Nova Ltd. Price & Performance (NVMI)

We will then open the call for the question and answer I'll now turn the call over to Gabby Wiseman, Nova's President and Gabby, please go ahead.

Thank you, Miri, and thank you all for joining us today. I will start the call by summarizing our fourth quarter and full year performance highlights. Following my commentary, Guy will review the quarterly and annual financial results in detail. Nova ended the fiscal year on a high note with record revenue and profitability outperforming industry indices, Our revenues grew 30% year over year and reached $672,400,000 while non GAAP net income grew 38%. We have cemented our position across multiple device segments and achieved numerous milestones across our product lines including strategic penetrations into leading manufacturers an evolving position in new segments and a growing market share Our agile operational model and strategic focus continue to generate value to our shareholders enabling us to drive higher profitability while relentlessly growing our business. Our performance this year was driven by our Materials Metrology Solutions record sales Coupled with a growing adoption across market segments, Additionally, the growing revenue from advanced packaging processes underscores the importance of our dimensional and chemical metrology solutions This broad based growth highlights the strength of our diversified portfolio and our ability to capitalize on multiple market opportunities. Turning to the fourth quarter record results. And our sixth consecutive quarter of growth, We exceeded the top end of our guidance in revenue and non GAAP profitability.

Our record quarterly revenue was driven by the robust sales of the Veriflex Ellipson and Metreon platforms. This success was augmented by record sales of our dimensional standalone OCD solutions, Due to their unique capabilities, in gate all around [indiscernible] These results underline our ability to meet the evolving needs of our customers and maintain our competitive edge in the market. Looking forward, Nova is poised to leverage the transition into advanced manufacturing processes and architectures. We expect our growing exposure to new market segments and our differentiated portfolio to drive sustained growth into 2025 continuing the momentum we've built, The surge in AI related demand has been a significant driver of our market as it necessitates energy efficient computing power and accelerates the demand for advanced processing nodes and memory solutions. Our customers are leading the transition to three d architectures which translate into multiple catalysts for our business, including larger and more complex dies that require a growing number of wafers a higher number of layers in the number of process steps at a much smaller tolerance for error. [indiscernible] The increasing complexity drives the need for high quality metrology solutions which Nova is well positioned to provide.

Let me share some highlights from 2024 and the recent quarter. First, we are encouraged by the broad adoption of Nova's comprehensive portfolios across gate all around and high bandwidth memory process [indiscernible] Leading foundries, logic and memory manufacturers are increasingly integrating multiple Nova solutions from our optical dimensions materials and chemical metrology portfolio. This widespread adoption underscores our ability address the complex metrology challenges associated with manufacturing the most advanced semiconductor nodes [indiscernible] Our unique solutions for 2.53 d structure applications are pivotal in enabling our customers to achieve the precision and efficiency required for current and next generation technologies. Our advanced packaging revenue more than doubled this year reaching 15% of product revenue and signifying its growing importance to Nova Nova. [indiscernible] Our integrated metrology solution have been adopted by four of the top five advanced packaging manufacturers while our standalone OCD market share in the segment grew significantly. With the recent addition of Syntronics, we expect our revenues of advanced packaging to grow further. Sentronix modular dimensional metrology technology will enable us to diversify our offering into the rapidly growing field of advanced wafer level packaging specialty devices and into additional wafer sizes and types beyond 300 millimeter silicon wafers, [indiscernible] Along with Nova's optical CD standalone and integrated metrology, we can offer customers a rich portfolio for critical applications in both back end and front end fabrication processes.

Sentronics builds highly modular multi sensor platforms with proprietary sensors and software that extend the range of applications we can solve. [indiscernible] Some key examples that are critical to advanced packaging includes total fitness variation, Topographies for roughness measurements and wafer bow and warpage. Following the deal closing announced last month, the post merger integration teams are working diligently to tighten collaboration and align activities while maintaining focus on execution meeting delivery timelines and business goals. Now let me review some of the highlights our product division. In the Dimensional Metrology division, our integrated metrology earned new market share in multiple segments, including advanced packaging and HBM, expanding our TAM and securing our market leadership. [indiscernible] had a record year and increased our market share driven by high demand from numerous customers due to their high productivity precision, and unique offering. The Nova Prism platform sales grew at high double digit this year over year with multiple engagements with both front end and advanced packaging customers. To meet market demand, we recently launched the Nova Velocity, the next generation of the successful high productivity platform [indiscernible] Driven by increasing demand for productivity, and yield improvements velocity features a unique dual chamber configuration enables the highest productivity in standalone tools in the market.

