Nova Ltd. (NVMI)
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May 11, 2026, 12:29 PM EDT - Market open
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Earnings Call: Q2 2021
Aug 5, 2021
Good day, and welcome to Nova's Second Quarter 2021 Results. Today's conference is being recorded. At this time, I would like turn the conference over to Mary Segal, CEO of MSIR. Please go ahead.
To Thank you, operator, and good day to everybody. I would like to welcome all of you to Nova's Q2 2021 Financial Results Conference Call. To with us on the line today are Mr. Eitan Oppenhaim, President and CEO and Mr. Dror David, CFO.
To begin, may I remind our listeners that certain information provided on this call may contain forward looking statements to take a moment to
discuss the financial results 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, to now begin the call with the business update, to close by Dror with an overview of the financials. We will then open the call for the question and answer session. To turn over the call to Mr. Eitan Oppenhaim, Nova's President and CEO.
Eitan, please go ahead.
To Thank you, Miri, and welcome everyone to our Q2 financial results conference call. I will start the call today by speaking about our to turn the call over to our 2nd quarter results and performance highlights. Following my commentary, Dror will review the quarter's financial results in detail to conclude with the guidance for the Q3 of 2021. Nova maintained its outstanding performance, to deliver another strong quarter with compelling results that exceeded the company's revenue and profitability guidance. To The acceleration in our business as reflected in our continued robust performance is propelled by our evolving offerings
to turn the call over to
our operator to discuss our financial results. Our revenue reached another record high, to demonstrate approximately 55% growth year over year, while our non GAAP net income to grew approximately 95% year over year to record level as well. Moreover, to compare our 2021 first half results to the same period last year shows a growth pace of around 45% to note that we are confident in our revenues and more than 70% in our non GAAP net income, reflecting the leverage that is embedded in our business model to conclude the call and the value our innovative portfolio brings to our customers in this demanding period. To The strong momentum and the exceptional performance we are demonstrating are the result of our consistent execution, to turn the call over to Bob. Thank you,
to turn the call
over to Mr. President. Our flexible operating model and the concentrated efforts to strengthen our resiliency across the company to allow us to meet our customers' growing demand as we expect to increase our production output by more than 50% this year. To turn the call over to Mr. President.
As reflected in our financial results, we continue to reap the benefits of our well executed plans to turn the
call over to Mr. President. As part of multiple strategic
initiatives across technologies and customers, based on the current positive semiconductor environment to and expectations for continuous demand in both the trailing and advanced node combined with record quarterly bookings to take a look at the future.
For our solutions, we expect
another record year in 2021, forecasting approximately $390,000,000 in revenue to with an optional upside to cross the $400,000,000 threshold. Achieving that, to present around 50% growth year over year in our business volume. In the current market dynamics, to turn the call over to Mr. President. Our innovative approach supported by our solid commitment to our customers continues to strengthen our position to extend our exposure to a broader customer base across all geographies.
To The strong impetus we are experiencing in all semiconductor segments is propelled by to Sorry, propelled currently by strong demand for multiple traditional and high end applications that are driving growing demand to turn the call over to Mr. President for the call over to Mr. President for to The growing digitization of multiple industries continues to fuel the demand for silicon and support our expectations to
turn the call over to
Robert for elevated multi year WFE spending. In addition and against the backdrop to note that the company's strong performance of the company's business, increasing device complexity plays well into our growth plans to note that we are not going to be able to provide a number of key strategic initiatives to expand our available markets, to increase attach rates and also gain market share. The complexity embedded in building next generation devices to request a question and answer session. And in this space, we prevail to conclude with our combined solutions for both critical dimensions and materials control. On top of this, to introduce our 2 strong market drivers, which are the demand and the technical complexity, the push by different continents and nations to achieve semiconductor supply chain independence within the next several years, expand regional investments, to elevate the demand for capital equipment globally and support even Copius WFE spending.
