Onto Innovation Q2 2026 Earnings Call: Complete Transcript

On Thursday, Onto Innovation (NYSE: ONTO ) discussed second-quarter financial results during its earnings call. The full transcript is provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

Access the full call at Summary Onto Innovation reported record revenue, gross margin, operating margin, and earnings per share, all exceeding guidance, with advanced nodes growing 50% quarter-over-quarter and the inspection business growing 30%. The company raised its second-half revenue growth outlook to 25% or more over the first half, with Q4 revenue expected to be higher than Q3. Advanced packaging growth is expected to increase to approximately 80% for the year, driven by strong demand from HBM manufacturers and OSAT for AI applications.

New market opportunities include silicon photonics and panel-level packaging, with significant orders for Dragonfly technology and predictions of market growth to over $500 million by 2030. The company is benefiting from its extended factories in Asia, improving operational flexibility and reducing costs, contributing to a 57% gross margin and a 30% operating margin. Future guidance includes Q3 revenue between $380 to $400 million and continued gross margin expansion, with operating margins expected to increase to 32% in Q3 and 33% or higher in Q4.

9 billion in cash and short-term investments, with strong cash generation and inventory management to support business growth. Onto Innovation is focusing on expanding its metrology suite and strengthening its partnership with Rigaku for new process control solutions in semiconductor applications. Full Transcript Rachel, Operator Good day and welcome to the Onto Innovation second quarter earnings release. Today's conference is being recorded.

At this time, I would like to turn the conference over to Sydney Ho, Vice President of Investor Relations. Please go ahead. Sydney Ho, Vice President of Investor Relations Thank you, Rachel, and good afternoon, everyone. Onto Innovation issued its 2026 second 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 Brian Roberts, Chief Financial Officer. I'd like to remind you that the 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 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 in today's earnings release.

Before we begin, I have a calendar announcement. On December 17, we plan to host an analyst meeting at the New York Stock Exchange to discuss our markets, strategies, and updated financial model. We hope you'll save the date. Let me now turn the call over to our CEO, Mike Plisinski.

Michael Plisinski, Chief Executive Officer Thank you, Sydney. Good afternoon, everyone, and thank you for joining us on our call today. The Onto Innovation team delivered an outstanding quarter with revenue, gross margin, operating margin, and earnings per share all exceeding the high end of our guidance range. 5D logic and HBM applications.

1 billion. With this favorable backdrop, we're raising our second half revenue growth outlook to 25% or more over the first half, up from our previous expectation of 15%, with Q4 revenue expected to be higher than the Q3 revenue. Looking deeper into our advanced packaging and specialty device markets, the quarter highlighted several important trends from which we benefit. First, the recognition of advanced packaging as a technology enabler continues to grow and is contributing to significant advances in AI and enterprise server performance.

This in turn affords our customers greater visibility into the market than what has traditionally been seen from consumer-driven end market demand. Now, with the successful launch of the Dragonfly G5, we're experiencing unprecedented demand across an expanding set of customers, leading to an increase in our full year outlook for advanced packaging growth to approximately 80%, up significantly from the 50% growth we projected last quarter. The increase in demand is strongest from HBM manufacturers and OSAT supporting heterogeneous packaging primarily for AI applications.

For example, in the quarter we were pleased to have won orders totaling over 200 million for Dragonfly technology from a single OSAT partner. The majority of these orders will be delivered in 2027, underscoring both the magnitude of the demand and customer confidence extending into the new year. A second example is the adoption of silicon photonics in new device designs. These new designs are expected to improve device performance while reducing environmental concerns such as heat generation and power consumption, which impacts both data center operations and the communities hosting them.

Although a nascent market, we've received over 50 million in orders to support this inflection, with roughly two-thirds to be delivered in 2027. We estimate our served addressable market in silicon photonics will grow to over 500 million by 2030. The opportunity spans several critical manufacturing applications across light guides, light generation, and detection. The trends above intersect to fuel growth in panel-level packaging as the adoption of heterogeneous packaging increases and includes more die such as silicon photonics.

