Executive Summary

ONTO delivered Q3 revenue of $0.252B, GAAP EPS of $1.07, and non-GAAP EPS of $1.34, near the high end of guidance; gross margin improved to 54% GAAP and 55% non-GAAP, with record operating cash flow of $67M (27% of revenue) .
Demand was driven by AI packaging and a recovery in advanced nodes; inspection revenue hit a quarterly record led by Dragonfly, and power semiconductors set a quarterly revenue record .
Q4 guidance implies continued momentum: revenue $253–$267M, GAAP EPS $1.04–$1.19, non-GAAP EPS $1.33–$1.48, GM 54–55%; guidance strength was partially offset by ~$10M JetStep lithography pushouts due to customer capacity timing .
Strategic “tuck-in” acquisitions (Lumina Instruments and K&S lithography business) expand inspection sensitivity below 100nm and accelerate panel lithography, with a combined target of up to $100M annual revenue in 3 years and accretive within 12 months—an incremental growth catalyst .
Management highlighted strengthening backlog, positive 2025 setup, and confidence to outgrow WFE again given elevated process control intensity in gate-all-around and AI packaging; short-term trading catalysts: continued AI packaging strength, advanced nodes ramp, and integration of tuck-ins versus near-term lithography timing headwinds .

What Went Well and What Went Wrong

What Went Well

Quarterly records in inspection and power-semiconductor revenues; “we executed well...setting quarterly records for inspection revenue” and “record quarterly revenue from power semiconductor customers” .
Advanced nodes revenue grew >30% sequentially; films metrology traction and gate-all-around investment improved gross and operating margins; “advanced nodes customers grew more than 30% sequentially” .
Cash generation and margin expansion: record cash from operations of $67M (27% of revenue) and non-GAAP operating margin at 28% at high end of guidance .

What Went Wrong

~$10M JetStep lithography shipments were pushed out by customers; reschedule timing remains unclear, creating near-term revenue timing risk .
HBM capacity additions muted into Q4 despite logic packaging uptick; management is awaiting tangible orders before turning more constructive on HBM ramp .
Q3 OpEx exceeded guidance high end due to accelerated R&D ramp; though management aims to hold OpEx flat or better in Q4, the R&D spend lever is elevated near term .

Financial Results

Headline P&L vs prior periods and guidance context

Metric	Q3 2023 (Oldest)	Q2 2024	Q3 2024 (Newest)
Revenue ($USD Millions)	$207.185	$242.327	$252.210
GAAP Gross Margin %	52%	53%	54%
Non-GAAP Gross Margin %	52%	53%	55%
GAAP Operating Income ($USD Millions)	$34.006	$48.833	$53.072
Non-GAAP Operating Income ($USD Millions)	$49.592	$64.530	$69.999
GAAP Net Income ($USD Millions)	$35.886	$52.949	$53.051
Non-GAAP Net Income ($USD Millions)	$47.613	$65.354	$66.386
GAAP Diluted EPS ($)	$0.73	$1.07	$1.07
Non-GAAP Diluted EPS ($)	$0.96	$1.32	$1.34
Wall Street Consensus (Revenue)	N/A (S&P Global unavailable)	N/A (S&P Global unavailable)	N/A (S&P Global unavailable)
Wall Street Consensus (EPS)	N/A (S&P Global unavailable)	N/A (S&P Global unavailable)	N/A (S&P Global unavailable)

Note: S&P Global consensus data was unavailable at time of analysis due to access limits; therefore beat/miss vs estimates cannot be determined.

