ONTO - Earnings call transcript Q4 2018

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Operator

Good afternoon and welcome to Nanometrics Fourth Quarter Financial Results Conference Call. 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, February 5th, 2019. At this time, I would like to turn the call over to your host, Claire McAdams. ahead. go Please

Claire McAdams

and fourth Tiffany everyone. to Welcome Thank XXXX good financial Nanometrics quarter results the you, afternoon conference call.

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

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

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

Pierre-Yves Lesaicherre

Thank you, Claire and good everyone. afternoon

total, we remaining quarter while prior and forecast and the Memory the upper at both revenue. IDM, XX% Total the XX% operations Technology's to approximately quarter. comprise than were a Within fourth year. due to partial quarter, same this more quarter of pull-ins non-memory revenues declined the meaningful revenues. feel million period to $X million modest added also devices. other customer shift memory our were from of of results quarter-over-quarter Our Incremental similar however, quarter of away XD amount end from last $XX of revenues XX% the the revenues for increased foundry, the product product segments of all to towards in during

in due guidance of range the of range, forecast end year was adjustment our total per overall margin of XD was approximately midpoint our Our net the guidance range, its a in around exceeded QX end the Technology gross quarter. share earnings high to $X.XX of of quarter but range of guidance the and $X.XX to XX.X% quarter for due rate quarter. around of the fourth operations. XX%. within first Earnings the our for of of the the margin tax in our exceeded Operating at share order per was quarter. This QX impact primarily for partial $X.XX the also share guidance reflect versus at schedule benefit for to lower the per XD lower in in a expense had OpEx partial at the a true-up accretive of ahead

we For the XXXX, the control industry. $XXX.X of million the full outpacing overall in XX% wave fab well of market, year, reported rate growth up achieved highest revenue, growth the in equipment over process the

year-over-year, critical an well for was optical by near-record positions XD-NAND during strong gains customer materials our we records records for dimension as where the levels software, in in annual well revenue as saw Our integrated, over growth sale driven in sales our and market new incremental characterization automated, as increase well memory year. and in metrology spending, as business. achieved XX% outperformance We reflecting of product share service, strong our

revenue the range significant year, of of record target increased R&D fifth while devices to For the profit we margins $XX straight revenue growth to in XX% XX% of double-digit And and our memory gross increases and earnings per other the this share. product in XX%. operating We gross at sales IDM foundry, future This to margin, million. investments year, level. full growth, delivered above margin, was XXX remaining which year operating of for support all reported despite our was increases and revenues, was our contributed basis points XXXX and XX% XX% over approximately

flow $XX deployed $X.XX were cash The just generated under acquire the million, free earnings per in XD or revenues. investments was Technology year, increase and repurchase share stock funds full cash the and $XX million of of and we during net to the reflecting For year. XX%

at are we on the we expectation our the particularly in change. of of half forecast XXXX, first last forthcoming moderation first the a basis. similar to a for levels previous memory. of our mid-teens Whereas XXXX remain our the the decline second of was for have drivers to half Turning for earnings XXXX, percentage expect for There call, to Since several in the outlook a half witnessed year. now

have XXXX results, first we our bolstered the XXXX, amount makes comparison the QX favorable. less did but all, of from of a quarter half pull-ins which of into modest First first

earnings customer several client further projects our pushed out Secondly, have since been call. last

materialize others planned expected to versus backdrop prior in demand, tariffs This expansion straight second forecast the be their more now the expectations, to are with of Some both capital events. capital been our in NAND pricing, and is quarter data XXXX maintaining least. have spending smartphone A of and export escalating delays The dampened the projects in and DRAM. spending concerns. environment along and in prior trade, memory now half say has look third plans, likely to volatile a of for center customers' confidence weak these

side, significantly are and expected of half of growth comprise growing the entering bright our On our are product the businesses year for to the part non-memory XXXX. first to revenue

full year, including quarter visibility half look as in of This ago, sector. solid first this So, for after exacerbated the what outlook XD. at memory -- we to we even primarily at thought is than our lower the the with point, the a weakness fairly the somewhat is an to contribution due

time, growth devices and below in we and in markets. other from strong broader other expect During foundry, investments non-memory support all demand IDM, this and of XX-nanometer

