Q2 2021 Nova Measuring Instruments Ltd Earnings Call
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Ladies and gentlemen, you are currently on hold for Nova second quarter 'twenty 'twenty..1 results at this time, we are assembling the audience from time to be underway. Shortly the appreciate your patients from please continue to hold.
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For the second quarter of 2021 financial results conference call with US on the line today on Mr. Eighth of an open Hine, President and C O and Mr. Drawer, David C. S O.
Before we begin may I remind our listeners that certain information provided on this call may contain forward looking statements and the safe Harbor statement outlined in today's earnings release also pertains to this cold. If you have not received a copy of the release. Please view it in the Investor Relations section.
Of the company's websites.
8 on will begin to call with the business update fold by drawer with an overview of the financials.
It will then open the call for the question and answer session of.
Now turn over the call to Mister Athens, Oppenheim, Nova President and C. O 8 them. Please go ahead.
Thank you Mary on will come everyone for second quarter for an answer of results going for in school.
It was the other cold today by speaking of both of the can quote the resolve the performance highlights.
Following my Coleman free throw will review the quotas financial the results in day too and it will conclude with the guidance for the third of 2021.
Nova maintained its outstanding performance delivering another storm quarter with compelling the results that the exceeded the company's revenue on profitability guidance.
The acceleration and all of a business is reflected in our continued the robust performance is proposed propelled by all of the evolving offerings and are growing position the of course, geography's customer of and technology notes.
Oh revenue reached in other record the high demonstrating approximately 55 per cent growth here over the year, while our non-GAAP net income grew approximately 95 per cent bureau of a year to record level as well.
Moreover, comparing our 2021 first half results to the same period last year.
Shows the growth space of the around 45 per cent, you know revenues and more than 70 per cent an hour of non-GAAP net income.
Reflecting the leverage that is embedded in our business model and the value of innovative portfolio brings to our customers in this demanding periods.
The strong momentum.
And the exceptional performance. We are demonstrating are the result of our consistent the execution with.
Which is led by our strategic plans to outperform and continue the company is profitable growth in the years to come.
Our flexible operating model and the concentrated efforts to strengthen of resiliency across the company.
Allow us to meet our customers growing demand as we expect to increase our production output by more than 50% this year.
As reflected in our financial results, we continue to reap the benefits of a well executed plans as part of multiple strategic initiatives across technologies and customers.
Based on the current positive semiconductor environment and the expectations for continuous demand.
In both of the training and advanced node combined with the record quarterly bookings for all of solutions, we expect another record the year in 2021.
Forecasting approximately $390 million in revenue.
With an option on upside to cross the $400 million threshold.
Achieving debt were present around 50 per cent growth year over year in our business volume.
In the current market dynamics are innovative approach supported by our solid commitment to our customers continues to strengthen our position and expand our exposure to a broader customer base across all geographies.
The strong impair this we are experiencing in all semiconductors segment.
Is propelled by.
Sorry propelled currently by strong demand for multiple traditional in high end applications.
That are driving growing demand for stronger computation.
Extended data management and powerful network infrastructure.
The growing.
Digitization of multiple industries continues to fuel the demand for silicon and support our expectations for elevated multi year W. A free spending.
In addition, and against the backdrop of broad demand for semiconductors.
Increasing the vice complexity plays well into our growth plans in several pneumatology applications, which opened for us numerous opportunities to extend our available markets increased attach rates and also gained market share.
The complexity of embedded in building next generation devices.
Requires innovative solutions for inline indict mythology, and in this space, we prevail with our combined solutions for both critical dimensions and materials control.
On top of this.
2 strong market drivers, which are the demand and the technical complexity, the push by different continents and nation to achieve semiconductor supply chain independence within the next several years.
Expand region on investments.
Elevate the demand for capital equipment globally, and support even copy of W. A free spending.
These tailwinds resonate well with our results with balance contribution from the 3 big territories, Taiwan, Korea, and China contributing 30 percentage.
Moreover are of position in China continues to improve with several new expansions and penetration.
Resulting in the new revenue record in this region.
Furthermore, and based on several of global manufacture intention to extend their position in the U S. We expect of growing business momentum in North America as well throughout 2021 and 2022.
In addition to the overall demand for new advanced the devices customers are also focused on utilizing the investment by optimizing existing fabrication line to improve performance and increased outputs.