Segment/Market Mix (Company-reported markets)

Market	Q1 2024	Q2 2024	Q3 2024
Specialty Devices & Advanced Packaging ($USD Millions, % of Revenue)	$158, 69%	$164, 68%	$161, 64%
Advanced Nodes ($USD Millions, % of Revenue)	$27, 12%	$32, 13%	$42, 17%
Software & Services ($USD Millions, % of Revenue)	$44, 19%	$46, 19%	$49, 19%

KPIs

KPI	Q1 2024	Q2 2024	Q3 2024
Cash from Operations ($USD Millions)	$57	$65	$67
Cash, Cash Equivalents & Marketable Securities ($USD Millions)	$741	$786	$855.404
Inventories ($USD Millions)	$330	$319.712	$308.304
GAAP Gross Margin %	52%	53%	54%
Non-GAAP Gross Margin %	52%	53%	55%
Non-GAAP Operating Margin %	25%	27%	28%

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($USD Millions)	Q3 2024	$245–$255	Actual $252.210	Delivered near high end
GAAP Diluted EPS ($)	Q3 2024	$0.98–$1.08	Actual $1.07	Delivered near high end
Non-GAAP Diluted EPS ($)	Q3 2024	$1.25–$1.35	Actual $1.34	Delivered near high end
Revenue ($USD Millions)	Q4 2024	—	$253–$267	Raised vs Q3 guidance range
GAAP Diluted EPS ($)	Q4 2024	—	$1.04–$1.19	Raised vs Q3 guidance range
Non-GAAP Diluted EPS ($)	Q4 2024	—	$1.33–$1.48	Raised vs Q3 guidance range
Gross Margin % (Non-GAAP)	Q4 2024	—	54%–55%	In-line with Q3 high end
Operating Expenses ($USD Millions, Non-GAAP)	Q4 2024	$64–$66 (Q3 guide)	$66–$68	Slightly higher to support R&D; aim to hold flat/better
Effective Tax Rate %	Q4 2024	15%–16% (Q3 guide)	15%–16%	Maintained
Diluted Shares (Millions)	Q4 2024	~49.7 (Q3 guide)	~49.8	Maintained

Management also expects inventory to decline a further $8–$10M in Q4, exiting 2024 below $300M .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2)	Current Period (Q3)	Trend
AI Packaging / HBM	Q1: Dragonfly revenue +30% q/q; new subsurface defect sensor; digestion possible later in year . Q2: Advanced packaging record $164M; $300M VPAs (~60% packaging); near-term pause in AI packaging (10% 2H vs 1H) .	AI packaging improved vs prior projection; 2H down ~5% vs 1H; logic packaging to see significant increase; HBM muted near-term pending orders .	Improving overall; HBM visibility still muted
Gate-All-Around (GAA) Advanced Nodes	Q1: Adoption at multiple customers; Iris films + Atlas OCD positions; advanced nodes revenue low but rising . Q2: Strong adoption; logic revenue to grow in Q4; 70% of logic to support GAA .	Advanced nodes revenue +32% q/q; backlog strengthening; confidence to outgrow WFE in 2025 .	Accelerating
Power Semiconductors	Q1: Down, expected to return near record in Q2 . Q2: Near record demand .	Quarterly record; yield-focused buys amid wafer transitions (SiC 6→8”, GaN 8→12”) .	Strong and sustaining
Panel-Level Packaging / Glass	Q1: First JetStep for glass panels; PACE collaboration setup . Q2: JetStep X500 shipped; glass stability enables finer RDL .	PACE opened; tuck-ins expand inspection and litho IP; plans to accelerate panel lithography roadmap .	Building strategic platform
China / Korea	Q2: China H2 > H1 but still teens; strategy to focus higher-end apps .	2025 China expected 10–15% of sales; Korea to participate via DRAM growth .	China stable; Korea improving
Inventory	Q1: $330M; plan reductions . Q2: $320M; target < $300M by YE .	$308M; expect $8–$10M further reduction in Q4 .	Improving
Lithography Timing	—	~$10M JetStep pushouts; tools ready, customer-driven, reschedule TBD .	Near-term headwind

