ONTO - Earnings call transcript Q2 2018

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Operator

Good afternoon and welcome to the Nanometrics Second Quarter Financial Results Conference Call. [Operator Instructions] A Q&A session will be held at the end of the call. Until that time, all participants will be in a listen-only mode. Please note that this conference call is being recorded today, July 31, 2018. At this time, I would like to turn the call over to your host, Claire McAdams. ahead. go Please

Claire E. McAdams

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

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

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

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

Pierre-Yves Lesaicherre

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

Our second range quarter of results from for same set our were record at increased the end X% guidance both last year. Revenues period revenue and earnings. million $XX.X and the from upper new first quarter records and XX% of our

strong Our spending market in driven results devices for memory half again those in environment robust by the our first leading share the were segments. and

Clearly, first earnings scaled and of total, increase in Gross drove revenue business. our unprecedented which level The to increased XXXX record as than will gross over the per year. of half XX% the an million is second half higher the revenue from we in For tax first lower of the strong certainly and the The is shortly. as at in scale second to strong evidence continued of XX% $XXX last half last of performance year our an our in quarter. making operations improved level R&D Greg came margin these been have some for investments again last have a favorable increased of favorable organization we sales mix revenue and also this support global product to and Nanometrics quarter in for second quarters target margin to our benefited few volumes. share, rate, margin long-term the for detail gross XX.X% performance

We continued $XX million XX% quarter sheet, cash $XX million half product in a first-half cash in the and generated balance of end. set flow earnings over at record generation adding to strong revenues. total, deliver equal free quarter, to million in to in gross $XXX as Year-to-date free both first per the we and records the cash In new flow, service as well share, flows. cash to margins, revenues, have

in and results has both in While in DRAM. technology grown market demonstrate our capacity to our relative our investment revenue first ramp this historic indicative of growth year and share and in both is DRAM outperformance half NAND that terms NAND of levels, also the gains

to position are flat in are our year and NAND for another of strong NAND, continued for While the our share industry from gains most XXXX. revenues driving down spending segment here leadership expectations in market growth

we second flagship Atlas and quarter, the manufacturer qualification a our by During XD-NAND for system fifth won tools. major shipping began III

into some largest spending We the first resulted with we also acceleration previously customers. project is, XX% manufacturer have was the their major this XD-NAND second second This quarter. spending in revenues reported fab. control in The partially DRAM This a some China multiple the more significant from over in in revenues, year acceleration quarter process suite in the of modest DRAM half off a quarter for multiple offset new also helped XD-NAND into balanced domestic of DRAM revenues, our key XD-NAND solution a being project deferrals good which quarter installing forecast. Nanometrics, our our customer decline new drive metrology project manufacturer benefited by growth of sixth record news full XD-NAND NAND than by

DRAM, memory revenues spending the in are consistent So, this between year last warrant further segment forecast The fact largest discussion. and that while memory from among earnings with push-outs our spite call. our some in last customers, and our with reported our consistent for forecast there our been have of spending, certainly in is shifts call, NAND

has not been balanced more NAND weighted previously memory than changed. This DRAM expectations year. revenues segment The that that our front-half all, and forecast. would the change for of we've we weighted is First front-half is consistent this from be in became total

Secondly, major sixth XD-NAND one we market DRAM year, major earlier a reported this manufacturer major with one manufacturer. share a wins two with and

XXXX our we And While five have next are customer drive year strong it's segments. year-over-year significant market into our increase share and two these of even without some on drive the in customers we wafer their we wins, these largest revenue manufacturers, year positions to all capacity suddenly own still six both to largest remember memory plans. of the will defer who XD-NAND memory helping with if additions important gains lastly, believe growth revenues one have others year, decides that

