Onto Innovation Q2 2023 Earnings Call Transcript

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August 10, 2023

There are 10 speakers on the call.

Operator

Good day, and welcome to the ONTU Innovation Second Quarter Earnings Release Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mike Schafer, Investor Relations. Please go ahead, sir.

Speaker 1

Thank you, Cynthia, and good afternoon, everyone. ON2 Innovation issued its 2023 Q2 financial results this afternoon shortly after the market closed. Joining us on the call today are Michael Plisinski, Chief Executive Officer and Mark Slizer, Chief Financial Officer, I would like to remind you that 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 Factors that may impact Onto Innovation's results, I would encourage you to review our earnings release and our SEC filings.

Speaker 1

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 we specify otherwise. As a reminder, a detailed reconciliation between GAAP and non GAAP results can be found in today's earnings release. I'll now go ahead and turn the call over to our CEO, Mike Plucinski. Mike?

Speaker 2

Thank you, Mike. Good afternoon, everyone, and thank you for joining our call today. I'll begin with the shift in timing of shipments for 3 lithography tools, which impacted our 2nd quarter results and 3rd quarter guidance. All three tools were for a specific customer and scheduled to ship near the end of the second quarter. During the quarter, we accepted a customer request For specific enhancement package to be added to the tools and manufacturing.

Speaker 2

We estimated this could be installed and test in the quarter, but ultimately the full verification took longer than planned. The customers since approved this new functionality and the tools are included in our outlook For the Q3. In aggregate, the 2nd quarter revenue and 3rd quarter outlook remains consistent with our prior guidance of just over $400,000,000 for Some of those two quarters. This reflects the weak demand from our advanced nodes customers being offset by strong power semiconductor revenue And the more recently surging demand for our DragonFly inspection systems to support heterogeneous packaging and high bandwidth memory customers. In fact, We expect this specific demand to drive more than $90,000,000 in revenue over the next three quarters.

Speaker 2

I'll provide additional details about our outlook in a few minutes, But first, let's dig a little deeper into the Q2. We'll start with our Specialty and Advanced Packaging customers, where revenue from this customer group Grew by over 20% from the prior quarter. Revenue from our power device customers grew over 35% And included our product portfolio of inspection, metrology and software solutions. This was our largest market in the quarter and in fact Revenue exceeded total power device revenue in all of 2021. Building on this demand, in the quarter, we announced the intent to Expand our metrology portfolio with the release of Element S material metrology and Atlas S OCD metrology, Each specifically designed to address challenges in the compound semiconductor manufacturing.

Speaker 2

We've already secured orders for these Tools and shipments will begin in the Q4. With these additional products, we believe we are positioned to address an estimated 80% of process control steps in this high growth market, which is estimated to require 10 times the current volume of wafers by 2,030. In Advanced Packaging, we delivered over $20,000,000 of inspection systems to customers ramping heterogeneous packaging lines to support growing end market demand for high The flexibility of our DragonFly systems, which integrate submicron 2 d defect detection, 3 d metrology And our unique clarifying capability into a single system is proving to be a powerful tool for the heterogeneous packaging applications used in high performance For example, ClearFind Technology is able to detect residue on die to die or die to substrate interconnects And ensures good dye bonding, while our 3 d metrology sensors provide critical stack height information and co planarity data for the package. This metrology is essential is proving essential to controlling yields and is leading to higher attach rates. In sharp contrast, revenue from our advanced nodes customers declined 43% in the quarter.

Speaker 2

However, even as capacity buys wane, R and D investments have continued. And in the Q2, we were pleased to see further proliferation of Iris Films when it was successfully qualified by a top 3 d 3 DRAM by a top 3 DRAM manufacturer in the quarter. In addition, we delivered several OCD Atlas OCD Systems to 2 customers for gate all around applications. We believe the declines in advance Snows will reach a bottom in the 3rd quarter with strong demand in Specialty and Advanced Packaging continuing in the second half of the year. Before moving to our outlook for the Q3, Mark will now cover the financial results for the Q2.

