Onto Innovation (ONTO) 10 Aug 232023 Q2 Earnings call transcript

Good day and welcome to the Onto Innovation First 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.

Thank you, Cynthia. everyone. afternoon, good And its the quarter market issued afternoon results shortly after closed. XXXX Innovation financial second this Onto

If you a did release, release please not posted. receive a to is company's copy the website where copy the refer of of the

Michael Joining Officer, Chief Officer. and today Financial Executive Chief Plisinski, us Slicer, call on the are Mark

statements call a you the statements forward-looking within of meaning of to I statements and can by contain would remind uncertainties like to the to cause will made securities are laws. changes, risks actual Such federal the range vary that management subject on this that materially. the results

For undertake encourage that may you the these forward-looking obligation more Onto light and impact would our risk review filings. I release to new events. earnings update results, information future regarding in information or to our statements the not Onto of does factors SEC Innovation's Innovation

will our basis, otherwise. we of specify financial discussion Today's presented results financial non-GAAP on unless a be

between As can reconciliation a non-GAAP in reminder, found earnings results be a release. detailed GAAP and today's

I will Plisinski. the call Mike? go CEO, turn to our over Mike ahead now and

and impacted you second and Good of second a scheduled for thank begin the of which everyone. near lithography And end with our customer quarter third shipments the three quarter. joining All tools you, Mike. were tools today. Thank shipment call results afternoon, timing quarter guidance. specific for three I'll our for to ship

the than included to customer be quarter, could outlook verification the the are since quarter, the planned. longer to be request the tested we for functionality During this added and third new has the but our in accepted package a in The full and approved enhancement estimated installed tools manufacturing. specific took for in tools quarter. ultimately We this customer

customers. This quarter of over quarters. In revenue with of resurging recent semiconductor the and strong advanced prior heterogeneous more and inspection outlook million our systems third weak to guidance consistent those Dragonfly from support revenue offset the $XXX for just demand two being sum nodes reflects bandwidth for demand and by customers, aggregate, packaging memory quarter the remains second power our the our high

expect provide in drive more revenue I'll let's about demand we than our additional quarters. over fact, deeper $XX few in details next dig the this minutes, but three into outlook In second million little a a the first quarter. to specific

start revenue from our customer quarter group inspection XXXX. We'll included over portfolio packaging from product and, where by was power prior market in software in grew customers exceeded power all and This total grew our over specialty and with our Revenue our in the quarter. of XX% fact, customers advanced solutions. the largest from XX% revenue device revenue of metrology and device this

the we material of the Building metrology, and S announced S on OCD portfolio in compound this Atlas quarter demand, Element to the semiconductor the metrology to release with manufacturing. our specifically each designed expand in challenges intent metrology address

We've already secured these shipments quarter. in fourth the and will for begin orders tools

require XX% by XX steps current products, additional of process high growth to which is in an positioned these market, this are times of estimated wafers address we With we control XXXX. estimated to believe the volume

for of delivered we performance inspection ramping of used applications support is market demand end to over packaging, advanced In The packaging unique powerful for proving heterogeneous tool $XX systems capability lines to compute. customers to the XD packaging growing heterogeneous flexibility in Clearfind switch be Dragonfly million sub-micron our high systems our a into single XD detection performance compute. high a metrology and integrates defect system

higher yields provide our information This attach to able ensures essential XD rates. on to is is technology stack metrology package. die die or to Clearfind and metrology height for coplanarity controlling proving bonding, detect the example, residue critical is sensors data die good leading to to and substrate and die while For interconnects

contrast, In customers revenue nodes from quarter. our XX% in the sharp declined advanced

investments see top of by However, we wane, continued. in the even manufacturer in was second pleased were successfully X And proliferation DRAM quarter. quarter, qualified R&D Iris further a have films the capacity as to buys when it

we customers second for two several advanced delivered continuing the gate-all-around in that in Atlas specialty a the third in with will believe OCD of year. in systems reach applications. nodes addition, demand quarter, In strong bottom to declines We packaging advanced the and half

now Before the moving third Mark the second quarter, for for the outlook results cover will to our financial quarter.

