Nova Ltd (NVMI) 2004 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Nova Measuring Instruments first-quarter 2004 results conference call. All participants as (ph) 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 May 13, 2004. With us online today are Dr. Giora Dishon, President and CEO of Nova; and Mr. Chai Toren, CFO.

I would like to remind everyone the Safe Harbor language contained in today's press release also pertains to all content of this conference call. If you have not received the copy of today's release and would like to do so, please call Delbert Hone (ph), Investor Relations, at 1-866-704-6710. Or 972-367-4717. Dr. Dishon, would you like to begin?

Yes. Thank you very much, good morning and good afternoon, everyone. And thank you for joining our quarterly conference call to report the results of the first quarter of year 2004.

And with that I would like to refer the conversation to Chai Toren, our CFO, to report the quarter's financial results. Chai?

Thank you, Giora. Welcome, everybody. I will start with the financial results of the quarter with comparisons to the previous quarter, and the same quarter in Q1 '03.

Revenues of Q1 '04 were 9.2 million compared with 4.8 million in Q1 '03, and compared with 8.1 in the previous quarter.

The gross profits improved to 44 percent this quarter, compared to 32 percent gross profit in Q1 '03 and compared with 39 percent in the previous quarter.

The R&D net expenses this quarter were 2.1 million -- about 23 percent of sales -- compared with 2.2 million in Q1 '03 and compared with 3 million in the previous quarter. Just to remind everybody that -- the previous quarter, in the R&D expenses, we had about 70 -- $750,000 (ph) onetime expenses, accelerating expenses for the new platform of our products.

The sales and marketing expenses this quarter 1.5 million, about 16 (ph) percent of sales, compared with 1.5 previous quarter and 1.5 in the Q1 '03.

The net income this quarter about 0.1 million, compared with a loss of 2.6 million in Q1 '03 and compared with a net income of 0.6 million in the previous quarter.

If we're looking -- I just remind everybody that we put a conference call presentation on our Web, and everybody that have access can follow the conversation with the slides in front of him.

The third slide -- presenting sequential growth over the last 10 quarters except Q1 '03, and with improvements in revenues and improvements of gross profits along the quarters.

The geographical distribution compared to 2003 sales -- we increased sales to Japan from 7 percent in '03 to 16 percent in this quarter. Also, we increased sales to Asia-Pacific to 33 percent this quarter compared to 22 percent in the previous year.

And along with general trends and forecast of Data Quest that geographical distribution of capital expenditures will go mainly -- will be increased to Asia-Pacific and Japan our results going along with this (indiscernible).

Regarding sales channels and distribution, this quarter -- 49 percent were through the production equipment manufacturers, and about 51 percent in direct sales to end-users. We sold this quarter 200 millimeter systems and 300 millimeter -- 62 percent of systems sold were for 238 (ph) percent for 300 millimeter applications, retrofit and new. Retrofit sales were about 27 percent, and for new equipment 73 percent.

Our three major accounts accumulate to 39 percent. And we sold systems for the CMP oxide, CMP copper and optical critical dimension Integrated Metrology and standalone.

To summarize the financials, I repeat some highlights -- revenues increased 92 percent over Q1 '03 to 9.2 million, and increased 13 percent over previous quarter.

Service income this quarter at 1.7 million or 19 percent of sales.

We improved gross margins from 39 percent previous quarter to 44 percent.

R&D net expenses -- 2.1 million or 23 percent of sales.

Sales and marketing -- 1.5 million or 16 percent of sales.

We are second quarter above breakeven. Cash at the end of the quarter at level of 30.5 million and working capital also 30.5.

Inventory level are in similar to the previous quarter, at about 4.2 million. And we increased level of backlog and production (indiscernible) at the beginning of the quarter to about 5 million.

Investment in this quarter were about 0.2 million and depreciation 0.1 million.

With that, I would like to hand conversation to Dr. Giora Dishon. Thank you.

Thank you. So, overall, we see a continuing growth -- both in the industry and in our results.

The latest research -- industry research by Data Quest forecasts the wafer fab equipment growth for this year for 48 percent. And this is of course a very encouraging trend.

We see a continuous trend to process control growth and towards Integrated Metrology. In all areas -- especially of course in systems (ph) and in optical CB.

The total available market, if I look at the forecast for the (indiscernible) -- the market we operate in, is projected by Data Quest to be around $300 million this year, and about $440 million in 2006.

An interesting aspect of that is that we don't see decline in 2006 in the process control. And especially in the wafer and the (indiscernible) equipment, compared to a decline in the overall wafer fab equipment market in 2006, which is in anticipation of the accelerated growth in the segments we operate.

As you can see from the results, we focused a lot in Asia-Pacific -- Taiwan and Japan, China and Korea -- but we do see growth also in the U.S. -- especially also in retrofitting.

And we did see a significant growth in the copper CMP and edge (ph). Which is of course a very encouraging trend in our operation.

I would like also what we mentioned in the last conference call a quarter ago. We reiterate our confidence that the retrofit opportunity will be sustained, and more announcements on 200 millimeter lines utilization and capital expenditures that yesterday we seen that from TSMC.

And that is also an opportunity for us.

And we continue to maintain our brand recognition, integrated market and the open architecture. And as we noted before, 18 of the 20 top spender our customers.

So we continue our advanced operations with all the process equipment manufacturers such as Supplied (indiscernible), Novellus and Lam (ph). With that, I would like to summarize where we see we are today.

We maintaining our projection that we provided at the beginning of the quarter, that the growth this quarter will be between 4 and 14 percent. We cannot narrow down this range yet -- it's too early in the quarter.

