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Yahoo
17-07-2025
- Business
- Yahoo
KBR Secures Two-Year Renewal of EPCM Contract with Basra Oil Company for the Majnoon Oil Field in Iraq
HOUSTON, July 17, 2025 (GLOBE NEWSWIRE) -- KBR (NYSE: KBR) announced today that it has secured the renewal of its engineering, procurement, and construction management (EPCM) contract with Basra Oil Company (BOC) for the Majnoon Oil Field for an additional two years. Under the contract, KBR will continue to provide comprehensive EPCM services to help BOC sustain forecasted production capacity, enhance operational efficiency, maximize local content, and drive continued safety improvements. 'This contract extension is a testament to the strong working relationship between KBR and BOC, and further reinforces KBR's ongoing commitment to Iraq's national energy strategy and the sustainable development of the Majnoon field, one of the most strategic assets in the country,' said Jay Ibrahim, President, KBR Sustainable Technology Solutions. 'KBR is committed to support local development and contribute to Iraq's long-term domestic capacity enhancement.' 'KBR will continue to be our strategic partner in EPCM projects in Majnoon, successfully supporting our long-term development goals and maximizing field potential through safe, efficient, and sustainable project execution,' said Mr. Kadhim Kareem, CEO of the Majnoon Field at Basra Oil Company. KBR's team in Iraq comprises a high number of local professionals to meet the targeted percentages at the Majnoon site and other regional hubs, ensuring the seamless execution of ongoing and upcoming projects as part of the Growth II Program. About KBRWe deliver science, technology and engineering solutions to governments and companies around the world. KBR employs approximately 38,000 people worldwide with customers in more than 80 countries and operations in over 29 countries. KBR is proud to work with its customers across the globe to provide technology, value-added services, and long-term operations and maintenance services to ensure consistent delivery with predictable results. At KBR, We Deliver. Visit Forward Looking Statements The statements in this press release that are not historical statements, including statements regarding project performance and outcomes and future demand for the company's services, are forward-looking statements within the meaning of the federal securities laws. These statements are subject to numerous risks, uncertainties and assumptions, many of which are beyond the company's control, that could cause actual results to differ materially from the results expressed or implied by the statements. These risks, uncertainties and assumptions include, but are not limited to, those set forth in the company's most recently filed Annual Report on Form 10-K, any subsequent Form 10-Qs and 8-Ks and other U.S. Securities and Exchange Commission filings, which discuss some of the important risks, uncertainties and assumptions that the company has identified that may affect its business, results of operations and financial condition. Due to such risks, uncertainties and assumptions, you are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. Except as required by law, the company undertakes no obligation to revise or update publicly any forward-looking statements for any reason. For further information, please contact: Jamie DuBrayVice President, Investor Relations713-753-5082Investors@ Philip IvyVice President, Global Communications and Marketing 713-753-3800MediaRelations@
Yahoo
16-07-2025
- Business
- Yahoo
KBR Awarded FEED Contract for KEPPT's Fertilizer Facility in Iraq
HOUSTON, July 16, 2025 (GLOBE NEWSWIRE) -- KBR (NYSE: KBR) announced today that it has been awarded a front-end engineering design (FEED) contract for the development of an ammonia and urea production plant by KAR Electrical Power Production Trading FZE (KEPPT) in Basra, Iraq. Under the terms of the contract, KBR will provide FEED for the 2,300 metric tons per day (MTPD) ammonia production facility and a 3,850 MTPD urea production unit. The FEED will be executed utilizing KBR's proprietary ammonia technology, designed to enable high efficiency, low emissions, and operational reliability to assist KEPPT with its goal to achieve the lowest overall capex with an optimized project schedule. 'We are honored to support this pivotal project, which monetizes gas feedstock to boost the agricultural industry in Iraq,' said Jay Ibrahim, President, KBR Sustainable Technology Solutions. 'Underlined by KBR's expertise in market-leading ammonia solutions and proven FEED capability, this initiative should generate employment and reduce the dependency of fertilizer imports, while repositioning Iraq as a global ammonia producer.' KBR plays a key role in delivering reliable and affordable energy solutions to meet the world's growing demands. KBR has been involved in the licensing, design, engineering and/or construction of more than 260 ammonia plants worldwide. About KBR We deliver science, technology and engineering solutions to governments and companies around the world. KBR employs approximately 38,000 people worldwide with customers in more than 80 countries and operations in over 29 countries. KBR is proud to work with its customers across the globe to provide technology, value-added services, and long-term operations and maintenance services to ensure consistent delivery with predictable results. At KBR, We Deliver. Visit Forward Looking Statements The statements in this press release that are not historical statements, including statements regarding future project outcomes and performance, are forward-looking statements within the meaning of the federal securities laws. These statements are subject to numerous risks, uncertainties, and assumptions, many of which are beyond the company's control, that could cause actual results to differ materially from the results expressed or implied by the statements. These risks, uncertainties and assumptions include, but are not limited to, those set forth in the company's most recently filed Annual Report on Form 10-K, any subsequent Form 10-Qs and 8-Ks and other U.S. Securities and Exchange Commission filings, which discuss some of the important risks, uncertainties and assumptions that the company has identified that may affect its business, results of operations and financial condition. Due to such risks, uncertainties, and assumptions, you are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. Except as required by law, the company undertakes no obligation to revise or update publicly any forward-looking statements for any reason. For further information, please contact: Jamie DuBrayVice President, Investor Relations713-753-5082Investors@ Philip IvyVice President, Global Communications and Marketing 713-753-3800MediaRelations@ in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
16-05-2025
- Business
- Yahoo
Q4 2025 Doximity Inc Earnings Call
Perry Gold; Investor Relations; Doximity Inc Jeffrey Tangney; Chief Executive Officer, Co-Founder, Director; Doximity Inc Anna Bryson; Chief Financial Officer; Doximity Inc Nate Gross; Co-Founder, Chief Strategy Officer; Doximity Inc Brian Peterson; Analyst; Raymond James Michael Cherny; Analyst; Leerink Partners Elizabeth Anderson; Analyst; Evercore ISI Jared Haase; Analyst; William Blair Allen Lutz; Analyst; Bank of America Scott Schoenhaus; Analyst; KeyBanc Anne Samuel; Analyst; JPMorgan Richard Close; Analyst; Canaccord Genuity Jessica Tassan; Analyst; Piper Sandler Steven Valiquette; Analyst; Mizuho Securities Jeff Garro; Analyst; Stephens David Roman; Analyst; Goldman Sachs Jailendra Singh; Analyst; Truist Securities Craig Hettenbach; Analyst; Morgan Stanley Operator Good day, everyone, and welcome to the Doximity Q4 2025 earnings call. At this time, I will hand the call over to Perry Gold, Head of IR. Please go ahead, sir. Perry Gold Thank you, operator. Hello, and welcome to Doximity's Fiscal 2025 fourth quarter earnings call. With me on the call today are Jeff Tangney, Co-Founder and CEO of Doximity; Dr. Nate Gross, Co-Founder and CSO; and Anna Bryson, CFO. A complete disclosure of our results can be found in our press release issued earlier today as well as in our related Form 8-K, along with a copy of our prepared remarks, all available on our website at As a reminder, today's call is being recorded, and a replay will be available on our website. As part of our comments today, we will be making forward-looking statements. These statements are based on management's current views, expectations and assumptions and are subject to various risks and uncertainties. Actual results may differ materially, and we disclaim any obligation to update any forward-looking statements or outlook. Please refer to the risk factors in our annual report on Form 10-K, any subsequent Form 10-Qs and our other reports and filings with the SEC that may be filed from time to time, including our upcoming filing on Form 10-K. Our forward-looking statements are based on assumptions that we believe to be reasonable as of today's date, May 15, 2025. Of note, it is Doximity's policy to neither reiterate nor adjust the financial guidance provided on today's call unless it is also done through a public disclosure such as a press release or through the filing of a Form 8-K. Today, we will discuss certain non-GAAP metrics that we believe aid in the understanding of our financial results. A historical reconciliation to comparable GAAP metrics can be found in today's earnings release. Finally, during the call, we may offer incremental metrics to provide greater insights into the dynamics of our business. These details may be onetime in nature, and we may or may not provide updates on those metrics in the future. I would now like to turn the call over to our CEO and Co-Founder, Jeff Tangney. Jeff? Jeffrey Tangney Thanks, Barry, and thank you, everyone, for joining our fourth quarter earnings call. We've three topics today: our financials, network growth and client summit recap. First, our top line. We delivered $138 million of revenue for the fourth quarter of our fiscal 2025, 4% above the high end of our guidance range. For our full fiscal year ended March 31, we had $570 million in revenue and grew 20% year-on-year. Of note, our top 20 clients who know and measure us best, once again grew the fastest at 23% in fiscal 2025. Our bottom line was also strong in Q4 with an adjusted EBITDA margin of 50% or $70 million, which was 10% above the high end of our guidance. Our free cash flow was stronger still at $97 million, up 56% year-on-year. For the full fiscal year, our adjusted EBITDA grew 36% to $314 million. Our adjusted EBITDA margin was 55% for the year, up from 48% the prior year. We generated free cash flow of $267 million, an increase of 50% year-on-year. Okay. Turning now to our network growth and engagement. Our unique active users on a quarterly, monthly, weekly and daily basis all hit fresh highs in Q4. This growth was again led by our news feed, which is both our most used and most monetized product. Our unique News Feed users hit record highs last quarter, while our articles read or tapped, were up more than 30% year-on-year. Our workflow tools also hit fresh highs in Q4 with over 620,000 unique active prescribers. As a reminder, our workflow tools include our telehealth, fax, scheduling and AI tools. Our AI tools grew the fastest, again, last quarter, up more than 5 times year-on-year. In short, as the practice of medicine grows both more mobile and more AI-powered, we're proud to be leading the way. Okay. Turning now to our recent physician and pharma client Summits. In March, we hosted our 13th Annual Physician Tech Summit in San Francisco. It was great to roll up our sleeves for two days alongside 150 of our nation's most tech-savvy doctors. For the third year in a row, our Doximity GPT products took center stage. Physicians love our specialty specific AI tools and HIPAA-secure environment, and we're learning a lot from their real-world use. One popular new feature is our ability to upload and securely analyze documents. Per a recent JAMIA study, a fifth of ER patients nowadays have medical records that are lengthier than Moby Dick. So for a specialist treating a new patient, it can literally take hours of reading to fully come up to speed. But with Doximity GPT, they can just upload the patient's file, and our AI can chart the patient's lab values over time, summarize key clinical findings or search for complex diagnostic clues. It's a long overdue cure for what physicians affectionately call note bloat. In a short couple of years, we've seen AI tools like this truly change the mood in medicine from AI leery to AI cheery. For the first time in over a decade, there's genuine hope that physician burnout and information overload can actually be eased with technology. We are incredibly proud and motivated to help crafting AI tools that just work for busy clinicians. This is our mission and our roots as a team. Following our Physician Summit last month, I have personally shifted my focus from our client portal to our clinical AI products. Speaking of our client portal, the rollout is going very well. The majority of our pharma clients now have access and they love tracking their day-to-day results and ROI. These daily portal insights are also fueling client interest in how our new AI-powered integrated offerings can help them automate their programs. This AI orchestration was a key theme at our Annual Pharma Client Summit in New York last week, where we were joined by over 40 marketing leaders from the world's largest pharmaceutical companies. Their top request was to use our AI to optimize their programs at a more strategic level, by giving us more latitude to select the right content at the right time for each doctor, we've been able to improve our clients' results, along with our own revenue and predictability. Okay. I'd like to end by thanking my Doximity teammates who continue to work incredibly hard to care for those who care for us. As AI-assisted medicine becomes a reality, our future has never been brighter or more exciting, and I'm proud to be on this journey with