The platform's speed and robustness have been a deciding factor for a leading logic manufacturer who adopted the platform and is expected to purchase multiple tools. These achievements highlight our ability to deliver innovative solutions that cater to the needs of our customers. Next, our materials metrology portfolio delivered record quarterly and annual results. As we shared in early January, the Metreon platform was adopted by a leading global memory customer for its most advanced DRAM R and D as well as DRAM and NAND high volume manufacturing lines. Metreon was selected full wafer measurements of epitaxial layers with high sensitivity and precision. We expect to receive additional orders from this customer. In addition, the platform is currently being evaluated by two of the top five customers in memory and logic, and we anticipate receiving orders from them later this year. The Veriflex platform saw a market transition and broad adoption of its fourth generation becoming the tool of record for several leading foundry and memory customers. The Nova Elipson platform performed well this year with repeat orders from a leading memory customer and penetrating to two new major customers: Looking ahead, we have strategic foundries already planning to use the platform [indiscernible] and material concentration measurements.

The performance of our materials metrology portfolio attests to the value of Arc Solutions and the critical role in advanced semiconductor manufacturing. Our Chemical Metrology division had a record growth year at a high double digit rate, Significant highlights include the EncoCine market share growth in front end customers and the ANCOLYZER proliferation with memory customers [indiscernible] Additionally, we have ongoing evaluations with memory, and foundry customers which we expect to materialize later this year. Finally, our service division delivered another record quarter and year with 2024 revenues growing 19% year over year driven by increasing demand for capacity and yield improvement. In terms of market outlook, our industry continues at an upward momentum. Driven by end market demand for mobile and AI, and the investments in building a matching capacity in advanced logic nodes DRAM and advanced packaging. We expect WFE to grow at mid single digits this year driven by leading edge demand. In summary, our well established fundamentals will help us increase exposure to additional opportunities in adjacent markets and processes new customers and new critical applications. Our strategic priorities remain intact with continuous investment in our long term roadmap and by partnering with our customers across all territories.

In 2025, we expect to capitalize on the opportunities created by our enhanced market position, continue our growth trajectory and outperform WFE. We will elaborate on our strategy and vision at our upcoming virtual Investor Day on March 17, and we look forward to seeing you all there. Now for some more details on our financials, let me hand over the call to Guy. Thanks, Gabby. Good day, everyone, and thank you for joining our twenty twenty four fourth quarter conference call. [indiscernible] I will begin by reviewing our financial achievements. For the fourth quarter of twenty twenty four then summarize our performance for the full year and finally provide guidance for the first quarter of twenty twenty five. In the fourth quarter of twenty twenty four, total revenue reached a record high of $194,800,000 making it the third consecutive quarter of record breaking results. This performance exceeded the company's guidance. Reflecting a 9% quarter over quarter increase and 45% growth year over year. These achievements demonstrate our strong ability to anticipate capture [indiscernible] to evolving market demand. Product revenue distribution was approximately 72% from logic and foundry and approximately 28% for memory. [indiscernible] Which contributed each 10% or more to product revenues.

In the fourth quarter, blended gross margin aligned with our guidance. Achieving 56% on a GAAP basis and 58% on a non GAAP basis. Well within our target model range of 57% to 59%. Operating expenses increased fifth $54,500,000 on a GAAP basis and 48.9 on a non GAAP basis. A significant portion of the increase was directed towards expanding our R and D efforts ensuring we stay ahead in innovation and technology leadership. Operating margin in the fourth quarter reached 28% on a GAAP basis and 33% on a non GAAP basis. Surpassing the upper range of our target model of 27% to 31%. The effective tax rate in the fourth quarter was approximately 15%. Earning per share in the fourth quarter on a GAAP basis we're $1.58 per diluted share. And earnings per share on a non GAAP basis were $1.94 per diluted share. Exceeding the high end of our fourth quarter guidance. Moving on the annual results for the calendar year 2020 Revenue increased 30% year over year. In the year where the industry experienced moderate growth, our ability to scale at this pace demonstrate the strength of our business model the value we bring to customers, and the effectiveness of our long term strategy.

