Title

Presentation

Onto Innovation Inc. beats earnings expectations. Reported EPS is $1.42, expectations were $1.38.

Operator: Thank you for standing by. Good day, and welcome to the Onto Innovation Inc. First Quarter Earnings Release Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Sidney Ho. Please go ahead.

Sidney Ho: Thank you, Terren, and good afternoon, everyone. Onto Innovation Inc. issued its 2026 first quarter financial results this afternoon shortly after the market closed. If you did not receive a copy of the release, please refer to the company’s website where a copy of the release is posted. Joining us on the call today are Michael P. Plisinski, Chief Executive Officer, and Brian K. Roberts, Chief Financial Officer. I would like to remind you that the statements made by management on this call will contain forward-looking statements within the meaning of the federal securities laws. Those statements are subject to a range of changes, risks, and uncertainties that can cause actual results to vary materially. For more information regarding the risk factors that may impact Onto Innovation Inc.’s results, I would encourage you to review our earnings release and our SEC filings.

Onto Innovation Inc. does not undertake the obligation to update these forward-looking statements in light of new information or future events. Today’s discussion of our financial results will be presented on a non-GAAP financial basis unless otherwise specified. As a reminder, a detailed reconciliation between GAAP and non-GAAP results can be found in today’s earnings release. Let me now turn the call over to our CEO, Michael P. Plisinski. Mike?

Michael P. Plisinski: Thank you, Sidney. Good afternoon, everyone, and thank you for joining us on our call today. The Onto Innovation Inc. team is off to an outstanding start to the year as the momentum in our business continues to build in support of strong demand for AI compute. This surge in demand across both front end and advanced packaging resulted in first quarter revenue above our original guidance range and is expected to continue with the heightened outlook for the second quarter revenue, which at the midpoint represents a 20% increase year over year. Momentum should continue into the second half of the year with rising customer expansions enhanced by accelerating new product adoption and a growing backlog, all indicating more than 15% sequential revenue growth in the second half of the year.

In total, we expect revenue growth of more than 30% in 2026. This momentum is driven by the insatiable end market demand for high performance compute and supporting process technologies, including silicon photonics. Customers benefit from our broad and synergistic portfolio of optical process control technologies, which through our software are capable of working together to provide more actionable intelligence to manufacturers. The announcement of our strategic collaboration with the leader in X-ray technology, Rigaku, expands this capability significantly. While optical metrology is preferred for high-volume manufacturing, additional needs are emerging as manufacturers increase the application of exotic materials in 3D structures at transistor and chiplet scale, which is where the penetration power and precision of X-ray technology can provide additional information about material composition and underlayer data to potentially improve optical metrology robustness.

The key to realizing this benefit is our AI Diffract software, where our customers were the first to see the potential benefits of leveraging AI Diffract technology to unleash the strength of Rigaku’s X-ray systems to solve process metrology challenges where other suppliers struggled. Now with two competitive wins in hand and several other evaluations planned across memory and logic manufacturers, we are confident that the value of this combination to our customers will increase. In addition to revenue from licensing AI Diffract to support Rigaku X-ray systems, another revenue stream involves the development of more complex hybrid metrology solutions to provide unique production-capable metrology by combining the strengths of optical and X-ray technologies.

The breadth and depth of Rigaku’s X-ray technology makes them an outstanding partner as they enjoy one of the broadest portfolios of X-ray technology spanning CD, materials analysis, and films. Rigaku has over 75-year history in X-ray, with over $600 million in 2025 revenue, of which approximately 40% is related to the semiconductor industry. We are proud to be working together, and our investment of 27% of the business, which provides us a seat on their board of directors, will further strengthen our long-term alignment, provide deeper insight into X-ray technology road maps, and position us to jointly advance next-generation hybrid metrology solutions. While the Rigaku partnership expands our opportunities for growth tied to future process challenges, today’s process challenges are driving increased demand for our solutions in both advanced packaging and advanced nodes.