NAND in forecast to plans for significantly shift, we for be recent memory continue even up pulls thus and So DRAM, customer with spending the and total revenues will pushes year. Nanometrics

second-half decline to and revenues of We expect our also an in small revenues continue IDM first half. the in base weighted, and a of foundry foundry result off to overall This in IDM be will the process XXXX to IDM shift push foundry compared spending towards continues control into timing and given levels, other year foundry revenues XXXX. major investments Korea-based and this memory the to in in of that

expanding us means cash to points higher outperformance, is to margin our next One margin step free margin towards significant R&D investments have along for XXXX, revenue as year's a increasing revenue balanced are It's visibility, This support flow spending make this and first sixth during expanding Along expanding look that two the each expected means note revenue of year-over-year. of outlook we XX% more CapEx began gross with the Atlas has us the half continues that the we outperformance now the foundry, Greg. largest DRAM of also worthwhile to XXXX, generation. half. in that in over and business. our been the that III organization with quarter to I'll growth the DRAM, This our XXs our which second clearly XXs would I has newest a earlier year. across low highlight overall was forecast our and continue a year turning five project XD-NAND industry profile qualified levels in the we current call year industry. in revenue sales III up along NAND, in this before Our XXXX for by some gross high year-over-year mentioned adoption few we of This could revenue of the to result flagship in to and system to by adopted to shipping at tools. growth Atlas fifth and operating our with manufacturer enabled manufacturers. With the of all of strengthening, and growth XD-NAND resume global positive in both versus the expectations logic, be our push-outs least year growth, giving is confidence the system. that see major manufacturers

and analytics, year year characterization XXXth introduction also As and revenue with our as testament this year integrated year growth film optical year is our we records month. metrology software earlier expected for system drivers solutions, platforms, year, the service both product, multiple record growth wanted new I dimension the contribution a for well a this a and material business. rapid growth Atlas III, increased for a from our the which to our of to a for of thin and critical for be successful as to set and our reiterate automated shipped our

indications of of drivers summarize will some I XXXX. for continued Finally, the call in early growth with the

become to events. expected XXXX revenue are earlier referenced push-outs the First,

we a spending for well expect memory, Second, DRAM. continued environment both as in robust as XD-NAND

XXXX foundry software with of our strong for growth are products Fourth, our customers level with flows, spend our to businesses. committed value growth grow And and and on timing and of expanding towards drive revenues revenue of below gains we of margins, creating profitability a shareholder and current XX-nanometer strong and we growth in cash to expect we pipeline as share due new continued will Each and further and opportunities growing aspects market expect IDM year-over-year finally, devices. project revenue the incremental we firmly complement we're services to our see have we additional these in operational targets. and Third, to business. new of that execution,

third our the to from second quarter, we rates. half for moderate the record continue first guidance Turning half will the expect to

million; $X.XX turn guidance is of expenses for in plus guidance our detail. QX minus $XX of to Greg? plus to $X.X to financial Greg earnings Our approximately million more minus over or per margin I'll XX%, $XX share operating of the $XX discuss or results X%; million; to now approximately $X.XX. call revenues million, and and of gross

Greg Swyt

Pierre-Yves. you, Thank

I'd schedule geographic Investors like region section Before market I call is of impact amortization Web-site. segment as information remarks, and discussed The conference acquired this to severance GAAP non-GAAP GAAP end our related non-GAAP and metrics These by are revenue as discrete results and you on intangible begin supplemental that exclude as P&L assets, of the a of them well costs in prepared as transition to my remind summarizes discussed as available financial items. identify executive I search based. tax the which costs, costs, unless well measures measures

quarter As revenues and the IDM, of of XX% XXXX. year-over-year. XX% prior Service XX% increased from year-over-year other QX the million, market, the quarter product and revenues an DRAM Pierre mentioned revenues contributed all And an of of of revenues. XX% quarter revenues. were second $XX.X our for comprised X% were earlier, device $XX.X from XX% end and total By the the to increase prior sales remaining million XX% was quarter. X% and of up from product from comprised of foundry, X% XX% NAND product product revenues. the of increase segment quarter sales sales and Product were million, prior $XX.X

second Our YMTC, XX% in were and Toshiba. customers quarter Samsung, Intel, the

favorable than gross record, had product margin of contribution to increased benefited an one-time Gross of unique factors our XX first forecast, the QX's mix, exceeded XX.X% which margin Our points primarily lower was quarter. high-margin to QX upgrades. from basis including due