Speaker 3

Thanks, Mike, and good afternoon, everyone. As Mike highlighted, we closed the 2nd quarter with revenue of 191,000,000 Down 26% over the same period last year and below the 2nd quarter guidance range of $195,000,000 to 203,000,000 Due to the shift in timing of the 3 JetStep systems Mike commented on, despite the lower revenue, we did achieve an EPS of $0.79 for the 2nd quarter within our EPS guidance range of $0.75 to 0 point 9 $0 The revenue decline from the same period last year is primarily due to the Client in our Advanced Nodes business, which had revenue of $38,000,000 and represents 20% of revenue. Specialty Device and Advanced Packaging revenue of $112,000,000 represents 59% of revenue and software and services Had revenue of $41,000,000 which represents 21 percent of revenue. We achieved 53% gross margin for the 2nd quarter, Exceeding our guidance range of 50% to 52%, driven by the favorable mix, shipping fewer JetStep systems and seeing an initial favorability Due to our supply chain optimization efforts, 2nd quarter operating expenses were $59,900,000 within our guidance range of $58,000,000 to $60,000,000 We are still executing to our cost reduction activities. However, we have Continue to maintain a slightly higher level of investment in R and D initiatives, as Mike mentioned, aligning to R and D engagements in planar films And Power Semiconductor Applications.

Speaker 3

Our operating income of $41,000,000 was 21% of revenue for the 2nd quarter compared to 29% from the prior year. Our net income in the 2nd quarter was $39,000,000 or $0.79 per share. Now moving to the balance sheet. We ended the 2nd quarter with cash and short term investments of 610,000,000 An increase of $62,000,000 from the start of the year with operating cash flow of $31,000,000 within the quarter, representing 17% of revenue for Q2. Inventory ended the quarter at $352,000,000 an increase of $14,000,000 We continue to actively manage down our inventory levels across the network.

Speaker 3

However, we had increases in lithography and services inventory within the quarter. We are projecting a decline in Q3 and are now targeting to be between $275,000,000 $300,000,000 by the end of the year. Accounts receivable decreased $22,000,000 $188,000,000 in the quarter and our days sales outstanding decreased 6 days to 90 days. With our inventory reduction goals and focus on cash collections, We expect to return cash flow to consistent performance of over 20%. During the quarter, we did not execute any share repurchases.

Speaker 3

We have $32,000,000 remaining under our existing $100,000,000 authorization. Now turning to our outlook for Q3. We currently expect revenue for the 3rd quarter to be between $205,000,000 $225,000,000 We expect gross margins will be between 50% to 51%, primarily due to lower Advanced Nodes revenue, which typically carries higher margins above our corporate average as well as the shift of the JetStep systems built in Q2, now shipping in Q3. For operating expenses, we expect to be between $57,000,000 to 59,000,000 For the full year 'twenty three, we expect our effective tax rate to be between 14% to 16%. We expect our diluted share count for Q3 to be approximately 49,400,000 shares.

Speaker 3

Based upon these assumptions, we anticipate our non GAAP earnings to be between $0.85 per share to $1.05 per share. We are making progress towards reducing our fixed cost structure by optimizing our supply chain and manufacturing sites, while maintaining our strategic priorities in several R and D programs and ensuring our ability to deliver financial performance in line with our long term operating model. The team has made significant progress to date, expanding our 2nd shift to drive higher absorption of fixed costs while improving cycle times And outsourcing several non core subassemblies to global supply chain partners. We have set aggressive but achievable targets with our global partners, Consolidating our supplier base by greater than 50% over the next 2 years, while also simplifying our key components, Such as moving to a common automation system, which will drive a 25% cost reduction and is part of our identified savings for 2024 and 2025 as highlighted during our recent Analyst Day. And with that, I will turn it back to Mike for additional insights into Q3 and the remainder of 2023.

Speaker 3

Mike?

Speaker 2

Thank you, Mark. As Mark mentioned, we expect the 3rd quarter to be up 8% to 18%, reflecting an increase in both process control and lithography The expected increase in process control revenue is mostly driven by capacity expansions and higher process control intensity like NVIDIA to supply the specialized compute platforms to support the growing demand for large language model applications by hyperscalers And Corporate Enterprises. These assembly processes are more complex and with multiple die becoming a single package, the impact to yield of a single interconnect Failure is much higher. The proven ability of our Dragonfly G3 system to reliably monitor for these failures is driving the projected increase in demand of over $90,000,000 in revenue, which we mentioned earlier. We also project demand for our portfolio of products supporting power semiconductor Customers to remain near current record levels.

