Nova Measuring Instruments' CEO Discusses Q4 2013 Results - Earnings Call Transcript

Feb.18.14 | About: Nova Measuring (NVMI)

Call Start: 08:30

Call End: 9:20

Nova Measuring Instruments Ltd. (NASDAQ:NVMI)

Q4 2013 Earnings Conference Call

February 18, 2014 8:30 am ET

Executives

Eitan Oppenhaim – President, Chief Executive Officer

Dror David – Chief Financial Officer

Analysts

Edwin Mok – Needham & Co.

Patrick Ho – Stifel Nicolaus

Josh Baribeau – Canaccord Genuity

Keith Maher – Singular Research

Operator

Ladies and gentlemen, welcome to the Nova Measuring Instruments Fourth Quarter and Full Year 2013 Results. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, this conference will be open for questions. If you do have a question, please press the star followed by the one on your touchtone phone. Please press star, zero for operator assistance at any time. For participants using speaker equipment, it may be necessary to pick up your handset before making your selection. This conference is being recorded today, February 18, 2014.

I would now like to turn the conference over to Miri Segal of Hayden MS-IR. Please go ahead.

Miri Segal

Thank you, Luke, and good day to everybody. I would like to welcome all of you to Nova Measuring Instruments Fourth Quarter and Full Year 2013 Financial Results conference call and presentation. With us on the line today are Mr. Eitan Oppenhaim, President and CEO, and Mr. Dror David, CFO. 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.novameasuring.com in the Investor Relations segment.

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 release also pertains to this call. If you have not received a copy of the release, please view it in the Investor Relations or News section of the company’s website. Eitan will begin the call with a business update, followed by Dror with an overview of the financials. We will then open the call for the question and answer session.

I will now hand over the call to Mr. Eitan Oppenhaim, Nova’s President and CEO. Eitan, congratulations on a solid quarter and nice continuous growth. Please go ahead.

Eitan Oppenhaim

Thank you, Miri. Hello everyone and thank you for joining our fourth quarter and full year 2013 financial results conference. I will begin today’s call by addressing our results and our performance highlights. I will then provide a brief commentary on the industry trends as they relate to us, and then I will provide guidance for the first quarter of 2014. Following my comments, Dror will review the financials in detail.

For those who are following the presentation, please proceed to Slide 4. We performed very well and had a strong quarter to close out 2013. We posted record revenue for the fourth quarter and for the year, outperforming the industry and exceeding the high end of our quarterly guidance due to strong demand for our optical metrology solutions during the quarter. We posted quarterly revenue of $30.2 million, up 37% from a year ago, and with $4.1 million or $0.15 per diluted share in non-GAAP net income. For the year, we reported record revenue of $111.5 million, up 15% over last year and well above industry growth rates along with $14.1 million in non-GAAP net income.

Our booking levels in the fourth quarter increased as well, leading to solid start for 2014. During the quarter, we experienced an increased (indiscernible) due to a continuous growth in demand for our solutions, with more than 70% of our orders to be delivered to 2X nodes and more than 20% to the 1X node. I’d note these points with the turn in the trend (indiscernible) 1x nodes has continued from previous quarters and even accelerated from 10% per quarter in the previous third quarter and well above our expectations. We continue to execute our strategy well by partnering with our customers early on in the development stages in order to better assist them with the initial development stages and be part of the (indiscernible) production later on. The (indiscernible) positions to advanced technology node will continue in 2014 and Nova is well positioned to benefit from this.

Our growing position in the foundry segment drove much of our success in the fourth quarter. We had substantial two deliveries during the quarter from (indiscernible) 20 nanometer ramp-up by our major customer along with continued delivery of (indiscernible) 28 nanometer by other leading customers. In addition, we saw growth in deliveries to support 16/14 nanometer (indiscernible) production (indiscernible) along with some incremental opportunities in 10 nanometer development line for R&D. As we look forward and based on our fourth quarter deliveries, our tools are well adopted in both front-end and back-end applications (indiscernible) with the most advanced (indiscernible) production R&D line with all our (indiscernible) customers. Our ability to gain market share as well as to develop new cutting edge applications for optical metrology in both or standalone and integrated tools positions us very well to address the current and future industry challenges in processing complex high performing devices.

