Financial Data and Key Metrics Changes - Onto Innovation reported revenue of $253.6 million for Q2 2025, representing a 5% year-over-year increase [14] - Gross margin for Q2 was 54.5%, which would have been approximately 55% excluding $1.1 million in tariff-related expenses [15][17] - Operating margin was 25.9%, near the high end of the expected range, attributed to productivity gains in R&D and operations [15] - Earnings per share for the quarter was $1.25, impacted by unfavorable foreign exchange losses and an increase in the effective tax rate to 16% [16] Business Line Data and Key Metrics Changes - Advanced nodes revenue was $89 million, accounting for 35% of Q2 revenue [16] - Specialty devices and advanced packaging revenue reached $117 million, representing 46% of total revenue [16] - Software and services revenue was $48 million, or 19% of total revenue [16] Market Data and Key Metrics Changes - The company expects a rebound in revenue in the fourth quarter, consistent with levels reported in the first two quarters of 2025 [11][13] - Demand for AI packaging is anticipated to drive a significant increase in revenue, with expectations of at least a 50% quarter-over-quarter increase in Q4 [10] - Advanced node spending is expected to pause in Q3 but is projected to increase in Q4, with advanced nodes revenue expected to nearly double compared to 2024 [12][18] Company Strategy and Development Direction - Onto Innovation announced a strategic agreement to acquire product lines from Semi Lab International, expected to close pending regulatory approvals [4][6] - The acquisition is projected to add over $130 million in annual revenue and be immediately accretive to gross and operating margins [6] - The company is focusing on expanding its portfolio in inspection and metrology systems to address new challenges in advanced nodes and packaging [5][24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in a revenue rebound in Q4, driven by strong customer demand and increased spending in AI packaging [11][13] - The company is taking a prudent approach to manage operating costs while ensuring R&D capabilities are not significantly impacted [21] - The ramp-up of a regional manufacturing strategy is expected to enhance operational resilience and mitigate tariff-related exposure [20][24] Other Important Information - Cash from operations was $58 million, representing a 95% cash conversion of non-GAAP net income for the quarter [17] - The company ended the quarter with approximately $895 million in cash and investments, an increase of $44 million from Q1 [17] - Anticipated tariff expenses for Q3 and Q4 are expected to be around $2 million to $3 million each quarter [19] Q&A Session Summary Question: Follow-up on Next Gen Dragonfly and customer milestones - Management confirmed significant milestones achieved with a key customer and ongoing reliability testing before shipping high-quality products [28][30] Question: Factors influencing Q4 revenue range - The revenue range for Q4 is primarily driven by customer demand rather than specific programs, with strong demand for AI packaging tools noted [33][34] Question: Next Gen Dragonfly shipping timeline and growth potential - Tools are on track to be shipped this year, with expectations for strong growth driven by various applications [37][40] Question: Subsurface defect inspection demand - Demand for subsurface defect inspection is coming from multiple customers across various applications, not limited to one customer [46][48] Question: Importance of Next Gen Dragonfly platform - The platform is considered crucial for defending existing positions in high-performance metrology, with significant advancements over previous technologies [50] Question: Semi Lab acquisition and growth expectations - The acquisition is expected to provide above-average growth opportunities, with synergies to be discussed post-closing [80][82]

Core Viewpoint - Onto Innovation (ONTO) has experienced a stock decline of 12.8% over the past month, which is less severe than the Nanotechnology industry's decline of 14.2%, amidst escalating trade tensions and tariff issues affecting overall market performance [1]. Company Performance - ONTO stock closed at $120.47, which is 50% below its 52-week high of $238.93 reached on July 16, 2024, indicating potential investment opportunities or risks of a value trap [4]. - The company has shown strong performance throughout 2024, achieving its sixth consecutive quarter of growth, particularly in the AI-driven semiconductor packaging market, which saw a 180% year-over-year revenue increase [8]. - Advanced nodes have been a significant driver of revenue growth, with expectations of continued momentum into 2025, particularly in logic and memory segments [9]. Growth Drivers - The transition to 3D NAND technology is expanding Onto's market opportunities, supported by the launch of innovative products in 2024 [7]. - Demand for Iris film metrology has risen, with annual revenues approaching $100 million, and continued demand is expected in 2025 [10]. - Power revenues increased by 10% in 2024, driven by the development of advanced gallium nitride-based power semiconductors, which are gaining traction due to their efficiency [11]. Financial Projections - Management anticipates total revenues for the first quarter of 2025 to be in the range of $260-$274 million, with non-GAAP earnings per share projected between $1.40 and $1.54 [13]. - A seasonal dip is expected in the first quarter, followed by growth in subsequent quarters, aligning with trends observed in 2024 [12]. Challenges - Non-GAAP operating expenses rose to $68.4 million, a 21.4% increase year-over-year, primarily due to higher R&D investments, which could impact profitability if revenue growth stalls [14]. - The uncertain macroeconomic environment, geopolitical tensions, and intense competition pose risks to the semiconductor industry and ONTO's performance [15]. - ONTO's stock is trading at a premium with a forward 12-month price/earnings multiple of 18.03X compared to the industry's 3.70X, indicating potential valuation concerns [17].