Nova (NASDAQ:NVMI) Q3: Beats On Revenue, Inventory Levels Improve

Max Juang /
2023/11/09 7:35 am EST

Semiconductor quality control company Nova (NASDAQ: NVMI) reported results ahead of analysts' expectations in Q3 FY2023, with revenue down 10.5% year on year to $128.8 million. The company also expects next quarter's revenue to be around $127.5 million, in line with analysts' estimates. Turning to EPS, Nova made a non-GAAP profit of $1.23 per share, improving from its profit of $1.10 per share in the same quarter last year.

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Nova (NVMI) Q3 FY2023 Highlights:

  • Revenue: $128.8 million vs analyst estimates of $123.1 million (4.6% beat)
  • EPS (non-GAAP): $1.23 vs analyst estimates of $1.09 (13% beat)
  • Revenue Guidance for Q4 2023 is $127.5 million at the midpoint, roughly in line with what analysts were expecting
  • Free Cash Flow of $43.13 million, up 106% from the previous quarter
  • Inventory Days Outstanding: 227, down from 256 in the previous quarter
  • Gross Margin (GAAP): 56.1%, down from 57.1% in the same quarter last year

"Nova's performance this quarter exceeded the company's revenue and profitability guidance and our goal is to maintain similar business levels in the next quarter as well, making the second half of 2023 stronger than the first," 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 very strong, averaging 30.4% annually. But as you can see below, its revenue declined from $143.9 million in the same quarter last year to $128.8 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

Even though Nova surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 10.5% year on year. This could mean that the current downcycle is deepening.

Nova may be headed for an upturn. Although the company is guiding for a year-on-year revenue decline of 15.7% next quarter, analysts are expecting revenue to grow 4.5% 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.

Nova Inventory Days Outstanding

This quarter, Nova's DIO came in at 227, which is 53 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 Q3 Results

Sporting a market capitalization of $2.91 billion, Nova is among smaller companies, but its more than $116.5 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.

We were impressed by Nova's strong improvement in inventory levels. We were also excited its revenue and EPS outperformed Wall Street's estimates, driven by outperformance in its products and services divisions. On top of that, its EPS guidance for next quarter came in above analysts' expectations. Overall, this was a strong quarter that should satisfy shareholders. The stock is up 2.1% after reporting and currently trades at $103.85 per share.

So should you invest in Nova 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.

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