Q2 2023 Nova Ltd Earnings Call
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Yeah.
Good day and welcome to November 2nd quarter, 20, twenty-three resolved conference calls and Webcasts.
At this time I would like to turn the conference over.
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 call. If you have not received a copy of the release. Please view 18, the Investor Relations section of the.
Companies website.
Gabby will begin to call with the business update followed by drawer with an overview of the financial US. We will then open to call for the question and answer session. I'll now turn the call over to Mister Gobby, Weissmann, now Vice President and C E O.
Abby. Please go ahead.
Thank you all for joining a second quarter financial results conference call.
I will start by.
By speaking about a quote on the results and performance probably like.
Following my commentary ball will review the quarter financial results in detail and then conclude with a guidance for the first quarter of 2023.
Nobody's results for the quota met our expectations highlighting the resilience of up with polio.
[noise] wide exposure to new advanced applications, and Ah well maintained operational model, which effectively combines customers focus and a roadmap for continuous investment in every division.
The value of a broad materials and dimension portfolio helps us drive increased traction with several notable achievements this quarter, including new penetration and additional or the following successful evaluation of a new product.
These opportunities will allow us to broaden opposition and capitalize on lots of opportunities once the industry fully recovered.
We are taking necessary steps to ensure novels near term healthy business performance and profitability for the remainder of 2023.
Just as we performed in the first half. We are also confident about our long term strategy and the ability to deliver going forward.
We are committed to executing a strategic plan towards $1 billion in revenue and we aim to resume or accelerate the girl's best.
We are building a business, oh infrastructure and technology offerings to be ready for the industry when it resumed growth.
This quarter with diversified revenue stream in each of our product divisions.
With the continued proliferation of advanced materials, and they menstrual products adopted by existing and new customers.
But our newest integrated metrology platform just completed the successful evaluation with a world leading foundry in the most advanced no <unk>.
Presenting significant performance enhancements and addressing the customer's need for cutting edge productivity and accuracy towards a faster time to market and high yield.
Second another prison Standalone O C. D platform is transferring to high volume manufacturing in the leading foundry and recently penetrated a new memory manufacturer.
The value of prison for advance notes front and processes in both logic and memory is becoming increasingly clear.
Boyd further by significant interest and the platforms unique technology and advanced packaging and more specifically and what we can do in hybrid bonding process steps.
Could we just delivered another other sunk tool to a leading IBM and we have additional evaluations and progress.
Is our ability to bring Rahman technology to the fab gone, there's a lot of interest and not just in the leading edge.
In addition, the various Lex platform secured several new customers and continued proliferation within our existing customer base.
Finally, our chemical metrology division is already inherently embedded in packaging and advanced packaging processes and benefits from a recent increase in demand for high bandwidth memory.
Additionally, the division is breaking ground with several new customers this quarter.
P G new evaluation at the leading I B M and our front and ankles is solution gaining traction across nodes.
We are successfully leveraging nova's exposure to front and processes to open the door for our chemical metrology portfolio while.
While also leveraging a strong customer relationships.
To ramp up sales and explore opportunities in the back on the line.
Our revenues are derived from multiple territories.
With China generating approximately a third of ourselves.
Driven by Greenfield customers and significant capacity expansion in mature and trailing notes.
Other region, where we see great potential other European and U S territories propelled by government incentive.
Global players building capacity outside their homeland.
Beyond regionalization, Nova benefits from its broad exposure to the foundry logic sector and to the majority of semiconductor capex.
Nearly 80% of our revenue this quarter.
It was generated by foundry logic customers and approximately half of that stemmed from a tour and trailing notes.
This is the result of our ability to leverage the shift so in the markets predominantly ruled by the leading edge.
[noise] wards, the growing investment in more mature notes.
At the same time, driven by our unique technology, enabling value, we achieved significant traction with a leading memory customer this quota, making Korea Ah second largest territory.
The increasing interest in Nova unique technology offerings for front and back and an advanced packaging applications at the potential new addressable markets are more building blocks for a future growth.
No a as rich and differentiated portfolio is built to meet the challenges of next generation device fabrication.
A complementary offering for free the architecture of devices.
Allow customers to gain a better insight into the most complicated semiconductor structures for a wider view of geometrical dimension.
Physical material properties and chemical analytics.
One example of that is all very flex platform that has become a technology and they blur and he therefore exerts higher resilience to demand fluctuations.
If you want to successfully run heidtke metal gates processes.
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It is truthful finfet Vincent processes, and even more so forgetful around and freed the memory.
Another example is the Nova Alexander with the field proven crucial ability to successfully characterized mantle sheets.
And of course prison, which I mentioned earlier brings unique abilities to the table, adding new information inaccessible like current optical C D methods.
I want to take a minute to also highlight the opportunity with C and freely stacking and heterogeneous integration in advance packaging.
