Q3 2022 Nova Ltd Earnings Call
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Good day and welcome to <unk> third quarter 2022 results. Today's conference is being recorded at this time I would like to turn the conference over to Mary Seagal CEO of M. S. I R. Please go ahead.
Thank you operator, and good day to everybody I would like to welcome all of US to know about the third quarter 2022 financial results conference call.
With us on the line today are Mr. Athens, Oppenheim, President and CEO and Mr. Dror, David Novak CFO .
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 these calls if you have not received a copy of the release. Please view it in the Investor Relations section.
Of the company's website Ethan.
<unk> will begin the call with a business update followed by Dror with an overview of the financials. We will then open the call for the question and answer session.
Now I'll turn the call over to Mr. Athens, Oppenheim Novas, President and CEO Etan. Please go ahead.
Thank you Mary and welcome everyone to our third quarter financial results Conference call.
I will start the call today by speaking about our quarterly performance highlights and the market dynamics as they relate to Nova.
Following my commentary Dror will review the financial results in detail and present the guidance for the fourth quarter.
Nomura reported another sequential growth quarter evincing, their agility and expanding diversification, we have built into our business model.
Following the introduction of novel 1 billion plan and the strong execution of our targets throughout the year. We are confident in the company's long term performance. Despite some near term challenges our achievements in the quarter and throughout the year were driven mainly by the unique value.
We consistently add to our customers and our growing position in the market.
Although some of the traditional industry drivers like PC and mobile are showing some near term weakness, we believe that long term semiconductor demand will prezista.
Propelled by multiple evolving drivers, which are increasing their to agility of the industry and its demand profile.
Since dimensional and materials process control are becoming critical enabling factors.
For our customers, we continue developing our advanced metrology portfolio to capitalize on various horizontal and vertical emerging opportunities in the market.
Our consistent outperformance in the last few years, driven by our unique organic engines and growing market exposure.
Strong outperformance vs Capex and W. A fee gross numbers for the year.
During the quarter, we also ELD, our Investor day in which we discussed at length, our new strategic plan to obtain $1 billion in revenue in five years.
The plans fundamentals to achieve growth, while strengthening our resiliency and agility were based on the company's consistent performance in diversifying its business across products markets customers and geography.
The achievement in the third quarter underscore a few of those elements first the diversity of our customer base is well demonstrated by four major customers this quarter.
[noise] presenting are growing expansion in various leading players.
Furthermore, the overall customer mix includes contribution from over 20 active customers across Geographics territories, and even new industry segments like advance packaging beckoned and PCB.
The second element is the continued diversification of our product portfolio and the adoption of new technologies.
Why do we continue to proliferate, our traditional <unk> product.
And set new integrated mythology sells records we.
We also see growing traction with our new organic growth engines.
During the year as well as in Q3, we continue the momentum of our site technology and delivered a growing number of prison tools, both for R&D and high volume manufacturing for critical three the application.
Today, we see that the prison capabilities.
Are garnering more advantages is higher aspect ratio applications become more challenging spicier.
Specifically in memory, where SSD layers are added nonetheless.
No wires were three D structures are fabricated and Tsv's formation in front and and beckoned steps.
Since acquiring ankylosis and based on our growing focus to lead them a theorist mythology space.
We are encouraged by the solid contribution of our materials portfolio to the overall revenue mix this quarter.
Why do we continue moving our next generation xps tools to inline and in dire measurements, we continue focusing on proliferating, the metrodome and ellefson system two additional customers.
Specifically I would like to highlight its share it in the press release during the quarter that another logic manufacturer selected Nava cemetery on for next generation icy development.
As part of our materials strategy. We are also encouraged by the substantial progress in Uncas This product portfolio introduction in several markets.
Based on our queue for guidance, we now expect a record year for emphasis creating multipart growth opportunities for next year as well.
The third area to emphasize in our diversification strategy.
Is the hardening demand in trailing edge nodes and.
In Nova solid position in this segment.
While some icy market are softening.
Automotives, two sorry, Iot and industry related applications remain stable.
The continuous demand for mature generation devices.
Drives new expansions to fulfill that demand.
Nobody is well positioned.
To capitalize on the growing opportunities among these customers whose contributions rep.
