NASDAQ:NVMI Nova Q3 2023 Earnings Report $212.35 -5.50 (-2.52%) Closing price 05/30/2025 04:00 PM EasternExtended Trading$213.62 +1.27 (+0.60%) As of 04:00 AM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. ProfileEarnings HistoryForecast Nova EPS ResultsActual EPS$1.11Consensus EPS $0.96Beat/MissBeat by +$0.15One Year Ago EPSN/ANova Revenue ResultsActual Revenue$128.81 millionExpected Revenue$123.00 millionBeat/MissBeat by +$5.81 millionYoY Revenue GrowthN/ANova Announcement DetailsQuarterQ3 2023Date11/9/2023TimeN/AConference Call DateThursday, November 9, 2023Conference Call Time8:30AM ETUpcoming EarningsNova's Q2 2025 earnings is scheduled for Thursday, August 7, 2025, with a conference call scheduled at 8:30 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Nova Q3 2023 Earnings Call TranscriptProvided by QuartrNovember 9, 2023 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00Good day, and welcome to the Nova Limited Third Quarter 2023 Results Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask Please note, this event is being recorded. I would now like to turn the conference over to Ms. Mary Sagal, CEO of MSIR. Operator00:00:42Please go ahead. Speaker 100:00:49Welcome all of you to Nova's 3rd Quarter 2023 With us on the line today are Mr. Gabby Wiseman, President and CEO And Mr. Dror David, CFO. Before we begin, may I remind our listeners that certain information Also pertains to this call. If you have not received a copy of the release, please view it in the Investor Relations section of company's website. Speaker 100:01:31Gabby will begin the call with a business update, followed by Dror with an overview of the financials. We will then open the call for the question and answer session. I'll now turn the call over to Mr. Gabby Wiseman, Nova's President and CEO, Gabi, please go ahead. Speaker 200:01:53Thank you, Miri, and welcome everyone to our Q3 financial results conference call. I will start the call today by speaking about our quarterly performance highlights and the market dynamics as they relate to Nova. Following my commentary, Dror will review the financial results in detail and present the guidance for the Q4. Nova's performance this quarter exceeded the company's revenue and profitability guidance And our goal is to maintain similar business levels in the next quarter as well, making the second half of of our diverse portfolio driven by our expanding exposure to new applications and our ability to leverage market opportunities. Nova's revenue and margins in this quarter and in 2023 thus far validate our flexible and resilient business model as well as the actions we took over the past year to address changes in the market. Speaker 200:03:05As we look ahead towards 2024, we expect Nova to resume its growth and outperformance trajectory. We were able to deliver better results than our earlier projections by adding several new customers By leveraging the growth in our materials metrology offerings, by increasing the adoption of new technologies in our chemical and optical metrology solutions and by the growth of our service business. In every one of these areas, we continue to execute and push forward in accordance with our long term strategic plan to reach $1,000,000,000 in revenues. Before I turn to review some of the business highlights Of this quarter, I'd like to address the situation in Israel and its implications for Nova. Nova is 1st and foremost committed to supporting our customers and meeting delivery times and business obligations. Speaker 200:04:08We have a well prepared and thought out business continuity plan in place, designed on a global basis. Our global operations continues to run as intended and there has been no impact on our performance and no disruption to our delivery schedule. Thanks to the commitment and dedication of our employees. We appreciate the support and trust We received from our customers, suppliers and the investment community and we are resolved to continue and conduct business according to plan. Now let's turn to the business highlights of the Q3. Speaker 200:04:48We noted That we expect the company to return to a growth trajectory in 2024 and already we can observe the seeds of the main drivers of this growth. The most encouraging sign is the restored balance between memory and foundry logic, which was largely skewed over the past year. In Q3, our memory sales grew by more than 75% compared to the previous quarter and amounted to 35% of our product revenue. We expect this trend to continue into Q4 With DRAM investments, including high bandwidth memory acting as the main driver, while NAND shows signs of stabilization. As evidence of the former, we have 2 new DRAM implementation of Nova Prism and Nova Veraflex of the most advanced version of the platform. Speaker 200:05:44I want to note the opportunity we see in memory offerings for our XPS technology. Despite some demand softness in 2023, Veriflex platform sales hit a record high this quarter and further expanded its customer base. Moreover, half the tools we manufacture For our most advanced version of the platform, the Veriflex 4, which significantly reduces the cost per measurement and provides a much higher value for the customer. In addition to this ongoing demand, Veriflex offers a unique value in its capacity to solve specific highly advanced applications. While in the past these applications Have been driven by Logic Manufacturing, we now see them rapidly evolving into both DRAM and NAND production Enova's experience in this domain is generating high demand and rapid adoption. Operator00:06:59Ladies and gentlemen, we seem to have lost the Management lines, please stay with us while we reconnect with the management. Ladies and gentlemen, we thank you for your patience. We have the line for the management to reconnected. Cabbie, you may please go