Q1 2025 Nova Ltd Earnings Call
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Speaker Change: Good day, and welcome to the Nova Limited First Quarters 2025 Results Conference Call.
Or participants for being less in only mode? [inaudible]
Speaker Change: Shizu Need Assistance, C-Signal Conference Specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions.
Speaker Change: To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star and then two. Please note that this event is being recorded.
Speaker Change: Thanks, operator, and good day everyone. I would like to welcome all of you to Nova's first quarter of 2025 financial results conference call. With us on the line today are Gabi Weisman, President and CEO and Guy Kizner, CFO .
Speaker Change: Before we begin, I would like to remind our listeners that certain information provided on the school may contain four-looking statements and the Safe Harbor statement outlined in today's earnings release.
Speaker Change: also pertains to this call. If you have not received the copy of the release, please view it in the Investor Relations section of the company's website.
Speaker Change: Gabi, we begin the call with the business update, followed by Guy with an overview of the financials. We will then open the call for the question and answer session.
Speaker Change: I'll now turn the call over to Debbie Waisman, Nova's president and CEO . Debbie, please go ahead.
Speaker Change: Thank you, Miri, and thank you all for joining us today.
Speaker Change: I will start the call by summarizing our first quote to performance highlights.
Guy Kizner: Following my commentary, Guy will review the quarterly financial results in detail.
Guy Kizner: Nova achieved another exceptional quota with record results in both revenue and profitability.
Guy Kizner: Our revenues grew 50% year-over-year, exceeded our EPS guidance, and increased non-GAAP EPS by 56% year-over-year.
Guy Kizner: Our business performance is tightly linked to our executional and operational excellence as well as our inherent ability to adapt to evolving market dynamics.
Guy Kizner: Our performance was driven by Nova's strong standing across market segments, regions, key customers and technologies.
Guy Kizner: Disposition was validated by the recent release of the annual Gautner market share report. Highlighting are growing presence.
Guy Kizner: The report indicates that Nova's market share increased significantly in the symptom and ocean and seedy metrology segment.
Guy Kizner: Solidifying our position as the second largest vendor in this market.
Semiconductor Manufacturing Capacity is in robust growth mode.
Driven by Demand for AI applications
This search has translated into significant revenues for Nova.
Guy Kizner: As manufacturers across the globe, build a production capacity and adopt the unique value proposition output for your offers.
Guy Kizner: Our customers estimate that newly introduced AI models will enhance efficiency and lower the barriers to future AI development, resulting in broader usage and increased adoption of AI, all of which depend on advanced technology notes.
Guy Kizner: In parallel, the demand we see for mature nodes remains stable, with many new customers joining the ranks.
Guy Kizner: As our second quarter guidance suggests, we expect these positive trends to continue.
Guy Kizner: On a global level, macroeconomic uncertainty impacts various sectors and the potential indirect implications of the current international trade climate are still unclear.
Guy Kizner: Despite this, we have not observed significant shifts in demand or planned customers' investments and our business remains solid.
Guy Kizner: Now, let me turn to some business highlights for the quarter.
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Guy Kizner: As a result, we saw a significant increase in revenues from Gatorle around and advanced packaging processes which manifested in several areas of our business.
Guy Kizner: First, we achieved record sales in our standalone solutions led by record revenues from the Prism platform.
Guy Kizner: Prism has successfully completed two more evaluations for advanced packaging and leading edge nodes by a leading logic manufacturer, and it is shaping out to be a best seller for us.
Guy Kizner: The present spectral interferometry technology and unique algorithmic capability bring clear benefits to process control of frucile canvia and critical hybrid bonding applications which our customers appreciate.
Guy Kizner: Second, we also saw record sales of our integrated metrology solutions.
Guy Kizner: This quote highlights include a new penetration into two gator round manufacturers, one of which also adopted the solution for its advanced packaging processes.
Guy Kizner: I'm proud to say that these latest adoptions have been driven by Nova's superior technology, but just as much it is a testament to the power of collaborating with our customers.
Guy Kizner: Third, our software business achieved records performance driven by strong sales of our software suite targeting high-value applications and improving performance and efficiencies.
Guy Kizner: More specifically, our advanced packaging customers have noted the advantage of using our machine learning capabilities to solve critical challenges and reduce costs in their increasingly complex processes.
Fourth, our materials metrology solutions also benefit from this demand.
