it's focused on the semiconductor engagement, but given that a large portion of Rigaku's business is also outside of semi, are there any opportunities or plans to engage in markets beyond semi?

Speaker #4: But given that large portion of Rigotka's business is also outside of semi, are there any opportunities or plans to engage in markets beyond semi?

Speaker #2: Specific to Rigotka, we're focusing on semi. And they also see semi as one of their key growth pillars. So I think that's a great synergy and a great reason why working together, we can provide the strengths not just of technologies, but also of our footprint and infrastructures.

Michael Plisinski: Specific to Rigaku, we're focusing on semi, and they also see semi as one of their key growth pillars. I think that's a great synergy and a great reason why, working together, we can provide the strengths, not just of technologies, but also of our footprint and infrastructures. I think that's gonna be our focus, at least for the foreseeable future, and where the biggest benefits will be realized. First question.

Speaker #2: So I think that's going to be our focus, at least for the foreseeable future. And where the biggest benefits will be realized. TSV. No, that was not part of that was homegrown.

Sidney Ho: TSV.

Michael Plisinski: TSV. No, that was homegrown. That was leveraging the capabilities of our Atlas to do some very specific metrology that, you know, was previously done by a different OCD supplier.

Speaker #2: That was leveraging the capabilities of our Atlas to do some very specific metrology that was previously done by a different OCD supplier.

Speaker #4: Okay. Great. Thank you.

Brian Chin: Okay. Great. Thank you.

Speaker #3: Once again, if you would like to ask a question, you may press star one on your telephone keypad now. It appears there are no further questions at this time.

Operator: Once again, if you would like to ask a question, you may press star one on your telephone keypad now. It appears there are no further questions at this time. I'd like to turn the conference back over for any additional or closing remarks.

Speaker #3: I'd like to turn the conference back over for any additional or closing remarks.

Speaker #5: Thanks, Darren. 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.

Sidney Ho: Thanks, Taryn. 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 PM Eastern Time this evening. We would like to thank you for your continual interest in Onto Innovation. Taryn, please conclude the call.

Speaker #5: We would like to thank you for your continual interest in ONTO Innovation. Taren, please conclude the call.

Operator: This concludes today's call. Thank you again for your participation. You may now disconnect and have a great day.