Nova Ltd (NVMI) 2012 Q4 法說會逐字稿

Good day, and welcome to the Nova Measuring Instruments fourth quarter 2012 results conference call.

Today's conference is being recorded.

And at this time, I'd like to turn the call over to your host today Mr. Kenny Green of CCG Investor Relations.

Please go ahead, sir.

Thank you, operator, and good afternoon to everyone.

I would like to welcome all of you to Nova Measuring Instruments fourth quarter and full-year 2012 results conference call and presentation.

And I'd like to thank management for hosting this call.

With us on the line today are Mr. Gabi Seligsohn, President and CEO, and Mr. Dror David, CFO.

I'd like to draw your attention to the presentation that accompanies this call.

The presentation can be accessed and downloaded from a link on Nova's Website at www.nova.co.il.

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 or News section of the Company's Website.

Gabi will begin the call with a business update, followed by Dror with an overview of the financials.

We will then follow with a question-and-answer session.

I will now hand the call over to Mr. Gabi Seligsohn, Nova's President and CEO.

Gabi, go ahead, please.

Hello, everyone, and welcome to our fourth quarter of 2012 and full-year earnings conference call.

First, I'd like to apologize for my voice resulting from a common cold.

I'll begin today's call by describing the main aspects of our performance during the fourth quarter and for 2012 as a whole.

I will then provide some color on the current state of the industry as it relates to us, provide some details of our plans for the year, and finally, provide an outlook as well as guidance for the first quarter of 2013.

2012 represented the fourth consecutive year in which we outperformed the wafer fab equipment industry.

While the industry has been struggling as a result of weak memory and logic spending, Nova has been able to capitalize on its presence at all leading foundries.

Moreover, foundry capital intensity continues to rise as the customers continue to move to advanced technology nodes, and specifically, their spending on optical metrology is growing at the highest rate.

Several years ago, when we laid out our strategy for growth, we spoke of three key elements, becoming a multiproduct company, expanding our footprint to more steps in the manufacturing process, and delivering disruptive technology to displace existing solutions.

Judging by where we stand today as a key supplier to most of the industry's leading manufacturers with an ever-expanding addressable market, I believe we have executed well on this strategy.

A study we recently performed to compare our performance to that of the industry over the last several years shows just how beneficial this strategy has become.

Based on this analysis, Nova's compound annual growth rate from 2007 to 2012 was much better than the wafer fab equipment sector as a whole and optical metrology in particular, 10% growth versus a negative 1.2% for wafer fab equipment and positive 6.6% for optical metrology.

When looking deeper to understand the reason for this performance, one finds that, while foundry fab equipment spending did in fact grow 18% during that period, Nova's foundry revenues grew by an impressive 46%.

Nova's integrated and standalone metrology platforms are now deployed across several manufacturing steps, and our addressable market on a per-fab basis has grown from a mere $30 million to over $150 million at a 100,000 wafer-start-per-month foundry producing 28-nanometer technology.

We believe this number will rise to above $200 million at the below-20-nanometer-technology node.

While memory spending remained weak throughout 2012 and is still weak at this time, our relationship and collaboration with memory customers is as strong as ever.

It is our belief that the next ramp up of NAND flash and DRAM technologies has been held off not just by business reasons but also for technical reasons.

The next technology transition in these segments depends heavily on complex design changes of gate structures, which our customers are yet to make production worthy.

Optical CD is treated as an enabling technology for these design changes.

It offers the only means to measure such structures at the required level of accuracy and speed, which customers demand.

We are, therefore, optimistic about the opportunity offered to us once these challenges are overcome and customers are ready to ramp up.

Now, let me turn to some commentary about our performance during 2012 and during the fourth quarter in particular.

2012 was a year in which we both proliferated previously announced products as well as launched new ones.

The high adoption rate of our latest products, the Nova T600 and the Nova i500 combined with our advanced modeling engine, the NovaMARS, and advanced technology nodes down to 11 nanometers is testament to our ability to develop market-leading products to cater for our customers' most demanding challenges.

At SEMICON West in July, we announced our groundbreaking V2600 Via profiling product for the emerging 3D interconnect market.

This product has broken all our records of new product adoption.

And we are proud to have had it installed at four customer sites by the end of 2012.

We also shipped our first 450-millimeter tool to a key original equipment manufacturer to support early development efforts.