It is essentially a way to maintain Moore's law and to achieve a higher bandwidth lower latency empower along with higher yield.
Integration test cases are bound from Cmos sensors to freedom and freely Bureau.
Furthermore, advanced packaging allows mid range and mature mode knows manufacturers and alternative scaling route you'll be expanding the opportunity beyond gatefold around.
These new advanced packaging schemes necessitate process steps, such as fruits silicon be up.
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They demand tighter process control on smaller denser interconnect as well as tall highly complex multilayered structures, requiring more measurements to ensure package integrity.
The Nova prison has the proven advantage over our competitors and some of the applications I mentioned.
Market, leading portfolio allows manufacturers to utilize optical CD technology for advanced packaging in completely new ways.
So you can see why we are encouraged by the interests from existing and new customers and previously untapped processes and market segments across multiple territories.
To conclude my prepared comments, we're working on multiple fronts to ensure that Nova is ready for the turn of the tide.
We're expanding the range of applications are solutions address broadening our customer base, increasing our market share and enhancing our relationships with the world's leading manufacturers.
We're investing in infrastructure technology and in building long term capacity.
We are confident in our ability to deliver constant performance in the coming quarters and.
And to leverage new opportunities when the market rebounds.
Now, let me handle the cold to drawer to review our financial results in detail.
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Thanks is gonna be good day, everyone and thank you for joining our 2023 second quarter Conference School.
Total revenues in the second quarter of 20, twenty-three where 120.
22.7 million above the mid point of our guidance and down 13% a year over year, reflecting the current lower investment levels in memory and in leading logical foundry.
Product revenue distribution was approximately 80% from logic and foundry and approximately 20% from memory.
Product revenues included street customers and four main territory's contributing each more than 10% to product revenues.
The wider territory distribution reflects an improved territorial diversification.
Relative to previous periods, driven by day, increasing investments in the western territories of the U S and Europe .
Blended gross margin in the second quarter was 57% on again bases and 59% on a non good basis.
The high end of the company not get target model.
57% to 59%.
Operating expenses remain stable in the second quarter and came in at 41 million on a good basis and 38 million on a non gigabases, reflecting management focus on restraining costs in the current business environment.
Operating margins in the second quarter, where 23 per cent on a good basis and 28% on a non gay go get bases within the company non gift targets model of 27% to 31%.
These excellent result was driven by the healthy gross margins and the prudent cost control initiatives implemented by diminishment.
Financial income for the quarter increased to approximately 5.6 million driven by higher yields on crushed reserves.
The effective tax rate in the second quarter was approximately 13%.
Slightly lower than our target model or 14% to 15%.
Earnings for sharing the second quarter on a good basis, where 94 cents paid for it.
Luther cheer and earnings per share on a non good bases, where one dollar and six cents per diluted share the high end of our second quarter guidance.
This resolved coincides with management commitment to generate quarterly earnings per share of one dollar or more or the equivalent $4 or more in annual earnings per share on annual revenues of approximately 500 million a year.
Finally, I would like to share the details of our guidance for the third quarter of twenty-three.
Currently we expect revenues to be between 119 million and 126 million.
GAAP earnings per diluted cheer are expected to range from 83 cents to 94 cents.
non-GAAP earnings per diluted cheer are expected to range from one dollar and two cents to one dollar and 13 cents.
At the midpoint of the third quarter twenty-three estimate we anticipate the following.
Gross margins to be approximately 56% on a good basis and approximately 58% on a non gib basis within the company non gift target demanded.
Operating expenses on a good basis are expected to decrease to approximately 40 million.
This reduction reflects management determination to restrain expenses in the current environment.
However, looking forward, we do expect operating expenses to gradually increase towards the end of the year and into 2024.
Financial income and tax rates are expected to be similar to the second quarter.
To conclude my remarks, I want two mentioned the company's cash in working capital management.
And the first half of twenty-three the company generated operating cash flow of approximately 50 million.
Or 19% of revenues.
In parallel we continue to aggressively invest in manufacturing capacity expansions in I T infrastructure and in additional offices to support saves and services at new sites.
As a result, we expect elevated capital investments throughout the remainder of twenty-three and threw out 2024.
In addition has gotta be mentioned, we continued to expand our investment in product evaluations at customer sites to.
Who made the heightened customer interest and the growing up location space off our most advanced product portfolio.
Finally, I would like to highlight the cash reserves of the company, which increased to approximately 570 million and provide the required flexibility to pursue organic and non organic business development activities towards executing the 1 billion strategic plan.
With that I will turn to cold back over to Godby Gumby.
Yes, I would like to open the session for Q&A.
Thank you very much well now begin the question and answer session to ask a question you May Press star one on your Touchtone Sean Itchy.
If you are using a speaker phone please pick up your handset before crashing to teach.
Had any time your question has been addressed and you would like to withdraw your question.
Please press Star then too.