you. And with that, I'd like to hand it over to our CFO, Anna Bryson, to discuss our financials and guidance. Anna? Anna Bryson Thanks, Jeff, and thanks to everyone on the call today. Fourth quarter revenue grew to $138.3 million, up 17% year-over-year, exceeding the high end of our guidance range. Full year revenue grew to $570.4 million, up 20% year-over-year. As a reminder, fiscal 2025 revenue benefited from our strategic shift to more multi-module integrated offerings. This not only drove larger deal sizes, but also enabled a greater share of annual programs to launch in January. Transitioning to these more efficient launch time lines contributed to a few points of revenue growth upside in fiscal 2025. Similar to prior quarters, our existing customers continued to lead our growth. We finished the quarter with a net revenue retention rate of 119% on a trailing 12-month basis. For our top 20 customers, net revenue retention was higher at 123%. So our biggest, most sophisticated customers remain our fastest growing. We ended the quarter with 116 customers contributing at least $500,000 each in subscription-based revenue on a trailing 12-month basis. This is a roughly 17% increase from the 99 customers that we had in this cohort a year ago, and these customers accounted for 84% of our total revenue. Turning to our profitability. Non-GAAP gross margin in the fourth quarter was 91%, flat versus the prior year period. For the full fiscal year, non-GAAP gross margin was 92% versus 91% last year. Adjusted EBITDA for the fourth quarter was $69.7 million, and adjusted EBITDA margin was 50% compared to $56.4 million and a 48% margin in the prior year period. For the full fiscal year, adjusted EBITDA was $313.8 million, and adjusted EBITDA margin was 55% compared to $230.5 million and a 48% margin last year. We are proud to continue to run a very profitable business with 36% year-over-year growth in our bottom line. Now turning to our balance sheet, cash flow and an update on our share repurchase program. We generated free cash flow in the fourth quarter of $97 million compared to $62.3 million in the prior year period, an increase of 56% year-over-year. For the full fiscal year, we generated free cash flow of $266.7 million compared to $178.3 million last year, an increase of 50% year-over-year. We ended the year with $916 million of cash, cash equivalents and marketable securities. During the fourth quarter, we repurchased $26.8 million worth of shares. For the full fiscal year, we repurchased $116.2 million worth of shares at an average price of $33.73. As of March 31, we had $424 million remaining in our existing repurchase program. Now moving on to our outlook. For the first fiscal quarter of 2026, we expect revenue in the range of $139 million to $140 million, representing 10% growth at the midpoint, and we expect adjusted EBITDA in the range of $71 million to $72 million, representing a 51% adjusted EBITDA margin. For the full fiscal year, we expect revenue in the range of $619 million to $631 million, representing 10% growth at the midpoint, and we expect adjusted EBITDA in the range of $333 million to $345 million, representing a 54% adjusted EBITDA margin. Now I'll provide more color on our outlook. As mentioned above, fiscal 2025 was a strong year of strategic progress for us. Our new multi-module integrated offerings allowed many of our customers to get their annual programs live in January. While we expect these earlier launches to be the norm going forward, fiscal 2025 received the benefit of being the transition year, leading to a few points of revenue growth upside. This dynamic creates a tougher year-over-year comparison for fiscal 2026, which is reflected in our expected revenue growth rate. Long term, we believe these more efficient January launches are a meaningful step forward for our customers and our business. These earlier launches allow our customers to maintain an uninterrupted presence on our platform, which helps drive ROI. As customers realize higher returns, we expect this will translate into even greater investment on Doximity over time. As far as visibility as of today, we have just under 70% of our initial subscription-based revenue guidance under contract. We expect the pharma HCP digital market to grow at roughly 5% to 7% again this year. While we have not yet seen any impact to our business from recent macro uncertainty, we believe it's prudent to assume the market growth rate could be on the lower end of this range, which is reflected in our guidance. That said, we believe our pharma business will maintain its strong competitive position and grow at roughly twice the market rate, remaining our fastest-growing business in fiscal 2026. Between client portal insights, integrated program traction and record physician engagement, we believe we are set up for another year of meaningful share gains. Finally, we are excited to increase our investments in AI this year. These investments will help us build better tools for our members, develop smarter solutions for our clients and drive greater efficiency across our entire business over the long term. We believe we are in the early innings of realizing AI's full potential at Doximity, and we couldn't be more excited for the feature. With that, I will turn it over to the Operator for questions. Operator (Operator Instructions) Brian Peterson, Raymond James. Brian Peterson Congrats on the strong 20% growth this year. Jeff, I just wanted to start out on the macro. I know you guys mentioned that you haven't seen any impact as of yet. But how are your customer conversations in terms of their willingness to spend this year? And as they're thinking about this volatility that we're seeing from this administration, any perspective on where their heads are. Jeffrey Tangney Great, Brian. Yeah, thanks. This is Jeff. Yeah, as we said in our prepared remarks, we have not seen any signs of a market slowdown yet. But given the material policy uncertainty, we are assuming that there will be. That said, just having gotten together last week with 40 of our biggest clients, which was the best turnout we've ever had at our Pharma Advisory Board, I'd just say, there's a lot of excitement about AI there as well. I'd say they are also AI cheery, just like doctors are. And as we said in last quarter's call, the clients that buy our AI optimization were growing at double the rates of the other clients on average. So we're excited about their AI cheeriness as well. It's interesting. The way that they're starting to do their work is actually starting to change. So it used to be that for their med legal review, they would come in with one version of an article. And just do that in a word document and redline it and improve it once. Now they're coming in with spreadsheets full of different option, variations and that's exciting because that allows us to build this library that the AI can then go choose and see what's performing best and optimize their results in real time, which we're seeing meaningful gains from doing. So again, our AI cheery clients are feeling good about leveraging this. So the other new thing that they liked at our Pharma Advisory Board last week was our portal just continues to evolve and get smarter and teach them more -- one new feature we've added this quarter is the ability to see what percent of their targets are what they call no see physicians that is doctors that no longer see reps, which is roughly half of all US doctors actually, some say three out of every five, but that allows them to go as they look at their ROI and their analysis and they claim more credit as marketers relative to salespeople because they're able to look at these doctors that they know the reps aren't getting in to see. So I said the overall mood was cautiously optimistic among our pharma clients, but you're right, there is this big cloud of, I think, policy uncertainty that I think we're all assuming we'll continue to be there this year. Brian Peterson And Anna, maybe one for you. You called out some AI investments in fiscal year '26. How should we be thinking about the payback period on some of these investments? Understanding it's early days, but I do get the question a lot from investors on kind of the broader monetization of AI. So is there anything that you can add there? Anna Bryson Yeah. Thanks for the question, Brian. And as we've mentioned before, we're still in the early stages of learning how AI could make our business more efficient over time. And then we're also still in the early stages of investments here. So when we think about longer-term margins and how AI could impact our margins long term, we also have to take into account other considerations such as what further efficiencies we might see from our client portal or what further efficiencies integrated programs might bring to our business. So it's soon to know exactly what that more medium to long-term margins could look like for us. But we feel really good once again about guiding to two years in a row of 50%-plus adjusted EBITDA margin. And as we've talked about before, especially with the margin expansion, we saw this year, we're already seeing our AI investments pay off. We're still going to continue to make more, but we have been able to scale our business without sufficient additional headcount over the last year, which I think has been a big proof point that AI is already working for us as a business. Operator Michael Cherny, Leerink Partners. Michael Cherny And again, congratulations on ending the year strong. Maybe if I can just kind of follow up on Brian's question, but I'm just going to keep it on one here. But relative to the macro dynamic, I think it's certainly prudent that you're taking the stance here of uncertainty we're seeing it across the Board. And that being said, certainly, over the course of the most recent quarter, there was uncertainty, maybe not the actual news around tariffs, [most favored nation]. But at least this (inaudible) of the potential for some type of drug pricing constraints going as far back as the inauguration. Even along those lines, you still did an NRR of 119% over the course of the quarter, stronger with your larger customers. So maybe if we dovetail all these together, is there anything we can look back in the time that you've been a company over the last few years, maybe during COVID or anything along those lines where there's been that level of trepidation where you've seen some real-time pausing so we can compare how to factor in what clearly might be a macro-oriented short-term pause against what has obviously been a strong trend even when you take away the change in timing. I know that's a convoluted question, but I appreciate any more macro color you have. Anna Bryson Yeah. Thanks for the question, Michael. We've certainly gone through tons of evolutions as a business over the last several years with changes. We had COVID that was a huge tailwind for our business. And then -- as you know, we experienced some upsell downside post COVID when there was return to office and a macro downturn. So I think one of the biggest things for us as we're looking at to next year is one of our biggest learnings over the past, I'd say, three to five years as we've seen things change is our upsells can be more variable. So when we think about the next three to five months (inaudible) as Jeff mentioned, and as I've mentioned, we have not yet seen any slowdown in our business, and we continue to have a ton of excitement for our products from our clients. We also know that these dollars are a little more variable. So that's one of the biggest parts of our guidance that we're baking in to be a little bit more prudent, which is why we're talking about the client budget growth being more on that 5% range as opposed to 7% range. So the biggest factor here as we look ahead over the next 12 months, we'll do what our clients' budgets look like. And as you mentioned, we've been in policy uncertainty for six months now, and we haven't seen the slowdown. So of course, we're hopeful that we won't. But once again, as we're guiding out the next 12 months, we think it's the right thing to do to be prudent that we could see a slowdown. Operator Elizabeth Anderson, Evercore ISI. Elizabeth Anderson Congrats on the quarter. I was wondering if you could talk to me as to a little bit more about some of your other business assumptions for the quarter, sort of like more on the physician recruitment side and maybe point-of-care formulary? Obviously, you've had strength across number of those products recently. So I just wanted to sort of understand how you're balancing those out and thinking about those in terms of FY26. Anna Bryson Elizabeth, thanks for the question. Yeah, a couple of things there. So as we've talked about before, our pharma business has led our growth over the past year and a big part of that growth was our formulary and our point-of-care products. And we're really excited to continue to see the traction there this next year and especially within our integrated offerings and selling those modules on a package basis and optimizing those programs for our clients. So we still believe, as we said in our prepared remarks, that pharma will remain our fastest-growing business. And as far as the other businesses you were asking about recruiting and health systems, we have definitely seen marginal improvement in our health systems business over the last six to nine months. Our subscription enterprise offering is actually doing particularly well there. But we also do appreciate once again, the health systems are typically more near term impacted by policy changes and macro uncertainty. So our guidance doesn't necessarily assume we're going to see any continued momentum there. Elizabeth Anderson Got it. That's super helpful. And as we think about sort of the share gain commentary you guys offered in the prepared remarks, could you unpack that a little bit more? Like are you seeing it is just sort of just in terms of the offering? Are you seeing dollars shift. I'd just be curious to sort of hear what you're hearing from customers in that regard. Anna Bryson Yeah. -- about that little bit, I had a mute button issue