We continue to see the upturn in all the areas of (indiscernible), especially in the integrated and the retrofit opportunity. And, summarize, we've seen a very good quarter, with very good financial results. We've seen 10 out of 11 last quarter continuous growth. Improvement in margins and profit. Reduced level of inventory which is very significant for us. And, very global positioning and a good cash flow position.

So, with the industry moving forward (indiscernible) we're very optimistic on the projection looking forward.

With that, we would like to entertain any questions.

(Operator Instructions). Cristina Osmena, Jefferies & Co.

Jefferies & Co. A couple of questions, here. But before I ask questions, I wanted to say congratulations on turning profitable.

I wanted to find out -- one of the things that drove the upside -- your gross margins, in fact, you actually are now profitable in your service business.

So, could you tell us what is going on there? And whether or not we can factor that into the estimates going forward? Or is that going to be an ongoing thing, or is it onetime thing? Hello?

Thank you, Christina, for the congratulations, and congratulations on your new position.

Well, we think we can see the service operation to continue to be profitable. Not at a high margins, but we definitely continue this trend and we continue to see that as a major part of our overall revenues looking forward.

Okay. Did pricing go up there in the service business? Or, were you able to cut costs?

Well, I think it was mainly because we were able to (indiscernible) as the industry ramped up, we were able to -- and there were a lot of activities on lines bringing up equipment that was down for a while. We got more service contracts and more profitable service contracts.

Okay. Could you talk a little bit more about what's happening in the 200 millimeter market? Do you think that this increase in 200 millimeter activity is going to be limited by the amount of available 200 millimeter fab space? How much longer do you think that the industry is going to continue to be adding this 200 millimeter capacity? And can we assume that this percentage of revenues -- 62 (ph) percent of 200 millimeter systems is -- the fact that picked it up so much, and is driven by the retrofit business? Or, are you also doing 300 millimeter retrofit?

And also, what are the retrofit margins versus new system margins?

Okay. Well we think that, at least till the end of this year, we will see increased activity in the 200 millimeter -- both 200 millimeter lines extending (ph) and also moving up in the technology nodes, once the utilization is becoming critical.

So we expect to see retrofit activity probably throughout the year. With the different lines.

And especially in the Asia-Pacific region. And foundry business, where they have a lot of -- they have capacity issues, on one hand, and they have 200 millimeter fab's on line.

So, like I said before, just yesterday, what we announced -- at TSMC on increasing our spending money -- excuse me -- spending money on even six inch, not only eight inch but also six inch.

So, we definitely expect that trend to continue.

China is primarily 200 millimeter, except for a (indiscernible) -- everything else is 200 and they're spending a lot of money on capital.

So to summarize that, we expect that to continue throughout the year.

From a stability point of view from our point of view, gross margins for 200 millimeter system typically is better than 300, because it's a mature product. It's mature manufacturing. And procedures and so on.

And, as you can see also from the ratio between direct sales and indirect or OEM sales, in the 200 millimeter we will see higher percentage of direct sales, which also improves the margin.

Okay. And therefore your retrofit business is also a higher margin business?

Yes, that's correct.

Giora, could you give us idea of what the margin difference is between retrofit and customers and OEM sales?

I don't know, Chai, do you have that number?

I think that, first I don't have it in hand. And we just gave the ASP (ph) and ratio between the products. Not specific details.

Okay. So as long as this retrofit business continues, we should probably expect improvement in your gross margins. Would that be a safe assumption, then?

Well, we hope at least to stay stable in that range.

Thank you.

Gerald Fleming, WR Hambrecht & Co.

You mentioned in your prepared remarks that you shipped a stand-alone OCD system. What is the price on that unit?

The price of the stand-alone between 500,000 to $700,000. This quarter, we delivered one but we did not recognize it in revenue. We recognized only the optical critical dimension Integrated Metrology, 300 millimeter new system that we delivered.

And how many units of integrated modules did you ship? And what was the ASP?

We shipped about 45 systems this quarter, and the ASP was around 170.

And roughly what was the mix between copper oxide and OCD?

Most of this was for the CMP and the minority was for the optical critical dimension. And in the CMP it was a mixture between copper and oxide, but the majority was for the oxide.

Thank you very much.

(Operator Instructions). Taylor Tompkins (ph), Anderson & Starglick (ph).

Good job in the quarter, gentlemen. Do you all have any plans for your cash at this point?

Can you be more specific about the (multiple speakers)

I mean, are you going to be buying back stock, are you going to be making acquisitions? Do you have any plan for using your cash?

Well, we're not going to buy stocks. But we definitely look for continuously look for acquisitions -- mainly, technology acquisitions. And we have some activities going on in that area.

Okay. Also, are you seeing any slowdown at all from China?

No. We don't see yet. We have good activity in China. There was some postponement of the 300 millimeter fab in SMIC (ph) for (ph)delay of probably between three to six months. But we are already seeing the resuming of the operation, and we've seen new orders from that area.

Okay. Thanks.

Thank you. There are no further question at this time. Before I ask Dr. Giora Dishon to go ahead with his closing statement, I would like to remind participations that a replay of this call will be available in two hours on Nova's website -- at www.nova.bo.ar (ph). Dr. Dishon?

Thank you very much. Thank you everybody for joining our quarterly conference call. As I said at the beginning, this was a good quarter, and we are looking forward for more good quarter's coming on. And, we will be looking forward to seeing you in our next conference call. Thank you.

Thank you. This concludes Nova's first-quarter 2004 results conference call. Thank you for your participation. You may go ahead and disconnect.