As the result, we are experiencing growth in systems delivery, all sorts of the trailing memory and logic nodes.
Driving revenue balance between the nodes in the first half were around 40% coming from trailing edge of nodes.
Additionally to better utilize this high volume manufacturing lines, we are offering our customers of broad range of solutions.
To upgrade the installed base to extend the fleet lifespan and increases productivity.
This activity over many customers steered the up our service business growth this year with another record high this quarter.
Although we are pleased with all of our achievements during the quarter I would like to emphasize 2 major milestones closely connected to our strategy.
The first 1 of the growing demand for optical see the standalone tools, mainly the prism across nomura's customers.
While our industry is going through extensive technical transition either in multi stock of memory scale, DRAM or new logic architectures Nova.
Nova solution that includes multiple optical unique channels, along with advanced the software capabilities resonates well with our customers.
Is the most suitable solution for faster and more accurate process and 3 of the devices.
As a result of this growing attraction our standard on revenue hit the record high in the second quarter, and we expect strong momentum for the rest of the year as well.
The second milestone is the progress we made with our software sales towards a long term business model.
At this point I would like to clarify that when we discuss our software of growth engine. We exclude common systems sequence upgrades service software version upgrades of fault management solution.
And concentrate only on advanced modeling deep learning and fleet management.
These 3 engines drive our business forward and brought in and other software revenue record this quarter.
Specifically in this space, we are very encouraged by the traction are of Nova fit portfolio is gaining in the market.
Nova fit our deep learning solutions with standard is a key differentiator in are offering to customers, who strive to improve accuracy.
And increase yield while reducing time to markets.
Our solution handle massive amount of data very fast and deliver processed the insights based on accumulated knowledge and advanced algorithms the.
Ultimate goal of are offering is to calculate the and analyze the growing the amount of data during the process cycle from hundreds of tools, along the different process steps and with debt to predict the next measurement with the highest accuracy.
1 example of the immense the importance of debt to our customers is the device functionality testing.
2 days for vacation process is so complicated that it takes several months.
From the time of Silicon wafers introduced in the manufacturing until of fully functional device is produced that can be released to electrical testing.
To make production faster and more efficient Nova fit the analyzer data from over 200000 optical measurements for her.
Formed weeks and sometimes the month.
Before manufacturing is completed and can predict the electrical test results already during the front end process with unmatched accuracy.
All of our ability to deliver solutions like that that is based on having different mythology.
In the production lines in different steps.
In the typical advanced node, we can have hundreds of integrated mythology tools tens of optical city standalone tools and multiple X Ray systems.
Yeah.
Encouraged by our consistent achievements and our ability to meet our Nova 300 models, we recently announced during the hour analyst and Investor day, the new strategic plan to 2 organically grow the business to more than $500 million in revenues.
The combination of favourable market conditions increased complexity, and the vice manufacturing or solid business model and the diversified portfolio support our expectations for further growth and outperformance.
The plan as presented during the analyst and Investor Day is based on for pillars, which are the basis for our success.
The first 1 of the continuous investment in talent acquisition and talent management to nurture our cultures.
That combines inclusion diversity and transparency along with aggressive approach towards execution and winning.
The second dealer is out of continuous elevates elevated spending in R&D to keep rolling out new innovative mythology solutions to the market with focused on both hardware and software products.
The lips on and the prism are the harbingers of more new technologies to come.
In the short and the long periods, while customers are using both new architecture and materials to improve performance.
The third theater these are increasing installed base and the service revenue it it drives on average with the liver hundreds of tools the year to the markets.
These are very accurate and highly advanced tools that the measure thousands of wait for the day and are responsible for all major yields improvements globally.
As part of a roadmap we constantly develop upgrade packages for these tools, including hardware and software to be able to provide our customers with more of capabilities to handle more complex devices in existing traditional fabrication line.
The final pillar is the leverage we developed an operation on modern which supports our continued investment in new products and technologies.
While allowing us to deliver on our long term profitability model.
We can see this leverage materialized already this year as we increased R&D investment in new products and grew our production production output approximately 50 per cent.
All while significantly increasing our profit.
Before I hand over the call to draw to extend our financial highlights in more detail. Let me just recap recap our performance of this quarter.
It has been a remarkable quarter and.
In the first half of 2021, achieving multiple records and.
And heights.
