Nova Measuring Instruments' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Nova Measuring Instruments Ltd. ( NVMI)

Q4 2011 Earnings Call

February 15, 2012 09:30 am ET

Executives

Gabi Seligsohn – President and Chief Executive Officer

Dror David – Chief Financial Officer

Kenny Green – Investor Relations

Analysts

Edwin Mok – Needham & Company

Patrick Ho – Stifel Nicolaus

Liron Rochman – Oscar Gruss

Krishna Shankar – ROTH Capital

Presentation

Operator

Ladies and gentlemen, good day and welcome to the Nova Measuring Instruments' fourth quarter 2011 results conference call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Kenny Green. Please go ahead, sir.

Kenny Green

Thank you, operator and good day to everybody. I would like to welcome all of you to Nova Measuring Instruments’ fourth quarter and full year 2011 results conference call and presentation. I would like to thank management for hosting this call. With us on the line today are Mr. Gabi Seligsohn, President and Chief Executive Officer, and 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 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, and the Safe Harbor statement outlined in today’s earnings press release also pertains to this call. If you have not received a copy of the release, please view it in the investor relation section or news section of the company’s website at www.nova.co.il.

Gabi will begin the call with a business update, followed by Dror with an overview of the financials. We will then follow with a question and answer session. I’ll now hand the call over to Mr. Gabi Seligsohn, Nova’s President and CEO. Gabi, go ahead please.

Gabi Seligsohn

Thank you, Kenny. Hello, everyone and welcome to our fourth quarter of 2011 and full year earnings conference call. 2011 was the best year in our history. It was a third consecutive year of outgrowing the industry, a year in which we crossed the $100 million revenue mark for the first time, generating a net income of more than $27 million, $22 million in free cash flow.

As previously communicated, our long-term financial model calls for growth margins of 55% and net profitability of 20% to 25%. During 2011 we were able to achieve the high end of that range. Our service group also delivered all-time record results both in revenues and profitability. During 2011 we successfully launched next generation products for integrated and stand-alone metrology. The Nova T600 has been selected for 11, 14 and 20 nanometers in multiple foundries. The Nova i500, which has been selected for 11, 14, 20 and 30 nanometers and multiple memory customers’ sites and foundries alike.

During the second half of the year, we initiated our first beta site for 3D interconnect as a leading foundry, and based on how things are going, it looks like we have a strong competitive vehicle to successfully enter this developing new market. We are currently in discussions with multiple customers to initiate on-site evaluations of that product. As we have stated on many occasions, our focus as a company is on the highest end of technology. Looking into the breakdown of our revenues for 2011 strongly supports this statement with over 50% of our revenues coming from 20 nm and below and over 75% coming from 30 nm and below.

During 2011 we started to experience a transition to 28 nm manufacturing at foundries and 20 nm at NAND flash as well as in DRAM 30 nm transition, which is in its final stages. Our customers have also been very active in starting to develop the next two technology generations in conjunction with this ramp up, and in many cases, we have been called upon to participate. Being selected for such advanced technology nodes has required us to both extend the performance envelope of our products as well as deepen our technological collaboration with our customers.

Given the very short time between process and development and high volume manufacturing, the number of unknowns our customers are dealing with has grown significantly providing us with an opportunity to differentiate ourselves by relying on our highly professional customer-facing team and by designing our tools and software differently with substantially more flexibility.

The dependence on optical CD for next generation chip design is strong and sometimes it is the only way to measure and control the process. In light of this, our served addressable markets have gone from about $500 million to close to $1 billion over the course of the last few years and we continue to focus on both growing the market as well as gaining share.

Now to give you some additional insight, let me review what happened during the fourth quarter and the year as a whole. We began to see a pickup in bookings early in the fourth quarter, which accelerated as the quarter progressed, and we have continued to see a positive trend in the early part of the first quarter as well. As a result, we ended the year with a very significant improvement in our backlog compared to the end of the third quarter and have entered 2012 with improved visibility.

The most significant recent change we have witnessed has been with our foundry customers. Having delayed the 28 nm ramp up by two to three quarters, and in light of a continuing strong demand for new smartphones, tablets, ultra books and servers, there is a real need to add significant capacity.

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