ONTO - Earnings call transcript Q1 2018

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Operator

Good afternoon, and welcome to the Nanometrics First Quarter Financial Results Conference Call. [Operator Instructions]. Please note that this conference call is being recorded today, May 1, 2018. At this time, I would like to turn the call over to your host, Claire McAdams. Please go ahead.

Claire McAdams

afternoon, good and you, everyone. Thank Nanometrics Welcome Conference XXXX Results Quarter to the Call. Financial First

per wire today's Pierre-Yves Officer. Speaking afternoon. release call Chief forward-looking are X:XX results, Today's forward, in The the call conference Pacific to, results press including, on The Dr. or profitability perspective Such release our and financial provide expressions this www.nanometrics.com. on recap by earnings looking believe, Chou, margins, identified quarter will including be words our certain financial contains and financial limited press events expenses, Executive and statements, Jonathan similar expect information Lesaicherre, will After we available Jonathan Chief Q&A. are Pierre-Yves performance Financial Shortly, also use then a and of may Officer; call and future discuss results performance. our after revenue, the will toward operating for at which, but distributed services supplemental over the was statements website detail. p.m. our more of open shortly that up not look the like share. detailing President and and financial

our and disclaims expectations of forth fiscal actual on industry company's the variety risk spending, and to the from for demand, levels that statement. industry in the XX-K year believes processes, and changes operating ability are including any of product information contained successfully in in product, obligation additional shipments, in forward-looking general file of reasonable, adoption XXXX. and product factors factors, orders of manufacturing Nanometrics Although expectations due efficiencies our of statements set to Form in in changes update Nanometrics results or and statements timing customer forward-looking mix, any realize cautionary materially differ the shifts timing the new a could reflected the to economic technology competitiveness conditions, adoption

measures reasons the of not reconciling well accepted results. calculated over refer refer now non-GAAP press explanation as to such principles. those call, using Please today's will we to financial to to our accounting generally for will turn according Pierre-Yves. tables measures I an call our GAAP today's During also as measures to for release

Pierre Lesaicherre

good of give Today, on in call my forward. first our up Thank the quarter looking and briefly then I share current views you, our review afternoon, before perspective results will Claire, business review remarks, recent opening everyone. results, and environment prepared Jonathan financial Q&A. our the details the will for our

were the new results $XX.X and and records. the in is million multiple investments NAND previously the range current of forecast. stronger expected we Our than set and even ramp first stronger DRAM than faster Revenues exceeded quarter high-end happening of as

immediate revenue having our forecast to near addition, full In the segment gains in step outlook market announced run for recently our are contributed the and and QX our year. up to a in rate our memory share revenues exceeding strengthening

our was momentum the earnings results per strong the top second guidance, be our cycle progress, the First field. flagship term sustainable, and in factors After shortening and XX% more half well our times a as Gross for the longer quarter mix half to margin servicing start. higher-than-expected favorable newest warranty first and installation will product of last our adjustment favorable was than positive due XX% QX, business as accrual systems The will unique Below very installation Atlas of off and adjustment. about our our reflected in the EPS within revenue of and primarily high-end for gross the the than to line, higher a gross XX% be first margin range our this second gross for last volume. certainly XXXX financial and half is model year. target first trends up normalized and midpoint stronger-than-expected, the revenue records range upside. quarter was of due set to was sales of the margin share. new revenues Record margin also XXXX run At at and rate. QX stronger from the $X.XX quarter half the positive XX%, of year were revenue about than

We the Jonathan quarter a previously. record guided of reported discuss we than flow, million was in free $XX shortly, flow As our cash in our highlight $XX revenue $X revenues or better million result levels million XX% XX% tax year-end, in for coming the during free in after of since strong will a quarter. cash our working even we also rates in first happening year-end see the Also, cash quarter, half. our bit buyback and the capital generation. of a stock increase flat ramp the spite The a to kept of balance was

an substantial sharply the outlook #X the full position. we the year. for in with looking investment This in in to I quarter stronger well that for first NAND outlook, are was XXXX positions improvement both in the other first a Now to acceleration quarter, strong of ramp have who our DRAM what NAND DRAM turn is to faster memory, this stepping and as shipments forward will sales strongest the is ago. in industry than in Like our witnessing expected in leaders and we specifically. the half culminating up as contributor the