Starting with advanced packaging, we are thrilled to have announced our qualification and adoption of Dragonfly G5’s inspection system at a leading 2.5D logic customer, closely following our wins in high bandwidth memory for both 2D and 3D metrology. Our team did a phenomenal job to accelerate the development to the delivery of this completely new platform, which delivers improved sensitivity, high throughput, and the flexibility of multiple sensors to provide a compelling and differentiated value proposition to the customer. Shipments to customers are ahead of plan, and we are actively engaging with new customers and applications. With a pipeline of over 15 distinct applications across over 10 customers, the outlook for Dragonfly G5 is very promising, providing opportunities for both share gains in current markets and expansion into new markets.

Just as 2D features within die are shrinking rapidly, so are the 3D interconnects between die. Two years ago, the most advanced bumps were approximately 15 to 25 microns high. Today, we are sampling bumps below 6 microns in height. This adoption of smaller, more dense bumps plays to the strength of our 3DI technology and has led to several more OSAT customers and over 10 additional orders in the quarter. Finally, the strong demand for AI and the industry constraints in packaging capacity are causing customers to look at additional processes such as panel level packaging where larger substrates can provide for greater economies of scale as the adoption of heterogeneous packaging drives larger package sizes. We are pleased to learn that JetStep was recently qualified at two packaging suppliers to AI device manufacturers, with ramp-up expectations in 2027.

Considering all of these growth drivers, we believe our advanced packaging revenue will grow more than 50% in 2026. Turning to our advanced nodes business, it continues to strengthen across both logic and memory. Adoption of our Atlas G6 platform is expanding following successful head-to-head evaluations at several key accounts for next-generation logic nodes. In memory, we are seeing solid traction as DRAM customers ramp development of next-generation devices. Additionally, we secured a new application win for TSV metrology using our Atlas system, with initial shipments expected to commence in the second half of the year. With this broad-based strength in logic, DRAM, and early signs of recovery in NAND, we now expect our advanced nodes business to grow approximately 25% in 2026, ahead of the average WFE growth expectations in the low twenties.

With that, let me now turn the call to Brian to review our financial highlights and provide second quarter guidance. Brian?

Brian K. Roberts: Thanks, Mike. Good afternoon, everyone. As Mike noted, 2026 is off to a strong start for Onto Innovation Inc. as we exceeded the high end of our first quarter guidance range across all key financial metrics, including revenue, gross margin, operating margin, and earnings per share. Revenue of $292 million increased nearly 10% sequentially on strength primarily across our advanced nodes business highlighted by adoption of the Atlas G6 and our inspection products, including the initial commercial shipments of the Dragonfly G5. Specialty device and AP was approximately $160 million in the quarter, of which two-thirds was advanced packaging, $25 million related to Semilab, and the remainder specialty device including Power Semi.

Advanced nodes was approximately $80 million, of which 60% was memory, primarily DRAM, and the remainder logic. Software and services comprised the remaining first quarter revenue. Despite increasing headwinds around certain material input costs, such as memory and higher fuel and shipping charges, we demonstrated solid margin performance as gross margin improved sequentially by 110 basis points to 55.7%, and operating margin increased by 150 basis points to 26.7%. Our performance reflects benefits recognized primarily from our move to extended factories. Earnings per share were $1.42, reflecting a 13% improvement over Q4 2025. On April 20, we announced the deepening of our strategic partnership with Rigaku, including the purchase of a 27% stake in the company from Carlyle Group for approximately $710 million.

The deal is expected to close in 2026 and be primarily funded with cash on hand. We will account for the purchase using the fair value option method for investments, which means the deal will be recorded at cost, and then each reporting period, we will show an unrealized gain or loss based upon the movement in Rigaku’s stock price. This will be reflected in the other income section of our P&L. While Rigaku’s financials will not be consolidated into our numbers, we see three primary benefits which will enhance our financial results. First, Rigaku’s X-ray tool integrated with our AI Diffract software will generate incremental licensing revenue to us at nearly a 100% margin. Second, we expect we will sell additional metrology tools such as our Atlas G6 to customers who are using the integrated X-ray tool.

Third, we expect Rigaku will continue to pay dividends to shareholders which equates to approximately $7 million or more per year based on our expected ownership stake. Within a year of the close of the transaction, we would expect that the income generated from these three sources will offset any foregone interest income on cash used in the deal. Now let me discuss our outlook for the second quarter with some thoughts on the remainder of 2026. We previously announced on April 16 our Q2 revenue expectation of $320 million to $330 million, representing, at the midpoint, a 10% increase to previous analyst expectations and 28% year-over-year growth. As we look to the second half of this year, revenue is expected to accelerate to at least 15% growth over the first half of 2026.

