Good day, and welcome to the Onto Innovation Second Quarter Earnings Release Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Sidney Ho. Please go ahead..

Thank you, Justin, and good afternoon, everyone. Onto Innovation issued its 2024 second quarter financial results this afternoon, shortly after the market close. 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 Mark Slicer, Chief Financial Officer. I'd like to remind you that the statements made by management on this call will contain forward-looking statements within the meaning of the federal securities laws.

Those statements are subject to a range of changes, risks and uncertainties that can cause actual results to vary materially. For more information regarding the risk factors that may impact Onto Innovation's results, I would encourage you to review our earnings release and our SEC filings.

Onto Innovation does not undertake the obligation to update these forward-looking statements in light of new information or future events. Today's discussions 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. Now, let me turn the call over to our CEO, Mike Plisinski.

Mike?.

Thank you, Sidney. Good afternoon, everyone, and thank you for joining our earnings call this afternoon.

Our second quarter revenue exceeded the high-end of our guidance range, driven by better-than-expected demand of Dragonfly systems supporting advanced packaging for AI devices and Atlas and Iris systems for gate-all-around investments in the advanced nodes.

Financially, we were pleased to see progress from our inventory management efforts resulting in a quarterly record generating $65 million in cash from operations. Margins also improved from the first quarter and we expect it to improve again in the third quarter, which Mark will address shortly.

We will now review the second quarter highlights, starting with our specialty device and advanced packaging markets, where we achieved a fourth consecutive quarterly revenue record driven by AI packaging, which accounted for over half of the revenue in these markets.

Advanced packaging has proven to be a key enabler for this new era of AI, and NVIDIA recently commented that it expects AI demand to outstrip supply well into next year and we see the market attracting additional suppliers, each bringing unique requirements for wafer substrates as well as interconnect sizes and densities.

By broadly addressing these needs, the highly versatile Dragonfly platform achieved another revenue record in the second quarter. In fact, based on our current visibility, we project our inspection business will grow by over 70% this year. And we continue to expand our capabilities.

Last quarter, we released a new sensor to detect yields critical subsurface defects in ultra-thin wafers and based on market response, we already expect over 80 systems to be delivered with this capability through the end of next year.

More recently, we announced a new 3D bump metrology sensor to address the need for bump pipe measurements of denser and smaller interconnects used in future high-bandwidth memory and hybrid bonding applications where bump pipes and pitch will be less than half the size they are today.

Our new sensor uses proprietary technology, which we believe allows us to meet these new challenges at higher throughputs than alternatives. Though still preliminary, initial customer feedback has been positive and we expect to ship several systems for production evaluations over the next three months.

In addition to new wafer-level packaging technologies, we see growing interest in panel packaging technologies to support chiplet architectures and larger package sizes. We engaged early with leaders in this market and to date, we've shipped over 30 panel lithography systems to customers around the globe.

In the quarter, we added a new customer to this list when we shipped our first fully automated JetStep X500 to support glass and substrate applications on a single tool. We believe the stability of glass will allow for smaller interconnects across larger package sizes, which is critical to many of our customers' packaging roadmaps.

Finally, revenue from power customers grew significantly, nearly achieving a record -- a quarterly record set last year. We continue to expect demand for process control to remain strong throughout the rest of this year for the power semiconductor market.

Now, turning to advanced nodes, spending is picking up and we are seeing growth continuing through the second half of 2024 and into the next year. In the quarter, orders from logic customers represented nearly half of the revenue from advanced node customers.

For gate-all-around applications, we are seeing an increase in adoption of our Iris films metrology in addition to our leading Atlas OCD metrology. Rounding out our optical metrology suite of Atlas, Iris and Aspect is our integrated platform IMPULSE.

In the second quarter, we closed volume agreements from two of the top four manufacturers, which we believe will represent greater than 60% combined share at these accounts. We've also successfully qualified multiple systems in logic for gate-all-around applications below 2-nanometer where requirements for speed and stability are increasing.