Following our initiative to penetrate more applications with standalone tools, we are pleased with the quarter results where the standalone portion in our bookings increased to almost 50% of our sales mix. During the quarter, we received initial orders for our T600 standalone tool for the Etch process wafer to 20 nanometer and below from our large foundry customer. This order, along with previous orders from several of our other foundry customers, solidifies our position in the foundry segment for 20 nanometer and below for both integrated and standalone solutions. We expect to continue expanding our market presence with these customers in the quarters to come as they are striving to improve time to market in 16 and 14 nanometers is approaching the final stages.

Beyond foundry, we are seeing some pickup in memory orders as well. As our customers progress more towards introductions of advanced (indiscernible) devices, we are making inroads into this segment as well with three evaluations going on. We have also continued our evaluation for through-silicon-via (indiscernible) with our V2600 system for several major customers. This quarter, we experienced also continued growth in our integrated metrology business. The combination of growing metrology attach rates in new emerging applications in greenfield areas led us to a delivery of substantial amount of (indiscernible) in the last few months. Along with a significant amount of (indiscernible) we closed the win quarter with 250 (indiscernible) employed in 2x and 1x technology nodes. Meanwhile, our software initiatives continue to gain traction in the market with (indiscernible) orders from installation placed during the quarter.

Looking closer at 2013, we outperformed the industry with solid 50% growth and we strengthened our market position with market share gains from extending into additional (indiscernible) with our growth portfolio of metrology solutions.

Moving now to our annual results, over the last few years we have consistently outperformed the industry, generating 23% compound annual growth from 2008 and clearly outpacing the average growth rate we have (indiscernible) within the industry over that same time frame. To summarize this year’s growth, I would like to mention several yearly achievements against our key strategic initiatives. In addition to having a good year from a revenue perspective, we are demonstrating healthy financial indicators including gross margin, net profit, cash generation, and strong balance sheet. During the year, we established a stronger position in the foundry segment with market share gains with the leading customers, most (indiscernible) memory segment with new additions to our customer base that was announced early this year, and we undergo (indiscernible) evaluations as we speak. Our strategy of partnering with our customers in early development stages is paying off with tools being delivered already to the 10 nanometer development line.

Our latest product portfolio offers the most technologically advanced and cost effective optical metrology solution in the market. Our solutions for process controls are uniquely positioned to support next generation 3D structures such as (indiscernible) in a range of applications. In addition, our effort to diversify beyond traditional hardware tools into software products by leveraging our unique competitive advantage in (indiscernible) software are progressing well with new revenue streams to be recognized in the first half of 2014.

We also invested a significant amount of resources to shorten our roadmap to completely match our customers’ challenging transitions and their own efforts to shorten their time to market. During the second half of the year, we produced our three pillar strategic plan that we will continue to execute during 2014. We plan to continue to grow our market share organically with leading technology innovations and advancing our product offering through investment in R&D while supplementing this effort through M&A to enhance our technology base and extend our market share.

Let me now turn to a brief commentary on the current market environment and our view for 2014. While our visibility was limited towards the end of the year, as we look forward in 2014 we see substantial opportunity in both the foundry and memory segments. In the foundry space, the investment is being led by our largest customer while the company is ramping up 20 nanometer capacity. This trend will continue through the first half of the year with possible extensions in the second half as well. Beyond the 20 nanometer, a larger group of leading-edge foundries are participating in the race to advance the time to market (indiscernible) devices. Their customers’ buying decisions for (indiscernible) devices will dictate the foundry roadmap and expansion in the second half of 2014. Both the leading players are involved intensively in different stage of development where (indiscernible) production lines were revealed during the year with initial ramp-up expected by the end of 2014 or the beginning of 2015.