everyone. afternoon good And Mike. Thanks,

million we the highlighted, range three down revenue due guidance Mike XXX to of $XXX shift JetStep systems last Mike million, and of commented closed quarter to second the $XXX with in period As the same quarter XX% on. over million the the second year, of below timing

of revenue, of within of due revenue. to represents $XX lower the and an EPS quarter, last the revenue million to guidance which the $X.XX. the revenue period our $X.XX decline XX% primarily range year we did in of from second business, achieve The for advanced is same nodes had $X.XX our EPS Despite decline

and of of represents device million, represents of revenue Specialty million XX% of advanced services revenue and $XXX software $XX revenue and packaging XX% revenue. which had

supply gross the of optimization an the driven favorability efforts. XX%, and exceeding mix, We systems by chain for quarter, to margin favorable initial second achieved fewer seeing shipping XX XX% range due to our JetStep guidance our

guidance $XX were of Second million. our $XX $XX.X range to million, within expenses quarter million operating

reduction We are our still activities. to cost executing

continued to slightly semiconductor power initiatives, to R&D of applications. level in maintain films higher engagements in have R&D However, and investment mentioned, we Mike planar as a aligning

quarter, million XX% income second was prior operating of the to the XX% from Our revenue for $XX year. of compared

share. net in was second $XX Our income $X.XX quarter the or million per

of ended with of million, million from of an year, $XX increase we investments flow the quarter within $XXX million the the representing of to start with operating $XX of term quarter, QX. cash second the revenue moving cash short Now for sheet, the and balance XX%

million. quarter million, the $XXX Inventory increase an $XX at ended of

We network. our the levels continue to inventory manage down actively across

increases inventory the had within we and However, lithography in services quarter.

be the between million $XXX $XXX targeting We now by million to year. are a of in decline are the QX projecting and and end

million we expect $XXX X to to million of decreased our focus our days $XX XX%. flow the collections, and cash inventory and outstanding quarter, performance to goals sales return decreased in cash over reduction on days to consistent days. With XX receivable Accounts

we any During did the not execute share quarter, repurchases.

We existing our remaining under $XXX $XX authorization. million million have

turning third to between QX, quarter to for Now expect $XXX for currently revenue million be outlook the and $XXX we million.

JetStep We as margins QX carries well lower XX%, our expect built gross will now shift corporate which XX% margins revenue, average, shipping of between primarily to in typically due above in to be nodes as advanced the QX. systems the higher

we expect to expenses, million. million $XX to operating For between be $XX

expect year effective our full the between to rate XXXX, tax to be XX%. we For XX%

share be Based shares. upon non-GAAP our to we assumptions, to XX.X per approximately diluted our expect earnings QX to $X.XX for million share. between these We share count $X.XX per anticipate be

our to in structure by and sites, our fixed term deliver supply reducing while We performance are and making long manufacturing optimizing ensuring maintaining our financial model. strategic our progress programs chain R&D cost our line several ability priorities towards operating and with

to absorption while supply The cycle team fixed has made outsourcing improving times significant non-core costs, second several sub-assemblies and progress drive to partners. chain our higher global date, of shift expanding to

our recent such system, our aggressive common over our XXXX as global while set drive simplifying and greater years, partners, a consolidating next will which than supplier the as but a Analyst XXXX, by savings identified key have and automation base also as reduction achievable highlighted two for XX% components, with our XX% targets during part Day. our to of cost moving We

that, for the it into With remainder insights turn additional QX of back Mike? I will to Mike XXXX. and

Mark. you, Thank

driven revenue the Mark intensity both As be support capacity higher by quarter over process up and control control the mostly third to control an second bandwidth increase of mentioned, lithography GPUs increase high we process Expected in heterogeneous expect to integration in and XX%, and process is expansions reflecting memory. revenue quarter.