During 2012, we increased our R&D spending in order to address the expanding opportunities that we see ahead of us.

Our product roadmap continues to combine the introduction of high-end hardware platforms with extensive software capabilities.

During the year, we also experienced an increase in the percent of integrated metrology tools utilizing optical CD capabilities.

To do so, customers are buying tools with our NovaMARS modeling software.

This increase is a direct result of customers' need to measure on more complex structures in order to achieve tighter process control.

As we have demonstrated, delivering high-productivity tools with continuously expanding data content has allowed us to maintain a remarkable gross margin profile, even as we introduce new products to the market.

2012 revenues came in at $96.2 million with a non-GAAP net income of 15% and a gross margin of 53%.

Despite the weakness during most of the second half of the year, we managed to generate positive operating cash flow in 2012, bringing our cash reserves to over $90 million at the end of the year.

As stated, foundry played a very significant role in 2012, accounting for about 75% of our revenues.

Revenues for the fourth quarter were at the high end of our guidance range.

And due to our manufacturing efficiency, we were able to capitalize on improving demand late in the quarter.

Gross margins temporarily fell to 50% as the result of a less favorable product mix as well as lower revenue base.

Dror will provide some more color on this during his prepared remarks.

Let me state clearly at this point that you should expect gross margins to return to our normal levels of closer to 55% during the first quarter of 2013.

We were pleased to see significant increase in orders during the fourth quarter, providing us with strong momentum for the beginning of 2013.

This increase will be reflected in the guidance that I will provide towards the end of my prepared remarks.

Looking at the current environment, let me now provide some color as to how we see 2013.

As we have previously communicated, we believe that 28-nanometer capacity at foundries is still lacking and not able to fully support market demand.

A study we recently performed, which took into consideration the smartphone and tablet markets for Apple and Samsung products versus available capacity at the end of 2012, leads us to believe that there is still a shortage of 70,000 to 100,000 wafer starts per month.

Looking at the steep ramp up taking place right now and in light of strong order traction we have enjoyed since the latter part of Q4, we believe that about 60% and more of that capacity will be added in the first half of 2013.

As mentioned in the past, one of the strongest drivers for demand by our customers is the smartphone market.

We believe that there are several changes taking place in that market, which will drive continued demand for 28-nanometer capacity, Windows 8.0 has become fully integrated with several OEMs; Nokia's Lumia announcement and aggressive marketing efforts; BlackBerry 10 and new phones coming with it in April; the introduction of 2.5G smartphones in China, which offers a very extensive low-end market in which the big guys don't play; and finally, overall market share struggles between the different players, which will cause them to increase demand for 28-nanometer capacity.

Beyond 28 nanometer, we are -- we already see plans to ramp up 20 nanometers towards the middle of 2013.

This will be necessary to support the next generation of smartphones and tablets.

The extent of the 20-nanometer ramp up during the second half of 2013 is still not clear and very much depends on the timing and extent of new product introductions into the end markets.

From Nova's perspective, the 20-nanometer ramp up spells big business.

We have been shipping 20-nanometer tools for quite some time in order to assist with the preparations for this ramp up.

And as stated, the extent of deployment of our tools will continue to rise with this transition as well.

We have also been heavily involved with the development processes of several technology generations ahead.

With the transition to 3D gate structures expected to take place at below 20-nanometers in foundries, OCD plays an enabling role and is the only means to measure critical aspects.

Historically, on average, about 50% of our revenues have come from the memory sector.

As mentioned, during 2012, that number declined to 25%.

At current technology nodes in memory, there seems to be sufficient supply to meet demand.

And hence, spending has been weak throughout 2012 and in the beginning of 2013.

As is customary in our industry, during times of minimal spending, customers devote their attention and limited budgets to the development of their next generations.

In DRAM, the focus has been on the transition to complex vertical gate structures.

And in NAND flash, focus is on 3D gates dubbed VNAND.

In both areas, our customers are facing significant challenges in achieving targeted yield numbers.

The most critical manufacturing steps impacting this yield are lithography, etch, and C&P.

And as you know, we are well positioned to capture these opportunities once the relevant yield thresholds are passed.

At this point, we don't expect memory spending to increase during the first half of the year.

And it is still too early to predict whether it will pick up by midyear.

Now, let me give some color on our plans during 2013.

In 2012, we created a strategic software group.

It is our belief that many opportunities exist to expand our software product offering.