To These tailwinds resonate well with our results with balanced contribution from the 3 big territories, Taiwan, Korea and China to discuss our financial results with several new expansions and penetrations resulting in a new revenue record in this region. To Furthermore, and based on several global manufacturer intention to expand their position in the U. S, to We expect the growing business momentum in North America as well throughout 2021 2022. To In addition to the overall demand for new advanced devices, customers are also focused on utilizing their investment to conclude by optimizing existing fabrication lines to improve performance and increase outputs. To As a result, we are experiencing growth in systems delivery also to the trailing memory and logic nodes, to Driving revenue balance between the nodes in the first half were around 40% coming from trailing edge nodes.
To Additionally, to better utilize this high volume manufacturing line, we are offering our customers a broad range of solutions to upgrade the installed base to extend the fleet lifespan and increase its productivity. This activity over many customers stirred up our service business growth this year to conclude with another record high this quarter. Although we are pleased with all our achievements to during the quarter, I would like to emphasize 2 major milestones closely connected to our strategy. The first one is the growing demand to provide a brief overview of our to provide a brief overview of the company's ability to execute on a to note that Noval's solution that includes multiple optical unique channels, along with advanced software capabilities, to recognize the opportunity to execute on our strategy. To As a result of this growing traction, our standalone revenue hit a record high in the 2nd quarter to And we expect strong momentum for the rest of the year as well.
The second milestone to is the progress we made with our software sales towards our long term business model. At this point, I would like to clarify to conclude that when we discuss our software growth engines, we exclude common systems sequence upgrades, to service software version upgrades or fault management solutions and concentrate only on advanced modeling, to introduce our financial results to our financial results. These three engines drive our business forward to and brought in another software revenue record this quarter. Specifically in this space, we are very encouraged by the traction to Our NovaFIT portfolio is gaining in the market. NovaFIT, our deep learning solution suite, to stand as a key differentiator in our offering to customers who strive to improve accuracy to conclude the call and answer session and increase yield while reducing time to market.
Our solution handle massive amount of data very fast to deliver process insights based on accumulated knowledge and advanced algorithms. The ultimate goal of our offering to calculate and analyze a growing amount of data during the process cycle from hundreds of tools to take a look at the different process steps and with that to predict the next measurement with the highest accuracy. To One example of the immense importance of that to our customers is the device functionality testing. To to take a question and answer session. To make production faster and more efficient, NovaFeet analyzes data from over 200,000 optical measurements, to perform weeks and sometimes months before manufacturing is completed and can predict the electrical test results to conclude our call today.
Our ability to deliver solutions like that, to conclude that this is based on having different metrology sensors in the production lines in different steps. To In a typical advanced node, we can have hundreds of integrated metrology tools, tens of optical CD standalone tools to introduce our next question and answer session. Encouraged by our consistent achievements and our ability to meet our Nova 300 model, to We recently announced during our Analyst and Investor Day, the new strategic plan to organically grow the business to more than $500,000,000 in revenues. The combination of favorable market conditions, increased complexity in device manufacturing, to turn the call over to Mr. President.
Our solid business model and the diversified portfolio support our expectations for further growth and outperformance. To turn the call over to Mr. President. The plan as presented during the Analyst and Investor Day is based on 4 pillars, which are the basis for our success. To The first one is the continuous investment in talent acquisition and talent management to nurture our cultures to conclude that combines inclusion, diversity and transparency along with aggressive approach towards execution and winning.
To The second pillar is our continuous elevated spending in R and D to keep rolling out new innovative metrology solutions to the market with focus on both hardware and software products. The Eliphson and the Prism
to
to note that customers are using both new architectures and materials to improve performance. The 3rd pillar is our increasing installed base to take a look at the service revenue it drives. On average, we deliver hundreds of tools a year to the market. To These are very accurate and highly advanced tools that measure thousands of wafers a day and are responsible for all major yield improvements to Globally, as part of our roadmap, we constantly develop upgrade packages for these tools, including hardware and software to be able to provide our customers with more capabilities to handle more complex devices in existing traditional fabrication mines. To The final pillar is the leverage we developed in our operational model, which supports our continued investment in new products and technologies, to take a moment to
discuss the financial results while allowing
us to deliver on our long term profitability model. We can see this leverage materialized already this year to As we increased R and D investment in new products and grew our production output approximately 50%, to conclude, all while significantly increasing our profits. Before I hand over the call to Dror to explain our financial highlights in to take more detail. Let me just recap our performance this quarter. It has been a remarkable quarter to begin the Q1, achieving multiple records and heights.
