Onto Innovation Inc. (NYSE:ONTO) Q3 2023 Earnings Call Transcript

Onto Innovation Inc. (NYSE:ONTO) Q3 2023 Earnings Call Transcript November 9, 2023

Operator: Good day and welcome to the Onto Innovation Third Quarter Earnings Release Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Mike Sheaffer, Investor Relations. Please go ahead.

Mike Sheaffer: Thank you, Rachel and good afternoon, everyone. Onto Innovation issued it’s 2023 third 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. Joining us on the call today are Michael Plisinski, Chief Executive Officer; and Mark Slicer, Chief Financial Officer. I would like to remind you that the statements made by the management on this call will contain forward-looking statements within the meaning of the federal securities laws. Such statements are subject to a range of changes, risks and uncertainties that can cause actual results to vary materially. For more information regarding the risk factors that may impact Onto Innovation’s results, I would encourage you to review our earnings release and our SEC filings.

Onto Innovation does not undertake the obligation to update these forward-looking statements in light of new information or future events. Today’s discussion of our financial results will be presented on a non-GAAP financial basis, unless otherwise specified. As a reminder, a detailed reconciliation between GAAP and non-GAAP results can be found on today’s earnings release. I will now go ahead and turn the call over to our CEO, Mike Plisinski. Mike?

Michael Plisinski: Thank you, Mike. Good afternoon and thank you for joining the call today. We finished the third quarter just above the midpoint of guidance for operating income and earnings, despite top line revenue near the low end of guidance. This financial performance is just beginning to reflect the improvements from the initiatives we outlined in July. Shortly, Mark will outline how we expect to accelerate additional improvements through the next several quarters. Now, I’ll share what we see as a new wave of opportunities for Onto Innovation following recent visits with several customers in Asia, including those leading the innovations in memory and packaging that are enabling this new era of artificial intelligence.

Gartner estimates that today’s semiconductors supporting artificial intelligence are estimated to represent less than 10% of the approximated $500 billion semiconductor market. By 2030, the overall market for semiconductors is expected to double reaching $1 trillion in revenue. However, semiconductors supporting AI are expected to increase 6x to 8x reaching $300 billion to $500 billion in sales as applications and hardware migrate from data centers to edge computing. Just as advanced packaging was critical to ushering in the mobility era, we believe it will be critical to this new era of artificial intelligence. By using the latest 3D and 2.5D packaging technologies, companies like Nvidia are able to deliver the performance required by end-markets [ph] while delaying the higher costs of migrating to more advanced nodes.

Controlling the formation of these 3D and 2.5D interconnects is critical to yields and creating a surge in demand for the dragonfly platforms comprehensive inspection and metrology capabilities. In the last 2.5 months, we added over 110 million of new orders in addition to the $120 million in orders amounts last August. These new orders include all three suppliers of high bandwidth memory, process control for 2.5D packaging, and emerging applications for our unique eco-acoustic metrology. We will now turn to another secular driver for Onto Innovation, the market demand for power semiconductors to support the electrification of everything from automobiles to gas-powered garden tools. Revenue from power customers remained near record levels in the third quarter and included inspection metrology and software products.

In the quarter, we delivered our new LMNS systems to five silicon carbide customers to more effectively control the thickness of the epitaxial [ph] layer, which is critical for high voltage breakdown resistance of the device. Our software also gained a new customer in the compound semiconductor market with a significant order from a leader in wireless communications devices. By demonstrating the power of integrating our discover enterprise process analytics with our equipment control solutions, we’re able to help the customer achieve better process targets where their previously installed systems have struggled. Based on the results, we expect this customer place additional orders in the future and roll this out to factories across the globe.

The advanced nodes customer spending reflects the broader weakness in demand for data center and mobile devices. As anticipated, we saw large drops in DRAM and logic revenue resulting in a 30% decline in the third quarter However, we are making steady progress with our films metrology and delivered several systems to support gate-all-around pilot production in the quarter. The transition to gate-all-around transistors will be an important inflection front to innovation as we believe our positions in OCD integrated and films metrology will result in an estimated 30% increase in opportunity over our position and leading edge FinFET [ph] nodes. And now, I’ll turn over the call to Mark to provide financial highlights for the floor [ph].

