Nova Ltd (NVMI) 2003 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Nova Measuring Instruments second-quarter 2003 results conference call. All participants are, at present, in a listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded August 13, 2003.

With us on the line today are Dr. Giora Dishon, President and CEO of Nova, and Mr. Chai Toren, CFO. I would like to remind everyone that the Safe Harbor language contained in today's press release also pertain to all contents of this conference call. If you have not received a copy of today's release and would like to do so, please call Gary (ph) at investor relations at 1-866-704-6710 or 972-607-4717.

Dr. Dishon, would you like to begin?

Yes. Thank you. Good morning, and good afternoon, everyone. We welcome you to our year 2003 second-quarter conference call. And I would like first to hand it over to Chai to go over the financial results of the quarter.

Thank you, Giora, and welcome, everybody. Revenues for the quarter were 6.4 million, representing a 35 percent increase sequentially, compared to revenues of 4.8 million for the first quarter of 2003, and compared to 5.4 million reported for the second quarter of 2002 -- about 79 percent from sales of systems and about 21 percent from service and miscellaneous. Net loss for the quarter was 1.4 million or 9 cents per share, and 1.2 million loss or 8 cents, excluding about $100,000 stock-based compensation. This is compared to a net loss of 2.6 million or a loss of 17 cents per share in the previous quarter, and compared to a net loss of 2.9 million or loss of 20 cents per share reported for the comparable period last year.

Gross profit for the quarter was 2.4 million, about 38 percent of revenues, compared with a gross profit of 1.5 million in the first quarter of 2003 and gross profit of 2 million reported for the comparable period in the prior year. The Company's balance sheet remains strong, with cash and long-term investment of 31.6 million, and networking capital of about 31 million. H1 2003 distribution statistics are about 53 percent from dollar sales to end users and about 47 percent dollar sales to PEMs, or production equipment manufacturers. All sales were for new equipment. About 50 percent of systems delivered were for 200-mm equipment, and 50 percent for 300-mm. The geographical distribution in H1 2003 is 35 percent in the United States, 27 percent to Europe, 20 percent to Japan and about 18 percent for Asia/Pacific. The average sale price in Q2 was $198,000 versus $159,000 in Q1 2003, versus ASP of $165,000 in 2002, and the difference in the different periods is due to the mixture of integrated metrology and standalone sales in each period. So we see an increase of average sale price in this quarter. We continue to keep our low inventory levels, according to our inventory policy, and the inventory level is about 2.7 million in the end of the quarter. The backlog at the beginning of Q2 2003 was about $2 million. The three major customers are about 71 percent of H1 sales.

I would like to add that the second-quarter results reflect a positive trend, as I said in the beginning, of about 35 percent sequential growth in revenues, and they are approaching the breakeven point. Also, the revenue growth is a result of a higher level of upgrade activity, which may be a positive sign for a potential industry pickup. The total headcount was 215 employees.

With that, I would like to return the call to Dr. Giora Dishon.

Thank you, Chai. First, some highlights from the quarter. This was the first quarter that Barry Cox joined us as Chairman, and we definitely hope that he will bring help to us moving forward effectively.

In this quarter, we introduced our new NovaScan 3030 CD system after a long period of field testing, which resulted with acquiring the system and system orders in the standalone configuration. We also continued with respect to the NovaScan 3030 CD our intensive efforts with the integrated metrology NovaScan CD, together with a major etch process equipment manufacturer. And we expect that to grow in the coming quarter. This is the fastest-growing equipment segment, according to a recent report by Dataquest. With respect to our dielectric CMP systems, we saw a continuation of our market share gains, and I believe that in this quarter, our market share was close to 90 percent, with multiple wins in Asia/Pacific and Japan. These wins were mostly for 300-mm systems. The increase of sales to Japan and Asia/Pacific is also in line with the general trend in the semiconductor equipment industry. The potential in this territory is still high, and we look forward for continuing sales efforts. I would like to add here that our corporation with a major CMP process equipment manufacturer is continuing to be very good, and we continue to invest efforts in strengthening these relations. We currently have systems at 16 out of the top 20 semiconductor manufacturers, so there is still far more to go. And mostly, those do not have integrated metrology yet. And we recently achieved a milestone of selling more than 1,000 integrated metrology systems. We also sold several copper CMP systems, integrated metrology systems, and we continue the evaluation with our customers. As copper technology turns to mainstream manufacturing, we see that as another growth opportunity.

Revenue from service, as Chai noted, is in line with our plans, and a major contributor to the overall performance of the Company. Basically, we see some signs that the semiconductor equipment industry may pick up due to high utilization, especially in advanced technology. But we still see cautious atmosphere, which is still holding back the visibility, as most analysts have observed. Nevertheless, the overall growth of the integrated metrology market is still slower than previously estimated, as we are experiencing with our photolithography system, the overlay and macro novatrix (ph) system, which is penetrating very slowly. We believe that integrated metrology is coming out of the trough of disillusionment in the hype cycle, and may begin what is called the slope of enlightenment as projected by Dataquest, and was presented recently at Semicon -- not Semicon, by Dataquest.

In summary, our visibility is poor, and we cannot provide detailed guidance, although we are optimistic, and especially as a pseudo-OEM (ph) supplier, this definitely adds to our limitation on providing guidance. We continue to be very cautious, and continue to run the operations under tight control, but we do see some signs of moderate and selective upturn, with the technology cycle speeding up and utilization reaching the 90-plus percent range. So we do look forward optimistically in reaching our goals of new product proliferations and returning to profitability. And now, with that, we will be glad to entertain any of your questions. Thank you.