Looking ahead, to We see an abundance of opportunities to continue growing as our strategy to invest in innovative unique technologies to present the call to questions. Thank you, sir. Thank you, sir. Thank you, sir. Thank you, sir.
Thank you, sir. Thank you, sir. Good morning, everyone. To I'm extremely proud of our teams across the globe who are rising to the challenge and performing at their best. To With that, let me hand over the call to Dror to review our financial results in detail.
Dror?
To Thanks, Eitan. Good day, everyone, and thank you for joining our Q2 2021 conference call. To Total revenues in the Q2 of this year exceeded our guidance and reached an all time record of 98,000,000 to turn the call over to the Q2 of 2020 and a 16% growth to
turn the call over to the Q1 of 2021.
Product revenues in the Q2 grew 18% quarter over quarter. To turn the call
over to Eric. This growth was
attributed to a significant increase in revenue from the standalone optical CD product line, to turn the call over to John, which reached an all time record revenue level during the Q2. Service revenues in the 2nd quarter to review the financial results. Grew 9% quarter over quarter as a result of higher time and materials and installed base management revenues. To begin. Looking at product revenue distribution, approximately 70% was attributed to Logic and Foundry to extend approximately 30% to memory.
Geographically, Taiwan, Korea and China to turn the call over to John.
Each contributed approximately 30% to our product
revenues with China representing an all time record level. To Blended gross margin in the 2nd quarter was 57% on a GAAP basis, similar to the Q1 of 2021. To blended gross margin on a non GAAP basis increased to 58% relative to 57% in the Q1 of the year. To Operating expenses for this quarter increased by 2% to $29,000,000 on a GAAP basis to turn the call over to the operator to discuss the financial results and to $26,000,000 on a non GAAP basis. Operating margins in the 2nd quarter significantly increased, to turn the call over to the financial leverage built into the company operational model.
On a GAAP basis, to turn the call over to the operator. Operating margins increased from 23% in the Q1 to 28% in the 2nd quarter. To turn the call over to the operator. On a non GAAP basis, operating margins increased from 27% in the Q1 to an all time record level to take a look at the financial results of 31% in the Q2 of 2021. The effective tax rate in the Q2 of 2021 to was approximately 12%.
Earnings per share on a GAAP basis were $0.77 per diluted share to turn the call over to the operator for the Q1 to and representing a new record high for quarterly earnings per share. Finally, I'd like to share our guidance. To turn the call over
to Mr. President. We expect
the following for the Q3 of 2021. Revenues to be between $99,000,000 $106,000,000 to turn the call over to the operator to discuss the financial results. Thank you. Thank you. Our next question comes from the line of to turn the call over to the operator to discuss our financial results.
Thank you. Thank you. Our next question comes from the line of John to At the midpoint of our Q3 estimates, we expect gross margins to remain similar to the Q2 of the year, to Operating expenses to reach approximately $30,000,000 on a GAAP basis and approximately $28,000,000 on a non GAAP basis to and effective tax rate to be approximately 14%. Looking at 2021 as a whole, to
turn the call over to Eric. As Eitan mentioned,
we expect another record year forecasting approximately $390,000,000 in revenues to close the $400,000,000 in annual revenues. To support this steep growth in business, to turn the call over to Mr. President. We are accelerating our investments and recruitment in all areas and departments, including expansion and establishment to discuss the progress of new and existing offices globally. The timing of these investments may vary due to execution progress to conclude the call and answer session.
As communicated in our recent Analyst and Investor Day, the company target financial model to turn the call over to the operator for questions. At these expected levels of revenues in 2021, which represent a major year over year increase, to present operating margins, which are higher than our target model. To turn the call back to Eitan. Eitan?
Thank you, Dror. Before we take your questions, I would like to use this opportunity to mention to Our press release for Monday about modifying our name from Nova Measuring Instruments to Nova. To Following our expansion driven by several software and hardware growth engines, the company believes the previous name to no longer represent its technology portfolio and diversified offerings. The company continues to retain the NVMI sticker to take your questions. Operator?
To to take your questions. The first question today comes from Jamie Zekalik of Bank of America.