Mark Slicer: Thanks, Mike and good afternoon, everyone. We closed the third quarter with revenue of $207 million, down 19% over the same period last year, and up 10% versus the second quarter. Despite revenue below the midpoint of guidance, we did exceed the midpoint of our EPS guidance range, achieving $0.96 for the third quarter. The revenue decline from the same period last year is primarily due to the to the decline in our advanced nodes business, which had revenue of $26 million and represents 13% of revenue. Specialty device and advanced packaging with record revenue of $135 million increased 20% over Q2 and represents 65% of revenue. For software and services, we achieved revenue of $46 million, increasing 13% over Q2 and representing 22% of revenue.

We achieved 52% gross margin for the third quarter, exceeding our guidance range of 50% to 51% driven by favorable mix and our cost optimization efforts. Third quarter operating expenses were $57 million at the low end of our guidance range of $57 million to $59 million. We are realizing the benefits of our cost reduction initiatives put in place earlier in the year, driving our OpEx run rate well below our 2022 levels, while still maintaining investments in technologies to help enable advances and manufacturing of AI and powered devices. Our operating income of $50 million was 24% of revenue for the third quarter, compared to 21% for the second quarter. Our net income in the third quarter was $48 million, 23% of revenue versus 20% for the second quarter.

Both our operating income and net income performance versus the second quarter highlight our improving operating leverage. Now moving to the balance sheet; we ended the third quarter with cash and short-term investments of $630 million, an increase of $82 million from the beginning of the year, with operating cash flow of $29 million within the quarter, representing 14% of revenue for Q3. Inventory ended the quarter at $346 million, a decrease of $6 million from Q2 as we actively manage down our inventory levels across the network. We are projecting further reduction in Q4, however, we are now targeting to be between $300 million and $320 million by the end of the year. This is a shift in our previous projection and is primarily due to the ramp in our dragonfly G3 orders which is requiring us to procure long lead time components.

We are pleased with — we are pleased that our focus is now paying off within the — with a quarter-over-quarter reduction but we are certainly not satisfied with the current inventory levels, and this will remain a critical working capital focus area until we can get back to consistent cash flow performance levels of over 20%. Accounts receivable increased $22 million to $210 million in the quarter, and our day sales outstanding increased 2 days to 92 days. During the quarter we did not execute any share repurchases, and we have $32 million remaining under our existing $100 million authorization. Now, turning to our outlook for Q4. We currently expect revenue for the third quarter to be between $200 million and $216 million. We expect gross margins will be between 51% to 53%.

We are expanding our gross margin range partially reflecting the work on supply chain and operational efficiencies we have previously outlined as part of our 2023 cost reduction programs. We expect to see continued improvement in each of the next two quarters. For operating expenses, we expect to be between $56 million to $58 million. For the full year 2023, we expect our effective tax rate to be between 13% to 14%. We expect our diluted share count for Q4 to be approximately 49.5 million shares. Based upon these assumptions, we anticipate our non-GAAP earnings to be between $0.90 per share and $1.10 per share. As outlined during our June 1 Analyst Day, the programs we have in place are on-track to deliver approximately $25 million of gross margin cost reductions over the next two years starting in 2024 and into 2025.

We have already negotiated greater than 50% of the $25 million in savings and will start to see a portion of the savings realized in our gross margins starting in Q1 as we target 54% as a baseline goal. And with that, I will turn it back to Mike for additional insights into Q4. Mike?

Michael Plisinski: Thank you, Mark. As Mark mentioned, we expect fourth quarter revenue to be essentially flat with the third quarter, but with improvement in both gross and operating margins despite the unfavorable product mix of lower advanced node metrology systems. In the fourth quarter, we see additional push outs in the advanced node market reflecting recent public announcements from leading memory manufacturers, indicating a decrease in their product utilization production utilization for the second half of 2023. In addition, the two will move in dates that new U.S. fabs are pushed out as a result of construction delays. This weakness is being offset by the surge in demand we see for the dragonfly G3, which we expect to grow another 50% in the fourth quarter, almost exclusively in support of customers ramping high bandwidth memory in 2.5D packaging.

Based on current visibility and customer engagements, we expect the demand will continue to build into next year, resulting in overall growth brand to innovation in the first half of 2024. As the era of artificial intelligence progresses, we believe the market will increasingly turn to panel level packaging, where we expect our jet step lithography tool will play an important role in enabling the next generation of chiplet architectures supporting this belief. recently received we received an order from a new Jeff step lithography customer to support their development of advanced packaging on a glass substrate. So not without challenges the glass substrate as inherently better stability than existing substrates. And as a result can take full advantage of our leading resolution and overlay capabilities.

