Nova Ltd (NVMI) 2005 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Nova Measuring Instruments first-quarter 2005 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, May 9, 2005. With us online today are Dr. Giora Dishon, President and CEO of Nova, and Mr. Chai Toren, CFO. I would like to remind everyone that Safe Harbor language contained in today's press release also pertains to all content of this conference call. If you have not received a copy of today's release and would like to do so, please call Gelbart Kahana Investor Relations at 1-866-704-6710 or 972-3-607-4717. Dr. Dishon, would you like to begin?

Thank you very much for joining us; good morning and good afternoon. Before I start, I would like to draw your attention, whoever wants to look at this call's presentation, you can refer to our website where you can find it and you can follow the presentation of today. With that, I would like to refer the conversation to Chai Toren, our CFO, to report the quarter's financial results. Chai?

Thank you. Welcome, everybody. I will start with slide two, titled financial highlights of first quarter. Revenues for first quarter of '05 were 4.6 million compared to 10.8 million in previous quarters and compared to the Q1 '04 9.2 million. The gross profit of this quarter were 22% compared to gross profit of 46% in previous quarter and compared to 44% gross profit in Q1 '04. R&D net expenses were 2.9 million or 53% of sales compared with 2.4 million in R&D expenses in previous quarter and 2.1 in Q1 '04. Sales and marketing this quarter expenses 1.7 million compared to 1.9 million in previous quarter and 1.5 million in Q1 '04. The net loss for this quarter was 4.1 million compared with a profit of $200,000 in previous quarter and profit of $100,000 in Q1 '04.

Slide number three does describe the revenues and gross profit trends over the last 14 quarters. Skip it to slide number four, the geographical distribution in this quarter Q1 '05. We sold about 53% of our sales to Asia-Pacific region and 17% to Japan, to the U.S. 19%, and 9% to Europe. This compares with a distribution in '04 about 38% to Asia-Pacific, 18% to Japan, 35% U.S., and 9% Europe.

On next slide, the distribution of our sales in this quarter was 65% through the process equipment manufacturers and 35% of our sales were direct sales to end-users.

To summarize this quarter results, revenues 4.6 million, about 57% decline over previous quarter. This is as a result of the general slowdown in the industry and our delay by a quarter or so of the new NovaScan 3090 release, which was introduced in March 2005 to the industry. The service income was 1.3 million, about 13% reduction over previous quarter. Our R&D net expenses increased primarily to enhance new systems, expenses on subcontracting and relatively lower R&D income in this quarter. Finance income was $200,000. As I said before, the loss was 4.1 million. That is a profit of $200,000 in previous quarter. Cash at the end of Q1 was 28.2 million, about 2.6 million decrease in cash over previous quarter. And before I conclude and hand the conversation to Giora, I would just like to mention that after the release of the 3090 in March, we did see proliferation and evaluation in several sites, strategic account sites, and we expect that this product will penetrate to the market soon. Thank you, and Giora?

Thank you. As obvious from the results, and those of you who read the press release a few hours earlier, this has not been the greatest quarter in our history. We had significant decline this quarter, as Chai mentioned before, primarily from the slowdown in the industry and from the delayed introduction of the new system, the NovaScan 3090. We have seen some significant pushouts, not cancellations, and think that will happen this quarter.

Also, as part of the overall atmosphere in the industry, some of the revenues that had been -- systems that had been shipped the last quarter, revenues will be recognized only this quarter. It also contributed to the decline in the revenues of last quarter. And as we said, the delayed introduction of the NovaScan 3090 also was reason for delaying introduction to some of the sites that were expecting and waiting for the new system. And in March 2005, two months ago, we formally released the product with Lam Research and also, it's a standalone system. We already delivered several systems, both as integrated and a standalone. And we expect that to be a much larger contribution both to our growth and also to our penetrating new accounts and new process areas.

But as we said before, we definitely saw the slowdowns in the industry. We typically see it sharply because of the OEM nature of our business. And since the market is expected to return to growth overall, maybe the wafer fabrication equipment market will decline compared to the previous 12-plus years. But this definitely will turn into growth in the third or fourth quarter of this year and we expect to grow with this market as well.

More specifically, the process control segment is projected to grow in 2005 while most of the market will decline. And we expect that to also be significant driver for our growth. Nevertheless, it is important to note that visibility in the market is still expected to be very poor in the coming quarter, until the trend will change. And we expect to, like I said, the market to resume growth. The adoption of integrated metrology in the industry is gaining momentum slowly, but it is gaining momentum, and now integrated metrology is by far more accepted in areas above or beyond CSB such as etch and copper and lithography. And we see that trend going forward, and therefore we see opportunities for all these segments.

Another aspect to be -- to mention is the convergence of technologies towards what it basically is considered thin film metrology, which now comprise not only thin film but also the entire spectrum of metrology, which is based on scatterometry (ph), which is used for monitoring thicknesses, but also profiles' line width. And the introduction of this to different areas provides significant growth opportunities, primarily in etch and later down the road in lithography.

So we definitely expect regular growth in our revenues from this quarter onwards. And we would like to see us breaking even and returning to profitability toward the end of the year. And in that context, it is important to mention that we streamlined our operations with the -- reducing expenses and headcount reduction, so we can return to our profitability sooner than -- without doing that. So we will continue to leverage on our relations to all of the process equipment manufacturers and with all the strategic accounts. And we have systems in all the top 20 semiconductor manufacturer and we see that as a leverage to introduce new systems, new process control solutions and working very closely with the process equipment manufacturers such as Applied Materials and Lam and Doctor Electron and Libera (ph).

And also, it is very important, also you can see in the financial results, we did not slow down or even accelerated the development work of our next-generation metrology system. And we expect to introduce the first system this year. With that -- that's probably summary of what we would like to present here today, and to emphasize again, we have seen a significant slowdown this quarter. We expect that to grow; we know it will grow in the coming quarters. And with the strong cash position that we have, we know that we can manage the Company through this downturn and look forward. Thank you very much, and with that we would be glad to entertain any questions.

(Operator Instructions). There seems to be no questions. Before I ask Dr. Dishon to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available in two hours on Nova's website, www.nova.co.il. Dr. Dishon?

Well, thank you very much for being there, even though you did not have any questions. I guess the situation is pretty clear. And with this said, I would like to emphasize that again we look forward quite optimistically in spite of the downturn that we are. And we look forward to seeing you in a quarter from now with much better results to report. Thank you very much.

Thank you. This concludes Nova's first-quarter 2005 results conference call. Thank you for your participation. You may go ahead and disconnect.