Management Commentary

“Overall, we executed well in the third quarter with revenue coming in at $252 million and setting a new quarterly record for inspection...we improved our gross margin to 54.5% and operating margin to 28%...record cash generation from operations of $67 million.” — CEO Michael Plisinski .
“We would have been a significant beat [in Q4]...the added growth in AI packaging is offsetting the $10 million pushout...logic packaging recently announced a doubling of 2.5D logic capacity for next year.” — CEO Michael Plisinski .
“Backlog continues to strengthen...we continue to grow our backlog even as we work through [VPA].” — CEO Michael Plisinski .
“If [WFE] is in this 5% to 10% range...we're highly confident in outperforming those numbers...[due to] increased process control intensity...” — CEO Michael Plisinski .
CFO guidance reiterated: “Q4 revenue $253–$267M, gross margins 54–55%, OpEx $66–$68M, tax 15–16%, diluted shares ~49.8M; non-GAAP EPS $1.33–$1.48.” — CFO Mark Slicer .

Q&A Highlights

AI packaging trajectory: HBM muted near-term, but logic packaging capacity increasing; management expects first-half 2025 higher than second-half 2024, with HBM expansion likely needed to support 2.5D logic growth .
JetStep lithography pushouts: ~$10M delayed by customers due to capacity constraints; tools are ready; reschedule timing not yet clear .
VPAs: ~$300M VPAs across two customers remain intact with shipments weighted to 2025; mix ~60% packaging and ~40% GAA .
Lead times and capacity: HBM inspection tool lead times ~3 months; ONTO has manufacturing flexibility (additional shifts, supply chain partners) to scale output .
Regional mix: Expect Korea participation via DRAM; China revenue 10–15% in 2025 as ONTO focuses on higher-end applications amid local competition .

Estimates Context

Wall Street consensus from S&P Global was unavailable at time of analysis due to access limits, so formal beat/miss versus consensus cannot be determined.
Company reported Q3 results near the high end of its guidance ranges (revenue $245–$255M guided vs $252.210M actual; non-GAAP EPS $1.25–$1.35 guided vs $1.34 actual), suggesting operational outperformance against internal expectations .

Key Takeaways for Investors

Process control intensity is structurally rising in AI packaging and GAA nodes; ONTO’s inspection and metrology portfolio (Dragonfly, Iris, Atlas) is well-positioned, supporting margin expansion and backlog growth into 2025 .
Near-term watch: HBM order visibility remains muted; logic packaging growth is offsetting lithography timing pushouts; monitor Q4 conversion and any reschedule clarity for JetStep .
Strategic tuck-ins (Lumina, K&S lithography) expand TAM and accelerate panel lithography roadmap; integration execution and early revenue synergy (~$100M annual target in 3 years) could drive multiple expansion .
Advanced nodes recovery is underway (+32% q/q in Q3) with multi-tool adoption; ONTO expects to outgrow WFE again in 2025 given the mix and intensity of GAA investments .
Cash generation robust (27% of revenue) with inventory trending below $300M by YE; balance sheet strength ($855M cash) supports R&D and tuck-in investments without leverage .
Risk factors: timing of HBM capacity adds and customer ramp schedules; potential variability in lithography demand recovery; competitive dynamics in China at lower-end applications .
Trading implications: positive setup into Q4 and 2025 on packaging and nodes; watch for HBM order inflection, further margin improvements, and post-acquisition product launches to sustain the narrative.

Appendix: Additional Press Releases (Q3 context)

Lumina Instruments acquisition and K&S lithography business acquisition: expands inspection sensitivity below 100nm and accelerates JetStep panel lithography roadmap; expected to be accretive within 12 months and up to $100M in annual revenue in ~3 years .
PACE opening: first-of-its-kind U.S. panel-level packaging center to accelerate glass substrate R&D; multi-party collaboration to target sub-1.5µm line/space and new process control challenges—supporting future AI packages .

ONTO INNOVATION INC. (ONTO)·Q3 2024 Earnings Summary