XXXX, of XX%, or gross we X to percentage margin quarter guiding minus third point. are the For plus

stated, increased in For seeing OCD as as solutions. the our previously product cost software systems attributed initiatives benefits well are costs an of higher acceptance XXXX, as analytics based XXXX of flagship mix the and our we improvement full-year we our a our and from

R&D Operating revenue the we $XX.X deliver year. and XX% financial high projections, overall of near margins up model expenses our growth timing from sales increased to items increased project the and were gross organization, targets forecast prior primarily and to compensation due our spending, for accelerated variable due the accruals in increased of quarter the global to profitability. the end million these of Given expect for investments exceeded

expenses overall of to We expect per our average quarter second $XX in XXXX. million operating half the

Our non-GAAP the of for quarter or $X.X income. tax expenses second pre-tax XX% was million

versus earnings expenses non-GAAP basis GAAP XX% with XXXX, non-GAAP equity forecasting to of actual mentioned to we the settlement compared the the previously tax include a with benefit associated to in XX% the range expense On benefit between now XX% basis value. tax employee on initial the Our as the difference well are associated the guided. an previously as ongoing be our to grant rate XX% as

from to changes available. continue Act based Jobs interpretation most account the current the XXXX of Cuts for We on Tax guidance the our and

continues Our income per of our quarter $X.XX as for analysis QX, during and XXXX million XXXX. declined to of subject reflecting outstanding X quarter shares to nearly XX.X Weighted effective Act. in for we share. be quarter tax and and complete Net shares rate XXXX average diluted $XX.X the was a the record million the changes the first purchased million to of second revisions fourth

XXX,XXX XXX,XXX diluted weighted to per share the shares increase approximately to by expect we forward, Going count quarter. average

of million cash investments million was and within of XX outstanding of to basic $XXX.X Days end the the to quarter. Inventory balance Now second cash operations and turning the flow quarter collections based decreased end. million $X.XX to $XX.X million to in our flow on increased $XX.X XX% Cash free at XX.X and days shares XX sales million increased from to for timing prior days at the share was revenue. from the or $X.X quarter. the due $XX.X the sheet, quarter million outstanding quarter per shipments

earnings included capital $X.X expenditures As million. in release, first-half our were

strategic half happy This programs. and increased of We any in our concludes expect remarks. in to growth CapEx take the we questions. to be the our to operations now R&D increase our Operator, prepared support second will scale

Operator

question Our comes first D.A. Instructions] Diffely [Operator from from Tom Davidson.

open. is Your line now

Thomas Diffely

of some business out fact core masked kind and curious Quick nice I'm these that you was question the on just being so the projects ebbs that in, pushed obviously overlap had been seeing slightly of some pulled the and not with just have win trends? flows of a down. the was truly numbers, as seeing [indiscernible] with in trends a products the that week last you're same you're your if over customer have and two there reported or perhaps or different the basically

Pierre-Yves Lesaicherre

the reported, and is a some indeed with year concerned. make customer players a far we that reported with large as in the similar this We customer, wins that's few the do in the industry. the different see Chinese other DRAM other we two trends have from to bit and So, XD-NAND one The us what as is one a a being [indiscernible]. that industry NAND

see see NAND some this So now XXXX. we And see been the don't push-outs into we in more customers we the reported, how half, we I that's from for other example to the second also why at us. but in strengthening has front-half same know in than half NAND also But and being some the weighted time important second is much this DRAM expected.

Thomas Diffely

a and Okay. also the And ramps? see do delay of little some in step bit just [indiscernible] you logic one foundry further, of

Pierre-Yves Lesaicherre

see will push-out and into stronger a that XXXX. into logic we're be we half Still, revenue are half, really foundry XXXX. and the the of reported we base, of but these the first from strengthening operating XXXX what is actually second yes, small of than So some push-outs some

Thomas Diffely

Is going great. memory And the mix Okay, to do logic now be forward? basis and dominant to a foundry long-term at between you for be when your model, you going look go the is then you? on memory think forward what going piece projected