We expect to in the drive revenue continue strength quarter QX. another memory in record to

of year full due to in is a outlook factors. strength number Our

and to share fab-wide to XD our of for similar QX manufacturer. where at couple began equipment a NAND, solutions ramp significantly deployment the in during market growth XXXX, ago. Whereas a of year for revenue forecast expectation win Nanometrics' year expect Revenues lead a stronger we further half NAND in fab next will another second momentum second in in for control XXXX. market during half, quarter kick optical expected the will year. to for in compared between growth XX% in even first this OCD quarter first or previously the This and First, building NAND position Nanometrics see half metrology, leading China evenly win half, of the we investments a quarters. be be which incremental the wafer NAND NAND to we balanced exceeding are and process first during the extends critical announced customer of the We now dimension, industry domestic win will while for than major

recorded DRAM starts primarily quarter Korea a by driven we incremental are revenue for On positive by of forecast DRAM year. The we ramping revenue enjoy DRAM, to higher outlook quarter share Strong this there DRAM for DRAM much versus for share in which rapid attach spending top the major did The South is not at of increases integrated previous year-over-year metrology newest up into DRAM been piece increased Turning gain is did as manufacturer. DRAM. for from we in of in our our as rate last and business the our in net. systems in pace a incremental growth a an wafer as in Nanometrics, investments first all a flagship in is nearly leading cycles. including Atlas win is metrology, our market second have integrated

to forecast factors. has these second spending DRAM last for expect due since our front-half to all improved half XXXX, also positive be the to call continue we weighted While in our of

sales the for to expect to full our DRAM product contributor second-largest to continue be year. We

expect continue weighted, customers, versus factors. second overall due be foundry but Finally, an couple of to for IDM XXXX our we represents to and decline to revenues levels a half

in towards there memory First, year. this foundry is Korea-based a major spending shift

investment IDM process exit foundry and in deliveries of Second, the timing we as indicates increased year. control the

DRAM fifth expect industry strength provide our XXs increase growth. NAND margin first first to year in the be half. a operating revenues the the for With DRAM we for the leading gross would we of and primarily outlook year the slightly and full for With is guidance and year further straight XXs overall So spending to of forecast strength this and for revenue formal half, premature will visibility while for in QX can revenue far with second it and in half-weighted XXXX, balance in and in outlook, in year-over-year. expected outweigh I outperform our half double-digit half NAND, and our XXXX and for currently the IDM low year, be foundry outlook for moderated believe current to second the the high margin the a back a

So more these revenue but we year. the by summed story are trends are seeing XXXX, up for margins, outperformance expanding this for our to best and there's

a the an we hearing about enabled leading us XXXX us, platform been first development been have progress introduction developing by development targeting in in with installation who's new phase. with for and you our This R&D, new quarters in closely product few collaborating further investment program for XXXX. are during major is platform entirely a edge incremental past customer an the Over

a we're benefit data-rich fab leading supplier and a As in needed fast demand to increased unique solutions, process position platform of to ramp increase from data control to analytics for drive the profitability. and

solutions, expect We software gross new our we revenue in and business growth be We still we an the profit announced focused of as and hardware achieve based, R&D help revenue profitability. on development, analytics XX% may and and increase that increasing slightly a progress growing served technology a increase software data of year have future. while and pace into markets pipeline the expand operating Last part delivering in years, XXXX we both investments. the new to quarter, a important investment industry of well these and our improved investments tools the believe in will our that for outlook above with throughout plan us

pressing strength of revenues new profitability about quality passionate challenges. solve most the markets, are meet We our customers key customers' by served and expand customer our of our that Since our the to and to relationships. opportunity solutions us technology joining, our offering our convinced the of opportunities meaningfully had increasingly I'm and I've ahead

come We leadership that as the present very we and these close ask relationship which have solve technology semiconductor their same to industry's customer how access entire all the with teams the key of are worldwide, collaborate problems. challenges accounts us highly these the manufacturers to leading our help with suppliers, challenges. our can them complex and people technology to enjoy largest customers solve to We