Presented around 50% of our revenues in this quarter.
And finally, the last diversification highlight is the growth in our service revenue contribution.
Turning over 4700 active tools to date in our installed base.
Novak continues to develop and offer our customers.
Portfolio of services.
Ranging from ongoing support to new upgrades and productivity packages to keep improving utilization rates mythology accuracy and fleet matching.
As a result revenue contribution from services is expected to grow approximately 30% this year.
Before I move onto the market environment and its relevance to our business.
I would like to address the latest <unk>.
Export restrictions announced by the U S government.
October the U S government issued new regulations to restrict some aspects of the U S. A semiconductor trade with China.
The regulations are mainly related to export control for advanced node in both memory and logic.
As we continue to evaluate the impact of such restrictions on R. U S based activity and global real export conditions.
Our initial assessment is that the direct impact or Nova overall business plan for 2023 is marginal and estimated at around 10 million U S dollars in direct revenue mainly from our U S based operations.
As the foreign wafer fabrication entities in China acquired the temporary license to continue manufacturing.
We continued to carefully monitor domestic customers investment plan going forward.
Furthermore, why does the Chinese market becomes more volatile due to the new trade restrictions. We are encouraged by our growing business in the U S.
Which demonstrates significant growth year over year.
We anticipate that this growth to continue next year as well.
Propelled by both new Fabs and new expansion.
Finally, as we look at the industry demand environment.
Although our long term growth forecast for the industry remains intact, we expect softness in the near term due to excess inventories driven by a slowdown in consumer electronics demand.
The impact on semiconductor pricing, particularly in memory, along with other economic and geopolitical factors.
Is driving our customers to be more conservative in the near term.
Although we are monitoring this trends carefully and increasing agility in our operating model.
Over the last few years, we have consistently demonstrating our ability to outperform the industry.
Proliferating, our new technologies X.
Expanding diversification.
And market share gains.
Considering all aspects, we remain positive about the company's long term growth potential and reaffirmed the strategic target we introduced when our analysts day in September .
With that I would like to recap our third quarter results Nava had the strong quarter against the backdrop of a dynamic market.
In an increasingly complex environment.
Given our guidance for the fourth quarter, we are striving to achieve another record growth here for Nova.
We believe that the company fundamentals.
We're strengthen this year will support us and continue outperformance.
In in overcoming interim demand cycles in the years to come.
With that let me end over the call to draw your.
Thanks, a ton good day, everyone and thank you for joining our 2022 third quarter conference call.
Total revenues in the third quarter of 2022 reached a record level of $144 million up 28% year over year.
Product revenue distribution was approximately 65% from logic and foundry and approximately 35% from memory.
Product revenues included for major customers and three main territories contributing more than 10% each two product revenues.
Blend in gross margin in the third quarter was 57% on a get bases and 58% on a non-GAAP basis within the company is updated target model of 57% to 59%.
Operating expenses for the quarter were $43 million on a get basis and increased to $38.5 million on a non gave basis.
Operating margins in the third quarter or 27% on a <unk> basis, and 31% on a non-GAAP basis at the high end of the company updated target model of 27% to 22, 31%.
The effective tax rate in the third quarter was approximately 13%.
Earnings per share in the third quarter on a get basis, while one dollar and 10 cents per diluted share and earnings per share on a non-GAAP basis.
I'm in at one dollar and 24 cents per diluted share.
Moving into our guidance for the fourth quarter of 2022, we expect to see a strong finish for an exceptional year led by the company diversified exposure to multiple customers geographies and manufacturing technologies.
Revenues are expected to be between $142 million and $152 million.
GAAP earnings per diluted share are expected to range from 99 to.
$100.16.
non-GAAP earnings per diluted share are expected to range from one dollar and 15 cents to one dollar and 32 cents.
At the midpoint of our fourth quarter of 2022 estimates we anticipate the following.
Gross margins of approximately 57%.
Operating expenses on a gap basis of approximately $45 million.
Operating expenses on a non-GAAP basis of approximately 40 million.
Financial income is expected to increase due to expected higher yields on cash reserves and come in at approximately $2.5 million.
Effective effective tax rate is expected to be approximately 13%.
Moreover, including our four quarter guidance.
The company is expected to present the following annual results on a non-GAAP basis.