Now, I'll turn the call over to Mark to review our financial highlights and provide third-quarter guidance..

Thanks, Mike, and good afternoon, everyone. As Mike highlighted, we exceeded second-quarter revenue and EPS guidance ranges while generating record operating cash flow of $65 million. Operating cash flow yield increased two percentage points to 27% of revenues, representing a doubling of operating cash during the same period last year.

Second quarter revenue of $242 million was up 6% versus the first quarter and up 27% versus the prior year. Second quarter EPS increased 12% sequentially to $1.32 and up 67% versus the prior year.

Both revenue and EPS exceeded our guidance ranges due to the better-than-expected demand for advanced packaging for AI devices, gate-all-around investments in advanced nodes and stronger software and services within the quarter. Looking at the quarterly revenue by markets.

Our biggest market remains specialty device and advanced packaging, which grew 3% sequentially to a record quarterly revenue of $164 million and represents 68% of our revenue. Our biggest sequential increase was advanced nodes, which had revenue of $32 million, increased 21% over Q1, and represents 13% of revenue.

Software and services with revenue of $46 million increased 6% over Q1, representing 19% of revenue. We achieved 53% gross margin for the second quarter, in line with the midpoint of our guidance range of 52% to 54%, driving more than 100 basis point improvement over the first quarter.

Second quarter operating expenses were $64 million, just at the high end of our guidance range. We continued to make additional investments in R&D within the quarter, extending our product capabilities and technology differentiation to expand our server markets for 3D metrology as well as future hybrid bonding metrology and inspection.

Our operating income of $65 million was 27% of revenue for the second quarter compared to 25% for the first quarter, validating our ability to execute a leveraged operating model. Our net income performance, also 27% of revenue was supported from favorable investment income resulting from our increased cash balance. Now moving to the balance sheet.

We ended the second quarter with cash and short-term investments of $786 million, achieving operating cash flow of $65 million and converting 100% of our operating income into cash. Inventory ended the quarter at $320 million, down $10 million versus Q1.

The team made great progress optimizing our inventory levels even with the Dragonfly revenue growth and the expected increase in our advanced nodes business in the second half. We expect further inventory reduction of $10 million to $15 million for the third quarter.

We plan to be below $300 million as we exit 2024, which will be a $50 million reduction from our 2023 inventory levels. Now turning to our outlook for the third quarter.

We currently expect revenue for the third quarter to be between $245 million and $255 million as HBM chip leaders continue to invest in advanced packaging capacity and new capabilities, as Mike discussed. We expect gross margins will be 53% to 55%, reflecting the improvements in manufacturing and supply chain initiatives discussed in prior quarters.

For operating expenses, we expect to be between $64 million to $66 million as we make additional investments in our R&D programs tied to customer roadmaps. For the third quarter, we expect our effective tax rate to be between 15% to 16% and 13% to 14% for the full year.

We expect our diluted share count for the third quarter to be approximately 49.7 million shares. Based upon these assumptions, we anticipate our non-GAAP earnings for the second quarter to be between $1.25 to $1.35 per share.

Our focus for the second half of '24 remains on executing on our targeted programs further quarter-over-quarter gross margin and operating margin improvements and continuing the progress made in the first half of the year.

In addition, further growth of the advanced nodes business, driven by increasing orders for memory and gate-all-around logic should improve our margin profiles as we exit 2024. And with that, I will turn it back to Mike for additional insights into Q3 and the remainder of 2024.

Mike?.

Thank you, Mark. For the third quarter, we see revenue from our advanced node customers increasing over 25% with growth coming from both memory and logic customers. About half of our logic revenue will support films and OCD applications for the gate-all-around node.

Looking ahead, we expect to see logic revenue grow further in the fourth quarter with over 70% of logic revenue in support of gate-all-around applications.

We expect our specialty and advanced packaging customers to remain at these record levels in the third quarter and growing in the fourth quarter, potentially leading to a new quarterly record for the company.