To Hey, guys. Thanks for letting me ask a question and congrats on the great quarter. You highlighted a few times record revenue from China. To Can you quantify how much domestic China was in this quarter of that 30%? And how does that compare to last quarter and maybe a year ago?
To Was China demand in line with what you expected when you guided? And how do you remain confident that customers are ordering to
to So I think it's Eitan here, and thanks for the question. So I think I'll start first from to take the market perspective and then Ror can then conclude with the financial elements. So regarding to the demand in China, we do see Growing demand in China year over year. So if we compare this year demand from last year, actually it's higher. Mainly it's coming from the investment in the logic customers in China.
To And this is 1. And second, following the trade limitations between the U. S. And China, We do see some opportunities that are coming from the fact that we are not shipping our tools from the U. S.
And we are not to take part of those obligations, so we can continue shipping tools. And I think that the third element is we do see Growing investment in China as a result from the trade war. We do see investment in new to Greenfield customers, we do see increasing capacity and increasing investment in some of the customers that actually expedited Their expansions and we do see that China is growing this year. And by the way, we expect the same thing next year.
To If I may add some color on that. So as Eitan mentioned, in the last few quarters, we did to see at least one local domestic Chinese customer as a 10% customer of our product revenues. To China as a whole was around 20% in the last 2 years, 2019 2020. In the first half of twenty twenty one, It's around 25%. So it is an incremental growth in that aspect.
To Got it. Thanks. That's very helpful. And then on gross margin, so Gross margins in the quarter came in slightly ahead, but are still down slightly year on year despite really strong to revenue growth. So what are the puts and takes there?
And what can drive gross margins towards the higher end of your Long term target, is it just a function of mix or a certain revenue level or something else? Thanks.
To So as we discussed in our Analyst Day, obviously, on one hand, we see increase in revenues and the company to discuss the new technologies which are coming in, which are with high ASP and high gross margins. On the other hand, we do see challenges to take your questions.
In terms of the cost
of employment globally, costs related to COVID-nineteen manufacturing And also supply chain aspects, including the cost of deliveries, cost of raw materials and so forth. To We do believe that the combination of these elements as a whole will still enable us to be within the target model of the company, which to as I mentioned is 56% to 59%. In addition, we need to remember that we need to balance to speak to the question and answer session. Between being competitive in the market and creating a robust gross margins, which can facilitate R and D investments.
To So
overall, we do expect to remain within these levels of 56% to 59%, We're in years and areas where the new technologies are coming in and revenues are growing in a fast manner, We would be at the high end of this range.
Got it. Thanks, guys. To
take your questions. Our next question comes from Atif Malik of Citi.
To
Hi. Thank you for taking my questions and good job on results and guide. To I have a question on your supply situation. Curious how long the equipment lead times are now. To You guys have been running at 80% of your manufacturing capacity and are planning to add a new clean room by middle of next year.
So Are you supply constrained right now? And how should we think about your production capacity, everything this year and next year?
To So Atif, thanks for the question. So regarding I want to divide it to 2. First is the production to take some time to take
some time to take some time to
take some time to take some time to take some time to take some time to take some time to take some time to take some time to take some time to take some time to take some time to take some time to take some time to take some time to take some time to take some time to take some time to take some time to take some time to take some time to take some time to take some time to take some time to take some time to take some time to take some time to take some time. There is productions and things like that. And we do expect that if to There's going to be upside this year. We can accumulate it and we can answer the customer demand as they as it grows. Regarding next year, we expect the new clean room to kick in somewhere next summer and we are all secured to be in production to reach there and once it's coming in, it's supposed to smoothly increase the capacity.
So this is from production perspective. Regarding the supply chain itself, as I said in couple of previous earning calls, We did increase our inventories and we did purchase some of the long lead items to Early enough in the COVID period, so we're enjoying right now from shorter lead time. And we are assisting our supply chain Actually 4 quarters ahead. So we know by now to manufacture the tools for 4 quarters ahead. So to I think in that perspective, we are also secured.
There are some risks as everybody understand in this period to take a look at the progress of the year. Of increasing material prices, some constraint on supply chain delivery, shipments and flights to take a question and answer session. And it's becoming more difficult to logistically to deliver our system to to take your questions. But nevertheless, looking right now on the last few quarter, and based on the situation and the dynamic changes, We can control it and we can overcome it and continue growing.