This translates to 2026 revenue greater than $1.3 billion. Alongside this outstanding revenue result is our expectation for continued second quarter gross and operating margin expansion. While we note increasing headwinds around certain material costs, fuel charges, and investments in our R&D and services teams to support the revenue ramp, we are confident in our ability to show continued margin expansion. We currently expect Q2 gross margin in the range of 56% to 56.5%, operating expenses of $90 million to $92 million, operating margin in the range of 28% to 28.6%, and earnings of approximately $1.69 per share at the midpoint. This assumes a non-GAAP tax rate of approximately 15% and slightly more than 50 million shares outstanding. While closely monitoring macro and micro headwinds impacting our cost, we remain confident that we will improve gross margins in Q3 at a rate of at least 50 basis points per quarter and exit Q4 with an operating margin greater than 30%.

With that, let me turn it back to Mike for some closing thoughts before we take your questions. Mike?

Michael P. Plisinski: Thank you, Brian. In summary, this quarter underscores the strength of our execution and the accelerating momentum across our portfolio. We exceeded expectations in the first quarter, advanced our leadership in advanced packaging with the successful qualification of Dragonfly G5 at multiple key customers, and took a major step forward in our metrology strategy through the partnership and investment in Rigaku. At the same time, our operational discipline continues to enhance scalability and drive strong margin expansion. Our visibility continues to strengthen, supported by record backlog, new product momentum, and deep collaboration with customers as we work together to solve their most critical process control challenges.

With this visibility, market expansion, and our relentless drive to improve operational efficiencies, we believe Onto Innovation Inc. is well positioned to not only outperform this year, but also carry that momentum forward into 2027. And now, Terren, let us open the call for questions from our covering analysts.

Receive real-time insider trading and news alerts

Operator: Thank you. If you are dialed in via the telephone and would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. We ask that you please limit yourself to one question and one follow-up question. Again, you may press star 1 to ask a question. We will pause for just a moment to allow everyone an opportunity to signal. We will take our first question from Craig Andrew Ellis with B. Riley Securities.

Craig Andrew Ellis: Yes. Thanks for taking the question and congratulations on the real strong execution, guys. Mike, I wanted to start with a question on Dragonfly G5. Clearly, you got a marquee win that starts to ship in Q2, which is great to see. Can you talk about the way the pipeline allows for visibility for growth through the back half of the year? Then what are you hearing from customers with Dragonfly G5 relative to 2027? And then the follow-up is on advanced nodes. We are significantly raising our view for advanced nodes growth this year to 25%. Can you talk about some of the end-use drivers for that, and how we should think about linearity as we go through the back half of the year in 2026? Thanks, Mike.

Michael P. Plisinski: Great question, Craig. From the G5 perspective, we are actually getting requests to pull in and serving those requests to pull in G5 shipments. We shipped several systems in Q1, we are shipping more into Q2, and even more in Q3 and Q4. We see a steady growth in demand for the G5 throughout all four quarters. From a perspective of 2027, from those existing customers we have visibility into stronger demand as you would expect as they get cut into production in 2026. As that production expands in 2027, that is what we are expecting. I also mentioned that we have a very strong pipeline of application studies. These are both studies in existing technologies—so existing markets we serve—as well as new markets.

Those applications are going quite well, which would imply, if successful and resulting in orders, significant expansion in 2027. For advanced nodes, the biggest driver is the Atlas OCD metrology. Some of the latest capabilities we are providing customers include smaller spot sizes, being able to measure in-die to provide more process information that customers can use to improve yield. Historically, spot sizes were too large to do that, and you had to measure in test areas. Customers prefer to do it on die if possible, so we are seeing good drivers from that. We are also working on integrated metrology and have had good progress with logic customers, building on the strength we have in the memory market. That also contributes to the growth we are seeing, as well as in films.

The Iris Films tools are seeing some level of growth in the common films. We see that contributing to some exciting news more towards the end of this year and into 2027. That is what we are seeing on the advanced node side.

Operator: We will take our next question from Blayne Peter Curtis with Jefferies.