significantly be this half, the still at we first half magnitude will limited the break will second segments the we in stronger in second expect the of are we end the XXXX. of visibility, half it down point market, half these gain to for If first of the The in time. determined expect logic by it second than that momentum and continue improvement As to with and half growing year. be foundry is

markets XD expect other our and for a stronger service. device also We for second half for

the majority curtailed improves. In we in memory Clearly, record are This have finished question. and spending share in highest terms in just leading the suppliers benefiting position significantly two also companies memory the the and NAND to the is not one we we DRAM metrology. our are up revenues NAND. we of players. until the of memory leading year, three expected of of every first So, leading NAND, is relative from year one market of the at a OCD pricing that from by This better have while drove of of DRAM, in versus was have XX% spending the hold three segment which product half sale six two when

in say is for it half, rebound are core optimism difficult a in second clearly So, headwinds with although confidence there be. our to significant rebound how we while memory is market, the will experiencing that

the closely expect have of help our year. next spending logic, growing and market and to as, view declines second a services Technology a and contribution half the to foundry conditions sales We the XD the memory other XXXX as will are in product clearer characterization meantime, In growing of this earnings and memory in monitoring in expected well by materials business offset rebound devices call. in

solid performance deliver this will and time, cash margins, we to flows. positive continue During in profitability

gross a margin, in sequential are customer product particular, we QX primarily to in due and For expecting decline mix.

margin this slowdown overall historical the relative support during our are personnel underutilization spending. service this We and our model service gross also below in for business, modeling of given

We half expect second of XXXX. for margin the to our to model return in ranges gross target

preparation year, which to given expansion point, we Finally, the end the us demand. of in evident will return at of in memory timing for as look the the capacity toward the rebound XXXX be to

growth We compared markets. relative served will outperformance and to be our return to prepared to

again objective We outperformed for markets and the the next do last the years. wafer five is equipment and side over our control process have same years, five the handily to

pipeline robust products new of under a development. We have

product been increased the prioritized the developing our recently, our generation platforms flagship core net to last new more performance new new in enhancements we've More and will XXXX, next and from been have been which have therefore, products. toward of introductions for eager capabilities our During technologies and for productivity these product, demonstrate launches, address two customers years, devices. applications to our see

expect execution, and revenue committed future solid drive firmly we with positive creating are targets strong XXXX continued continued We and shareholder operational margin value growth these cash growth beyond. revenue towards profitable and and our performance as to drivers gross in to flows, complement we with

and Turning continue to for a revenues more guidance foundry, first quarter, we weighted device memory compared business. our our of for mix logic, other to the expect growing contribution evenly will the

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

Greg Swyt

Thanks Pierre.

product well as impact I non-GAAP These severance discussed GAAP tax quarter non-GAAP the of measures costs, like identified schedule financial a call, were fourth By conference the and to and revenues of assets, product comprised amortization I available fourth up you increase another of items. X% record Product the summary the on flat as my XD website. ago for of I'd of prior year-over-year. technology. in third segment remind IDM discussed were fourth of to Service is third revenue and an of with of Investors X% section $XX.X supplemental be as surge The and discrete to information well were other at revenue quarter revenues. million Before P&L related metrics end region XX% measures the the XX% a period. this unless in from acquired the our the continued to certain at market and are that as markets X% and from acquisitions, results million, which sales X% our $XX geographic of from begin our $X.X quarter from of remarks, the quarter product an sales Starting the other prepared and results, revenue. achieved summarizes decrease the as revenues fourth Included intangible exclude million, the product and and foundry, million, and decrease executive XXXX $XX.X quarter. measure largest GAAP-based. of of costs year segment transition market, quarter quarter by XX% XX% contributor NAND DRAM from end increase revenues was revenues

in customers fourth Toshiba, included quarter Intel. Our XX% and the SK Hynix,

were the margins fourth slighter as product margins $XX.X gross in points or related charges quarter one-time but with fourth related included for XX.X% basis target product end QX tax points forecast third to quarter margins and $XXX,XXX of gross to at in million of prior XXX we slightly Technology. from range. reform XXX inventory level. from -- packaging our our as decrease and basis is year-to-date and and this customer quarter, increased Service from decreased and points quarter favorable business and margin the the XD higher adjustment. XXX The recorded the gross the to associated share. XX.X%. XX.X% our Our reflecting transportation X% In income of million benefit $X.XX mix operating year low decreased up higher margin was well tax for quarter from of physical quarter was the costs. and updated third still basis QX, Product expenses end below were third the model tax per $XXX,XXX, Net Because of $XX regulations, a a of gross

to per XD $X.XX As highlighted in tax and contributed the adjustment earnings Pierre's share quarter the per contributed remarks, $X.XX for share.

