Q1 2024 Nova Ltd Earnings Call
Yes.
Good day and welcome to the Nova limited.
Q1, 'twenty earnings conference call.
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I would now like to turn the conference over to Moody's Sega C E O M S.
Moody: Please go ahead.
Moody's CEO: Thank you operator, and good day, everybody I would like to welcome all of you to Novo as first quarter 'twenty 'twenty four financial results conference call.
Speaker Change: With us on the line today are gobby, Wiseman, President and CEO Dror David.
Moody's CEO: If so.
Moody's CEO: Guy Kissner corporate VP of finance and incoming CFO.
Moody's CEO: 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 todays earnings release also pertains to this call. If you have not received a copy of the release please view it.
Moody's CEO: In the Investor Relations section of the company's website.
Moody's CEO: Bobby 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.
Moody's CEO: I'll now turn the call over to Bobby Weisman, Novas, President and CEO Debbie. Please go ahead.
Gabriel Waisman: Thank you Mary and thank you all for joining us today.
Gabriel Waisman: I will start the call today by summarizing our first quarter performance highlights.
Gabriel Waisman: Following my commentary Paul will review the quarterly financial results in detail.
Gabriel Waisman: Nova delivered another strong quarter exceeding the high end of guidance in both revenue and profit with record non-GAAP EPS operating and free cash flow.
Gabriel Waisman: Our performance was supported by a favorable product mix backed by a diverse exposure to opportunities across market segments territories customers and technologies.
Gabriel Waisman: The increased demand for our advanced portfolio combined with Novo robust operational model continues to drive us forward.
Gabriel Waisman: With our guidance for the second quarter in mind, we are back on track for a growth trajectory and we remain confident in our ability to execute our strategic plan.
Gabriel Waisman: Our solid execution resulted in a sequential and year over year revenue growth with our cash reserves totaling approximately $700 million.
Gabriel Waisman: Positive indicators of a memory recovery cycle drill.
Gabriel Waisman: Driven primarily by advanced DRAM devices, such as E. D arc, five and H B M have increased the memory share of our product revenue to 40% this quarter.
Gabriel Waisman: With Korea, playing a major role.
Gabriel Waisman: At the same time, our diverse portfolio and exposure to multiple markets and enabled us to leverage the demand for mature nodes from China.
Gabriel Waisman: Looking at the year ahead, we see encouraging indicators in the semiconductor industry.
Speaker Change: Sure thing long term secular growth.
Speaker Change: And the rising need for process control across segments.
Speaker Change: Utilization rates and need for capacity are on the rise again for two reasons.
Speaker Change: On the one hand inventory levels are stabilizing while end market demand recovers.
Speaker Change: With a positive note of anticipation for replacement cycle in both consumer and enterprise products.
Speaker Change: On the other the continuous increase in chip size is driven by a need for faster more power efficient processing and memory drive up the volume of wafer production.
Speaker Change: According to some of our customers and other third parties H B M free eat chips consumed two to three times more wafers than leading edge DRAM chips and datacenter processor chip size is today.
Speaker Change: Five times larger than those produced just a few years ago.
Speaker Change: Beyond capacity as a driver of our business. The new chips also drive design and materials complexity to address the insatiable need for computing power by running AI models and influences on both client and server site.
Speaker Change: The emergence of new technologies, such as hybrid bonding and P. S V. The increase in number of process steps and the consistently smaller tolerance for errors.
Speaker Change: Also to support substantial growth of process control.
Speaker Change: Hybrid bonding technology is a good example of a highly complex process that requires rigorous process control such as bonding layer classes.
Speaker Change: Other positive notes we see.
Speaker Change: The healthy demand for mature devices.
Speaker Change: The broad investments across nodes and the vast recognition of the need for local supply chain resiliency that drive our manufacturing footprint build out across the U S Europe and Asia.
Speaker Change: Naturally all of these.
Speaker Change: Have a positive impact on our business.
Speaker Change: As I've said, we had a strong quarter and we are very pleased with the results. Our performance was built on the continued adoption of Novo advanced portfolio by leading customers for advanced applications, which include the transition to gate, all around and a rising demand for advanced packaging solution, including.
Speaker Change: High bandwidth memory.
Speaker Change: Towards the anticipated transition to the most advanced technology nodes, we see a significant increase in market traction for existing and new technologies, such as Raman and inline Sims with multiple.