In the last two years, we have witnessed a process where the leading foundries are making an effort to shorten the product life cycle in order to get faster to the market. As a result, in every given year we are occupied with three main product lines: one in production and ramp-up, one in pilot line and risk reduction, and one in development. In order to support their aggressive plans, we are currently shipping systems and partnering with each one (indiscernible) major devices. (Indiscernible) and this rate also some initial deliveries for the 10 nanometer development. As evident by our previous press release, we have recently received over $20 million in orders from leading foundries for our metrology solution for both the 2x and 1x technology nodes.

In the memory space, we are seeing a recovery with various capacity expansions and some conversions. In Flash, we plan incremental capacity additions. In 2x nanometer (indiscernible), we do see more V-NAND suppliers intending to introduce new products towards the end of 2014 following the first V-NAND (indiscernible) which is ramping up each day. Most of the leading memory players have aggressive plans to introduce cost effective advanced V-NAND devices with more applications in 2015. As for the DRAM, the combination of tight supply and (indiscernible) pricing schemes for the (indiscernible) devices should drive investment in 2014 for additional capacity and conversion.

In summary, assuming the industry and market will remain strong, we expect a healthy year in 2014 where the industry expanding in (indiscernible) equipment is expected to grow at more than 10%. While the expansions taking place in memory and foundry during the first half of the year are evident, we still don’t have the same clarity regarding the second half of the year. If the foundries will be able to accelerate their 14 and 16 nanometer ramp up and the memory players will go a bit faster with their advanced V-NAND introduction in the second half of the year, we can expect some upside to those numbers and may experience the higher spending rate that will positively impact our industry in the second half of the year.

As for the technology, the growing investments in advanced technology nodes and complex structures introduce growing complexity and new challenges. Scanning and technology progress are connected together with (indiscernible) in order to improve costs and gave a competitive advantage. These fundamental elements create favorable market conditions for the optical metrology group where more (indiscernible) are needed, new mobile materials are introduced, and innovative structure and packaging solutions are incorporated. As we mentioned in our previous call, the metrology intensity can grow up between 10 to 20% when customers move to high volume manufacturing in these advanced nodes.

Nova is well positioned to benefit from this growth potential with our advanced (indiscernible) hardware and software products in both our current generation products as well as the next generation lines which will be introduced soon. 2014’s favorable market condition along with strong bookings in the fourth quarter should lead to a strong first half and a particularly strong first quarter.

Now we’d like to share our guidance for the first quarter of 2014. Revenue will be in the range of $33 million to $35 million, representing quarter-over-quarter growth of 9% to 16%. Diluted EPS on a GAAP basis will be $0.18 to $0.22 and diluted earnings per share on a non-GAAP basis will be $0.19 to $0.23.

With that, let me now turn the call over to Dror for his review of financial results in detail.

Dror David

Thanks Eitan, and good day everyone. Please move to Slide 11. Total revenue in the quarter were a record level of $30.2 million, 19 higher than the high end of our guidance and driven by higher spending from foundries. Product revenue increased by $4.8 million while service revenue decreased by $0.4 million due to lower time and materials in the quarter. Product bookings continued to be strong in foundries, which represented approximately 19% of total bookings in the quarter. Geographically, 75% of the bookings in the fourth quarter came from Asia Pacific and the rest from the U.S. and Europe. Standalone bookings in the quarter were at record highs and accounted for approximately 50% of total product bookings. We achieved this following the introduction of the company’s latest standalone product (indiscernible) for high end manufacturing processes by several customers.

As expected and communicated in our previous conference call, total gross margin increased to 58% in the fourth quarter of the year. On the other hand, (indiscernible) gross margin decreased to 26% as a result of lower revenue levels and higher costs related to new product support. All these elements together resulted in an increase of 3% in (indiscernible) gross margins to 53% in the fourth quarter. It is important to note again that we expect to continue to see fluctuations in the quarterly blended gross margins mainly as a result of fluctuations in the product mix. On an annual basis, we expect to be within our long term level of 52% to 55%. For the first quarter of 2014, our guidance assumes that blended gross margin will be between 53% and 54%.

