Executive Summary

Revenue of $228.8M and non-GAAP EPS of $1.18 landed at the high end of guidance, driven by AI-related HBM and logic packaging demand; GAAP gross margin was 52% .
Specialty and advanced packaging revenue set another quarterly record, with Dragonfly G3 shipments up ~30% QoQ; management introduced a new Dragonfly subsurface defect sensor to enable 100% wafer inspection for ultrathin HBM wafers .
Q2 2024 guidance: revenue $230–$240M, GAAP EPS $0.88–$1.00, non-GAAP EPS $1.14–$1.26; management also guided gross margin to 52–54% and OpEx to $62–$64M, implying sequential margin improvement .
Catalysts: sustained AI packaging demand through Q2; new defect sensor and panel lithography (glass) shipments; watch for a potential modest “digestion” in AI packaging around Q3 before reacceleration into Q4 and a stronger 2025 setup .

What Went Well and What Went Wrong

What Went Well

AI packaging demand maintained record levels: “Strong and anticipated demand for high-bandwidth memory and logic packaging for AI devices resulted in first quarter revenue at the very high end of our guidance range” . Dragonfly G3 shipments rose ~30% QoQ to support AI packaging .
Cash generation and operating efficiency: operating cash flow of $57M (25% of revenue), converting ~100% of operating income into cash .
Product innovation and adoption: new Dragonfly subsurface defect sensor for ultrathin HBM wafers; first JetStep lithography system shipment to support glass panel substrates, with management positioning panel-level packaging and glass as enabling next-gen chiplet architectures .

What Went Wrong

Power semiconductor revenue softness: “After a record year in 2023, revenue from power device manufacturers declined in the first quarter,” though growth is expected to return in Q2 and through the second half .
Advanced nodes remain at low levels: revenue “incrementally improved as expected, but remains at quite low levels”; management expects sequential growth but highlighted uncertainty around broader ramps until late 2024/2025 .
Packaging “digestion” risk: management signaled a potential modest digestion in AI packaging in Q3 before renewed strength, adding near-term forecasting uncertainty around quarterly phasing .

Financial Results

Consolidated Financials (GAAP and non-GAAP)

Metric	Q3 2023	Q4 2023	Q1 2024
Revenue ($USD Millions)	$207.2	$218.9	$228.8
GAAP Gross Margin (%)	52%	49%	52%
Non-GAAP Gross Margin (%)	52%	52%	52%
GAAP Operating Income ($USD Millions)	$34.0	$28.2	$42.7
Non-GAAP Operating Income ($USD Millions)	$49.6	$56.4	$57.3
GAAP Net Income ($USD Millions)	$35.9	$30.3	$46.9
Non-GAAP Net Income ($USD Millions)	$47.6	$52.4	$58.5
GAAP Diluted EPS ($)	$0.73	$0.61	$0.94
Non-GAAP Diluted EPS ($)	$0.96	$1.06	$1.18

Notes: Q1 2024 revenue growth +5% QoQ and +15% YoY; non-GAAP EPS +11% QoQ and +28% YoY per CFO commentary .

Segment/Market Breakdown

Segment	Q3 2023 ($M / %)	Q4 2023 ($M / %)	Q1 2024 ($M / %)
Advanced Nodes	$26 / 13%	$18 / 8%	$27 / 12%
Specialty Devices & Advanced Packaging	$135 / 65%	$158 / 72%	$158 / 69%
Software & Services	$46 / 22%	$42 / 20%	$44 / 19%

Discrepancy note: The press release cited $161M for specialty & advanced packaging; CFO clarified on the call the quarter was $158M .

Operational KPIs

KPI	Q3 2023	Q4 2023	Q1 2024
Dragonfly G3 Shipments QoQ	+50% QoQ expectation for Q4 (from Q3 remarks)	Continued surge supporting AI packaging	+30% QoQ shipments
Operating Cash Flow ($M)	$29	$62	$57 (25% of revenue)
Cash, Cash Equivalents & Marketable Sec. ($M)	$630	$698	$741
Inventory ($M)	$346	$328	$330

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($M)	Q2 2024	N/A	$230–$240	New
GAAP Diluted EPS ($)	Q2 2024	N/A	$0.88–$1.00	New
Non-GAAP Diluted EPS ($)	Q2 2024	N/A	$1.14–$1.26	New
Gross Margin (%)	Q2 2024	51–53% (Q1 guide)	52–54% (Q2)	Raised vs Q1 guide
Operating Expenses ($M)	Q2 2024	N/A	$62–$64	New
Effective Tax Rate (%)	FY 2024	14–16%	14–16%	Maintained
Diluted Share Count (M)	Q2 2024	~49.8 (Q1)	~49.9	Slightly higher