The advantage will be the ability to print smaller and denser interconnects to support the needs of next generation chiplet architectures. This new tool will ship in the middle of 2024. And if the customers successful, we expect many additional orders for glass substrates in 2025. Given the current slowdown and high performance server markets and our lithography production not yet achieving full capacity, we’ve worked with customers to realign tool shipments. This means for the year, roughly 30 million of planned lithography shipments in 2023 will move into 2024. So the impacts to 2023 revenue is disappointing. This allows our team to further optimize the manufacturing process and be prepared for the next market ramp which we expect in 2025.

In conclusion, we believe the AI era that is just beginning will drive many new opportunities for all of our lines of business including inspection, metrology lithography and software. Of course, everyone knows the impact that NVIDIA had on the market over the last few months in terms of unit volumes and revenue. Already, we see new products being announced by AMD and Intel to respond to this growing demand. And just this week, Samsung introduced their new generative AI model that is designed for AI applications on their devices for edge computing. We believe this expansion of offerings and new applications is an early indication of the broader growth of the industry. Given our established positions with the market leaders, we see this as a long term driver front to innovation as well.

As I mentioned, AI device volumes are expected to drive our revenue growth in the first half of 2024 over the second half of 2023 independent of recovering advanced notes. If the advanced node spending resumes in the second half of 2024, then that will only further increase the revenue opportunities we see in the coming year. And with that, I will turn the call over to Rachel for questions from our covering analysts.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Craig Ellis with B. Riley Securities. Please go ahead.

Craig Ellis: Yes, thanks for taking the question and nice to see all the dragonfly momentum in the business. Mike, I wanted to start just by clarifying a comment that you made about expectations for panel litho shipments this year. You said that $30 million of expected revenue would rip from [indiscernible]. So does that mean that in addition to the $10 million that we saw in 3Q, there is $20 million that shifts into next year or am I misinterpreting what you’re saying?

Michael Plisinski: From the total year, I think we had some slips also prior earlier. So it’s just we haven’t been able to drive enough increased production capacity to cover the currently booked quarter and make up for the slips from prior quarters. So as a result, we’re not catching up where — we’re skipping steps and we need to stop that. So, in total $30 million is moving from 2023 to 2024, and that’s in the numbers that we’ve been guiding to.

Craig Ellis: Got it. And then, really like to hear the 54% gross margin in the first quarter. And I know you don’t give a full income statement guide two quarters out, but can you just provide some color on some of the things you’re seeing that support that 54%? For example, is advanced nodes now at a trough [ph] and just bouncing along the bottom? And I expect there is incremental momentum out of specialty but I would appreciate any color.

Mark Slicer: Yes, hi Craig, it’s Mark. So I think certainly for advanced nodes, I mean that continues — you know, that won’t be the ramp in Q1 driving that margin improvement. Certainly with the dragonfly and our inspection business, we’re implementing second shifts, third shifts; we’re driving supply chain efficiencies through that process. So certainly going to continue to see gross margin improvement in our inspection business with those tools in that ramp up. But we’ve also been able to take cost out, as I’ve alluded to, in the — throughout 2023. And those are — that’s fixed; I mean, that is not — that’s not variable stuff, so that will continue to drive the benefit, so we’ll continue to see that leverage. And as I’ve said, our goal is certainly — 54% is our baseline goal driving towards that goal of exiting 55% plus, getting us back on model.

Craig Ellis: And then lastly, if I could, Mike. Historically, I always thought that specialty had a decent gang [ph] component, but it sounds like you’re really getting good traction with silicon carbide. Any more color on what’s going on with your customer, sir?

Michael Plisinski: You’re correct. So historically, we’ve had much stronger position in the gang [ph]. But recently, we’ve seen a lot of increased water uptake for our — from silicon carbide customers, and I think that just reflects a lot of what the market is focused on right now. So it’s including several different types of metrology systems, as well as inspection of driving into those silicon carbide — new silicon carbide customers. And it’s also geographically dispersed; we’re seeing Europe, U.S., Japan, Korea, China, all big systems [ph].

Craig Ellis: Got it. Thanks, guys.

Operator: Our next question comes from the line of Brian Chin with Stifel. Please go ahead.

Brian Chin: Hi, there. I appreciate it. Next, I just want to ask a few questions. Mike, maybe just clarification on remarks you made, and then maybe sort of the follow-up question on that. I think previously, you’d referenced a couple of months ago, $100 million plus in dragonfly orders into sort of mid-next year. Sounds like you made a reference to maybe an additional follow on similar size, maybe a little bit larger slug of orders. Is that right? And can you kind of talk more about that and sort of what timeframe against — what the timeframe against those orders in terms of deliveries are into next year?