ahead. Speaker 200:09:57Thank you, operator. Another growth driver Is our innovative and unique technologies and portfolio. Let's take for example the proliferation of our Eliason Materials metrology platform. We already have multiple systems at customer sites. We have received several repeat orders and the system has been selected by customers As the tool of record for advanced nodes due to its ability to provide device performance indicators previously available only via electric testing. Speaker 200:10:31This selection as tool of record reflects the potential for additional orders As production transitions to high volume manufacturing, we are seeing more process steps diverted to the system displacing other Metrology techniques and solving applications on the device measuring unique material characteristics that in the past We're limited to test structures and blanket wafers. Furthermore, as in the case of Xeraflex, Initial demand stemmed from advanced R and D gate pull around applications, but now we see And if we look at Metreon, here too we have a growing customer base and we expect to add some of the world's leading Global logic and memory manufacturers to the list by the end of 2024. Another growth stimulus came in the form of a recent sale of our NovaFIT machine learning software solution to a leading global manufacturer, driven by a new capability called MAP Pro. MAP Pro provides high resolution full wafer sampling For early detection of process excursion, avoiding increased physical wafer measurement and leading to a faster yield learning curve and improved process control. The 3rd engine to propel Our business in 2024 is advanced packaging, an area where we see multiple achievements and opportunities for Nova. Speaker 200:12:20The Nova Prism II was recently selected by a leading foundry as part of its most advanced node toolset to address hybrid bonding process applications and additional advanced packaging metrology challenges. We have initial orders for multiple systems with more expected due to Prism's unique ability to make robust measurements In the presence of underlay variations, a capability critical to effective production. Following a highly successful demo, another leading logic manufacturer is also evaluating Prism 2 for advanced packaging applications, such as FruhSilicon Via as a better and more effective alternative to its current vendor. In addition, we recently received orders for integrated metrology and for Nova's direct metal replenishment solution targeted for advanced packaging from leading memory customers. Elsewhere, we are working closely with our customers of advanced packaging and face unprecedented challenges. Speaker 200:13:39Finally, I want to highlight our service business, which secured record highest revenues this quarter. While current utilization levels may impact short term growth rates, we offset this With that, I would like to recap our Q3 results. Nova had a strong quarter against the backdrop of market softness An increasingly complex environment. As we look ahead into the next quarter and the coming year, We expect to continue our strong execution. We trust that the fundamentals of both our company and the semiconductor industry will steer us into a trajectory of growth and our performance. Speaker 200:14:34Before I turn it over to Dror, I'd like to thank our global Israeli teams for their support, commitment, resilience and dedication. We are fortunate to have an incredible team that is committed to our success. Now for some more details on the financials, let me hand over the call to Dror. Speaker 300:14:57Thanks, Gabby. Good day, everyone, and thank you for joining our 2023 Q3 conference call. Total revenues in the Q3 of 2023 were $129,000,000 exceeding the company guidance for the Q3 as a result of several specific customer pull ins of deliveries originally scheduled for the Q4 of 2023. Product revenue distribution was approximately 65% from Logic and Foundry and approximately 35% from Memory. Product revenues included 4 main territories and 4 main customers that contributed 10% or more each The continued wider territory distribution reflects continued territorial diversification driven by increasing investments from the Western territories of the U. Speaker 300:15:57S. And Europe. Blended gross margin in the 3rd quarter was 56% on a GAAP basis and 58% on a non GAAP basis Within the company non GAAP target model of 57% to 59%. Following cost containment measures implemented by the management to align expenses with the current business environment, Operating expenses in the 3rd quarter decreased by approximately 10% relative to the previous quarter and came in at $38,000,000 on a GAAP basis and $35,000,000 on a non GAAP basis. Operating margins in the 3rd quarter were 27% on a GAAP basis and 31% on a non GAAP basis At the high end of the company's non GAAP target model of 27% to 31%. Speaker 300:16:56Financial income in the quarter remained elevated following higher yields on cash reserves and came in at 5,000,000 The effective tax rate in the 3rd quarter was approximately 14%. Earnings per share in the 3rd quarter Exceeded company guidance and were $1.05 per diluted share on a GAAP basis and $1.23 on a non GAAP basis. In terms of cash flow for the Q4, the company generated $43,000,000 in free cash flow, constituting more than 30% of total revenues. Finally, I would like to share the details of our guidance for the Q4 of 2023. Currently, we expect revenues to be between 100 $23,000,000 to $132,000,000 GAAP earnings per diluted share to range from $0.96 to $1.11 and non GAAP earnings per diluted share to range from $1.16 to $1.31 At the midpoint of the 4th quarter estimate, we anticipate the following: Gross margins to be approximately 56% on a GAAP basis and approximately 58% on a non GAAP basis at the midpoint of Company non GAAP