Speaker 2

We still see headwinds in the advanced nodes, primarily from DRAM manufacturers, We expect revenue to decline again in the Q3, which we believe will mark a bottom for front end memory overall. We're optimistic for a possible recovery in the second half next year as customers like Samsung are beginning to talk about the launch of New smartphones and PC promotions in the second half of twenty twenty three being a catalyst for customer inventory reductions going into next year. In summary, we see strong demand for our products to support power semiconductor device manufacturers and heterogeneous packaging on both wafer and panel substrates. In these markets, we believe our portfolio of connected solutions provides differentiated value further contributing to the adoption rate we're seeing. In the advanced nodes, though spending is down significantly this year, our customer collaborations are resulting in new tool of record positions We expect these new product positions should lead to higher wallet share when investments I'll now turn the call over to Cynthia for questions from our covering analysts.

Speaker 2

Thank

Operator

And we will take our first question from Charles Hsie with Needham. Please go ahead.

Speaker 4

Thank you for taking my question here. Mike and Mark, I really just want to start out with Some of the commentary around heterogeneous integration and high bandwidth memory. So on high bandwidth memory, can you Kind of provide us a little bit further outlook beyond what you think the $90,000,000 over the next three quarters. Do you think high bandwidth memory, the wafer starts is going to grow? In what kind of fashion?

Speaker 4

Is it like more linear as So the management team seems to believe that or you think it's going to be a much higher growth. Any indication from our customers on high bandwidth memory would be great. But then a related question really is About very specifically about COWAS, I know heterogeneous integration probably covered a lot of stuff, not just about COWAS, but specifically on COWAS,

Speaker 2

So I'll answer the last one first. Regarding Coahuas, when we talked about heterogeneous integration specific For AI, I think it's pretty clear that, for instance, NVIDIA who's driving a lot of this is tied to TSMC and COOS. So That's a fairly significant driver for us and for that $90,000,000 that we mentioned. As far as HBM and the growth overall, what we're seeing is a pretty rapid increase In demand right now, part of it is capacity expansions, part of it is, I think a little bit of process control intensity increase. Certainly, that's the case in the COOS area.

Speaker 2

So it's hard to say how that rapid increase Continues into 2024. We certainly expect additional orders in 2024 and we're already having some of those discussions Beyond the Q1, but is it going to continue on this rapid trajectory, this rapid growth trajectory or will it start To slow down, that's going to remain to be seen and a lot will depend on how quickly I believe the enterprise Customers adopt AI and these large language models for applications internally.

Speaker 4

Got it, guys. Can I ask a second question? Maybe, Advanced Notes. You said Advanced Nodes, you believe it's bottoming in Q3. Can you clarify a little bit more because Advanced notes for you guys is not just about memory, but also advanced foundry logic.

Speaker 4

By between these two, I think you said memory is bottomed in Q3, but what about Advanced Foundry Logic? Can you clarify if I heard something wrong? Thank you.

Speaker 2

Yes. I think where I was talking is overall, I think the bottom is there primarily from DRAM. So DRAM has been the biggest Drop. Advanced Logic has been a little more stable, and We've seen that have less of a big impact on our advanced nodes trajectory. So we do think advanced nodes do we know if logic is going to snap back right away?

Speaker 2

No, but We do see several new fabs being built. Everybody is aware of Samsung and Taylor and TSMC Arizona and opportunities At Intel as well, we continue to see and seed pilot lines and deliver systems As those fabs are being constructed and starting to take some initial systems, but we have also seen the construction delays Announced by several of these manufacturers. So do we hope for some growth in 2nd half next year for sure, but we're already starting to see that plateauing on advanced logic as it is. So DRAM is just the big change.

Speaker 4

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

Speaker 2

Yes. I think it's certainly the more common DRAM that's driving the drops we're seeing. And HBM is great and It's great for our packaging business and it's picking up some DDR5, 4, but it's not enough to make up for PCs and smartphones that are down, right? So DRAM overall is impacting us because of the VAST, rest of the market outside of high performance compute.

Operator

We will take our next Question from Craig Ellis with B. Riley Securities. Please go ahead.

Speaker 5

Yes. Thanks for taking the questions, guys. I just wanted to See if I could start with you Mike and look beyond the calendar Q3 because it seems like with the panel litho shipment timing issue That we will have at least 3 and maybe more tools. So I was hoping you could clarify how many tools were rev rec in the Q3 there. And then from there, can you just talk about the gives and takes for 4th quarter revenue?