technologies customers corporate increase more a specialized a of compute higher. to our single million large proven applications hyperscalers like demand monitor mentioned Nvidia enabling is to single These failure package, which enterprises. ability model die GX revenue, $XX impact two processes driving earlier. into The the projected of platforms the complex. interconnect the with failures Dragonfly in to a the of these growing assembly package much becoming by yield language over and demand is for we these system Combining is reliably to in And single multiple powerful support are for supply

overall. demand DRAM a quarter, manufacturers, from supporting record customers still semiconductor power remain expect We near also nodes, to front we advanced which our project mark levels. current end to products primarily for the the and believe portfolio decline third of bottom for memory will see We in revenue headwinds in again we

the half being a customer the for the of recovery customers promotions like a possible going optimistic new next PC into of inventory second talk for are second smartphones about reductions beginning year next half to Samsung in and We're year. launch XXXX catalyst in as

semiconductor provides power value, support to products our markets, substrates. both packaging we our for demand manufacturers strong these rate see differentiated and contributing we wafer heterogeneous adoption summary, of panel portfolio In and connected we're the solutions seeing. to In device believe further in

the customer In is transistor positions of progressing more of while and our for Iris new down and in significantly are integrated this though films our the geometries. nodes, planar record collaborations year, Atlas metrology, applications challenging spending advanced new to tool resulting capability OCD metrology metrology

should markets. positions new investments We the logic memory advanced to resume share in these lead expect wallet higher product when and

year. we XXXX At financial the chains and for implementing supply in stronger to the that a and should prepare structural improvements operations new we're the in same time, as result foundation close

turn to covering Cynthia call over our analysts. the for now from I'll questions

[Operator Instructions]. with will question from first And Charles we Shi Needham. take our

start really heterogeneous just bandwidth memory. integration out with commentary and and the of to high Mark, around want Mike some

fashion? seems further our to what of bandwidth or three more to you on you be Is you can think believe going bit from $XX In memory, team indication linear growth? to great. Do bandwidth think Any the grow? starts what wafer memory, like of the a high memory on over beyond management going provide bandwidth some high think it's outlook will quarters? is little a us So be kind the kind much higher other you high next it customers as million

question a – integration about specifically on seeing really CoWoS, was I know Can much about today? just But heterogeneous but lot stuff, of us? how you opportunity cover very about quantify specifically is CoWoS, not CoWoS. you're then a for related probably

I'll answer first. the one last

and CoWoS. specific it's clear pretty tied who's to that, Regarding about I integration is talked think this TSMC AI, of instance, for heterogeneous lot driving a CoWoS, for when Nvidia we

that fairly us for that's significant and we So driver mentioned. million that a $XX for

and control growth increase we're pretty it it of case is, as now. increase. seeing intensity Certainly, little is of As expansions. bit of Part right capacity in process area. CoWoS Part is a far demand overall, the the what in a that's rapid think, HBM the I

to going increase this how these enterprise I some to we're the And on lot discussions say rapid adopt XXXX. to hard start quarter. rapid internally. growth in orders that's But additional is XXXX. it how slow Or continues to it's believe, it to beyond already expect down, that rapid will will those large customers and certainly AI depend the and continue a going trajectory? into seen So having We of quickly, remain models language this trajectory, for applications first be on

logic about if bottoming wrong? Can nodes for logic. not you believe two, I you in advanced Between notes, question. clarify you foundry Maybe what something is a you heard memory, advanced you Can bottoming I QX, more advance QX. clarify ? said guys ask also it's is but nodes, a advanced but said think little foundry I advance bit these just in about you memory second because Can

the talking bottom from more trajectory. of Advanced was nodes been I been there advanced biggest little drop. that big we've overall, the our is, on what a stable. seen logic so think has DRAM, a we have think is less impact DRAM has I primarily And