Speaker Change: People evaluation and selection taking place at numerous customers.
Speaker Change: I'd like to share several examples.
Speaker Change: Let's start with our <unk> platform, which secured repeat purchases new selections and evaluations by multiple leading memory and logic customers.
Speaker Change: At the same time Metro is gaining traction and it's starting new evaluation processes at two leading global memory manufacturers.
Speaker Change: And the very flex for platform was selected by a leading global foundry landed several new customers and reached a new record of eight system in a single memory Fabs.
Speaker Change: On the hybrid bonding packaging and H B M fronts, we have multiple orders in place and strategic evaluations kicking off for the PRIZM to Standalone OCD and our integrated metrology solutions.
Speaker Change: The Nova PRIZM to platform.
Speaker Change: Spectral interferometry technology and unique algorithmic capability.
Speaker Change: Brings clear benefits to process control of PSV and hybrid bonding challenges, which our customers recognize.
Speaker Change: There is a clear use case, a front end tools at the backend of advanced node production, which we were able to identify early and address by creating a dedicated portfolio.
Speaker Change: We expect revenues from packaging related processes to grow by more than 50% in 2024, driven by our optical and chemical metrology portfolios.
Speaker Change: Okay.
Speaker Change: Speaking of our chemical Metrology division it isn't peak performance with multiple new customer penetration at the front end back end and H B S.
Speaker Change: Overall, we expect our chemical metrology business to capitalize on the rapid growth of its addressable markets and hit another record year in 2024.
Speaker Change: Finally, our service business continues to deliver this quarter growing by 13% year over year.
Speaker Change: During 2020 free many of our customers prefer the more prudent approach this year, the rising utilization rates and demand to extend tool lifespans to maximize investments are driving our performance.
Speaker Change: We expect our service business to maintain its growth path in 'twenty, 'twenty, four and capture customer spending across the board.
Speaker Change: Before I conclude I'd like to thank both David our formidable CFO, who has decided to step down after 20 years with Novo.
Speaker Change: Cool hasn't been my colleague and friend since I joined Novo and over the past year is support and advice have been indispensable.
Speaker Change: I'm grateful for his contribution over the years and I'm confident that the handover to his successor Guy Kitchener will be seamless.
Speaker Change: Guy and I plan to be in San Francisco for Semicon, West and we look forward to meeting many of you in person.
Speaker Change: I also want to express my gratitude to our employees worldwide, who work as a tightknit units to maximize every opportunity and support our customers and to our employees in Israel, who continue to deliver regardless of circumstances.
Speaker Change: We have a truly gifted group of people, who chose to work at Novo and we are fortunate to built on the breath and wealth of talent and incredible resilience of our team.
Speaker Change: To summarize my prepared remarks, Novo had a robust quarter and our forecast for the second quarter indicates additional growth.
Speaker Change: We see a healthy demand for our portfolio across nodes market segments and territories, driven by multiple positive trends and the clear value of tools and services bring to customers.
Speaker Change: Looking forward 'twenty 'twenty four is shaping up to be a growth year and an encouraging milestone on our path to executing our long term strategic plan.
Dual: Now for some more details on the financials, let me hand over the call to dual.
Dual: Thanks, Gabby good day, everyone and thank you for joining our 2024 first quarter conference call.
Dual: Total revenues in the first quarter of 'twenty 'twenty, four reached 142 million exceeding the company's guidance and demonstrating a 6% quarter over quarter increase and 7% year over year growth.
Dual: Product revenue distribution was approximately 60% for logic and foundry with the remaining 40% from memory.
Dual: Blended gross margin in the first quarter increased to 59% on a GAAP basis, and 61% on a non-GAAP basis topping the company target model of 57% to 59%.
Dual: The high gross margin in the quarter was attributed to a favorable product mix coupled by gradual adoption of newer product configurations for advanced nodes.
Dual: These newer products present improved performance and embed higher customer value with higher gross margins.
Dual: We expect gross margins to gradually normalize in the coming quarters and in line with the higher end of the company target model on an annual basis in 2024.
Dual: As expected operating expenses increased in the first quarter, reaching $46 million on a GAAP basis, and 41 million on a non-GAAP basis.
Dual: Operating margins in the first quarter were 26% on a GAAP basis, and 32% on a non-GAAP basis exceeding the high end of the company target model of 27% to 31%.