target model. Speaker 300:18:28Operating expenses to increase to approximately $42,000,000 on a GAAP basis and $37,000,000 on a non GAAP basis. Looking forward, we expect operating expenses to gradually increase in 2024. Financial income to be similar to that of the 3rd quarter and the tax rate to be approximately 8% in the Q4 of the year, lower than the company's 14% model due to end of year tax adjustments and status of limitations. Taking into consideration the midpoint of the 4th quarter guidance, we expect the company to conclude 2023 With an excellent non GAAP profitability metrics of approximately 59% in blended gross margin and approximately 30% in operating margins, both at the higher end of the company target model. This expected exceptional performance reflects the company agile and resilient operational model in different business scenarios, The increasing value of our new product generation and the prudent cost control initiatives implemented by the management earlier this year. Speaker 300:19:47To conclude my remarks, I would like to highlight the cash reserves of the company, which increased to 614,000,000 towards executing the company's $1,000,000,000 strategic plan. With that, I will turn the call back to Gabi. Gabi? Speaker 200:20:13Thank you, Dror. Our prepared remarks are now concluded. We would be happy to take your questions. Operator? Operator00:20:22Thank you. We will now begin the question and answer The first question comes from Vivek Arya with Bank of America Securities. Please go ahead. Speaker 200:21:04Thank you for Thank you Speaker 400:21:05for taking my question and I hope the team is holding up well. Our best wishes. For my first question, I'm curious what your assumption is kind of the baseline WFE growth in calendar 2024 because you are doing very well exiting this year. So I'm curious how you're about just the market growth and then the drivers of share gains, as I look at where sort of broad investor expectations are for Nova for next year, In the mid teens kind of sales growth. So I'm just curious what do you think the market is doing and what could be the potential drivers of this kind of growth for Nova for next year? Speaker 300:21:45Our assumption for next year based on the market research that we have and also some feedback from the customers. Obviously, we are in the process of planning next year Is that the market will grow in the mid single digit levels in 2024. Speaker 400:22:08Okay. And what helps you kind of gain share as part of that mid single digit growth environment? Speaker 200:22:17So I mentioned the growth Drivers that we have for 2024, in both our material metrology portfolio as well as advanced packaging. So both are going to drive, of course, alongside with adoption of our new technology and generations of tool, The take up in 2024. Speaker 400:22:42Okay. And then for my quick follow-up. I'm curious how much is the packaging exposure for Nova now? And where do you think it gets to next year? Speaker 200:22:55So we've seen the adoption of both our dimensional metrology and material metrology Tools in advanced packaging together with the chemical metrology that has been traditionally in packaging and now of course Driving some of our business in high bandwidth memory. And this is, I would say, in the initial steps of adoption, but we have seen this year that the business grew over 40% and we expect it to continue and grow further 2024. Speaker 400:23:31Thank you. Operator00:23:35Thank you. The next question comes from Charles Hsie with Needham and Company. Please go ahead. Speaker 500:23:44Hi, good afternoon, Debbie, Joe. Thanks for taking my questions. I want to start with Very strong result coming from the memory end market. If I look at the So really kind of curious because the dynamics here you're seeing is a little bit Can you kind of break it down why the memory was doing so well in Q3? Provide a little bit more color. Speaker 500:24:23I understand there's Some key technology adoptions there, but more importantly, what's the foundry logic to memory That split into the next quarter. Do you expect more of the same or maybe some of the memory strength may revert back? Maybe we can a little bit. I'm just kind of curious. Thanks. Speaker 200:24:47Definitely, Charles. So first in terms of the ratios In Q4, I believe it will be around a similar level as in the Q3 related of course to the memory side of the business. And with regards to the memory take up, especially in DRAM and high bandwidth memory, But not only. We've seen the adoption of our material metrology portfolio In applications that were traditionally driven or adopted by logic into memory as well. So it's the new customers and additional applications that are driving that alongside with the adoption of the Nova Prism, which is offering a unique technology with the underlay variation capabilities that offer superior Solution to our competition. Speaker 500:25:50Got it. So maybe a quick follow-up was China, I mean, We know one Chinese customer, which I mean, your U. S. Peers previously thought they couldn't ship to that particular customer, they are shipping in second half this year. Was that particular customer contributing to some of the Q3 strength? Speaker 300:26:16The answer is yes. Speaker 500:26:20Thanks, Stuart. So maybe the next question I want to ask, Just a follow-up to Vivek's question. So your market assumption for next year, 5%, No, I mean, you said mid single digit, I want to correct, year on year, next year. But what's the half of a half Profile you're seeing is like first half more or less, I mean, extending the second half twenty twenty three run rate and maybe a recovery in second half or you are seeing something like a more gradual, more linear into next year? Thanks. Speaker 200:26:58So we believe that the second half of next year is going to be