notes Samsung and do Taylor being but know at right snap aware think So and well. TSMC, of going No, everybody's we – advanced do several do is built, opportunities new Arizona, logic we away? Intel see as to if we back fabs in

those also systems. We the continue by have starting seen manufacturers. several initial systems to are and But fabs these announced take lines see pilot delays of being construction seed to delivery some and we and as constructed

next growth plateauing that advanced see some But for starting year? to second hope in we we're already the do it as So For half sure. is. logic, on

is big DRAM So change. the

reaching seeing – more the see. I see is point? Just standard do DRAM, HBM to inflection the the being that comment, DRAM mainly DRAM a the bit is also driver? more point, is inflection that little CapEx you Or maybe related The it ask some want on the HBM the on that comment.

not some the picking it's smartphones think but up for enough drops I our certainly common to is DDR PCs that's it's HBM and it's are DRAM more great and driving packaging we're make business, Yeah, and X, the X, it's seeing. for that down. great up

is of vast high impacting of compute. because overall rest us performance market the the of DRAM outside So,

question next take with B. Riley We'll Ellis our from Securities. Craig

if quarter I just and look these litho the three see with start to because shipment maybe have the Mike, panel could and that seems wanted issue it with timing beyond you, I like we calendar third more tools. will

was there, about understand and you quarter could out talk quarter can takes tools how in guidance, and rev specific as for just play from the So the hoping looking I fourth rec gives want exit many third not then the revenue, there? gives takes year? And just we we'll for you to clarify how the but

the what a we're in guiding actually of continuation quarter. It's third

but new bit, tools. remaining that there we more fairly semiconductor will strong, strong, in fourth a the going demand a for the to driver is help we're So power see the little space. introduce That XXXX semiconductors is power quarter for

packaging, And that and and Nvidia to for AI see the our support straight can mentioned, some that strengthen the specifically were XX:XX:XX year. then i.e. devices, continuing of we heterogeneous HBM through

those remain sort catch once the the the the with shift stable So litho three we with with will positives. and tools. of up are the Obviously, here continue

tailwind. And the advanced the that's nodes, then

So real node advanced look of lot QX, a tailwind. it's a of power, stores, is a same at bit strong in real as packaging, heterogeneous I the in strong

Overall, guidance expect of we be the it the be expect to around similar same. to fourth for We'd quarter. levels

I'll you. follow with Mark, up

At was to Can Analyst of careful quarter? for can Day, into does had of are from margin company So, understand $XX.X of this help think, programs level million. guide? fourth was program $XX more that margin the And those quarter's just much for program how third us see I the where And management. extent announced. So, the you do a year? was in next about the the and be gross optimization, then two What there mean million a programs and OpEx hit those just the that factored expense benefits benefit calendar margin it exit gross we gross in year? what

coming around seen $XX Let executing the XXXX, comments of we're that me the savings Obviously, million XXXX are expected the in bulk of optimization and start day and to haven't the analyst those the – in with activity, – and off XXXX. be now. XXXX we

some now that. slight of commented suppliers and my prepared I and in of as remarks, are, We seeing like some that shifts things

So we're on that. still focused

have think QX as of to do. in Certainly, baked are we relates a savings some kind lot Certainly, it and have, margin work plans. the for and I seen The out more that we to taking still continued we we're continue and standpoint. those annualization the QX, some have expenses, offsetting OpEx on and year-over-year. costs back operating reduction we focused a certainly, QX, do be where of from that, gross and half, to

even decline can accretion making the XX%. we and that as we and to now. executing and sure drive we gross think reductions continue look decline, right further in fortunately, place up at looking advanced in We're look QX programs the that we QX to towards XX% back margin have above as I nodes, in

a Our XX% target year full getting XX% term. to long goal perspective term plus XX% still operating align that is from to to the model and back of longer to

So, that's our target.