Reference guidance context: Q1 2024 prior guidance was revenue $215–$230M; GAAP EPS $0.74–$0.94; non-GAAP EPS $1.00–$1.20 .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 2023)	Previous Mentions (Q4 2023)	Current Period (Q1 2024)	Trend
AI Packaging (Dragonfly)	+$110M orders; multi-quarter ramp into H1’24	3x YoY inspection; backlog extends into H2’24; growth in first half	Revenue high end of guide; Dragonfly +30% QoQ; record specialty/AP revenue	Strong, sustained
Subsurface Defect Sensor (thin HBM wafers)	N/A	N/A	New Dragonfly sensor enabling 100% inspection; orders and shipments starting Q2	New capability; adoption building
Advanced Nodes (Gate-All-Around, NAND)	DRAM/logic declines; films metrology progress; GAAR TAM +30% vs FinFET	Early GAAR orders (Atlas/Iris); modest first-half pickup expected	Incremental improvement; logic + NAND demand emerging; DRAM soft; sequential growth expected	Gradual recovery
Panel Lithography & Glass Substrates	2023 litho shipments pushed; capacity scaling in 2024; first glass customer order	3 systems to 2 customers (mobile/HPC); glass customer shipment in summer 2024	First JetStep for glass panels shipping in Q2; glass seen as enabling 1μm RDL on panels	Execution improving; strategic
Power Semiconductors (SiC/GaN)	Near record; Element S metrology to 5 SiC customers	2024 flattish vs record 2023; potential to grow	Q1 decline; reaccelerating in Q2 and stronger H2	Near-term dip, H2 strength
China Exposure	~15% in Q3; 18–19% YTD; lower than peers	Similar commentary	Not a major call focus in Q1 [—]	Stable, below peers

Management Commentary

“Strong … demand for high-bandwidth memory and logic packaging for AI devices resulted in first quarter revenue at the very high end of our guidance range” — CEO Michael Plisinski .
“Our Dragonfly platform has been enhanced with a new sensor to detect subsurface defects at production capable speeds … orders from several customers and shipments starting in the second quarter” — CEO .
“We expect gross margins will improve to 52% to 54% … we anticipate our non-GAAP earnings for the second quarter to be between $1.14 per share to $1.26 per share” — CFO Mark Slicer .
“We are on track to ship our first JetStep system to support lithography on glass panels … critical to realize high volume and high-performance chiplet architectures” — CEO .
“Outlook for the year is improving … second half … incrementally higher providing nice momentum going into … a stronger year … in 2025” — CEO .

Q&A Highlights

Advanced nodes breadth: NAND demand driven by enterprise SSDs for AI servers (200+ layer stacks); Atlas/Aspect established tool-of-record positions; logic adoption continuing for Atlas OCD and Iris planar films .
Quarter-to-quarter phasing: management framed H2 growth as incremental (single digits, ~3–7% half-on-half), with potential Q3 digestion before reacceleration .
Segment discrepancy clarified: CFO confirmed specialty & advanced packaging revenue was $158M vs $161M cited in the press release .
Lead times and capacity: Dragonfly lead times ~3–6 months on build-to-forecast; sustained strength across the three HBM suppliers and AI logic packaging providers .
Margin drivers: sequential GM improvement anticipated from supply chain initiatives and product mix; lithography margins improving from very low initial orders .

Estimates Context

S&P Global Wall Street consensus estimates for ONTO were unavailable in this session due to SPGI request limits. As a result, numeric comparisons vs consensus cannot be provided and should be treated as unavailable for Q1 2024 and Q2 2024 guidance. The analysis above references company guidance and actuals from primary documents .

Key Takeaways for Investors

AI packaging continues to be the primary growth engine; Dragonfly shipments and specialty/AP revenue remain robust into Q2, supporting high-end guidance outcomes .
Watch Q3 for a modest digestion in AI packaging before potential strength in Q4; management still expects H2 to be modestly higher and sets a stronger 2025 narrative with advanced nodes and panel lithography scaling .
Sequential gross margin improvement is a near-term pillar (52–54% guided in Q2) driven by supply chain actions and product mix; OpEx peaks seasonally in Q2 before tapering in H2 .
Advanced nodes show green shoots: logic and NAND orders emerging with Atlas/Aspect/Iris, and steady GAAR preparation; expect sequential growth from a low base in 2024, more meaningful impact in 2025 .
Power semis paused in Q1 but reaccelerate in Q2 and likely remain strong in H2; process control value proposition supports output and yield even amid capex moderation .
Strategic optionality from panel lithography and glass substrates: initial shipments begin, positioning ONTO for enabling higher-density interconnects and future chiplet architectures .
Cash generation remains healthy with disciplined working capital; $57M OCF (25% of revenue) and $741M cash/marketable securities provide flexibility for execution and investment .

ONTO INNOVATION INC. (ONTO)·Q1 2024 Earnings Summary