Looking ahead, we see on abundance of opportunities to continue growing as our strategy to invest in innovative unique technologies.
<unk> fruit in the form of an extended.
Portfolio and growing addressable market.
I am extremely proud of our teams across the globe, while rising to the challenge and performing the best.
With that let me end over the call to draw to review our financial results in data drawer.
Thanks, a ton of good day, everyone and thank you for joining our second quarter of 2021 conference call.
Total revenues in the second quarter of this year exceeded our guidance and reached and all the time record of 98 million.
This represents of 56% growth compared to the second quarter of 2020, and a 16% growth compared to the first quarter of 2021.
[noise] product revenues in the second quarter grew 18% quarter over quarter.
This growth was attributed to a significant increase in revenue from the standard alone optical see the product line, which reached and all the time record revenue level during the second quarter.
Service revenues in the second quarter grew 9% quarter over quarter is the result of higher time and materials and installed base management's revenues.
Looking at product revenue distribution, approximately 70% was attributed to logic and foundry and approximately 30% of memory.
Geographically, Taiwan, Korea, and China, each country booted, approximately 30% of our product revenues with China, representing an all time record level.
Glen of gross margin in the second quarter was 57% on a good basis similar to the first quarter of 2021.
Atlanta gross margin on of non-GAAP basis increased to 58% relative to 57% in the first quarter of the year.
Operating expenses for this quarter increased by 2% to $29 million on the gift bases and to 26 million on of non-GAAP basis.
[noise] operating margins in the second quarter significantly increased reflecting the financial leverage built into the company operation on modern.
On of get basis operating margins increased from 23% in the first quarter to 28% in the second quarter.
On a non-GAAP basis operating margins increased from 27% in the first quarter to an all time record level of 31% in the second quarter of 2021.
The effective tax rate in the second quarter of 2021 was approximately 12%.
Earnings per share on the gab basis, where 77 cents per diluted share and earnings per share on a non-GAAP basis, where 90% per diluted share exceeding the company guidance for the quarter and representing and new record high for quarterly earnings per share.
Finally, I'd like to share our guidance.
We expect the following for the third quarter of 2021.
Revenues to be between $99 million and 106 million.
GAAP earnings per diluted share to range from 71.
284 cents.
And non-GAAP earnings per share per diluted share the range from 85.
And 98 cents.
At the midpoint of our third quarter estimates, we expect gross margins to remain similar to the second quarter of the year.
Operating expenses to reach approximately 30 million on of get bases and approximately $28 million on a non-GAAP basis.
Effective tax rate to be approximately 14%.
Looking at 20th weight on 1 as a whole as 8 on mentioned, we expect another record year forecasting approximately $390 million in revenues with an optional upside to cross the $400 million in annual revenues.
To support the tip of growth in business.
We are accelerating our investments and recruitment in all areas and departments, including expansion and establishment of new and existing offices globally.
The timing of these investments may vary due to the execution progress and due to the COVID-19 environment.
As communicated in a recent analyst and Investor Day, The company target financial model is comprised of gross margins between 56% to the 59%.
And operating margins between 26% and 29%.
And these expected levels of revenues in 2021, which represents a major of year of a year increase there is a potential upside to present operating margins, which are higher than our target modern.
With that I'll turn the call back to wait on Nathan. Thank you the wrong before we take your questions I would like to use this opportunity to mention of press release for Monday.
Modifying our name from Nova measuring instrument to Nova.
Following our expansion driven by several of software and hardware growth engines. The company believes the previous name no longer represented the technology portfolio and diversified offerings the.
The company continues to retain the Nvme's sticker sorry sticker.
And its forces insights tagline.
With that final notes, we will be pleased to take your questions operator.
Okay.
Thank you, ladies and gentlemen, if you wish to ask the question. Please signal by pressing star 1 on your telephone keypad. Please ensure that the mute function of of your telephone is switched off to allow your signal to reach our equipment again. Please press the star 1 to ask the question.
The first question today comes from Jamie Zacharek of Bank of America.
[noise] Hey, guys. Thanks for letting me ask that question and congrats on on the credit card you highlighted a few time record revenue from China can you quantify how much domestic China was the next quarter of that 30 per cent and how does that compare to last quarter and maybe a year ago.
What kind of demand in line with what you expected when you guide Ed and how do you remain confident that customers are ordering Ted true and the man.
So I think it's a it's on her and thanks for the question for I think I'll start first from the the.
