Onto Innovation Reports 2020 Fourth Quarter and Full Year Results

Rhea-AI Summary

Onto Innovation (NYSE: ONTO) reported strong financial results for Q4 and full year 2020. Q4 revenue hit $155.1 million, a 23% increase from Q3, driven by a 100% increase in revenue from RF customers and new product acceptance in the semiconductor sector. Net income for Q4 was $19.9 million, or $0.40 per diluted share. The company achieved annual gross profit margin of 50% for 2020. Total revenue for the year was $556.5 million, up from $305.9 million in 2019. Looking forward, ONTO anticipates Q1 revenue between $155 million and $169 million.

Positive

• Q4 revenue increased by 23% to $155.1 million.
• RF customer revenue surged 100% over Q3.
• Net income for Q4 was $19.9 million, up from $8.1 million in Q3.
• Annual revenue rose to $556.5 million from $305.9 million in 2019.
• Achieved annual merger cost synergies of $24 million.
• Entered long-term operating model with Q4 non-GAAP operating margin of 24%.
• Cash and marketable securities increased by $33 million in Q4.

Negative

• Q4 gross profit margin declined to 49% from 54% in Q3, impacted by an inventory reserve for a discontinued product.
• Operating expenses for the year rose significantly to $251.8 million from $140.1 million in the prior year.

Onto Innovation Inc. (NYSE: ONTO) today announced financial results for the fourth quarter and full year results for 2020.

2020 Fourth Quarter and Full Year Highlights

• Quarterly revenue of $155.1 million increased 23% compared to $126.5 million in the 2020 third quarter and exceeded management’s guidance.
• Revenue from RF customers supporting the 5G ramp increased 100% over the third quarter.
• Aspect^® metrology system accepted by a top three supplier of 3D NAND, displacing the incumbent metrology tool in the fourth quarter.
• Penetrated a leading DRAM customer with first IMPULSE^® integrated metrology systems gaining significant market share and becoming process tool of record to support significant ramp in 2021.
• Achieved annualized merger cost synergies of $24 million driving improved combined company results.
• Technology synergies enabled the introduction of the new Iris^™ films system resulting in multiple orders delivered to a top three semiconductor manufacturer.
• New product introductions in metrology and inspection expected to increase 2021 TAM and SAM by over 20%.
• Entered long-term operating model with fourth quarter Non-GAAP operating margin of 24%.
• Cash and marketable securities increased $33 million in the fourth quarter and cash from operations was 21% of revenue in the quarter.

The following and subsequent financial tables, as well as commentary and comparisons to 2019 in this release, include the results of Rudolph Technologies, Inc. through October 25, 2019, and the results of Onto Innovation from October 26, 2019 through December 31, 2019.

Onto Innovation Inc.
Key Financial Data for the Quarters Ended December 26, 2020,
September 26, 2020, and December 31, 2019
(in thousands, except per share amounts)
US GAAP
		December 2020				September 2020				December 2019*
Revenue		$	155,128			$	126,492			$	120,558
Gross profit margin			49	%			54	%			33	%
Operating income (loss)		$	14,711			$	9,282			$	(23,359	)
Net income (loss)		$	19,914			$	8,091			$	(17,752	)
Net income (loss) per diluted share		$	0.40			$	0.16			$	(0.41	)
US NON-GAAP
		December 2020				September 2020				December 2019*
Revenue		$	155,128			$	126,492			$	120,558
Gross profit margin			54	%			54	%			51	%
Operating income		$	37,633			$	23,786			$	20,241
Net income		$	35,555			$	19,602			$	18,065
Net income per diluted share		$	0.72			$	0.40			$	0.41

*The results for December 2019 include the results of Rudolph Technologies, Inc. through October 25, 2019 and Onto Innovation from October 26 to December 31, 2019.

Michael Plisinski, chief executive officer of Onto Innovation commented, “The extraordinary challenges of integrating two similar sized companies while simultaneously operating under the constraints of a global pandemic underscored the strength of the Onto Innovation team. Together, we released six new products and expanded our growth opportunities in new markets for advanced packaging and image sensors as well as in the advanced nodes for logic, DRAM, and 3D-NAND. The strong revenue growth in the fourth quarter was a combination of market strength in memory and RF communications in support of the initial 5G handset ramp as well as the acceptance of several of our new product releases.”