Speaker 5

Not looking for specific guidance, but Just want to understand how the gives and takes play out as we exit the year?

Speaker 2

Sure. So it's actually a continuation of what we're guiding in the 3rd quarter. So we see power semiconductors for the 4th quarter remaining fairly strong. Demand there is strong. We're going to introduce the new tools.

Speaker 2

That will help a little bit, but that is more a driver for 2024 In the power semiconductor space, and then heterogeneous packaging, our support specifically for AI devices, I. E, NVIDIA and some of the COOS and HBM that were mentioned, That we can see continuing to strengthen straight through the year. So those are the positives. Obviously, the litho will remain Sort of stable and continue once we catch up with the shift here with the 3 tools. And then the Advanced Nodes, I mean, that's the tailwind.

Speaker 2

So as I look at Q4, it's a lot of The same stories, real strong in heterogeneous packaging, real strong in power, advanced nodes, a bit of a tailwind.

Speaker 5

Got it. And then, Mark, hold on.

Speaker 2

And overall, we think that the sorry, sorry, Greg, to interrupt. Overall, we expect to be similar levels of guidance for the Q4. We'd expect it to be around the same.

Speaker 5

Yes, real helpful, Mike. And then Mark, I'll follow-up with you. So the company had a program for Optimization and I think just more careful expense management and that was About $27,500,000 at Analyst Day, there was a $25,000,000 program that was announced. Can you just help us understand To what extent are benefits from those programs factored into the 3rd quarter's guide? What does it mean for the Exit level of gross margin this calendar year.

Speaker 5

So where can gross margin be in the Q4? And then how much of the benefit of those

Speaker 3

Yes. No, I mean, let me start with coming off the Analyst Day and the comment around the $25,000,000 of optimization, And 24 and 25, I mean, those that activity, we're executing now. Obviously, we haven't seen The brunt of those savings are in 2020 expected to be in 2024 2025. We are, as I commented in my prepared remarks, seeing Some of that now and some slight shifts of suppliers and things like that. So we're still focused on that.

Speaker 3

I think for Q3 and Q4, We still have a lot more work to do. Certainly, we have seen some savings and operating expenses As it relates to taking costs out and offsetting the kind of the annualization year over year, certainly in the back half, we're focused on that, Those continued reduction plans. The Q3, we do have certainly some of that continue to Baked in and where we are from a gross margin and OpEx standpoint. I think as we look at the decline in Advanced Nodes, Fortunately, we have programs in place right now. We're looking and executing even further reductions In Q3 and Q4 as we look towards that decline and making sure that we can continue to drive gross margin accretion Back up above where we the 53% to 54%.

Speaker 3

Our goal is, From a full year perspective, it's still the target that 53% to 54% and aligned to the Long term operating model getting back to 55% plus longer term. So that's our target.

Speaker 5

So that would imply that you should be at least 54% in the 4th quarter to get to 53% to 54% for the full year mark?

Speaker 3

I we're still I won't comment on it specifically, but I think From where we are and trying to figure out what the business will be in Q4, I think our goal is obviously to continue to drive that 53 target 53 plus in Q4.

Operator

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

Speaker 6

Hi there. Good evening or early evening and thanks for letting us ask a few questions. Maybe to start with Mike, I think you have really good strong visibility on the Packaging and Specialty side of the business and the visibility is clearly not great In terms of the advanced nodes, but would you characterize the level of not just DRAM, but also memory investments, including nonvolatile memory? Does it feel like it's below sort of normalized, kind of maintenance or even sub maintenance levels at this point? Does that give you some of the conviction in saying that Q3 looks like a bottom right now.

Speaker 2

Meaning couldn't go lower. It is pretty low as I don't know if I've ever seen This much of a drop for this long of a period of time. So yes, I think that then you're starting to hear from our customers as well that They're beginning to see signs of price increase and inventories are coming down and that kind of thing. So yes, I think it's at We're below maintenance levels. When it recovers, I don't know, but I'm not expecting a very quick snapback.

Speaker 2

We're not planning for that. That'd be a nice surprise, but right now, it's that's why we're saying we don't expect Q3 to we expect Q3 to be the bottom. Okay.