At this time, we will pause momentarily to assemble our roster and again it star one to ask a question.
Our first question comes.
From Vivax ARIA from Bank of America.
Five eight please go ahead.
No question. This is stuck shot on behalf of Iraq.
I I just wanted to touch on the trailing edge portion that you talked about so it's about 50 per cent off foundry and logic.
A lot of your peers are seeing strengths you're in D. C. This to continue into next year.
So I'm curious if you're seeing similar things and.
And if so what kind of disability do you have to support that for Ya. Thank you.
So we share. This we said we share this notion and we do expect that to continue.
Towards 2024, but they do expect the some of the advanced modes to Ah Ah kick in at some point of time elevating the share of advanced relative to the trailing in mid range during the 2024.
Got it got it Ah Ah Ah Ah Ah.
And then in terms of just trailing edge specifically.
Is it the new products that you're ranting, where you see this strength from.
Or is it any other kind of views that you have.
It's a combination of investing in areas such as in the automotive analog power I O T and of course, some expansions into advanced packaging in other areas. So it's actually the mix between the front cuff.
The most geographies and Ah Ah focused areas of investment that drive those specific nodes.
Got it.
And then just one on memory I think you said you had a significant traction.
Memory customers in Korea was the second largest geography.
How much is too it's related to the H b I'm kind of ramp that we're seeing in the industry.
Versus non H P M. Thank you.
So it's still not related to it but as I mentioned during the the call will do expect high bandwidth memory to increase even further towards the second half of the year.
Thank you currently relates to other capabilities that we have presented and offering us a unique advantage of our portfolio both dimensional and materials for.
For these kinds of memory customers.
Understood. Thanks.
And our next question comes from Clinton bulky from Needham and company.
<unk>. Please go ahead.
Hey, Gabby Android and this is gambling on Brooklyn, Bolton. Thanks for letting me ask the questions. Today. So I have a couple of questions. The first being in the press release, you mentioned and increase the number of full valuations for advanced packaging applications.
Can you sort of discuss where another place in advance packaging markets.
Yeah, what tools under evaluation and also did you discuss nobody's opportunity eight hybrid bonding and how large the time to be hybrid body and for Nova. Thank you.
So we we're currently focusing on are they menstrual metrology portfolio and positioning in both advanced packaging as well as the hybrid bonding. This is related to capabilities on the wafer edge as well as the fruits silicon via where we are seeing our tech.
<unk> capable of delivering a better cost of ownership.
And of course better performance in terms of the the term we expect this the tab for these particular products to reach about $200 million in 2027.
Great. Thank you for the color and if I could just squeeze one more in you mentioned the additional placements for the bear flex tool, how do you see that and we're verified and do you see a continuing to continue to expand going forward.
So that the.
Vera Flex platform is gaining traction in both existing and a new customer.
We see that.
Accelerating with the new generation about tools that are offering an even better cost of ownership and definitely addressing the most challenging requirements from these customers and we expect the time of of these tools to reach about $400 million in 2027.
Right I understand thank you very much.
And I would like to remind everyone that if you would like to pose a question. Please press star one.
And now we follow what any question from Society <unk> from Geoffrey.
<unk>. Please go ahead.
Yeah, alright, thanks for taking my question.
<unk> could you talk about the timeline Trc by <unk> alright coming.
Uhm.
Okay.
They have not shifted in a significant way I think that our customers are definitely driving forward with the plans for gatefold around we expect we expect the timeline to remain as anticipated previously.
Throughout the throughout the coming two years.
Okay and then.
If if I think about it.
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And how how.
How you can take what percentage adoption.
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The technology.
So we as I mentioned already delivered the second Alexander tool to a leading IBM.
And in the second quarter of the year and we have the liver the additional tools for evaluations, we definitely see the great potential that this tool have that those two had sorry for both strain stress and crystallinity and not only in advance notice by the way, which is becoming very interesting.
<unk> Ah, but definitely the take up rate is going to be determined after the evaluation.
I believe it will continue to grow as our customers become more acquainted with the capabilities of this tool.
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You mean, the chemical Metro how much is the chemical metrology form of a business.
Yeah.
So when when we acquired this new technology, we said that it's more or less around five per cent and we hope to grow the annual contribution from this product line in the comic quarters to around 10%. So this product line is actually growing it's portion of.
And and we we want to reach around 10% in the coming quarters.
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And we see a lot of potential and the adoption of those tools and H B M, which is becoming a crucial component and driving some of the AI knew a business that is coming.
Alright.
Thank you.
And this concludes our question and answer session. How would you like to turn the conference back over to God. The Weizmann now Vice President and CEO for some closing remarks.
Well. Thank you all for taking the time to join our call today, we look forward to meeting many of you in person and the upcoming investor conferences. Thank you very much.
And this concludes the <unk>. Thank you for attending today's presentation you may now disconnect.
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