ONTO INNOVATION INC (ONTO) Q1 2026 Earnings Call Transcript
Onto Innovation Inc. engages in the design, development, manufacture, and support of process control tools that performs optical metrology and inspection worldwide. The company offers lithography systems and process control analytical software. It also provides process and yield management solutions, and device packaging and test facilities through standalone systems for optical metrology, macro-defect inspection, packaging lithography, and transparent and opaque thin film measurements. In addition, the company offers process control software portfolio that includes solutions for standalone tools, groups of tools, and enterprise-or factory-wide suites. Further, it engages in systems and software, spare parts, and other services, as well as offers software licensing services. The company's products are used in semiconductor and advanced packaging device manufacturers; silicon wafers; light emitting diodes; vertical-cavity surface-emitting lasers; micro-electromechanical systems; CMOS image sensors; power devices; analog devices; RF filters; data storage; and various industrial and scientific applications. Onto Innovation Inc. was founded in 1940 and is headquartered in Wilmington, Massachusetts.
Onto Innovation delivered a record Q4 with strong AI-related demand, raised 2026 guidance, and secured a large multi-year VPA, underpinned by backlog growth and margin expansion.
⭐ Key Highlights
✔Positive Signals
- Record quarterly revenue of $267 million and full-year revenue of $1.005 billion (all-time highs).
- Backlog nearly doubled to ~2 quarters, improving visibility for 2026.
- Volume purchase agreement for Dragonfly 2D/3D bump metrology totaling over $240 million through 2027.
- Margins expanded: gross margin 54.6% and operating margin 25.2% in Q4; strong cash generation of $95 million.
- Semilab acquisition completed with initial contributions and cost management improvements.
✖Negative Signals
- Near-term supply chain constraints, particularly precision optics, impacting lead times.
- 2016–2026 macro and AI cycle timing uncertainties could affect visibility and ramp speed.
- Projected 2026 power semiconductor/Semilab performance could be challenged in the cycle, affecting growth mix.
- Q1 gross margin uplift expected to be about 50 bp;tariff effects and extended-factory shipping dynamics introduce some cost pressure.
- Shifts in backlog timing and customer lead times could introduce quarterly variability; calendar-year alignment may require execution discipline.
📊Financial Results
- Q4 revenue $267 million, up 22% sequentially; full-year revenue $1.005 billion (record).
- Q4 gross margin 54.6%, up about 50 bps QoQ; Q4 operating margin 25.2%, up 410 bps QoQ.
- Adjusted diluted EPS in Q4: $1.26.
- Cash generation: $95 million in Q4, cash conversion ~150% of non-GAAP net income.
- Acquisition of Semilab closed mid-November, with $445 million paid and 641,771 shares issued.
🔮Future Guidance
- Q1 2026 revenue guidance: $275–$285 million; Q2 expected to exceed $300 million.
- First-half 2026 core growth targeted at 12%–14% vs H2 2025; backlog supporting stronger second half.
- Gross margin in Q1 expected to improve ~50 bps from Q4; overall gross and operating margins expected to expand sequentially in 2026.
- Q1 GAAP tax rate ~16%; Q1 EPS guidance: $1.26–$1.36; ~49.9 million shares outstanding.
- Advanced packaging to grow >30% in 2026; advanced nodes growth in the mid-teens; total 2026 outlook implying continued margin expansion and utilization of extended factories.
💡Interesting Insights
- The Dragonfly VPA is multi-year with potential upgrade options and a cadence shift toward earlier 50/50 visibility between 2026–2027, indicating deeper integration into customer programs and longer-term revenue visibility.
Detailed Analysis
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