(CALLER INSTRUCTIONS). Christine Asmania (ph), Needham.

I didn't quite get your comments on the backlog. Did you say that it was 2 million ending the second quarter? And if that's the case, maybe you could review with us your bookings in the beginning of the quarter, because apparently I am understanding that you booked several standalone systems, which would have brought your bookings much higher than that.

Thank you for the question. I noted before that backlog at the beginning of Q2 in April, beginning of April, was about 2 million, and revenues for Q2 resulted in 6.4. The backlog at the beginning of Q3 was slightly above $2 million, and, as Giora said, we are optimistic that we will continue the positive trend between quarters.

With Q3 nearly halfway through, could you give us maybe a sense of what kind of bookings -- what you booked up to this point in the quarter?

I would like to continue in our standards of giving information at the beginning of the quarter, and will remain in these details that at the beginning of Q3, our backlog was slightly above $2 million, a little better than at the beginning of Q2, and the general comment that we feel quite optimistic, and we believe that we will be able to continue positive trend.

So would that imply that we can model for increasing revenues in Q3?

I cannot give you more than this.

Okay. Perhaps you could give the us the number of units that you shipped during the quarter, and what the breakdown was standalone and integrated, as well, then?

Okay. We sold one standalone for OCD (ph), and the total number of systems was 26.

So 26 including one standalone, right?

Yes.

Kind of taking a bird's eye view of what is happening here, Applied Materials held its conference call last night, and they said that a significant number of the orders were 300-mm. For the first time, it reached as much as 60 percent of the order book. And integrated metrology has been -- the argument for integrated metrology becomes a lot more compelling with the transition to 300-mm. So could you give us maybe your take on whether or not that is true, and how we would expect that kind of trend to benefit you, and how that should play out over the coming quarters, and what we should watch for?

Well, generally speaking, we have seen this trend before. We reached the 50 percent and more number of systems revenues coming from 300-mm, and so for us, this was a trend, a continuous trend, maybe earlier than most of the industry. So generally speaking, yes; a higher number of 300-mm systems does provide an upside opportunity for integrated metrology. Nevertheless, you need to also remember, or keep in mind, that we talked about selected type of equipment segments. So if you sell more PVD or whatever it is, yes, the general trend will help, but it's a general trend, and it depends on the breakdown between equipment segments. And the CMP segment may react differently than other segments; and, as we said, with the NovaScan CD, since it's also a breakdown for both standalone and integrated, this may be more balanced than in CMP, where we see more 300-mm activity. So looking forward, yes, we do see that as an upside opportunity for integrated metrology in general, and for us in particular.

So basically, my takeaway here is that the OCD is actually penetrating 200-mm type applications, and that's why the mix is probably going to be shared. Is that correct?

Yes. The OCD, being a new technology, is partially implemented in 200-mm lines, not necessarily only in new lines of 300-mm. We take that as a balanced type of market segment for that (ph).

Could you also talk about what you are going to be working on doing to bring services into the profitable territory?

Well, we have our service organization in all the territories everywhere, including China, including Taiwan and so on. Generally speaking, these territories are more difficult to generate revenues from service than other territories. But since pressure of penetration may be more, many times our extended warranty is part of the change (ph) of the system. We do not expect that to outgrow in the sense of revenues from service, but we expect it to be more active, and it is already more active in providing services to these customers and these territories.

When do you think you'll become profitable in your service business?

Well, the service business that we have is already pretty much balanced, and it's operating as a P&L center. And we see revenue growth from service, or as we plan (ph). This organization, as a P&L center, is very close, or if not even already at breakeven. Nevertheless, we don't expect that to be -- service is a high-margin type of operation, as compared to (indiscernible) systems. So overall, it's affecting the gross margins. Its influence is a bit lower than the sales of systems.

What was your depreciation and CapEx and your breakeven revenues?

The depreciation in Q2 was about $156,000. Investments were about $1,500. And what else did you want to know?

Did you say that CapEx was 60, or 600,000?

CapEx was 50.

And does your breakeven revenue stay at around 8 million?

Yes.

And then, if I could just get the stock-based compensation broken out, the expense broken out between cost of goods and SG&A and R&D? And then I will pass the call on to other people.

Okay. The stock-based compensation breakdown -- the total was 106,000; in cost of goods sold, 13; in R&D, 68; sales and marketing, 16; and G&A, 19.

Roshani Scas (ph), IPAX (ph).

Do you see any improvement in the visibility, comparing to the last quarter?

No, not yet. The industry has been very cautious, and decisions are made at the last minute. Basically, the delivery of systems overall industry is still very short, being even major semiconductor equipment manufacturers are delivering systems within a month or two months, which holds back the building of the backlog generally in the industry, and definitely it's affecting us, as a small and rather OEM supplier. So visibility is still extremely -- or very limited, even though there are very positive and very cautiously optimistic trends.

(CALLER INSTRUCTIONS). There are no further questions at this time. Before I ask Mr. Dishon to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available from tomorrow, Thursday, August 14th, on Nova's Website, www.Nova.co.il.

Please, Dr. Dishon, go ahead with your closing statement.

So thank everybody for attending the conference call. As I said, this has been a good quarter for us, and we look forward very optimistically, and we hope to see you next quarter with better results and better projections. And I will conclude -- thank you everybody, and have a good day.

Thank you. This concludes Nova's second-quarter 2003 results conference call. Thank you for your participation. You may go ahead and disconnect.

(CONFERENCE CALL CONCLUDED)