Onto Innovation(ONTO) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company achieved a record quarterly revenue of $264 million in Q4 2024, representing a 5% increase from Q3 and a 21% increase year-over-year [7][17] - Gross margins improved to nearly 55% in Q4, marking a 300 basis point improvement since the beginning of the year [8][20] - Operating income for Q4 was$ 75 million, which is 29% of revenue, compared to 28% in Q3 [20] - Full year 2024 revenue growth was 21%, with operating income growth of 37% and cash from operations and EPS both achieving 43% growth [18][19] Business Line Data and Key Metrics Changes - Specialty devices and advanced packaging markets grew 30% for the calendar year, with Q4 revenue from this segment reaching a record $170 million, representing 64% of total revenue [9][19] - Advanced nodes revenue was$ 48 million in Q4, increasing 12% over Q3 and representing 18% of total revenue [19] - Software and Services revenue decreased by 4% compared to Q3, totaling $46 million, also representing 18% of total revenue [19] Market Data and Key Metrics Changes - AI packaging was the largest market in Q4, driven by strong demand for 2.5%D Logic packaging, while inspection revenue for AI packaging more than doubled for the year [9][10] - Power revenue grew 10% for the year, despite soft end market demand [12] - The company noted a significant increase in interest in the panel market, particularly for glass panels used in enterprise server and AI applications [11] Company Strategy and Development Direction - The company plans to continue focusing on driving gross and operating margin improvements throughout 2025 [8] - New product launches are aimed at strengthening opportunities in advanced packaging, advanced nodes, and power semiconductors, with expected incremental revenues starting later in 2025 [15] - The company sees three secular end markets driving growth: AI demand, gate all around DDR5 memory and high stack 3D NAND, and the electrification of everything [29][30][32] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about strong growth in advanced nodes, particularly in DRAM and NAND, with expectations for increased orders in 2025 [26][28] - The company anticipates that AI will be a multi-year growth driver, with significant revenue growth expected from AI accelerators and related infrastructure projects [29] - Management acknowledged the challenges in visibility for the outer quarters but indicated a healthy demand across advanced nodes and AI packaging [54][56] Other Important Information - The company ended Q4 with cash and short-term investments of$ 852 million and executed $25 million in share buybacks [22] - Inventory levels decreased to$ 287 million, achieving six consecutive quarters of decline [23] - The company expects Q1 2025 revenue to be between $260 million and$ 274 million, with gross margins projected at 54% to 56% [24] Q&A Session Summary Question: Insights on HBM demand and growth potential for 2025 - Management noted that HBM demand is picking up as customers begin to expand and place orders, with an estimated 230,000 wafer starts per month added in 2024, half of which was required by the market [36][38] Question: Expectations for advanced nodes in 2025 - Management indicated that while they may not reach prior peak levels, they are getting close, with growth expected in gate all around and DRAM [40] Question: Revenue growth expectations in relation to industry growth - Management expects to outperform the industry growth rate of 5%, driven by new products and strong secular growth drivers [44] Question: Contribution of new products in 2025 - Management anticipates incremental revenues from new products, with significant contributions expected in 2026 as these products ramp up [87][90] Question: Insights on NAND market expectations - Management acknowledged a surprising increase in NAND demand, particularly from primary customers ramping for high stack 3D NAND applications [93] Question: R&D expenses outlook for 2025 - Management confirmed that R&D expenses will continue to increase incrementally to support customer-driven innovation requirements [97]