Speaker 6

Yes, fair enough. I know that the lithography has always been a bit lumpy for you guys. But it sounds like, obviously, you take the 3 units, if you park them in 2Q, you're kind of Revenuing up, and you take it out of the Q3 guidance, you're kind of flat. But given that dynamic and you maybe you shipped 6 tools In 3Q, do you is that kind of flattish preliminary Q4 outlook? Is that really saying that The X500 lithography ships maybe back to normalized levels, maybe down a few units Q on Q and then you make that up with some of the growth that you're seeing in the other businesses?

Speaker 2

Yes. We think the litho will be it depends a little bit On timing because we're trying to catch up on things. So there may be 1 or 2 tools that would move Forward into the Q1, but it would more or less normalize at that $20,000,000 or so that we've always talked about. So $20,000,000 $25,000,000 Revenue.

Speaker 6

Okay. Got it. Got it.

Speaker 4

And then

Speaker 6

just framing up sort of the specialty business where That's a synergy you've talked about in terms of technology and customer synergies. And I think you'd expect to bear more fruit this upcycle than kind of what you're able to Progress on last upcycle. So if you look at kind of calendar 2022 and already you're having some pretty good run rates on the specialty side of the business. How much larger in 3 years could that specialty revenue for you guys be relative to the calendar 22 year when you guys were at $1,000,000,000 and that was Going to be smaller amount of the revenue contribution to $1,000,000,000 How much bigger could specialty be in 3 years, say?

Speaker 2

Compared to current level, I mean, it depends on spending from the customers, right? So to estimate out 3 years is always tough, but I can say that our Adoption rate is only beginning. So we're just winning new customers. I think we added 5 new customers in the quarter. So those are just initial sales.

Speaker 2

They'll buy a couple of tools and there's going to be repeat sales as they continue to grow. And every one of those customers There's a potential to sell more of the portfolio. So we have opportunities to not only continue to add customers, but Continue to grow our portfolio within the customers. So if we're looking at where we end up for this year, I wouldn't be surprised if we could double that revenue in 3 years.

Speaker 4

Okay. All right. Given the

Speaker 2

growth dynamics And given our positions and the new products we're releasing and the value that we're delivering with these Connected solutions, these integrated portfolios to solve unique problems.

Speaker 4

Thanks, Mike.

Operator

We will take our next question from David Duley with Steelhead Securities. Please go ahead.

Speaker 7

Yes. Thanks for taking my questions. As far as high bandwidth memory goes, could you just talk about how much more inspection and Intensive it is versus just a standard DDR5 product. And then That's my second question. As far as your Advanced Nodes business goes for calendar 2023, How much would you expect the memory business to be down and how much would you expect the foundry logic to be down?

Speaker 2

Again, I'll start with the last one. For 2023, I don't have the numbers directly in front of me, but I would expect memory to be down probably double what logic is down.

Speaker 7

So it

Speaker 2

doesn't help you too much, but I don't know if logic might be down 20%, memory might be down double that, 40%. As for HBM and the tax rates, the process control intensity versus normal DRAM, It's a good question.

Speaker 3

I would

Speaker 2

the number of applications so I would say it's 2 to 3 times more process control intensive at least for our applications on our DragonFly than normal DRAM And DRAM Packaging. And that's because of the layers and the amount of metrology and inspection involved in Preparing these die to be stacked and to be connected to other die in the stack. So there's a lot more Metrology coinciding with our inspection, in order to make those packages yield. And the metrology is on our inspection tool. So that drives the utilization of our inspection tool.

Speaker 2

It's all integrated, just Not to add any confusion.

Speaker 7

Okay. And as far as high bandwidth memory goes, Is and your outlook there, is that I'm assuming that's just with one lead cut DRAM manufacturer. I don't really think the other guys have a lot of Product in the marketplace

Speaker 4

at this point, is that

Speaker 7

the way to look at it? Or are you working with more than 1 guy in high bandwidth memory?

Speaker 2

We're working with more than 1, but one certainly dominates more than the other.

Speaker 7

Okay. Thanks.

Operator

We will take our next Question from Vedmati Schroeder with Jefferies. Please go ahead.

Speaker 8

Hi. Thanks for taking my question. So I guess I wanted to ask About the packaging a little bit more. So you talked about the $90,000,000 opportunity over 3 quarters. Is that More towards HBM versus, like a cobash capacity.

Speaker 8

Can you characterize what Well, kind of what the split is between like a heterogeneous integration versus HBM?