Total comprised in markets the to XXXX, DRAM Turning XX% from revenues up product XX% to prior sales segment foundry, XX% increased market, to XX% as and sales to from increased XX% XXX% revenues NAND sales and end decreased XXXX. increased revenues XX% of XXXX and of IDM year comprise the full while By compared comprised the of by XX% the other service year. $XXX.X Product product product and by results. were XX%, from revenues XXXX for million, from product XXXX. revenues grew year.

were for operating million, margin Our Toshiba, the Samsung, year, basis Operating XX% to for full XX% With gross year our expenses up XXX XX%. up $XXX.X points customers XXXX. SK points was the from increased the XX% basis and XXX year from included and margin revenue prior XX.X%, growth, Hynix, Intel.

our For expectations of tax million was or pretax year to XX.X% income, XXXX, than non-GAAP lower the XX%. of full $XX.X XX% expense

be and end on Tax related and relates current guidance fiscal $X.XX effective it's Act income change not accounting intangible subject the income that guidance and based Net closing XXXX. has change. The XXX for would foreign from final the lower around in staff year as well as guidance bulletin period was income was resulting QX is of of full year to SAB proposed issued Our low as Reform guidance of the per tax in Any to the been drive share. for finalized tax million reform tax the intangible new any change rate by interpretation adjustments to IRS issued. the XXXX accounted of once $XX.X global

quarter Now, was million million, net million the increased end for in XXXX million, used $XX $XX prior Included cash and repurchases turning a improvement was of the quarter of XD million reflecting represented of free $X.X acquisition prior from The $X.X from cash the is days fourth year of and million sales $XX.X to for full the the for XD sheet. used DSOs XX $XX.X and $X.X significant in flow technology. million increase fourth Day the in outstanding inventory the million year. investments the Technology. associated Inventory $XX.X balance stock to the purchase at with and year. the for ending

Finally, looking forward to QX XXXX.

their their partial will from results. of revenue Today, $XX for contribution approximately million to segmenting expectations million Technology. quarter. providing first full are we be XD Our forward, guidance $XX million their $X XD's for first first we includes not going and quarter But our quarter

in quarter or one to XXXX, first are minus mentioned we margin his point. XX.X%, Pierre As plus of remarks, guiding gross percentage the for

Although, we target of in gross ranges we model the the off half of year, to expect be margin to the the in will first our margin half second return year. our

For quarter we of million operating to first expect be the to million. $XX expenses XXXX, $XX

quarters, this operating continue of forthcoming XD included in technology. to which the to the be expenses impact range, expected For are

take outlook, current the as is the conditions continually the this Although evaluate actions company overall market and will necessary.

and questions. our that, And tax XXXX turn in I'll be are Operator? with non-GAAP between the to We call forecasting over to rate XX% XX%.

Operator

Instructions] And from Please Diffely [Operator proceed. Tom first question Davidson. comes Thank our D.A. you. with

Tom Diffely

afternoon. good Yes,

memory First question is the side. on

you year grew the for about -- memory market talked last You year, XX%. last

it gains were think up parse share would you versus think growth? the So, you just what between market what do

Pierre-Yves Lesaicherre

So, contributions of we we China we that we numbers two take well exercise, -- manufacturer in that we in XD-NAND there run had XXXX. -- two and the both the our these win there. still we the would then out even if and wins were WFE outperformed mentioned, But in were DRAM had We win wins have had that Korea. with the

two normal business of So, addition we the these our the and from was contribution -- wins.

Tom Diffely

over then that few And that last look in and has have few the the at happened when the the to all in impact Okay. tools cross the happened services months what might utilization rates what on the if field has trends industry, of you next over the any quarters?

Pierre-Yves Lesaicherre

we So, seen one some tools. only customer have of idling doing

revenue one maybe All from of the for the the utilized other expected have except being tools today that and customer. we service, are

Tom Diffely

then side-- And the great. Okay, on margin

Pierre-Yves Lesaicherre

Go ahead.