Plisinski concluded, “In addition to expanding our market opportunities, we are deepening our customer partnerships across the value chain by working collaboratively on identifying future challenges and potential solutions. This is expanding our view of the horizon and illuminating exciting possibilities for our team. Our guidance for the first quarter reflects our confidence for what is ahead. Secular demand for 5G enabled handsets and base stations continues to increase. High performance computing engines for AI and data center applications also remain strong and are driving demand for DRAM. The electronics industry is profoundly changing the world in which we live. We are excited to do our part to ensure it’s a better planet. Our activities began as we developed our first corporate responsibility report and created our corporate environmental goals. This year gave us many examples of how critical this is for our society and the environment and we look forward to contributing to this effort.”

Fourth Quarter 2020 and Full Year GAAP Financial Results

• Fourth quarter revenue totaled $155.1 million, an increase of 23% compared with $126.5 million for the third quarter of 2020. For the full year, revenue totaled $556.5 million compared to $305.9 million in the prior year.
• Gross profit margin was 49% of revenue in the fourth quarter of 2020, compared to 54% in the third quarter of 2020. Fourth quarter gross margin was negatively impacted by an inventory reserve for a discontinued product line. For the full year 2020, gross profit margin was 50% compared to 44% in the prior year.
• Operating expenses for the fourth quarter of 2020 totaled $60.6 million, an increase of $1.0 million compared to $59.6 million in the third quarter of 2020. For the full year, operating expenses were $251.8 million compared to $140.1 million in the prior year.
• The income tax provision was a benefit of $5.4 million for the fourth quarter of 2020 compared to $836 thousand of expense in the 2020 third quarter. The fourth quarter benefit was primarily due to the conclusion of an IRS audit covering the years 2016 to 2018 and a net operating loss carryback claim to tax years with higher statutory tax rates.
• GAAP net income for the fourth quarter of 2020 was $19.9 million, or $0.40 per diluted share, compared with $8.1 million, or $0.16 per diluted share, for the 2020 third quarter. For the full year, net income was $31.0 million, or $0.63 per diluted share compared to net income of $1.9 million, or $0.06 per diluted share in the prior year.

Fourth Quarter 2020 and Full Year Non-GAAP Financial Results

• Fourth quarter 2020 non-GAAP net income was $35.6 million, or $0.72 per diluted share, and was above the high end of previous guidance, compared to non-GAAP net income of $19.6 million, or $0.40 per diluted share in the third quarter 2020. For the full year, non-GAAP net income was $95.7 million, or $1.93 per diluted share compared to $41.8 million, or $1.39 per diluted share in the prior period.
• Non-GAAP results exclude merger-related expenses, restructuring costs and the amortization of intangible assets as detailed in the accompanying tables.

Balance Sheet

• As of December 26, 2020, cash and marketable securities increased $53.5 million for the year, net of $52 million of stock repurchases in 2020, and ended at $373.7 million.
• Working capital increased $32.1 million from the 2020 third quarter and ended the year at $611.6 million.
• Accounts receivable totaled $149.3 million as of the end of the year and inventory ended the year at $191.2 million.

Outlook

The Company is currently anticipating revenue for the first quarter 2021 to be in the range of $155 million to $169 million. This guidance assumes that the safety protocols in place continue to limit the impact of COVID-19 on our factories and our suppliers. The upper end of this guidance is predicated on the approval of the Company’s application for a license to deliver an ordered product that was recently restricted from shipping to China. Within this revenue range the Company is expecting GAAP net income per diluted share to be in the range of $0.35 to $0.49 and non-GAAP net income per diluted share to be in the range of $0.62 to $0.76.

Webcast & Conference Call Details

Onto Innovation will host a conference call at 4:30 p.m. Eastern Time today, February 4, 2021, to discuss its fourth quarter and full year 2020 financial results in greater detail. To participate in the call, please dial (800) 437-2398 or International: +1 (929) 477-0577 and reference conference ID 109830 at least five (5) minutes prior to the scheduled start time. A live webcast will also be available at www.ontoinnovation.com.

To listen to the live webcast, please go to the website at least fifteen (15) minutes early to register, download and install any necessary audio software. There will be a replay of the conference call available from 7:30 p.m. ET on February 4 until 7:30 p.m. ET on February 11, 2021. To access the replay, please dial (888) 203-1112 and conference ID 109830 at any time during that period. A replay will also be available at www.ontoinnovation.com.