And we are therefore extremely active in that area.

We also believe that the programs we are pursuing will further differentiate us from our competitors and provide us with a unique strategic position vis-a-vis our customers and process equipment manufacturing partners as well as expand our current served addressable markets.

Accordingly, during the year ahead of us, we will continue to invest a lot of our R&D efforts on advanced software solutions.

These will include significant improvements to our OCD modeling engine as well as productivity tools for our customers who use dozens of our tools in any given fab.

We also plan to launch new capabilities that will enhance process control offered by onboard metrology.

This is a novel approach that we are codeveloping with our process equipment manufacturing partners and end customers.

And we expect to start seeing initial revenues towards the end of 2013 as we complete initial evaluations.

As for the 3D interconnect market, we plan 2013 to be another penetration year in which we expand our position to more customers in both the foundry and memory sectors.

As stated, we are already installed at four customer sites.

So, we have good footing for an expansion of the customer base.

Our Nova V2600 offers an enabling and unique capability to measure the profile of the vias that connect the chips as they are layered one on top of another.

Based on a study performed with one of our leading customers, controlling via profile is a critical element in achieving process yield requirements.

Ultimately, when the 3D interconnect market ramps up, we believe it will expand our addressable market by about $100 million.

As for 450-millimeter wafer sizes, the transition will take quite some time.

Our plan during 2013 is to continue to work closely with a select few customers, research institutes, and major process equipment manufacturers, who are preparing for this transition.

This activity will ensure that we are well positioned and ready to participate in this market once it has ripened.

Here, too, the ramp up has been delayed several times, though we expect the need for process control to grow, given wafer cost once the industry is ready to make the transition.

Now, let me turn to our guidance.

For the first quarter of 2013, we expect revenues of $25 million to $27 million with GAAP diluted earnings per share of $0.06 to $0.09.

On a non-GAAP basis, which excludes adjustments of deferred income tax assets and stock-based compensation expenses, we expect diluted earnings per share of $0.09 to $0.13 for the first quarter of 2013.

And with that, operator, let me now turn it over to Dror for a closer view on the numbers.

Dror?

Thanks, Gabi.

Good afternoon to everyone, and welcome to Nova's quarterly conference call.

Before I start with an overview of 2012 fourth quarter results, I would like to note that the numbers presented in the press release and in my following comments represent GAAP-based results unless specified as non-GAAP.

Total revenues in the quarter were $22.1 million, slightly higher than the upper range of the fourth quarter guidance, representing 10% decrease quarter over quarter.

All of the decrease was in the integrated metrology front, which is usually linked to capacity expansions.

Service revenues remained stable at the $5 million level.

Product bookings distribution in the quarter was approximately 90% from the foundry segment and approximately 10% from the memory segment.

On a regional basis, approximately 70% of the bookings in the fourth quarter came from Asia Pacific, 25% from the US, and 5% from Europe.

On an annual basis, in calendar year 2012, approximately 75% of the bookings came from the foundry segment.

And approximately 25% of the bookings came from the memory segment.

On a regional basis, Asia Pacific accounted for approximately 80% of the bookings for the year.

Blended gross margin was 50% in the fourth quarter of 2012 and 53% for the full year.

Product gross margin in the fourth quarter of 2012 was 57%, 2% lower than the previous quarter due to unfavorable product mix and the impact of fixed expenses at a lower revenue base.

Services gross margin in the fourth quarter of 2012 was 28%, 3% lower than the previous quarter due to higher repair costs in the quarter.

On an annual basis, product gross margin was 59%.

And service gross margin was 30% within our targeted financial model.

Operating expenses significantly increased by $1.5 million in the fourth quarter to $11.4 million and included increasing R&D expenses related to acceleration of product roadmap and one-time loss related to equipment and inventory damage.

GAAP net income in the quarter was $2.5 million or $0.09 per diluted share based on a share count of 27.3 million shares.

Non-GAAP net income in the quarter was $1 million or $0.04 per diluted share.

On the tax front, in the fourth quarter of 2012, we created a $2.5 million tax asset related to the leftovers of our net operating losses and other tax adjustments.

We currently expect that either 2013 or 2014 will be Nova's first years of taxable income.

The actual cash tax payments in the first two years of taxable income are expected to be at a rate lower than 5% due to government incentive programs in Israel.

Our long-term model assumes tax rate of approximately 15%.