Guy Kizner: The Nova Ellipson was recently adopted for Gatorle around processes by a leading IDM that already employs multiple Ellipson tools in other areas.
Guy Kizner: In addition, we shipped another metric on platform for qualification with a new gator around customer.
Guy Kizner: We also sow the continued adoption of the Nova Veriflex 4 platform by additional customers towards gaitle around manufacturing line.
Guy Kizner: We recently introduced some new capabilities on the Vivek platform which opened a whole new range of layers for advanced 3D nan manufacturing.
Guy Kizner: We will be able to share more details in the future.
Guy Kizner: On the memory side, the majority of demand is coming from DRAM and it is driven by the need to increase capacity in high bandwidth memory production.
Guy Kizner: Notably, we are seeing heightened demand for chemical metrology solutions.
Guy Kizner: Finally, all this growth is also driving our services business forward.
Guy Kizner: The squatter ended with another record in service revenues which grew more than 30% year-over-year.
Guy Kizner: Now, I want to share some updates on our operations in Germany.
Guy Kizner: During the first quarter, we completed the acquisition of Centronics, and we are progressing well in post-murdered merger integration.
Guy Kizner: While the contribution to the first quarter is relatively small, we expect to see our business from this acquisition gross significantly in Q2.
as we transition to direct sales in tea markets.
Guy Kizner: Also, during the first quarter, we moved into our new facility in Badruhr, Germany.
Guy Kizner: The new facility combines state-of-the-art manufacturing with a research and development center focused on chemical metrology.
Guy Kizner: The new site doubles the capacity of Nova's chemical metrology division.
Guy Kizner: and Foster's collaboration by bringing all the division teams together in one location.
Guy Kizner: The transition to the new facility has been seamless and the next quarter looks very promising for the division.
Dror David Shrotre, Miri Segal,
Guy Kizner: Before I complete my prepared remarks, I wanted to note that we recently published Nova's 2025 Sustainability Insights Report.
Guy Kizner: The report highlights significant milestones in various areas, including renewable energy use and reduction in greenhouse gas emissions.
Guy Kizner: The report includes updated KPIs that have been incorporated into our operating model along with a revised set of goals that place greater emphasis on key environmental and social impacts.
Guy Kizner: To summarize my part, Nova had a robust quota characterized by healthy demand across various notes, segments and territories.
Guy Kizner: These positive trends continue to underscore the value of our tools and services.
Guy Kizner: As we look ahead to the second quarter, we anticipate similar strong demand patterns.
Guy Kizner: The current markets are making visibility more challenging. In the coming months, we expect to gain clear insights and will diligently monitor potential impacts on market demand managing
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Guy Kizner: Considering our current business momentum, market share opportunities, and the anticipated increase in process control and intensity at the leading edge, we are
Guy Kizner: Now, for some more details on our financials, let me hand over the call to Guy.
Guy Kizner: Thanks, Gabi. Good day, everyone, and thank you for joining our first quarter 2025 Conference
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Guy Kizner: I will begin by reviewing our financial achievements for the first quarter of this year and then provide guidance on the second quarter.
Guy Kizner: As a reminder, since the acquisition of Centronix was finalized at the end of January 2025,
Guy Kizner: The financial results reported for the first quarter include only a partial contribution from
Covering the two months following the close of the transaction.
Guy Kizner: Total revenues in the first quarter of 2025 reached a record level of $213 million.
representing our 4th consecutive quarter of all-time high revenues.
Guy Kizner: Product Revenue Breakdown was approximately 75% from Ojik and Foundry and approximately 25% from Emory.
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Guy Kizner: Product revenues for the quarter included contribution from three customers and three geographic territories.
each accounting for 10% or more of total product revenues.
Guy Kizner: In the first quarter, blended gross margins were 57% on a gap basis, and 59.6% on a non-game basis.
Guy Kizner: The high gross margin in the quarter was attributed to a favorable product mix coupled with a higher revenue volume growth.
Guy Kizner: Operating expenses increased in the first quarter and came in at $59 million on a gap basis.
and 53.5 million dollars on a non-gay basis.
Guy Kizner: As we continue to ramp up R&D and sell the marketing spending in a targeted manner to advance our product roadmap and unlock future growth opportunities.
Guy Kizner: Operating margins in the first quarter reach 30% on a get basis and 34.5% on a non-get basis.
