Onto Innovation Inc (ONTO) Q2 2024 Earnings Call Highlights: Record Revenue and Strategic ...
Revenue: $242 million, up 6% sequentially and 27% year-over-year.
Operating Cash Flow: $65 million, representing 27% of revenues.
EPS: $1.32, increased 12% sequentially and 67% year-over-year.
Gross Margin: 53%, improved over the first quarter.
Operating Expenses: $64 million, at the high end of guidance.
Net Income: 27% of revenue, supported by favorable investment income.
Cash and Short-term Investments: $786 million at the end of the second quarter.
Inventory: $320 million, down $10 million from Q1.
Third Quarter Revenue Guidance: $245 million to $255 million.
Third Quarter Gross Margin Guidance: 53% to 55%.
Third Quarter Operating Expenses Guidance: $64 million to $66 million.
Third Quarter EPS Guidance: $1.25 to $1.35 per share.
Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Onto Innovation Inc (NYSE:ONTO) exceeded its second-quarter revenue and EPS guidance, driven by strong demand for advanced packaging for AI devices and gate-all-around investments.
The company achieved a record operating cash flow of $65 million, representing a significant improvement in cash generation.
Revenue from specialty devices and advanced packaging markets reached a fourth consecutive quarterly record, with AI packaging accounting for over half of the revenue.
Onto Innovation Inc (NYSE:ONTO) introduced new sensors and technologies, such as a 3D bump metrology sensor, to address emerging market needs, receiving positive initial customer feedback.
The company closed volume purchasing agreements with two customers, valued at over $300 million, indicating strong future demand and growth potential.
Negative Points
Despite strong performance, Onto Innovation Inc (NYSE:ONTO) faces supply constraints that limit the ability to expand AI packaging revenue further.
The company anticipates a pause in AI packaging revenue growth due to capacity constraints, with some customers cutting back.
Operating expenses were at the high end of the guidance range, driven by increased investments in R&D, which could impact short-term profitability.
The company faces challenges in the Chinese market due to local competition and regulatory constraints, limiting growth potential in that region.
There is uncertainty regarding the impact of reduced capacity expansion plans from some IDM customers, which could affect future revenue growth.
Q & A Highlights
Q: 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? A: There was some confusion. I mentioned a pause specific to AI packaging, which involves a few customers. Overall, we expected growth to continue sequentially. While there are still supply constraints, customers are getting creative to expand capacity. We are more bullish now, but the confusion was around the definition of AI packaging versus overall advanced packaging.
Q: Can you give us a rough idea of how the $300 million in VPAs may be split amongst those two customers? Is it evenly weighted or biased to one or the other? A: The advanced packaging piece is a larger chunk of the $300 million. Most of it is tied to 2025. It's roughly 60% for packaging and 40% for gate-all-around. The revenue recognition will depend on when expansions come out, but most of it is expected in 2025.
Q: What impact, if any, are you seeing this year in light of the reduced capacity expansion plans from advanced logic? How does this affect your thinking for gate-all-around revenue potential in 2025? A: We are seeing good adoption of our products in gate-all-around logic. Customers are continuing to take more products, and we see growth in the fourth quarter. The volume purchase agreements indicate customers are working with us to ensure supply ramp next year, which is positive for 2025.
Q: We had an IDM customer cut down CapEx spending for 2025. How have conversations changed for you, and what are your expectations going forward from that customer? A: The customer is announcing CapEx cuts but reaffirming their desire to hit next-generation nodes by 2026. We expect their spend to focus on the leading edge, which may not negatively impact us and could even accelerate our business.
Q: On your gross margins, is the 100 bps increase quarter on quarter primarily driven by your product mix changing with more advanced nodes coming back? A: Not all of it. Improvements in manufacturing and supply chain are paying dividends. As advanced nodes improve in the second half, it will help accelerate gross margin improvement.
Q: Can you give insights into where you think you're gaining the most share? A: We've maintained a high share in AI packaging, particularly in HBM and 2.5D logic. In gate-all-around, we've seen increased adoption of our Iris planar films, which should translate into growth in 2025 and 2026. Panel packaging is also a strong position for us.
Q: What is your expectation for China revenue contribution for the full year, and any trend from first half to second half? A: We expect second-half China revenue to be up over the first half, but it's still in the teens level. Growth is mainly in specialty markets like power semiconductors. We face challenges selling into China, but we're focusing on higher-end applications.
Q: When do you expect to ship the $300 million VPA? When does the shipment start, and when do you think we'll get to that peak shipment? A: There will be some initial shipments in the second half, but most of the bulk is going through 2025.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.