The geographic revenue split in 2024 was as follows: China was 39% Taiwan was 20% Korea was 18%, U. S. Was 14%, and other territories contributed the remaining 9%. Gross margin for the year came in at 58% on a GAAP basis and 59% on a non GAAP basis. At the high end of the company, target model of 57% to 59%. Despite cost pressures and the industry wide supply chain dynamics, we maintained robust profitability through operational efficiencies, pricing discipline and continued focus on higher value solutions. Operating margin for the year Jamie, that's 28% on a GAAP basis and 33% on a non GAAP basis. Earning per diluted share on an annual basis came in at $5.75 on a GAAP basis. And $6.69 on a non GAAP basis. Achieving a record high EPS this year underscore our ability to drive profitable growth by effectively converting top line expansion into bottom line value. Our disciplined approach to execution operational efficiencies and strategic investments has allowed us to scale while maintain strong financial performance. This milestone reflects the strength of our business model and our commitment to deliver sustained value to our shareholders. Turning to the balance sheet, we ended 2024 with $820,000,000 in cash, cash equivalents bank deposits and marketable securities.

During 2024, the company generated $218,000,000 in free cash flow and presented healthy parameters related to working capital management. In addition, the company deployed approximately $48,500,000 in cash [indiscernible] Approximately $30,000,000 was deployed for share buybacks and approximately $18,500,000 was deployed facilitate the early conversion of 9% of our outstanding convertible notes with the paramount paid in cash and the remaining balance settled in shares. At the January 2025, we completed the acquisition of Syntronic Metrology. Deploying approximately $60,000,000 in cash for the transaction. As a result, Syntronix financial results will be consolidated into Nova's Nova Nova starting in February 2025 Nova. [indiscernible] The acquisition aligns with our strategic growth priorities. And we expect it to be accretive on a non GAAP basis within twelve months Our guidance reflect the impact of this combination. Now let's move to our guidance. Which factors in the acquisition. We currently expect revenue for the quarter to be between $2.00 $5,000,000 and $215,000,000 GAAP earnings per diluted share to range from $1.75 to $1.91 Non GAAP earnings per diluted share to $2.16 At the midpoint of our first quarter twenty twenty five teammates anticipate the following: Gross margins of approximately 57% on a GAAP basis and approximately 59% on a non GAAP basis.

Operating expenses on a GAAP basis to increase to approximately $6,000,000 operating expenses on a non GAAP basis to increase to approximately $5,054,000,000 dollars Financial income on a non GAAP basis to remain similar to that of the fourth quarter. Effective tax rate is expected to be approximately 15%. With that, we will be pleased to take your questions. Operator, We will now begin the question and answer session. The first question comes from Atis Malik with Citi. Please go ahead.

Hi. Thank you for taking my questions and nice results. Gabby, the first question on advanced packaging, So you doubled your sales last year 15%. Of product sales. I assume majority of the sales were driven by your OncoCycle Chemical Metrology products. Can you talk about your aspirations for advanced packaging sales for the current year? Definitely. Thank you so much for the question. So first, the Advanced Packaging had contribution from both our Chemical Metrology division as well as the Dimensional Metrology division. We have our integrated metrology in all of the top five advanced packaging manufacturers. And we have a significant adoption of our PRISM standalone OCD platform. So it's both divisions that contributed to this to this growth. And we do expect this year to to continue and grow by double digit growth. Great. On top of one for I have another excuse me, one more thing that with your permission I'd like to add, is that with the addition of Centronics, we do expect [indiscernible] fuel growth as we move in with this platform. To additional customers and grow the adoption over there as well. Great. And one for Guy on the the services growth last year, a very strong 19% growth.

Some of your peers have talked about a more muted services growth this year, primarily because of 200 millimeter equipment slowdown in China. So if you can talk about the services growth outlook for this year as well as any impact from the restrictions that came on late last year to either services or system sales this year. Yes, of course. So this year, as you mentioned, service businesses grew by 19%. This growth was fueled also by increasing utilization of the tools in 2024 compared to 2023. When we're looking ahead, our model assume for the service to grow between 10% to 15% and this is what we expect for 2025 as well. And the impact from restrictions? We don't see a significant impact on the services from the restriction part. Thanks.

The next question comes from Vivek Arya with Bank of America. Please go ahead.

This is Doug Sanjang on behalf of Vivek. Thanks for taking our question. On memory versus foundry logic, I'm curious how you're thinking about the demand into 2025? And which segment do you expect to grow faster? Thank you.