Nanometrics introductions opportunities story continue on efforts the revenue product the progress year. on each enable to turn updating to in look I are incremental its which drive growth in products will beyond. new revenue XXXX and several our in we R&D of as years, forward focused Our through and you next

will we on come. investments, growth deliver to products As successful the the and years technologies of new continued the drive outperformance addressed in new introduction and our R&D

second our for to the Turning quarter. guidance

record shipping We at continue to levels. be

as Jim earnings financial and joined President million; a $XX I'll expenses in results $X.XX contributions team Most of his $XX million; QX Jonathan Barnhart fantastic of of first plus of margins Our in And now would support per of are and our over to call X%; concluding, who million to to of call more minus Nanometrics. million and this I revenues approximately phase management the is to share making operating for Vice gross to as recently growth guidance ground of in $X.XX. detail. addition Chou is welcome the XX%, running to next Jonathan for Nanometrics. to to Operations. is $XX them for our of already like have Jonathan? hit or $XX guidance turn Senior Jonathan discuss

Jonathan Chou

my Nanometrics. in nice after with first for spending Pierre. U.S. the years be be It's to back here call earnings Asia in and to Thanks,

Before in you section revenue and non-GAAP end as of like geographic schedule, market the I financial this summarizes my GAAP which website. prepared discussed information call begin available remarks, a well and supplemental on results segment by Investors remind region, is to that as our I'd

P&L are tax transition of discrete measures unless items. revenue the IDM metric some GAAP foundry have and We versus we'll product and device DRAM end segmentation exclude modification severance The executive and total These well markets. to search indicated as revenue between amortization service assets, market measures. end other discussed costs impact costs, as and discuss non-GAAP made of measures NAND, as our intangible revenue information acquired all

our from X% sales quarter XX% were prior revenue prior prior quarter was revenue increase $XX.X $XX first year-over-year. QX increased X% X% XX% an and from from quarter As an Product and million, $XX.X of year-over-year quarter Pierre million Service revenue increase mentioned of from product be up X% earlier, revenue. million, was of XX% total sales and product end of market, XXXX. at and to By of the XX% DRAM grew the NAND comprise sales comprised quarter. all sales of XX% device continue and sales. sales to XX% remaining of product the IDM other contributor comprised the product for foundry significantly largest segment and to of

first Micron and Our XX% customers in Hynix, SK Toshiba. Samsung, the were quarter

high of quarter. upgrades quarter to adjustment. an due XX.X% these gross warranty of items and our increase well QX greater XX.X%, prior The product as high end as to from points drove basis and increase contribution of installation from favorable XXX margin gross for volume, basis an exceeded range of points XXX margin increased prior revenue Our high-margin margins accrual gross margin

second of gross margin X%. to quarter were XX%, or plus For the guiding XXXX, we minus

projections from XXXX, For mix the solutions. The increased we of and these growth benefits improvement us year. gives combination Operating system from an higher for as quarter X% well the as to year. compensation full of that and our than OCD acceptance our will year confidence range, margin continue of higher came in primarily million deliver software due variable our XXXX up see of our guidance to will items tied to analytic-based outlook within prior cost our this overall gross higher ranges and attributed flagship and strengthening were expense $XX initiative model we the target

As least mentioned, at these as may through over increase investments announced, XX% And we is we our expected investment progress in increase as previously we XXXX. R&D to have spending Pierre XXXX.

a company's outlook overall the our our variable half quarter operating our half planned the strengthening of related $XX.X XXXX, million build to out the costs to infrastructure average We in quarter investment expect first due expense associated of million China $XX to for year. the increasing compensation to second the and R&D, in per the