For 2013, on a GAAP basis, the effective tax rate is expected to be 22%.

This tax rate will be comprised mainly from the conversion of the deferred tax assets.

And accordingly, it will be adjusted for non-GAAP purposes in 2013 quarterly reports.

As communicated in our previous conference call and as expected, operating cash flow in the quarter was negative $1.1 million.

On an annual basis for 2012, the Company generated positive operating cash flow of $7.7 million.

And cash reserves at the end of the year were approximately $91 million.

Moving into balance sheet key metrics, accounts receivables increased to $17.4 million, with DSOs marginally increasing to 66 days.

Inventories decreased by $1.6 million during the quarter with inventory turns reducing to 2.4 times a year.

On an annual basis, inventory turns were 3.3 times a year.

Gross capital investments came in at a level of $2.2 million in the quarter, reflecting continued investments in infrastructure related to growth and new product rollout.

Depreciation came in at $0.9 million.

Gabi?

Thank you, Dror.

And with that, operator, we'd be happy to take some questions.

Operator?

Thank you.

(Operator Instructions).

I will now move to our first question today, which comes from Patrick Ho of Stifel Nicolaus.

Please go ahead.

Thank you very much.

And a really nice quarter and nice year for you guys.

Thank you.

Gabi, you mentioned -- you're welcome.

You mentioned about the increasing capital intensity for OCD as you go down each technology node.

As you get to 20 nanometers, what are some of the specific process steps where you're seeing that increase?

Does it primarily come from etch, C&P, or is it coming across the board?

Actually, it's coming across the board, Patrick.

And I'll say it comes from a combination of things.

Obviously, the etch and litho steps are very relevant for the novel gate architectures that we keep discussing.

And as I've mentioned in the past, the number of processing steps increases as you go down the design rule.

And therefore, the process control opportunities and needs increase as a result of it.

Also, the other trend that we are seeing is that the adoption of integrated metrology continues to grow.

And the specific steps have become more and more difficult.

And as I have mentioned in the past, we expect integrated metrology to penetrate much stronger in etch, for instance.

It already is very strong in C&P.

But, now, it's really at a rate of 100%.

And in lithography, there's more and more OCD taking place as well.

So, I would say it's a combination of the fact that there are more processing steps, that there are more challenging steps to be able to control.

And OCD is so productive in the solution that it provides that customers want to continue to deploy it more and more.

The final aspect I would say is, as I said, from our strategy standpoint, it is so disruptive that it's actually also taking away market share, as I've said in the past, from CD-SEM tools.

So, all these things all together come to the level that I've mentioned, which I think are phenomenal.

We're talking about $150 million to $200 million opportunity on a single-fab basis for 100,000 wafers at 28 nanometers.

It goes above 100.

We're very certain of that.

At below 20, we've done this study several times with the customers.

So, this is real information, and we feel very strong about it.

Great.

That's helpful on the foundry side.

Maybe moving to the memory said, as the industry eventually migrates to the vertical NAND, there's been a lot of talk about the memory manufacturers having to obviously change their processes and the way they do things.

Can you give a little specific details or a little more color on I guess what type of applications on 3D NAND and where you'll see perhaps the biggest growth as that process or at least that structure takes hold?

The biggest one I would say is etch, no question about it.

That's the step that's having the most amount of difficulty.

And the reason is, if you've looked at the design of these chips, and I think in our investor presentation, I'll refer investors to that, there is a slide that shows an image of what these things look like.

It looks like a staircase with 32 steps in some cases.

And that is created within the etching process.

So, if anything, I think that is the key area to focus on, where a lot of the customer effort has been taking place in the last few years.

Also, obviously, lithography, there's a need for a lot of double and quadruple patterning as well as direct self-assembly-type applications.

And I'll point out to investors, since it's public domain by now, we have recently made a significant publication with Toshiba at SEMICON Korea as well as at SPIE next week.

That's also been announced, in which we're going to talk about these applications and how advanced the work that's being done is and the role that we play, which is quite significant.

So, I'm feeling very good and confident about the opportunity there.

Great.

Final question for me in terms of the manufacturing and supply chain, you mentioned that you were able to turnaround some very late orders to satisfy your customers.

How confident do you feel that you can continue this pace, given the active 28-nanometer capacity adds that we're seeing in the first half of the year?

Do you see that any potentially impacting the gross margin line, given that you may have expedited cost, quick turnarounds?