Operating expenses in the fourth quarter increased by $1 million to a level of $12 million. As previously communicated, the main fluctuations in operating expenses are related to the level of R&D expenditures in a specific quarter. In 2014, our R&D plan includes intake of product types related to the development of several new products. The exact delivery timing of these product types can vary based on the product time line (indiscernible). As a result, we will continue to see fluctuations in R&D expenditures quarter over quarter.

In (indiscernible), we expect a one-time step function in sales and marketing expenses in the first quarter of 2014 reflecting the company’s extensive customer-facing activities. These activities are important in order to capitalize on the continued R&D investments and diversified product portfolio. All in all for the first quarter of 2014, we expect total operating expenses to be approximately $12.5 million.

Tax expenses in the first quarter of 2014 include a $0.9 million (indiscernible) the final conversion of deferred tax benefits created in 2012 as well as end-year tax adjustments related mainly to (indiscernible) accounting provisions. Looking forward into 2014, we expect the effective tax rate to be approximately 5% on an annual basis when we start utilizing certain government incentive program residuals which provide for zero tax rate in the first two taxable years.

GAAP net income in the quarter was $2.1 million or $0.11 per diluted share based on a share count of 27.6 million shares. Non-GAAP net income in the quarter was $4.1 million or $0.15 per diluted share.

Moving into balance sheet key metrics, accounts receivable significantly increased as expected to $28 million with DSOs remaining stable at approximately 70 days. As previously communicated, in the second half of 2013 we began a major penetration phase into next technology nodes at several existing customers. This is a period of high capital intensity for these customers and as a result they have requested to extend their regular payment terms through this penetration phase. Fortunately, our strong cash position enables us to conform to this request. All that said, as a result of these extended payment terms, our DSOs increased in the second half of 2014; however, we expect them to normalize in the coming quarters at a level of below 70 days.

Inventory in the quarter increased by $2 million in order to support the high level of business activity in the (indiscernible) industry. The company continues to be very effective in managing inventories as evident in inventory turns, which were higher than 3 times a year in the recent quarter. Gross capital investments were relatively high at $1.8 million in the fourth quarter, and we continue to adjust the company’s facilities in the current and expected future business model.

Moving into the highlights of the annual results, we generated record annual revenues of $112 million, an increase of 16% over 2012. In parallel, operating expenses increased by 15% primarily as a result of our continued investment in new product development. These investments are fueling the company’s growth and have built a competitive market-leading product portfolio (indiscernible).

Non-GAAP EPS for the year was $0.52, similar to the previous year. (Indiscernible) in both gross margins and SG&A remained stable year-over-year as a percent of revenues, well within the target model of the company. This level (indiscernible) should enable us to generate increasing profits and revenue schemes starting in the third and fourth quarter of 2014.

I will conclude with case reserves, which increased $100 million at year-end, providing the company with the required flexibility to support the industry technology roadmap, our customers’ ramp-ups, and any business and development opportunities we see in the market.

With that, I will turn the call back to Eitan. Eitan?

Eitan Oppenhaim

Thank you, Dror. Before turning to the Q&A session, I would like to add that we are very pleased with our Q4 results and the progress we are making in achieving our key business growth. Our continued growth supports the solid start to 2014 where we will continue growing. With that, we will be pleased to take your questions.

Question and Answer Session

Operator

Thank you. [Operator instructions]

Your first question comes from the line of Edwin Mok of Needham. Please go ahead.

Edwin Mok – Needham & Co.

Hi, thanks for taking my question. Congrats – great results. First question I have is on the standalone progress you guys have made. I think on the call, you guys talked about more than 50% of your bookings came from standalone, so I was wondering is that—and (indiscernible) that was the fact that you said 90% of those bookings come from foundry, right? So I was wondering how are you guys positioned on the standalone on the memory side – that’s the first question; and then second question on the standalone, is that predominantly growth coming from one particular foundry customer or is it more broad in a few customers that you guys have that strong booking?

