Yahoo Finance Nova Ltd. (NASDAQ:NVMI) Q1 2024 Earnings Call Transcript
Nova Ltd. (NASDAQ:NVMI) Q1 2024 Earnings Call Transcript May 9, 2024
Nova Ltd. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and welcome to the Nova Limited Q1, 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Miri Segal, CEO of MS-IR. Please go ahead.
Miri Segal: Thank you, operator. And good day, everybody. I would like to welcome all of you to Nova's first quarter 2024 financial results conference call. With us on the line today are Gaby Waisman, President and CEO; Dror David, CFO; and Guy Kizner, Corporate VP of Finance and Incoming 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 this call. If you have not received a copy of the release, Please view it in the investor relations section of the company's website. Gaby will begin the call with the business update, followed by Dror with an overview of the financials. We will then open the call for the question-and-answer session. I'll now turn the call over to Gaby Weissman, Nova's President and CEO. Gaby, please go ahead.
Gaby Waisman: Thank you, Miri, and thank you all for joining us today. I will start the call today by summarizing our first quarter performance highlights. Following my commentary, Dror will review the quarterly financial results in detail. 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. Our performance was supported by a favorable product mix, backed by a diverse exposure to opportunities across market segments, territories, customers and technologies. The increased demand for our advanced portfolio, combined with Nova's robust operational model, continues to drive us forward. 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.
Our solid execution resulted in a sequential and year-over-year revenue growth with our cash reserves totaling approximately $700 million. Positive indicators of a memory recovery cycle, driven primarily by advanced DRAM devices such as DDR5 and HBM, have increased the memory share of our product revenue to 40% this quarter, with Korea playing a major role. At the same time, our diverse portfolio and exposure to multiple markets enabled us to leverage the demand for mature nodes from China. Looking at the year ahead, we see encouraging indicators in the semiconductors industry perpetuating long-term secular growth and the rising need for process control across segments. Utilization rates and need for capacity are on the rise again for two reasons.
On the one hand, inventory levels are stabilizing, while end market demand recovers, with a positive node of anticipation for replacement cycles in both consumer and enterprise products. On the other, the continuous increase in chip sizes, driven by a need for faster, more power efficient processing and memory, drive up the volume of wafer production. According to some of our customers and other third-parties, HBM free [E-chips] (ph) consume 2 times to 3 times more wafers than leading-edge DRAM chips, and data center processor chip sizes today are 5 times larger than those produced just a few years ago. 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 inferences on both client and server side.
The emergence of new technologies such as hybrid bonding and TSV, the increase in number of process steps, and the consistently smaller tolerance for errors all serve to support substantial growth of process control. Hybrid bonding technology is a good example of a highly complex process that requires rigorous process control, such as bonding layer flatness. Other positive nodes we see are the healthy demand for mature devices, the broad investments across nodes, and the vast recognition of the need for local supply chain resiliency that drive a manufacturing footprint build-out across the US, Europe, and Asia. Naturally, all these have a positive impact on our business. 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 Nova's advanced portfolio by leading customers for advanced applications, which include the transition to Gate-All-Around and rising demand for advanced packaging solutions, including high bandwidth memory. 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 evaluations and selections taking place at numerous customers. I'd like to share several examples. Let's start with our Elipson platform, which secured repeat purchases, new selections, and evaluations by multiple leading memory and logic customers. At the same time, Metrion is gaining traction and is starting new evaluation processes at two leading global memory manufacturers.
And the VERAFLEX 4 platform was selected by a leading global foundry, landed several new customers, and reached a new record of eight systems in a single memory set. On the hybrid bonding, packaging, and HBM fronts, we have multiple orders in place and strategic evaluations kicking off for the PRISM 2 standalone OCD and our integrated metrology solutions. The Nova PRISM 2 platform, with its spectral interferometry technology and unique algorithmic capability brings clear benefits to process control of TSV and hybrid bonding challenges, which our customers recognize. There is a clear use case of front-end tools at the backend of advanced nodes production, which we were able to identify early and address by creating a dedicated portfolio. We expect revenues from packaging-related processes to grow by more than 50% in 2024, driven by our optical and chemical metrology portfolios.
Speaking of our chemical metrology division, it is in peak performance with multiple new customer penetrations at the front end, back end, and HBM. Overall, we expect our chemical metrology business to capitalize on the rapid growth of its addressable markets and hit another record year in 2024. Finally, our service business continues to deliver this quarter, growing by 13% year-over-year. While during 2023, many of our customers preferred a more prudent approach, this year, the rising utilization rates and demand to extend tool life spans to maximize investments are driving our performance. We expect our service business to maintain its growth path in 2024 and capture customer spending across the board. Before I conclude, I'd like to thank Dror David, our formidable CFO who has decided to step down after 20 years at Nova.
Dror has been my colleague and friend since I joined Nova, and over the past year, his support and advice have been indispensable. I'm grateful for his contribution over the years, and I'm confident that the handover to his successor, Guy Kizner, will be seamless. Guy and I plan to be in San Francisco for SEMICON West, and we look forward to meeting many of you in person. I also want to express my gratitude to our employees worldwide who work as a tight knit unit to maximize every opportunity and support our customers. And to our employees in Israel who continue to deliver regardless of circumstances. We have a truly gifted group of people who chose to work at Nova, and we are fortunate to build on the breadth and wealth of talent and the incredible resilience of our team.
To summarize my prepared remarks, Nova had a robust quarter and our forecast for the second quarter indicates additional growth. We see a healthy demand for our portfolio across nodes, market segments and territories, driven by multiple positive trends and the clear value our tools and services bring to customers. Looking forward, 2024 is shaping up to be a growth year and an encouraging milestone on our path to executing our long-term strategic plan. Now, for some more details on the financials, let me hand over the call to Dror.
Dror David: Thanks, Gaby. Good day, everyone, and thank you for joining our 2024 first quarter conference call. Total revenues in the first quarter of 2024 reached $142 million, exceeding the company's guidance and demonstrating a 6% quarter-over-quarter increase and 7% year-over-year growth. Product revenue distribution was approximately 60% from logic and foundry with the remaining 40% from memory. 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%. 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. These newer products present improved performance and embed higher customer value with higher gross margins.
We expect gross margins to gradually normalize in the coming quarters and align with the higher end of the company target model on an annual basis in 2024. As expected, operating expenses increased in the first quarter, reaching $46 million on a GAAP basis and $41 million on a non-GAAP basis. 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%. This excellent result was driven by the healthy quarterly gross margins and the company robust operational model. Financial income in the quarter remained elevated, reaching $6 million, reflecting high yields on cash reserves. The effective tax rate in the first quarter was approximately 15%. Earnings per share in the first quarter on a GAAP basis were $1.15 per diluted share.
Earnings per share on a non-GAAP 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. Finally, I would like to share the details of our guidance for the second quarter of 2024. Currently, we expect revenues for the quarter to be between $144 million and $152 million. GAAP earnings per diluted share to range from $1.07 to $1.21. Non-GAAP earnings per share to range from $1.27 to $1.42. At the midpoint of our second quarter 2024 guidance, we anticipate the following. Gross margins of approximately 57% on a GAAP basis, and approximately 59% on a non-GAAP basis at the high end of the company target model. Operating expenses on a GAAP basis to increase to approximately $48 million, operating expenses on a non-GAAP basis to increase to approximately $43 million, financial income and tax rate to remain similar to the first quarter.
I want to mention that during the first quarter, the company generated a record 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. This robust cash position enables us to continue and pursue and execute growth strategies and infrastructure investments. With that, we will be pleased to take your questions. Operator?
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