Dual: This excellent result was driven by the healthy quarterly gross margins and the company robust operational model.
Dual: Financial income in the quarter remained elevated reaching 6 million, reflecting high use of cash reserves.
Dual: The effective tax rate in the first quarter was approximately 15%.
Dual: Earnings per share in the first quarter on a GAAP basis were $1 15 per diluted share.
Dual: Earnings per share on inorganic basis were $1 39 per diluted share surpassing the high end of our first quarter guidance and reaching a record high for the second consecutive quarter.
Speaker Change: Finally, I would like to share the details of our guidance for the second quarter of 2024.
Speaker Change: Currently we expect revenues for the quarter to be between $144 million and $152 million.
Speaker Change: GAAP earnings per diluted share to range from $1 seven.
Dual: The $1 21.
Dual: non-GAAP earnings per share to range from $1 27.
Dual: The $1 42.
Dual: At the midpoint of our second quarter 2024 guidance, we anticipate the following.
Dual: Gross margins of approximately 57% on a GAAP basis, and approximately 59% on a non-GAAP basis and the high end of the company target model.
Dual: Operating expenses on a GAAP basis to increase to approximately $48 million.
Dual: Operating expenses on a non-GAAP basis to increase to approximately 43 million.
Dual: Financial income and tax rate to remain similar to the first quarter.
Dual: I want to mention that during the first quarter. The company generated a record fleet free cash flow of 57 million, which increased the company's cash reserves to approximately 700 million at the end of the first quarter of 2024.
Dual: This robust cash position enables us to continue and pursue and execute growth strategies and infrastructure investments.
Speaker Change: With that we will be pleased to take your questions operator.
Speaker Change: Thank you.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been good and he would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Yeah.
Speaker Change: We'll take our first question from the line of <unk> <unk> Bank of America Securities. Please go ahead.
Speaker Change: Thank you for the question and good luck to both that Dror and and Guy Debbie you mentioned about 50% growth for advanced packaging I believe you said for this year I was hoping you could give us a sense for what proportion of your sales are you know is it contributing this year versus last year and how is it going.
Speaker Change: Split across our memory and foundry logic.
Speaker Change: Thank you for the question. So last year, we indicated the fact that packaging relate to business was about 10% of our overall revenue and are we expect that more than 50% growth. This year overall.
Speaker Change: We are looking at the growth coming essentially from the dimensional <unk>.
Speaker Change: Division product lines and portfolio as well as the chemical ones, whereas the chemical is making headway is in the high bandwidth memory and the dimensional is focused on the hybrid bonding and P. S V with a strong potential looking forward at our technologies such as the H B M. Four.
Speaker Change: For the dimensional metrology portfolio will look at the dedicated our integrated metrology.
Speaker Change: Tools and the platforms, we have as well as for the prism, which are together with the spectral interferometry and algorithmic suite.
Speaker Change: Is capable of addressing first silicon via applications as part of the overall heterogeneous integration, which for which are both hybrid bonding in TSV said.
Speaker Change: And we look at that those specific capabilities.
Speaker Change: That's for the C D.
Speaker Change: And additional parameters related to the TSV, both after out Ching and I have to fill.
Speaker Change: So it gives us a strong position and are definitely a strong outlook for the growth this year and onwards.
Speaker Change: As a follow up so you've definitely outlined on the strong growth in in H B M. What about gate. All around have you started to see the benefit of that yet or is it still to come and conceptually how much does your content opportunity increase and gate all.
Speaker Change: Around bushes.
Speaker Change: <unk> Finfet.
Speaker Change: So as we have announced in the press release earlier. This year, we do see a strong position in the gatewood around business that we currently have.
Speaker Change: And this is involving all of our basically all of our product lines.
Speaker Change: We see the increased precision higher sampling rate and size the high K metal gate control gates and material characterization and we have a unique offering from both hardware and software perspective that gave that gives us a strong position wood with most of the gateways.
Speaker Change: <unk> players.
Speaker Change: And as we've recently announced a this is a very encouraging whereas we see our initial orders for the coming 12 months already in place and expect the ramp to happen during that time and onwards into next year.
Speaker Change: And beyond.
Speaker Change: And for the last one on you know on gross margins. So they continue to surprise on the upside every quarter and then you always conservatively.