Eitan Oppenhaim

Edwin, thanks for the question. Let me start first with our position that we have both with the memory and integrated. First of all, I would like to make sure that you understand Nova’s position is the memory space. As the leading market share provider in integrated metrology, we are currently selling to all memory manufacturers and basically one of them we added (indiscernible) 2014, and this one will enable us to enjoy the current and future investment plans in the segment. In the first quarter for 2014, bookings for memory did increase as well as part of the increased visibility. Most of the standalone that we reported was part of the sales mix coming from foundries, and it’s coming from several foundries, namely (indiscernible).

Edwin Mok – Needham & Co.

Great, that was very helpful. And then second question I have is on the service revenue, I notice—you know, gross margin came in quite a bit, and I think Dror, you mentioned there were some reasons behind it. Can you repeat why it came down, because I didn’t see the revenue come down that much sequentially. You mentioned something related to a product. I’m just trying to get a little more color on that.

Dror David

Yes, well first of all, the service (indiscernible), it’s a small business (indiscernible) change in the revenue has a major impact on our gross margins now because the quarter before (indiscernible), I’d say around $300K higher in terms of the revenue, so the only decrease of $100K in revenue in services would result in a reduction of approximately 2% in gross margins. So—and there were some reductions in the fourth quarter, so that significant portion of the reduction would be gross margin in services was related to the slower revenue level in fourth quarter.

As I mentioned in the prepared remarks, we also saw some increase in the support costs for the new products which enabled us to lead the market share and penetrate to new accounts. Looking forward, we do expect service gross margin to normalize around 30%.

Edwin Mok – Needham & Co.

Great, that’s very helpful. Looking into guidance, I think you guys said that visibility in the first half looks really strong and particularly strong in the first (indiscernible) very strong guidance for the first quarter. Should we read that as meaning that second quarter right now, you’re looking at less of a sequential growth, or maybe give some color on that. And then in the back half, I guess still lack of visibility but any incremental color on where you are thinking could potentially cause upside or downside? Maybe a good way to ask that is maybe first half-second half split, how do you kind of think about that?

Eitan Oppenhaim

Well Edwin, thanks for the questions, but we don’t give any early guidance and don’t give guidance beyond the next quarter. What I can say is that we are starting 2014 with a solid start with a good backlog and a good (indiscernible), including market share gains, adoption of new products, new metrology and direction in emerging markets that we are leading, and actually we are expanding our (indiscernible), and the environment itself is very favorable for metrology and specifically for optical metrology, and therefore we think that 2014 will be a year where we are going to grow.

Still, we assume that we are going to see some fluctuations within the quarter, although the year is going to be a year where we are going to grow. We do see a strong H1. We don’t see H2 yet, and the main reason are two major reasons from the industry. One is how fast the foundries will be able to accelerate their 14 and 16 nanometer to start ramp up. Right now, there are four players; maybe later on, there is going to be a fifth player on that, and the timing issue if it will happen on Q4 2014 or beginning of 2015, which is the first question.

The second question that is influencing the upside is what will happen in the memory side. You know, in the memory side if I put aside the DRAM, there is one (indiscernible) where we’re starting to run the V-NAND in China. I’m sure that all the rest of the memory customers are chasing right now and accelerating their development in order to come to a production as soon as possible and accelerate their plans. The big question is if the other memory customers besides the one in China will be able to (indiscernible) in 2015—sorry, ’14.

So those are the major questions as I see it that will lead to the upside, if there is going to be an upside in H2, and therefore we don’t see it yet.

Edwin Mok – Needham & Co.

Great. That actually was good color. One question I have is you guys talked about software for a product, including fleet management product, and software metrology product, right? I was wondering, did you guys have any revenue in the last quarter? Do you expect any in the first quarter, and kind of what is the magnitude of sales you expect to generate roughly, let’s say for this year?

Dror David

We did receive bookings from several customers already in the first quarter, but revenue or commissions will only start at the beginning of 2014, probably at a slow rate in the first quarter and then increase towards the middle of the year. But all the revenues will be—will start in 2014, (indiscernible).

Edwin Mok – Needham & Co.

Great. That’s all I have. Thank you.

Operator

Your next question will come from the line of Patrick Ho of Stifel. Please go ahead.