Although this continue adjust current outlook spending is levels to business and as the view, will company evaluate necessary. the

expense of first $X.X tax non-GAAP or the pretax for million Our quarter was XX.X income.

impact the includes XX%. actual are On the the basis Act. was for Our XX% $XX.X in the range basis settlement tax the an quarter $X.XX this first associated associated difference benefit initial of the well expense to XXXX, as share. as ongoing Net expecting on GAAP employee to value Reform transition per between tax non-GAAP a grant of versus Tax equity and rate between we our now earnings tax or million income with

XX.X quarter-end. the $XXX.X of as $XX.XX buyback on Turning first average an per shares November. share share. and sheet. or price announced based increased million Cash $X.XX at the at $XX company million $XX shares the stock million to investment of This quarter, per to In repurchased program XXX,XXX basic last balance stock the outstanding or completed, million

questions. take the outstanding operation the happy of the prior reference, to of in to collections of prepared from at free the million. we the for per shipment our of timing flow This shares end total of was be quarter. was will repurchased For and new our increased million an any and in new concludes flow remarks. the $X.X also a now record days quarter. X,XXX,XXX quarter cash first Cash quarter $XX.X XX to Operator, $XX.X a was at million record number days decreased $XX.X average $XX.XX price share. Inventory sales million due the from Days of XX

Operator

our D.A. comes Davidson. And line Instructions]. first from of [Operator Tom the from question Diffely

Thomas Diffely

said want confirm, looking full first for So second revenue? above guidance revenue your half the year, at just that the would to I be half your you

Pierre Lesaicherre

No. This we is what not said.

strength first and XXs. we half we year between not the did divide half, would said half the the the is to be low to IDM, foundry XXs the Now second second and in did the -- in the that NAND the if speak the segments, we to half we spoke and the -- high spoke but DRAM, and what first we specifically we

Thomas Diffely

That sense. Okay. makes

new in fact you you that leveraged a that's more is falls are in that bit second the driven a relative is the DRAM when ramp little if the strength of Or half guys half? on a the drive outperformance to NAND, bit? So going by versus year, potentially side the at look off NAND second customer it

Pierre Lesaicherre

exactly not I for. what Your sure question question. I'm your you was -- understood were asking you repeat can

Thomas Diffely

Yes.

to guys So or smaller the low in in that high companies is are half the if the bigger and seeing if of drop-off a that revenue year little be whereas equipment? the XXs because versus your a shipments you a China outperform, plant driven bit DRAM by the you second Or in -- potentially customer NAND potentially a for up outperformance in can lot your companies, you leveraged XXs, plant of ramping fact you're the have with more customers through year? the new are

Pierre Lesaicherre

year, volume NAND in driving Well, there's a being NAND you really what's have produced. as our DRAM, can it's and see, both larger we full really primarily strengths of NAND but because

will win we yes, essentially. visibility in be the first for visibility very and less Now and in what going what's other QX and which us this good And QX but this have thing QX, is in China, says, after. have QX to we happens element of of important happen over very QX

So we're at and year. the for high low what split is the XXs this this point in a guiding XXs for time, to

Thomas Diffely

said has for Okay. year gotten you then full that outlook up. your the And

last think, stronger I you're also before? double-digit expecting that quarter, you so than said growth, just growth double-digit

Pierre Lesaicherre

XX%, expecting to this above we're actually, Well, year. be

Thomas Diffely

a customer? you Great. wondering you will to a with been And get a few the first about XXXX. just, to new second Okay. 'XX engaged and think it as guys look you've the or past, talked if second then. while installation in customers, In product, how you then finally, customer have at take you When talked in you'll about get well the

Pierre Lesaicherre

a new to multiple are we when complex platform completely with technology and you're these customers. to bandwidth undertakings trying collaborate introduce Well, limited have