Michael Plisinski: Yes. So we did not more, but we got another $110 million in orders, we actually got more than $110 million, but the bulk of it, let’s say $110 million or so will be delivered through the first half of next year; so Q2 of 2024. There is some additional orders that extend beyond that, but the vast majority is all you know, Q4, Q1, Q2.

Brian Chin: Got it. Obviously that’s part of meeting some of your outlook for the first half revenue for next year to be above the second half of this year I think. I guess also in terms of — you have the visibility — you kind of anticipate the order rates will sort of level off in second half on packaging and maybe advanced node starts to pick up the pace at some point next year?

Michael Plisinski: I think advanced nodes will at some point to pick up the pace. That’s — that we’re hoping for. The leveling off, it’s unclear. I’m surprised how rapidly we are seeing the expansions, and how broad. So originally, we were seeing a lot of demand for the dragonfly for inspection and some of the metrology capabilities in dragonfly, but as customers are ramping so aggressively, we’re finding new challenges that some of our other metrology systems are solving, and we’re seeing orders for them. I mentioned the Echo [ph] on the call, there’s some others as well. So I think there is — so that — as the ramp happens, and customers start driving yields and productivity up, I think we’re going to find that there is more opportunities for process control, maybe even through the second half that keeps that pace of revenue for us up.

Brian Chin: Okay. Maybe one last quick one. I think you’ve shipped some Atlas, OCD tools for deal [ph] around applications in recent quarters but what do you — what’s your latest thinking in terms of the timeframe? When you’ll start to receive volume based orders and then start to ship against that backlog?

Michael Plisinski: Yes, that’s the million dollar question. I think customers — our customers are getting pretty ready and it’s really the visibility they have into customer — their customers adopting those lines. So, of course, we have some construction delays here in the United States but there is other pilot lines and low volume production lines around the globe that I think are more ready for volume as soon as customers decide to take that plunge. From a timing standpoint, what we hear sort of end of 2024; we should see orders preparing for more aggressive ramp in 2025.

Brian Chin: Okay, great. Thank you.

Operator: We will take our next question from the line of Charles Shi with Needham. Please go ahead.

Charles Shi: Hey, good afternoon. Hey Mike, Mark. I want to kind of a follow-up on the question related to high bandwidth memory plus 2.5D. If what I hear correctly, looks like you’re — you’ve got enough orders as much as $210 million plus to deliver between second half 2023 and the first half of 2024; is that correct? Because you kind of mentioned about $100 million plus, that’s your prior announcement but you’ve got another $110 million. And that’s — all of that is going to deliver through the first half of 2024. So I want to make sure I heard that correct.

Mark Slicer: Yes, that’s correct.

Charles Shi: Thanks. So looks like there’s a good amount of growth for the second half ’23 into first half ’24 because I think that what you’ve guided for, I mean, this quarter is Q-on-Q growth of that product; AI packaging related revenue. And the next quarter’s growth kind of suggests us something about $70 million to 80 million, but the next that means next year is going to get to something like a first half next year, $130 million to $140 million [ph]. So that looks like a very good incremental revenue out there but I just kind of curious, what about other part of your business? Advanced? No, it doesn’t sound like you’re expecting a recovery but the third piece, I think you don’t really break it down. But especially devices has been strong second half, but what about first half next year? Is it flat or up or down from the second half 2023 levels? Thanks.

Michael Plisinski: Yes. So I think two things. So going back to the HBM and the packaging, a couple of really significant events happened in the last few months that helped drive that business. One is, we had talked about having some evaluations that I would add the third HBM memory manufacturer, we had two, not the third, very quickly the demo and eval tools demonstrated the — or the evaluation tools demonstrated our value and we quickly saw some aggressive ramps. In addition, we saw new metrology opportunities; so that’s contributing to the stronger growth we see in the first half of next year. Going back to power semi, which is one of the big areas of growth in the specialty area; we do see a bit and it’s hard to say right now because it’s — we’re not getting the same kind of lead times and not having the same kind of pressure to ramp as the AI guys right now.

But we do see a little bit of slower pace in the first half, but not significantly. And I’m guessing that that will start to pick up as the rest of this year progresses.