The market perspective on the end of Oregon constant conclude with the financial element. So regarding the the demand in China, we do see.
<unk> demand in China year over year. So we will confirm this year of demand from last year actually it's higher.
And mainly it's coming from.
The investment in the logic customers in China.
And this is 1 and second the following the trade the limitations between the us on China, We do see some opportunities that are coming from the fact that we are not the.
Shipping our tools from the us and we are not.
Part of those obligations. So we can we can continue shipping tools and I think the the third element is that we do see.
Growing investment in China is the result.
From the trade War, we do see investment in new <unk>.
Grin Greenfield customers, we do see.
Increasing capacity on increasing investment in some of the customers that are.
Actually the expedited there.
The expansions.
And we do see the China is growing this year on by the way we expect the same thing next year.
If I may add some some color on debt so.
As a person mentioned in in the last few quarters, we did see at least 1 local domestic Chinese customer as of 10% customer of our product revenues.
China is the whole was around 20% in the last 2 years 2019 and 2020 in the first half of 2021, it's around 25%. So it is an incremental.
Incremental growth in that aspect.
Hi.
Very helpful and the.
Then on gross margin so gross margins on corner Kennon and slightly ahead, but are still down slightly year on year. Despite really strong revenue growth. So what are the parts on takes their and what can drive gross margin towards the higher end of your.
Long term target is it just the function of next or a certain revenue level or something else.
So as we discussed in our analyst day, obviously on 1 hand, we see increasing revenues and the company has.
The new technologies, which are coming in which are with with high ASB in high gross margins on the other hand, we do see challenges in terms of the cost of.
The employment globally cost related to COVID-19 men manufacturing and also supply chain aspects, including the cost of deliveries cost of raw materials and.
And so forth.
We do believe the the combination of of these elements as a whole will.
Still enable us to be within the target model of the company of which as I mentioned is 56% to 59%.
In addition, we need to remember that.
We need to balance between being competitive in the market and.
Creating a robust gross margins, which can facilitate R&D investment.
So overall we.
We do expect to remain within these these.
These levels of 56% to 59% were in years in areas, where the new technologies are coming in and revenues are growing.
In the in the fast manner, we would be at the high end of this range.
Got it thanks guys.
Our next question comes from <unk> Malik of city.
Hi, Thank you for taking my questions and good job on the results and guide.
I have a question on.
Your supply situation.
The <unk>.
Curious how long the equipment daytime day now.
You guys have been running at 80% of your manufacturing capacity and.
The planning to add a new room.
The room by Middle of next year. So are you supply constrained right now and how should we think about your.
Reduction capacity.
I think this year of next year.
So Ah day thanks.
Thanks for the question so regarding regarding our want to divided or 2 of first of all of the production capacity and we have enough capacity to increase the capacity even more.
And we don't see also for clothes to the to the limits regarding Cleanroom varies productions and things like that.
And we do expect that if they're going to be outside of this year. We can we can accumulate day, then we can answer the customer demand as the.
Cause it's gross.
Regarding next year, we expect the new clean room to kick in somewhere next summer and we are all secured in production to reach the and once it's coming in it's supposed to supposed to smoothly increase the capacity. So this is from production perspective regarding the supply chain itself as.
I said in a couple of previous earning calls.
We did the increase our inventories and we did the.
Purchased the some of the long lead the items early enough in the coverage period. So we enjoying right now from shorter lead time and we are.
It's the thing of supply chain actually for quarter as the head. So we know by now.
The amount of fracture of the tools for for quarter ahead. So I.
I think for in that in that perspective. We are also secured there are some risk is everybody understand in the spirit of increasing the.
The material prices for some constrained on supply chain delivery.
Shipments and flights and also of travel.
And it's becoming more difficult to logistically to deliver a system to customers, but nevertheless, looking right now on the last few quarter.
And.
Based on the situation in the dynamic of changes, we can control it and.
We can overcome it and continue growing.
Great and as net follow up <unk>, you mentioned record software sales, but can you quantify what the software sales of the percentage of overall revenue.
Yeah software and in the last 2 quarters software revenues out of the total revenues of of the company of war between 7 and 8 per cent.
Great. Thank you.
The next question comes from Patrick Hoff Stifel.
Hi, there. Good afternoon. This is Brian on on for Patrick Congratulations on the continued strong results and thanks for letting us ask a few questions.
