Nova (NASDAQ:NVMI) Beats Q1 Sales Targets But Quarterly Guidance Underwhelms

Radek Strnad /
2023/05/11 7:36 am EDT

Semiconductor quality control company Nova (NASDAQ: NVMI) reported Q1 FY2023 results beating Wall St's expectations, with revenue down 1.32% year on year to $132.2 million. However, guidance for the next quarter was less impressive, coming in at $121 million at the midpoint, being 3.1% below analyst estimates. Nova made a GAAP profit of $34.6 million, improving on its profit of $34.2 million, in the same quarter last year.

Is now the time to buy Nova ? Access our full analysis of the earnings results here, it's free.

Nova (NVMI) Q1 FY2023 Highlights:

  • Revenue: $132.2 million vs analyst estimates of $130.1 million (1.64% beat)
  • EPS (non-GAAP): $1.23 vs analyst estimates of $1.05 (17.7% beat)
  • Revenue guidance for Q2 2023 is $121 million at the midpoint, below analyst estimates of $124.9 million
  • Free cash flow of $20.3 million, down 50.7% from previous quarter
  • Inventory Days Outstanding: 227, up from 145 previous quarter
  • Gross Margin (GAAP): 58.4%, in line with same quarter last year

"Nova's performance in the first quarter displays resilience amidst a challenging industry environment. Our excellent profitability attests to the exceptional value our portfolio offers to customers and to the agility of our operational model," said Gaby Waisman, President and CEO.

Headquartered in Israel, Nova (NASDAQ: NVMI) is a provider of quality control systems used in semiconductor manufacturing.

The semiconductor industry is driven by demand for advanced electronic products like smartphones, PCs, servers and data storage. The growth of data and technologies like artificial intelligence, 5G networks and smart cars are also creating a next wave of growth for the industry. To keep up with ever changing customer needs requires new tools that can design, fabricate and test at ever smaller sizes and more complex architectures, and that is driving the demand for semiconductor capital manufacturing equipment.

Sales Growth

Nova 's revenue growth over the last three years has been very strong, averaging 36.9% annually. But as you can see below, last year quarterly revenue declined from $134 million to $132.2 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).

Nova  Total Revenue

Despite Nova revenues beating analyst estimates, this was still a slow quarter with a 1.32% revenue decline. Nova 's revenue is continuing to decline, a signal that the current downcycle is deepening.

Year on year revenue growth went from positive to negative this quarter, and Nova expects it to stay negative next quarter with an estimated decline of 14.6% YoY and analysts think the declines will continue, with next twelve months estimated at 7.33% declines.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business 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.

Nova  Inventory Days Outstanding

This quarter, Nova ’s inventory days came in at 227, 63 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.

Key Takeaways from Nova 's Q1 Results

With a market capitalization of $2.62 billion Nova is among smaller companies, but its more than $490.4 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

We were impressed by how strongly Nova outperformed analysts’ earnings expectations this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and inventory levels increased. Overall, this quarter's results could have been better. The company is flat on the results and currently trades at $93.9 per share.

Should you invest in Nova right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.