Charles Shi: Thanks. Lastly, can you kind of give us a breakdown — I mean, that incremental $100 million [ph] can follow orders. How much of that is HBM? How much of that is [indiscernible]?

Michael Plisinski: I knew you’d ask that. Right now it’s more heavily towards HBM but let’s see now. Yes, it’s actually still pretty well balanced as I’m looking at the data. Yes, it’s still pretty well balanced between the two groups.

Charles Shi: Okay. Thanks, Mike.

Operator: Our next question comes from the line of Vedvati Shrotre with Jefferies. Please go ahead.

Vedvati Shrotre: Hi, thanks for taking my question. So I wanted to double click on the little panel opportunity. So, I know we started the year with about $80 million that you’re expecting; and then in the second quarter there was some push out, so it came down to $60 million. And so now, could you give me a sense of how much little [ph] turns out to be in 2023? And you said $30 million gets pushed out; so is it — if you could help me understand what happens in the second half of 2023 or fourth quarter?

Michael Plisinski: So you’re right, we did have the plan and the expectation to be able to deliver $80 million this year in the bookings. Because of the $30 million moving out, that means we’ll deliver $50 million this year and not the full $80 million; those other tools are going to move into deliveries for next year.

Vedvati Shrotre: And that would impact your gross margins, right, because I understand those tools carry you’re — carry lower gross margins. So there’ll be offsetting your — the cost saving initiatives would offset that; is that fair?

Michael Plisinski: Well, we’re still shipping litho tools now. So built into the gross margin profiles where we’re delivering now; the last couple of quarters last several quarters is two to three to four litho tools a quarter. And so that’s going to continue but at the same time we’ve talked a lot about how aggressively were driving the litho margins north. And I think each of the quarters next year, we’re going to see improving gross margins from litho to the point where it’s not going to be the big issue that it’s been for sure all this year. If that makes sense.

Vedvati Shrotre: Yes, got it. And then the other question, I wanted to ask you, so a lot of your peers are benefiting from China being stronger territory. Is that playing out for you in any sense? If you could elaborate on that.

Michael Plisinski: China is definitely not as strong for us as it is for our peers. I’ve seen, 40% and 50% of our peers revenue is coming from China. For us, it’s more layer 15%. [ph].

Mark Slicer: In Q2 and Q3, we’re about 15%. In year to date, we’re at 18 to 19%.

Michael Plisinski: So it’s a lot of specialty devices, you know; a lot of new markets where we have some — generally unique metrology that then brings in some of our other products. But that’s definitely not the 50% we see from some of our others.

Vedvati Shrotre: Thank you. And I have one more but I’ll get back into the queue.

Operator: We’ll take our next question from the line of David Duley with Steelhead. Please go ahead.

David Duley: Yes, thanks for letting me ask a question. If we could just kind of dig in on lithography issue. You know, you’ve had systems push out for two quarters in a row, I guess, if my recollection is correct. And is this more of the — just kind of go into? You mentioned it’s your internal production issue is? Or is it the tools performance? Or is the customer’s not ready for it? Could you just elaborate in greater detail about why are we seeing these pushes?

Michael Plisinski: Yes, that’s a good — it’s a good question. So it’s been a mix. As you know, in Q2 the issue was tied more towards the customers making some changes that we had to adapt to and weren’t able to complete all of the work required. But as we move those tools into the next quarter, we were unable — which would be this quarter, we were unable to deliver what we had already committed for the quarter plus pick up some of this extra work — these tools are large, they take up base in the factory, delays actually have a pretty big impact. The other — I think the other thing to understand is, in these systems we have about 3,200 out of 17,000 parts; the major parts, not screws and nuts and bolts, but 17,000 major parts to make a litho tool.

Out of that around 3,200 our custom engineered parts by the team here. And to give you an idea, in our most advanced metrology system, there’s only about 100 custom engineered parts. So the level of complexity of the systems and the manufacturing flows, and the calibration times, the integration times, it’s just taking more effort to drive the discipline and the processes to make these systems more predictable given that complexity. That said, because we do a lot of the custom engineering ourselves, we’ve been able to drive improvements in the system fairly significantly. So on the first four systems, since the first four systems we delivered, we’ve improved cycle times by 40%, we’ve doubled the capability of our overlay, I think we’ve improved throughput something like 30% or 20%.

So it’s there’s definitely a trade-off, there’s a benefit of having the highly engineered system but the cost is the complexity in manufacturing.