Package sizes are getting larger. In this dynamic, panel-level packaging delivers advantageous processing scale, especially for larger package sizes. Our combination of JetStep lithography, Firefly Process Control, and Discover Software provide compelling value to our customers. With markets strengthening, we expect our panel-level packaging revenue to more than double year over year with further growth in 2027.

Of course, innovation in the advanced nodes, particularly new and smaller transistor geometries, is also increasing demand for new process control solutions from the Onto Innovation team. As I mentioned, revenue from advanced nodes customers grew 50% sequentially, surpassing the record previously set in 2022. We are seeing broad-based strengthening across memory and logic segments, including expanded adoption of our Atlas G6 platform which is being used for transistor metrology at several nodes below 2 nanometer, where smaller spot sizes and increased precision is difficult to achieve but vital to ensure high yield.

So in addition to the logic customers we discussed last quarter, we expect to ship multiple systems to a major DRAM customer in the second half of the year to support their next-generation memory devices. And rounding out our optical portfolio, both IRIS Films and Integrated Metrology product lines are also on track to achieve record revenue levels in 2026. Complementing our optical metrology, we see new applications for our fast technology to help predict device performance earlier in the fabrication process, thereby saving production costs.

Taken together, we're confident that advanced nodes revenue will grow more than 35% in 2026, continuing to outpace the latest WFE growth expectations. And lastly, we're looking forward to expanding on our successful collaboration with Rigaku to deliver powerful new process control solutions for our customers. Customer response to our partnership has been very positive and we're confident that together we will provide compelling value to our customers. Estimates of the size of the market today for X-ray technology used in semiconductor applications is approximately a billion dollars.

We expect the growing adoption of more complex 3D transistor and packaging technology over the next several years will result in accelerated adoption of this X-ray technology and above-average market growth in the years ahead. With that, let me now turn the call to Brian to review our financial highlights and provide third quarter guidance. Brian Roberts, Chief Financial Officer Thanks, Mike. Good afternoon, everyone.

As Mike noted, the Onto Innovation team delivered an impressive second quarter, exceeding our previous guidance across key financial metrics. These results reflect our strong positioning with customers across both front end and advanced packaging in support of the surge of AI demand and other applications. Revenue of 343 million increased 18% sequentially and 35% year over year. Our advanced nodes business increased by 50% from Q1 to approximately 120 million.

Memory, which comprises about 60% of the total, grew at a sequential rate of approximately 60%. Logic also was strong in the quarter with more than 40% sequential growth. Advanced packaging and specialty device comprise nearly half of the revenue in Q2. 5D and HBM.

Other packaging and specialty device, including power and SDI, declined sequentially as expected, but will rebound back to Q1 levels next quarter. Software and services comprise the remaining second quarter revenue. We have consistently discussed our push towards improved profitability this year through our move to extended factories, our focus on driving operational productivity, and our improved forecasting capabilities. The results of these efforts to date are evidenced in the second quarter as we achieved a gross margin of 57%, representing an increase of 250 basis points from Q4 2025 and 130 basis points from the first quarter.

This is a level of performance that has already surpassed our initial expectation for 200 basis points of gross margin expansion in 2026. Importantly, we're also gaining additional leverage across our operational teams as we delivered a 30% operating margin in Q2, an increase of nearly 500 basis points from the beginning of the year. 9 billion of cash and short-term investments on hand. In the second quarter we generated $62 million of cash from operations, or slightly over 100% of our second quarter net income.

While we are in a cycle of increasing inventory to ensure continuity of supply chain and to support the revenue acceleration in the business, we remain committed to strong cash generation and active working capital management. 2 billion in net cash to the company. 06 per share, and for professional fees related to the transaction. 20 increase over the high end of our previous guidance range.

Now let me provide some forward-looking thoughts for the second half of the year. With a surging demand environment coupled with strong operational execution, we are raising our revenue, margin, and earnings per share expectations for the second half of 2026. Building off our strong first half results, we are expecting revenue to grow more than 25% in the second half of the year. Specifically, we expect Q3 revenue in the range of 380 to 400 million with an additional uptick in Q4.