there. Yeah, we are definitely continuing to see very strong share gains. I think there's a couple of things. The first thing I'll point to is you just mentioned, we did see an inflection point last year in our workflow modules or clients are really starting to now think about these modules as core modules, a truly diversified channel, and it's helped us capture a larger share of our overall client budgets. So that's helped us grow at faster than 2 times the market rate last year. And the second point, I'll make is, our client portal. So the insights from our client portal has helped our customers make buying decisions based on real-time ROI and recommendations that we've been able to help with that has also certainly helps us take share. So I'd say those are the two pieces over the last year that we're excited once again to to see ahead over the next three to five years as well. But those were the two pieces that were really responsible for the large share gains we took this past year. Operator Scott Berg, Needham. This is Ryan MacDonald on for Scott Berg. Congrats on a great quarter. Jeff, you mentioned, obviously, having the Pharma Client Summit a couple of weeks ago. Curious if the no handouts for Drug Advertisements Act was brought up at all in conversations, particularly because it seems like if this kind of goes through here, you'd have these tax deductions for direct-to-consumer marketing that would go away. I wonder if this actually has a potential to be a positive for your business as you might see some greater shift in mix of spend towards [the HCP] channel and benefiting Doximity. But would just love to your comments on maybe what clients are saying about that potential tailwind there? Nate Gross Ryan, yeah, good question. I think there has been a lot of interesting discussion recently around the role of DTC by the administration? How much has increased? How much has decreased. There's kind of been bipartisan increase in things like price transparency, which we think can be good for the world. And there's also been a focus on extra middlemen in the chain that can hurt our partners and our physicians patients, which we certainly are glad is getting looked at. We don't really have anything in this space or anything that we're actively hearing from our clients to report on at this time. I will say our clients usually have a completely separate team for DTC. So those sorts of crossovers when they do occur are often more gradual than acute, just like the shift to digital. But that said, we do actively invest in products like our formulary module that is focused around transparency or physicians and of course, downstream to patients, which -- many of them are increasingly seeking availability and accessibility data when they're considering therapies. And so modules like that, that I think are responsive to trends in (inaudible) administration driven priorities but also physician and patient-driven priorities are things that we plan to continue to invest in. Anna, maybe as a follow-up for you. You mentioned last quarter on the call that the success of the integrated programs really pulled forward some spend and program launches earlier in the year. Just curious now that we're sort of five months into the year, are you seeing any notable changes in seasonality or how we should be thinking about seasonality of the business as we progress through the remainder of the calendar year here, please? Anna Bryson Yeah. Thanks for the question. We're super excited about the integrated programs in case you can't tell. I think it's one of the better things we've come out with for our clients over the last several years. And we did launch a ton of those programs in January, as you mentioned and that did contribute to a few points of revenue growth upside in fiscal 2025. And what we're so excited for about these integrated programs is that they should theoretically over the long term create a more predictable and consistent revenue curve for us year-to-year. I think as of right now, we're still in that transition phase and we'll likely see a revenue curve that looks pretty similar to this past year. But as we look ahead over the next three years or so, as we get more clients into these integrated programs that have January starts and December completions, it's only better for our revenue predictability, our visibility as well as what the revenue curve will look like in the shape of the year. So I think this is a huge step forward for us to get to that more consistent curve. Operator Jared Haase, William Blair. Jared Haase Maybe I'll ask another one kind of around the market share gain commentary. And I guess, with respect to the outlook for the 5% to 7% market growth, sort of still intact here, I'm curious if you're seeing anything incremental in terms of how budgets are being allocated across digital channels. So thinking programmatic, obviously, network platforms like Doximity, other channels that might be at the point of care like the HR. Are you seeing any incremental changes in terms of how budgets are being sort of the mix of those budgets across those different channels? Jeffrey Tangney Yeah. Thanks, Jared. This is Jeff. Yes. So again, we've seen no signs of the market growth rate slowing down again, we are looking at the uncertainty from a policy perspective and assuming it will go to the bottom end of our range, which is 5%. Talking about some of the other channels that are out there. I'd say I think they're not gaining share, at least not at the pace that we are. And it really just comes back again to ROI, right? Does it really reach the right person and does it really get that person thinking. And again, I think it's been a flight to quality that we've seen among our clients. They're leaning more into what they call endemic because that's what they're seeing work. I will share a couple of our largest clients told us a year ago that they were really going to try out and experiment more in the programmatic space and in other spaces. And just catching up with them this last week, they told me that those experiments that they ran, well, they didn't work or at least they didn't work to the level of return that they've seen with the programs that they're doing with us. So again, I think we're gaining more share there against a host of competing options. Jared Haase Got it. That's nice to hear. And then, Jeff, maybe another one for you. You talked a little bit about kind of the nice traction with the newsfeed in the quarter. Just wanted to get an update on sort of the status of kind of the ad load across that news feed. How much more room do you see for incremental advertising content within that application. And I guess relative to some of the newer products that you've launched and had some success with recently, how important do you think the newsfeed will be to the growth story over the next few years? Jeffrey Tangney Yeah. Thanks, Jared. Well, first, I'll just say our clients and I, we're over the moon that we saw a 30% increase, more than 30% year-on-year number of ads our articles tapped in our newsfeed. So I think we have really become the newsfeed of medicines, the place that doctors come to stay up to date on the latest news. And with a decade now of first-party data on what their clinical interests are, I think we're just in a strong position to continue to deliver them the news that they need. I will point that there are others that I assume we are taking share from there. Our clients are telling us about that you can look online and see that Med X or Med Twitter is not flourishing, right? There's just less of that there. So I think we're seeing some migration, I think, from other platforms to our platform, which again has been to our net benefit. To your question about ad load. Our ad load really hasn't increased. I would say what's happened is it's now spread across more channels, and this is really where our workflow channel that we get stats on each quarter has really been important that whole point of care formulary motion for us has allowed us to grow in basically a whole new vector without having to affect our newsfeed channel. Operator Allen Lutz, Bank of America. Allen Lutz I want to follow up on the comments around workflow tools, point of care, formulary. Growth there has been really robust. And Jeff, you mentioned that some of your customers experience, they tried to go out and work with programmatic, maybe that didn't work. As you think about these new products that you're launching in the market, is it that your customers are -- they try programmatic and now they're actually leaning into your newer products? Or are they just going back to the newsfeed, trying to get a sense of maybe where some of that incremental spend that maybe went away as they were testing programmatic, where does that come back to in the Doximity platform. Jeffrey Tangney Yeah. Thanks for the question. This is Jeff. I'll take that. So yeah, I mean we're really proud of our point of care in our formulary growth. As we announced last quarter, in our Q3, we had over 100% year-on-year growth in those workflow channels, which has certainly been great for us. To your question about how they're allocating across these other channels, I'll give some credit to our portal as well here, which has helped them see on an ongoing basis, not just in a once-a-year look back, but on a more frequent basis to see the true return on investment that they're seeing from our platform and the data and the results and just keeping us frankly more top of mind. I said when we started working on the portal 1.5 years ago that our clients recognize when we talk to them we have the best product, we have the best reach, we have the best level of engagement and interest, but we weren't the easiest to buy from, right? It took a lot of effort for them to set up two Zoom calls with us and to get a quote and do all that. I think our portal has really reduced that friction quite a lot. So that again, now any time a day or night, they can log in and see how their programs are doing and they can also think about how they can grow them. Allen Lutz And then one for Anna. I have a question on the guidance framework. So if we take a step back and look at the guide, the initial guidance that you provided last year, I think it contemplated 7% to 9% on revenue growth. I think the comparable last year was a relatively easy comparable. And then this year, you're guiding sort of this 8% to 11%. So it's higher growth from the initial guide, even though there's a tougher comparable, there's more macro uncertainty this year versus last year arguably. So I guess, how do we square those things where I guess the -- there are tougher comps this year, less certainty. How do you think about the framework for guidance this year compared to last year? Anna Bryson Yeah. Thanks for the question, Allen. And I think there's a couple of things I'll hit on here. So first and foremost, last year was really the first year we started to see our new products take off or workflow products, and we started to see what our client portal could do for us. So we feel like we are in a much better position than we had been in years prior from a product offering perspective and from a share gain perspective. We also, last year, I think we haven't yet seen our clients' budget stabilize yet. So we really weren't sure what our client budgets were going to look like. We have seen quite a bit of deceleration post COVID. And it's been really great for us to see over the past 12 months, not only have clients budget stabilized but marginally improved, and you can see that in our 20% year-on-year growth that we just reported for this last year. So once again, I think we feel better about our competitive position than we ever have. And we feel as though we are in a place that even if the market growth rate is on the lower end of the range as we're forecasting here, it could be we feel as though we have good visibility into these numbers and hitting our guidance for the year. Operator Scott Schoenhaus, KeyBanc. Scott Schoenhaus Questions for you. I think this period a year ago, you had just over 70% of subscription revenue for the year locked in. And you just made in the comments you just under 70%. And I understand the dynamics of some of the pull forward in January for the annual contracts. But any more color on the dynamics this year versus last year? And then my follow-up question is that remaining 30%, could you provide color on how much of that is midyear upsells versus renewals given the strong major upsells that you saw last year? Anna Bryson Thanks for the question, Scott. So yeah, as you mentioned, last year when we gave our initial subscription revenue guidance we have just over 70% of that under contract. But then throughout the year, we saw stronger upsells. We had stronger annual upfront sales and with more January launches, which contributed to a revenue raise of roughly $58 million or about 11% since the start of the year. So if we did a look back to the percent of our final fiscal 2025 revenue that we had under contract to start the year, it will be closer to 60%. So this number can naturally fluctuate throughout the year depending on sales of launches. And then this is why we feel as though just under 70%, which, to be clear, means within 1% or 2% of 70% is a really prudent starting point for our business for fiscal 2026. And I think that also probably helps answer the second part of your question about what we're assuming for upsells. I think once again, given the environment we're in and knowing upsells may be more variable, our guidance is more heavily weighted and dependent on renewals. Operator Anne Samuel, JPMorgan. Anne Samuel I was Hoping we could dig in a little bit more on point-of-care solutions. And I was wondering if you could kind of speak to how we should be thinking about the composition of growth for that? Is it more clients joining and pricing versus increasing the number of sponsored calls. I know at your Analyst Day, you spoke to a 1 in 100 calls being sponsored, but curious where we stand on that now and where we can go from here. Anna Bryson Yeah. I think the great thing about point of care and the way