How do you feel about manufacturing, the supply chain, looking at the first half of the year?

The supply chain has done a wonderful job for us ramping up and ramping down.

I think, in the last few years, our operations group has done a great job.

Everything, almost everything is -- actually, everything by now is outsourced and gets delivered in modules to the manufacturing floor.

We work with vendors to do vendor-managed inventories and things like that.

So, I feel quite comfortable that we can carry this ramp up quite successfully.

I don't expect a hit on gross margins.

Actually, on the contrary, as I said, we had a temporary reduction to 50% blended gross margins.

And you should expect us to come back to closer to 55% in the very near term already in the first quarter.

So, I don't think expediting aspects, etc., are going to hurt us.

I think the supply chain is quite agile and able to deal with these fluctuations.

And I don't see an issue with that.

Thank you very much.

Thank you, Patrick.

Thanks.

Thank you.

We'll now move to our next question, which comes from Edwin Mok from Needham and Company.

Please go ahead.

Hi, guys.

Thanks for taking my question.

And congrats for a very strong guidance.

First question I have is on the bookings, what you guys are seeing on booking so far in this quarter.

Are you seeing stronger bookings than your guidance into this quarter, or is booking kind of leveling out?

Can you give me some color on that?

Definitely, the increase in Q4 was very significant.

And as I mentioned, it was mostly the latter part of Q4.

We're seeing a continuation of a positive trend right now on the issue of bookings.

I can't -- I won't provide you specific numbers, obviously, as we always -- we don't provide that.

But, I think that the trend is continuing to be quite positive.

As I said, I believe that about 60% of the trend -- excuse me, 50% of the expenses on 28 nanometer is probably going to happen in H1.

We have a very strong backlog coming into 2013 also.

So, generally, we see a continuation of strong bookings transitioning.

We're already in the second month of the quarter.

So, we see a continuation of the strong trend.

Most of it is to support this ramp up of 28 nanometers.

But, there's also starting to be more and more 20-nanometer activity.

So, I'll say that this is continuing.

And therefore, I mentioned that I think that there's a very strong first half for foundry.

And what is interesting for us to watch and I think for investors as well, we know that a 20-nanometer ramp up will happen.

The extent of it is what's interesting for all of us to see, meaning we're going to see that ramp up beginning in the middle of the year.

And the extent is very much associated with the end market drives that drive Apple and the other guys to move onto the 20-nanometer node.

So, all in all, a continuing positive trend, strong backlog coming into 2013, very positive feeling.

That sounds really good.

Just to be really clear about the 20-nanometer ramp up, are you -- is that still very concentrated, just one customer, or are you starting to see some pick up in other customers as well?

A lot of it I would say is in a particular customer obviously I can't mention, but you can guess.

A lot of it is happening there.

The other customers have made some movements in that direction.

Actually, some of the orders that we took in Q4 were for 20 nanometer at one of the other foundries.

So, I think that what's going to be interesting and we've all been watching with a lot of interest this struggle for market share.

And 20 nanometer is another step in that struggle.

I think we will see other guys joining the 20-nanometer ramp up.

Again, let's be honest about it.

The extent of the other guys' ramp up is very much associated with the, I would say, stability of the process that they have at this point.

The one big particular customer feels confident enough that they're moving pretty aggressively.

The other ones are a little bit more cautious.

That sounds good.

And then just kind of go back to the application side, right, I think, historically, you guys obviously have very strong position at C&P.

And you mentioned etch being an area of growth, especially for integrated metrology.

Where are you guys positioned in terms of litho?

And also, have you seen any work being done in -- related to (inaudible) steps as well?

Yes, first of all, for etch, a lot of -- most of our work so far in etch has been with standalone metrology.

It's only the beginning of the integrated metrology market for etch.

We've been doing this for many years.

But, as I've mentioned in the past, the integrated part of etch is really -- was really at early innings so far.

So, we're already enjoying quite a bit of etching business.

Actually, to be honest with you, more -- I'd say a higher percent of our overall standalone revenues this past year came from etch than C&P.

The other area, deposition, I've spoken about in the past, has been high-end deposition steps.

What I'm starting to see also is a trend towards what I would historically call lower end but at the higher-end process nodes.

There's more CVD applications coming in our directions right now.

In lithography, historically, that's not been a big portion of our OCD revenues.