Tom Diffely

Just to overall the other touch just margins, thing was strictly in margins it as can or mix down. well? that then come of the say I at you that something think because Is if revenue look or the

Pierre-Yves Lesaicherre

due is the and a product and small as second mix. and underutilization. product to go impact the as customer our expect to back element our we over primarily mix product And mix year, -- normal the customer gross It's biggest the really is and margins customer of evolve half. mix and in But there product our

Tom Diffely

then And out what Okay. any you from year, impact on EUV? in of at finally, the when to this the OCD look starting over roll production is these time

Pierre-Yves Lesaicherre

are by with EUV. directly metrology to is of that related is Most ASML associated or we So, served lithography KLA. the not

don't EUV. correlation we have the So with strong

us. is to relatively this neutral So

Tom Diffely

Thank maybe you Okay. extra create I measure the can appreciate much. some today. features it you I thought future. the would that very in time

Pierre-Yves Lesaicherre

Thanks.

Operator

Patrick And Thank our Ho proceed. comes Stifel. next with from Please you. question

Patrick Ho

the in the first Thank Pierre, seeing foundry the half much. you off spending very logic of year. that maybe on you're first

Two-part XX You talked about nanometers below. or question. advanced nodes as such

features, guess XXXX? nodes remain new can the past OCD discuss in of at spending see the I first smaller, in you the when of you'll these NanoWires? features that year, FinFET. can in their you've to marketplace, secondly, intensity for new more capital given look How as said I now, smaller intensity think of industry the goes transfer strong right the what capital about through those metrology, they today trends And well OCD metrology as First, do at sustainability you particularly with that all as whether such trends half

Pierre-Yves Lesaicherre

Okay.

the for logic, increased look strongly half So, the logic. when we're weighted. we are actually foundry the and from half in in And year, first foundry and benefiting at second spending we in question, we're the -- first whole

advanced addition critical layer capacitor generation the a intensity half. that expect is the and that's an we dimensions we increasingly from that, little measure logic first we high the logic. for to foundry and increasing because know, going at channel. the node metrology complex to each very a see So, And ratio in the second OCD what question, to for of generation challenge particularly be on need there and true NAND, structure increasing bit contribution ratio grow aspect from we the for from as to to these then measure other you And half to In high and evolution, see main to believe aspect is for the able -- different an increasing be situation structures. DRAM there's in is

Patrick Ho

side there the Does opportunities to Great, that necessary your isn't And as Basically, a services do that's over in as pressures talked which growth incremental your grow or the create that given helpful. in business? my this installed your follow-up are potentially the not base in OpEx be segment requires costs goods the growth last investment outlook XXXX, XXXX? few factored you of years. and going -- you about the this business into services surprise services for in question, are growth of

Pierre-Yves Lesaicherre

answer to Greg ask that. I'll Maybe

Greg Swyt

Patrick, is So, this Greg.

be investments is do there business. us any there bring answer are service service new year. is, our investment we OpEx. may There very half product be as to limited market to second requiring to that outlook, run the in improvements mentioned, as to the It And we in in to through our current do isn't rate. although, move incremental we the in the of those utilization offerings, that the margins will So, reflecting need

Pierre-Yves Lesaicherre

be have world. add been, back. see quite these time, develop, for service to wanted headcount quarters bit it And little obviously, one how around because of later want people and just time at when the revenue in a the to thing this hire I down, the some and business takes has point service Today, to we our personnel we and a -- waiting ready the from them not coming lot train choice to when around reduce with to service. comes our Yes,

headcount really because So, mentioned, we business -- is slight the to as the are as go a we back up. training the underutilization QX, and having for in but Greg us important holding headcount expect onto

Patrick Ho

one a follow-up you final as a upgrades vendors for enhanced relied just question in now. equipment is environment, a business, mentioned, capabilities market And part things tool obviously many as that underutilized type strategy? existing this to that. your of they Right. lot right But do for bit of as upon to of me, A growth How the see are base. customers, over kind years the and especially that XXXX you their of of your

Pierre-Yves Lesaicherre

We an service want a a the business our of strategy. also margin So, has normal it important increase typically is that the than business. upgrades business. It's to higher part

So, we that. want to increase

brightness to years, of or the upgrades terms lamp have II or we've over the some done the other computer seen, II Atlas operating or system. or our stage We our Atlas conversion from plus in that the the

off seen consistent we're So, on a upgrades. service trying to is and these and and our more that They've coming upgrades business business. have what do now develop we been growing keeps

opportunity an beyond. and definitely for XXXX it's So,

Patrick Ho

Great. much. Thank you very

Operator

Thank proceed. comes Twigg you. with Please from next And question KeyBanc. our Weston