Leading this growth is, of course, the demand for Dragonfly systems, but we also see growing demand for our films and acoustic metrology systems and packaging for both Logic and HBM applications. We are still in the early stages of adoption for these systems, but expect to deliver over $50 million in package metrology system revenue by year-end.

In aggregate, our view has improved for the second half of the year and we now expect second half revenue to be 5% to 10% stronger than the first half of 2024. Though still early, we're encouraged by the setup leading into 2025.

We expect to benefit from continued investments in gate-all-around capacity, and the announced capacity expansions from several high-bandwidth memory and logic packaging manufacturers, specifically for HBM or high-bandwidth memory, we expect new capacity coming online in the first half of the year to support the increase of HBM content for NVIDIA's AI processors from 80 to 192 gigabytes and for AMD -- AMD's AI processors from 192 gigabytes to 288 gigabytes.

Adding to our optimism, we closed volume purchasing agreements with two customers with a combined value of over $300 million in the quarter. These agreements covered both AI packaging applications and gate-all-around investments through roughly 2025, a positive sign not just for a strong finish for this year, but a stronger 2025 as well.

And that concludes our prepared remarks. Justin, please open the call for questions from our covering analysts..

[Operator Instructions] The first question will come from Brian Chin with Stifel..

Hi, there, good afternoon. Nice results and outlook. And thanks for letting us ask a few questions. Mike, previously you thought that advanced packaging revenue could pause or dip in 3Q, but your outlook today is more positive.

What improved? And is it more on the Foundry or HBM memory side?.

Thanks, Brian. I think there was some confusion. What I said would pause would be specific to AI packaging, which is a specific set of really four customers, one logic and three memory. I did say that overall, we expected growth to continue sequentially through the next couple of quarters.

Though we are seeing more revenue from those customers, there are still supply constraints that are limiting their ability to expand and to reach the levels of revenue that they were delivering or that we've been delivering to them in the first half. So we do still see a pause. I think it's definitely more constructive.

Some of their announced expansions have been delayed. We've seen some customers actually get creative and push on some of their subcons to open up capacity and make room for a faster ramp where their greenfields are taking a little bit longer.

That said, we are more bullish, but I think there was a lot of confusion around my definition of strictly AI packaging and just a handful of customers versus overall advanced packaging in our overall business for the specialty devices and advanced packaging markets..

Yeah, thanks for clarifying that.

And then looking at the $300 million in DPAs that you're announcing, it's sort of a multi-part, but can you give us a rough idea of, one, how that $300 million maybe splits amongst those two customers? Is it kind of like evenly weighted or maybe biased to one or the other? And then second, within that, maybe how that roughly splits amongst gate-all-around and advanced packaging? And then if I guess so, if I may, lastly, kind of is that revenue recognition expected to be linear or kind of maybe more weighted to the last three quarters as opposed to the next three years?.

Yeah, I don't have the breakdown in front of me. But by memory, I would say that the advanced packaging piece was the larger, a chunk of that $300 million. The breakdown, of course, is going to depend on when the expansions come out, but most of it was tied to 2020 -- sorry, 2025 for -- yeah, for next year..

Thanks. And maybe just last quick one..

Yeah. It's mostly packaging. So it's about -- I just -- look, I don't have the breakdown quarter-to-quarter, but it's roughly 60% for packaging, 40% or so for the gate-all-around..

Got it. Okay. That's really helpful. And just one last quick thing.

What impact, if any, are you seeing this year in light of the reduced capacity expansion plans from advanced logic that was communicated last week? And how does this affect your thinking for gate-all-around revenue potential in 2025?.

Well, we're more constructive. We're definitely seeing good adoption of our products in the gate-all-around logic. We're seeing customers continuing to take more product. And as we mentioned, we see the fourth quarter growing from the third. So that's a positive sign.

And you can tell from the -- what I just mentioned on the volume purchase agreements that customers are working with us to make sure we can continue a ramp of supply for them next year. So -- and that's all still before they hit their volume production targets in -- largely in 2026. So we expect that to continue to improve.