Ezra Weener: Hi, this is Ezra Weener on for Blayne. Thanks for taking my question. Last quarter you were talking about big VPA potentially being two-thirds weighted into 2027 and could get pulled in half-half theoretically into 2026. Can you talk about what you are seeing in terms of demand from customers from a timing perspective? Are you seeing pull-ins? And as a follow-up, Dragonfly G5 was looked at as a margin improvement story versus G3. Can you talk about how much you are seeing that actually impact margin?

Michael P. Plisinski: Broadly speaking, we are seeing pull-ins, but not at the expense of the 2027 numbers. It is really more of a broader rising of the tide. If you look at 2026 and 2027, a lot of these expansions are tied to new fabs coming online versus filling up excess capacity in existing fabs. The pull-ins are when customers are able to ramp up a fab quickly and they want to take more tools, or where we had share gains and we see a share shift and they want to pull in some tools. It is not at the expense, based on what we see so far, of 2027. In fact, 2027 continues to look much stronger than 2026. On Dragonfly G5 margins, it will be an improvement as a completely new tool with a significant improvement in value proposition to the customer.

Overall cost of ownership for the customer is much more attractive. You are not going to see the margin improvement in the initial first half of the year because the relative volume is low as we continue to ramp it throughout the year, going into the second half. Where I would expect you to see a more significant impact is in 2027, when the transition to Dragonfly G5 is much stronger and it is a higher percentage of the overall inspection revenue.

Brian K. Roberts: We do continue to expect to improve the gross margins throughout each of the quarters this year.

Operator: If you find that your question has been answered, you may remove yourself from the queue by pressing star 2. Once again, if you would like to ask a question, you may join the queue by pressing star 1. We will move to our next question from Edward Yang with Oppenheimer.

Edward Yang: Hi, guys. Thanks for the time and congrats on the G5 2.5D logic qualification. Maybe, Mike, can you give a little more detail on why the customer liked the new platform versus other options? Are you expecting any share recapture, new layer wins, or broader customer application expansion related to G5? And for my follow-up, on the 2027 outlook, you have a rich menu of growth opportunities and favorable industry backdrop but a lot of internal drivers as well. If you were to rank order the opportunities you are particularly excited about—Atlas G6, Dragonfly, 3DI, Iris, JetStep, X-ray, etc.—how do you feel about 2027 and your ability to outgrow WFE?

Michael P. Plisinski: I characterized it as a 2.5D logic customer. In the head-to-head, you have to win, and if you win, then you get more orders. That, by definition, means we are going to see some opportunities shift back to us that were either served by us before or are new opportunities for us, driven by the higher resolution and the compelling value that the flexibility of Dragonfly delivers to the customer. Why the win? We have been in this market for a long time. Packaging is very different than the front end. Our tool is designed for packaging. What we needed to do was deliver on the high-resolution piece, and we have done that. We are seeing things now below 200 nanometers, where historically 800 nanometers might have been about the limit.

This is a combination of new optics, new camera, new staging—basically a ground-up system—leveraging all of our experience with challenges in packaging: die warp, wafer warp, rough surfaces due to different types of CMP polishing leaving rough surfaces for metal layers, and so on. Our algorithms and experience help create a very compelling system. In addition, we added new die-to-die algorithms that allow us to eliminate die variation, a significant improvement complementary to our golden-die algorithms from the past. At the end of the day, the customer wants the best cost of ownership and most flexible system for the valuable fab space that they have. This system is designed for several generations ahead. On 2027 opportunities, asking me which child I love best: the highest growth and the highest contributions to growth or potential share gain opportunities will come from Dragonfly G5.

It has the potential to expand into nearly $1 billion in new markets, and the existing markets it serves are also growing. The Atlas G6 is making good progress in gate-all-around customers and will continue to ramp. OCD continues to be a critical component for process control in gate-all-around technologies, even as we look at integrating X-ray systems in order to extend and expand the opportunities for OCD. These are complementary, not replacements. Surface charge metrology is another good growth area for us. We see more interest from packaging as chiplet architectures become more mainstream. Concerns around residual charge having a direct impact on package yield are high, and the products we are coming out with and opportunities for STI continue to grow.