But, there's starting to be more of a pull in that direction.

That is focused on standalone metrology.

So, I would say the CVD and the litho is standalone for us.

There's more litho happening right now than there was before.

But, if I would have to put it by order with standalone metrology, so it's etch, CMP, CVD, then litho as far as what they represent for us on the standalone metrology side.

Integrated, it's CMP, and then it's etch.

I see.

And then one more question on the [proc] side, you talk about a 3D interconnect, too.

Did you guys recognize revenue in the fourth quarter for that, too?

And do you expect to recognize revenue on two that you have already shipped at those customers this year, or how do we kind of think about that?

Yes, as Gabi mentioned, the tool is already installed at four customer sites.

The first tool was recognized in revenues in the fourth quarter.

And we expect the rest to be recognized in the first half of 2013.

Great.

That's very helpful.

So, Dror, I have two questions for you.

One is, what happened to your service gross margin in the fourth quarter?

It declined, like you said, or your service cost has increased.

And then the second question is, how do you think about operating expense in the first quarter?

So, for services gross margin in the fourth quarter, we had the quarter with higher repair costs.

And that was the reason for the decrease in services gross margin.

Revenues were more or less stable at the fourth quarter.

Looking at the first quarter, operating expenses, we expect that to be more or less flat with the fourth quarter, so more or less the same level as the fourth quarter.

Just to say, Edwin, just so you understand, the higher repair cost is associated with closing off RMA systems and things like that towards the end of the year, where the customers were very eager to get these things done.

And so, inherently, obviously, the cost associated with turning that around increases in a quarter like that.

I see.

How do you guys think about your OpEx?

I think even in the press release and previously, you guys talk about that you have to invest into developing these -- your business, right?

Do you think that your -- you can -- now that you have invested in bringing OpEx to this level, do you think that it's going to increase a little bit more?

Well, I think, as we've said in the past, we've spoke about ratcheting up the expenses until the end of the year.

And then if you remember, there was a softer H2, etc.

Many things came in the way.

But, to speak about our plan, as I had mentioned, and there's several things that we still want to develop.

We're planning on OpEx hovering around the $11 million area, $11 million to $11.5 million for the foreseeable future.

What's very important to mention, and that's what we're really proud about, is that these development efforts are yielding these very good gross margin numbers, meaning the adoption rate of the solutions that we're delivering to the industry is very, very high.

And with the software content increasing, that helps margins as well.

If you heard me in my commentary, I even mentioned that, in integrated metrology, there was a very high adoption rate of the modeling capability.

So, for measuring just thin film applications, they're now looking at complex structures and integrated metrology.

That automatically increases the average selling price of tools as well.

So, I think what we try to do when we look at our OpEx plans and we sit in management and review what do we need to spend, what do we need to do, we look at the short- and long-term roadmap.

We look at the products that we develop and the margins associated with that.

We try to create a balance between the two.

And I think the return on investment has been very good so far.

Great.

That's all I have.

Thank you.

Thanks a lot, Edwin.

Thanks, Edwin.

Thank you, sir.

We'll now move to our next question, which comes from Keith Maher from Singular Research.

Please go ahead, sir.

Good evening, gentlemen.

Kind of continuing on that last question, is the -- you grew R&D quite a bit last year.

But, given what you've just said in terms of kind of holding OpEx in that $11 million to $11.5 million range, do you think you've kind of gotten it to a level now where it'll be a bit more stable and we'll see kind of a more level spend there in R&D this year?

In general, yes.

What you should expect also that, when we develop new tools, not -- I spoke a lot about software.

But, we're also developing next-generation products as well.

You may see some oscillations, small ones, during the year, which are associated with the in taking of prototype tools, etc.

So, that goes into R&D expenses in a particular quarter.

But, we feel pretty good about the $11 million to $11.5 million level at where the Company is right now in order to achieve our objectives for 2013.

So, my answer generally is yes.

Okay.

Great.

And this is a question for Dror.

I always have to ask this, just get your thoughts on what's going on in working capital.

I mean, it seems like perhaps some of the unit to customers may be converted to sales.

And that made the receivables go up.

But, just if you could talk about that.

And also, it looks like your payables dropped pretty significantly on a sequential basis.

Yes, definitely.

These were the reasons as expected and as discussed in the previous conference call that operating cash flow was slightly negative in the fourth quarter.

