Nova Measuring Instruments Ltd. Q1 2010 Earnings Call Transcript

Nova Measuring Instruments Ltd. Q1 2010 Earnings Call Transcript
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Nova Measuring Instruments Ltd. (NVMI)

Q1 2010 Earnings Call

May 4, 2010 9:00 am ET

Executives

Kenny Green - CCG Investor Relations

Gabi Seligsohn - President and CEO

Dror David - CFO

Analysts

Edwin Mok - Needham & Company

Arnab Chanda - Roth Capital

Robert Katz - Senvest

Andrew Kaplan - Harvest Capital

Presentation

Operator

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Previous Statements by NVMI
» Nova Measuring Instruments Ltd. Q4 2009 Earnings Call Transcript
» Nova Measuring Instruments Ltd. Q2 2009 Earnings Call Transcript
» Nova Measuring Instruments Q1 2009 Call Transcript

Good afternoon and welcome to the Nova Measuring Instruments' first quarter conference call. For your information, this conference is being recorded.

At this time, I would like to turn the call over to Mr. Kenny Green, CCG Investor Relations. Please go ahead sir.

Kenny Green

Thank you, operator and good day to everyone. I would like to welcome all of you to Nova Measuring Instruments first quarter 2010 results conference call and presentation and thank management for hosting this call.

With us on the line today are Mr. Gabi Seligsohn, President and CEO and Mr. Dror David, CFO. I would like to draw your attention to the presentation that accompanies today's conference call. The presentation can be accessed and downloaded from the link on Nova's website at www.nova.co.il.

Before we begin, may I remind our listeners that certain information provided on this call may contain forward-looking statements in the Safe Harbor outlined in today's earnings release. If you have not received a copy of the release, please view it in the Investor Relations' section of the company's website at www.nova.co.il.

In addition, during this call, certain non-GAAP financial measures will be discussed. These are used by management to make strategic decisions, forecast future results and evaluate the company's current performance.

Management believes that the presentation of non-GAAP financial measures are useful to investors' understanding and assessment of the company's ongoing call operations and prospects for the future. A full reconciliation of non-GAAP to GAAP financial measures is included in today's earnings release.

Dror will begin the call with an overview of the first quarter financials, followed by Gabi with the business update. We will then follow with the question-and-answer session.

I will now hand over the call to Mr. Dror David, Nova's Chief Financial Officer. Dror, go ahead please.

Dror David

Thank you, Kenny and welcome everybody to our quarterly conference call. The first few months of the year were very exciting for us. We successfully concluded the follow-on offering, we saw record quarterly shipments and in parallel, we presented strong financial performance.

Total revenues in the quarter was $16 million, up 5% quarter-over-quarter and up 179% over the comparable quarter of last year.

Also, during the first quarter, we continued the transition of integrated metrology sales to direct sales model with an additional two customers.

Looking at the product revenues, 50% of the quarterly product revenues were from the Memory segment and 50% were from the Foundry segment.

Substantially most of the revenues came from the Asia-Pacific region and approximately 90% were for sub-65 nanometer technology node.

Service revenues increased 19% quarter-over-quarter to $3.1 million as a result of customers returning to high level of tool utilization rate.

Overall, gross margins increased 224 basis points quarter-over-quarter reaching record levels of 51%. This increase was mainly driven by the improvement in service gross margins, which increased to a record level of 22%, while products gross margins were stable at approximately 57.5%.

Operating expenses increased to $5.4 million in the quarter. This increase was a direct result of our efforts to accelerate the introduction of new products, our efforts to enhance existing products and our extensive presence with new products and solutions at new and existing customer sites.

Going forward, and in order to ensure we capture the available business opportunities, we expect operating expenses to increase modestly by an additional 5%.

During the quarter, we reported net income of $2.7 million, similar to the previous quarter. We were able to maintain this net income level through the expansion of our revenues in gross margin, which offset the needed increase in operating expenses.

Operating margins in the quarter was 17%, which is significantly better than our field group performance.

GAAP EPS in the quarter was $0.11 per diluted share on share count of 24.2 million shares.

Operating cash flow came in at record level of $5 million in the first quarter and approximately half of this sum is attributed to early collection of unrecognized revenue.

Moving into the balance sheet key metrics, accounts receivable were $11 million, similar to the previous quarter, while DSO increased from 51 days to 64 days. We expect DSO levels to remain at the 60 to 70 days level in the coming quarter.

As I mentioned before, during the first quarter, we continued the move to direct sales of integrated metrology with additional two customers. In some cases, this move changed the revenue recognition timing of systems from recognition achievement to recognition upon customer acceptance. The acceptance cycle in these cases is normally shorter than eight weeks, but acceptance timing may roll revenues from one quarter to the next.

The impact of the unrecognized revenues related to such cases is also evident in balance sheet items such as inventory and deferred revenues, which increased during the quarter.

Looking into inventory levels, we saw an increase from $4 million in the previous quarter to $6 million in the first quarter of 2010. This increase is comprised of the following three elements: First, increase in inventory of systems that were shipped to customers based on an approved customer purchase order, yet the related revenues were deferred until customer acceptance will be obtained.

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