In addition, panel-level market products with both JetStep and Firefly: we talked about some growth there as well recently, and we see a meaningful shift now with the panel market starting to gain traction. We do expect to outgrow WFE next year as well.

Operator: We will take our next question from Matthew Patrick Prisco with Cantor.

Matthew Patrick Prisco: Yes, thanks, guys, for taking the question. I wanted to start on the advanced packaging market and the improved outlook there. What are the primary drivers within that? What got incrementally stronger over the last 90 days between maybe HBM, CoWoP-like, panel-level packaging? And what is included now in that number from a G5 perspective? And then can you talk more about the Rigaku collaboration and how you are thinking about revenues there ramping in the second half, primarily starting with software, and then how we should think about the combo optical/X-ray tool timing and the potential magnitude of that opportunity over time?

Michael P. Plisinski: For all the growth we talked about, how much of it is G5 is still relatively small—call it less than 10%, maybe even around 5%. It is ramping. The other areas are significant contributors to growth. G3 demand is still going up. G5 is ramping every quarter and growing dramatically, starting from zero: Q1 is a handful of tools; Q2 and Q3 it continues to nearly double each quarter throughout the year. Overall, you are looking at over 50% growth in advanced packaging, and for us, 2.5D logic and HBM are very similar in growth outlooks, similar to what they were in 2024 when everything was ramping—we talked about them split roughly equally. On Rigaku, for the software piece, we will provide more guidance as we gain experience working with Rigaku as they drive the sales.

We are two separate companies, so our software attach rate to their CD X-ray tools depends on their CD X-ray tool pipeline. We think it is quite healthy. We need more experience with how long it takes to close. Based on what we have seen, we expect that software revenue to grow throughout 2026 and then grow even further in 2027. We are now starting to leverage some of our contacts in the industry and with customers, looking for new opportunities now that we have a more solidified arrangement, so that number could grow. The new hybrid metrology solution is further out. That is more working with customers, understanding their challenges, and then combining information to provide production-worthy systems several generations out. OCD right now is going to cover through around 1-nanometer-type processes.

There will be some incremental sales we talked about, but the hybrid metrology will be more on new technologies coming out in a couple years—starting now in R&D, working with partners in the R&D space, then timing for HVM, where the real opportunity will come.

Brian K. Roberts: Matt, in its simplest form, if you think about the foregone interest income over the next 12 months, we feel very confident that we will more than pick that back up through the combination of the licensing revenue that we have talked about as the primary revenue stream, plus the dividend income that we will see from Rigaku. Those two numbers together from an income perspective should offset what we are foregoing in interest.

Operator: We will take our next question from Vedvati Shrotre with Evercore ISI.

Vedvati Shrotre: Hi. Thanks for taking my questions. On advanced packaging, you talked about two additional growth opportunities: silicon photonics and panel-level packaging. Can you help size the revenue opportunity here and when you expect to start seeing volumes? And for my second question, what are your tool lead times? Are there any supply chain bottlenecks starting to creep up?

Michael P. Plisinski: We are already starting to see some volumes in silicon photonics. From a size perspective, the end-market demand is quite high. If you think about all the AI servers going in and the desire to reduce power consumption and provide additional speed between memory and logic—two different areas—silicon photonics are being used for co-packaged optics. It can mean quite a bit of volume, but the question is how quickly it gets cut in. We have talked about several customers where we have already been selected and are gaining traction and orders. We have a good visibility and pipeline into additional opportunities through the next 12 months. From a sizing perspective, it is a little early to be too specific, but I would see this as one of our high-growth areas—from a relatively low base, but very high growth based on end-market demand and need.

On panel-level packaging, we have not come off of the approximately $200 million we have said over the several years, and that includes JetStep and Firefly. There is a bias that as the industry shifts and more manufacturers move to a panel packaging format, that number could go up meaningfully, but for now that is a range you can think about. On lead times and supply chain, in general we are managing through issues. None are impacting our production or commitments to customers. This is one of the benefits of moving to the extended factories. Through that process, we also pruned our supply chain tree, making changes to suppliers that did not have the scale and capability to grow with us and support our overseas factories. Lead times are extending out a little bit, but so far no big issues, and we are able to meet customer demand.

Operator: We will take our next question from Charles Shi with Needham.