we've kind of reframed our pitch around it to with our clients is that our clients are thinking about it as a truly diversified channel. So it is a unique channel from our newsfeed, where our clients are almost thinking about it as if they're like buying from another company, but that's how diversified the channel is. And this is an area where, as Jeff had mentioned, we have a lot of white space, a lot of unmonetized white space. And so it's an area our clients have certainly been leaning into. And so that just helped our platform increased reach and frequency for our clients. So we're really excited about that. I think we think big picture over the next three to five years, our newsfeed as our first act, our workflow tools are our second act. And we think one day, maybe AI will be our third act. Operator Richard Close, Canaccord Genuity. Richard Close Yeah. First, congratulations on a strong year. Maybe diving a little bit deeper into the upsells in the portal. I guess I'm curious, are clients buying on the portal now? And if so, how is that going? And then how do you think about maybe more certainty or visibility into the end year buy-ups from buying on the portal. Just curious there. Jeffrey Tangney Yeah. This is Jeff. I'll take that. So yes, we do present recommendations in our portal, and that does allow our clients to see the pricing. We do, to be clear, still have a separate contract paper flow that doesn't happen directly in the portal yet, but we're working on that. But it does allow clients to go and see the other things they can be doing and makes that upsell motion, I think a lot more friction free and seamless for our clients and our own internal teams as well. So we're excited about where that can take us. In terms of our upsell sort of frequency. I'd say the key thing I'd point to there -- or visibility. The key thing I'd point to there is these integrated programs are just much, much more visible for us as a company because again, we're effectively putting all of our channels together, they're buying the whole bag, if you will. And then we're allowed to go and again, optimize the right content at the right time for the right doctor. And that, I think, will be a meaningful improvement, as Anna has said, to our revenue visibility in future years. This is the first year we're going through it. So I think we're being cautious about how it will improve our visibility and these upsell cycles. But I will say it's a hard win for us contractually in terms of terms with our clients. And I think a sign again of how much they give us a seat at their strategy table and view us as this long-term partner, not as a quarterly buy. Operator Jessica Tassan, Piper Sandler. Jessica Tassan Congrats on the year. I was hoping maybe, Anna, you could help us understand the revenue cadence over the course of the year. Just appreciating the high level of visibility kind of what explains the implied sequential step-up from like F 1Q to F 2Q given the early launches in January, it would just be helpful to hear how we should be thinking about F 1Q, 2Q to 3Q? Anna Bryson Yeah. Thanks for the question, Jess. So the nature of our customers buying cycle is such that, as you know, they deploy about 65% to 70% of their budgets upfront and then they upsell throughout the year. One of the things we're super excited about this year is getting our programs live in January. So getting our clients to have that uninterrupted presence on channel. Then throughout the year, though, they're upselling on top of those programs that leads to natural step-ups throughout the year. And so we believe going forward, we'll continue to see a Q3 that is going to be our highest quarter because our customers are adding on to their programs. So even with these integrated programs, we believe we'll continue to see that step up. And the other thing I'll say with the integrated programs that we're excited by, and we'll see how it goes. It's still obviously very, very new for us. But when our clients are making their upsell decisions, especially now that we have our client portal that helps track real-time ROI, having that longer time on channel starting in January as opposed to starting in April and having, say, six months to track your program performance and see how well it's performing on Doximity. We actually think these January launches could help our upsell cycle. So once again, we're not baking that into our guidance because it's still too early, and it's really the first year we're running these programs, but we think they could group to be actually very beneficial for us as we get into the upsell season. Jessica Tassan That's really helpful. And then my quick follow-up would be just as you think about the workflow tools, I think you all have talked about that opportunity as being commensurate in size to the newsfeed. So I'm curious if we should think about kind of the two tools so point of care and formulary as being the sum of workflow meaning that those two products can basically double the TAM from newsfeed and that potentially monetizing AI or DOCS GPT would be then an additional opportunity from there? Or should we think about that as part of the workflow as well? Anna Bryson Yeah, thanks for the question, Jess. And it's the former. So as I mentioned before, newsfeed was our first act. It's still our largest revenue driver. Workflow has now become our second act. It's been a huge growth driver for us over the past year or so. And then as we look ahead, and we're not going to give a specific time frame on this, but as we look ahead, we believe that AI could be our third act. And those are three truly distinct channels that will be truly distinct products for our clients. Operator Stephen Valiquette, Mizuho Securities. Steven Valiquette I also have a question just around the guidance. When thinking about the implied growth rates for revenue and EBITDA in the fiscal first quarter, they're essentially right at the midpoint of the full year growth rates within the FY26 guidance revenue and EBITDA. So I guess a couple of things to try to confirm. One, as far as the macro environment risk, you said you're not seeing any impact yet, but just confirm yes or no. Is there anything baked into the fiscal 1Q guidance for any macro risk? And how should we think about the impact when -- just from a modeling perspective, maybe just assume more impact in the back half of the fiscal year versus first half? I know there's no perfect answer to it, but I just want to get your high level thoughts around that. Anna Bryson Yeah, I'll answer the last part of the question first. I think once we came back to the integrated programs, I think we'll see a little bit more stability in our revenue growth cadence throughout the year. As far as Q1 specifically, the first point I'll make is about the comparison period. As you might remember, last Q1 saw an uplift from a lot of spring program launches. But this year back to the integrated programs, we're seeing more stability, which, once again, we believe is best for the predictability of our revenue curve long term. And then as far as your question about if we have any macro assumptions baked into Q1, we are being cautious in our upsell assumptions for this quarter, given that general macro uncertainty upsells typically start around this time period. So that is baked into our Q1 guidance. Operator Jeff Garro, Stephens. Jeff Garro To put maybe a different lens on FY26 revenue drivers. Could you help us think through NRR expectations versus anticipated contributions from new customers? Anna Bryson Yeah, absolutely. I'm happy to take that question. So I think, first and foremost, we do continue to believe that our larger customers will lead our growth. But that said, we got some exciting traction amongst SMB and amongst newer customers over the past six to nine months, especially with our agency partner program that's actually helped us bring in many new six-figure clients. So we do think that SMB could be a nice growth vector for us, especially over the long term. As a reminder, if we think big picture, we only work with just over 10% of brands that have less than $100 million in US sales. So we're really excited about bringing our insights and partnership to more of them over time. So I do think we'll see some SMB traction this year. That said, the nature of our business is such that the largest clients will continue to lead our growth. Jeffrey Tangney Excellent. I appreciate that. And so a quick follow-up to try to put a little bit of a macro spin on it. Could you help us with any comments on expectations for new drug approvals over the next 12 months? And whether the velocity of approvals and new treatments entering the market has any impact on your revenue outlook for FY26. Anna Bryson Yeah, great questions. Of course, as you know, it is still early, and there has been material policy uncertainty here with the administration, particularly around that topic. So we're taking a more cautious and a longer approach to the market there. I will say, though, if you look at the science, it's an exciting era for humanity and the future of medicine. I mean there are new therapies getting ready that are anticipated for the next few years, ranging from rare disease, metabolic disruptors, oncology, neurology, cardiology, advanced therapeutic techniques in the cell and gene therapy space. And of course, a continuation of what is now a blockbuster battle out there. So while there is uncertainty downstream of new priorities that can be seen as tough on pharma, there's also other statements that can be seen as streamlined processes for getting new therapies approved and out the door or equalization such as what we're seeing in the repeal of potentially the small molecule penalty in the IRA. So we'll be monitoring just like everyone else is. But I think if you looked at the US pharma ETF, which similar to as kind of a bellwether for the industry, it's down less than 3% year-to-date. And the data that -- the most recent executive order was announced around that potential most favored nation policies, I mean pharma stocks in general were up. I'll end by noting that we're a relatively well insulated platform. At the moment, I'm not sure our products are particularly uniquely exposed in a positive or negative way compared to the rest of the industry with one exception, and that's our leading ROI, which can make us really a preferred anchor strategy even when budgets get tight, efficiency-driven environments can favor proven high ROI digital. Operator David Roman, Goldman Sachs. David Roman I wanted just to come back and try to put some of the pieces together on the multi module products because I think what I reflect back to the last call, it was very early in the adoption curve of those products. And as I kind of look at where we are today and at least try to reflect your comments on what's implied in the guidance, it sounds like either you've marched through that very quickly or we're reaching potentially a peak at earlier than expected. How should we think about the just evolution of the commentary on those products from where we were at the time of the last call to where we are today. Jeffrey Tangney Yeah. Thanks, David. This is Jeff. I'll just say our multi-module products are doing really well. I mean, as we said on last quarter's call, we expect our point of care formulary modules to be a 9-figure business for us this year. So to the prior questions about how big are these additional channels? The answer is very large. And the greatest is now that we're getting more and more ROI reports back from clients who tried these new modules, their ROIs are great, and we're able to show that to them more frequently with our portal. That's going really well. And the way this works inside big pharma is that it does take a year or two to sort of prove yourself as a high ROI vehicle. But then once you do, more folks lean in. And I can tell you, again, point of care and formulary, our newer modules, they still have yet to be adopted by more than low double-digit percentages of our client base, of our brands. So we still see a lot of room there to grow. Again, just expanding the proven ROI story we have with our proven land-and-expand approach, more brands inside the same clients. So in terms of multi modules, I think that really is the integrated programs that we're so excited about. It does allow us to optimize for our clients, the results that they're seeing so far have been just really strong. And from our point of view, it put us in a stronger position to negotiate contracts that are larger, longer in length and are very predictable in terms of their launch date. The launch dates that we have in these integrated contracts are not dependent on the client, which is great, right? We're not stuck in that medical legal review cycle of January, February of years past. And again, that's, I think, a long-term big win for the business. David Roman Very helpful. And maybe just a follow-up on just the engagement side. Can you maybe help us -- and you've talked a lot about the e-newsletter as a key opportunity. But can you maybe help us think through the mix of engagement on the platform between e-newsletter, physicians logging in, searching content proactively, use of the workflow tool, et cetera, and maybe how that's just kind of evolved over time. Jeffrey Tangney Yeah. So we don't have an e-newsletter product. So just -- so I'm clear on that front. We do have a newsfeed product. And as we mentioned last quarter, we had over 1 million unique prescribers using our newsfeed last quarter on this call. And then this quarter, we announced we hit a new record. So we're obviously above that 1 million user mark. And again, this quarter, we also announced that we had 30% growth in the number of articles tapped in that newsfeed year-on-year, which, again, speaks to its continued use adoption and growth. So yeah, we feel really good about how we're -- the new suite of medicine delivering in the news that doctors need to know, want to know on a very frequent basis. We also feel good about our new channels, as I've already described. And again, they're sold to a minority of our clients to date. But again, we