Pierre-Yves Lesaicherre

NAND. We have a very strong position in

is more are and becoming the vertical, largest, one the be very we taking. are that now these customer, So XD-NAND stable With structures I will continue that reported the increasing. need based if to we believe for on supplier sixth we more direction customers OCD the to that a include five and believed position Chinese and

So, see declining. I that don't

attach We have a high DRAM. very rate in

We are participating with customers. two of the largest

to very the to third DRAM very working successful important and hard will are on the one, also one, We we're if us. be third penetrate

expect us. to continue be I So, memory a for strong segment to

logic very year. up and working expected also business next business. on the the ramp Sub-XX-nanometer, to closely are We is foundry

versus foundry. than and So, year little logic a this be in bit would expect next of more terms it memory I year to is balanced

Thomas Diffely

just launch of does some your you at right Okay. then and the business any new the that when impact And tool? the release or now, kind push-outs in pull-in the of date cases of finally, of look

Pierre-Yves Lesaicherre

no related, No, so it's not it impact. has

Thomas Diffely

you. Thank great. Okay,

Operator

Stifel. Our next Patrick from from question of comes Ho the line

now Your line is open.

Brian

infer Brian but the on is Pierre, This on it you provided, double-back Patrick. we is sort to guess the – question about for first start the down, market, up at for way is you to that for of the updates QX think the can I QX? on the broader least your just a right so provided to second revenue XX% to of of right mechanics to infer is and that is guide, QX year based flat some still

Pierre-Yves Lesaicherre

up confirmed we expect the to at today that XX% QX. compared just as QX more this we way to So strong be than by we be is see as year least will XXXX. it And

Brian

got Okay, it.

Pierre-Yves Lesaicherre

equal above. So, or

Brian

XXXX year, are being with And this next foundry logic, in business about second also companies you some of the about pushing other kind above that first-half this maybe And just XXXX? above. of have or Equal talked into mindset staying of even next first second year, also you of of rhythm, half year. some NAND if as commentary then half pushing of half of and perhaps half being take into well above year your some first equipment next activity second as half XXXX

Pierre-Yves Lesaicherre

to the Yes, of be half half XXXX XXXX. first we of second expect above the

Brian

great. Okay,

Pierre-Yves Lesaicherre

I confirm that.

Brian

pushing given perhaps project part first as half next above XXXX year, those activity all also, half then early well? And of Okay. XXXX into first

Pierre-Yves Lesaicherre

to difficult so out, tell. months nine than more It's tell. to difficult is That

Brian

quarter. balance didn't hold any about of the can know to how million year-to-date, should million Maybe of sheet. growing sort talk we the Okay, to think minimum you on I you moving cash XX well as sort as cash, buy back almost you $XXX think stock on I want free fair the the buyback about flow of kind close remainder sheet balance the enough. cash the about you're One in good on cash, forward? question

Pierre-Yves Lesaicherre

we completed So, at buyback or the QX. of within the end

at we this time, not You're of is decision quarter. balance and a in million the right, current in first end actually announced any buyback. XXX At we on We're considering have the the options. point XX generated half further the

that, in using business for or shareholders after the in and as options returning know, either we're today. investing definitely it to are the are R&D. the considering cash And then We options M&A, you our

Brian

last very great, perhaps one just a take any if metrology or seen in, – packaging second, gears but memory you've here level helpful. our by Maybe Okay, for longer-term if strategy? just, UniFire, wafer question, to unify Nanometrics' curious into how curious applications. just any pull seen for maybe high-bandwidth [indiscernible] fit to it driven Also completely you've switching other backend

Pierre-Yves Lesaicherre

tool have a of than we portion more developed a We small do years ourselves is ago. very a that product UniFire XX continuing after that. today. very, It's not

not going strategy product in really important an forward. our it's So,

Brian

you great, Thank Okay, much. very helpful. so

Operator

next Twigg Weston of from KeyBanc line Markets. Capital question from Our the comes

line now open. is Your

Weston Twigg

those to and just like Did First, said you push-outs pointing of customers, if because did, of wanted and wondering how multiple to some them clarify, just that are changes it I'm were? spread, NAND. one you've mentioned major sounded most seen you recent that customer, saw so or if you mean you