to get the XX% quarter that you would imply that be least Mark? to XX% the fourth in year, full for XX% should at So, to

obviously but XX-plus and goal where to drive we to QX. what business figure that our in on be comment – specifically, I from target it think will in I the QX, continue won't to I out trying are think is

Brian from our take will Stifel. Chin next We with question

the nodes. memory give terms point? I is but great specialty that Does the Does at would not investments, right of packaging a of Mike, like level this and bottom or of of think memory? the characterize levels looks normalized that of non-volatile conviction good, strong it saying not below sort QX including even advanced with the maintenance clearly it's some have the DRAM, in like kind sub really visibility Visibility in now? maintenance side of you business. start feel also on you Maybe you just But

Meaning of for I couldn't this is know much of I've low. if seen ever a long pretty It drop go period of don't this lower. time. a

then signs from think well to yeah, starting – see that customers kind So, beginning of coming price that that hear you're and as I and to are inventories thing. of our they're increase down

the I'm We're quick So, planning not when expecting snap that's surprise. QX don't yes, And be recovers, to I a we're we very right why know. below But back. expect maintenance not we're that. for nice But That'd bottom. now, be saying levels. a it

Lithography and it you you lumpy guys. has take always obviously, like for bit But units. – bit sounds three bumpy been a a the

you're preliminary out guidance, that XXXX levels, third fourth shipped to you of units up quarter in outlook, and growth of revenuing parked flat. some that given normalized that a you of And maybe seeing six flattish maybe But the is make lithography taken you've If Q-on-Q you back kind other in and them ships really down businesses? that the kind XQ, you saying of kind you're XQ, the you're the that quarter of that few – up. with dynamic in tools then maybe

the it on – timing on depends we're things. bit will Yeah, be up litho a little trying because think we to that catch

million So talked be it the into at $XX about. or would But that always two so normalized there quarter. may or tools one first more less or was we've forward that move that

So $XX $XX million million, revenue.

kind of talked synergy and in expect specialty progress terms upcycle upcycle. technology what fruit bear of to think than you'd you're sort business able up framing on of I And Just to synergies. last a that's customer about where this you've more

rates that having specialty at to bigger years, of counter the side in be three be already specialty larger revenue specially XXXX how business, and calendar contribution guys to you're much in on when be $X and three run of pretty that for were good So could guys going the a you the XXXX year could years was to smaller at some if billion? billion revenue you relative the kind $X of say? much How you look amount

current only say right? spending estimate is rate but the three depends can So is tough, always from the I level, years to customers, it adoption that our Compared beginning. out on

So we're winning new just customers.

the I new think customers added five we quarter. in

tools. initial grow. potential just repeat are of one to sell the So customers those couple a those continue And every is of by as sales they to there's sales be of And more to going a portfolio.

we So to add only to continue continue have to but opportunities customers. not our customers, portfolio within grow the

with we're the looking at I in we value growth new that solve the industry given if in releasing year, our the unique positions connected given for we wouldn't and this three where we're solutions, if end and delivering surprised years could to integrated portfolios be problems. products these and double up So these revenue that the we're dynamics

We'll from Steelhead take next our with question Securities. David Duley

far talk is how DDR As bandwidth X about standard just high intensive inspection more you it much memory product? just a versus could and as goes,

far foundry down? my and as business advanced as down the the to XXXX, would memory As your logic expect would to you question, expect be for how how second nodes much you much business goes calendar be

Again, I'll last start the with one.

be have logic but help down DRAM I that, directly is be what in don't too double logic be XX%. don't down the down expect I probably you numbers might down. to me, Doesn't memory front know might of but if I much, XX%. XXXX, double would memory For

number because of in the DRAM control to the applications, question. it's on than applications, to and As be times of preparing connected of our it's either our amount at process versus die normal in involved say normal would and inspection the two for attach Dragonfly, intensity that's metrology stacked packaging. layers and process these the to stack. die least be and the intensive, to I for and And DRAM more, control a so The three DRAM, good HBM rates,

packages metrology make a more those with order lot yield. in coinciding our there's So inspection to

integrated, the And inspection tool, any not that the to tool, add is just on our metrology drives it's so our all of inspection confusion. utilization

product memory that bandwidth think guy DRAM As far lot I that's assuming at a you goes what one as the your at bandwidth this outlook there, the look lead than memory? I'm point. have the just marketplace the in Is are of one and really it? working way in other high don't manufacturer. Or to with high guys more

