Nova Ltd. Ordinary Shares 2026 Q2 Earnings Call

Please go ahead. Thank you, operator, and good day, everyone.

I would like to welcome all of you to Nova's second quarter 2026 financial results conference call. With us on the line today are Gaby Waisman, President and CEO, and Guy Kizner, CFO. Before we begin, I would like to 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 section of the company's website. Gabi will begin the call with the business update, followed by Guy with an overview of the financials. We will then open the call for the question and answer session. I will now turn the call over to Gaby Waisman, Nova's President and CEO.

Gabi, please go ahead. Thank you, Miri, and thank you all for joining us today.

I will start the call by summarizing our second quarter performance highlights. Following my commentary, Guy will review the quarterly financial results in detail. We delivered an exceptional quarter, achieving record revenue of $255 million at the top end of our guidance and record profitability. This performance marks a significant milestone for Nova, with quarterly revenue surpassing $250 million and non-GAAP earnings per share exceeding $2.50, demonstrating the scale and earning power envisioned in our long-term strategic plan. Looking ahead, we expect to deliver another year of double-digit growth, supported by sustained customer investment, broader adoption of our solution, and continued market share gains. We are now working on the next phase of our long-term growth strategic planning, and we will share more about this in our upcoming Investor Day during the first quarter of 2027.

Our results reflect strong execution amid a favorable industry backdrop characterized by accelerating technology transition and capacity investments. Demand was broad-based across our portfolio, driving record sales in multiple product lines and services, led by advanced logic and advanced packaging applications. With enhanced visibility and a robust pipeline of opportunities, we are well-positioned to extend this momentum and deliver another year of profitable growth. We continue to see strong AI-driven demand across the semiconductor industry, supported by ongoing investments in infrastructure and the emergence of agentic AI. The need for related leading-edge silicon, including CPUs, memory, and storage, is robust, supporting continued investments in manufacturing capacity and the process control solutions required to enable it. Sustained investment in innovation remains central to our strategy. We invest approximately 15% of revenue in research and development to ensure that our technology roadmap remains aligned with the industry's most advanced manufacturing challenges.

As device architecture becomes more complex and customers pursue new approaches in advanced logic, memory, and packaging, the need for new metrology capabilities, higher levels of automation, and greater software intelligence continue to increase. Recent product introductions demonstrate the breadth of our innovation. These include a new generation of Nova PRISM targeted for advanced memory structures, a new generation of Nova VeraFlex for materials metrology, and a new configuration of Nova WMC that extends our dimensional metrology capabilities to panel-level packaging. In software, we introduced NovaHub, a scalable platform for fleet and AI-driven analytics that enable advanced applications and supports the efficient operation of large metrology fleets. Together, these solutions and additional technological innovations still in the pipeline expand our serviceable market while enabling customers to achieve higher performance, greater productivity, and address critical applications across future technology generations. Now, let me turn to some business highlights for this quarter.

Revenue associated with advanced logic more than doubled sequentially as customers expanded production capacity. Demand stretched across product lines and divisions, reflecting the range of process control solutions required in leading-edge logic manufacturing. This quarter, two areas in particular benefited from advanced logic. In materials metrology, the VeraFlex XPS platform continued to gain traction, driven by proliferation in gate-all-around manufacturers as customers continue to increase the number of Nova VeraFlex tools per fab. This traction was one of the factors driving our recent clean room expansion in California, which doubles our manufacturing capacity in the U.S. Another highlight was the increasing need for more powerful capabilities in our dimensional metrology platform to further increase performance while reducing time to solution. Our AI-enabling modeling solution, which combines physics-based and machine learning algorithms, help customers address multiple challenges associated with complex 3D device structures.

These capabilities play an increasingly important role in managing the expanding Nova's install base in gate-all-around manufacturing. Another highlight was the record sales of our front-end chemical metrology solution, Nova ancosys, supported by both advanced memory and mature logic applications, reflecting increasing adoption, deeper engagement with existing customers, and continued market share gains at the front end of the line. ancosys' strong performance demonstrates its growing role as an important revenue driver and further reinforces our leadership in chemical metrology. Advanced packaging was another area of strength during this quarter, with record sales contributing nearly one-quarter of our overall product revenue, driven by our dimensional metrology portfolio. This performance was fueled by our customers' continued investment in advanced packaging and high-bandwidth memory capacity to support growing demand for AI-related devices.

An important growth driver was the Nova WMC platform, which continued to gain traction across advanced packaging applications, including a recent tool of record selection by a leading foundry customer for multiple layers measurement in advanced packaging production flows. We also saw accelerating adoption of the Nova WMC across memory and foundry customers, positioning us to benefit from further investment in advanced packaging and high-bandwidth memory manufacturing. Service revenue reached another record level in the quarter, augmented by value-added services. This included customer investment in upgrading existing tools to address new process requirements, such as tool upgrades, coupled with enhancements to our chemical metrology suite. These enable customers to address new applications, materials, and chemistry. The strength and breadth of demand we see across our end markets provide us with increased visibility into the remainder of the year and into 2027.

Customer roadmaps and planned capacity investments continue to support a favorable outlook. Importantly, the drivers behind this demand appear increasingly durable in nature. Given these trends, we believe we are on a path to reaching our organic growth objectives sooner than originally planned, reinforcing our confidence in Nova's long-term growth. Now, for some more details on our financials, let me hand over the call to Guy.

Thanks, Gaby. Good day, everyone. I will begin by reviewing our quarter financial achievements and then provide guidance for the third quarter. Total revenues in the second quarter of 2026 reached a record level of $255 million, at the high end of our guidance. This performance reflects growth of 8% quarter-over-quarter and 16% year-over-year, driven by continued strength across our customers base and solid demand for our differentiated process control solutions. Product revenue distribution was approximately 73% from logic and foundry and 27% from memory and others. Product revenues included two customers and four territories, which contributed each 10% or more to product revenues. In the second quarter, blended gross margins were 57% on a GAAP basis and 58% on a non-GAAP basis. Gross margins remained healthy and supported our record revenue and strong profitability performance.

As expected, operating expenses increased to $68 million on a GAAP basis and $62.9 million on a non-GAAP basis. This increase reflects our disciplined approach to reinvesting growth into product development and roadmap expansion, positioning the company for continued long-term success. Operating margins in the second quarter reached 30% on a GAAP basis and 33% on a non-GAAP basis, on the upper range of our target model of 28%-33%. This excellent result was driven by the revenue growth and the company robust operational model. The effective tax rate in the second quarter was approximately 16%. Earning per share in the second quarter on a GAAP basis were $2.20 per diluted share, and Earning per share on a non-GAAP basis were $2.51 per diluted share, exceeding the high end of our second quarter guidance. Next, I would like to outline our guidance for the third quarter of 2026.

We currently expect revenues for the quarter to be between $277 million and $287 million. GAAP Earning per diluted share to range from $2.46-$2.61. Non-GAAP Earning per diluted share to range from $2.70-$2.85. At the midpoint of our third quarter 2026 estimates, we anticipate the following. Gross margins of approximately 57% on a GAAP basis and approximately 59% on a non-GAAP basis. Operating expenses on a GAAP basis to increase to approximately $74 million. Operating expenses on a non-GAAP basis to increase to approximately $68 million. Financial income on a non-GAAP basis to remain similar to that of the second quarter. Effective tax rate is expected to be approximately 17%. Looking back at the first half of 2026, we are pleased with the strong momentum across the business.