What's probably nice surprise is the increased adoption of the Iris planar films in this mix. So in addition to the strong position we've had with OCD, we've been adding our more layer share for our planar films to the Iris system..

Okay. Great. Thanks for the update..

And the next question will come from Vedvati Shrotre with Evercore..

Hi, thanks for taking my question. I guess the first one I had was, we had an IDM customer of yours kind of cut down CapEx spending for 2025.

Can you just help us think through how the conversations have changed for you? Or if, like your expectations going forward from that particular customer?.

Well, that remains to be seen. So they're certainly announcing CapEx cuts in general, but they're also -- let's say, reaffirming their desire to hit their next generation nodes and to ramp their latest generation processing nodes by 2026, I believe it was. So it depends on where they reallocate the rest of their capital. It's still a pretty big number.

And to us, we are on the leading edge. So my expectations are their spend will be more towards that leading edge and we may not see any negative impact, maybe even a positive impact as an acceleration..

Got it. Understood. And then on -- the next question I had is, I think you mentioned second half that you see the pause in AI packaging spend and the total advanced packaging spend actually continues to grow.

Could you maybe help us understand the puts and takes into what's driving that delta between the two, like, are the OSAT starting to spend again? Is that what's really going on?.

We definitely see OSAT starting to spend more. But if we take a look at our advanced packaging spend, that includes all of the high-performance computer to include the lithography, et cetera, et cetera. So it would be a significantly bigger number to try and help people understand specific advanced packaging or the AI and packaging spend.

We limited it to just four customers that are playing and spending in that space. And I think they've been pretty clear where their capacity growth is going and what constraints they've had and what spending has been like for them. So I don't think there's anything new that we're highlighting..

Got it.

And so, could you remind me again what kind of a decline or kind of pause you're seeing? Is it like 10%, 15% decline in your AI packaging revenues first half versus the second half or how would you characterize that?.

Overall, in aggregate, maybe, yeah, maybe around 10%, staying steady. But between different customers, some are growing significantly, some are doubling, some are cutting back and it just really depends on the ebb and flow of each individual of those four customers. But in aggregate, it's around the 10% that I just mentioned -- 10% to 15%..

Got it. And then, one last one, if I may.

On your gross margins, is the kind of 100 bps increase quarter-on-quarter? Is that primarily driven by your product mix changing with more advanced notes coming back?.

Not all of it. I mean, certainly, the improvements we've been talking about are certainly paying dividends within our manufacturing and supply chain. So I think as we get into the second half of the year and see advanced nodes certainly improving, yes, that will help accelerate that gross margin improvement..

All right. Thank you..

I think it's also important, there's a -- yeah, let me just finish one thing, please, Justin. There's a discussion around the AI packaging. And I think it's important to note just how big that spend for us. We gave some guidance over 50% of our advanced packaging specialty market. That's around $88 million, $90 million.

That's a lot of capacity that customers have been taking on. And as they've mentioned and we've reported, today, there are capacity constraints and the customers are announcing new factories for both HBM and Logic CoWoS. So I think that needs to be put in context as well. Just how much of that we've been already achieving..

Got it. Thank you..

And the next question will come from David Duley with Steelhead Securities..

Thanks for taking my question. I have a kind of a two-part technical question.

If the CPU and GPU companies adopt rectangular glass substrates as a lot of technical papers are suggesting, how, in total, will that impact Onto? And then specifically drill down in, what exactly would your lithography tool do on these substrates? Would you be layering the -- would you be putting down the RDL layers? Or what are the steps that you would address if that were to take place?.

Yeah. So to address your first question, what it would mean for us is we would get opportunities. All the different process control technologies we're applying from the Dragonfly in the packaging areas now would likely translate into the panel side through the Firefly, which is a panel version of the Dragonfly tool.

