Nova Measuring Instruments CEO Discusses Q1 2011 Results - Earnings Call Transcript

Nova Measuring Instruments Ltd. ( NVMI)

Q1 2011 Earnings Call

May 4, 2011 9:00 am ET

Executives

Gabi Seligsohn – President and Chief Executive Officer

Dror David – Chief Financial Officer

Analysts

Edwin Mok – Needham & Company

Liron Rochman – Oscar Gross

Marcel Herbst – Herbst Capital Management

Presentation

Operator

Good day, and welcome to the Nova Measuring Instruments’ First Quarter 2011 Results Conference Call. This conference is being recorded.

At this time, I would like to turn the conference over to you host today, [Mr. Gabriel], CCG Investor Relations.

Unidentified Company Speaker

Thank you, operator, and good day to everybody. I would like to welcome you to Nova Measuring Instruments first quarter 2011 results conference call and presentation and thank management for hosting this call.

With us on the line today are Mr. Gabi Seligsohn, President and Chief Executive Officer; Mr. Dror David, Chief Financial Officer.

I'd like to draw your attention to the presentation that accompanies today's call. The presentation can be accessed and downloaded from a link on Nova's website at www.nova.co.il.

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

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

I would now hand over the call to Mr. Gabi Seligsohn, Nova's President and CEO. Gabi, please go ahead.

Gabi Seligsohn

Thank you, Gabriel, and thank everyone for attending today’s call. The first quarter was another remarkable quarter for the company. It marked the ninth consecutive quarter of growth in both revenues and profitability. It also provided a great start for what we believe will be a third consecutive year of outgrowing the industry.

The first quarter was also a record-breaking quarter in bookings. In particular, it was our best ever quarter by far for booking on stand-alone optical CD tools. We are very excited about the state of affairs as it exemplifies just how important last year’s strategic penetration were, now that the follow-on orders are coming from both memory and foundry customers for our leading edge stand-alone products.

Our exposure to both of the industry's leading sectors of foundry and memory continues to benefit us. This is especially important during these times when strategic decisions by key players such as Apple, which today have an economy of scale impact on the entire semi-food chain, benefits some of our customers and hurt other. It is for that exact reason that we are so well positioned and supply to all leading foundries and almost all leading memory players. This will ensure that we continue to extract much of our success from today’s highest growth sectors of mobile computing and smartphones. The combination of exposure to a diverse customer base within the higher growth sectors together with the recent penetrations resulting in record bookings also support our strong guidance.

Today's earnings results demonstrates yet again the extensive operational leverage, we have built into the company. Though we continue to deliver results that exceed our long-range profitability model, we strongly believe that the model of 20% to 25% net margin, which we have presented in the past is the right one for the long-term. Continuing to invest now will allow us to retain the technological leadership, we have achieved so far and further distance ourselves from our competitors. Fortunately, our stated target model affords us the ability to do so. Maintaining a strong commitment to continued development of leading edge technology in several areas will secure our market position for the future.

Now, let me turn to some more details on the quarter. Revenues during the quarter came in at about the middle of our guidance while net profitability exceeded the top ends of our guidance by about 1%. This increase in net margins relates to be a combination of favorable product mix as well as R&D expenses coming in lower than we expected because we were not able to move as quickly as we wanted on some development projects.

As mentioned, we are working vigorously to enhance the pace of our product development efforts, though in some cases, this may take us more than a single quarter. Dror, will provide more insight into this area during his prepared remarks.

Revenues reflected four customers at or above 10% with foundry playing a larger role in the overall mix of orders. Booking wise, we had five customers at or above 10%.

During last quarter’s conference call, we spoke of our strategy for the next 12 to 18 months. The first element focuses on expanding our share of currently addressable markets. In that respect I would point out two areas of positive development.

First, I'm happy to see that in recent months, most of our high-end application development efforts at customer site have extended into the EDGE area. This is a case in both new evaluations as well as recent penetrations. But it's especially important given the significant addition EDGE stuffs and the importance of measuring critical EDGE parameter using optical CD.

It was recently estimated by several sources that the number of EDGE players when moving from 65 nanometers to 28 nanometers in foundries grows by about 50%. Given our very strong position in the foundry segment, we see a significant growth opportunity coming our way.

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