Charles Shi: Hey, good afternoon, Mike and Brian. Regarding the Rigaku collaboration and the expected licensing revenue, can you give us a sense of the economics on a per-tool basis—is it a few hundred thousand, a few million? And a longer-term question on your positioning for hybrid bonding-related inspection and metrology opportunities: there may be some overlap between your EchoScan and potential X-ray-based solutions. How do you think about positioning between your offering versus theirs, and how do you solve any overlap where you may end up competing for the same opportunities?

Michael P. Plisinski: We are not going to break down per-tool licensing economics, but Brian highlighted the components. If you look at potential interest income of the investment we made and subtract roughly $7 million for dividends, then the residual is what we would expect to see from license revenue and from profits from potential hybrid metrology sales. That gives you a rough idea. Overall, that is not game-changing for Onto Innovation Inc. from a revenue perspective this year. The point is this is a strategic initiative that expands our opportunities significantly as we look out three to six years. On overlap, you picked about the only one that exists. There is a potential overlap in packaging for X-ray inspection between our EchoScan and that.

Optical systems should always be much faster. EchoScan, if it reaches its full potential, should be much faster, and that is a benefit. The X-ray benefit is precision and penetration depth. There could be opportunities where one is the inspection tool and the other is the high-end review tool—they can work together and coexist. That is part of the reason we like this expanded opportunity to offer customers the best-of-breed technologies together. Otherwise, films, CD SAXS versus optical CD—these are complementary. As long as OCD can measure it, which so far we have demonstrated we can push beyond where most people thought possible, customers will go with OCD. But there are gaps, especially as 3D becomes more dominant in customers’ process road maps, where penetration depth is critical.

X-ray will provide insight into the OCD modeling engines that will make OCD more valuable and extend OCD further, getting the speed of OCD with the precision and penetration depth of X-ray.

Operator: As a reminder, if you would like to ask a question, you may press star 1 on your telephone keypad now. We will take our next question from Brian Edward Chin with Stifel.

Brian Edward Chin: Hi there. Good evening. Thanks for letting us ask a few questions. Mike, referencing the 2.5D logic win, are you baking in a relatively modest contribution from G5 sales to this customer in the second half? Could that be conservative? And when you think about that qualification improving and strengthening your competitiveness for the variety of applications that that customer has, can you hazard a guess where your market share at that customer might shake out moving forward? And as a follow-up, is the Atlas TSV application win you referenced an example of the synergy between the two companies’ optical and X-ray technologies? Also, given a large portion of Rigaku’s business is outside of semi, are there any opportunities or plans to engage in markets beyond semi?

Michael P. Plisinski: I do not want to say exactly what could happen, but we have new opportunities within the account that with the previous resolution we could not serve. Could our forecast be conservative? Sure. Could there be upside to the second half? Sure. But we gave the guidance now, and next quarter we will provide additional guidance and see how things shake out. It is not all tied to this customer. We mentioned 10 additional customers looking at the G5 for over 15 applications, many of which we would not have been able to serve in the past. The opportunity to expand our overall SAM is creating excitement and growth and upside for maybe the second half, but definitely into 2027. Relative to the breadth of potential customers, there is a lot more breadth now versus recent years where it was more concentrated.

As advanced packaging is migrated and customers focus on high value-add process steps and outsource others, we are growing our position with those outsourced partners. On TSV, that was not part of the Rigaku synergy. That was homegrown, leveraging the capabilities of our Atlas to do specific metrology that was previously done by a different OCD supplier. Specific to Rigaku, we are focusing on semi, and they also see semi as one of their key growth pillars. That is a great synergy and a great reason why working together we can provide strengths not just of technologies but also of footprint and infrastructures. That will be our focus for the foreseeable future and where the biggest benefits will be realized.

Operator: It appears there are no further questions at this time. I would like to turn the conference back over for any additional or closing remarks.

Sidney Ho: Thanks, Terren. We will be participating in a number of investor conferences throughout this quarter. We look forward to seeing many of you there. A replay of the call today will be available on our website at approximately 7:30 p.m. Eastern Time this evening. We would like to thank you for your continued interest in Onto Innovation Inc. Terren, please conclude the call.

Operator: This concludes today’s call. Thank you again for your participation. You may now disconnect, and have a great day.

Receive real-time insider trading and news alerts