<unk> revenues of more than $560 million, reflecting kanger of 20% across the last five years.
And reflecting yearly revenue growth of 35% or more in 2022.
Relative to an expectation of single digit wafer fab equipment growth in 2022.
Gross margins of approximately 58% and operating margins of approximately approximately 31% on an annual basis.
His conclusion conclusion to my prepared remarks, I would like to note that the company management is closely monitoring the different scenarios of market demand and customer investments plans for 2023.
To mitigate these these different scenarios the company can activate several mechanisms, which can restrain expenses as needed.
In addition, the company cash reserves grew to over $500 million at the end of the third quarter of 2022.
This healthy cash level allows us to continue and execute aggressive growth strategies and infrastructure investments as part of the Nova 1 billion strategic plan.
As well as to execute the $100 million a share repurchase program, which were was recently announced an initiated.
With that I will turn to call back later. Thank you draw are prepared remarks are now concluded we would be happy to take your questions now operator.
We run out again my question and answer session to ask a question you May Press Star one line on your telephone keypad.
Using a speaker phone please pick up your handset before pressing the keys.
Let's try a question please press <unk>.
The first question comes from that area as Bank of America. Please go ahead.
Hi, Thanks for taking the question. This is talk sand Chang on behalf of Iraq.
Congrats on the quarter I know you said you outgrew W. <unk> in 2022, but.
But for next year, there seems to be a difference between a lot of your peers KLA in labs, suggesting that it's going to be down, 20%, whereas asml's, suggesting their sales can grow.
So which one do you think is more indicative of your performance next year. Thank you.
Hello. Thank you for the question as you know we don't go beyond the current quarter.
In in this current environment in this current timing it will not be so responsible too far across the food here.
I can relate to the market environment and as I said in my prepared remarks, we are expecting volatility.
Due to softness in memory.
Which by the way, we think will start to normalize and recover in the in the second half of 2023.
Big demand will grow along with price liberalization.
As mentioned a couple of times in my script, the agility and diverse city that we have built in our business model along with the adoption of our newly introduced technologies and the growing expansion in seven markets.
Should support are consistent the consistency and outperformance beyond pure semiconductor demand.
I think that if we look at Nova.
R beside the pure demand calculation supply demand calculation to everybody understand these volatile next year, we also benefiting from.
Some expansions in R&D line, some new fobs that are coming in play.
Penetration into the materials award with new technologies, as well as expanding our portfolio to other markets. So overall, we think that.
We are more resilient to the market volatility and as I said before we hope to outperform.
The markets.
Great and as a follow up I know in the analysts say you've mentioned services will be on track to reach $100 million this year how.
How resilient as that business into that downturn next year.
And also thanks for the color on the $10 million from the Chinese restrictions and Pat have you noticed any cancellations or order pushouts with regards to that.
So regarding the services.
Obviously, the installed base of the company is growing we currently have approximately 4700 tools and services installed base and this will continue to grow in.
Q for in the following quarters and as a result, we continue to expect to see growth in service revenues also in in 2023.
Now regarding regarding the second the second part of the question about China. So.
It's when we're looking right now in the Chinese market.
We look on the.
The straight restriction that came from the from the U S. In regards to advance nodes in both DRAM.
Flash non and also the logic in our estimation for those.
Those restrictions that are coming out from the U S. Because this is the restriction.
That we are part of is around $10 million. This is the direct one.
Basically for Xps tools that are shipped from the from the U S. We don't have any currently direct impact.
On the rest of the shipment. Nevertheless, we cannot estimate right now if something will happen indirectly.
Meaning if for example, other process tools cannot ship there are tools and therefore.
Some of the line will be slowed down and therefore, they don't mean did mythology. This one we cannot estimate currently the impact I just wanted to say that most of the revenues of the company in China are coming from trailing nodes.
That are not part of the restriction on advanced chip manufacturing. So overall, we think that.
The overall.
Impact on the company will be any way marginal.
Great. Thank you so much.
As a reminder, if you have a question please press star one.
Seeing that there are no further questions in the queue I would like to turn the conference back to Ya.
Oppenheim, President and CEO for closing remark.
Thank you operator, and thank you all for joining our call today. Thanks.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.