see them being just as large as our newsfeed business. Operator Jailendra Singh, Truist. Jailendra Singh First, a quick follow-up on the client portal and your comment that daily portal insights are driving client interest in AI-powered offerings for them. Are you able to monetize these AI-powered offerings? And around what percentage of your pharma clients who are on the portal are using these AI-powered offerings at this point? And kind of related to that, as you think about all these new solutions for pharma and the usage you're seeing at the provider side, what is your updated view on 10:1 ROI you have talked about for pharma clients in the past? Jeffrey Tangney Sure. This is Jeff. I'll take the first crack at this and I think Anna may add a few things. So we don't -- we haven't given out a percentage of which percent of our clients have purchased our AI optimization package. But suffice it to say, it's still a minority. But of course, we want them to buy because it's a big upsell for us. It's a larger program. I think we had said on last quarter's call that those programs were, I forget exactly how much larger. Anna Bryson We said on last quarter's call that the brands buying those programs grew more than twice as fast as those that bought our module stand-alone. Jeffrey Tangney So I think that's the answer to the AI growth we're seeing there is quite strong. And again, from our point of view, it's better for the doctor, right? Instead of seeing a piece of content that was slated for a particular time slot or whenever they're able to see what best fits, I think, their learning journey on the product. And again, the clients who purchases so far have been really pleased. Jailendra Singh Any update on the ROI part of the question? Jeffrey Tangney Yeah. So the short answer there is the portal has allowed us to do many more studies more frequently. We're pleased to be able to make this more turnkey for our clients. There still is some overhead. There's a test in the control and they call it an ANCOVA analysis that's done. But we've done many more of those studies than we have in the past, and that's great because, again, normally, our clients used to only do that once a year in September and now we're able to come back and each quarter, show them a new test and control study or they're able to log into the portal and see it. And that's not only showing them the value they're getting from us, but it's also helping them optimize their programs. And again, we're optimizing it for them every day as well as we again, use our tools to optimize their results. Jailendra Singh Okay. And my follow-up, I understand you have not seen any impact on business yet from a macro point of view. But can you talk about any proactive steps you can take or maybe you're taking to make sure pharma clients see Doximity as a partner to optimize their spending versus an additional cost to make sure that they don't end up going to those lower quality platforms again. Jeffrey Tangney Sure. Yeah. I mean, we spend a lot of time investing in that. We have a great team on this. We have made some investments to our teams. We've hired in some executives from YouTube and Facebook and places that I think are upping our knowledge of how to think about video modules and pull that together, which has led to some good insights for our clients. But I mean, the key thing you hit on yourself, Jailendra, which is showing them their ROI on a more frequent basis and letting them go and see their program results literally on a daily basis with daily refreshes has increased our level of partnership and trust and transparency in a way that's just been very positive for our strategic relationships with our clients. Operator Craig Hettenbach, Morgan Stanley. Craig Hettenbach Jeff, just going back to your comment of low double-digit penetration for kind of point of care. Is there anything you're doing from a sales perspective to kind of continue to push the momentum in that product and kind of how you see that evolving this year and beyond? Jeffrey Tangney Yeah. Great question, Craig. This is where I'll give a shout-out to Lisa Greenbaum our Chief Commercial Officer. She's really just done a terrific job of making sure our whole team understands how this product works at a detailed level, She's, I think, really instituted a lot of rigor in our sales training and she calls it being credentialed internally on the ability to talk about point of care. So I think that's really helped us as an organization, do a better job of the N plus1 product. And I think this is an important matrix scalability for us as an organization as we add these new channels that we have the rigor internally to make sure our full team is up to speed on handling all the questions and helping our clients optimize their programs and ROI with each of our channels. In addition, of course, we have internal marketing managers who are tasked with owning the numbers for each of these modules and products, and they're getting stronger and stronger in the organizations, we help our sales teams, again, be a N plus 1 product sales team as opposed to just a two or three product sales team. Craig Hettenbach Got it. And then just as a follow-up, cash approaching $1 billion. You talked on the call about kind of investing in technology and AI. Any thoughts there in terms of kind of how you're looking to put cash to work and organic and inorganic potential investments? Nate Gross Sure. This is Nate. So we have really good active exposure to opportunities in the market right now. And I will say things are starting to look a little more interesting from a valuation perspective than prior quarters. So we're actively studying the market, and we're getting approached by really everything from software to AI transforming what is historically a service and that was AI-enabled service as you might expect, due to our user distribution and our partner distribution. So we'll be optimistic. Again, our culture here, going back 15 years now is super disciplined and is value sensitive and R&D team forward as ever. And we're really lucky to be able to make decisions with this high-quality bar, focus on true platform fit not say forced into inorganic revenue growth or something like that. And we have a phenomenal and quite large -- the largest R&D team serving medicine, group of engineers and product designers who can often build the sort of tech in-house. So we're constantly thoughtful about our use of cash when we're building our flywheel, and we won't hesitate to make a move when we need to, but it will always be towards being truly thoughtful about expanding our market opportunities and serving doctors. Operator And ladies and gentlemen, that is all the time we have for questions today. This does conclude our conference. We would like to thank you all for your participation. You may now disconnect.
Yahoo
11-02-2025
- Business
- Yahoo
Q4 2024 ON Semiconductor Corp Earnings Call
Parag Agarwal; Vice President, Investor Relations and Corporate Development; ON Semiconductor Corp Hassane El-Khoury; President, Chief Executive Officer, Director; ON Semiconductor Corp Thad Trent; Chief Financial Officer, Executive Vice President, Principal Accounting Officer, Treasurer; ON Semiconductor Corp Ross Seymore; Analyst; Deutsche Bank Securities Inc. Vivek Arya; Analyst; BofA Global Research (US) Toshiya Hari; Analyst; Goldman Sachs & Company, Inc. Chris Danely; Analyst; Citigroup Inc. Blayne Curtis; Analyst; Jefferies LLC Josh Buchalter; Analyst; TD Cowen (Research) Vijay Rakesh; Analyst; Mizuho Securities USA, LLC Christopher Rolland; Analyst; Susquehanna Financial Group, LLLP Gary Mobley; Analyst; Loop Capital Markets, LLC Joe Quatrochi; Analyst; Wells Fargo Securities, LLC Tore Svanberg; Analyst; Stifel, Nicolaus & Company, Inc. Harsh Kumar; Analyst; Piper Sandler & Co. Operator Good day and thank you for standing by. Welcome to the ON Semi Fourth Quarter 2024 Earnings Conference Call. (Operator Instructions) Please be advised today's conference being recorded.I would now like to hand the conference to your speaker today, Parag Agarwal, Vice President of Corporate Development and Investor Relations. Please go ahead. Parag Agarwal Thank you, Kevin. Good morning and thank you for joining ON Semi's Fourth Quarter and Full Year 2024 Results Conference Call. I'm joined today by Hassane El-Khoury, our President and CEO; and Thad Trent, our CFO. This call is being webcast on the Investor Relations section of our website at A replay of this webcast, along with our fourth quarter and full year 2024 earnings release, will be available on our website approximately one hour following this conference call, and the recorded website will be available for approximately 30 days following this conference call. Additional information is posted on the Investor Relations section of our earning release and this presentation includes certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and a discussion of certain limitations when using non-GAAP financial measures are included in our earnings release, which is posted separately on our website in the Investor Relations the course of this conference call, we'll make projection or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution that such statements are subject to risks and uncertainties that could cause actual events or results to differ materially from projections. Important factors that can affect our business, including factors that could cause actual results to differ materially from our forward-looking statements, are described in our most recent Form 10-K, Form 10-Qs and other filings with the Securities and Exchange Commission in our earnings release for the fourth quarter and full year 2024. Our estimates or other forward-looking statements might change, and the company assumes no obligation to update forward-looking statements to reflect actual results, changed assumptions or other events that may occur except as required well let me turn it over to Hassane. Hassane? Hassane El-Khoury Thank you, Parag. Good morning, everyone, and thank you for joining (inaudible). 2024 marked the fourth year of our transformation journey, transformation that began by focusing our efforts where we add value in power and sensing technologies. We've invested in differentiated products to win with disruptive innovation in the high-growth megatrends of automotive, industrial and AI data centers. We streamlined manufacturing through our Fab Right strategy, and we've improved our operational efficiencies in doing conditions aside, and I'll get to those, I am proud of the hard work our worldwide teams continue to put in, and I want to thank everyone for their tenacity, and Midwest continues to be a very difficult environment. We remain committed to our winning formula, and we have demonstrated the resilience in our business model, delivering non-GAAP gross margin of 45.5% against revenue of $7.1 billion for the full for the market environment, demand declined late in the quarter and continued into January, resulting in fourth quarter revenue of $1.72 billion, non-GAAP gross margin of 45.3% and non-GAAP earnings per share of $0.95. Regional revenue declined sequentially, except North America, which remained flat, with Japan seeing the sharpest decline. Quarter-on-quarter declines were primarily by our noncore market a backdrop of end-market softness and geopolitical uncertainty, inventory digestion persists as our key end markets. Our stance has not changed. We are prioritizing value, and we will now play in highly volatile, price-sensitive markets. We are maintaining the integrity of our value proposition, positioning ourselves for profitable growth in the fourth quarter automotive revenue increased 8% sequentially driven by China, followed by North America. Results were driven by share gains and new customer ramps. China grew 18% quarter-over-quarter. And while Q4 was up in early Chinese New Year and extended shutdown period has already impacted January EV deliveries from the top China-based automakers. Demand from all other regions weakened towards the end of the fourth quarter, which continued into the US, Tier 1s have been impacted by lower global auto demand than expected in the fourth quarter along with slower EV ramp than anticipated. Entering Q1, we expect persisting volatility due to the geopolitical uncertainty across all geographies as our customers assess their manufacturing footprints and the impact of tariffs. We are monitoring the demand signals of EV adoption given the uncertainty around EV tax credits and slowing infrastructure Europe, EV demand weakened in Q4 with new vehicle registrations dropping 10% month-over-month in December. Our industrial revenue decreased 5% sequentially with weakness in the traditional parts of the business. The PMI across all major regions remained weak and the slowdown in manufacturing activity that further compounded by ongoing inventory digestion, and we expect the weakness to persist into but growing parts of the business that we don't break out are AI data center and aerospace and defense, where revenue grew more than 40% and 50%, respectively, in 2024 over 2023. In silicon carbide, our fourth quarter revenue increased sequentially, resulting in a 22% increase for the second half over the first half of 2024. For the full year, revenue declined slightly from 2023 as programs did not ramp at the expected remain focused on executing our strategy. We are -- we have delivered on our 200-millimeter technology development and sampled customers. We are balancing our internal versus external substrate supply, and we are winning market movers by pushing the boundaries of innovation. The performance of our silicon carbide enables us to deliver and optimize system performance while lowering the total cost of ownership to our customers without eroding the value of our China, we continue to win based on performance, and we expect to gain share in the silicon carbide TAM as the transition to 800-volt batteries continue. Furthering our strategy of delivering the complete power tree for automotive, industrial and AI data center, we closed the acquisition of Qorvo silicon carbide junction field effect transistor