To Great. And as my follow-up, Dror, you mentioned record software sales, but can you quantify what the software sales was as a
Yes. Software in the last two quarters, software revenues out of the total revenues of the company were between 7% 8%.
To Great. Thank you.
The next question comes from Patrick Ho of Stifel.
To 1st, just in terms of the second half commentary, I think 3 weeks ago, you spoke about the potential for flat to modestly higher revenue. Clearly, you're revising this to retire today, maybe can you provide Eitan a little color on what has incrementally strengthened driving this better second half? And also, to What is that optionality that will drive you closer to the $400,000,000 level? Is that tied to acceptance of new products or a particular end market?
To So Brian, I think that there are 2 answers to that. So When we're looking right now on the rest of the year, I think that the upside can be led by 2 things. 1 It's the rate of adoptions of the new technology in the market. And we are doing our best that some of the evaluations that to note that currently our ongoing will be concluded and the systems will be accepted by the end of the year. This is one.
2nd, we do have some opportunities to increase market share on some of the competitive selections that are going on right now. And we hope that the decisions will be made during the next couple of months. So to You know that the bottom line is it's a combination of new market share and selection and penetrations With the growing rate of adoptions of the new products.
Okay, great. To That's very helpful. And then maybe doubling back on China, just curious, you obviously quantified sort of to What your sales contribution is this year, it's stepping up from last year. Just curious, if you try to break that down, maybe to Yes, standalone CD versus integrated. How do you think you would calibrate your market share in China for those two particular platforms relative to to
So we are not breaking we're not breaking down the numbers to reiterate that I can comment that our market share is the market share percentage in China It's very high. There are customers that we have around 100% market share, by the way, on both product lines, both the materials and to take a look at the dimension. And I think that if you're looking right now on specific customers or specific segments, I think that during 2021, there were 2 main investment in China or 2 main area of investment in China. 1 Is the Logic customers, which are not SMIC? The government is moving investment to other to Doji customers, so this is one area of investment.
And the second is new R and D to Investment that's happening in different provinces in China. Okay. So each one of them may be small, but there are multiple of them. So the combination of establishing new product new R and D and production line with the increasement of to discuss the investment in those logic customers or logic providers that will need to gap or cover the gap that to SMIC cannot provide the main drivers for drivers for our growth in China.
Great. That's great color. Thanks.
To to the next question today comes from Mark Miller of Benchmark.
Congratulations on the record to I was wondering, you've done this previously, could you break out the product cost and service cost?
To So as you saw in the press release, we did consolidate some of these elements. As to know the company shifted gears in terms of its business levels. So we have decided to align the reports with the reporting to benchmark for such business levels. In general, these reports are more condensed to And are in correlation also to the target model of the company, which includes mainly blended gross margins, to we decided not to report separately gross margins for the different product lines or revenue streams. To
You mentioned you're growing momentum in North America. Does that represent North America represent 10% or more your sales next year? To
So Mark, it's Eitan here. So I think that even this year, it's very close to 10%. If I'm looking right now next year, everything depends on the timing of the investment in Arizona, okay? And the question is, to How fast the 2 major logic customer would invest? In addition to that, to We have another Korean memory customer that supports to expand or open a new facility.
So That's from greenfield spending by these two customers. Additionally to that, we do see recovery by other customers in that region. To We have the leading logic provider in North America to actually increase capacity this year and supposed to increase capacity next year in the R and D facilities. We have also other global customer other logic global customer that started to invest this year as well in 28 In 20 nanometer. So all in all, we see both investment in the trailing edge nodes to provide the traditional customers as well as new CapEx being spent for new facilities Starting next year as well.
So we definitely see North America growing next year.
You mentioned one Chinese domestic was a greater than 10% customer. How many greater than 10% customers did you have?
Normally, it's between 3 and 4 customers every
to
to turn the call over to Eitan Oppenham, President and CEO for any additional or closing remarks.
To Thank you, operator, and thank you all for joining our call today. Please stay safe and healthy. To Thank you and bye.
Ladies and gentlemen, that concludes today's conference call. We thank you for your participation. You may now disconnect.