Speaker Change: Lore, although still at the high end of your long term outlook and and they're just kind of happens to coincide with the you know you are increasing it makes it memory. So what about you know whether it's a product mix or customer mix do you think is helping you to consistently outperform your gross.
Speaker Change: Margin expectations and then what do you think then you know pulling them down in the back half is it is it a change in the product customer mix that you are expecting thank you.
Speaker Change: Yeah. So obviously the main aspects, which has an impact on gross margins is it the product mix. If you look for example last year Novo was at the high end of the more than 59% currently and also in depth here in the first quarter, we were a little bit higher than that.
Speaker Change: And this is exactly what happened also in 2024, where as I mentioned in my prepared remarks, the products, which are of newer version and more content were adopted by several customers, which were in taking our equipment specifically in Q1.
Speaker Change: Therefore, the product mix in Q1 was favorable in.
Speaker Change: And the gross margin was was high.
Speaker Change: Our expectation for the next quarter is around 59% and Oh, obviously for the rest of the year within the and maybe the higher portion of the model, but on an annual basis, we do expect to be around 59%.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: We'll take our next question.
Evercore: From the traditional three with Evercore. Please go ahead.
Evercore: Yeah, Hi.
Evercore: But we have both on the Raman the <unk> tool as well as the inline Sims demetria on one we've mentioned the fact that for <unk>.
Evercore: <unk> around and and in general we cease drunk traction for both the <unk> <unk>. So by the end of this year. The <unk> will be in advance evaluation by two top three customers for giggled around applications and already in production by the foot and we expect proliferation.
Evercore: And potential of course once the to reach the which is the high volume manufacturing and we've mentioned additional traction for the metro and so I do see the strong potential we see the initial orders already coming.
Evercore: For the next for deliveries in the next 12 months and the ramp is expected to happen during this time and beyond.
Speaker Change: Uhm pencil.
Speaker Change: And then switching <unk> packaging fight you know you mentioned D by Corinne 50 per cent.
Speaker Change: How do you think.
Speaker Change: <unk> <unk> <unk>.
Speaker Change: So we see both optical and chemical portfolios, gaining strunk traction with with advanced packaging and if we want to dive in more specifically the dimensionalize focused on the hybrid bonding.
Speaker Change: And T S V as well as H B M. I'd say that chemical is very strong and H b M. But definitely has applications for the other advanced packaging technologies, we see that demand coming from a suite of applications that include that.
Speaker Change: Measuring of that size they mentioned on the on the <unk> as well as the flatness, we see the criticality of the edge of the wafer becoming more and more important again as part of the of the requirements on flatness and that's all.
Speaker Change: Drives the both the chemical and the dimensional optical tool adoption for that segment.
Speaker Change: If I may ask what is the competitor <unk> some of your bigger competitors Tonight, Kenny <unk> do you have been talking about <unk> being converted into backing.
Speaker Change: That your competitors and I I've seen that happen frankly applications that'd be interesting.
Kenny: Definitely I believe that the the use case of Frontend tools converting into a backup is exactly what we are seeing and we did identify early the need and so we customize the tools in order to support the specific requirements of the.
Kenny: Of the backend both back and fought back and and and hybrid bonding. So it all boils down to the adoption from the customers in that respect.
Speaker Change: Alright, Thank you that's not cool.
Speaker Change: Thank you.
Speaker Change: We'll take the next question from the liner Chaz Cheetham need them and company. Please go ahead.
Chaz Cheetham: Alright, Thanks, Alright, good afternoon, <unk>, one come back to the question about two nanometer ramp the the the shape up the ramp a little bit. So you are expecting some initial orders it looks like a and.
Chaz Cheetham: More of the ramp into next year, but kind of wonder.
Chaz Cheetham: Whether you think appointed to 25 will be a big ramp here across all three customers the living at customers on two nanometer note or may maybe we should expect maybe 2026 to be a bigger yeah. The reason why I ask this was that.
Chaz Cheetham: That at least the TSMC, they they announced that that that the revenue will two nanometer <unk> will be more like a plenty of 26 event rather than 2025 of course, they could have pulled a tool was a little bit earlier, but just tried to understand based on real current visibility, what's the shape of the ramp for the overall two nanometer.
Chaz Cheetham: And of course, I wanted to add that that the leading logic I D M customer they they they adopted several up your new technologies by that sounds like what we still haven't seen a good amount of revenue contribution yeah, but do you think that were happening in 25 or or or maybe a little bit earlier 24, maybe a little bit later and 26th.