So we would expect all of the inspection Clearfind opportunities. We already see various metrology opportunities as well to drive Firefly business. In addition, there is software opportunities, of course. Those customers aren't, let's say, they're coming from a different point in the supply chain.

They have opportunities to advance their process control capabilities through some of our fab-wide software. In addition, of course, the biggest thing is the lithography piece. And there, we would be printing the RDL lines. Primarily all the RDL lines, which would be -- right now, in Advanced IC substrates, we're doing up to 10 layers per side.

For glass, we expect it to be less because we can go to finer resolution and we expect it will be all on one side, but we are seeing customers talk about both sides..

Okay. And then as a follow-on to that, is -- when you look at TSMC's roadmap, these substrates, whatever they're made of are going to get much, much larger.

And I was wondering how that might impact if we did move to larger substrates, how that might affect the lithography business? And then finally, if you do move to flat-panel substrates or some sort of more of a panel lithography solutions, would that help the CoWoS bottleneck?.

I believe so. I mean, that would be a significant improvement in economies of scale. It might help some of the challenges that are being seen with the different substrates and thermal issues between the substrates, heating at different rates, heating and expanding at different rates.

So I think there'd be a technical advantage to going in addition to economies of scale advantage to moving to panel. And for the steppers, of course, it's iterative. So you're going to have steppers to support this -- or the volume of steppers would be required to support the volume of chips, but also the number of layers. So it's an iterative process.

So it would be -- if they're going to do eight layers, that's that all adds to the utilization of our tools and drives up the opportunity for us..

And then the size of the….

So we think -- and we think the -- sorry, the size of the substrate, I think that's obviously good for us because we tend to have a -- because we came from the flat panel display world. We have the ability to handle significantly larger sizes of panels than anyone is even talking about now. So 650-by-650 is like a display 10 years, 20 years ago.

So, from that standpoint, there's no problem. But the real benefit that we offer is the high-resolution wide-field optics.

And if customers want to print large package sizes without stitching and highly repeatable, they can pretty much only go to our tool right now for that capability, which will be demonstrated downstairs in our advanced packaging lab. And we're already scheduling demos for that system. Today, I think we have over seven or eight demos already planned..

So, I guess, what -- when I -- just interpreting what you said is, you have some tools that are highly aligned to TSMC's size of their interposers or substrates going forward..

I definitely didn't say that, but we're aligned to the market needs. Let's put it that way..

All right. Thank you. I'll get back in the queue..

And the next question will come from [indiscernible] with B. Riley Securities..

Hi, I'm actually on for Craig Ellis. But you've obviously had some really great quarters in advanced packaging, I think three really, really incredible quarters. And then this one was just great too.

Kind of how do you see that ramp going? I know you said that next quarter is supposed to be even and then you go back up again, but you all said this is just the beginning.

So is this kind of a sustainable ramp? And how long do we kind of see this coming forward and how sustainable is it?.

Well, like I mentioned, we see the capacities for each -- let's say, if you take an AI compute engine, we see the amount of HBM doubling on those -- essentially doubling on those. So even if AI just stayed flat, which nobody is projecting, AI is supposed to go up, the HBM side is already doubling.

In addition, of course, we do see AI demand continuing through next year and we see that both from the end-customers driving the -- or talking about their demand side and our own customers talking about supply constraints and that they're looking at expanding factories into next year, early half of next year in order to alleviate these supply constraints.

So, that makes us pretty bullish about our growth through 2025..

Okay. Yeah, that's great. Thank you. I got another one that's kind of hopping off of that. So in the last week or so, we've seen kind of some meaningful signs of growing diversification, which I think is probably a bullish signal for your business.

Have you guys seen any -- or how do you expect at least kind of better pricing power or your ability to kind of penetrate these different suppliers in HBM?.

Well, we're already in off all suppliers for HBM. So it's a matter of maintaining our position and providing value propositions that matter. And then generally, we negotiate our fair share of that value. I don't see that's changing in any way.