We definitely expect to return to positive operating cash flow in the first quarter and also for 2013 as a whole.

Okay.

Great.

That's all I have.

Thanks.

Thank you, Keith.

Thank you.

(Operator Instructions).

We'll now move to our next question, which comes from David Wu from Indaba.

Please go ahead.

Yes, I want to get some clarification on a figure that you quoted which was this -- the [FAM] for I think 20-nanometer node in the foundry was $100 million -- I'm sorry, was (inaudible).

But, does that represent a -- 20-nanometer comes in two flavors.

The first one is planar and the follow on immediately by the [thin-fed] version.

I assume that number includes the second one, which is the thin-fed.

And between going to 20 nanometers from 28 and going from planar to thin-fed, which is the bigger driver for demand for OCD?

I think, first of all, just to clarify again, what we had mentioned was that the addressable market at 100,000 wafer start foundry at 28 nanometers is $150 million to $200 million and that it goes above $200 million when we go below 20 nanometers.

The insertion point of thin-fed versus planar is something which is very specific to each of the foundries.

And you seem to know the field.

And as you know, the introduction of it in some cases will be by doing what are called half nodes of 20 and 16 nanometers.

In other cases, it may be below 20 nanometers.

Intel has been the only one to introduce it in production at 22 nanometers.

When you ask about what are the key drivers for the growth, indeed, the addition of significant number of etching steps as a result of the thin-fed structures makes a big difference.

At the same time, the mere transition to 20 nanometers, even before the introduction of thin-fed is also causing that addressable market to grow.

What is it percentage wise is difficult for me to analyze for you at this point.

But, both of those are drivers for more adoption of OCD.

Well, perhaps I can ask it differently.

If we were looking out the following node, where essentially you get a full node as well as second generally thin-fed, what would the [SAM] be for the 100,000 wafer starts foundry?

Would it go from 200 to 400 or even higher?

No, I don't think so.

(inaudible) I think that, again, what I'd like -- the number that I'd like you to use and that we've analyzed well with our customers is above 200.

The extent of the above 200 very much depends on the continued displacement I would say of CD-SEM technology.

It's been happening.

The extent of it is growing.

It's not on a linear scale.

It's actually moving quite significantly.

But, the extent of it, if that changes even another step function, then it jumps up to significantly above 200.

But, I don't see it doubling that easily.

And I don't have calculation that shows that.

So, I wouldn't just throw it out there and say yes.

Okay.

Thank you.

Thank you.

Thank you.

We now move to our next question from Rob Ammann from RK Capital Management.

Please go ahead.

Your line is open.

Yes, a quick housekeeping question for Dror.

Could you just -- the $509,000 loss related to equipment and inventory damage, where did that flow through the P&L?

And maybe you could just give a little bit of color what that related to.

Yes, that was a one-time damage event that we had in our facilities.

The $0.5 million is presented in research and development and sales and marketing more or less half and half.

This is an event which is covered by our insurance.

But, because of some accounting principles, we needed to account for it in the fourth quarter.

We hope to receive the grants or payments from the insurance in the first half.

So, I mean, that's one-time event.

And this is the reason we also put it in the adjustments as non-GAAP.

Okay.

So, when you say that the OpEx should be relatively flat, does that mean flat excluding that $500,000 one-time event or flat more with the $11.4 million?

Yes, it -- what I mean is flat to the $11.4 million.

So, as Gabi mentioned, we do expect operating expenses in the first quarter to be around $11.4 million, $11.5 million in the first quarter.

Okay.

Thank you.

Congratulations on a good quarter.

Thank you very much.

Thank you.

(Operator Instructions).

And we now have a follow-up question from Keith Maher of Singular Research.

Please go ahead, sir.

Yes, just real quick, when do you think you're going to file your 20-F?

Yes, we expect to file it in the next three weeks.

We've already started working on that.

And we need all the approvals to go through.

So, it will be filed in the next three weeks, which is, I would say, two, three weeks earlier than last year.

So, that -- this is our plan.

Okay.

Great.

Thanks.

Thank you.

As we have no further questions, I'd like to hand the call back over to you, sir, for any additional or closing remarks.

Thank you.

Thank you, operator.

I want to thank everyone for participating in today's call.

As mentioned, we're excited at the beginning of 2013.

We see a lot of potential.

And we look forward to meeting you in the future.

Thank you very much.

Thank you, sir.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen.

You may now disconnect.