Discussion of Non-GAAP Financial Measures

The Company has provided in this release non-GAAP financial measures, including non-GAAP net income and non-GAAP EPS, which exclude amortization of acquisition-related intangible assets, certain acquisition-related expenses and benefits, and restructuring costs. Non-GAAP net income and non-GAAP EPS can also exclude certain other gains and losses that are either isolated or cannot be expected to occur again with any predictability, tax provisions/benefits related to the previous items, and significant discrete tax events. We exclude the above items because they are outside of our normal operations and/or, in certain cases, are difficult to forecast accurately for future periods.

We utilize several different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of our business, in making operating decisions, forecasting and planning for future periods, and determining payments under compensation programs. We consider the use of the non-GAAP measures to be helpful in assessing the performance of the ongoing operation of our business. We believe that disclosing non-GAAP financial measures provides useful supplemental data that, while not a substitute for financial measures prepared in accordance with GAAP, allows for greater transparency in the review of our financial and operational performance. We also believe that disclosing non-GAAP financial measures provides useful information to investors and others in understanding and evaluating our operating results and future prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies. More specifically, management adjusts for the excluded items for the following reasons:

Amortization of purchased intangible assets: we do not acquire businesses and assets on a predictable cycle. The amount of purchase price allocated to the purchased intangible assets and the term of amortization can vary significantly and are unique to each acquisition or purchase. We believe that excluding amortization of purchased intangible assets allows the users of our financial statements to better review and understand the historic and current results of our operations, and also facilitates comparisons to peer companies.

Merger or acquisition related expenses and benefits: we incur expenses or benefits with respect to certain items associated with our mergers and acquisitions, such as transaction and integration costs, change in control payments, adjustments to the fair value of assets, etc. We exclude such expenses or benefits as they are related to acquisitions and have no direct correlation to the operation of our on-going business.

Restructuring charges: we incur restructuring and impairment charges on individual or groups of employed assets, which arise from unforeseen circumstances and/or often occur outside of the ordinary course of our on-going business. Although these events are reflected in our GAAP financials, these unique transactions may limit the comparability of our on-going operations with prior and future periods.

Significant litigation charges or benefits and legal costs: we may incur charges or benefits as well as legal costs in connection with litigation and other contingencies unrelated to our core operations. We exclude these charges or benefits, when significant, as well as legal costs associated with significant legal matters, because we do not believe they are reflective of on-going business and operating results.

Income tax expense: we estimate the tax effect of the items identified to determine a non-GAAP annual effective tax rate applied to the pretax amount in order to calculate the non-GAAP provision for income taxes. We also adjust for items for which the nature and/or tax jurisdiction requires the application of a specific tax rate or treatment.

From time to time in the future, there may be other items excluded if we believe that doing so is consistent with the goal of providing useful information to investors and management.

There are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. The non-GAAP financial measures are limited in value because they exclude certain items that may have a material impact on our reported financial results. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP in the United States. Investors should review the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures as provided in the tables accompanying this press release.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”) which include Onto Innovation’s business momentum and future growth; the benefit to customers of Onto Innovation’s products and customer service; Onto Innovation’s ability to both deliver products and services consistent with our customers’ demands and expectations and strengthen its market position; Onto Innovation’s expectations regarding the semiconductor market outlook; Onto Innovation’s first quarter 2021 financial outlook; as well as other matters that are not purely historical data. Onto Innovation wishes to take advantage of the “safe harbor” provided for by the Act and cautions that actual results may differ materially from those projected as a result of various factors, including risks and uncertainties, many of which are beyond Onto Innovation’s control. Such factors include, but are not limited to, the length, severity and potential business impact of the COVID-19 pandemic, the Company’s ability to leverage its resources to improve its position in its core markets; its ability to weather difficult economic environments; its ability to open new market opportunities and target high-margin markets; the strength/weakness of the back-end and/or front-end semiconductor market segments; fluctuations in customer capital spending and any potential impact as a result of the novel coronavirus situation. Additional information and considerations regarding the risks faced by Onto Innovation are available in Onto Innovation’s Form 10-K report for the year ended December 31, 2019 and other filings with the Securities and Exchange Commission. As the forward-looking statements are based on Onto Innovation’s current expectations, the Company cannot guarantee any related future results, levels of activity, performance or achievements. Onto Innovation does not assume any obligation to update the forward-looking information contained in this press release.