Guy Kizner: After passing the upper range of our updated target model of 28% to 33%
Guy Kizner: The effective tax rate in the first quarter was approximately 15%
Guy Kizner: Earning per share in the first quarter on a gap basis were two dollars and three cents per for the luthier chair.
Guy Kizner: and an earning per share on a non-gay basis were two dollars and eighteen cents per diluted
Guy Kizner: With first quarter results exceeding the top end of our guidance, we've now delivered six consecutive quarters of record performance.
Guy Kizner: A milestone that highlights our consistent execution and the value we are delivering to customers and stakeholders alike.
Guy Kizner: Turning to the balance sheet, we ended the first quarter with $812 million in cash, cash equivalent, bank deposit, and marketable securities.
Guy Kizner: This quarter, we deployed 20 million dollars in share buybacks and paid a preliminary amount of 51.7 million dollars for the acquisition of Centronics, net of cash acquired.
Guy Kizner: An additional $4.7 million will be paid in the second quarter as part of the final purchase price adjustment.
Guy Kizner: Bringing the total net consideration for the deal to approximately 56.4 million net of cash acquired
Guy Kizner: The purchase price allocation of this amount, which remained subject to final audit, was reflected in the company's consolidated balance sheet, as of the end of this of the first quarter.
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Guy Kizner: The main elements of the purchase price allocation at the closing date were as follows.
Centronics Net Acquired Tengeable Asset, where approximately $9 million.
Guy Kizner: Centronics Intangible Customer Relations assets were approximately $2.5 million and are expected to be amortized over a useful life period of seven years.
Guy Kizner: In the tourist step-up, approximately 2.3 million dollars was recorded to reflect fair value adjustments.
Guy Kizner: Roughly half of this amount was amortized through a cost of sales in the first quarter with the remaining portion expected to be recognized in the second quarter.
Guy Kizner: Finally, I would like to share the details of our guidance for the second quarter of 2025. We currently expect revenues for the quarter to be between $210 million and $220 million.
Guy Kizner: Gap Earning Predoluted Chair to Range from $1.70 to $1.88
non-GAAP Earning Predoluted Chair to range from $1.96.
and 14 cents.
Guy Kizner: At the midpoint of our second quarter 2025 estimates, we anticipate the following.
Worse margins of approximately 56% on a gap basis.
and approximately 58% on a non-gear basis.
Guy Kizner: Operating expenses on a gap basis to increase to approximately $61 million.
Guy Kizner: Operating expenses on a non-gay basis to increase to approximately $56 million.
Guy Kizner: Financial income on a non-gay basis to remain similar to that of the first quarter.
Effective tax rate is expected to be approximately 16%
Guy Kizner: Despite a more complex global trade environment, our second quarter outlook indicates that business conditions are maintaining positive momentum.
Guy Kizner: While recessed tariffs' developments have introduced new variables, we have not seen a significant shift in customer demand.
Guy Kizner: We are staying closely aligned with our customers as they adapt and we are confident in our ability to support them to ongoing collaboration and responsiveness.
Guy Kizner: One of our structural advantages in our global production footprint, with manufacturing facilities located across three key geographies, the US, Germany, and Israel.
Guy Kizner: This diversification provides us with the flexibility to help mitigate the operational impact of evolving trade dynamics.
Guy Kizner: Based on our current assessment, we estimate that the new tariffs could reduce gross margins by approximately 30 to 50 basis points.
Guy Kizner: That said, the situation remains fluid and we are actively evaluating mitigation opportunities including operational adjustments and selective pricing strategies.
Guy Kizner: As always, we are committed to executing with discipline, staying agile and partnering closely with our customers.
Positioning us well to navigate changes and capture opportunities.
Speaker Change: With that, we will be pleased to take your questions. Operator?
Speaker Change: Thank you so. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone.
Speaker Change: If you're using the speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two.
Speaker Change: The first question that we have today comes from Blayne Curtis of Jeffries. Please go ahead.
Speaker Change: Hi, Ezra Weiner on For Blan. Thanks for taking my question. Just to start, can you talk about where you are in the gate all around Ramp in terms of that $500 million cumulatively, and how we should expect that from a shape perspective over the course of the year?
Speaker Change: Sure. So in terms of Gator around, we definitely see a ramp.