And other customer. concept to be key launch sure that we bugs all interest the we're the that is worked customer, one but expand of soon focus over we In place execution. this customers, don't limit the of validated the have going as that's of to the with is expectation We and want customer. to our think, leading stage, one focus first effort our yes. question, some is we in There customers, have while insurance your rapidly have to made will if I So multiple really our be will multiple customers, friend case, from this. we on good with as

Operator

question Twigg the of from line our KeyBank. comes Weston And next from

Weston Twigg

back would activity heading to customers to more among little further. a DRAM of half I'm first some half. in activity big because expansion wondering expect bit in wanted I into surge I ask XXXX. you that why a maybe There's sounds the like in DRAM about have expected drop-off

is wondering just So what your visibility demand. DRAM on

Pierre Lesaicherre

we the that what we actually So but half installation. strengthening is the And see said in specific and the strengthen to second weighted, And that continue actually, in being going into XXXX. DRAM half the linked customer second is to front half.

very strong a have We share.

We are, leaders of the DRAM. in one we OCD and believe,

And in of when -- what timing is making and second customer half it's investment play the our coming half weighted. being is just so each is the business into versus weighted front factor their

Weston Twigg

But I see. strong sounds would it XXXX, trend the like continue for into DRAM.

that question, offered. new product details you Next

new started about little a the products talking You bit.

too You many offered [indiscernible] details.

you past, is what when can us contributor, a ramp that it a a Is color that give because later very hinted expectations more some your XXXX? revenue year? of product this Nanometrics. XXXX? meaningful for kind be could think it Is becomes it are on you wondering large Just the that you in in If little time

Pierre Lesaicherre

some I -- customer, year should efforts the I lead XXXX now, with installation are that revenue that to going in that to this at XXXX. we're further in at and XXXX. starting there's a targeting lead and customer development revenue be we looking installing We're Yes. like think

Weston Twigg

Okay.

top the XXXX relative modest is to a revenue ramp-up still So probably current line?

Pierre Lesaicherre

likely, yes. Most Yes.

Weston Twigg

started you moving sounds and the have color You China. -- was it China this fab, you help you Okay. new And in domestic on to forward because on good I if pretty demand wondering you could shipping give China just any then then traction. could if said just, us impact QX? quantify finally, like China demand,

Pierre Lesaicherre

important is ever-increasing is part becoming China of our Well, an I really what's growth think story.

and and peers we you wafer we XD the this we're on announced from, XX% believe multinationals, announcement is of over domestic we and positioned from fab I both this is very the that a our market multinational -- in the equipment, well the share reach China that fab NAND So customer. have fab customers. recently with of made our share China one with with control heard with but the fab-wide year, What will believe, strong process WFE also

beyond we NAND Innotron, said as making us be exceed with in we the for and win, so from will double or are -- we existing China, quarter, for XD the such start big -- truly accounts the also big for that XXXX that revenue fab customers that actually logics but the our last on it's new would really in But so volume And to and China in So as others. in pace QX. us now China as revenue ramping -- QX HIDM have foundry beyond well XMC, that's growth.

So we China. in have, we believe a very strong position

Operator

[Operator line comes Stifel. of Ho And from next Instructions]. Patrick the from your question

Brian Chin

of This to back the flash. NAND for is some first around Brian double Maybe Chin, on commentary question, the Patrick. just

the for of where uptick curious, the call, devices? of relative the know that's the layer from seeing to the I or terms to and of I XX expansion XX technologies. last second capacity you're tied in on much in ask how And is terms X half the oriented Just really because that strength OCD is important more intensity account between layer the NAND year capital

Pierre Lesaicherre

that R&D, today, is to point is the bit XX contribute So in this But XX mostly XX at a is so expect it later. XX now we in little time. majority layers.

Brian Chin

for OCD helpful. type. the related the And it to splits side, DRAM that has to Nano and intensity by kind of flipping presentation relative well-maintained that device out back slide very capital over that That's Sure.