We're one, the than than certainly one working but with more other. more dominates

We will Vedvati take our next from Shrotre with Jefferies. question

little I bit to ask guess more. I wanted about packaging a the

quarters, what So capacity? versus you about $XX more kind three you CoWoS that the million over split integration Can the is characterize HBM versus like heterogeneous talked towards of between a opportunity is HBM?

I XX/XX. Yeah, would say

lot logic a the side. is So on of it

and CoWoS then on HBM. So say – the the and, rest

of there, their talking CoWoS is capacity, up my For capacity. doubling follow you about tripling have TSMC X.XD their sort Amkor

of about how it like, does means doubling you? So a translate work? a Or should this that think opportunity capacity you? equation revenue into like we for Is doubling link does – for how how direct revenues

increase in an they process would way. process yield, may that's seeing. improve looks they rate and but far, mentioned now, There's yields what to the process control model a I trying how if Right be it why a high and to normalization let's anything, of an increase start drive, intensity. the control, in we're as optimization, that control and they're seeing If So say, that reduce it. very improve attach I'd we're

side, maybe – think heterogeneous till side logic we So control more the intensity or logic packaging now, process on maybe so since of on year the the XX% the beginning in even [indiscernible]. increase

Like, smartphone XXXX they base a CoWoS do that your XXXX, a I process? they set a on are process in, the Or of in of about As utilization possibility? that kind do for different as or be tools like is where is need of they think a most was from can used you info maybe different [indiscernible]. Dragonfly Is those If an of install How smartphones, fungible? low to concepts? the tools? tool, inspection for markets what fungibility was in

lines. different Generally, in they're

And for tools our side. traditional tools your The the Clearfind, option just moved. is another traditional are for the required very which like the HBM sensors the it's are bump. amount configured have or fan differently – those all out that the be for tool, of and So capabilities and logic the heterogeneous to on

really it's fungible. So not

anyone new product, tools. our We to those haven't trying seen existing all tools our move It's into lines.

mean of that end was margins does higher gross a sort you're it that up when application what CoWoS like, So historically? HBM addressing, versus

But so. get to have believe that. I we'd to back on you

our take from will We question with next Miller Benchmark. Mark

process order and million back $XX control, order more volume is quarter? in The fourth ship purchase how does it going for that Is to terms divided end third of or the equally it loaded? be

on. That working we're

and the a But So, follow expect. with on QX to little and when we're I ramp. would QX projecting the $XX additional be lighter, equal that be it's able provide rollout that we'll we million. follow-on size the between customers, of on, clarity orders expect And the semi of finalized maybe to QX QX the to be the and

power power XX new first orders. quarter customers or June announced you've quarter? time this date, To the Any customers

this customers power new five had quarter. We

no questions or turn at remarks. are there conference the now will back additional any this closing to Sheaffer over And further for Mr. time. I

Thanks, Cynthia.

reminder upcoming quick a about Just for three events. everybody

will Conference on in August Needham First, Onto Virtual Cap management XX. the Semi participating be

you City the in in your Benchmark XX. participating about Thanks be Chicago website replay interest third, in evening. Eastern this Second, Conference us again to on The September X:XX the A Jefferies Onto York Semi New joining And on Innovation. thank like continued we'll XX. available We'd going today. we for to Time of for in is Conference our be will August call on be at

Cynthia, please call. conclude Thank you. the

now This concludes today's Thank Thank participation you your you, call. for gentlemen. disconnect. you may and