Speaker 2

Yes. I would say sixty-forty. So a lot of it is on the Logic side, so go us, I'd say. And then the rest on the HBM.

Speaker 8

Got it. And then for my follow-up there, So you have TSMC talking about doubling their COVAS capacity. Amcor is sort of tripling their 2.5D capacity. So how should we think about like how does this translate to the revenue opportunity for you? Does it is it like a direct link of Doubling capacity means doubling revenues for you or how does that equation work?

Speaker 2

So far, it looks that way. There's a very high attach rate, what we're seeing. Right now, that would be how I'd model it. If yields improve and they start to drive, Let's say a normalization and an optimization, they may reduce the process control. But if anything, we're seeing an increase And process control is they're trying to add improve yield.

Speaker 2

And that's why I mentioned the increase in process control intensity. So We think maybe even since the beginning of the year till now, maybe 20% or more Increase in process control intensity on the logic side, so heterogeneous packaging on the logic side.

Speaker 8

And then kind of going so if I think about what your installed base was in 2021, twenty 22 for like a DragonFly inspection tool. Most of that was for kind of smartphone markets where they do flip chip bumps, right? How is the fungibility of those tools? Like as the utilization is low on maybe smartphones, are they fungible? As in can they be used from an in full process to a core loss process.

Speaker 8

Is that a possibility? Or do you need a different set of tools or different concept?

Speaker 2

Generally, they're in Different lines, so it's the tools that have to be moved. And the tools are configured Very differently for your traditional fan out or just traditional bump. The amount of sensors and the Capabilities like Clearfind, which is another option on our tool, those are all required For the HBM and for the heterogeneous the logic side. So that it's not really fungible. We haven't seen anyone trying to move our product our existing tools into those lines.

Speaker 2

That's all new tools.

Speaker 8

Okay. So does that mean the gross margin sort of end up higher when you're addressing like a cobalt HBM application versus What it was historically?

Speaker 2

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

Speaker 8

Okay. Thank you. That's all I had. And I'll get back in the queue.

Operator

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

Speaker 9

Thank you for the question. The $90,000,000 volume Purchase order for Process Control. How does that order ship in terms of the 3rd and 4th quarter? Is it equally divided? Or

Speaker 2

The $90,000,000 and when it's finalized with the customers, we'll be able to provide clarity On the rollout of that and the follow on, the size of the follow on additional orders we expect. But I would expect Q3 to be a little lighter and Q4 and Q1 to be maybe semi equal Between that ramp.

Speaker 9

You announced 18 power Customers' first time orders. Any new power customers this quarter or the June quarter?

Speaker 2

Yes. We had 5 new power customers this quarter.

Speaker 9

Thank you.

Speaker 6

You're welcome.

Operator

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

Speaker 1

Thanks, Cynthia. Just a quick reminder for everybody about 3 upcoming events. First, ONTU management will be participating in the Needham SemiCap Virtual Conference on August 23. 2nd, we'll be participating in the Jefferies Semi Conference in Chicago on August be available on our website about 7:30 Eastern Time this evening. We'd like to thank you for your continued interest in ONTU Innovation.

Speaker 1

Cynthia, Please conclude the call. Thank you.

Operator

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

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Key Takeaways

  • Shipment timing shift: Three lithography tools were delayed from Q2 to Q3 due to a customer-requested enhancement, but combined Q2+Q3 revenue outlook remains consistent at just over $400 million.
  • Segment performance: Specialty devices and advanced packaging revenue rose over 20% QoQ and power semiconductor revenue jumped over 35% QoQ, while advanced nodes revenue declined 43% QoQ, with the latter expected to bottom in Q3.
  • DragonFly demand: Surging heterogeneous packaging and high-bandwidth memory applications for DragonFly inspection systems are projected to drive over $90 million in revenue across the next three quarters.
  • Q2 financials and Q3 guidance: Q2 revenue was $191 million (down 26% YoY) with EPS of $0.79 and a 53% gross margin; Q3 is guided to $205–225 million revenue, 50–51% gross margin and $0.85–1.05 non-GAAP EPS.
  • Cost optimization: The company is consolidating suppliers by over 50% and simplifying components to achieve a 25% cost reduction, targeting $25 million of savings in 2024–2025 while maintaining R&D investments.
AI Generated. May Contain Errors.
Earnings Conference Call
Onto Innovation Q2 2023
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