I think if anything that's getting better as we continue to add new technologies and accelerate our pace of innovation and release new capabilities that they need, that's only helping them to ramp faster, helping them to provide higher yields and become more profitable or gain more share from their customers.

So I think from that standpoint, it gives us a win-win scenario with our customers..

Yeah. Okay. That's great as well. And just one last thing. I'm kind of bouncing off of David's question.

So obviously, we've seen a lot of different challenges with CoWoS, especially CoWoS-L, and kind of the thermal design challenges and what have you -- do you expect that as this becomes more difficult than maybe what some people expected that your products can deliver more value towards meeting CoWoS demand?.

I think our products help to drive yields for -- and identify a root cause for some of these challenges and issues. But some of these are physics and of course, our products are not going to change the physics.

The customers need to use our tools to measure, identify and determine how to adjust the process and adjust the physics in order to drive the yields up. So we're critical. That's why we're seeing demands for new types of sensors, new capabilities, and we react very quickly working with our customers.

I think the one change to that is with the lithography where there we are helping to define a process. Our [pace] (ph) lab downstairs is focused with our partners, several very, very talented partners and collaborators are focused on solving challenges associated with the adoption of glass.

And as we do that, we hope that will be adopted by our customers and help propel the chiplet and advanced packaging roadmaps to the next level..

Hey, yeah. Thank you so much for your answer..

And the next question will come from Charles Shi with Needham..

Hey guys. Good evening, Mike, Mark. The question I want to ask is about China. I know you tend to do a little bit more business with the leading customers and the China exposure you had last year was kind of in the mid-teens and the first quarter was actually fell to like single-digit percent of your total revenue.

But I haven't seen your Q2 numbers, but I just want to get a sense from you because this year's WFE upside, a lot of that actually is coming from China based on the commentary from your large-cap peers.

And are you capturing some of that upside? What's your expectation for China revenue contribution for the full year and any trend from first half to second half?.

Yeah. I think, if I look at our numbers, we think second half China revenue will be up over the first half. But it's not massive, it's still in the teens level. So we're seeing growth. We saw growth from Q1 over into Q2 from China. That was a fairly significant growth, which you'll see.

But, in general, I would say China for us is really about a lot of the specialty. We've talked a lot about power semiconductor markets. We are making progress in some of the meteorologic areas within China as well, but that's a little bit slower. And yeah, I mean, you know the challenges we have selling into China. So I don't think that's a surprise.

I think it's good that we're able to achieve the growth rates we're projecting even without the tailwinds of China that some of our peers are enjoying [indiscernible] go ahead..

Go ahead. Finish your thought please, Mike..

I was going to say, which -- there's local competition in China and they're getting stronger and we see that at the lower-end starting to take share. So I think for us, our strategy is to focus on the higher-end applications, the most challenging applications and where those applications are that we add the most value..

Got it. The other question is about that $300 million VPA through 2025. When do you expect to ship that $300 million of VPA, when does that start? When does the shipments start and when do you think we'll get to that peak shipment? If you can provide some color about that, that would be great. Thank you..

There'll be some initial shipments at the beginning in the second half, but most of the bulk of it is going through 2025..

Thank you..

And the next question will come from Mark Miller with The Benchmark Company..

Hi, congratulations on another good quarter. Just wondering -- it appears that you're doing very well.

Can you give us some insights where you think you've gained the most share and what areas?.

I think we've maintained a very high share in AI packaging. So in the HBM and the 2.5D logic, the CoWoS packaging, we've done well there.

And then I think the gate-all-around we've certainly had some nice increases in adoption of our Iris planar films that I hope will translate into further growth into 2025 and 2026 as the gate-all-around node goes into full production. And we see the full benefits of the of the slots that we're winning. I think those are the two biggest areas.

Of course, the panel packaging is a strong position for us as well. Still small and not a lot of, let's say, growth right now. There's a lot of overcapacity from a couple of years ago, but our position continues to strengthen. We continue to add new customers.

