ONTO Q4 Earnings Lag Estimates, Fall Y/Y, Revenues Meet on AI Tailwinds

Core Insights - Onto Innovation Inc. (ONTO) reported fourth-quarter 2025 earnings per share of $1.26, missing the Zacks Consensus Estimate by 1.6% and down from $1.51 in the prior-year quarter [1] - Quarterly revenues of $267 million matched the Zacks Consensus Estimate, reflecting a 1.1% year-over-year increase and a 22% sequential growth, exceeding management's guidance [2] Revenue Performance - Full-year revenue reached $1.005 billion, marking the first time the company surpassed the billion-dollar threshold, driven by strong demand for inspection and metrology solutions, particularly in AI infrastructure applications [2] - A significant strategic win was a volume purchase agreement exceeding $240 million with a leading HBM manufacturer, covering Dragonfly 2D inspection and 3D bump metrology systems through 2027 [3] - Specialty devices and advanced packaging generated approximately $145 million, accounting for over half of total revenue, with a 25% sequential increase and 2.5D packaging sales doubling sequentially [5] Margin and Expenses - Non-GAAP gross margin was reported at 54.6%, slightly up from 54.5% in the previous year, while non-GAAP operating income decreased to $67.2 million from $75.5 million year-over-year [6] - Non-GAAP operating expenses rose by 14.6% year-over-year to $78.4 million, leading to a non-GAAP operating margin of 25%, down from 29% in the prior-year quarter [6] Liquidity and Cash Flow - As of January 3, 2026, the company had $639.6 million in cash and cash equivalents, with total current liabilities of $218.9 million, compared to $983.9 million and $162.9 million, respectively, as of September 27, 2025 [7] - Onto Innovation generated a record $95 million in cash from operations in the fourth quarter, representing a cash conversion of 150% of non-GAAP net income [7] Future Outlook - For Q1 2026, Onto Innovation projects revenue between $275 million and $285 million, with margins expected to improve sequentially [9] - The company anticipates gross margin to improve by about 50 basis points sequentially, driven by tariff mitigation efforts and increased shipment volumes [11] - Non-GAAP earnings per share are predicted to range from $1.26 to $1.36, while GAAP earnings per share are expected to be between 74 cents and 84 cents [12]