Pierre-Yves Lesaicherre

one mostly customer. it's No,

Weston Twigg

expect spent to for they've a NAND because activity through this year, customer And maybe I'm spend Chinese on they just XXXX? spend business product if you off that do to them and big have flattens some that need with see what next helpful. on for wondering then think that's focus or while you Okay, out you mentioned a or you continuing incremental while. would that I I'm drops year the that wondering

Pierre-Yves Lesaicherre

to the then are and plan the install was they end to they that. get X,XXX prove that and there, the customer that the year, do can yield So on first by for in capacity target to of

in there's ramp So a be to going we additional that that ramp capacity progressive next expect year, fab. of

Given the from that. position we'll benefit [indiscernible],

Weston Twigg

mentioned you finally traction. could, very I Atlas NAND And III helpful. that's and Okay, some then DRAM just if

recall can't occur You didn't or mention those had wins some if Atlas with or III logic if and you've foundry. I year. not next might

help us could that you If be understand helpful. that, would

Pierre-Yves Lesaicherre

the and orders process the getting wins the and in logic We're both largest in largest foundry customer. of

and in it and QX is confident this that QX very might next process. So in happen We're about either year.

Weston Twigg

very right, All you. helpful. Thank

Operator

from the of comes question line Company. Miller next Benchmark Mark from Our

open. now is line Your

Mark Miller

quarter. strong on Congratulations quarter, the very record

You manufacturers mentioned next ramp expected year? significantly any next among Chinese to for one you domestic see year. ramp opportunities other domestic manufacturer Do Chinese the

Pierre-Yves Lesaicherre

a are Innotron with Yes, FJHIC. few customers Jinhua IC, companies, Fujian There we're of and there. two the engaged DRAM quite

a engaged also customer, DRAM in with with So both company engaged engaged foundry sensor We're the we're we [indiscernible] HIDM. NAND are CMOS with and with and customer. others

strong a we So, have team in China.

these the customer years. ramping this penetrating the slowly up are with expect But customers. year. will for say, would The is I domestic coming NAND We we improve the except volume this business China in that customers

Mark Miller

us seeing you upgrading software or you Can give whether are any in it's color sales opportunities, your or software, of software? of new significant terms opportunities, upgrades

Pierre-Yves Lesaicherre

new software. It a is analytics on data which machine It's a software learning. is sales. new It's the based actually SpectraProbe,

the where it's whether example AI use advanced type of allows extract on for advanced tranche, the profile our and to that that there's can software additional and we shift, twist. the tool [indiscernible], information specific tool, has predict software cases a very runs So, very to tilt,

type So, today. software of we selling the that's are

Mark Miller

customers, available be prior customers? would And that to existing

Pierre-Yves Lesaicherre

case. issue available use it's typically they we can to yield structure, that, and customers. we shape with we the prove few to or some their sell a them develop overlay, a have them in linked develop Yes, of that case, existing we specific will see use after work is, software to the a to changing What we once misalignment, to

of and that happening. buy what's that data level today customers can have this have. on the they software of additional that So, performed tools Every our is one analytics

Mark Miller

software above average? I at or assume are for the Margins Company

Pierre-Yves Lesaicherre

are they significantly above. Yes,

additive with to it's line what our are in typically so margin. We sells significantly industry, software in the

Mark Miller

Thank you.

Operator

back for I the call And over would remarks. Lesaicherre further questions Dr. I closing at no like to to this turn time. show

Pierre-Yves Lesaicherre

we call opportunities robust focused today. Together and you challenges leadership front updating our in KeyBanc, the incremental our remain to a August call earnings conferences day Davidson, in to In environment, the value. for day First, attend Jefferies D.A. employees, with and I and look and executing business responding stakeholder us, joining spending profitably team our to on growing our thank create of today. seeing in these on October. to and for events. to forward you next one you that look call meantime, have the of forward concludes And we in to at our plans

So long.

Onto Innovation (ONTO) 31 Jul 182018 Q2 Earnings call transcript