Nova (NASDAQ:NVMI) Reports Strong Q4, Provides Encouraging Quarterly Guidance
Semiconductor quality control company Nova (NASDAQ: NVMI) reported results ahead of analysts' expectations in Q4 FY2023, with revenue down 11.3% year on year to $134.2 million. Guidance for next quarter's revenue was also optimistic at $137 million at the midpoint, 2.2% above analysts' estimates. It made a non-GAAP profit of $1.36 per share, improving from its profit of $1.28 per share in the same quarter last year.
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Nova (NVMI) Q4 FY2023 Highlights:
Revenue: $134.2 million vs analyst estimates of $128 million (4.8% beat)
EPS (non-GAAP): $1.36 vs analyst estimates of $1.24 (10.1% beat)
Revenue Guidance for Q1 2024 is $137 million at the midpoint, above analyst estimates of $134 million
Free Cash Flow of $22 million, down 49% from the previous quarter
Inventory Days Outstanding: 209, down from 227 in the previous quarter
Gross Margin (GAAP): 55.1%, up from 51.5% in the same quarter last year
Market Capitalization: $4.51 billion
"Nova delivered a robust quarter, exceeding the top end of our guidance for revenue and profit, concluding the fiscal year on a stronger note than initially anticipated," said Gaby Waisman, President and CEO.
Headquartered in Israel, Nova (NASDAQ: NVMI) is a provider of quality control systems used in semiconductor manufacturing.
Semiconductor Manufacturing
The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers, and data storage. The need for technologies like artificial intelligence, 5G networks, and smart cars is also creating the next wave of growth for the industry. Keeping up with this dynamism requires new tools that can design, fabricate, and test chips at ever smaller sizes and more complex architectures, creating a dire need for semiconductor capital manufacturing equipment.
Sales Growth
Nova's revenue growth over the last three years has been strong, averaging 27.9% annually. But as you can see below, its revenue declined from $151.2 million in the same quarter last year to $134.2 million. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).
Even though Nova surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 11.3% year on year. This could mean that the current downcycle is deepening.
Nova looks like it's on the cusp of a rebound, as it's guiding to 3.6% year-on-year revenue growth for the next quarter. Analysts seem to agree as consesus estimates call for 12.3% growth over the next 12 months.
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Product Demand & Outstanding Inventory
Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Nova's DIO came in at 209, which is 32 days above its five-year average. These numbers suggest that despite the recent decrease, the company's inventory levels are higher than what we've seen in the past.
Key Takeaways from Nova's Q4 Results
We were impressed by how significantly Nova blew past analysts' revenue and EPS expectations this quarter, driven by outperformance in both its segments (Products and Services). We were also glad its inventory levels shrunk. Looking ahead, Nova's revenue and EPS guidance for Q1 2024 beat expectations. We think this was a fantastic quarter that should have shareholders cheering. The stock is up 2% after reporting and currently trades at $160.71 per share.
Nova may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