While cognizant of continued headwinds, for example around certain material input costs, fuel surcharges, and freight expense, we anticipate additional gross margin expansion in the second half of 2026 of an incremental 50 basis points per quarter. In Q3 and in Q4, we expect operating margins to increase by 200 basis points to 32% in the third quarter and to exit the year at an operating margin of 33% or higher. 28 per share. This assumes a non-GAAP tax rate of 15% and slightly more than 50 million shares outstanding.

And with that, let me turn it back to Mike for some closing thoughts before we take your questions. Michael Plisinski, Chief Executive Officer Mike, thank you, Brian. Our record quarter and improved outlook for the second half of 2026 reflect deepening customer engagements across several of the most important technology trends shaping this new era for semiconductors. With industry analysts forecasting hyperscaler capital expenditures in 2027 be north of 1 trillion, it's clear that demand throughout the semiconductor value chain remains high and gated by new fabrication facilities coming online.

We believe our customers are confident in their visibility and in turn continue to provide us exceptional insights into their multi—year capacity plans. In response, our team is focused on enhancing the level and pace of innovation as well as our delivery of that innovation through global operations and support excellence. As a result, our metrology suite is expanding across both logic and memory customers, setting new records in OCD films and integrated metrology. Demand for our Dragonfly inspection, led by the significant performance improvement of our new Dragonfly G5, is increasing rapidly across a broadening set of heterogeneous packaging applications.

New market opportunities in silicon photonics, surface charge metrology and X—ray solutions for 3D and exotic materials in partnership with Rigaku will only expand our opportunities as we look into 2027 and 2028. And as we grow, we continue our relentless focus on identifying and realizing efficiency gains across our global team. We are starting to see the results and, as Brian noted, we are on track to deliver 350 basis points of gross margin expansion and more than 750 basis points of incremental operating margin in 2026 with continued advances expected in 2027.

A large driver of these improvements is the significant enhancements to our operational foundation with the successful ramp of our extended factories in Asia. These partnerships provide us with increased operational flexibility at a significantly reduced level of capital expenditure, allowing us to lower costs and focus investments on the technology and application expertise our customers depend on, adding fuel to our engine of growth. And now, Rachel, let's open the call for questions from our covering analysts. Rachel, Operator Thank you.

If you are dialed in via the telephone and would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Please limit yourself to one question and one follow—up in order to give everyone an opportunity; you may re—enter the queue with additional questions. Again, please press star one to ask a question.

We will take our first question from Craig Ellis with B. Riley Securities. Craig Ellis, Analyst at B. Riley Securities Thanks for taking the question and congratulations on the very robust execution, team.

Mike, I wanted to start with you. 1 billion backlog. Can you provide some color on some of the mix dynamics that you see in that backlog and some of the duration dynamics that you see? And where I'm headed is can you help us understand the confidence that that large backlog gives you as you look at 2027 and the levels of revenue and the year—on—year growth potential?

Michael Plisinski, Chief Executive Officer Sure. I think the backlog is a strong indicator of our customers' confidence more than anything else. They're confident in their expansion plans, they want to secure supply that they need from their, you know, critical suppliers such as us. And so they're, they're, they're confidently issuing purchase orders well in advance of the historical norms.

So I think that's a great takeaway and that's why we shared it. As far as the mix goes, I think, you know, obviously we still have several months left — several, well, many months, four or five months left in this quarter. Probably 60, 70% of it is tied to this year but 30 or 40% is covering 2027 and it's still early. So, you know, I think it bodes well for another year of strength in 2027.

The discussions we're having with our customers is quite constructive for 2027 growth and growth dynamics. As far as what's in the backlog, I think it's just a continuation of the trends. 5D logic as well. That includes OSATs and a broadening customer list there as well as the advanced nodes where we expect to see the meaningful continuation of the growth that we've had the last two years.

Craig Ellis, Analyst at B. Riley Securities Really that's very helpful, thank you. And Brian, I wanted to ask a follow—up to you if I could.