About Onto Innovation

Onto Innovation is a leader in process control, combining global scale with an expanded portfolio of leading-edge technologies that include: Un-patterned wafer quality; 3D metrology spanning chip features from nanometer scale transistors to large die interconnects; macro defect inspection of wafers and packages; elemental layer composition; overlay metrology; factory analytics; and lithography for advanced semiconductor packaging. Our breadth of offerings across the entire semiconductor value chain helps our customers solve their most difficult yield, device performance, quality, and reliability issues. Onto Innovation strives to optimize customers’ critical path of progress by making them smarter, faster and more efficient. Headquartered in Wilmington, Massachusetts, Onto Innovation supports customers with a worldwide sales and service organization. Additional information can be found at www.ontoinnovation.com.

Source: Onto Innovation Inc.

ONTO INNOVATION INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands) - (Unaudited)
		December 26, 2020				December 31, 2019
ASSETS
Current assets
Cash, cash equivalents and marketable securities		$	373,722			$	320,236
Accounts receivable, net			149,251				123,656
Inventories			191,217				176,134
Prepaid and other assets			17,471				21,638
Total current assets			731,661				641,664
Net property, plant and equipment			87,950				98,420
Intangibles, net			624,989				679,101
Other assets			23,572				29,395
Total assets		$	1,468,172			$	1,448,580
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities		$	77,258			$	53,942
Other current liabilities			42,833				31,801
Total current liabilities			120,091				85,743
Other non-current liabilities			83,335				98,811
Total liabilities			203,426				184,554
Stockholders’ equity			1,264,746				1,264,026
Total liabilities and stockholders’ equity		$	1,468,172			$	1,448,580

ONTO INNOVATION INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts) - (Unaudited)
		Three Months Ended												Twelve Months Ended
		December 26,				September 26,				December 31,				December 26,				December 31,
		2020				2020				2019*				2020				2019*
Revenue		$	155,128			$	126,492			$	120,558			$	556,496			$	305,896
Cost of revenue			79,779				57,604				80,971				278,043				170,868
Gross profit			75,349				68,888				39,587				278,453				135,028
Operating expenses:
Research and development			21,812				19,678				16,705				84,584				48,358
Sales and marketing			11,272				11,924				12,637				48,136				28,251
General and administrative			14,889				14,358				24,320				65,310				53,017
Amortization			12,665				13,646				9,284				53,746				10,445
Total operating expenses			60,638				59,606				62,946				251,776				140,071
Operating income (loss)			14,711				9,282				(23,359	)			26,677				(5,043	)
Interest income, net			459				544				999				2,899				3,666
Other (expense) income, net			(643	)			(899	)			(61	)			(2,708	)			780
Income (loss) before income taxes			14,527				8,927				(22,421	)			26,868				(597	)
Provision (benefit) for income taxes			(5,387	)			836				(4,669	)			(4,157	)			(2,507	)
Net income (loss)		$	19,914			$	8,091			$	(17,752	)		$	31,025			$	1,910
Earnings (loss) per share:
Basic		$	0.41			$	0.17			$	(0.41	)		$	0.63			$	0.06
Diluted		$	0.40			$	0.16			$	(0.41	)		$	0.63			$	0.06
Weighted average shares outstanding:
Basic			48,931				48,900				43,609				49,136				29,729
Diluted			49,326				49,131				43,609				49,475				30,007

*The results for December 2019 include the results of Rudolph Technologies Inc. through October 25, 2019 and Onto Innovation from October 26 to December 31, 2019.

.

ONTO INNOVATION INC.
NON-GAAP FINANCIAL SUMMARY
(In thousands, except percentage and per share amounts) - (Unaudited)
		Three Months Ended												Twelve Months Ended
		December 26, 2020				September 26, 2020				December 31, 2019*				December 26, 2020				December 31, 2019*
Revenue		$	155,128			$	126,492			$	120,558			$	556,496			$	305,896
Gross profit		$	83,958			$	68,873			$	60,920			$	297,281			$	156,361
Gross margin as percentage of revenue			54	%			54	%			51	%			53	%			51	%
Operating expenses		$	46,325			$	45,087			$	40,679			$	188,724			$	111,749
Operating income		$	37,633			$	23,786			$	20,241			$	108,557			$	44,612
Operating margin as a percentage of revenue			24	%			19	%			17	%			20	%			15	%
Net income		$	35,555			$	19,602			$	18,065			$	95,710			$	41,847
Net income per diluted share		$	0.72			$	0.40			$	0.41			$	1.93			$	1.39

*The results for December 2019 include the results of Rudolph Technologies Inc. through October 25, 2019 and Onto Innovation from October 26 to December 31, 2019.