Speaker Change: in the first half of the year we see strong demand from Gator around and looking ahead we expect to meet the growth plans. Of course there could be some changes in the second half outlook as a result of market conditions, but overall we are on course for the Gator around.
Speaker Change: Can you talk about the size of that opportunity between the R&D phase and the ramp of high volume manufacturing?
Speaker Change: So obviously the beginnings that are happening this year are reflecting the pilot lines and initial investments and the businesses growing so that once it moves from this stage to high volume manufacturing, we expect business to grow. So when we spoke of 24, 25, 26,
Speaker Change: It was obvious that 25 is going to be higher than 24 and definitely 26 is going to be higher than 25.
Speaker Change: As such, that the business next year from Gator around is planned to be or expected to be higher than this year.
Speaker Change: Then, thank you very much. One more. In terms of your gross margin, you obviously had a great result in March, comes down a bit in June , and you were talking about tariffs. Can you talk about the moving pieces for the gross margin?
Speaker Change: Yes, so on the cross margin side, the way to think about our cross margin is really on the annual basis, not the quarter of a quarter. In any given quarter, a mix can shift things slightly up and down.
Speaker Change: In the second quarter, specifically, the lower gross margin, we select two main things, the impact of tariffs, as I mentioned, 30 to 50 basis points, and some product mix effect.
Speaker Change: That said, we remain fully committed to our gross margin model of 57 to 60% and we expect to be within this range for the full year.
Thank you.
Speaker Change: Thank you. The next question we have comes from Asif Malik of City. Please go ahead.
Asif Malik: Thank you for taking my questions. The first one for Gabi. Gabi, interesting to see some cross-selling in advanced hatching with some of the same customers who are also using your gate all around equipment. Can you talk about what driving these dynamics are maybe unbreeding too much into it?
So, we are definitely well positioned in terms of our...
Those front-end players that have either logical memory...
Asif Malik: Advanced Packaging Processes. So we're looking at both high bandwidth memory as well as the...
Asif Malik: Zance Packaging in Logic. And we have positioned both our dimensional metrology as well, the chemical metrology solutions into those markets. What we can see is a very strong
Double Digit Growth.
in our advanced packaging revenue for 2025.
We are seeing also…
Asif Malik: In addition to the chemical and the traditional dimensional metrology solutions, whether it's the standalone OCD or the integrated and we now see in centronics.
Great and a follow-up for Guy.
Asif Malik: And on the tariffs, some of your equipment peers have talked about the revenue impact in China from the reciprocal tariffs, and just wanted to clarify that you did not see any revenue impact in China and your guidance, also if you can remind us for the full year services growth this year.
Yes, so as I mentioned during my script, the main...
Asif Malik: The main impact of the tariffs is on the gross margins, 30-50 basis points and we don't see currently backed on the top line.
Asif Malik: On the service, our model suggests 10-15% growth year-over-year and we are looking at this target for 2025 as well.
Thank you.
Speaker Change: Thank you. Ladies and gentlemen, just a reminder, if you would like to ask a question, please press star and then one now.
Speaker Change: The next question we have comes from Mark LePaceus of Erykko
Mark Lopatious: Great, thanks for taking my questions. A question on the tariff. What is the framework that we should think about for this? Is this simply components?
Mark Lopatious: Shipped into the US, is that the main part of the tariff impact to your gross margins, or is there something else that we should think about here?
Mark Lopatious: So, the main terror-related impact on gross margin come from the bomb or from machines, but it's relatively modest, most of our supply chain is localized.
Mark Lopatious: So the volume of import is quite low. The second piece is service per part, which do involve more import.
Mark Lopatious: Altogether, we estimate, as I mentioned, the impact on the gross margin, 30 to 50 basis points. That said, the environment remains dynamic and we are actively monitoring it.
Mark Lopatious: and the operational footprint across regions give us the flexibility and helps us caution the impact.
Mark Lopatious: And I guess I was curious is, I don't know if you can answer this, but...
Is most of that tariff impact from a geographic location?
Mark Lopatious: on shipping components to your manufacturing facilities in the U.S. and then is that where the most of the impact is or is it something else? Should we think about it differently?
Mark Lopatious: Okay, gotcha. And then you are coming in at the high end or above the high end of the target model. Is there what is the process for you know re-evaluating your target model range.
Mark Lopatious: You know, a timing, is this something that you consider doing when you're hitting this kind of level of profitability?
