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Semiconductor quality control company Nova (NASDAQ:NVMI) beat analysts' expectations in Q2 CY2024, with revenue up 27.8% year on year to $156.9 million. On top of that, next quarter's revenue guidance ($172 million at the midpoint) was surprisingly good and 12.6% above what analysts were expecting. It made a non-GAAP profit of $1.61 per share, improving from its profit of $1.06 per share in the same quarter last year.
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Nova (NVMI) Q2 CY2024 Highlights:
- Revenue: $156.9 million vs analyst estimates of $148.1 million (5.9% beat)
- Adjusted Operating Income: $53.35 million vs analyst estimates of $44.51 million (19.9% beat)
- EPS (non-GAAP): $1.61 vs analyst estimates of $1.36 (18.7% beat)
- Revenue Guidance for Q3 CY2024 is $172 million at the midpoint, above analyst estimates of $152.8 million
- EPS (non-GAAP) guidance for Q3 CY2024 is $1.67 at the midpoint, above analyst estimates of $1.39
- Gross Margin (GAAP): 59%, up from 56.8% in the same quarter last year
- Inventory Days Outstanding: 222, down from 231 in the previous quarter
- Free Cash Flow of $57.92 million, similar to the previous quarter
- Market Capitalization: $5.26 billion
Headquartered in Israel, Nova (NASDAQ:NVMI) is a provider of quality control systems used in semiconductor manufacturing.
Semiconductor ManufacturingThe 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 GrowthNova's revenue growth over the last three years has been strong, averaging 23% annually. But as you can see below, this quarter wasn't particularly strong, with revenue growing from $122.7 million in the same quarter last year to $156.9 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).
Nova had a good quarter as its revenue grew 27.8% year on year, topping analysts' estimates by 5.9%. We believe the company is still in the early days of an upcycle, as this was just the second consecutive quarter of growth and a typical upcycle tends to last 8-10 quarters.
Nova's management team believes its revenue growth will accelerate, guiding to 33.5% year-on-year growth next quarter. Wall Street expects the company to grow its revenue by 14.9% over the next 12 months.
Product Demand & Outstanding InventoryDays 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 222, which is 40 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 Q2 Results We were impressed by how significantly Nova blew past analysts' revenue, adjusted operating income, and EPS expectations this quarter. We were also glad next quarter's guidance topped Wall Street's estimates. Zooming out, we think this quarter featured some important positives. The stock traded up 9.2% to $197.98 immediately following the results.