stronger than the first half, Driven by leading edge and recoveries in the memory side. Speaker 500:27:16Got it. So is it fair to assume like the first half probably, I mean, maybe this is more specific To your business, you probably will also try to keep the business at a similar level as Q3, Q4 this year? Speaker 300:27:34So Charles, we obviously are not giving specific guidances for specific quarters beyond the 4th one. So Speaker 500:27:44Yes, fair enough. Thanks. Speaker 200:27:47Sure. Operator00:27:50Thank you. The next question is from Vedmati Shroter with Jefferies. Please go ahead. Speaker 600:27:57Hi, thanks for taking my question. So the first one, I wanted to double click on the memory The growth you're seeing in memory. So I understand that it's driven by adoption of pure material metrology tools. But could you give us a sense of what's the technology transition that's really driving this growth? Is there something different that Architecture wise that wasn't there before that is really pushing the adoption here? Speaker 200:28:31Thank you, Vasudev. Basically, 1st and foremost, I'd like to highlight the fact that it's driven by material metrology adoption, but not only. So we see this across the board with both our optical and chemical. And specifically, I mentioned also the orders we received from memory customers on our direct metal replenishment, which is part of the chemical metrology offering that we have, which is also of course driving some of that growth related to high bandwidth memory. In addition, what You are asking is interesting and related to 2 product platforms. Speaker 200:29:091 is the Veriflex, in which we can see Some of the gated around applications that were initially driving the adoption in XPS, We see those some of those applications in memory devices as well. And also we see the adoption of Elixon in that perspective as an enabler To some of those applications that were either not performed well before or are now enabled by this solution as well. So all of those are offering, I would say, I'm not necessarily say an inflection point In the DRAM specifically, but definitely an inflection point for us in terms of the adoption of both those platforms that I mentioned. Speaker 600:30:06Got it. And so maybe pushing on that, so can you characterize how big of an increase it was driven by your chemical metrology versus just these DRAM type applications, HPM versus DRAM is what I'm trying to gauge. Speaker 200:30:26So HPM in the Q3 was relatively low. We expect it to become stronger in the Q4. So most of that was driven by the adoption of the material metrology solution And in part, of course, by optical. Speaker 600:30:44Okay. Got it. And then for my second question, so there is some Weakness in foundrylogic, could you give us a sense of how that splits out between leading edge versus trailing nodes and Comment on the areas of strength or pockets of weakness you're seeing there? Speaker 200:31:05So obviously the ratio of trailing nodes is relative still high or relatively high, But we expect Advanced Nodes to take the lead sometime, I would say, in the first half of next year. Speaker 600:31:26And is that primarily driven by gate all around At Aptune essentially, so most of the companies have talked about 2025 being a gate all around ramp and so you'd Got it. Thank you. Speaker 500:31:52Sure. Operator00:31:53Thank you. The next question comes from Mark Miller with The Benchmark Company. Please go ahead. Speaker 700:32:00Congratulations on your quarter and outlook. I just Wanted to get a little more understanding. You said there were pull ins from the Q4. Was that due to memory, Specifically, high bandwidth memory, I'm just wondering what pull ins were being driven by? Speaker 300:32:19Yes. It's these pull ins were around memory, but not only HBM. Speaker 700:32:26Okay. Taiwan Semiconductor announced that it was pushing out its 1st Arizona plant due to staffing. Has that had any impact on your backlog or any impact at all on your forecast? Speaker 200:32:44We are working very closely with all of our customers and naturally we keep very close Contact in order to understand the exact delivery plan. So we are working closely with All of our customers including that one in making sure that we're fully aligned and We have approved so in the 3rd quarter as well and I expect it to continue on the 4th quarter. Speaker 700:33:14Thank you. Operator00:33:18Thank you. This concludes our question and answer session. I would now like to turn the conference back over to Mr. Gabby Wiseman, Nova's President and CEO, for any closing remarks. Over to you, sir. Speaker 200:33:34Thank you, operator, and thank you all for joining our call today. Operator00:33:40Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.Read morePowered by Key Takeaways Nova exceeded Q3 guidance with $129 million in revenue, gross margins of 56% GAAP (58% non-GAAP), and EPS of $1.05 GAAP ($1.23 non-GAAP), aided by record service revenue. Memory sales surged over 75% QoQ to represent 35% of product revenue, driven by DRAM and high-bandwidth memory investments and wider adoption of materials and optical metrology tools. Advanced packaging momentum continues as the Nova Prism II was selected by a leading foundry for hybrid bonding metrology and is under evaluation at a major logic manufacturer. Global operations remain uninterrupted by the Israel situation, with a business continuity plan ensuring on-schedule deliveries and customer support. Q4 guidance calls for $123–132 million in revenue and EPS of $0.96–1.11 GAAP ($1.16–1.31 non-GAAP), and management forecasts mid-single-digit WFE market growth in 2024 driven by memory recovery, metrology expansion, and packaging. AI Generated. May Contain Errors.Conference Call Audio Live Call not available Earnings Conference CallNova Q3 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K) Nova Earnings HeadlinesNova (NASDAQ:NVMI) Stock Rating Lowered by Wall Street ZenJune 1 at 1:49 AM | americanbankingnews.comNova (NVMI) Shares Cross Above 200 DMAMay 30 at 8:58 PM | nasdaq.comAI Meltdown Imminent: Dump These Stocks Now!If you have any money in the markets, especially in AI stocks… Please click here to see Elon Musk’s new invention… This could send many popular AI stocks crashing, including Nvidia. And it could happen starting as soon as June 1st.June 2, 2025 | Paradigm Press (Ad)Nova Ltd. Announces Key Amendments Ahead of June 2025 Shareholder MeetingMay 30 at 8:11 AM | tipranks.comIs Nova Ltd. (NVMI) a Solid Growth Stock? 