business. The SiC JFET portfolio complements our EliteSiC power solutions and is the most competitive technology to get the energy efficiency and power density and power supply units for AI data centers. It is a voltage play in AI data centers. And as power levels in these systems are nearly doubling, AC-to-DC conversion for UPS and PSUs is transitioning from silicon solutions to silicon expect that JFET continue to replace the incumbent super-junction technologies and PSUs as we need -- as the need for smaller footprint, better performance and lower cost continues to increase. In terms of silicon carbide, revenue growth in AI, design wins for the hyperscalers started to ramp in the fourth quarter, and we expect our SiC JFET and SiC MOSFET revenue to continue to grow in 2025. The acquisition of this highly capable team and technology also accelerates our readiness for emerging markets, such as EV battery disconnect and solid-state circuit breakers. We expect this portfolio to unlock a $1.3 billion TAM opportunity with a 30% revenue CAGR through the current environment, we remain committed to our long-term strategic goals, and we continue to invest in disruptive innovation to drive profitable growth and to emerge stronger from this downturn. In November, we introduced the most advanced analog and mixed-signal platform for intelligent power and sensing solutions. Our new Treo platform, built on leading-edge BCD 65-nanometer technology for high performance and advanced features, supports the industry's widest voltage range of 1 to 90 volts for unmatched integration. The Treo platform embodies our strategy of prioritizing high-value products and will accelerate our portfolio proliferation to unlock a $36 billion TAM opportunity at up to 70% gross margins. The modular architecture of the platform is enabling us to sample products year, we will start to reap the benefits of the investments we've already made in the technology and capacity at our East Fishkill fab as we ramp up revenue and double the number of products available on the market. Customer reaction has been very positive. They are taking advantage of the level of integration and accelerated time to market for applications, such as Ethernet for automotive zonal architecture, ultrasonic sensing for ADAS park assist and high-efficiency power management for AI data centers, and they are actively designing Treo-based devices into their next-generation we look ahead to 2025, visibility is very limited and customers are taking a wait-and-see approach in a backdrop of geopolitical uncertainty. We will continue to focus on what we can control. We are taking this opportunity to review our portfolio and further rationalize based on the value we bring. We will optimize our manufacturing footprint to improve our cost structure, and we will control spending by focusing on efficiency through automation while we continue to invest in R&D to support our long-term growth. Our actions will position us to better benefit from a market recovery while supporting our long-term me now turn it over to Thad to give you more detail on our results and approach going into 2025. Thad Trent Thanks, Hassane. As Hassane mentioned, despite the downturn, our 2024 results demonstrate our team's relentless pursuit of operational excellence to drive cost efficiencies in a weak market environment. Their efforts allow us to maintain gross margin at 45.5% against revenue of $7.1 billion and to generate $1.2 billion of free cash flow at 3x increase year-over-year. Our proactive approach to prudent cost management and capacity planning has proven to be the right strategy to deliver better results than the company has ever achieved in similar market to 2025 and beyond. We believe rightsizing the organization will benefit the company in the long term. These structural changes should position us to expand gross and operating margins and generate strong cash flow in the future. We are moving aggressively and with urgency on the following actions. We plan to further rational our manufacturing footprint and reduce excess capacity through our Fab Right strategy. These actions will [reduce] underutilization absorption as we lower our fixed cost structure. We expect to see the results of these actions to positively impact the income statement in late 2025 and continue driving margin expansion towards our long-term target by proving greater leverage in our business model as the market will make structural changes across the company to reduce our operating expenses. We are exploring a number of options, including rationalization of our product portfolio, head count reductions and potential site closures. We expect to see a meaningful impact of these actions as early as the second quarter. We will continue R&D investments in differentiated high-margin products to support our long-term growth. And we will focus on free cash flow generation in 2025 as we manage working capital tightly and reduce capital spending to our revised intensity target of mid-single-digit percentage range in generated $422 million of free cash flow in Q4 as 39% sequential -- increased sequentially. We're committed to our long-term target of returning 50% of free cash flow to shareholders through our share repurchase program. And in 2024, we exceeded it by returning 54% or approximately $650 million. This includes $200 million share repurchases in the fourth quarter, and there is approximately $1.7 billion remaining on our repurchase to revenue for the fourth quarter. A slowdown in demand across all end markets resulted in revenue of $1.72 billion. Automotive and industrial accounted for 84% of revenue in the fourth quarter. Automotive revenue was $1.03 billion, which increased 8% sequentially driven by programs that ramped in silicon carbide. Revenue for industrial was $417 million, down 5% sequentially. Inventory digestion persists, and we saw further degradation in the traditional parts of industrial, offset by pockets of growth in of auto and industrial, our other business declined 24% quarter-over-quarter and more than was seasonally expected. We have seen early signs of pricing pressures in pockets of these noncore end markets, which we will not pursue and exit over time if the volatility returns to historical at the fourth quarter split by the business units. Revenue for the Power Solutions Group, or PSG, was $809 million, a decrease of 2% quarter-over-quarter and 16% year-over-year. Revenue for the Analog and Mixed-Signal Group, or AMG, was $611 million, a decrease of 7% quarter-over-quarter and a decrease of 18% year-over-year. Revenue for the Intelligent Sensing Group, or ISG, was $303 million, a 9% increase quarter-over-quarter. ISG revenue decreased 2% over the same quarter last to gross margin in the fourth quarter. GAAP gross margin was 45.2%, and non-GAAP gross margin was 45.3%, down 20 basis points sequentially and 140 basis points from the quarter a year ago. Manufacturing utilization decreased to 59% in Q4 as we aggressively took action late in the quarter to match our demand let me give you some additional numbers for your models. GAAP operating expenses for the fourth quarter were $371 million as compared to $330 million in the fourth quarter of 2023. Non-GAAP operating expenses were $321 million compared to $306 million in the quarter a year ago non-GAAP operating expenses increased sequentially due to the timing of R&D project operating margin for the quarter was 23.7%, and non-GAAP operating margin was 26.7%. Our GAAP tax rate was 14.2%, and our non-GAAP tax rate was 16%. Diluted GAAP earnings per share for the first -- for the fourth quarter was $0.88 as compared to $1.28 in the quarter a year ago. Non-GAAP earnings per share was $0.95 as compared to $1.25 in Q4 of 2023. GAAP diluted share count was 430 million shares, and our non-GAAP diluted share count was 426 million to the balance sheet. Cash and short-term investments was $3 billion with total liquidity of $4.1 billion, including $1.1 billion undrawn on a revolver. Cash from operations was $580 million, and free cash flow increased 39% sequentially to $422 million, representing 25% of revenue. For the year, we generated almost $1.2 billion of free cash expenditures during Q4 were $157 million, which equates to a capital intensity of 9%. Inventory was flat quarter-over-quarter on a dollar basis and increased by 3 days to 216 days. This includes 100 days of bridge inventory to support fab transitions in silicon carbide. We are nearing the completion of these strategic builds and expect this inventory to peak in the first half of 2025 as we ship and convert the inventory to cash. Excluding the strategic builds, our base inventory is at 116 days, which continues to be within our target range of 100 to 120 inventory declined $55 million with weeks of inventory remaining relatively flat at 9.6 versus 9.7 weeks in Q3. Our plan to change the mix in the channel to support the mass market has resulted in an 18% increase in customer count year-over-year. We expect distribution weeks of inventory to be plus or minus 10 weeks going forward, let me provide you the key elements of our non-GAAP guidance for the first quarter. As a reminder, today's press release contains a table detailing our GAAP and non-GAAP guidance. Given our visibility, we anticipate Q1 revenue will be in the range of $1.35 billion to $1.45 billion. We expect non-GAAP gross margin to be between 39% and 41% with utilization declining to mid-50% in Q1. This includes share-based compensation of $7 the midpoint of our guidance, approximately half of the quarter-on-quarter change in gross margin is attributable to the drop in revenue as the under-absorption is calculated on a lower revenue number. An additional 100 basis points is due to unfavorable product mix, and the remainder is driven by lower utilization, which now drives a 20 to 25 basis point change in gross margin for every 100 basis points of utilization at these lower utilization levels. This change is due to the higher fixed cost as a portion of total factory cost. As the market recovers and utilization improves, we will see significant leverage in our gross margin as these costs dissipate and we recognize the benefit of our Fab Right cost on to non-GAAP operating expenses. We expect OpEx to be in the range of $313 million to $328 million, including share-based compensation of [$31] million. We anticipate our non-GAAP other income to be a net benefit of $14 million with our interest income exceeding interest expense. We expect our non-GAAP tax rate to be approximately 16%, and our non-GAAP diluted share count is expected to be approximately 425 million shares. This results in non-GAAP earnings per share to be in the range of $0.45 to $0.55. We expect capital expenditures in the range of $110 million to $150 you can see, we are not standing still. The structural changes we plan on making will position us to react quickly and favorably to changing market conditions. We believe electrification, AI data center and renewable energy are still the major growth drivers for our industry over the next decade, and we remain confident our technology and innovations in these markets will allow us to capitalize on those that, I'll turn the call back over to Kevin to open it up for questions. Operator (Operator Instructions) Ross Seymore, Deutsche Bank. Ross Seymore First question, I wanted to get into the structural versus cyclical side. You guys have been conservative for quite some time on a cyclical basis, probably one of the first ones. But yes, the magnitude of this drop is very, very significant. Hassane, I know you talked about late in the quarter, things kind of fell apart from a demand perspective. But how much of this do you believe to be ON specific versus the end market?And just from a revenue basis, are you at all concerned that the structural end market or product portfolio needs larger adjustment and isn't going to be as resilient as you hoped? Hassane El-Khoury No. Look, I think the big change in the precipitous -- the one thing I can say that is ON-specific is the noncore business that has seen the largest decline. And we've been very consistent not to play in that volatility. If you recall, when we started the transformation, we had a big portion, call it, $800 million to $900 million, of noncore business where we said we would exit. We only exited about half of that. And we're seeing -- with that extended downturn, we're seeing more and more volatility in that pricing. But we remain consistent with our strategy that we're not going to play in this highly volatile and we're going to maintain the value of our core products, which is where we're investing. Think Treo, think silicon carbide, think in the medical and so on. All of these are where the growth is going to come from. And in the term, as we see the volatility, we're not going to participate, yet we will choose to rationalize our portfolio further and match our capacity accordingly. Thad Trent And Ross, I would add, just to size the size of that business that Hassane is talking about, the noncore, it's roughly $350 million to $400 million that is more volatile that as this downturn extends that is -- we will exit over time, just to put a sizing to it. Ross Seymore And then, I guess, along the lines of the sizing side of things, you talked about some of the structural actions you are going to take on the cost front as soon as 2Q and then some of the benefits potentially on the COGS side coming into the back half. Any sort of color as far as putting magnitude around those? Thad Trent No, not at this point. We're still working on the plans. We'll give updates throughout the quarter as we solidify those plans. So expect some updates as we go. Operator Vivek Arya, Bank of America Securities. Vivek Arya Just first, kind of few clarifications. So Q1, what are you expecting for the sequential segment trends in automotive, industrial and other segment? And I think you mentioned something unfavorable in the mix. And then any early look at Q2 seasonality? Because Hassane, what everyone is obviously trying to guess is what is the path of recovery for ON from here. Thad Trent Yes. So by end market, Vivek, automotive is going