Thank you. So we do expect the advanced logic and advanced packaging to lead the pack in 2025. With the growth. We definitely see HBM segment as part of the advanced packaging growing with the metrology intensity as well. But the bottom line is it's definitely advanced logic and advanced packaging. Got it. And then one on gross margins. Obviously, a recovery into Q1 But that's also at the high end of your long term range. So could you talk about the drivers that are driving the expansion in Q1? And then what would it take for you to reach above that 60.6 again. You so much. [indiscernible] we remain committed to our target model and believe that given the business dynamics we anticipate heading into 2025, We will continue to demonstrate strong gross margins. Our ability to sustain healthy gross margin reflect the value of bring to our customers through differentiated technology strong execution and operational efficiencies. While there may be some quarter to quarter fluctuation due to product mix and market dynamics and market conditions, we are confident that our loan term margin profile remain intact. So as we mentioned before, The quarter over quarter changes can fluctuate.

Mainly due to product mix But on an annual basis, we will be in our target model.

Reaching above 60% is challenging, but it's the main unknown is basically how successful we will be with the new product and so forth. So Our model dictates the and reflects the current business dynamics. We have The next question comes from Ezra Wehner with Jefferies. Please go ahead.

Thanks for taking my questions. Two quick ones.

One, we're seeing HVM [indiscernible] Two different kind of stories out of your peers. How do you see competitive market and capacity builds there? And then the second is China, obviously, you guys have a pretty high amount of revenue coming from China. What do you see there kind of long term as a lot of your peers are seeing that come down? Thank you.

So in terms of HBN, so first of all, we see advanced packaging growing very significantly for us. We're at the infant stages with regards to our dimensional metrology portfolio The majority of our business with advanced packaging at the moment is with the logic side with the 2.5 the architectures. But there's definitely buildup on HBM. And as I mentioned, The process control intensity is growing over there as well, which means that we have appeal to both our chemical and dimensional portfolio we do see growth in high bandwidth manufacturing as well. Could you repeat the question about China?

Yes. Just you guys have pretty high China exposure and a lot of your peers are seeing their China exposure come down as As some of these holding sales come up, Just want to know what you're seeing in China and That's correct. All in '25.

Sure.

So in 2024, the China share of our overall sales was 39% Our strength there is in line with industry peers. And due to the fact that growth this year will come from advanced nodes, We see the share of China declining. Thank you.

The next question comes from Finbaudi Shrotra with Evercore ISI. Please go ahead. [indiscernible] two questions.

So one is Your contributions from the Syntronics acquisition, what you expect for this year and what your target growth rate, sir? Longer term? And then what's the like the margin profile of this portfolio versus the materials metrology or chemical metrology portfolio?

So the line is a bit brokking for that, so I hope I understood the questions correctly. But overall, Syntronics last year had about 10% of the $200,000,000 TAM market. Our first quarter forecast already includes the revenue from the relative periods Sentronics will report on the Nova. We closed the deal on January thirty. And we do expect an upside materialize as we progress with the post merger and we are very enthusiastic by the level of engineering we see in the solutions and the fast growth [indiscernible] And regarding the question about the financial model, so Syntronics aligned well with our financial model. Which is one of our criteria in our due diligence process for any acquisition. And as we previously stated, the deal is accretive we expect it to contribute positively to our financial results. So I would say it's more or less fit to our financial model in terms of gross margins and operating margins as well.

Understood. And then on the chemical the footprint, the manufacturing footprint there. How Like what would the have you kind of quantified the revenue potential you could get from from those facilities?

So we've just opened up a completely new facility in Bad Uwe in Germany. This facility, which is also environmentally friendly, host all the all the different units of the chemical metrology division under one roof and is a state of the art building. We do expect drive the business forward Obviously, as the business continues on its upward momentum, we will adjust the capacities accordingly.

The next question comes from Matthew Prizko with Cantor.

Please go ahead.

Hey guys, thanks for taking the question. I guess first, can you walk us through the drivers of the strong sequential growth into 1Q across maybe end market products and including what the Syntronic acquisition contribution is? And then And over the past few quarters, you've been increasing revenues roughly $15,000,000 $20,000,000 per quarter. Are those types of sequential increases sustainable as we move through '25?

So we don't give forecast for the entire year. What we do expect to outperform WFE I think that we have a very strong end markets driving the industry whether it's AI or HPC, and mobile, we are all acquainted with the fundamentals over there. That translate both to investments in advanced nodes, especially advanced logic as well as the advanced packaging. And we definitely see our position a across those markets as fundamental in order to support our continued growth into the year.

And anything on the 1Q color?

On where you're seeing that strength and what the Sintronix So as I mentioned, the first quarter forecast include the revenues from the relative period Sentronix will report on the Nova and you can deduct from the fact that Centronics had about 10% of a $2,000,000 TAM market last year. As to the level of business that we expect and especially at least in the first quarter.