Chaz Cheetham: <unk>.
Speaker Change: Thank you. So I did mentioned that we already received orders.
Speaker Change: For gathered around which are expected to be delivered in the coming 12 months.
Speaker Change: And we are talking in fact on four get all around customers.
Speaker Change: In terms of the shape, it's definitely going to grow and gain momentum as we finish this year enter into 25 and onwards towards 26 as our customers ramp gain traction.
Speaker Change: I cannot address to a specific customer, but they'll definitely say that we are working very closely with all of them.
Speaker Change: Oh, Thanks, <unk> <unk> <unk> <unk>, a little bit more on the memory site that looks like the memory revenue is probably Q1 is probably a record if my if my my number is so I'll put you over the past the quarters accurate [noise].
Speaker Change: That sounds like a Korea is the main driver for this wrong memory results.
Speaker Change: Wonder how much of that the memory numbers as it is from China in the in the last quarter, Yeah, and do you expect that the the memory revenue around Rachel My Tang or even <unk> here for the rest of the year.
Speaker Change: So a longterm model called for 60, 40, 64 logic foundry in 44 memory simply because of the metrology intensity that is higher than logic and foundries, we already had in the past an even split of 50 50 between logic and memory so for.
Speaker Change: Three per cent is not the records, but it's definitely an improvement if we compare it to the previous quarter.
Speaker Change: B memory is obviously.
Speaker Change: Split between different territory's the other territories to the ones that you've mentioned and quite a few customers. So we are definitely very much focused on making sure that we can capture any opportunity first and foremost on DRAM is this is the the segment that.
Speaker Change: Gross this year, but most definitely freezing and once it when it gets traction probably towards the second half and onward.
Speaker Change: Thanks, <unk>, if I may Oh, one last question you want the examples you gave about X P. S tools for memory application six tools for one memory fab I think that that's probably our highest number I've heard cause what.
Speaker Change: I remember his property more like a two tools pro fat, but the correct me if I'm wrong. There can you talk a little bit more details whether this is DRAM or <unk> or <unk>, what's driving the that that they increase the intensity of the X P. As in my memories apps X.
Speaker Change: I mentioned that we reached a record of eight.
Speaker Change: Verify Lex for tools, all verified tools prefab in in memory.
Speaker Change: And this is attribute it to both the span of applications as well as capacity and we're very encouraged by the fact that we see that growth. We also discussed and in the past in terms of our after then focus on the increasing the appeal.
Speaker Change: The number of applications to value that the that the platform provides and with a very flex for with the additional throughput sampling rate and the performance criteria will definitely able to execute on that and the increase the number of tools perfect.
Speaker Change: Thanksgiving.
Speaker Change: Thank you.
Speaker Change: Mmk can next question from the line of Mike Miller from the Bank My Company. Please go ahead.
Mark S. Miller: <unk> on your record results.
Mark S. Miller: <unk> <unk> you should discuss previously memory was up to 40 per cent I'm just wondering in terms of <unk> memory <unk>, what what can you attribute a percentage of hype man with memory.
Mark S. Miller: Well high bandwidth memory is counted as part of memory as well as advanced packaging. So in that respect the H B M is part of that.
Mark S. Miller: And we are seeing the focus of growth in the first quarter on both DRAM and the high bandwidth memory that consist that are are making the total of that 40 per cent.
Mark S. Miller: Okay in terms of tools for high bandwidth memory already typically tools that have a higher margins.
Mark S. Miller: So our tools for a high bandwidth memory, both optical as well as chemical on the optical side, it's the front and tools that were customize for the use in the hyphens with memory for the chemical it's those tools that.
Mark S. Miller: The are serving both Oh, I would say the backend packaging customers such as the ankle wiser and for the front and side, we have the carpet dual dancing tool.
Mark S. Miller: That is being used for those front that fast so for the H B M. Specifically, it's mostly the ankle is a tool.
Speaker Change: Thank you.
Speaker Change: Thank you.
Mister <unk>: This concludes our question and answer session I would like to turn the conference back to Mister <unk>, President and C E O for any closing remarks.
Mister: Thank you operate and thank you all for joining a call today.
Mister <unk>: Thank you.
Speaker Change: Princess now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: [noise].