And I believe this move to the glass and our wide field optics with high resolution is setting us apart from the competition and creating opportunities for meaningful share gains there as well..

You just briefly mentioned Atlas. And I'm just wondering what's going on with Atlas and OCD..

Now, that that's going very well. The OCD -- the Atlas OCD tool is qualified in all of the gate-all-around applications or at least the three major players. We've continued to -- we've talked about the increased capital intensity of OCD and gate-all-around and that's -- in our opportunities for share gains there, that's continuing to prove out.

So that's for sure a tailwind for us and a strong one. That's an older story. So I didn't mention it earlier, but thanks for reminding me to bring that up..

Let me just squeeze one in more. People are talking about Michael Dell, in particular, about AI chips into PCs.

Do you see that as an opportunity? And if so, when do you think that starts to become an opportunity?.

Well, yeah, we've seen that. That's why I mentioned several new players are trying to enter into this space. I think it really depends on what is it -- what does the company mean by AI chips? So if it's just a repackaging or some software wrapped around their current architectures, probably won't change too much unless it drives up adoption.

If it's more around packaging and bringing memory and logic closer together, hence what NVIDIA has been doing and some others. Then, I think it can mean a lot to us because it drives up that specialty more advanced packaging that we're so good at right now and creates more opportunities for our Dragonfly tools and sales.

I think another big opportunity is where we hear customers from smartphone manufacturers talking about integrating more AI capability in their phones.

And that could drive a refresh of phones, which, of course, drives a tremendous amount of advanced packaging content and would nicely recover NAND memory and as well as the advanced packaging OSAT business..

Thank you..

And the next question will come from Blayne Curtis with Jefferies..

Hey, thanks for taking my question and great results. I just kind of curious more color on the growth you've seen in advanced packaging or advanced nodes. I think it was like 50-50 logic memory.

Can you just kind of talk about where you're seeing the strength in end markets? And there's also the question had been the pace of recovery there, but you also have new products with, like, planars. So just kind of curious how much of it is recovery versus new products as well..

I wouldn't say a lot of its recovery. For gate-all-around, of course, there's -- that's more investment in the future and a new node, a new inflection or transition. Most of the others are the same. So, the NAND expansions that we've seen have been driven by the -- both new products.

So like the aspect for high stack 3D NAND and then some additional of our more traditional products, again, to support high stack 3D NAND. So these are mostly technical transitions or technical buys versus, let's say, indications of a recovery in the market.

I'd say the positive sign or the positive takeaway is these customers are seeing utilizations coming up. They are seeing inventories coming down. And so they're preparing and investing in these inflections for the next wave of orders and product launches..

Thanks. And then I just wanted to ask on gross margin. I think your model -- long-term model is a little dated, but at $1 billion run rate, which I guess you're at where you're guiding, it was 56% to 57%.

I'm assuming the mix is different, but can you maybe just kind of talk through the ability to get gross margins back into that range of 56%, 58% and if some of the mix that you laid out back then is different now and if that's still the right range..

Yeah. No, thanks for the question. We -- obviously, when it comes to the long-term model, we're not in the -- we're not ready to update that yet. Obviously, our commentary has been we're going to get back into the model. And once we do that, we'll look at updating it further.

But when we look at the gross margin, I mean, our goal this year is just to see quarter-over-quarter gross margin improvement with the objective to get back into that model gross margin at that $250 million, $260 million a quarter run rate and then look beyond that.

But I think the things that we've done from our manufacturing capabilities, driving continued leverage, and obviously the mix will help as we drive more back into advanced nodes, which is our higher-margin product..

Thanks a lot..

And that does conclude the question-and-answer session. I'll now turn the conference back over to Sidney Ho for any additional or closing remarks..

Thanks, Justin. We will be participating in a number of investor conferences throughout the quarter. We look forward to seeing many of you at these conferences. A replay of the call today will be available on our website at approximately 7:30 Eastern Time this evening. We'd like to thank you for your continued interest in Onto Innovation.

Justin, please conclude the call..

Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day..