Weston Twigg

have Hi, them. thanks I of for taking two my questions.

highlight about logic downtick softer demand, that or little potentially related bigger of the is from curious or in that that. to sounds customers would trough, risk QX. painting whether that given on ramp any could a like visibility, you foundry side, you just picture wondering, highlight I'm another either member just or other the or thoughts First, maybe the your is this the demand But it's QX there for you're lower on it density

Pierre-Yves Lesaicherre

and we in had good equipment. customers relationship months. visibility placed, year order of the our is three delivery take sail the typically, orders have been and a their tend history are the a last And with has we've the Well, abide our how once six of we'd customers to to what -- by -- the the

pretty the was QX into sales. tools still our year, that turn orders point customers the So, And terms that started market, in took about QX the proof softening we and are of a confident bit last NAND the of will the and delivery even demand and fact things the in DRAM our they little they had ordered.

there's is relatively still impact that quarter a out while expect our with we from have So possibility will another, there relatively and to some to sales, to X QX push overall QX this forecast. low we're a confident our

Weston Twigg

question And helpful. very around is products. new have that's Okay, the other I

said while? talking sure but for potential year, the Are exactly been other the going existing products have launching brand not evolutionary new products of products? be this impact I'm a related understood. to you're to new about XXXX the OCD are product what at or And these you I these You some would Or revenue?

Pierre-Yves Lesaicherre

what we've said lot of the that to So, customers from advance current set products. further had a of is interest I

faster we metrology know, integrated of metrology you to flagship prioritize products that. the that were returns new to by do can been these investments working impulse. Atlas some on. customers decided and then products And of R&D And by we ahead we've on As asked is flagship the get the enhancement of the the and doing because automated we also the and

this that are going that I have we're about. launches to the year So, product talked these

Weston Twigg

in the Very -- so into helpful, XXXX embedded outlook full that's then?

Pierre-Yves Lesaicherre

Yes.

Weston Twigg

you. Thank right. All

Operator

Miller [Operator Thank you. Our Please Instructions] comes from Benchmark with The proceed. question Mark next Company.

Mark Miller

also see wondering, Thank the slow to Or manufacturers? first domestic of contributions Chinese year? half in you that going you just NAND for the expecting to question. from the are I'm is significant

Pierre-Yves Lesaicherre

are see the China we we but domestic look somewhat a slowdown general, slowdown I'll in China both. of talk and between specifics a if seeing and in So, China foreign China at we in about companies,

the think documented. in NAND is DRAM I and well slowdown

-- Sansui Wuxi or we a of our half from demand be this most But at year. And Dalian or see domestic Intel, year. XD-NAND in So China is we overall, than that being we that impact would the the in towards last year see longer the the second of customers. but Qian, China weighted domestic lower was the Hynix it customer, see also demand the

Mark Miller

Are you third this still DRAM add customer year? expecting to

Pierre-Yves Lesaicherre

but are We have on working news are good working stage, a some hopefully, we we it. still later on at it, and

Mark Miller

in you up were expect slightly to that Do trend is just December down quarter? current contribution? quarter, the Inventories XD's those the in

Greg Swyt

Yes, Mark, the increase That of the to this Greg. the majority -- is is XD. related

we of to XD. said, we we a see that $X related million On on of I As less inventory little brought than improvements that, debt had did some quarter-over-quarter.

Mark Miller

Thank you.

Operator

Thank at you. for questions showing I'm Lesaicherre I'd over back no the this turn queue. closing Dr. further remarks. in time, call to to And like

Pierre-Yves Lesaicherre

Thank you.

and opportunities scheduled and front employees, steadfast in addressing So, challenges to incremental joining we in to next concludes on with year. the to by thank you late amazing our all us our company efforts April. growing their value. our I this take shareholder opportunity of today. thank our I for call for our that call Together today. profitably to business the also the And you earnings create leadership for look growing and forward team call past updating like our employees would remain this XX%

So long.

Operator

Ladies today's program. thank for and in gentlemen, you the concludes conference. This participation your

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

Onto Innovation (ONTO) 5 Feb 192018 Q4 Earnings call transcript