3 Reasons to Think "Yes"May 29, 2025 | msn.comNova, FormFactor, Entegris, fuboTV, and GameStop Shares Are Soaring, What You Need To KnowMay 27, 2025 | msn.comSee More Nova Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Nova? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Nova and other key companies, straight to your email. Email Address About NovaNova (NASDAQ:NVMI) designs, develops, produces, and sells process control systems used in the manufacture of semiconductors in Israel, Taiwan, the United States, China, Korea, and internationally. Its product portfolio includes a set of metrology platforms for dimensional, films, and materials and chemical metrology measurements for process control for various semiconductor manufacturing process steps, including lithography, etch, chemical mechanical planarization, deposition, electrochemical plating, and advanced packaging. The company serves various sectors of the integrated circuit manufacturing industry, including logic, foundries, and memory manufacturers, as well as process equipment manufacturers. Nova Ltd. was formerly known as Nova Measuring Instruments Ltd. and changed its name to Nova Ltd. in July 2021. 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There are 8 speakers on the call. Operator00:00:00Good day, and welcome to the Nova Limited Third Quarter 2023 Results Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask Please note, this event is being recorded. I would now like to turn the conference over to Ms. Mary Sagal, CEO of MSIR. Operator00:00:42Please go ahead. Speaker 100:00:49Welcome all of you to Nova's 3rd Quarter 2023 With us on the line today are Mr. Gabby Wiseman, President and CEO And Mr. Dror David, CFO. Before we begin, may I remind our listeners that certain information Also pertains to this call. If you have not received a copy of the release, please view it in the Investor Relations section of company's website. Speaker 100:01:31Gabby will begin the call with a business update, followed by Dror with an overview of the financials. We will then open the call for the question and answer session. I'll now turn the call over to Mr. Gabby Wiseman, Nova's President and CEO, Gabi, please go ahead. Speaker 200:01:53Thank you, Miri, and welcome everyone to our Q3 financial results conference call. I will start the call today by speaking about our quarterly performance highlights and the market dynamics as they relate to Nova. Following my commentary, Dror will review the financial results in detail and present the guidance for the Q4. Nova's performance this quarter exceeded the company's revenue and profitability guidance And our goal is to maintain similar business levels in the next quarter as well, making the second half of of our diverse portfolio driven by our expanding exposure to new applications and our ability to leverage market opportunities. Nova's revenue and margins in this quarter and in 2023 thus far validate our flexible and resilient business model as well as the actions we took over the past year to address changes in the market. Speaker 200:03:05As we look ahead towards 2024, we expect Nova to resume its growth and outperformance trajectory. We were able to deliver better results than our earlier projections by adding several new customers By leveraging the growth in our materials metrology offerings, by increasing the adoption of new technologies in our chemical and optical metrology solutions and by the growth of our service business. In every one of these areas, we continue to execute and push forward in accordance with our long term strategic plan to reach $1,000,000,000 in revenues. Before I turn to review some of the business highlights Of this quarter, I'd like to address the situation in Israel and its implications for Nova. Nova is 1st and foremost committed to supporting our customers and meeting delivery times and business obligations. Speaker 200:04:08We have a well prepared and thought out business continuity plan in place, designed on a global basis. Our global operations continues to run as intended and there has been no impact on our performance and no disruption to our delivery schedule. Thanks to the commitment and dedication of our employees. We appreciate the support and trust We received from our customers, suppliers and the investment community and we are resolved to continue and conduct business according to plan. Now let's turn to the business highlights of the Q3. Speaker 200:04:48We noted That we expect the company to return to a growth trajectory in 2024 and already we can observe the seeds of the main drivers of this growth. The most encouraging sign is the restored balance between memory and foundry logic, which was largely skewed over the past year. In Q3, our memory sales grew by more than 75% compared to the previous quarter and amounted to 35% of our product revenue. We expect this trend to continue into Q4 With DRAM investments, including high bandwidth memory acting as the main driver, while NAND shows signs of stabilization. As evidence of the former, we have 2 new DRAM implementation of Nova Prism and Nova Veraflex of the most advanced version of the platform. Speaker 200:05:44I