NAND, NAND increases. the count I And as so layer vertical mentioned, relative XD it shows the increase just as for for

nanometer I nodes. a for sort shows actually out wondering playing For and DRAM, X this I'm how is constant of guess but intensity, DRAM at it XX the

bit like that's intensity now suppliers, a show for So right seeing the tailwind It time sounds pretty basically, it is OCD XX-nanometer? your of it's what increase a in you're of DRAM perhaps in sub business. terms maybe to difficult at to

thoughts do intensity capital So you any about OCD. just DRAM curious, have increasing for

Pierre Lesaicherre

Yes.

I Okay. competent. me this answer have This for is Kevin as Corporate question the I'll at Development ask with Nanometrics, very to of question. a Vice he Senior us Heidrich, technically and good him President most is

help this please Kevin, question. with us So

Kevin Heidrich

you're I continued that on going what what table as of right DRAM, to that look we're the in think our capital intensity getting Brian, opportunity is the node shrinks through question? is is like understanding

Brian Chin

sort exactly. for and Yes, there's for NAND. of increasing XD ceilings an floor If OCD just is like it

Kevin Heidrich

the I pace, flows a they aggressive process changing think in not shrink DRAM node XX customers a case, about XX, from their to XX, nanometer very XX. X have our over and as go X-year are significantly

see don't a the which metrology. in the is changing drives we way how integration process schemes, they're So what significant

moderating out. the see that see out be model big flat. producers and we it that still to now, pretty changes, try change may and other need as how we for techniques plays adopt There So EUV make a to and

Pierre Lesaicherre

year our relatively a from. not is I really transitions share both been So rate for technology but these capacity the attach and happening significant basically, driver confident benefiting this a make that's year, strong last are DRAM comment Atlas, node is we're But -- and because other saying as happening. what expansion, of had high have what always intensity has that capacity we Kevin relatively we're what into expansion. in on the And very past, dimensions in very Nanometrics, we is what's flagship, market a the is the want to and DRAM what seeing in changes minor

Brian Chin

on the Yes. very objectives curious, you haven't sort taking That of there, and and I'm in more makes expansion looking potential term if a here seem Nanometrics not know longer million of as curious big as big that is may thoughts margin maybe moving guy Asia, margin to the now. the range back a you're one But right of XX% newest much term. improvement relative that of been margin I Jonathan. team to the gross longer that sense. operating But for your any gross that. on has which last color predicated lever appreciate you supply additional seat lot -- step how a about question Maybe XX%, just long. sales to to I $XXX any what if at for just had the chain create at

Jonathan Chou

Yes.

that current think, what's that's right the I investor is outlook our really that, deck in team operating model model for the on now, is based relations here. in our

here, time. think our As we see we can improvement be go. of these more a term, some are opportunities guy something hope a as shorter I process refine clearly new further we actually I actually we that there's are lot longer that made, It's of could some that can planning identify type

important As this know, all industry. very we Asia is a of part

contribute to Barnhart planning done company, in else, can experience and the clearly, that what past our Jim we So me process. from actually have the from from prior not just alone, everyone also but

further, to do that X or X So by years a year, not out going we're X looking little just years.

that that's in to hoping I'm So the do coming something months.

Operator

the no at call I'm further I'd Dr. [Operator turn over time, any remarks. to Lesaicherre for question. Instructions]. showing this And like to closing back

Pierre Lesaicherre

leading be the through team robust phase with responding us, our Together employees, Thank remain next this opportunities growth to the to and expansion of team front you. in excited Nanometrics. we for all and focused a day-to-day very of on in the executing challenges I'm and leadership incremental personally our our conference today. June. in the Thank we on to be webcasting to profitably and July. create our meantime, you the you in call earnings at look joining Stifel I In growing will business presentation our value. next call for environment stakeholder updating forward spending

Operator

call. the program. does Ladies This participation in thank conclude for and your gentlemen, today's you

all may disconnect. Everyone, a You have day. great

Onto Innovation (ONTO) 1 May 182018 Q1 Earnings call transcript