Mark Lopatious: Operating Marginal 28-33% It's important to know that in quarters where we're growing in such a quick pace as we did in the first quarter, it takes time for the Opercs to catch up.
Mark Lopatious: as part of the guidance. The second quarter will see additional increase.
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Great, thank you very much.
Speaker Change: Thank you. The next question we have comes from Vivek Arya of Bank of America. Please go ahead.
Tuck San: Hi, thank you for taking the question. This is Doug San on behalf of Vivek. Just to follow up on the tag of question, I know he said, you don't see much top line impact, but...
Tuck San: Have you seen any signs of potential pull-in or push-outs by customers? Just given obviously you have a very diverse geographical mix. Thank you.
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Speaker Change: So, there are obviously concerns, but we haven't seen any major push outs or pull-ins in that respect. No.
Speaker Change: Thank you for that. And then one follow up on HBM, obviously you're doing very well in a sense packaging overall. But your memory revenue, despite the underlying market growing very significantly, I think memory has been flat as your year for you guys, whereas found your logic almost doubled. So I'm just curious about your ramp and progress in HBM. Thank you so much. Thank you.
Speaker Change: So we definitely see a double digit growth in the advanced packaging and HVM is part of it. I can say that HVM represents about the third.
of our advanced packaging product revenues. Thank you.
Speaker Change: and we do see major growth in that as well. So it's progressing across the board, both logic and memory.
Got it. Thank you.
Thank you. The next question.
Speaker Change: from our company.
Speaker Change: Congratulations, another record quarter. In terms of memory, air for several years of slowness, Nian Manifashers are increasing their CAP-X-2X, expect increasing sales related to Nian.
Speaker Change: We definitely hope so, and we are planning the seeds in terms of our portfolio in order to capture the ramp we have
We definitely...
See that momentum?
Speaker Change: Gearing but still not translating into immediate revenues so we hope that that would happen towards the end of this year as we have indicated before. And our effort now is really to build the footprint in terms of technology, valuations in order to have a strong position in memory in general and freely and specifically.
Speaker Change: Look at your backlog. What is the margin profile your backlog? Is that summer to what you've been seeing recently in terms of reported margins?
Yes, we will represent the more or less the same mix.
Thank you.
Thank you.
The final question we have.
Speaker Change: Love comes from Charles She of Needham & Company.
Speaker Change: Hi, good evening, Gabby and Guy. Thanks for taking my questions. The first one, I know that in the Pre-Perry Marks, you did express some...
Speaker Change: given all the uncertainties. But your largest appear in process control seems to have self-guided flatish, a second half, at least over the first half.
Speaker Change: I wonder what's up there based on your order backlog and the pipeline. At the point, I mean absent of any potential impact from the tariffs. That's the first question. Thank you.
Speaker Change: So we are not giving any guidance for the full year but we are not necessarily sharing the same views of our peers in the industry and I think that our position is different.
Speaker Change: But overall, we definitely see the concerns on one hand, but also see the robust business ahead, so we can definitely expect different trend.
Thank you. Bye.
Speaker Change: Thank you, Gabby. Maybe let me drill down a little bit. I think let's say go back to one quarter ish. I think you also expressed a little bit of our conservatism on...
Speaker Change: The China all look going into a second half of the year in terms of the visibility now, now where you may and what's the sense right now?
Speaker Change: seems to be still pretty steady, but I kind of inferred that as a China commentary, but what's the China outlook is going into second half, any soft there. Thank you.
Speaker Change: Sure. So, overall we expect the nominal value from our China business to stay flat or slightly decline year of a year. As I indicated before, sharewise, we expect to see a relatively lower share of the revenue as advanced nodes becoming more prominent. We do see good backlog for the coming quarters.
But we still lack full visibility of the year.
Speaker Change: In any case, we see this trend offset by the strong performance and the auditor territories and other regions. So overall, as I mentioned before, and that hasn't changed...
Speaker Change: Nominally flat or slightly decline, sharewise, lower, but we do see the good backlog.
Thank you. Bye.
Gabriel Waisman: Thank you. Ladies and gentlemen, this concludes our question and answer session. I would now like to turn the conference back over to Gabby Weisman for any closing remarks. Please go ahead, sir.
Gabriel Waisman: Thank you, Operator, and thank you all for joining our call today.
Gabriel Waisman: Thank you, ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.