want to note the opportunity we see in memory offerings for our XPS technology. Despite some demand softness in 2023, Veriflex platform sales hit a record high this quarter and further expanded its customer base. Moreover, half the tools we manufacture For our most advanced version of the platform, the Veriflex 4, which significantly reduces the cost per measurement and provides a much higher value for the customer. In addition to this ongoing demand, Veriflex offers a unique value in its capacity to solve specific highly advanced applications. While in the past these applications Have been driven by Logic Manufacturing, we now see them rapidly evolving into both DRAM and NAND production Enova's experience in this domain is generating high demand and rapid adoption. Operator00:06:59Ladies and gentlemen, we seem to have lost the Management lines, please stay with us while we reconnect with the management. Ladies and gentlemen, we thank you for your patience. We have the line for the management to reconnected. Cabbie, you may please go ahead. Speaker 200:09:57Thank you, operator. Another growth driver Is our innovative and unique technologies and portfolio. Let's take for example the proliferation of our Eliason Materials metrology platform. We already have multiple systems at customer sites. We have received several repeat orders and the system has been selected by customers As the tool of record for advanced nodes due to its ability to provide device performance indicators previously available only via electric testing. Speaker 200:10:31This selection as tool of record reflects the potential for additional orders As production transitions to high volume manufacturing, we are seeing more process steps diverted to the system displacing other Metrology techniques and solving applications on the device measuring unique material characteristics that in the past We're limited to test structures and blanket wafers. Furthermore, as in the case of Xeraflex, Initial demand stemmed from advanced R and D gate pull around applications, but now we see And if we look at Metreon, here too we have a growing customer base and we expect to add some of the world's leading Global logic and memory manufacturers to the list by the end of 2024. Another growth stimulus came in the form of a recent sale of our NovaFIT machine learning software solution to a leading global manufacturer, driven by a new capability called MAP Pro. MAP Pro provides high resolution full wafer sampling For early detection of process excursion, avoiding increased physical wafer measurement and leading to a faster yield learning curve and improved process control. The 3rd engine to propel Our business in 2024 is advanced packaging, an area where we see multiple achievements and opportunities for Nova. Speaker 200:12:20The Nova Prism II was recently selected by a leading foundry as part of its most advanced node toolset to address hybrid bonding process applications and additional advanced packaging metrology challenges. We have initial orders for multiple systems with more expected due to Prism's unique ability to make robust measurements In the presence of underlay variations, a capability critical to effective production. Following a highly successful demo, another leading logic manufacturer is also evaluating Prism 2 for advanced packaging applications, such as FruhSilicon Via as a better and more effective alternative to its current vendor. In addition, we recently received orders for integrated metrology and for Nova's direct metal replenishment solution targeted for advanced packaging from leading memory customers. Elsewhere, we are working closely with our customers of advanced packaging and face unprecedented challenges. Speaker 200:13:39Finally, I want to highlight our service business, which secured record highest revenues this quarter. While current utilization levels may impact short term growth rates, we offset this With that, I would like to recap our Q3 results. Nova had a strong quarter against the backdrop of market softness An increasingly complex environment. As we look ahead into the next quarter and the coming year, We expect to continue our strong execution. We trust that the fundamentals of both our company and the semiconductor industry will steer us into a trajectory of growth and our performance. Speaker 200:14:34Before I turn it over to Dror, I'd like to thank our global Israeli teams for their support, commitment, resilience and dedication. We are fortunate to have an incredible team that is committed to our success. Now for some more details on the financials, let me hand over the call to Dror. Speaker 300:14:57Thanks, Gabby. Good day, everyone, and thank you for joining our 2023 Q3 conference call. Total revenues in the Q3 of 2023 were $129,000,000 exceeding the company guidance for the Q3 as a result of several specific customer pull ins of deliveries originally scheduled for the Q4 of 2023. Product revenue distribution was approximately 65% from Logic and Foundry and approximately 35% from Memory. Product revenues included 4 main territories and 4 main customers that contributed 10% or more each The continued wider territory distribution reflects continued territorial diversification driven by increasing investments from the Western territories of the U. Speaker 300:15:57S. And Europe. Blended gross margin in the 3rd quarter was 56% on a GAAP basis and 58% on a non GAAP basis Within the company non GAAP target model of 57% to 59%. Following cost containment measures implemented by the management to align expenses with the current business environment, Operating expenses in the 3rd quarter decreased by approximately 10% relative to the previous quarter and came in at $38,000,000 on a GAAP basis and $35,000,000 on a non GAAP basis. Operating margins in the 3rd quarter were 27% on a GAAP basis and 