Patrick Ho – Stifel Nicolaus

Thank you very much and congratulations as well. Eitan, first in terms of the memory discussion that you provided, as 3D NAND gets adopted, do you see additional share gains more on the standalone side or continued gains on the integrated side?

Eitan Oppenhaim

Well Patrick, that’s a very good question. Let me (indiscernible). First of all in the integrated, we actually—we talked a lot about the standalone, but in integrated metrology we increased our market share as well. If you’re looking right now in 2013, we’re going to be above 70% market share. We are supplying our integrated metrology to all memory players, so definitely once this market is growing, we’ll enjoy a good business line as well.

Guiding to the standalone, as I said in my prepared remarks, we are going to actually three V-NAND evaluations which are taking place right now and a few more which are taking place in the (indiscernible) in the standalone as well. So we do—we actually undergo those evaluations as we speak, and if we’ll be able to win those, we’ll probably be able to see some business (indiscernible) as well.

Patrick Ho – Stifel Nicolaus

Great. Maybe going to the foundry side for a second, you gave a lot of good color in terms of some of the trends, particularly in the first half of the year. As you look at the 20 nanometer ramp, there’s a little bit of a debate out there in terms of how big that node ramp will be. Given your exposure to that customer segment, how do you see that ramp going? Do you see it being longer than people anticipate, or will it be relatively short and people will transition quickly to the 16 and 14 nanometer nodes that you’ve talked about?

Eitan Oppenhaim

Well apart from (indiscernible), all the (indiscernible) that were achieved to 20 nanometer ramp in these particular customers are qualified to do both 20 and 16, and part of them even 10 nanometer, as you see our tools are starting to do development at 10 nanometer as well. The major reason for that was the flexibility of that particular customer in a certain point in the ramp of the 20 nanometer to divert capacity very quickly to the 16.

As I see it, or my personal view on that, is the 20 nanometer was not going to be a long node like 28. It will be an medium node and once these particular customers will be able—will see the development is good enough on the 16, he will start to ramp up the 16. And I think this is the policy that they are taking and it also will give them some tailwinds in order to ramp very fast the 16s.

Patrick Ho – Stifel Nicolaus

Great. Final question from me – in terms of the broadening of the 28 nanometer node, you obviously have exposure to some of the other leading foundries out there that are just starting to begin their 28 nanometer ramp. Do you see this potentially as a second half support level for the foundries, given that they’re still at the early stages of building up their respective 28 nanometer capacity?

Eitan Oppenhaim

Yeah, so besides our leading foundry that is actually—the utilization on the 28 is what we heard in the last few months actually going up, besides that particular customer, there are at least three customers that are ramping up 28 nanometer. One of them which is doing it very fast, we enjoyed in Q4 revenue coming from this customer as well and will continue ramping in 2014 as well the 28 nanometer in a specific product line. The rest of the foundries are starting to do 28 and one of them is in China and on in Taiwan, probably will increase capacity in the first half of the year, of 2014.

Patrick Ho – Stifel Nicolaus

Great. Thank you very much.

Operator

Your next question will come from the line of Josh Baribeau of Canaccord. Please go ahead.

Josh Baribeau – Canaccord Genuity

Hi, thanks. So you guys spent a lot of time talking about the NAND opportunity, and certainly V-NAND. Can you tell us a little bit about how you’re approaching the DRAM industry, where you think there might be some opportunities for share gains especially as your customers are going through technology conversions maybe more so than actual capacity upgrades?

Eitan Oppenhaim

Okay, thanks Josh. So looking right now in the DRAM—as I said, the DRAM is a cyclic environment. The place we are in right now, there is a tight supply-demand structure in the market right now, so there is a demand for DRAM, more specifically the mobile DRAM devices, and also the pricing scheme is very favorable. The pricing is going up, so there is always in the DRAM where you have those two situations happening, we’ve got to see some pickup in the DRAM.