Maybe first this in terms of of the second half commentary like 3 weeks ago, you spoke about the potential for for flat the modestly higher revenue clearly you revising this higher today, maybe can you provide a ton of a little color on what is incrementally strengthen driving this better second half and also what does that optionality that will drive you.
Closer to the 400 million level is that tied to acceptance of new products or a particular and market.
So Brian I think that there are 2 answers to that so.
When we're looking right now on the rest of of the year I think that the upside can be led the by 2 things 1 is the.
Is that is the rate of adoptions of the new technology and the markets and we are doing our best that some of the evaluations that currently are ongoing will be concluded the and the systems will be accepted the by the end of the year. This is 1 second.
We do have some opportunities to increase market share on some of the competitive selections that are going on right now and we hope that the the decisions will be married the on the next couple of months.
So the.
The the bottom line is it's a it's a combination of no market share and selection and penetration.
With the with the growing great of adoptions of the new products.
Okay, Great. That's very helpful. And then that's very helpful. Then.
Maybe doubling back on on China, just curious, obviously quantified sort of.
What your sales contribution of this year at stepping up from last year.
Just curious if you're trying to break that down maybe standalone CD vs. Integrated how do you think you of calibrate your market share in China for those 2 particular platforms relative to the your overall position on the world.
So we are not the break in went on breaking down the the numbers for integrated and stand alone, but I can comment on that.
Oh of market share is the is the market share of percentage in China is very high the our customer of that we have the wrong 100 per cent market share by the way on both the product lines.
Both of the materials and the and the dimension.
And I think that if you are looking right now on specific customers all of specific segments I think the during 2021 the.
The word 2 main investment in China, 2 main area of of investment in China 1 of the.
Is the logic customers, which are not the SMIC the.
The government is the.
Is moving investment to other larger customers. So this is the 1 nerio for investment and the second of these new.
R&D investment that's happening in different provinces in China. Okay. So each 1 of them may be the small of other there are multiple multiple of the so the combination of establishing new product of new R&D on production line with the increased meant of.
Investment in the in those logic customers the allergic providers that will need to gap will cover the gap that the.
SMIC cannot provide are the main driver for the drivers for our growth in China.
Okay.
Great that's great color. Thanks.
How's The reminder, ladies and gentlemen, if you would like to ask a question. Please press the star 1 on your telephone keypad.
The next question today comes from the Mark Miller of benchmark.
Oh, congratulations on the record quarter I was wondering hey, you've done as previously because you broke out for a break out the product costs on service cost.
So and as you saw on the press on if we did consolidate some of the of these elements as you know.
The company shifted gears in terms of its the business level. So we have decided to align the reports with the reporting benchmark for such a business levels.
In general of these these reports are more can dance.
And are in correlation also to the target model of the company, which includes mainly blend of gross margins.
We decided not.
Oh to report separating the gross margins for the different.
The product lines of revenue streams.
You mentioned you growing momentum in North America does that represent North America represent 10 per cent on more your sales next year.
So so.
Mark you say, it's on here, so I think that even this year, it's very close to 10 per cent. If I'm looking right now next year everything depends on the timing of the investment in Arizona.
And the the question is how fast the.
How fast the 2 major of logic customer would invest.
In addition to that we have another of chorion memory customer that the proposed to to.
To extend open a new facility. So that's that's from the Greenfield the spending by these 2 customers addition into that we do see recovery Bye bye.
By other customers in the in debt in that region.
We have the.
The leading logic provider in North America actually.
Increased capacity this year on supposed to increase capacity next year in the R&D facilities.
We have also.
The other global customer of other logic global customer of debt started to invest of this year as well in 28 and 2020 nanometer.
So all in all with the both the investment in the trailing edge nodes by the traditional customers as well as new Capex being spent for new facilities.
Starting next year as well so we definitely see on also America growing next year.
You mentioned, 1 net Chinese domestic for the greater the 10% customer of how many credit and 10% of customers did you have.
Normally it's between 3 and for customers every quarter.
Thank you.
There are no further questions I would like to turn the call over to the 8 hour are open from president and CEO for any additional of closing remarks.
Thank you operator, and thank you all for joining our call today, please stay safe and healthy. Thank you on by.
Ladies and gentlemen, the includes today's conference call. We thank you for your participation you may now disconnect [music].