31% on a non GAAP basis At the high end of the company's non GAAP target model of 27% to 31%. Speaker 300:16:56Financial income in the quarter remained elevated following higher yields on cash reserves and came in at 5,000,000 The effective tax rate in the 3rd quarter was approximately 14%. Earnings per share in the 3rd quarter Exceeded company guidance and were $1.05 per diluted share on a GAAP basis and $1.23 on a non GAAP basis. In terms of cash flow for the Q4, the company generated $43,000,000 in free cash flow, constituting more than 30% of total revenues. Finally, I would like to share the details of our guidance for the Q4 of 2023. Currently, we expect revenues to be between 100 $23,000,000 to $132,000,000 GAAP earnings per diluted share to range from $0.96 to $1.11 and non GAAP earnings per diluted share to range from $1.16 to $1.31 At the midpoint of the 4th quarter estimate, we anticipate the following: Gross margins to be approximately 56% on a GAAP basis and approximately 58% on a non GAAP basis at the midpoint of Company non GAAP target model. Speaker 300:18:28Operating expenses to increase to approximately $42,000,000 on a GAAP basis and $37,000,000 on a non GAAP basis. Looking forward, we expect operating expenses to gradually increase in 2024. Financial income to be similar to that of the 3rd quarter and the tax rate to be approximately 8% in the Q4 of the year, lower than the company's 14% model due to end of year tax adjustments and status of limitations. Taking into consideration the midpoint of the 4th quarter guidance, we expect the company to conclude 2023 With an excellent non GAAP profitability metrics of approximately 59% in blended gross margin and approximately 30% in operating margins, both at the higher end of the company target model. This expected exceptional performance reflects the company agile and resilient operational model in different business scenarios, The increasing value of our new product generation and the prudent cost control initiatives implemented by the management earlier this year. Speaker 300:19:47To conclude my remarks, I would like to highlight the cash reserves of the company, which increased to 614,000,000 towards executing the company's $1,000,000,000 strategic plan. With that, I will turn the call back to Gabi. Gabi? Speaker 200:20:13Thank you, Dror. Our prepared remarks are now concluded. We would be happy to take your questions. Operator? Operator00:20:22Thank you. We will now begin the question and answer The first question comes from Vivek Arya with Bank of America Securities. Please go ahead. Speaker 200:21:04Thank you for Thank you Speaker 400:21:05for taking my question and I hope the team is holding up well. Our best wishes. For my first question, I'm curious what your assumption is kind of the baseline WFE growth in calendar 2024 because you are doing very well exiting this year. So I'm curious how you're about just the market growth and then the drivers of share gains, as I look at where sort of broad investor expectations are for Nova for next year, In the mid teens kind of sales growth. So I'm just curious what do you think the market is doing and what could be the potential drivers of this kind of growth for Nova for next year? Speaker 300:21:45Our assumption for next year based on the market research that we have and also some feedback from the customers. Obviously, we are in the process of planning next year Is that the market will grow in the mid single digit levels in 2024. Speaker 400:22:08Okay. And what helps you kind of gain share as part of that mid single digit growth environment? Speaker 200:22:17So I mentioned the growth Drivers that we have for 2024, in both our material metrology portfolio as well as advanced packaging. So both are going to drive, of course, alongside with adoption of our new technology and generations of tool, The take up in 2024. Speaker 400:22:42Okay. And then for my quick follow-up. I'm curious how much is the packaging exposure for Nova now? And where do you think it gets to next year? Speaker 200:22:55So we've seen the adoption of both our dimensional metrology and material metrology Tools in advanced packaging together with the chemical metrology that has been traditionally in packaging and now of course Driving some of our business in high bandwidth memory. And this is, I would say, in the initial steps of adoption, but we have seen this year that the business grew over 40% and we expect it to continue and grow further 2024. Speaker 400:23:31Thank you. Operator00:23:35Thank you. The next question comes from Charles Hsie with Needham and Company. Please go ahead. Speaker 500:23:44Hi, good afternoon, Debbie, Joe. Thanks for taking my questions. I want to start with Very strong result coming from the memory end market. If I look at the So really kind of curious because the dynamics here you're seeing is a little bit Can you kind of break it down why the memory was doing so well in Q3? Provide a little bit more color. Speaker 500:24:23I understand there's Some key technology adoptions there, but more importantly, what's the foundry logic to memory That split into the next quarter. Do you expect more of the same or maybe some of the memory strength may revert back? Maybe we can a little bit. I'm just kind of curious. Thanks. Speaker 200:24:47Definitely, Charles. So first in terms of the ratios In Q4, I believe it will be around a similar level as in the Q3 related of course to the memory side of the business. And with regards to the memory take up, especially in DRAM and high bandwidth memory, But not only. We've seen the adoption of our material metrology portfolio In applications that were traditionally driven or adopted by logic into memory as well. So it's the new customers and additional applications that are driving that alongside with the adoption of the Nova Prism, which