We do see some pickup in capacity and CAPEX and investment in DRAM. We don’t see yet full start of being manufactured or built. We do see some conversion in those customers that can convert in the memory. We do see some capacity additions in terms of the DRAM stuff, but we don’t see actually a very big size yet of the DRAM. Definitely, as I said before, we are more exposed with the integrated to the old memory space, so those conversions we do see some increased revenue coming to the integrated as well. We do see some standalone (indiscernible) coming here and there, but it’s not the major (indiscernible) line right now.

Josh Baribeau – Canaccord Genuity

Okay, and then maybe as a follow-up, could you talk about the increase of capital intensity from one node to the next in, let’s call it both NAND and DRAM?

Eitan Oppenhaim

Yes, so I don’t know if there is such a difference in intensity between DRAM and Flash at this stage. What I can talk about, I can talk about the differences between the foundry and the Flash, okay? We do see that the number that I talked about was—the average number if you take the foundry and the memory together, if you’re looking right now, the number that we said, we said the intensity around metrology will be between 10 to 20%, moving from one technology node to another. As we see foundry intensity is higher, okay, because there is no (indiscernible) to control actually the (indiscernible) operation and they have several products that they need to control, it’s (indiscernible) the structure but we do see in the foundry it is going on the higher side, meaning 20% more—sorry, 25% more.

Looking on the V-NAND, we do see that the demand or intensity for optical metrology is actually on the lower side – we see something like 10 to 15%. The reason is that the V-NAND is a repeatable structure and also the process is moving more from (indiscernible) VNH, which require in the memory less metrology. So I can’t define the differences between memory and—sorry, Flash to foundry and between the V-NAND to the (indiscernible). I think that the DRAM will be behaving exactly like in the Flash more or less.

Josh Baribeau – Canaccord Genuity

Okay, great. And then what about—can you talk about what you’re seeing in terms of the adoption of TSV, when you think the industry might really take off or when that might start to ramp, and then obviously some of your opportunities there?

Eitan Oppenhaim

Well yeah, so looking right now on the TSV, obviously I cannot get into details with specific customers that we have the systems in, but I can say that it is a very exciting and growing market for us. We do have already four customers that have accepted our systems for ramp in 2014, and we have a few other evaluations that are going on as we speak. Through our analyses, the market will start picking up somewhere in 2015 after the major customers will make their buying decisions during 2014. We still need to see some cost effectiveness and cost reduction in the device life itself because those high end devices are still expensive. Once they cross the threshold of (indiscernible) market penetration with the pricing, we do see a pickup.

The products we produced, we have the unique optical metrology that can have some benefit with others—that other competitors cannot bring to the market. We assume that in 2015 when the market will start picking up, we will start picking up our product line as well from a revenue perspective.

Josh Baribeau – Canaccord Genuity

Okay, and then finally for me, you certainly talked about percentages of bookings and whatnot, but I may have missed the actual bookings number. Did you disclose that, what the actual bookings were in the quarter, or book-to-bill?

Dror David

No Josh, we didn’t disclose the actual bookings numbers (indiscernible), but definitely book-to-bill was higher than (indiscernible).

Josh Baribeau – Canaccord Genuity

Great, that’s it for me. Thank you.

Operator

Your next question will come from the line of Keith Maher of Singular. Please go ahead.

Keith Maher – Singular Research

I was wondering if you could maybe circle back to that earlier question just on visibility on the business. I’m just trying to understand, is it—you know, for the coming year, is it any worse than it normally is in any other normal year, and if so, why is that the case?

Eitan Oppenhaim

Can you repeat? I’m sorry – I didn’t hear the last part of the question.

Keith Maher – Singular Research

Sure. I’m really just asking about—you touched on visibility on the business for the coming year earlier. I’m just trying to understand, is visibility this coming year any worse than it normally is, and if so, why?

Eitan Oppenhaim

Well (indiscernible), looking right now at the backlog that we went into 2014 and the market share gains that we had in the last few months, we definitely are going into 2014 in a better situation, okay, this was with the one that I can compare on 2013. So the visibility on the next few months is good, okay? We definitely have two customers that are ramping up, and we have other customers that are doing it marginally but they are still investing. And if you are looking right now on the overall environment, both the memory and the foundry, we are going to invest in this year. I think this is the first year after four to five years that we do see both foundry and memory investing, so the overall environment there is going to be an increase in (indiscernible) equipment and CAPEX.