to be down the most. We think that's going to be probably 25% or more down sequentially. When you look at industrial and other, we think it's going to be down mid- to high single digit sequentially. Hassane El-Khoury And look, as you -- on the visibility side, we're sticking with visibility of about a quarter. Of course, we have some looks into Q2, but it's too early to talk about seasonality in Q2 given really the volatility in back of -- between geopolitical and tariffs as early as over the weekend. So we're not going to be talking Q2 yet. As we get more and more visibility, we'll update as far as recovery, look, I think I know what others have said. It's a lot of the -- everybody is talking about, oh, the second half would be better than the first half and so on. It's the same string that everybody is pulling that they did in 2024. I don't subscribe to that. I subscribe to data I see, and we're going to manage the company to the data we see because getting it at this point will just be upside for us as the market recovers. And I'd rather have that and be right in that aspect versus hope for a recovery, run the company and if the recovery doesn't come, now you have a headwind. I'd rather all of that work that we do now, like Thad said, not standing still to be a tailwind for us, whether there's a recovery or not. Vivek Arya And for my follow-up, Hassane, so if I look at Q1 automotive, I think you mentioned down 25%, so let's say, $70-ish million or so. It has sort of reset back to mid-'22 levels. But it is still well above the levels we saw forward, right, which were in the $400 million, $500 million quarterly range. What is the right baseline that we should have when we start to think about automotive business for long periods of time?Because we have seen industrial businesses get reset back to much lower levels, but automotive is still above the 2019 level. It's closer to '22 level. So how do you think about what is that right baseline? When was automotive at the right baseline level for us to project it? What have been the effects of LTSAs, pricing, content, EV, silicon carbide, et cetera, that'll help us project what your automotive business can be over the next several years as you start to normalize? Hassane El-Khoury Yes. Look, I think from -- looking for the -- it's hard to talk about a baseline given all the changes that we've done to our portfolio. And you mentioned some of them, the growth in silicon carbide, which is not just the growth in silicon carbide, but a mix shift even on the ASP side. Silicon carbide module is a much higher dollar content than some, for example, the discretes we used to ship more of from a unit, you can expect unit decline, but revenue went up. So it's hard to get a baseline given how drastic our portfolio has shifted over the last even two to three years. But moving forward, our long-term view, which remains consistent, outside of the market environment today, our long-term view remains consistent, which is SAAR, call it, high to low teens -- or sorry, from high single digit to low teens. That's the range over SAAR, so -- which is what we're seeing. That, I would say, is the baseline that we are building to and the baseline we are investing to, which is both a mix shift into higher-value products, especially as, for example, start introducing Treo, which comes with a margin expansion as well towards our long-term moving forward, that's how about it, but it's hard to go backwards and talk about a baseline just because of the shift that we've done over the last few years. Operator Toshiya Hari, Goldman Sachs. Toshiya Hari Hassane, I wanted to go back to the automotive outlook for Q1 down, call it, 25% sequentially. This outlook is much worse than many of your peers. I'm just curious, what's driving the delta there? Is it pricing? Is there a noncore component within automotive? Any additional context or color there would be really helpful. Hassane El-Khoury Yes. So of course, there's a noncore bit component to it, as I mentioned. So that's built into the first quarter. But some of it is the silicon carbide. We've always said silicon carbide quarter-on-quarter is lumpy. We've had a great second half. However, in -- it is all driven by China. China today is looking at a softer Q1. I think that's temporary as it digests inventory that they've built. It's not our inventory, but I'm talking about the vehicle monitoring that. You have an early Chinese New Year. Some of the Chinese customers have done an extended shutdown in order to absorb that inventory. So net-net, I don't worry about that quarter-on-quarter lumpiness as I look at it over a multi-quarter gaining share, both in China and some European names. I've said it before, they're not ramping at the rate that we expected, but they're still ramping, which is what drove the second half of 2024. So quarter-on-quarter, the number is what the visibility shows, but the structural changes in the business and the outlook remain unchanged. Toshiya Hari That's helpful. And maybe one for Thad. You talked about rationalizing your portfolio. You talked about reviewing your manufacturing footprint. As you draw up your forward strategy and your plans, is the aspiration to kind of hold on to the 2027 model that you guys shared with us a couple of years ago, i.e., gross margins of 53%, operating margins of 40%? Or I mean I realize the backdrop is very, very different at this point. So should we think about -- should we assume you guys are looking at sort of a different or updated long-term model at this point? Thad Trent No. Look, we still remain committed to that 53% target. If you look at the gross margin, in the short term, it's all impacted by utilization, right? I talked about the moving pieces, but utilization is the largest headwind that we have right now. Assuming the market recovers and we continue to execute on our Fab Right, we will rightsize our manufacturing to fit the size of the company here. And we don't need that top line revenue that was in that original target, but we do remain committed to that 53% gross margin you look at the gross margin actions that we're taking now, it's primarily a lot of noncash actions, if you think about it. And it will generate strong free cash flow as we think about this year and in '26. And then, obviously, as we go into '27 and hit that target, we believe we'll hit even if you look at '25 from a free cash flow standpoint, we believe we're going to hit that target model of free cash flow of 25% to 30% in 2025 for the year. We achieved it in Q4 of '24 with a 25% free cash flow margin, and we believe we'll continue to generate strong free cash flow going forward. Operator Chris Danely, Citi. Chris Danely I guess for the rest of the year, how would you expect the auto versus the industrial growth to trend? Do you expect auto to [recover] for Q1 or no visibility at all? Hassane El-Khoury It's too early to talk about the (inaudible) with you. We know what designs we have. We know what designs we're ramping at this point or have been gained. The designs have been qualified. It's purely an end-market demand right now. Thad Trent Yes. And we do believe that we're still undershipping natural demand. So at some point, you got to come back to that level. It's just a matter of when. Chris Danely That's fair. And then a question on silicon carbide. With this decline, are you guys reassessing your long-term targets on silicon carbide as far as growth or margin scale? Hassane El-Khoury No, not on the margin because you can think about it, it's a demand. So as far as growth is concerned, outside of the short-term lumpiness and the volatility and really the EV, our long-term growth, we aim to be the leaders in the market from a market share perspective, and we aim to run the highest profitability silicon carbide business we have given the innovations that we believe we bring to the customer. So that remains unchanged. There will be some strategic reviews of the capacity. But overall, we're focused on that market, and that will remain a tailwind for us both on growth and margin. Operator Blayne Curtis, Jefferies. Blayne Curtis I had two. I'm just kind of curious, I wanted to go back to the nonstrategic business. You said $350 million or $400 million. Just how much of that -- in terms of the guidance for March, are you planning on some of that delta coming out in March? Or is that something that would be on top of what you're seeing in March and would come out further in the year if you make those decisions? Thad Trent No. Look, we think that if that business -- if we do lose up business because of pricing, it will happen over a multi-quarter period. So it's not all baked into Q1. It's further out into the year. And like I said, that will really be market-dependent adopt. We'll keep that business. It's good margin, like it has been historically. But if the pricing continues to drop, we'll just let it wither away over time. Blayne Curtis Got you. And then I want to ask the auto demand by geography. You had -- you actually were up in December. A lot of people saw China strength. I think you called that out. I'm just kind of curious if you can just talk about March demand by geography in auto. Hassane El-Khoury Yes. I think, in general, we expect it to be down. I don't think we can call out -- relatively speaking, there are some regions that are better than others. But the growth that we've had was China, as I spoke about in my prepared remarks -- and getting into Q1, I highlighted the early Chinese New Year and the extended shutdown. So that's, again, a demand are in these sockets. We ramped in fourth quarter as customers sell through their inventory, meaning the inventory of cars, not our inventory with them. But the cars, as that inventory sell-through, that will replenish and we'll see the orders recover. So that's the uncertainty because it's purely a consumer confidence end game. As we get better visibility after the Chinese New Year, we will be able to get more clarity on how the rest of the year will be. Operator Josh Buchalter, TD Cowen. Josh Buchalter I also wanted to ask about the first quarter gross margin. So you walked through the 100 basis points of unfavorable mix and then the new rule of thumb, adding probably 100 to 150 basis points headwind as well. Can you sort of, I guess, provide more details on the remaining part of the sequential decline? And also, any more details you can give on what specifically is driving the unfavorable (inaudible)? It sounds like you're walking away from business as is. Thad Trent Yes. So starting with the gross margin, if you do the walk from Q4 to the midpoint of our guidance in Q1, and I said this in our prepared statement here, the half of it -- roughly half of that decline is a calculation change in the under-absorption. So if you think about the under-absorption on a lower revenue number, that's driving half of that margin delta right there. There's 100 basis points from the unfavorable product mix. And then there's -- you do the math, it's roughly about 150 basis points from the underutilization as we drop utilization down mix is just purely a price/mix. If you think about the long tail of customers that we talk about and some of that -- some of these businesses, that's what is remaining soft. Some of this industrial is soft. So it's purely just a product mix unfavorability kind of in the short term here. We believe that over the long term, that will come back as well. So if you think about -- whenever there's a recovery and revenue comes back, you will get that -- half of that delta just with the revenue increase because it's a pure calculation. Does that make sense, Josh? Josh Buchalter Yes. And then for my follow-up, you mentioned sort of inventory levels coming down at your auto Tier 1 customers. Any metrics you can give us on how much inventory you expect to be able to strip out downstream at your Tier 1s and where levels, I guess, are now and where you expect them to be exiting the first quarter? Hassane El-Khoury Yes. Look, it's not really an industry response because every Tier 1, depending on their financial and their -- the strength of their balance sheet, are taking a different approach to inventory. It's hard to get 100% visibility there. I mean we work with customers as we see orders. Our priority is depleting. So we're not pushing inventory out. That's why Thad mentioned, we believe we are, while under-shipping demand, at some point that will the inventory levels at our customers really directly correlated to what the demand is. And as demand deteriorated, inventory looks elevated, and they will take an action. So it's kind of a moving target. But it is not industry-specific. We have some Tier 1s we work with that have already achieved it. So we're already shipping to demand. But in general, there's still a lot of inventory digestion across the industry. Operator Vijay Rakesh, Mizuho. Vijay Rakesh Just wondering, when you look at the fab utilization, how that should play out over the next couple of quarters, I guess, after 1Q? Like do you see that flat and maybe second half picking up? Or is it (inaudible) some trend? Thad Trent Well, look, utilization is all going to be demand-driven, right? We said that in Q1, our utilization will drop to the mid-50% range from 59% here in Q4. So we're already taken that action. For what we can see right now, we'll kind of be running in that range, plus or minus, until we see demand recovery. Once we see the demand recovering, utilization will go up, and then there's the natural latency until you see gross margin improvement. That will happen when we see the demand -- the market recover. Vijay Rakesh Got it. And in terms of the silicon carbide outlook, I think you said might be up year-on-year. I was wondering if any color around that and on the backlog, how that's trending there as well? Hassane El-Khoury The only comment I made is we're designed in. We gained the share. We saw that in the strength getting into the second half of '24. At this moment, in 2025, it's purely demand. We're gaining share across all major customers. But at this point in time, it is what they will end up achieving from, call it, vehicle -- EV vehicle sales. We