is offering a unique technology with the underlay variation capabilities that offer superior Solution to our competition. Speaker 500:25:50Got it. So maybe a quick follow-up was China, I mean, We know one Chinese customer, which I mean, your U. S. Peers previously thought they couldn't ship to that particular customer, they are shipping in second half this year. Was that particular customer contributing to some of the Q3 strength? Speaker 300:26:16The answer is yes. Speaker 500:26:20Thanks, Stuart. So maybe the next question I want to ask, Just a follow-up to Vivek's question. So your market assumption for next year, 5%, No, I mean, you said mid single digit, I want to correct, year on year, next year. But what's the half of a half Profile you're seeing is like first half more or less, I mean, extending the second half twenty twenty three run rate and maybe a recovery in second half or you are seeing something like a more gradual, more linear into next year? Thanks. Speaker 200:26:58So we believe that the second half of next year is going to be stronger than the first half, Driven by leading edge and recoveries in the memory side. Speaker 500:27:16Got it. So is it fair to assume like the first half probably, I mean, maybe this is more specific To your business, you probably will also try to keep the business at a similar level as Q3, Q4 this year? Speaker 300:27:34So Charles, we obviously are not giving specific guidances for specific quarters beyond the 4th one. So Speaker 500:27:44Yes, fair enough. Thanks. Speaker 200:27:47Sure. Operator00:27:50Thank you. The next question is from Vedmati Shroter with Jefferies. Please go ahead. Speaker 600:27:57Hi, thanks for taking my question. So the first one, I wanted to double click on the memory The growth you're seeing in memory. So I understand that it's driven by adoption of pure material metrology tools. But could you give us a sense of what's the technology transition that's really driving this growth? Is there something different that Architecture wise that wasn't there before that is really pushing the adoption here? Speaker 200:28:31Thank you, Vasudev. Basically, 1st and foremost, I'd like to highlight the fact that it's driven by material metrology adoption, but not only. So we see this across the board with both our optical and chemical. And specifically, I mentioned also the orders we received from memory customers on our direct metal replenishment, which is part of the chemical metrology offering that we have, which is also of course driving some of that growth related to high bandwidth memory. In addition, what You are asking is interesting and related to 2 product platforms. Speaker 200:29:091 is the Veriflex, in which we can see Some of the gated around applications that were initially driving the adoption in XPS, We see those some of those applications in memory devices as well. And also we see the adoption of Elixon in that perspective as an enabler To some of those applications that were either not performed well before or are now enabled by this solution as well. So all of those are offering, I would say, I'm not necessarily say an inflection point In the DRAM specifically, but definitely an inflection point for us in terms of the adoption of both those platforms that I mentioned. Speaker 600:30:06Got it. And so maybe pushing on that, so can you characterize how big of an increase it was driven by your chemical metrology versus just these DRAM type applications, HPM versus DRAM is what I'm trying to gauge. Speaker 200:30:26So HPM in the Q3 was relatively low. We expect it to become stronger in the Q4. So most of that was driven by the adoption of the material metrology solution And in part, of course, by optical. Speaker 600:30:44Okay. Got it. And then for my second question, so there is some Weakness in foundrylogic, could you give us a sense of how that splits out between leading edge versus trailing nodes and Comment on the areas of strength or pockets of weakness you're seeing there? Speaker 200:31:05So obviously the ratio of trailing nodes is relative still high or relatively high, But we expect Advanced Nodes to take the lead sometime, I would say, in the first half of next year. Speaker 600:31:26And is that primarily driven by gate all around At Aptune essentially, so most of the companies have talked about 2025 being a gate all around ramp and so you'd Got it. Thank you. Speaker 500:31:52Sure. Operator00:31:53Thank you. The next question comes from Mark Miller with The Benchmark Company. Please go ahead. Speaker 700:32:00Congratulations on your quarter and outlook. I just Wanted to get a little more understanding. You said there were pull ins from the Q4. Was that due to memory, Specifically, high bandwidth memory, I'm just wondering what pull ins were being driven by? Speaker 300:32:19Yes. It's these pull ins were around memory, but not only HBM. Speaker 700:32:26Okay. Taiwan Semiconductor announced that it was pushing out its 1st Arizona plant due to staffing. Has that had any impact on your backlog or any impact at all on your forecast? Speaker 200:32:44We are working very closely with all of our customers and naturally we keep very close Contact in order to understand the exact delivery plan. So we are working closely with All of our customers including that one in making sure that we're fully aligned and We have approved so in the 3rd quarter as well and I expect it to continue on the 4th quarter. Speaker 700:33:14Thank you. Operator00:33:18Thank you. This concludes our question and answer session. I would now like to turn the conference back over to Mr. Gabby Wiseman, Nova's President and CEO, for any closing remarks. Over to you, sir. Speaker 200:33:34Thank you, operator, and thank you all for joining our call today. Operator00:33:40Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.Read morePowered by