David Duley: And how — you know, so essentially, you can’t basically take the systems that slipped last quarter into this quarter and build. Basically we have to build twice as many. How do you fix this problem? When will that problem be fixed? Obviously, you need more internal capacity. So is that why it doesn’t get better till the middle of April or whenever?

Michael Plisinski: Yes, exactly. It’s — we need to finish some of these processes, we need to get our supply chains to be more responsive, we’ve had a lot of issues with incoming quality that that also require then rework and take too much time and too much base space. So we can’t move these systems. So as we work through all this, and again, we’re making steady progress is just not fast enough. It’s no fun for me to keep guiding and then updating the guidance or missing the guidance. So we’re resetting, giving the time team to get more predictable, and I expect, you know, middle of next year, so by the second quarter, we will be able to reach our full capacity, which is you know, significantly more than $80 million.

David Duley: And so let’s just boil that down to so you’re going to go from three tools a quarter to be able to produce six tools a quarter, because that seems like what your problem is now.

Michael Plisinski: Yes, that’s, that’s fair.

David Duley: Okay. All right. One final one for me. Thank you very much for that clarification that was appreciated. You mentioned you know, the TAM for your films tool will grow by 30% as we move the gate all around, and I’ve seen backside powers in that calculation too. Could you just help us understand what the PAM is and you know also help us understand what you’re kind of what that means for how much revenue that would be for Onto?

Michael Plisinski: It’s so the same I don’t have actually that that well broken down. Oh, hi, I’m trying to think what are publicly stated Sam is for the fin FETs at 10,000 wafer starts. And it would be obviously 30 30%. Above that, but the comment was really around our growing position within gate all around, and then how that will increase our opportunity given the same amount of wallet chips, given the same amount of expansion. So if they both expanded a FinFET [ph] node, a gate all around node expanded by 10,000 wafer starts, we’d see 30% more revenue, estimated 30% more revenue in that gate all around expansion than the positions we have in FinFET [ph]. And this is driven by more layers going to us on the OCD, insertion opportunities in integrated and then as well as the film’s layers that we’ve been able to start to win and qualify for to record positions. But I don’t have the exact dollar number for you.

David Duley: Okay, we’ll get that base number another time. Thanks for answering the questions. Thanks.

Operator: We’ll take our next question from the line of Mark Miller with benchmark. Please go ahead.

Mark Miller: Thank you for the question. I just want to clarify something the little tools that were delayed last quarter were due to customer specified mods. But the reason these tools are further push out as a component availability, fab [ph] availability, and just why the further push up most tools?

Michael Plisinski: Yes, it’s good question. It has different tools. So those tools from Q2, were delivered, they shipped shortly after the quarter, or within the early part of this quarter. The additional slip outs were sort of the knock on effect. So we had a little bit delay in the other ones, it couldn’t start the additional tools, the tools that were already planned for q3 and with some other manufacturing production issues. So these were mostly internal issues. We ended up not delivering on time. So the Q2 was tied to say, you know, customer change requests, Q3 was tied to our own execution.

Mark Miller: Okay, thank you. Just wondering to what, what are you seeing in China? Is the power of the slow the little slowing in a power segment? Is that in China or somewhere else?

Michael Plisinski: I don’t think so. I don’t think our we see a slowdown in China, per se. Overall, just not. I think we’re doing a nice job of rebuilding and recovering from some of the customers, the good customers we had that were put on the Entity List. So I think that’s a growing part of the business. I think more of the, and again, it’s still early, because, you know, our bookings in that part of the market are not generally out super far. But I think that’s more in the more established markets. So some of that pause or delay or lower visibility right now is more in the established Europe and US markets.

Mark Miller: And your gorgeous area in terms of geographic sales in the in the September quarter was in the September quarter?

Michael Plisinski: Yes. 19% [ph].

Operator: [Operator Instructions] It appears there are no further questions at this time. Mr. Sheaffer, I’d like to turn the conference back to you for any additional or closing remarks.

Mike Sheaffer: Thank you. Just a quick reminder for everybody about some upcoming events. First, on to management. We’ll be participating in the Morgan Stanley TMT conference in Barcelona next week. And we will be participating in the wolf research small and mid-cap conference in New York on December 6. Thanks, again, for joining us today. A replay of the call is going to be available on our website approximately 730 Eastern time this evening. We’d like to thank you for your continued interest and Onto Innovation. Rachel, please conclude the call.

Operator: This concludes today’s call. Thank you for your participation and you may now disconnect.