RECONCILIATION OF U.S. GAAP GROSS PROFIT,
OPERATING EXPENSES AND OPERATING INCOME TO NON-GAAP
GROSS PROFIT, OPERATING EXPENSES AND OPERATING INCOME
(In thousands, except percentages) - (Unaudited)
		Three Months Ended												Twelve Months Ended
		December 26, 2020				September 26, 2020				December 31, 2019*				December 26, 2020				December 31, 2019*
U.S. GAAP gross profit		$	75,349			$	68,888			$	39,587			$	278,453			$	135,028
Pre-tax non-GAAP items:
Merger related expenses			505				(15	)			15,388				10,724				15,388
Restructuring expense			8,104				—				5,945				8,104				5,945
Non-GAAP gross profit			83,958				68,873				60,920				297,281				156,361
U.S. GAAP gross margin as a percentage of revenue			49	%			54	%			33	%			50	%			44	%
Non-GAAP gross margin as a percentage of revenue			54	%			54	%			51	%			53	%			51	%
U.S. GAAP operating expenses		$	60,638			$	59,606			$	62,946			$	251,776			$	140,071
Pre-tax non-GAAP items:
Merger related expenses			1,647				645				9,867				5,906				14,761
Restructuring expense			—				228				3,116				3,399				3,116
Amortization of intangibles			12,666				13,646				9,284				53,747				10,445
Non-GAAP operating expenses			46,325				45,087				40,679				188,724				111,749
Non-GAAP operating income		$	37,633			$	23,786			$	20,241			$	108,557			$	44,612
GAAP operating margin as a percentage of revenue			9	%			7	%			(19	)%			5	%			(2	)%
Non-GAAP operating margin as a percentage of revenue			24	%			19	%			17	%			20	%			15	%

*The results for December 2019 include the results of Rudolph Technologies Inc. through October 25, 2019 and Onto Innovation from October 26 to December 31, 2019.

ONTO INNOVATION INC.
RECONCILIATION OF U.S. GAAP NET INCOME (LOSS) TO
NON-GAAP NET INCOME
(In thousands, except share and per share data) - (Unaudited)
		Three Months Ended												Twelve Months Ended
		December 26, 2020				September 26, 2020				December 31, 2019*				December 26, 2020				December 31, 2019*
U.S. GAAP net income (loss)		$	19,914			$	8,091			$	(17,752	)		$	31,025			$	1,910
Pre-tax non-GAAP items:
Merger related expenses			2,152				630				25,255				16,630				30,149
Restructuring expense			8,104				228				9,060				11,503				9,060
Amortization of intangibles			12,666				13,646				9,284				53,747				10,445
Net tax benefit adjustments			(7,281	)			(2,993	)			(7,782	)			(17,195	)			(9,717	)
Non-GAAP net income		$	35,555			$	19,602			$	18,065			$	95,710			$	41,847
Non-GAAP net income per diluted share		$	0.72			$	0.40			$	0.41			$	1.93			$	1.39

*The results for December 2019 include the results of Rudolph Technologies Inc. through October 25, 2019 and Onto Innovation from October 26 to December 31, 2019.

ONTO INNOVATION INC
SUPPLEMENTAL INFORMATION - RECONCILIATION OF FIRST QUARTER 2021
GAAP TO NON-GAAP GUIDANCE
		Low			High
Estimated GAAP net income per diluted share			$0.35			$0.49
Estimated pre-tax non-GAAP items:
Merger related expenses			$0.03			$0.03
Amortization of intangibles			$0.29			$0.29
Net tax benefit adjustments			($0.05)			($0.05)
Estimated non-GAAP net income per diluted share		$	0.62		$	0.76

 

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FAQ

What were Onto Innovation's Q4 2020 revenue figures?

Onto Innovation reported Q4 2020 revenue of $155.1 million, a 23% increase compared to Q3.

How did Onto Innovation perform financially in 2020?

In 2020, Onto Innovation achieved total revenue of $556.5 million, up from $305.9 million in 2019.

What is the outlook for Onto Innovation's Q1 2021 revenue?

Onto Innovation anticipates Q1 2021 revenue to range between $155 million and $169 million.

How much net income did Onto Innovation generate in Q4 2020?

Onto Innovation's net income for Q4 2020 was $19.9 million, or $0.40 per diluted share.

What were the main contributors to Onto Innovation's revenue growth in Q4 2020?

The revenue growth was driven by a 100% increase from RF customers and new product acceptance in the semiconductor sector.

What was the overall gross profit margin for Onto Innovation in 2020?

Onto Innovation achieved a gross profit margin of 50% for the full year 2020.