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Onto Innovation (ONTO) Q2 Earnings & Revenues Beat Estimates

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Onto Innovation Inc. (ONTO - Free Report) reported solid second-quarter 2020 financial results, with the top and bottom line surpassing the Zacks Consensus Estimate. Despite COVID-19 uncertainties, new product launches and technological investments drove higher revenues, while robust liquidity position buoyed Onto Innovation’s quarterly performance.

Bottom Line

On an adjusted basis, quarterly net income was $20.8 million or 42 cents per share compared with $7.7 million or 30 cents per share in the year-ago quarter. The year-over-year improvement was primarily driven by top-line growth. The bottom line beat the consensus estimate by 7 cents.

On a GAAP basis, net income in the June quarter came in at $7.4 million or 15 cents per share compared with $5.5 million or 22 cents per share in the prior-year quarter.

Revenues

Quarterly revenues aggregated $134.9 million compared with $61.5 million in the year-ago quarter. The more than two-fold surge was mainly driven by its exceptional performance in advanced nodes market with several new product launches on the back of a resilient business model. However, the revenues fell 3.6% sequentially due to lower metrology and software sales, partially offset by solid wafer business. The top line surpassed the consensus estimate of $134 million.

On the basis of market segmentation, 43% of the revenues were derived from advanced nodes market, 33% from specialty devices and 24% from software and services business. In the reported quarter, Onto Innovation launched three avant-garde metrology products, namely — Aspect optical metrology system, Atlas 5 OCD metrology system and IMPULSE 5 integrated metrology system.

Also, the company’s JetStep panel lithography backlog reached a record figure of $15 million. Markedly, systems from this existing backlog are anticipated to be delivered in the first half of 2021. Notably, the company’s lithography solution caters to the accretive demand for heterogeneous chip packages stemming from the 5G market. These strategic initiatives helped the company to not only expand its product portfolio but also broaden growth opportunities across the semiconductor value chain globally.

Other Details

Total operating expenses were $63.7 million compared with $26.5 million in the prior-year quarter, primarily driven by higher amortization and R&D expenses. Non-GAAP operating income was $24.2 million, up 192.7% from $8.3 million in the year-ago quarter. Non-GAAP gross profit in the quarter was $71.9 million compared with $31.9 million with respective margins of 53% and 52%. The year-over-year increase was driven by a favorable product mix on the back of higher revenues.

Cash Flow & Liquidity

Free cash flow for the quarter came in at nearly $36 million. Notably, decline in cash receivables helped generate sufficient cash. However, it was partially offset by an increase in inventories as a result of supply chain disruptions.

As of Jun 27, the company had $312.1 million in cash and equivalents with $96.8 million of non-current liabilities. As part of its repurchase program, Onto Innovation repurchased stock worth $18.4 million during the quarter. On the back of a robust liquidity position, the company’s working capital came in at $546.2 million at the end of the quarter.

Q3 Guidance Issued

Onto Innovation issued guidance for third-quarter 2020. The company expects revenues in the range of $122-$132 million. Adjusted earnings per share (EPS) are estimated in the band of 28-40 cents, while GAAP EPS is expected to be in the range of 4-16 cents. This guidance has been specifically provided keeping in mind the ongoing COVID-19 turmoil across various end markets. With global customer support, the company is committed to abide by the safety protocols while serving the requirements of customers amid this crisis.

Zacks Rank & Stocks to Consider

Onto Innovation currently has a Zacks Rank #3 (Hold).

A few other top-ranked stocks in the broader industry are T-Mobile US, Inc. (TMUS - Free Report) , Calix, Inc. (CALX - Free Report) and Turtle Beach Corporation (HEAR - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

T-Mobile’s bottom line surpassed the Zacks Consensus Estimate in the last four quarters. The company has a trailing four-quarter earnings surprise of 19.4%, on average.

Calix’s bottom line surpassed the Zacks Consensus Estimate in the last four quarters. The company has a trailing four-quarter earnings surprise of 59.7%, on average.

Turtle Beach’s bottom line surpassed the Zacks Consensus Estimate in the last four quarters. The company has a trailing four-quarter earnings surprise of 46.4%, on average.

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