will ramp accordingly. But we're in a very good position with the customers. It's purely an end-demand commentary. Operator Christopher Rolland, Susquehanna. Christopher Rolland Some others look like they're starting to see stabilization, and so I'm wondering about the delta there. Could this have been related to your emphasis on LTSAs? And with auto down, let's say, 25% quarter-over-quarter, I wouldn't imagine everyone is complying to LTSAs just given that drop. So do you think part of this kind of delayed responses around LTSAs? And then secondly, should we expect them to be renegotiated moving forward here? Hassane El-Khoury Yes. We don't believe so because our stance has been -- we've been -- I've been very consistent across even the last couple of years that we've been negotiating LTSAs. We've been negotiating LTSAs to match demand as closely as the visibility at the time. Some LTSAs have been negotiated multiple times. It's not something new that we're doing in Q1 of '25 as a response. That's been a consistent and continuous effort that we have with the customer on really landing on to what I call the win-win. So I don't believe that's got -- those two are related.I don't think the LTSA, call it, amendment or negotiation has accelerated. We've been consistent throughout 2024, as we are with the customers, trying to land to what the real demand environment is. Because we -- what we did -- and again, I've been very consistent with that, we're not going to overship demand just adhere to the LTSAs. So your comment, are customers abiding by the LTSAs, they are, but they're a change in the LTSAs over the last few quarters, call it, just to be able to land where they believe and we believe a healthy inventory digestion happens in order for us to get back to what the net demand is. That's been our approach for the last few years. That remains our approach even into 2025. Christopher Rolland Excellent. And there was not a lot of discussion around image sensor. I'm just wondering how much of that auto weakness is related to image sensor? Is there anything to note in terms of pricing or competition or internalization in China? How would you classify image sensor overall? Hassane El-Khoury I think image sensor has been, call it, more stable. I don't -- I wouldn't call anything up or down. Our approach for image sensor has been the same for the last few years. We walked -- we've been, call it, trimming our portfolio. We're not aiming to be number 1 market share with atrocious profits. While we've used the shortages in the last few years because remember, all that business is outsourced. What we've done over the last few years is refocus our efforts and refocus our image sensing business to what we call machine win, where the quality of the image sensor is where the value comes in, because it's really processed directly by a machine versus an been ongoing. We're happy with the consistency of that business. We are ramping the 8-megapixel as the market shifts. But that business is, I would call it, more stable. We do see competition, and we're attacking it as we see fit. But again, just like I mentioned on overall portfolio, we are focusing where we add value, not where we can just ship units. Operator Gary Mobley, Loop Capital. Gary Mobley You were -- you're clear on your messaging with respect to noncore products and the pricing pressures in that particular product group. But maybe if you could talk about pricing trends for core products, I presume you just went through annual price negotiations. Perhaps you can give us an update on pricing trends there for the vast majority of your business. Hassane El-Khoury Yes. Look, I think the -- what people refer to the annual price negotiation, which is a Q4 negotiation with an impact in Q1, we're not seeing that. Are there benefits and efficiencies that we have done in our product? We've talked about our Fab Right. We've talked about taking costs out of the products. Of course, as we do that, customers see some of that benefit as our margin expense from a, call it, standard I take out the underutilization that Thad walked you through, I focus really -- when I talk about value of the products, I focus on our standard margin, taking out the manufacturing underutilization in the short term. If I look at that, that's been very consistent because we are offsetting whatever discussions we have with the customer. We are offsetting it with efficiencies of our own internally. Those, I wouldn't call it pricing negotiation. Those are efficiencies. Because the typical pricing negotiation that you're referring to -- look, there's no demand out there. So you give price reduction just for the heck of it. Then you end up with a gross margin headwind and no additional no demand elasticity based on proprietary products, which is where our focus has been. But from an efficiency perspective, of course, we are working with customers to support their transition to our new products as we gain those efficiencies. But net-net, it's good for margin and good for the customer. Gary Mobley Okay. Just my follow-up on about silicon carbide for sourcing. The market overall for devices clearly underperformed expectations in 2024, and there seems to be more adequate supply of raw wafers coming from China. So any update on your internal sourcing of raw and epi wafers, whether that be internal or external? Hassane El-Khoury No. No, we've been -- well, we do both internal and external. We have a lot of sources qualified externally, and we will manage the transition internal/external. As far as mix, there's the -- first, what you have to think about is the certainty of supply in a backdrop of geopolitical uncertainty. If you take that out, we are basically balancing our internal and external. We have qualified both internal and external. As I mentioned in my prepared remarks, we've also qualified 200-millimeter, and we've qualified the 350-micron thick substrates, which is state-of-the-art today from a silicon carbide wafer thickness. And those are running in the fab, and we sampled from an execution perspective, we're on track. From a mix perspective, we have full flexibility. We believe we're in the best of both worlds where we can do internal and external. And we will continue to refine the mix between internal and external as we proceed through 2025 and as we get some stability and clarity in the, call it, the geopolitical environment. Operator Joe Quatrochi, Wells Fargo. Joe Quatrochi On the $350 million to $400 million price-sensitive revenue that you're thinking this year, are there any end markets or geographies in particular that we should think about as being more price-sensitive or more aggressive there? Hassane El-Khoury No. I think it's more of a product rather than a region. What I mean by that is more market products. Now it could be that some of these markets are more skewed to a region. Well, we don't look at it as a region. We don't have local pricing practices based on region. We look at it as a product and end markets. So that's kind of how I look at the noncore revenue. Joe Quatrochi Got it. That's helpful. And then I think in your deck, you talked about AI data center revenue growing more than 40% in 2024. Just wondering how you're thinking about the growth opportunity in '25 with the potential acceleration from the JFET business. Hassane El-Khoury We expect that business to continue to grow as we -- we've had some penetration in the second half of '24. Of course, that will continue to grow on an annual basis. We do have some platforms that we are designed in, and those will start adding up to the 2025. So we're on beat with the design cycle in that market with our new looking forward, our Treo platform, with the fast time to market and really the integration, will start getting us a faster beat so we can do more and more aggressive portfolio introductions for that. But we're in a good spot today. That growth will continue in '25. Operator Tore Svanberg, Stifel. Tore Svanberg I had a question about gross margin and when the recovery comes. Should we still think about the 20 to 25 basis points in improvement per utilization -- well, per increase in utilization? And Thad, I assume that that's sort of a comment prior to some of these site changes that you are considering. Thad Trent Yes. That's right. If you think about the 20 to 25 is from here to low 60, right? After that, go back to the 15 to 20 basis points, right, as you just get the scale there. So the change there was the fact that our fixed costs are becoming a larger percent of the overall factory cost. You can only cut so much variable cost, right? And so we're kind of getting down when you're -- when you're stepping down into the 50% range, you're kind of hitting up against that. So you'll get to a point where you get -- you start to get some scale and then we go back to the 15 to 20 basis points, similar to the numbers we've given you in the past. But yes, that is all based on current capacity. Tore Svanberg Great. That's very helpful. And as my follow-up on Treo, how should we sort of track the financial success of that business? Are you going to be perhaps sharing with us revenue associated to that business or the impact to gross margin in any given quarter? Just trying to understand financially how we should track the success of Treo. Hassane El-Khoury No. The intent for me to give you kind of the updates as we report on, call it, the early milestones because those are the leading indicators. So what you'd expect is product introductions confirmation of the margin profile and maybe at some point, depending on the customer and their willingness, is joint announcements with customers as they design it in. We have customers, as I mentioned, that are starting. We'll start to ramp in 2025. So first revenue is actually going to happen, but don't expect to update on a quarterly beat or on an annual beat at that level of granularity. Operator Harsh Kumar, Piper Sandler. Harsh Kumar Hassane and Thad, I had two qualitative ones for you. I think earlier you mentioned you're still [undershipped] relative to your true demand. So I was curious if you could give us an idea starting off with the guide that you gave for the March quarter, if you were just to kind of give us an idea of what your true demand estimate is? In other words, how much are you undershipping or what is a table to take for your business, if you were not to undership? Hassane El-Khoury That's a hard one because unless you have -- first, unless you have 100% visibility of what the inventory is at the -- by customer, but also demand is a moving target. Demand has not stabilized. As we've talked about, and I think some of my peers have talked about -- different peers talk about different end markets. But I think what's consistent across the board is demand has not really landed and stabilized. So as that's a moving target, inventory remains -- or inventory levels that they -- customers would like to see remains a moving why when we talk about -- at some point, it has to snap back, and we'll see that when we get there. But today, we're just managing to what we can see while making sure -- we're making sure we don't overship. But back to the LTSA question, which is the reason we keep negotiating the LTSAs, we want to make sure we are at or below demand in order to accelerate to the extent we can, the inventory burn. So we do get to a normalized view soon. Harsh Kumar I got it. Okay. And then I wanted to ask you about one of your neighboring companies and based in Arizona also. They supposedly had some of the worst inventory problems, and they guide [posing] as bad as perhaps yours, I mean, neither the automotive nor the total guide. And I was curious what the puts -- I'm not asking you to comment on their business, but I'm trying to understand -- I guess, what I'm trying to say is, are you kind of [pad] for some level of decline that you're building in based on your judgment? Or are you strictly giving us a guide based on what you're seeing? Hassane El-Khoury It's purely based on what I can see. I don't give guide, and I'm not running the company based on what peers have done. Of course, I look at the peers -- what peers have done across the border and across their earnings and what they look at, but everything you get from me is purely in context of ON Semi. Because everybody has a different portfolio, everybody has a different strategy. So I can't really peg anything to a -- however, what I would say is from an inventory, inventory I can control, from an internal inventory and DC inventory. Our internal inventory clicked up in days, but in dollars, consistent. So we have been very disciplined about maintaining and not letting our inventory get out of line. So the margin that you see is a pure margin, not inflated by an inventory build at all. So that's point number one, where our discipline comes a disti, you've also seen us be very consistent on our disti. Actually, the distribution inventory in Q4 dropped $55 million. So we drained -- as we saw the softness in Q4, towards the end of Q4, we took decisive action and we reduced this inventory by $55 million in the quarter. So the inventory that we have visibility and the ones we control, we are very disciplined again, so when we see a recovery happen, we turn on manufacturing, utilization goes up, revenue goes up, margin will go up accordingly. That's what we're running the company to achieve, and that's why we will continue to focus on the stuff that we can control. Operator Ladies and gentlemen, this does conclude the Q&A portion of today's conference call. I'd like to turn the call back over to Hassane El-Khoury, President and CEO, for any further remarks. Hassane El-Khoury Thank you all for joining us on the call this morning. And I want to thank our worldwide employees, again, for their perseverance through this downturn. Remaining focused on operational excellence and innovation will enable us to continue to drive value for our customers and shareholders and emerge stronger than we were going into this. We intend to provide additional information on our progress at a future date. Thank you. Operator Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.
