Onto Innovation(US:ONTO)2025-11-06 22:30Financial Data and Key Metrics Changes - Revenue for Q3 2025 was $218.2 million, slightly ahead of the midpoint of previous guidance [11] - Gross margin for Q3 2025 was 54%, impacted by approximately one percentage point due to tariffs [11] - Operating margins were 21.1%, exceeding the top end of guidance [11] - Adjusted earnings per share for the quarter were $0.92, towards the high end of guidance [11] - Cash from operations increased sequentially to $83 million from $58 million in Q2, representing cash conversion of approximately 185% of non-GAAP net income [12] Business Line Data and Key Metrics Changes - Advanced nodes generated revenue of $54 million, or 25% of total revenue, with expected full-year revenue of approximately $300 million, doubling from $148.5 million in 2024 [11][12] - Specialty device and advanced packaging revenue was $113 million, or approximately 52% of revenue, with a strong rebound expected in Q4 [12] - Software and services revenue was $51 million, comprising the remaining 23% of Q3 results [12] Market Data and Key Metrics Changes - The company expects revenue growth of approximately 18% at the midpoint of Q4 guidance, primarily driven by 2.5D packaging customers [7] - Advanced packaging revenue is expected to nearly double from Q3, driven by strong demand for DragonFly systems [8] - Global AI infrastructure investments could reach $3 trillion-$4 trillion by the end of the decade, reshaping the semiconductor supply chain [6] Company Strategy and Development Direction - The company is focused on enhancing its leadership position in advanced packaging and advanced nodes markets [4] - Strategic initiatives include new product adoption, advancing offshoring activities, and preparing for the integration of the Semilab transaction [4] - The company plans to ramp up production capabilities in Asia, aiming to ship over 60% of production demand from international locations by the end of Q1 2026 [9] Management's Comments on Operating Environment and Future Outlook - Management expects organic growth in 2026, with momentum building towards the second half of the year [17] - The long-term outlook for AI and advanced node investments is positive, driven by aggressive infrastructure expansion plans globally [17] - Management noted that while quarterly performance may show variation, sequential growth is expected in the first half of next year [9] Other Important Information - The pending acquisition of Semilab is expected to close in the coming weeks and be accretive to both revenue and earnings in 2026 [10] - The company will switch to a quarterly calendar schedule starting Q1 2026 [15] Q&A Session Summary Question: Expectations for organic growth in advanced packaging and advanced nodes - Management indicated that the first half of 2026 is expected to show sequential growth, with more significant growth in the second half driven by customer expansions and new product adoption [20][21] Question: Gross margin outlook for next year - Management expects tariff impacts to mitigate next quarter, with more meaningful gross margin expansion anticipated in mid to late 2026 as offshore factories ramp up [22][23] Question: Clarification on 2.5D packaging growth - Management confirmed that the sequential growth mentioned was primarily driven by AI packaging and strong demand for DragonFly systems [26][28] Question: Qualification of 3DI tool and its impact - Management expressed hope to be the first choice for HBM4 and noted that the 3DI technology is tied to improving yields through new applications [32][40] Question: Timing of revenue from DragonFly - Management expects incremental revenue from DragonFly in the first half of 2026, with more meaningful revenue anticipated in the second half as customer adoption ramps up [36][38] Question: Visibility on HBM progression - Management noted that visibility is improving, but discussions with suppliers regarding allocations are still ongoing [56][57] Question: Impact of memory market strength on future orders - Management indicated that existing VPAs cover the current year, with discussions now focused on new VPAs for the next year and beyond [51]