Secondly, once those expenditures are going to happen, they are going to happen on the advanced technology nodes, and those advanced technology nodes create technical transitions which will create more demand for optical metrology, and therefore we think that the overall environment (indiscernible), once we are talking the optical metrology and metrology specifically. So we do see that the environment has improved the last—towards 2014.

Now the issue of the visibility. Looking right now at the intensity that the foundries are—or a specific foundry is investing in (indiscernible), and the efforts that are others are trying to get into the 14 and the 16, we don’t believe it is going to be a stop. We don’t believe there is going to be a switch. We just don’t know the timing issue of when exactly those foundries will invest on the 14 and the 16, looking right now at Q3 and Q4. If you remember in 2013, recently after we started ramping at around November, December, towards the end of the year. Now if you’re looking right now at 2014, he big question is when are those four big foundries or big players will start to invest, if it will be in Q3, Q4, or it will slip to 2015. That’s the only question that we have regarding upside in foundries.

In the memory, if you look right now in the memory market or the landscape in 2013 and the beginning of 2014, there is only one memory player that is ramping up in V-NAND devices in China, and definitely it will have an impact on acceleration by the other memory customers. The question is when customers like Toshiba, (indiscernible) will be able to ramp their own V-NAND capacity towards the end of 2014. If they will be fast enough, again we will see some upside in 2014. If they will not be fast enough and have some (indiscernible) it will slip to 2015 and therefore we are cautious on the second half of 2014.

Keith Maher – Singular Research

Okay, great. That was really helpful. I had a question—you mentioned your strategic plan potentially making acquisitions. I was just wondering, how close are you to making an acquisition and kind of what size and what kind of areas would you be looking at to do acquisitions in?

Eitan Oppenhaim

So I don’t want to get into the specific elements in our strategic plan on mergers and acquisitions. I just can tell you that we are very aggressively looking at that, and we are looking in two directions. One direction is the technology that will help us to strengthen our position in the metrology market in three to five years from now. If you’re looking right now in all the transitions as the industry grows, it’s definitely a challenge to keep being a valid player in optical metrology in the next few years because the demand and the technology required in order to do the job is continuously being challenging. The first one is to get our hands on technology that will give us the benefits in three to five years from now – this is the one, the first direction.

The second direction, in optical metrology we are number three in the market. This is the market share that we have, and we’ll definitely be looking on strengthening our position with companies in the (indiscernible) part that will be able to get us the revenue and to strengthen our position in a way that (indiscernible) accretive enough, that we’ll get a company that is profitable enough yet will strengthen our position from revenue (indiscernible) in the market. So this is the two directions that we’re looking at.

Keith Maher – Singular Research

Okay, thanks. A final question for Dror – I noticed payable days went up, and I didn’t know if that was because you were demanding better terms from your suppliers since you’re offering better terms to your customers.

Dror David

No, I think in general the payable days increased—you know, technically the only reason that’s because of the increase in inventories and expenditures goes at the end of the year to support the ramp-up in first quarter, so you’re needing to prepare in advance for this ramp-up and that reason for the increase, and there’s not a major change there in Q4. We should see that normalizing in the first half of 2014.

Keith Maher – Singular Research

Thanks. Those are all my questions.

Operator

Ladies and gentlemen, if there are any additional questions at this time, please press the star followed by the one. As a reminder, if you are using speaker equipment, you’ll need to lift the handset before making your selection.

I’m showing no further questions at this time. I will now turn the call back to management for any closing.

Eitan Oppenhaim

Thank you very much, Operator. Thank you everyone for joining the call today. We appreciate your interest and your questions, and we hope to see you on the next quarterly call. Thank you and have a nice day.

Operator

Thank you. Ladies and gentlemen, this does conclude the conference call for today. This conference will be available for replay. We thank you for your participation and you may now disconnect your lines.

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