Perfect. And then as a follow-up, can you help walk us through the translation of these material metrology design wins to revenue? For instance, Metron's recent by the leading memory manufacturer that mean shipping one tool to a fab for high volume production? And then how quickly does that tool proliferate across fabs? And then what's the process and typical timing of customers expanding the number of tools per fab? Just any color into how we can think about better modeling the opportunity going forward?

So first of all, we are very excited about this recent adoption focusing on R and D for DRAM as well as FriediNAND. We do expect proliferation into high volume manufacturing with this customer. And we believe that this market which is for measuring the profile of multiple layers these kinds of areas to continue and drive the adoption. We mentioned the fact that we have at the moment two additional evaluations with key logic and memory manufacturers we expect to materialize later this year And this is the first introduction of such an in line SIM tool, we expect the adoption to start with about one tool per fab as we experience when XPS was adopted fifteen to twenty years ago and then of course increase the number of tools per fab as more applications and higher utilization of the tool will happen. So eventually, we believe and we hope that the kind of adoption rates that happened with XPS will repeat itself with the Metreon We can't anticipate the exact timing of such an adoption of more than one or two tools per fab. We have a lot of room to grow with the Metreon both with a number of customers as well as with a number of fabs as capacity grows.

We're very excited about the opportunity as it unveils with the Metreon.

The next question comes from Mark Miller The Benchmark Company. Please go ahead.

Let me just express my congratulations on another record quarter. This is becoming Rufe I was just wondering if you could discuss where you're seeing significant share gains in what markets?

Thank you so much, Mark, for the comments. So we see a few areas in which we saw share gains. So first of all, in terms of the Prism standalone OCD, we saw share gains in both advanced manufacturing as well as advanced packaging. We saw increase in market share on the front end side of the obviously high utilization and additional adoption of the XPS tools in material metrology And we also gained some share especially as we entered into the advanced packaging space, both in the 2.5 bs architectures in logic as well as in high bandwidth manufacturing.

Terms of what percent of the memory sales were high bandwidth memory and what if any you're seeing from NAND?

So I think that we need to address it as more as a DRAM versus NAND or HBM versus other architectures with your commission. So obviously DRAM was stronger than NAND. And if we put HBM as part of the DRAM, then that was the majority in terms of our memory business. HBM growth, of course, is higher in that respect compared to the DRAM one. Thank you.

The next question comes from Charles Gee with Needham. Please go ahead.

Hi, congratulations on the truly exceptional I have a question, maybe two questions. Let me ask the first one. The Q1 guidance, if I flatline that numbers, that would imply a roughly speaking 25% year on year growth in 2025. And I think you guided that WFP probably mid single digit And I thought historically you were expecting outperformance roughly 1.5x, but any reason for us to have a little bit more confidence that Internet buybacks at the rate of WFP this year. Of course, you guys did well outperform in 2024, but what are the reasons for us to believe that that best outperformance will continue in 2025. Thank you for the comments, Charles. I think that I think it has to do with two may three major issues. One is the position that we have, especially with a unique value driven by the technologies that we offer. The second one is expanding our position into advanced packaging and seeing higher adoption. And the third one, of course, which drives that as well is the Centronics acquisition that gives us an opportunity to expand to additional customers and then the ones that we are exposed to today. I would top it all, of course, by the fact that we have a strong position in advanced logic and that gives us grounds to believe that we have the fundamental, the infrastructure in order to drive the growth into 2025.

Thanks. Maybe another question on gateholds around I believe you mentioned Gate All Around revenue in 2024 was roughly high single digit of the product revenue based on the latest reporting sounds like it's $40,000,000 ish I think most of your peers are guiding gatehold around revenue doubling, but the guidance seems to suggest there's a little bit more than doubling for you guys. Mind if you provide a little bit more color and as well in terms of where you are tracking to that $500,000,000 cumulative all around revenue from '24 to '26.

Any additional quantitative color will be very helpful. Thank you. I'm not sure I can add more to the fact that we are [indiscernible] changed our position in that respect. Will try to give more color during the Investor Day on March 17, but I think that the tracking that number [indiscernible] gives a lot in terms of our confidence in making it this year as well. Thanks, Gabby.

This concludes our question and answer session. I would like to turn the conference back over to Gabby Wiseman, Nova's President and CEO Nova closing remarks.

Thank you, operator, and thank you all for joining our call today.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.